Deadline looms for Small Business Lending Fund participation
In his 2010 State of the Union address, President Obama outlined an idea to recycle money repaid to the government through the Troubled Assets Relief Program and funnel it to small businesses nationwide.
The Small Business Lending Fund, signed into law as part of the Small Business Jobs Act on June 17, calls for $30 billion to be made available to community banks for lending to small businesses.
With a March 31 application deadline approaching, Ozarks bankers are taking a hard look at the lending program to decide whether to participate.
Bank of Bolivar President Brad Gregory said it’s premature to say whether his bank will participate, though he notes that at first blush, the program looks attractive, particularly for smaller banks. Bank of Bolivar reported $201 million in total assets as of Sept. 30, the latest data available from the Federal Deposit Insurance Corp.
“It’s not real easy for us in this point in time to go out and get capital,” Gregory said. “For a small bank like us, the main source we have for raising capital is going to the community or existing stockholders, and people are not as eager to do that at this point.” How it works
The program currently is open only to community banks and holding companies with assets of less than $10 billion.
The U.S. Department of the Treasury is to provide Tier 1 capital in an amount equal to 5 percent of a bank’s risk-weighted assets, if assets are $1 billion or less, or up to 3 percent of risk-weighted assets if assets are more than $1 billion but less than $10 billion.
In turn, banks can make qualified business loans, which are defined by the Treasury as: • commercial and industrial loans; • loans secured by owner-occupied nonfarm, nonresidential real estate; • loans to finance agricultural production and other loans to farmers; and • loans secured by farmland.
Loans, however, can’t exceed $10 million or go to a business with more than $50 million in assets.
The banks, in turn, get a break on the cost of lending money. The more they lend, the less they pay. For example, if small-business lending increases by 10 percent or more, the rate banks pay falls from 5 percent to 1 percent.
Brian Straughan, president of Springfield First Community Bank, said his bank is just in the preliminary stages of exploring the program, though he anticipates that bank leaders will soon have time to dive in and take a closer look.
And although he’s unclear whether Springfield First Community Bank will participate in the program, he thinks its intent is aimed in the right direction.
“Anything we can do to stimulate small-business growth and ultimately job creation in the small-business sector is good for all of us,” Straughan said.
Weighing options Sterling Huff Jr., president and CEO of Metropolitan National Bank, has been watching the issue from the sidelines. Metropolitan is a Subchapter S corporation, and participation guidelines for those, as well as for mutual institutions and community development loan funds, are not yet available.
While Huff said he applauds the effort to provide additional economic stimulus with the funding infusion, he and Gregory agree that lending criteria could be daunting for some banks.
“Depending on the bank’s situation, they may require some matching funding,” Gregory said. “In other words, if they gave us, for example, $1 million, they might require us to seek $1 million to match it.”
Huff said regulations are another area of concern, but Gregory, who participated in a webinar in early February, said his understanding is that Small Business Lending Fund restrictions will be less confining than those for TARP.
“There’s not as much restriction on salaries, dividends and those kinds of things. They give us a little more latitude,” said Gregory, noting that Bank of Bolivar did not receive TARP money.
According to past Springfield Business Journal coverage, four locally based bank holding companies – Great Southern Bancshares, Liberty Bancshares, Guaranty Federal Bancshares and Gregg Bancshares – received federal TARP funds. Great Southern, which received the most TARP funding, with $58 million in Capital Purchase Proceeds, has not yet begun to repay the funds, said Chief Financial Officer Rex Copeland, noting that the bank’s board evaluates CPP participation regularly and has opted to hold off on repayment because of the flexibility the funds provide.
Great Southern spokeswoman Kelly Polonus added that Great Southern, with $3.4 billion in total assets is well-capitalized and in a position to repay the TARP funds, which would be necessary if the bank were to apply for the Small Business Lending Fund.
“We are looking at that program with interest, to see if that’s something we want to do,” she said.
For Gregory, the bottom line to whether Bank of Bolivar participates in the Small Business Lending Fund lies in whether doing so would help the bank achieve loan growth.
Straughan said regardless of whether Springfield First Community Bank participates, the bank will continue to aggressively seek business-lending opportunities.
“It still doesn’t change our end game, that we are loaning money, so we’ll see how it shakes out whether we go that route,” Straughan said. “We’re here to invest in the community businesses and loan money.”[[In-content Ad]]