Bankers say delays, lack of communication hamper loan fund
Eight months after its authorization, a federal loan fund designed to help community banks lend to small businesses still isn't up and running, and some midstate banks are growing frustrated.
Some bankers wonder if the $30 billion Small Business Lending Fund actually will be funded, said Patty Husic, president and CEO of Centric Bank.
The U.S. Treasury, which runs the program, has been uncommunicative, exacerbating those concerns, she said.
"Will this ever take off?" she asked.
The fund's authorization to disburse money expires in September, one year after President Barack Obama signed into law the Small Business Jobs Act that created it.
Lower Paxton Township-based Centric applied for $7.5 million from the fund in late January. After hearing nothing for nearly two months, bank officials began calling the Treasury, but got no response, Husic said.
Husic said she finally contacted several members of Congress. They got the Treasury to tell Centric its application had been received, but nothing more.
Sen. Bob Casey, D-Pa., highlighted Centric's experience in a May 26 letter to Treasury Secretary Timothy Geithner complaining about the delays and poor communication. Centric left the Treasury roughly 15 voice messages, all unanswered, he wrote.
"This lack of response troubles me," Casey wrote. "Banks' inquiries should be responded to within a reasonable amount of time and a detailed explanation of the review process should be available to applicants."
The Treasury did not respond to several calls and emails seeking comment.
The fund is designed to provide low-cost capital to financial institutions with less than $10 billion in assets. The more recipients lend, the lower the dividends they pay to the Treasury.
A bank that robustly increases its lending could conceivably pay as little as 1 percent in dividends annually, compared with a normal capital cost of 6 to 10 percent, said Mike Kochenour, president and CEO of York Traditions Bank.
York Township-based York Traditions applied for about $5 million, which it would be able to leverage into $15 million to $20 million in new lending, Kochenour said.
"It's very cost-effective capital," he said.
Centric's projections indicate it will be able to lend enough to pay the 1 percent dividend rate, Husic said.
Kochenour agreed the fund is slow getting under way, but said: "We're kind of taking the timing in stride."
The capital infusion would boost York Traditions' lending and aid York County's economic growth, he said.
"The sooner we can get those additional benefits from the Small Business Lending Fund, the better," he said.
Nonprofit lenders have faced even longer delays than Centric and York Traditions. Not until May 26 did the Treasury open the application process to community development financial institutions — nonprofits that specialize in lending in low-income and distressed areas.
"We were anxiously awaiting the issuance of the application instructions," Dan Betancourt, president of Community First Fund, a CDFI based in Lancaster.
Lack of staffing at the Treasury is said to be the reason for the delays, he said.
Community First Fund plans to seek about $850,000 through the program, Betancourt said.
"Our application will be submitted in the next week and it is our hope that funds will be disbursed within four to eight weeks so that we can begin to move these funds quickly to small businesses in need of capital," he said.
Critics have questioned not only the lending fund's implementation but also its purpose. Lack of demand is the main reason businesses aren't expanding, not lack of access to capital, and encouraging more lending risks returning to the unsound practices that caused the Great Recession, they argue.
The loan fund won't foster irresponsible lending because bank regulators are exercising strict oversight these days and banks themselves are being prudent, Kochenour said.
The fund will, however, enable banks to strengthen their capital reserves, and that adds stability, he said.
"The regulators are going to be pleased by that," he said.
Interestingly, it appears much of the loan fund may go unspent. As of mid-April, the Treasury had received 626 applications totaling $9.2 billion, according to an internal audit report.
"(The) Treasury expects that less than two-thirds of the $30 billion will be requested," the report said.