President Obama Announces New Efforts to Support Community Bank Lending to Small Businesses
On October 21, 2009, President Obama announced a series of measures aimed at improving access to credit by small businesses. These programs would provide lower-cost capital to community banks and would increase the maximum Small Business Administration (SBA) loan sizes. Importantly, only the general terms of these programs were released by the Obama administration; the U.S. Treasury Department (Treasury) will release specific terms for the capital program in the near future, following consultation with community banks and the small business community.
Under the new capital program, the Treasury would make lower-cost capital available to community banks with assets under $1 billion that submit a plan to increase small business lending. Though the Treasury has not yet released the specific program terms, this program would function similarly to the TARP Capital Purchase Program (CPP). The program’s lower-cost capital would carry an initial dividend rate of 3%, compared to an initial dividend rate of 5% for the Treasury’s CPP investments. Eligible community banks may receive capital under this program totaling up to 2% of risk-weighted assets.
President Obama instructed the Treasury to determine how the Treasury will handle existing CPP participants that wish to refinance CPP capital with lower-cost capital under the new capital program. Community Development Financial Institutions (CDFIs) may also participate in the new capital program, which will offer lower-cost capital to CDFIs at an initial dividend rate of 2%.
The President also announced his support for legislative efforts to increase the maximum size of certain SBA loans. Under this proposal, the maximum loan size for the largest SBA loan program, the 7(a)program, would increase from $2 million to $5 million and the maximum loan size for 504 loans would increase from $2 million to $5 million supporting a total project of $12.5 million (or from $4 million to $5.5 million for manufacturers supporting a total project of $13.75 million). Additionally, the maximum loan size for the SBA’s microloan program would increase from $35,000 to $50,000.
The Financial Institutions Practice Group at Troutman Sanders will continue to monitor developments regarding the new 3% capital program and the SBA proposals. It remains to be seen whether or not these measures will significantly impact community banks or their borrowers.
***
The foregoing is only a summary of one of the many significant issues affecting bank holding companies and other financial institutions. If you have any questions about the foregoing or about other financial institution issues, please direct them to your regular contact at Troutman Sanders LLP or to any of the persons listed in the sidebar to this release.