January 14, 2011
Authored by: Bryan Cave
We previously summarized Treasury’s December 21, 2010 release of application and other details regarding the Small Business Lending Fund (SBLF). On January 11, 2011, Bryan Cave attorneys participated in a 45-minute telephone briefing given by SBLF Director Jason Tepperman and Deputy Assistant Secretary of Small Business, Housing and Commercial Development Don Graves, Jr. Mr. Tepperman presented an overview of the program and addressed questions regarding Treasury’s prior SBLF release.
In no particular order, here are a few “nuggets” of information that were conveyed in response to participant questions:
Processing Time. Processing time will vary by applicant, with disbursement of funds to begin in “early 2011.” Transaction documents are still in development, however, and will be posted on Treasury’s SBLF website as soon as they are available. Treasury expects that the $30 billion fund will meet anticipated demand, so it does not expect to have to “ration” investments among participating banks.
De Novo Eligibility. So long as they meet the general eligibility criteria (less than $10 billion in assets, not on the FDIC’s problem bank list, etc.), de novo institutions can apply, even if they are subject to dividend restrictions. Banks will be evaluated on a case-by-case basis in conjunction with applicable federal and state regulators.
Baseline Calculation. The “Baseline,” which is the average of Qualified Small Business Lending (QSBL) amounts outstanding for the four quarters ending June 30, 2010, is the metric for determining small business lending increases and thus dividend rates payable to Treasury under the program. In calculating the Baseline, participants should use end-of-quarter balances as reported in Schedule RC-C of the Call Report as opposed to averages over the quarterly period. In other words, the calculation would average the QSBL amounts reported as of 9/30/09, 12/31/09, 3/31/10 and 6/30/10 to compute the Baseline. Participants need to go back and cull from those Call Reports the particular types of loans that are included in the QSBL definition—they include more than just the Call Report categories of “loans to small businesses” and “loans to small farms.” Because the Baseline calculation is included in the enabling legislation, there isn’t flexibility on the dates and loan categories that are included.
TARP Dividend Issues. Similarly, the requirement that applicants proposing to use SBLF investment to refinance CPP or CDCI funds be current in TARP dividends and not have missed more than one payment is set by the enabling legislation and will not be excepted. Note that the requirement relating to missed dividends refers to “more than one”—i.e., “two or more” missed payments (or payments more than 60 days delinquent).
Participations and Government Guarantees. Portions of loans for which the risk is assumed by a third party (e.g., portions of loans that have been participated) and guaranteed portions of government-guaranteed loans are not included in Baseline or QSBL calculations. If the guaranteed portion of a loan is lowered during its term, however, the additional non-guaranteed portion will count as a QSBL increase.
- Additional Guidance to Come. Additional guidance is forthcoming on the 90% holding company pushdown requirement for TARP participants; the impact of post-SBLF funding growth that results in borrower or loan relationship size exceeding eligibility criteria; treatment of portions of lines of credit approved but not used prior to SBLF funding; and required borrower certifications under the program.
As a reminder, the SBLF application deadline is March 31, 2011. Based on our experience with CPP funding, we recommend that institutions apply sooner rather than later as this deadline approaches. We will continue to follow the implementation of the SBLF and relate important developments here and of course on an individual basis if you feel that this program might be a fit with your institution.