The Small Business Lending Fund
Updated May 5, 2021
Congressional Research Service
https://crsreports.congress.gov
R42045
The Small Business Lending Fund
Summary
Congressional interest in small business access to capital has always been high, primarily because
of concerns that small businesses might be prevented from accessing sufficient capital to enable
them to start, continue, or expand operations and create jobs. This interest has become especially
acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s widespread adverse
economic impact on the national economy.
During good economic times, congressional debate typically involves the extent to which the
federal government should provide additional resources to assist small businesses, with
opposition coming from those who worry about the long-term adverse economic effects of
spending programs that increase the federal deficit. During and immediately following recessions,
concerns about fiscal constraint are typically superseded by the perceived need to help small
businesses access the capital necessary to create or retain jobs. During these times of economic
distress, congressional debate tends to focus on finding ways to provide additional SBA
assistance to small businesses as quickly and efficiently as possible.
In response to the Great Recession (December 2007-June 2009), several laws were enacted
during the 111th Congress to enhance small business access to capital. For example,
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA),
provided the Small Business Administration (SBA) an additional $730 million,
including funding to temporarily subsidize SBA fees and increase the 7(a) loan
guaranty program’s maximum loan guaranty percentage to 90%.
P.L. 111-240, the Small Business Jobs Act of 2010, authorized the Secretary of
the Treasury to establish a $30 billion Small Business Lending Fund (SBLF), in
which $4 billion was issued, to encourage community banks with less than $10
billion in assets to increase their lending to small businesses. It also authorized a
$1.5 billion State Small Business Credit Initiative to provide funding to
participating states with small business capital access programs, numerous
changes to the SBA’s loan guaranty and contracting programs, funding to
continue the SBA’s fee subsidies and the 7(a) program’s 90% maximum loan
guaranty percentage through December 31, 2010, and about $12 billion in tax
relief for small businesses.
P.L. 111-322, the Continuing Appropriations and Surface Transportation
Extensions Act, 2011, authorized the SBA to continue its fee subsidies and the
7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011,
or until available funding was exhausted, which occurred on January 3, 2011.
During the 116th Congress, many Members used these programs as a template for developing
policies to address COVID-19’s impact on small businesses.
This report focuses on the SBLF. Advocates argued that the SBLF would increase lending to
small businesses and, in turn, create jobs. Opponents contended that the SBLF could lose money,
lacked sufficient oversight provisions, did not require lenders to increase their lending to small
businesses, could serve as a vehicle for Troubled Asset Relief Program (TARP) recipients to
effectively refinance their TARP loans on more favorable terms with little or no resulting benefit
for small businesses, and could encourage a failing lender to make even riskier loans to avoid
higher dividend payments. This report examines these arguments, the program’s structure and
implementation, and discusses its impact on small businesses.
Congressional Research Service
link to page 5 link to page 7 link to page 7 link to page 8 link to page 10 link to page 10 link to page 11 link to page 11 link to page 11 link to page 11 link to page 13 link to page 14 link to page 16 link to page 16 link to page 20 link to page 20 link to page 23 link to page 27 link to page 29 link to page 8 link to page 9 link to page 14 link to page 14 link to page 15 link to page 15 link to page 24 link to page 35 link to page 35 link to page 33
The Small Business Lending Fund
Contents
Small Business Access to Capital .................................................................................................... 1
Two Indicators of the Supply and Demand for Small Business Loans ........................................... 3
Federal Reserve Board: Survey of Senior Loan Officers .......................................................... 3
Federal Deposit Insurance Corporation: Outstanding Loan Balance ........................................ 4
Factors that May Have Contributed to the Decline in the Supply of Small Business
Loans in 2007-2010 ............................................................................................................... 6
Factors that May Have Contributed to the Decline in the Demand for Small Business
Loans in 2007-2010 ............................................................................................................... 7
The Congressional Response to the Decline in the Supply and Demand for Small
Business Loans ....................................................................................................................... 7
The SBLF ........................................................................................................................................ 9
Dividend Rates ........................................................................................................................ 10
Lending Plan Requirement ...................................................................................................... 12
Arguments For and Against the SBLF .......................................................................................... 12
The SBLF’s Implementation ......................................................................................................... 16
Treasury’s Rollout of the Program .......................................................................................... 16
Small Business Lending Progress Reports .............................................................................. 19
Proposed Legislation ..................................................................................................................... 23
Concluding Observations .............................................................................................................. 25
Figures
Figure 1. Small Business Lending Environment, 2008-2021 .......................................................... 4
Figure 2. Outstanding Small Business Loans, Nonagricultural Purposes, 2007-2020 .................... 5
Tables
Table 1. SBLF Lending Increases and Dividend Rates for C Corporation Banks and
Savings Associations .................................................................................................................. 10
Table 2. SBLF Lending Increases and Dividend Rates for S Corporation Banks and
Mutual Lending Institutions ........................................................................................................ 11
Table 3. SBLF Participants: Baseline, Lending, and Change in Lending, 2011-2020 .................. 20
Table A-1. SBLF Lending Increases and Dividend Rates for C Corporation Banks and
Savings Associations Under the House-Passed Version of H.R. 5297 ....................................... 31
Appendixes
Appendix. The SBLF’s Legislative History .................................................................................. 29
Congressional Research Service
link to page 38
The Small Business Lending Fund
Contacts
Author Information ........................................................................................................................ 34
Congressional Research Service
The Small Business Lending Fund
Small Business Access to Capital
Congressional interest in small business access to capital has always been high, primarily because
of concerns that small businesses might be prevented from accessing sufficient capital to enable
them to start, continue, or expand operations and create jobs.1 This interest has become especially
acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s widespread adverse
economic impact on the national economy.
During previous economic recoveries, small businesses have played an important role in net job
growth, particularly in the construction, housing, and retail sectors.2 For example, after the eight-
month recession that began in July 1990 and ended in March 1991, small businesses (defined for
this purpose as having fewer than 500 employees) increased their net employment in the first year
after the recession, whereas larger businesses continued to experience declines in employment.3
During the Great Recession (December 2007-June 2009), small businesses accounted for almost
60% of net job losses.4 From the end of the recession through the end of FY2012, small
businesses accounted for about 63% of net new jobs, close to their historical average share of net
new job creation.5 Since then, small businesses have added about 64% of net new jobs.6
During good economic times, congressional debate about small business access to capital
typically involves the extent to which the federal government should provide the SBA additional
resources to assist small businesses in acquiring capital necessary to start, continue, or expand
operations and create jobs. Those opposing providing additional resources to the SBA typically
worry about the long-term adverse economic effects of spending programs that increase the
federal deficit. They generally advocate business tax reduction, reform of financial credit market
regulation, and federal fiscal restraint as the best means to assist small business economic growth
and job creation.7
1 The United States does not have a statutory definition for medium-sized or large businesses. A business concern can
either be considered
small or
not small under §3(a)(1) of the Small Business Act, 15 U.S.C. §632(a)(1), which indicates
that a small business concern “shall be deemed to be one that is independently owned and operated and which is not
dominant in its field of operation.” The Small Business Administration (SBA) has established two widely used size
standards: 500 employees for most manufacturing and mining industries and $7 million in average annual receipts for
most nonmanufacturing industries. However, many exceptions exist. For example, a small business concern can have
up to 1,500 employees for certain industry categories. The SBA’s size standards may be found at 13 C.F.R. §121.201.
For additional information and analysis, see CRS Report R40860,
Small Business Size Standards: A Historical Analysis
of Contemporary Issues, by Robert Jay Dilger. In contrast, the European Union defines small business as those with
fewer than 50 employees, medium-sized business as those employing 50 workers to 250 workers, and large businesses
as those with more than 250 employees. See European Commission, “Small and Medium Sized Enterprises: What is an
SME?” at http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en.
2 Brian Headd, “Small Businesses Most Likely to Lead Economic Recovery,”
The Small Business Advocate, vol. 28,
no. 6 (July 2009), pp. 1, 2.
3 U.S. Small Business Administration (SBA), Office of Advocacy, “Small Business Economic Indicators for 2003: A
reference guide to the latest data on small business activity, including state and industry data,” August 2004, p. 3.
4 SBA, “The Small Business Economy, 2010: A Report to the President,” pp. 2, 5, 21, 22, at https://www.sba.gov/sites/
default/files/sb_econ2010.pdf; and SBA,
Fiscal Year 2010 Congressional Budget Justification, p. 1, at
https://www.sba.gov/sites/default/files/aboutsbaarticle/Congressional_Budget_Justification_2010.pdf.
5 SBA, Office of Advocacy, “Small Business Employment: Fourth Quarter 2013,”
Quarterly Employment Bulletin,
February 6, 2014, p. 1, at https://www.sba.gov/sites/default/files/Quarterly_Employment_Bulletin_4q2013%20.pdf.
6 SBA, Office of Advocacy, “Small Business Economic Bulletin: April 2020,” at https://cdn.advocacy.sba.gov/wp-
content/uploads/2020/04/30103025/April-2020-Econ-Bulletin.pdf.
7 See Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October
21, 2009; and National Federation of Independent Business (NFIB), “Government Spending,” Washington, DC, at
Congressional Research Service
1
The Small Business Lending Fund
During and immediately following recessions, concerns about fiscal constraint are typically
superseded by the perceived need to help small businesses access the capital necessary to create
or retain jobs. During these times of economic distress, congressional debate tends to focus on
finding ways to provide additional SBA assistance to small businesses as quickly and efficiently
as possible.
As will be discussed, the tightening of private-sector lending standards and the disruption of
credit markets in 2008 and 2009 led Congress to pass legislation during the 111th Congress that
temporarily expanded several SBA lending programs and permanently expanded several others.
For example,
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA),
provided the Small Business Administration (SBA) an additional $730 million,
including $375 million to temporarily subsidize SBA fees and increase the 7(a)
loan guaranty program’s maximum loan guaranty percentage from 85% on loans
of $150,000 or less and 75% on loans exceeding $150,000 to 90% for all regular
7(a) loans.
P.L. 111-240, the Small Business Jobs Act of 2010, authorized the Secretary of
the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) ($4
billion was issued) to encourage community banks with less than $10 billion in
assets to increase their lending to small businesses. It also authorized a $1.5
billion State Small Business Credit Initiative to provide funding to participating
states with small business capital access programs, numerous changes to the
SBA’s loan guaranty and contracting programs, funding to continue the SBA’s
fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage
through December 31, 2010, and about $12 billion in tax relief for small
businesses.
P.L. 111-322, the Continuing Appropriations and Surface Transportation
Extensions Act, 2011, authorized the SBA to continue its fee subsidies and the
7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011,
or until available funding was exhausted, which occurred on January 3, 2011.
According to the SBA, the temporary fee subsidies and 90% maximum loan guaranty for the 7(a)
program “engineered a significant turnaround in SBA lending.... The end result is that the agency
helped put more than $42 billion in the hands of small businesses through the Recovery Act and
Jobs Act combined.”8
During the 116th Congress, many Members used the programs enacted during the 111th Congress
as a template for developing policies to address COVID-19’s impact on small businesses.
This report focuses on the SBLF. It begins with a discussion of the supply and demand for small
business loans. After describing the program’s structure and implementation, the report then
examines arguments that were presented both for and against the program’s enactment.
https://www.nfib.com/content/issues/economy/government-spending-small-businesses-have-a-bottom-line-
government-should-too-49051/.
8 SBA, “Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months,”
January 3, 2010, at https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-
three-months.
Congressional Research Service
2
link to page 8
The Small Business Lending Fund
The report concludes with an examination of the SBLF’s implementation by the Department of
the Treasury and its impact on small businesses. A discussion of bills introduced during recent
Congresses to amend the SBLF is also presented.
For example, during the 112th Congress, S. 681, the Greater Accountability in the Lending Fund
Act of 2011, would have, among other provisions, limited the program’s authority to 15 years
from enactment and prohibited TARP recipients from participating in the program. H.R. 2807, the
Small Business Leg-Up Act of 2011, would have transferred any unobligated and repaid funds
from the SBLF when its investment authority expired on September 27, 2011, to the Community
Development Financial Institutions Fund “to continue the program of making capital investments
in eligible community development financial institutions in order to increase the availability of
credit for small businesses.”9 H.R. 3147, the Small Business Lending Extension Act, would have,
among other provisions, extended the Department of the Treasury’s investment authority from
one year following the date of enactment to two years.
During the 113th Congress, H.R. 2474, the Community Lending and Small Business Jobs Act of
2013, would have transferred any unobligated and repaid funds from the SBLF to the Community
Development Financial Institutions Fund.
Two Indicators of the Supply and Demand for Small
Business Loans
Federal Reserve Board: Survey of Senior Loan Officers
Each quarter, the Federal Reserve Board surveys senior loan officers concerning their bank’s
lending practices. The survey includes questions about both the supply and demand for small
business loans. For example, the survey includes a question concerning their bank’s credit
standards for small business loans: “Over the past three months, how have your bank’s credit
standards for approving applications for C&I [commercial and industrial] loans or credit lines—
other than those to be used to finance mergers and acquisitions—for small firms (defined as
having annual sales of less than $50 million) changed?” The senior loan officers are asked to
indicate if their bank’s credit standards have “Tightened considerably,” “Tightened somewhat,”
“Remained basically unchanged,” “Eased somewhat,” or “Eased considerably.” Subtracting the
percentage of respondents reporting “Eased somewhat” and “Eased considerably” from the
percentage of respondents reporting “Tightened considerably” and “Tightened somewhat”
indicates the market’s supply of small business loans.
As shown in
Figure 1, senior loan officers reported that they generally tightened their small
business loan credit standards from 2008 through late 2009, generally eased their loan credit
standards, with some relatively brief periods of tightening, from 2010 through 2019, and
tightened their loan credit standards in 2020 and early 2021, primarily due to the COVID-19
pandemic’s widespread adverse economic impact on the national economy. In April 2021, senior
loan officers reported that they had eased their loan credit standards somewhat.
The survey also includes a question concerning the demand for small business loans: “Apart from
normal seasonal variation, how has demand for C&I loans changed over the past three months for
small firms (annual sales of less than $50 million)?” Senior loan officers are asked to indicate if
demand was “Substantially stronger,” “Moderately stronger,” “About the same,” “Moderately
9 H.R. 2807, the Small Business Leg-Up Act of 2011.
Congressional Research Service
3
link to page 8 link to page 9 link to page 9
The Small Business Lending Fund
weaker,” or “Substantially weaker.” Subtracting the percentage of respondents reporting
“Moderately weaker” and “Substantially weaker” from the percentage of respondents reporting
“Substantially stronger” and “Moderately stronger” indicates the market’s demand for small
business loans.
As shown in
Figure 1, senior loan officers reported that the demand for small business loans
declined somewhat in 2008, and declined significantly in 2009. Demand then leveled off (at a
relatively reduced level) during 2010, generally increased, with some relatively brief periods of
decline, from 2011 through 2019, and generally decreased in 2020 and early 2021, primarily due
to the COVID-19 pandemic’s widespread adverse economic impact on the national economy. In
April 2021, senior loan officers reported that small business demand had increased modestly.
Figure 1. Small Business Lending Environment, 2008-2021
(senior loan officers’ survey responses)
Source: Federal Reserve Board, “Senior Loan Officer Opinion Survey on Bank Lending Practices,” at
http://www.federalreserve.gov/boarddocs/nLoanSurvey/; and Brian Headd, “Forum Seeks Solutions To Thaw
Frozen Small Business Credit,”
The Small Business Advocate, vol. 28, no. 10 (December 2009), p. 3, at
https://www.sba.gov/sites/default/files/advocacy/The%20Small%20Business%20Advocate%20-
%20December%202009.pdf.
Federal Deposit Insurance Corporation: Outstanding Loan Balance
The Federal Deposit Insurance Corporation (FDIC) has maintained comparable small business
lending data for the second quarter (June 30) of each year since 2002.
Figure 2 shows the amount
of outstanding small business loans (defined by the FDIC as commercial and industrial loans of
$1 million or less) for nonagricultural purposes as of June 30 of each year from 2007 to 2019. As
shown in
Figure 2, the amount of outstanding small business loans for nonagricultural purposes
increased from June 30, 2007, to June 30, 2008, declined over the next several years, generally
Congressional Research Service
4
The Small Business Lending Fund
increased from June 30, 2013, through June 30, 2019, and increased significantly in 2020,
primarily due to the Paycheck Protection Program (PPP), which provided more than $525 billion
in loans to small businesses and nonprofit organizations from April 3, 2020, through August 8,
2020.10
Figure 2. Outstanding Small Business Loans, Nonagricultural Purposes, 2007-2020
(billions of dollars)
Source: Federal Deposit Insurance Corporation, “Statistics on Depository Institutions,” at
https://www7.fdic.gov/sdi/main.asp?formname=standard.
Note: Data as of June 30 each year.
Although changes in small business outstanding debt are not necessarily a result of changes in the
supply of small business loans, many, including the SBA, view a decline in small business
outstanding debt as a signal that small businesses might be experiencing difficulty accessing
sufficient capital to enable them to lead job growth.
10 SBA, “Paycheck Protection Program (PPP) Report, Approvals through 08/08/2020,” at https://home.treasury.gov/
system/files/136/SBA-Paycheck-Protection-Program-Loan-Report-Round2.pdf.
P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, created
a new $349 billion (later increased to $659 billion) Paycheck Protection Program (PPP) to provide forgivable, low-
interest loans to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans
organizations that have been adversely affected by COVID-19. The loans were originally available through June 30,
2020, and were later made available through August 8, 2020. For additional information and analysis see CRS Report
R46284,
COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R.
Lindsay, and Sean Lowry.
Congressional Research Service
5
The Small Business Lending Fund
Factors that May Have Contributed to the Decline in the Supply of
Small Business Loans in 2007-2010
According to an SBA-sponsored study of small business lending, several factors contributed to
the decline in small business lending from 2007 to 2010.11 The report’s authors noted that the
30% decline in home prices from their peak in 2006 to 2010 diminished the value of collateral for
many small business borrowers, some of whom had relied on home equity loans to finance their
small businesses during the real estate boom. The authors concluded that the absence of this
additional source of collateral may have contributed to a decline in lending to small businesses.12
They also argued that many small businesses found it increasingly difficult to renew existing lines
of credit as lenders became more cautious as a result of slow economic growth and an increasing
risk of loan defaults, especially among small business start-ups, which are generally considered
among the most risky investments.13 The authors argued that
in this newly regulated market, smaller lenders are likely to be less profitable
because they have fewer sales of products and services to spread out over the
higher auditing and FDIC costs. Hence, they have less money to lend to small
businesses and others; and
the relative difficulty in assessing creditworthiness due to the lack of information
about potential financial performance is very high in small business lending,
especially in financial markets driven by factor—rather than relationship—
lending. Therefore, one would expect the small business loan market to recover
more slowly than other financial markets.14
The authors also noted that FDIC data indicated that small business lending had not only declined
in absolute terms (the total amount of dollars borrowed and the total number of small business
loans issued), but in relative terms as well (the market share of business loans):
Over the eight years from 2003 through 2010, small business loans as a share of total
business loans declined by more than 12 percentage points, from 81.7% in 2003 to 68.9%
in 2010. Perhaps of most concern is the further decline in the ratios of small business loans
to total assets and small business loans to total business loans. Small business loans
constituted about 16.8% of total assets in 2005, but only 15.3% in 2010; hence, small
business lending is becoming less significant for these lenders. Small business lending is
also losing market share in the business loan market. In the eight-year period from 2003 to
2010, small business loans as a share of total business loans declined more than 10
percentage points from 81.7% in 2003 to 68.9% in 2010.15
11 George W. Haynes and Victoria Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010, SBA,
Office of Advocacy, March 2011, at https://www.sba.gov/sites/default/files/rs380tot.pdf (hereinafter Haynes and
Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010).
12 Haynes and Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010, p. 25.
13 Haynes and Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010, p. 26. One possible
contributing factor for at least some lenders becoming more cautious is that in recent years many lenders experienced
an increase in nonperforming loans and a depletion of their loan loss reserves, limiting the funds available for lending
to small businesses.
14 Haynes and Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010, p. 26.
15 Haynes and Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010, p. 25.
Congressional Research Service
6
The Small Business Lending Fund
Factors that May Have Contributed to the Decline in the Demand
for Small Business Loans in 2007-2010
According to the previously mentioned SBA-sponsored study of small business lending, the
demand for small business loans fell during the recession primarily because many small
businesses experienced a decline in sales and many small business owners had a heightened level
of uncertainty concerning future sales. The study’s authors argued that given small business
owners’ lack of confidence in the demand for their goods and services, many of them decided to
save capital instead of hiring additional employees and borrowing capital to invest in business
expansions and inventory.16
Small business owners’ responses to a monthly survey by the National Federation of Independent
Business Research Foundation (NFIB) concerning their views of the economy support the
argument that declining sales contributed to the reduced demand for small business loans. From
2008 through 2011, small business owners responding to the NFIB surveys identified poor sales
as their number-one problem. Prior to 2008, taxes had been reported as their number-one problem
in nearly every survey since the monthly surveys began in 1986.17 Also, employment data suggest
that small businesses were particularly hard hit by the recession. As mentioned previously, small
businesses accounted for almost 60% of the net job losses during the December 2007-June 2009
recession.18
According to testimony by the Secretary of the Treasury before the House Small Business
Committee on June 22, 2011, small businesses were especially hard hit by the recession because
[s]mall businesses are concentrated in sectors that were especially hard hit by the recession
and the bursting of the housing bubble: construction and real estate. More than one-third
of all construction workers are employed by firms with less than 20 workers, and an
additional third are employed by businesses with fewer than 100 employees. Just over half
of those employed in the real estate, rental, and leasing sectors work for businesses with
less than 100 workers on their payrolls. More broadly, the rate of job losses was almost
twice as high in small businesses as it was in larger firms during the depths of the crisis.19
The Congressional Response to the Decline in the Supply and
Demand for Small Business Loans
During the 111th Congress, legislation designed to increase both the supply and demand for small
business loans was adopted. For example, Congress provided more than $1.1 billion to
temporarily subsidize fees for the SBA’s 7(a) and 504/Certified Development Company
(504/CDC) loan guaranty programs and to increase the 7(a) program’s maximum loan guaranty
16 Haynes and Williams,
Lending by Depository Lenders to Small Businesses, 2003 to 2010.
17 William C. Dunkelberg and Holly Wade,
Small Business Economic Trends (Washington, DC: NFIB Research
Foundation, September 2011), p. 18, at http://www.nfib.com/Portals/0/PDF/sbet/sbet201109.pdf; and William J.
Dennis Jr.,
Small Business Credit in a Deep Recession (Washington, DC: NFIB Research Foundation, June 2008), p. 1,
at https://www.nfib.com/Portals/0/PDF/AllUsers/research/studies/Small-Business-Credit-In-a-Deep-Recession-
February-2010-NFIB.pdf.
18 SBA, “The Small Business Economy, 2010: A Report to the President,” pp. 2, 5, 21, 22, at https://www.sba.gov/
sites/default/files/sb_econ2010.pdf; and SBA,
Fiscal Year 2010 Congressional Budget Justification, p. 1, at
https://www.sba.gov/sites/default/files/aboutsbaarticle/Congressional_Budget_Justification_2010.pdf.
19 U.S. Congress, House Committee on Small Business,
The State of Small Business Access to Capital and Credit: The
View from Secretary Geithner, 112th Cong., 1st sess., June 22, 2011, p. 1.
Congressional Research Service
7
The Small Business Lending Fund
percentage from 85% on loans of $150,000 or less and 75% on loans exceeding $150,000 to 90%
for all regular 7(a) loans (funding was exhausted on January 3, 2011).20 The fee subsidies were
designed to increase the demand for small business loans by reducing the cost of borrowing. The
90% loan guarantee was designed to increase the supply of small business loans by reducing the
risk of lending.
Congress also provided the SBA additional resources to expand its lending to small businesses.
For example, ARRA included a $255 million temporary, two-year small business stabilization
program to guarantee loans of $35,000 or less to small businesses for qualified debt
consolidation, later named the America’s Recovery Capital (ARC) Loan program (the program
ceased issuing new loan guarantees on September 30, 2010); an additional $15 million for the
SBA’s surety bond program and a temporary increase in that program’s maximum bond amount
from $2 million to $5 million and up to $10 million under certain conditions (the higher
maximum bond amounts ended on September 30, 2010); an additional $6 million for the SBA’s
Microloan program’s lending program and an additional $24 million for the Microloan program’s
technical assistance program; and increased the funds (
leverage) available to SBA-licensed Small
Business Investment Companies (SBICs) to no more than 300% of the company’s private capital
or $150 million, whichever is less.21
Several other programs were also enacted during the 111th Congress to increase the supply of
small business loans. For example, ARRA authorized the SBA to establish a temporary secondary
market guarantee authority to provide a federal guarantee for pools of first lien 504/CDC program
loans that are to be sold to third-party investors. ARRA also authorized the SBA to make below-
market interest rate direct loans to SBA-designated “Systemically Important Secondary Market
(SISM) Broker-Dealers” that would use the loan funds to purchase SBA-guaranteed loans from
commercial lenders, assemble them into pools, and sell them to investors in the secondary loan
market.
P.L. 111-240 extended the SBA’s secondary market guarantee authority from two years after the
date of ARRA’s enactment to two years after the date of the program’s first sale of a pool of first
lien position 504/CDC loans to a third-party investor (which took place on September 24,
2010).22 The act also increased the loan guarantee limits for the SBA’s 7(a) program from $2
20 P.L. 111-5, the American Recovery and Reinvestment Act of 2009, provided the SBA $375 million to subsidize fees
for the SBA’s 7(a) and 504/CDC loan guaranty programs and to increase the 7(a) program’s maximum loan guaranty
percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all
regular 7(a) loans through September 30, 2010, or when appropriated funding for the subsidies and loan modification
was exhausted. P.L. 111-118, the Department of Defense Appropriations Act, 2010, provided the SBA $125 million to
continue the fee subsides and 90% maximum loan guaranty percentage through February 28, 2010. P.L. 111-144, the
Temporary Extension Act of 2010, provided the SBA $60 million to continue the fee subsides and 90% maximum loan
guaranty percentage through March 28, 2010. P.L. 111-150, an act to extend the Small Business Loan Guarantee
Program, and for other purposes, provided the SBA authority to reprogram $40 million in previously appropriated
funds to continue the fee subsides and 90% maximum loan guaranty percentage through April 30, 2010. P.L. 111-157,
the Continuing Extension Act of 2010, provided the SBA $80 million to continue the SBA’s fee subsides and 90%
maximum loan guaranty percentage through May 31, 2010. P.L. 111-240, the Small Business Jobs Act of 2010,
provided $505 million (plus an additional $5 million for administrative expenses) to continue the SBA’s fee subsides
and 90% maximum loan guaranty percentage from the act’s date of enactment (September 27, 2010) through December
31, 2010. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorizes
the SBA to use funds provided under the Small Business Jobs Act of 2010 to continue the SBA’s fee subsides and 90%
maximum loan guaranty percentage through March 4, 2011, or until available funding is exhausted—which occurred
on January 3, 2011.
21 P.L. 111-5, the American Recovery and Reinvestment Act of 2009, §505, Increasing Small Business Investment.
22 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” January 4, 2010.
Congressional Research Service
8
link to page 33
The Small Business Lending Fund
million to $5 million, and for the 504/CDC program from $1.5 million to $5 million for “regular”
borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more
specified public policy goals, and from $4 million to $5.5 million for manufacturers. It also
increased the SBA’s Microloan program’s loan limit for borrowers from $35,000 to $50,000 and
for microlender intermediaries after their first year in the program from $3.5 million to $5
million. In addition, it temporarily increased for one year (through September 26, 2011) the SBA
7(a) Express Program’s loan limit from $350,000 to $1 million. The act also authorized the
Secretary of the Treasury to establish the $30 billion SBLF and a $1.5 billion State Small
Business Credit Initiative to provide funding to participating states with small business capital
access programs.
The SBLF
The SBLF was designed “to address the ongoing effects of the financial crisis on small businesses
by providing temporary authority to the Secretary of the Treasury to make capital investments in
eligible institutions in order to increase the availability of credit for small businesses.”23 The
SBLF’s legislative history, including differences in the House- and Senate-passed versions of the
program, appears in th
e Appendix.
P.L. 111-240 authorized the Secretary of the Treasury to make up to $30 billion in capital
investments in eligible institutions with total assets equal to or less than $1 billion or $10 billion
(as of the end of the fourth quarter of calendar year 2009).24 The authority to make capital
investments in eligible institutions was limited to one year after enactment.
Eligible financial institutions with total assets equal to or less than $1 billion as of the end of the
fourth quarter of calendar year 2009 could apply to receive a capital investment from the SBLF in
an amount not exceeding 5% of risk-weighted assets, as reported in the FDIC call report
immediately preceding the application date. During the fourth quarter of 2009, 7,340 FDIC-
insured lending institutions reported having assets amounting to less than $1 billion.25
Eligible financial institutions with total assets of $10 billion or less as of the end of the fourth
quarter of calendar year 2009 could apply to receive a capital investment from the fund in an
amount not exceeding 3% of risk-weighted assets, as reported in the FDIC call report
immediately preceding the application date. During the fourth quarter of 2009, 565 FDIC-insured
lending institutions reported having assets of $1 billion to $10 billion.26
23 P.L. 111-240, the Small Business Jobs Act of 2010, §4101, Purpose. In 2011, there were 7,513 FDIC-insured lending
institutions in the United States. Of that number, 6,846 lending institutions had assets amounting to less than $1 billion
(totaling $1.42 trillion), 561 lending institutions had assets of $1 billion to $10 billion (totaling $1.43 trillion), and 106
lending institutions had assets greater than $10 billion (totaling $10.76 trillion). See FDIC, “Quarterly Banking Profile:
Second Quarter 2011,” at https://www.fdic.gov/bank/analytical/quarterly/2011-vol5-3/fdic-quarterly-vol5no3.pdf.
24 Eligible institutions may be insured depository institutions that are not controlled by a bank holding company or a
savings and loan holding company that is also an eligible institution and is not directly or indirectly controlled by any
company or other entity that has total consolidated assets of more than $10 billion, bank holding companies, savings
and loan holding companies, and community development financial institution loan funds, all with total assets of $10
billion or less (as of the end of 2009).
25 FDIC, “Quarterly Banking Profile: Fourth Quarter 2009,” at https://www.fdic.gov/bank/analytical/quarterly/2010-
vol4-1/fdic-quarterly-vol4no1-full.pdf.
26 FDIC, “Quarterly Banking Profile: Fourth Quarter 2009.” In the fourth quarter of 2009, 107 FDIC-insured lending
institutions had assets greater than $10 billion.
Congressional Research Service
9
link to page 14
The Small Business Lending Fund
Risk-weighted assets are assets such as cash, loans, investments, and other financial institution
assets that have different risks associated with them. FDIC regulations (12 C.F.R. §567.6)
establish that cash and government bonds have a 0% risk-weighting; residential mortgage loans
have a 50% risk-weighting; and other types of assets (such as small business loans) have a higher
risk-weighting.27
Lending institutions on the FDIC problem bank list or institutions that have been removed from
the FDIC problem bank list for less than 90 days are ineligible to participate in the program. A
lending institution can refinance securities issued through the Treasury Capital Purchase Program
(CPP) and the Community Development Capital Incentive (CDCI) program under TARP, but only
if that institution had not missed more than one dividend payment due under those programs.
Dividend Rates
Participating banks (C corporations and savings associations) are charged a dividend rate of no
more than 5% per annum initially, with reduced rates available if the bank increases its small
business lending by specified amounts.28 For example, during any calendar quarter in the initial
two years of the capital investments under the program, the bank’s dividend rate is lowered if it
increases its small business lending, as reported in its FDIC call reports, compared with the
average small business lending it made in the four previous quarters immediately preceding the
law’s enactment, minus some allowable adjustments.29
Table 1 shows the dividend rates associated with small business lending increases by C
corporation banks and savings associations.
Table 1. SBLF Lending Increases and Dividend Rates for C Corporation Banks and
Savings Associations
Dividend Rate Following Investment Date
After Year 4.5
Small Business Lending
Quarter 10 to
(following Q1 of
Increase
1st 9 Quarters
Year 4.5
2016)
10% or greater
1%
1%
9%
At least 7.5% but less than
2%
2%
9%
10%
At least 5% but less than 7.5%
3%
3%
9%
At least 2.5% but less than 5%
4%
4%
9%
27 For further analysis of risk-weighted assets, see CRS Report R44918,
Who Regulates Whom? An Overview of the
U.S. Financial Regulatory Framework, by Marc Labonte.
28 “On the Investment Date, and at the beginning of each of the next ten calendar quarters thereafter, the amount of
Qualified Small Business Lending reported by the Issuer in the most recent Supplemental Report will be compared to
the Baseline amount of Qualified Small Business Lending. The dividend rate will be adjusted to reflect the amount of
an Issuer’s change in Qualified Small Business Lending from the Baseline.” See U.S. Department of the Treasury,
“Small Business Lending Fund: Senior Preferred Stock,” p. 4, at http://www.treasury.gov/resource-center/sb-
programs/Documents/SBLF%20Refinancing%20Term%20Sheet.pdf.
29 The FDIC defines a small business loan as a loan of $1 million or less. P.L. 111-240 specified that small business
lending included 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. Loans that have an original
amount greater than $10 million, or that go to a business with more than $50 million in revenues, are not allowed.
Congressional Research Service
10
link to page 15
The Small Business Lending Fund
Dividend Rate Following Investment Date
After Year 4.5
Small Business Lending
Quarter 10 to
(following Q1 of
Increase
1st 9 Quarters
Year 4.5
2016)
Less than 2.5%
5%
5%
9%
No increase
5%
7%
9%
Source: P.L. 111-240, the Small Business Jobs Act of 2010, Section 4103. Small Business Lending Fund; and U.S.
Department of the Treasury, “Small Business Lending Fund: Getting Started Guide for Community Banks,” p. 1,
at http://www.treasury.gov/resource-center/sb-programs/Documents/SBLF%20Getting%20Started%20Guide.pdf.
Table 2 shows the dividend rates associated with small business lending increases by
participating S corporation banks and mutual lending institutions. These rates are slightly higher
than those for C corporation banks and savings associations “to reflect after-tax effective rates
equivalent to the dividend rate paid by other classes of institutions participating in the Fund
through the issuance of preferred stock.”30 As discussed below, an S corporation does not pay
federal taxes at the corporate level. Any business income or loss is “passed through” to
shareholders, who report it on their personal income tax returns.
Table 2. SBLF Lending Increases and Dividend Rates for S Corporation Banks and
Mutual Lending Institutions
Dividend Rate Following Investment Date
After Year 4.5
Small Business Lending
Quarter 10 to
(following Q1 of
Increase
1st 9 Quarters
Year 4.5
2016)
10% or greater
1.5%
1.5%
13.8%
At least 7.5% but less than
3.1%
3.1%
13.8%
10%
At least 5% but less than 7.5%
4.6%
4.6%
13.8%
At least 2.5% but less than 5%
6.2%
6.2%
13.8%
Less than 2.5%
7.7%
7.7%
13.8%
No increase
7.7%
10.8%
13.8%
Source: P.L. 111-240, the Small Business Jobs Act of 2010, Section 4103. Small Business Lending Fund; U.S.
Treasury, “Small Business Lending Fund: Subchapter S Corporation Senior Securities,” p. 4, at
http://www.treasury.gov/resource-center/sb-programs/Documents/SBLF_S_Corporation_Term_Sheet_05-02-
11.pdf; and U.S. Treasury, “Small Business Lending Fund: Mutual Institutions Senior Securities,” p. 4,
http://www.treasury.gov/resource-center/sb-programs/Documents/
SBLF%20Mutual%20Institutions%20Term%20Sheet.pdf.
Community Development Financial Institutions (CFDIs) are provided funding for an initial eight
years with an automatic rollover for two additional years at the issuer’s option. On the 10th
anniversary of the investment date the issuer repays the principal amount, together with all
accrued and unpaid interest. Additionally, the dividend rate is 2% per annum for the first eight
30 U.S. Department of the Treasury, “Overview for Subchapter S Corporations and Mutual Institutions,” at
http://www.treasury.gov/resource-center/sb-programs/Pages/Overview-for-S-Corporation-Banks-and-Mutual-
Institutions.aspx.
Congressional Research Service
11
The Small Business Lending Fund
years from the investment date (payable quarterly in arrears on January 1, April 1, July 1, and
October 1 of each year) and 9% thereafter.31
Lending Plan Requirement
SBLF applicants are required to submit a small business lending plan to the appropriate federal
banking agency and, for applicants that are state-chartered banks, to the appropriate state banking
regulator. The plan must describe how the applicant’s business strategy and operating goals will
allow it to address the needs of small businesses in the areas it serves, as well as to provide
linguistically and culturally appropriate outreach, where appropriate. The plan is treated as
confidential supervisory information. The Secretary of the Treasury is required to consult with the
appropriate federal banking agency or, in the case of an eligible institution that is a nondepository
community development financial institution, the Community Development Financial Institution
Fund, before determining if the eligible institution may participate in the program.32
The act directed that all funds received by the Secretary of the Treasury in connection with
purchases made by the SBLF, “including interest payments, dividend payments, and proceeds
from the sale of any financial instrument, shall be paid into the general fund of the Treasury for
reduction of the public debt.”33
Arguments For and Against the SBLF
The SBLF’s advocates argued that it would create jobs by encouraging lenders, especially those
experiencing liquidity problems (access to cash and easily tradable assets),34 to increase their
lending to small businesses. For example, the House report accompanying H.R. 5297, the Small
Business Lending Fund Act of 2010, argued that the SBLF was needed to enhance small
business’s access to capital, which, in turn, was necessary to enable those businesses to create
jobs and assist in the economic recovery:
There has been a dramatic decrease in the amount of bank lending in the past several
quarters. On May 20, 2010, the Federal Deposit Insurance Corporation (FDIC) released its
Quarterly Banking Profile for the first quarter of 2010. The report shows that commercial
and industrial loans declined for the seventh straight quarter, down more than 17% from
the year before.
31 U.S. Department of the Treasury, “Small Business Lending Fund: Community Development Financial Institution
Loan Funds Equity Equivalent Capital,” p. 3, at http://www.treasury.gov/resource-center/sb-programs/Documents/
SBLF-CDLF%20Term%20Sheet.pdf.
32 If the appropriate banking agency would not otherwise recommend that the eligible institution receive the capital
investment, the Secretary of the Treasury was authorized, in consultation with the appropriate banking agency, to
consider allowing the eligible institution to participate in the program if the eligible institution provided matching
capital from private, nongovernmental sources that is equal to or greater than 100% of the SBLF investment and if that
matching capital is subordinate to the capital investment from the SBLF.
33 P.L. 111-240, the Small Business Jobs Act of 2010, §4103. Small Business Lending Fund. Using a cost-based
estimate, the Congressional Budget Office (CBO) estimated that the SBLF would result in net outlays of $3.3 billion
over 2010-2015 and would reduce outlays by $1.1 billion over the 2010-2020 period. Using an alternative fair-value
estimate, CBO estimated that the SBLF would result in net outlays of $6.2 billion over the 2010-2020 time period. See
CBO, “Cost Estimate: H.R. 5297, Small Business Lending Fund Act of 2010,” June 28, 2010, pp. 3, 4, at
https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/hr5297housepassed0.pdf.
34 For further information and analysis concerning lender liquidity issues, see CRS Report R43413,
Costs of
Government Interventions in Response to the Financial Crisis: A Retrospective, by Baird Webel and Marc Labonte.
Congressional Research Service
12
The Small Business Lending Fund
Many companies, particularly small businesses, claim that it is becoming harder to get new
loans to keep their business operating and that banks are tightening requirements or cutting
off existing lines of credit even when the businesses are up to date on their loan repayments.
Treasury Secretary Timothy F. Geithner recently acknowledged the problem encountered
by some banks, both healthy and troubled, which have been told to maintain capital levels
in excess of those required to be considered well capitalized.
Some banks say they have little choice but to scale back lending, even to creditworthy
borrowers, and the most recent Federal Reserve data shows banks are continuing to tighten
lending terms for small businesses.35
A dissenting view, endorsed by the House Committee on Financial Services’ minority members,
was included in the report. This view argued that the SBLF does not properly deal with the lack
of financing for small businesses:
Instead of addressing the problem by stimulating demand for credit by small businesses,
H.R. 5297 injects capital into banks with no guarantees that they will actually lend. The
bill allows a qualifying bank to obtain a capital infusion from the government without even
requiring the bank to make a loan for two years. In fact, if a bank reduces or fails to increase
lending to small business during those first two years, it would not face any penalty. It
defies logic that the Majority would support a bill to increase lending that does not actually
require increased lending. A more effective response to the challenges facing America’s
small businesses was offered by Representatives Biggert, Paulsen, Castle, Gerlach, and
King, whose amendment would have extended a series of small business tax credits before
implementing the Small Business Lending Fund.36
Opponents also argued that even if the SBLF were authorized “the program probably would not
be fully operational for months; banks could shun the program for fear of being stigmatized by its
association with TARP; and many banks would avoid taking on new liabilities when their existing
assets are troubled.”37 They contended that the bill did not provide sufficient oversight for
effectively monitoring the program because the Inspector General of the Department of the
Treasury, who was given that oversight responsibility under the bill, “might not be able to direct
sufficient attention to this task given its other responsibilities.”38 They argued that the Special
Inspector General of TARP would be in a better position to provide effective oversight of the
program.39
These arguments and others were presented during House floor debate on the bill. For example,
Representative Melissa Bean advocated the bill’s passage, arguing that the SBLF
builds on the effective financial stabilization measures Congress has previously taken by
establishing a new $30 billion small business loan fund to provide additional capital to
community banks that increase lending to small businesses. This $30 billion investment on
which the government will be collecting dividends and earning a profit per the CBO
[Congressional Budget Office] estimates can be leveraged by banks into over $300 billion
in new small business loans. This is an important investment by the Federal Government
in our small business that brings tremendous returns.
35 H.Rept. 111-499, To Create the Small Business Lending Fund Program to Direct the Secretary of the Treasury to
Make Capital Investments in Eligible Institutions in order to Increase the Availability of Credit for Small Businesses,
and for other purposes, p. 16.
36 H.Rept. 111-499, p. 37.
37 H.Rept. 111-499, pp. 37, 38.
38 H.Rept. 111-499, p. 38.
39 H.Rept. 111-499, p. 38.
Congressional Research Service
13
The Small Business Lending Fund
The terms of the capital provided to banks are performance based; the more a bank
increases its small business lending, the lower the dividend rate is for the SBLF capital. If
a bank decreases its small business lending, it will be penalized with higher dividend rates.
This legislation includes strong safeguards to ensure that banks adequately utilize available
funds to increase lending to small businesses, not for other lending or to improve their
balance sheet. There will be oversight consistently throughout the program, plus it requires
that the capital be invested only in strong financial institutions at little risk of default and
the best positioned to increase small business lending.
It’s important for Americans to understand that although this fund has a maximum value
of $30 billion, it is estimated to make a profit for taxpayers in the long run. And the money
will ultimately go not to banks, but to the small businesses and their communities that they
lend to. As our financial system stabilizes and our community banks recapitalize, these
funds will be repaid to Treasury with full repayment required over the next 10 years.40
Representative Nydia Velázquez, then-chair of the House Committee on Small Business, added
that the legislation had sufficient safeguards in place to ensure that the funds were targeted at
small businesses:
First, banks must apply to the Treasury to receive funds, with a detailed plan on how to
increase small business lending at their institution. This language was included at my
insistence that we need to make sure that small businesses will get the benefit of this
legislation.
Second, this capital, repayment of the government loans will be at a dividend rate starting
at 5% per year. This rate will be lowered by 1% for every 2.5% increase in small business
lending over 2009 levels. It can go as low as a total dividend rate of just 1% if the bank
increases its business lending by 10% or more, incentivizing banks to do the right thing.
To ensure that banks actually use the funding they receive, the rate will increase—and there
are penalties—to 7% if the bank fails to increase its small business lending at their
institution within 2 years. To ensure that all federal funds are paid back within 5 years, the
dividend rate will increase to 9% for all banks, irrespective of their small business lending,
after 4 1/2 years.41
Representative Velázquez added “let me just make it clear … CBO estimates that [the SBLF] will
save taxpayers $1 billion over 10 years, as banks are expected to pay back this loan over 10 years,
with interest.”42
Representative Randy Neugebauer opposed the bill’s adoption, arguing that
the majority is repeating the same failed initiatives that have helped our national debt grow
to $13 trillion in the past 2 years. This bill follows the model of the TARP program, minus
[TARP’s] stronger oversight, and it puts another $30 billion into banks in the hopes that
lending to small businesses will increase. In the words of Neil Barofsky, the Special
Inspector General who oversees the TARP, “In terms of its basic design,” he says, “its
participants, its application process, from an oversight perspective, the Small Business
Lending Fund would essentially be an extension of the TARP’s Capital Purchase
Program.” From the Congressional Oversight Panel for TARP, chaired by Elizabeth
Warren, she says, “The SBLF’s prospects are far from certain. The SBLF also raises
questions about whether, in light of the Capital Purchase Program’s poor performance in
40 Representative Melissa Bean, “Consideration of the Small Business Jobs and Credit Act of 2010,” House debate,
Congressional Record, daily edition, vol. 156, no. 90 (June 16, 2010), p. H4514.
41 Representative Nydia Velázquez, “Consideration of the Small Business Jobs and Credit Act of 2010,” House debate,
Congressional Record, daily edition, vol. 156, no. 90 (June 16, 2010), p. H4518.
42 Representative Nydia Velázquez, “Consideration of the Small Business Jobs and Credit Act of 2010,” p. H4518.
Congressional Research Service
14
The Small Business Lending Fund
improving credit access, any capital infusion program can successfully jump-start small
business lending.”
This bill allows for another $33 billion in spending that will be added to the government’s
credit card. The CBO tells us that the bank lending portion will ultimately cost taxpayers
$3.4 billion when market risk is taken into account.43
The House passed H.R. 5297 by a vote of 241-182, on June 17, 2010.
The arguments presented during House floor debate on H.R. 5297 were also presented during
Senate consideration of the bill. Advocates argued that the SBLF would encourage higher levels
of small business lending and jobs. For example, Senator Mary Landrieu argued on July 21, 2010,
that the SBLF should be adopted because it “is not a government program for banks. It is a
public-private partnership lending strategy for small business.”44 She added that as chair of the
Senate Committee on Small Business and Entrepreneurship, she talked with her colleagues,
including the SBLF’s opponents, and revised the program to address their concerns. She also
argued that the SBLF has
hundreds of endorsements from independent banks, the community banks and almost every
small business association in America … makes $1 billion [according to the CBO score]
… is not direct lending from the federal government. It is not creating a new bureaucracy
… [It is] voluntary … there are no onerous restrictions.… The small business gets the loans.
We create jobs. People are employed. The recession starts ending…. It has nothing to do
with TARP money. It is not a TARP program. It is not a bank program. It doesn’t have
anything to do with banks except that we are working in partnership with banks to lend
money to small businesses which are desperate for money.45
Opponents argued that the SBLF could lose money, lacked sufficient oversight provisions, did not
require lenders to increase their lending to small businesses, could serve as a vehicle for TARP
recipients to effectively refinance their TARP loans on more favorable terms with little or no
resulting benefit for small businesses, and could encourage a failing lender to make even riskier
loans to avoid higher dividend payments. In addition, there were disagreements over the number
of amendments that could be offered by the minority, which led several Senators to oppose
further consideration of the bill until that issue was resolved to their satisfaction. For example, on
July 22, 2010, Senator Olympia Snowe argued that although “under a cash-based estimate, CBO
listed the official score for the lending fund as raising $1.1 billion over 10 years,” SBLF
proponents “fail to mention” that when CBO scored the SBLF using an alternative methodology
that adjusts for market risk, it estimated that the SBLF could cost $6.2 billion.46 Senator Snowe
also argued that the bipartisan Congressional Oversight Panel for TARP stated in its May 2010
oversight report that the proposed SBLF “substantially resembles” the TARP and “is a bank-
focused capital infusion program that is being contemplated despite little, if any, evidence that
such programs increase lending.”47 Senator Snowe noted that she regretted “that we are in a
position where we have not been able to reach agreement allowing the minority to offer
43 Representative Randy Neugebauer, “Consideration of the Small Business Jobs and Credit Act of 2010,” House
debate,
Congressional Record, daily edition, vol. 156, no. 90 (June 16, 2010), p. H4515.
44 Senator Mary Landrieu, “Small Business Lending,” remarks in the Senate,
Congressional Record, daily edition, vol.
156, no. 108 (July 21, 2010), p. S6070.
45 Senator Mary Landrieu, “Small Business Lending,” p. S6071.
46 Senator Olympia Snowe, “Small Business Lending,” remarks in the Senate,
Congressional Record, daily edition, vol.
156, no. 108 (July 22, 2010), p. S6158.
47 Senator Olympia Snowe, “Small Business Lending,” p. S6158.
Congressional Research Service
15
The Small Business Lending Fund
amendments, which is confounding and perplexing as well as disappointing.”48 Senator Snowe
later added that the SBLF’s incentives to encourage lending to small businesses also “could
encourage unnecessarily risky behavior by banks … to avoid paying higher interest rates.”49
Opponents also questioned the SBLF’s use of quarterly call report data as submitted by lenders to
their appropriate banking regulator to determine what counts as a small business loan.50 Call
report data denotes loans of $1 million or less as small business loans, regardless of the size of the
business receiving the loan. As a result, the SBLF’s opponents argued that “the data used to
measure small business lending in the SBLF covers an entirely different set of small businesses
than those that fall within the definition set out in the Small Business Act or used by the SBA.”51
The Senate’s version of H.R. 5297 was agreed to on September 16, 2010, by a vote of 68-38.52
The House agreed to the Senate-passed version of H.R. 5297 on September 23, 2010, by a vote of
237-187, and the bill, retitled the Small Business Jobs Act of 2010, was signed into law by
President Obama on September 27, 2010.
The SBLF’s Implementation
On February 14, 2011, the Obama Administration issued its budget recommendation for FY2012.
The budget anticipated that the SBLF would provide $17.399 billion in financings, well below its
authorized amount of $30 billion.53 This was the first indication that the SBLF’s implementation
may not proceed as expected.54 The second such indication was an unanticipated delay in writing
the program’s regulations.
Treasury’s Rollout of the Program
The U.S. Treasury was criticized by some for not implementing the program quickly enough.55
The first financing took place on June 21, 2011, about nine months after the program’s
48 Senator Olympia Snowe, “Small Business Lending,” p. S6156.
49 Senator Olympia Snowe, “Small Business Lending Fund Act of 2010,” remarks in the Senate,
Congressional Record,
daily edition, vol. 156, no. 125 (September 16, 2010), p. S7157.
50 The act specified that the SBLF could not be used to provide loans greater than $10 million or that go to a business
with more than $50 million in revenues. See P.L. 111-240, the Small Business Jobs Act of 2010, §4102. Definitions.
51 Representative Sam Graves, “Full Committee Hearing, The State of Small Business Access to Credit and Capital:
The View from Secretary Geithner,” Letter to Members of the House Small Business Committee, Washington, DC,
June 20, 2011, p. 19.
52 Senator Kay Hagen, “Motion to Invoke Cloture on H.R. 5297, the Small Business Lending Fund Act of 2010,”
Rollcall Vote No. 236 Leg.,
Congressional Record, daily edition, vol. 156, part 125 (September 16, 2010), p. S7158;
and Senator Al Franken, “Small Business Lending Fund Act of 2010,” Rollcall Vote No. 237 Leg.,
Congressional
Record, daily edition, vol. 156, part 125 (September 16, 2010), p. S7158.
53 U.S. Office of Management and Budget,
Budget of the United States Government, Fiscal Year 2012, Appendix:
Department of the Treasury, p. 989, at https://www.gpo.gov/fdsys/pkg/BUDGET-2012-APP/pdf/BUDGET-2012-
APP.pdf.
54 The Department of the Treasury based its forecast on an “analysis of demand for the program.” See U.S. Department
of the Treasury, “FY2012 Congressional Justification, Small Business Lending Fund,” p. 7, at http://www.treasury.gov/
about/budget-performance/Documents/CJ_FY2012_SBLF_508.pdf.
55 Representative Sam Graves, “Graves Questions Treasury Secretary Timothy Geithner on Access to Capital for Small
Businesses,” press release, June 22, 2011; and U.S. Congress, House Committee on Small Business,
The State of Small
Business Access to Capital and Credit: The View From Secretary Geithner, 112th Cong., 1st sess., June 22, 2011, Small
Business Committee Document No. 112-023 (Washington: GPO, 2011), pp. 3, 9-11, 22, 25. Also see U.S. Government
Accountability Office,
Additional Actions Needed to Improve Transparency and Accountability, GAO-12-183,
Congressional Research Service
16
The Small Business Lending Fund
enactment. The delay was largely due to Treasury’s need to finalize the SBLF’s investment
decision process with federal banking agencies56 and the need to create separate SBLF regulations
for financial institutions established as C corporations, Subchapter S corporations, mutual lending
institutions, and Community Development Financial Institutions (CDFIs).
A
C corporation is a legal entity established under state law and includes shareholders, directors,
and officers. The profit of a C corporation is taxed to the corporation when earned and then is
taxed to the shareholders when distributed as dividends.57 The majority of insured depository
institutions, bank holding companies, and savings and loan holding companies are C
corporations.58 A
Subchapter S corporation refers to a section of the Internal Revenue Code (IRC)
that allows a corporation to pass corporate income, losses, deductions, and credits through to its
shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of
income and losses on their personal tax returns and are assessed tax at their individual income tax
rates. This allows S corporations to avoid double taxation on the corporate income.59
Mutual
lending institutions, which include many thrifts, are owned by their depositors or policyholders.
They have no stockholders.
CDFIs are financial entities certified by the CDFI Fund in the U.S.
Department of the Treasury and provide capital and financial services to underserved
communities.
The establishment of separate regulations for each of these different types of financial institutions
was largely related to issues involving whether the SBLF’s financings would be counted by
banking regulatory agencies as Tier 1 capital (core capital that is relatively liquid, such as
common shareholders’ equity, disclosed reserves, most retained earnings, and perpetual
noncumulative preferred stocks) or as Tier 2 capital (supplementary capital that consists mainly
of undisclosed reserves, revaluation reserves, general provisions, hybrid instruments, and
subordinated term debt).60
December 14, 2011, at http://www.gao.gov/products/GAO-12-183.
56 Treasury and the federal banking agencies ultimately agreed that the banking agencies “would advise Treasury only
on the financial viability of applicants and their capacity to increase small business lending, and that they would not
make investment recommendations as they had for TARP. It was agreed that an applicant would be considered “viable”
if it was (1) adequately capitalized; (2) not expected to become undercapitalized; and (3) not expected to be placed into
conservatorship or receivership. Further, the [agencies’] validation of viability of an applicant would reflect only
currently available supervisory information and rating assessments at the time the validation was made and would not
predict Treasury’s loss from making an investment in the institution.” See U.S. Department of the Treasury, Office of
the Inspector General.
Small Business Lending Fund: Investment Decision Process for the Small Business Lending
Fund, May 13, 2011, p. 8, at http://www.treasury.gov/about/organizational-structure/ig/Documents/
SBLF%20Report%20(OIG-SBLF-11-001).pdf.
57 Internal Revenue Service, “ Tax Information for Corporations,” at https://www.irs.gov/corporations.
58 U.S. Department of the Treasury, Office of the Inspector General.
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, May 13, 2011, p. 7, at http://www.treasury.gov/about/
organizational-structure/ig/Documents/SBLF%20Report%20(OIG-SBLF-11-001).pdf.
59 Internal Revenue Service, “S Corporations,” at https://www.irs.gov/businesses/small-businesses-self-employed/s-
corporations.
60 12 C.F.R. §325.2: “Tier 1 capital or core capital means the sum of common stockholders’ equity, noncumulative
perpetual preferred stock (including any related surplus), and minority interests in consolidated subsidiaries, minus all
intangible assets (other than mortgage servicing assets, nonmortgage servicing assets, and purchased credit card
relationships eligible for inclusion in core capital pursuant to §325.5(f)), minus credit-enhancing interest-only strips
that are not eligible for inclusion in core capital minus deferred tax assets in excess of the limit set forth in §325.5(g),
minus identified losses (to the extent that Tier 1 capital would have been reduced if the appropriate accounting entries
to reflect the identified losses had been recorded on the insured depository institution’s books), and minus investments
in financial subsidiaries subject to 12 CFR part 362, subpart E, and minus the amount of the total adjusted carrying
value of nonfinancial equity investments that is subject to a deduction from Tier 1 capital as set forth in section II.B.(6)
Congressional Research Service
17
The Small Business Lending Fund
The treatment of the SBLF’s financings was important given that banks must maintain a
minimum total risk-based capital ratio of 8% (the ratio measures bank capital against assets, with
asset values risk-weighted, or adjusted on a scale of riskiness) to be considered adequately
capitalized by federal banking regulators. In addition, banks must maintain a minimum Tier 1
risk-based ratio to assets, typically 3% for banking institutions with the highest financial ratings
and 4% for others.61
According to Treasury officials, under Internal Revenue Service (IRS) rules, S corporations can
have only a single class of stock (common shares). Consequently, these institutions cannot issue
preferred stock to Treasury. As a result, Treasury had to consider purchasing subordinated debt
from these institutions, which the banking regulatory agencies would likely designate as Tier 2
capital.62 Treasury officials believed that providing Tier 2 capital would probably result in fewer S
corporation participants. Additionally, because mutual lending institutions do not issue stock,
Treasury officials were unable to receive preferred stock as consideration for an investment in this
type of institution. Therefore, Treasury had to consider purchasing subordinated debt from these
institutions as well.63
Treasury completed its regulations for C corporation banks first. For C corporations, SBLF funds
are treated as Tier I capital and Treasury purchases senior perpetual noncumulative preferred
stock (or an equivalent). The stock pays a quarterly dividend on the first day of each quarter after
closing of the SBLF capital program funding. Tier 1 capital is the core measure of a bank’s
financial strength from a regulator’s point of view. It is composed of core capital, which consists
primarily of common stock and disclosed reserves (or retained earnings) but may also include
nonredeemable, noncumulative preferred stock. In contrast, S corporations and mutual lending
institutions receive unsecured subordinated debentures from the Treasury, which are considered
Tier 2 capital for regulatory capital requirements.64
The application deadline for C corporation banks was May 16, 2011. The application deadline for
Subchapter S corporations and mutual lending institutions was June 6, 2011, and the application
deadline for CDFIs was June 22, 2011. A total of 926 institutions applied for $11.8 billion in
SBLF funding.65
Treasury approved more than $4 billion in SBLF financing to 332 lending institutions ($3.9
billion to 281 community banks and $104 million to 51 CDFIs).66 SBLF recipients have offices
of appendix A to this part.”
61 For further information and analysis of federal banking regulations, see CRS Report R44918,
Who Regulates Whom?
An Overview of the U.S. Financial Regulatory Framework, by Marc Labonte.
62 U.S. Department of the Treasury, Office of the Inspector General.
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, May 13, 2011, p. 7, at http://www.treasury.gov/about/
organizational-structure/ig/Documents/SBLF%20Report%20(OIG-SBLF-11-001).pdf.
63 U.S. Department of the Treasury, Office of the Inspector General.
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, p. 7.
64 12 C.F.R. Appendix A to Part 3 - Risk-Based Capital Guidelines: “The following elements comprise a national
bank’s Tier 2 capital: (1) Allowance for loan and lease losses, up to a maximum of 1.25% of risk-weighted assets, 3
subject to the transition rules in section 4(a)(2) of this appendix A; 3 The amount of the allowance for loan and lease
losses that may be included in capital is based on a percentage of risk-weighted assets.”
65 U.S. Department of the Treasury, “Small Business Lending Fund Cost Report, Report to Congress submitted
pursuant to Section 4106(2) of the Small Business Jobs Act of 2010,” July 19, 2011, p. 1, at http://www.treasury.gov/
resource-center/sb-programs/DocumentsSBLFTransactions/SBLF%204106(2)%20Cost%20Report.pdf.
66 U.S. Department of the Treasury, “SBLF Investments as of September 27, 2011,” at http://www.treasury.gov/
resource-center/sb-programs/DocumentsSBLFTransactions/SBLF_Bi-
Weekly_Transactions_Report_THRU_09272011.pdf.
Congressional Research Service
18
The Small Business Lending Fund
located in 47 states and the District of Columbia. The average financing was $12.1 million,
ranging from $42,000 to $141 million.67
Of the 332 lending institutions which received financing, 137 institutions had participated in
TARP’s Community Development Capital Initiative or its Capital Purchase Program. These
institutions received nearly $2.7 billion in SBLF financing (66.8% of the total).68
Small Business Lending Progress Reports
Treasury is required to publish monthly reports describing all transactions made under the SBLF
program during the reporting period. It is also required to publish a semiannual report (each
March and September) providing all projected costs and liabilities, operating expenses, and
transactions made by the SBLF, including a list of all participating institutions and the amounts
each institution has received under the program. Treasury must also publish a quarterly report
describing how participating institutions have used the funds they have received.69
SBLF participants must submit an initial supplemental report to Treasury no later than five
business days before closing. The report provides information from the institution’s FDIC call
reports or, for holding companies, from their subsidiaries’ FDIC call reports, that Treasury uses to
establish an initial baseline for measuring the SBLF participants’ progress in making loans to
small businesses.70
The initial baseline is the average amount of qualified small business lending that was
outstanding for the four full quarters ending on June 30, 2010.71 It is derived by first adding the
outstanding amount of lending reported for all 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. Then, the outstanding amount of lending for large
loans (defined as any loan or group of loans greater than $10 million), loans to large businesses
(defined as businesses with annual revenues greater than $50 million), and the portion of any
loans guaranteed by the U.S. government or for which the risk is assumed by a third party is
subtracted from that amount. The lending institution then adds back any cumulative charge-offs
with respect to such loans since July 1, 2010. This last adjustment is done to prevent lending
institutions from being penalized for appropriately charging off loans.72
Each SBLF participant’s small business lending baseline is also adjusted to take into account any
gains in qualified small business lending during the four baseline quarters resulting from mergers,
acquisitions, and loan purchases. This adjustment is designed to ensure that dividend rate
reductions provided to any SBLF participant correspond to additional lending to small businesses
and not to the acquisition of existing loans.73 In addition, the cumulative baseline for all SBLF
participants will decrease over time as SBLF participants repay their SBLF loans and exit the
program. For example, the initial small business lending baseline for the 332 SBLF participants
67 U.S. Department of the Treasury, “SBLF Investments as of September 27,” 2011.
68 U.S. Department of the Treasury, “SBLF Investments as of September 27,” 2011.
69 P.L. 111-240, the Small Business Jobs Act of 2010, §4106. Reports.
70 U.S. Department of the Treasury, “SBLF: Getting Started Guide,” June 27, 2011, p. 13, at http://www.treasury.gov/
resource-center/sb-programs/Documents/SBLF%20Getting%20Started%20Guide.pdf.
71 U.S. Department of the Treasury, “SBLF: Getting Started Guide,” p. 13.
72 U.S. Department of the Treasury, “SBLF: Getting Started Guide,” p. 15.
73 U.S. Department of the Treasury, “SBLF Quarterly 4106(3) Report – 4Q 2011,” at http://www.treasury.gov/resource-
center/sb-programs/DocumentsSBLFTransactions/Use%20of%20Funds%204016(3)%20Report%20-%2001-09-12.pdf.
Congressional Research Service
19
link to page 24
The Small Business Lending Fund
as of March 31, 2011, was $35.52 billion ($34.75 billion for 281 banks and $770.48 million for
51 CDFIs).74 The small business lending baseline for the seven institutions that continued to
participate in the SBLF as of December 31, 2020, was $413.3 million ($386.7 million for five
banks and $26.6 million for two CDFIs).75
Table 3 provides the number and type of SBLF participating institutions, the small business
lending baseline, the amount of small business lending by participants, the change in small
business lending by participants, and the change in small business lending by both current and
former participants from 2011 to 2020. The number of SBLF participating institutions is declining
as institutions repay their loans and exit the program. As Treasury anticipated, this decline
accelerated following the first quarter of 2016 because the dividend rates for C corporation banks
and savings associations and for S corporation banks and mutual lending institutions were
increased at that time (to 9% and 13.8%, respectively).76
Table 3. SBLF Participants: Baseline, Lending, and Change in Lending, 2011-2020
(billions of dollars)
Change in
Lending Baseline
Lending
Change in
Lending (current
(current
(current
Lending (current
& former
Date
Banks
CDFIs
#
participants)
participants)
participants)
participants)
Dec. 31, 2020
5
2
7
$0.413
$0.495
$0.081
$19.100
Sept. 30, 2020
6
2
8
$0.432
$0.776
$0.343
$19.100
June 30, 2020
6
2
8
$0.432
$0.763
$0.331
$19.100
March 31, 2020
6
2
8
$0.432
$0.691
$0.259
$19.100
Dec. 31, 2019
6
3
9
$0.443
$0.717
$0.274
$19.100
Sept. 30, 2019
6
3
9
$0.443
$0.771
$0.268
$19.100
June 30, 2019
7
34
41
$1.413
$2.446
$1.033
$19.000
March 31, 2019
7
40
47
$1.479
$2.751
$1.272
$19.100
Dec. 31, 2018
7
43
50
$1.523
$2.870
$1.347
$19.100
Sept. 30, 2018
7
43
50
$1.523
$2.871
$1.348
$19.100
June 30, 2018
8
46
54
$1.597
$2.901
$1.304
$19.000
March 31, 2018
10
46
56
$2.075
$4.281
$2.206
$19.100
Dec. 31, 2017
10
46
56
$2.075
$4.168
$2.093
$18.900
Sept. 30, 2017
10
46
56
$2.074
$4.082
$2.007
$18.907
June 30, 2017
13
46
59
$2.655
$4.922
$2.267
$18.697
March 31, 2017
15
46
61
$2.746
$5.157
$2.411
$18.761
Dec. 31, 2016
20
46
66
$3.497
$6.726
$3.229
$18.809
74 U.S. Department of the Treasury, “SBLF Use of Funds Report: Third Quarter 2011 (excel file),” October 26, 2011, at
http://www.treasury.gov/resource-center/sb-programs/Pages/sblf_transactions.aspx.
75 U.S. Department of the Treasury, “Report on SBLF Participants’ Small Business Lending Growth,” April 9, 2021, at
https://home.treasury.gov/system/files/256/LGR-April-2021-04-01-2021.pdf (hereinafter U.S. Department of the
Treasury, “Report on SBLF Participants’ Small Business Lending Growth,” April 9, 2021).
76 U.S. Department of the Treasury, “Small Business Lending Fund, Lending Growth Report,” April 8, 2016, p. 1, at
https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/
LGR%20April%202016%20FINAL%204-1-2016.pdf.
Congressional Research Service
20
The Small Business Lending Fund
Change in
Lending Baseline
Lending
Change in
Lending (current
(current
(current
Lending (current
& former
Date
Banks
CDFIs
#
participants)
participants)
participants)
participants)
Sept. 30, 2016
23
46
69
$3.683
$7.024
$3.341
$18.711
June 30, 2016
31
46
77
$4.806
$8.561
$3.755
$18.735
March 31, 2016
39
46
85
$5.109
$9.454
$4.344
$18.464
Dec. 31, 2015
115
47
162
$15.824
$24.614
$8.790
$18.410
Sept. 30, 2015
183
47
230
$28.378
$41.815
$13.437
$17.967
June 30, 2015
212
47
259
$31.843
$47.063
$15.220
$17.660
March 31, 2015
219
48
267
$31.292
$46.686
$15.394
$16.364
Dec. 31, 2014
226
48
274
$31.494
$46.613
$15.119
$15.819
Sept. 30, 2014
232
48
280
$31.571
$45.844
$14.273
$14.713
June 30, 2014
241
49
290
$32.975
$46.505
$13.530
$13.790
March 31, 2014
245
50
295
$33.148
$45.541
$12.393
$12.623
Dec. 31, 2013
248
50
298
$32.985
$45.491
$12.506
$12.356
Sept. 30, 2013
257
50
307
$35.056
$46.213
$11.157
$11.387
June 30, 2013
265
50
315
$36.544
$46.937
$10.393
$10.396
March 31, 2013
267
50
317
$36.320
$45.310
$8.990
$8.992
Dec. 31, 2012
270
50
320
$36.886
$45.811
$8.925
$8.934
Sept. 30, 2012
275
51
326
$36.544
$43.982
$7.438
$7.443
June 30, 2012
277
51
328
$35.990
$42.665
$6.675
$6.675
March 31, 2012
281
51
332
$36.124
$41.322
$5.198
$5.198
Dec. 31, 2011
281
51
332
$35.975
$40.794
$4.819
$4.819
Sept. 30, 2011
281
51
332
$35.878
$39.412
$3.534
$3.534
June 30, 2011
281
51
332
$35.597
$38.430
$2.833
$2.833
March 31, 2011
281
51
332
$35.521
$37.134
$1.613
$1.613
Source: U.S. Department of the Treasury, “Report on SBLF Participants’ Small Business Lending Growth,” April
9, 2021 (both .pdf and excel files), at https://home.treasury.gov/policy-issues/small-business-programs/small-
business-lending-fund/sblf-program-reports.
Notes: In the fourth quarter of 2013 redemptions by SBLF participants with negative lending balances outpaced
that of institutions with positive lending balances. As a result of these redemptions, cumulative lending growth
reported for the period decreased by $150 mil ion when former participants are included.
SBLF institutions are also required to submit quarterly supplemental reports, due in the calendar
quarter following submission of the initial supplemental report and in each of the next nine
quarters, to determine their dividend rate for the next quarter.77
77 U.S. Department of the Treasury, “SBLF: Getting Started Guide,” June 27, 2011, p. 13, at http://www.treasury.gov/
resource-center/sb-programs/Documents/SBLF%20Getting%20Started%20Guide.pdf.
Congressional Research Service
21
The Small Business Lending Fund
Using information contained in the quarterly supplemental reports, Treasury announced in its
April 2021 quarterly report on
SBLF Participants’ Small Business Lending Growth that, as of
December 31, 2020
The seven current SBLF participants (five banks and two CDFIs) increased their
small business lending by $81.3 million over a $413.3 million baseline.78
Since inception, the total increase in small business lending reported by both
current and former SBLF participants is more than $19.1 billion over the
baseline.
Four of the five currently participating community banks and both of the
currently participating CDFIs increased their small business lending over
baseline levels.
Five of the seven current SBLF participants increased their small business
lending by 40% or more.79
Treasury officials have praised the SBLF’s performance. For example, on October 9, 2012, then-
Deputy Secretary of the Treasury Neal Wolin announced that the SBLF quarterly use of funds
report released that day “is further indication that the Administration’s Small Business Lending
Fund is continuing to help create an environment in which entrepreneurial small businesses can
succeed and excel.”80 He added that “banks in the SBLF program continue to show large
increases in the lending available for small businesses to grow, create jobs, and support families
in communities across the country.”81
Some financial commentators have expressed a somewhat less sanguine view of the program’s
performance. For example, one commentator noted, after the release of the quarterly use of funds
report in January 2012, that although the report of increased small business lending was positive
news, “it is difficult to isolate the proportion of new lending that would have occurred anyway”
due to improvements in the economy.82 Another commentator noted that the data may have been
skewed by SBLF participants who were entering the small business lending market for the first
time, making the increases appear larger and more significant than they actually are; yet another
noted that the reported growth in small business lending occurred over six quarters (since June
30, 2010) and that the results, although positive, are “not as impressive as it may seem.”83 A
commentator argued in September 2012 that “if the SBLF ends up being a success story, it will
have been on a far smaller scale than either Obama or Congress had originally expected. What’s
more, it’s become clear that even boatloads of financing won’t change the fact that demand for
78 U.S. Department of the Treasury, “Report on SBLF Participants’ Small Business Lending Growth,” April 9, 2021.
As of March 1, 2021, 322 institutions with aggregate investments of $3.93 billion have fully redeemed their SBLF
funding and exited the program, and 3 institutions have partially redeemed $12.3 million (or 72% of their SBLF
securities) while continuing to participate in the program.
79 U.S. Department of the Treasury, “Report on SBLF Participants’ Small Business Lending Growth,” April 9, 2021.
80 U.S. Department of the Treasury, “Treasury Announces $6.7 Billion Increase in Small Business Lending at Banks
Receiving Capital through the Small Business Lending Fund (SBLF),” October 9, 2012, at http://www.treasury.gov/
press-center/press-releases/Pages/tg1731.aspx.
81 U.S. Department of the Treasury, “Treasury Announces $6.7 Billion Increase in Small Business Lending at Banks
Receiving Capital through the Small Business Lending Fund (SBLF).”
82 Harry Terris, “Former TARP Banks Lag Peers in SBLF Lending,”
American Banker, vol. 177, no. 16, January 25,
2012.
83 Kate Davidson, “Was the SBLF Program a Success?”
American Banker, vol. 177, no. 8, January 12, 2012.
Congressional Research Service
22
The Small Business Lending Fund
the loans themselves has also fallen off, as small businesses themselves are reluctant to expand in
a stagnant economy.”84
In addition, on August 29, 2013, Treasury’s Office of Inspector General (OIG) released an audit
of Treasury’s reporting of small business lending gains relative to small business lending levels
prior to the lenders’ participation in the program. The OIG found that “small business lending
gains reported by Treasury are significantly overstated and cannot be linked directly to SBLF
funding.”85 Specifically, the OIG noted that “substantial amounts [$3.4 billion of the then
reported $8.9 billion] of the reported gains occurred prior to participants receiving SBLF
funding.” As the OIG explained,
the lending gains reported [by Treasury] were measured against the same baseline period
that the Small Business Jobs Act of 2010 (the Act) instructs Treasury to use for setting
dividend rates for repayment of the SBLF capital, which is the four calendar quarters
[which] ended [on] June 30, 2010. However, measuring program performance against a
baseline with a midpoint seven quarters prior to when most participants received funding
inflates program accomplishments and is not responsive to provisions in the Act that direct
Treasury to report on participant use of the SBLF funds received.86
The OIG also argued that the reported lending gains cannot be directly linked to the SBLF capital
that Treasury invested in the financial institutions because the lending gains reported “represent
all small business lending gains that institutions participating in the SBLF achieved, regardless of
how the loans were funded.”87 In addition, the OIG noted, among other findings, that “a relatively
small number (35 or 11%) of SBLF participants accounted for half of small business lending
increases between the baseline figure and December 31, 2012.”88
Proposed Legislation
During the 112th Congress, several bills were introduced to change the SBLF. None of the bills
were enacted. For example, then-Senator Snowe introduced S. 681, the Greater Accountability in
the Lending Fund Act of 2011, on March 30, 2011. Senator Snowe argued that
While I would prefer to terminate this fund altogether, it is unlikely based on the current
political environment, which is why we must work to protect taxpayers from some of its
most egregious provisions. My goal with this legislation is to ensure that only healthy banks
have access to taxpayer money, that they are required to repay loans within a reasonable
period of time, and that small businesses find the affordable credit they need.89
84 Suzy Khimm, “Has Obama Really Helped Small Business?”
The Washington Post, September 11, 2012, at
https://www.washingtonpost.com/news/wonk/wp/2012/09/11/has-obama-really-helped-small-businesses/?utm_term=
.1a2e6d903dc6.
85 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Reported SBLF
Program Accomplishments Are Misleading Without Additional Reporting, August 29, 2013, p. 8, at
http://www.treasury.gov/about/organizational-structure/ig/Audit%20Reports%20and%20Testimonies/OIG-SBLF-13-
012%20fix%209%2010%2013.pdf.
86 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Reported SBLF
Program Accomplishments Are Misleading Without Additional Reporting, pp. 3, 9-11.
87 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Reported SBLF
Program Accomplishments Are Misleading Without Additional Reporting, pp. 3, 11-13.
88 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Reported SBLF
Program Accomplishments Are Misleading Without Additional Reporting, p. 11.
89 U.S. Senator Olympia Snowe, “Snowe Calls for Comprehensive Fixes to Small Business Lending Fund,” press
release, March 30, 2011, at https://www.sbc.senate.gov/public/index.cfm/2011/3/snowe-calls-for-comprehensive-fixes-
Congressional Research Service
23
The Small Business Lending Fund
The bill would have, among other things,
required recipients to repay SBLF distributions within 10 years of the receipt of
the investment;90
terminated the program no later than 15 years after the date of the bill’s
enactment;91
prohibited the Secretary of the Treasury from making capital investments under
the program if the FDIC is appointed receiver of 5% or more of the institutions
receiving an investment under the program;
prohibited participation by any institution that received an investment under
TARP (effective on the date of the bill’s enactment);
removed provisions allowing the Secretary of Treasury to make a capital
investment in institutions that would otherwise not be recommended to receive
the investment based on the institution’s financial condition, but are able to
provide a matching investment from private, nongovernmental investors;
required the approval of appropriate financial regulators when determining
whether an institution should receive a capital investment;92 and
revised the benchmark against which changes in the amount of small business
lending is measured from the four full quarters immediately preceding the date of
enactment to calendar year 2007.93
In addition, H.R. 1387, the Small Business Lending Fund Accountability Act of 2011, would have
provided the Special Inspector General for TARP responsibility for providing oversight of the
SBLF.
S.Amdt. 279 to S. 493, the Small Business Innovation Research, Small Business Technology
Transfer Reauthorization Act of 2011, would have prevented TARP recipients from using funds
received in any form under any other federal assistance program, including the SBLF program.
H.R. 2807, the Small Business Leg-Up Act of 2011, would have transferred any unobligated and
repaid funds from the SBLF to the Community Development Financial Institutions Fund
beginning on the date when the Secretary of the Treasury’s authority to make capital investments
in eligible institutions expired (on September 27, 2011). The bill’s stated intent was “to increase
the availability of credit for small businesses.”94
to-small-business-lending-fund.
90 Current law provides the Treasury Secretary the discretion to extend the repayment period beyond 10 years. P.L.
111-240, the Small Business Jobs Act of 2010, §4103(d)(5)(h); 12 U.S.C. §4741.
91 Current law does not include a termination date for the program, other than terminating the authority to make capital
investments in eligible institutions one year after the date of enactment. P.L. 111-240, the Small Business Jobs Act of
2010, §4109. Termination and Continuation of Authorities.
92 Current law requires the Treasury Secretary to consult with appropriate financial regulators to determine if the
eligible institution may receive a capital investment under the program. P.L. 111-240, the Small Business Jobs Act of
2010, §4103(d); 12 U.S.C. §4741.
93 Senator Snowe indicated that this change “would address concerns that the existing benchmark may be too low, by
historical standards, and that an adjustment could result in additional small business lending.” See U.S. Senator
Olympia Snowe, “Snowe Calls for Comprehensive Fixes to Small Business Lending Fund,” Washington, DC, March
30, 2011, at https://www.sbc.senate.gov/public/index.cfm/2011/3/snowe-calls-for-comprehensive-fixes-to-small-
business-lending-fund.
94 H.R. 2807, the Small Business Leg-Up Act of 2011.
Congressional Research Service
24
The Small Business Lending Fund
H.R. 3147, the Small Business Lending Extension Act, would have extended the Department of
the Treasury’s investment authority from one year following enactment to two years and required
the Treasury Secretary to provide any institution not selected for participation in the program the
reason for the rejection, ensure that the rejection reason remains confidential, and establish an
appeal process that provides the institution an opportunity to contest the reason provided for the
rejection of its application.
During the 113th Congress, H.R. 2474, the Community Lending and Small Business Jobs Act of
2013, would have, among other provisions, transferred any unobligated and repaid funds from the
SBLF to the Community Development Financial Institutions Fund.95
Concluding Observations
The SBLF was enacted as part of a larger effort to enhance the supply of capital to small
businesses. Advocates argued that the SBLF would help to address the decline in small business
lending and create jobs. Opponents were not convinced that it would enhance small business
lending and worried about the program’s potential cost to the federal treasury and its similarities
to TARP.
Participating institutions are reporting they have increased their small business lending. However,
as has been discussed, questions have been raised concerning the validity of these reported
amounts. Specifically, as Treasury’s OIG argued in its August 2013 audit, more than one-third of
the reported lending gains at that time occurred prior to September 30, 2011, the quarter in which
most SBLF participants received their SBLF funds; the reported small business lending gains
reflect all of the small business lending gains that the participants achieved, regardless of how the
loans were funded; and previous OIG audits “have shown that a large number of participants
misreport their small business lending activity.”96 In those previous audits, “50% or more of the
institutions reviewed submitted erroneous lending data to Treasury, either overstating or
understating their small business lending gains.”97
95 H.R. 2474 was introduced on June 20, 2013, and referred to the Committee on Financial Services, and, in addition, to
the Committees on Small Business, and Education and the Workforce, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee
concerned.
96 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Reported SBLF
Program Accomplishments Are Misleading Without Additional Reporting, August 29, 2013, pp. 3, 4, at
http://www.treasury.gov/about/organizational-structure/ig/Audit%20Reports%20and%20Testimonies/OIG-SBLF-13-
012%20fix%209%2010%2013.pdf.
97 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Reported SBLF
Program Accomplishments Are Misleading Without Additional Reporting, p. 4. Under the Small Business Jobs Act, the
Department of the Treasury’s Inspector General is required to conduct audits and investigations of the SBLF and to
report its findings to Congress and the Secretary of the Treasury no less than two times a year. To date, Treasury’s
Inspector General has released 10 SBLF reports (one informal and nine formal). These reports examined and made
recommendations for improving Treasury’s early investment decision process for evaluating SBLF applicants (informal
audit, May 13, 2011); Treasury’s SBLF cost and liabilities projections (December 22, 2011); Treasury’s investment
decisions concerning early-entry SBLF participants (February 17, 2012); Treasury’s investment decisions concerning
later-entry SBLF participants (July 3, 2012); the accuracy of SBLF participants’ reports of their baseline lending
amounts (August 21, 2012); the accuracy of third quarter 2012 dividend rate adjustments (January 29, 2013); the
accuracy of fourth quarter 2012 dividend rate adjustments (August 9, 2013); the accuracy of reported small business
lending gains (August 29,2013); the accuracy of first quarter 2013 dividend rate adjustments (September 27, 2013); and
use of capital, plans for repaying SBLF funds, and recipient satisfaction with Treasury’s administration of the program
(March 27, 2014). To view the OIG’s audits see U.S. Department of the Treasury, Office of the Inspector General,
“Office of Small Business Lending Fund (SBLF) Oversight,” at http://www.treasury.gov/about/organizational-
Congressional Research Service
25
The Small Business Lending Fund
In addition to questions related to the validity of the reported small business lending gains, any
analysis of the program’s influence on small business lending is likely to be more suggestive than
definitive because differentiating the SBLF’s effect on small business lending from other factors,
such as changes in the lender’s local economy, is methodologically challenging, especially given
the relatively small amount of financing involved relative to the national market for small
business loans. The SBLF’s $4 billion in financing represented less than 0.7% of outstanding
small business loans (as defined by the FDIC) in 2019.98
In terms of concerns about the program’s potential cost, Treasury initially estimated in December
2010 that the SBLF could cost taxpayers up to $1.26 billion (excluding administrative costs that
were initially estimated at about $26 million annually but actual costs were $4.54 million in
FY2014, $9.05 million in FY2015, $5.01 million in FY2016, $3.4 million in FY2017, $7.6
million in FY2018, and $3.4 million in FY2019).99 Treasury based that estimate on an expectation
that about $17 billion in SBLF financings would be disbursed. In October 2011, Treasury
estimated the program’s costs based on actual participant data. It estimated that the SBLF would
generate a savings of $80 million (excluding administrative costs), with the savings coming
primarily from a lower-than-expected financing level and, to a lesser extent, improvements in
projected default rates “due to higher participant quality than expected” and lower market interest
rates.100 From 2011 through July 2019, Treasury issued a semiannual report on SBLF costs. In its
latest semiannual cost report, released on July 30, 2019, Treasury estimated that the SBLF will
generate a lifetime “positive return of $29 million, excluding administrative costs,” for the
Treasury General Fund.101
structure/ig/Pages/Office-of-Small-Business-Lending-Fund-Program-Oversight.aspx. In addition, the Government
Accountability Office (GAO) was required to audit the program annually. P.L. 113-188, the Government Reports
Elimination Act of 2014, repealed this requirement.
98 As of June 30, 2019, the FDIC reported that small business loans (defined by the FDIC as commercial and industrial
loans of $1 million or less) for nonagricultural purposes was $644.52 billion ($4 billion/$644.52 billion = 0.620%). See
Federal Deposit Insurance Corporation, “Statistics on Depository Institutions: Standard Industry Reports,” at
https://www7.fdic.gov/sdi/main.asp?formname=standard.
99 Program administrative costs (e.g., monitoring the performance and compliance of participants, reporting on the
program’s performance and costs, and managing the securities purchased through the SBLF program) must be excluded
from subsidy cost estimates in accordance with guidelines in the Federal Credit Reform Act of 1990. See OMB
Circular A-11, §185.2. Also, see U.S. Department of the Treasury, “Cost report,” January 30, 2015, p. 4 at
http://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/
FY2014%20Midyear%20SBLF%20Cost%20Report.pdf; U.S. Department of the Treasury, “Cost report,” July 25,
2016, pp. 2-4, at https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/
FY2015%20SBLF%20Cost%20Report.pdf; U.S. Department of the Treasury, “Cost report,” June 5, 2017, pp. 2-4, at
https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/
FY2016%20Year%20End%20Cost%20Report.pdf; U.S. Department of the Treasury, “Cost report,” May 2, 2018, p. 4,
at https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/
FY2017%20Year%20End%20Cost%20Report_Final.pdf; U.S. Department of the Treasury, “Cost report,” August 16,
2018, p. 4, at https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/FY2018_Mid-
year_SBLFCost_Report.pdf; and U.S. Department of the Treasury, “Cost report,” July 30, 2019, p. 4, at
https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFTransactions/
FY2019_Mid_Year_SBLF_Cost_Report_OMBcleared_FINAL.pdf.
100 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Treasury Should
Consider Concerns Regarding Participants Management and Historical Retained Earnings When Estimating the Cost
of the SBLF Program, December 22, 2011, pp. 1-3, at https://www.treasury.gov/about/organizational-structure/ig/
Documents/OIG-SBLF-12-001[1].pdf.
101 U.S. Department of the Treasury, “Cost report,” July 30, 2019, p. 2, at https://www.treasury.gov/resource-center/sb-
programs/DocumentsSBLFTransactions/FY2019_Mid_Year_SBLF_Cost_Report_OMBcleared_FINAL.pdf.
Congressional Research Service
26
The Small Business Lending Fund
One issue that arose relative to the program’s projected cost is the noncumulative treatment of
dividends. Treasury’s OIG reported in May 2011 that
Under the terms set by legislation, dividend payments are non-cumulative, meaning that
institutions are under no obligation to make dividend payments as scheduled or to pay off
previously missed payments before exiting the program. This dividend treatment differs
from the TARP programs, in which many dividend payments were cumulative. This
change in dividend treatment was driven by changes in capital requirements mandated by
the Collins Amendment to the Dodd-Frank Act.
The amendment equalizes the consolidated capital requirements for Tier 1 capital of bank
holding companies by requiring that, at a minimum, regulators apply the same capital and
risk standards for FDIC-insured banks to bank holding companies. Under TARP, the FRB
[Federal Reserve Board] and FDIC treated capital differently at the holding company and
depository institution levels. The FRB treated cumulative securities issued by holding
companies as Tier 1 capital, while FDIC treated non-cumulative securities issued by
depository institutions as Tier 1 capital. In order to comply with the Dodd-Frank Act
requirement that securities purchased from holding companies receive the same capital
treatment as those purchased from depository institutions, Treasury made the dividends
under SBLF non-cumulative.
Additionally, given that Tier 1 capital must be perpetual and cannot have a mandatory
redemption date, the 10-year repayment period in the Small Business Jobs Act cannot be
enforced.102
Treasury addressed this issue by placing the following additional requirements and restrictions on
participants who miss dividend payments:
the participant’s CEO (Chief Executive Office) and CFO (Chief Financial
Officer) must provide written notice regarding the rationale of the board of
directors (BOD) for not declaring a dividend;
no repurchases may be affected and no dividends may be declared on any
securities for the applicable quarter and the following three quarters;
after four missed payments (consecutive or not), the issuer’s BOD must certify in
writing that the issuer used best efforts to declare and pay dividends
appropriately;
after five missed payments (consecutive or not), Treasury may appoint a
representative to serve as an observer on the issuer’s BOD; and
after six missed payments (consecutive or not), Treasury may elect two directors
to the issuer’s BOD if the liquidation preference is $25 million or more.103
Treasury’s OIG agreed that Treasury’s equity investment policy is consistent with the legislation
and that “it has reasonably structured the program to incentivize payment of dividends.”104
However, it recommended that “Congress consider whether an amendment to the Small Business
102 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, May 13, 2011, p. 19, at https://www.treasury.gov/about/
organizational-structure/ig/Audit%20Reports%20and%20Testimonies/OIG-SBLF-11-001.pdf.
103 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, pp. 19, 20.
104 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, p. 20.
Congressional Research Service
27
The Small Business Lending Fund
Jobs Act and/or waiver from the Collins Amendment to the Dodd-Frank Act is needed to make
the repayment of dividends a requirement for exiting the program.”105
In conclusion, congressional oversight of the SBLF is currently focused on the program’s
potential long-term costs and effects on small business lending. Underlying those concerns are
fundamental disagreements regarding the best way to assist small businesses. Some advocate the
provision of additional federal resources to assist small businesses in acquiring capital necessary
to start, continue, or expand operations and create jobs. Others worry about the long-term adverse
economic effects of spending programs that increase the federal deficit. They advocate business
tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best
means to assist small businesses and create jobs.
105 U.S. Department of the Treasury, Office of the Inspector General,
Small Business Lending Fund: Investment
Decision Process for the Small Business Lending Fund, p. 25.
Congressional Research Service
28
The Small Business Lending Fund
Appendix. The SBLF’s Legislative History
The SBLF’s Legislative Origin
On March 16, 2009, President Obama announced the first SBLF-like proposal. Under that
proposal, the Department of the Treasury would have used TARP funds to purchase up to
$15 billion of SBA-guaranteed loans.106 The purchases were intended to “immediately unfreeze
the secondary market for SBA loans and increase the liquidity of community banks.”107 The plan
was dropped after it met resistance from lenders. Some lenders objected to TARP’s requirement
that participating lenders comply with executive compensation limits and issue warrants to the
federal government. Smaller, community banks objected to the program’s paperwork
requirements, such as the provision of a small-business lending plan and quarterly reports.108
In his January 2010 State of the Union address, President Obama proposed the creation of a
$30 billion SBLF to enhance access to credit for small businesses:
When you talk to small business owners in places like Allentown, Pennsylvania, or Elyria,
Ohio, you find out that even though banks on Wall Street are lending again, they’re mostly
lending to bigger companies. Financing remains difficult for small business owners across
the country, even those that are making a profit.
Tonight, I’m proposing that we take $30 billion of the money Wall Street banks have repaid
and use it to help community banks give small businesses the credit they need to stay
afloat.109
In response to the opposition community lenders had expressed concerning TARP’s restrictions in
2009, the Obama Administration proposed that Congress approve legislation authorizing the
transfer of up to $30 billion in TARP spending authority to the SBLF and statutorily establish the
new program as distinct and independent from TARP and its restrictions.110 The Administration’s
legislative proposal was finalized and sent to Congress on May 7, 2010.111 Representative Barney
106 P.L. 110-343, the Emergency Economic Stabilization Act of 2008, was designed to enhance the supply of loans to
businesses of all sizes. The act authorized the Troubled Asset Relief Program (TARP) to “restore liquidity and stability
to the financial system of the United States” by purchasing or insuring up to $700 billion in troubled assets from banks
and other financial institutions. TARP’s purchase authority was later reduced from $700 billion to $475 billion by P.L.
111-203, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Department of the Treasury has
disbursed $389 billion in TARP funds, including $337 million to purchase SBA 7(a) loan guaranty program securities.
The authority to make new TARP commitments expired on October 3, 2010. U.S. Department of the Treasury,
Troubled Assets Relief Program Monthly 105(a) Report—November 2010, December 10, 2010, pp. 2-4, at
http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Documents105/
November%20105(a)%20FINAL.pdf. For further analysis, see CRS Report R41427, Troubled Asset Relief Program
(TARP): Implementation and Status, by Baird Webel.
107 The White House, “Remarks by the President to Small Business Owners, Community Leaders, and Members of
Congress,” March 16, 2009, at https://www.gpo.gov/fdsys/pkg/PPP-2009-book1/pdf/PPP-2009-book1-doc-pg255.pdf.
108 Emily Flitter, “Fix for SBA Snagged by Tarp’s Exec Comp Limits,”
American Banker, vol. 174, no. 61 (March 31,
2009), p. 1.
109 The White House, “Remarks by the President in State of the Union Address,” January 27, 2010, at
https://obamawhitehouse.archives.gov/the-press-office/remarks-president-state-union-address.
110 The White House, “President Obama Outlines New Small Business Lending Fund,” February 2, 2010, at
https://obamawhitehouse.archives.gov/the-press-office/president-obama-outlines-new-small-business-lending-fund.
111 The White House, “Remarks by the President on the Monthly Job Numbers,” May 7, 2010, at https://www.c-
span.org/video/?293389-2/presidential-remarks-unemployment-numbers.
Congressional Research Service
29
link to page 13
The Small Business Lending Fund
Frank, then-chair of the House Committee on Financial Services, introduced H.R. 5297, the Small
Business Lending Fund Act of 2010, on May 13, 2010.
The House Committee on Financial Services held a hearing on H.R. 5297 on May 18, 2010, and
passed the bill, as amended to include a State Small Business Credit Initiative, the following day.
The House passed the bill, as amended to include a Small Business Early-Stage Investment
Program, a Small Business Borrower Assistance Program, and some small business tax reduction
provisions, on June 17, 2010.
The House-Passed Version of the SBLF
Title I of the House-passed version of H.R. 5297 authorized the Secretary of the Treasury to
establish a $30 billion SBLF “to address the ongoing effects of the financial crisis on small
businesses by providing temporary authority to the Secretary of the Treasury to make capital
investments in eligible institutions” with total assets equal to or less than $1 billion or $10 billion
(as of the end of the fourth quarter of calendar year 2009) “in order to increase the availability of
credit for small businesses.”112 The authority to make capital investments in eligible institutions
was limited to one year after enactment. Other provisions of the House-passed bill that eventually
became law with the enactment of are discussed above in the section
“The SBLF.”
Eligible financial institutions having total assets equal to or less than $1 billion as of the end of
the fourth quarter of calendar year 2009 could apply to receive a capital investment from the
SBLF in an amount not exceeding 5% of risk-weighted assets, as reported in the FDIC call report
immediately preceding the application date. During the fourth quarter of 2009, 7,340 FDIC-
insured lending institutions reported having assets amounting to less than $1 billion.113
Eligible financial institutions having total assets equal to or less than $10 billion as of the end of
the fourth quarter of calendar year 2009 could apply to receive a capital investment from the fund
in an amount not exceeding 3% of risk-weighted assets, as reported in the FDIC call report
immediately preceding the application date. During the fourth quarter of 2009, 565 FDIC-insured
lending institutions reported having assets of $1 billion to $10 billion.114
Risk-weighted assets are assets such as cash, loans, investments, and other financial institution
assets that have different risks associated with them. FDIC regulations (12 C.F.R. §567.6)
establish that cash and government bonds have a 0% risk-weighting; residential mortgage loans
have a 50% risk-weighting; and other types of assets (such as small business loans) have a higher
risk-weighting.115
Lending institutions on the FDIC problem bank list or institutions that have been removed from
the FDIC problem bank list for less than 90 days were ineligible to participate in the program.
Lending institutions could refinance securities issued through the Treasury Capital Purchase
112 H.R. 5297, the Small Business Jobs and Credit Act of 2010, §101. Small Business Lending Fund Purpose. In 2011,
there were 7,513 FDIC-insured lending institutions in the United States. Of that number, 6,846 lending institutions had
assets amounting to less than $1 billion (totaling $1.42 trillion), 561 lending institutions had assets of $1 billion to $10
billion (totaling $1.43 trillion), and 106 lending institutions had assets greater than $10 billion (totaling $10.76 trillion).
See FDIC, “Quarterly Banking Profile: Second Quarter 2011,” at https://www.fdic.gov/bank/analytical/quarterly/2011-
vol5-3/fdic-quarterly-vol5no3.pdf.
113 FDIC, “Quarterly Banking Profile: Fourth Quarter 2009,” at https://www.fdic.gov/bank/analytical/quarterly/2010-
vol4-1/fdic-quarterly-vol4no1-full.pdf.
114 FDIC, “Quarterly Banking Profile: Fourth Quarter 2009. In the fourth quarter of 2009, 107 FDIC-insured lending
institutions had assets greater than $10 billion.
115 For further analysis of risk-weighted assets, see CRS Report R44918,
Who Regulates Whom? An Overview of the
U.S. Financial Regulatory Framework, by Marc Labonte.
Congressional Research Service
30
link to page 35
The Small Business Lending Fund
Program (CPP) and the Community Development Capital Incentive (CDCI) program under
TARP, but only if the institution had not missed more than one dividend payment due under those
programs.
Participating banks would be charged a dividend rate of no more than 5% per annum initially,
with reduced rates available if the bank increased its small business lending. For example, during
any calendar quarter in the initial two years of the capital investments under the program, the
bank’s rate would be lowered if it had increased its small business lending compared to the
average small business lending it made in the four previous quarters immediately preceding the
enactment of the bill, minus some allowable adjustments. A 2.5% to less than 5% increase in
small business lending would have lowered the rate to 4%, a 5% to less than 7.5% increase would
have lowered the rate to 3%, a 7.5% to less than 10% increase would have lowered the rate to 2%,
and an increase of 10% or greater would have lowered the rate to 1%.
Table A-1 shows the dividend rates associated with small business lending increases for C
corporation banks and savings institutions under H.R. 5297. These rates were subsequently
included in the final law.
Table A-1. SBLF Lending Increases and Dividend Rates for C Corporation Banks and
Savings Associations Under the House-Passed Version of H.R. 5297
Small Business Lending
Increase
Dividend Rate Following Investment Date
Quarter 10
1st 9 Quarters
to Year 4.5
After Year 4.5
10% or greater
1%
1%
9%
At least 7.5% but less than 10%
2%
2%
9%
At least 5% but less than 7.5%
3%
3%
9%
At least 2.5% but less than 5%
4%
4%
9%
Less than 2.5%
5%
5%
9%
No increase
5%
7%
9%
Source: H.R. 5297, the Small Business Jobs and Credit Act of 2010, Section 103. Small Business Lending Fund.
Notes: The Senate-passed version of H.R. 5297, which became the Small Business Jobs Act of 2010, authorizes
the same dividend rates.
The bill also authorized the Secretary of the Treasury to adjust these dividend rates for S
corporations “to take into account any differential tax treatment of securities issued by such
eligible institution.”116 Also, Community Development Financial Institutions were to be charged
a dividend rate of 2% per annum for eight years, and 9% thereafter.
SBLF applicants were also required to submit a small business lending plan to the appropriate
federal banking agency and, for applicants that are state-chartered banks, to the appropriate state
banking regulator. The plan was to describe how the applicant’s business strategy and operating
goals will allow it to address the needs of small businesses in the areas it serves, as well as a plan
to provide linguistically and culturally appropriate outreach, where appropriate. The plan was to
be treated as confidential supervisory information. The Secretary of the Treasury was required to
consult with the appropriate federal banking agency or, in the case of an eligible institution that is
116 H.R. 5297, the Small Business Jobs and Credit Act of 2010, Section 103. Small Business Lending Fund.
Congressional Research Service
31
The Small Business Lending Fund
a nondepository community development financial institution, the Community Development
Financial Institution Fund, before determining if the eligible institution was to participate in the
program.117
The bill specified that the SBLF would be “established as separate and distinct from the Troubled
Asset Relief Program established by the Emergency Economic Stabilization Act of 2008. An
institution shall not, by virtue of a capital investment under the Small Business Lending Fund
Program, be considered a recipient of the Troubled Asset Relief Program.”118
The bill also directed that all funds received by the Secretary of the Treasury in connection with
purchases made by the SBLF, “including interest payments, dividend payments, and proceeds
from the sale of any financial instrument, shall be paid into the general fund of the Treasury for
reduction of the public debt.”119
The Senate-Passed Version of the SBLF
Title IV of the Senate-passed version of H.R. 5297, which later became law, authorized the
Secretary of the Treasury to establish a $30 billion SBLF to make capital investments in eligible
community banks with total assets equal to or less than $1 billion or $10 billion. There were
several differences between the Senate-passed version of H.R. 5297’s SBLF provisions and the
SBLF provisions in the House-passed version of H.R. 5297. Specifically, the
House-passed version of H.R. 5297 indicated that eligible institutions may be
insured depository institutions that are not controlled by a bank holding company
or a savings and loan holding company that is also an eligible institution and is
not directly or indirectly controlled by any company or other entity that has total
consolidated assets of more than $10 billion, bank holding companies, savings
and loan holding companies, community development financial institution loan
funds, and small business lending companies, all with total assets of $10 billion
or less (as of the end of 2009).120 The Senate-passed version of H.R. 5297 did not
provide eligibility to small business lending companies.121
House-passed version of H.R. 5297 defined small business lending “as small
business lending as defined by and reported in an eligible institution’s quarterly
call report, where each loan comprising such lending is made to a small business
and is one the following types: (1) commercial and industrial loans; (2) owner-
occupied nonfarm, nonresidential real estate loans; (3) loans to finance
agricultural production and other loans to farmers; (4) loans secured by farmland;
117 If the appropriate banking agency would not otherwise recommend that the eligible institution receive the capital
investment, the Secretary of the Treasury was authorized, in consultation with the appropriate banking agency, to
consider allowing the eligible institution to participate in the program if the eligible institution provided matching
capital from private, nongovernmental sources that is equal to or greater than 100% of the SBLF investment and that
matching capital was subordinate to the capital investment from the SBLF.
118 H.R. 5297, the Small Business Lending Fund Act of 2010, §111. Assurances.
119 H.R. 5297, the Small Business Lending Fund Act of 2010, §103. Small Business Lending Fund. Using a cost-based
estimate, CBO estimated that the SBLF would result in net outlays of $3.3 billion over 2010-1015, and would reduce
outlays by $1.1 billion over the 2010-2020 period. Using an alternative fair-value estimate, CBO estimated that the
SBLF would result in net outlays of $6.2 billion over the 2010-2020 period. See CBO, “Cost Estimate: H.R. 5297,
Small Business Lending Fund Act of 2010,” June 28, 2010, pp. 3, 4, at https://www.cbo.gov/sites/default/files/111th-
congress-2009-2010/costestimate/hr5297housepassed0.pdf.
120 H.R. 5297, the Small Business Lending Fund Act of 2010, §102. Definitions.
121 P.L. 111-240, the Small Business Jobs Act of 2010, §4102. Definitions.
Congressional Research Service
32
The Small Business Lending Fund
(5) nonowner-occupied commercial real estate loans; and (6) construction, land
development and other land loans.”122 The Senate-passed version of H.R. 5297’s
definition of small business lending did not include nonowner-occupied
commercial real estate or construction, land development and other land loans.123
Senate-passed version of H.R. 5297 had an exclusion provision prohibiting
recipient lending institutions from using the funds to issue loans that have an
original amount greater than $10 million or that would be made to a business
with more than $50 million in revenues.124 The House-passed version of H.R.
5297 did not contain this provision.
House-passed version of H.R. 5297 indicated that the incentives received in the
form of reduced dividend rates during the first 4.5-year period following the date
on which an eligible institution received a capital investment under the program
would be contingent on an increase in the number of loans made.125 If the number
of loans made by the institution did not increase by 2.5% for each 2.5% increase
of small business lending, then the rate at which dividends and interest would be
payable during the following quarter on preferred stock or other financial
instruments issued to the Treasury by the eligible institution would be (i) 5%, if
this quarter is within the two-year period following the date on which the eligible
institution received the capital investment under the program; or (ii) 7%, if the
quarter is after the two-year period. The Senate-passed version of H.R. 5297 did
not contain this legislative language.
House-passed version of H.R. 5297 included an alternative computation
provision that would have allowed eligible institutions to compute their small
business lending amounts for incentive purposes as if the definition of their small
business lending amounts did not require that the loans comprising such lending
be made to small business.126 This alternative computation would have been
allowed if the eligible institution certified that all lending included by the
institution for purposes of computing the increase in lending was made to small
businesses. The Senate-passed version of H.R. 5297 did not contain this
provision.
House-passed version of H.R. 5297 indicated that an eligible institution that is a
community development loan fund may apply to receive a capital investment
from the SBLF in an amount not exceeding 10% of total assets, as reported in the
audited financial statements for the fiscal year of the eligible institution that
ended in calendar year 2009.127 The Senate-passed version of H.R. 5297 specifies
5%.128
House-passed version of H.R. 5297 would have required the Secretary of the
Treasury, in consultation with the Community Development Financial
Institutions Fund, to develop eligibility criteria to determine the financial ability
122 H.R. 5297, the Small Business Lending Fund Act of 2010, §102. Definitions.
123 P.L. 111-240, the Small Business Jobs Act of 2010, §4102. Definitions.
124 H.R. 5297, the Small Business Lending Fund Act of 2010, §103. Small Business Lending Fund.
125 H.R. 5297, §103. Small Business Lending Fund.
126 H.R. 5297, §103. Small Business Lending Fund.
127 H.R. 5297, §103. Small Business Lending Fund.
128 P.L. 111-240, the Small Business Jobs Act of 2010, §4103. Small Business Lending Fund.
Congressional Research Service
33
The Small Business Lending Fund
of a Community Development Loan Fund to participate in the program and repay
the investment. It provided a list of recommended eligibility criteria that the
Secretary of the Treasury could use for this purpose.129 The Senate-passed
version of H.R. 5297 provided a similar, but mandatory, list of eligibility criteria
that must be used for this purpose.130
House-passed version of H.R. 5297 contained a temporary amortization authority
provision which would have allowed an eligible institution to amortize any loss
or write-down on a quarterly straight-line basis over a period of time, adjusted to
reflect the institution’s change in the amount of small business lending relative to
the baseline.131 The Senate-passed version of H.R. 5297 did not contain this
provision.
The Senate’s version of H.R. 5297 was agreed to in the Senate on September 16, 2010, after
considerable debate and amendment to remove the Small Business Early-Stage Investment
Program and Small Business Borrower Assistance Program, revise the SBLF, and add numerous
other provisions to assist small businesses, including additional small business tax reduction
provisions.132 The House agreed to the Senate amendments on September 23, 2010, and President
Obama signed the bill, retitled the Small Business Jobs Act of 2010 (P.L. 111-240), into law on
September 27, 2010.
Author Information
Robert Jay Dilger
Senior Specialist in American National Government
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.
129 H.R. 5297, the Small Business Lending Fund Act of 2010, §103. Small Business Lending Fund.
130 P.L. 111-240, the Small Business Jobs Act of 2010, §4103. Small Business Lending Fund.
131 H.R. 5297, the Small Business Lending Fund Act of 2010, §113. Temporary Amortization Authority.
132 For additional information and analysis concerning P.L. 111-240, the Small Business Jobs Act of 2010, see CRS
Report R40985,
Small Business: Access to Capital and Job Creation, by Robert Jay Dilger, Small Business: Access to
Capital and Job Creation, by Robert Jay Dilger.
Congressional Research Service
R42045
· VERSION 91 · UPDATED
34