Small Businesses Size Up Obama’s New Plan

PRESIDENT BARACK OBAMA’S new plan aimed at bolstering small-business credit is drawing mixed reviews from business owners and advocates.

The plan, which was announced Wednesday, is designed to raise current Small Business Administration loan limits and give small banks — and by extension, small businesses — access to cheaper capital.

“When [community banks] are hit by recession and financial crisis, creditworthy small businesses lose out,” Obama said in a speech delivered from Metropolitan Archives, a small records storage business in Landover, Md. “That’s why we must do more to give these smaller banks new opportunities to access capital -– so that they can lend to small businesses in their communities.”

The White House will call on Congress to increase the caps on SBA’s 7(a) and 504 programs from $2 million to $5 million for standard borrowers. (For manufacturers, the cap would move from $4 million to $5.5 million.) The administration will also ask Congress to raise the cap on microloans from $35,000 to $50,000. The plan is designed to aid businesses that have greater capital requirements and those looking to expand, according to a senior White House administration official.

The Obama administration is also asking the Treasury Department to make it easier for community banks with less than $1 billion in assets to access funds from the Troubled Asset Relief Program, or TARP. Those banks would be required to hand over a reduced 3% dividend to the government – less than the standard 5% large companies must still pay. (Banks will be eligible to receive capital totaling up to 2% of their risk-weighted assets. The dividend they’ll have to pay will increase to 9% after five years to encourage timely repayment, according to the White House.)

To stimulate lending in rural and urban communities, the plan would offer Community Development Financial Institutions access to TARP funds at a 2% rate for up to eight years.

The reaction to the plan was mixed. Although the president’s plan is designed to help the small-business community, it faces real pushback from business owners who have been frustrated by what they see as the government’s failure to provide swift aid to small businesses during the downturn. Some business owners and advocates call these new initiatives a step in the right direction, but others say the White House has missed the mark again.

“I’m reminded of Ronald Reagan’s quote: ‘The nine most terrifying words in the English language are: I’m from the government and I’m here to help,’” says Steven Elliott, a co-owner of Oren Elliott Products, a machine-parts manufacturer in Edgerton, Ohio, who says the president’s latest moves will have little, if any, effect on small businesses. He and a number of other business owners say the real issue is weak sales, not access to credit. “From my narrow perspective, the whole ‘tight credit problem’ appears to be a red herring,” Elliott says. “Banks are willing to loan, but in this depressed economy, few small businesses need loans.”

Others say more lending could ultimately hurt smaller firms. “Access to credit — even ‘cheap’ credit — will only deepen a lot of existing debt burdens for small and medium businesses,” says Sean C. O’Rourke, a principal at Syzygy 3, a technology consultancy in New York. “The real culprit is the lack of business being conducted with small businesses,” he says.

Some small-business owners say the community would benefit from banks with more to give – provided they end up lending. Fresia Rodriguez, the owner of Kingley&Posh a plus-size clothing designer in Alexandria, Va., is optimistic about the new initiatives, but only if the government can require banks to devote new government funds to lending to needy small businesses, rather than padding their balance sheets. “It’s about time that things trickle down to small businesses,” she says. “I’m just hoping that banks do more to pass loans out to creditworthy small businesses.”

Others say to reserve judgment on the program. It will take weeks for Congress to agree on whether to pass the SBA provisions, and for the TARP changes to work through the Treasury Department, but many businesses could be helped by these new initiatives, says Ridgely C. Evers, a managing partner at Establishment Capital Partners, a management fund in Northern California. “The two things small businesses need most are: capital and guidance,” he says. “I don’t think the government is done by a long shot, but this will certainly help.”

—Write to Diana Ransom at dransom@smartmoney.com
http://www.smsmallbiz.com/profiles/2483.html

Earnings Season: Five Things We’ve Learned So Far

A cursory look at quarterly earnings this month suggests corporate America is regaining its foothold and ready to run again. But a look at the stock market’s reaction indicates otherwise.

Photo: Oliver Quillia for CNBC.com A trader at the New York Stock Exchange.

So goes the dichotomy of third-quarter earnings, in which positive surprises have outweighed the negative by about 4 to 1 though stock gains have been muted.

In fact, since the Dow crossed 10,000 on Oct. 14, stocks have done almost nothing despite a flurry of beats from some of Wall Street’s biggest names.

Investors’ reaction, in fact, has been decidedly undecisive to all the seemingly good news.

“The overall market really seems fatigued at this point in the rally,” says Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. “The key question is, is this just a pause because solid earnings were expected and then we take off from here, or has the market petered out and we’re due for a pullback?”

http://www.cnbc.com//id/33449582

Revenge Of The Junk Bonds

Drugstore chain Rite Aid and truck and engine maker Navistar International tapped the cash flowing into high-yield bond markets this week as borrowing costs dropped and expectations for trouble fell.

The market absorbed roughly $5 billion in new speculative-grade (junk) bonds. A team of banks led by Citigroup ( C – news – people ) handled Rite Aid’s sale of $268 million in 10-year notes paying 10.25%. Credit Suisse ( CS – news – people ) ran Navistar’s $963 million issue of 12-year notes with an 8.25% coupon. Corporations have raised $94 billion through U.S. junk bond sales this year, a 183% rise over the same period last year, according to Thomson Reuters.

Hunger for risky credit keeps growing. One measure is the difference between junk bond yields and 10-year Treasurys. This spread stood at 7.52 percentage points on Oct. 22, the lowest point in the past year, Bank of America Merrill Lynch data shows.

Though stocks lay claim on the public’s attention, high-yield bond funds have proved more popular this year. Investors moved another $391 million into junk bond funds in the seven days to Oct. 21, bringing this year’s tally to $20.4 billion, according to fund tracker EPFR Global. In comparison, they’ve pulled $51.3 billion from U.S. equity funds.

A resurgent appetite for risk, along with reopened bond markets and falling borrowing rates, contributed to the rating agency Standard & Poor’s decision to chop its projected default rate in half this week. S&P expects 6.9% of junk bonds to default in the next year, instead of 13.9%. (See “The Falling Failure Rate.”)

The revision caused some confusion. S&P still expects the default rate to climb higher than the current 10.8%, said Diane Vazza, the rating agency’s head of fixed income research. But the peak rate should be lower because companies have been able to refinance debts. Many of them could still default if the economy recovers too slowly; the trip to missing an interest payment may simply take longer.

http://www.forbes.com/2009/10/23/investments-rating-agency-bonds-markets-economy.html?feed=rss_markets

Dollar rebounds from 14-month low

LONDON (Reuters) — The dollar rose broadly Thursday as most investors bet the greenback’s recent sharp slide against major currencies had gone too far, too fast.

Since April, the dollar has lost around 12% against six major currencies , with heavy selling in recent weeks pushing it to the lowest in more than a year. But Thursday, the dollar index gained 0.1% to 75.071.

The dollar hit a one-month peak at ¥91.70 while commodity-linked currencies such as the Australian dollar retreated from a near 15-month high.

Investors began to question how much further the dollar could slide, and how much other assets could rally, sending funds out of riskier currencies that have gained on signs of economic recovery.

“We’ve seen a big move across a host of assets lately and a lot of people are looking for when we’re going to top out, so there’s some profit-taking today,” said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.

Worse-than-expected U.S. jobless claims data on Thursday offset generally positive U.S. earnings and rekindled doubts about the strength of the United States’ economic rebound.

With U.S. unemployment near 10%, investors expect interest rates to remain at record lows well into 2010 even if signs of stronger world growth prompt other central banks to raise rates and begin winding down some emergency spending.

Low rates make the dollar less attractive than higher-yield currencies more closely correlated with economic recovery. At the same time, economic jitters boost the dollar’s safety appeal.

The dollar was up 0.3% to ¥91.27 at current prices.

Against the Canadian dollar, the greenback rose 0.5% to C$1.0474. Earlier it rose to C$1.0544 but eased back after the Bank of Canada’s quarterly monetary policy report suggested officials think the economy can cope with a stronger currency.

The Bank of Canada left interest rates at record lows this week and dashed expectations of a hike before mid-2010.

The Australian dollar was last little changed at $0.9270, after going as low as $0.9186.

The dollar did lose some of its gains as the New York session began to wind down. Analysts said there was no specific news but investors were beginning to rebalance positions after the day’s trading.

“There is nothing going on,” said Win Thin, senior currency strategist at Brown Brothers Harriman. “There is a little position squaring at end of day.”

The euro rose on the session and was last up 0.1% at $1.5028 after hitting a 14-month peak of $1.5046 Wednesday. It had traded as low as $1.4944 on Thursday.

Sterling was last up 0.1% at $1.6617, near a one-month high and shrugging off early sluggishness after data showing UK retail sales were flat in September.

Scotia’s Sutton said the dollar is still vulnerable and Michael Klawitter, senior strategist at Commerzbank in Frankfurt, added “the euro’s proximity to $1.50 suggests that the market is not taking the correction too seriously.”

Another trigger for the dollar’s gains, analysts said, were fears that China may start considering withdrawing some of its emergency stimulus programs after data showed the economy grew by a robust 8.9% in the third quarter.

But the government said it would retain its ultra-loose monetary and fiscal policies, and Chinese-based analysts added growth was not strong enough to trigger policy tightening.

“There are fears that when there is a removal of stimulus the underlying fundamentals won’t be enough to drive global growth,” Scotia’s Sutton said. “But the truth is there is a lot of growth coming out of China and that whole region.”

Economists polled by Reuters expect the U.S. economy to have expanded 3.2% in the third quarter, ending a recession that began in December 2007. The advanced reading of U.S. third-quarter gross domestic product is slated for release next week.

http://money.cnn.com/2009/10/22/markets/dollar.reut/index.htm?section=money_markets