Small Businesses May Be in Line for a Big Lift Thanks to TARP Funds

American small businesses might be in for a huge boost thanks to the Obama administration.

The federal government is considering whether to inject millions, if not billions, of dollars into the Small Business Administration’s 7(a) loan program, according to recent published reports.

The additional funding would come from the Troubled Assets Relief Program, or TARP, which the administration has used to help prop up the flailing banking and automotive industries. So far, it’s unclear how much money the government might inject into the SBA’s most popular loan program or how the funding might be utilized by consumers.

Small businesses employ about half of all private-sector employees and have generated 60 to 80 percent of new net jobs annually over the last decade, according to the Small Business Administration.

“Small business is the backbone of American jobs and innovation,” White House spokesman Matthew Vogel told the Washington Post. “We are deeply committed to continuing to work every single day to devise and implement policies that will help small businesses through these challenging economic times.”

Named for a section of the Small Business Act, the 7(a) program provides a guaranty of up to 90 percent for loans to small businesses. Scores of American banks participate in this program, along with some non-bank lenders. Private lenders ultimately make and administer the loans.

Through June, the SBA had approved less than half the $17.5 billion worth of loans allotted for fiscal year 2009.

The SBA’s most common loan program, the 7(a) loan can be used for a host of business purposes, including equipment and real estate purchases, renovations and new construction, debt refinancing and working capital.

For those seeking loans for working capital, maturity runs up to 10 years. For fixed assets, loan maturity is typically up to 25 years.

The government’s potential cash infusion would be the latest in a series of moves aimed at bolstering American small businesses.

In June, the SBA announced it would permanently expand its popular 504 lending program to help small business owners refinance for the purposes of expanding or purchasing new equipment or supplies.
Fees have been reduced on both 504 and 7(a) loans, and the agency recently raised its surety bond guarantee to $5 million for construction contracts.