By MICHELLE A. SAMAAD
CU Times Senior Staff Reporter
WASHINGTON — As President-elect Barack Obama continues his trademark steady deliberation in selecting officials for his upcoming administrative team, the Small Business Administration has placed the agency's transition at the top of its priority list.
With just four months on the job, SBA Acting Administrator Sandy Baruah has shifted his focus in several directions coming to the agency after his predecessor, Steve Preston was hand-picked in April by President Bush to become the secretary of the U.S. Department of Housing and Urban Development. Since taking the helm, Baruah has continued Preston's efforts to restructure the agency's disaster loan relief programs, which came under fire for moving too slow after Hurricane Katrina and other deadly gulf region storms in 2005.
Like Preston, Baruah said he is very aware of the part that credit unions play in helping to reach small businesses that may have a harder time getting
approved for capital for expansion and startups. More than 450 credit unions are SBA lenders. Credit Union Times recently spoke with Baruah about his new role, the SBA's priorities and why credit unions should continue to form alliances with the agency.
Credit Union Times: As acting administrator, what will be some of your priorities at SBA?
Baruah: When [President Bush] put me here in August, disaster response was at the top of the agenda. I came in from another agency that had a similar type of model. Hopefully, we are out of the disaster season for the year. Hopefully, we're in a good state to assess everything from Midwest floods, California fires and hurricanes on the Gulf Coast. As we plan for the new administration coming in, our responsibility is that the government continues to function and function well. While some of us may have voted for the other guy, the election is over.
CU Times: The Small Business Administration has continued to reach out to the credit unions to encourage them to participate in the agency's loan programs. As acting administrator, how important is it to you to continue that outreach and why?
Baruah: It's very important to reach out to credit unions. First of all, I'm a credit union member myself, and I am very supportive of credit unions. Frankly and more importantly, credit unions have been a utilized resource in SBA's lending efforts. I think we have a greater opportunity to work with credit unions and get SBA loan products to credit unions.
CU Times: This appears to be a promising time for credit unions when it comes to establishing relationships with small business owners, many of which have been turned down by banks with their requests for capital and credit access. How can SBA help credit unions forge those new relationships?
Baruah: Credit unions, along with regional banks and community banks, are generally in better shape than bigger, national banks. We have directed our field offices at SBA to be proactive in reaching out to credit unions to sign on with the SBA family. We're very much working to develop more relationships with credit unions, and we're seeing some great success. In fact, in Utah,
credit unions are the fastest growing SBA lenders in the state.
CU Times: As you know, the economy and the markets are in a constant state of flux. How has the SBA been impacted by the instability? I
know the agency recently reported that there
was a nearly 30% drop in SBA loans during fiscal year 2008.
Baruah: Certainly, we have seen a decline in loan activity due to the perfect storm-a decline in housing values, tightening credit. The decline of credit worthiness and overall confidence has been shaken. Our volume is down. The primary message I send to folks, especially congressional folks, is that there is an access to capital crisis as opposed to a cost of capital crisis. The example I use is you're walking down a street. You see a product in the window on sale that you really want but the doors are locked and you can't get in. That's where we are now. If you can get a loan, interest rates are at record lows. The reason why loan volume is down is because demand is down. Secondly, a lot of financial institutions, less so than at credit unions, have tightened their credit standards. A lot of financial institutions are lacking the liquidity to make the loans. You have to have liquid money to make the loans.
As we talk to credit unions and other financial institutions about doing business with SBA, we're reminding these potential lenders that SBA is offering the one product that financial institutions are looking right now-reduced risk. If you're a financial institution and a little skittish and are trying to reduce risk, SBA is reducing risk. Our message to existing lenders is they have the authority [now] to defer payments up to three months for those in good standing.
CU Times: Is the agency planning to do anything more to fortify its disaster loan program?
Baruah: The agency has made strides with the program and that's in large part to my predecessor Steve Preston. The average processing time in 2006 was 74 days. Now it's six days. We've whittled down the process of how the loan travels down the pike to our loan center in Fort Worth. We just bought our disaster loan application online, really in time for Hurricane Ike. We have instituted a disaster information center to make sure all relevant parties including the administrator are on regular conference calls with folks on the ground. We're fully integrated on a real-time basis.
CU Times: Is their anything you would like to see SBA do that it is currently not doing?
Baruah: I'm going to leave that for private discussions with my successor. Certainly, the agency needs to continue to work on basic management and execution. Secondly, we're already executing and working with the White House to add liquidity into the secondary market to free up capital. Thirdly, I really encourage folks as they talk about SBA loans and small business, that we're facing an access to capital crisis. Some of the proposals out there talk about lowering the cost of loans but at the end of the day, the cost of capital is not the real issue here. We're going to encourage the new team [under President-elect Obama] that [SBA] can play a role.
Certainly, one of the legacies the SBA can take pride in over the past few years is morale is better. We were dead last two years ago [in a ranking of federal agencies] but now we could very well be in the top ten when rankings come out in February. We have clean audits from auditors. Just about every metric you look at, you will see improvements and that, I think, is because of my predecessor, Steve Preston.
–msamaad@cutimes.com

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