SBLF extends capital after months of anticipation

7/8/2011

The Small Business Lending Fund recently awarded $123 million to six banks, 10 months after Congress passed the fund under the Small Business Jobs Act.

Banks are only eligible to receive capital if they own less than $10 billion in assets. In total, 925 financial institutions applied for $11.8 billion from the fund, however, at least one-third of those seek to use the money to replace the finances received under the Troubled Asset Relief Program, BusinessWeek reports.

"Expanding access to credit for small businesses will provide a powerful spark for growth and job creation," Treasury Secretary Tim Geithner said in a statement. "These funds will help ensure that more Main Street entrepreneurs have the opportunity to expand their businesses, invest in their local communities, and create new jobs."

Ruston, Louisiana-based Community Trust Financial Corporation received the largest chunk of funding at $48.3 million. ServisFirst Bancshares of Birmingham, Alabama, received $40 million, Virginia Heritage Bank in Fairfax received $15.3 million, Level One Bancorp in Farmington Hills, Michigan, got $11.3, U&I Financial Corporation obtained $5.5 million and Pioneer Bank of Dripping Springs, Texas,received $3.0.

"It does fill a niche," Paul Merski, chief economist of the trade group Independent Community Bankers of America, tells Fox Business. "Even banks that have small-business-lending opportunities are having trouble raising the capital."

Interest rates for repayment will depend on the percentage at which banks increase their small business lending. Institutions that reach 10 percent would pay as low as 1 percent, while those that increase lending by less than 2.5 percent will be subject to rates as high as 5 percent.

"It's tough for all small community banks to raise capital in this environment no matter how well they are performing," Keith Costella, president and chief executive of Fort Lauderdale, Florida-based Broward Bank of Commerce, tells the media outlet."This capital will allow us to make more loans in this community to help our small businesses and the local economy."

At its 2008 peak, outstanding loan balances from banks that had less than $10 million in assets reached $1.044 trillion - around the same time of Lehman Brothers' demise. That number has since dropped by 14 percent to $898.9 billion in the first quarter of 2011, according to statistics from the Federal Deposit Insurance Corporation.

However, journalist Todd Wallack, quoted in BusinessJournalism.org, contends that the SBLF is merely a vehicle for banks that still need to repay their TARP money.

"Hundreds of small banks that received U.S. aid after the financial crisis appear to have found a creative way to repay the funds - obtain money from a different government program," said Wallack as quoted by the news source. "Most of the 627 banks that still hold money from TARP have filed applications to roll the obligations into the government’s new Small Business Lending Fund, according to Treasury officials and the banks."

However, UPI notes that while TARP's restrictions on executive pay and 5 percent divided received a slew of criticism, SBLF's stipulations on interest rates means some banks may already qualify for the 1 percent rate. The news source adds that if under SBLF regulations, banks that don't increase lending may see rates rise to 7 percent after two years, and 9 percent after four and a half.

An additional program created by the Obama administration to assist small business owners is the State Small Business Credit Initiative, which filtered $1.5 billion to new and existing state programs in an attempt to leverage private funding. They expect the initiative to result in approximately $15 billion in financing to small companies and manufacturers.