Better Management of Collateral Can Reduce Losses in SBA's Major Loan Program

Highlights

The 7(a) loan program of the Small Business Administration (SBA) makes or guarantees loans to small businesses that are unable to obtain financial assistance from other sources such as private lending institutions. In recent years, the 7(a) program has experienced increasing losses. As of April 1981, 14.4 percent of the outstanding loans were delinquent or in liquidation. As loans face possible liquidation, the collateral pledged in support of these loans gains greater significance as a means of reducing losses. GAO reviewed the program to determine if SBA liquidation policies and practices for 7(a) business loans have minimized Federal losses which have increased over recent years.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Small Business Administration	The SBA Administrator should determine those aspects of the District Office's Portfolio Management Division's workload where it is essential that the Government's interest be protected and align existing staff accordingly.	Closed Please call 202/512-6100 for additional information.
Small Business Administration	The SBA Administrator should modify the standard operating procedures to require spot checks of collateral during discretionary field visits to delinquent borrowers.	Closed Please call 202/512-6100 for additional information.
Small Business Administration	The SBA Administrator should modify the standard operating procedures to require evidence from the participating bank of the existence, condition, and location of collateral before the loan guaranty is honored.	Closed Please call 202/512-6100 for additional information.
Small Business Administration	The SBA Administrator should modify the standard operating procedures to clarify the requirement for and stress the importance of liquidation plans.	Closed Please call 202/512-6100 for additional information.
Small Business Administration	The SBA Administrator should modify the standard operating procedures to require that the current financial condition of loan obligors be determined as soon as a loan is placed in liquidation.	Closed Please call 202/512-6100 for additional information.
Small Business Administration	The SBA Administrator should modify the standard operating procedures to stipulate a timeframe for making a liquidation field visit to inventory and inspect collateral.	Closed Please call 202/512-6100 for additional information.
Small Business Administration	The SBA Administrator should reassign staff made available as a result of the Bank Certification Program to duties in the Portfolio Management Division.	Closed Please call 202/512-6100 for additional information.

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Topics

Business Regulation and Consumer Protection

Financial managementLending institutionsLoan defaultsLoan repaymentsLossesProgram evaluationSmall business assistanceSmall business loansSmall businessReal property