Comments from Lender to Senate Committee on Small Business & Entrepreneurship - "SBA should not be the lender of last resort"
by Eddie Tuvin
Posted January 29, 2009 To: Senator Landrieu, Senator Snowe, Senator Kerry, Senator Lieberman, Senator Cardin, members of the Committee,
Many of you have known me for quite some time, in particular Senators Snowe, Kerry and Cardin. My continued interest is to insure that our government makes lending available for small business at reasonable rates and on reasonable terms. Small business is the back bone of the US economy and the future of our collective economic growth. If we fail to incubate small business today, the negative effects on the future of our economy 5 and 10 years from now could be devastating.
In addition to my previous comments below, please extend my thoughts to the Committee now that they have commenced reviewing H.R.1,, American Recovery and Reinvestment Act of 2009 (Introduced in House), and particularly SEC. 6204. ECONOMIC RECOVERY PROGRAM. In my opinion, SBA should not be the lender of last resort. My initial reaction to the 95% Super Guarantee was that it would relieve lenders of responsibility keeping them in the "deal" at a negligible 5% level and open the door to abuse. I feel strongly that lending should be left to lenders and that the SBA and it's participating lenders are the best example of a quasi private-public effort to provide capital for business growth in the world. Lenders should have a share in the risk of any loan to insure the loans are underwritten properly using qualified credit parameters. As opposed to the SBA becoming a direct lender, there should be a liquidity solution that creates incentive for banks to lend and makes it profitable in the interim during this period in history when we have no secondary market interested in purchasing these loans. This is the component that is missing. I know many banks who were ready willing and wanted to lend in the third and fourth quarter of 2008. As premiums fell last year for the sale of the guaranteed portions of loans, many lenders continued to originate and held the loans taking a wait and see attitude. These SBA lenders held on anticipating that the market would correct itself. At some point they simply ran out of funds for new origination or felt they had enough exposure and ceased further lending. When the market continued to drop and we saw treasuries being sold at 0%, we saw SBA lending division doors start to close at banks across the country including Community South Bank, UPS Capital, Banco Populare, and many others as it was simply not profitable to make SBA loans.
Having the SBA act as lender is not the solution. Creating an environment where banks are induced to loan and have a readily available market to sell portions of these loans at known premiums is the solution to create liquidity NOW. Banks are well suited for underwriting, packaging, closing and servicing loans. The SBA is not. If Banks can make a profit in lending to small business, they will reenter the market. There are only a limited number of banks that can portfolio (hold loans on their books) for extended periods. By creating a market in which our banking system can originate and then sell loans that meet very specific predefined underwriting criteria, this limits SBA's exposure, makes Bank's a partner to the SBA by sharing in the risk, and gives the SBA the opportunity to resell the guaranteed portion to investors when the overall market returns to its historical demand for such securities. A sufficiently funded stimulus package which creates a limited life entity to purchase the guaranteed portion of SBA loans and is designed to orderly liquidate these loans over the next ten years is the right path for America's immediate needs. 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
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