Office of Inspector General High Risk 7(a) Loan Review Program

This management advisory presents the evaluation results of one 7(a) loan as part of our High Risk 7(a) Loan Review Program. The objectives of our evaluation were to determine whether (1) high‐dollar/early‐defaulted 7(a) loans were originated and closed in accordance with the Small Business Administration’s (SBA’s) rules, regulations, policies, and procedures and (2) material deficiencies existed that warrant recovery of guaranteed payments to lenders.

Our review of a high-dollar/early-defaulted 7(a) loan identified that the lender did not provide sufficient evidence to support that it closed the loan in accordance with SBA’s requirements. Specifically, the lender did not provide adequate documentation to substantiate reasonable assurance that it met requirements for equity injection.

As a result, the lenders’ material noncompliance with SBA requirements while closing the loan resulted in a potential loss to SBA of approximately $2.1 million. We recommended that SBA require the lender to bring the loan into compliance or seek recovery of approximately $2.1 million. SBA agreed with the recommendation and will contact the lender to obtain additional information to bring the loan into compliance and stated that if the issues are not overcome, recovery will be sought from the lender.