With the credit markets as frozen as they are, it is difficult for many small businesses to get the loans they need to grow. Today, President Barack Obama announced new plans for immediate action to bring America’s credit markets back to life for small business owners.

President-Elect Barack Obama
President Barack Obama

Small business are a major component of the American economy. Obama said that small businesses are “one of the biggest drivers of employment that we have” and said his staff is “working diligently to increase liquidity throughout the financial system.”

Christina Romer, the head of the Council of Economic Advisers, said the government would pump “a significant amount” of money into boosting small business lending, but she did not reveal a total figure prior to today’s announcement by the president.

“We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them,” Romer said on NBC’s “Meet the Press” this week.

The first program allows small businesses to obtain loans of up to $2 million that would be backed by the federal government through the SBA. The federal government would temporarily increase the loan guarantee to 90% to encourage banks to lend. The federal government currently guarantees 85% of the loans below $150,000 and up to 75% of larger loans. This increased guarantee is designed to give lenders more confidence and to loosen up credit for small businesses.

The second program, the “504 program”, guarantees up to $4 million in economic development projects for small businesses. Obama’s administration will temporarily eliminate fees for lenders and borrowers on any new 504 applications. This should reduce the costs to both borrowers and lenders in the program, administration officials said.