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How The Bailout Would Help Small Business
By Bizbox
Just yesterday we asked, of the proposed bailout, "What's In It For The Small Businesses?" The answer, among other things (firming up the credit markets, as the $700 billion asset-purchase program is intended to do, would most definitely be good for small businesses) is a raised cap on federal insurance of bank deposits. In the bill being considered today by the U.S. Senate, the Federal Deposit Insurance Corp. would be required to insure, for now temporarily, all bank deposits up to $250,000--a sharp jump from the current $100,000 limit.
And what sort of depositor frequently has over $100,000 in one account? That's right, small businesses.
In fact, this provision--which has been full-throatedly endorsed by FDIC Head Sheila Bair--is the prime result of extensive lobbying by the Independent Community Bankers of America, which represents 8,000 community banks, those locally-focused institutions that have under $1 billion in assets. And, as we've written before, what's good for the community banks is likely good for small business: many entrepreneurs were looking to them as being able to provide small amounts of credit without the punitively high rates typical of, say, credit card loans.
The idea behind bolstering the deposit cap is to help these banks, protect small businesses whose deposits are that large, and generally work to restore confidence in the country's banks. According to the Times, companies that rely on investment vehicles other than bank accounts--investment firms, mutual funds, and the like--oppose raising the deposit insurance ceiling, arguing it gives banks an unfair advantage.
The other prime thing the bailout plan appears to have for community banks--and therefore, by extension, for small businesses--is a tax break designed to help these banks where they were hit hardest: the preferred shares of Fannie Mae and Freddie Mac that community banks (especially, for some reason, Massachusetts community banks) disproportionately own. Specifically, according Rep. Roy Blunt (R-Mo.), the House Minority Whip and lead House Republican negotiator on the plan this past weekend, community banks will now be able to consider their losses on preferred shares of Fannie and Freddie as business losses rather than capital losses. This alteration, Blunt estimated, will reduce the ultimate damage that these preferred shares' collapse caused to these banks by roughly 25%.
Probably one of the reasons why the National Federation of Independent Business, the National Small Business Association, the Small Business Administration, and others have all endorsed the plan.
Comments (2)October 1, 2008 11:42 AM
Comments (2)
I had heard that there was not much in the bail out bill for small businesses, so I hope you are right.
Posted by Debt Reduction | October 2, 2008 2:15 PM
Posted on October 2, 2008 14:15
These bailouts are being designed for very large corporations. But small business is what drives this economy.
Posted by phoenix auto insurance | January 19, 2009 12:36 AM
Posted on January 19, 2009 00:36