White House seeks to free up loans for small businesses

By Nicole Lucht

Friday, March 20, 2009 | 2 a.m.

Small businesses could benefit from a new Treasury program to thaw lending during the ongoing credit freeze, including a promise to turn around loan requests in as little as three days.

Through the Financial Stability Plan — a component of the Emergency Economic Stabilization Act enacted in October — the Treasury is trying to work cooperatively with banks and small businesses.

On March 16 Treasury Secretary Tim Geithner and President Barack Obama announced the program, a complement to the Financial Stability Plan’s Consumer and Business Lending Initiative.

Geithner called on banks — regardless of if they receive financial stability plan assistance — to make an “extra effort” to increase their lending to creditworthy small businesses, especially those that need the loans to operate, expand or add jobs.

The 21 largest banks that are receiving funds through the plan will also have to start reporting how much they lend to small businesses every month instead of once a year. All other banks will have to do the same, but once a quarter. The Treasury added this requirement to keep better track of trends of lending to small businesses.

By the end of the month, the Treasury Department will be buying Small Business Administration-backed securities.

“Across this country, tens of thousands of small-business owners are finding it harder to get the credit necessary to stay in business,” Geithner said. “Credit is essential to economic recovery, and we need our nation’s banks to go the extra mile in keeping credit lines in place on reasonable terms for viable businesses.”

The program encourages banks to lend to creditworthy small businesses by reducing their risk and temporarily increasing guarantees of eligible guaranty-backed flexible loans — or SBA 7(a) loans — to 90 percent. Previously, loans up to $150,000 were guaranteed at 85 percent and larger loans up to 75 percent.

Fees are being eliminated temporarily for SBA loans. The eliminations include processing fees charged to borrowers for long-term, fixed rate financing (SBA 504 loans) and the upfront fees that lenders pass on to borrowers for the guaranty-backed loans. Businesses that paid those fees for any loans approved on or after Feb. 17 are eligible for a refund.

Small businesses could also benefit from tax cuts in the program, allowing businesses with gross receipts up to $15 million to carry back their losses for up to five years. The Treasury estimates this will add $4.7 billion in liquidity for small businesses by the end of September.

And in an effort to promote investment in plants and equipment, small businesses will also be able to write off $250,000 of qualified investments.

Estimated tax payments are also being decreased this year from 110 percent of the previous year’s taxes to 90 percent. There is also a bonus depreciation deduction through the end of the year to allow businesses to take a larger tax deduction during the first year a property is purchased.

To promote investing in small businesses, the program also excludes taxing 75 percent of capital gains for investors who hold their investments for five years.

Another way the government will improve credit for small businesses is by purchasing guaranty-backed loans securities, clearing up a backlog and providing a source of liquidity for banks to lend more.

The Treasury will also buy fixed-rate loans directly, up to $10 million, of projects that support a community’s economic development.

These loans are not guaranty-backed and were traded on a secondary market until the credit freeze hit. By buying these assets, the Treasury hopes to improve the credit market.

“We need every bank in the country to do everything in their power to provide the credit that small businesses need to operate, expand and add jobs,” Geithner said. “You need to make the extra effort to make sure that good loans are getting to creditworthy small businesses to serve the larger public good of moving this nation toward recovery. And given the role many banks played in causing this crisis, you bear a special responsibility for helping America get out of it.”

Small businesses can also visit the Treasury’s Web site about its newest plan at financialstability.gov.

Nicole Lucht covers health care, workplace and banking issues for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached at 259-8832 or at [email protected].