In light of the devastatingly poor SBA lending results and the fact that the SBA has been dragging their feet in implementing the new lending programs dictated by the Economic Recovery Act, I started reading deep into the bowels of the SBA website and the Code of Federal Regulations that govern the criteria banks must meet in order to have SBA lending and SBA securitization status.
And after doing so, one has to wonder if ANY of our leading banks are qualified, under clearly defined government regulations, to partipate in the SBA lending programs.
The SBA Website and the Code on Federal Regulation states that the banks have to meet these criteria:
1. Operate in a safe and sound condition using commercially reasonable lending policies, procedures, and standards employed by prudent Lenders.
That rule alone takes most of our banks off the SBA lending list. They all violated the regulations on safety and soundness and in so doing created this nation’s economic crisis .
2. Have continuing good character and reputation, and otherwise meet and maintain the ethical requirements of §120.140
Dictionary.com defines reputation as the estimation in which a person or thing is held, especially by the community or the public generally. How many of our nation’s leading banks would be considered by our general population to have a good reputation? I can’t think of any, can you?
3. Holding sufficient permanent capital to support SBA lending activities (for SBA Lenders with a Federal Financial Institution Regulator, meeting capital requirements for an adequately capitalized financial institution is considered sufficient permanent capital to support SBA lending activities)
Based on the recent stress test results and our governments demands that the following banks raise additional capital: Bank of America, Wells Fargo, Citigroup, Regions, SunTrust, Fifth Third, PNC and KeyCorp; can one imagine that these banks have met the requirements to be adequately capitalized? If they were, then why would we be demanding that they raise additional capital? Does that mean that somehow, behind the scenes, these banks have been told that they don’t qualify as SBA lenders? Is it any wonder that our Small Business Community can’t find any SBA lenders among the biggest banks that took our taxdollars in the bailout?
Based on this information and what I see each day as a banker to the Small Business Community, it is my general opinion that our government leaders are completely and intentionally fooling us into believing that there is any support intended for the Small Business Community. It simply is not so!
SBA Securitization Market
The Code of Federal Regulations CFR 120.4 also defines the conditions that need to be met for a bank to securitize their SBA loans. And this is where it gets really interesting. Our leaders expound on the need to get the securitization markets flowing in order to stimulate lending and the future of our economic recovery. This mission is the foundation on which the TALF program was built and at the core of the American Recovery and Reinvestment Act of 2009. Yet, based on the criteria defined in CFR 120.4, it is unlikely that any of our lead banks will be able to securitize SBA loans. If SBA loans cannot be securitized, then that would mean that the banks would have to hold them on their books, and we all know that isn’t going to happen.
Here are a few of the guidelines, but I recommend that you all read the code in its entirety:
1. Securitization —A “securitization” is the pooling and sale of the unguaranteed portion of SBA guaranteed loans to a trust, special purpose vehicle, or other mechanism, and the issuance of securities backed by those loans to investors in either a private placement or public offering.
2. A Lender may only securitize 7(a) loans that will be fully disbursed within 90 days of the securitization’s closing date. If the amount of a fully disbursed loan increases after a securitization settles, the Lender must retain the increased amount.
This part pretty much kills any chance of a small business obtaining an SBA working capital line under the 7(a) program.
3. Have satisfactory SBA performance, as determined by SBA in its discretion. The Lender’s Risk Rating, among other factors, will be considered in determining satisfactory SBA performance. Other factors may include, but are not limited to, on-site review/examination assessments, historical performance measures (like default rate, purchase rate and loss rate), loan volume to the extent that it impacts performance measures, and other performance related measurements and information (such as contribution toward SBA mission);
Which part of the SBA’s Guiding Principles is our banking industy supporting as they systematically withdraw credit from small business, systematically increase business credit card rates to upwards of 25% and have generally refused to support the small business owner through any meaningful lending programs?
According to IRS.gov, in 2006 (the most updated numbers they had) there were 22 million sole proprietor tax returns filed in 2006 and an additional 3.2 million S-corp returns filed for businesses with revenue under $1 million dollars. These companies generated over 1.2 trillion dollars in revenue and paid salaries of over $200 Billion dollars and rent (supporting our nations commercial property owners) of over $70 Billion dollars.
If the Big Banks are not going to support this group through meaningful lending programs, then perhaps it is time for Ms. Mills and the SBA to focus on providing the incentives and support required for the community banks to increase their lending initiatives to the local markets they serve so well.