Small businesses across the nation breathed a collective sigh of relief today as President Obama rolled out an aggressive plan to strongly encourage big banks and lending institutions to start lending more freely to small businesses and entrepreneurs who have struggled during the recent credit crisis.
Obama addressed a group of small business owners at the White House as he and Treasury Secretary Timothy Geithner provided some details about the plan to “get credit flowing again” for small businesses across the nation. Geithner cited the vital role that small business will play in creating new jobs for the administration’s economic recovery plan, indicating that about 70 percent of all new jobs created in the last ten years have come directly from small business. Small businesses, in particular, have struggled mightily during the credit crisis with access to credit lines, credit cards and loans drying up virtually overnight, putting scores of profitable businesses on the brink of collapse. The administration’s primary goal is to help small businesses meet their payroll and invest in new equipment and new products so that they might maintain or even expand employment in an effort to stem the tide of company layoffs and job losses.
President Obama talked specifically about unfreezing the secondary credit market with his new plan, one of the main reasons for the troubles in the credit markets, with up to $15 billion in government funds aimed at boosting bank liquidity, increasing loan guarantees, and reducing fees. Lenders often look to sell small business loans, SBA loans in particular, on the secondary loan market, the proceeds of which provides new capital to make new loans to small business owners. Obama’s plan includes $730 million from the stimulus package to increase the government guarantee on some SBA loans to up to 90 percent and to immediately reduce small-business lending fees. Cautious investors have been avoiding investment in the secondary credit markets however, bringing a virtual halt to small business lending activity across the board. The Obama administration’s new initiative will step in to buy these SBA loans in an effort to shore up the frozen secondary credit markets. Estimated to cost between $10 billion to $20 billion dollars, the money will be allocated out of the most recent bailout package.
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