The Treasury Department announced a new credit plan on Tuesday intended to spur $20 billion in small business lending, especially to minority-owned businesses.

The new program is modeled after state initiatives known as capital access programs (CAP), in which borrowers, lenders and local economic development entities contribute a certain percentage to an investment fund that is used as collateral to support loans issued to borrowers, according to the Dow Jones Newswire.

CAPs have a strong record of lending to minority and women-owned business that may have had trouble getting credit or faced discriminatory lending practices.
Some critics worry that the new program might have some of the same problems that plagued the TARP plan. TARP funneled money to large and mid-size banks in order to boost small-business lending but it remains to be seen if that’s actually happened, said Dow Jones.
The Federal Reserve and FDIC have made a priority of bringing local business leaders and community banks together, an effort praised by the National Minority Business Council President and other groups.
“As a society, we must level the playing field and make capital more available to small enterprises,” Javier Palomarez, president of the U.S. Hispanic Chamber of Commerce.

Republican Sen. Olympia Snowe has introduced a bill to immediately end the American Recovery Capital loan program. The legislation would return $153 million in unspent ARC money to the Treasury.

The Maine senator says that the ARC program has been plagued by problems, most notably the high loan default rate.

New York Times financial blogger Robb Mandelbaum disagrees that the high default rate is the biggest problem with the ARC program. Mandelbaum writes:

“As Agenda readers know, the initiative has been flummoxed by its own design: Congress wrote the loan limits too small and the terms too generous for banks to profit from making the effort. Further, the impossible mandate of targeting struggling yet ‘viable’ businesses, coupled with Congress’s demand for rigorous accountability on stimulus spending … led inexorably to strict underwriting standards from the SBA Bankers, fearing they won’t be reimbursed for bad loans, have meanwhile adopted an even more cautious stance, disqualifying apparently worthy applicants.”

Snowe, the top-ranking Republican on the Small Business Committee, was a driving force behind the initial legislation, says Mandelbaum.

The House recently passed a bill that would extend the ARC loan program with a few tweaks, such as increasing loan limits and making the application process easier. It seems unlikely, however, that the bill will pass in the Senate.

It’s not all bad news for small businesses. Fifty Milwaukee-area small businesses were approved for SBA-backed loans in September and October to expand facilities, move into new ones or buy equipment, according to an article in the Business Journal of Milwaukee.

The businesses applied for those loans, ranging from $200,000 to $2 million, after the passage of the federal stimulus package in March which provided for higher SBA-backed loan guarantees and reduced fees to encourage more bank lending.

The Obama administration’s plan to raise the maximum amount for SBA-backed loans from $2 million to $5 million could further energize area small businesses, Wisconsin SBA director Eric Ness told the Business Journal’s Rich Kirchen.

“There’s a lot of pent-up demand from a lot of successful small businesses who want to grow,” Ness said.

The largest loans in Wisconsin went to businesses in the metal industry, commercial printing, outdoor furniture manufacturing and food packaging, said the article.

Greg Huffman, owner of a family-owned hunting supply business, completed a $1.6 million facilities expansion thanks to the attractive SBA-backed lending terms and lagging real estate market.

“You might see ups and downs, but when you have a passionate customer base, they’re with you through thick and thin,” Huffman told the Business Journal.

President Barack Obama’s stimulus bill promises billions of dollars to get the economy back on track, but many small business owners are still struggling to understand how to get their share of the stimulus pie.

To encourage banks to fund small business loans, the Treasury Department plans to buy $15 billion worth of securitized SBA-backed loans using funds from the bank bailout program, Dawn Williams writes in the Nashville Examiner.

The SBA also created the American Recovery Capital loan program, which provides deferred-payment loans to small businesses unable to pay current debt. No-fee ARC loans are interest free. Click here to find out more.

Small businesses also can take advantage of a number of tax cuts and credits, Williams writes. Among other provisions, businesses that sell goods and services to the government, businesses that reduce debt and businesses that invest in new plants and equipment in 2009 are eligible for tax breaks.

Find out more at: http://usgovinfo.about.com/od/moneymatters/a/ecstimtaxes.htm.

After an outcry by small community banks, the Federal Deposit Insurance Corp., announced last week that big banks would have to pay a larger share of the FDIC levy.

The FDIC fund, which covers bank deposits against loss, is being drained by the failure of many banks.

The five-member FDIC board voted to collect an additional $5.6 billion from the industry, raising the total annual bill to $17.6 billion, the Washington Post reported.

And in a controversial move, the board also voted to charge the largest banks — those with at least $100 billion in assets — about $500 million more of the assessment than it previously planned, said the Post.

FDIC Chairman Sheila C. Bair said big banks should shoulder more of the burden because of their role in causing the country’s current financial crisis.

Small banks celebrated the decision, saying the majority of federal rescue funds are going to large banks.

Credit card companies face stricter regulations designed to help consumers under a sweeping reform bill signed by President Obama last week.

The reform measures include restrictions on interest rate increases, penalty fees and offering credit to college students.

The banking industry lobbied hard against the bill, but proponents of the changes say loose regulations on credit cards helped create the economic crisis the country faces now and have kept consumers from digging out of debt during the recession.

At the bill signing May 22, the president called the credit card reforms “common sense.”

“We’re not going to be giving people a free pass and we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives,” Obama said, reported USA Today.

With no cap on interest rates or fees, some consumer groups say the new regulations do not go far enough.

About 90 million American households carry credit cards, with an average debt load of more than $10,500, according to CardTrak.com

The $787 billion stimulus plan will double funding for organizations that lend in low-income neighborhoods, a move designed to spur revitalization in areas left behind even before the recession hit.

Local thrifts, banks and non-profits, between the stimulus and the 2010 Obama budget can expect about about $400 million over two years, “a huge increase from the roughly $50 million the Bush administration proposed in 2008,” according to an April 16 USA Today story.

While the coffers of big banks remained shut tight for most borrowers, demand stayed strong at Community Development Financial Institutions, or CDFIs.

The head of one CDFI told the paper his staff has seen “a surge in calls from traditional clients and established businesses that haven’t been able to get loans as regular banks tighten standards or have less capital to lend against.”

Others echoed that experience, saying they couldn’t keep up with demand.

Champ Hall, a small business owner, used the CDFI Community First Fund to launch his business 10 years ago. After being rejected by traditional banks, Hall has since expanded throughout Pennsylvania.

“I got denied. No bank would help with my project,” Hall told the paper.

Community development is the primary mission of CDFIs and they can function as a loan fund matched with private contributions or as a credit union.

There is some talk of closer regulation as the banks become more influential, but right now, getting cash to disburse to needy communities appears to be the top issue.

“Even after the water is calm, there’s a lot more work for us to do,” Donna Gambrell, director of the Treasury Department’s CDFI Fund, told USA Today. “This program fills a void for at-risk borrowers in the financial mainstream.”

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 massive $789 billion stimulus package just passed by Congress contains plenty of cash to shore up ailing banks, but little in the way of direct spending for small businesses, a Feb. 11 report by The Associated Press said.

“The plan does extend two provisions of 2008’s economic stimulus bill that allow small businesses to take a bigger upfront deduction for the cost of new equipment,” the AP said. “But companies whose sales are hurting may be reluctant to make big expenditures, putting those tax breaks out of reach.”

Raymond Keating, chief economist with the Small Business & Entrepreneurship Council, told the AP small business owners needed something better. “We need incentives in the private sector for people to take risks and expand business. Unfortunately, there’s very little of that in this package,” he said.

The savior for small businesses, economists say, will come when consumers start dusting off their wallets.
“The best thing to happen to small business is if customers come in,” William Dunkelberg, chief economist with the National Federation of Independent Business, a Washington-based small business advocacy group, told the AP.

The big problem with the economy now is “the guy whose job is not at risk has been scared into not spending,” he said, adding the recession’s grip will ease when they start buying again.

In the meantime, small business advocates say extending the Section 179 and bonus depreciation provisions into 2010 because makes more sense because it is unlikely small businesses will be investing much in the near term.

Congress has reached an accord on a $789 billion package of tax cuts and new spending to help get the U.S. economy back on track.

President Barack Obama hailed the deal, saying it will help save or create millions of jobs and “get our economy back on track,” said a Feb. 12 article in Businessworld .

But that optimism came as the economic bad news kept pouring in, including a sharp fall in Chinese imports.

Some 35 percent of the compromise bill provides for tax breaks and the rest in government spending.
Senate Democrats put the jobs figure at 3.5 million, the report said. The package passed on Feb. 11 and was signed by Obama in Denver on Feb. 17.

“…Obama had been pushing Congress to act fast to help reverse the recession he inherited on taking office three weeks ago,” the report said. “U.S. stock markets, hammered the day before by uncertainty over the new administration’s financial recovery effort, reversed losses after (the) news.”

The Dow Jones industrial average gained 0.64 percent on the news, with other stock indices posting similar gains, later lost.

At the same time, on Capitol Hill, lawmakers grilled bankers on how wisely they have spent taxpayer money already received.

For one, Vikram Pandit, CEO of Citigroup Inc., said he told his board he would take a salary of $1 per year until a return to profitability.

The same scenario unfolded in London, the story said. There, a parliamentary investigation is looking into the integrity of the British banking system, which was partly nationalized in the crisis.

The report also said the Commerce Department noted a worldwide drop in demand for goods, driving U.S. imports and exports down for a fifth straight month in December.

“The clear message is that global trade activity has collapsed, as the world economy sinks deeper into recession,” Nigel Gault, chief US economist at IHS Global Insight in Lexington, Mass. told Reuters.