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Propriety of Determination by Small Business Administration To Terminate Loan Guaranty

B-181432 Apr 05, 1979
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Highlights

A request was made by the president of a bank to reverse a previous decision to withdraw its 90 percent guarantee of a $200,000 loan to a private firm because the bank had not yet paid the required guarantee fee prior to default by the borrower. The Small Business Administration's (SBA) regulations state that SBA has no authority to accept late payment of a guarantee fee from the lender if the loan is already in default. However, SBA might be authorized in certain circumstances to reinstate its guaranty if default was completely cured by the borrower within a reasonable period of time and the fee was paid prior to the occurrence of any new default. Applying these standards to this case, the guaranty of this loan should not be reinstated since curing was inadequate. However, as to the possibility of a refinancing of this loan, should the Bank wish to make a new loan to the borrower to repay the existing one and request SBA to issue a new guarantee on the second loan, GAO expressed no opinion. This determination can best be made by SBA in accordance with whatever regulatory provisions or internal SBA guidelines might be applicable to a situation in which an existing nonguaranteed loan is to be refinanced by an SBA guaranteed loan.

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