President Obama will announce new legislation Tuesday in Nashua, NH that will transfer 30 billion dollars out of the TARP funds for a small business lending fund, allowing the chance for 8000 community banks to expand their lending to small businesses across the country, and making sure they can’t be penalized in retro-active legislation for having taken TARP funds.

Senior administration officials say the Treasury Department, SBA (Small Business Administration) and other White House officials and community bank groups worked on this legislation together and will affect banks that have between one billion and 10 billion dollars in assets.

The administration says the legislation is designed to get maximum participation from community banks, but they say the 30 billion dollars is not a fixed amount, and is instead a high ceiling that is necessary for legislation submitted to Congress.

The White House would not say if the small business legislation will part of the Jobs Bill, which is said to be “up next” as legislation, but Senior Administration officials say the legislation is designed to have immediate impact.

The proposal is meant to help community banks begin to lend dollars to small businesses both of which have been under stress with the current recession. Senior Administration officials think the new plan will allow small businesses to play a key part in the recovery, and will allow them to stop relying on credit cards, mortgages or collateral, all of which have been hit hard in the current economy.

The White House says the biggest stumbling block in getting the program in place were the tight restrictions in TARP and their consultations with individual banks produced this legislation. A Senior Administration official says the White House kept hearing from banks that they were wishing for other capital options, but they couldn’t find any. So the White House decided it “wasn’t good enough to go into the TARP program and take off the restrictions” and created a new program instead.

The White House acknowledges that small business lending may not make a difference for everyone, saying the bad economy does create a supply problem, but the President wants to ensure that every small business who wants credit can access what they need in order to stay afloat.