MADISON (WKOW) -- Wisconsin's State Assembly unanimously approved a bill Thursday that would give banks greater incentive to issue commercial loans to small businesses.
The Small Business Capital Access program would encourage banks to issue loans that might otherwise be seen as too risky.
"Following the national economic downturn that occurred over a year ago, credit markets have drastically tightened and that has made it more difficult for small businesses to receive the funding they need to open and operate," said Rep. Peter Barca (D-Kenosha), author of the bill. "This program attempts to motivate banks to lend to small businesses and ultimately produce a win-win for both businesses and banks."
Under the program, the lender and the borrower pay a small percentage of the loan amount up-front. The state matches this amount and the money gets deposited into the reserve fund for the lender, who can use it as additional collateral.
"A major benefit of this program is that it creates a great deal of bang for our buck," said Barca. "A $350,000 investment by the state is estimated to leverage $13 million in loans for businesses to grow and create jobs. The state matches only a small percentage of what are comparatively small commercial loans, and with the state's temporary investment in the loan loss reserve fund, businesses can gain the financing they need to buy equipment and make payroll, while banks can benefit from issuing successful loans. Reserve funds on loans that have been repaid are returned to the program to be reused in future loans."
Currently, 26 states use similar programs to encourage small business lending. The bill would expand on an existing capital access program in Milwaukee, which advocates say has been operating successfully since 1992.
The proposal now goes to the Senate for consideration.