Goldman Sachs's Main Street Solution May Potentially Hold the Key to the Economic Recovery

Goldman Sachs announced Tuesday that it will be launching a $500 Million project aimed at boosting the economy by aiding those that have suffered the most through the recession. The initiative, known as "10,000 Small Businesses", will attempt to spur the growth of small businesses across the country and thereby create jobs to halt the rise of the already record-high unemployment rate.

The board heading this project will consist of an impressive list of experts, many of whom have had real world success. The panel will include Harvard professor Michael Porter, Goldman's largest current shareholder Warren Buffet, and Goldman Sachs CEO Lloyd Blankfein among others.

A project headed by such a list of true experts is good news for small business owners who have consistently been disappointed by the Government's efforts to aid "Main Street". For Goldman Sachs, the project seems to be motivated both by a feeling of guilt over its perceived part in causing the recession and a simple incentive to make more money in a healthier economy. The bank did, however, make nearly $3.2 billion last quarter.

Out of the total $500 million included in the plan, around $200 million will be put towards scholarships to community colleges and traditional universities across the country, while $300 million dollars is set aside for CDFIs that work primarily with lower income populations. CDFIs, or Community Development Financial Institutions, include banks, investment funds and credit unions that have been certified by the United States Treasury Department. Such institutions have also suffered due to the recession and often provide the only sources of personal and business loans in small communities.

The plan itself will consist not only of cheap loans, but also of purely philanthropic donations. Such a plan, if well targeted, could have a much more substantial effect per dollar than any government plan initiated so far. Money from a private industry, in this case a single, massive financial institution, targeted by real experts at the small businesses that form the backbone of the economy, does in theory look like an economically sound plan. As simple as this assumption may sound however, it begs the question - is relying on the philanthropic activities of Wall Street a real solution to small businesses, and more importantly, to America's economic woes?

Originally Appeared At: GetFastCapital.com News

America's Recovery Capital - A Program That Can't Cut it

In May the Small Business Administration unveiled a lending program called America's Recovery Capital as part of the federal government's economic stimulus package. Many small business owners approved of the "bridge loans" as they provided a means of making it through the economic recession without laying off as many workers. Washington officials, as well as many lenders, predicted that the banking industry would subscribe quickly, making the necessary capital available for small businesses.

The banking industry, however, appears hesitant at becoming involved with the program. Many banks, including some of the largest in the country, see little incentive in the program due to the nature of the loans. Though the government has provided $255 million and the program is set to give out 10,000 loans of up to $35,000, lenders seem to see little profit motive in a $35,000 loan over six years. In fact, the SBA announced that as of Monday only 1,127 loans had been extended, totaling a mere $36.8 million.

Some experts have suggested the rigorous underwriting standards cause these relatively small loans to require as much work as much larger and more profitable loans. Banks may simply see no reason to deal with the government and the tight restrictions when more profitable ventures are available.

The program should still have small business loans available through September 2010 if it remains on its current pace. Karen G. Mills, the head of the Small Business Administration, has attempted to reassure small business owners that the program will reach its goal of 10,000 loans, but many owners are still unhappy. The small business loans, meant to aid in bridging a recession, may be coming too late to help the businesses, and jobs, they were meant to save.

Link to Original Post: GetFastCapital.com News