SBLF Mismanagement

Access to the Small Business Lending Fund (SBLF) is now closed. Hailed as a $30 billion fund targeted at community banks to spur lending, SBLF instead fizzled as yet another DC disappointment. The U.S. Department of the Treasury was responsible for the marketing, administration and screening of this temporary program. It failed on all three counts.

Treasury started marketing the program early in 2011, well before it had determined how the program would work. Consequently when banks applied, months went by with no response from Treasury. Whoever was assigned to manage the program never seemed to grasp the importance of the fund or the brevity of the timeline.

By the time the deadline for approval came on Sept. 27, only 332 community banks out of 933 bank applicants had been approved, and only slightly more than $4 billion was being issued. Left behind were nearly 600 banks that were denied and nearly $26 billion untouched that could have been leveraged into loans to fuel economic recovery.

Last week, when Treasury Secretary Timothy Geithner reported the above results, he conceded that he was disappointed with the outcome, but excused Treasury by noting that taxpayer funds could go only to banks that were viable. While I am not sure what “viable” means, it is difficult for me to believe that two-thirds of the applicants did not qualify.

When the enabling legislation was passed, I was concerned that banks would be reluctant to apply, for fear of comparisons to the Troubled Asset Relief Program (TARP). The problem with TARP was twofold: (1) the government changed the rules after the game had started, and (2) the media erroneously reported that it was a government bailout … to a public hungry for a financial crisis scapegoat.

Today banks are saddled with TARP—which the government reports it will make $20 billion from, yet the public still perceives as a bailout—and with SBLF, which Treasury so mismanaged that only 13 percent of the amount authorized by Congress will be utilized.

Let’s hope that Washington, DC, gets its act together soon.

One Response to SBLF Mismanagement

  1. Mike Cahill says:

    Unfortunately, the SBLF became a ‘how do I refinance out of TARP’ play. While the level of approvals and organization of the program made no sense, I am intrigued as to who really needs the capital to lend. I see this as a demand issue, not a supply issue. I would love to hear from smaller, privately owned banks on this. Access to capital can be a barrier, but having the government step in?

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