US treasury is pumping $18 million into four banks of Massachusetts and distributing the shares in financial companies. This is part of the controversial SBLF program so as to increase small business lending in the entire country.
The Obama administration opines that the Small Business Lending Fund (SBLF) will help to boost the sluggish economy as it is going to dole out cheap capital to community banks. This funding will help banks to lend out to small businesses that will further enable them to expand or hire. Troubled Asset Relief Program (TARP) served well to bail out banks during financial crisis. Now, the government is buying preferred stocks in banks in exchange for capital infusion.
It is a controversial program because many banks are using the fund to repay the earlier federal aid they received under TARP. For example, Mercantile Capital Corp., that is the parent company of Mercantile Bank and Trust Co. in Boston, is planning to use half the $7 million that it is going to receive from SBLF to repay TARP. This new money is likely to cost 1 percent a year in dividends to Mercantile as compared to 5 percent that it had been paying under TARP.
Till now government has awarded $1 billion to 80 banks with two-thirds of the money going to TARP recipients who are required to pay back their bailed out funds, in order, to participate in the new program.
Under the new program, more than 900 banks have applied for funds amounting to $11 billion and none have been rejected as yet. The SBLF is definitely going to fuel the spark for job creation. Congress gave the nod to distribute $30 billion to community banks under SBLF as compared to $700 billion under TARP.
This article was submitted by Raj Tulshan, Director of Business Development of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to firstname.lastname@example.org