WASHINGTON — Are banks making too much money on their Small Business Administration loans?
At a Senate subcommittee hearing last week on the agency’s effectiveness, Sen. Tom Coburn said he is concerned that they are and cited information from the National Association of Government Guaranteed Lenders’ Web site.
“I think it’s important that the SBA help small businesses, not help the people who help small businesses,” said the Oklahoma Republican, who is chairman of Homeland Security’s federal financial management subcommittee.
But the trade group’s chief executive, saying that Sen. Coburn misunderstood the information he cited, approached the subcommittee’s staff immediately after the hearing to request a follow-up meeting. To avert further confusion, though, the trade group pulled the material from its Web site Thursday.
The hearing was the 30th Sen. Coburn’s subcommittee has held to examine the efficiency of agencies and programs throughout the government. News of this hearing triggered rumors that Congress was intent on abolishing the agency altogether, but Sen. Coburn has insisted he has no hidden agenda.
Still, he kicked off the hearing with some harsh words for SBA employees, who he suggested had helped spread rumors that the intent of the hearing was to discuss eliminating the agency. The senator said he had seen e-mails from SBA employees “to organizations … for the purpose of undermining our hearing before it even began.”
“This type of illegal lobbying is unacceptable and will be dealt with accordingly,” said Sen. Coburn said, adding that he did not believe SBA Administrator Hector Barreto was involved in the alleged lobbying.
Mike Stamler, an SBA spokesman, said that the “SBA as an agency did not embark on any lobbying efforts in regards to this hearing” and that its Office of Inspector General would investigate the allegation.
One other subcommittee member, Sen. Thomas Carper, D-Del., joined Sen. Coburn at the hearing, which examined such issues as the SBA’s fiscal impact on the budget and whether the 53-year-old agency is fulfilling its mission.
Sen. Coburn expressed frustration over the lack of data on the agency’s economic impact. He told a witness, William Shear of the Government Accountability Office, that he would ask the GAO to commission such a study.
The senator also asserted, in an exchange with David H. Bartram, the National Association of Government Guaranteed Lenders’ chairman, that the group’s own Web site said banks could earn 70% return on equity from their SBA 7(a) loans.
“Your return on equity appears to be quite higher that what [banks] can do in the private sector outside of the SBA,” Sen. Coburn said. “That’s as good as credit cards,” he added.
In an interview after the hearing, trade group president and CEO Anthony Wilkinson said the senator had used the information “without fully understanding what the numbers meant.”
Mr. Wilkinson said it is possible for banks to earn up to 70% ROE on the loans, but not for the life of the loan as Sen. Coburn implied. He said they could earn up to 70% if they sell the government-backed portion of the loan on the secondary market but would only earn that much for the year in which they sell.
