President Barack Obama and Treasury Secretary Timothy Geithner meet with Cynthia Blankenship, co-founder of Bank of the West, and other small business leaders. (Source: Getty Images)
President Barack Obama and his economic team unveiled a $15 billion plan to assist small businesses that will temporarily eliminate lending fee and boost bank liquidity to unfreeze credit markets.
During a meeting with lawmakers and business leaders, the president reiterated his commitment to small business, calling the sector the heart of the American economy. Americaâ€™s small businesses have generated about 70% of net new jobs annually over the past decade, says the Obama administration.
The small business plan aims to jumpstart credit markets for small businesses by purchasing up to $15 billion in securities, temporarily raise guarantees to up to 90% in the SBAâ€™s 7(a) loan program, and temporarily eliminate SBA loan fees to reduce the cost of capital.
â€śBy increasing the SBA loan guarantee to 90% and temporarily eliminating fees on 7(a) and 504 loans, President Obamaâ€™s plan will reduce the risk lenders face when they make new loans while making those loans more affordable to small business owners,” Sen. Mary Landrieu (D-La.), chair of the Senate Committee on Small Business and Entrepreneurship. “By getting capital flowing again to small businesses, we will help get the country out of the economic crisis.”
The administration also said that the 21 largest banks receiving government money must report monthly on how much money they are lending to small businesses. All other banks getting government assistance must report quarterly on small business loans. And those banks that arenâ€™t taking government funds were told to make more of an effort to increase small business lending.
The Internal Revenue Service will now also allows businesses with gross receipts of up to $15 million to â€ścarry backâ€ť their losses for up to five years â€“ up from two years, effectively allowing them a rebate on taxes paid in previous years. The Joint Committee on Taxation estimates that this measure will increase liquidity for small businesses by $4.7 billion by September 30, 2009.
To get the ball rolling, by the end of March, the Treasury Department will begin making direct purchases of securities backed by SBA loans to get the credit market moving again, the White House said, 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.
“The governmentâ€™s promise today to purchase up to $15 billion worth of SBA loans is a jolt in the arm for community banks. I would expect hundreds and hundreds, probably into the low thousands, of community banks to jump back in the SBA [loan] business and spur development on Main Street,â€ť said