The federal government has unveiled details of a new program to spur business lending, but it isn’t yet clear how many Georgia banks might take part.
The program, known as the Small Business Lending Fund, is similar to the previous government bailout program known as the Troubled Asset Relief Program, or TARP.
It’s designed to help wary banks increase the credit flowing to smaller firms, but experts in Georgia’s banking industry say restrictions on the program might mean few banks in the state will take part.
“It’s a fairly narrow list of banks [that might qualify]…but it’s an attractive program if they go that route,” said Joe Brannen, president and CEO of the Georgia Bankers Association.
Congress in September authorized a pool of $30 billion for banks with less than $10 billion in assets. In Georgia, all banks except SunTrust Banks and Synovus Financial would be eligible.
Under SBLF, the U.S. Treasury Department buys preferred shares of stock in qualifying banks which then lend more to businesses. The more a bank lends to businesses, the lower the dividend interest rate banks must pay back to the government.
Unlike TARP, participating banks might have to raise matching investor funds. Regulators would approve applications for the funding.
Smaller banks with TARP can convert the prior government investment to SBLF funds under certain circumstances, helping to give them better terms to repay the government funds.
The fund was passed in September as part of a package of incentives and tax breaks for businesses. Proponents say it could help spur $300 billion in business lending.
But the most troubled institutions won’t qualify, and previous TARP recipients that have missed scheduled dividend payments to the government might not either.
Critics say banks don’t get credit for Small Business Administration-guaranteed loans under the plan. Federal government rules prevent banks from getting the benefits of two government programs on one loan — in this case federal guarantees on the loan and the cash to lend.
SBA lending has soared in Georgia because of government guarantees on the loan of up to 90 percent. That has taken a lot of risk off banks to lend under the program.
“[Small banks are] interested in making loans, it’s the only way they can make money. But they’re hesitant to get out on the risk curve,” said Steve Bridges, executive director of legislative and regulatory affairs with the Community Bankers Association of Georgia.
Jim Wheeler, banking attorney with Morris Manning and Martin, said many of his clients are examining the program. Diversifying from real estate lending is essential in this market, he said, and the program could help banks stimulate growth.
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