About that $30 Billion...

Posted by: John Tozzi on January 28, 2010

One more note on Obama’s plan to direct $30 billion in funds from the Troubled Asset Relief Program to community banks for small business lending. Making such a program work would require Congress to revise the TARP law, which might be a long-shot in this environment, according to Paul Merksi, chief economist at the Independent Community Bankers of America. The group represents community banks in Washington.

A plan to shutter the $700 billion TARP offered in the Senate last week gained 53 votes, Merski points out. (The amendment still failed to get the 60 it needed to pass.) “I’m not sure Congress is willing to allow new uses of TARP in this environment,” he says.

Without lawmakers amending the program, community banks will balk at taking the funds with their current restrictions. First, the capital is expensive. “You can’t get TARP capital at 13% [interest] and lend it out at 5%,” Merski says. Recipients also must give warrants to the Treasury that allow the government to buy stock in the banks. They face restrictions on the dividends they pay shareholders and limits on executive pay. These provisions were included to protect taxpayer money that was being shoveled at banks during the financial crisis. But now they stand in the way of using that capital to encourage lending at institutions that aren’t in acute distress.

Community banks won’t bite without lifting these requirements. Merski says that problem may grow during the recovery, as businesses need more credit to keep up with rising demand. “Right now the demand for small business loans itself is down,” he says, noting that companies are not hiring or replenishing inventory until demand picks up. “As the economy improves, I think the demand for small business lending may outstrip the supply.”

Opening $30 billion to community banks might shrink that gap — but only if Congress is willing to adjust the limits of the original TARP.

Reader Comments

ulysses morales

January 29, 2010 11:29 AM

will not shrink that gap opening 30 billon

Charles Bonsu

February 3, 2010 06:43 AM

Obama thank you from Charles and God gives you 4 more years.

Westernfan

February 3, 2010 09:35 AM

It is important to point out that this $30B would be an investment in our economy- presumably one that would paid back over time, with interest- as opposed to the spending we've seen of late on earmarks and various "agenda" items. I can appreciate the Community Bank's concerns about any TARPstrings that may be attached, but I absolutely do not understand how any politician can object to funding the small business loans that will sustain, and facilitate the growth of the Companies that can spur the enconomy and job growth.

RP Ritter

February 3, 2010 01:30 PM

Terms of the loans notwithstanding, the isn't a small bank on the radar that's willing to loan to a small business that's in trouble. They're not willing to lend to small businesses that aren't in trouble. And the words "SBA guarantee" aren't much help either. No, this TARP program needs a different delivery method. I propose we distribute the money to already-existing State Associations (Restaurant Assn, Car Dealer Assn, Electrical Contractor Assn, Car Wash Assn, etc.) and let them distribute the funds to their needy and capable members, using the small banks as a depository and distribution point, but not the qualifying party. I've been a small business adviser for over 30 years, helping small businesses all over America. Believe me, banks aren't the answer - not by a long shot!

Lisa Williams

February 5, 2010 10:15 AM

In these economic times the Box store wins. The government can't stop the growth and our children will be subserviant to it. Small mom and pops are going the way of the 8 track player. All you have to do is crunch the numbers talk to the venders that sell to them and look at what happens to small business when the box comes to town.

RD GRAHAM

February 7, 2010 01:42 AM

How soon we forget, that SBA funds, are the tax payers money, and the government is securitizing TARP funds through any financial insitutions that would like to leverage these funds through lending portfolios.
What is needed is that SBA need to be privatized and securitize it funds through mutural funds conduits, so that every small investor(s) can receive a pice of the pie and the lending restriction can be lowered for small and mid-size businesses to stimulate small business growth.

L De Palma

February 11, 2010 03:10 PM

You are all forgetting that banks are NOT lending to small businesses, and small business, without the guarantees of the SBA; furthermore, small business cannot thrive without the increase in the guarantee and capital contribution and removal of fees. Our future is in small business right now, and yes, it's taxpayer money, but we need to invest in our future now, and not wait for the banks to release the grasp on their precious capital.

The reason companies are in trouble is because they don't have CASH FLOW. Most massive corporations can pick up a phone, call a bank, draw down a $500 million dollar part of their credit line and keep people employed. The small business person needs that concept (but not the same monetary amounts), and that is what has gone dry.

Liquidity, people. It's all about liquidity. Unless you know cash management, you don't know anything about liquidity.

RD GRAHAM

March 21, 2010 03:58 AM

Now its time for community banks, to take innovative moves towards funding
small businesses. Realizing all the tax incentives by financng small business.
Whether these tax incentives are given by our federal and state government.

In order to improve small business stability and increase job retention in our communities.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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