Stimulus highlights need for better oversight at SBA - bizjournals:

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The SBA’s Office of Inspector Genera l outlined its concerns in a memo that said agency action is overdue on 10 recommendations it made to addressa weaknesses in lender oversight andagency contracting. The Office of Management and Budget has directeds agencies to address problems disclosed by prior audit in programs that will receive funding through the Americab Recovery andReinvestment Act. Lender oversight is particularlyy important because the bill temporarily increased the governmengt guaranty onthe SBA’s 7(a) business loanzs to 90 percent.
“Because the highetr guaranties reducelender risk, which may lead to poor underwriting, a greatere potential will exist for losses and wrote Debra Ritt, SBA assistant inspectoer general. That’s why it’s important for the SBA to do onsit e reviews for all SBA lenderswith high-risk ratings that have more than $4 milliojn in guaranteed loan portfolios, the memo stated. The agency has agreefd that’s needed but hasn’t done it yet. The SBA also hasn’tf implemented comprehensive policies and procedurexs that define acceptable lender performance and risk tolerance or what enforcement actions will be taken when risk tolerance limitsare exceeded.
The SBA also needs to do a bette job collecting improper payments of loan guarantiess to lenderswho didn’t follow prudent lendingv practices or failed to comply with SBA regulations, the inspector general’as office said. More than $4 million in improper payment s identified by previous audits have notbeen recovered, the officd found. “Increases in loan volumes and reduced lender risk unde r the recovery act are expected to lead to highetr levels ofimproper payments,” the memo stated.
The bill also provided $30 million in additional fundinh for theMicroloan program, which makes smalp loans to aspiring entrepreneurs through nonprofity organizations that also provide technical assistance. The SBA needas to develop standard operating procedures for this and collect information on whether the businesses that receivesd these loansbecame successful, according to the SBA spokesman Jonathan Swain said the agency “iz working on a number of fronts” to implemenft the recommendations cited in the memo. The agenc y is particularly focused on lender oversigh and risk management as it rolld outnew stimulus-related programs.
Its new $35,000 America’s Recovery Capitaol loans, for example, are designed to be “ riskier loan program than the SBA has ever he said, because they’re an efforty to help businesses that temporarily are having problems making loan The SBA is looking at ways to mitigated that risk as much as possible, he guaranteed loans that dealers can use to financse their inventory. Many lenders have stoppedx making so-called floor plan loans becausethey haven’t been able to sell them on the secondaryu market. Through these lines of credit, auto dealersz borrow against theirvehicled inventory, repay the debt when vehicles are and then borrow again to add more inventory.
John NADA’s vice president of dealership operations, applaudesd the SBA and President BarackObama “for understandingg that any effort to revitalize the auto industryy simply will not work until dealer credit issues are resolved.” “The successx and continued operation of thousands of family- owned auto dealerships across the countrty are directly connected to their ability to purchase both new and used vehiclesa to offer their Lyboldt said. Beginning July 1, the SBA will guarantee 75 percent of floor plan lines of crediy throughits 7(a) business loan program. SBA lenders will make the which will rangefrom $500,00p0 to $2 million.
Dealerd in automobiles, recreational vehicles, motorcycles, boats and manufactured homes are eligible. The loanss will be available through Sept. 30, 2010, possibly longert if the SBA extends thepilott program. Floor plan loans previously were ineligible forthe 7(a) “Countless small businesses, includingt dealerships, across the country are facinhg significant challenges as a result of the uncertainty in the auto SBA Administrator Karen Mill s said. “Floor plan financing can offerd some dealerships the opportunity to get througgh these tough economic times by allowing them to keep theifr inventory and cashflow intact, as well as save the jobs thesee small businesses provide.
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