On May 12, 2011, the Treasury department got around to posting term sheets for Subchapter S and mutual institutions that desire to participate in the Small Business Lending Fund. The Treasury intends to use subordinated debentures for both Subchapter S and mutual institutions, and has adjusted the interest rates to reflect after-tax effective rates equivalent to the dividend rate that will be paid by other institutions participating in the Small Business Lending Fund.
The terms and eligibility restrictions are generally otherwise comparable to the term sheets provided for Subchapter C corporation banks and thrifts, with one major exception: the securities issued to Subchapter S and mutual institutions will only qualify for Tier 2 capital treatment. Not only does this make the Small Business Lending Fund significantly less attractive to Subchapter S banks, it also may make it more difficult for a Subchapter S bank holding company to consider replacing any existing TARP Capital Purchase Program funds with the Small Business Lending Fund. Unless such a bank holding company qualifies under the smaller bank holding company policy statement (generally for those with less than $500 million in assets), replacing a Tier 1 capital instrument with a Tier 2 capital instrument will be a hard pill to swallow.
Subchapter S and mutual institutions are also given less than a month to apply, with an application deadline of June 6, 2011. The application deadline for C corporation banks and thrifts is Monday, May 16, 2011.
The Treasury has not changed its explanation that the Treasury remains “committed to the prompt and efficient review of all applications” and intends to provide funding decisions “as quickly as possible.” However, the Treasury will not any “indication of whether or when any specific application may be approved.” Treasury indicates that it will make Small Business Lending Fund investments on “a rolling basis,” but with no indication of the start date, speed or volume of such investments. Almost five months after the release of the application, we are not aware of any institutions that have received Small Business Lending Fund investments or even that have received formal approval to participate.