“Banks used billions from a small-business lending program to repay government bailout funds, rather than on its intended purpose — making more loans to mom-and-pop operations, according to a watchdog report released Tuesday.

“The Small Business Lending Fund dished out more than $4 billion to 332 community banks, credit unions and community development financial institutions to lend to Main Street businesses. It was especially appealing to small banks that received funds from the Troubled Assets Relief Program, the government’s rescue initiative.

“By signing up for the lending program, banks could convert their TARP obligations into a lower-interest loan and escape restrictions on executive compensation. But in return, the banks were supposed to increase their lending to small businesses.

“Instead, 132 TARP recipients participating in the small-business program used about $2.1 billion they were awarded to exit TARP, rather than increasing lending, according to the report from the TARP special inspector general.”

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