The Small Business Administration:

Loan Origination and Debt Collection Processes

AIMD-00-45R: Published: Nov 30, 1999. Publicly Released: Nov 30, 1999.

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Pursuant to a congressional request, GAO provided information on the Small Business Administration's (SBA) loan origination and debt collection processes, focusing on the extent to which SBA has established: (1) adequate loan origination procedures and consistently obtains the required documents and data necessary for determining whether loan applicants comply with the program's statutory, regulatory, and eligibility requirements and have any outstanding, delinquent federal debt; and (2) a systematic process for identifying and collecting delinquent debts, including a prompt referral of delinquent debts to the Department of the Treasury for offset and cross-servicing programs.

GAO noted that: (1) SBA has established adequate internal procedures for the 7(a) Loan Guaranty Program for determining loan eligibility, including procedures to screen loan applicants for outstanding delinquent federal debt; (2) based upon GAO's evaluation of a nationwide statistical sample of loans originated during the first 6 months of fiscal year 1999, GAO also found that SBA and lenders have consistently obtained the documents and data required by SBA's procedures to determine whether loan applicants comply with eligibility requirements; (3) although SBA and lenders did not use the Credit Alert Interactive Voice Response System to determine whether loan applicants had any outstanding delinquent federal debts, they did use private sector credit reports; (4) according to SBA officials, SBA has implemented an oversight program for preferred lenders and has developed and begun to implement oversight for other 7(a) Loan Guaranty Program delivery methods; (5) lender reviews for these other loan delivery methods were scheduled to begin during the first quarter of fiscal year 2000; (6) SBA has established procedures to guide its in-house collection of disaster and 7(a) guaranteed loans that are consistent with Debt Collection Improvement Act requirements; (7) these procedures include periodically sending notices of delinquency, periodically contacting borrowers, and providing opportunities for loan restructuring; (8) referral to Treasury for offset and cross-servicing are two methods that are to be used when others fail; (9) limited use was made of referral to Treasury for administrative offset, and delays existed in transferring delinquent loans to Treasury for cross-servicing; (10) according to SBA officials, delays in the referral of delinquent debt to Treasury for administrative offset occurred with the Disaster Home Loan Program because SBA's automated systems were not properly identifying loans eligible for offset, and those that were identified could not be processed at Treasury because the SBA and Treasury computer systems were not compatible; (11) with regard to transferring delinquent loans to Treasury for cross-servicing, SBA officials stated they have an understanding with Treasury that SBA will not transfer loans more than 180 days delinquent for cross-servicing if SBA is still actively pursuing collection; and (12) once a loan has been identified as uncollectable, the required charge-off processes may take several months, thus further delaying its transfer to Treasury for cross-servicing.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: In order to address the issues described above, the Administrator, SBA, should direct the Associate Deputy Administrator for the Office of Capital Assets to test SBA's systems to verify they are working effectively to identify and refer eligible loans to Treasury for administrative offset as soon as they become more than 180 days delinquent.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: In order to address the issues described above, the Administrator, SBA, should direct the Associate Deputy Administrator for the Office of Capital Assets to develop procedures that will allow uncollectible loans to be identified and transferred to Treasury for cross-servicing within the required time frames or for those loans on which they are still actively pursuing collection at the 180-day mark, promptly after suspending collection efforts.

    Agency Affected: Small Business Administration

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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