WASHINGTON — Small-business loans resulting from a government program aimed at boosting commercial credit grew by 20% — or $1.5 billion — in the fourth quarter compared with the previous quarter, according to a Treasury Department report due to be released Wednesday.
In its regular report to Congress on the progress of the Small Business Lending Fund, the Treasury said small-business loans by participating institutions are $8.9 billion higher at the end of 2012 than "baseline levels" since the program launched in mid-2011. (Loan volume is compared against what their average balances were over a previous four-quarter period starting in mid-2009.)
While it is difficult to gauge the program's impact with any exact measure since participants receive funding in other areas and small-business lending overall has risen with improvements in the economy, small-business lending growth by SBLF institutions over the baseline mark has been steady.
The $1.5 billion in small-business loan growth by SBLF institutions between the third quarter and fourth quarter of last year equaled a previous high set between the first and second quarters of 2012. The nearly 38% increase in outstanding small-business loan balances above the baseline mark compares with an average increase of 8% at similar institutions not participating.
"Comparing the SBLF banks versus their peer institutions, it's fairly clear to us that the program is working exactly as we had hoped," Don Graves, deputy assistant Treasury secretary for small business, community development and housing policy, said in an interview.
Jason Tepperman, the director of the SBLF, said officials have focused on making the peer-group comparison accurate.
"The peer banks are matched so they are in the same geographies, same size ranges, same financial condition, as the SBLF banks," he said. "As much as we can, we've sought to … provide an apples-to-apples comparison."
In its report, the Treasury provided additional data that includes the number of loans made and in what geographical region they were originated. Treasury officials estimate that more than 38,000 small-business loans have resulted from the program.
Lenders have also provided data on who their small-business borrowers are, which reflect, among other things, that service-based sectors have benefited the most from credit provided by SBLF institutions — accounting for more than 10,000 of the loans — followed by the agricultural sector. The Southeast is the most represented region, accounting for about 11,100 loans, followed by the Southwest, with about 9,500 loans. (Overall, the program provided over $4 billion in funding to 332 small lending institutions.)
"We're now able to see the actual impact these investments are having … [on] SBLF participants in the way they can increase their small-business lending to businesses across the country," Graves said.
Yet while institutions have benefited from the program, they still have a ways to go until they have redeemed all of the capital distributed by the fund. The Treasury said that as of March 15 of this year, 12 institutions with aggregate investments of $90 million had completely redeemed their securities and exited the program. Nine institutions had partially redeemed their funds.
To encourage participation, the Treasury offered institutions a way to reduce their interest rate on the capital they owe back to the Treasury if they increase their small-business lending. The maximum initial rate for community banks was 5%, but that rate can fall to as low as 1% if an institution's small-business lending increases by 10% or more. (Community development lending funds, or CDLFs, enjoy what is essentially a flat rate of 2%.)
"Banks that had applied … had a strong incentive to increase their lending in advance of receiving funding because that enabled them to come into the program at a lower initial rate," Tepperman said.