Small businesses form a critical part of the US economy, accounting for nearly 50% of all private sector jobs and generating around $7 trillion in revenue annually. However, access to credit is a significant challenge that many small businesses face, especially in times of economic uncertainty. In response, President Barack Obama announced Obamas Plan to Help Small Business Get Credit to obtain the credit they need to survive and thrive in 2010.
Here is Obamas Plan to Help Small Business Get Credit;
The Obamas Plan to Help Small Business Get Credit was multifaceted and aimed at addressing several key challenges that small businesses face in accessing credit. The plan had several key components:
1. Expanding SBA Loan Programs:
The Small Business Administration (SBA) provides loan guarantees to small businesses that are unable to obtain traditional bank loans. The Obama Administration proposed increasing the loan guarantee amount from 75% to 90% to encourage more lenders to participate in the program. In addition, the administration proposed waiving fees for SBA loans and increasing the size of the loans available.
2. Community Bank Fund:
The administration proposed creating a $30 billion fund to encourage community banks to lend to small businesses. Community banks, which are typically smaller than larger national banks, play an essential role in providing credit to small businesses. However, they have been disproportionately affected by the financial crisis and subsequent recession, which has made it more difficult for them to lend to small businesses. The fund would provide low-cost capital to community banks that agree to increase their lending to small businesses.
3. State Small Business Credit Initiative:
The administration proposed creating a $1.5 billion fund to support state-based small business lending programs. The funds would be distributed to states based on a formula that takes into account population and unemployment rates. States would be required to match the funds they receive and use the money to support small business lending.
4. Increasing Tax Deductions for Small Businesses:
The administration proposed increasing the amount of capital investments that small businesses could write off on their taxes. Currently, small businesses can write off up to $250,000 in capital investments, but the administration proposed increasing that amount to $500,000.
5. Public-Private Investment Fund:
The administration proposed creating a $15 billion fund to invest in securities backed by small business loans. The fund would be managed by private fund managers and overseen by the Treasury Department. The goal of the fund would be to encourage more lending to small businesses by providing a market for securities backed by small business loans.
Impact of the plan;
The Obamas Plan to Help Small Business Get Credit had a significant impact on small businesses’ ability to access credit. The SBA loan program saw a significant increase in lending, with the number of loans made through the program increasing by 16% in 2010. The loan guarantee percentage was also increased to 90%, making it more attractive for lenders to participate in the program. Additionally, the fees associated with SBA loans were waived, making them more affordable for small businesses.
The Community Bank Fund was also successful in increasing lending to small businesses. Community banks that participated in the program increased their lending to small businesses by an average of 26% in the first year of the program. The State Small Business Credit Initiative was also successful in increasing lending to small businesses, with states using the funds to create or expand lending programs that helped small businesses access credit.
The increase in tax deductions for small businesses also had a positive impact on small businesses ability to access credit. By increasing the amount of capital investments that small businesses could write off on their taxes, the administration made it more affordable for small businesses to invest in their operations, which in turn helped them grow and create jobs.
The Public-Private Investment Fund was also successful in increasing lending to small businesses. The fund provided a market for securities backed by small business loans, which made it more attractive for lenders to make loans to small businesses. The fund also helped to improve the liquidity of the small business loan market, making it easier for lenders to buy and sell securities backed by small business loans.
Overall, the Obamas Plan to Help Small Business Get Credit was successful in increasing small businesses’ access to credit. The plan helped to increase lending through the SBA loan program, community banks, state-based lending programs, and the private sector. The plan also helped to make credit more affordable for small businesses by waiving fees, increasing loan guarantees, and increasing tax deductions for capital investments.
Challenges and Criticisms
Despite its success, the Obamas Plan to Help Small Business Get Credit faced several challenges and criticisms. One of the main criticisms of the plan was that it did not go far enough to address the root causes of the credit crunch faced by small businesses. Many small businesses were struggling to obtain credit because of the economic downturn and the reluctance of banks to lend. Some critics argued that the plan should have included measures to stimulate demand for small businesses products and services, which would have helped to create jobs and increase economic activity.
Another criticism of the plan was that it did not address the issue of regulatory burden on small businesses. Many small businesses face significant regulatory hurdles that make it more difficult for them to obtain credit. Some critics argued that the plan should have included measures to reduce the regulatory burden on small businesses, which would have made it easier for them to obtain credit.
Finally, some critics argued that the plan was too focused on traditional bank lending and did not do enough to support alternative sources of credit for small businesses. For example, some small businesses may prefer to obtain credit through online lenders or peer-to-peer lending platforms. The plan did not include measures to support these alternative sources of credit.
BOTTOM LINE
Obamas Plan to Help Small Business Get Credit was successful in increasing small businesses’ access to credit. The plan included measures to increase lending through the SBA loan program, community banks, state-based lending programs, and the private sector. The plan also helped to make credit more affordable for small businesses by waiving fees, increasing loan guarantees, and increasing tax deductions for capital investments.
However, the plan faced challenges and criticisms, including the need to address the root causes of the credit crunch faced by small businesses, reduce the regulatory burden on small businesses, and support alternative sources of credit. Despite these challenges, the plan was an important step in supporting small businesses during a time of economic uncertainty and remains an important precedent for future efforts to support small business growth and access to credit.
Also read: The Obama Effect on Small Business
