Will the Small Business Lending Fund Create Jobs?

You may recall the creation of a $30 billion lending fund (part of the Small Business Jobs Act) meant to provide a helping hand to small businesses and ultimately jumpstart job creation. The fund was ultimately heralded as a part of the remedy to today’s economic downturn. Fast-forward to present-day, where the fund is still very much present but has yet to lend a cent.

Over 800 institutions have applied for cash from the Small Business Lending Fund, asking for over $11 billion in total thus far. The idea behind the fund is that banks are able to provide more loans for companies looking to hire and expand. The execution behind the idea, however, has proven less than effective. Has the fund failed? Not necessarily, but it appears to have stagnated.

The problem? Regulations.

Assessing the financial stability of the banks seeking funds doesn’t come without red tape. According to the U.S. Treasury, the money must be distributed by September, the same month in which the Small Business Jobs Act was signed a year ago. The lag-time is causing many officials to second-guess the Fund and whether or not it will actually fulfill its purposes: help small businesses and spur job creation. Small businesses loans were incredibly hard to come by at the peak of the recession a couple of years ago, leaving government loans to step in and become a viable option for businesses in need of capital.

Addressing the situation, Treasury Secretary Timothy Geithner has taken a stand stating that the fund’s delays are indeed due to the actions of regulators. In response to why the fund has yet to distribute, Geithner stated that “we are being careful with the taxpayers’ money.” Geithner was particularly critical of banks that wouldn’t be viable for the fund, asserting that he “can’t justify helping to keep them alive.” This tough-as-nails attitude and “better safe than sorry” approach certainly doesn’t come without reason from the Obama Administration, who want to make sure that the fund isn’t abused.

Playing it safe may indeed be the best move, ensuring that the fund serves its purpose properly rather than recklessly lending. True, small businesses need cash sooner rather than later in the face of crushing debt and massive unemployment. With that in mind, the Obama Administration simply can’t afford another financial blunder, both figuratively and literally. The notion among Republicans remains that small businesses would be able to hire if there was more stability concerning their financial futures, with the debt ceiling stabilized and so on. Geithner asserted that the Obama Administration supports small businesses, noting that “there is no single silver bullet” to ease their economic woes.

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While the Small Business Lending Fund may not be the silver bullet, it may very well be able to provide ammunition to businesses looking to hire and expand. The question remains; when will the fund finally start lending? Geithner claims “very soon” with a September deadline looming. Will this be soon enough for small businesses in a crunch? The fund was intended to give a lifeline to small businesses in need and spell good news in the down economy. Only time will tell as to whether or not the fund lives up to that purpose, but let’s hope that it does.