Peggy E. (Peg) Gustafson was sworn in as the Inspector General of the U.S. Small Business Administration on October 2, 2009. Ms. Gustafson previously served as General Counsel to Senator Claire...
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Audit Report 9-14: Portion of 7(a) Loan Ineligible for SBA Guarantee
On July 29, 1999, the OIG issued Audit Report 9-14: Portion of 7(a) Loan Ineligible for SBA Guarantee. This audit was conducted as part of a the SBA’s management of the Preferred Lender Program review process. The OIG reviewed six SBA-guaranteed loans approved through the Preferred Lender Program (PLP) and identified one loan that was partially ineligible for an SBA guarantee.
The SBA has the authority to guarantee up to 80 percent on loans made to small businesses. Lenders having PLP status with the SBA are given full authority to make SBA guaranteed loans subject to an SBA eligibility review. When a PLP lender determines that a loan is eligible, the lender completes a checklist to document evidence of eligibility, which is then reviewed by the SBA’s Sacramento Loan Processing Center (the Center). If the Center notes any problems on the checklist, the lender is asked to resolve the issue.
The OIG found that the SBA and PLP lender approved an $82,000 SBA-guaranteed loan. Specifically, the PLP misinformed the SBA when it stated that financing for the applicant, with reasonable terms, was not available elsewhere. After receiving the statement, the Center approved the SBA guaranteed loan as eligible for SBA guarantee. According to Federal regulations, the SBA is released from liability on its guarantee when a PLP lender has failed to comply materially with SBA regulations. The PLP’s loan officer informed the OIG that they accepted the application because it appeared to be in the borrower’s best interest to refinance their existing loans. As a result, an SBA guarantee was issued for an $82,000 loan, of which $49,993 was ineligible. The OIG issued one finding and two recommendations.