In the wake of the financial crisis now gripping the country, small business lending has virtually dried up. SBA guaranteed loan volume is fallen as much as 50% with the banks not willing to extend small business credit even with 50%-80% SBA guarantee. Small businesses create 70% of all the new jobs in the country and as such with rising unemployment rates, the health and continuing growth of the small business sector is of vital importance for the country trying to recover from recession.

President Obama today released details on a new plan aimed to boost small business lending. The plan includes upto $15 Billion to increase liquidity in the secondary markets, increasing the SBA loan gurantees to upto 90% and reducting SBA program fees. In addition, IRS has been ordered to work on additional temporary tax breaks for small businesses. The largest TARP receiving banks are being asked to provide monthly reports on their lending to small business.

Small business and entrepreneurship is the engine that drives the American economy and therefore should be the primary focus for the government concerned about job growth and busting the recessionary trend.  This is the sector that will create the new pioneering companies of tomorrow.  In this light, it is curious to see the size of the aid that pales in comparison to the billions that have been doled out to the large corporations that created this mess in the first place. AIG received 11 times more in aid than what is being offered to the small businesses, and still, this small business lending boost may do more to fix the economy than AIG (which still continues to be a drain on the tax payer funds).

It is also worth reading the opposing point of view that laments that the loosening of small business credit may set up a future bubble not unlike the mortgage bubble due to loose consumer credit.