RISMEDIA, March 19, 2009-(MCT)-As the economy continues to suffer and jobs are lost and business owners continually push to keep things moving forward so they are in the right place at the right time when the market turns, President Barack Obama is doing his job to help small businesses get on the right track. Working to jumpstart the economy’s engine of job creation, Obama announced that the Treasury Department would spend up to $15 billion to boost lending to credit-hungry small businesses.
The new effort was also meant to allay criticism that the White House has focused too much on the needs of fallen financial titans on Wall Street and not enough on the economic damage to small businesses around the country.
The financial crisis has dried up most commercial lending throughout the country, including the lines of credit that are the lifeblood of the small businesses that historically have created about 70% of the economy’s new jobs.
“Today, too many entrepreneurs can’t access the capital to start, operate or grow their business,” Obama said after meeting at the White House with small-business owners and community lenders. “Too many dreams are being deferred or denied by a form letter canceling a line of credit.” He added: “Less lending leads to fewer jobs and lower spending, which leads to less lending – a vicious cycle that delays our recovery.”
Under the new program, the Treasury Department would directly purchase up to $15 billion in securities composed of loans backed by the Small Business Administration. Loans made after July 1, 2008, would be eligible as well.
The funding will come from the $240 billion in bailout funds already approved by Congress as part of the Troubled Asset Purchase Program, or TARP.
The purchases mean that banks could sell the loans on the secondary market, freeing up capital to make more loans. The market for securitized SBA loans was about $4 billion prior to the current crisis.
Cynthia Blankenship, founder of Grapevine, Texas-based Bank of the West, who met with Obama and Treasury Secretary Timothy Geithner at the White House, said her bank is holding $11 million in new small-business loans that it has been unable to sell on the secondary market.
“This is an incredible tool for community banks nationwide to help jumpstart the economy and the credit markets,” said Blankenship, who is also chairwoman of the Independent Community Bankers of America.
In addition to buying securities, the administration is proceeding with plans to eliminate fees for borrowers and lower fees for lenders on its two signature small-business lending programs and increasing the level of guarantees provided by the government.
Additionally, the IRS issued information about a new tax provision, passed in the government’s stimulus bill that would allow businesses to credit losses in 2008 against taxes paid for the previous five years – an increase from the standard “carryback” of two years.
The administration said the combination of new policies would give small businesses significant new resources to help weather the recession.
“Banks need to make the extra effort to make sure that good loans are getting to creditworthy small businesses in order to serve the larger public good of moving this nation to recovery,” Geithner said. “And given the role that many banks played in causing this crisis, you bear a special responsibility for helping America get out of it.”
Business groups praised the plan, saying that frozen credit markets have hamstrung businesses at the worst time for the economy.
“Going forward, small businesses should have increased opportunities to receive bank funding since banks will now have reduced risks in making the loan,” said U.S. Chamber of Commerce president Thomas Donohue. “What the president has done is to implement provisions of the stimulus bill and address some secondary market issues that should have positive benefits for lending.”
Added Diane Casey-Landry, chief operating officer of the American Bankers Association: “Bankers are optimistic that small-business owners will soon see a steady stream of new loans.”
© 2009, Chicago Tribune.
Distributed by McClatchy-Tribune Information Services.
