Small-Business Lending Plan Faces a Funding Hurdle

The administration's plan to spur small-business lending hit a big snag Tuesday as House Financial Services Committee Chairman Barney Frank acknowledged the program has no funding source.

"I should say at the outset that there is one thing which … is not here in the bill, and that's how this will be paid for," Frank said at a hearing. "If this bill were to pass unanimously in the House tomorrow or next week, it would not lead to the spending of money until the House and the Senate and the president subscribe to a way to pay for it."

The administration originally planned to tap the Troubled Asset Relief Program, but backed off after it became clear the restrictions of the 2008 bailout program could limit participation.

"After much effort and consideration, we determined we had no choice but to seek new legislation to enable us to help the flow of small-business credit … through efforts completely outside of and separate from Tarp," Gene Sperling, a counselor to Treasury Secretary Tim Geithner, said in prepared testimony to the committee.

Frank's bill expressly says the small-business aid is unrelated Tarp. "It will be entirely separate from the Tarp because we want to get people involved," he said.

But at the hearing, GOP committee members were not convinced, saying the small-business plan appeared to be in the spirit of previous Treasury efforts to invest in banks.

"Real economic growth will not come out of another program run by the Treasury Department," said Rep. Ed Royce, R-Calif.

"While Republicans share the goal of promoting credit availability for small businesses, many of us in the minority disagree that the best method for achieving the goal is to create a new $30 billion program that is not paid for and follows a model of government investment in private business that most Americans want to see brought to an end, and that's the bailout," said Rep. Spencer Bachus, R-Ala., the committee's ranking Republican.

At the hearing, Sperling stressed that the purposes of the two programs are different.

"It is not to bail out the banks," he said of the small-business fund. "It is to encourage more small-business lending because we want small businesses to expand, get credit and create jobs. By taking away the Tarp stigma and giving them more of an opportunity to get more capital" for the "purpose of increasing small-business lending and creating small-business jobs, this is a cost-efficient, high-bang-for-the-buck method to do that."

Despite a lack of funding and Republican opposition, the bill is expected to be approved by the committee on Wednesday and by the full House next week. How the Senate will handle it is unclear.

Assuming Congress does eventually appropriate the funding, Treasury officials said they expect the program to pay for itself over the long term.