7(a) Loan Guaranty Program US Small Business Administration

The Small Business Administration’s (SBA) largest lending program, the 7(a) Loan Guaranty Program, is authorized by section 7(a) of the Small Business Act and is governed by the regulations outlined in Part 120 of Title 13 of the Code of Federal Regulations (CFR). This multi-purpose business loan program is administered as a deferred participation program where SBA guarantees a portion of the loan made by a Lender, and is the Agency’s principal vehicle for providing small businesses access to capital when it cannot be obtained elsewhere.

Agency Accountable Official: Timothy Gribben, Chief Financial Officer

Program Accountable Official(s): John Miller, Deputy Associate Administrator, Office of Capital Access

Total Payments
$18.1B
Improper Payments
$0.2B
Improper Payment Rate
1.29%

Supplemental Measures

Current Measure: 15,182

Target: 16,855

Description: The number of loans approved using SBA One Tool

Update Frequency: Annually

Data Current as of: September 2017


Program Comments

The Small Business Administration’s (SBA) largest lending program, the 7(a) Loan Guaranty Program, is authorized by section 7(a) of the Small Business Act and is governed by the regulations outlined in Part 120 of Title 13 of the Code of Federal Regulations (CFR). This multi-purpose business loan program is administered as a deferred participation program where SBA guarantees a portion of the loan made by a Lender, and is the Agency’s principal vehicle for providing small businesses access to capital when it cannot be obtained elsewhere.

To calculate the annual improper payment estimate for the 7(a) Loan Guaranty Approvals Program, the SBA obtained approval from OMB to utilize an alternative methodology. The 7(a) Loan Guaranty Approvals population contains loan types that are not homogeneous and exhibit skewed distributions in loan size. That is, large loans constitute a relatively smaller percentage of the populations by count, but a relatively larger percentage by dollar amount. Therefore, the SBA stratified the data on several key variables and uses a sampling method known as Probability Proportional to Size (PPS) sampling with replacement. This is a sampling technique in which the probability that a particular loan will be selected for the sample is proportional to the population size of the corresponding strata. By using PPS, the SBA attempts to create a comprehensive sample that addresses the fact that different types of loans may have unequal improper payment probabilities.

Using PPS sampling with replacement, the 7(a) Loan Guaranty Approval sample cases were chosen from all loan guaranties approved during the 12 month period ending March 31, 2017. The loan guaranties were approved by delegated lenders and through the SBA’s 7(a) Loan Guaranty Processing Centers. The approval population was divided into two strata based on whether the loan was SBA Express or not (the SBA Express program generally has smaller loans due to its limited maximum loan amount, thus the stratification). The SBA determined the appropriate total sample size to be 239 loans, totaling $317,316,635, of which $867,750 was identified as improper. The results were applied to the total program outlays of $18,115.96 million, thus the FY 2017 gross improper payments in the 7(a) Loan Guaranty Approvals Program were estimated to be $233.87 million, or 1.29 percent of total program outlays.

In FY 2017, the most prevalent root cause for 7(a) loan approval improper payments stemmed from the participating lenders’ inability to authenticate the borrower’s eligibility at origination. Improper payments generally arose when the participating lender failed to comply with loan program requirements relating to change of ownership policy requirements not satisfied and lack of evidence of repayment ability. As a result, the SBA is pursuing corrective actions to prevent and reduce the occurrence of such improper payments.

The supplemental measure for the 7(a) Loan Guaranty Approval program is based on the number of loans submitted utilizing the SBA One tool.  In FY 2016 there were 2,977 loans processed using the SBA One Tool and the usage increased in FY 2017 to 4,744 loans for non-delegated lenders.  In FY 2017, there were 15,182 (or 24%) of total loans submitted by SBA One Tool for both delegated and non-delegated Lenders exceeding the FY 2017 Supplemental Measure Target, which was established at 13,846. The Supplemental Target for FY 2018 has been established at 16,855; this target has been determined using a 3% increase from the prior year’s total loan base by both delegated and non-delegated Lenders.

Additional information may be found in our Agency Financial Report located at https://www.sba.gov/about-sba/sba-performance/performance-budget-finances/agency-financial-reports