As the U.S. Department of the Treasury attempts to kick-start the economy this week with a massive bank program, officials are counting on increased loan guarantees and fee waivers administered by the Small Business Administration.
Last November, the Federal Reserve Board authorized creation of the Term Asset-Backed Securities Loan Facility, dubbed TALF and intended to provide up to $1 trillion to holders of new loans to consumers and small businesses, in theory resuming lending for everything from autos and tuition costs to corporate capital purchases.
On March 25, the Fed was expected to fund new securitizations under the program, creating new lending capacity for future loans, but the deadline was extended by at least two days over ongoing questions by brokers, hedge funds and other dealers in loan securities.
Separately, U.S. Rep. Jim Himes named Shante Hanks as recovery director for his Fourth District office covering Fairfield County, making Hanks available to answer questions from residents and on how to access funding contained in the American Recovery and Reinvestment Act (ARRA). Hanks can be reached at 333-6600.
Save for refinancing activity in residential mortgages, loan demand continued to decline throughout the tri-state region in February, according to a survey by the Federal Reserve Bank of New York. Loan standards remained tight in the commercial sector, the Fed found. A separate survey of New York state manufacturers determined more companies now need to borrow money to cover a decline in revenue than for any planned capital expenditures, and the credit squeeze is impacting employment levels.
Community bankers are receiving mixed messages about lending, according to the American Bankers Association, noting that TALF is launching even as U.S. Sen. Chris Dodd proposes sharply increasing bank”™s contributions to the Federal Deposit Insurance Corp.”™s guarantee funds covering deposits, which banks argue would cut into lending in their communities.
Treasury Secretary Timothy Geitner returned to the bully pulpit, exhorting bankers last week to “go the extra mile” and resume lending to businesses. To push that process forward, the Fed is lowering interest rates on loans generated under Small Business Administration guarantees. Because those loans already carry minimal risk for lenders, the Fed said an interest-rate cut on those loans should spur even greater flows of credit to small businesses and students.
SBA lending is down by half so far this year, and in response the federal stimulus increases the government guarantee on SBA loans to 90 percent of a loan”™s principal; the previous ceilings were 85 percent for loans under $150,000, and 75 percent on larger loans.
The Treasury department pledged to spend up to $15 billion to purchase securities on loans backed by the SBA, saying a secondary market has frozen in which community banks sell off the guaranteed portion of those loans, traditionally giving them additional capital for new loans.
And the federal government is funneling $375 million into the program to reduce or waive fees on SBA loans, which can top out at 3.75 percent for the largest loans issued. In a bid to get more businesses into the SBA pipeline, which has an application process some deem onerous, some banks are already offering SBA fee discounts ”“ for instance, Waterbury-based Webster Bank was offering $500 this month off the SBA fee commitment.
The SBA is also creating a new loan program to guarantee up to $35,000 in financing to help small businesses meet debt obligations on existing loans for up to six months, with payments not due until a year after the loan is fully disbursed.
