Obama and Geithner are Expected to Announce a Plan to Increase Lending: the World is Hopeful

This plan is laser focused for SBA

The US Government will today announce a multibillion-dollar plan to boost lending to small businesses in the hope of stimulating jobs growth.

President Obama and Timothy Geithner, the Treasury Secretary, will say that they plan to increase the guarantees available through the Small Business Administration (SBA), which makes loans to small businesses and guarantees bank loans.

Christine Romer, chairwoman of the White House’s Council of Economic Advisers, said yesterday that the Government considered small businesses to be the engine behind economic growth. “We absolutely want to do things to help them,” she said.

Small business has accounted for about 70 per cent of job creation over the past ten years. However, the US unemployment rate hit 8.1 per cent last month and is expected to increase to 10 per cent by the end of the year as the recession bites further.

The SBA currently offers to guarantee 85 per cent of loans up to $150,000 and up to 75 per cent of bigger loans.

However, the amount guaranteed by the SBA is plunging – down from $20 billion in a normal year to less than $10 billion in guarantees expected this year – as banks decline to offer loans to small businesses.

Lenders usually then sell these loans in a secondary market, but this has dried up as investors shy away from the credit market.

Ms Romer said: “We have talked to a lot of small-business owners and one of the troubles that they are having is that community banks don’t want to lend to them because the secondary market in SBA loans has virtually disappeared.”

The Government plans to push up the maximum guarantees offered by the SBA to 90 per cent for some loans, as well as to buy loans in order to get the secondary market moving.

It has not yet said how much it plans to spend on buying loans, but sources indicated that this would range from $10 billion to $20 billion. This in turn would come from the $787 billion economic stimulus package that President Obama announced last month.