Bankin’ Bits

President Proposes New Small Business Lending Fund

February 5, 2010

President Obama has called on Congress to create a new Small Business Lending Fund.  Under the President’s proposal, $30 billion in TARP funds would be transferred, through legislation, to a new program outside of TARP to support small business lending. 

Under the proposed program, banks with less than $1 billion in assets would be eligible to receive capital investments up to 5% of their risk-weighted assets (banks with assets between $1 billion and $10 billion in assets would be eligible to receive up to 3% of risk-weighted assets).  As with prior bank investment programs, a bank would have to be approved by its primary federal regulator to participate.  The proposal also would allow for current participants in TARP programs to convert capital received in those programs into the new program.  It is also proposed that the dividend rate for the capital investment would begin at 5%, but could be reduced to as low as 1% based upon demonstrated increases in small business lending.  The dividend rate would be decreased 1% for every 2.5% increase in incremental business lending achieved over a two-year period.

It will be interesting to see how the proposed program is received in Congress, whether it can be active within a reasonable period of time, whether banks will choose to participate in the new program and whether federal regulators will allow banks that need the capital to participate.

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