When Small Business Lending Fund closed down, no one seemed shed a tear as the program is looked to be slow, arbitrary and passive by banks and small business owners. Fed just gave $4 billion loans out of the total $30 billion fund. This is looked as to be stingy and arbitrary.
But the story also goes that small banks that received the $4 billion Fed loans used it to repay their TARP debts. So, Fed did help the community in some way or the other. The banks instead used the money to pay their debts if not offer them to small business owners.
Big banks also found an opportunity to pay off their loans quickly. Now, they were able to pay off debts that they borrowed from Federal Reserve at lower interest rate than charged by TARP. It is true that Fed lowered interest rate so as to encourage banks to give loans to small businesses. This actually should have spurred economic growth. But then it got used up to repay TARP debts. It also cost tax payers’ as it helped save money for big banks.
Though it apparently appears to be unfair for US citizens, but small Banks and tax payers also got hurt. Small banks unfairly got entangled in paying back TARP dues as they could not approach Fed with a fund request at almost zero percent interest rate. Only big banks can do that. So, small banks took this as an opportunity to match up with banks like Goldmans and the Sachs. After all someone had to fill in the void.
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 email@example.com