Posted by: John Tozzi on July 7, 2011
The U.S. Treasury has made its first investments in community banks through a program intended to encourage them to lend to small businesses. Six community banks received a total of $123 million under the program, the Treasury announced today.
This is the first money from the Small Business Lending Fund that President Obama outlined 18 months ago in his 2010 State of the Union address. Congress passed the law creating the fund last September. The Treasury had originally expected to get the money out the door in the first quarter of this year.
Banks with less than $10 billion in assets could apply for capital in the form of preferred stock. The interest rate that banks pay Treasury for the funds begins at 5 percent but can decline to as little as 1 percent if banks increase their small business lending sufficiently.
A total of 925 institutions have applied for $11.8 billion from the fund, Treasury spokeswoman Colleen Murray said in an email today. About one-third of those are seeking to use the money to replace earlier government money acquired through the Troubled Asset Relief Program, the bank bailout created in 2008 after Lehman Brothers’ bankruptcy.
Of the six lenders funded through the program today, only one, the Community Trust Financial Corporation in Ruston, La., was refinancing TARP money. It received $48 million. Details of the transactions are available in this PDF.
For more, listen to Bloomberg Businessweek’s Roben Farzad discuss the program with WNYC’s Brian Lehrer yesterday.