Saturday, October 24, 2009

Rescue efforts shift to small business

The Obama administration is winding down several massive rescue programs that aided large banks and automakers during the heat of the financial crisis, while launching more moderate initiatives to help small businesses and the housing market.

The moves are being billed by senior administration officials as a "new direction" for the government's oft-maligned $700 billion financial rescue program, which has been credited with preventing a collapse of the financial system but angered many politicians and members of the public for bailing out the big banks that may have triggered the crisis in the first place.

The Troubled Assets Relief Program, or TARP, will now focus on the ailing housing market and small businesses, which are seen as vital to the economic recovery because they employ so many workers, officials said.

Using the Landover records-storage company Metropolitan Archives as a backdrop Wednesday, President Obama said, "There is still too little credit flowing to our small businesses.

"There are still too many entrepreneurs who can't get the loan they need to open their doors and start hiring," Obama said. Small businesses "fuel our prosperity," he added. "And that is why they must be at the forefront of our recovery."

Under the administration's plan, small companies will be able to get low-interest loans through local banks with less than $1 billion in assets. Those institutions will be allowed to borrow from TARP at a 3 percent rate, lower than its usual 5 percent. The banks will be required to submit plans on lending to small businesses and present quarterly progress reports to regulators.

Community development financial institutions, which provide credit to low-income urban and rural areas, will be able to borrow from TARP at 2 percent.

The precise terms of those programs have not yet been fully worked out, said administration officials who declined to reveal how much they estimate they will have to allocate to the program. The sources spoke on the condition of anonymity because the discussions have been private.
Some of the officials are concerned about whether community banks will participate, given the stigma that has been attached to the federal bailout, sources said. Moreover, many banks have been reluctant to lend to small firms because they historically have been a bigger credit risk than larger corporations.

Raising lending limits

Obama also will ask Congress to raise the cap on how much a company can borrow from the Small Business Administration's major lending programs to $5 million from $2 million. In addition, the limit on an SBA microloan program will increase from $35,000 to $50,000 to help start-ups and other smaller businesses. Those SBA loans are also administered by banks and are backed by federal guarantees.

"America will not recover until our small businesses recover. In communities across the country, they are the engines of job growth and lead the way to the industries of the future," Treasury Secretary Timothy F. Geithner said in a statement.

Similar proposals to increase SBA loan limits have already been put forward on Capitol Hill, and lawmakers rushed to take credit for those efforts Wednesday. The staff of Sen. Olympia J. Snowe (R-Maine) noted that she had introduced a bill last year that was nearly identical to what Obama proposed.

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