Banks and Businesses in US do not seem interested in the $30 billion grant under the Obama’s small community business lending program. This program is part of a bill passed by the House of Representatives and still awaits the President’s signature. The legislation is a mix of tax cuts and credits with billions of loans made available to community banks for loan grants to small businesses.
Banks and small businesses, however, seemed reluctant to participate in the scheme. The bank executives say that their customers are not asking for loans even if offered at low interest rates. Sen. George LeMieux, Republican contradicts by saying that “People in my constituency can’t get credit, and this will get money out to small businesses, who are the engine of job creation for this country.” William Chase Jr., CEO, Triumph Bank, Memphis contends that “We have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank.” So, fiery arguments are on.
Obama’s $30 billion fund program will be controlled by the Treasury Department and banks eligible for the grant should have assets less than $10 billion. Obama is quoted saying “It will provide incentives to invest and create jobs for 4 million small businesses. It will more than double the amount some small business owners can borrow to grow their companies.”
An annual 5% dividend to the U.S treasury will go as payment by the community banks for the grant. However, the dividend rate will decline steadily as banks increase lending to small businesses. With 2.5% increase in lending, the dividend payment slides down to 4 %. The dividend will, however, rise to 7% if banks do not lend to small businesses.
Noah Wilcox, CEO Grand Rapids State Bank, says, “Many of our clients, business owners, put their projects on ice in 2008 because their job number one is to see their company through to the other side of this economic crisis”. Wilcox comments that his $250 million bank has more capital than it can lend.
The crucial question before business owners is whether they should make an investment right now and whether it is going to generate results. There are also concerns about strings attached to government grants. There are also fears of a similar situation like Troubled Asset Relief Fund (TARP). Banks that accepted TARP later on had to cut dividends to share-holders, reduce compensations of top employees and penalized for early repayments. Under the new provision, however, steps are taken to avoid repetition of TARP.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to