Stimulus highlights need for better oversight at SBA - bizjournals:

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The SBA’s Office of Inspector General outlined its concernz in a memo that said agency actionb is overdue on 10 recommendations it made to addressw weaknesses in lender oversight andagencyg contracting. The Office of Management and Budget has directed agencies to addresz problems disclosed by prior auditsw in programs that will receivre funding through the American Recovery andReinvestment Act. Lender oversight is particularly important becausde the bill temporarily increased the government guarantt onthe SBA’s 7(a) busineszs loans to 90 percent.
“Because the higher guaranties reducelender risk, whicj 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 onsites reviews for all SBA lenders with high-risk ratings that have more than $4 million in guaranteed loan portfolios, the memo stated. The agenc y has agreed that’s needed but hasn’ft done it yet. The SBA also hasn’t implementecd comprehensive policies and procedures that define acceptabld lender performance and risk tolerance or what enforcement actions will be taken when risk tolerance limit sare exceeded.
The SBA also needas to do a better job collecting impropetr payments of loan guaranties to lenderewho didn’t follow prudengt lending practices or failed to complty with SBA regulations, the inspector general’s office said. More than $4 million in improper payments identifies by previous audits have notbeen recovered, the office “Increases in loan volumes and reduced lender risk under the recoveryy act are expected to lead to higher levelw of improper payments,” the memo stated.
The bill also provided $30 millionb in additional funding for theMicroloan program, whicb makes small loans to aspiring entrepreneurs through nonprofi organizations that also provide technicalp assistance. The SBA needsw to develop standard operating procedures forthis program, and collecf information on whether the businesses that receives these loans became according to the memo. SBA spokesman Jonathan Swain said theagency “i working on a number of fronts” to implement the recommendationsd cited in the memo. The agency is particularly focused on lender oversighgt and risk management as it rolls outnew stimulus-relatedf programs.
Its new $35,000 America’s Recovery Capitao loans, for example, are designed to be “a riskierr loan program than the SBA has ever he said, because they’re an effort to help businesseds that temporarily are having problems makintg loan payments. The SBA is looking at ways to mitigate that risk as much as he said. guaranteed loans that dealers can use to financedtheir inventory. Many lenders have stopped making so-callesd floor plan loans becausethey haven’t been able to sell them on the secondarty market.
Through these lines of auto dealers borrow against theirvehicle inventory, repay the debt when vehiclez are sold, and then borrow again to add more John Lyboldt, NADA’s vice president of dealershiop operations, applauded the SBA and President Barack Obamaa “for understanding that any effort to revitalizre the auto industry simply will not work untilp dealer credit issues are resolved.” “The successx and continued operation of thousands of small, family- ownes auto dealerships across the country are directly connectex to their ability to purchase both new and used vehicles to offef their customers,” Lyboldt said.
Beginning July 1, the SBA will guarantese 75 percent of floot plan lines of credit throughits 7(a) business loan SBA lenders will make the which will range from $500,000 to $2 million. Dealerx in automobiles, recreational vehicles, motorcycles, boats and manufactured homexsare eligible. The loans will be available through 30, 2010, possibly longer if the SBA extendzs thepilot program. Floor plan loans previouslt were ineligible forthe 7(a) program. “Countlesa small businesses, including dealerships, across the country are facin g significant challenges as a result of the uncertainty in theauto industry,” SBA Administratot Karen Mills said.
“Floor plan financing can offer some dealershipsa the opportunity to get through these tough economic times by allowing them to keep thei inventory and cashflow intact, as well as save the jobs thes e small businesses provide.”