In this tight lending environment, small businesses have been searching for new sources of credit. Luckily for some companies in Alabama, some relief is at hand.
Buoyed by the federal government's Small Business Lending Fund, a number of Alabama community banks have increased lending levels by $872.9 million over their baseline levels. According to a recent article on the Alabama Business Journal, this includes a $62.1 million increase in the third quarter alone.
Created in 2010, the Small Business Lending Fund was designed to support community banks and development loan funds that have less than $10 billion in assets. Operating under the assumption that, in the wake of the recession, small businesses would have a difficult time accessing credit, the program is designed to incentivize banks to boost their lending levels, since the more they lend to small businesses, the less they pay in interest to the fund.
The news source reported that the five participating banks in Alabama have all increased their lending by at least 20 percent over their baselines. In a few cases this increase was quite pronounced. For example, ServisFirst Bancshares doubled its lending amount, increasing from $749.4 million to more than $1.4 billion.
The situation in Alabama is but one example. All across the country, community banks have been issuing as many as 51,700 additional loans as a result of this program.
Though the program appears to be offering these banks more flexibility to make loans, they must still be wary about using it as a reason to make unsound loans. Banks and other lenders should be using risk management software to ensure that they are processing loan applications in a prudent manner.