June 13, 2018

By Bob Coleman
Editor, C-Suite Wednesday

C-Suite Wednesday — 40% of SBA Lenders Fail to Document Credit Elsewhere says GAO

A GAO study released last week finds in 40% of lenders undergoing an onsite review in FY 2016 were non compliant in documenting SBA’s credit elsewhere rule.

In general, representatives from 8 of 11 lenders that GAO interviewed stated that SBA’s credit elsewhere criteria are adequate for determining small business eligibility for the 7(a) program. These criteria help them target their lending to small businesses that would otherwise have difficulty obtaining conventional credit because they are often new businesses or have a shortage of collateral. However, they also said that other factors—such as lender policies and economic conditions—can affect their decisions to offer 7(a) loans. In January 2018, SBA issued revised guidance for the 7(a) program and has provided training on this new guidance to lenders and trade associations. Lenders told GAO they are still in the process of understanding the new requirements.

GAO recommends that SBA (1) require its on-site reviewers to document their assessment of lenders’ policies and procedures related to the credit elsewhere documentation requirement, (2) collect information on lenders’ use of credit elsewhere criteria, and (3) analyze that information to identify trends. SBA generally agreed with the recommendations.

Access the report here