David Cho of the Washington Post writes that in March 2009, President Obama vowed to address the drought of bank lending to small companies and announced an initiative to use $15 billion from the federal bailout to unfreeze the markets that finance Small Business Administration loans.
More than a year later, the program was finally launched — as a $21 million effort.
The program is one of several small-business lending initiatives developed by the administration that have struggled to get off the ground. Meanwhile, lending to these companies has fallen. Federal data show that lending to small businesses by community banks declined by about $8 billion, or 2 percent, between September 2008 and September 2009.
Administration officials say helping small businesses get credit remains a top priority. It is a critical component of the strategy to address the nation’s high unemployment. More than half of all U.S. workers are at companies with fewer than 50 employees. Without access to loans, many of these firms are laying off workers or shutting their doors altogether.
Obama’s economic team has put forward several major programs to increase small-business lending.
The first, unveiled in March 2009, focused on helping the SBA get loans into the hands of small businesses. This initiative proposed spending $15 billion to aid the markets that provide the financing for SBA loans. But in the months after the government’s announcement, these markets recovered on their own, administration officials say. As a result, there was no need for a more expensive program.
Officials at the Treasury Department decided to launch a tiny $21 million pilot version of the program last month, just in case SBA lending falls back into turmoil. If that happens, the Treasury could easily ramp up the initiative now that it is operational, officials said.
While the financing markets for SBA loans improved, virtually all other kinds of small-business lending remained troubled.
To address this broader problem, the administration in January proposed taking $30 billion from the $700 billion Troubled Assets Relief Program and offering that money to banks that lend to small businesses.
The aid would be given to these institutions at favorable annual interest rates, as low as 1 percent. The banks must show how they are using the funds to help small companies.
Administration officials also asked Congress to drop conditions attached to bailout funds, such as limits on executive pay, in order to encourage banks to take the money. They noted that hundreds of smaller banks last year did not take federal aid because of the stigma and the conditions attached to the funds.
Read more at: Washington Post