White House Offers Details of Plan to Foster Small Business Growth
Treasury Secretary Tim Geithner today announced details to some of the promises made in the government's Financial Stability Plan outlined last month, including ways to spur banks to lend, eliminating loan fees and creating new bank-lending reporting requirements.
The Obama administration believes that the nation's "economic recovery will be driven in large part by America's small businesses" and notes that small firms have generated about 70 percent of net new jobs annually over the past decade, according to a statement from the White House. However, entrepreneurial growth has been stunted as credit has dried up; the Small Business Administration typically guarantees about $20 billion in loans annually but new lending is leaning toward less than $10 billion this year.
Treasury announced today that it has appointed an investment manager who will be able to purchase securities backed by portions of SBA's popular 7(a) loan program. This action, as explained by the department, will help unclog the backlog of securities that has piled up since the beginning of the credit crisis last year by providing banks with a source of liquidity so that they are inspired to lend again.
Also, beginning today, the government has eliminated borrower and lender fees for two popular loan programs, the 504 and the 7(a). These fees -- which go up to 3.75 percent for larger loans -- increase the cost of borrowing for small businesses and make it more difficult for them to access the credit they need to expand or make new investments. The SBA also will offer a refund for borrowers or lenders charged with any of these fees beginning Feb. 17.
Treasury also will require for the first time that the 21 largest banks receiving Financial Stability Plan assistance to report their small business lending monthly. The department is also calling for every bank nationwide to report their total lending to small firms in their quarterly reports rather than just once a year. Geithner also called on all banks to make the effort to extend small business loans to creditworthy borrowers.
Small Business Committee Chairwoman Nydia Velazquez (D-N.Y.) cheered the move, saying: "Taken together, these small business lending provisions will unlock $21 billion in new lending for small firms, creating or saving 600,000 jobs."
However, at least one small business group was displeased. Lobbying group the Small Business and Entrepreneurship Council said the plan "does not fully help what is hurting small businesses." The council's chief economist, Raymond Keating, said: "Rather than fiddling with various government programs, the Obama administration would accomplish much more in terms of boosting confidence and getting the economy moving by, at the very least, moving away from imposing higher personal income, capital gains, dividend and estate taxes on investors and business owners, not to mention increased energy costs through a cap-and-trade regulatory scheme."
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