Small Business Lending Fund

Small Business Lending Fund (SBLF) is enacted into law as part of Small Business Jobs Act of 2010. This is a $30 billion pool of fund meant to boost lending to businesses. It encourages lending to small businesses by providing capital to qualified community banks having assets of less than $10 billion. It is because of the SBLF that Main Street banks and small businesses can work together to create new jobs and promote economic growth of local communities.

The House passed Small Business Lending Fund Act (SBLF) by a vote of 241-182. The legislation, H.R. 5297, is designed to incentivize community banks for increasing lending to small businesses. The SBLF also provides for $1 billion to support early stage small businesses in form of true equity financing. Also $2 billion goes out as funding for new or existing state lending programs. The lending fund shall also result in a profit of $1.1 billion so as to reduce deficit to tax payers.

Benefit Drawn to Nation's Economy

Small Businesses play a very critical role when it comes to the US economy. The legislation is central to creating jobs and restoration of economic prosperity. Small Business Lending Fund (SBLF) act is meant to drive the American workers back to work with the creation of new jobs by funding small businesses.

Methodology of SBLF's Working

On making capital available to participating community banks, Small Business Lending Fund stimulates small business lending. As bank's small business lending keeps on increasing, the price a bank pays for SBLF funding gets reduced. The small business lending fund (SBLF) can augment lending to SMBs by an amount that is multiple times the total capital provided to participating banks. The new loans will make it possible for small businesses to create new jobs and grow further. Moreover, as lending to SMBs is increased by a participating community bank, its dividend on SBLF funding gets reduced. Initially the dividend rate is 5%. Then as a bank's small business lending reaches 10% or above, the rate falls to as low as 1%. If the lending is below 10%, then the rate is between 2% and 4%. If lending does not rise in first two years then rate increases to 7% and after 4.5 years rate becomes 9.5%.

The Congressional Budget Office (CBO) expects that the Treasury will disburse $23 billion out of the total $30 billion fund in fiscal year 2011. The repayment period for the fund is kept 10 years. CBO expects early repayments to be small during the span of first few years. Then it would increase significantly after four-and-a-half-year term when dividend shall reset to higher rates.