Stimulus highlights need for better oversight at SBA - Puget Sound Business Journal (Seattle):

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The SBA’s Office of Inspectotr General outlined its concerns in a memo that said agency action is overdue on 10 recommendationx it made to address weaknesses in lender oversightt andagency contracting. The Office of Management and Budgetg has directed agencies to addres s problems disclosed by prior audits in programsz that will receive funding througg the American Recovery andReinvestmenf Act. Lender oversight is particularly important becausse the bill temporarily increased the government guarantyt onthe SBA’s 7(a) business loans to 90 percent.
“Becauses the higher guaranties reduce lender which may lead topoor underwriting, a greater potentiakl will exist for losses and wrote Debra Ritt, SBA assistant inspector That’s why it’s important for the SBA to do onsitwe reviews for all SBA lenders with high-risi ratings that have more than $4 million in guaranteedc loan portfolios, the memo stated. The agenc y has agreed that’s needed but hasn’t done it yet. The SBA also hasn’f implemented comprehensive policies and procedures that define acceptablwe lender performance and risktolerance levels, or what enforcement actions will be takenh when risk tolerance limits are exceeded.
The SBA also needs to do a better job collecting impropere payments of loan guaranties to lenderswho didn’t folloq prudent lending practices or failed to comply with SBA regulations, the inspectort general’s office said. More than $4 million in imprope payments identified by previous audits have notbeen recovered, the officwe found. “Increases in loan volumes and reduced lendet risk under the recovery act are expected to lead to highefr levels ofimproper payments,” the memo The bill also provided $30 millionh in additional funding for the Microloanm program, which makes small loans to aspiring entrepreneurs throughy nonprofit organizations that also provide technical The SBA needs to develop standard operating procedures for this program, and collect informationm on whether the businesses that received these loanz became successful, according to the memo.
SBA spokesmanh Jonathan Swain said theagency “id working on a number of fronts” to implement the recommendations citeds in the memo. The agency is particularlt focused on lender oversight and risk managemenyt as it rolls outnew stimulus-related programs. Its new $35,00 America’s Recovery Capital loans, for example, are designed to be “az riskier loan program than the SBA hasever offered,” he because they’re an effort to help businesses that temporarily are having problems making loan The SBA is looking at ways to mitigate that risk as much as he said. guaranteed loanas that dealers can use to financetheirt inventory.
Many lenders have stopped making so-callexd floor plan loans becausethey haven’y been able to sell them on the secondary market. Through theser lines of credit, auto dealersd borrow against theirvehicle inventory, repah the debt when vehicles are sold, and then borrow againh to add more John Lyboldt, NADA’s vice president of dealershi p operations, applauded the SBA and President Barack Obama “for understanding that any efforg to revitalize the auto industry simplyg will not work until dealer credit issuea are resolved.
” “The successz and continued operation of thousandx of small, family- owned auto dealershipws across the country are directl connected to their ability to purchase both new and used vehicless to offer their customers,” Lyboldt said. Beginninhg July 1, the SBA will guaranted 75 percent of floor plan linezs of credit throughits 7(a) business loan SBA lenders will make the loans, which will rangd from $500,000 to $2 million. Dealers in automobiles, recreationaol vehicles, motorcycles, boats and manufactured homes are eligible. The loansw will be available through Sept. 30, possibly longer if the SBA extendws thepilot program.
Floor plan loans previouslty were ineligible forthe 7(a) program. “Countless small businesses, including dealerships, acroszs the country are facing significangt challenges as a result of the uncertainty in the auto SBA Administrator KarenMills said. “Floor plan financing can offert some dealerships the opportunity to get through these tougg economic times by allowing them to keep theirr inventory and cashflow intact, as well as save the jobs these small businesses provide.
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