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Congress Moves Forward With a Bill to Increase Small Business Lending

June 29, 2010 - by Donny Shaw

As many of you out there are painfully aware, congressional Democrats have been been struggling for weeks to pass an extension of unemployment insurance payments for the millions of people who have lost their jobs in the economic crisis. Republicans have blocked the UI bills repeatedly in the Senate over the past month and did so again today in the House. But between their failing votes on extending the UI lifeline, the Democrats have been having more success with a bill that is designed to actually stimulate the jobs market. The “State Small Business and Credit Initiative Act of 2010” (H.R. 5297) passed the House on June 17 by a vote of 413-0. Today, the Senate voted to break a Republican filibuster of the bill by a vote of 66-33.

The House Majority Whip provides this summary of the bill:

Legislation creates three separate programs designed to increase small business lending and increase jobs:

  • The Small Business Loan Fund Act in Title I creates a small business loan fund that is designed to boost bank lending to small businesses struggling to gain access to credit due to the financial crisis.  The legislation will establish a $30 billion fund to boost lending to small businesses looking to hire and expand their operations by providing additional capital to community banks.
  • The State Small Business Credit Initiative Program provides $2 billion in funding for new or existing state lending programs.  These programs already exist in around thirty states, and use small amounts of public dollars to generate substantial private bank financing.  By supporting existing expertise in states around the country and using an easy to replicate model, this program will be able to quickly increase small business lending and create jobs.
  • This program would establish a new program under the purview of the Small Business Administration (SBA) to provide $1 billion in financing to support early stage small businesses in the form of true equity financing.  This program has twice passed the House of Representatives, in the Small Business Financing and Investment Act – H.R. 3854 – and again in the Small Business Early Stage Investment Act of 2009 – H.R. 3738, with strong bipartisan support.

The bill would limit lending to banks with less than $10 billion in assets, which means it would restrict the biggest 75 or so U.S. banks from accessing the fund. To give you an idea the bank sizes were talking about here, Bank of America holds about $2.3 trillion in assets, Fifth Third Bank holds about $112 billion, and City National Bank of Los Angeles holds about $20 billion. Easthampton Savings Bank, my community bank that has about 10 branches in my region of Wetsern Massachusetts, holds a little over $800 million. In addition to the $10 billion cap, the bill specifies that banks with less than $1 billion in assets are eligible to borrow more from the fund (factored relatively as a % of assets) than banks falling within the $1-$10 billion category.

According to the bill text, in order to get loans from the fund, banks would have to provide the Secretary of the Small Business Lending Fund “a small business lending plan describing how the applicant’s business strategy and operating goals will allow it to address the needs of small businesses in the areas it serves, as well as a plan to provide linguistically and culturally appropriate outreach, where appropriate.” The bill also spells out 9 items that the Secretary of the fund must consider when deciding whether or not to lend to a bank, including increasing small business opportunities in areas with exceptionally high unemployment rates, protecting American jobs, and providing funds to minority-owned business.

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