Monday, March 16, 2009

President Obama to Unveil Plan to

Boost Small-Business Lending

By Kim Chipman

March 15 (Bloomberg) -- President Barack Obama will spend more than half of the $730 million in government funds set aside to help small businesses to expand federal guarantees and lower lending fees to try to revive the flow of credit, people familiar with the matter said.

Obama and Treasury Secretary Timothy Geithner will announce the $375 million plan tomorrow as part of a strategy to bolster Small Business Administration lending, the people said. The money will come from the $787 billion economic stimulus plan Congress passed last month.

Obama also will announce his intention to spend more than $10 billion in an effort to unlock the secondary credit market and increase bank liquidity, the people said. White House officials are trying to counter criticism in Congress that a $700 billion financial rescue plan is benefiting mostly banks rather than consumers or non-financial companies. Banks are still hoarding cash after $1.2 trillion in writedowns and losses since 2007.

“We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them,” Christina Romer, who heads Obama’s Council of Economic Advisers, said on NBC’s “Meet the Press” today. “Because we know we’re doing a lot of help for banks. We’re doing a lot of help for homeowners. Small-business people need it, too.”

Under the new program, SBA will guarantee as much as 90 percent of loans, up from 85 percent for those under $150,000 and 75 percent for larger ones, the person said.

Job-Growth Engine

Romer also said that the Obama administration is succeeding in its fight against the economic decline and predicted the stimulus plan will revive growth.

Obama says ensuring the stability of small businesses is crucial because they are an engine for job growth. Yet many such companies are struggling as credit has dried up. The Small Business Administration typically guarantees $20 billion a year in loans, though new lending is on track to fall below $10 billion this year, the people said, citing the administration’s data.

U.S. gross domestic product is forecast to contract this quarter after shrinking at a 6.2 percent annual pace from October to December, the most since 1982. The jobless rate climbed to 8.1 percent last month as U.S. employers cut 651,000 workers from payrolls.

Geithner has said the administration’s financial rescue efforts will be aimed at restoring capital to banks that need it and trying to resuscitate consumer loan markets.

“By increasing the federally guaranteed portion of SBA loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months,” Geithner said in a Feb. 10 speech.