MEMO: The Small Business Lending Fund -- A Capital Alternative for Community Banks that Provides Some Flexibility and Opportunities

    15 October 2010

    Introduction

    On September 27, 2010, the President signed into law the Small Business Jobs Act of 2010 (the “Act”) which, among other things, establishes the Small Business Lending Fund Program (the “Program”). The Act states that the purpose of the Program is to provide temporary authority for the U.S. Treasury to make capital investments in eligible institutions in order to increase the ability of credit for small businesses. In order to implement the Program, an aggregate of $30 billion will be transferred from the Treasury’s much-maligned Troubled Asset Relief Program (“TARP”).

    The Act presents some interesting possibilities to those community banks that have not otherwise been able to access the capital markets for raising additional capital. For those community banks which seek additional capital, the Act provides eligible institutions with both the means to accomplish this as well as incentives for engaging in small business lending.