Lowell banking on proposal to boost business
LOWELL — The city is gearing up to launch a program designed to boost the amount of money it places in local banks by millions of dollars in hopes of spurring small-business growth.
Devised by Lowell’s chief financial officer, Tom Moses, the Lowell Economic Advancement Program, or LEAP, would shift up to $2 million in city deposits to each local financial institution headquartered in Lowell that agrees to lend the city money to Lowell-based small businesses. The money would be diverted from funds currently in nonlocal banks.
The initiative is modeled after a similar effort launched by state Treasurer Steve Grossman to transfer $100 million of state deposits in larger banks to local banks, with the goal of boosting small-business lending.
Moses said he crafted the program in a way to comply with the spirit of City Councilor Patrick Murphy’s request earlier this year to see a percentage preference for local banks when the city makes investment decisions. In the fiscal year that ended June 30, nearly 80 percent of the city’s $59.9 million in average monthly deposits sat in nonlocal banks.
Century Bank of Medford held an average of $25.1 million in city funds per month in fiscal 2011. Bank of America of North Carolina — which the city uses to draw its payroll — possessed $22 million of city funds each month.
An infusion of cash into local banks has the potential to boost job creation in the city, Moses said.
“I hope the local banks find opportunities within their customer bases to lend this money and it ripples through the local economy,” he said.
Murphy said he is pleased that Moses’ proposal complies with the intent of his initial request and that banks must use the additional funds to lend to local businesses. He hopes the program boosts economic development in Lowell.
“One of the main problems facing small businesses is access to capital,” Murphy said. “To the extent that this helps with that, it will be a benefit to the city.”
Chet Szablak, executive vice president of Enterprise Bank of Lowell, said Enterprise has grown its commercial-lending program during the economic recession and would consider participating in the city’s new program to boost its business lending further. Enterprise Bank held an average of $9.3 million, or 15 percent, of the city’s average monthly deposits in fiscal 2011, the largest percentage for a local bank.
“We are a commercial bank, so we primarily lend to local businesses,” Szablak said. “With the city funds deposited here, we would be very much focused on lending it out to Lowell businesses.”
Jim Hogan, chairman and CEO at Washington Savings Bank in Lowell, said his bank would take a good, hard look at the city’s new local-banks program.
“We are a Lowell-based bank, and we are interested in the success of Lowell because it is tied to the success of our bank,” said Hogan, whose bank held an average of $53,020 a month in city deposits in fiscal 2011.
The city’s new deposit program is voluntary. To qualify, a Lowell-based bank must:
n Be on the list of banks qualified to do business with the state of Massachusetts.
n Have at least a satisfactory rating under the Community Reinvestment Act.
n Be adequately capitalized.
n Meet criteria under the city’s investment policy.
Also, participating banks must publicize their small-business lending programs to the Lowell business community and file quarterly reports with the city. Banks can maintain their own loan-underwriting standards, but the loans to businesses should range between $10,000 and $500,000.
Excerpts courtesy of the Lowell Sun. To read the full article, please click below: