Obama calls for temporary expansion of 2 loan programs for owners of small businesses

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Obama calls for beefed up small-business loans

LANHAM, Md. — Seeking to create more jobs, President Barack Obama on Friday asked Congress to temporarily expand two lending programs for the owners of small businesses.

But a Democratic House leader slammed the president’s proposals, saying they’re the wrong approach to creating jobs.

Obama’s lending plans are part of a broader attempt by the administration to assist small businesses, including a $30 billion infusion to community banks to restart lending. That program faces some skepticism from community banks.

Obama said on Friday he wants to bolster the impact of small businesses, the chief creators of new jobs in a struggling economy. Just hours before he spoke, the nation’s jobless rate finally dipped below 10 percent — to a stubbornly high 9.7 percent — in the latest government figures.

Obama said he wants businesses to be able to refinance their commercial real estate loans under the Small Business Administration and he wants that government agency to increase loans used for lines of credit and capital.

“The truth is, the economy can be growing like gangbusters for years on end and it’s still not easy to run a small business,” Obama said as he visited a heating and air conditioning company in a Maryland suburb of the capital.

With the president’s poll numbers falling and punishing levels of unemployment lingering, Obama has stepped up his focus on the economy and job creation. The president has also proposed eliminating capital gains taxes on small businesses in 2010 and giving small businesses a $5,000 tax credit for every new job created.

The White House said Obama’s plan would temporarily raise the cap on Small Business Administration Express loans from the current maximum of $350,000 to $1 million. Obama’s plan would also expand the SBA’s program to support refinancing for owner-occupied commercial real-estate loans.

To be eligible, business owners must have first mortgages and be current on all loan payments for the previous year. The White House said the proposal would help refinance up to $18.7 billion each year in commercial real estate that might otherwise be foreclosed and liquidated.

The move, however, requires Congress to act — something of an open question, given that Democrats lost their supermajority only a day earlier when Republican Sen. Scott Brown took office to replace the late Democratic Sen. Edward M. Kennedy of Massachusetts.

Even the Democratic head of a House committee wasn’t pleased about Obama’s plans for expanding SBA lending.

Rep. Nydia Velazquez, D-N.Y., chair of the House Small Business Committee, said the SBA Express program has been criticized for underwriting loans that banks already would have made without government backing and for carrying the highest default rate of any SBA program.

“With loan defaults on the rise, we should not base our strategy on increasing the size of the least stable SBA lending program,” Velazquez said.

Obama also promoted on Friday his plan to take $30 billion that banks have repaid in bailout money and use it to inject money into small community banks. The banks can get the money on condition they use it to increase lending to small businesses.

But community banks may be in no rush to step up lending under Obama’s plan.

Some are leery about taking aid that would come from taxpayer money repaid by bailed-out banks. Some fear conditions might be attached to the money. And some community banks and small-business advocates say even businesses that qualify for loans are reluctant to take on debt.

“The devil will be in the details on this,” said Charlie Brown, the chairman and CEO of Insignia Bank in Sarasota, Fla. “It doesn’t come without risk.”

Other community bankers he’s spoken with “seem to be on high alert and skeptical about strings that could be attached,” Brown said.

Administration officials stress that the $30 billion Small Business Lending Fund would be distinct from the unpopular bailout fund. Congress must also approve the new small business fund, which would be open to banks with $10 billion or less in assets, potentially covering about 8,000 small and community banks.

Banks that receive money under the program and boost lending to small businesses — above their 2009 levels — would get a break on the dividends they’d owe the government on the money.

Yet many in the banking industry say lending isn’t hampered by a lack of capital, with even well-capitalized banks having trouble finding creditworthy borrowers. And small businesses may be reluctant to borrow in the toughest economic climate since the Great Depression.

The Obama plan could involve “transferring funds from one dubious government program into another,” said Raymond Keating, chief economist for the Small Business Survival Committee, an advocacy group. Its help to small business could be “little or none,” he suggested, arguing that more sweeping tax and regulatory relief is needed.

The National Federation of Independent Business, the industry’s major lobbying group, called the administration’s plan “a step in the right direction.”

Gordon reported from Washington. Associated Press writer Philip Elliott contributed to this report from Washington.