7(a) Loan Guarantees Approvals

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Program level Payment Integrity results

Sponsoring agency: Small Business Administration

View on Federal Program Inventory

PROGRAM METRICS

$17,342 M

in FY 2021 outlays, with a

98.0%

payment accuracy rate

PROGRAM METRICS

$29,717 M

in FY 2022 outlays, with a

99.0%

payment accuracy rate

PROGRAM METRICS

$20,110 M

in FY 2023 outlays, with a

98.7%

payment accuracy rate

PROGRAM METRICS

$20,294 M

in FY 2024 outlays, with a

94.6%

payment accuracy rate

PROGRAM METRICS

$26,615 M

in FY 2025 outlays, with a

93.9%

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 $352.61 M

Additional information

$352.61 M

Unknown Payment Details

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 is 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

7(a) Loan Guarantees Approvals has NOT established a baseline.

The program's current year improper payment and unknown payment rate of 2.03 % 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 $298.07 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 $298.07 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

Evaluation of corrective actions

The FY 2022 improper payment rate estimate of 1.00 percent for the 7(a) loan guaranty approval program is less than the target reduction rate of 1.93 percent from FY 2021.

To reduce and/or eliminate the occurrence of future improper payments, a Corrective Action Plan has been developed for the 7(a) loan guaranty approval centers. Specific corrective actions are determined based upon the primary reason for the error with the purpose of both remedying the error and to prevent recurrence.

Future payment integrity outlook

7(a) Loan Guarantees Approvals has established a baseline.

For FY 2023, the SBA established a reduction target of 1.00 percent for the 7(a) loan guaranty approvals program. This FY 2023 reduction target is the same as the FY 2022 improper payment rate estimate. The root cause of improper payments in the 7(a) loan guaranty approvals program stems from shortfalls in the lenders’ loan authentication process, which are outside of the SBA control. As such, keeping the reduction target rate in-line with the current improper payment rate estimate offers a conservative and realistic target for the SBA.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $30,031.58 M
Current year +1 estimated future improper payments $301.22 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 1.0 %
Current year +1 estimated future improper payment and unknown payment reduction target 1.0 %

The program's current year improper payment and unknown payment rate of 1.0 % 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 were requested in the most recent budget submission of the agency to establish and maintain the internal controls.

Additional programmatic information

All program level payment integrity information has 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

7(a) Loan Guaranty Approvals describes the loan guaranty approval process. SBA does not make loans directly to borrowers: SBA provides a guaranty to a lender which makes the loan to a borrower. SBA delegates authority to certain lenders to process, close, service, and liquidate certain 7(a) loans without prior SBA review. Approximately 80 percent of 7(a) loans are approved by lenders under their delegated authority. At the time of loan approval, no monies are disbursed. Improper payments identified during loan review result in no monetary loss to the government. During the loan guaranty approval review process, the SBA reviews the 7(a) loan for calculation accuracy to ensure lenders issued the 7(a) loans to eligible borrowers and to ensure loans are made within statutory, regulatory, and SBA issued guidelines. In two of the three loans in the sample identified with improper payments, the lender failed to document or determine adequate debt service coverage, based on SOP requirements. In the remaining loan identified as an improper payment, the lender failed to meet loan refinancing requirements as stated in the SOP. . 7(a) 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. However, because the lender failed to adhere to all applicable statutes, the guaranty is considered technically improper. Because the improper payments for these 7(a) approvals are technically improper, the OMB root cause is identified as Statutory Requirements of Program Were Not Met.
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 $262.74 M

Mitigation strategies taken Mitigation strategies planned
Training Training

Additional information

$262.74 M

Unknown Payment Details

Evaluation of corrective actions

To reduce and/or eliminate the occurrence of future improper payments, a Corrective Action Plan has been developed for the 7(a) Loan Guaranty Approval program centers. Specific corrective actions are determined based upon the primary reason for the error with the purpose of both remedying the error and preventing recurrence. Plans for improvement include the following:

• Collaborating with the oversight office to inform the office of specific lender deficiencies for further monitoring and potential incorporation into Risk Based Reviews;
• Collaborating with the policy office 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 on policy requirements governing eligibility, and appropriate loan structure.
SBA anticipates that training and internal collaboration will continue to be effective.

Future payment integrity outlook

7(a) Loan Guarantees 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 $27,104.68 M
Current year +1 estimated future improper payments $271.05 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 1.0 %
Current year +1 estimated future improper payment and unknown payment reduction target 1.0 %

The program's current year improper payment and unknown payment rate of 1.31 % 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

7(a) Loan Guaranty Approvals describes the loan guaranty approval process. SBA does not make loans directly to borrowers: SBA provides a guaranty to a lender which makes the loan to a borrower. SBA delegates authority to certain lenders to process, close, service, and liquidate certain 7(a) loans without prior SBA review. Approximately 80 percent of 7(a) loans are approved by lenders under their delegated authority. Lenders with delegated authority were responsible for all identified improper payments for 7(a) loan program approvals in FY 2023.

  • 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:

    +/-2.71

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    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 provided external training for lenders on policy requirements governing eligibility and appropriate loan structure. Training is an ongoing process.
    The corrective action was not fully completed this reporting period
    Not Completed
    Training
    To improve payment integrity, the SBA provided training on the new loan origination guidance to lenders in 2023, and continues to provide quarterly training. SBA also provides additional training on specific topics throughout the year.
    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

Loans in the 7(a) Loan Guaranty Approval Program are reviewed at the time of approval; these loans are generally made to the right recipient for the right amount, but in the approval process, lenders failed to follow all statutes and regulations. In these cases, there is no amount that needs to be recovered. However, because the lender failed to adhere to all applicable statutes, the guaranty is considered technically improper.
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 $1,103.35 M

Mitigation strategies taken Mitigation strategies planned
Training Training

Additional information

$1,103.35 M

Unknown Payment Details

Evaluation of corrective actions

Approximately 80 percent of all 7(a) Loan Guaranty Approvals are performed by lenders with delegated authority to evaluate, process, close, and disburse 7(a) loans. Lenders with delegated authority were responsible for all identified improper payments for 7(a) loan program approvals in FY2024.

To reduce and/or eliminate the occurrence of future improper payments, a Corrective Action Plan has been developed for the 7(a) Loan Guaranty Approval program centers. Specific corrective actions are determined based upon the primary reason for the error, with the purpose of both remedying
the error and preventing recurrence.

Plans for improvement include the following:
• Collaborating with the Office of Credit Risk Management (OCRM) to inform the office of specific lender deficiencies for further monitoring and potential incorporation 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 on policy requirements governing eligibility and appropriate loan structure.

Improper payments in the 7(a) Loan Guaranty Approval program were caused by lenders’ failure to verify all components of loan eligibility (program integrity issues, lender preference issues, or the subject business is not eligible), lenders’ failure to provide loan documentation, and data entry errors.

External training is provided to address these lender-related issues.

Corrective actions for specific loans are tracked at the loan level through a centralized database. The Quality Control Specialist for 7(a) Loan Guaranty Approvals monitors errors from identification through completion of the corrective actions. OFPO management provides oversight to ensure that milestones are met. Improper payments identified as a result of the FY2024 PIIA reviews have been resolved through recommendations to reduce or cancel the loan guaranty, obtaining additional documentation, and/or referral to other offices

Future payment integrity outlook

7(a) Loan Guarantees Approvals has established a baseline.

The FY 2025 Reduction Targets established for 7(a) Loan Guaranty 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 $21,678.27 M
Current year +1 estimated future improper payments $483.43 M
Current year +1 estimated future unknown payments $0 M
Current year +1 estimated future improper payment and unknown payment rate 2.23 %
Current year +1 estimated future improper payment and unknown payment reduction target 2.23 %

The program's current year improper payment and unknown payment rate of 5.44 % 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 7(a) Loan program is the SBA’s most common loan program. The 7(a) Loan program provides small businesses with short- and long-term working capital, capital to refinance current business debt, and capital for specific business expenditures. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates.

For payment integrity reporting, the 7(a) Loan program is bifurcated into 7(a) Loan Guaranty Approvals and 7(a) Loan Guaranty Purchases.
7(a) Loan Guaranty Approvals describes the loan guaranty approval process. The SBA does not make loans directly to borrowers; the SBA provides a guaranty to a lender which makes the loan to a borrower. The SBA delegates authority to certain lenders (13CFR 120.440) to process, close, service, and liquidate
certain 7(a) loans without prior SBA review. Approximately 80 percent of 7(a) loans are approved by lenders under their delegated authority. All loans identified as improper payments in FY2024 were processed by lenders under their delegated authority.

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

Improper payments identified in the Small Business Administration’s 7(a) Loan Guaranty Approval Program primarily resulted from lender noncompliance with statutory, regulatory, and policy requirements governing eligibility, loan structure, and documentation. The majority of improper payments occurred in loans processed under delegated or express authority, where lenders are responsible for determining borrower eligibility, underwriting creditworthiness, and retaining required supporting documentation. Common deficiencies included incomplete or unsupported credit memoranda, insufficient substantiation of equity injection for change-of-ownership transactions, and failure to obtain or properly document required tax transcripts, environmental reviews, or payment histories for refinanced debt.

Additional causes were related to data quality and documentation integrity issues, including incomplete or inaccurate information entered into SBA systems, inconsistencies between loan files and system records, and reliance on stale or missing documents at the time of approval. In several cases, lenders obtained SBA loan numbers prior to completing required underwriting steps or verifying eligibility in accordance with program requirements. While some deficiencies were mitigated through post-approval corrective actions such as submission of additional documentation, loan restructuring, or voluntary guaranty reductions, other improper payments could not be fully recaptured because the loans had already closed.

No unknown payments were identified during the review period. All payments classified as improper were attributable to documented failures to meet statutory or policy requirements, rather than an inability to determine payment accuracy. The Agency continues to address these issues through lender outreach, training, referrals to the Office of Credit Risk Management, and ongoing quality control reviews to reinforce compliance and reduce the likelihood of future improper payments.

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 $1,632.51 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

The Small Business Administration has implemented and continues to execute corrective actions focused on strengthening lender compliance, improving documentation quality, and reinforcing oversight of delegated loan approvals within the 7(a) Loan Guaranty Approval Program. Actions taken emphasize collaboration among the Office of Financial Program Operations, the Loan Guaranty Processing Center, the Office of Financial Assistance, and the Office of Credit Risk Management to ensure that deficiencies identified through Payment Integrity reviews are communicated, addressed, and incorporated into policy guidance and training. Feedback on critical and non-critical findings is provided directly to lenders during the review process to reinforce expectations related to eligibility determinations, loan structure, and supporting documentation.

Training remains a central corrective action. The Agency has continued to deliver lender and internal staff training through established forums, including recurring stakeholder calls, policy-focused briefings, and training-on-demand resources covering eligibility requirements, underwriting standards, documentation expectations, and system data accuracy. These efforts are designed to address the most common root causes identified during reviews, including incomplete credit memoranda, insufficient substantiation, and inaccuracies in system data entries. Lenders are encouraged to participate in Agency-provided training, and review feedback is routinely used to inform updates to training content.

Process improvements and audit-related actions further support payment integrity. Quality control reviews continue to assess lender adherence to statutory and policy requirements, document findings in permanent loan records, and elevate concerns when warranted. Where patterns of deficiencies are identified, referrals are made to the Office of Credit Risk Management for additional review, supervision, or targeted outreach. These actions reinforce accountability while supporting continuous improvement in lender practices and internal oversight.

Collectively, these actions are intended to reduce the likelihood of future improper payments by strengthening front-end compliance, improving documentation quality at the time of approval, and ensuring that identified risks are addressed through coordinated oversight, training, and quality control activities. No unknown payments were identified during the review period, and corrective actions remain focused on preventing improper payments attributable to documentation, eligibility, and process deficiency.
It is important to note that all deficiencies resulting in an improper payment are considered Technical Improper Payments. There are no Unknown, Over, or Under Payments within the loan approvals programs. 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 7(a) 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. Collectively, these efforts ensure corrective measures are commensurate with risk and support continued reductions in Improper Payments and Unknown Payments.

The agency’s corrective action plan focuses on ensuring that deficiencies leading to Improper Payments and Unknown Payments are identified, corrected, and prevented. The SOP governing 7(a) 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
Financial The financial position or status of a beneficiary, recipient, or their family

Additional information

Reduction target

5.79 %

The agency has implemented and maintained internal controls, staffing structures, and information systems sufficient to support ongoing Payment Integrity activities for the 7(a) Loan Guaranty Approval Program. Existing quality control reviews, lender oversight, training, and referral processes are designed to address the primary root causes of improper payments, including eligibility determinations, documentation sufficiency, and data accuracy. Based on the current risk profile of the program, additional investments beyond those already in place would not be cost-effective relative to the level of improper payments identified. The agency will continue to monitor program risk and adjust controls as necessary to ensure that payment integrity efforts remain proportional and effective.

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 7(a) Loan Approval process during testing, recoupment, and closeout. These resources are intended to support staff responsible for post 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. 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.

$1,632.51 M