Treasury announced Monday that it would begin making up to $15 billion in direct purchases of securities backed by U.S. Small Business Administration (SBA) loans, in conjunction with actions to be taken by the SBA and the Internal Revenue Service (IRS) to thaw credit markets for small businesses. Noting that the rate of originations of SBA-guaranteed loans this year is trending toward 50% of what the SBA typically guarantees, Secretary Geithner expressed hope that Treasury’s actions would help to “get credit flowing again” for small businesses. Secretary Geithner first mentioned federal assistance to the small business lending market in connection with President Obama’s Financial Stability Plan announced last month.
Under the small business plan, Treasury will purchase up to $15 billion in securities backed by loans under the SBA’s Section 7(a) and 504 programs, in each case to the extent the loans were packaged between July 1, 2008 and the end of 2009. In addition to the Treasury purchases, the SBA will be increasing the maximum loan guarantee for Section 7(a) loans and eliminating certain fees for Section 7(a) and 504 loans. Furthermore, as provided in the American Recovery and Reinvestment Act, the IRS will permit certain small businesses to “carry back” their losses for up to five years and write off up to $250,000 in qualified investment expenses, and will promote liquidity by reducing estimated tax payments. The IRS will incentivize investors in small businesses by permitting an exclusion from income of 75% of capital gains realized in such investments.
Treasury will also be requiring the 21 largest banks receiving capital from the government to report their small business lending activity on a monthly basis, and all other banks receiving capital to report on a quarterly basis.
These actions supplement the efforts that the Federal Reserve has taken to unlock credit for small businesses by including securities backed by SBA-guaranteed loans as an eligible collateral class for the Federal Reserve’s Term Asset-Backed Securities Loan Facility launching this month.