Wrapping Up the SBA 504 Subsidy Discussion

Source: Final Agency Decision (Decision) relates to EDF RESOURCE CAPITAL, INC. (EDF), a California non-profit corporation authorized by the U.S. Small Business Administration (SBA or the Agency) to participate as a Certified Development Company (CDC) in the Agency’s 504 Loan Program.

A couple of weeks ago we questioned a throw-away footnote in SBA’s order to seize REsource capital that said the SBA 504 subsidy rate from 2009 to 2011 was incorrect.

Here is the exact quote from page 63, “The 504 Loan Program had upward reestimates of $1.5 billion for FY 2009, $1.6 billion for FY 2010, and $1.2 billion for FY 2011. In other words, for FY 2009 through FY 2011, the 504 Loan Program cost the Government $4.3 billion more than estimated in the model.”

The question we posed was if that was true, that if the 504 loan program cost $4.3 billion more than estimated over three years, the 504 subsidy rate is much higher than stated

We even offered that perhaps the line was a typo.

Well, after being called into Jeanne Hulit’s SBA principal’s office and being called out by NADCO for our “inaccurate and misleading information”, we have been assured by everyone that the actual SBA loss rate is 9.5%.

However, the fact remains that the “misleading” information comes from SBA, not the Coleman Report.

No one has been able to defend the statement that the “504 loan program cost the government $4.3 billion more than estimated” over three years. We didn’t make that statement up. That comes from SBA. And, as said if that is true, than the SBA 504 subsidy rate would skyrocket.

SBA won’t admit a mistake with the $4.3 billion additional cost statement. That conversation simply went in circles. And, we never got a satisfactory answer to what the amount meant.

The closest we got to an answer is “your definition of cost is different than the government’s definition of cost.”

Sorta the “depends of what your definition of is is” logic.

Now, we want to accurate. This we do know. Both statements simply can’t be true. SBA 504 losses can’t be 9.5% if there is an additional $4.3 billion cost to the program.

We’ve previously reported and SBA statistics show SBA 504 losses are 9.5%. That seems about right.

Therefore, you have to conclude SBA made a mistake in the $4.3 billion additional cost footnote, which is what we were suggesting in the first place.