As demand for its guaranteed loans grows to record levels, the Small Business Administration can point to a statistic sure to please taxpayers: commercial loan losses have been cut in half over five ears.

Since 1988, the year the SBA started calculating loss rates in accordance with industry practices, losses from the agency's popular 7(a) program have fallen from 3.98% of loans to 1.62% in 1993.

Over the same period, the decline in the dollar value of those losses has matched the decline in the loss rate.

With the exception of a slight uptick in 1992, actual losses on the 7(a) program have steadily dropped from $454.7 million in 1988 to $205.3 million last year. Between 1992 and 1993 alone, dollar losses fell more than 39%, from $338.9 million in 1992.

James Hammersley, deputy director in the office of financing at the SBA, said improved training of loan officers and better monitoring from the agency's centralized processing center in Sacramento, Calif., are the primary reasons for the improvement.

"Anybody can say yes to a loan, but the hard part is saying yes to the right loans," he said. "It's attributable to the better underwriting we did in the late 1980s and the better servicing we're doing in the 1990s."

Software Can Help Track Interest Payments

Some lenders have found that keeping track of interest payments on loans sold into the secondary market can be a costly headache.

The problem, experts say, is that not all bank accounting systems can handle the difference between government-guaranteed loans and ordinary commercial loans. Interest on regular loans is payable to the due date, but the SBA requires borrowers to pay interest up to the day of the payment. Even small miscalculations can add up quickly for banks with large portfolios of mature SBA loans.

Tay Fried, a principal with Capitol Finance, a software provider for SBA lenders, said the problem got so bad at one bank that the 30-loan portfolio contained a $90,000 miscalculation.

Her company and others have developed software designed to catch the errors.

SBA officials downplay the problem, saying it is not widespread. They note that Colson Services Corp., the exclusive fiscal and transfer agent for the secondary market in guaranteed SBA loans, sends banks a computer record of what the bank really owes. If the payment difference is more than three days, then Colson will contact the bank to reconcile the difference.

Even so, the software can have other benefits.

Mary Beatty, SBA administrative assistant at Guardian Bank in Ontario, Calif., said Capitol Finance's product allows her department to recalculate the interest on its 20-loan SBA portfolio in one-tenth the usual time. "To me it replaces one full-time employee," she said.

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