FACTBOX: Obama's plan to ease credit for small businesses

(Reuters) - The Obama administration took steps on Wednesday to foster lending to cash strapped small-business owners by offering taxpayer capital to small banks at a lower cost than it had previously.

A lack of sufficient capital for small businesses is weighing on the U.S. economy's recovery from a deep recession.

Small businesses are traditional customers of community banks and usually engines of job creation. They account for more than half of the U.S. non-farm private gross domestic product and employ just over half of all private-sector employees, according to the U.S. Small Business Administration.

Following are highlights of the administration proposals announced by the White House:

* CAPITAL AVAILABLE TO COMMUNITY BANKS

Community banks with under $1 billion in assets, subject to approval by their federal banking regulators, will be eligible to receive capital from the government's $700 billion Troubled Asset Relief program at an initial dividend rate of 3 percent. That compares to the 5 percent dividend the government has been charging banks previously under TARP's Capital Purchase Program, or CPP. Banks will be eligible to receive capital totaling up to 2 percent of risk-weighted assets. The dividend will be increase to 9 percent after five years to encourage repayment.

* COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

Certified CDFI banks and thrifts, subject to approval by their federal banking regulators, will be eligible to apply for capital at a 2 percent rate for up to eight years. These banks provide money to help community development and revitalize neighborhoods. After eight years, the rate will step up to 9 percent. CDFI banks and thrifts will be eligible to receive up to 2 percent of risk-weighted assets. CDFI credit unions, which were not eligible under the existing CPP program, will be allowed to apply for subordinated debt.

* AMOUNT OF TARP FUNDS AVAILABLE TO BE DETERMINED

The White House said the Treasury would work with community banks and small business to finalize program terms, including the amount of capital available to participating institutions and the treatment of institutions that had already received CPP capital from the CPP which want to replace existing capital with investments under the new program.

* INCREASING SBA PARTIAL LOAN GUARANTEE PROGRAM

The White House threw its support behind legislation to raise the maximum size of loans provided by the Small Business Administration's 7(a) program to $5 million from $2 million. The program provides partial guarantees on loans for small businesses that are borrowing to invest in working capital, machinery and equipment, and real estate. The loan size cap has not increased in nearly a decade.

* INCREASING THE MAXIMUM SBA MICROLOAN PROGRAM

The administration also wants legislation to increase the cap on loans provided by the SBA's microloan program, which supports small loans to start-ups and other small businesses, to $50,000 from $35,000.

* INCREASING MAXIMUM LOAN SIZE FOR 504 LOANS

The administration also called for raising the maximum size of loans provided under the SBA 504 program, which provides guarantees on loans for real estate and other fixed assets to small businesses for expansion that will create and retain jobs. The amount would rise to $5 million from $2 million for standard borrowers and to $5.5 million from $4 million for manufacturers.

(Reporting by Nancy Waitz)