Business Regulation and Consumer Protection:

SBA's Certified Lenders Program Falls Short of Expectations

RCED-83-99: Published: Jun 7, 1983. Publicly Released: Jun 7, 1983.

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GAO evaluated the effectiveness of the Small Business Administration's (SBA) efforts to streamline its loan delivery system by involving private lenders in the credit check process through the Certified Lenders Program (CLP). GAO also commented on whether SBA experience under the CLP warranted further delegation of authority to lenders under the Preferred Lenders Program (PLP).

GAO stated that SBA is not achieving CLP goals to speed up the credit decision process. GAO found that: (1) lenders often submitted incomplete loan application packages that contributed to substantial processing delays; (2) lenders frequently prepared inaccurate or unreliable credit analyses, forcing SBA to perform its own analyses; (3) when SBA made faster decisions on CLP applications, it was primarily due to priority processing rather than a reduced involvement on its part or better use of lender expertise; and (4) SBA had not realized any material resource savings as a result of the CLP. GAO concluded that, unless CLP achievements are significantly increased and become more effective, further consideration of the PLP would be wasteful.

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: SBA in its assessment of benefits, should compare any personnel time savings it expects from an expanded PLP against any additional efforts required in training lenders and monitoring their performance.

    Agency Affected: Small Business Administration

    Status: Closed - Not Implemented

    Comments: SBA believes that the PLP saves salaries and other expense, but it has not systematically measured or calculated the savings.

    Recommendation: The Administrator, SBA, should terminate further consideration of the PLP. Recognizing, however, that SBA is conducting a limited pilot test of the program, SBA should monitor and evaluate the following aspects of the program before considering further expansion: (1) the quality of lender credit analyses when compared with SBA standards and requirements; and (2) the completeness of loan application packages.

    Agency Affected: Small Business Administration

    Status: Closed - Not Implemented

    Comments: The PLP is being implemented on a national basis as of September 30, 1984. SBA expects that the number of banks participating in the PLP to increase significantly in fiscal year 1985.

    Recommendation: The Administrator, SBA, should develop a modified program to provide expedited loan processing to all SBA lenders who merit it through adherence to application packaging requirements. As part of this modified program, SBA should: (1) develop lender guidance in the form of a comprehensive checklist that will facilitate the assembly of complete and well analyzed loan packages by all lenders; and (2) apply preliminary screening procedures to all applications that would identify loan packages that are complete enough to qualify for expedited processing by SBA.

    Agency Affected: Small Business Administration

    Status: Closed - Not Implemented

    Comments: SBA has changed its lender certification criteria to emphasize quality rather than volume. However, SBA has not extended its expedited processing to any lender that submits complete packages and is not likely to do so.

    Recommendation: SBA should direct its loan specialists to retain responsibility for performing thorough credit analysis, verifying all elements of a lender's analysis to ensure that loan applications meet SBA loan quality standards.

    Agency Affected: Small Business Administration

    Status: Closed - Not Implemented

    Comments: SBA disagreed with this recommendation, stating that this action is inconsistent with SBA efforts to delegate more loan processing activity to lenders and is continuing with the CLP.

    Recommendation: The Administrator, SBA, should terminate the CLP as it presently exists because participating lenders have not merited the priority processing afforded them due to incomplete submissions and inadequate credit analysis.

    Agency Affected: Small Business Administration

    Status: Closed - Not Implemented

    Comments: SBA disagreed with this recommendation and does not intend to terminate the CLP.

    Recommendation: SBA should not give any further consideration to the Preferred Lenders Pilot Program unless compelling evidence surfaces that the program would be viable on an expanded basis and the problems identified in this report can be resolved.

    Agency Affected: Small Business Administration

    Status: Closed - Not Implemented

    Comments: The PLP is being implemented on a national basis as of September 30, 1984. SBA expects that the number of banks participating in the PLP to increase significantly in fiscal year 1985.

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