WASHINGTON — Jan. 20 cannot come quickly enough for many Small Business Administration lenders.
Frustrated by an agency they say has been unresponsive under President Bush, lenders and other small-business advocates are counting on the incoming Obama administration to devote enough resources to help the agency win back thousands of small banks that have stopped making SBA loans in recent years.
Some members of Congress are pushing to elevate the SBA — an independent agency — to Cabinet-level status.
President-elect Barack Obama has released few details about his plans for the SBA, but lenders are nonetheless optimistic that his administration will be more open to suggestions for improving the agency.
"The most important people in the SBA … are the employees, the people that remain there after the administration changes," said Scott Harvey, the executive vice president and SBA manager of Fortune Bank in Seattle. "If the new administration pays attention to what the employees have to say, I think it will go a long way."
Lenders and industry officials say that under the Bush administration, the SBA has been treated as an afterthought — its budget has shrunk, the fees it charges lenders have remained high, and restrictions on some loan programs have remained onerous.
Recent changes to the pilot Community Express program highlight the lenders' frustration. In October the SBA limited the number of loans lenders could make each month under the program and changed its eligibility requirements. Lenders say the changes are a big reason the program's dollar volume in the first two months of the fiscal year that began Oct. 1 shrank 76% from a year earlier.
Lenders such as Tim Jochner, the chairman of Superior Financial Group LLC. in Walnut Creek, Calif., say the Community Express program is a popular one that helps small-business owners who would have trouble getting financing otherwise.
Mr. Jochner, whose firm recently had to scale back its Community Express lending, flew to Washington to meet with SBA officials Tuesday after his questions about recent changes to the program went unanswered. It was a frustrating meeting, he said. "We're going to have to wait for the next administration to come in."
Any Community Express revisions would require an act of Congress, but Mr. Jochner and others say the SBA, whose top officials are appointed by the president, needs to take the lead.
"The SBA should be on Capitol Hill talking to people about this," said John Taylor, the president of the National Community Reinvestment Coalition, which helped create the program for the SBA in 1999.
Mr. Jochner said, "I'm hoping that the new administration and the new Congress and new SBA appointees will look at this program and say, 'This is something that we need to invest more time and energy on.' "
An SBA spokeswoman said the Community Express changes were necessary, because the agency believes some lenders were targeting "the poor and less informed with predatory and exploitative practices without adequate counseling."
The default rates on the small loans are more than double the SBA's average, she said. "Community Express is important, but it needs reform before Congress expands it."
Since the beginning of the Bush administration, the SBA's budget has declined, and its staff has been slashed by more than half. The fees it charges for processing loans were lowered in 2003 and 2004 but have risen again to a level lenders call too high.
As a result, thousands of community banks have stopped using the SBA's loan programs over the last six or seven years.
The SBA has taken steps to address lenders' concerns. Before leaving the agency to take over the Department of Housing and Urban Development this year, Steven Preston — appointed the SBA's administrator by President Bush in mid-2006 — launched a range of initiatives to encourage more small lenders to use its programs.
The initiatives include a rural lending program that streamlines the application process for banks making 7(a) loans under $350,000, a new standard operating procedure for explaining the SBA's rules and regulations, and reduced waiting time for lenders to collect on the government guarantee in the event a borrower defaults.
Still, lenders say the SBA needs to be more flexible. One reason volume in its flagship 7(a) lending program is down, the lenders say, is that the SBA limits the rate lenders can charge borrowers for loans of seven years or longer to 2.75 percentage points over the prime rate. As the cost of funding for banks has risen, profits have shrunk, and many lenders have scaled back SBA lending.
Sens. John Kerry, D-Mass., Charles Schumer, D-N.Y., and Olympia Snowe, R-Maine, have pressed SBA to temporarily eliminate fees and increase the interest rate cap. All three have called for the Treasury Department to use money from the $700 bailout bill to stimulate SBA lending.
Meeting this week with Treasury Secretary-nominee Timothy Geithner, Sen. Snowe suggested elevating the SBA administrator to a Cabinet-level position.