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

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The SBA’s Office of Inspector Generakl outlined its concerns in a memo that said agency actionh is overdue on 10 recommendations it made to addres weaknesses in lender oversight andagency contracting. The Officew of Management and Budgetr has directed agencies to address problemsa disclosed by prior audits in program s that will receive funding througy the American Recovery andReinvestment Act.
Lendedr oversight is particularly important because the bill temporarilyu increased the government guaranty onthe SBA’ 7(a) business loans to 90 “Because the higher guaranties reduces lender risk, which may lead to poor a greater potential will exist for losses and wrote Debra Ritt, SBA assistant inspector That’s why it’s important for the SBA to do onsiter reviews for all SBA lenders with high-ris k ratings that have more than $4 million in guaranteed loan the memo stated. The agency has agreed that’s neededd but hasn’t done it yet.
The SBA also hasn’t implemented comprehensivde policies and procedures that definde acceptable lender performance and risk tolerance or what enforcement actions will be taken when risk tolerancw limitsare exceeded. The SBA also needs to do a betted job collecting improper payments of loan guaranties to lenderswho didn’f follow prudent lending practices or failed to comply with SBA regulations, the inspectoe general’s office said. More than $4 million in improper payments identified by previous audits have notbeen recovered, the officew found.
“Increases in loan volumes and reduces lender risk under the recovery act are expected to lead to highe r levels ofimproper payments,” the memo stated. The bill also providecd $30 million in additionao funding for theMicroloan program, whicg makes small loans to aspiring entrepreneurs through nonprofiy organizations that also provide technical assistance. The SBA needs to developp standard operating procedures forthis program, and collect information on whethere the businesses that received thesre loans became successful, according to the memo. SBA spokesman Jonatha n Swain said theagency “ixs working on a number of to implement the recommendations cited in the memo.
The agency is particularly focused on lender oversight and risk managementt as it rolls outnew stimulus-relatede programs. Its new $35,000 America’s Recovery Capital for example, are designed to be “a riskiefr loan program than the SBA has ever he said, because they’re an effort to help businessee that temporarily are having problemsz making loan payments. The SBA is looking at ways to mitigates that risk as muchas possible, he said. guaranteeed loans that dealers can use to financdtheir inventory. Many lenders have stopped making so-calledx floor plan loans becausethey haven’t been able to sell them on the secondaryu market.
Through these lines of credit, auto dealerd borrow against theirvehicle inventory, repa y the debt when vehicles are sold, and then borro again to add more inventory. John Lyboldt, NADA’d vice president of dealershipo operations, applauded the SBA and Presidenft BarackObama “for understanding that any effort to revitalizre the auto industry simply will not work until dealer credit issues are resolved.” “Thde success and continued operation of thousands of family- owned auto dealerships across the country are directly connecte to their ability to purchase both new and used vehiclesd to offer their customers,” Lyboldt said.
Beginningg July 1, the SBA will guarantee 75 percen t of floor plan lines of credit throughits 7(a) busines loan program. SBA lenders will make the which will rangefrom $500,000 to $2 Dealers in automobiles, recreational vehicles, boats and manufactured homesw are eligible. The loans will be available throughh Sept. 30, 2010, possibly longer if the SBA extendas thepilot program. Floor plan loanse previously were ineligible forthe 7(a) program. “Countlesds small businesses, including dealerships, acrossx the country are facing significant challengesz as a result of the uncertainty in theauto industry,” SBA Administratore Karen Mills said.
“Floor plan financing can offe r some dealerships the opportunity to get through thesew tough economic times by allowing them to keep theie inventory and cash flow as well as save the jobs theses smallbusinesses provide.”