WASHINGTON – Sen. Olympia Snowe, R-Maine, is expressing disappointment with the Small Business Administration’s inability to prevent loan fraud.

“I find the SBA’s current oversight over lenders to be completely unacceptable,” Snowe said in a statement. “The SBA inappropriately allowed loan fraud and poor loan underwriting to occur at the Business Loan Express where 76 fraudulent loans totaling $76 million in loan guarantees were made.”

During a hearing Tuesday by the Senate Committee on Small Business and Entrepreneurship, Snowe, the panel’s senior Republican, pointed to a recent case in which a former employee of the Business Loan Express committed extensive loan fraud from the company’s Detroit-area office.

Snowe said the SBA needs to “dramatically improve” its oversight to prevent both lenders and borrowers from being driven away from “critical loan programs.”

The federal agency facilitates private loans to small businesses that might not otherwise be eligible by offering up to 85 percent guarantees to participating lenders. The lenders, which can vary from very large national banks to much smaller community banks, must fill out application forms and meet the agency’s requirements.

Bill Lucy, president of Merrill Bank in Bangor, said both banks and small businesses can benefit from the federal loan programs.

“The SBA provides a guarantee, a credit-enhancement, so it’s helpful to us as a lender,” Lucy said in a telephone interview Wednesday. “When we are looking at a new business or an existing business that might not have a real strong cash flow yet or might be a little short of collateral, that credit enhancement gives us initial comfort in extending credit.”

Snowe’s concern that the SBA is not providing enough oversight of its lending programs does not appear to be an extensive problem in Maine.

Lucy said Merrill Bank has been participating in the agency’s loan programs for “a while” without incident.

Mark Walker, vice president and counsel for the Maine Bankers Association, said the association has had a very good working relationship with the SBA and that its loan programs allow smaller banks to provide loans to businesses that they might not have otherwise been able to because of the high percentage of guaranteed backing.

“We’ve been one of the states where it’s worked very well,” Walker said in a telephone interview Wednesday. “We’ve never had any criticism about the oversight of the SBA programs. Both midsize community banks like Merrill Bank in Bangor and larger banks like Bank of America are all at times good participants in the SBA programs.”

Chris Pinkham, president of the Maine Association of Community Banks, said Merrill Bank is a good example of how Maine banks take advantage of the small-business loan programs.

“They are a classic community bank: They only have a certain market area; they can only do so much with the staff that they have,” Pinkham said in a telephone interview Wednesday. “They have become very good at doing those types of loans.”

He said not all Maine banks are able to take advantage of SBA programs, but those that do are generally satisfied.

“Banks either really like those programs and use them, or they don’t,” he said. “They are fairly complex in terms of getting the paperwork right and doing the underwriting. I would give high marks to the SBA over the last three or four years of really streamlining some of those programs. I hear positive things from the bankers.”

The general success of the programs led the agency to expand its resources to provide more loans to small businesses. To facilitate the growth, the agency created a preferred lender program that allows approved lenders to “receive varying levels of delegated authority from the SBA,” said Steven Preston, the agency’s administrator, during his testimony before the committee on Tuesday.

But in light of the recent cases of fraud, Snowe said, his agency needs to step up its oversight.

“The SBA cannot expect Congress and the American people to have any faith in that agency when it so completely and utterly abrogates its oversight responsibilities,” she said.

Snowe is sponsoring a bill that would increase the SBA’s obligation to oversee lenders.

Lending associations expressed support for the legislation.

Anthony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, said the bill “would significantly improve SBA’s lender oversight function without unduly increasing the regulatory burden on lenders.”

James Baird, executive director of the National Association of Development Companies, said the bill “proposes a commonsense approach to lender oversight by the SBA.”