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Most Utah community banks aren't likely to tap a multibillion-dollar fund Congress has created to encourage more lending to small businesses, the director of the Utah Bankers Association said Tuesday.
That's because the banks that need funds to make loans aren't qualified because they're undercapitalized to receive money from the pool, and banks that do qualify don't need it, Executive Director Howard Headlee said.
The quandary and smaller banks' perception that there is little demand has left some financial institutions hesitant to lend, which frustrates small-business owners concerning their inability to convince lenders otherwise.
"It's early. The bill just passed. But, at this point, I'm not aware of any bank that is planning to participate in this $30 billion capital pool," Headlee said.
On Monday, President Barack Obama signed a bill to help small companies expand their businesses and hire additional workers by cutting their taxes and creating the loan fund.
The bill had been delayed for months by Senate Republicans, who compared it to the $700 billion bank bailout two years ago and argued that it would encourage lending institutions to make loans to people who aren't good credit risks. Utah Sens. Bob Bennett and Orrin Hatch voted against the measure.
"We wouldn't be tapping that fund," said Richard Beard, CEO of Bank of American Fork. "We have money to lend, [but] we need borrowers who are creditworthy, who want to borrow and can repay their loans.
"The real issue is, until we get unemployment resolved, then most small businesses are very hesitant to leverage themselves, which they are wise to do."
Unemployment in the United States is running at 9.6 percent. In Utah, the jobless rate is 7.4 percent.
Douglas DeFries, executive vice president and chief financial officer at Bank of Utah, hasn't decided whether to accept any of the $25 million his Ogden-based institution is qualified to receive, but he doesn't see the need.
"We've looked at it, and it looks very similar to the TARP [Troubled Asset Relief Program], and we didn't take part in that," DeFries said.
He said his bank has plenty of capital to meet the needs of small-business borrowers, largely because the weak economy has undercut demand for loans.
He said it's difficult for many of his clients to make enough money to cover their expenses, so borrowing more money isn't something they want do until the economy begins to put people back to work.
"We've seen a lot of companies that have seen their revenues decrease by 30 percent," he said. "They are struggling to find how they can operate at that level."
Banks are equally cautious. When they see applications from struggling business owners, many times they are unwilling to extend credit. DeFries said Bank of Utah gets presented many deals it can't approve because more money is going out of a business than coming in.
Small businesses that are profitable and have good credit records say lenders became stingy when the financial industry imploded two years ago.
The new loan program will help "only if the banks loosen up the things they ask for," said David Swenson, who owns Peach Tree Construction, a remodeling business in Layton that has remained profitable during the recession.
Even so, lenders haven't been eager to help him.
"It's almost like there's no trust in the business owner," Swenson said.
The small-business loan fund isn't open to bigger banks. Even so, Zions Bank has created a small-business lending division in anticipation of a surge of applications, said Lori Chillingworth, executive vice president of the division.
The division is "giving us more available resources to help the small and midsize companies in Utah and Idaho," Chillingworth said.
$30 billion lending fund
What • President Obama signed the Small Business Jobs Act on Monday. The bill creates a fund for banks to make small-business loans.
Which lenders are qualified to tap the fund • Sufficiently capitalized community banks.
Other provisions of the bill • Additional $12 billion in tax cuts for small businesses. Self-employed people can deduct health insurance costs.