Posted by: John Tozzi on May 25, 2010
President Obama asked Congress today to pass a package of small business initiatives, including a plan to bolster small banks’ lending with $30 billion.
The package also includes $2 billion to support programs at the state level that support private lending, like one in Michigan I wrote about in December. That program helps manufacturers that can’t get loans because the value of their collateral — property, plant, and equipment — has dropped, through no fault of their own. A state fund puts up cash as as collateral to make banks comfortable lending.
That program funded with an initial $13 million from the state, ran through its initial money in four months. A second pool of $13 million will be committed this summer, according to Ned Staebler, vice president of capital access and business acceleration, Michigan Economic Development Corp. The fund still has more than 50 companies in its pipeline seeking $150 million in loans, mostly manufacturers in the auto supply chain that are trying to diversify into sectors like aerospace, alternative energy, or defense. Staebler says a whole class of businesses that need larger loans of several million dollars or more could benefit from the program if the federal funding comes through.
The Obama proposal requires state programs to use public money to support private lending. “These had to be initiatives that went through a financial institution that had skin in the game and where their overall plan was going to leverage $10 of private money for every $1 of government funding,” said Gene Sperling, counselor to Treasury Secretary Timothy Geithner, in a conference call with reporters May 25. Funding the state lending programs at $2 billion would result in $20 billion in lending, Sperling said.
Obama’s initiative would also invest up to $30 billion in community banks. The banks would benefit from a lower interest rate on that capital — as low as 1 percent — if they increase their small business lending by 10 percent over 2009 levels. More on Obama’s announcement from Bloomberg’s Nicholas Johnston.