Small Business Loans to Get Federal Backing
With major corporations dominating the headlines with record losses and outlandish bonuses, it's easy to miss the fact that small businesses are hurting just the same. But, as part of the Consumer Business Lending Initiative, the Obama administration is going to take the first steps toward restoring credit flow to smaller, local businesses through community banks and credit unions. The administration announced it plans to back small-business loans to help smaller lenders feel confident in the credit market.
From the White House
President Obama and Secretary Geithner Announce Plans to Unlock Credit for Small Businesses
WASHINGTON, DC – Today, as part of an effort Treasury Secretary Geithner first outlined in introducing the Financial Stability Plan (FSP) in February, President Obama and Secretary Geithner will announce plans to take immediate action to help ensure that credit gets flowing again to entrepreneurs and business owners. As another part of the Consumer and Business Lending Initiative, by the end of the month the Treasury Department will begin making direct purchases of securities backed by SBA loans to get the credit market moving again, and it will stand ready to purchase new securities to ensure that community banks and credit unions feel confident in extending new loans to local businesses. These purchases, combined with higher loan guarantees and reduced fees, will help provide lenders with the confidence that they need to extend credit, knowing they both have a backstop against their risk and a source of liquidity. These measures will complement other steps the administration is taking to help small businesses recover and grow, including several tax cuts under the Recovery Act.
The Obama Administration firmly believes that economic recovery will be driven in large part by America’s small businesses, which have generated about 70 percent of net new jobs annually over the past decade. But as the flow of credit has dried up during this recession, small business owners who were prudent and responsible have been set back by the behavior of others in our financial system who were not. Businesses with strong credit histories have seen loan applications denied due to conditions that have nothing to do with their own actions and are now struggling to expand their businesses, make their payments or even keep workers on their payrolls. As a result, while the U.S. Small Business Administration (SBA) typically guarantees about $20 billion in loans annually, new lending is trending below $10 billion this year.