Two Kansas banks have joined a growing number of banks tapping into a new federal program to spur small business loans.
The Treasury Department on Wednesday said that Equity Bancshares, the holding company of Equity Bank, and UBT Bancshares, the Marysville holding company of United Bank & Trust, were two of 37 banks across the country approved to participate in the Small Business Lending Fund.
Equity and UBT join Freedom Bancshares of Overland Park and Farmers State Bankshares of Holton as the Kansas banks participating in the program.
The SBLF is a $30 billion fund that began distributing funds to banks in June. It was part of the Small Business Jobs Act signed into law last year. Since then, 80 banks in the U.S. have applied for and received SBLF funds. The funds are only available to banks with less than $10 billion in assets.
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But it is not free money. In exchange for receiving SBLF, banks give Treasury shares of preferred stock, similar to the Capital Purchase Program that Treasury launched in 2008 as part of the Troubled Assets Relief Program.
But unlike CPP, Treasury spokesman Matthew Anderson said, the dividend banks pay to Treasury decreases as they lend more money to small businesses.
The initial dividend rate is 5 percent. Banks that increase their small business lending by 10 percent or more will pay a dividend of 1 percent. Likewise, banks that are accepted into the program but don't increase their lending could see their dividend payments reach as high as 9 percent 4 1/2 years after receiving SBLF.
Bankers such as Equity's Brad Elliott said it's a low-cost way to fund loans.
"It allows us to grow that aspect of our portfolio and the more lending we do the cheaper the cost of funding," said Elliott, chairman and CEO of Wichita-based Equity Bancshares, which received $16.4 million in SBLF.
"The goal is not to lend $16.4 million," Elliott said. "The goal is to lend $40 or $60 million."
Leonard Wolfe, president and chairman of UBT and its bank, said his $500 million bank is heavily involved in agriculture lending, a sector that he said is doing well and one in which there is strong demand for loans. UBT received $16.5 million in SBLF funds.
"I believe that we have the opportunity to grow beyond our baseline by up to 10 percent," Wolfe said. "It's an opportunity for us to provide additional funds."
Equity and UBT had applied for and received CPP capital. And both have paid back the capital they received, plus the costs of warrants.
When Equity announced last week it had paid back its CPP capital and warrants —totaling $9.2 million — it said that a private, $20 million capital raise and the SBLF funds made the early repayment possible.
On Wednesday, Elliott said "we would have considered" paying back the CPP capital early even if the bank hadn't received the SBLF.
"We have the excess capital," he said.