Small business is too big to fail.

So despite encouraging gross domestic product growth of 3.5 percent, the Obama administration is not declaring mission accomplished just yet.

"The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we're creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well," Obama told business leaders last week.

Small businesses generate 65 percent of new jobs, so the fact that they are struggling is making policymakers uneasy.

"We're not getting the sense from our members that they're gearing up right now," said Jim Brown, Tennessee state director of the National Federation of Independent Business, the nation's leading small business association.

"Part of the problem is tight credit, but perhaps the bigger issue is that sales and revenues continue to languish," Brown said. "Many members have said they're eyeing more cutbacks at the moment, rather than looking at hiring and expanding."

Monthly economic surveys by the NFIB show small business hiring and capital spending continue to be at or near record lows as sales and profits remain very weak.

Consequently, credit has become more difficult to obtain.

Loan defaults by small and medium-sized businesses rose in September to 0.85 percent from 0.81 percent in August, according to risk management firm PayNet.

PayNet's Small Business Lending Index, which measures the volume of financing, is down 22 percent from a year ago, a sign lenders remain reluctant to extend credit to small- and medium-sized businesses.

That suggests a sustainable economic recovery is still in question because small business usually fuels postrecession recoveries.

"In a normal recovery - at least in the last couple of decades - the bulk of early job growth came at small companies," FTN Financial chief economist Chris Low said recently. "We're not seeing the same kind of small business job growth in this cycle as we did in the last two."

Policymakers understand this, which is why the administration last week proposed making community banks with less than $1 billion in assets eligible for lower-cost capital.

Obama also is asking Congress to pass legislation raising Small Business Administration loan limits to $5 million from $2 million, and to as much as $5.5 million for manufacturing businesses.

That's welcome news to small business owners, who have been wondering when they would get stimulus help.

Since the recession began, the government has spent nearly $3 trillion to stimulate the economy.

The White House says that stimulus has provided small businesses with $13 billion in new loans and $4.3 billion in federal contracts.

That means the nearly 30 million small businesses nationwide have received about 0.5 percent of the stimulus.

Meanwhile, a "too-big-to-fail" company like AIG has received $180 billion.

Those numbers don't instill confidence in small business leaders.

"Increasingly, NFIB members have been sharing their concerns that government seems to have its priorities misaligned," Brown said. "They are eager for a real stimulus, such as a six-month payroll tax holiday.

"That would enable them to ride out this economy, help many businesses access needed cash and put money in individuals' hands, which would stimulate spending," Brown said. "Retailers, especially, would benefit from a payroll tax holiday."

Instead, Brown says, government seems to be more focused on bailing out institutions that made poor business decisions or have failing business models - which only delays recovery and prolongs economic hardship.

Originally published by James Overstreet .

(c) 2009 Commercial Appeal, The. Provided by ProQuest LLC. All rights Reserved.

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