Focus on troubled major firms obscures fact that small business drives job creation

MADISON - So, General Motors probably won't rethink closing its aged assembly plant in Janesville and AIG executives were paid bonuses with taxpayer bailout money.

Was anyone surprised by either headline?

It would have been news if GM's chairman had said, “We're basically off the hook in Janesville now, but I think it's smarter for the company to keep running that plant, build more hard-to-sell SUVs and stay on the road to bankruptcy.”

It would have been news if AIG's chief executive had said, “We're going to ignore our contracts with our managers and refuse to pay them bonuses, even though Congress technically approved the bonuses last fall when it rammed through a 1,000-page bailout bill no one read.”

Neither GM's Rick Waggoner nor AIG's Edward Liddy said anything of the kind, of course, so most commentators dwelled on what everyone already knows about the financial troubles at both companies. Thankfully, there was some real news last week - and it broke when President Obama finally acknowledged that small business creates more than two-thirds of the nation's new jobs. Hoping to jumpstart the economy's historic engine of job creation, Obama announced the Treasury Department would spend as much as $15 billion to boost lending to credit-starved small businesses. The financial crisis has severely crimped commercial lending, including lines of credit that are essential to many small businesses.

“Today, too many entrepreneurs can't access the capital to start, operate or grow their business,” Obama said March 16 after meeting with community bankers and small business owners. “Too many dreams are being deferred or denied by a form letter cancelling a line of credit.”

Under the new program, Treasury will directly purchase as much as $15 billion in securities composed of loans backed by the U.S. Small Business Administration. The money to back the loans would come from the $240 billion already approved by Congress as part of the Troubled Asset Relief Program. The purchases mean banks could sell the loans on the secondary market, thus freeing capital to make more loans.

“U.S. small businesses employ about half our nation's workers and over the last decade have

created about 70 percent of all new jobs,” said the SBA's acting director, Darryl Hairston, after Obama's announcement. “But their access to credit and lending markets has

dried up, making it harder every day for small businesses to keep their doors open and their

employees working.”

In Wisconsin, SBA-guaranteed loans have fueled small-business financing over time. Between August 2005 and September 2008, banks and other lenders advanced an average of $35.4 million per month in SBA-guaranteed loans. Since September 2008, the average has been $20.6 million per month - and a relatively paltry $13.9 million in February.

Loan activity should pick up as the SBA swings into action. Effective March 16, the SBA temporarily raised guarantees to up to 90 percent on the 7(a) loan program, its most popular, through 2009 or until the funds are exhausted. This increase in loan guarantees will help shore up banks with the greater confidence they need to extend credit. It has also eliminated fees for borrowers on 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through 2009 or until the money is gone. This will make capital available to small businesses at a lower cost. The fee elimination is retroactive to Feb. 17, the day the federal Recovery Act was signed.

To learn more about SBA in Wisconsin, go to: http://www.sba.gov/localresources/district/wi/

The University of Wisconsin's Small Business Development Centers are providing advice for new and existing business owners. Visit http://www.wisconsinsbdc.org/ or call the Wisconsin Business Answer Hotline at 800-940-7232, Monday through Friday from 8:30 a.m. to 4:30 p.m.

If the credit markets unlock, small business will help lead Wisconsin and the nation out of the recession. At least, history suggests that will be so. While we all have a stake in what happens to GM and AIG, let's not forget the real news is being made by small businesses, every day, in thousands of unseen ways.

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