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Sunday, August 8, 2010

Small Business: Access to Capital and Job Creation

Robert Jay Dilger
Senior Specialist in American National Government

Oscar R. Gonzales
Analyst in Economic Development Policy

The Small Business Administration's (SBA) authorization is due to expire on September 30, 2010. The SBA administers several programs to support small businesses, including loan guarantees to assist small businesses gain access to capital. This report addresses a core issue facing Congress during the SBA's reauthorization process: what, if any, additional action should the federal government take to enhance small business access to capital?

Historically, small businesses (firms with less than 500 employees) have experienced greater job loss during economic recessions than larger businesses. Conversely, small businesses have led job creation during recent economic recoveries. As a result, many federal policymakers look to small businesses to lead the nation's recovery from its current economic difficulties. Some, including the chairs of the House and Senate Committees on Small Business and President Obama, have argued that current economic conditions make it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.

This report examines the pros and cons of federal intervention in the marketplace to enhance small business access to capital. It assesses recent federal credit market interventions, including the creation of the Troubled Asset Relief Program (TARP) and Term Asset-Backed Securities Loan Facility (TALF); modifications to the SBA's loan guarantee programs and other small business provisions under the American Recovery and Reinvestment Act of 2009 (ARRA); empirical evidence concerning small business lending and borrowing, including the number and amount of small business loans guaranteed by the SBA; the efficacy of the SBA's programs designed to enhance small business access to capital; and two bills introduced in the 111th Congress, H.R. 3854, the Small Business Financing and Investment Act of 2009, and S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, which are designed to enhance small business access to capital.

This report also examines legislation to extend SBA loan modifications and fee subsidies that were initially enacted under ARRA and expired on May 31, 2010, including S.Amdt. 4519, an amendment in the nature of a substitute to H.R. 5297, the Small Business Jobs and Credit Act of 2010, which was introduced on July 27, 2010. It would extend those loan modifications and subsidies through December 31, 2010. It also examines President Obama's State of the Union proposals—the "Small Business Jobs and Wages Tax Cut" to encourage small business job creation and wage increases and a $30 billion set-aside of TARP funds to encourage community banks to provide small business loans; H.R. 5297, the Small Business Jobs and Credit Act of 2010, which would authorize the Secretary of the Treasury to create a $30 billion Small Business Lending Fund to encourage community banks to provide small business loans, a $2 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, and a $1 billion Small Business Early-Stage Investment Program to provide venture capital funding for startup companies; and S.Amdt. 4519, which would authorize a $30 billion Small Business Lending Fund similar to the House-passed version and a number of changes to the SBA's loan guaranty programs, export promotion programs, contracting programs, small business eligibility size standards, and small business tax policy.

Date of Report: July 30, 2010
Number of Pages: 31
Order Number: R40985
Price: $29.95

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