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Highlights

The Farm Credit Administration (FCA) reviewed the Small Business Administration's (SBA) oversight of the Small Business Lending Companies (SBLC) program and determined that several areas could be strengthened. SBA officials said that the agency plans to take appropriate action on most of FCA's recommendations to improve the program. However, FCA expressed concern about the financial risk to SBA's loan portfolio associated with less favorable economic conditions. Such conditions could place upward pressure on SBA's 7(a) loan default rates. SBA needs to have access to information that accurately identifies risk in both individual loan and the total portfolio. The initial SBLC examination results have provided some information to aid in such risk identification, but a continued effort is needed.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Small Business Administration The Administrator, SBA, should directly assign the SBLC examination function to the Office of Lender Oversight.
Closed - Implemented
The Acting Administrator of SBA directly assigned the SBLC examination function to the Office of Lender Oversight. According to SBA officials, SBA's IG has not raised the issue of whether a delegation of authority from SBA's IG is necessary.
Small Business Administration The Administrator, SBA, should ensure that SBA provides, through regulation, clear policies and procedures for taking supervisory actions. Specifically, if SBA determines that it does have the necessary statutory authority, the Administrator of SBA should develop and adopt SBLC regulations that would clearly define SBA authority to take supervisory actions and specify conditions under which supervisory actions would be taken. If SBA determines that it does not have necessary statutory authority, the Administrator of SBA should make a legislative proposal to ensure that the agency has the supervisory authorities necessary to direct and enforce corrective action of conditions that may not merit a suspension or removal of lending status.
Closed - Implemented
In its 2004 proposal for legislation, SBA asked for specific supervisory and enforcement authority for small business lending companies and non-federally regulated SBA lenders. The Senate's bill to reauthorize SBA programs (S1375) proposes to provide the requested authority.

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