07/27/11

Small Business Lending Fund Finally Divvies Up $30 Billion. But is it Working?

timothy geithner treasury secretary

Treasury Secretary Timothy Geithner was grilled by lawmakers last month. Picture via infiniteunknown.com

Last month, Politico ran a story saying that nine months after its formation, the Small Business Lending Fund has yet to pay out a single dime.

But that’s not true anymore. A week later, Pioneer Bank announced it received more than $3 million from the Small Business Lending Fund. So far, 23 banks have received a total of $337 million.

In June, Treasury Secretary Timothy Geithner told the House Small Business Committee, “We have begun notifying banks that have been approved for the program, and expect to begin providing capital very soon.”

Up until that point, 844 institutions had applied for $11.6 billion from the fund, to no avail. After nine months, people were getting impatient on the holdup. In June, Rep. Sam Graves (R-Mo.) held a hearing with Geithner, hoping he’d shed some light on why it had taken so long to give funds to the banks when the nation continued to struggle with traumatic levels of unemployment.

About the Small Business Lending Fund
When it passed in September 2010, the Small Business Jobs Act set aside a $30 billion fund for smaller banks — those with less than $10 billion in assets, to lend small business owners. The money, in theory, would free up capital so banks could grant more loans to companies looking to buy new equipment and hire more workers.

When grilled by lawmakers last month, Geithner said “I wish it were different, but the reason we are a little behind schedule is because we are being careful and because the regulators are being careful,” said Geithner. “And that is what you would like us — that is what you want us to be.”

However, the drawn-out process has raised concerns about whether the program can actually create jobs. “At hearings last month, Sen. Olympia Snowe (R-Maine) warned that banks could use the fund to reimburse the government for costlier loans issued at the height of the financial crisis through the 2008 Troubled Asset Relief Program,” wrote Josh Bank, a reporter for Politico.

Others call the Small Business Lending Fund a failure, despite signs that it’s finally shelling out funds.

Why?

1. Snail’s Pace

government slow like a snail

Image via Gadling.com

one whole long year

A lot can happen in 10 months without enough capital. During that time, many small businesses could have gone out of business. Many businesses that might have qualified for a loan then, may not be able to now. How many employees could have been hired if companies had access to those funds almost a year ago? How many families could that have helped? How has the inefficiencies of this program affected the entire economy?

2. Banks Don’t Want It

“These institutions would essentially be paying off one taxpayer-funded credit card — TARP — with another in the form of the lending fund,” Snowe said. Some banks also think taking the money creates a perception that their bank is in trouble.

CNN reported that many community banks aren’t interested in the program. “There are 7,000 community banks across the nation, according to the Independent Community Bankers of America (ICBA). But only 926 — slightly more than 13% — of those banks even applied to participate in the program.”

3. The SBA Already Works

When the recession hit, banks grew wary of credit risk and stopped lending. Government loan guarantees through the SBA became a lifeline for business owners.

Since October, the SBA has approved 1,137 loans worth more than $2 million each, according to Politico.

“It really opened our programs to small manufacturers who previously would have been ineligible,” said Steve Smits, who oversees capital access for the SBA. “Maybe they needed a warehouse. Maybe they needed equipment.”

“For the first time in its history, the SBA expects banks will lend the entire $17.5 billion connected to the program by the end of the fiscal year in September. Much of the borrowing — $12 billion — occurred through Jobs Act incentives in the first quarter of the fiscal year, leading to the creation and retention of 261,570 jobs, according to the SBA,” wrote Josh Boak, in his Politico article.

Some Are Happy About Fund

CNN interviewed Rusty Cloutier, president and CEO of MidSouth Bank, who was notified that he was approved for $32 million from the program.

“We are extremely excited about getting it,” said Cloutier. He thinks the money will help the businesses in his community. “Certainly we are trying to get loans out to customers that are creating jobs. You know, it is not only creating jobs, it is also saving jobs.”

Your Turn

What do you think? Is the Small Business Lending Fund a failure? If you’re a bank, have you requested or received funds?

It takes a little cash to change the world.

So what are you waiting for?

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Comments

  1. 300 days late and 20 billion short…..but better late than never.

    Small businesses are still in a world of hurt and unemployment is getting worse instead of better. The unfortunate part is that there are now fewer businesses or jobs that can be saved and fewer created from this program.

  2. Working with the local SBDC, I felt very confident that I had a sound, frugal business plan. After receiving over 1/2 from an angel investor, I went for an SBA loan and Micro-loan. The major banks, like Chase, need you to be established for over 23 months and the Microloans are for hispanics mainly, even though I qualified as a woman owned business in a rural setting. The regs are so high and are in favor of the banks only…This is regretable…

    • I had the same experience at Chase. They basically want proof you can pay off the loan, and sometimes in today’s environment, that can be stringent. By the way, we posted something about getting an SBA loan as a woman: //www.lendio.com/blog/business-loans-for-women/

      Let us know if we can help you further. There might be other options.

  3. A few thoughts come to my mind reading this article. First, SBA does not work! Perhaps it worked in the past, but banks that we have spoken with told us there are no new funds available. In addition, most banks make SBA loans are available to companies that already have $1M in revenue or $500K in EBITDA. Yes, those companies will probably add jobs more quickly right away. However, if we don’t support startups, there won’t be $1M companies in 3-5 years from now. It’s great that these funds are slowly making through the system. I wish we could pick up the pace a bit!

    • Taras, good to hear from your experience. Perhaps that’s a big reason why P2P loans, and other alternative loans, are growing so fast.

      Agreed, though, it is nice to finally see some of these funds coming through. Now, let’s see if the banks are actually loaning them.

  4. The small businesses that have been in business for years that really need these loans for working capital cannot qualify. The prolonged economic situation has damaged the business and personal credit of small business owners making it almost impossible to stay in business.

  5. Richard Gilmore Gilmore’s Fleet Service And Maintenance. Ya know what I see and its the same ol same ol SBA is there to back people with out credit or people who have exhausted other means of funding. By the traditional means of funding one of the requirements is to have been turned down by your bank and a community bank. We are having all kinds of problems trying to get funded. I am telling you if there’s a way that I don’t think feels like an out right scam I will sign the paperwork. As far as hearing non citizens getting loans before us that is just all I can take don’t you have to read and write English to become a citizen?
    Here’s the real deal I am loosing out on a lot of money because I can’t get a loan. Without a plan I can not buy equipment and with out equipment I can not hire 5-6 new people. Without equipment I can not get my service contracts signed with my customers. Right now all I got is my good name and big clients waiting because I am that good.SBA only helps those who don’t really need it.

  6. A number of things to consider. Why aren’t there more replies to these articles. Today I have relied on others to help myself qualify for a loan. The change from 30 years ago was your name and bank loan officier knowledge of your integrity were enough. We as a society, have asked for tighter controls on banks and lending institutions to prevent fraud. Yet fraud still happens only it’s done by people of wealth or cyber criminals with small sentencing. The system of getting financed seems to have removed the integrity value. The SBA do not loan monies, but only complicate the process. I was once told that if I qualified for an SBA loan they would have already made the loan without them. After all if you haven’t invested money into your business 2 for 1 how could the bank know your legitimate. Banks need the investment capital, but should value more eggs in the nest as a better gamble. They don’t. I would like to say things will get better but the people we elected to congress have shown there misgivings. What can we do. Because email or calls to the Senator accomplishes nothing, with my money they purchased an auto-reply machine. How fortuneate for them. While I’m hoping President Obama someday will listen to the voice of the small business as he once did, were doomed. Only the big three got the
    bailout. I’m still not used to hard work and luck for the answer.
    Lee Reid

  7. 33 years experience – have a contract – have the avaible resources to perform the project – in a specialty field of only five in the US – credit bad – no equity – need loan for working capital – can’t get a loan to perform the job — How does one deal with this hand – the SBA only helps those that are rich or already have all of the above. ..

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