A little help from uncle sammy

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.