$20 Billion In New Aid For Small Businesses

The Obama Administration plans to funnel up to $20 billion from the stimulus plan into efforts to aid small businesses in a broad package of initiatives to be announced on Monday.According to the Associated Press, the plan "includes $730 million from the stimulus plan that will immediately reduce small-business lending fees and increase the government guarantee on some Small Business Administration loans to 90%. [Currently, the maximum guarantees are 85% of loans under $150,000 and up to 75% of larger loans.]The government also will take aggressive steps to boost bank liquidity with more than $10 billion aimed at unfreezing the secondary credit market."

According to Reuters, the administration also plans eliminate a number of borrower and lender fees on loans originated through its main loan program and a program to encourage long-term borrowing for major fixed assets like land and buildings.

The key, according to the AP, is boosting liquidity by restoring the frozen secondary credit market for SBA loans, freeing up more private money to be lent to small businesses. Apparently, SBA loan guarantees are tracking at less than $10 billion this year, down about half from the typical $20 billion per year rate.

Much of the information came out in the Sunday morning political talk shows this morning. Reuters reports that Christina Romer, chair of the White House Council of Economic Advisers, told Meet the Press that the government would pump "a significant amount" of money into encouraging small business lending but did not give a total figure.

"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 of the secondary market in SBA loans has virtually disappeared," Romer said. "So one of the things that we will be announcing is a program to get that market cleared and working again," she added. "Basically, the government will go in and step up and buy those loans if there aren't private investors to do it."

And Lawrence Summers, head of the White House National Economic Council, told ABC's This Week that the small businesses plan was part of the president's overall effort to "put in place a program that addresses the crucial problems and permits (economic) stability to be regained."

Even though Obama and Treasury Secretary Timothy Geithner won't announce the plan until Monday, the AP quotes Giovanni Coratolo, director of Small Business Policy at the U.S. Chamber of Commerce, calling the plan "a huge step in the right direction. In this economy, having the least amount of risk for banks will incentivize banks to lend to small businesses. A lot of small businesses will benefit from this."