The federal government is putting the final touches on a $15 billion plan to use bailout funds to buy up small business loans, the latest in an evolving series of efforts to spark liquidity in the credit markets.
The credit market for small businesses has improved since the plan was announced in broad form in March, with loan volume up 45 percent for one of the most popular lending programs.
But regulators say that easing the market for Small Business Administration loans, which are issued by private banks but backed by the federal government, will inspire confidence in the system and act as a backstop in case credit freezes up again.
"Despite the improvement we have seen in part due to the announcement of our policy, we feel that with small businesses facing such an uncertain economic environment, a strong secondary-market policy is still a critical piece of any larger effort to help small businesses lending," Gene Sperling, a senior Treasury Department advisor, told the Washington Post.
A number of rules imposed by Congress on the distribution of money from the Troubled Asset Relief Program have caused delays in getting the SBA program off the ground.
Among these rules is a requirement that the government take an ownership stake in any company from which it buys SBA loans. This is impossible in certain cases because some of the firms involved are privately held and have no shares to sell, while others are merely divisions of larger publicly traded companies but do not issue shares in their own names.
To work around this problem, the companies will "issue stakes to the government and then repurchase them immediately," the Post reported. Although details about the mechanics remain vague, officials told the paper they thought this would satisfy congressional mandates.
The credit market for small businesses has improved since the plan was announced in broad form in March, with loan volume up 45 percent for one of the most popular lending programs.
But regulators say that easing the market for Small Business Administration loans, which are issued by private banks but backed by the federal government, will inspire confidence in the system and act as a backstop in case credit freezes up again.
"Despite the improvement we have seen in part due to the announcement of our policy, we feel that with small businesses facing such an uncertain economic environment, a strong secondary-market policy is still a critical piece of any larger effort to help small businesses lending," Gene Sperling, a senior Treasury Department advisor, told the Washington Post.
A number of rules imposed by Congress on the distribution of money from the Troubled Asset Relief Program have caused delays in getting the SBA program off the ground.
Among these rules is a requirement that the government take an ownership stake in any company from which it buys SBA loans. This is impossible in certain cases because some of the firms involved are privately held and have no shares to sell, while others are merely divisions of larger publicly traded companies but do not issue shares in their own names.
To work around this problem, the companies will "issue stakes to the government and then repurchase them immediately," the Post reported. Although details about the mechanics remain vague, officials told the paper they thought this would satisfy congressional mandates.
published July 22, 2009, 0 Comments
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