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With small-business credit still sluggish, policymakers and industry representatives spent much of a Federal Deposit Insurance Corp. forum Thursday debating whether government could find a solution, or was itself part of the problem.
January 13 -
Recently released terms of the Small Business Lending Fund are fueling fears that may discourage participation in the program.
January 6 -
The Treasury Department has released an application form and a slew of other information about how banks can participate in the Small Business Lending Fund.
December 22 -
Nine months after he first proposed the idea, President Obama signed a bill on Monday that would create a $30 billion small business lending fund.
September 27 -
WASHINGTON — As the House gave final approval Thursday to a bill that would create a $30 billion small-business lending fund, a top Treasury Department official said the administration would move as quickly as possible to implement the program.
September 23
Many community bankers are still tepid about the Treasury Department's latest program to promote small-business lending. But they're making reservations while they can.
March 31 is the deadline to apply for the Small Business Lending Fund, a program designed to reward banks that expand their business loans, with a funding cost as low as 1% for those that generate the most growth.
Since the program was unveiled in September, bankers have weighed its merits, such as the potentially cheap price tag and an opportunity to refinance capital they got from the Troubled Asset Relief Program. Those have been tempered by memories of life under Tarp and fear that it could be tough to find enough loans to earn the cheapest dividend rates.
"We are not obligated to take down the funds. but we are applying to keep our options open," said Mark Kochvar, the chief financial officer of S&T Bancorp Inc. in Indiana, Pa. "There's still some fine print we need to check out, but by applying we might have as much as another quarter to get a read on if we really want to take down the funds."
Several bankers said they liked the program's potential, viewing it as a possible second attempt at Tarp's initial intent.
"We are still studying the details, but to us this looks like what Tarp could have looked like if they would have had more time to draft it," said Scott Goodman, the president and chief credit officer of Enterprise Bank and Trust in St. Louis.
Enterprise's parent, the $2.4 billion-asset Enterprise Financial Services Corp., received $35 million from Tarp. Goodman said the new program could be a way to avoid a potentially dilutive capital raise to get out of Tarp.
So far, 400 companies have applied for $6.3 billion in SBLF funding, according to the Treasury. About half of those already have Tarp funds and would use the new program to refinance, giving them the potential for a lower dividend coupon and also giving the companies up to two more years before the Tarp dividend jumps to 9%. The Treasury is still working on a term sheet for mutuals and banks that are structured as subchapter S corporations.
Lawyers said that number is set to swell as dawdling bankers submit applications over the next several days. "I think there is a huge amount of interest, but I know of a surprising amount of banks that are going down to the wire," said Kip Weissman, a partner at the law firm Luse Gorman.
When the term sheet was released last year, Weissman thought the program was "over-engineered." The dividend banks must pay starts at 5%, but drops a percentage point for every 2.5% a bank increases its small-business loans. Failure to achieve loan growth in the first two years raises the dividend to 7%. Only loans for less than $10 million, made to companies with annual revenue of $50 million or less, count.
Since then, Weissman said, the Treasury has done a good job of marketing the program and explaining the intricacies through a help line. The Treasury said it has touted the program at more than 20 in-person or teleconference events, including the Independent Community Bankers of America's convention in San Diego this week.
Rodger Levenson, the executive vice president of commercial banking at the $4 billion-asset WSFS Financial Corp. in Wilmington, Del., said that at first blush the SBLF appears to be a perfect fit for his company. "The lending that is envisioned is the central part of our business model. It is the vast majority of the lending we do," he said. "Clearly, the economy is not growing robustly, but we have a number of distracted competitors that should give us the opportunity to grab market share and drive that dividend rate down."
Also, WSFS has $53 million of Tarp capital that it would refinance. Like all bankers interviewed, Levenson tempered his enthusiasm with the caveat that WSFS is still waiting to see "the fine print."
Kochvar said one of his worries is the calculation for determining the baseline for a participant's small-business loans, which averages the four quarters preceding June 30, 2010. With loan demand weak, he worries that S&T's current level of small-business loans could be lower than the baseline measurement. "It is one of those things we have to study further," Kochvar said. "It wouldn't be very attractive if we had to start the program in the hole."
