The Small Business Administration (SBA) has increased its reliance on private lenders to provide small businesses with access to credit. The 7(a) program is SBA's largest business loan program, and SBA has established a preferred lender program (PLP) in which eligible lenders make 7(a) loans without prior SBA approval. SBA guaranteed $9.9 billion in 7(a) loans in 2001. Because lenders are exercising greater autonomy in making 7(a) loans, effective lender oversight is essential to SBA's success in achieving its mission. GAO evaluated SBA's 7(a) lender oversight and reviewed its organizational alignment for conducting PLP and Small Business Lending Company (SBLC) oversight.
Recommendations for Executive Action
|Small Business Administration||1. To improve PLP and SBLC oversight, the SBA Administrator should incorporate strategies into its review process to adequately measure the financial risk lenders pose to SBA, develop specific criteria to apply to the credit elsewhere standard, and perform qualitative assessments of lenders' performance and lending decisions.|
|Small Business Administration||2. To improve PLP and SBLC oversight, the SBA Administrator should provide, through regulation, clear policies and procedures for taking enforcement actions against preferred lenders and SBLCs in the event of continued noncompliance with SBA's regulations. Specifically, the Administrator of SBA should adopt regulations that would clearly define SBA authority to take enforcement actions and specify conditions under which supervisory actions would be taken.|
|Small Business Administration||3. To improve PLP and SBLC oversight, the SBA Administrator should continue to explore ways to assist large national lenders to participate in the PLP. These efforts could include further development and implementation of SBA's Lender Liaison program and continued attention to standardizing the PLP certification process and enhancing its transparency, as was done with the development of the Lender Evaluation Worksheet to assist lenders in their interactions with district offices.|
|Small Business Administration||4. To improve PLP and SBLC oversight, the SBA Administrator should separate lender oversight functions and responsibilities from OCA, including those currently done by the Office of Financial Assistance, such as responsibility for revoking preferred lender status and establish clear authority and guidance for the Office of Lenders Program, or its successor office, that states, at a minimum, its program responsibilities and planned staffing for those responsibilities. This would provide an oversight office with greater autonomy within SBA to match the growing importance of lender oversight in achieving SBA's goal of ensuring that PLP lenders make loans to eligible borrowers while properly managing the financial risk to SBA.|