Treasury's failure hurt small businesses

The U.S. Government Accountability Office (GAO) has issued its findings on why the Small Business Lending Fund (SBLF) passed by Congress in 2010 turned into an abysmal failure in promoting loans to small businesses. 

Only 332 of the 935 community banks applying for the extremely low interest funds to be used for the loans were approved by the U.S. Treasury Department.  Only $4 billion of the $30 billion allocated to the fund was actually approved—13%. 

The GAO is polite in its assessment of how Treasury administered the SBLF.  I’ll be more direct.  Treasury screwed it up royally.  I’ve told Administration officials this in person. 

Treasury blew it and our economy and small businesses are still paying the price.  Had Treasury put as much emphasis on making the SBLF work as they did in bailing out the big financial institutions, our economy would be growing much faster today and Treasury’s boss, President Obama, wouldn’t be under attack for our slow job growth.

Billions still waiting for lending to small businesses

Last week at my meetings in DC with representatives of the Administration’s economic development team and key staff of the U.S. Senate Small Business Committee I expressed concern that possibly up to half of the $30 billion Small Business Lending Fund established last year would not be claimed. The fund was to encourage community banks and non-profit lenders to make more small business loans and the deadlines for applying for the money is this month.

On Monday the SBA announced a final push to inform the lending institutions of this important program.

You can help spread the word of the webinar being held today at 3 p.m. Let your community banks and those with Community Development lending programs know about this opportunity.

U.S. Treasury to Host Small Business Lending Fund Webinar

By CARLOS ORTEGA

On Thursday, June 9, at 3 p.m. EDT, the U.S. Department of the Treasury will hold a webinar discussing how Community Development Loan Funds and community banks can apply for the Small Business Lending Fund. The webinar will cover many topics including participation eligibility requirements, small business loan qualifications, and sample financial statement calculations.

The Small Business Lending Fund, part of the Small Business Jobs Act of 2010, is a $30 billion fund established to provide capital to qualified community banks with less than $10 billion in assets. The goal of the fund is to stimulate lending to small businesses, thus working toward the creation of more jobs.

The U.S. Department of Treasury will supply the capital by purchasing Tier-1 qualifying preferred stock or equivalents in each bank.

The cost of capital to the banks will be no more than 5 percent and can decrease if the bank increases its small business lending. However, the cost will increase if the bank decreases its lending in the first two years.

Small businesses still need loans

The South Carolina Small Business Chamber was a strong and vocal supporter of last year’s Small Business Jobs Act. I spoke at a press conference at the Capital along with several U.S. Senators to state our support and that of the American Sustainable Business Council for the legislation.

A key component of the effort was the establishment of a $30 billion lending fund to encourage community banks to make small business loans. Of course, just like Small Business Administration (SBA) loans, this program can only make issuing the loans more attractive. The SBA does this through federal guarantees and the lending fund does it through low interest rates.

The success of this new program is totally in the hands of the private lenders. Financial institutions cannot be forced to make the loans.

Today was the deadline for community banks to request to participate in the new lending fund. The Wall Street Journal reports that only 7% of the nation’s 7,700 community banks eligible for the loan program (because they have less than $10 billion in assets) have indicated that they want to participate. The Treasury Department has now extended the deadline to May 16th.

The reason given by some banks is that there is little loan demand from small businesses. That’s simply not true. The demand is there. I hear all the time that a small business owner, even with assets, can’t get a loan.

The truth is this. All financial institutions (with the encouragement of federal regulators) have raised the bar for qualified borrowers. Many of them are sitting on large vaults of money but are afraid to make small business loans that are now perceived as risky.

One solution to this dilemma is allowing the SBA to bypass the financial institutions and start making loans directly to small businesses. We’re now doing this with Stafford and other student loans from the federal government that use to go through private lenders. And I understand that the SBA actually does make business loans on its own in some cases.

The SBA direct small business loans idea has been discussed before but always quickly shot down. But if all the government incentives in the world won’t get the financial institutions to start lending to small businesses, then maybe it’s time to jump start the free market and our economy by putting Uncle Sam in the game.

10 down and 2 to go

2010 has been a very successful year for The South Carolina Small Business Chamber of Commerce and there are still 2 months remaining before 2011.

Below is a very brief overview of wins this year and also some historical victories.

Success in 2010

-Passage of national health care reform resulting in no mandate or tax on small businesses. 53,000 SC small businesses being eligible for health insurance tax credit this year. Insurance exchanges in 2014 to allow small businesses to leverage collective clout to drive down premiums and elimination of premium increases due to worker with pre-existing condition.

-Passage of the state cigarette tax increase with funds going to meet health care needs of Medicaid recipients (133% of poverty and below starting in 2014).

-Passage of  national Wall Street Reform to reign in the excessive risky behavior of the financial industry that created the recession and create an agency for consumer, including small business, protection.

-Passage of the national Small Business Jobs Act which included a $30 billion lending fund to enable community banks to start making small business loans again and increase SBA lending ability.

-Successfully intervened in an SCE&G electric rate hike request of 9.52% to have it reduced to 4.88% over three years, a savings of over $96 million to customers.

-Successfully intervened in SCE&G’s proposed Demand Side Management program to enable small businesses more opportunity (inclusion in an energy information display pilot) to take conservation actions to reduce cost.

-Launched a “BuySC” (BuySC.org) program to encourage the public to purchase more goods and services from locally-owned South Carolina small businesses and establishing a free on-line directory of these businesses for customers to use.

Some of the past SCSBCC Successes

-Reducing the income tax on small business from 7 to 5 percent saving small business owners $129 million each year.

-Regulation of workers' compensation rates to reduce premiums.

-Job tax credits for the first time for small businesses.

-$1000 tax credit for new Registered Apprentices.

-Opposing SCE&G electricity and gas increases at the S.C. Public Service Commission resulting in savings to residential and business customers of over $172 million from 2003 to 2010.

-Opposing workers' compensation proposed rate increases in the Administrative Law Court resulting in saving state businesses over $185 million on premiums since 2006.