Small Business Administration:

A Review of SBA's Estimate of Impact of Legislative Proposals for the 7(a) Loan Guarantee Program

RCED-00-49R: Published: Dec 15, 1999. Publicly Released: Dec 15, 1999.

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Pursuant to a congressional request, GAO reviewed the Small Business Administration's (SBA) estimate of the impact of legislative proposals on the 7(a) Loan Guarantee Program, focusing on: (1) how SBA prepared estimates of H.R. 2615's impact on the average size and number of loans SBA makes; (2) ways that SBA could have improved its estimates; (3) how SBA analyzed the impact of the legislative proposals on the credit subsidy rate for the 7(a) loan program; and (4) ways to improve this analysis.

GAO noted that: (1) SBA's estimates of the legislative proposals' impact on the average size of loans and the volume of loans represent the professional judgment of SBA's loan program officials; (2) SBA's analysis could have been enhanced had it considered, within the available time, factors such as: (a) the relative size of the program change, as compared with prior program changes; (b) the upward trend in the average loan size; and (c) the economic context surrounding historical changes to the program; (3) with respect to its estimate of the impact of the legislative proposal on the credit subsidy rate, SBA used a cash-flow model that incorporated the legislative changes in H.R. 2615; (4) SBA's conclusion that the legislative proposal would not significantly change the credit subsidy rate is based on assumptions regarding cash flows that appear optimistic; and (5) the prepayment assumptions were more optimistic than the cash flows used to prepare the fiscal year 1998 financial statements, which received an unqualified audit opinion.

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