Summary: In response to a congressional request, GAO reviewed the Small Business Administration's (SBA) procedures for identifying loan applicants who have previously defaulted on SBA loans, to determine: (1) the type of controls it uses; (2) whether it needs an automated system; and (3) whether it is exceeding its statutory lending limits.
GAO found that: (1) SBA generally relies on information from individual loan applicants and credit reports to identify previous loan defaulters; (2) SBA does not use automated controls to identify defaulters, since it believes, based on its experience, that businesses do not usually default and subsequently apply for other SBA loans; and (3) there were 192 instances where SBA may have approved second loans to borrowers who had previously defaulted on an SBA loan and another 105 cases where borrowers defaulted 6 months after SBA approved a second loan. GAO also found that: (1) commercial lending institutions rely primarily on automated controls to identify defaulters; (2) SBA generally complied with its statutory limit on loans; and (3) SBA plans to study the feasibility and cost of automated controls to identify defaulters in the future.
