Three Connecticut banks participating in a federal program that aims to stimulate small business loans have increased their lending 62 percent, an indication that the initiative is working, at least early on, officials say.
The three Connecticut banks participating in the U.S. Treasury Department’s Small Business Lending Fund program include BNC Financial Group, Salisbury Bancorp and SBT Bancorp and they collectively made $87.6 million in small business loans between the day they entered the program and March 31.
That increased their small business loan portfolios by 62 percent.
BNC Financial Group, which is parent company of The Bank of New Canaan and The Bank of Fairfield, experienced the biggest boost in small business lending, making $61.3 million in loans as of March 31, Treasury Department data shows. BNC received $10.9 million in SBLF funds in 2011.
Nationally, the 281 banks participating in the SBLF program have increased lending by $5.1 billion, with 84 percent of those banks having increased their lending.
“The SBLF program was a welcome source of capital at a time when capital markets were generally not open to community banks on a reasonable basis,” said Martin Geitz, president and CEO of Simsbury Bank. “It has allowed us to continue to meet the borrowing needs of many businesses that are contributing to improving our state’s economy.”
The SBLF aims to spur small business lending by providing capital to qualified community banks with assets under $10 billion. It was enacted as part of the Obama Administration’s Small Business Jobs Act of 2010, with the hope that the added capital would help create jobs and promote economic growth.
Hundreds of banks applied to the program, but only three financial institutions in Connecticut actually received funds.
Nationally, the Treasury invested $4 billion in 332 institutions. Small business lending, under the program, is defined as loans under $10 million to companies with $50 million or less in revenue.
Of course, there was an added benefit to banks participating in SBLF. It also allowed community lenders to trade in Troubled Asset Relief Program (TARP) funds for cheaper capital with fewer government restrictions. It was a major bonus considering the negative stigma and onerous oversight that was attached to TARP money under the program created in late 2008 at the height of the financial crisis.
TARP recipients have been required to pay the Treasury Dept. a 5 percent dividend, which is scheduled to increase to 9 percent in a few years. The dividend rate on SBLF funding, however, will be reduced as a participating bank increases its lending to small businesses. The initial dividend rate will be, at most, 5 percent. But if a bank’s small business lending increases by 10 percent or more, the rate falls to as low as 1 percent.
All three financial institutions in Connecticut participating in SBLF were also TARP recipients.
Treasury Department data shows SBT Bancorp, which is the parent of Simsbury Bank, increased lending $10.9 million as of March 31, a 31 percent increase from its starting level of $34.5 million in loans.
As a result of the loan growth, Geitz said his bank’s SBLF dividend rate has shrunk to 1 percent, which is the lowest rate possible.
The bank closed on its $9 million SBLF funds in August 2011.
Lenders will find it difficult to borrow money at such a low rate in today’s economic environment, officials say.
Meanwhile, Salisbury Bancorp, which is the parent company of Salisbury Bank, saw its small business lending increase 20 percent, or $15.4 million, to $93.1 million.
Salisbury Bancorp received $16 million in SBLF funds.
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Bank targets students
In an effort to attract a younger demographic, Buffalo’s First Niagara Bank is launching a new checking account program aimed at college students.
First Niagara, which has significant operations in Connecticut, has added StudentFirst Checking to its suite of checking products.
The key features of the service include: no minimum balance requirement, monthly maintenance fees, or ATM fees from First Niagara; up to five ATM surcharge rebates that other banks charge each month; and debit card rewards.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
