President Obama, to his credit, discussed at length during his State of the Union address the importance of small businesses to the creation of jobs and the real growth of our sputtering economy. Shortly thereafter, the administration announced a $30 billion allocation of Troubled Asset Relief Program funds to community banks for small-business lending.
The Latino Business Chamber of Greater Los Angeles, motivated by the lack of details in this Tarp proposal and a desire to avoid repeating recent failures to coordinate policy with implementation, convened on March 1 senior leaders from eight financial institutions with unique knowledge of small-business lending in the eighth-largest economy in the world, California. They included representatives from very small, midsize and large community banks, as well as from two banks that are considered "too big to fail."
The most important idea raised at the bankers meeting was not to limit the $30 billion to community banks, since many face significant short-term financial problems (300 to 500 are expected to fail this year). Instead, make available up to half the $30 billion to the roughly 800 community development financial institutions, or CDFIs, nationwide that combine small-business expertise and a readily available pipeline of small-business borrowers.
The second key suggestion also relates to small community banks facing failure. Tarp funds should be available not just to banks with assets of less than $10 billion, but to any true community bank. This is consistent with the administration's recent transformation of small community banks into midsize community banks through the purchase of failing banks. It also addresses small banks less interested in serving small businesses within their communities than in adding assets without consideration for the local small-business community.
We would offer five other suggestions to ensure Tarp funds are quickly released and effectively spent:
- Consider a quick boost in SBA funding.
- As an incentive to participate, remove all onerous Tarp constraints from participating banks.
- Expand loan guarantees for up to 10 years to meet the special needs of small businesses,
- Provide up to $1 billion in technical assistance to CDFIs and other small-business organizations to ensure the success of small businesses that secure these loans.
- Set aside $1 billion specifically for micro enterprises.
In mid-March we will meet with key administration officials to discuss this issue. We will also meet with the leadership of the black and hispanic congressional caucuses, since they have been the leading advocates for the creation of job opportunities for those hardest hit by unemployment, the non-college-graduate blacks and Latinos. Even $30 billion in Tarp funds may not be enough, given the needs, but it could be a very good start.
¡Vamonos Presidente Obama!