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The SBA Makes A Polite Suggestion

By Bizbox

Sharon McLoone at our washingtonpost.com sister site reports that the Small Business Administration is urging banks who are qualified lenders of so-called 7(a) loans--the basic SBA program, under which loans to qualified small businesses who apply under the strictures of the Small Business Act are in part guaranteed by the SBA--to extend "flexibility" to small business borrowers in the current credit climate. (Most, though not all, banks are qualified 7(a) lenders.)

What does "flexibility" mean? "We are encouraging our lending partners to follow suit by extending three-month payment deferments on their SBA guaranteed loans to qualified borrowers who need relief," said Sandy Baruah, the Acting SBA Administrator. (Banks who are qualified to make 7(a) and the similar 504 loans already have the authority to do so.) Baruah also asked that banks not "broadly call borrower loans due to changing financial variables, such as fluctuations in personal credit scores, declining collateral values, and reduced home equity."

These are good ideas. Small businesses, already largely left out of the government's major bailout efforts, deserve every break they can get these days. It's a pity--well, more like a shame and a disgrace--that the best the SBA can do towards making them a reality is, um...what is it they're doing? Politely asking banks to go easy? Because banks themselves are having such an easy time of it right now, we suppose? The SBA should be able to make policy, what with it being an arm of the federal government and all. That it can't is madness.

As McLoone points out, part of the problem lies with those fees, and that problem in turn has its roots not in the current credit crisis but in the past several years of the program itself. 7(a) fees have been raised four times just since 2005: all in all, they've been doubled to $3,000 for small- and mid-sized loans, and raised to as high as $50,000 for large-sized ones. It should come as no surprise that the total amounts of such loans have been declining.

Sen. John Kerry (D-Mass.), chairman of the Small Business and Entrepreneurship Committee, has the right idea, having introduced a bill last month to suspend these fees. The right idea, because those fees are a major drag, and never more so than now; but also the right idea, because it's the government's job to regulate, not suggest.

Really. You have the government displaying greater activism, with its $700 billion bailout, than it has since roughly the New Deal. And while the benefits of this are certainly arguable, it is fairly unprecedented. Meanwhile, you have the SBA so utterly toothless that the best it can do is--what is it: encourage? request? beg?--banks, who are the ones in such a bad situation that they need the big bailout, to cut borrowers some slack (as if this didn't work against the banks' own business interests, both in the short term and as a matter of setting a precedent).

Congress: pass Sen. Kerry's bill, or something like it, or anything that gives the SBA actual authority over the program it ostensibly oversees.

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