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The current freeze in the credit market has had far-reaching effects on the whole economy, and small businesses have been no exception. Small business owners and entrepreneurs -- and those who have lost jobs and are looking to make a fresh start by starting over -- are financially and emotionally drained, and are looking to the new administration for assistance.

It is clear that President Barack Obama is hoping that the stimulus package will provide the fiscal assistance needed to motivate small business owners to act in a way that would significantly impact the failing economy. The president has promised "to take immediate action to ensure that credit gets flowing again to entrepreneurs and business owners." The Obama administration firmly believes that "economic recovery will be driven in large part by America’s small businesses, which have generated about 70 percent of net new jobs annually over the past decade."

The American Recovery and Reinvestment Act of 2009, informally known as the stimulus package, was signed into law by Obama on Feb. 17, 2009. The stimulus package amounts to $787 billion in government spending, incentives and tax cuts with major goals kick-starting U.S. economic growth and creating or saving jobs over the next two to three years.

And indeed, Obama has shown a measure of commitment to small businesses, doubling the budget of the Small Business Administration, enabling it to give out more than $6 billion worth of loans to small businesses since the stimulus package went into effect. There has even been talk recently of diverting bailout funds from banks to aid small businesses -- a move that would be a sure signal of a dramatic shift in focus.

Armed with news clippings and press releases, many of our clients are ready to take advantage of the U.S. government's promises. Legal professionals need to be ready to separate the facts from the feel-good messages and to ojbectively advise clients regarding the positive and negative implications of the U.S. government's Financial Stability Plan.

MAKING CREDIT AVAILABLE FOR SMALL BUSINESSES

The key to the success of any stimulus package is going to be whether the package effectively makes credit available to small businesses and entrepreneurs who depend on credit to survive. The Obama administration is trying to jumpstart the credit markets for small businesses by purchasing up to $15 billion in securities backed by the Small Business Administration, increasing loan guarantees up to 90 percent within the SBA's 7(a) loan program, and temporarily eliminating loan fees for both borrowers and lenders on SBA loans.

The administration is also putting pressure on banks to extend credit to small businesses by requiring banks to report small business lending activity and calling for all banks to increase small business lending generally. In addition to increasing its overall lending budget, the SBA has unveiled a new temporary loan program (the ARC Loan) specifically to help struggling small businesses, expanded the scope of its 7(a), 504, and discretionary "Goodwill" loan programs, expanded its Small Business Investment Company (SCIB) program, and continued lending under its Patriot Express program to veterans and the military community. Small businesses and small business owners may also be eligible for a limited range of government grants, depending on their particular situation. While the SBA itself does not provide direct grants to start up or expand small businesses, the Recovery Act provides increased funding to numerous other agencies for use in grants and other programs. The government maintains a site that keeps track of available grants for free. Small businesses should be extremely careful about using any private services to locate grants, as many of these services are fraudulent in nature and contain hidden fees or add-ons.

The first step for a small business owner or entrepreneur who needs to borrow money is to contact the SBA. Before approaching the SBA, the business must have a well-designed commercial plan including a description of the planned business, a marketing plan, the financial management and a management plan. The business must also have an executive summary, supporting documents and the financial projections.