IBAA Fighting to Save Loan Guarantees From the Administration's Budget

overhaul the Small Business Administration go too far too fast. The Independent Bankers Association of America has released a statement saying it opposes the administration's plans for the agency. While it supports efforts to cut the budget, proposals to do so by eliminating appropriations for the agency's loan guarantee programs would hurt small banks, it says. The group suggests looking at other parts of the SBA to achieve the desired cuts. "This is a very important program to community bankers, and we think every possible avenue should be explored to achieve savings before going directly to the lending programs," said Ron Ence, director of legislative affairs. "What we're trying to do is create awareness that there are other areas that can create savings." The independent bankers are the second lender group to voice concern about the proposals, called Rego II, to achieve a "zero subsidy rate," meaning no congressional appropriations to fund the agency's loan-loss reserve. The National Association of Government Guaranteed Lenders voiced similar objections at its midyear conference in New Orleans last month. Instead of cutting appropriations for the loan-loss reserve, the IBAA proposed privatizing functions such as collections and litigation. Whereas this process can take a federal agency three to four years, the private sector often turns these matters around in as little as six months, the group contends. But privatization will not achieve efficiencies in every case, said Philip Lader, the SBA's administrator. "One must not confuse seemingly comparable time frames in the public and private sectors," he warned. "The public-sector requirements often are far more complicated than they are elsewhere. And a private service firm would not necessarily take less time if it had to complete all these legal requirements." Nonetheless, the SBA is open to examining ways of privatizing more of its processes, he said. He pointed out that much of its success is owed to privatization efforts. Still, any change in the way SBA runs its guarantee programs will have a greater effect on community banks than on larger competitors, said Mr. Ence. The reason is that small companies are the primary customer base of its members, and many customers need a government guarantee.

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