January 27, 2016
By Bob Coleman
Editor, C-Suite Wednesday
C-Suite Wednesday — CDC Proposed Rule Comments
I have separated the comments into two categories. Today’s comments address specific aspects of SBA’s notice.
Next week I will run the comments addressing broader issues such as CDC executive director compensation and the role of the CDC in economic development activities.
These comments are also posted in the Coleman Small Business Lending Group if you wish to add to the discussion.
- Most CDC’s are small non-profits, with volunteer boards, that are actively involved in local economic development in their areas. If SBA desires to regulate the larger multi-state CDC’s, that SBA itself has allowed to develop, it must move away from its “one size fits all regulation stance” and develop a tiered regulation stance that acknowledges the difference in CDC size, organizational structure, ties to local economic development organizations that now exist within the industry. Many smaller CDC’s continue to serve their local market with many other economic development initiatives and have not focused on merely being 504 loan production offices.
- SBA has made a concerted effort to increase the oversight responsibilities of CDC Boards of Directors. SBA should leave it to the CDC Boards to review the financial status of their respective CDCs, and make the determination how much the CDC needs to have in reserve to insure its continued operation. Also, CDCs vary in terms of size, volume, revenue and profitability, and due to varying economic conditions throughout the country, a single set of guidelines cannot address the economic development needs of every community. SBA should leave it to the individual CDC Boards to determine how best, and how much to spend on other economic development activities.
- There are approximately 250 CDC’s nationally ranging from very small to a handful of very large shops. A “one size” approach does not make sense. The SBA should exercise common sense and address the few bad apples rather than promulgate more bureaucracy and burdensome oversight. There are too many variables (geographic location, size, product diversity, etc.) that can impact the level of required reserves or compensation
- SBA needs to stop dancing around the issue via invasiveness and overreaction due to issues with a single problem organization, and recognize that the industry has returned to acceptable performance levels without (and well in advance of) all of the oversight initiatives of the past several years and let CDCs get back to the business of economic development lending… Or just admit that they really just want the industry to go away. Stop piling on an industry that is here to do good things and take a hard look at the true cause of the losses incurred from the downturn – poor SBA liquidation policies that tied the industry’s hands when trying to collect and no oversight on or retribution exacted problem third party lenders.
- I don’t believe that SBA should mandate that CDCs engage in other economic development activity. Let them do what they do best which is support the 504 Program. There are other organizations that can support non-504 economic development activity.
- Each CDC is really a small business and “cookie cutter” percentages for either “reinvestment” or cash reserves don’t take strategic planning into account. Also, the size differential is huge between the bottom 40% of CDCs and the top 20%.
- Most CDC’s are private, not for profit organizations. I believe the administration should monitor the results rather and dictate policy.
- The Federal Govt. has no right to dictate where a private entity places their funds. The CDC’s are already fulfilling the reg of economic development by facilitating the 504 loan program. Whether or not a CDC does more than facilitate the 504 loan program is up to the CDC along with how they manage excess capital. Excess capital is what the private entity or CDC has earned by performing a service and is theirs to spend or save. The Govt. should not be able to dictate where private enterprise spends or saves their income regardless if they contract with SBA or any other federal entity.
- This one size fits all mentality, which is a knee jerk reaction to the actions of a single man, is not successful. The 504 itself is an investment in economic development activity and SBA’s failure to recognize that is ridiculous. CDCs were forced to be non-profit and their income is strictly regulated for 504 loans, so IRS regulations and board behavior should govern how surplus’ is managed, not some arbitrary %.
- CDC’s should be required to reinvest funds back into their marketplaces, through economic development corporations.
- You can throw all the money you want at Economic Development and not achieve anything. I believe it is more important to try and identify Quality as opposed to dollars.
- SBA needs to let the CDCs do their jobs and not over-regulate or micro-manage. Not all CDCs are the same. One-size-fits-all regulation will not good for the banks and borrowers if the impact is to reduce the number of CDCs who are actually helping small businesses. Most CDCs are non-profit businesses. Many of the CDC directors and managers have invested a lot of blood, sweat, and tears over many years (even decades) with into these companies with zero equity potential. Enough already governmental over-reach. However, if the government was willing to put limits on its own spending, investment, deficits, and debt levels, l might be interested in that kind of regulation and management.
- SBA should take into account time donated to economic development activities, not just dollars contributed.
- The SBA needs to tread lightly when regulating the finances of the CDCs. Each market is different, making each CDC different. Should CDC executives be making multi-million dollar salaries, probably not, but if the CDC is in a highly profitable market, who is SBA to block the executives from being compensated accordingly. That said, requiring a certain level of reinvestment into the community is always a good idea for everyone in the short and long term.