The US Treasury Department has issued the terms, application materials and an application guide for its Small Business Lending Fund (SBLF) program, which will provide Tier 1 capital to qualified community banks with assets of less than $10 billion. According to the summary of terms released on December 22, Treasury will provide participating banks with capital by purchasing Tier 1-qualifying preferred stock or equivalents from each bank or holding company. Treasury is still developing terms and guidance for mutual institutions and Subchapter S corporations. Insured depository institutions (not controlled by a holding company) with total assets of less than $10 billion and holding companies with total consolidated assets of less than $10 billion are eligible to apply for a capital investment from the SBLF. An institution currently on the FDIC problem bank list (or any similar list) or that has been removed from that list in the previous 90 days is not eligible. Generally, this will include any bank with a composite CAMELS rating of 4 or 5. Institutions that have total assets of $1 billion or less may apply for SBLF funding that equals up to 5% of risk-weighted assets. Institutions that have assets of more than $1 billion but less than $10 billion may apply for SBLF funding that equals up to 3% of risk-weighted assets. Treasury may require an applicant to raise separate matching funds from private, nongovernmental sources as a condition to receiving an SBLF investment. Such matched funding will need to be received either prior to or concurrent with Treasury’s SBLF funding. Generally, capital raised after September 27, 2010 may be included. Applications for institutions eligible to apply under the available terms should be submitted by March 31, 2011.
Notes: The SBLF was established by the Small Business Jobs Act signed into law earlier this year. The SBLF is designed to stimulate loans for small businesses by providing capital to community banks under terms that include incentives for participating institutions to increase small business lending. An SBLF investment may also be used to refinance preferred stock issued to the Treasury through the Capital Purchase Program (CPP) or the Community Development Capital Initiative (CDCI) under certain conditions. In general, the dividend rate on an SBLF capital investment will be reduced as the amount of the institution’s qualifying small business loans increases. The initial dividend rate will be, at most, 5%. If an institution’s small business lending increases by 10% or more over a baseline established prior to the investment, then the rate will fall to as low as 1%. If qualified lending does not increase in the first two years, however, the rate will increase to 7%. After 4½ years, the rate will increase to 9% if the bank has not already repaid the SBLF funding. The average of qualified small business lending reported by an applicant for the four quarters ending on June 30, 2010 will be the baseline against which subsequent lending is measured. Qualified small business lending will consist of commercial and industrial loans, owner-occupied nonfarm, nonresidential real estate loans, loans to finance agricultural production and other loans to farmers, and loans secured by farmland. However, any loan or group of loans to the same borrower (and its affiliates) with an original principal or commitment amount greater than $10 million or to a borrower with more than $50 million in revenue will not be considered a small business loan. The federal banking agencies have also issued underwriting standards for small business loans originated under the SBLF.