Sunday, March 15, 2009

Help is coming for small businesses

President Barack Obama and Treasury Secretary Tim Geithner on Monday will announce administration plans to make lending to small businesses more attractive, two senior administration officials confirmed.

Many small businesses, drowning from dried up coffers and unpaid bills, are having a tough time getting loans from lenders.

Christina Romer, who heads the Council of Economic Advisers, said Sunday the government would pump "a significant amount" of money into boosting small business lending, but she did not reveal a total figure.

"We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them," Romer said on NBC's "Meet the Press."

The senior administration officials said the administration's plan deals with two programs handled by the Small Business Administration.

The first one, the "7(a) program," allows small businesses to get loans of up to $2 million backed by the federal government through the SBA. Currently, the government guarantees up to 85 percent of loans below $150,000, and up to 75 percent of larger loans. Under the administration's plan, the government will temporarily increase the loan guarantee to 90 percent as an incentive to banks to lend.

The administration believes this increase will reduce the risk lenders face when they make loans to borrowers who cannot find credit elsewhere, and ultimately give the banks more confidence to sell and make more loans, the officials said.

The second program, the "504 program," guarantees up to $4 million worth of economic development projects for small businesses. Starting Monday, the administration will temporarily eliminate fees for lenders and borrowers on any new 504 applications. The aim is to reduce the costs to both borrowers and lenders participating in the program, the officials said.

The administration will also temporarily eliminate the up-front fees for 7(a) loans that banks charge borrowers. These fees go up to 3.75 percent for larger loans. The administration believes this will decrease the cost of borrowing for small businesses and make it easier for them to get the credit they need to make new investments, the officials said.

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