SBA’s Patriot Express Loan Program Can and Should be Improved Not Eliminated

Jessica SarterSBA Loans

Keep Patriot Express Loans

SBA announced that the Patriot Express Loan Program will end on December 31, 2013 (Notice 5000-1293). The failure to extend this program perhaps was a result of a GAO report to Congress in September 2013 (GAO-13-727) criticizing SBA’s evaluation of the program and the high default rates. The GAO report compared Patriot loans with the regular 7a program and the SBA Express (“Express”) programs.

The Patriot program was a pilot program established in 2007 and extended in 2010, as the only program designed to provide members of the military community with enhanced access to capital for their small businesses. From a benefit prospective Patriot combined the best elements of the regular 7a and Express programs for both the lender and the borrower. It offered lower interest rates and higher guarantees of the 7a program (75%-85% depending upon loan amount) compared to higher rates and 50% guarantee for SBA Express, but offered the expedited processing similar to the Express program.

When analyzing the higher default rate for Patriot loans compared to the other programs, the GAO report pointed to the significantly lower SBPS score for Patriot loans compared to 7a loans, although the difference between Patriot and Express loans was not significantly different. If we look at the respective default rates by loan amount, it appears that Patriot and Express loans under $25,000 have similar default rates with 7a having significantly lower default rates. By contrast Express loans had a significantly higher rate of default than Patriot and 7a loans up to $150,000. Patriot and 7a default rates on loans up to $500,000 were not significantly different. It should also be noted that only 11 lenders accounted for 52 percent of Patriot loans and one lender accounted for 64% of the Patriot loans up to $25,000.

The statistics do not justify eliminating this program. A better approach would be to require a pre-approval scoring mechanism similar to the Small Loan Advantage Program and/or greater oversight of participating lenders, while keeping intact the other benefits of the Patriot program.

As Jeanne Hulit, acting SBA Administrator recently said “our nation’s 2.4 million Veteran Owned small businesses employ almost 6 million people and generate more than $1 trillion in receipts. In the private sector, veterans are 45% more likely than those with no active-duty military experience to be self-employed. Supporting veterans’ small businesses is the right thing to do, and it makes economic sense.” Our Veterans have earned the right to a special program to enable them to establish and grow their small businesses.