Obama Proposal for Small Business Lending Hits Opposition

Some Colorado banks are sounding an alarm over President Obama’s plan to boost lending to small businesses.

Obama plans to create a $30 billion fund to shore up lending to small businesses. The proposal, which must pass Congress, would redirect $30 billion paid to the Troubled Asset Relief Program (TARP) from larger banks to banks with under $10 billion in assets. The intention is to give small and community banks incentive to lend to smaller businesses.

However, skeptical Colorado bankers argue that the additional money will cause more problems.

Don Childears, president and chief executive of the Colorado Bankers Association told the Denver Post, “Finding funds to loan is not as big of a challenge as finding qualified borrowers. The vast majority of businesses of all sizes currently have little desire to take on more debt.”

Bruce Alexander, president and CEO of Vectra Bank Colorado told the paper, “Even if the federal government provides the capital, banks would still have to set aside reserves for losses against any bad loans they made.”

Proponents of the plan argue that small and community banks could use a capital infusion more efficiently than their large counterparts.

“Every dollar of capital given to a community bank has the potential to generate eight to 10 times that amount in loans,” noted the Independent Community Bankers of America, a group composed of nearly 8,000 community banks in favor of the proposal. “This new $30 billion small-business lending fund would help small businesses fuel local job creation and economic stability.”

In the current economic environment, any business lending is risky, opponents note.

According to Alexander, administration action to lift the government guarantee on Small Business Administration (SBA) loans from 70 percent to 90 percent may get at the issue of risk.