SBA’s 7(a) Loan Guaranty Purchase Denial Review Process

The Office of Inspector General (OIG) is issuing this Evaluation report to assess whether SBA’s final decisions for 7(a) loan guaranty purchases previously recommended for repair or denial were appropriate to ensure program integrity and mitigate financial loss.

SBA’s final decisions on loan guaranty purchase requests previously recommended for repair or denial were not always appropriate to ensure program integrity or mitigate financial loss. We found the agency made final decisions on 16 of 32 loans we reviewed without sufficient evidence to support its decisions, resulting in about $11.5 million in potential improper payments. While SBA improved its timeliness in making final loan review decisions, opportunities exist to further enhance timely decision making and mitigate financial loss. For example, the agency did not seek repair or denial for 13 loans, totaling about $5.4 million, because the statute of limitations expired. Further, SBA did not pursue administrative offset for these 13 loans, which could have allowed the agency to collect on the loan guaranties owed by lenders.

We made six recommendations to enhance internal controls to promote program integrity and mitigate the risk of improper payments.

SBA management agreed with three of our recommendations and partially agreed with the other three. Management’s planned actions resolve all recommendations, which can be closed when they provide evidence of implementation.