The small business lending program that President Barack Obama unveiled last February never got off the ground, until last week when he signed the Small Business Jobs and Credit Act of 2010 into law.
The lending portion of the legislation mirrors his earlier program, as it, too, designates $30 billion to participating community banks — those with assets between $1 billion and $10 billion — as seed money for loans to owners of small businesses. One Congressional estimate said the program could leverage up to $300 billion in loans being made to businesses.
That final lending tally, though, will depend on how many community banks choose to take part in the program. United Bank of Michigan is one that will not.
“There is very little need for our bank (to participate). We are very well capitalized. We have all the capital we need in order to be able to meet the loan demand that we are likely to see in the foreseeable future. So it doesn’t hold any particular interest for us,” said Art Johnson, United Bank chairman and president and chairman of the American Bankers Association.
“Having said that, it was a bill that the American Bankers Association supported because it may very well be useful to some banks,” added Johnson. “Overall, the legislation includes some enhancements for SBA loans and United Bank does plan on using that. We’ve been a very active SBA lender since the early 1980s. So that’s kind of right in our wheelhouse, and we do plan on using those programs.”
A bank has to submit a lending plan that describes how its business strategy and operating goals will address the needs of the small businesses in its area, and how it plans to reach out to minority-owned businesses, if it wants to participate in the Small Business Lending Fund.
A bank that participates in the program has to file a quarterly report that details the loans it has made to small businesses. A lending institution also has to post on its website that it is making loans to qualified borrowers and will not discriminate by race, color, religion, national origin, sex, marital status, or any other factors prohibited by the Equal Credit Opportunity Act.
A bank will be allowed to amortize losses or write-downs on a quarterly straight-line basis over a “certain temporary period” to increase the availability of credit for small businesses.
“It’s not as if it can really be used by a bank that is severely undercapitalized to make themselves well, because you have to already be relatively not in any trouble to be able to qualify,” Johnson said. “But still there is a subset of banks in some parts of the country where perhaps there is more loan demand than there is in West Michigan, right at the moment, where it may be useful for them.”
Congress established the Small Business Loan Fund as a separate and distinct program from the Troubled Assets Relief Program, which the Bush administration created in 2008 for the nation’s largest banks. Section 111 reports a bank that receives a capital investment through this program “shall not be considered a TARP recipient.”
“Well, it does (separate it from TARP). But there are some publications I’ve seen that are calling it ‘TARP Lite,’ and that’s probably a misnomer. But it is frankly an issue, I think, that will affect some banks and their willingness to participate, because the fact-of-the-matter is, it’s government money that is being brought in as capital to a bank. There are some strings attached and it’s a pretty good deal if you can, in fact, use the funds to make business loans,” said Johnson.
The Independent Community Bankers of America applauded Congress and the president for passing the bill, saying the legislation will help Main Street America during a critical economic time. “Our nation’s small businesses are economic engines that drive local economies, and community banks, which are nearly 8,000 strong nationwide, are instrumental in providing (the) credit these local businesses need,” said ICBA Chairman Jim MacPhee, CEO of Kalamazoo County State Bank in Schoolcraft.
“Now that the $30 billion SBLF has been passed by Congress and the president (signed) it into law, ICBA urges bank regulators to quickly implement the program so that this Treasury capital fund can be deployed and get much-needed capital into the hands of small-business owners so they can create jobs, promote economic stability, and allow America’s Main Street communities to thrive once again,” added MacPhee.
The Michigan Association of Community Bankers belongs to the ICBA. MACB is based in East Lansing and it represents 110 smaller and community banks in the state. Grand River Bank, Select Bank, Mercantile Bank and Founders Bank & Trust are Kent County lenders that belong to MACB.
In contrast, the National Association of Federal Credit Unions and the Credit Union National Association expressed disappointment in the final legislation. Both groups had hoped the bill would include an amendment that would have raised the business lending cap for credit unions from the current 12.25 percent of assets to 27.5 percent.
“Considering all the debate about the deficit, enabling credit unions to lend more to small businesses was a simple, zero-cost way to help the economy immediately,” said NAFCU Director of Legislative Affairs Brad Thaler.