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TARP Funds for Small Businesses?

Mark Marich

The Obama Administration revealed last week that an initiative to redirect some of the $700 billion TARP funds away from banks and towards helping small businesses is on the table.

Although no amounts have been specified, this new initiative would represent a significant shift from the rescue program’s original mandate. The effort to save jobs by supporting small firms comes after the recent announcement that the unemployment rate has hit 9.5 percent. Officials were reported to say that small businesses are essential to any economic recovery because they employ so many people. “Small business is the backbone of American jobs and innovation,” said White House spokesman Matthew Vogel.

The funds would support the Small Business Administration's (SBA) major lending program, 7(a), which helps owners of small companies borrow from banks at low rates to sustain their businesses. If loan recipients failed to keep the business going, the government would cover most of the losses on the federal loan, perhaps as much as 90 percent.

Involved in the analysis of the risks and benefits of this proposal are Treasury Secretary Timothy F. Geithner, National Economic Council Director Lawrence H. Summers, SBA Administrator Karen Mills, among other high officials.

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