Small Business Funds Beginning to Flow Despite of The Credit Downgrade

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With the recent debt ceiling debate, the credit downgrade of the United States and the political jockying alive and well in Washington, people were beginning to wonder if small businesses would see any of the help that was promised to them. If that wasn’t enough, Congress has had some tough questions for the Small Business Administration regarding their alleged awarding of small business contracts to companies like Northrop Grumman, a business that is far from small.

Despite all of these political headwinds, the United States Treasury began releasing some of the money in the $30 billion small business lending fund which was authorized in the Small Business Jobs Act of 2010. This is certainly welcome news for the nation’s small businesses who have waited and wondered why none of the funds had yet been released.

These funds were released to a small number of community banks around the nation with less than $10 billion in assets but what is unfortunate is the fact that only $123 million has been dispersed. Although welcome news, this will do little to create the far reaching program that was envisioned by Congress in 2010.

The program relies on community banks because small businesses tend to have a much better chance of qualifying for a loan from smaller institutions who rely on not only credit scores and financial reports but also a long standing personal relationship. In short, community bankers know these business owners by name and have a better idea of their financial habits. Smaller banks are also in a strong financial position because they don’t as readily take part in home mortgage lending. Larger banks who have substantial amounts of foreclosed properties and bad loans on their books are still under pressure and most likely will be for quite a long time.

Although the treasury says that this first injection of funds in to community banks is the first of many, some small business watchers are less than convinced. With the increased pressure on Congress to make hard and unpopular cuts in spending, this fund could easily be considered for a cut since it benefits a smaller amount of people compared to larger programs like military spending, medicare, or social security. Still, the nearly 900 banks who applied to be part of this program are remaining hopeful.

We’re living in a political climate where decisions about money change weekly and sometimes even daily. Although the Small Business Lending Fund is a great way to stimulate growth and create jobs, there is no guarantee that businesses will see much more than the small amount of funds already released.