The Small Business Lending Fund Act of 2010
The Small Business Lending Fund Act of 2010 is part of the Small Business Jobs and Credit Act. The bill authorizes the Treasury to loan a total of $30 billion to small banks and other lenders so that they can offer loans to small businesses. The definition of a small bank in this act is a bank that has less than $10 billion in total assets, and is not a subsidiary of a larger bank that has more than $10 billion of assets.
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TARP Separation
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This lending fund is separate from the Troubled Asset Relief Program, or TARP. A bank does not have to participate in TARP to qualify for funds from this act. Borrowing money using this act also does not subject the bank to the additional reporting requirements and other lending restrictions which are part of the TARP legislation.
Bank Size
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The size of the small bank affects the maximum amount of money that a bank can borrow from the Treasury under this act. If the bank has less than $1 billion in assets, it can borrow up to 5 percent of the value of the assets it owns, and if the bank has up to $10 billion in assets, it can only borrow up to 3 percent of the total asset value.
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Interest Rate
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The Small Business Lending Fund Act will earn the Treasury a profit when the banks pay back the loans. According to Speaker of the House Nancy Pelosi, the initial rate that the Treasury charges on the loans is 5 percent. The loan rate decreases if the bank offers a higher percentage of its loans to small businesses than it did in 2009, to a minimum of 1 percent, and increases if the bank makes fewer loans to small businesses, to a maximum of 7 percent.
TARP Penalty
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Banks that receive money through TARP programs are penalized under the Small Business Lending Fund Act. If a bank has outstanding loans from the Treasury because of either the Capital Purchase Program or the Community Development Capital Investment program, both TARP programs, these loans count toward the maximum amount of money that the bank can borrow under the act.
Non Bank Lenders
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Institutions other than banks can borrow money under this act, as long as they offer accounts to depositors that federal deposit insurance guarantees. The size restrictions apply to these other lending institutions. Qualifying lenders include mutual companies, S corporations, and other businesses. The Treasury can charge these businesses a different interest rate on the loans under this act because of the difference in their tax treatment.
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