TOPEKA, — More than $13 million in federal seed money for small business loans is headed toward Kansas, state officials and the U.S. Treasury said Wednesday.
The funds, which were awarded under state small business credit initiative created by the federal Small Business Jobs Act signed last September, are meant to be matched with funds that small business owners raise privately as earnest money to qualify for what would become more than $132 million in loans from participating banks.
“The program gives Kansas another tool to help us grow the economy and create jobs,” Kansas Gov. Sam Brownback said in a statement announcing the funding.
However, officials at the Kansas Department of Commerce, which will run the program, were unable to say how the new plan might fare against two bigger problems that banks say hamper business lending. Demand for business loans remains anemic as potential borrowers wait for surer signs of economic recovery before taking on debt and, bankers say, bank regulators in the new world of post-Troubled Asset Relief Program are too quick to clamp down on business loans that previously would have seemed sound.
The Independent Community Bankers of America, representing about 8,000 community banks throughout the U.S., told a U.S. Senate banking committee last year that more than 52 percent of the members they surveyed said they’d cut back on business lending as a result of questions regulators raised during safety and soundness examinations otherwise might threaten their ability to make other loans or raise capital.
Nearly four in ten, or 37 percent, also said a lack of loan demand also was curbing business lending. Only eight percent said access to credit, which is the problem addressed by the new initiative, was a hurdle.
Of the funding announced Wednesday, $10.5 million will be allocated to the Kansas Capital Multiplier Loan Fund, which the state commerce department, through its NetWork Kansas program, provides support for entrepreneurs and existing small business across the state while they gain financial footing. Another $2.6 million will be dedicated to the Kansas Capital Multiplier Venture Fund, which similarly helps established small businesses to expand.
In both cases, loan applicants will pair federal money with funds they’ve raised privately to put up 9 percent of business loans between $10,000 and $250,000 they hope to borrow on regular commercial terms from their banks, said Dan Lara, a Commerce Department spokesman.
It will remain the banks’ job to look at those loan applications as they would any other applicants and determine whether the loan would be a good one, Lara said.
“But they would be more willing to make the loans because the 9 percent private capital means less risk,” Lara said.