May 19, 2010 / 3:04 PM / 10 years ago

Congress to advance Obama's small business lending plan

WASHINGTON (Reuters) - A $30 billion proposal by President Barack Obama to spur lending to small businesses could be taken up in the House of Representatives as early as next week, said a leading House Democrat.

U.S. President Barack Obama greets a worker during a shift change during his visit to V&M Star, a manufacturer of steel products, in Youngstown, Ohio, May 18, 2010. Obama made a statement on the economy at the site. REUTERS/Jason Reed

House Financial Services Committee Chairman Barney Frank said at a hearing on Tuesday the House would act on the bill next week if the committee approves the bill as expected today despite objections from committee Republicans.

The administration on Tuesday made its case for the new lending program, arguing that small businesses have been especially hurt by a financial crisis they did not create.

“Small businesses who have been responsible have been very deeply hurt in this financial crisis by those who have not been responsible,” Gene Sperling, counselor to Treasury Secretary Timothy Geithner, told the Financial Services Committee.

“This has been damaging not only to those small business owners but also to our economy because we need small business job creation to help make this recovery a strong job creation recovery,” he added.

But Republicans voiced opposition to the plan, arguing it was the wrong prescription for battered small businesses and would encourage more government involvement in private businesses along the lines of the $700 billion Wall Street bailout known as the Troubled Asset Relief Program.

“I count myself as one of those who wants to see all bailouts brought to an end,” said Representative Spencer Bachus, the top Republican on the panel.

Sperling said the program was needed because lending to businesses remains tight. He said the proposed $30 billion program could spur as much as $300 billion in lending to small firms by independent community banks. The proposal is likely to be joined with other legislation backed by the administration that would provide financial support for state small business lending programs as well.

CREDIT REMAINS TIGHT FOR SMALL FIRMS

A study released on Tuesday by the congressional Joint Economic Committee said that hiring by small business continues to decline even as larger firms have begun to increase staff. It blamed an inability of smaller firms, a major source of job growth in the U.S. economy, to access credit from banks.

“The tightened credit conditions experienced by small businesses have curtailed their ability to meet payroll or produce the products and services that are in demand,” the report concluded.

House action on small business lending would come as Obama and congressional Democrats try to focus more on the economy and jobs ahead of the November congressional elections. Despite recent employment data showing new job creation, the unemployment rate remains stubbornly high at 9.9 percent.

The economy and high unemployment is contributing to voter unrest ahead of the elections in which Republicans hope to regain control of Congress.

Obama originally proposed carving out the $30 billion from the $700 billion Wall Street bailout program. But community banks, which are a major source of small business credit, are reluctant to be associated with the TARP program, fearing it would tarnish their reputations.

As a result, Democratic backers stressed that the program would not be part of TARP. Frank said lawmakers will have to find a way to pay for the program but noted that the independent Congressional Budget Office said that while the program would cost money in the first five years, it would more than pay for itself over 10 years.

The plan calls for the government to inject capital into independent banks. In return the banks would pay the government a dividend, but the dividend rate would decline as their lending to small businesses increased.

The Independent Community Bankers of America voiced support for the program at the hearing as did the American Institute of Architects.

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