SBA's Pilot Programs To Improve Guaranty Loan Procedures Need Further Development

CED-81-25: Published: Feb 2, 1981. Publicly Released: Feb 2, 1981.

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The 7(a) business loan program is the principal activity of the Small Business Administration (SBA) for providing financial assistance to small businesses. SBA makes loans to small businesses and guarantees loans made by others. In recent years, the program has emphasized guaranty loans whereby SBA guarantees the repayment of loans made to small businesses by private lending institutions. The major cause of dissatisfaction among business owners, lenders, and SBA personnel is that it takes too long to obtain a guaranty loan because of the number and complexity of the documents required to apply for a loan, and the time required for a SBA review of those documents. SBA has been testing two pilot programs to expedite the processes for application and approval of a guaranty loan. The bank certification program aims to shorten the time required for SBA to review and approve guaranty loan applications. The operation effectiveness program is designed to reduce the number and complexity of the application documents.

Both programs appear promising in shortening the time and simplifying the paperwork required to obtain a guaranteed loan. The bank certification program addresses only one aspect of the problem, the amount of time SBA uses to review loan applications. The program does little to broaden the participation of banks and other lenders in the program. SBA has yet to develop and implement a system to provide audit and oversight of the certified banks' loan portfolios. The need for a system to monitor the performance of the certified banks is especially important now that SBA has the authority to delegate the determination of eligibility and loan servicing and liquidation to lending institutions. The simplified application documents of the operation effectiveness program have shortened the loan application and review time in the one SBA region where it has been tested. However, the revised documents have not been adopted agencywide nor been used for loan applications in the bank certification program.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The SBA Administrator should inform banks of SBA efforts to reduce loan processing time and simplify loan application documents.

    Agency Affected: Small Business Administration

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The SBA Administrator should monitor the activities of the banks operating under the bank certification program to assure compliance with program rules, regulations, and guidelines.

    Agency Affected: Small Business Administration

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The SBA Administrator should require that the simplified loan application forms and processing procedures be adopted agencywide.

    Agency Affected: Small Business Administration

 

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