Obama plans TARP aid for small businesses: report

The Obama administration plans to channel money from the government financial bailout fund to small businesses in an effort to stem the political and economic fallout of high unemployment, the Washington Post said in its Friday editions.

The Post quoted unnamed sources as saying the White House is considering one plan that would spin off a new entity from the $700 billion Troubled Assets Relief Program and provide money to banks without restrictions so long as the funds were used to support loans to small businesses.

As an alternative, officials would also be prepared to ask Congress to modify TARP itself by easing pay limits and other restrictions that would be imposed on small business lenders, the newspaper said.

The report comes a week after President Barack Obama hosted a White House jobs summit to look for ways to curb 10 percent unemployment as the U.S. Congress enters an election year.

The Post said the White House is scheduled to hold a summit next week with executives from 12 of the largest U.S. banks to press the industry to increase lending, especially to small businesses.

Labor leaders and Democrats in Congress have backed the notion of using TARP funds to help small businesses as a way of preserving existing jobs and creating new ones.

Advocates say the small business sector, typically a leading driver of job creation, continues to be stymied by frozen credit lines despite massive U.S. taxpayer support for banks.

Congress created TARP last year to buy up nonperforming assets that were choking bank balance sheets in an effort to stave off a system-wide financial collapse.

But as the crisis worsened, the Bush administration quickly shifted focus to pump hundreds of billions of dollars directly into stakes in major banks. The fund was also used to bail out automakers and insurance giant American International Group.

About $330 billion of the total has not been disbursed.

U.S. Treasury Secretary Timothy Geithner on Wednesday extended the TARP fund to October 2010, saying it was still needed for significant challenges in the economy.

The Washington Post gave no dollar figures for the new small business effort, which its sources said was still in development. But it is one of the top priorities of the Treasury, which is crafting the program, the newspaper said.

(Reporting by David Morgan; Editing by Eric Walsh)