information that we and others would be able to use to develop policy to support giving loans to small businesses. identifying and addressing the credit caps, when pat missed the landing, or improving the access of small business to critical support services. this information serves as a discussion of the net steps, that the policy makers will be able to undertake to make rtain that small business is able to contribute to the economic recovery. before we get to the next up, i would like to provide context of discussing the importance of small business to job creation and the economic recovery. and we will talk about the steps that have been taken to support financing of small business. small businesses are essential

to creating jobs in the economy, employing one half of all americans and accounting for 60% of gross job creation. the newer small businesses are especially important. over the last 20 years, these enterprises accounted for one- quarter of the job creation even thoughhey employed less than 10% of the work force. the formation and growth of small businesses depends critically on access to credit. and unfortunately, credit conditions remain very difficult. the percentage of small business respondence -- credit conditions have tightened over the last three months, and this number has remained elevated by historical standards. in one measure -- this dropped from $110 million in the second quarter of 2008, to less than

$670 billion. an important question is, how much of this has been driven by the weaker demand of loans for the small businesses, and how much of the deterioration of small bsinesses. the economic downturn, and how much by the lack of credit availability. no doubt, all three factors played a role. we have to find a way to make certain that credit-worthy borrowers can make access to these loans. over the past couple of years, the federal reserve and other agencies have been working to stabilize the financial system and the economy. this has included working to falitate credit for small business. at the federal reserv we were helping to build capital and the securities market to the asset- backed securities loan facility. more than 850,000 small-business loans were financed by

securities issued through the troubled bus the relief program. and we would like the banks to resume normal lending as soon as possible. the stress tests that we project -- we took last year allowed the banks to raise the capital that they need to offset losses and ultimately, to provide a basis for lending. we have heard the often- expressed concern that the bank examiners have prevented banks from making good loans. we take this very seriously. the feder reserve has to working with the other banking regulators to develop policy statements on this issue, and that t bank examiners. the message is clear. consistent with maintaining prudent standards, the lenders should do everything they can to meet the needs of the credit-

worthy borrowers. this is good for the economy. to make certain that this is heard, we have conducted an extensivand training program as well as that which with the bankers. we believe that our efforts and others -- that additional action requires hearing first hand, this requires knowledgeable people who can speak about the challenges now facing small businesses. the insights retain from the small business owners in this series of meetings has given us a more nuanced or understanding of the problem and will help us to identify errors -- areas where weay be able to do more. facilitating small-business demand is not simple or straightforward.

notably, the term small business encompasses a mix of enterprises, ranging across many different kinds of business and each one has a unique -- economic condition and a complex relationship for customers and creditors and suppliers. we should be wary of the one- size-fits-all solution. one of the most important things _ during the meetings, is that solving these issues will require collaboration. the series of meetings itself s a model of collaboration, with interactive discussions and problem-solving. participants included community affairs officers and bank supervisors, economists and policymakers from the feral reserve. we also have the bank regulators and the small business administrators. and of course, small businesses and lenders played an important

role. there was stimulating conversation, as the lenders hold -- heard from the small business owners, and likewise, the lenders were able to explain the considerations that go into making a small business loan. and regators heard in detail the effects of the procedures and the guidance for small- business funding. some common thes came from the discussions. like the declining values of real estate post a severe challenge. at the detroit meeting -- one person said that if housing has declined in value, look to the equipment. the business owners spoke about working capital as the most critical financial needs, followed by refinancing projects with low interest rates. many reported having had to result -- resort to borrowing

from their personal credit cards into their retirement accounts. several mentioned the need for small-value loans, as well as the need for patient capital. they were willing to cmit funds for 5-10 years, without the expectation of immediate concerns. somexpressed the view that current lending conditions do not represent credit-tightening as much as a return to more traditional underwriting standards -- and some lenders said that they were emphasizing cash flow and the pending less on the credit value -- it appears that some of these businesses, have lost value, but the cash flow remains strong. they have had difficulty maintaining the credit to continue operating. the challenge ahead, will be to

determinehe quality of businesses in an uncertain and difficult environment. it is in their interest, after all, to listen to people who are worthy of credit. this is how they will learn their profits. and regulators need to work with lenders to help them do all that they can, to meet the needs of credit-worthy small businesses. making credit accessible to small businesses is crucial to the economic recovery and this should be front and center to the policy challenges. we're happy that you have come to be part of this discussion to promote small business and finance. you bring valuable insight to this issue. i would very much like to thank you for willingness to share your ideas. thank you for the good discussion.

>> thank you. we are going to move quickly to the next segment. and as we are getting ready to this -- ready for this, i would like to say how things are set up. i would like to say thank you to all the partners. for the audience at these different forms, i like to thank you for helping us put this together. we really did -- they really did a tremendous job of making this meeting possible to help organize a regional meeng. in your packets, all of you have the agenda. at the division of research statistics -- she is going to be going next and she will provide

the national economic outlook. one panel is focusing on small finance issues, and the second on non-profits, and research and data. the final panel is going to focus on the net step. all of these discussions will accomplish a couple of goals. the first is to share with you and discuss with you, what we shared at the regional meeting, and to look to the next up, that all of us can take, to make certain that we will be able to address this important issue. and this will go to the next speaker. robin will provide perspective on what this information's says, and the outcome of the findings that we have made at the regional meetings. i would like to thank her and her staff for the job that th have done in helping us to plan this meeting, and also give us the inside into the divisional

meeting. please join me in welcoming her. >> thank you, joseph. i would like to add my own welcome to everyone. this is a pleasure for me to have thepportunity to be here today, to participate in a very interestinand productive meeting. since joining the federal reserve board 60 years ago, my work has focused on issues relating to the structure of the financial-services sector, the nature of competition among the banks, and between the banks and other financial service providers, and factors affecting the depository institution. i have been interested in understanding community banks,

and a special role that they play in the financial system, providing loans and other financial services to small businesses within their local communities. a couple of years ago, the director of the research division as for me to be more involved in analyzing and providing policy support on small business and finance issues. i gladly took this responsibility, having no idea that the availability of credit to small busess or the lack thereof, was going to become the hottest topic in washington. economists and policymakers and the discussions -- their understanding of what small businesses are facing is based on regulatory reports and surveys conducted by a number of different entities, including private sector firms and trade associations, and government agencies. these can be extremely

valuable, as this provides the opportunity to gather information from a large number of market participants in they systematically sound way. however, as he noted a moment ago, there are limits to what we can learn from these sources. supplementing this with t case-specific information provided by the participants, by the federal reserve system over the last several months. we can have a much more complete derstanding of small business credit conditions. in some cases, what we have learned to leverage what we had already seen. the meetings brought to light issues and problems of which we would not have normally been aware. this outcome is not surprising. and this is indicative of the

efforts to acquire information. it is my hope that some the issues that have been raised by the participants in the small business meetings will help to shape the questions asked. with that in mind, i would like to begin today's discussion by briefly summarize in what some of the latest information suggests regarding the current state of credit conditions for the small businesses and highlighting the findings of these meetings. overall, it seems to suggest that the current economic conditions for the small businesses, although quite challenging, are not as bad as they were in 2009. the senior loan officers survey indicated that the loans to the small businesses were essentially unchanged in the first quarter, but the terms on these loans, the premiums for

the risky borrowers -- this was a tightening somewhat. this first slide shows that the trend over time, for the respondents with the tightening of standards, the increasing spreads, and increasing premiums on the riskier loans to the small businesses. as you can see, all of these indicators have been trending farther down for several quarters. in addition, as shown in the next slide, although a significant number of domestic banks continue to tighten the standards on commercial real estate, the percentage of those doing so has declined sharply since the fourth quarter of 2008. at the same time, the modest percentages of banks have said that the demand for these loans and the demand -- the demand for

the green line has continued to get weaker ove the prior three months. although these pcentages were much lower than those seen over the past three quarters. the supply constraints and the weakening demand has contributed to the decline for small businesses, mentioned earlier. but the rate of the deterioration in these efforts has diminished in the last few months. turning next to the small business economic trends, the data from 2010 shows an increase in small-business optimism to law level that is still somewhat weak is the highest that this has been since 2008. among the 36% of those who have reported that they have borrowing needs before the survey, slightly more than one-

fifth, 8% of all the firms, have said that their needs were not satisfied. the interest rates that were paid were on average fairly low by historical standards. the data also indicates that only 3% cited finance and interest rates as the most important problem. this is the green light on the draft, with 30% showing weaker sales. when considering this data, it is important to recognize that even though a very small percentage of the firms said the financing is a single-most important problem, there are likely more firms with this is a significant challenge. the takeaway message from this survey seems to be the fourth american small business, the

worst is over, but the word at -- the road ahead is likely to be difficult. another source of information with credit market conditions is the quarterly global business outlook survey. the most recent survey concluded last month and generated responses from about 10 chief financial officers, 500 of them from the united states. the survey suggests that business conditions in the united states are improving at a very slow rate. responding to the survey, they said there was no net change in borrowing conditions compared with 2009. among the smaller firms, there was a modest percentage reporting a worsening of conditions over the same time. just over one-third of all of them and the identical frenchman -- the identical fraction said

that their company had restricted capital spending below the desired level over the last year because of funding difficulties. now, i would like to switch gears, to talk about some of the things that we have learned from the federal reserve system of 40 small business meetings across the country. the small businesses and the banks reported that there were a variety of factors, contributing to a contraction in the supply of credit to the small businesses. the meeting participants generally have said that the underwriting standards have tightened, to the level prior to the recession. the specific forms that were mentioned most often include stronger collateral requirements, greater attention to cash flow, and the higher personal-threshold for business. a question that remains unanswered is whether the tightening represents a return

to the normal underwriting standards or whether the pendulum has gone too far, leading to the excessively high standards that prevent credit- worthy borrowers to grow their business. much attention has focused recently on the effect of capital restraints on the ability of banks and the need to have policies that will eliminate those constraints. many said that labor constraints are also an important factor. a number of banks have noted that the experienced staff members have been stretched very thin, spendinguch of their time dealing with problem loans to keep up with regulatory changes. and as a result, senior bank employees have had less time to process bank applications and some are less willing to engage in the labour-intensive --

labour-intensive activities. some small businesses have said that credit availability has been kent -- has been constrained in areas experiencing failure. this is an issue that we have been concerned about since mid- 2008 when the number of failures in banks began to rise, significantly. we have been tracking the areas affected and we have a number of failed institutions in each state from july 1, 2008, through march 2010. a few states, georgia and florida, illinois and california were hard-head. going to the more local level, it is clear that within each of this espy in a

small number of areas. the potential impact in these local areas is particularly worrisome. a number of bankers have said that increased regulatory scrutiny of the small business loans and the uncertainty with classified assets has limited the ability to lend. and several bankers have said that this has led them to be extremely cautious about lending to the small businesses with he prospects but are tainted by less-than-perfect credit and a recent history of uneven cash flow, or reduce collateral value. to address these issues and others related to small-business lending, they issued a statement supporting prudent lending to small business borrowers. the picture emerging from the meetings, with the demand for

small-business loans is mixed. the demand for small-business credit has declined. and they indicated that many small firms, have little reason to borrow because of the unique set -- the lower sales, with the long-term business prospects that have caused themo postpone the demands that they have had for capital expenditures, with the expansion of operations. many credit unions andinancial institutions have noted the increase in the demand for small-business loans, and many said they had difficultyetting credit. the reduction in the lines of credit, have left some small businesses struggling to meet financing needs. many small businesses find it difficult to refinance their

loans, especially those associated with commercial real estate. firms requirement -- requiring less than $200,000 are having trouble finding lenders and financing for the start-ups is virtually impossible to obtain. the survey data and the story's third in 40 meetings held across the country over the last few months -- they illustrate the value of obtaining information about market conditions from different sources. as joseph indicated earlier, the goals for the day are to address the key themes and the issues that emerge from this series of meetings and to consider the net steps for the financing needs of small business. we a fortunate to have a very distinguished group of people and analysts who canake us through th process. they bring a wide range of

expertise and diverse viewpoints to the questions at hand. i am looking forward to hearing what all of them have to say. thank you. >> also including comments from karen mills. this is a half hour.

>> good afternoon, two years ago when we began to explore credit options of asian islanders. jim and other staff were helpful and played a key roll i

attended i think ten of these moatings, we were excited to attend one of these co-lab operations. from the onset, the sba has been a principle add mipstration for the obama administration. >> having worked with the sba staff, i know they are seeking new ways to respond.

this is a credit our her leadership. she has a strong track record. she knows what it takes to help small businesses grow and create jobs. she helped several small manufacturing firms including producers of hardware and motors prior to her appointment, she was president of the mmp group at this time,

please welcome administrator karen mills. [applause] >> thank you for the kind introduction. it is a great group here. as i look around, i see all kinds of partners and friends. about several months ago, the fed approached the sba about

holding 40 round tables we were able to attend and help organize and hold conference calls with bankers and with bank scam inners in the fold to scommain what awful you know, which is how the sba products work and how they can help in this particular situation this was an important piece of information half of the people

that work in this country own or work for a small business if this economy is going to grow, it's going to be because we are providing small businesses so that they can go out and compete in the global economy. what's the big challenge right now? we made a lot of strides

>> chairman said meeting the needs said to be good for the baro or, the lender and the economy.

there's a lot of really good movements and ideas out there. for the first time, surveys are showing i'm sure you hear kevin waters talk about the commitment that they are making at jp morgan chase. many of our partners creative and regional banks but once again, we still have a gap.

i want to make a point. two years ago i need the sustaining capitol so i can move forward. that is despite the current economy. many firms are growing and taking customers and hiring more workers if those healthy and small service credit businesses still need our help, what is the sba doing to help?

how many of you have a cat or a dog? >> i don't. let me tell you, you would love the store they have these samples, you try this one and that one. in 1999, they had about 1 million in reff nows and 50 in employees. a couple locations. now they have four sba loans and 17 locations and 24 million in reff nows. there are businesses like tha this that i see all over the country their most resent loan

was made possible by the search ba loan raising abilities to 90% and reducing our fees. that was hugely important we

have turned out $30 billion in recovery loans it costs us about $680 million. that's the good news. the bad news, we ran out of money. i think we ran out of money four or five times we have over

500 businesses in a que. you ever been on a stand by list and your name comes up. we have a portal and you can look at where you are in the que. people are waiting for that recovery act to be extended. it has passed the house a couple times. we are very hopeful because now is not the time to pull back. we have a program we know works. we know it drives volume right into the hands of small businesses that are good and credit worthy and they need those loans. we have done something else i'm happy with ready fow to provide

sba products. it is important that we get back this recovery act funding but that's only one of the steps. even if we get that back, we have more gaps to fill. that's why we have the president's small business jobs bill right now before congress. in that jobs bill, we have many tools small businesses node right now. i'll give you a couple examples. how many heard from a small business, i need working cap

tall. we have a product for that. sba express loans. we have asked congress to increase those loans to $1 million. right now, they are capped at $ 50,000. >> how about commercial real estate. we have a lot of small businesses that have owner-occupied buildings. that is the dentist that owns the building. we want to use the 504 program in order to refinance existing loans on owner occupied real estate. right now, 504 can only be used for expansions. a lot of these owner occupied took five-year bullet mortgages in 2005, 2006. it's been five years. we are going to the people who

have never missed a payment and they are going to the bank saying i i don't want to redouse my portfolio. we want to be able to temporarily do that kind of financing. we have some permanent changes we have asked for. it's now a $35,000 limit. we want to do $50,000.

we are only some portion of the market if they do and if they increase this small business lending, it could be available at a cost of less than 1%. that is also before congress, we see this as a one-two event. there will be sba programs. together, we hope that will ease some of the gaps out there

on the marketplace. principles and all these things are billed on what works like the recovery act. do it quickly and efficiency and give the taxpayers a pretty big bang tore their buck. we talked about credit, i want to talk about data. as we look at and monitor the situation we realize that there is a gap in timely, meaningful and accurate data.

we have to be able to make solid, small business policy based on good and accurate fact based. we need data segmented by loan size so we can understand and meet those needs. we node data to eliminate what is going on in the under served markets as you all know, this

is the country of entrepreneurship. we must make sure that we have those avenues available. we are now seeing gaps in that sector in this recovery we need this in order to we are happy to be here to work together with you to meet the needs.

it is not government that creates jobs. it's business. more often than not, those businesses on main street and the high-brother entrepreneurs. our job is to give them all the tools that had he need so that they can create jobs, grow our economy and help america stay

competitive all around the globe. thank you for having me. [applause] >> i really appreciate all the information on credit. i have a question on equity. there's a discussion on the lack of start up credit. i wonder if you want to say

anything about what the sba is doing. owe r i come from the world of growing economies we look at small businesses in two categories. the first is main street small business. that is your dry-cleaner, your restaurant, car repair. they are part of the fabric of our everyday lives. the sba serves them up to $2 million, $5 million. that serves main street very well. many of them turn jobs. we have to be there for the next restaurant otherwise

you'll have an empty story front on main street. no restaurant. most of the jobs are created by a much smaller number of high- growth businesses. these businesses need capitol. we have a number of program that's help them. our sbic, small business investment companies provide capital to earlier stage companies. we have the program that provides research dollars and counseling and mentoring

programs for these companies as well. but there are capital gaps we are working hard on our existing platforms where we have the ability to create even more funds we have a goal of doubling the number of funds we get to in half the time. we have reengine yeared the entire program. we are looking longer term for early stage capital as well.

>> is there anything we can do to move things forward as an industry. >> i would not ask to you lobby or to do any of that. in fact, the president has been asking, i think he talks about a state of the union.

we are very eager for these activities to become part of what we can execute right now, there's a number of bills. a lot have passed the house and senate a lot have passed the house very quickly. >> thank you for coming today, it's a really great presentation. a second point and a lot of the staff you have hired and current ones you inherited. just to emphasize that we have been working with the white house and the department of treasury and the sba to some extent on maging the credit

more come pattable to small business financing. it's a great program with bipartisan support. we have established a safe harbor concept. whether the sba guarantee could be used to qualify as part of the basis for the tax credit we would want to make sure that could happen. we have just the person we could work with. john graves from the treasury is here. we work closely with the

treasury and that's something we can take up closely with them earlier you advocated for collecting data on the supply side on loan size. we are proxying small business lending using firm size rather than loan size the research i've read and done, it seems like these are not great proxies for what small business is. why are you not advocating by firm size rather than loan size.

we would love it but we are trying to be realistic it is very easy i think i have time

for two more >> i really enjoyed your rye marks. we are a cdfi. i want to focus on the point you made on areas of under served communities there's a real opportunity to help move the product into communities. taking off on what ron phillips said, there are other tools out there that could be benefits

think thoughts on that? >> stay tuned. we are working very hard we have some activities in process. as i said, stay tuned. jo last question. and i think i had promised one over here. >> i'm from los angeles. thank you for your presentation. i wanted to pick up on some of the data stuff. we have done a lot of work on

data. edford funding and we look at the prospect of whether you could create a process trying to pull together the sources and non-profits. you have a datea set. there are so many to try not to reinvent the whole. >> that's a great question. we would like to partner and

with the fed to look at. there is a great need for focus on the right kind of data. it is a terrific idea. thank you for all the work you are doing for small business. [applause] . >> todays headlines and your calls are next on washington journal. . .