Q. What is the Small Business Lending Fund and what is its relationship to the Troubled Asset Relief Program, or TARP?
A. Congress created the Small Business Lending Fund last September to help banks make loans to small businesses. The Small Business Lending Fund is similar to TARP, in that it will lend federal taxpayer dollars to banks. The banks can then lend the money to small businesses, although nothing in the act requires them to do so. At most, banks that do not increase their small business lending would be punished by having to pay a higher interest rate on their federal loan. Proponents of the program described it as critical to injecting capital into small businesses and jumpstarting economic growth. Those of us opposed to the program were worried that it would become another government bailout, like TARP, with too little structure and oversight to ensure the taxpayer-funded loans are working as intended or being used as Congress envisioned.
So far, it appears that my fears of the consequences of a loosely structured program are being realized. There have been reports that banks are planning to use Small Business Lending Fund money to “pay back” their TARP loans and even claiming in their quarterly reports that refinancing their TARP loans with Small Business Lending Fund money would increase their profits. A top Treasury official has confirmed that this is sure to happen. This money shuffle would allow banks to refinance their TARP loans at lower interest rates than they would otherwise have with no executive compensation controls, and it would make the administration able to falsely claim profits in the TARP program.
We’ve seen this kind of thing before. Last year, GM and the Treasury Department claimed GM had paid back its $6.7 billion government bailout, with interest and ahead of schedule. But I soon discovered, and got the Treasury Department to admit, that GM hadn’t repaid taxpayers with profits, but with more taxpayer money controlled by the Treasury Department, with the department’s approval.
Q. What can be done to make sure Small Business Lending Fund money isn’t used to pay back TARP loans?
A. Last month, I sent a letter to Treasury Secretary Timothy Geithner, asking for detailed information on the department’s oversight plan for the Small Business Lending Fund and information on TARP recipients that have applied for Small Business Lending Fund money. I also asked him to ensure that no TARP funds “repaid” by banks that have received Small Business Lending Fund loans will be counted as funds repaid to the federal government.
Also, with Senator Tom Coburn of Oklahoma, I recently introduced an amendment to a pending small business bill that would prohibit the use of federal funds to repay TARP funds. It’s just plain common sense that you don’t borrow money from the government to pay back a loan you previously got from the government. My amendment would ensure that the Treasury Department couldn’t allow banks to use budget gimmickry to try to fool taxpayers into believing they’d paid back their TARP loans on their own. I hope the Senate’s leadership will allow a vote on this amendment, but if it is not voted on, I will continue to reintroduce it to subsequent legislation.