Banks reluctant to opt for $30B aid for small businesses

Saturday, September 25, 2010

Banks reluctant to opt for $30B aid for small businesses

Banks in US are facing a dilemma, whether to opt for $30 Billion program for small businesses, or let the offer go to somebody else’s lap?

Some banks have decided to ignore the new initiate kept forward by Obama administration.

Banks such as Memphis bank has strong reservations about partnering government in their scheme of things. Banks are of the opinion that to take a loan from the government would come along with a bundled baggage of strong regulations.

The banks say they have enough experience of availing loans from the government.
The small business $30 billion program offered by Obama administration may not be suited to the interests of the bank.

There have been cases earlier, when government had directed borrowers to cut salaries of its bank executives.

The banks that have been bounded by troubled assets relief fund (TARP) come along with tough rules for the banks that borrow money from the government.

TARP rules may direct banks to reduce dividends to its shareholders, if the government feels so.

It means that $30b program may have its own disadvantages.

The banks also have to pay additional money as penalties, if they repay loans early.

However, the Obama administration has come out with new legislation, hereby the banks won’t be penalized in cases when rules of the $30B small business program changes.

There are also concerns that small business owners would not like to go for small business loans, due to slothful US economy.

The banks have also shown concerns with the dividend option attached with $30 billion small business program.

The dividend could increase to 7% in case the banks are unable to distribute the money to small business houses.

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