504 Certified Development Loans Approvals

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Program level Payment Integrity results

Sponsoring agency: Small Business Administration

View on Federal Program Inventory

PROGRAM METRICS

$6,357 M

in FY 2021 outlays, with a

96.4%

payment accuracy rate

PROGRAM METRICS

$10,021 M

in FY 2022 outlays, with a

98.0%

payment accuracy rate

PROGRAM METRICS

$7,150 M

in FY 2023 outlays, with a

96.9%

payment accuracy rate

PROGRAM METRICS

$6,329 M

in FY 2024 outlays, with a

95.5%

payment accuracy rate

PROGRAM METRICS

$7,392 M

in FY 2025 outlays, with a

95.4%

payment accuracy rate

  • Improper payment estimates over time
    View as:

    Chart toggle amounts:
    Proper payments
    Overpayment
    Underpayment
    Technically improper
    Unknown

Payment Integrity results

  • FY 2021 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2020 - 03/2021


    Confidence interval:

    >95%


    Margin of error:

    +/-3.0

Overpayments

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $0.0 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $0.0 M

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $0.0 M

Technically improper payments

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $195.09 M

Additional information

$195.09 M

Unknown Payment Details

Based on the data and information available at the time of review, SBA was unable to determine whether the payment was proper or improper.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $31.47 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation

Evaluation of corrective actions

Corrective Actions are structured based on the Root Cause of the Improper Payment. Root causes are shared with management throughout the review cycle. Corrective Actions, such as External training, are formulated to address root causes of improper payments. Collaboration and communication with other offices within SBA about improper payments focuses on specific loans, lenders, and root causes of the improper payment.

Future payment integrity outlook

504 Certified Development Loans Approvals has NOT established a baseline.

The program's current year improper payment and unknown payment rate of 3.56 % has been achieved with a balance of payment integrity risk and controls and represents the lowest rate that can be achieved without disproportionally increasing another risk, therefore it is the tolerable rate.

Additional programmatic information

  • FY 2022 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2021 - 03/2022


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-3.0

Overpayments

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $0 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $198.96 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $198.96 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $0.0 M

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $0 M

Technically improper payments

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $0.0 M

Additional information

$0 M

Unknown Payment Details

For instances in which the SBA was unable to determine whether a payment was proper or improper, the SBA categorized these payments as “Unknown”. In FY 2022, one 504 loan was identified with an unknown improper payment in the amount of $116,781 was categorized as an unknown payment. SBA is awaiting real estate appraisal information which will confirm eligibility.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $2.28 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation

Evaluation of corrective actions

Management provides oversight to ensure milestones are met. All improper payments identified as a result of the FY 2022 PIIA reviews have been resolved through obtaining additional documentation, loan modification, or cancellation of the loan. Corrective actions were generally completed at the loan level within 180 days with all actions taken by the end of the fiscal year.

Future payment integrity outlook

504 Certified Development Loans Approvals has established a baseline.

The FY 2022 improper payment rate estimate of 1.99 percent for this program is less than the target reduction rate of 2.97 percent from FY 2021. Because the lower bound of its confidence interval, 0.21 percent, is lower than the reduction target of 2.97 percent, in accordance with OMB Appendix C to Circular A-123 (March 2021), the 504 loan guaranty approval program is considered to have met the reduction target. For FY 2023, the SBA established a reduction target of 1.89 percent for the 504 Certified Development Loans Approvals program.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $10,807.14 M
Current year +1 estimated future improper payments $204.25 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 1.89 %
Current year +1 estimated future improper payment and unknown payment reduction target 1.89 %

The program's current year improper payment and unknown payment rate of 2.01 % may or may not be the tolerable rate. The agency has not yet determined the tolerable rate for this program.

The SBA has not conducted the analysis to determine what an acceptable tolerable rate should be for this program. in FY 2023, the SBA will explore the potential in establishing a tolerable rate for this program.

The agency has what is needed with respect to internal controls, human capital and information system and other infrastructure to reduce improper payments and unknown payments to the tolerable rate.

No resources are being requested in the most recent budget submission of the agency to establish and maintain the internal controls.

Additional programmatic information

Additional program level payment integrity related information has already been captured through the survey.

  • FY 2023 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2022 - 03/2023


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-3.0

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    Training
    SBA provided training at lender conferences in order to provide lenders an understanding of the most common root causes of the improper payments. SBA recently updated its loan making Standard Operating Procedure (SOP) and provided training to Lenders. SBA provides regular feedback to Loan Center management and staff regarding Improper Payments, Root Causes, and Corrective Actions. Quality Control and Quality Assurance staff for 9 of SBA's 10 reporting programs meet regularly to discuss improper payment related issues that may be common to all teams.
    FY2023 Q4
    Completed
    Training
    SBA plans to continue its training at Lender conferences in order to provide lenders an understanding of the most common root causes of the improper payments. 3. SBA will also provide training to staff and lenders on the new requirements in its Standard operating Procedures. SBA will continue to provide regular feedback to Loan Center management and staff regarding Improper Payments, Root Causes, and Corrective Actions. SBA will also continue to have Quality Control and Quality Assurance staff meet regularly to discuss issues common to all.
    FY2024
    Planned

Overpayments

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $0 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $0 M

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $0 M

Technically improper payments

504 loans are reviewed at the time of approval. 504 loans are available through Certified Development Companies (CDCs), SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by SBA. Loans may be disbursed up to four (4) years after the original approval date. These loans are generally made to the right recipient for the right amount, but the approval process failed to follow all statutes and regulation. In these cases, there is no amount that needs to be recovered. However, because the CDC lender failed to adhere to all applicable statutes, the loan is considered technically improper. At the time of loan approval, no monies are disbursed. Improper payments identified during loan review result in no monetary loss to the government. The primary reasons for 504 approval improper payments in FY 2023 included: • Lender’s failure to determine proper amount or source of equity injection; • Lender’s failure to adequately determine proper use of proceeds; and • Lender’s failure to properly determine borrower’s overall eligibility given SBA Size Standards
The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $196.7 M

Mitigation strategies taken Mitigation strategies planned
Training Training

Additional information

$196.7 M

Unknown Payment Details

In FY 2023, one 504 loan was identified as an unknown payment in the amount of $1,462,000. The CDC did not provide sufficient information for SBA to determine whether the borrower for this loan was eligible.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $27.71 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation
Applicants $27.71 M The loan supporting this project involves the purchase of land/ construction of building for a start -up pole frame building package manufacturer. Although the project appears to be a Do-It-Yourself project, neither the borrower nor the lender has provided sufficient documentation to enable SBA to determine whether the project is managed by a general contractor or is a DIY project. SBA's Standard Operating Procedures for requirements for each are different.

Mitigation strategies taken Mitigation strategies planned
Training Training

Evaluation of corrective actions

Because 504 loans are usually reviewed prior to monies being disbursed, resolution of an identified improper payment is usually through obtaining additional documentation from the CDC to remedy the potential improper payment or through cancellation of the loan. There is no monetary outlay at approval, and thus no loss to the Federal Government. Specific corrective actions on loans reviewed are tracked at the loan level through a centralized database. SBA anticipates that training and internal collaboration will continue to be effective.

Future payment integrity outlook

504 Certified Development Loans Approvals has established a baseline.

SBA anticipates that corrective actions--training and collaboration--will serve to lower the improper payment rate in the coming year.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $9,318.96 M
Current year +1 estimated future improper payments $246.95 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 2.65 %
Current year +1 estimated future improper payment and unknown payment reduction target 2.65 %

The program's current year improper payment and unknown payment rate of 3.14 % may or may not be the tolerable rate. The agency has not yet determined the tolerable rate for this program.

SBA anticipates establishing a Tolerable Rate for this program in the near future.

The agency has what is needed with respect to internal controls, human capital and information system and other infrastructure to reduce Improper Payments and Unknown Payments.

No additional resources for this program were requested.

Additional programmatic information

The 504 Certified Development Loans program, made available through Certified Development Companies (CDCs), provides small businesses with long-term, fixed rate financing for major assets that promote business growth and job creation. CDCs are the SBA’s community-based partners: non-profit corporations certified and regulated by the Small Business Administration to package, process, close, and service 504 loans in order to promote economic development within their communities. 504 loans are available through Certified Development Companies (CDCs), SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by SBA. Loans may be disbursed up to four (4) years after the original approval date.

504 loans are reviewed at the time of approval. These loans are generally made to the right recipient for the right amount, but the approval process failed to follow all statutes and regulation. In these cases, there is no amount that needs to be recovered. At the time of loan approval, no monies are disbursed. Improper payments identified during loan review result in no monetary loss to the government, and because the CDC lender failed to adhere to all applicable statutes, the loan is considered technically improper.

  • FY 2024 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2023 - 03/2024


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-2.31

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    Training
    External training for lenders to ensure that appropriate documentation is obtained and analyzed prior to loan approval that policy requirements are met. Training on PIIA processes was also provided. Training is an ongoing process.
    The corrective action was not fully completed this reporting period
    Not Completed
    Training
    Specific corrective actions are determined based upon the primary reason for the error, with the purpose of both remedying the error and preventing recurrence. SBA plans to continue external training for CDC lenders to ensure that appropriate documentation is obtained and analyzed prior to loan approval and that policy requirements are met.
    FY2025
    Planned

Overpayments

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $0.0 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $0.0 M

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $0.0 M

Technically improper payments

The predominant reasons for 504 Loan Approval improper payments in FY2024 were (1) CDCs’ failure to determine borrower injection for special purpose projects; (2) CDCs’ failure to ensure borrower adhered to all regulations and loan authorization requirements for existing SBA loans; and, (3) CDCs’ failure to adequately address all collateral concerns.
The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $236.73 M

Mitigation strategies taken Mitigation strategies planned
Training Training

Additional information

$236.73 M

Unknown Payment Details

Two loans were determined to be Unknown due to (1) the timing of a divorce settlement and (2) awaiting an appraisal for real estate collateral.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $50.43 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation
Other $50.43 M Two loans were determined to be Unknown due to (1) the timing of a divorce settlement and (2) awaiting an appraisal for real estate collateral.

Mitigation strategies taken Mitigation strategies planned
Training Training

Evaluation of corrective actions

The 504 CDC approval reviews were conducted to determine whether CDCs complied materially with the program’s origination requirements, including statutory provisions, SBA regulations, any agreement the CDC executed with the SBA, standard operating procedures, loan authorizations, and official SBA notices and forms applicable to the 504 loan program.

External training is conducted for CDC lending partners to ensure that appropriate documentation is obtained and analyzed prior to loan approval and that policy requirements are met.

In addition to training, plans to address the cause of improper payments include the following:
• Collaborating with the Office of Credit Risk Management (OCRM) to recommend that specific lender deficiencies be monitored and incorporated into Risk Based Reviews;
• Collaborating with the Office of Financial Assistance (OFA) to inform the office of deficiencies identified for potential incorporation into policy, regulatory, or standard operating procedure rewrite or update.

To reduce or eliminate the occurrence of future improper payments, a Corrective Action Plan has been formalized for the 504 approval center. Specific corrective actions are determined based upon the primary reason for the improper payment with the purpose of both remedying the improper payment and preventing recurrence.

Plans for improvement include the following:
• Collaborating with the Office of Credit Risk Management (OCRM) to recommend that specific lender deficiencies be monitored and incorporated into Risk Based Reviews;
• Collaborating with the Office of Financial Assistance (OFA) to inform the office of deficiencies identified for potential incorporation into policy, regulatory, or standard operating procedure rewrite or update; and
• External training for lenders to ensure that appropriate documentation is obtained and analyzed prior to loan approval that policy requirements are met.

The corrective actions are currently in process. SBA will continue to share the loan level and lender deficiencies identified during the reviews with the OFA and the OCRM. SBA will also continue its efforts to ensure that CDC deficiencies are monitored.

Future payment integrity outlook

504 Certified Development Loans Approvals has established a baseline.

The FY 2025 Reduction Targets established for 504 Loan Approvals is the lesser of the established tolerable rate, or the current reported improper payment rate (i.e., if the FY 2024 improper payment rate is less than the established tolerable rate, the FY 2024 improper payment rate will be the reduction target).

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $6,725.79 M
Current year +1 estimated future improper payments $266.34 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 3.96 %
Current year +1 estimated future improper payment and unknown payment reduction target 3.96 %

The program's current year improper payment and unknown payment rate of 4.54 % has been achieved with a balance of payment integrity risk and controls and represents the lowest rate that can be achieved without disproportionally increasing another risk, therefore it is the tolerable rate.

Management established this tolerable rate range mindful of the extent to which applying further payment controls would undercut the program’s mission or resource management.

The agency has what is needed with respect to internal controls, human capital and information system and other infrastructure to reduce improper payments and unknown payments to the tolerable rate

No additional resources were requested in the most recent budget submission of the agency to establish and maintain payment integrity.

Additional programmatic information

The 504 loan program provides small businesses with long-term, fixed rate financing for major fixed assets that promote business growth and job creation. 504 loans are available through Certified Development Companies (CDCs). CDCs are the SBA’s community-based partners: nonprofit corporations certified and regulated by the SBA to package, process, close, and service 504 loans in order to promote economic development within their communities, CDCs are certified and regulated by SBA.
The 504 CDC approval reviews were conducted to determine whether CDCs complied materially with the program’s origination requirements, including statutory provisions, SBA regulations, any agreement the CDC executed with the SBA, standard operating procedures, loan authorizations, and official SBA notices and forms applicable to the 504 loan program. The reviews were conducted to determine whether CDCs (1) originated the loans in a prudent and commercially reasonable manner, (2) misrepresented or failed to disclose a material fact to the SBA, and/or (3) put the SBA’s financial interest at risk.

504 Loan reviews are conducted at the time of loan approval. At the time of loan approval, no monies are disbursed. Improper payments identified during loan review result in no monetary loss to the government.

Accountability for detecting, preventing, and recovering improper payments

Review standards are established as part of the agency's annual appraisal process. These standards hold managers accountable for meeting applicable reduction targets, preventing improper payments, and promptly detecting and recovering overpayments.

  • FY 2025 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    04/2024 - 03/2025


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-3.0

Causes

The predominant reasons for 504 Loan Approval improper payments in FY 2025 include: CDCs’ failure to ensure borrowers adhered to all regulations include confirmation of legal residency status; CDC failed to properly exercise its delegated authority; CDCs’ failure to adequately address all collateral concerns.

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $0.0 M
Amount of overpayments outside the agency's control $0.0 M

Underpayment root cause Underpayment amount
Amount of underpayments $0.0 M

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $338.42 M

The amount that could either be proper or improper but the agency is unable to determine whether it was proper or improper as a result of insufficient or lack of documentation $0.0 M

Prevention

Collaborating with the Office of Credit Risk Management (OCRM) to recommend that specific lender deficiencies be monitored and incorporated into Risk Based Reviews; Collaborating with the Office of Financial Assistance (OFA) to inform the office of deficiencies identified for potential incorporation into policy, regulatory, or standard operating procedure rewrite or update; Conducting external training for lenders to ensure that appropriate documentation is obtained and analyzed prior to loan approval that policy requirements are met. Corrective actions were generally completed at the loan level within 180 days.
The agency’s corrective actions are designed to address the causes of Improper Payments and Unknown Payments in proportion to the severity and frequency of the associated root causes. The Office of Financial Program Operations (OFPO) shares targeted loan-level deficiencies with the Office of Credit Risk Management (OCRM) and the Office of Financial Assistance (OFA) when issues reflect significant severity or recurring lender-specific trends. These referrals allow OCRM to consider the deficiencies in its risk-based review process and enable OFA to determine whether policy updates or clarifications are warranted. The SOP for 504 approvals was updated and became effective this year with all related job aids and resources updated and published to reflect current requirements. OFPO also provides targeted lender training and internal staff training to reinforce expectations and reduce common error types. Quality Control Specialists monitor each deficiency from identification through completion of corrective actions and obtain additional documentation from lenders when necessary. Where appropriate, the SBA will cancel the loan guaranty. Collectively, these efforts ensure corrective measures are commensurate with risk and support continued reductions in Improper Payments and Unknown Payments. All Improper Payments were considered Technically Improper, and were resolved through obtaining additional documentation, loan modification, or cancellation of the loan authorization.

It is important to note that all Improper Payments identified in the 504 Loan Approvals Program are classified as Technical Improper Payments. The agency’s corrective action plan focuses on ensuring that deficiencies leading to Technical Improper Payments and Unknown Payments are identified, corrected, and prevented. The SOP governing 504 Loan Approvals was recently implemented and has updated and published all related job aids and resources. Prior to the new SOP becoming effective, the SBA provided lender, internal, and external training on the new policy, with additional targeted training planned based on the findings identified through PIIA reviews. OFPO provides feedback to lenders and employees, obtains additional documentation from lenders when necessary, and will recapture funds when improper payments are confirmed. Significant lender-level deficiencies—based on severity or recurring patterns—are shared with the Office of Credit Risk Management (OCRM) for consideration in its risk-based review process and with the Office of Financial Assistance (OFA) to support policy refinement. These corrective actions together ensure that the agency’s response is proportional to the underlying root causes and supports measurable reductions in Improper Payments and Unknown Payments.

Payment type Mitigation strategies taken Mitigation strategies planned
Technically improper payments Audit, Change Process, Training Audit, Change Process, Training

Eligibility element/information needed Description of the eligbility element/information
Citizenship Recognized as a United States citizen through birth or naturalization, or as a lawfully present non-citizen in the United States
Financial The financial position or status of a beneficiary, recipient, or their family
Residency Status of recipient's living location or arrangement

Additional information

Reduction target

4.56 %

The agency has internal control, human capital and information system and other infrastructure to reduce improper payments and unknown payment.

In the most recent budget submission, the agency requested to maintain current resources to support workforce capacity and operational activities required to ensure payment integrity of the 504 Loan Approval process during testing, recoupment, and closeout. These resources are intended to support staff responsible for post-504 loan approval reviews, improper payment identification, recovery efforts, and closeout activities. Despite overall resource constraints in fiscal year 2025, the program prioritized available staffing and funding to sustain payment integrity functions and ensure compliance through the recoupment and closeout phase.

As a means to reduce and/or eliminate the occurrence of improper payments, a Corrective Action Plan has been developed for the program.
In addition, managers are held accountable for meeting the program's improper payment rate and unknown payment rate reductions targets. These targets are incorporated into managers' annual performance appraisal goals. Quality Control Specialist for 504 approvals monitors errors from identification through completion of the corrective action. Senior management provides oversight to ensure program milestones are met. Senior management is responsible for maintaining sufficient internal controls to prevent improper payments and developing the Quality Control/Improvement Program to determine whether the loan is proper or improper payment. In addition, senior management has established and maintained sufficient and appropriate control environment.

$338.42 M