TARP, Obama and Small Business Bailout: The Struggle to Survive the Mess of Our Financial Crisis

With the turn of a New Year and on the eve of the swearing in of a new administration, the financial condition of the United States is still a mess. It's hard not to feel like Leonardo DiCaprio near the end of the movie The Titanic where is his holding on to the remains from a sinking ship in the freezing ice cold waters of the Atlantic while trying to stay alive.

This pretty much define the financial circumstances of many in the U.S. today, particularly small businesses.

During the darkest days of the credit crisis last October, Congress granted President Bush's urgent request to address growing problems in the credit and financial markets by passing the Emergency Economic Stabilization Act of 2008 (EESA).

A centerpiece of EESA is the $700 billion Troubled Assets Relief Program, also known as TARP. The government is supposed to use the money to purchase failing bank assets. The goal is to free up reserves so banks can start lending money again. To date, nearly all of the TARP's initial $250 billion appropriation has been distributed. So where has the money gone?

Not to small businesses.

Most of the nation's 8,000 community banks, which provide loans to 48 percent of all small businesses, have yet to receive any TARP money. Of those, 3,000 community banks have been declared ineligible for the program simply because they are Subchapter S corporations or mutual institutions.

In times past, community banks, a traditional conduit for SBA lending programs, could serve as a counterbalance to tight credit for small firms. But just the opposite is happening. In the first quarter of the government's 2009 fiscal year, which ended Dec. 31, the number of flagship SBA 7(a) loans dropped by 57 percent compared with the first quarter of FY2008 and by 62 percent compared with the first quarter of FY2007.

Lending through the SBA's Community Express program, which targets low- and middle-income areas and firms owned by minorities, women, and veterans, has been hit even harder. Loans are down 76 percent from a year ago.
Most of this blog post comes courtesy of Keith Gerard of AllBusiness.com.