Photographer: Chip Chipman/Bloomberg

Crisis-Era Fiscal Measures Are Winding Down, Here’s How Two Did

U.S. Treasury programs boosted lending to small businesses and created jobs

Two U.S. government programs enacted during the global financial crisis saved or created nearly 200,000 jobs and almost $19 billion in increased lending to participants, according to assessments released Thursday.

Part of the U.S. Treasury’s response to ease the trauma to small businesses during the crisis, the two programs created under the Small Business Jobs Act helped finance ventures that banks weren’t touching. Both started in 2011 -- one is due to expire and the other is no longer disbursing funds to participating banks.

Separate reviews by the Treasury reveal a picture of higher liquidity, spurring investment and growth down to the rural level. The Small Business Credit Initiative supported nearly $8.4 billion in new capital in small-business loans and investments through the end of last year. The Small Business Lending Fund had about $4 billion in investments to 332 participants, which boosted overall lending by $18.7 billion. 

The economy is improving and businesses are starting to gain a little more confidence that they’ll have the business to support the repayment of any debt they take on,” James Chessen, chief economist at the American Bankers Association, said in an interview. “Liquidity is high so the outlook ahead is good.”

Loans to small businesses grew to $328.3 billion in the second quarter of 2016, a 16 percent increase from the same period in 2011, FDIC data shows. Loan growth in small businesses now exceeds pre-recession levels.

Small businesses "create jobs, drive innovation, and produce the kind of inclusive, sustainable growth that is so important to our nation’s economic future," Treasury Secretary Jacob J. Lew said in a speech Thursday. "But, without capital, no matter how hard you are willing to work or how detailed your entrepreneurial vision may be, you cannot put your plan into action."

About 82 percent of small businesses that applied for financing last year received at least some of the credit request, and the volume of small-business loans has increased in each of the past nine quarters, according to an analysis of Federal Reserve data by the ABA. The rate of small-business loans is nearly five times what it was three years ago, the ABA's analysis showed.

Still, small-business optimism is back below pre-recessionary levels. Uncertainty about where the economy is headed, if it’s a good time to invest and whether companies expect to expand are holding them back, the National Federation of Independent Business said Wednesday in a monthly report.

While the outlook for small business loans looks good, one key challenge is navigating the complex regulatory system that emerged from the ashes of the financial crisis, according to Chessen at the ABA, which has long made the case that community banks need looser regulation. “Government regulations are constraining their business.”

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