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Mr. Obama’s Small Business Lending Fund would cover some 8,000 small and community banks that may have been eligible for TARP funds but opted against taking the money for fear of the strings that were attached or the stigma of accepting a bailout, Small Business Administrator Karen Mills said.

Banks with less than $1 billion in assets would be eligible to receive capital investments from the Treasury Department of up to 5 percent of their risk-weighted assets, and banks with assets between $1 billion and $10 billion could receive funds totaling 3 percent of risk-weighted assets. For every 2.5 percent increase in small-business lending over a two-year period, participating banks would receive a 1 percent decrease in the dividend rate they have to pay to Treasury.