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American Banker Magazine's recent article on the Small Business Administration's Karen Mills was quite a love-fest. Here's the other side of the story that would be good for the public to hear.
June 3 -
Karen Mills, the outgoing head of the Small Business Administration, gets high marks from bankers for cutting red tape, revamping little-used programs, improving outreach, and, most important, convincing lawmakers to raise caps so that banks could make larger loans.
June 1 -
Interest in SBA lending has picked up as the agency works to attract more lenders and borrowers by streamlining its programs.
March 26 -
Though the agency has reported record loan volume in recent years, many lenders and borrowers remain reluctant to use its programs because they view its application process as too cumbersome and its eligibility requirements as too strict.
February 26
A Small Business Administration program intended to give veteran-owned companies easier access to loans has come under fire for high default rates that have cost taxpayers over $31 million.
The Patriot Express program, founded in 2007, offers loans of up to $500,000 to eligible members of the military community who want to start or expand a small business. The program's costs far exceed its benefits, according to a
Patriot Express has a higher loan default rate than any other SBA loan-guarantee program, according to the GAO report. In 2011, the most recent year for which data was available, the program's default rate was 2.2%, compared to 0.6% for SBA Express loans and 0.5% for 7(a) loans. The year before, Patriot Express loans defaulted at a rate of 7.4%, well above the 1.7% default rates for the two other programs. From 2008 to 2012, the program has recovered just 2.9% on defaulted loans it had to purchase.
"Given the losses in the Patriot Express program since inception," the report concludes, "if the program continues on its current trend, Patriot Express costs will likely continue to exceed feeds collected and recoveries."
The GAO report also faults Patriot Express for failing to ensure that loans are extended exclusively to eligible veterans and their families. The program relies on lenders to assess eligibility and rarely reviews loan files to ensure that borrowers meet requirements, according to the report. "Without enhanced internal controls," the report says, "particularly with respect to monitoring of borrowers, SBA lacks assurance that Patriot Express loans are serving only eligible borrowers."
A lack of oversight appears to characterize the SBA's pilot programs, the report says. The fact that the SBA has yet to evaluate the effectiveness of Patriot Express or establish a framework for assessing the program's performance "follows a pattern for SBA pilot loan programs," according to the report.
"As with the Patriot Express pilot initiative, SBA has authorized other pilot loan programs in the past that it has subsequently not evaluated when making decisions about the future of those programs. SBA's past experience with pilots raises questions about its commitment and capacity to fully implement pilots that include a rigorous evaluation," the report says.
The SBA's former head administrator,
