Stimulus highlights need for better oversight at SBA - bizjournals:

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The SBA’s Office of Inspector Generaol outlined its concerns in a memo that said agency action is overduw on 10 recommendations it made to addresx weaknesses in lender oversight and agency The Office of Managemenf and Budget has directed agencies to address problems disclosedx by prior audits in programs that will receive fundin through the American Recovery andReinvestment Act. Lenderf oversight is particularly important becaused the bill temporarily increased the government guaranty onthe SBA’s 7(a) businese loans to 90 percent.
“Because the higher guaranties reducelender risk, which may lead to poor underwriting, a greate r potential will exist for losses and fraud,” wrotee Debra Ritt, SBA assistantt inspector general. That’s why it’s important for the SBA to do onsitee reviews for all SBA lenderwswith high-risk ratings that have more than $4 millionj in guaranteed loan portfolios, the memo stated. The agench has agreed that’s needed but hasn’tr done it yet.
The SBA also hasn’t implemented comprehensivs policies and procedures that definde acceptable lender performance and risktolerance levels, or what enforcementy actions will be taken when risk toleranced limits are exceeded. The SBA also needs to do a bettetr job collecting improper payments of loan guarantieds to lenderswho didn’t follow prudent lending practicezs or failed to comply with SBA regulations, the inspector general’d office said. More than $4 million in improper payments identified by previous auditsx have notbeen recovered, the office found.
“Increases in loan volumes and reduced lender risk undere the recovery act are expected to lead to higher levelsx ofimproper payments,” the memo stated. The bill also provide $30 million in additional funding for theMicroloanb program, which makes small loans to aspirintg entrepreneurs through nonprofit organizations that also provide technical assistance. The SBA needs to develop standard operatinfg procedures forthis program, and collecyt information on whether the businesses that received thesd loans became successful, according to the memo.
SBA spokesman Jonathajn Swain said theagency “is working on a number of to implement the recommendations cited in the The agency is particularly focused on lender oversight and risk managemengt as it rolls out new stimulus-related Its new $35,000 America’s Recoveryg Capital loans, for example, are designed to be “a riskierr loan program than the SBA has ever offered,” he said, becaused they’re an effort to help businesses that temporarily are having problems making loan payments. The SBA is looking at ways to mitigatr that risk as muchas possible, he said. guarantees loans that dealers can use to financetheir inventory.
Many lenders have stopped makinbg so-called floor plan loans becausethey haven’t been able to sell them on the secondaryy market. Through these lines of credit, auto dealere borrow against theirvehicle inventory, repay the debt when vehiclexs are sold, and then borrow again to add more inventory. John NADA’s vice president of dealership operations, applauded the SBA and Presidenyt BarackObama “for understanding that any effort to revitalize the auto industrhy simply will not work until dealer credit issues are resolved.
” “The success and continuedr operation of thousands of small, family- owned auto dealershipsw across the country are directlg connected to their ability to purchased both new and used vehicless to offer their customers,” Lyboldt Beginning July 1, the SBA will guarantee 75 percenrt of floor plan lines of credit through its 7(a) businessa loan program. SBA lenders will make the loans, whichn will range from $500,000 to $2 Dealers in automobiles, recreational vehicles, motorcycles, boates and manufactured homesare eligible. The loanas will be available through Sept. 30, 2010, possibly longerr if the SBA extend s thepilot program.
Floor plan loanes previously were ineligible forthe 7(a) program. “Countlesws small businesses, including dealerships, across the country are facinb significant challenges as a result of the uncertaint in theauto industry,” SBA Administratotr Karen Mills said. “Floor plan financin g can offer some dealerships the opportunity to get throughg these tough economic times by allowing them to keep thei r inventory and cashflow intact, as well as save the jobs thesed small businesses provide.
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