Guidance from the Treasury Department on the Small Business Lending Fund Program

 Iowa Banking Law, Dickinson Law Firm, Des Moines Iowa

Posted on 12/29/2010 at 11:27 AM by The Newsroom

Last week the U.S. Treasury Department issued the long-awaited guidance, applications and forms for the Small Business Lending Fund (SBLF) program, and shortly thereafter interagency underwriting guidelines were issued in conjunction with the SBLF.  The SBLF is a $30 billion fund intended to encourage qualified community banks to lend to small businesses, thereby helping them grow and create new jobs.  The SBLF will provide participating community banks with Tier 1 capital at a cost that declines as a bank's small business lending increases.  Leverage will allow banks to lend small businesses many times the amount of capital provided by the fund.  To be eligible for the SBLF, community banks must have less than $10 billion in assets and must have been off the FDIC's problem bank list for at least 90 days. Banks with less than $1 billion in assets may request up to 5% of risk-weighted assets, and those with assets between $1 and $10 billion may request up to 3% of risk-weighted assets. Funding is made available through purchases of senior preferred stock or equivalents from applicant banks, the dividend on which will not exceed 5% and can drop as low as 1%. Banks will not be obligated to take funding if approved, but those that do will be given broad latitude in developing underwriting standards for loans originated under the program.  Banks should follow their usual credit review and grading processes and accounting practices, including cash flow analysis, and boards of directors should ensure that small business lending policies are consistent with sound credit practices.  For loans involving SBA guaranties or support, adherence to SBA requirements is expected. Banks will be allowed to repay their capital funding and exit the SBLF program at any time with regulatory approval.  Repayment may be made in partial payments, as long as each partial payment is at least 25% of the original funding amount. Eligible community banks interested in applying for capital from the SBLF can find the application form online at  Completed applications must be submitted to the Treasury at by March 31, 2011.  In addition, each applicant bank must submit a small business lending plan to its primary federal regulator and, if applicable, to its state regulator.  Please note that the SBLF terms, guidance and application deadlines for mutuals, sub-S corporations and community development loan funds are still being developed and may vary from those outlined above.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: Banking Law


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