Small Business Administration:
7(a) Program's General Characteristics and Summary of Issues
RCED-00-158R, May 26, 2000
Pursuant to a congressional request, GAO reviewed the Small Business Administration's (SBA) 7(a) General Business Loan Program, focusing on: (1) the general characteristics of the 7(a) program, including how the program operates; (2) certain issues, such as the lack of coordinated lender oversight, that have been identified in recent studies and reports on the program; and (3) how SBA has responded to these issues.
GAO noted that: (1) the 7(a) program makes up almost 60 percent of the dollar amount of SBA's guaranteed loan portfolio; (2) as of January 2000, the 7(a) loan portfolio consisted of 182,745 loans totalling about $23 billion; (3) within the 7(a) program, there are three classifications of lenders--regular, certified, and preferred; (4) SBA reviews all loan documentation for regular lenders' loans and makes final loan approval decisions; (5) certified lenders determine borrowers' eligibility and creditworthiness, but require SBA's review and approval before making loans; (6) preferred lenders are given full authority to determine eligibility and credit worthiness and to approve loans without SBA's prior approval; (7) SBA estimated that preferred lenders represented 16 percent of the active 7(a) lenders and made 55 percent, by dollar volume, of all 7(a) loans, for fiscal year 1999; (8) most of the recent studies and reports on the program that GAO reviewed focus on lender oversight procedures and loan guaranty procedures; (9) lender oversight is the process that SBA uses to monitor program lenders; (10) guaranty procedures are the steps used to process, service, liquidate, and purchase 7(a) guaranteed loans; (11) in terms of lender oversight, the studies and reports indicate that SBA lacks a coordinated lender oversight program; (12) for example, SBA's operating procedures for the 7(a) program require on-site reviews to lenders, but SBA had not consistently reviewed lenders to ensure that they are complying with its 7(a) loan policies and procedures; (13) when SBA did not review lenders, it increased the potential for program abuse; (14) the studies and reports also show that lenders are not always following SBA's procedures for processing and disbursing 7(a) loans; (15) for example, the SBA Inspector General reported in January 2000 that 12 7(a) loans totalling $2.7 million were inappropriately approved or disbursed from March 1996 through June 1997; and (16) SBA officials told GAO that they have addressed or are addressing most of these issues through new policies and procedures or the agency's systems modernization efforts.