WASHINGTON -Working to jump-start the economy's engine of job creation, President Obama announced yesterday that up to $15 billion will be spent to boost lending to credit-hungry small businesses.
The new effort was also meant to allay criticism that the White House has focused too much on the needs of fallen financial titans on Wall Street and not enough on the economic damage to small businesses.
The financial crisis has dried up most commercial lending, including the lines of credit that are the lifeblood of small business, which historically has created about 70 percent of the economy's new jobs.
"Today, too many entrepreneurs can't access the capital to start, operate or grow their business," Obama said after meeting at the White House with small business owners and community lenders. "Too many dreams are being deferred or denied by a form letter canceling a line of credit.
"Less lending leads to fewer jobs and lower spending, which leads to less lending - a vicious cycle that delays our recovery."
Under the new program, the Treasury Department will directly purchase up to $15 billion in securities composed of loans backed by the Small Business Administration. Loans made after July 1, 2008, would be eligible, officials said. The funding would come from the $240 billion in bailout funds approved by Congress as part of the Troubled Asset Purchase Program, TARP.
The purchases mean that banks could resell loans, freeing up capital to make more loans. The market for securitized SBA loans was about $4 billion before this crisis.
Cynthia Blankenship, founder of Grapevine, Texas-based Bank of the West who met with Obama and Treasury Secretary Timothy Geithner at the White House, said her bank is holding $11 million in new small business loans that it has been unable to sell on the secondary market.
The administration also is moving ahead on eliminating fees for borrowers and lowering fees for lenders on its two signature small business lending programs and raising the level of government guarantees.
Additionally, the IRS issued information yesterday on a new tax provision, passed in the government's stimulus bill last month, that would allow businesses to credit losses in 2008 against taxes paid for the previous five years - an increase of two years.
Details of the administration's small business programs can be found at www.sba.gov/recovery/index.html.