UPDATE 1-Weakness rife in US small business loans-watchdog

(Adds SBA comment)

WASHINGTON, April 21 (BestGrowthStock) – Private lenders did not
use prudent lending practices for a small business program that
U.S. President Barack Obama hopes to expand to improve the
economy, a government watchdog said on Wednesday.

The U.S. Small Business Administration’s inspector general
found weakness in more than two-thirds of loans it examined in
a program aimed at encouraging construction projects.

Some $255 million worth of these so-called 504 loans were
made to borrowers who might not be eligible or might not be
able to repay them, Inspector General Peggy Gustafson estimated
in testimony to the House Small Business Committee.

The Obama administration has proposed raising the maximum
size of these loans to $5 million from $2 million as part of
its efforts to help the economy recover from the worst
recession in 70 years.

Eight of these private lenders also paid more than 20
percent of their gross receipts toward executive compensation,
reducing the amount of funds available for other loans,
Gustafson said.

SBA regulations require that excess funds be used for
investment in other economic activity, but one lender retained
almost 44 percent for executive compensation, she said.

The SBA needs to ensure that its rules are being followed,
House Small Business Committee Chairwoman Nydia Velazquez
said.

“Given the challenges entrepreneurs face finding affordable
credit, it is imperative that the Small Business
Administration’s capital access programs function correctly,”
she said in a statement.

In a tight budget environment, the Obama administration has
requested a $2 million increase for the agency’s lender
oversight efforts, the SBA chief said.

“I know we moved in the right direction this past year and
we’ll continue to take even bigger steps in the future,” SBA
Administrator Karen Mills said.

Penny Stocks

(Reporting by Andy Sullivan, Editing by Stacey Joyce)

UPDATE 1-Weakness rife in US small business loans-watchdog