Posted: October 1, 2010

By Bill Cresenzo

bill.cresenzo@insidebiz.com

Several weeks ago, Brad Schwartz, president of Monarch Financial Holdings, attended a meeting of the Virginia Bankers Association in Charlottesville

About 20 CEOs of community banks listened to Bruce Whitehurst, the president of the association, who asked them if they planned to take advantage of a $30 billion loan pool that the government is offering to banks to encourage new small business and small business expansion.

"Not one hand in the room went up," Schwartz recalled.

Last week, President Obama signed the Small Business Jobs Act of 2010, which gives community banks throughout the United States a $30 billion loan pool that the banks can use to lend to small businesses. The legislation will also increase Small Business Administration-defined maximum loans to $5 million from $2 million.

"Money is tight and we have had people with bankable ideas who have had no luck whatsoever," said Jim Carroll, executive director of the Hampton Roads Small Business Development Center.

He said that many of his clients have had difficulty securing loans.

CEOs of community banks in Hampton Roads said there are still a lot of unanswered questions about how the fund will work. They said they couldn't yet say how they would use the money, if at all.

Jeff Noblin, president of CNB Bancorp, said his bank, being on the smaller side, doesn't have a full-time banker who has SBA loan experience, so whether his bank participates hinges on whether that will be a requirement.

"At this point, we don't know enough about it," he said.

Schwartz said his bank won't use any of the money, based in large part on the bank's experience using TARP money, which he said that the bank gave back.

"We don't think it's worthwhile," he said. "We originally participated in TARP because we were told it was the right thing to do, and showed that we were strong. It turned out, they changed the rules, and the media started saying that the banks who took TARP were the weaker ones. We don't want to do that again. We took the TARP with good intentions and ended up paying it back, because of the negative perception of people who took it. This one seems like it is out of the same playbook.

"Getting in bed with the government the first go-round wasn't real positive."

The legislation will give $12 billion in tax cuts to small business and also would allow the banks who received TARP money to refinance.

"We haven't made any final decision," said Michael Ives, president of Heritage Bankshares. "That being said it would be a very significant situation for community banks. We're supposed to be making small business loans. This gives us the opportunity to raise capital and increase lending."

Banks with assets under $1 billion could apply for 5 percent of their risk-weighted assets. Banks with between $1 billion and $10 billion could apply for 3 percent.

"Conceptually, it looks like a pretty good thing," said Bob Aston, chairman and CEO of TowneBank. "But as with all things with the government, the devil is in the details, and the details have not been forthcoming at this point. We don't know what size loans are going to qualify. What are they calling 'small business loans'?"

Aston said that this year, his bank has lent $107 million to small businesses, a 4.5 percent increase over last year.