The House passed legislation to incentivize community banks to increase their small-business lending.

The Small Business Lending Fund Act of 2010 was approved Thursday by a vote of 241 to 182. The legislation would establish a $30 billion lending fund for community banks that measurably increase their lending to small businesses. Banks would need to repay all capital investments with interest to the government within 10 years. The Congressional Budget Office estimates that the lending fund would bring in a profit of $1.1 billion to taxpayers, which would be used toward deficit reduction.

The bill would also provide $2 billion in funding for new or existing state lending programs. These programs already exist in around 30 states, use small amounts of public dollars to generate substantial private bank financing, and can use federal dollars to quickly increase small-business lending.

“Since the financial crisis of 2008, I’ve repeatedly heard from small-business owners in my district and across the country that barriers to affordable credit remain the biggest obstacle to business recovery, expansion and diversification,” said Rep. Melissa Bean, D-Ill., who co-sponsored the measure. “SBA lending has increased by 90 percent, putting $29 billion into the hands of small businesses, and large banks are increasing small-business lending in keeping with their commitments. However, a significant gap remains between the supply of available credit and those who need it. This bill seeks to help community banks address that gap through lending to local businesses, whose growth and innovation is key to our nation's economic recovery.”

The Senate still needs to vote on the measure, along with another passed earlier this week in the House to provide tax breaks for small-business investment (see House Passes Small Business Tax Relief Bill).

“The lending initiatives passed today, along with the elimination of capital gains taxes on small-business investments approved by the House earlier this week, will help make certain that small businesses can play a critical role in building and sustaining our nation’s economic recovery,” said Treasury Secretary Timothy Geithner in a statement. “The administration urges the Senate to take swift action on a package of measures to support small businesses and looks forward to working closely with Congress as they move to finalize this legislation.”