Small Business Still Struggling Under Obama and Congress. Lack of Loans Continues

Posted on July 16, 2010


When choruses of small business owners and many economists spoke  up last year that lack of small business loans was hampering economic growth, there were promises but no significant change.  The President has repeatedly urged banks to loosen their lending policies and procedures but to no avail.  In his January State of the Union speech, Obama outlined the problems small businesses face and provided some possible solutions.  His promises to small business began during his first 100 days when he announced some initiatives that he hoped would increase lending.

One year on from Obama’s entry into the office of President, the world of small business financing remains muddled and complex.  America’s growth engine is stalled.  It is not as if Obama has not spoken up about this but he seems powerless to really affect the outcome in any way.  [So much depends upon Congress to pass into law.]

He vowed the administration will create a “substantial program” to get credit flowing and to ease the nation’s housing crisis. Geithner said the package will nearly double, to $250,000, the new capital investment that can be written off and said it will include provisions to reduce and then eliminate capital gains taxes in stock and to make health insurance more affordable.

In addition, the Internal Revenue Service announced Monday that small businesses will be able to carry back business losses for five years instead of the current two years “in order to increase your cash flow as we come out of this period and allow you to invest more in your operations.”

Geithner then directed comments to the banks, urging them “to go the extra mile.”

Those banks that individually choose to “pull back out of a sense of prudence and caution” result in a collective impact that will weaken the economy, he said.

“This dynamic can feed on itself.”

He noted that many banks got into trouble by taking too much risk, but he said, “The risk now to the economy is that you will take too little risk.”

Geithner said the nation’s top 21 banks receiving assistance will be required to report on a monthly basis how much they are lending to small businesses.

Even small businesses with good credit histories have been denied loans in the downturn. This year, at current rates, SBA-guaranteed new loans would not reach $10 billion. In an average year, it guarantees $20 billion in loans. [CNN]

The Wall Street reform package that awaits the President’s signature contains no element that will improve the status of small business.  Even areas of the economy that will be directly impacted may never see the kind of reform intended.  Why?

“Serious work remains; the proof of the bill’s worth will come not from what is written in the bill, but how the regulators interpret the bill, write the rules and then enforce them,” said John Taylor, president and CEO of the National Community Reinvestment Coalition. “Based on the job they did for the past decade, I will believe reform is here when I see it.” [The Hill]

It is not as if the President has not sent some initiatives to improve the plight of small business to Congress.  The problem is with priorities.  He can say that he has dropped propoxed legislation for them them in the Congressional hopper but if these proposed pieces of legislation have lain dormant for a long period of time, Obama as much as Congress has been responsible for pushing certain bills to the finish line over others.

One sleeper  one that could make a big difference:

A little known bill in Congress could be the best shot the Obama Administration has to cut unemployment. H.R. 2568, the Fairness and Transparency in Contracting Act has been floating around Congress for nearly two years, but has yet to garner attention from the Obama Administration. If the bill passed it would provide a more significant stimulus to the middle class economy than anything proposed by the Obama Administration to date. (http://www.govtrack.us/congress/bill.xpd?bill=h111-2568)

Georgia Representative Hank Johnson (D-04GA) introduced H.R. 2568. The bill was written to address a longstanding problem in federal small business contracting programs that has allowed large businesses to land the lion’s share of federal small business contracts. [Huffington Post]

The Chamber of Commerce remains unconvinced that Obama and Congress have done the best they could do by the business community.  Here is their read on the situation:

The healthcare reform legislation, financial regulatory reform and proposals to cap carbon emissions are cited by some in corporate America as examples of regulatory overreach. Business groups have also criticized Obama’s fiscal policies, warning of the danger of high deficits.

Business groups also oppose Obama’s plans to allow President George W. Bush’s tax cuts on higher-income Americans expire at the end of this year.

A rift with the business community could pose other problems for Obama.

U.S. businesses are holding onto some $1.8 trillion in cash. The Obama administration wants to encourage them to invest some of that money to help jump-start the economic recovery.

Obama, Reid and Pelosi need to start tracking down all of those initiatives Obama has sent to Congress over the past 1.5 years that would benefit business and small business in particular.  Action and not words are in order at this stage.

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Hot Air – Obama: I expect to be held accountable on jobs, but I’d prefer that you hold Bush accountable