Small Business Lending Fund: The Details

by QuickBooks

2 min read

Earlier this week, the U.S. Treasury Department formally announced details on its $30 billion Small Business Lend Fund (SBLF) that will provide capital for banks with assets under $10 billion to increase their small business lending. The program’s application deadline is March, 31, 2011 — except for S Corporations, mutual institutions, or community development loan funds that will have separate application dates.

Here are the details:

  • The U.S. Treasury will provide qualified community banks with capital by purchasing Tier 1-qualifying preferred stock or equivalents. To encourage participation in the program, the cost of capital will start no higher than 5 percent. If a bank’s small business lending increases by 10 percent or more, then the rate will fall as low as 1 percent.
  • If lending does not increase in the first two years, the rate will increase to 7 percent. After 4.5 years, the rate will increase to 9 percent if the bank has not already repaid the SBLF funding.
  • The SBLF also provides an option for community banks to refinance investments made by Treasury through the Capital Purchase Program or the Community Development Capital Initiative under certain conditions. However, simultaneous participation in CPP or CDCI and SBLF is not permitted.
  • Qualified small business lending under the program includes certain loans of up to $10 million to businesses with up to $50 million in annual revenues. Those loans include commercial and industrial loans; owner-occupied nonfarm, nonresidential real estate loans; loans to finance agricultural production and other loans to farmers; and loans secured by farmland.
  • Eligible banks must have assets of $10 billion or less and meet the other requirements for participation. If an institution is controlled by a holding company, the combined assets of the holding company determine eligibility, and the holding company must apply.
  • If the institution has total assets of $1 billion or less, it may apply for SBLF funding that equals up to 5 percent of its risk-weighted assets. If the institution has assets of more than $1 billion, but less than $10 billion, it may apply for SBLF funding that equals up to 3 percent of its risk-weighted assets.
  • Institutions are not eligible if they are on the FDIC problem bank list — or a similar list — or have been removed from that list in the previous 90 days. Generally, this will include any bank with a 4 or 5 CAMELS rating.
  • Institutions seeking to refinance CPP or CDCI securities through SBLF must be current on their dividend payments to the U.S. Treasury, cannot have previously missed more than one dividend payment, and must fully refinance or repay their CPP or CDCI securities.
  • An institution may exit the SBLF — with the approval of its regulator — at any time by repaying the funding provided along with any accrued dividends. If the institution wishes to repay its SBLF funding in partial payments, each partial payment must be at least 25 percent of the original funding amount.
  • Compensation restrictions and other limitations imposed as a condition of participating in the TARP do not apply to the SBLF. However, warrants issued in exchange for a CPP investment will remain outstanding until the bank repurchases them.
  • The U.S. Treasury is developing terms and guidance for mutual banks, S Corporations, and community development loan funds. Terms for such institutions may vary from those described for other institutions, and separate application dates will apply.

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