Cautious optimism in Philadelphia for Obama's plan to fund community banks
January 28, 2010
Peter Van Allen, Philadelphia Business Journal
Philadelphia-area economists and business owners expressed cautious optimism Thursday that President Obama's plan to use TARP funding for community banks will help spark lending - and help small businesses weary from the recession.
The president said in his State of the Union speech Wednesday night that the administration would use $30 billion in TARP funds to provide capital to community banks, which in turn would make loans to small businesses.
"The efforts to increase lending to small businesses is important. Tight credit remains a problem for small businesses," said Gus Faucher, director of macroeconomics at Moodys.com in West Chester, Pa. "At the same time, small business needs to be convinced that the economy will get better before they start hiring or expanding again."
Obama's plan includes elimination of capital-gains taxes on investments in small businesses, continuation of tax incentives that allow small businesses to write off costs of new equipment and tax credits for small businesses that hire new workers or raise the wages of existing workers.
Benjamin Frank, executive director of the Center City Proprietors Association, said small businesses have continued to crop up, but help is needed.
"Small businesses are the backbone of our economy. Philadelphia's small businesses, including those who are members of the Center City Proprietors Association, need help to grow. New businesses are starting all the time - even in the recession," said Frank. "In President Obama's State of the Union address, his proposal to implement tax credits for small businesses and eliminate capital gains taxes could help increase survival and generate growth among small businesses. We need to be optimistic and hope this novel idea helps."
Mark Price, a labor economist at the nonpartisan Keystone Research Center in Harrisburg, Pa., said small businesses have been caught in a conflict during the recession.
"Community banks are saying, ‘Look, the problem is not that we're not lending. Small business is not coming to us,'" said Price. "But lots of small businesses need capital and they're saying they can't get it. One thing we know from all recessions is that banks do tighten their lending standards. More capital is good. Will it generate business and jobs? We don't know yet."
Price said the tax incentives outlined by Obama were a positive gesture, but tend to be appreciated only after the economy starts to improve.
"Employers are not responsive to tax cuts," Price said. "They respond to [customer] demand."
Still, Steven Wray, executive director of the Economy League of Greater Philadelphia, said Obama's plans for tax incentives are much needed.
"Clearly, economic growth begins with small businesses," said Wray. "Focusing on lending and tax credits that foster small business creation and development is a positive step toward getting capital and economic activity flowing where it is needed most - on main streets throughout our region and the country."
At least one business owner remains skeptical.
"President Obama's rhetoric was compelling and inspiring, giving small business owners hope that with the government's help we will ramp out of our economic woes," said David Neff, president of the Old City advertising agency Neff Associates. "However, if the banks, small and large, do not lighten the reins over their current lending practices, the president's speech is just that, a speech. The credit issues and other small business incentives are great. It all just needs to get done with a sense of urgency. This will require nonpartisan teamwork."
http://www.bizjournals.com/philadelphia/stories/2010/01/25/daily42.html