Obama’s $30 Billion Unlikely to Cause Surge in Small Business Loans

Mr. Obama pledged a $30 billion diversion of TARP money to small businesses across America in his State of the Union Address this past Wednesday.  The Wall Street Journal has reported however, that this infusion of TARP money to local community banks will unlikely create a resurgence in small business loans.

“The president’s plan will mean $30 billion in capital for smaller banks, which has the potential to leverage a far higher amount of actual new small-business lending,” said Gene Sperling, a counselor to Treasury Secretary Timothy Geithner.  However, critics of the program claim that it’s just another misuse of what the original TARP money was intended for.  The Senate Banking Committees top Republican said that the Federal government should push for a return of TARP funds before discussing the use of further funds.

Nydia Velazque, Chairwomen of the House Committee on Small Business said that Congress needs “to be open to new approaches,” since many small business still cannot find affordable loans.  A more effective way of helping small businesses obtain capital would be by allowing the Small Business Administration to increase the amount of loans they could give to small businesses.

Acording to the senate report last year, businesses with fewer than 20 employees, have suffered severe job losses in comparison to larger businesses.   Many bankers insist that loans will not pick up until consumers are ready to spend more.  An executive of one regional US bank said, “The truth is small business is largely consumer-driven right now, and consumers aren’t spending.”  The main method to increase consumer spending is by creating jobs.

Another concern is that by banks opening up their credit lines to small businesses, they may incur large debt as small businesses are already struggling to pay off existing loans in a market where consumer spending is down.  It may be that taking on another loan is not in the best interest of some of these small businesses who are experiencing difficult times.

In addition to the $30 billion TARP plan, President Obama is also proposing a $33 billion tax cut to stimulate small businesses to hire new employees and raise wages.  Small business owners would receive a $5,000 tax reimbursement for every net new worker hired this year and a credit for Social Security taxes paid when wages were increased.

To read the original Wall Street Journal click here!

To read more about obtaining a small business loan click here!