On February 27, 2002, the OIG issued Audit Report 2-05, Audit of an SBA Loan. The SBA is authorized under Section 7(a) of the Small Business Act to provide financial assistance to small businesses in the form of government-guaranteed loans. These loans are made by participating lenders under an agreement to originate, service, and liquidate loans in accordance with SBA regulations, policies, and procedures. The SBA is released from liability on a loan guarantee, in whole or part, within SBA’s exclusive discretion, if a lender failed to comply materially with SBA regulations or the Loan Agreement, or failed to make, close, service, or liquidate a loan in a prudent manner.
The Office of Inspector General initiated an audit of 140 loans originated by the lender that were purchased by the SBA between January 1996 and February 2000, to determine if the loans were processed correctly. The audit identified several loans that had been originated, serviced, or liquidated in material non-compliance with SBA rules and regulations. One of these loans was to the subject of this report. The OIG reviewed this loan for compliance with 11 requirements found in SBA rules and regulations and the SBA-lender guarantee agreements.
The OIG found that the lender inappropriately awarded a loan to the subject of this report. Specifically, the lender approved a loan to an ineligible applicant. According to SOP 50 104, a lender must verify the resident alien status of a borrower to ensure that the loan borrower is authorized to remain in the United States for at least half of the maturity of an approved loan. In this loan, the borrower clearly indicated on SBA Form 912, Statement of Personal History, that he was not a citizen and provided his Alien Registration Number. The lender's loan file documents show this as the number of the Employment Authorization Card, which authorized employment for one year with a possible seven-year extension. However, the borrower was authorized to stay in the United States for only two months after the loan approved date. As a result, the borrower was not eligible to receive an SBA guaranteed loan. This resulted in a loss to SBA of $308,288, after reducing the guarantee portion paid by the amount of recovery on collateral. The OIG recommended that the SBA seek recovery of the guaranty paid.