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. America’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 SBA’s 7(a) loan program, and temporarily eliminate SBA loan fees to reduce the cost of capital.
“By increasing the SBA loan guarantee to 90% and temporarily eliminating fees on 7(a) and 504 loans, President Obama’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 aren’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 “carry back†their losses for up to five years — 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 government’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,†said Cam Fine, president and chief executive of the Independent Community Bankers of America. “One of the reasons many minority banks are struggl
ing is that the local bank, the bank on the corner, is unable to extend credit because their balance sheets are clogged up because they can’t get loans off of their books into the secondary market. This initiative will unclog that market and get credit flowing down Main Street.â€As the flow of credit has dried up during this recession, many small business owners who acted prudently and responsibility have been affected by the reckless behavior of others in that they’ve had loan applications denied and lines of credits reduced or canceled. As a result, SBA guaranteed loans, which are usually about $20 billion a year, will likely be below $10 billion this year.
In addition to eight small business and community bankers, the elected officials in attendance were Landrieu; Sen. Olympia J. Snowe (R. Maine), ranking member of the Senate Small Business Committee; New York Rep. Nydia Velazquez, chair of the House Small Business Committee; and Missouri Rep. Sam Graves, ranking member of the House Small Business Committee.
Although his company is larger than the average minority business, Albert Fuller, chairman and CEO of Integrated Packaging Corp. (No. 30 on the BE Industrial/Service 100 list), says his company has been severely affected by the credit crunch. For the past two years, in fact, it has had to fund most of its capital projects using its own financing and internal cash sources. Integrated is in the process of expanding both of its plants, for which it is putting in about $10 million of capital. Fuller, who attended today’s White House conference, thinks the initiatives announced will remind bankers that lending is a high priority for the Obama administration and that it is watching.
“We’re outside of the SBA realm, but we are applying for loans from some of the larger banks that have received TARP money. This occasion and others like it will be very helpful in making those conversations more fruitful,†said Fuller.
Sterling Crockett, chairman and CEO of Sterling Construction Services Inc., in Baltimore, is one of the few lucky small business owners who hasn’t been hurt by the frozen credit market. Crockett, now in the last two years of the SBA’s 8(a) program, has previously used SBA loans and plans to in the future. He was particularly interested in the provision that eliminates capital gains taxes on private investment in small businesses. “That is very encouraging and helpful because we’re exploring all options; nothing’s off the table,†said Crockett, who also attended the White House event. He’s heartened by today’s news because it will help him expand both the company’s capacity and its reach, enabling him to be fully prepared for any American Recovery & Reinvestment Act of and other contracting opportunities that he hopes will soon come his way.
Joyce Jones contributed to this article.