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The Treasury Department has announced a $15 billion initiative designed to stimulate lending by the Small Business Administration by using funds from the federal bailout program to buy up SBA loans. When private investors became wary of buying SBA loans from the firms that finance them, these firms became burdened with old loans, which prevented them from funding new loans for small businesses.

Even as the government prepares to roll out its initiative, executives at some financial firms that provide SBA loans have said private financing for them is already reviving. This recovery in SBA credit markets has begun to clear away the loans that have been clogging the books of loan financiers. That has not removed all the obstacles facing small businesses that want SBA financing. Financial executives note that some lenders continue to see small businesses as risky in the current economy, and remain wary about issuing new credit to them.

As a consequence, the administration is taking a two pronged approach to problems confronting SBA lending. The initiative to use bailout money to buy loans is designed to assure lenders and their financiers that a reliable source of funding will be available, even if private investors again become skittish. Officials are also weighing whether to increase the amount businesses can borrow from the SBA, possibly by using a portion of the $700 billion bailout package.

Article ID: 1176