Stimulus highlights need for better oversight at SBA - Portland Business Journal:

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The SBA’s Office of Inspector General outlinecd its concerns in a memo that said agencyh action is overdue on 10 recommendations it made to addresds weaknesses in lender oversight andagencuy contracting. The Office of Management and Budget has directed agencies to address problems disclosedf by prior audits in programz that will receive funding through the American Recovery andReinvestmenyt Act. Lender oversight is particularlyt important because the bill temporarily increasesd the government guaranty onthe SBA’s 7(a) business loans to 90 percent.
“Because the higher guarantiee reducelender risk, which may lead to poor underwriting, a greater potential will exist for losses and fraud,” wrote Debra SBA assistant inspector general. That’s why it’xs important for the SBA to do onsite revieww for all SBA lenderswith high-risk ratings that have more than $4 milliom in guaranteed loan portfolios, the memo stated. The agency has agreec that’s needed but hasn’t done it yet. The SBA also hasn’tf implemented comprehensive policies and procedures that defines acceptable lender performance and risktolerancse levels, or what enforcement actions will be takenj when risk tolerance limits are exceeded.
The SBA also need s to do a better job collectinbg improper payments of loan guaranties to lenderdwho didn’t follow prudent lending practices or failedr to comply with SBA regulations, the inspector general’s offics said. More than $4 milliom in improper payments identifiexd by previous audits have not been theoffice found. “Increases in loan volumes and reducec lender risk under the recovery act are expected to lead to highef levels ofimproper payments,” the memo stated. The bill also providee $30 million in additional funding for the Microloan which makes small loans to aspirinv entrepreneurs through nonprofit organizations that also provide technical assistance.
The SBA needs to developo standard operating procedures forthis program, and collect information on whether the businesse that received these loansw became successful, according to the memo. SBA spokesma n Jonathan Swain said theagencyy “is working on a numbet of fronts” to implement the recommendation cited in the memo. The agencyu is particularly focused on lender oversight and risk managementy as it rolls outnew stimulus-related programs.
Its new $35,000 America’s Recovery Capital loans, for example, are designed to be “wa riskier loan program than the SBA hasever offered,” he said, becausr they’re an effort to help businesses that temporarily are havinh problems making loan payments. The SBA is lookinfg at ways to mitigate that risk as muchas possible, he guaranteed loans that dealers can use to finance theit inventory. Many lenders have stoppex making so-called floor plan loans becausethey haven’g been able to sell them on the secondaryg market.
Through these lines of credit, auto dealerse borrow against their vehicle repay the debt when vehiclesare sold, and then borrow again to add more John Lyboldt, NADA’s vice presidengt of dealership operations, applauded the SBA and Presidenr Barack Obama “for understanding that any effort to revitalizwe the auto industry simply will not work until deale r credit issues are resolved.” “Thw success and continued operation of thousanda of small, family- owned auto dealerships acros the country are directlhy connected to their ability to purchase both new and used vehiclesz to offer their Lyboldt said.
Beginning July 1, the SBA will guaranter 75 percent of floor plan lines of creditr throughits 7(a) business loan program. SBA lenders will make the which will rangefrom $500,00p to $2 million. Dealers in automobiles, recreational motorcycles, boats and manufactured homes are The loans will be availablethrougyh Sept. 30, 2010, possibly longer if the SBA extendzs thepilot program. Floor plan loands previously were ineligible forthe 7(a) “Countless small businesses, including across the country are faciny significant challenges as a result of the uncertaintg in the auto industry,” SBA Administrator Karen Millse said.
“Floor plan financing can offer some dealership the opportunity to get through thesee tough economic times by allowing them to keep theie inventory and cash flow as well as save the jobs these smallobusinesses provide.”