"U.S. Department of the Treasury's Small Business Lending Fund"
Robert L. Carothers, Jr.
Jones Walker Banking & Financial Services E*lert, September 23, 2010

On September 27, 2010, the President signed the Small Business Jobs Act of 2010 ("Act"). A significant provision of the Act is the creation of the Small Business Lending Fund ("SBLF"). The following summarizes the key terms of the SBLF.

  • The Act authorizes the U.S. Department of the Treasury to invest up to $30 billion in financial institutions to help increase small business lending. The investment can take the form of preferred stock or debt. The bank regulatory agencies will have to issue guidance regarding the regulatory capital treatment of the investment. It is anticipated that the SBLF investment will receive tier 1 capital treatment.
  • Financial institutions with total assets of less than $10 billion are eligible to participate. Financial institutions with total assets of $1 billion or less may apply to receive a capital investment of up to 5% of their risk-weighted assets (less any outstanding TARP investment). Financial institutions with total assets of more than $1 billion but less than $10 billion may apply for a capital investment of up to 3% of their risk-weighted assets (less any outstanding TARP investment).
  • Treasury will consult with an institution's federal and state regulators in determining whether an institution should be allowed to participate. Institutions that have a CAMELS composite rating of 4 or 5 are not eligible to participate. Also, any institution that has been removed from the FDIC's problem bank list for less than 90 days is not eligible to participate.
  • If the regulatory agencies would not otherwise recommend an applicant due to its current financial condition, the Act provides that the agencies may recommend such an applicant subject to the condition that it raise a certain amount of private equity. (This does not apply to CAMELS 4- and 5-rated banks. Such institutions are not eligible under any circumstance.)
  • The Act specifically requires Treasury to issue guidelines permitting an institution to exchange its outstanding TARP funding for SBLF funding (this option is not available for banks that have missed more than one TARP dividend payment). Banks that received TARP CPP funding had five years to repay or else the dividend rate increased from 5% to 9%. Exchanging TARP CPP funding for SBLF funding may provide such banks with an opportunity to retain a lower dividend rate for a longer period of time.
  • At the time an applicant submits an application for funding, it must also submit a small business lending plan describing how the applicant's business strategy and operating goals will allow it to address the needs of small businesses in the areas it serves.
  • Dividend Rate
  • The initial dividend rate will be 5%.
  • During the first two years, the dividend rate is subject to quarterly adjustments. Such adjustments are based on increases in the amount of small business lending according to the following schedule. Changes in the amount of small business lending are measured against the average amount of small business loans (as defined in the Act) reported by the bank in its call reports for the four quarters immediately preceding the date of enactment of the Act minus certain adjustments. 

Increase in Small Business Lending

Dividend Rate

Less than 2.5%


2.5% - 4.99%   


5.0% - 7. 49%


7.5% - 9.99% 


10% or greater       


  • During the period beginning two years from the date of the investment and ending 4 ½ years from the date of investment, the dividend rate will be fixed. If a bank has increased its small business lending, the fixed rate during this period will be between 1% and 5% (using the schedule set forth above and call report data for the eighth quarter following the date of the investment).  If small business lending has remained the same or has decreased, then the dividend rate will be fixed at 7% during this period.
  • When the investment has been outstanding for 4 ½ years, the dividend rate increases to 9% for every participant, regardless of any increase in small business lending.
  • The Act defines small business lending to include the following items in the call report: (i) commercial and industrial loans, (ii) owner-occupied nonfarm, nonresidential real estate loans, (iii) loans to finance agricultural production and other loans to farmers, and (iv) loans secured by farmland. The Act excludes from such definition any loan that has an original principal amount greater than $10,000,000, or is made to a business with more than $50,000,000 in revenue.
  • The SBLF investment must be repaid within 10 years or additional punitive measures will be imposed by Treasury.  
  • The Act provides the Treasury Secretary with authority to provide for additional incentives to repay the SBLF investment within 4 ½ years.
  • The Act requires the federal banking agencies to issue guidance regarding prudent underwriting standards to be used by participating institutions.
  • The Act explicitly states that the SBLF is not a TARP program, and thus, participants are not subject to the TARP executive compensation restrictions and warrant requirements.