Obama Announces Plans to Boost Small Business Lending

Louis Prezeau, CEO of the City National Bank of New Jersey (No. 3 on the BE Banks List with $495 million in assets), is elated.

“This will help us to do more of what we do, which is help an underserved community. It will be business as usual-plus, with some incentive for us to do more,” he said.

Prezeau, believes institutions like his have been caught in a catch-22 situation in which banking regulators are requiring them to maintain higher capital ratios while encouraging them to do more lending.

“You can’t grow the bank as fast because of restrictions on your ability to leverage capital,” he said, so Obama’s plan is particularly appealing. However, he and other CDFIs, believe that the business plan requirement is a redundant step that will slow the actual lending process and that their annual certification should be sufficient.

“We don’t mind reporting every quarter, but should not be required to provide additional data on [small business lending goals]. That’s what we do, so why are they asking us to file that information again?” he said.

Prezeau believes the administration could instead sweeten the plan by forgiving part of a bank’s previous TARP loans based on its rate of increase small business lending as a result of the new program.

Obama also called on Congress to increase SBA loan limits. Under his recommendation, the agency’s microloan program would be increased from $35,000 to $50,000; 504 loans would go from $2 million to $5 million for standard borrowers and to $5.5 million from $4 million for manufacturers; and 7(a) loans would go from $2 million to $5 million. Congressional approval would be required but there is bipartisan support such changes in both the House and Senate.

José Mantilla, president of Legacy Bank in Milwaukee (No. 13 on the BE Banks list with $224.5 million in assets and BE Financial Services Institution of the Year), said it would be a “tremendous help” to banks like his because it mitigates the risk and creates liquidity.

“We have been very active as lenders this year and this will help us even further once the legislation is passed,” Mantilla said. “For community banks, raising capital is tough today. Having access to more at a lower cost will allow us to leverage and lend out more funds.”