WASHINGTON – United States Senate Committee on Small Business and Entrepreneurship Chair Mary L. Landrieu, D-La., and Ranking Member Olympia J. Snowe, R-Maine, today commented on a report released by the Government Accountability Office (GAO) that found that, while there were improvements, the Small Business Administration’s (SBA) oversight of lenders does not adequately reduce loan defaults and losses.

“Today’s report clearly shows that there have been improvements to the lender oversight program of the SBA, but significant improvements remain,” Senator Landrieu said. “That is why I am working with Ranking Member Snowe to determine which of these recommendations should be enacted into law. Additionally, I look forward to working with SBA Administrator Mills to determine what can be implemented without legislation. Just as it is important to ensure small businesses have access to capital, we must ensure that lender oversight promotes proper underwriting, establishes effective standards and safeguards for SBA loans while maintaining reasonable and proportional fees assessed to the lenders for this oversight. Ultimately, robust oversight of the SBA loan programs will enhance the ability of the SBA to complete their mission of supporting our nation’s small businesses.”

“The GAO report released today details the steps that the SBA has taken to better oversee its small business lenders, but clearly indicates further action must be taken by the agency,” said Ranking Member Snowe. “To better equip the SBA going forward, I intend to re-introduce legislation shortly, with Chair Landrieu, to improve the agency’s lender oversight program and incorporate the crucial recommendations that the GAO has outlined. Similar in scope to legislation I introduced last Congress, our bill requires the SBA to implement standards that would help prevent future instances of fraud.”

Highlights of the Report:

  • Despite improvements to the SBA’s off-site monitoring of lenders, the agency does not independently assess the validity of the off-site monitoring, the report said, nor does it effectively conduct on-site reviews of lenders.
  • The report found that the SBA does not use its off-site monitoring to target lenders that require on-sight reviews. Rather, they review lenders with the largest SBA-guaranteed loan portfolio, causing 97 percent of the lenders that the SBA’s off-site monitoring detected as high risk to escape on-site review.
  • The GAO recommended that the SBA use an independent party to validate its off-site monitoring, revise its on-site review policies and develop a strategy for on-site reviews that relies more on its lender risk ratings. In response, the SBA said they agree with these recommendations and has outlined steps to correct them.

Senators Landrieu and Snowe will continue to rigorously oversee the SBA’s lender oversight activities in the coming months to ensure that the situation improves. Additionally, the senators will address this concern in an SBA reauthorization bill to be introduced in the coming months.

The Senate Small Business Committee asked the GAO to conduct the investigation of the SBA’s lender oversight system in June, 2008, after an Inspector General’s report found the agency’s oversight of four lenders created a loss of $329 million for the SBA’s largest loan program, 7(a).

A copy of the report can be found here.