A new requirement by the Obama administration will hopefully spur the 21 largest banks receiving U.S. government money to lend more to small businesses.

The new rules, outlined in a March 16 Associated Press story, have those banks reporting monthly on how much they lend to small businesses. All others are being called upon to make an “extra effort” to boost small business lending.

The announcements came March 16 as part of a broad package aimed at small business that was being unveiled by President Barack Obama and Treasury Secretary Timothy Geithner, the AP said. The package also includes reduced small business lending fees and an increase on the guarantee to some Small Business Administration loans.

“We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them,” Christina Romer, who heads the White House Council of Economic Advisers, told the wire service. “There are already a lot of things to help them in the recovery package, and some of what will be coming out are the things that were in the recovery package: increasing the SBA loan guarantees, lowering fees.”

Republicans appeared to embrace the efforts, but with some qualifications.

U.S. Rep. Eric Cantor of Georgia said: “We’ve got to do something to help these small-business people. We know that they’re the job creators in this economy. And the problem … I think we’re seeing out of the Obama administration is a lack of focus on how to get things going again.”

The new measures have the government stepping in to buy loans, temporarily eliminate upfront fees of up to 3.75 percent and some processing charges on certain SBA loans typically passed along to borrowers, the AP said. It also increases the government guarantees on certain loans to 90 percent, up from 85 percent for loans below $150,000 and 75 percent for larger loans.

The federal government is pouring cash into huge financial firms with very little oversight while even the slightest hand out to small business owners brings “we-need-scrutiny naysayers” out of the woodwork, says journalist JJ Ramberg of “Your Business.”

Ramberg, who anchors the MSNBC weekly show on small business, continued in her March 18 blog post:
“Maybe I’m missing something here, but small businesses are the lifeblood of the economy, and they are struggling right now largely through no fault of their own. They can’t get loans because the big boys messed up the system; and the faltering economy — caused in large part by the big financial firms — is also taking a big bite out of their sales,” Ramberg wrote. “All they want is a little bit of a break. So many entrepreneurs I’ve profiled in this blog — and many of the ones who post comments here — are struggling to keep their doors open.”

The impetus for her outrage came from a recent proposal by President Barack Obama to boost declining lending on Small Business Administration-backed loans. The idea was to do such economy-stirring efforts as directly purchasing up to $15 billion of securities backed by loans from the SBA, eliminating fees and increasing loan guarantees.

But it soon ran into criticism, she said, citing a Wall Street Journal story that worried the Obama administration could be creating incentives for another run on unwise credit and create a huge pool of unregulated money.

“I’m all for putting a lid on the bailout free-for-all with tougher standards and regulations,” she wrote, “but isn’t it odd that when small businesses want a helping hand suddenly the scrutiny reaches a fever pitch?”

The head of the U.S. Small Business Administration said the latest version of a government plan to pry loose lending markets will help small businesses.

Acting SBA Administrator Darryl K. Hairston in a Feb. 10 release praised the Federal Reserve Bank of New York and the latest version of its Term Asset-Backed Securities Loan Facility, or TALF.

“If we want to thaw the credit markets for small businesses, we absolutely have to get the secondary market for small business loans moving again. TALF is a critical element in doing that,” he said. “SBA supports this program and we’re glad the TALF is moving forward with some changes we asked for that will make SBA lending more attractive for 7(a) and 504 program lenders.”

The goal of TALF is to help unfreeze recession-battered credit markets and its revised terms and conditions were announced on March 3 by the Federal Reserve of New York.

The revisions include a reduction in the interest rates and collateral haircuts — a percentage subtracted from the market value of the collateral — for loans secured by asset-backed securities guaranteed by the Small Business Administration or backed by government-guaranteed student loans.

The Reserve said in a release that TALF was “designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities. These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.”

Under the announcement, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans.

Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17, the Reserve said.

On March 25, those new securitizations will be funded by the program, creating new lending capacity for additional future loans, it said.

The program will hold monthly fundings through December 2009 or longer if the Federal Reserve Board chooses to extend the facility.

“SBA is optimistic the TALF will help unfreeze the secondary markets and help restore liquidity to the small business lending industry,” Hairston said. “We’re going to keep working closely with the Federal Reserve and the Treasury to make this program successful.”

The head of the U.S. Treasury is making good on a promise to take billions worth of toxic assets off the books of U.S. banks.

In a Feb. 10 Reuters story carried by Businessworld , Treasury Secretary Timothy Geithner was set to lay out a rescue plan based on a mix of public and private funds to wipe clean $500 billion of such troubled assets.

While details were light, Reuters reported that sources said the plan would also extend a Federal Reserve program allowing the U.S. central bank to extend up to $1 trillion in loans.

But what was clear in the days following the announcement was that the U.S. had learned from the shocking failure of investment bank Lehman Brothers, which went under in September, marking the largest bankruptcy in U.S. history, and would not let other banks fail.

The plan also included a huge boost in the government’s stakes in one key bank, Citibank, bringing it up to a possible 36 percent, reports said.

Geither’s plan follows a Feb. 9 press conference where President Barack Obama told reporters that cleaning up banks’ balance sheets was a priority and didn’t rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job, Reuters said.

“We don’t know yet whether we’re going to need additional money or how much additional money we’ll need until we see how successful we are at restoring a level of confidence in the marketplace,” Obama said.

Obama then called on Congress to speedily approve both Geithner’s plan and an economic stimulus package to complement the revamped bank-rescue proposals, Reuters said.

“If you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of,” Obama said. “This is not your ordinary, run-of-the-mill recession, we are going through the worst economic crisis since the Great Depression.”

Geithner, the former president of the New York Federal Reserve Bank, said banks will be closely monitored and tested.

“The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust,” Geithner said in remarks prepared for delivery after the release of the new measures, Reuters said.

Federal banking regulators have issued a “cease-and-desist” order to an Oregon bank they say was engaged in “unsafe” banking practices.

The Federal Deposit Insurance Corp. and the state Division of Finance and Corporate Securities found the Silver Falls Bank to be operating with inadequate capital, having a large number of “poor-quality” loans and engaging in “unsatisfactory” lending and collection practices, according to a Jan. 7 article in the Oregon Statesman Journal.

The charges stem from a routine evaluation conducted by the FDIC and state officials in April.

The order, dated Nov. 24, notes the termination of an employee who received a bonus based on total dollar amount of loans generated, the Statesman Journal said, and that investigators found the worker didn’t adequately assess risk. That arrangement was nixed and future incentives must take into account the quality and risk associated with each loan, the paper said.

Richard Renken, program manager for banks and trusts in Oregon, told the paper it was the first time Silver Falls Bank has faced such charges.

The bank’s President and Chief Executive Officer Stephen Way said many of the stipulations already have been addressed, and that many of them were handled voluntarily.

“The economy changed very quickly at the beginning of the year,” Way told the Statesman Journal. “Homes just stopped selling. And we had a fair amount of construction loans.”

He also noted about 80 percent of the bank’s bad loans derived from the loan officer who was fired in June.

“We’ve made substantial reductions in past-due loans, by approximately a third since November,” Way said, adding that despite the stipulations, business was running as usual and they were making loans and raising capital.

The bank’s deposits are insured by the FDIC for as much as $250,000 per individual account.

This article was submitted by Kathleen O’Connor, a contributing writer for Biz2Credit. Biz2Credit is a small business marketplace that provides entrepreneurs with the latest industry news and financial advice. Send all questions to info@biz2credit.com.

I fielded a call by a small business owner today interested in building credit. The entrepreneur wanted to expand his cleaning service and had read “something about corporate credit” but did not have an adviser to guide him through the process.

Answer: The simplest and easiest way to build business credit is to register your business on www.dnb.com and get a DUNs Number. Corporate clients often verify a company’s track record by checking trade references in Dun & Bradstreet’s database, the largest repository of business information in the world. Visit D&B’s Web site to get your DUNs number.

Personal or business credit reports may contain discrepancies.

For example, sometimes personal credit reports show outstanding student loans for amounts already settled or a late payment fee for a bill that was received after the due date. If you’re relocating your business, keep track of your utility, medical and credit card bills which accrue large late fees if they get lost in the shuffle. All situations lower the individuals score and should be immediately tended to. Personal credit adjustments can take anywhere from two to four months.

Likewise, small business owners should track their business credit report on Dun & Bradstreet (D&B) to check for inaccuracies in the business description, supplier payment history or existing liens on the business. Because D&B reports are self-reporting they frequently contain wrong information. Adverse remarks can affect a business’s ability to procure capital or contracts from the government or large institutions.

Dun & Bradstreet (D&B) is the largest provider of business information worldwide. Lenders and large contractors often check with D&B for background information on a company before granting a loan or assigning a project. It’s important to register your business, or if your company is already registered, review your profile for any inaccuracies that could adversely affect your credit.

What does D&B registration entail?

* Registered businesses are assigned a credit score, establishing legitimacy in the marketplace. Every registered business on D&B list receives a nine-digit code (D-U-N-S Number).

* The U.S. government and many major corporations require their suppliers and contractors to have a D-U-N-S Number.

* Potential customers, suppliers and lenders can easily identify and learn about a company.

Credit usage is the key factor in determining your FICO (Fair Isaac & Co.) score. Characteristics are weighed according to their predictive power. Factors with the highest weights are collections, judgments, bankruptcies, late payments, current balances, too few or too many revolving accounts, finance company accounts, number of accounts opened in the past 12 months and number of credit inquiries.

FICO scoring looks at credit patterns over a period of time. In other words, one late payment will not ruin your credit score. However, a history of late payments and high credit balances can have a serious effect on your score. Here are some things to keep in mind:

* A late mortgage payment will affect your credit score more than a late credit card payment

* Outstanding credit card debt or personal lines of credit should not be more than 50 percent of the total limit

* Frequent credit inquiries drag down your score

* New mortgages which have been duly serviced for a period of at least three months can boost your rating

* Older trade lines weigh in more towards your score

Credit bureaus grant individuals one credit inquiry every year. Any additional inquiries reduce your score. The degree of the score reduction depends on whether the credit inquiry is a soft pull or one used for debt product qualification, like a credit card.

A soft pull is defined as a credit viewing conducted by one bureau or all three (Trimerger Report) to check the score or look for discrepancies. These types of inquiries only affect the credit score minimally (two to three points normally). However, soft pulls done repeatedly during a period of one month can affect the credit score by up to 20 to 30 points.

Likewise, customers shopping for debt products should be extremely careful. Agencies must pull a full report to qualify potential clients. Several detailed credit inquiries over a short period of time can severely damage your score (sometimes by 70 to 80 points) which may stifle your chance of locking in a low interest rate. Lenders view multiple credit inquiries as a sign that you have been turned down by other lenders, therefore flagging you as a credit risk.

To ensure a happy holiday shopping season, be selective and protective of your credit report.