Despite the fact that America’s small businesses have created nearly 70% of the new jobs in the past decade, small businesses have been largely ignored in Washington’s bailout frenzy — until now. Finally, small businesses are about to get a much-needed shot in the arm. As part of the federal government’s plan to jump-start the economy, President Obama recently announced plans to give lenders $15 billion to free up resources for small business loans through the American Recovery and Reinvestment Act of 2009, popularly referred to as the Recovery Act. The plan would also cut loan fees and increase the share of Small Business Administration (SBA) loans guaranteed by the federal government.
While the media spotlight has been focused on the rescue of big financial and automotive corporations, small businesses have been struggling to weather the same difficult storm. Decreases in consumer spending and the general unavailability of credit have hurt small business owners in material handling, manufacturing and nearly every sector of the economy. With the banks keeping a tight grip on money to shore up their own bottom lines, credit-worthy small businesses have been denied the loan money they need to survive, much less thrive.
By funneling federal dollars into banks that lend to small businesses the Obama administration hopes to increase their financial stability and encourage these banks to start lending again. New loans could not only help small businesses better meet current obligations but also allow them to take advantage of merger or expansion opportunities that present themselves. Small businesses are defined by the feds as businesses with fewer than 500 employees. By working through existing financial channels, economic experts say new loan money will be able to reach small businesses faster.
“American small businesses are one of the strongest engines for economic prosperity in the world, and we can’t let this crisis continue to undermine their growth and potential, said acting SBA director Darryl Hairston in a statement released to the media and widely reported.
The Recovery Act will temporarily rescind the SBA loan origination fee which can be as great as 3.75% of the loan. It will also increase the federal guarantee from 85% to 90% of the loan amount. For complete information on the Recovery Act and its impact on small businesses, visit the SBA website.