The 30 Billion Dollar Elephant in the Middle of the Room

President Obama has proposed to channel 30 billion dollars into community banks as a way to increase loans to small businesses. The relevant questions are:

• Will this increase the amount of loans to small businesses? And so,
• Will this help stimulate the economy?

In discussing this with a number of community banks, the general conclusion is that the additional funding will be nice, but they will not change their lending requirements, and so will probably not make more loans. In order to keep the bank's performance up to par, they will only lend to businesses with excellent credit - as they are presently doing. In order to increase lending to those businesses with lesser credit profiles, they will need additional SBA-type guarantees to help absorb the increased risk - and these guarantees do not seem to be a part of the President's proposal.

Conclusion - it will not help provide funding for businesses that cannot currently qualify, and so the additional businesses that need new funding (debt) to grow will still not have access to the funds they require, will not be able to support the growth that may be available to them, and will not create new jobs, and so the additional funding will not have the impact on the economy that the President anticipates.

An alternative that could provide a very real and immediate solution to the SMB liquidity problem is to open the SBA's Community Express Loan program to help their small customers. The program is presently mired in a lack of funding and extreme constraints on bank's ability to utilize the program (and guarantees). Comments to the SBA and the Senate Small Business Committee can provide support for this important program.

Regards,

Dr. Bill