Obama's New Plan: Use TARP Funds to Help Small Business

President Barack Obama announced his new small business lending program at a town hall meeting in Nashua, N.H., Tuesday afternoon. He plans to ask Congress to transfer TARP funds that have been paid back from the Wall Street banks to a new program "to provide capital for community banks on Main Street."Obama said "65% of all new jobs in the last decade" were generated by small businesses, and he wants to "make it easier for them to open their doors and hire new workers." He added he wants to "ensure that small business once again becomes the engine of job growth in America."

Small businesses, the president said, are in trouble, through no fault of thei own. While "many good hardworking people met their responsibilities," Wall Street banks and federal regulators did not. And while steps were taken to bail out those who did not meet responsibilities and the markets are again stable, the "devastation still remains" on Main Street.

The proposed $30 billion lending program will aid Main Street through community banks, which deal most closely with small businesses. It will be established separately from TARP to avoid the stigma of TARP and encourage maximum participation, and offer capital investments with incentive for banks to increase small business lending.

In addition to the lending program, other initiatives being proposed through the Small Business Administration include support for higher SBA loan limits and extending Recovery Act provisions for higher loan guarantees, as well as temporary fee eliminations. The administration also wants tax cuts to encourage small business to invest, hire and raise their workers' salaries.

Skeptics Remain

Some small business owners are skeptical of the plan. While many would appreciate the proposed tax breaks, it won't be tax breaks that will determine their hiring decisions: The deciding factor will be whether or not their businesses need more employees because their sales are picking up.

Earlier today, Tom Ingram, CEO of Gateway Bank, a small community bank in Ocala, Florida, said he expected the bank to take advantage of the program, but the final decision would not be made until he saw the full details of the plan. He wants to know what strings will be attached and what types of government guarantees will be available for the loans. He said that guarantees similar to those available for SBA loans should be attached to these new loans. He said the loans would "need to limit our downside."

Gateway Bank started in 2007 when it was clear there were economic problems, so the bank loaned very cautiously. Ingram said, "we're still lending to people we know," but cautiously. Ocala is not a typical market nationwide, but for Florida, it's on par for many communities. Ocala has a 14% unemployment rate. There are many homes in foreclosure.

Ingram indicated that the bank would consider going back to some small business clients who were denied loans, provided the package included guarantees similar to those offered with SBA loans. He was "glad to see President Obama was taking steps to work with community banks and listening to the community banks of America."

Based on his comments, the small business lending fund may give banks the tools they need to help struggling businesses. It may give the community banks the tools they need to make loans available to those who were not able to help under the stricter lending rules cautious banks have been following.

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