Small Business Lending Programs Ineffective

Washington, DC, May 13, 2010--The federal government's programs to help small businesses obtain credit have not provided the lending necessary to help many businesses grow and create jobs, according to the Congressional Oversight Panel.

The Treasury Department has instituted a series of multibillion dollar plans that were supposed to help small businesses get loans, but many companies still face failure because they can't get loans, says the report.

"It is not clear that any of the ... programs in place to date (have) had a noticeable impact on small business lending," the report says. It says many of the programs do not apply to the small banks that lend disproportionately to small businesses.

Companies with fewer than 500 employees have created 60 to 80 percent of new jobs since the mid-90s, the report says.

"If credit is unavailable, small businesses may be unable to meet current business demands or take advantage of opportunities for growth, potentially choking of any incipient economic recovery," the report says.

The value of banks' outstanding small business loans fell 9 percent between 2008 and 2009, the report says. That's more than double the 4.1 percent decline for overall lending.

That places unusual pressure on small businesses, which can't raise money through other means such as bond markets like their larger counterparts, said panel chair Elizabeth Warren.

A top adviser to Treasury Secretary Timothy Geithner said the administration has made a set of proposals that will restore credit to small businesses so they can participate in the economic recovery. Among the programs: the new fund for community banks, more support for Small Business Administration loans, and grants to state programs that lend to small businesses.