Could Small Banks See More Lending Opportunities In The Near Future?

Jul 26th, 2010 @ 5:06 AM by Debbie Dragon

An article on Bloomberg.com reports on an Obama initiative for small business lending that passed the house last month and could go to vote this week in the Senate. President Obama is once again pushing to get more money into the hands of small business owners in hopes of boosting the sluggish economy through job creation. The Obama administration claims that there are approximately 30 million small businesses in the country, meaning that they employee less than 500 employees. The employees in these small businesses account for about 64% of all new jobs that are created.

The bill would allocate $30 billion in capital to be given to community banks around the country. In order for banks to qualify for the funding they will need to have less than $10 billion in assets. The banks will receive the funding by way of preferred stock or other investment. The Obama administration expects that the banks can use this funding to help create $300 billion in lending to small businesses. It is projected that the end result would be job creation.

If the legislation passes the senate this amount of lending could potentially, at the very least, double the amount of lending currently being seen to small businesses. Loans from banks to small businesses have been on the downfall. As of this March lending was down 5.6% from June 2008. In June 2008 $710 billion was made in small business loans, where as of March 2010 the number had dropped to $670 billion.

Critics of the bill are skeptical. They are afraid of the cost and saying it is just another bank bailout. Many big banks are speaking out and saying that funding is not the issue. They claim that they have the funding, but are unable to find credit worthy clients.

“The highest demand for loans is from the companies least qualified, the companies that have really struggled because of the economic downturn,” said Stark, a former Comerica Inc. executive whose Chicago-based investment bank helps community lenders raise capital. The way lawmakers see it, “everyone’s a good borrower, and that’s just not the case.”

With that said however, The Independent Community Bankers of America is very much in favor of the legislation. Even the National Federation of Independent Business is backing the bill. They are in support of the bill as long as there are precautions to ensure that the funds will be loaned to creditworthy small businesses.