Companies are borrowing to pay off bailouts
San Francisco, CA -- (SBWIRE) -- 01/21/2013 -- The increase of the Department of Treasuring programs that boost lending to smaller businesses increased by nearly three-fourths of a billion dollars in the three months that ended in September, according to data released by the agency.
Those lenders were apparently borrowing in order to pay earlier government bailouts, which seems to point to a concerning cycle of borrowing.
The program, which is known as Small Business Lending Fund, was created to give banks capital at 5% interest that drops to as low as 1% if the borrowers expand the business loan portfolios. There were more than 300 lenders who were given nearly $4 billion in taxpayer cash. The aggregate shows they have increase small business lending by nearly $7.4 billion above the 2009 and 2010 levels, which the Treasury utilizes as a baseline for comparison.
From the get-go, there were critics of the SBL Fund, which they claimed risked becoming another TARP. They argued the problem was that it allowed small banks trade earlier debts for Troubled Asset Relief Programs for new public-funded capital with less strings. $2.2 billion, more than half of the total lending disbursed, went to refinance TARP loans.
Regardless, the program did not meet expectations. Looking over the new numbers has exposed TARP banks have been lending with less fervor than institutions that did not use the SBL fund to repay. Within the aggregate, the TARP banks that are held in the program have increased lending $1.13 to small businesses for every dollar of loan fund money they received, according to Bloomberg Businessweek analysis. Meanwhile, lenders who did not have the TARP money in the earlier deal, boosted loans by $3 for each dollar of SBLF capital they received.
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