ROM 10-02 – Review of the Recovery Act’s Impact on SBA Lending

To: Eric Zarnikow

Associate Administrator for Capital Access

From: Debra S.Ritt /S/ Original Signed

Assistant Inspector Genera for Auditing

Subject: Review of the Recovery Act’s Impact on SBA Lending

Report Number ROM-10-02

This report presents our first review of the credit markets served by the U.S.Small Business Administration’s (SBA) lending programs since the passage of the American Recovery and Reinvestment Act of 2009 (RecoveryAct). Under the Recovery Act, SBA received $730 million to aid small business owners and stimulate small business lending. The Office of Management and Budget’s (OMB) guidance for implementing the Act stresses accountability and requires agencies to ensure that funds are strictly monitored. In response, the Office of Inspector General (OIG) is performing periodic reviews of SBA program data to identify program trends and determine how well the Recovery Act is meeting its goals.

While SBA publishes monthly performance reports, they provide a limited view of lending activity and the Recovery Act’s impact. Our objectives in this review were to: (1) provide transparency on SBA loan activity and lender participation under the Recovery Act; and (2) determine the impact of program changes on the levels and characteristics of SBA lending.  This report presents our initial observations regarding trends and potential risk areas in SBA lending programs. While we identified some possible causes, our comments are not presented as conclusions. We will monitor these trends as we continue our oversight and review in this area.

The primary source of information for our review was loan data extracted from SBA’s Loan Accounting System. To measure the impact of the Recovery Act, we established a baseline of 7(a) and 504 loan activity between January 1, 2007 and February 16, 2009.  We compared 7(a) and 504 loan activity funded by the Recovery Act between February 17, 2009 and July31, 2009 to this baseline to determine the responsiveness of thecredit markets to the Recovery Act programs.

A more detailed discussion of our review scope and methodology is provided in Appendix I. The results below exclude loans not funded by the Recovery Act. These loans accounted fo r4.1 percent of 7(a) loan approvals, the majority of which were SBA Expressloans, and 0.4 percent of loan 504 approvals.

We conducted our review from July 2009 to September 2009 in accordance with Government Auditing Standards prescribed by the Comptroller General of the United States. On November20, 2009, the Associate Administrator for Capital Access provided formal comments to the OIG’s draft report, generally agreeing with the report’s findings. His comments also provided some clarification  to report statements about SBA Express lending activity and its impact on Agency staffing requirements and program risk.

To view this full report, please see the attached file below.