Obama Announces Small-Business Lending Push

By ROBB MANDELBAUM
Published: October 21, 2009
After enduring months of criticism that his administration had done too little to help small businesses weather the recession, President Obama said Wednesday that “there’s still too little credit flowing to our small businesses” and unveiled initiatives he said would open the spigot.
The measures, announced by Mr. Obama at a small records storage company in Maryland, would allow smaller community banks to borrow at low rates from the Treasury Department’s Troubled Asset Relief Program. It would also raise the loan caps on several popular Small Business Administration programs.
Under the administration plan, banks with less than $1 billion in assets could borrow from the program at a lower interest rate than financial institutions are required to pay.
In exchange, banks must demonstrate how they would increase lending to small businesses and follow up with quarterly reports. According to the White House, most business loans by the community banks that are eligible for the new rules are made to small businesses.
In addition, community groups that lend to small businesses in low-income areas under a Treasury Department program will be able to borrow relief money at just 2 percent annually for eight years. In the past, banks have been leery of the such loans because the program allows the government to buy warrants for the banks’ common stock and because it requires the institutions to limit executive compensation. But the small banks probably will not have to issue warrants in that program rules contain an exception for infusions of less than $100 million. The proposal as described Wednesday caps the infusions at $20 million.
The small institutions would be subject to the same compensation rules as any other relief recipient, said Gene Sperling, senior counselor to Treasury Secretary Timothy F. Geithner, in an interview. But, he added, “for these smaller community banks, the executive bonus restrictions will usually affect only their single most highly compensated employee.”
But some community bankers remain concerned. “I think that could be a damper on community bank involvement in this program, said Cam Fine, president and chief executive of the Independent Community Bankers of America, a trade association. “Those family-owned banks are not going to want to subject themselves to compensation restrictions imposed by TARP, because it is their own personal money that is the capital of the bank.”
Changing the S.B.A. loan limits will require approval from Congress. The administration’s plans, which would raise the limit on the most popular loan to $5 million from $2 million, are identical to provisions of a bill introduced by Senator Olympia J. Snowe of Maine. She is the ranking Republican on the Senate Small Business Committee and is seen as perhaps the only Republican who may vote for a Democratic-led health care bill.
In a statement, Ms. Snowe indicated she appreciated the gesture. “These actions will help satisfy the capital needs of small businesses looking to start or expand their operations,” she said.
Unlike the S.B.A. proposals, the bailout plan can take effect at the administration’s direction.
“Our goal is to conduct a wide spread consultation with the small business and small bank community for a few weeks, and get this operational as quickly as is practical,” Mr. Sperling said. Check us out at www.sellingrestaurants.com