The federal government is a big player in public loan programs
to business. In purely financial terms, its performance is similar
to many state and local loan programs, but the dollars add up faster
because of their sheer scale.
The federal government's most significant role is as a loan guarantor,
acting as a co-signer of sorts (and thus assuming most of the risk)
on commercial loans to small businesses and on higher-risk loans.
The Small Business Administration (SBA) and the Farm Service Agency
both have guaranteed loan portfolios worth billions. Last year alone,
for example, the SBA's 7(a) program made about 38,000 loans worth
$9 billion, according to the SBA's Office of Financial Analysis.
The SBA branch offices in Minneapolis, Sioux Falls, Fargo and Helena
approved a total of almost 2,300 loans worth $430 million, according
to SBA online data.
The 7(a) program has a nationwide portfolio of 170,000 loans; about
6 percent (roughly 10,000 loans worth $1.5 billion) are in various
stages of liquidation, and an additional 5 percent are noncurrent.
The SBA's 504 program made about 5,000 loans worth $1.8 billion
last year, and almost 10 percent of the $7.6 billion in outstanding
loans were in liquidation as of 1998.
A number of other federal agencies are also involved in either
guaranteeing loans, making direct loans or providing grant money
as start-up capital for local loan funds. For example, there are
about 100 revolving loan funds (RLFs) in the Ninth District funded
by the Economic Development Administration (part of the U.S. Department
of Commerce) and the Rural Business-Cooperative Service (part of
the U.S. Department of Agriculture), according to a source with
the National Association of Development Organizations.
The Rural Business-Cooperative Service incurred total loan losses
of $266 million from 1993 to 1998 through its guaranteed loan and
intermediary relending programs, or more than 8 percent of all loan
funds made during this period. The programs also had combined delinquency
rates of more than 6 percent, according to a report last year by
the General Accounting Office (GAO).
The USDA also houses the Rural Utilities Service, which makes direct
loans to electricity, telecommunications and water/waste disposal
companies to improve rural infrastructure. In 1997, one of five
dollars in outstanding loan principal was either delinquent, bankrupt
or likely to default on loan repayment; from 1992-96, the program
racked up subsidy costs of more than $1 billion on direct loans,
the GAO reported.