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.

President Barack Obama and Congressional Democrats are laying out plans for job creation packages using some of the $115 billion in TARP money big banks have repaid to the government, said the Wall Street Journal.

One part of the legislation would authorize approximately $110 billion in emergency spending to extend unemployment insurance, fund food stamp increases and subsidize private health insurance for the unemployed.

A second “jobs” bill would cost up to $70 billion and be funded by the bank bailout, said the Wall Street Journal. That plan would funnel more money to municipal projects like highway and bridge building and school construction and repair. Other money would be given as direct aid to state governments that have been forced to cut services and raise taxes to balance state budgets.

And some repaid bailout funds would be lent to small businesses directly from the Treasury, said the Wall Street Journal.

Republicans oppose using the returned TARP money for a jobs bill. Instead, they want to the money to be used to reduce the federal budget deficit.

Democrats, Republicans and the White House all have different ideas on how to spend $200 billion in leftover bailout money.

Senate Democrats want some $40 billion spent on small business loans, said Politico.com.

House Democrats, meanwhile, want to see the additional TARP money spent on various economic projects, such as job creation and homeowner loan programs, to hasten a recovery from the recession.

The Treasury Department wants to use the money to pay down the deficit and create an emergency reserve. Senate Republicans want the money returned to taxpayers.

Treasury Secretary Timothy Geithner told members of the Joint Economic Committee said the administration is eager to end the TARP program but said the country is still facing huge economic problems. “We are working to put TARP out of its misery, and no one will be happier than I am to see that program terminated,” Geithner said.

Alaska Sen. Mark Begich, one of more than two dozen Senate Democrats who support directing some TARP dollars toward loans for small businesses, said his constituents “saw the big banks walk away with these bailouts and then at the same time ended up with huge salaries,” while small businesses received virtually nothing.

Large banking institutions have received the biggest piece of the TARP pie, but small banks are fighting back, pushing the U.S. Treasury Department to send more federal stimulus money their way.

Hundreds of community banks are in danger of insolvency, according to experts, and that is bad news for small business.

“Without some assistance, many stressed community banks aren’t capable of performing their traditional role, and they aren’t going to serve the small business owners who drive much of our economy,” Jeffrey Voss, President of troubled First DuPage Bank in Westmont, Ill., told MarketWatch.com. “Large institutions just aren’t going to help the small business owner.”

Small banks are lobbying for a “matching plan” from the federal government. For example, a small bank could be eligible for $10 million in TARP funds if it could show a commitment of $10 million from private investors, said MarketWatch.com. Those banks would need to show state and federal regulators that they could erase a significant portion of bad loans on their books. The Treasury Department is reportedly considering the plan.

An estimated 500 community banks have received TARP funds – only about 6 percent of the 8,000 small banks in the U.S., said MarketWatch.com.