The U.S. House of Representatives this week began debate on the Small Business Lending Fund Act of 2010 (H.R. 5297), which would create a $30 billion Small Business Lending Fund aimed at increasing community banks’ small-business lending. The bill is based on a proposal the administration sent to Congress in May.

The House Committee on Financial Services approved the bill May 19 in a party line vote. The proposal first was announced by President Barack Obama during a Feb. 2 town-hall meeting.

NSBA generally is supportive of the proposed small business lending fund, which would offer capital to small- and medium-sized banks (defined as those with assets of less than $10 billion) under terms providing “strong incentives” to increase their small-business lending. The proposal has been endorsed by the Independent Community Bankers of America.

Under the program, eligible institutions with $1 billion or less in total assets could apply to receive an amount up to 5 percent of their risk-weighted assets. Eligible institutions with $10 billion or less in total assets, but more than $1 billion in total assets could apply to receive an amount up to 3 percent of their risk-weighted assets.

The participating lenders then could earn reduced dividend rates for the capital investment, as they increased their lending to small firms, using the fourth quarter of 2009 data as a baseline set.  The dividend rate would begin at 5 percent, but banks could earn reduced rates for increases in their small-business lending.

Participating institutions could achieve a minimum dividend rate of 1 percent. If the institution did not increase its lending after two years, the dividend rate would increase to 7 percent. After four and half years, the dividend rate for all participating institutions would increase to 9 percent—regardless of their level of small-business lending.

In addition to the $30 billion lending fun, the Small Business Lending Fund Act also creates the State Small Business Credit Initiative Program, which would provide $2 billion in funding for new or existing state lending programs. Approximately 30 states already have crafted their own programs, leveraging public funds for substantial private financing, to increase small businesses’ access to capital. The State Small Business Credit Initiative Program seeks to capitalize on the established successes of these programs to quickly increase small-business lending.

The House also will consider 17 separate amendments to the Small Business Lending Fund Act.

The Congressional Budget Office (CBO) estimates that implementing H.R. 5297 would cost about $3.3 billion over the 2011-2015 period, assuming the appropriation of the amount indicated. As the bill would not affect direct spending or revenue, the CBO also found that pay-as-go procedures did not apply.

Following the bill’s expected passage, a parliamentary procedure will be used to merge it with the Small Business Jobs Tax Relief Act of 2010 (H.R. 5486).

Introduced by Rep. Sander Levin, chair of the House Committee on Ways and Means, the Small Business Jobs Tax Relief Act contains approximately $7 billion in small-business tax cuts and about $3 billion for additional lending. All of the bill’s tax provisions were included in the small business tax and infrastructure bill (H.R. 4849) the House passed in March 2009.

President Obama urged the swift passage of both the Small Business Lending Fund Act and the Small Business Jobs Tax Relief Act during a recent small-business event in the White House Rose Garden, arguing that the business tax cuts and lending incentives would spur small-business growth and hiring.