Adding on to the ever-increasing list of bailout beneficiaries, the Washington Post reports this evening that the Obama administration is considering using the TARP funds which were originally of 700 BN to aid distressed small companies.

This aid would be given under the form of an expansion of the “Small Business Administration” lending program called 7(a).

Evidently, fiscal responsibility does not seem to be at the order of the day with the current US administration.

And, of course, the administration also knows that “small companies have poorer record of repaying loans compared to large corporations and [this program] would be the riskiest investment made under the bailout program to date”.

The question to be asked now is “where stops fiscal irresponsibility”? Unfortunately it would seem that we’re not going to get an answer to that question any time soon in the US.

The Obama administration is developing an initiative to take money from the $700 billion program for the banking system and make it available to millions of small businesses, which officials say are essential to any economic recovery because they employ so many people, according to sources familiar with the plan.

(…)

A proposal being floated by senior Treasury Department officials calls for using the bailout funds to expand an existing government program that helps small companies borrow money from banks a low rates to keep their businesses going, the source said. These “working capital” loans would come with few restrictions and could be used for buying inventory, holding onto employees and paying off short-term debt.

The initiative would expand a Small Business Administration lending program called 7(a), the agency’s most popular lending program. Lines of credit for small companies could greatly increase in size. If the firm failed despite receiving this help, the government would cover most of the losses on the federal loan, perhaps as much as 90 percent. Lines of credit act like the credit cards for companies — short-term revolving debt used to pay a variety of immediate expenses.

Discussions about the plan have reached the highest levels of the administration. In a meeting at the White House last week, Treasury Secretary Timothy F. Geithner expressed support of his staff’s proposal, while National Economic Council director Lawrence Summers was more skeptical. Neither has made up his mind, officials said.

(…)The officials said the discussions are in the early stages and that no plan is expected before the fall. Ideas currently on the table may evolve or be scrapped altogether, they said.

(…)

The scope of the Troubled Assets Relief Program, or TARP, has been expanded several times already, first for auto manufacturers and then to life insurers. In both cases, government officials argued that aiding these firms was critical to preventing economic upheaval. But aiding small businesses would be the program’s most dramatic expansion.

Some officials argue that the program is worth the risk. They say small businesses are key to reversing the soaring unemployment rate, which has hit 9.5 percent, the highest since the early 1980s. Some economists estimate small businesses employ 60 percent to 80 percent of all workers, though others doubt such figures.

The administration has carried out several programs to help small businesses through the $787 billion economic stimulus package passed by Congress in February. That measure doubled the budget of the SBA to help it spark new lending. Since the bill passed, $6 billion worth of small business loans have gone out the door, said Karen Mills, the administrator of the SBA.

“If we are going to solve our issues in the recession and come forth in a recovery, it’s going to be small businesses that leads us,” said Mills. (…)

The Treasury is working on a separate $15 billion effort, announced in March, to provide more credit for small businesses by aiding the financial firms that package SBA loans together and turn them into securities.

The administration is considering purchasing these securitized loans outright, to free up the books of these lenders. But conditions in the TARP program, which require recipients of aid to surrender stakes and submit to executive pay restrictions, have discouraged firms from participating. Source: Washington Post.