The U.S. Treasury reported this week that the Small Business Lending Fund (SBLF) seems to have done its job. Institutions involved with the program significantly increased their lending to small businesses by $3.5 billion over a $35.9 billion baseline, which describes the average lending reported in the four quarters before the program began.
Enacted in 2010 as part of the Small Business Jobs Act, the SBLF is a dedicated investment fund designed to encourage lending to small businesses by providing capital to qualified community banks and community development loan funds (CDLFs) with assets of less than $10 billion. The program encourages lending to smaller firms with a dividend or interest rate incentive structure, which lowers the rate as the participating institution increases its small business lending. Rates also increase above the 5% base level if the bank fails to increase its lending in the first two years of the program.
Luckily, it seems as though most participating banks and other lending institutions don’t have to worry about such an increase. More than 60% of SBLF participants increased their small business lending by 10% or more, and, to date, 78% of community banks and 80% of CDLFs have increased their small business lending overall.
Treasury invested more than $4 billion in 332 institutions through the program, including $39.1 billion to 281 community banks and $104 million in 51 CDLFs. According to participants, these increases show no sign of stopping provided the program remains in place: in lending plans submitted with their applications, these institutions projected that they would increase their small business lending over baseline levels by $9.3 billion in the next two years.
The SBLF generated some controversy in the summer of 2011 as the nation approached its debt ceiling, and the Treasury continued to make disbursements under the program. Although the fund appears to have functioned as well as one could hope, it expired in September of last year, and its future remains uncertain.
Jacob Barron, CICP, NACM staff writer