Terminating GAO Review of the Dissolved Business Loan Program

The President, in his revised fiscal year 1982 budget request, has proposed to eliminate the Displaced Business Loan Program. The Small Business Administration (SBA) is presently authorized to make loans to small businesses suffering substantial economic injury caused by construction projects supported in whole or in part by Federal, State, or local government entities having eminent domain authority. Displaced business loans are made to assist these businesses to continue in operation at existing locations or to re-establish elsewhere.

GAO has identified several problems pertaining to loan servicing associated with 31 loans administered in SBA district offices. All of the loans had a history of delinquency and were selected because GAO assumed that problem loans would receive the most intensive servicing. The servicing inadequacies included: nonreceipt of borrower's financial statements, infrequent field visits, and insufficient management assistance. Lack of financial statements denies SBA a good tool for readily identifying businesses which may need more intensive servicing or management assistance. Field visits, another means for early recognition of a problem, were made for only 7 of the 31 cases GAO reviewed. Only 14 of the 28 loan cases with missing financial statements were referred for management assistance during the history of the loan. SBA personnel had granted many loan deferments without referral of the cases for management assistance. Since loan specialists have heavy caseloads contributing to the loan servicing deficiencies, GAO previously recommended that SBA determine and reach the staffing level which would permit effective servicing, including initial field visits of the required scope to all borrowers and intensive followup on delinquent loans. Under the Bank Certification Program, SBA can provide faster credit decisions by relying on the certified bank to determine a prospective borrower's creditworthiness. This operational change may permit SBA to devote more of its staff resources to loan servicing.