Obama Administration Details Plans to Help Small Businesses

Noting that the economic recovery will be driven in large part by America's small businesses, President Barack Obama and Treasury Secretary Timothy Geithner this week outlined the U.S. government's strategy to "take immediate action" to help small businesses.

As part of the administration's plans, by the end of the month the Treasury Department will begin purchasing up to $15 billion in securities backed by SBA loans to free up the secondary credit market. Furthermore, per the small business provisions in the economic stimulus package, the administration will:

• Temporarily raise guarantees to up to 90 percent on SBA's 7(a) loan program, through calendar year 2009, or until the funds are exhausted. This increase in guarantee levels is designed to help provide banks with increased confidence so that they will extend credit during the current fiscal crisis, which will result in more capital available to small business owners.

• Temporarily eliminate fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through calendar year 2009, or until the funds are exhausted, both of which will result in more capital available to small businesses at a lower cost. The fee elimination is retroactive to February 17, the day the economic stimulus package was signed. SBA is developing a mechanism for refunding fees paid on loans since then.

The government will also require the 21 largest banks receiving capital from the government to report monthly on their small business lending. In addition, the IRS will issue guidance for a provision in the Recovery Act that allows businesses with gross receipts of up to $15 million to "carry back" their losses for up to five 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. (Learn more.)

Characterizing small businesses as "the heart of the American Dream," President Obama noted that "Our recovery in the present and our prosperity in the future depend upon the success of America's small businesses and entrepreneurs." He pledged that his administration would "continue to do everything in [its] power to ensure that [small business owners] have the opportunity to contribute to your community, to our economy, and to the future of the United States of America." (Read the President's remarks.)

"We need every bank in the country to do everything in their power to provide the credit that small businesses need to operate, expand, and add jobs," Secretary Geithner said in remarks prepared for delivery today, as reported by Reuters. "[Banks] need to make the extra effort to make sure that good loans are getting to credit-worthy small businesses in order to serve the larger public good of moving this nation towards recovery. And given the role many banks played in causing this crisis, you bear a special responsibility for helping America get out of it," he noted. Lending through SBA's 7(a) program is down 58 percent this fiscal year compared with last year, and lending through the 504 program is down 47 percent, as reported by the Washington Business Journal.

A key focus of the administration's plan is to get the secondary credit market moving again. Many SBA lenders -- in both the 504 and 7(a) programs -- rely on a secondary market for SBA loans. These lenders sell a portion of SBA loans they have already made to broker-dealers. The sales provide lenders with a funding stream that allows them to extend additional SBA loans. The broker-dealers, in turn, pool the loans and sell them to investors in the secondary market. In the wake of the subprime mortgage crisis, the secondary markets for SBA loans have frozen. As part of the Recovery Act, SBA is working to develop a secondary market guarantee program for securities issued from pooled 504 first mortgage loans. Once this program is fully implemented by SBA, the U.S. Treasury will stand ready to purchase these government-guaranteed securities.

Booksellers can contact the SBA immediately about the new initiatives. Here's a full update from the SBA and a webpage for locating SBA district offices and other local resources.

Also, see this week's story about SBA's new online community for small businesses. --David Grogan