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Obama, Geithner Announce Small-Business Lending Action

By Marc Tracy

Well, big news today. Sorta. President Obama and Treasury Secretary Tim Geithner announced--well, really, publicized and clarified--several initiatives aimed at getting credit flowing to small businesses. We hesitate to say "announced" because, to us at least, it looks as though most of the proposals were not new. The main new thing was the focus on small businesses--"the heart of the American economy," as the president put it, "responsible for half of all private sector jobs and...roughly 70 percent of all new jobs in the past decade"--which we certainly found welcome. (He added: “This is still just going to be a first step in what is going to be a continuing effort to make sure that people get credit out there," which we also found encouraging.)

The one policy we had not heard about before is that the 21 largest bank-recipients of federal bailout money from the Troubled Assets Relief Program will now be required to file monthly reports to the goverment on their small-business lending, as Entrepreneur.com reported. This is actually a good idea. While we have in the past suggested actually requiring these recipients to up their lending, and their small-business lending specifically, as a condition of receiving bailout funds, at least this attempts to draw some connection between the taxpayer money these institutions are getting and the corresponding obligation they have to take actions that are for the public good. So, bravo!

What else was discussed? And what have people been saying about it?

Much of these were announced last month (and noted by us) under the "Small Business and Community Lending Initiative" heading, and they are largely designed to up the rate of Small Business Administration-backed loans. So fees are, for now, being eliminated from 7(a) and 504 loans (up to $75,000, which is to say, for all but the very biggest of loans). So the SBA is raising the maximum amount of these loans it will guarantee up to 90% (from a previous ceiling of 75% to 85%). So the Fed will buy up securities backed by SBA loans on the secondary market.

Here there actually was some news: because, in addition to the buying of such securities (among other sorts of securities) under Geithner's Term Asset-Backed Securities Loan Facility it looks like an additional $15 billion will be taken out of the TARP fund to buy specifically small-business loan-backed securities, starting as soon as the end of the month.

We'll have more analysis of these efforts in the coming days. But this is what your government's doing to try to help you. What do you think of it?

Comments (1)

March 16, 2009 5:20 PM

Comments (1)

Michael Taylor:

So...just to review: Banks will be encouraged to make loans that would otherwise not be made, to borrowers who can not get credit in the open market. Doesn't this sound kinda familiar?
Just as the government did for homeowners through Fannie Mae and Freddie Mac, the SBA will incresingly subsidize lending to small business owners, beyond what it makes sense for a for-profit bank to do following reasonable risk/return guidelines.
I'm no raving Libertarian, but it seems the lesson of the current Great Credit Debacle is that massively subsidized credit, beyond what for-profit enterprises would do, is a process that often ends in tears...both for the borrower, and the taxpayer.
Is it not unreasonable to say that increasing subsidized borrowing through the SBA should be viewed with deep skepticism by anyone watching what's going on during the Great Credit Debacle?
I'm not saying the SBA is evil or anything, but I am saying MORE SBA does not necessarily mean GOOD FOR SMALL BUSINESSES.

Posted by Michael Taylor | March 16, 2009 9:37 PM

Posted on March 16, 2009 21:37