Obama Courts Small-Business Owners

What his proposals will mean for small businesses

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President Barack Obama assumed a decidedly populist tone last night as he called for a multilayered safety net for the country's ailing small businesses. In a speech peppered with references to individual letters from Americans and examples from various cities across the country, Obama promised infusions of cash and tax credits for small-business owners. And as he bashed Wall Street for its role in the recession, he looked to frame the remaining stages of the government's recovery plan as an attempt to salvage average companies rather than large banks.

[See Why Wall Street Won't Buy Candidates.]

"Through sheer grit and determination, these companies have weathered the recession and are ready to grow," Obama said in his State of the Union address. "But when you talk to small-business owners in places like Allentown, Pa., or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they are mostly lending to bigger companies."

To that end, Obama proposed spending $30 billion to increase small businesses' access to credit. The money would come from the funds that Wall Street firms have paid back to the government in the aftermath of the $700 billion bank bailout.

[See Obama Tells Banks: "We Want Our Money Back".]

"It's certainly a good start, and it's something that we're very supportive of," Molly Brogan, a spokesperson for the National Small Business Association, says of Obama's proposal. "Small businesses are struggling. They're not getting any kind of capital; they can't get financed. So moving these kinds of funds through community banks, which are some of the few banks that are still making character-based loans and are still lending to small businesses, just makes sense, in our opinion."

In the NSBA's year-end study for 2009, 78 percent of the small-business owners who responded said that they had been hurt by the credit crisis. More than one third of respondents said that they couldn't get adequate financing.

Overall, though, the response to the lending proposal was lukewarm. "Community banks don't need any money to loan to small businesses. They've got plenty of money; they're flush with cash," says Jim Blasingame, a small-business expert and the host of The Small Business Advocate Show, a nationally syndicated radio show. The real problem, Blasingame says, is that not enough businesses are in a position to take out loans. "Small businesses aren't borrowing money," he says. "Small businesses aren't coming to the banks to ask for loans."

According to Blasingame, what small businesses need is job creation in the broader economy so that consumers will have more money to spend on the products the businesses produce.

Another potential issue is that it remains unclear what types of strings the Obama administration will attach to the $30 billion. Brogan acknowledged that if the terms are too restrictive, businesses could be skeptical. "They've got to do something to … make it appealing to community banks," she says.

Raymond Keating, the chief economist for the Small Business & Entrepreneurship Council, is also hesitant. "Do you want to go down the path of having the government come in and give you money with all the strings?" he asks. "Frankly, I'm not quite sure a lot of banks want to go down that path."

Obama got broader support from small-business advocates for his plans to encourage exports and to take part in free-trade agreements. "[The] more products we make and sell to other countries, the more jobs we support right here in America," the president said. "So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support 2 million jobs in America."

Elsewhere in his speech, he said, "If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores."

While many of Obama's remarks were expected, his enthusiasm for trade proposals caught a number of experts off guard—and left them pleasantly surprised. Keating says that he didn't expect the president to delve into the debate. "It would be a good thing [if we can get] off the sidelines," he says. "The fact that he indicated that is probably the biggest positive out of the speech."