Following up on remarks made in last week’s State of the Union address, President Obama today revealed plans for a new “Small Business Lending Fund," under which community banks with assets between $1 billion and $10 billion could receive funds to support small business lending.
To avoid some of the stigma associated with the TARP program, this program would be a completely new program, funded with $30 billion paid back from TARP recipients.
The fund would provide capital investments with an incentive structure to support new lending. As presented today by the President, banks with less than $1 billion in assets could receive capital investments of up to 5% of risk-weighted assets, while banks between $1 and $10 billion in assets could receive up to 3%. Banks’ primary regulators will approve applications, and existing Capital Purchase Program participants with less than $10 billion in assets could convert their capital to the new program.
The dividend paid on the capital would start at 5%, but could be reduced to as low as 1% as a bank demonstrates increased lending compared to a 2009 baseline. For every 2.5% increase in business lending over a two-year period, banks would receive a 1% dividend decrease down to a minimum of 1%. After 5 years, the dividend would be increased to encourage timely repayment.
We will keep you posted as further details emerge. If you have questions in the meantime, please contact L. Allyn Dixon, Jr. at 515-246-4520 or adixon@dickinsonlaw.com.
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