GENERAL
REQUIRED REPORTING
CALCULATION OF QUALIFIED SMALL BUSINESS LENDING
REFINANCING OF CAPITAL PURCHASE PROGRAM (CPP) AND COMMUNITY DEVELOPMENT CAPITAL INITIATIVE (CDCI) INVESTMENTS
REPAYMENT
COMMUNITY DEVELOPMENT LOAN FUNDS
GENERAL
What is the Small Business Lending Fund?
Enacted into law as part of the Small Business Jobs Act of 2010 (the Jobs Act), the Small Business Lending Fund encourages lending to small businesses by providing capital to community banks with under $10 billion in assets.
The more a bank increases its small business lending, the lower the rate it will pay for the SBLF funding. Through the Small Business Lending Fund, community banks and small businesses can work together to create jobs and promote local economic growth in neighborhoods across the nation.
Many loans made by community banks will qualify as small business lending under the Jobs Act. The law defines small business lending to include loans of up to $10 million to businesses with up to $50 million in annual revenue. Those loans include:
- Commercial and industrial loans
- Loans secured by owner-occupied nonfarm, nonresidential real estate
- Loans to finance agricultural production and other loans to farmers
- Loans secured by farmland
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How can small businesses know which banks are participating in the Small Business Lending Fund?
Information about the Small Business Lending Fund is available on this website, www.treasury.gov/SBLF. At least once per month, Treasury will publish the list of banks participating in the Small Business Lending Fund on this website, www.treasury.gov/SBLF.
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REQUIRED REPORTING
How should banks participating in SBLF submit documents to Treasury?
Quarterly Supplemental Reports and Descriptions of Inaccuracies
Please email quarterly supplemental reports and descriptions of inaccuracies in quarterly supplemental reports to SBLFSuppRpt@treasury.gov. Please include your institution’s SBLF ID number in the subject line. Quarterly supplemental reports are due concurrently with the submission of Call Reports. Additionally, you must provide Treasury with a written description of any inaccuracies in any quarterly supplemental report within three business days after discovery. [See Section 3.1(d) of your Securities Purchase Agreement]
Reporting Requirements under Section 3.1(c)(ii) and 3.1(d)
Please email documents described in Section 3.1(c)(ii) and 3.1(d) of your Securities Purchase Agreement–such as year-end financial statements, independent auditor certifications and executive officer certifications--to SBLFComplSubmissions@treasury.gov, including your institution’s SBLF ID number in the subject line.
Other Documents
Please email all other documents to SBLFComplSubmissions@treasury.gov.
General Information
You should carefully read your Securities Purchase Agreement and the accompanying documents, including the appropriate Certificate of Designation or Senior Security, in consultation with counsel, to determine your obligations under the SBLF. If you have any questions after reviewing these documents with your counsel, you may contact your designated SBLF point of contact or email SBLFInstitutions@treasury.gov.
Does Treasury require an internal controls audit with respect to the institution’s financial statements?
No. Treasury does not require an internal controls audit with respect to financial statements. The required external auditor certification is limited to the initial and quarterly SBLF supplemental reports with respect to accounting matters.
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Is there a specific certification my institution’s auditor may use for the annual third-party certification of supplemental report submissions?
Yes, auditors may use the following sample certification with respect to the supplemental report third-party certification:
We have audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of [Institution Name] (the Bank) as of [Date], and the related statement of income, retained earnings, and cash flows for the year then ended, and have issued our report thereon dated [Date].
In connection with our audit, nothing came to our attention that caused us to believe that the Bank failed to comply with the Small Business Lending Fund Securities Purchase Agreement (the Agreement) between the Bank and the United States Department of the Treasury (Treasury) dated [Date], insofar as the Agreement relates to accounting matters provided on the Bank’s Supplemental Reports filed with Treasury during the year ended [Date] under sections 1.3(j) and 3.1(d) of the Agreement, including that nothing came to our attention that caused us to believe that the Bank’s Supplemental Reports did not set forth a complete and accurate statement of loans held by the Bank in each of the categories described therein for the time period(s) specified therein. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance.
This report is intended solely for the information and use of the Bank and Treasury and is not intended to be and should not be used by anyone other than these specified parties. Back to top
Must businesses receiving loans from institutions participating in SBLF certify that their principals have not been convicted of, or pleaded nolo contendre to, a sex offense against a minor?
Yes. Section 4107(d)(2) of the Small Business Jobs Act of 2010 requires that businesses receiving loans from an institution participating in SBLF make this certification.
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What steps does Treasury require my institution to take to demonstrate compliance with this borrower certification requirement?
Annually, until the Redemption Date, a participating institution must certify to Treasury that for each loan originated by the institution or any of its affiliates that was funded in whole or in part using SBLF funds, the institution has obtained from the business to which it made such loan a written certification that no principal of such business has been convicted of a sex offense against a minor (as such terms are defined in section 111 of the Sex Offender Registration and Notification Act, 42 U.S.C. §16911). These certifications must be retained by the institution in accordance with standard recordkeeping practices established by the appropriate federal banking agency.
Compliance with this term requires that an institution:
- Collect a written certification from the borrower with respect to each loan made to a business using SBLF funds;
- Retain that certification consistent with standard recordkeeping policies; and,
- Send to Treasury annually a certification that it has complied with these requirements.
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Does Treasury require that my institution research or otherwise perform diligence on a borrower’s certification?
Treasury does not require that institutions research or perform diligence on borrower certifications.
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Is my institution required to obtain certifications from all businesses that received a loan after it receives SBLF funding, even if the loan is not included in Qualified Small Business Lending?
Yes. Section 4107(d)(2) of the Small Business Jobs Act of 2010 requires that businesses receiving loans from an institution participating in SBLF make this certification irrespective of whether the loan qualifies for inclusion in the institution’s Qualified Small Business Lending. This certification requirement applies to all loans that are extended primarily for business purposes. Loans extended primarily for personal, family, or household purposes do not have to meet this certification requirement.
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At what times does Treasury require my institution collect this borrower certification?
Treasury requires an institution to receive this certification from borrowers at the time it originates a loan and upon any subsequent extension or refinancing of that loan.
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What is the definition of a “principal” for purposes of this borrower certification?
The term “principal” is defined as follows:
- For a sole proprietorship: the proprietor;
- For a partnership: each managing partner and each partner who is a natural person and holds a 20% or more ownership interest in the partnership;
- For a corporation, limited liability company, association or development company: each director, each of the five most highly compensated executives or officers of the entity, and each natural person who is a direct or indirect holder of 20% or more of the ownership stock or stock equivalent of the entity.
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How could my institution collect this borrower certification?
While participating banks must collect this certification, Treasury does not mandate a specific method for doing so. The following are three (3) examples of ways in which an institution could collect this certification:
- Institutions may require that borrowers sign a form that provides this certification. Institutions may use this Small Business Jobs Act Certification for this purpose.
- Institutions may include this certification in their loan documentation.
- Institutions may ask a borrower to certify that the business’ principals have not been convicted of any crime, or to certify a list of such convictions. If a listed conviction relates to a sex offense against a minor, then the loan may not be funded in whole or in part using SBLF funds.
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CALCULATION OF QUALIFIED SMALL BUSINESS LENDING
How is small business lending defined for purposes of the Small Business Lending Fund?
The Small Business Lending Fund uses a definition of small business lending that differs from “loans to small businesses” and “loans to small farms” as those terms are used in the quarterly Call Reports that banks submit.
Generally, business loans of up to $10 million to companies with up to $50 million in annual revenue will be included in the Fund’s definition of small business lending. For many community banks, this definition will capture most of the business loans they make. For detailed information, please see the section titled “What Counts as ‘Qualified Small Business Lending’” in Chapter Three of the comprehensive Getting Started Guide for Community Banks (click to download the PDF).
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How is the SBLF dividend rate calculated on Senior Preferred Stock?
As described in more detail in the Certificate of Designation for the Preferred Stock, which is the controlling legal instrument, the dividend rate will be adjusted to reflect the amount of an Issuer’s change in Qualified Small Business Lending from the Baseline, based on the following schedule:
For detailed information, please see the section titled “How Qualified Small Business Lending affects dividend rates on SBLF funding” in Chapter Three of the comprehensive
Getting Started Guide for Community Banks.
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How are my bank’s non-performing loan charge-offs treated in determining my bank’s Qualified Small Business Lending?
The amount of Qualified Small Business Lending reported by a bank may be increased by the cumulative amount of net charge-offs with respect to such lending since July 1, 2010. Thus, a bank will not be penalized for charging off loans.
Example
- A bank has Qualified Small Business Lending of $4,000,000 in the first quarter, but in the second quarter charges off $250,000 in loans, such that its new loan balance is $3,750,000.
- In the second quarter, assuming no other change in the portfolio, the bank’s Qualified Small Business Lending will remain at $4,000,000, as the bank can add back $250,000 of net charge-offs in its calculation of Qualified Small Business Lending.
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How would purchases of loans and loan participations following receipt of SBLF funding affect my bank’s Baseline and quarterly Qualified Small Business Lending calculations?
A bank must increase its Baseline by the amount of the purchase of any loan or loan participation that is included in its quarterly calculation of Qualified Small Business Lending.
Example
- A bank’s Baseline figure is $10 million and its quarterly Qualified Small Business Lending has not increased. The bank purchases $2 million in loan participations without any other change in its lending.
- The bank’s quarter-end Qualified Small Business Lending is $12 million, reflecting its call report data. Its Baseline figure is increased by the value of the participation purchase and, therefore, also equals $12 million.
- The bank would report a 5% dividend rate for this quarter, because there has been no increase in Qualified Small Business Lending relative to its Baseline.
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How would sales of loans and loan participations following receipt of SBLF funding affect my bank’s Baseline and quarterly Qualified Small Business Lending calculations?
There is no adjustment to the Baseline for sales of loans and loan participations. The quarterly Qualified Small Business Lending would be adjusted as follows:
Example
- In the first quarter of participation in SBLF, a bank makes a new loan of $100,000 that meets the definition of Qualified Small Business Lending. In the fourth quarter, the bank sells that loan to another entity.
- For the first, second, and third quarters, the $100,000 loan is included in the bank’s Qualified Small Business Lending.
- For the fourth quarter, the $100,000 loan is removed from the Qualified Small Business Lending. There is no adjustment to the Baseline.
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If my bank co-originates a loan with another bank, is that loan included in Qualified Small Business Lending?
For co-originated loans (e.g., loans made using separate credit instruments that share a common agent) that meet the definition of Qualified Small Business Lending, each bank may include the portion of the loan it holds in its Qualified Small Business Lending.
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Are Small Business Association (SBA) guaranteed loans included in the calculation of Qualified Small Business Lending?
The non-guaranteed portion of any SBA loan, including 504 and 7(a) loans, is included in Qualified Small Business Lending if the loan meets the definition of Qualified Small Business Lending. Any guaranteed portion of an SBA loan, however, is excluded from the calculation of the Baseline and Qualified Small Business Lending.
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How will a group of loans to companies that are under common ownership be aggregated for the purposes of the $10 million threshold?
In determining whether one or more loans may be included in the calculation of Qualified Small Business Lending, a bank must aggregate loans to companies that are under common ownership or control.
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How are groups of loans to a single borrower aggregated for the purposes of the $10 million threshold?
The first loan or group of loans, if less than $10 million in the aggregate, will be included in Qualified Small Business Lending. However, any loan that would cause the aggregate amount to exceed $10 million to a single borrower will be excluded.
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At what point should a borrower’s revenue be measured with respect to the $50 million revenue limitation?
For the purpose of determining whether a loan may be included in Qualified Small Business Lending, a borrower’s revenue must be measured for the most recent fiscal year ended on the date of origination. The date of origination is the date on which credit was initially extended or, if applicable, most recently renewed.
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REFINANCING OF CAPITAL PURCHASE PROGRAM (CPP) AND COMMUNITY DEVELOPMENT CAPITAL INITIATIVE (CDCI) INVESTMENTS
Is the Small Business Lending Fund related to the Troubled Asset Relief Program (TARP)?
No. The Small Business Lending Fund is not related to TARP. Congress authorized the Small Business Lending Fund as part of the Small Business Jobs Act of 2010, with the objective of increasing the availability of credit to small businesses.
The Small Business Lending Fund draws from a source of funding separate from TARP, and it is administered by a separate organization within Treasury.
Participation in the Small Business Lending Fund carries no executive compensation restrictions and does not require the issuance of any warrants.
Any institution will not be considered a TARP recipient by virtue of participating in the Small Business Lending Fund.
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My bank received CPP funding on two separate funding dates. On which date would the 2% lending incentive fee apply?
The 2% annual lending incentive fee will apply as of the fifth anniversary of the date of the initial CPP funding, and will be calculated based on the current outstanding amount of SBLF funding as of that date.
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If my bank refinances CPP or CDCI capital and does not increase lending by the end of the 9th full quarter of participation in SBLF, to what amount will the lending incentive fee be applied?
The lending incentive fee will be based on the then-outstanding amount of SBLF funding as of the fifth anniversary of the date of the initial CPP or CDCI funding.
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REPAYMENT
After receiving capital, can my institution exit the Small Business Lending Fund at any time?
Yes. Subject to the approval of your regulator, your institution can exit the Small Business Lending Fund at any time simply by repaying the funding provided along with any accrued dividends. There is no prepayment penalty.
If your institution wishes to repay its SBLF funding in partial payments, each partial payment must be at least 25% of the original funding amount.
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COMMUNITY DEVELOPMENT LOAN FUNDS
How is Qualified CDLF Small Business Lending defined for CDLF applicants?
For the definition of Qualified CDLF Small Business Lending, please refer to the SBLF Initial Call Report for Community Development Loan Funds (included in the application materials for CDLFs).
Many loans made by CDLFs will count as Qualified CDLF Small Business Lending. Generally, these loans are business and non-profit loans of up to $10 million to organizations with up to $50 million in annual revenue.
Some loans made by CDLFs will not count as Qualified CDLF Small Business Lending. The following list provides examples of loans that are excluded from Qualified CDLF Small Business Lending. This list is not exhaustive, but meant to provide guidance on the definition of Qualified CDLF Small Business Lending.
The Definition of Qualified CDLF Small Business Lending excludes:
- Loans for nonfarm, nonresidential real estate that is not owner occupied.
- Loans for nonfarm, nonresidential property construction and land development purposes.
- Loans for residential properties.
- Loans to individuals for household, family, and personal expenditures.
- Loans for lease financing receivables.
- Loans to depository financial institutions.
- Loans to nondepository financial institutions such as real estate investment trusts, mortgage companies, and insurance companies.
- Loans for the purpose of purchasing or carrying securities.
- Loans to governments.
- The guaranteed portion of any Small Business Administration (SBA) loan.
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How should CDLFs participating in SBLF submit documents to Treasury?
Quarterly Supplemental Reports and Descriptions of Inaccuracies
Please email quarterly supplemental reports and descriptions of inaccuracies in quarterly supplemental reports to SBLFSuppRpt@treasury.gov. Please include your institution’s SBLF ID number in the subject line. [See Section 3.1(d) of your Securities Purchase Agreement]
Reporting Requirements under Section 3.1(c)(ii) and 3.1(d)
Please email documents described in Section 3.1(c)(ii) and 3.1(d) of your Securities Purchase Agreement–such as financial statements and executive officer certifications--to SBLFComplSubmissions@treasury.gov, including your institution’s SBLF ID number in the subject line.
Other Documents
Please email all other documents to SBLFComplSubmissions@treasury.gov.
General Information
You should carefully read your Securities Purchase Agreement and the accompanying documents, including the appropriate Equity Equivalent, in consultation with counsel, to determine your obligations under the SBLF. If you have any questions after reviewing these documents with your counsel, you may contact your designated SBLF point of contact or email SBLFInstitutions@treasury.gov.
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