Criticisms linger after SBLF expires

The Treasury Department turned off the spigot on its Small Business Lending Fund, but criticisms continue to flow from some in the banking community about the implementation of the $30 billion program.

Only 36 percent of the 933 community banks that applied for money were approved before the year-long program expired on Sept. 27. Those 332 recipients received more than $4 billion in total to lend to mom-and-pop shops across the country.

“It’s alarming the number of banks that were denied,” said Dennis Hild, a director in the risk consulting practice at Crowe Horwath, an accounting and consulting firm in the District. “Given all the applications, there was obviously a need.”

Hild said some of the banks he advises complained that Treasury rejected their applications with little explanation and offered no formal appeal process.

Officials at the agency said banks were turned down if they could not pay dividends, had missed more than one Troubled Asset Relief Program dividend payment or were on the Federal Deposit Insurance Corp.’s problem bank list.

“There were a fair amount of institutions that didn’t have any of those problems and were in good standing with their regulators, but were still rejected,” Hild said. “Clients were very confused and felt there was a lack of transparency in the process.”

Treasury declined to discuss individual cases.

In exchange for SBLF funding, community banks issued shares of preferred stock to the agency. Banks with less than $1 billion in assets could tap the account for up to 5 percent of their risk-weighted assets, while institutions with less than $10 billion in assets could borrow a maximum of 3 percent.

Ten Washington area institutions received a total of $142 million, including Eagle Bank of Bethesda, Virginia Heritage Bank of Fairfax, Community Bank of Tri-County in Waldorf and Bethesda-based Monument Bank. Treasury officials declined to disclose whether any local banks were rejected.

“There are communities that will greatly benefit from [SBLF] through small business loans,” said James Ballentine, senior vice president of grassroots and political operations for the American Bankers Association. “It had much greater potential, but fell under its own weight. There was too many delays in each part of the program.”

There was a three-month lapse between the time SBLF, part of the Small Business Jobs Act of 2010, was enacted and when it got up and running in December. Banks said that the application process was tedious.

In an interview in August, Monument’s chief executive H.L. Ward called the process convoluted because of the “sheer volume of documents that had to be generated and the coordination between Treasury’s attorney and our attorney.”

Applicants also complained about the number of months it took the agency to respond to requests — the first round of approvals were announced in April. Treasury drew the ire of Congress for the delay in distributing the funds, but explained that having each application approved by a bank’s primary supervisor slowed the process.

Terms of the investment also came under fire. Critics said Treasury narrowly defined what counted as a qualified business loan, a key criteria for determining what the repayment terms on the capital might be.

Banks that do a lot of small business lending are eligible to repay the government with a 1 percent dividend rate, but that rate could jump to 7 percent if lending does not increase in the first two years.

Reston-based Access National Bank said it withdrew from the program because of restrictions barring the government-guaranteed portion of Small Business Administration loans from counting as new lending activity and the exclusion of loans purchased from other community banks.

Danielle Douglas covers the banking industry for The Washington Post.
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