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

This management advisory presents the evaluation results of a 7(a) loan as part of our ongoing High Risk 7(a) Loan Review Program. This is the third in a series of advisories for 7(a) loans we reviewed in fiscal year (FY) 2019. 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 the high-dollar/early-defaulted 7(a) loan found that the lender did not provide sufficient evidence to support that it originated and closed the loan in accordance with SBA’s requirements. Specifically, the lender did not appropriately use its delegated authority.

As a result, the lenders’ material noncompliance with SBA requirements while originating and closing the loan resulted in a combined potential loss to SBA of approximately $1.3 million. We recommended that SBA require the lender to bring the loan into compliance or seek recovery of approximately $1.3 million. SBA agreed with the recommendation and stated that they will contact the lender to obtain additional information to bring the loan into compliance. If the issues are not resolved, SBA will seek recovery from the lender.