WASHINGTON -- Maryland businessman Richard Tworek has a profitable company with a steady cash flow and a good credit record, but he can't get a new line of credit from the bank he has used for seven years.
He is a victim of a credit crunch that has been hampering small business expansion across the nation for the past three years, undermining vital job creation in a period of dramatically increasing unemployment.
Today, President Clinton will try to do something about it. Eager to foster economic growth in general and small business activity in particular, he will ease federal bank lending regulations that he and the industry claim have been restricting the flow of credit.
One change is expected to give bankers greater scope to assess a borrower's character and reputation as well as his cash flow in making loan decisions.
Other reforms that are likely to be proposed include easing regulations on bank sales of foreclosed property to help the real estate recovery, relaxing collateral requirements on small-business loans to improve the flow of credit, and creating a credit ombudsman to judge complaints from banks and would-be borrowers to lessen frustration with the system.
Mr. Clinton's enthusiasm for lending reform was spurred by one figure that emerged during his economic conference in Little Rock in December -- $86 billion. That's what the American Bankers Association estimated would be injected into the economy by easing federal bank-lending regulations.
"I've just been sitting here all day thinking about this," said Mr. Clinton at the conference, noting that the estimated $86 billion would dwarf the $30 billion economic stimulus program he later proposed.
Mr. Tworek will be quickly in line to get some of the more freely available credit. But, disillusioned over being "basically flatly turned down" by his current bank, he will be knocking at the door of a different bank.
He employs a staff of 50 at Merex, a technical publications operation in Rockville. He would like to hire more workers and buy the newest computer technology to improve and expand his company.
"We have felt some problems with not having loan availability," said the company president. "They have been more strict on the line of credit, which makes it very difficult for me to run my business. Now for me to hire someone, I will wait for the contract to be in-house and we are working on it. If there is a little bit more credit available, I would hire someone ahead of the contract so we can be up and running when we get it."
The new regulations have been worked out by the Treasury, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision.
The Fed figures reflect what has happened under the current system:
Business and commercial loans grew a meager 1.6 percent in 1990, before falling 3 percent in 1991 and 3.1 percent in 1992, as banks increasingly turned from making loans to putting their money into government securities. Commercial bank holdings of government securities rose 14.1 percent in 1990, 23.6 percent in 1991, and 17.6 percent in 1992.
In a reversal of the traditional relationship, the value of bank security holdings actually overtook the value of loans last June. By January this year, commercial banks held $657.5 billion in government securities, against $598.8 billion in commercial and business loans.
William H. Brandon, president of the American Bankers Association, told Congress last week that bank lending was growing at 10 percent less than the normal rate during an economic recovery, a contraction that represented $200 billion annually.
Inevitably during the recession, loan demand declined and bankers became more cautious, said Mr. Brandon, chief executive officer of the Phillips County National Bank in Helena, Ark.
But he also pointed to the "oppressive regulatory environment on bank lending."
"Regulatory micro-management has reached the point where it seems that virtually every decision I make is second-guessed," he said. "In essence the [federal bank] examiner's judgment is being substituted for the judgment of my loan committee."
That year saw capital requirements on banks tightened, and federal oversight of banks more strictly applied in the wake of the savings and loans scandal.
In a national poll last fall, the Chamber of Commerce found tha almost twice as many business executives -- 40 percent -- considered credit conditions worse than a year earlier, though only 23 percent had actually tried and failed to get a loan.
Not all economists agree that businesses have been facing a credit crunch, however.
Ken Goldstein, senior economist with the Conference Board, a NewYork business monitoring organization, said: "The problem we have had for the last three years is that banking has the money but no one wants it . . . We are not that much interested in taking out a lot of new debt."
A survey by the National Federation of Independent Business, which has tracked business credit supply and demand for the past 19 years, found several factors contributing to the credit crunch, including lack of demand, a recession-related decrease in good investment opportunities, and overzealous federal regulation.
Absent reform, the federation warned that credit conditions could even worsen as the economy improved, saying: "The competitive position of small business owners for loanable dollars has been so eroded by regulatory intrusion and the demand for capital so expanded that new small business demand brought on by increased opportunity from a healthy, growing economy will be very difficult to meet."