On March 30, 2011, Treasury announced that it was extending the deadline for C corporation banks to apply for participation in the Small Business Lending Fund (SBLF) program to May 16, 2011.  Previously, this deadline had been established as March 31, 2011.   According to the SBLF website, Treasury is still developing terms and guidance for mutual institutions, Subchapter S corporations, and community development loan funds.  The site maintains that terms for such institutions and funds may vary from those currently published and that separate application dates will apply.

We have previously described the SBLF application requirements for C corporations, which are otherwise unchanged.  As a reminder, eligible institutions must generally have had less than $10 billion in consolidated assets as of 12/31/09 and a composite CAMELS rating of 3 or better.  In addition, any institution intending to refinance its TARP obligations with SBLF funds: (i) must be compliant with the material terms and covenants under its CPP/CDCI agreement; (ii) must be current in its dividend payments to Treasury; (iii) can’t have missed (i.e., can’t have been 60 days or more delinquent in) more than one dividend payment; and (iv) must fully refinance or repay its CPP or CDCI investment.

For banks that may still be considering applying for SBLF funds, we have had considerable experience with the application process and provide these general guidelines and anecdotal experience:

  • Processing time is still an unknown.  Even our clients that applied very early on in the program are still awaiting meaningful feedback.  We understand that, to date, Treasury has received around 600 SBLF applications.  Treasury previously announced that processing time would vary by applicant but that disbursement of funds would begin in “early 2011.”  We are unaware of any disbursements thus far or how Treasury defines “early.” 
  • Interest from our Sub-S clients has been great, and we hope that Treasury will soon release application details applicable to such corporations.
  • Most applicants of which we are aware have been TARP participants looking to refinance those obligations, but the program has some limitations in this respect even for very healthy banks.  An SBLF investment is capped at 5% of risk-weighted assets for institutions with $1 billion or less in total assets and 3% of risk-weighted assets for institutions with more than $1 billion but less than $10 billion in total assets.  At the same time, capital outstanding from prior CPP/CDCI investments will be deducted from these limits but must be used to repay a bank’s obligations under those programs, and SBLF participants must either repay or refinance outstanding TARP securities.  Moreover, although total assets are measured as of the end of the fourth quarter of 2009, risk-weighted assets are measured as reported in the bank’s most recent Call Report.  At least one of our clients hoped to refinance TARP funds through the SBLF but ran into a size trap here; it had declined in asset size since the end of 2009 such that its maximum SBLF investment would have been insufficient to refinance its TARP funds.  As a result, it is unable to participate in the SBLF program.
  • As we saw with TARP, we have seen certain SBLF applicants come under increased supervisory scrutiny possibly as a result of their SBLF applications.  Applicants should be prepared for possible regulatory review beyond the contents of their application.

 We will continue to follow the evolution of the SBLF and will post updates here as appropriate.  In particular, we are monitoring the pending proposal by Senator Olympia Snowe (R-Maine) to amend the SBLF (and in short, make a limited program even more limited).  If you have further questions about the program, please contact Katherine Koops, BT Atkinson, Barry Hester or any other member of the Bryan Cave Financial Institutions practice.