Obama’s $30B Plan for Small Businesses May Not Work

In his State of the Union speech, President Barack Obama proposed taking $30 billion out of the bailout money returned by big banks and injecting the funds into community banks to generate more small business loans.
But the plan will likely fall short in a lending arena where low demand matches low access to credit. Moreover, the small-biz bailout has already generated enough opposition to place it in doubt – particularly if a full vote by Congress is required.
“I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat,” Obama said.
The $30 billion rescue, though, is only a fraction of the current $700 billion in small-business loans held by banks, according to the Treasury.
And there is the issue of demand.
A Fed official testified this week that demand for loans among both consumers and small businesses has yet to climb back up to levels seen before the financial crisis.
“Indeed, the most recent results from the Federal Reserve’s Senior Loan Officer Opinion Survey on bank lending practices indicate that both the availability and demand for bank loans are well below pre-crisis levels,” said Jon D. Greenlee, the Fed’s associate director, Division of Banking Supervision and Regulation, in testimony before the Congressional Oversight Panel in a field Hearing in Atlanta.
The proposal to use any money from the government’s Troubled Asset Relief Program, or TARP, has already met with mounting opposition.
“It’s just another use, maybe a good use, but just another use of TARP funds that wasn’t originally intended,” Sen. Richard Shelby, R-Alabama, told The Wall Street Journal.
A prominent small business association, the National Federation of Independent Business, NFIB, has said in a statement that it doesn’t want TARP-generated relief. The group is also supporting an amendment that would stop any new initiatives with unused or repaid money under TARP.
The amendment, authored by Sen. John Thune (R, South Dakota) would prohibit the U.S. Treasury from spending un-obligated TARP funds immediately, and would also lower the national debt ceiling by the amount repaid into TARP. Many Republicans are expected to support the amendment, which lawmakers want to include in a larger bill.
“If these debt levels are not addressed, small businesses will face a future of high interest payments, increased taxes, and reduced investment opportunities,” NFIB said. “Small business needs Washington to just get out of the way so they can get back to growing their businesses and creating jobs.”
It is still unclear whether the Obama Administration can redirect TARP money into a new pipeline without Congressional approval, or a full vote of Congress.
Obama also proposed a new small-business tax credit “that will go to over one million small businesses who hire new workers or raise wages.”

J. Lipsky

Hello, I am John, born in Cedar Rapids, but lived a lot of years in Latin America. I am an economist and have specialized in credit and debt. Originally sovereign debt, but later on, in credit score management and debt consolidation. I write for many publications. Here in eCreditDaily, I write about credit, second chance banking, and debt. I also write for other websites and bulletins about inflation and country risk.

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