America's Community Bankers Member Testifies that Small Business Activity is `Alive and Thriving'

WASHINGTON – In spite of the outcry of some community banks on credit unions entering the business lending arena, at least one member of America’s Community Bankers recently testified that the climate looks very favorable for community bankers. Tom Schneider, president/CEO of Oswego, N.Y.-based Pathfinder Bank, spoke on behalf of the ACB on Sept. 23 during the House’s Subcommittee on Oversight and Investigations of the Financial Services Committee on the subject of encouraging small business growth and access to capital. “Small businesses are growing and creating much-needed jobs, often because community banks across our nation are focusing on helping local businesses with their capital needs,” Schneider said. “Today’s low interest rate environment is helping small businesses, and the benefits of low interest rates are transmitted directly through community banks.” Schneider said the Oswego community, located in the “Rust Belt,” has had to adapt as manufacturing jobs have shifted more to service jobs. “Pathfinder Bank has been proud to provide capital to aid that transition,” Schneider said. “The American entrepreneurial spirit is alive and thriving in my community.” Entrepreneurs wanting to start or grow a business generally have access to three types of capital: equity financing; debt financing; and the businessperson’s own capital, Schneider said. Equity financing is done primarily by angel investors, or in rare cases, venture capitalists and investment banks. “The unfortunate truth is that for many small, start-up businesses, equity capital is hard to find,” Schneider said. “If an entrepreneur with a dream and a work ethic, but little capital wants to start a small business, he or she will most likely not be able to find equity financing.” Schneider told the Committee that “when it comes to debt financing, the primary sources are community banks and large institutional banks.” He also said the SBA’s 504 and 7(a) loans programs are “one of the greatest tools we have for aiding small businesses.” “Because of the inherent risk posed by small businesses, banks need help in sharing the risk posed by small business loans,” Schneider testified. “The SBA is an excellent partner in carrying out the mission of providing capital to small businesses.” While the Sarbanes-Oxley Act of 2002 aims to make the economy “stronger by increasing corporate accountability and providing greater confidence for investors,” Schneider said pieces of the legislation will hurt community banks through high compliance expenses. “The costs and fees, as well as the stress on staff associated with complying with Sarbanes-Oxley, may justify allowing smaller organizations to be exempt from portions of the law,” Schneider said. In addition, ACB is also seeking “streamlined or waived” SEC requirements to facilitate greater access to the capital markets for small businesses. In 2003, ACB conducted a survey of 30 of its New York Stock Exchange and NASDAQ listed members on the impact of the Sarbanes-Oxley. Most respondents said that the biggest impact may be the fees paid to board and audit committee members, and to auditors and other third parties, Schneider said. “We also feel that some of the law’s provisions are unnecessary for the banking industry since we are so well regulated and supervised,” Schneider noted. In partnership with NASDAQ, ACB created the America’s Community Bankers NASDAQ Index comprised of the stock prices of over 500 community banks. As of July 31, 2004, the index included 518 NASDAQ-listed community banks, with a market capitalization of about $175 billion, Schneider told the Committee. “It will bring greater visibility to community banking, which should yield greater liquidity and fairer valuations to our banks, thrifts and holding companies,” he said. [email protected]