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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

his daughter start a bridal dress business in Bakersfield several years ago. When the
economy collapsed, Jost lost his once-profitable construction business, and his
daughter’s business languished. The Jost family has exhausted its life savings while
struggling to find steady work and reliable incomes. 
The standards for credit card loans, another source of financing for small busi-
nesses, also became more stringent. In the Fed’s April  Senior Loan Officer Sur-
vey, a majority of banks indicated that their standards for approving credit card
accounts for small businesses were tighter than “the longer-run average level that
prevailed before the crisis.” Banks had continued to tighten their terms on business
credit card loans to small businesses, for both new and existing accounts, since the

end of . But the July  update of the Fed survey showed the first positive
signs since the end of  that banks were easing up on underwriting standards for
small businesses. 
In an effort to assist small business lenders, the Federal Reserve in March 
created the Term Asset-Backed Securities Loan Facility (TALF), a program to aid se-
curitization of loans, including auto loans, student loans, and small business loans.
Another federal effort aimed at improving small businesses’ access to credit was
guidance in February  from the Federal Reserve and other regulators, advising
banks to try to meet the credit needs of “creditworthy small business borrowers” with
the assurances that government supervisors would not hinder those efforts.
Yet the prevailing headwinds have been difficult to overcome. Without access to
credit, many small businesses that had depleted their cash reserves had trouble pay-
ing bills, and bankruptcies and loan defaults rose. Defaults on small business loans

increased to  in , from  in . Overall, the current state of the small
business sector is a critical factor in the struggling labor market: ailing small busi-
nesses have laid people off in large numbers, and stronger small businesses are not
hiring additional workers.
Independent finance companies, which had often funded themselves by issuing
commercial paper, were constrained as well. The business finance company CIT
Group Inc. was one such firm. Even . billion in additional capital support from
the federal Troubled Asset Relief Program (TARP) program did not save CIT from
filing for bankruptcy protection in November . Still, some active lenders to
smaller businesses, such as GE Capital, a commercial lender with a focus on middle-
market customers, were able to continue to offer financing. GE Capital’s commercial
paper borrowing fared better than others’. 
Nonetheless, the terms of the company’s borrowing did worsen. In , it regis-
tered to borrow up to  billion in commercial paper through one government pro-
gram and issued . billion in long-term debt and . billion in commercial

paper under another program. That GE Capital had trimmed commercial paper be-
fore the crisis to less than  of its total debt, or about  billion, also softened the
effects of the crisis on the company. “A decision was made that it would be prudent
for us to reduce our reliance on the commercial paper market, and we did,” Mark
Barber, the deputy treasurer of GE Company and GE Capital, told the Commission.