WASHINGTON — A member of the government's watchdog agency on Wednesday said the Small Business Administration should rethink elements of its program to delegate decision-making power to lenders.
At a hearing by the House Small Business Committee, William Shear, the director of the Government Accountability Office's financial markets and community investment division, said the agency should review whether its preferred lenders, those who have the authority to approve individual loans directly, were fulfilling the SBA's mission. "We're looking for SBA trying to get a better handle of how lenders are using this authority," he said in an interview after the hearing.
Shear said that a February GAO report on the "credit elsewhere" test, a requirement that lenders verify that a potential borrower is asking for an SBA-backed loan because he or she could not gain credit through another channel, had concluded that lenders were not documenting in enough detail their examinations of whether a borrower could indeed receive credit elsewhere.
"Are they checking the boxes that are one of the six reasons for credit elsewhere without any detailed documentation?" he said.
Shear added that lenders should be providing more context for their decisions.
His comments came as committee members questioned SBA Administrator Karen Mills on a host of oversight issues during her first appearance before the panel. Among the inquiries was a complaint from Rep. Blaine Luetkemeyer, R-Mo., who said the 7(a) program, the agency's flagship lending program, already burdens lenders with too much paperwork. "It's horrible; it's absolutely horrible," Luetkemeyer said of the requirements lenders face.
Mills responded that the SBA had already streamlined the process of approving 7(a) applications and that the agency's response time now is less than seven business days.
The contradictory messages — the GAO's call for more documentation alongside complaints about lenders' paperwork burdens — could pose a problem for SBA lenders if the agency decides to adopt the GAO recommendations.
But that is not necessarily going to happen. "The GAO and the SBA can work in concert, but they are not always singing the same tune," said James Ballentine, the senior vice president for political operations at the American Bankers Association. "The SBA has to balance the priorities of the administration and Congress with the recommendations of the GAO and their own IG. It is a tough act that SBA has often found difficult."
At the hearing, Mills faced a slew of questions from committee members about why the SBA had not adopted changes the GAO had previously recommended. A main theme was the SBA's disaster loan program, which still has not been beefed up, according to Shear, enough to handle an event the size of Hurricane Katrina.
The SBA has been working on a program to let private lenders make bridge loans to disaster-hit businesses as part of the program, but it is not yet functioning. An SBA spokesman said the agency had requested funding in its 2010 budget to create a pilot program for bridge loans by private lenders, and Mills agreed at the end of the hearing to give Small Business Committee Chairman Nydia Velazquez a timeline in two weeks for adopting the program, along with other improvements.