DNB, Valley Green tap federal small-business loan program

Two more Philadelphia-area banks have gotten funding through the U.S. Treasury Department's Small Business Lending Fund.

DNB Financial Corp., of Downingtown, received $13 million, while Valley Green Bank, of Philadelphia, got $5 million.

They were two of 37 banks that recently obtained a total of $418 million through the federal program, which is intended to encourage community banks to increase lending to small firms. Only banks with less than $10 billion in assets can apply for the funding.

DNB and Valley Green join Doylestown-based Monument Bank, which got $3 million in July, as the only local banks that have participated in the program created as part of the recent Small Business Jobs Act.

The Small Business Lending Fund requires banks to pay the Treasury a 5 percent dividend, but that rate can decline to as low as 1 percent should banks boost their small-business lending by 10 percent or more. Conversely, the rate can rise to 7 percent if a bank has not increased its lending two years after receiving funding.

Half of the 80 community banks that have gotten $1.01 billion in capital through the Small Business Lending Fund have used the proceeds to repay more expensive capital they'd raised under the Troubled Asset Relief Program created during the credit crisis.

According to Treasury Department documents, 40 banks that have received $650.5 million in funding through the Small Business Lending Fund have used the money to repay capital they'd received under TARP.

While some are calling the new loan fund "Son of TARP," Valley Green CEO Jay R. Goldstein said he thinks this Treasury program provides the right incentive that should increase small-business lending.

"It was an opportunity to continue to do what we were already doing," Goldstein said.

Valley Green is itself a small business with 39 employees, branches in Mt. Airy and Chestnut Hill, and total assets of $197.2 million as of June 30.

Many bankers contend loan demand is down from small businesses, while prospective borrowers counter that banks have tightened their standards so much that they aren't lending as much. At Valley Green, loan demand has been greater than three years ago, said Goldstein who offered a theory.

Before the recession took hold, Valley Green would compete with three or four other banks to provide a loan. Now, it typically faces off against just one other rival, Goldstein said.

To measure the change in loan activity, Treasury set the baseline at the dollar amount of small-business loans as of June 2010. Valley Green had already increased its total small-business loans by 10 percent by the end of September 2010, Goldstein said. So it will be paying the Treasury a dividend of just 1 percent for the foreseeable future.

Of the three local banks that have gotten funds through the new program, only DNB used the money to pay back the $11.75 million it got through TARP in January 2009. DNB repaid the Treasury Aug. 4.