President Obama announced a broad plan Monday that aims to boost small-business owners by giving their companies increased tax breaks, better access to loans and reduced loan fees.
His goal is to jump-start the economy by giving small businesses the ability to expand. Over the last decade, small businesses have created about 70% of all new jobs, he says.
This plan "will make it easier and cheaper for small businesses to borrow money if they need to," says Nariman Behravesh, chief economist at IHS Global Insight.
Among Obama's announcements: The Treasury Department will buy up to $15 billion in securities backed by Small Business Administration loans. Obama hopes to grow the "secondary market," where lenders sell portions of loans to others to get capital to make additional loans.
Many banks have stopped or slowed lending because the secondary market has dried up, and cash for loans is not available.
The extra money will help small businesses cover expenses such as salaries and supplies, Behravesh says.
Other plan elements:
•Increase the government guarantee on certain SBA loans from up to 85% to as much as 90%. The government now has a greater financial responsibility if a company defaults. This will "reduce risk for lenders and give them a direct incentive to lend to small businesses," says Rep. Nydia Velázquez, D-N.Y., chairwoman of the House Committee on Small Business.
•Provide more tax breaks. Small businesses will be able to write off $250,000 on new capital equipment investments, nearly double the previous amount, says Treasury Secretary Timothy Geithner.
•Require more financial oversight. The 21 largest banks getting government financial help will be asked to report monthly how much money they lend to small businesses. This helps "increase transparency and accountability," Geithner says.
While programs that help a small business "save cash or borrow more money will be helpful," parts of Obama's plan don't make complete sense, says Scott Shane, author of The Illusions of Entrepreneurship.
"I don't see how making banks tell the government how much they're lending is doing anything but generate more paperwork for the banks," he says. He also worries about previously announced tax increases on those with high incomes, many of whom run successful small businesses.