SBA's 7(a) Loan Program

The total portfolio for the Small Business Administration's (SBA) 7(a) loan program is about $6.8 billion, consisting of guaranteed, immediate participation, and direct loans. A GAO report discussed problems in the 7(a) loan program and stressed the need for management attention. A recent follow-up report pointed out that much of the corrective action which the SBA promised to take concerning loan approval and loan servicing has not been taken. SBA has (1) approved loans for questionable purposes; (2) transferred the risk of loan repayment from banks and other creditors to SBA itself; (3) failed to analyze the prospective borrowers' financial condition adequately or verified the adequacy of collateral pledged; and (4) failed to step in where needed to increase the chances of borrower success and loan repayment. Although the SBA standard operating procedures provide a sound basis for applicant evaluation, the procedures are not being fully implemented. Not all of the authorized SBA staff positions have been filled and staff shortages hamper loan servicing. Management assistance designed to foster the establishment, growth, and success of small business has been limited and untimely. In the situations where the recommended corrective actions have not been taken, SBA needs to evaluate the reasons and take appropriate action.