This article is in response to the Obama’s administration reported consideration to make loans available to small businesses through TARP funds. The money is intended to “free up” much needed credit to finance their operations.

The dilemma facing small business owners, given the current economic crisis, has crippled their businesses, and led to massive layoffs. The banks, despite the millions of dollars they received, under the Troubled Assets Relief Program (TARP), to free credit to businesses, did not lend it to their business customers.  Instead, the banks, used it to pay bonuses to their executives, capitalizing the bank, attempted to host conventions, which they canceled only because the plans leaked, and the public expressed their outrage. Citi Group, which was in major financial crisis, also wanted to take possession of a $50 million dollar private jet, that the bank claimed it had a contractual agreement. This action was thwarted by public outrage, because it would be at taxpayer’s expense.

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Since fall 2008, businesses continue to struggle, as the TARP funds intended to be loaned to them via the banks was never done. This week the Obama Administration reportedly decided to use the TARP funds to lend money to them. Based on reports, this will again be loaned through the banks, so it will be assumed that steps will be put in place to ensure that the banks lend this money, and not keep it as they did previously.

There are two issues that threaten the government’s plans.

  1. The banks may not agree to accept the money, having taken the funds initially, under the Bush Administration with no strings attached, only to have the Obama Administration, as a result, institute new rules, by curtailing their compensation package. Many of the big banks, such as Bank of America, and Goldman Sachs have either repaid, or publicly announced, that they intend to repay the money to operate without government’s interference.
  2.  The small business owners should look at what happened to the banks, to determine if they really want to accept a loan from the government. Will the government interfere in their operations also? The Insurance companies had also applied for TARP funds, but having seen how the banks were treated, refused the money when the government offered to grant loans to them. It is an example of “Buyer Beware”. They find themselves “Between a rock and a hard place”

Small businesses have very important choices to make, if the government makes the loans available to them, either through the banks or directly. The question they face, and need to answer, “Is it worth accepting the loan, at the risk of losing their independence?  As seen recently, the Obama’s Administration will rewrite the rules as they go along, as they did with the banks. They are also willing to ignore the law, which occurred with the rights of bond holders of General Motors and Chrysler. Only time will tell how many will accept the loans, and the repercussions if any.