WASHINGTON — The Government Accountability Office (GAO) has released a report that shows the Small Business Administration’s (SBA) oversight of lenders does not adequately reduce loan defaults and losses.
Despite SBA’s improvements to off-site lender monitoring, the agency doesn’t independently assess the validity of the off-site monitoring or effectively conduct on-site reviews of lenders, according to the report.
The report also indicated that SBA doesn’t use its off-site monitoring to target lenders that require on-site reviews. Instead, the agency reviews lenders with the largest SBA-guaranteed loan portfolio, so 97% of the lenders that SBA’s off-site monitoring detected as high risk escape on-site review.
“Just as it is important to ensure small businesses have access to capital, we must ensure that lender oversight promotes proper underwriting, establishes effective standards and safeguards for SBA loans while maintaining reasonable and proportional fees assessed to the lenders for this oversight,” United States Senate Committee on Small Business and Entrepreneurship chair Mary L. Landrieu, D-La., said in a press release. “Ultimately, robust oversight of the SBA loan programs will enhance the ability of the SBA to complete their mission of supporting our nation’s small businesses.”
The GAO report recommended that SBA use an independent party to validate its off-site monitoring, revise its on-site review policies and develop a strategy for on-site reviews that relies more on its lender risk ratings. SBA has said it agrees with these recommendations and has outlined steps toward these goals, according to the Senate Small Business Committee.
GAO began the investigation of the SBA’s lender oversight system in June 2008, after an Inspector General’s report found the agency’s oversight of four lenders created a loss of $329 million for SBA’s largest loan program.
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