ACCION Small business owner Elsa Gloria Cantu runs Gloria’s Daycare in Laredo, Texas.

Barry Wides, Deputy Comptroller, Community Affairs, Office of the Comptroller of the Currency

Small businesses propel the U.S. economy, creating more than 60 percent of new jobs on average. These businesses are a powerful growth engine, but if the engine falters, the overall economy downshifts. When small businesses suffer, the U.S. economy suffers.

Over the past three years, the deepest recession since the Great Depression has caused financial stress for many people in the United States, including small business owners. Economic circumstances forced many business owners to lay off workers, reduce inventory, and sell assets. Some owners had to close their businesses. Weakened small businesses have contributed to a stubbornly high unemployment rate, despite the U.S. economy’s positive growth rates in the past seven quarters.

Keenly aware of the recession’s effects on small businesses, the 111th Congress passed and the President signed into law the Small Business Jobs Act of 2010 (SBJ Act). The legislation’s goal is to provide a new source of capital for eligible lenders to finance small businesses and generate new jobs.

The small business sector operates on three levels: federal, state, and international. The SBJ Act targets all three. This issue of Community Developments Investments explores three main features of the SBJ Act, describing the programs and provisions and explaining their requirements.

The SBJ Act’s flagship program, the Small Business Lending Fund, functions at the federal level. The legislation dedicates $30 billion to provide Tier 1 capital to participating lenders. The fund allows the U.S. Department of the Treasury to purchase preferred stock and other debt instruments from financial institutions that have $10 billion or less in assets, enhancing their capital and making it easier for them to extend new loans. (See article titled “$30 Billion Fund Targets Small Business Lending.”)

On the state level, the SBJ Act has created the State Small Business Credit Initiative. This initiative provides $1.5 billion in federal funds to states to support their Capital Access Programs and other state credit-support programs. These programs are expected to generate $10 in new small business loans for every $1 of federal funds employed. (See article titled “States Get $1.5 Billion to Support Small Businesses.”)

At the international level, exports are crucial to economic growth and employment in our increasingly global economy. The SBJ Act expands on the President’s National Export Initiative by providing significant resources to small business export promotion. (See article titled “Promoting Small Business Job Growth Through Exports.”)

This edition of Community Developments Investments highlights other innovative government programs, including the U.S. Small Business Administration’s Advantage programs and the White House’s Startup America initiative, designed to promote mission-focused and entrepreneurial small businesses.

If you are a financial institution looking for ways to support your local small business community, this edition of Community Developments Investments is a good introduction to how the SBJ Act can help you reach your goals. For more information, visit our resource directories along with other related publications on the OCC’s Community Affairs home page.

The Recession’s Impact on Business Loans The recent recession stalled small businesses in the United States. Lending to businesses—large and small—decreased from 2008 to 2010. During this time, total business loans declined by 10.3 percent and small business loans declined by 8.3 percent, according to the U.S. Small Business Administration. Figure 1: Total Business and Small Business Loans in 2005–2010 Source: Small Business Lending in the United States, 2009-2010, Office of Advocacy, U.S. Small Business Administration, February 2011, p. 4. Both demand and supply sides played a role in the credit contraction. Faced with deteriorating credit and worsening economic conditions, lenders preserved capital and tightened underwriting standards. Small business borrowers, driven by lower demand for their products and services, downsized and delayed plans for expansion. The Small Business Jobs Act of 2010 seeks to reverse these trends in small business lending by boosting capital for certain lenders and expanding small business loan guarantees.