Government Aims To Restore The Flow Of Credit To Entrepreneurs

Los Angeles Times:

The credit crunch looks like an espresso machine.

At least it does to Michael McDonald, who is trying to open a coffee shop near UC Santa Barbara next month but just heard that his funding had evaporated for an equipment leasing deal. McDonald needs the espresso maker and other gear in place in two weeks so he can train the first employees for the Zizzo’s Coffee franchise.

“If I don’t get my funding, those are 15 or 20 people who are not going to have work,” said the Goleta resident, recounting his third brush with the credit crisis.

McDonald is just the kind of borrower the federal government hopes to help by its announcement last week that it would make loans more plentiful for small-business owners.

The program, part of the $800-billion credit-loosening initiative unveiled Tuesday by Treasury Secretary Henry M. Paulson, covers certain loans backed by the Small Business Administration, as well as consumer borrowing such as credit cards, auto loans and student loans.

Paulson said $20 billion would be used as credit protection for as much as $200 billion in federal lending.

The program, which will launch around February, wouldn’t lend money directly to small-business owners or consumers. Instead it would help cover loans the Federal Reserve Bank of New York could make to investors who buy securities backed by the consumer and small-business loans.

Photo by danesparza.

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