Bank of America (BAC) is providing $10m in grants to nonprofit lenders to be used as loan loss reserves, which may free up capacity at these lenders to access as much as $100m in “microloans” over the next year. Lenders can use these microloans to lend funds to small businesses. It’s part of an effort gaining traction at large banks to support expansion and job creation at small businesses. The BofA grants will allow lenders to leverage funds from the US Small Business Administration (SBA) and the US Department of Agriculture (USDA) to lend to small businesses. Nonprofit lenders are required to set aside loan loss reserves up to 15% of funds provided through the SBA and USDA programs. BofA noted that, due to tight economic conditions, many nonprofit lenders are unable to meet the reserve requirements needed to access the capital. The bank’s microloan reserve grants will allow nonprofit lenders to make loans to small businesses. “Helping strengthen small businesses and new start-up companies stimulates job creation and is critical to our nation’s economic recovery,” said David Darnell, president of BofA’s Global Commercial Banking division. “Bank of America is empowering these entrepreneurs by directing private sector capital to unlock exponentially greater amounts of federal dollars for their businesses.” While the $10m of grants aims to support small business lending indirectly, BofA and the rest of the big four banks are also increasing their direct lending efforts to small- and mid-sized businesses. BofA and Wells Fargo (WFC) grew small business lending 25% and 30% over 2009, respectively. A spokesperson for JP Morgan Chase (JPM) told HousingWire that small business originations, including credit cards, are up 37% in the first half of 2010. A spokesperson for Citigroup (C) said small business lending doubled at the bank over the last six months. Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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