If the Small Business Administration turns over its lending authority to local banks, minority businesses in Washington might have even more trouble obtaining loans, local SBA officials and minority businessmen say.
Local banks are often reluctant to loan money to minorities, they explain.
Proposed legislation, outlined last week by SBA administrator A. Vernon Weaver, would have the SBA gradually stop evaluating loan applications over the next three years, and turn the authority over to banks.
At issue is about $2.5 billion in bank loans to small businesses that the SBA currently guarantees. In the past, SBA agents have worked closely with the banks in approving, servicing and when necessary, liquidating assets in case of default.
Under proposed legislation, the banks will decide whether to grant a loan, but the SBA will guarantee the loan for up to 90 percent of its value in the event of default.
Legislation changing the current procedure is included in a bill now before a House and Senate conference committee.
According to Weaver, the new policy was planned to streamline and refocus the activities of the SBA.
Leon Bechet, director of Washington's SBA office, said he is concerned that if the new program gives total lending authority to banks, some minority businesses may suffer.
Last year, out of the District's 106 SBA guaranteed loans for minorities, only 33 were made by local banks. The agency guaranteed the rest.
Local minority businessmen frequently complain that they have trouble getting loans. Businessman Robert Hargrove is an example. He said he is having trouble getting a loan from local banks to buy a liquor store in the 3300 block of Georgia Avenue. Hargrove said he has guaranteed loans covering 90 percent of a proposed $260,000 bank loan, but banks are telling him he can't get the loan because 10 percent, or $26,000, is not guaranteed. "I can't get the loan because of a lousy 10 percent," Hargrove said.
Robert L. Alexander, another businessman who recently opened a Hardee's hamburger restaurant on Benning Road, said he had to go to more than 20 banks before he could finance the project.
Alexander said the proposed SBA change would be detrimental to minorities. "If we don't do something, black people just won't be able to get into business in the near future."
A national pilot program for the new loan guarantees is "floundering," according to one local SBA official.
James Chisholm, administrative Director for Finance and Investment for the SBA in Washington, said the only local bank participating in the program, a bank in Maryland, has not issued any loans under the new program.
"If this change in policy is going to work, there are going to have to be strong incentives for banks to participate," Bechet said.
Alexander said that SBA is taking a chance by assuming that local banks have liberalized policies to help minorities. "There is nothing to guarantee that the banks will not disapprove minority loans for contrived reasons such as lack of capital, timing, risk and appraisal value of property," he said.
"As it stands now," Alexander said, "I am opposed to the change."
A similar reaction was voiced by Arthur Johnson, a spokesman for the National Association of Black Manufacturers, who said: "Basically we feel if the SBA is going to relinquish approval of its loans to banks, it is going to be harder for blacks to get loans.
"The trouble blacks have had in getting loans is part of the reason for the SBA in the first place."
Col. Milton Carey, president of the Associated Minority Contractors of America, said he was not completely familiar with the proposed change, but said any change that would reduce the SBA's authority in making loans to minorities would be unfortunate.
Chisholm said for years the SBA "has been the court of last resort for minorities." He said under one set of guidelines minorities have had to be rejected by at least two banks and demonstrate that they could not get funding elsewhere before they would get a loan through the SBA.
"If there is no help from the SBA, there will just be no place for them (minorities) to go . . . They will be out in the cold," Chisholm added.
Bechet said that for at least the next year $7.8 million, 68 percent of which is earmarked for minorities, will be available to local small businesses.
Direct loans from SBA to businesses are based on a 7 3/8 percent interest rate which is far below the regular market rate.
"It is clear that we still have a strong demand for direct loans," said Bechet.
Chisholm said the local SBA office issued 246 loans totaling $30.8 million last business year. He said banks have participated in 142 of these loans for a total of $23.8 million.
He said there has been a significant problem getting banks to guarantee loans to minorities.
Weaver, who said the SBA will monitor banks that participate in the program, explained that the change will mean less paperwork and will reduce the processing time from three weeks to immediate approval of loans once they are granted by banks.
The proposed changes in SBA procedures are designed to permit the agency to focus on issues including advocacy for small businesses, procurement, prime contracting, subcontracting and the federal procurement program for minorities. If it goes into effect, it will enable approximately 500 employes to concentrate their efforts on priority areas, Weaver said.
He said the policy change has been prompted by growth of the SBA budget and a dwindling staff.
William A. Clement Jr., associate administrator for the SBA minority program, said the SBA will focus its attention on larger "non-traditional" minority businesses such as manufacturing and construction firms rather than smaller "Mom and Pop" businesses.
Both he and Weaver said the smaller businesses will not be forgotten. They said these businesses will still get counseling from the SBA.
Weaver also said the SBA is trying to remove the umbilical cord from minority firms which for years have depended solely on the SBA for their existence. He said the new emphasis on larger minority firms that produce products both in the private sector and in government is one sign of the change.