Small Business Administration Guaranteed Loan

A bank requested authorization by GAO for the Small Business Administration (SBA) to purchase the guaranteed portion of a $250,000 term loan made by the bank to a private firm. SBA previously declined to purchase the guaranteed portion of the loan because the bank had not paid the required guarantee fee prior to default by the private firm. As a matter of law, a bank is not entitled to a formal decision from GAO. However, since SBA action was based on a prior GAO decision, GAO considered the arguments presented by the bank. SBA has descretion to approve refinancing of an existing nonguaranteed loan. Therefore, the bank's failure to pay the guaranteed fee prior to default on the initial loan, which extinguished the guarantee on that loan pursuant to prior decisions, may not necessarily defeat the otherwise valid guarantee of refinancing. SBA is not precluded by any prior decisions from purchasing the guaranteed portion of the $250,000 loan the bank made to the firm.