NEW YORK (CNNMoney.com) -- President Obama and Treasury Secretary Tim Geithner will elaborate Monday on the administration's plans to make lending to small businesses more attractive, two senior administration officials confirmed.
Many small businesses, drowning from dried-up coffers and unpaid bills, are having a tough time getting loans from lenders. In the last three months of 2008, banks made 57% fewer loans through the Small Business Administration's main lending program than they did a year earlier.
The total loan volume processed through the program plummeted to $1.94 billion, down 40% from 2007's $3.24 billion.
Christina Romer, who heads the Council of Economic Advisers, said Sunday the government would pump "a significant amount" of money into boosting small business lending, but she did not reveal a total figure.
"We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them," Romer said on NBC's "Meet the Press."
The stimulus bill passed last month included $730 million for direct spending on small-business initiatives, including expanded financial support for the SBA's two key lending initiatives, the 7(a) and 504 programs. Under those programs, the SBA guarantees loans made by banks to small-business borrowers. If the business defaults, the SBA picks up the tab for the insured portion of the loan.
Eligibility for the 7(a) and 504 programs varies by industry; in many fields, companies qualify if they have 500 or fewer employees. (For a full list of eligibility limits, click here.)
Currently, the government guarantees up to 85% of loans below $150,000, and up to 75% of larger loans. The stimulus bill allows the SBA to temporarily increase its guarantee to 90%. It also allows the SBA to waive or reduce the fees it changes banks and borrowers for participation in the program.
Startups defying the downturn
Tim Trzepacz
Co-founder, Vers Audio
Wayland, Mass.
Launched: March 2007, now trying to expand
Former job: Product developer for Brookstone
My business partner, David Laituri, and I started our environmentally conscious business two years ago. We developed a high-end iPod dock that's made of wood and sustainable materials. We tried a total of 11 banks, but they all turned us down because we didn't have a revenue history. Then we tried a small lending institution, Middlesex Bank of Framingham, just down the street from our office. They gave us a $200,000 asset-backed line to use on inventory.
We expanded nationally and internationally very quickly. We avoided large retailers and concentrated on indie retailers that are focused on green products and that could appreciate our product. In our first year, we hit $1 million in revenue. I think we'll hit $2 million this year, and we'll need more capital so that we can start turning orders around faster and developing new products.
I went back to Bank of America recently. They had turned me down for a loan, but I came to find out that Vers is no longer small enough for their small business lending. I'm not going to pitch to their corporate banking division now - we're really happy with our current bank. Of course, in this lending situation, you never know. Despite our growth, anything can happen. So I'm nervous about that, but I think we're covering our bases by also initiating conversations with interested private investors as well.
