On June 27, 2000, the OIG issued Audit Report 0-18, An Audit of an Early Defaulted Loan. The loan was judgmentally selected for review as part of the OIG’s ongoing program to audit SBA guaranteed loans charged off or transferred to liquidation within 36 months of origination (early default). The objective of this audit was to determine if the early loan default was caused by lender or borrower noncompliance with SBA requirements. The reviewed loan was processed under Preferred Lender Program procedures.
The SBA paid $781,623 to purchase the loan guarantee, including interest. The OIG determined that the loan was processed, closed, and disbursed in compliance with the loan agreement and SBA requirements. Based on interviews and documentation in the loan file, the OIG concluded that the loan defaulted due to a lack of adequate sales volume that led to bankruptcy.