Evaluation of the CARES Act Debt Relief to 7(a) Borrowers

This report presents the results of our evaluation of SBA’s implementation of debt relief for borrowers in the 7(a) program, SBA’s flagship loan guarantee program. The Coronavirus Aid, Relief and Economic Security (CARES) was enacted on March 27, 2020, to alleviate the severe economic hardships and public health threat created by the Coronavirus Disease 2019 (COVID-19) pandemic. Section 1112 of the Act provided $17 billion in debt relief to borrowers in the 7(a), 504, and Microloan programs.

Our objective was to determine whether SBA has effective internal controls to provide debt relief to 7(a) borrowers in accordance with CARES Act Section 1112 and internal policies and procedures.

We found that SBA effectively ensured that more than 224,000 borrowers of 7(a) loans received $2.6 billion in debt relief within the first 3 months of the CARES Act. By June 2020, SBA had verified that nearly all reported eligible 7(a) borrowers had received subsidy payments. This debt relief helped alleviate some of the economic hardship caused by COVID-19 on qualified small businesses.

We also found that opportunities exist to improve payment controls to ensure only eligible borrowers receive subsidy payments. We identified issues with lender reported information that increased the risk of either making payments to ineligible borrowers or making excessive payments. We found $43 million in subsidy payments went to borrowers that may have been ineligible.

Because of the urgency to issue the subsidy payments quickly, SBA relied heavily on lenders self-certifying the loan status and payment amount with limited verification procedures. Continuing to strengthen internal controls and oversight of the subsidy payments will help ensure SBA provides debt relief only to eligible borrowers.

We made two recommendations for the Office of Capital Access and the Chief Financial Officer. First, we recommended the two office collaborate to incorporate additional verification procedures before approving subsidy payments. We also recommended SBA establish post-payment audit procedures using a risk-based approach and recover any overpayments identified during the post-payment audit. SBA management agreed or partially agreed with both recommendations. However, we determined that SBA management’s planned actions resolved the recommendations.