Banks Use Small Biz Funds to Pay Off TARP Debt

More than $2 billion from the Small Business Lending Fund was used to repay bailout funds community banks were loaned under the Troubled Asset Relief Program, according to The Wall Street Journal.

The $4 billion federal fund was created this year to raise capital for smaller banks, and in turn move them to loan to small business owners.  These community banks used more than half of the funds to pay down their TARP debt, the Journal reported.

The WSJ reported that 332 banks received money from the lending fund, and that nearly half (137) of the banks used portions of their funding to get rid of their TARP debt. The Small Business Lending Fund began to lend to small banks over the past three months, with the intentions of spurring entrepreneurship and job creation. The fund had $30 billion available, but since the program ended last week, only $4 billion was loaned to these small banks, the WSJ reported.

The Small Business Lending Fund reportedly did not prohibit banks from using the funds to pay off their TARP debt. However, if banks did not increase small business lending, they would not be able to access loan rates any lower than what they were paying for TARP money, the WSJ said. TARP and the lending fund were designed to be two separate lending programs.

According to the WSJ, some of the smaller banks that used the Small Business Lending Fund's money to pay off their debt felt that it would enable them to more easily lend to small business owners.