Treasury’s Plan To Aid Small Business Met With Low Lender Participation

The Obama administration's Unlocking Credit for Small Businesses Plan may be in danger of failure due to lack of participation from lenders. The plan, announced on March 16, is funded with $15 billion of Troubled Asset Relief Program (TARP) funds. Participating lenders would be subject to the Treasury's executive compensation limits, as well as the provisions of the Emergency Economic Stabilization Act of 2008 (EESA) mandating the issuance of warrants to the government. Lenders who traditionally participated in the Small Business Administration's (SBA) loan programs have cited these restrictions as the basis for their nonparticipation.

Financial institutions receiving assistance from the TARP program are required under the EESA to issue warrants to the Secretary of the Treasury to provide further security to the taxpayer. The warrants are convertible to common stock, preferred stock or senior debt at an exercise price set by the Treasury.