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The Obama administration is developing an initiative to take money from the $700 billion program for the banking system and make it available to millions of small businesses, which officials say are essential to any economic recovery because they employ so many people, according to sources familiar with the plan.
The new effort -- which would represent a striking shift from the rescue program's original mandate.
The initiative would expand a Small Business Administration lending program called 7(a), the agency's most popular lending program. Lines of credit for small companies could greatly increase in size. If the firm failed despite receiving this help, the government would cover most of the losses on the federal loan, perhaps as much as 90 percent. Lines of credit act like the credit cards for companies -- short-term revolving debt used to pay a variety of immediate expenses.
The scope of the Troubled Assets Relief Program, or TARP, has been expanded several times already, first for auto manufacturers and then to life insurers. In both cases, government officials argued that aiding these firms was critical to preventing economic upheaval. But aiding small businesses would be the program's most dramatic expansion.