SBA Wants States' Help With LowDoc Program; Pa. Partnership Is Model

NEW ORLEANS - The Small Business Administration is asking state treasurers to help get community banks involved in its LowDoc loan- guarantee program.

Speaking to about 180 small business bankers here last week, SBA Administrator Philip Lader announced the launching of a Main Street Investment Program, modeled on the Pennsylvania Treasury's Small Business Development Program.

Under that program, Pennsylvannia Treasurer Catherine Baker Knoll has committed the state to deposit $25 million in selected banks over two years.

"We think this is a good way to get banks that are not acquainted with the SBA's new programs to take a look at LowDoc," he told those at the Consumer Bankers Association small business banking conference.

The announcement was Mr. Lader's second at the meeting. As previously reported, he also announced the launching of Fastrak, formerly known as Small Loan Express.

Under the Fastrak pilot, 18 lenders will be able to obtain an SBA guarantee on loans that use the banks' own documentation and lending criteria. In return, the SBA offers 50% loan guarantees and review of the loans only after approval.

But the new Main Street Investment Program is an effort to boost interest in an already successful program.

In Pennsylvania, the state treasurer has committed to deposit state funds in banks that agree to make SBA-guaranteed loans.

"After they put together (LowDoc), we thought this could be a good way to develop a working rapport with bankers in Pennsylvania," said Ms. Knoll.

While the program does not carry a guarantee from the Pennsylvania treasury, the funds the state deposits in participating banks will help offset the costs of servicing the 10% of the loan not guaranteed by the SBA.

"The SBA is guaranteeing 90%, so I'm offering to offset the other 10% with CDs deposited in their bank," she said.

Under the program, the treasurer in each state would agree to buy $200,000 of certificates of deposit at banks within the state for the entire term of the commitment. In return, the bank must use the funds for new SBA-guaranteed, LowDoc loans. If the bank lends more than $200,000, the state is to invest more in CDs.

Michael Arpey, general counsel to the Pennsylvania treasurer, pointed out that the CDs are not bought at below-market rates. "We are matching the whole loan with CDs that are paying rates acceptable to both the bank and the state," he said.

After four months, the program has generated $4.5 million in lending in Pennsylvania. It has also attracted the interest of 60 banks in the state, though only 27 applications have been accepted. Mr. Arpey said banks must have SBA lending authority to become eligible for the program.

Eventually, the SBA wants to expand the program to every state. Currently, Mr. Lader estimated, about 12 state treasurers have expressed interest in following Pennsylvania's lead.

The goal is to get banks in smaller communities acquainted with the SBA program, which offers bankers a one-page application and quick approval for qualified borrowers. The program is already expected to generate 35,000 LowDoc applications in the 1995 fiscal year, which ends Sept. 30.

"If the banks become interested in the SBA because of the treasury offering this program, then we've done our job," said Ms. Knoll. "Hopefully, this is going to create a lot more jobs by improving the climate for small business."

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