Obama Plans to Spur Small-Firm Lending

President Obama will announce a series of initiatives today aimed at boosting credit to small businesses, an administration official said, as the White House tries to address a complicated issue many believe is a drag on the economy.

The White House will move to increase the caps on existing Small Business Administration loans. It will also include measures to make it easier for small banks to gain access to funds from the Troubled Asset Relief Program.

The White House has faced criticism on multiple fronts related to small banks and small-business lending.

Many community banks have complained that the Bush and Obama administrations moved swiftly to direct taxpayer money to large banks but made it harder for community banks to qualify. Small businesses also have complained that government programs do not do enough to free up credit for their needs.

The Treasury Department is still working out details of the program, including how much it will cost banks to participate. The administration wants to make it less expensive for banks to get Tarp funds by reducing the 5% dividend that financial institutions currently must pay, according to people familiar with the matter.

The Treasury may also offer banks other to-be-determined incentives to encourage their participation. Any bank that wants to take part would have to give the government a plan showing how it would lend to small businesses.

It is unclear whether banks would use the program. A potential stumbling block is a legal requirement that anyone participating in Tarp sell warrants to the government giving the United States the right to buy common stock at a set price.

Congress intended the government to make a profit on these 10-year warrants, and some banks have complained that the government is charging a premium for buying back the instruments.

A $15 billion Tarp program to buy SBA-backed loans has struggled to get off the ground amid concerns about the warrants, as well as Tarp executive compensation restrictions. The program, which Obama announced last March, has yet to begin buying loans.

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