President Obama is expected to announce Monday additional government help for small businesses seeking loans in the tight credit market, an administration official said.
The official said the measures will mainly improve the Small Business Administration’s two biggest lending programs, under provisions included in the administration’s new stimulus plan: The SBA’s 7(a) program provides a government guarantee on loans of up to $2 million; the 504 program provides a guarantee on loans of up to $4 million for major small business economic development projects that can be crucial for job growth and community development.
The SBA typically guarantees about $20 billion in loans annually, but the official said SBA-backed loans are “trending” to less than $10 billion this year.
“The market for credit to small businesses is completely frozen in an already terrible credit crisis,” said Austan Goolsbee, a member of the president’s Council of Economic Advisors, on FOX News Sunday. “This has been one of the most devastating aspects for job growth -- is that small businesses which previous to this crisis had the funding they needed to grow jobs have completely lost that. And so we're trying to reignite through direct intervention the small business credit market so that they can... expand. That’s coupled with the pieces in his budget that are geared toward small business specifically.”
Among other steps, the Administration will:
--raise SBA guarantees in the 7(a) program to up to 90% of the loan, to reduce the risk lenders take when they make small business loans. The current guarantees are up to 85% for loans below $150,000 and up to 75% for larger loans.
--temporarily eliminate upfront 7(a) loan fees that lenders pass on to borrowers, to reduce the cost of capital for small businesses. The fees go up to 3.75% for larger loans.
--temporarily eliminate borrower and lender fees for 504 loans.
The changes are expected to be effective on Monday. The official did not provide an estimate of how much they will cost the government.
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