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.
Congress approved a bill this fall that set up a $30 billion fund to provide capital to community banks with less than $10 billion of assets who pledge to use the money to boost small-business lending.
Under the terms outlined this week by the Treasury, a participating bank would initially pay a dividend of 5% on any funds it received.
For each 2.5% increase in small-business lending, that dividend rate would fall by 1 percentage point, and could potentially go as low as 1%.
If lending does not increase within the first two years, however, the dividend rate would jump to 7%. After four and a half years, the rate would increase to 9% if the bank has not already repaid any SBLF funding.
In order to receive funds, a bank must tell regulators how its plan will benefit small businesses, the projected increase in lending to such companies and how it plans to reach out to the community. For the purposes of the program, small-business loans are defined as less than $10 million to companies with $50 million or less in annual revenue.
Although observers were still sifting through the myriad of details, Jon Winick, the president of Clark Street Capital Management, said the program appeared generous to community banks, noting it contained none of the restrictions of the Troubled Asset Relief Program.
Many bankers have said they are concerned about using the small-business program because Congress or the Treasury could add conditions at a later point.
The Treasury said that it would not add further conditions to the program, but that if Congress did so in the future, banks could repay the money without penalty.
"This will actually go further than Tarp in achieving broader public policy objectives so that banks become lenders again, instead of managers of distressed portfolios," Winick said.
"We think this program helps banks play offense and defense. Ultimately, there is very little friendly capital out there, so preferred stock at 1% is about as good as it gets."
More details on the program can be
