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: John Miller, Deputy Associate Administrator, Office of Capital Access

Total Payments
$17.5B
Improper Payments
$0.2B
Improper Payment Rate
0.96%

Supplemental Measures

Current Measure: 2,977

Target: 13,846

Description: The number of loans approved using SBA One Tool

Update Frequency: Annually

Data Current as of: September 2016


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 in FY 2015, 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, 2016. 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 242 loans, totaling $266,199,175, of which $4,075,970 was identified as improper. The results were applied to the total program outlays of $17,457.04 million, thus the FY 2016 gross improper payments in the 7(a) Loan Guaranty Approvals Program were estimated to be $166.77 million, or 0.96 percent of total program outlays.

In FY 2016, 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 improper or inadequate documentation; specifically, lenders using incorrect forms, missing documents, or had documents with missing signatures. As a result, the SBA is pursuing corrective actions to prevent and reduce the occurrence of such improper payments.

Additional information may be found in our Agency Financial Report.