Posted January 15, 2009

Comment by Eddie Tuvin
With respect to the proposed "Super SBA 7(a) loan program", it is in my opinion that the ICBA's proposed guarantee increase is not the solution. The issue at hand in our economic system, where small business has been cut off from a vital source of financing as evidenced by the 57% reduction in 7(a) lending over the same period in 2008, is not a matter of the percentage of the 7a loan guaranty, but rather a critical illiquidity in the market causing the current inability to sell the guaranteed portion of 7(a) loans at a premium sufficient to earn a profit for the originating lender.

Lenders (banks) left the SBA loan market for one mathematical reason -- it is currently unprofitable. The market seeks liquidity, meaning more funding of loans and the ability to sell those loans, not additional guaranty.

A set aside of TARP funds designated specifically for the acquisition of the guaranteed portion of 7(a) loans would be a better solution to stimulate lending at reasonable rates and terms to small business in the USA now. If the government established an agency similar to the RTC, designed to acquire the guaranteed portion of 7(a) loans under predefined terms which would allow banks to originate these loans for a reasonable profit, and hold these loans until an orderly liquidation in the marketplace could occur, this would attract lenders and thus reopen 7(a) lending to the small businesses of the United States.

Edward S. Tuvin, Managing Director
NASD RIA, MD RE Broker, MBA
Creative Capital Associates (Factoring)
growth capital solutions for over two decades
eddie@ccassociates.com
301.767.5942

Comment by Scott Harvey
The ICBA suggestion of offering a 95% guaranty would be a disaster. While most bankers are honest, it would only take a few to trash a good program by making 1,000s of "No Risk" loans which they could sell for a quick profit. The best suggestion for getting more community banks into SBA loans is to eliminate or at least greatly reduce, permanently, the ongoing servicing fee. The 0.55% reduction in yield is a real challenge for those that do not sell their loans, thereby making these loans less attractive to make, especially since they are going to less creditworthy borrowers. At the same time, a lower or zero servicing fee would increase yield on sold loans.

Most of the 20 suggestions for Obama have great merit. The only scary one is waiving the close review of early defaults made in 2009. It actually should be the reverse. We all know we are in the middle of the worse economy in our lifetime. As such, we should really be focused on our borrower's repayment ability. At the same time, we should make sure our documentation is perfect. If someone makes a loan in 2009 and there is an early default, that loan should be airtight or the SBA should have every right to deny the guaranty.

As an aside, I do not believe the decreased SBA funding is evidence of a crisis. It is driven by SBA Express lenders, especially BofA, leaving the program, probably as a result of losses from their 1,000s of "credit card" loans and the players who must sell their loans having no market. There actually are lenders who are making as many SBA loans as possible. Our approvals during the 4th quarter where the most we had all year and we currently are only limited by the number of applications we are receiving.

Scott Harvey
Executive Vice President & Professional Practice Manager
1201 Third Ave. Suite 700
Seattle, WA 98101
(206) 254-7280
(206) 254-0868 Fax

ICBA Wants 95% 7(a) Loan Guaranty, Testifies for "Super SBA 7(a) Loan Program" http://www.colemanpublishing.com/public/262.cfm

House Small Business Committee Press Release http://www.house.gov/smbiz/PressReleases/2009/pr-1-14-09-open-forum-economy.html

Washington Post Coverage http://voices.washingtonpost.com/small-business/2009/01/senate_hearing_small_businesse.html