President Obama today formally launched his already-controversial proposal to re-direct $30 billion in bailout funds into community banks to bolster small business lending.
It comes a day after announcing a larger budget for the Small Business Administration’s loan guarantees and billions in tax incentives tied to job creation.
“The more loans these banks provide to credit-worthy small businesses, the better a deal we’ll give them on capital from this fund,” Obama said in prepared remarks on his plan to re-focus un-obligated bailout money.
The program would provide better rates on risk-related capital to banks that boost lending to small businesses.
Initially announced in his State of the Union address last week, Obama’s $30 billion plan would exclude banks with more than $10 billion in assets, and the could seriously hamper the program’s chances of success, critics say.
The larger banks, most of which have exited the federal bailout program, are holding more than 50 percent of outstanding commercial and industrial loans to small businesses.
The money would come from TARP, the Troubled Asset Relief Program that funded the billions in bank bailouts at the height of the financial crisis. The plan has already met with sizable and organized opposition from small business groups.
Most notably, the National Federation of Independent Business, the largest association of small and independent businesses, has opposed using TARP money for anything beyond its original mission. Furthermore, the group supports a proposed rule that would leave any un-obligated or repaid TARP money with the U.S. Treasury to pay down the national debt.
Obama’s proposal will also have to contend with any Congressional backlash from last week’s critical quarterly report on TARP by the program’s official overseer, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).
The report says TARP has failed on numerous counts, including a commitment to bolster small business lending through a secondary program that was never launched.
“Many of TARP’s stated goals, however, have simply not been met. Despite the fact that the explicit goal of the Capital Purchase Program (“CPP”) was to increase financing to U.S. businesses and consumers, lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury,” the SIGTARP report said.
The report also said that the larger banks most active in small business lending have repaid and existed TARP, leaving U.S. officials with no leverage to utilize in spurring small business lending.
The president yesterday outlined various small-business growth initiatives in the $3.8 trillion budget he sent to Congress for fiscal 2011, including a 21 percent increase in the Small Business Administration’s budget and the $33 billion in tax cuts for firms that create jobs or increase wages.
A large part of the tax-related incentives is a proposed payroll tax credit of $5,000 for each new hire in 2010 by small businesses.
The budget includes $994 million for the SBA, a $170 million, or 21 percent, increase over the 2010 level. That would support $28 billion in loan guarantees to help small businesses access the credit “they need to grow and create jobs.”
The SBA budget covers:
- $165 million in subsidy costs to support $17.5 billion in 7(a) loan guarantees that will help small businesses operate and expand. It includes an estimated $16 billion in term loans and $1.5 billion in revolving lines of credit;
- $7.5 billion in guaranteed lending for commercial real estate development and heavy machinery purchases;
- $3 billion in Small Business Investment Company debentures to support new businesses and new jobs through “early-stage and mezzanine” small business financing;
- $25 million in direct micro-loans for intermediaries to provide small loans to emerging entrepreneurs and other promising but “un-bankable” borrowers.
“This reflects the Administration’s strong support of small businesses, which play a vital role in the Nation’s economy,” the budget plan reads.
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