Audit Report 15-16: SBA Needs to Improve its Oversight of Loan Agents

On September 25, 2015, OIG issued Audit Report 15-16, SBA Needs to Improve its Oversight of Loan Agents.  This report is the second of two, and presents the results of our audit of the Small Business Administration’s oversight of loan agents.

Loan agents frequently play an important role within SBA lending programs, often facilitating access to capital by connecting borrowers in search of financial assistance with lenders offering SBA products or by providing other services.  However, at times, these third-party relationships have resulted in SBA program loss and risk.  Since 2005, SBA OIG has investigated at least 22 cases with confirmed loan agent fraud totaling at least $335 million.  Further, our analysis determined that loan agents were involved in approximately 15 percent of all 7(a) loans and resulted in increased risk of default.

In 2000, OIG identified loan agent tracking and enforcement as an SBA management challenge that continues to this day.  Since December 1, 2010, SBA recorded over 51,000 7(a) loan agent compensation disclosures, representing a variety of services.  However, we found the quality of SBA’s loan agent data was poor and materially incomplete.  Further, although previously recommended in 1998, SBA had not established effective controls over the tracking and monitoring of loan agent performance and therefore, could not adequately assess potential risks or identify problem agents.  Finally, SBA had not established a method to track loan agents and their compensation on 504 loans.

OIG recommended nine actions that will help strengthen SBA’s oversight of loan agents and their relationships with SBA lenders.  The Agency agreed with OIG’s findings and recommendations, and has already taken some steps to improve its oversight of loan agents.