The Virginia Small Business Financing Authority (VSBFA) is doing a poor job issuing loans for small businesses with millions in unused funds available, according to a new report by the Joint Legislative Audit and Review Commission (JLARC) released Monday.
The VSBFA is a part of the Virginia Department of Small Business and Supplier Diversity, but operates separately from the rest of the agency.
From 2018 to so far in 2020, the vast majority of VSBFA funds have gone unused.
In 2018, only 8 percent of available funds were used, in 2019 only 10 percent were used and in 2020 there has been a light increase with 24 percent used, but still well below the numbers from 2016 and 2017, according to the report.
“When we looked at the VSBFA’s mission, which is to support small businesses, it become pretty clear to us that providing funds to support those businesses is really a key part of what they do and so seeing that between 90 percent and 76 percent of funds were unused in 2019 and 2020 that just didn’t seem to be fully fulfilling their mission,” Said Lauren Axselle, project leader, in an interview with The Virginia Star.
Combined together, the VSBFA has $76,894,000 in unused funds over the last three years.
The JLARC report said that the “VSBFA has tended toward caution and generally been too conservative when making loan decisions” and several banks “described VSBFA as too risk averse.”
That is exactly opposite of what the VSBFA should be doing.
As a a program that receives state and federal funds, the VSBFA is designed to give more risky loans to small businesses, compared to private banks that typically do not approve loans with inherent risk.
The report outlines multiple factors that played a part in why so much funds went unused.
“The lack of consistent leadership likely contributed to VSBFA’s operational shortcomings,” JLARC wrote. “The authority has had five permanent or acting executive directors in three years.
“Two of VSBFA’s three loan officer positions were vacant for extended periods of time; one was vacant from October 2017 to September 2019 (23 months) and the other was vacant from September 2018 to February 2020 (18 months). All three loan officer positions were filled for only six months, because one loan officer left in August 2020.”
Another issue is that the agency lacks written policies that establish risk standards for loans and a standardized tool for staff to use in assessing the repayment risk of applicants, according to the report.
“[VSBFA] doesn’t really have a real coherent marketing strategy,” Justin Brown, JLARC senior associate director, told The Star.
VSBFA offers six different loan programs for small businesses. Three programs, microloan, economic development loan fund and child care financing program, provide direct loans while the other three programs, loan guaranty, capital access and cash collateral, provide support loans, according to the report.
In 2019, VSBFA gave loans to 24 businesses (14 direct, 9 support) totaling just over $3 million, according to the report.
The VSFBA did not respond to a request for comment from The Star by time of publication.
Through the VA 30 Day fund, Virginia technology entrepreneur Pete Snyder has approved 680 loans to small businesses impacted by COVID-19 in the past five months.
Snyder said the VSBFA results have been “piss poor” and that many small business owners feel that the government at all three levels has failed them during COVID, especially at the state level.
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Jacob Taylor is a reporter at The Virginia Star and the Star News Digital Network. Follow Jacob on Twitter. Email tips to [email protected].
