The Obama administration on Wednesday said it will use
leftover funds from the $700 billion financial bailout to help small
businesses.

The new plan would use some funds from the Troubled Asset
Relief Program (TARP) to increase lending at smaller and more community-based
banks.

{mosads}Banks would be required to submit plans on how they would
lend to small businesses to secure the funds.

Senior administration officials said they could not yet
provide an estimate on the size of the program, but maintained that there are
sufficient funds left in TARP to finance the initiative.

A report from the TARP’s official watchdog estimated that
there is $317 billion left in the program, a sum that includes funds paid back
to the government by some banks.

The effort comes as bigger banks on such as Goldman Sachs
and JP Morgan Chase are recording record profits a year after the financial
crisis. Businesses, however, are still running into problems in winning loans
from smaller banks, which have not seen the same recovery as the giants on Wall
Street.

“Small businesses are still facing a perfect storm in terms
of a too-weak labor market, the remnants of the financial crisis, and
continuing credit problems going forward,” a senior administration official
said in a conference call with reporters.

“We’ve decided we’re going to wait to go through our
consultations to see the degree of demand,” the official said. “These programs
announced today are clearly programs that can be done within the existing
resources that are available. They are not dependent upon repayments.”

The administration will also seek legislation to allow the
Small Business Administration (SBA) to dole out larger loans to businesses.

In addition, the president will ask Treasury Secretary Timothy
Geithner and SBA Administrator Karen Mills to huddle with key lawmakers and
small-business owners to discuss concrete steps the government can take to help
small businesses.

{mosads}The new program comes in response to grumbling from some
lawmakers over time that the initial wave of bailouts for large financial firms
did little to bolster the credit markets for small businesses, and that the
$700 billion in funds were largely used to balance large banks’ books.

To that end, 33 senators wrote President Barack Obama on
Wednesday asking for specific redirection of funds from TARP, in partnership
with funds from participating banks, to create a $50 billion small-business
loan program.

“We believe there is a need for a targeted program that will
jumpstart small-business lending without harming the capital position of
banks,” the senators wrote.

The idea for the $50 billion fund had initially been floated
by Sen. Mark Warner (D-Va.). A spokesman for Warner characterized the Obama
administration’s announcement as a positive start, but said it still leaves
Warner hoping for more ambitious actions.

Administration officials said they would seek to make
the program operational as soon as possible, arguing that it would provide
confidence in the small-business credit market beyond the actual benefits drawn from
small lenders’ utilization of the program.