by Kent Hoover


Most folks consider the Small Business Lending Fund a disappointment.

Designed to provide up to $30 billion in cheap capital to community banks for use in making small business loans, the program only provided $4 billion. Most of the banks that applied for this capital were rejected.

So given this record, what does Senator Mary Landrieu want to do? She wants to give the program another shot.

Landrieu, the Louisiana Democrat who chairs the Senate Small Business and Entrepreneurship Committee, announced today that she wants to develop a Small Business Lending Fund II.

“Until this recession is at a distance in the rear-view mirror, I believe that this committee has an obligation to turn out time-tested as well as new and innovative programs to get capital into the hands of small businesses throughout our country,” Landrieu said.

Treasury Secretary Timothy Geithner, whose department handled the SBLF, told Landrieu that he’d be happy to work with her on this.

Geithner was the only witness at the committee’s hearing today, which focused on the Small Business Lending Fund and the State Small Business Credit Initiative. That program provided $1.2 billion in federal funds to state efforts to boost lending to small businesses.

Both Geithner and Landrieu, who sponsored the bill that created the Small Business Lending Fund, defended the program against Republican attacks.

Geithner said the 332 banks that received SBLF capital will leverage that money into $9 billion of additional lending to small businesses by the end of 2014. The State Business Credit Initiative will produce an additional $15 billion in lending, he said.

Landrieu said the amount of capital delivered to banks through the Small Business Lending Fund was not “as much as we had hoped,” but called it a “welcome start to getting capital to small businesses.”

Republicans, however, noted that community banks used all but $1.8 billion of the $4 billion in SBLF capital they received to pay off their Troubled Asset Relief Program obligations. These banks essentially paid off one taxpayer-provided credit card with another taxpayer-provided credit card that had lower interest rates, said Republican Senator Olympia Snowe.

“There’s no surprise in these numbers,” Geithner replied.

Banks that used SBLF capital to pay off TARP will still have an incentive to increase their small business lending because they’ll have to pay back the federal government more for this money if their loan volume doesn’t increase, he said.

“Despite the TARP repayments, we will see more lending to small business,” Landrieu said.

But Snowe, who is the ranking Republican on the small business committee, said more than half of the banks that got SBLF capital had already increased small business lending before getting this money. There is no evidence, she said, that the program was going to have any impact on job creation.

Snowe told Geithner it’s time to stop President Barack Obama’s “trial and error era” of trying one program after another to jump-start the economy.

“It’s not working, and people are hurting,” she said.

What’s needed, Snowe said, was fundamental tax reform and a reduction in the regulatory burden on business.

Geithner said he agreed that tax reform is needed, but contended the cumulative regulatory burden under Obama is no greater than it was under President George W. Bush.

“The most important thing we can do today is to help small businesses thrive and hire is pursue policies that result in a sustained period of stronger economic growth,” Geithner said.

What are those policies? No surprise here—Geithner said they’re the combination of tax breaks, infrastructure investments and aid to states included in the president’s proposed jobs plan.

Snowe wasn’t buying it. Your primary job, she told Geithner, is to craft economic policy.

“At this point, it simply isn’t working,” she said.