Additional Efforts Are Needed To Minimize Lease Guarantee Losses

CED-82-57: Published: Apr 6, 1982. Publicly Released: Apr 6, 1982.

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GAO evaluated the Small Business Administration's (SBA) efforts to minimize losses of lease guarantee defaults.

GAO found that, for the majority of default cases, lease guarantee losses are minimized through re-rentals or settlements. However, the SBA efforts to manage some lease guarantee defaults have not been adequate to assure that its losses are minimized. SBA standard operating procedures require a review of lessor and real estate agent activities to assure that a diligent effort is made to re-rent. The private insurers also believe that such reviews are important to assure re-rentals. However, in some cases, SBA field offices have not complied with the procedures and have little assurance that efforts are made to re-rent. In most of these cases, SBA received little specific information from the lessor on re-rental efforts and did not follow up with either the lessor or the lessor's agent. In addition, in some cases, SBA was not pursuing the collection of rents which could offset its losses substantially. GAO recognizes that SBA has limited staff whose attention is directed, on a priority basis, to servicing business loans.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Administrator, SBA, should require field offices to give more attention to servicing lease guarantee defaults and direct them to: (1) require lessors to submit specific information each month on their re-rental efforts, such as the names of realtors and prospective tenants, the lease terms offered by the lessor, and documentation of advertisements; (2) follow up on lessor re-rental activities to determine whether additional efforts are needed; and (3) collect all rents due SBA.

    Agency Affected: Small Business Administration


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