Obama admin mulls bailout funds for small business

WASHINGTON, July 10 (Reuters) - The Obama administration is considering a plan to help small businesses through the economic downturn by diverting some of the billions of dollars approved by Congress for bank bailouts, but the idea is at a very preliminary discussion stage, officials said on Friday.

The proposal to shift part of the $700 billion bank bailout program to millions of smaller firms would allow the administration to help one of the largest sources of job creation in the U.S. economy.

The idea is among many possible economic support efforts that have been discussed by the U.S. Treasury, White House and Small Business Administration, but no decisions are imminent.

“There has been no determination,” said one administration official. “There have been many, many ideas and many possible steps that have been thrown out for consideration among the members of this administration, so any consideration of this idea is extremely preliminary.”

The Washington Post on Friday reported that Treasury Department officials are floating the idea of using bailout funds to expand a Small Business Administration program that helps small businesses borrow money from banks at low rates.

Under that plan, lines of credit for small companies could be increased. The government would step in and repay a loan, maybe as much as 90 percent of it, if a company defaulted.

At a White House meeting last week, Treasury Secretary Timothy Geithner showed support for the proposal while National Economic Council director Lawrence Summers had reservations, but neither has taken a final stand on the plan, the Post said.

The newspaper said administration officials told it discussions are in the early stages and a final plan is not likely before autumn.

The internal debate over using some of the financial bailout money to help small business comes as market confidence in the stabilization of the economy has weakened, and rising concern about continued job losses.

President Barack Obama and Democrats are trying to fend off criticism from Republicans that a $787 billion economic stimulus is not working, and some are discussing the possibility of a second stimulus plan.

At a House of Representatives hearing on Friday, Geithner said the stimulus program was “on its expected path” in putting money in taxpayer pockets, and promised that infrastructure investments would have their “maximum effect” on the U.S. economy in the second half of the year.

Using funds from the Troubled Asset Relief Program would provide a source of already approved funds, but it could cause anger among members of Congress who approved the program to keep the financial sector from collapsing.

After 10 large banks returned $68 billion in taxpayer funds last month, the Treasury has about $127 billion in uncommitted TARP funds at its disposal. (Reporting by David Lawder and Tom Doggett; Editing by Gary Hill)