Strings attached to hopeful promises

In the shadow of growing fears of more commercial loan foreclosures in coming months the Obama administration wants community banks of up to $1 billion in assets to increase commercial lending.

Naturally, there are strings attached.

In a hastily called telephone press conference Oct. 23 with business reporters, Florida Chief Financial Officer Alex Sink cheered the “renewed focus on the federal level to expand Small Business Administration (SBA) programs to further jump start the economy.”

The White House plan, responding to complaints of limited access to credit, asks Congress to increase lending limits on SBA 7(a) and 504 loans from $2 million to $5 million and up to $5.5 million for manufacturing.

Lending limits on the Microloan program would be raised from $35,000 to $50,000 in support of start-ups and other small businesses.

The 7(a) loan program provides partial guarantees on small business loans for businesses borrowing to invest in working capital, machinery and equipment, and real estate.

And the 504 program provides guarantees on loans for real estate and other fixed assets for expansion that will create and retain jobs.

Florida's 200 community banks with assets under $1 billion would have access to lower-cost capital, but that doesn't come without the usual web of federal strings attached.

Participating banks will be required to submit a small business lending plan explaining how the capital will allow them to increase lending to small businesses. The 3% rate banks would be charged is also subject to approval by their federal regulators. Under the original capital purchase program the rate has been 5%.

“The capital is the key component to this program,” says Charles Brown, CEO of Insignia Bank of Sarasota and a member of the Federal Deposit Insurance Corp's Advisory Committee on Community Banking.

Asked if the program will get bank regulators to back off their position of insisting on strong borrowers, Sink says, “I certainly hope so. That's another complaint we hear from banks in the state.”