Senator Proposes Bailout For Small Businesses

Most big banks have passed the crisis point, thanks to the federal bailout, and are now raking in profits. But for small-business owners just trying to stay afloat, the picture is still grim. So says Sen. Mark Warner, a Virginia Democrat, who sketches out for Guy Raz his proposal to take some of the government's TARP money and steer it toward lending for small businesses.

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GUY RAZ, host:

Even if Lakshman Achuthan is right, and banks start lending more freely in another three or six or nine months, it might come too late for many small business owners, the folks who depend on loans from small banks to expand or even make payroll. And so, Senator Mark Warner, the Virginia Democrat, has an idea to address the problem. He wants to take some of the money the government has set aside for the big banks, the TARP money, and use it to help small business owners.

Senator MARK WARNER (Democrat, Virginia): The problem is that banks, both large and small, are still very much in recovery mode. They're hoarding capital. They're drawing in credit lines because they still have a series of particularly bad real estate loans on their books, both home mortgages and commercial-based mortgages.

So how can we spur that small business lending again because, historically, small businesses have created about 60 to 70 percent of the new jobs coming out of a recovery?

RAZ: So let me interrupt you. What are you proposing to do to fix this?

Sen. WARNER: We proposed re-allocating, not asking for additional funds from - or additional congressional action - but simply re-allocating some of the TARP funds, some of the financial bailout funds. We've still got hundreds of billions of dollars of that $700 billion that have not been spent out yet.

Rather than holding those simply in reserve to, you know, to re-shore up the big banks, let's put $40 billion of that to work with the banks putting in another 20 percent on top of that, putting in 10 billion of their own money on top of that, so they've got skin in the game, and they would take the first dollar loss. And let's put that combined $50 billion and say use it or lose it over the next 12 months.

You can't draw down this money and simply put it on your balance sheet. If you draw down some of these funds, you've got to actually lend them out to small businesses. But we'd be using the banks' distribution networks, particularly the community-based banks, the smaller banks, that could really spur small business lending.

RAZ: One business owner I know has worked with the same bank for nearly three decades, paying his interest on time, never once missing a payment, and yet the bank is now calling in that original loan after three decades. He's having a heck of a time finding a new lender. What would somebody like that do in the meantime?

Sen. WARNER: Well, what's happening is the bank's calling in the credit lines, even if the small business customer is a good paying customer because they need to build up their balance sheets because the regulators are coming in and saying, hey, you've got to show that you are long-term healthy, particularly if you've still got some of these commercial real estate loans and home mortgage loans that are still on your books that might be in trouble.

So what we're trying to do is to say we've got to make sure that small business doesn't go out of business until the banks can get their own house in order and restart lending.

RAZ: Explain something to me. If taxpayers sent $700 billion to the large banks, now you're talking about diverting some of that money and requiring banks to do this, why do you think that didn't happen initially? [POST-BROADCAST CORRECTION: The total bailout was approximately $700 billion; banks received about $200 billion of that amount.]

Sen. WARNER: The problem was when banks were in crisis, we were putting those dollars into the banks to shore up their financial status. What we didn't want to try to do was then dictate what kind of loans they were going to make because, you know, you don't want that level of political interference. You did need the banks to kind of shore up their balance sheets so they wouldn't, you know, go out of business and cause a complete financial collapse.

My initiative here would say, we're not going to force you to make loans, but we are going to say, here's this capital that will be available. You put up 20 percent of the funds, and say, if you don't use it for this purpose, it can't be used for any other purpose. That, I think, would be a - put the right incentive but without specifically saying and, you know, the last thing you need is some senator or congressman saying to a bank, lend to X business in my town. You've got to still allow the banks to make the appropriate due diligence. And I think the approach that we've suggested is the right one.

RAZ: That's Virginia Senator Mark Warner, speaking to us from his office on Capitol Hill.

Senator Warner, thanks so much.

Sen. WARNER: Guy, thanks for having me.

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Correction Oct. 22, 2009

Host Guy Raz said that taxpayers sent $700 billion to large banks as part of the federal government bailout of the financial industry. That is incorrect. The total bailout was approximately $700 billion; banks received about $200 billion of that amount.

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