Verification Inspection of SBA’s 504 Loan Liquidation Process

This report presents the results of our verification inspection of the U.S. Small Business Administration’s (SBA) corrective actions for the two recommendations from the Office of Inspector General (OIG) audit report SBA’s 504 Loan Liquidation Process (Report 16-23). 

SBA’s 504 Certified Development Company (CDC) Loan Program provides small businesses with long-term, fixed-rate financing for the purchase of land, buildings, machinery, and other fixed assets. The loans are funded through a variety of sources, including private sector lenders, proceeds from selling SBA-guaranteed debentures, and borrower equity investments. A third-party lender must provide at least 50 percent of the project’s financing, while the CDC provides up to 40 percent through a 100 percent SBA-guaranteed debenture and the applicant provides at least 10 percent. SBA is responsible for liquidating the assets in the event of a default on the loan. Specifically, SBA’s Fresno and Little Rock Commercial Loan Service Centers (CLSC) are responsible for managing 504 loan liquidation operations. 

We initiated this verification inspection to determine the extent to which SBA (1) effectively managed and monitored the 504 loan liquidation portfolio and (2) maximized recovery when liquidating 504 loans. Accordingly, our objective was to determine the effectiveness of SBA’s actions for establishing a training plan and holding training courses on 504 loan liquidations for both CLSCs and continuing to review CLSC internal guidance, systems, and practices to ensure that 504 loans are liquidated consistently nationwide.

We determined that SBA effectively implemented corrective actions for both recommendations.