In what is likely to be the last update on the Small Business Lending Fund (SBLF) before it closes on September 27, the Treasury Department revealed it is working fast and furious to disburse as much of the $30 billion fund as possible.
In the past two weeks, Treasury officials have approved 61 community banks for $608 million. That’s up from 50 in the last two weeks of August, 37 in the first two weeks of August, and lower volumes in July. All told, more than 190 banks have received about $2.4 billion in federal money aimed to spur small-business lending, the Treasury Department reported yesterday. Less than half of all recipients so far also received money from the Troubled Asset Relief Program.
(To see a spreadsheet of banks that have received SBLF money, sortable by region, click here.)
The funds have good potential, though current economic conditions may quench demand for the loans that banks need to make to maintain the attractive initial interest rates (as low as 3%, with the potential to drop to 1%) that such funds carry. Credit availability for both small and midsize companies was at its highest level since 2007 last quarter, according to an index compiled by banking research firm Greenwich Associates. “Since the credit crisis, there has been much debate about what has been slowing the rebound in bank lending to small businesses and mid-sized companies: Has it been banks’ refusal to lend, or a lack of corporate demand?” Greenwich Associates consultant David Fox noted in a press release accompanying the data. “We now have strong evidence that, as of July 2011, companies were gaining confidence in their ability to obtain bank credit.”
Unfortunately, he added, “as markets enter yet another phase of volatility, it seems very likely that demand will come under renewed pressure” as smaller firms put expansion plans on hold.
Even at its current pace, though, Treasury is unlikely to use anywhere near the full amount that Congress initially intended for the fund by the deadlines. One reason is that many banks have been wary of taking the funds. Some banks were concerned that they wouldn’t be able to meet the necessary benchmarks — namely, increases in small-business loans — to maintain the low rates. Procedural issues have also dogged the SBLF. The application forms and process got off to a slow start, forcing many deadline extensions. A multilayered approval process involving state banking regulators and the Federal Reserve has slowed progress more recently. Perhaps recognizing such realities, President Obama’s February budget allocated only about $17 billion to the fund.