AP Photo/Eric Risberg

According to a report by the special inspector general for the Troubled Asset Relief Program, 137 community banks used $2.1 billion from a special fund aimed at boosting lending to small businesses to repay their bailouts from the financial crisis.

Congress created the small-business lending fund in 2010 to encourage banks with less than $10 billion in assets to increase their lending to small businesses. “At a time of economic distress, the aim was to help small businesses get capital that had become difficult for them to obtain. The loan program charged the community banks lower interest rates if they used the money for loans to small businesses,” reports The Huffington Post.

Here is how the numbers break down: The Treasury Department was given permission  to spend up to $30 billion on loans to small banks under the program. But only $4 billion was spent. Of that $4 billion, $2.7 billion was forwarded to 137 bailed-out banks. But instead of using the money to increase their small business lending, the banks used $2.1 billion of it to repay the higher-interest rescue aid they had received from the government—and it was all legal.

Under the Troubled Asset Relief Program, the small-business lending fund “turned out to be little more than a TARP exit strategy,” Special Inspector General Christy Romero said in a statement. Under the law, the banks were allowed to use money from that program to repay their bailouts. “By repaying TARP funds, banks were able to escape limits on executive compensation and other restrictions” explains HuffPo.

The Treasury Department isn’t happy with the report and in fact has disputed the report’s findings.  But, according to the Treasury, some of the bailed-out bank funds did go to small business lending. The department claims that the increase in small business lending was about 40 percent.

(Wall Street Journal) — Small businesses received more government-backed loans last year than ever before. Even so, access to capital remains a major hurdle for a significant number of U.S. entrepreneurs, new data show.  A record $19.6 billion were issued through the Small Business Administration’s flagship program in fiscal 2011, the government agency reported Wednesday. Those funds, however, were distributed to 53,706 businesses, roughly the same number as in 2010.  SBA loans, which are issued through banks, are intended to help small firms grow and hire. A portion of each loan is guaranteed by the federal agency to cover a bank if a borrower defaults, thereby reducing the bank’s risk. In turn, the agency reasons that the program encourages banks lend to more money to more small businesses.

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(Wall Street Journal) — The Obama administration’s latest attempt to jump-start small-business lending is facing headwinds even before it launches. The U.S. Treasury Department plans to release in coming days the criteria banks must meet to tap a $30 billion lending fund aimed at helping small businesses. The program is expected to include enticement for smaller banks to tap the fund, including an interest rate of as little as 1% and an opportunity for banks that still have Troubled Asset Relief Program funds to substitute new government funds with fewer strings and less stigma.

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(Inc) — The four largest banks in the U.S. are making good on their promises to increase lending to small businesses. Bank of America pledged to increase lending to small business by $5 billion this year, and this week reached the halfway point, with $45.4 billion loaned in the first half of 2010. That is nearly $9 billion more than during the same period last year.

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(New York Times) — The chairman of the Federal Reserve urged banks and regulators on Monday to help the nation’s small businesses get the loans they needed to create jobs. He also acknowledged that economists could not agree on why such lending has contracted substantially over the last two years.

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