SBLF fails to reach expectations, distributes 13 percent of available funds

9/29/2011

The Small Business Lending Fund - President Barack Obama's $30 million program to stimulate the economy and provide capital to banks with less than $10 billion in assets - came to a close today, Bloomberg reports.

In a final wave of funding, 141 community banks received more than $1.6 billion from the U.S. Treasury Department, resulting in a total of more than $4 billion distributed to banks overall. However, at least 40 percent of applications were denied capital because they couldn't meet minimum requirements, according to the U.S. Treasury Department. Currently, there are approximately 7,400 U.S. lenders that have less than $10 billion in assets.

The Hill noted that there was an extensive review process carried out by banking regulators to ensure that a financial institution was qualified to receive a loan. Applicants couldn't have missed any required payments if they had participated in a previous bailout program, they also had to be stable and not on the Federal Deposit Insurance Corporation's problem bank list. MNI adds that as part of the application process, banks had to submit a lending plan that laid out how they'd "utilize and leverage" the funds, as well as demonstrate the level of lending they anticipated would result from the SBLF's capital.

Reuters notes that Treasury Secretary Timothy Geithner told Capitol Hill that he wanted to be "careful with the taxpayers' money" when approving applications.

In all, 332 of the 933 institutions that applied for SBLF loans received capital. While this number isn't quite what the government was hoping for, Treasury Deputy Secretary Neal Wolin remains optimistic.

"This $4 billion investment, which will help propel lending by main street banks in many multiples of that amount is good for our economy and good for America's small businesses," he said in a statement, as quoted by Bloomberg.

Treasury officials added that in August alone, nearly $1.2 billion was distributed to 87 community banks - the equivalent of $38 million per day, MNI reports.

Although the fund was enacted last September, it didn't begin distributing funds until July. Additionally, many banks were left wondering why they didn't qualify.

"The program is a mixed bag," Paul Merski, chief economist at the Independent Community Bankers of America, told Fox Business. Because the Treasury did such a poor job explaining why banks were rejected, "there's … been quite a bit of frustration with the execution and implementation of the program."

In a report on the SBLF, the Treasury countered that it approved all institutions that were qualified for taxpayer investment and well-positioned to extend credit to businesses in their communities.

However, Missouri Republican Sam Graves, chairman of the House Small Business Committee, felt the Treasury could've done a better job.

"It has been disappointing to follow the poor performance of (the SBLF)," he told the news source. He added that instead of attempting to provide small businesses with stimulus, President Obama should've reduced regulations, reformed the tax code and enacted measures to promote consumer confidence.

The banks that did receive capital, however, were quite pleased.

"We will use this new capital to lend to qualified small businesses who intend to create new jobs," said Richard Sanborn, president and chief executive of Chula Vista, California-based Seacoast Commerce Bank, which received $4 million in SBLF funds.

Qualified banks must now repay the capital at varying rates depending on how much they increase their lending. Institutions that grow lending by at least 10 percent would pay the lowest rate.