New Small Business Lending Initiative Announced
The Obama administration announced that the largest banks receiving U.S. government money must report monthly on how much they lend to small businesses, according to the Associated Press. Even banks that are not taking government funds are being told by the administration to “make an extra effort” to increase small business lending. The package also includes reduced small business lending fees and an increase on the guarantee to some Small Business Administration (SBA) loans. The government plans to take steps to hopefully boost bank liquidity with more than $10 billion aimed at unfreezing the secondary credit market, according to officials briefed on the plan.
The move comes as Republicans have sought to build on some bipartisan misgivings over Obama’s ambitious spending plan. Republicans say Obama’s budget proposal to raise taxes, starting in 2011, on individuals earning more than $200,000 and on households earning more than $250,000 will hurt small businesses, which face higher dividend taxes and limits on itemized deductions.
“We’ve got to do something to help these small-business people. We know that they’re the job creators in this economy,” the House Republicans’ No. 2 official, Rep. Eric Cantor, said.
The new measure focus is on opening up small-business lending, seen as critical to cities’ growth. While the SBA typically guarantees $20 billion in loans annually, new lending this year is on track to fall below $10 billion, according to the administration. Under the new initiative, the government will step in to buy these loans to help unlock the frozen credit market, using money from the recently passed bailout package in the range of between $10 billion to $20 billion.
The other measures announced last month involve temporarily eliminating upfront fees of up to 3.75% and some processing charges on certain SBA loans that lenders typically pass along to borrowers. It also increases the government guarantees on certain loans to 90%, up from 85% for loans below $150,000 and 75% for larger loans.