Washington – Today Senator John Kerry (D-Mass.) called on the Bush Administration to protect taxpayer investments in government-backed small business loans and reinstate a program that uses lenders to recoup losses from defaulted loans. There is currently an estimated $404 million in fixed asset loans through the Small Business Administration’s (SBA) 504 program in default. Yet the Bush Administration has failed to request $2 million to fund the program that reimburses 504 lenders for loan recovery costs and last Friday, the Bush Administration announced it intends to suspend the program.

“The Bush Administration’s willingness to stick taxpayers with a $400 million bill is just bad business,” said Senator Kerry, Chairman of the Committee on Small Business and Entrepreneurship. “The choice is clear: Spend $2 million today to help recover up to $404 million in defaulted loans or continue on the current course of failed oversight and inadequate liquidation staff.”

Last week, the Bush Administration admitted it made a mistake in the agency’s 2008 and 2009 budgets to cover costs incurred by Certified Development Corporations that liquidate the defaulted 504 loans. However, instead of working with Congress to reprogram funds or seek additional funding in the budget, the SBA has changed the rules for lenders currently liquidating loans and is working to get rid of the program. At the same time, the agency does not have enough resources to liquidate almost 1,000 defaulted 504 loans worth an estimated $404 million, currently in some stage of liquidation.

In 2000, Congress passed a law to delegate liquidation authority to Certified Development Companies because the SBA did not have a good track record for maximizing recoveries. After seven years, the SBA finally established reimbursement rates in April 2007. Then, on Friday, April 4, 2008, the SBA announced it would no longer provide those incentives to Certified Development Companies for future liquidations and would reduce the reimbursement rate for Certified Development Companies for loans they were in the process of liquidating. In 2003, the agency eliminated almost 200 staff from across the country that were responsible for overseeing loan liquidation, leaving only about eight full-time staff to oversee 504 loans in default.

Senator Kerry introduced bipartisan legislation last year that would strengthen liquidation aspects of the 504 Loan Program. The Small Business Lending Reauthorization and Improvements Act, S. 1256, passed out of the Committee but Republican leadership in the Senate has blocked full Senate consideration.

The two letters that Senator Kerry sent to the Small Business Administration can be found below by clicking on the respective date.