AP: SBA has bought $2.1B in bad loans since 2007

Matt Wagner, SBJ ReporterIf you’re wondering why banks are a little gun-shy about making loans to any and every businessperson who walks through their doors, check out this investigative piece by The Associated Press.

Thanks to the U.S. Freedom of Information Act – one of this country’s most fundamentally important laws, albeit an underutilized one, in my opinion – the AP learned that the U.S. Small Business Administration purchased $2.1 billion with a “B” in bad loans from its approved lenders last year. That number is expected to increase this year, but no one knows exactly how high it will climb.

If you’re crunched for time, but want the gist of the AP report, here ’tis:

• SBA-guaranteed loans to restaurants account for the largest number of bad loans, totaling $235 million in charge-offs since 2007. And get this: More than 150 loans of those loans were made to Quizno’s franchises.

• Bank of America Corp. made nearly 7,000 SBA loans worth $238 million that have been charged off since 2007, and more than 660 loans worth $174 million have been charged off by CIT Group Inc., a major commercial lender that was in the news recently begging for a government bailout to avoid bankruptcy.

If you’re wondering how many local SBA loans went bad, you’re not alone. I’m planning on drafting an FOIA request for our local branch office.


1 Response to “AP: SBA has bought $2.1B in bad loans since 2007”

  1. 1 Jerry Myers, First Biz Business Brokers July 29, 2009 at 4:27 pm

    Hi Matt:

    I read the AP piece you were commenting on. The piece didn’t mention the most salient fact necessary to understand the story – which is that the reimbursements SBA gives lenders for the guaranteed portion of the loan, when the loan goes bad, is paid for by the small business borrower through fees, (or at least was, before the current moratorium on the fees to the borrower)so there is no cost to the taxpayer when they have to cover a loan that goes bad. Until recently, when the moratorium was put in place, in fact, SBA was proud of the fact, and often publicized it, that their loan guarantee program was the only government program that was totally self-funded.

    The fees were up to 3 1/2% of the guaranteed portion of the loan, which for most loans before the recent Obama changes was 75%. (They now guarantee 90% of most loans, which I think you pointed out in your article on that subject, if I remember.)

    Thought this info might be helpful to you, if you weren’t already aware of it. Hope things are going great!


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