President Obama Announces Aid for Small Businesses

Watching the government bail out industry giants on Wall Street with billions of dollars in aid may seem disheartening for small business owners. But on March 19, 2009, in an effort to support Main Street as well, President Barack Obama and US Treasury Secretary Timothy Geithner announced a new initiative to help small businesses stay afloat.

In a meeting with small business owners, Obama called small businesses "the heart of the American economy" and introduced a plan that would pump $15 billion of lending money to banks and businesses. "[Small businesses] are responsible for half of all private sector jobs—and they created roughly 70% of all new jobs in the past decade," the President said.

As early as the end of this month, the Treasury Department will start making "direct purchases of securities backed by loans guaranteed by the Small Business Administration," (New York Times, March 16, 2009). This is in hopes of jump-starting the secondary market, where lenders can sell parts of a loan to build capital for additional loans, a process which the economic crisis has impacted severely.

Here are the main provisions of this latest governmental aid program aimed at supporting small business:

• The Treasury Department would purchase some of the small business loans that currently lock down regional banks and lenders. Banks will be able to sell securities to the Treasury Department and the loans would be backed by the Small Business Administration.
• According to the Chicago Tribune, the funding for these securities is to come from the $240 billion dollars approved by Congress as part of the Troubled Asset Purchase Program (Chicago Tribune, March 16, 2009).
• With some of the credit unlocked, regional banks and lenders will be able to start extending new loans to small businesses.
• The 21 largest banks in the US that receive the governmental aid will have to report the amount of money they lend to small businesses.
• As part of the program to help businesses, the IRS will allow small business owners to claim losses not just from 2008, but from the past 5 years on their 2008 tax returns. This would mean a rebate on taxes paid in previous years.
• Additionally, small businesses will be able to write off up to $250,000 worth of "qualified investment" this year, such as purchases of new equipment, (White House briefing, March 16, 2009).

US Treasury Secretary Timothy Geithner cautioned lenders. "Banks need to make the extra effort to make sure that good loans are getting to creditworthy small businesses in order to serve the larger public good of moving this nation to recovery," (Chicago Tribune, March 16, 2009).

While elements of this aid program may not help or be the ideal solution for all small business owners, the government is attempting to focus on a range of market segments, not just Wall Street. "You deserve a chance," President Obama stated. "America needs you to have a chance."

Sources:

"Remarks By The President To Small Business Owners, Community Lenders And Members Of Congress." White House Briefing, March 16, 2009.