We’ve heard how difficult it is for small businesses to secure bank loans, a new Fed report says that banks have been very willing to issue small business credit cards.

About 75 percent of applicants in 2009 were approved for small business credit cards, according to the report . Even among businesses considered high-risk, 72 percent were approved for a credit card.

In general, credit card loan terms are worse than regular loan terms. The average interest rate on a business credit card in 2009 was about 12 percent and cash advance interest rates 20 percent or more, says the report.

Credit card issuers can also change the terms of the loan or revoke credit card lines altogether. Business credit cards are not subject to the consumer protection afforded by the credit card reform bill passed last year.

While over 80 percent of small businesses use credit cards, only 12 percent borrow (carry over a balance from month to month) on credit cards.

If small business owners worry about borrowing on credit cards, they won’t invest in long-term businesses planning or growth, says CNN.com . And that means they won’t invest in hiring, the linchpin in reviving the economy.

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.

Several small business owners met in Washington last week with Treasury Secretary Timothy Geithner and Small Business Administration chief Karen Mills to talk about their struggles during the worst economic crisis since the Great Depression.

The business owners discussed trouble getting credit and government regulations they said are hampering their operations, among other topics.

Woody Hall, the chairman and president of Diversapack, a film manufacturing company operating in several states, said the credit crunch is hampering his company’s growth. “We just opened up a new manufacturing facility employing 50 employees and expected to grow to 150 over the next few years. We basically had no bank financing,” Hall said, according to the Washington Post.

Former chief economist for the World Bank Joseph Stiglitz said exorbitant credit card fees are hurting small businesses and the government needs to address that. According to the Washington Post, Stiglitz said the exchange fee on purchases is “a 2 percent tax on all small businesses. A lot of them have small margins. Imagine you’re got a small margin and you’re giving half of that to banks on exchange fees — how aggravating.”

Geithner acknowledged the government needs to find a way to compel banks to extend more loans to small businesses.

The administration plans to expand a $5 billion tax-credit program intended to aid economically distressed communities across the country, Treasury Secretary Timothy Geithner announced Friday.

The president’s 2010 budget plan doubles funding for the Community Development Financial Institutions fund, which helps provide loans to small businesses and consumers in disadvantaged communities that lack access to affordable credit, reported the Wall Street Journal.

The tax credit program, funded by the economic stimulus package, will reward private sector companies that invest in energy, education, health care and manufacturing projects to create jobs in low-income areas. The credit would cover 39 percent of the cost of the investment over a seven-year period.

The Obama administration announced recently it will expand its $50 billion housing aid plan to help more homeowners avoid foreclosure.
The changes, aimed at homeowners who do not qualify for other aid, will make it easier for them to sell their homes for less than the cost of the mortgage or transfer ownership to the lender.

The president’s Making Homes Affordable program, launched in March, reimburses mortgage companies that modify borrowers’ loans to help homeowners make the payments and keep their homes. To qualify for a modified loan, borrowers must provide proof of income and a letter stating why they need help.

Companies have made more than 55,000 offers to modify borrowers’ loans, according to the Associated Press.

Some mortgage brokers complain the loan modification plan is too complicated.

“Our experience at the ground level has been, so far, frustrating,” Michael van Zalingen, director of homeownership at Neighborhood Housing Services of Chicago, a counseling group, told the AP. Some mortgage company employees are either steering borrowers away from the plan or are unaware of it, he said.

Not all homeowners will qualify for loan modification. But Faith Schwartz, executive director of Hope Now, a mortgage industry group formed in response to the foreclosure crisis, told the AP, “This is a very well-thought out plan. People have to be a little bit patient.”

The recent revisions are meant to help borrowers who owe significantly more on their mortgages than they can afford to pay and so don’t qualify for the loan revision program.

In the first quarter of 2009, foreclosure filings topped 800,000, according to RealtyTrac, an online marketer of foreclosed properties.