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

iqukikofor.wordpress.com
The SBA’s Office of Inspector General outlineds its concerns in a memo that said agency action is overdus on 10 recommendations it made to addresd weaknesses in lender oversight andagencyy contracting. The Office of Management and Budget has directed agencies to address problems disclosesd by prior audits in programse that will receive funding through the American Recovery andReinvestment Act. Lender oversight is particularly important because the bill temporarily increased the governmenrt guaranty onthe SBA’s 7(a) busineses loans to 90 percent.
“Becausde the higher guaranties reduce lender which may lead topoor underwriting, a greatefr potential will exist for lossez and fraud,” wrote Debra Ritt, SBA assistant inspectodr general. That’s why it’s important for the SBA to do onsiter reviews for all SBA lenderswith high-riso ratings that have more than $4 millioh in guaranteed loan portfolios, the memo The agency has agreed that’s needef but hasn’t done it yet. The SBA also hasn’t implementeds comprehensive policies and procedures that define acceptabl e lender performance and risktolerance levels, or what enforcement actions will be taken when risk tolerance limits are exceeded.
The SBA also needs to do a better job collecting improper payments of loan guarantiew to lenderswho didn’t follow prudent lending practices or failes to comply with SBA regulations, the inspector general’a office said. More than $4 millionn in improper payments identified by previous audits have not been theoffice found. “Increases in loan volumex and reduced lender risk under the recoveryy act are expected to lead to higher levels ofimproper payments,” the memo The bill also provided $30 million in additionap funding for the Microloan which makes small loans to aspiring entrepreneurs through nonprofig organizations that also provide technical assistance.
The SBA needsd to develop standard operating procedures for this and collect information on whether the businesses that receivedx these loansbecame successful, according to the SBA spokesman Jonathan Swai n said the agency “is workingg on a number of fronts” to implement the recommendationss cited in the memo. The agency is particularly focuse d on lender oversight and risk management as it rollw outnew stimulus-related Its new $35,000 America’s Recovery Capital for example, are designed to be “a riskie loan program than the SBA has ever offered,” he said, because they’re an effort to help businesseds that temporarily are having problems making loan The SBA is looking at ways to mitigate that risk as much as possible, he guaranteed loans that dealers can use to finance theirt inventory.
Many lenders have stopperd making so-called floor plan loans becausethey haven’t been able to sell them on the secondaru market. Through these linez of credit, auto dealers borrow against theirvehicle inventory, repay the debt when vehicles are and then borrow again to add more John Lyboldt, NADA’s vice presidenf of dealership operations, applaudef the SBA and President Barack Obama “for understandin that any effort to revitalize the auto industryg simply will not work until dealer credit issue are resolved.
” “The succesws and continued operation of thousandse of small, family- owned auto dealerships across the country are directlyu connected to their ability to purchase both new and used vehicles to offer their customers,” Lyboldt Beginning July 1, the SBA will guaranted 75 percent of floor plan lines of credit throughj its 7(a) business loan program. SBA lenderd will make the loans, whichg will range from $500,000 to $2 million. Dealerx in automobiles, recreational motorcycles, boats and manufactured homes are The loans will be availablethrough Sept. 30, possibly longer if the SBA extendw thepilot program. Floor plan loansx previously were ineligible forthe 7(a) program.
“Countless small businesses, including dealerships, across the country are facinf significant challenges as a resul t of the uncertainty in theauto industry,” SBA Administratoe Karen Mills said. “Floor plan financing can offetr some dealerships the opportunity to get through these tougnh economic times by allowing them to keep their inventoru and cashflow intact, as well as save the jobs thesew small businesses provide.
”