Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

Federal Small Business Lending Initiative

November 26, 2008

By Hopeton Hay

The U.S. Department of Treasury and the Federal Reserve announced a

Treasury Secretary Henry Paulson

Treasury Secretary Henry Paulson

new initiative to increase the availability of funds for small business and consumer loans, the Term Asset Securities Loan Facility (TALF). TALF will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.

Under the TALF, the Federal Reserve Bank of New York will lend up to $200 billion on a nonrecourse basis to investors who purchase these asset-backed securities. The U.S. Treasury Department will provide $20 billion of credit protection to the Federal Reserve for the TALF. As a result lenders will find it easier to sell the loans they make and use the proceeds of those sales to make new loans. Recently the market for asset-backed securities had ground to a halt due to credit market stresses said U.S. Treasury Secretary Henry Paulson.

“By providing liquidity to issuers of consumer asset backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small business loans,” said Paulson.

The announcement to include small business lending in the latest initiaitive to unclog the credit markets comes on the heels of a letter sent on November 20 by U.S. Senators John Kerry, Olympia Snowe, and Charles Schumer to Paulson urging him to use a portion of the Treasury Departments rescue package to purchase SBA guaranteed loans. Sen. Kerry is Chairman of the Senate Committe on Small Business and Entrepreneurship and Sen. Snowe is a ranking member of the committee while Sen. Schumer is a senior member of the Senate Commitee on Banking.

SBA Acting Administrator Sandy Baruah applauded the new initiative as a major breakthrough in efforts breathe life into the market for small business loans.

“We expect these efforts to help free up the capital both brokers and investors need to purchase new SBA loans,” Baruah said.

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