N.H. business loans shoot up under federal bank lending program

In the first quarter, the banks collectively lent businesses $817 million – 30 percent more than 2010

The five New Hampshire banks that lend money through the federal Small Business Lending Fund – a federal program designed to encourage lending to small businesses — have increased their lending, partly because of the improving economy.

In the first quarter of the year, according to the U.S. Treasury Department, the New Hampshire banks collectively lent businesses some $817 million. That’s $191 million, or 30 percent, over “baseline” – the first quarter of 2010, during the heart of the recession. That’s also better than the previous quarter, when the then-six banks (two have since merged) were 24 percent above baseline. In that quarter, the state’s banks lagged behind, but this quarter their percentage is above the nationwide increase of 25 percent.

The Treasury Department makes a case in its quarterly report on SBLF to Congress that most of that increase is due to the program and not to the recovery, by comparing the 317 participants to a control group. The increase in outstanding loans among SBLF banks was over eight times that of the control group, according to the SBA.

The SBLF is the successor to the Capital Purchase Program, or CPP, which was part of the Troubled Asset Relief Program, or TARP. The TARP was launched at the start of the recession in an effort to shore up troubled banks and encourage lending by having the department purchase the banks' preferred stock. Both liberals and conservatives alike castigated TARP as a bailout program for reckless big banks, with no strings attached.

The CPP was aimed at smaller, secure banks but many of those institutions shied away from it, not wanting to be perceived as troubled. That feeling also tarnished SBLF to a lesser degree.

However, unlike CPP, the SBLF is tied to increased lending. The bank has to pay its preferred investor (the U.S. Treasury) a dividend that decreases as the bank increases its lending to small businesses.

For banks that increase their lending 10 percent over the baseline – which includes all five New Hampshire banks, as well as 80 percent of the banks nationwide — that translates into a 1 percent effective interest rate. 

This lending stimulus comes to an end at the close of 2015, when the rates shoot back to 9 percent.

Centrix Bank of Bedford, which took $24.5 million in SBLF financing, led New Hampshire banks by lending out some $330 million in small business loans — a 40.6 percent increase over baseline. The previous quarter, it was up 32 percent. Bank President Joe Reilly attributes about half of that increased lending to the program.

“I think we have been a little more aggressive, both in terms of loan volume and pricing,” he said.  “But more importantly, I see an improvement in the business climate.   Businesses are borrowing money for plant expansion, for replacement of rolling stock or equipment purchases.  I hope it is a foretelling of the future.”

Centrix was followed by Newport-based New Hampshire Thrift Bancshares, owner of Lake Sunapee Bank and The Nashua Bank (which had $186 million in outstanding small business loans, 28.2 percent over baseline), Northway Financial of Berlin ($136 million outstanding, 24.1 percent over baseline), First Colebrook Bank ($76 million, 23 percent over baseline) and Woodsville-based Guaranty Bank Corp. ($89 million, 19 percent above baseline).