The new lending program aims to invest $30 billion in 8,000 banks to provide loans to businesses ready to hire new workers. Funding for the program would come from money returned by large banks to the government's Troubled Asset Relief Program (TARP), and would require Congressional approval.
"Small businesses...have created roughly 65% of all new jobs over the past decade and a half. And I think we should make it easier for them," Mr. Obama said in a statement obtained by The Wall Street Journal. "This will help small banks do even more of what our economy needs: ensure that small businesses are once again the engine of job growth in America."
The cost to a bank for taking capital from the government fund would decline as lending increases, according to a White House fact sheet.
Banks will owe the government 5% interest while using the cash. But that rate could fall to as low as 1% if a bank can show it has produced more small-business lending than it did in 2009. After five years, the interest rate would go up to encourage the banks to quickly repay the loans.
The proposal underscores the administration's contention that small businesses should take the lead in new hiring to reduce the nation's unemployment rate, which the White House projects will average 10% through 2010. On top of his latest proposal, Obama has advanced a measure for an additional $33 billion in tax cuts and incentives for small businesses that add jobs or increase wages beyond the rate of inflation this year.
When it released the 2011 budget blueprint on Monday, the administration also proposed to eliminate all capital gains taxes on small-business investment and raise the limit on Small Business Administration loans from $2 million to $5 million.
Trade groups, including the American Bankers Association and the Independent Community Bankers of America quickly endorsed the proposal, saying they were prepared to work with the administration to assure passage.
But some bankers expressed caution about tapping into funds associated with TARP, fearing bad publicity about the program may make participation more difficult.
"We got lumped in with the Wall Street bailout," Jan A. Miller, the chief executive officer of Boston-based Wainwright Bank & Trust, told Federal Deposit Insurance Corp. officials at a Jan. 28 meeting of community bankers, Bloomberg reported. "Even though they're carving it out of TARP legislation, if it's recognized as TARP, then we run the risk of being tarnished by the bailout."
Administration officials said even though the money would be transferred out of TARP, it wouldn't carry restrictions associated with the bailout, including limits on executive compensation.
The announcement, made in a Nashua, New Hampshire town hall meeting, was the latest example of the president's efforts to communicate directly with the public to overcome "the noise" that he says has hurt his efforts to execute an economic turnaround.
After he admitted in a Jan. 20 interview with ABC News that he "lost some of that sense of speaking directly to the American people," Obama has been cultivating his grassroots political base.
Since the interview, he has delivered a State of the Union address before a joint session of Congress and held another town hall meeting in Tampa, Florida. The president also addressed House Republicans in Baltimore and held a questions- and-answers session on Google Inc.'s (Nasdaq: GOOG) YouTube that was streamed on the White House Web site.
News & Related Story Links:
Wall Street Journal:
Obama to Roll Out Small-Business Lending Program
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