WASHINGTON, D.C. – U.S. Senator Robert Menendez (D-NJ) unveiled new legislation that would authorize the federal government to directly lend to small businesses, using TARP funds. He said the proposal could save or create an estimated 1.1 million jobs, as part of an upcoming jobs package that the White House and Congress will be crafting.
The Credit Retains Employees And Triggers Economic (CREATE) Growth and Jobs Act would make $20 billion in TARP funds available over two years for small businesses to borrow from the Small Business Administration. This amount would essentially fill the gap left by the $10.5 billion drop in small business lending over the past six months by the 22 banks that received the most TARP funds, combined with the $10 billion drop in SBA guaranteed loans projected for this year compared to the historic norm, according to Menendez.
Currently, the SBA guarantees loans to small businesses but does not directly lend under normal circumstances.
“More than half of the jobs in our country can be found in small businesses, which is why it is crucial that they can obtain loans to operate and expand at the most critical times,” said Menendez.
“The concept of this legislation is simple: private banks aren’t lending to small businesses nearly as much as before the credit crisis, so it makes sense for the Small Business Administration to step up and fill the gap. From the corner store to the start-up renewable energy firm, small businesses have been a bedrock throughout our economic history, and giving them access to credit will be vital to our economic future. I will be working with my colleagues in the Senate as well as the White House to ensure this fiscally-responsible proposal is considered for the jobs package we will be putting together.”
Because of private lending drying up, less than half of small businesses that tried to get a loan in the fourth quarter of 2008 were able to get one. Census statistics show that small firms with fewer than 500 workers employed more than half (60.2 million) of the 119.9 million nonfarm private sector workers in 2006.
In addition, small businesses can be credited most with helping grow the workforce in recent years: according to Bureau of Labor Statistics research, firms with fewer than 500 employees accounted for nearly two thirds (14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.
The CREATE Growth and Jobs Act is modeled after the Economic Injury Disaster Loan (EIDL) Program, which authorizes the SBA to provide low-cost loans to small businesses that have suffered injury as a result of a natural disaster. This legislation would make $10 billion available per year for two years to otherwise healthy small businesses with good credit that are currently unable to obtain loans elsewhere. The maximum loans amount available would be $1.5 million, with a maximum interest rate of Prime + 4.75% and a maximum repayment period of 25 years.
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