The Small Business Administration's (SBA) 7(a) program is intended to provide loan guarantees to small business borrowers who cannot obtain conventional credit at reasonable terms and do not have the personal resources to provide financing themselves. In fiscal year 2008, SBA guaranteed over 69,000 loans valued at about $13 billion. To assist in oversight of the 7(a) program, GAO was asked to (1) describe SBA's criteria and lenders' practices for determining that borrowers cannot obtain credit elsewhere and (2) examine SBA's efforts to ensure that lenders are complying with the credit elsewhere provision. To meet these objectives, GAO reviewed applicable statutes and guidance, visited 18 lenders and reviewed 238 of their loan files, reviewed 97 on-site lender review reports, and interviewed SBA officials. GAO's samples of lenders and loan files were not generalizable.
Recommendations for Executive Action
|Small Business Administration||To improve the Small Business Administration's (SBA) oversight of lenders' compliance with the credit elsewhere requirement, the SBA Administrator should issue more detailed guidance to lenders on how to document their compliance with the credit elsewhere requirement. As part of developing this guidance, SBA could consider (1) requiring lenders to include the analysis that supports their credit elsewhere determinations and (2) identifying promising practices currently being used by lenders. After revising its guidance, SBA also could consider collecting and analyzing any additional information lenders are required to provide on how they apply the credit elsewhere standard.|