SBA Hot Topic Tuesday: SBLC Default Rate 53% Higher Than Other SBA Lenders says OIG
September 29, 2026
Bob Coleman
Founder & Publisher
SBA Hot Topic Tuesday: SBLC Default Rate 53% Higher Than Other SBA Lenders says OIG
OIG Finds Higher Defaults; SBA Says One Large Lender Distorted the Results
SBA’s Office of Inspector General found that nearly 15% of SBLC loans approved and disbursed from FY2016 through FY2023 had defaulted, compared with 9.8% for other SBA lenders — a default rate 53% higher.
SBA disagreed with the September 17 report. The agency said one large historical SBLC heavily influenced the combined numbers and did not fairly describe the performance of most SBLCs. SBA also challenged how OIG counted recurring deficiencies and whether some loans used to test corrective actions had been approved before those corrections were put in place.
OIG reviewed 11,068 SBLC loans totaling $9.5 billion. By March 31, 2025, 1,657 had defaulted and $1.3 billion had been transferred to liquidation.
Loans defaulting within 18 months of disbursement had an early-default rate of 5.4% for SBLCs versus 2.6% for other SBA lenders. For FY2023 originations, the SBLC rate reached 9.25%, compared with 4.2% for other lenders.
SBA’s response focused heavily on lender concentration. Its own cumulative-default analysis showed an FY2023 SBLC default rate of 23.4%. Removing SBLC 1 reduced the rate to 20.2%. The overall 7(a) rate in SBA’s table was 11.9%.
OIG found recurring deficiencies involving IRS transcript reconciliation, insurance documentation, lien positions, prohibited fees, eligible passive businesses, debt refinancing and incomplete SBA forms. It also said SBA did not always verify that lenders had implemented required corrections.
SBA agreed to conduct a root-cause analysis of SBLC performance, including lender concentration and disbursement volume, by March 31, 2027.
SBA masked the lenders’ identities in its response, identifying them only as SBLC 1 through SBLC 15. Coleman Report Premium subscribers receive the complete chart with the SBLC names and lender-by-lender default rates.