Michigan Small Businesses Lobby Against Federal Reserve Proposal in Nation’s Capital

Dozens of small business owners from across the country, including six from Michigan, went to Washington, D.C. today with a message for policymakers and the Federal Reserve — stop the squeeze on small business via the proposed Basel III Endgame.
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U.S. Capitol
Several Michigan small businesses owners are among a group that are in Washington, D.C., today to air concerns about a Federal Reserve proposal that could tighten credit and inhibit small business growth. // Stock photo

Dozens of small business owners from across the country, including six from Michigan, went to Washington, D.C. today with a message for policymakers and the Federal Reserve — stop the squeeze on small business via the proposed Basel III Endgame.

This proposal has been acknowledged by the Federal Reserve as increasing the cost of accessing capital for business loans or business lines of credit.

In July 2023, U.S. regulators proposed the Basel III Endgame rule, which will require large banks and most regional banks to further increase the amount of capital they hold by an estimated 20 percent on average. This rule will have a negative impact on households and businesses seeking capital, including:

  • Reduced access to capital.When capital requirements for banks are increased, they have to choose between offering less financing to borrowers or offering it at a higher cost. The borrowers likely to be squeezed out first are the smaller ones — including small businesses, households, and consumers.
  • More expensive borrowing. Many banks already consider small businesses to be bigger risks. The capital proposal will further increase the “risk weight” of small businesses relative to larger corporations, making it more expensive for banks to lend to small businesses.
  • Further disadvantage minority-owned businesses.Minority-owned businesses already face significant challenges accessing capital. According to the latest 10,000 Small Businesses Voices survey, while 43 percent of Black business owners have applied for a loan or line of credit in the past year (versus 33 percent overall), only 26 percent reported receiving all of the funding they requested (versus 41 percent overall). This proposal would make it even harder for minority-owned businesses to access loans and credit.

 

The lobbying action was organized by Goldman Sach’s 10,000 Small Businesses organization. While in Washington, the small business owners are meeting with more than 40 lawmakers and senior officials at the Federal Reserve to talk about the negative impact the proposed regulation would have on small business owners and are formally submitting a comment letter signed by more than 3,000 small business owners from across the nation, including 174 from Michigan.

The Michigan small business owners in the nation’s capital are:

“Small business owners are traveling to Washington because the Federal Reserve’s Basel III Endgame regulation will make it more expensive for banks to lend to small businesses, and those added costs will no doubt be passed on to us,” says ShaWanna Gajewski, owner of Gajewski Homes.

“Affordable lending is critical to small businesses as we use this capital to fund business operations and potential expansions. Banks already treat small businesses as risky borrowers, and we believe this proposal will make borrowing costs unaffordable and capital inaccessible. We are asking the lawmakers and the Federal Reserve to abandon this proposed regulation and instead partner with us to remain competitive and forward-leaning.”

For many small businesses, accessing the necessary capital to grow and scale their business has never been more difficult. Interest rates have jumped at a record pace to 20-year highs and lending has tightened in the Federal Reserve’s ongoing effort to curb inflation and reduce demand.

“Small businesses are critical to Michigan’s economy, but I repeatedly hear from businesses across the state that access to capital is one of the biggest challenges they face in an already constrained market,” says Sen. Gary Peters (D-MI). “That’s why I raised this issue directly with Federal Reserve Chairman Powell to ensure we’re doing all that we can to protect access to affordable credit and other financial support, particularly for women and minority-owned businesses.”

In surveys of small business owners conducted by Goldman Sachs 10,000 Small Businesses Voices since 2020small business owners have consistently stated that access to capital is one of their top challenges. The most recent survey of small business owners, conducted last month, found that:

  • 78 percent of small business owners are concerned about their ability to access capital, a sharp increase from April 2022 when 77 percent of small business owners were confident about credit.
  • 29 percent of small business owners say their business can currently afford to take out a loan given current interest rates.
  • 85 percent say if access to capital continues to tighten it will impact their growth forecast. If access to capital continues to tighten:
    • 67 percent of respondents say they will have to halt expansion plans.
    • 42 percent say they will need to lay off workers or stop hiring.
    • 21 percent would close their business.
  • Nearly one-in-three (31 percent) cite 2023 as being their most difficult year over the past four years, a close second to the height of the pandemic in 2020 (37 percent)
  • 87 percent of small business owners say it is important for their elected officials in Washington to weigh in with the Federal Reserve regarding the impact of new bank capital requirements.

 

For more information on the Tell the Fed to Stop the Squeeze on Small Business campaign, visit here.