Obama to increase credit to small businesses

President Barack Obama will announce a package of initiatives on Wednesday to increase credit to small businesses, an administration official said on Tuesday.

The proposal will increase the caps for existing SBA (Small Business Administration) loans and give small banks better access to TARP funding to encourage more lending to small business, the official said.

While the credit crunch that threatened the economy earlier this year has been easing, small businesses that typically drive employment growth in the United States are still facing borrowing constraints.

They're more dependent on banks. They're more dependent on credit cards, home equity loans, other types of things that got washed away by this crisis, U.S. Treasury Secretary Timothy Geithner told CNBC on Friday.

The Obama administration has been looking at ways to increase access to credit for small businesses.

The Washington Post reported on Tuesday the administration this week planned to ask Congress to raise the ceiling on the amount of money companies can receive from the Small Business Administration's major lending programs.

The Post, citing sources, said the Treasury also was close to finalizing a plan to use bailout funds to help community banks lend to small businesses.

Herb Allison, the head of the Troubled Assets Relief Program, said in late September Treasury would soon launch a program aimed at aiding small businesses by purchasing up to $15 billion in securities backed by loans guaranteed by the Small Business Administration.

The Obama administration in May temporarily relaxed restrictions on the size of businesses allowed to apply for small business loans.

The move was expected to allow some 70,000 additional firms to apply for Small Business Administration 7(a) loan program through September 30, 2010. The move was expected to particularly aid auto dealerships that have been squeezed by tight credit.

(Editing by Sandra Maler)