Small businesses are the heart and soul of the American economy and their inability to access financing as they have struggled through the recession continues to hinder their ability to recover. Until small businesses can start hiring again, unemployment is likely to remain high and businesses will have a difficult time growing. President Obama spoke about the issue recently, saying, “There are still too many entrepreneurs who can’t get the loan they need to open their doors and start hiring. There are still too many who are struggling to make payroll and stay open. And there are still too many successful small businesses that want to expand further and hire more but just don’t have the capital to do it.”

Efforts have been made to make financing available to small business owners through the recession as the Small Business Administration has worked with banks to ease their concerns over lending to small business owners. Still, of the ten biggest sources of financing for small businesses in the US, only 2 have increased their small business lending over the past 6 months in spite of the government backing on small business loans. The top ten recipients of TARP money have reduced their small business loan portfolios by $8 billion during that time.

There are three major ways that the government is working to get more money into the hands of small business owners:

1)  Cheaper Loans: The small, regional banks are the ones who are doing the bulk of the lending to small businesses. For banks with less than a billion dollars in assets, the Treasury plans to allow loans at a special reduced rate to give them access to the cash they need in order to continue lending. In order to get the funds, banks will be asked to submit an outline of their plan for using the money to make loans to small businesses.

2) Bigger Loans: Currently, the cap on loans in lending programs that fall under the Small Business Administration’s umbrella is $2 million, and many small businesses need access to more money but they have already borrowed the maximum amount for a business of their size. Lawmakers are discussing increasing the cap on these loans to $5 million in order to create more financing options for successful small businesses that just need access to more money but want to avoid piling up credit card debt.

3) Safer Loans: The Small Business Administration attempted to ease bank concerns earlier this year by guaranteeing loans against default for up to $35,000 for small business owners. Not a lot of those loans ever made it into the hands of business owners, but those banks that did embrace the program would be likely to continue lending if the same guarantees covered larger loans. The Obama Administration is pushing for the cap on these agency-backed loans to increase to $50,000 in order to get another cash infusion into the bank accounts of struggling business owners as the economy recovers.

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