Government says business loans down in January

Government says loans to businesses from top banks in rescue program fell in January

WASHINGTON (AP) -- The government said Monday that lending to businesses from the top banks getting bailout funds fell in January despite the billions of dollars the banks received in government support.

The Treasury Department said in a monthly report that lending on regular business loans and on business loans backed by real estate both declined in January, compared to December. The findings were based on reports filed by the top 21 recipients of rescue money from the government's $700 billion financial bailout fund.

The report attributed the decline in loans banks made to businesses in January to weakening demand on the part of businesses, reflecting the dismal economy.

"Demand in commercial loans and commercial real estate continues to be limited by the economic downturn, as businesses remain cautious in taking on new debt obligations," Treasury said in the new report.

However, critics of the $700 billion financial rescue effort have complained that the government has not done enough to make sure that the money that banks are receiving is being used for its intended purpose -- to get banks to resume more normal lending to businesses and consumers.

Many lawmakers have said they are getting rising numbers of complaints from business constituents who say it is becoming harder to get new loans to keep their businesses operating and that banks are pulling their current lines of credit even though they are current on their loan repayments.

The Obama administration announced on Monday that it would require the nation's 21 banks receiving government bailout money to provide monthly reports on how much lending they are doing for small businesses, expanding the current monthly report with new requirements dealing with lending activity for small businesses.

The administration also announced that the Small Business Administration would purchase up to $15 billion in small business loans made by community banks, using a portion of the $700 billion bailout fund that Congress approved back in October. These purchases will enable banks to provide new credit to small businesses.

In a further effort to promote more business loans, the administration also announced that the SBA guarantees on small business loans would be increased temporarily to 90 percent, up from a current level of 75 percent to 85 percent.

The new Treasury report found that renewals of existing business loans for commercial real estate fell by a median of 45 percent in January compared to December. The report said that the level of new business loans being made by the banks dropped by a median of 41 percent during January compared to the prior month. The median represents the halfway point for the banks surveyed.

In contrast to the drop in lending to businesses, the report found that activity in the area of residential mortgages and student loans increased in January compared to December.

"Despite the worst financial crisis in decades, the survey of the top 21 recipients of government investment ... found that most institutions had higher originations across consumer lending categories" in January compared to December, the report said.