Obama Administration officials are considering a mechanism for re-shifting bailout money to rescue small businesses still mired in a tight credit market.
The strategy for refocusing bailout funds will likely, to some extent, come from a host of ideas presented to President Obama seven days ago in a report by the U.S. Treasury titled, “Small Business Financing Forum.”
Participants in the forum included small businesses, lenders, legislators and regulators. They suggested a range of ideas to foster better access to credit for small businesses. Many of these businesses are struggling for financing because banks are holding back capital as a buffer against future losses, Federal Reserve and Treasury officials have said in recent days.
Some of the ideas involved extending bailout money to credit unions and “non-bank” lending institutions that are not already designated as Community Development Financial Institutions in the hardest hit areas. Another suggestion was to provide bailout funds to community-development venture capital funds which are not currently eligible.
It was also suggested that Small Business Administration loan guarantees be expanded. Two weeks ago, the SBA said $375 million in Recovery Act stimulus funds for use in “7(a)” and “504″” loan programs ended, leaving thousands of small business applicants in limbo.
The Treasury report reads: “Without endorsing any of these specific proposals – which have different costs, benefits and implementation issues that are not addressed at length here – Treasury and the SBA have compiled the recommendations we received from conference participants as part of the Administration’s ongoing discussion of how to best support small businesses in driving job creation and economic recovery.”
Participants focused on funds authorized by the Emergency Economic Stabilization Act (EESA), the enabling legislation for the umbrella bailout program, Troubled Assets Relief Program, or TARP. Many of these ideas involve smaller community banks, or so-called Community Development Financial Institutions (CDFIs).
Among the suggestions were to:
- Allow banks to draw on EESA funds to make new loans to small businesses. “Banks would take some portion of losses,” and would be required to lend any funds they draw to small businesses within 12 to 18 months.
- Use EESA funds to increase access to credit among small and medium-sized manufacturers.
- Increase from 2 percent to 5 percent the maximum allowed investment in the Treasury’s recently announced program to provide low-cost capital to CDFIs.
- Expand EESA assistance to CDFI venture capital funds and loan funds – in addition to CDFI banks, thrifts and credit unions, which are already eligible.
- Make EESA capital available to all credit unions, not just CDFI credit unions.
- Provide support for lenders to extend or maintain working capital lines of credit to small businesses.
- Expand the Term Asset-Backed Securities Loan Facility (TALF) to non-bank, small-business lenders, and beyond SBA loans and AAA-rated securities.
