WASHINGTON – There's no disputing the Small Business Administration's disaster loan process came under heavy fire after last year's hurricanes, but the agency readily admits that there is room for improvement.
So in March, SBA put out a request for information to credit unions, banks and others in the private sector on ways to support the delivery of the agency's Disaster Assistance program within its current operational framework and/or within a guaranteed lending framework. At the time, SBA Administrator Hector Barreto said while more disaster loan dollars have been approved in a shorter time frame following the hurricanes than in any other disaster response in the agency's history, "that doesn't mean there isn't a better way." So far, the credit union industry has been relatively quiet on ways to improve the process. CUNA had previously sought guidance on how credit unions that are not SBA Preferred Lender and Express lenders could participate in the agency's GO Loan pilot program, a venture that aimed to process and approve expedited loans to small businesses that have been impacted by Hurricanes Katrina and Rita. At press time, CUNA said it plans to comment on SBA's disaster loan program and will post a comment call to CUs on its web site.
Meanwhile, America's Community Bankers offered a litany of suggestions to streamline the disaster loan program and get dollars into approved applicant hands faster. For starters, the trade group suggested that all banks that have commercial lending operations be allowed to participate in the disaster loan program regardless of whether they are SBA leaders, said Robert Seiwert, ACB senior vice president, commercial banking practice manager. The SBA could recruit, pre-qualify, certify and train interested bank participants from across the United States, ACB offered. Participating banks, however, must have acceptable exam results from their regulator and be trained and certified by SBA as qualified to be a SBA Disaster Loan Lender, the trade group emphasized.
Instead of SBA hiring resources to establish its own disaster recovery centers and loan information processing centers, it could use existing bank branches and call centers in the disaster areas to explain the SBA loan process, distribute loan applications and screen them, ACB said, adding "banks in the affected communities already have a relationship with the business owners who most likely would be loan applicants and, most importantly, understand which businesses would be credit worthy recipients of government-guaranteed disaster assistance loans."
Banks with a presence in more than one state can use remote call centers and loan processing centers to assist in the application processing when bank branches and other facilities inside the disaster area are not available due to either an inability to properly staff the facility or the destruction of the facility by the natural or man-made disaster, Seiwert said.
ACB also recommended interest rate "subsidies" for disaster assistance loans. The current SBA model of providing a loan guarantee to help "early stage" or marginal small businesses qualify for a loan by providing a government loan guarantee does not apply to "established small businesses" that are affected by either natural or man-made disasters. To make the subsidies happen, SBA could provide "low cost funds" to banks participating in the program through a revolving disaster loan fund, similar to the Community Development Block Grant's program, ACB suggested. Another alternative would be for the bank to utilize its own funds and receive an "interest rate subsidy" from the SBA for each disaster loan that it makes.
"Both alternatives would provide banks with the ability to provide their small businesses with the needed funds, at rates of interest that would ensure early sign-ups, by those businesses that can have a profound positive impact on helping the disaster area economy quickly rebound," Seiwert said. ACB said using an indirect loan approach will allow SBA to experience a lower level of loan charge offs. Unlike the agency's current direct loan program "that puts 100% of the loan at risk, – since there is no private sector lender that assumes any portion of the loss" – the indirect loan program would limit the government's exposure to a loss to the amount of the SBA guarantee. ACB cited SBA loss report data from 2004, which showed the agency's direct loan program experienced a 10.25% loss ratio while loans made by private sector banks under its indirect loan program experienced a 5.23% loss ratio.
"The credit expertise and local market knowledge of in-market lenders will also result in a far superior underwriting process as evidenced by the SBA's historic loss experience," Seiwert said. -
msamaad@cutimes.com
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