The Office of Inspector General (OIG) is issuing this evaluation report to assess SBA’s screening of 7(a) loan applications under its Risk Mitigation Framework. Our scope covered 7(a) loans approved and disbursed from August 1, 2023, to December 31, 2024, for which SBA used the framework to determine applicants’ eligibility.
SBA’s Risk Mitigation Framework was not sufficient to determine borrowers’ eligibility because it did not screen or fully screen for three of six eligibility requirements. Specifically, the framework did not screen to determine whether a small business (1) was organized for profit, (2) met SBA’s size requirements, or (3) was an ineligible business type. We also reviewed 188 of the 9,650 loans that had at least one error code and found SBA did not maintain sufficient documentation to support the reviewer’s decision to clear error codes for 71 (or 38 percent) of the loans we reviewed, totaling about $60.7 million. As a result of SBA’s incomplete screenings, there is limited assurance that borrowers met eligibility requirements for the 73,302 loans, totaling about $32 billion in questioned costs. This includes the subset of 71 loans we identified, totaling about $60.7 million, for which SBA did not maintain sufficient documentation to support its decision to clear the error codes, further limiting this assurance.
We recommended that SBA flag the 73,302 loans for review at guaranty purchase to assess whether borrowers met all eligibility requirements and seek remedy for all loans deemed ineligible.
SBA agreed with the recommendation, stating they will flag the 73,302 loans for review at guaranty purchase and seek recovery where appropriate and legally justified.
