Small Business:

SBA Incurs Substantial Losses on Liquidated Loans

T-RCED-91-64: Published: Jun 4, 1991. Publicly Released: Jun 4, 1991.

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GAO discussed the effectiveness of the Small Business Administration's (SBA) efforts to liquidate the collateral of defaulted general business loans. GAO noted that: (1) SBA failed to maximize recoveries on existing collateral; (2) loan losses were higher than necessary because SBA operating procedures did not ensure that private lenders were maximizing recoveries on liquidated collateral; (3) due to insufficient collateral, SBA incurred a 71-percent loss rate on liquidated general business loans; (4) SBA efforts to liquidate collateral did not ensure maximum recoveries, since SBA did not always timely identify, inventory, and value liquidated collateral, or prepare required liquidation plans or specific monitoring actions, and private lenders possessed limited financial incentives to maximize recoveries; and (5) collateral management activities were minimal, since SBA and private lenders did not usually take physical possession of collateral.

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