Dave Bartrum, head of SBA operations for US Bank and vice chair of the National Association of Government Guaranteed Lenders, says centralization of the Small Business Administration’s loan processing makes sense. (photo/lambertphoto.com)

Even before 9/11 prompted a shakeup of the immigration and homeland security bureaucracies, the Bush administration had embarked on a reformist agenda in education, the military and Social Security. The terrorist attack postponed some domestic changes but the Small Business Administration has been on a rocky road to reform since 2001. Dubbed “transformation” by the SBA, the agency is seeking to centralize its loan processing, servicing and liquidation operations — the “back office” — in a handful of service centers around the country.

Since the SBA’s inception after World War II, these functions have been carried out by about 70 district offices. The centralization of operations should mean a more predictable, and possibly Internet—powered lending machine that would complement the administration’s small business-friendly tax cuts.

“Our offices across the country were overburdened with a lot of process,” is the way SBA Administrator Hector Baretto put it in a pre-Inauguration interview. “We have ambitious lending goals, and many district directors said we can’t do what you want because we’re stuck in an office pushing paper.”

The transformation hasn’t been seamless. A December 2002 report from the General Accounting Office ripped SBA’s lender oversight, charging that the agency conducted only a “cursory review” of lenders’ loan processes. In September 2003, the agency was forced to recall the buyouts or reassignments of 189 SBA district liquidation department employees whose jobs were being transferred to Herndon, Va. The plan drew public fire from Democrats on the Small Business and Entrepreneurship Committee, including Sen. John Kerry, who called it “fiscally irresponsible.”

Last January, the 7(a) program was shut down temporarily when the agency exceeded its borrowing authority; lenders fumed. A replay of the shutdown was averted this fall when Congress agreed to the president’s plan to cut the $100 million subsidy to the SBA; the program now will be supported by fees paid by lenders and borrowers.

Meanwhile, Baretto continues to fine tune operations at the district level, approving “alternate worksites” for outreach personnel who used to work in the district office. Baretto says these workers now will work closer to their underserved constituents in the suburbs or rural areas.

Transformation doesn’t seem to have hurt loan demand. The SBA will have $16.5 billion to lend this year, nearly double the $9.5 billion lent four years ago. With its loan processing functions moved and personnel migrating out of the central office, what role will the district office play? Baretto and local district officials say marketing will become the new mission of districts, but some program experts look at transformation as a gradual phaseout of local authority.

“There’s not much of a role for a district office anymore,” says John Streit, a Chula Vista-based bank consultant. Banks have their own marketing channels that allow customers to find them without SBA, Streit says, and SBA’s record at driving business to banks has been overplayed.

But the head of an SBA department for a locally based community bank disagrees. “I believe the SBA marketing function is valuable,” says Dennis Stytz, senior vice president and SBA department manager for Southwest Community Bank. “We’re very active in the SBA program, and we have people coming into our banks who don’t know that we do SBA loans, are not going to ask, and don’t read the brochures or their monthly statement. So SBA’s outreach meetings with groups are helpful to get the word out. For example, a lot of people still think you have to be turned down by a bank to qualify for an SBA loan.”

Lenders approve of centralization, even at the cost of local program administration. “The centralization of loan processing is a very positive move,” says Stytz. “But the SBA doesn’t have enough people manning the stations to respond in the time frame they thought they could.”

A locally based SBA lender with operations in 28 states says centralization makes sense. “A processing center is preferred,” says David Bartram, head of SBA operations for US Bank and vice chairman of the National Association of Government Guaranteed Lenders. “If you have to deal with over 60 district offices, it’s very expensive. The reality is you don’t want to see the local SBA office go away. If you’re a small lender, you may still want to talk to somebody local, instead of dealing with a national processing center.”

George Chandler, administrator of the local SBA district office, says the effect of transformation has been to give more autonomy to lenders in loan decision making, and has “given us the ability to do more with fewer resources.”

Lender	Total $ Amount of Loans
CDC Small Business Finance	$17,710,000
Southwest Community Bank	$6,645,000
La Jolla Bank	$6,537,000
Lehman Brothers Bank	$6,456,200
Vineyard Bank	$4,548,700
EDF Resource Capital	$3,454,000
San Diego Community Bank	$2,974,500
CIT Small Business Lending	$2,974,000
California Bank & Trust	$2,630,500
Wells Fargo Bank	$2,606,500

Chandler says in the next three years, centralization of processing at the local level will free up remaining district employees to focus on outreach and training.

“We have SCORE (a counseling program staffed by retired executives), the Women’s Business Center, Small Business Development Centers, and they produce excellent clients,” Chandler says. “The district office continues to be of critical importance to the SBA program.”

A new source of clients is credit unions. Last year, North Island Credit Union funded three 504 real estate loans worth $4.2 million and this year will get into the larger 7(a) program. Jeff Stone, the head of NIFCU’s member business services department, says he sees a role for the local office.

“The district office is like our intermediary,” says Stone. “The district office lets us know where we could be concentrating our efforts, paying attention to minorities, and lets the lenders know how we’re doing.”

With online applications already commonplace in the home equity and auto loan arenas, can the SBA application process be handled online?

“I think so,” says Southwest’s Stytz. “I’m told the majority of 7(a) loans will be processed over the Internet in the next few years.”