Under the plan, the Troubled Assets Relief Program will change gears from assisting troubled big banks to aiding small businesses. The new initiative would include capital injections into small community banks to encourage lending to small businesses and an increase the cap for existing Small Business Administration loans from $2 million to $5 million.
“Over the past decade and a half, America’s small businesses have created 65 percent of all new jobs in the country,” President Obama said Wednesday, announcing the initiative at a small storage company in Landover, Md., northeast of Washington, D.C. “These companies are the engine of job growth in America,” he said. “They fuel our prosperity. And that’s why they have to be at the forefront of our recovery.”
Listen to President Obama’s remarks:
Community banks with less than $1 billion in assets will be allowed to borrow money from the Troubled Assets Relief Program at a 3 percent interest rate, lower than the previous 5 percent. In order to qualify for the lower rate, banks will have to show how they will lend to small businesses and provide regular quarterly updates on their books.
Community-development financial institutions, which provide credit to low-income areas, will be able to borrow money from the TARP at a 2 percent rate.
Congress will need to approve raising the Small Business Administration’s loan cap. Legislation is already moving forward in the House.
The new focus of the TARP comes as the administration is under pressure to spur job creation. Unemployment has risen, even as the wider economy has shown signs of recovery.
President Obama sought to connect job creation with the growth of small businesses in announcing the initiative Wednesday.
“These entrepreneurial pioneers embody the spirit of possibility, the tireless work ethic, and the simple hope for something better that lies at the heart of the American ideal. And they have always formed the backbone of the American economy,” he said.
“They’re the ones who’ve opened the mom-and-pop stores and started the computer tinkering that has led to some of the biggest innovations and corporations in the world. After all, Hewlett Packard began in a garage. Google began as a research project. And McDonald’s started with just one restaurant.”
The TARP fund is set to expire at the end of the year, but the administration can request an extension until next October.