Reuters reports that the U.S. Treasury will soon launch a new program aimed at aiding small business lending, the head of the Treasury's $700 billion bailout fund said on Thursday. Herbert Allison, the Treasury's assistant secretary for financial stability, declined to provide details or specific timing on the program in testimony before the U.S. Senate Banking Committee.
The US Treasury has focused for the past year on stabilizing the banks with massive capital infusions into the sector with the TARP program. The TARP seems to have succeeded in its goal to shore up the economic capital base of bank's but lending activity to small and mid-size enterprises (SME) has dramatically slowed. Capital constraints and heightened risk aversion by commercial banks has curtailed access to moderately priced credit products for many SMEs. Credit risk aversion and the recession has hurt the sector and has contributed to growing bankruptcy rates by capital starved SMEs.
SMEs employ more workers then any other business sector demographic. One of the reasons the recession has been so severe is due to the massive layoffs and business closures within the by SME segment. There are approximately 6 million SMEs in the United States. If each SME hired one person that would put a serious dent in the unemployment rate.
Some statistics on the SME demographic includes:
• Represent 99.7 percent of all employer firms.
• Employ half of all private sector employees.
• Pay more than 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than 50 percent of non-farm private gross domestic product (GDP).
• Supplied more than 23 percent of the total value of federal prime contracts in FY 2005.
• Produce 13 to 14 times more patents per employee than large patenting firms.
• Are employers of 41 percent of high tech workers (such as scientists, engineers, and computer workers).
• Are 53 percent home-based and 3 percent franchises.
• Made up 97 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004.
• Employ half of all private sector employees.
• Pay more than 45 percent of total U.S. private payroll.
• Have generated 60 to 80 percent of net new jobs annually over the last decade.
• Create more than 50 percent of non-farm private gross domestic product (GDP).
• Supplied more than 23 percent of the total value of federal prime contracts in FY 2005.
• Produce 13 to 14 times more patents per employee than large patenting firms.
• Are employers of 41 percent of high tech workers (such as scientists, engineers, and computer workers).
• Are 53 percent home-based and 3 percent franchises.
• Made up 97 percent of all identified exporters and produced 28.6 percent of the known export value in FY 2004.
(Source: Cornell School of Industrial and Labor Relations, Basesky and Sweeney)
The US Treasury program will target the SME segment and direct capital to help lead the economic recovery. SMEs are the leading source of job creation, product innovation and wealth creation. A vibrant and financially healthy SME sector is key to any sustainable economic recovery. This program will also help to bolster the ailing community banking sector that has seen over 95 closures by the FDIC this year.
It is critical that SMEs prepare to participate in this program. Sum2 offers a complete product suite to help SMEs capitalize on the many opportunities economic recovery will present. Sum2's recently announced webinar series "Recovery Tools for a New Economy" offers SME critical management tools to profit from the emerging business cycle.
As the lending program to SME rolls out, bankers will initiate engagement process and business reviews. They will be looking to determine if SME managers have identified risks confronting their business. It is incumbent on small business managers to understand how changing market dynamics and operational risk factors are impacting their business and demonstrate how they will mitigate these risk factors.
Sum2 provides a series of risk assessment products that assist companies to chart paths to profitability and growth. The Profit|Optimizer, is a unique risk management and opportunity discovery tool that helps SMEs effectively manage the challenges posed by the recession and recovery business cycles.
Risk: SME, recession, recovery, stimulus, commercial banking
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