Clock ticking on Small Business Lending Fund

| 8/12/2011

It’s been nearly a year since Congress passed legislation designed to get $30 billion in cash flowing into the hands of small-business owners.

And time is running out as the U.S. Treasury’s Small Business Lending Fund program’s authorization is set to expire in a just over a month – on Sept. 27. Many small-business truckers have been patiently waiting to see if their community bank will be approved.

While more than 900 community banks have applied for the $30 billion, only $590 million has been approved so far, according to the Independent Community Bankers of America organization.

On Aug. 10, the ICBA sent a letter to Federal Reserve Chairman Ben Bernanke, urging him to do everything in his power “to address the concerns of the remaining eligible applicants who have the capacity and expertise to put SBLF funds to work in their communities as intended by Congress.”

Paul Merski, senior vice president and chief economist for the ICBA, told Land Line on Friday, Aug. 12, that the Federal Reserve must step up and make speedy recommendations about the dividend payment waivers to the Treasury before the SBLF program expires.

“The way the program works is that once you take the capital, you have to pay dividends to the Treasury to pay it back,” Merski said. “The Federal Reserve has to make this regulatory recommendation; they have to say that the bank applying for SBLF funds can pay dividends to the Treasury. So, Treasury and the Federal Reserve have to put their heads together and make sure this dividend waiver is addressed and the program works as intended.”

The clock is ticking on the SBLF because the U.S. Treasury doesn’t have the authority to extend the SBLF program, and Merski said the “timing isn’t right to get the focus of Congress to initiate new legislation to extend the program.”

Merski said the purpose of the program was to design a program that would encourage small-business lending that would allow community banks to lower their dividend costs by demonstrating that they were actually “deploying the capital.”

“Part of the calculation of what your dividend payments are going to be is based on your lending,” he said. “The more you lend, the lower your dividend costs are going to be in the formula.

Under the SBLF, banks can leverage the capital so that for every dollar of capital that they are eligible to receive, they are able to lend $10.

“So if you pull down $1 million in capital, you could lend out $10 million,” Merski said. “If executed properly, the potential is there. But you really need the appropriate execution by the Treasury and bank regulators.”

The onus is really on the Treasury and the Bank regulators, Merski said. They have the program and it’s up to them to make it work as best as possible.

“Congress is very clear about what the intent of this program was – to make sure capital gets to the community banks that do the bulk of small-business lending. They were given that program, and they need to make it work,” Merski said.

“They’ve had plenty of time to work out any glitches or concerns at this late stage in the game,” he said. “The economy needs this.”