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The New Economy

Obama boosts aid to get more loans for small business

Obama will boost aid to banks that lend to small businesses and pushes Congress to increase caps on federal small-business loans.

By / October 21, 2009

President Obama, speaking at Metropolitan Archives, a small business in Landover, Md., announced Oct. 21 steps he was taking to increase loans to small businesses.

Charles Dharapak/AP

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The Obama administration threw out a lifeline of promised help Wednesday to small businesses, some of which continue to struggle to get credit to maintain and expand their operations.

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The president announced that he would ask Congress to increase the current caps on three types of loans offered by the Small Business Administration (SBA), push more money to banks that create a plan to lend to small businesses, and convene regulators, congressional leaders, small business people, and lenders to come up with more ways the administration could help.

"Over the past decade and a half, America's small businesses have created 65 percent of all new jobs in the country," President Obama said in remarks at a small business in Landover, Md. "You are our highest priority, because we are confident that when you are succeeding, America succeeds."

Obama wants Congress to increase the $2 million cap on so-called 7A loans, the SBA's primary lending program, to $5 million. The program offers credit for buying machinery, equipment, land, and buildings. He also wants to boost to $5 million the cap on 504 loans, which are used for business building expansion and modernization, as well as to increase the amounts available in SBA micro loans to startup firms.

The president also offered to boost credit to the sector by shifting bank-rescue funds from major banks, which no longer need it, to small and community lenders, which provide much of the private lending to entrepreneurs.

Analysts generally applauded the president's move, saying it could help the small-business sector of the economy, which has been hit hard by the recession. But some wondered how much difference it would make.

"They may not need the money as badly as we think," said John Canally, an economist for LPL Financial in Boston, in an interview. Federal Reserve data suggests "the demand for the loans is just not there," he added, although stories abound about how small businesses have been hurt by tightened credit standards.

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