Geithner: Jobs can't flow without bank loans for small businesses

With a jobs shortage emerging as an urgent priority for the White House, Treasury Secretary Timothy Geithner is pledging new efforts to help small businesses get loans.

All the right parties seemed to be in the room Wednesday where he spoke: leaders of business, bankers, and federal officials. But accelerating the flow of credit and new jobs is proving very difficult, despite signs of stabilization in credit markets in recent months.

The Obama administration has been walking a careful balance, pledging greater effort while tempering public expectations.

"Small businesses, in particular, are still facing a very challenging credit environment," Secretary Geithner said in prepared remarks to a one-day forum on small-business lending. "This is a very hard problem to solve. It's not something we can fix easily."

The forum comes as the unemployment rate sits above 10 percent and as the economy continues to lose jobs rather than create them. Although the government has moved strongly to support large banks, many community banks – the ones most likely to be financiers for small-scale employers – remain in trouble. Small employers also are more reliant on loans as the main source of finance, whereas larger firms can tap the stock or bond markets for capital.

Geithner said the Obama administration is transitioning to a new phase of crisis-response – from rescue operations to repairing foundations for growth.

"As we wind down programs that help big banks, we are committed to doing more to help small businesses access the credit they need to grow and hire new workers," he said. Otherwise, "we will not be able to create a recovery that is self-sustaining and led by private demand."

The jobs challenge is both a political and an economic imperative.

With congressional elections less than a year away, majority Democrats could be vulnerable if the jobs picture fails to improve. In recent weeks, Democrats have fallen behind Republicans in a generic congressional-ballot question in polling by Gallup, for example.

For the economy, one problem is that consumer spending hasn't picked up to its pre-recession pace. Businesses have a lot of room to boost production using the workers and facilities they've already got, before hiring or making new investments.

Many economists expect that the nascent economic recovery will take root and gather momentum over the next year. But that may not bring down unemployment very much. Economist Asha Bangalore at the Northern Trust Co. in Chicago expects the jobless rate will be a bit higher a year from now than it is today.

Small-business credit conditions are an important issue, but just part of the problem.
Geithner listed steps the administration is taking to help small firms and the banks that supply them with credit:

• The White House has already stepped up Small Business Administration loan guarantees and approved tax cuts targeted at small firms.

• More than 1 in 4 contracting dollars under the American Recovery and Reinvestment Act are going to small businesses.

• President Obama announced a program last month to provide low-cost capital to community banks that are planning to expand small-business lending.

• Geithner said he'll work to ensure that bank supervisers don't "overcorrect" after an era of easy lending. Even in today's riskier climate for loan defaults, it's vital that creditworthy borrowers be able to borrow, he said.

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See also:

Does US need a second stimulus to create jobs?

Obama jobs summit: Real help for the unemployed, or PR move?

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