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The $15 Billion Note: Treasury Department to Buy Up SBA Loans With Federal Bailout Funds

By Neetal Parekh on July 23, 2009 12:52 PM

The U.S. Government won't stand to see the country's small businesses fall.  Well, at least that is the reasoning behind the Treasury Department's plan to give the Small Business Administration (SBA) a lending boost by buying outstanding SBA loans using federal bailout funds.  Making good on an initiative pushed forward by the Obama Administration in March, the U.S. Treasury is putting final touches on the plan before launching. 

The SBA found itself between a rock and a hard place in opening up funds for small business, considering the number of unpaid loans that were still plaguing the organization.  When private investors turned away from buying up the SBA loans from financing firms, the government had decided to step up in a big way.  However, in light of the economy showing signs of firming up Washington has played a wait-and-see game to see if private investors would step in to pick up the slack.  After months of watching, the U.S. Treasury is now ready to take action.

To address a layered problem facing small businesses in securing loans, the Obama Administration has put forth a multi-part solution.  For small businesses, not only have lenders been hesitant to open new credit lines in the teetering economic climate, but small businesses have been viewed as particularly risky and have struggled to receive sufficient amounts of funding.  The government, then, is planning to use the federal bailout funds to build credibility with lenders and their backers that funds will be available even in light of private investors backing off; and is also considering increasing the maximum amount businesses can borrow to give them a better chance of emerging successfully from economic turbulence.

 

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