More money. Same problems.

That’s the reaction some bankers and small-business advocates are having to a U.S. Senate bill that will establish a $30 billion fund to help community banks lend more cash to small companies.

The Senate recently approved creation of a Small Business Loan Fund that banks can tap and leverage to make more small-business loans. If the bill is approved by the U.S. House and President Obama as expected, it will allow community banks to borrow from the fund as a way to increase capital, which in turn boosts lending. Banks that lend more will pay smaller dividends on the preferred stock they’ll sell to the government to access the fund.

It’s designed to encourage community banks to improve their small-business lending operations.

Local bankers say any help for small businesses should be applauded. But they aren’t convinced the latest program is a silver bullet. Bankers in Charlotte continue to say the root of the issue is that many small businesses aren’t healthy enough to borrow money — not that banks are stingy or incapable of lending.

Kim Price, chief executive of Gastonia-based Citizens South Bank, says his bank won’t likely participate in the new fund. He says the bank has plenty of capital to support lending. He’s more focused on repaying an earlier government investment from the Troubled Asset Relief Program.

“It would just be dumping more money in our pot when we already have plenty,” he says of the Senate’s plan. “The idea that banks can’t or don’t want to lend to credible businesses is inaccurate.”

Bank of Commerce CEO Wes Sturges agrees that poor credit quality is a larger concern for bankers than having enough capital to support lending. His Queens Road-based bank has struggled to find qualified borrowers and recently launched an ad campaign highlighting success stories centered around businesses that received loans from his bank.

Says Sturges: “Why do businesses borrow? To expand the business or hire more people. That’s not happening very much right now. I wish it was.”

Still, he says having a fund capital-depleted banks can tap will be a positive development for struggling lenders.

Proposal too optimistic?

Gary Townsend, chief executive of Hill-Townsend Capital and a national banking expert, contends the Senate’s plan is overly optimistic. He suggests banks will participate in the program, but only as a way to access inexpensive, taxpayer-subsidized capital, not to benefit small-business borrowers.

“The taxpayer subsidy goes to participating community banks, not small-business borrowers, leading cynics to conclude that the SBLF is a political reward for the community bankers’ support of financial reform,” Townsend writes. “If we must subsidize, do it directly to qualifying small business, with greater immediate effect and requisite transparency.”

Chris Gunn, spokesman for the American Small Business League, echoes those sentiments. He says the Senate should put more emphasis on improving the overall climate for small businesses rather than giving banks more money.

“When it comes down to it, there are small businesses that are going to fail regardless, unless they get more customers coming through the doors,” he says. “This bill doesn’t do that.”

‘A better business climate’

Supporters of the lending fund say they realize it won’t solve all woes. But they say it’s a step in the right direction.

U.S. Sen. Kay Hagan (D-N.C.) held a conference call last week announcing her support of the bill. She cited conversations with small-business owners in North Carolina who have struggled to access credit.

“We have to create a better business climate,” Hagan told reporters. “This is going to get credit flowing to the people who I believe have the ideas that will create jobs in our state.”

Sen. Richard Burr (R-N.C.) voted against the measure.

Hagan points to provisions in the bill that will help small businesses that have low credit scores. For starters, the bill will extend the stimulus-funded Small Business Administration loan programs that expired in May. The biggest piece of that provision is a 90% guarantee on the SBA’s most popular loans to less than credit-worthy borrowers.

Sturges and Price agree the SBA incentives will be positive. “Anything they can do to help us reach borrowers on the fence is a good thing,” Price says.

The small-business bill also includes a cornucopia of tax breaks and incentives for small companies.

Thad Woodard, president of the N.C. Bankers Association says the bill’s elements — when taken as a whole — will likely improve the credit climate and help small banks and their business borrowers. That’s why the NCBA supports the bill.

“Anything that will lubricate small business is necessary and vital at this time,” Woodard says. “It’s the right thing to do.”