In one of the largest sales of government assets since the savings-and-loan cleanup, the Small Business Administration on Tuesday will begin auctioning off $8.5 billion of loans.

Approximately 60 bids are to be entered this week on 26 loan pools worth a total of $350 million, roughly half of which are nonperforming.

The largest portfolio contains 546 loans, with $47 million in unpaid principal. The smallest includes six loans, worth $1.7 million. Winning bids will be announced Friday.

The SBA's goal, officials said, is to get out of the servicing business and focus more on what the agency does best -- processing loan applications.

We're trying to maximize our returns, said Arnold S. Rosenthal, the SBA's assistant administrator for portfolio management. We want to try and see if we can get a higher price for the assets than we would if we continued to service and liquidate them ourselves.

If this first sale draws healthy bids, the agency will offer the rest of the $8.5 billion portfolio over the next three years. If not, the agency will reevaluate its options.

The SBA declined to identify the minimum value that would cause it to view the sale as a success. It also declined to identify the bidders.

Officials vehemently deny that the selloff is designed to create liquidity for more lending, facilitate belt-tightening, or do anything other than increase efficiency and get more bang for the appropriated buck.

It's not a fire sale, it's not to raise money, it's not in reaction to anticipated budget cuts, and it's not for liquidity, an SBA spokesman said. It's a management tool.

Efficiency has been something of a sore point for the SBA.

Earlier this month, for example, the House approved a fiscal year 2000 appropriation level that SBA officials claimed would force the agency to fire three-quarters of its 3,100 employees and reduce the volume of loans it guarantees.

The Senate also approved legislation requiring deep staff cuts.

A House Appropriations subcommittee chairman, Rep. Harold Rogers, R-Ky., said lawmakers were sending the SBA a message that it would not tolerate a bloated staff.

Even SBA supporters think the agency should trim down. Anthony J. Feraro, senior vice president for small-business lending at Zions First National Bank of Salt Lake City, said the agency could afford to cut as much as 25% of its staff. I think it's an excellent idea, he said.

The SBA is taking a variety of steps to reduce program costs.

In addition to the asset sales, it has been ceding more and more decision-making and loan-processing authority to trusted commercial lenders.

The SBAExpress program, for example, lets lenders approve, service, and liquidate small-business loans of up to $150,000 by themselves. By 1998 more than 75% of SBA loans were processed through this or similar programs.

We're focusing very heavily on risk management and lender oversight as we give more and more authority to lenders, Mr. Rosenthal said.

In another bid to trim costs, the SBA has begun hiring banks to service 30% of the loans the agency makes to homeowners hit by disasters.

So far, however, the SBA has resisted the notion that its staff should be cut back, arguing that it makes far more loans today than it did in 1990 and with considerably fewer employees.

Friends and foes alike say the asset sale makes sense.

We have encouraged this type of sale in the past, said Floyd E. Stoner, deputy executive director of government affairs at the American Bankers Association. Servicing isn't something that the federal government traditionally has done well.

They've done a lot of groundwork on it, said Paul H. Cooksey, deputy chief counsel at the Senate Small Business Committee and a frequent SBA critic. If you're an investor, it should be a pretty good package.

The loans being auctioned Tuesday are not very representative of the rest of the $8.5 billion portfolio.

Two-thirds of the $350 million were made under the SBA's popular 7a program, which guarantees commercial loans to businesses that cannot obtain affordable financing elsewhere. The rest were made under SBA's 504 program, a business-expansion program in which funds provided by a commercial lender and the SBA are delivered through a nonprofit company.

By contrast, approximately 80% of the overall $8.5 billion are disaster loans made directly by the SBA to individuals or small businesses, and most are performing.

Investment banks and securities firms are expected to make up the largest fraction of Tuesday's 60 bidders.

Few commercial banks are expected to bid, though some may buy SBA loans later if they are securitized.

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