SBA urges caution from lenders

The U.S. Small Business Administration wants lenders to avoid a blanket approach to how they work with borrowers of federally backed loans that may run into difficulty.

Thu, Nov 06, 05:05 AM

The SBA reminded lenders in an Oct. 16 memo that its mission is "to aid, counsel, and protect the interests and well-being of America's small-business community."

While lenders should "prudently" manage their SBA-lending portfolios, the agency wants to ensure they do so "with a regard and sensitivity to the viability and success of the small-business borrower," the memo states.
                  
"Thus, while SBA recognizes that, during a period of economic uncertainty, some lenders may be inclined to take a more-aggressive approach to managing their SBA-loan portfolios, the agency would remind its participating lenders that such aggressive measures may undermine SBA's ability to further its mission of aiding and assisting America's small-business community and may contribute to further uncertainty for small businesses and our economy."

Dick Timken, director of SBA's Michigan office, said the Information Notice is intended to prevent an overreaction among lenders.

"It was just something where we wanted to remind our lenders to address their customers on an individual basis," Timken said.

The SBA encouraged lenders to avoid altering terms and conditions of loans or calling in broad segments of loans in their SBA portfolios "based only on changing financial factors or variables unrelated to the operation of the business."

The SBA in the most recent fiscal year backed $420.8 million in loans in Michigan.
Its primary lending program, known as 7(a), declined 36 percent in the number of loans, to 1,955, and 17 percent in dollar value, to $380 million during FY 2008 -- a reflection of the state's economy.

Under 7(a), the SBA guarantees 85 percent of a loan up to $150,000 and 75 percent of loans greater than $150,000 against default.

The other lending program, known as 504, registered a 7 percent increase in the number of loans, to 225, though the collective dollar value declined 8 percent to $107.2 million.

The number of 504 loans was Michigan's second-highest ever. Some 104 banks participated in SBA-lending programs in FY 2008, up from 92 in FY 2007. Timken expects more banks to participate in the 504 program in the future.

"You would think, given the economic times, that the SBA would really be an asset a lender would want to make use of," he said.

Source:http://www.mlive.com/businessreview/wester