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CORRECTED: SBA Hot Topic Tuesday — OIG Estimates $28 Million in Improper 7(a) Guaranty Purchases in FY17

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May 15, 2018

CORRECTED: SBA Hot Topic Tuesday — OIG Estimates $28 Million in Improper 7(a) Guaranty Purchases in FY17

This corrected version corrects an embarrassing typo highlighted below.

By Bob Coleman
Editor, SBA Hot Topic Tuesday

Last year SBA purchased $661 million in 7(a) guaranties from lenders. OIG estimates 4.3% of purchases were “improper” and the $28 million of guaranties should have been repaired or denied.

To put this into context, SBA deems the amount to be so small in a $25 billion lending program (.1%) it is not cost effective to back and reaudit all purchases.

Indeed, OIG says SBA continues to maintain “adequate controls” to prevent and reduce improper payments.

The OIG also evaluated if loans are being approved correctly. (The issuance of a guaranty is also considered a government payment).

OIG says only 1.3% of the $25 billion 7(a) lending program should not have been approved last year.

Most common reason?

SBA determined that the most prevalent root cause for 7(a) loan approval improper payments stemmed from delegated lenders’ failure to authenticate borrowers’ eligibility at origination.

The SBA 504 loan program has a similar percentage.

SBA determined that the most prevalent root cause for improper payments in FY 2017 was due to lack of documentation to support the repayment analysis and eligibility.

SBA was not required to implement a corrective action plan because the improper payments did not meet the reporting thresholds.

Access the report here

 

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SBA’s Requirements for Third Party Lenders and the SBA 504 Loan
Date: Wednesday, May 30, 2018

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