Small Business Loans: Additional Actions Needed to Improve Compliance with the Credit Elsewhere Requirement

SBA's 7(a) program is required to serve creditworthy small business borrowers who cannot obtain credit through a conventional lender at reasonable terms. The Joint Explanatory Statement of the Consolidated Appropriations Act, 2017 includes a provision for GAO to review the 7(a) program.

This report discusses, among other things, (1) how SBA monitors lenders' compliance with the credit elsewhere requirement, (2) the extent to which SBA evaluates trends in lender credit elsewhere practices, and (3) lenders' views on the credit elsewhere criteria for 7(a) loans.

GAO analyzed SBA data on 7(a) loans approved for fiscal years 2007–2016, the latest available, and reviewed literature on small business lending; reviewed standard operating procedures, other guidance, and findings from SBA reviews performed in fiscal year 2016; and interviewed lender associations and a nonrepresentative sample of 7(a) lenders selected that concentrated on larger lenders.

For its 7(a) loan program, the Small Business Administration (SBA) has largely delegated authority to lenders to make 7(a) loan determinations for those borrowers who cannot obtain conventional credit at reasonable terms elsewhere. To monitor lender compliance with the “credit elsewhere” requirement SBA primarily uses on-site reviews conducted by third-party contractors with SBA participation and oversight, and other reviews. According to SBA guidance, lenders making 7(a) loans must take steps to ensure and document that borrowers meet the program's credit elsewhere requirement. However, GAO noted a number of concerns with SBA's monitoring efforts. Specifically, GAO found the following:

Over 40 percent (17 of 40) of the on-site lender reviews performed in fiscal year 2016 identified lender noncompliance with the requirement.

On-site reviewers identified several factors, such as weakness in lenders' internal control processes that were the cause for lender noncompliance.

Most on-site reviewers did not document their assessment of lenders' policies or procedures, because SBA does not require them to do so. As a result SBA does not have information that could help explain the high noncompliance rate.

Federal internal control standards state that management should design control activities, including appropriate documentation, and use quality information to achieve the entity's objectives. Without better information on lenders' procedures for complying with the documentation requirement, SBA may be limited in its ability to promote compliance with requirements designed to help ensure that the 7(a) program reaches its target population.

SBA does not routinely collect or analyze information on the criteria used by lenders for credit elsewhere justifications. SBA recently began collecting some information on lenders' use of the criteria, but this information is limited, and SBA does not analyze the information that it does collect to better understand lenders' practices. Federal internal control standards state that management should use quality information to achieve the entity's objectives. Without more robust information and analysis, SBA may be limited in its ability to understand how lenders are using the credit elsewhere criteria and identify patterns of use by certain lenders that place them at a higher risk of not reaching borrowers who cannot obtain credit from other sources at reasonable terms.

In general, representatives from 8 of 11 lenders that GAO interviewed stated that SBA's credit elsewhere criteria are adequate for determining small business eligibility for the 7(a) program. These criteria help them target their lending to small businesses that would otherwise have difficulty obtaining conventional credit because they are often new businesses or have a shortage of collateral. However, they also said that other factors—such as lender policies and economic conditions—can affect their decisions to offer 7(a) loans. In January 2018, SBA issued revised guidance for the 7(a) program and has provided training on this new guidance to lenders and trade associations. Lenders told GAO they are still in the process of understanding the new requirements.

GAO recommends that SBA (1) require its on-site reviewers to document their assessment of lenders' policies and procedures related to the credit elsewhere documentation requirement, (2) collect information on lenders' use of credit elsewhere criteria, and (3) analyze that information to identify trends. SBA generally agreed with the recommendations.

In recent years, the Small Business Administration’s (SBA) 7(a)  program—SBA’s largest loan guarantee program for small businesses— has grown considerably. The program is required to serve creditworthy  small business borrowers who cannot obtain credit through a  conventional lender at reasonable terms—commonly referred to as the  “credit elsewhere” requirement. In July 2015, SBA was forced to  suspend 7(a) lending after the program hit its $18.75 billion annual loan  ceiling with more than 2 months left in the fiscal year. Congress  subsequently raised the loan ceiling to $23.5 billion and further to $27.5  billion in fiscal year 2017. In response to this growth, members of  Congress have raised concerns about guaranteed loans going to  borrowers that are able to obtain conventional credit at reasonable terms  and whether the criteria currently used to satisfy the credit elsewhere  requirement provide reasonable assurance that guaranteed loans are  approved for only qualified borrowers.

The Joint Explanatory Statement of the Consolidated Appropriations Act,  2017, includes a provision for us to conduct a study of the credit  elsewhere requirement, including the sufficiency of the credit elsewhere  criteria. This report discusses (1) 7(a) lending to selected categories of  small business borrowers from fiscal years 2007 through 2016; (2) how  SBA monitors lenders’ compliance with the credit elsewhere requirement;  (3) the extent to which SBA evaluates trends in lender practices related to  the credit elsewhere requirement; and (4) lenders’ views on the criteria  used to determine eligibility for 7(a) loans and other issues related to the  7(a) program.

To determine 7(a) lending to selected categories of small business  borrowers, we identified the characteristics of small business borrowers  that receive SBA-guaranteed loans through the 7(a) program. To do so,  we analyzed loan-level data from SBA on the characteristics of small  businesses that received 7(a) loans from fiscal years 2007 through 2016,  the most current information available at the time of our review, including  whether businesses were women-owned or minority-owned and their  geographic location. To assess the reliability of loan-level data from SBA,  we interviewed SBA officials, reviewed related documentation, and tested  the data for missing or erroneous values. We determined the data we  used were sufficiently reliable for purposes of describing the  characteristics of borrowers who received 7(a) loans.

To examine how SBA conducts oversight of 7(a) lenders’ compliance with  the credit elsewhere requirement, we reviewed SBA’s standard operating  procedures and other guidance, interviewed SBA officials, and reviewed  reports of SBA’s on-site reviews, corrective actions, and targeted lender  reviews related to the credit elsewhere requirement conducted in fiscal  year 2016. To assess the extent to which SBA evaluates trends in lender  practices related to the credit elsewhere requirement, we interviewed  SBA officials and reviewed documentation for SBA’s online portal for loan  origination. To obtain lenders’ views on the adequacy of the criteria SBA  uses to determine eligibility for 7(a) loans and other issues related to the  7(a) program, we interviewed representatives from industry groups and a  nonrepresentative, nongeneralizable sample of 11 lenders, of which 9  lenders were selected using a random process that concentrated on  larger lenders and two additional lenders we interviewed that represented  an industry group. Appendix I describes our objectives, scope, and  methodology in greater detail.

We conducted this performance audit from August 2017 to June 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Under SBA’s 7(a) loan program, SBA guarantees loans made by  commercial lenders to small businesses for working capital and other  general business purposes. These lenders are mostly banks, but some  are non-bank lenders, including small business lending companies—  lenders whose lending activities are not subject to regulation by any  federal or state regulatory agency, but were previously licensed by SBA  and authorized to provide 7(a) loans to qualified small businesses. The  guarantee assures the lender that if a borrower defaults on a loan, the  lender will receive an agreed-upon portion (generally between 50 percent  and 85 percent) of the outstanding balance. For a majority of 7(a) loans,  SBA relies on lenders with delegated authority to approve and service  7(a) loans and to ensure that borrowers meet the program’s eligibility  requirements. To be eligible for the 7(a) program, a business must be an  operating for-profit small firm (according to SBA’s size standards) located  in the United States and must meet the credit elsewhere requirement.

Because the 7(a) program is required to serve borrowers who cannot  obtain conventional credit at reasonable terms, lenders making 7(a) loans  must take steps to ensure that borrowers meet the program’s credit  elsewhere requirement. Because SBA relies on lenders with delegated  authority to make these determinations, SBA’s oversight of these lenders  is particularly important. However, we found in a 2009 report that SBA’s  lack of guidance to lenders on how to document compliance with the  credit elsewhere requirement was impeding the agency’s ability to  oversee compliance with the credit elsewhere requirement. To improve SBA’s oversight of lenders’ compliance with the credit elsewhere  requirement, we recommended in 2009 that SBA issue more detailed  guidance to lenders on how to document their compliance with the credit  elsewhere requirement. As a result, SBA revised its standard operating  procedure to state that each loan file must contain documentation that  specifically identifies the factors in the present financing that meet the  credit elsewhere test, which we believe met the spirit of our  recommendation.

SBA’s current credit elsewhere criteria for determining 7(a) loan eligibility  include the following factors:  1.  the business needs a longer maturity than the lender’s policy permits;  2.  the requested loan exceeds the lender’s policy limit regarding the  amount that it can lend to one customer;  3.  the collateral does not meet the lender’s policy requirements;  4.  the lender’s policy normally does not allow loans to new businesses or  businesses in the applicant’s industry; or  5.  any other factors relating to the credit which, in the lender’s opinion,  cannot be overcome except for the guarantee.

When the 7(a) program was first implemented, borrowers were generally  required to show proof of credit denials from banks that documented,  among other things, the reasons for not granting the desired credit.  Similar requirements remained in effect until 1985, when SBA amended  the rule to permit a lender’s certification made in its application for an  SBA guarantee to be sufficient documentation. This certification  requirement remained when the rule was rewritten in 1996. SBA stated  that it believed requiring proof of loan denials was demoralizing to small  businesses and unenforceable by SBA.

SBA and lender roles vary among 7(a) program categories—including  regular 7(a), the Preferred Lenders Program, and SBA Express. Under  the regular (nondelegated) 7(a) program, SBA makes the loan approval  decision, including the credit determination. Under the Preferred Lenders  Program and SBA Express, SBA delegates to the lender the authority to  make loan approval decisions, including credit determinations, without  prior review by SBA. For each 7(a) program category, lenders are  required to ensure that borrowers meet the credit elsewhere requirement  for all 7(a) loans. The maximum loan amount under the SBA Express  program is $350,000, as opposed to $5 million for other 7(a) loans. The  program allows lenders to utilize, to the maximum extent possible, their  own credit analyses and loan underwriting procedures. In return for the  expanded authority and autonomy provided by the program, SBA Express  lenders agree to accept a maximum SBA guarantee of 50 percent. Other  7(a) loans generally have a maximum guarantee of 75 percent or 85  percent, depending on the loan amount. In fiscal year 2016, 1,991 lenders  approved 7(a) loans, of which 1,321 approved at least one loan with  some form of delegated authority.

SBA’s Office of Credit Risk Management is responsible for overseeing  7(a) lenders, including those with delegated authority. SBA created this  office in fiscal year 1999 to help ensure consistent and appropriate  supervision of SBA’s lending partners. The office is responsible for  managing all activities regarding lender reviews; preparing written reports;  evaluating new programs; and recommending changes to existing  programs to assess risk potential. Generally, the office oversees SBA  lenders to identify unacceptable risk profiles using its risk rating system  and enforce loan program requirements. According to SBA’s standard  operating procedures, one of the agency’s purposes of its monitoring and  oversight activities is to promote responsible lending that supports SBA’s  mission to increase access to capital for small businesses.

In the federal budget, the 7(a) program is generally required to set fees  that it charges to lenders and borrowers at a level to cover the estimated  cost of the program associated with borrower defaults (in present value  terms). To offset some of the costs of the program, such as default costs,  SBA assesses lenders two fees on each 7(a) loan. First, depending on  the term of the loan, the guarantee fee must be paid by the lender within  either 90 days of loan approval or 10 business days of the SBA loan  number being assigned. This fee is based on the amount of the loan  and the level of the guarantee, and lenders can pass the fee on to the  borrower. Second, the servicing fee must be paid annually by the lender  and is based on the outstanding balance of the guaranteed portion of the  loan.

The 7(a) program accounts for a small portion of total small business  lending. According to a May 2017 report by the Consumer Financial  Protection Bureau, the total debt financing available to small businesses  was estimated to be $1.4 trillion. Of that amount, the Consumer Financial  Protection Bureau estimated that about 7 percent was SBA loans,  including 7(a) loans.

SBA and some other researchers have suggested that there may be  disparities in credit access among small businesses, based on  characteristics of the borrower and firm. SBA lists as a strategic objective  to “ensure inclusive entrepreneurship by expanding access and  opportunity to small businesses and entrepreneurs in communities where  market gaps remain.” In 2007, we reported that some studies had noted  disparities among some races and genders in the conventional lending  market, but the studies did not offer conclusive evidence on the reasons  for those differences. Much of the research we reviewed in 2007 relied  on the Board of Governors of the Federal Reserve System’s Survey of  Small Business Finance, which was last implemented in 2003. Although  this survey is no longer available, recently the 12 Federal Reserve Banks  conducted the Small Business Credit Survey. In a series of reports  based on the more recent survey, researchers found disparities in credit  availability based on gender, the age of the firm, and minority status.

Businesses That Were New, Women- Owned, or Located in Distressed Areas Received a Majority of 7(a) Loan Dollars over the Past 10 Years

From fiscal years 2007 through 2016, a majority of loan dollars  guaranteed under the 7(a) program went to small businesses that were  new, partially or wholly owned by women, or located in a distressed  area. As previously mentioned, recent studies we reviewed by the  Federal Reserve Banks and other researchers suggest that certain small  business borrowers—including businesses that are new or owned by  women—have difficulty obtaining conventional small business loans,  which may put them at a disadvantage. As shown in figure 1, almost  two-thirds of loan dollars guaranteed under the 7(a) program for this  period went to small businesses that were in these two categories or  located in a distressed area. The remaining 37 percent of 7(a) loan  dollars went to businesses that were established, solely male-owned, and  not located in economically distressed areas. See appendixes II and III for  additional data on 7(a) loans, such as the total volume, percentage of  lending provided by year and by state, and other borrower characteristics,  including SBA’s loan- and lender-level Small Business Risk Portfolio  Solutions score (predictive score) information.

In the following figures, we present more detailed data on 7(a) loans to  small businesses based on their status as a new business; gender of  ownership; location relative to economically distressed areas; and  minority ownership for fiscal years 2007 through 2016.

New businesses. As shown in figure 2, the percentage of 7(a) loans that  went to new businesses decreased from 36 percent in fiscal year 2007 to  23 percent in fiscal year 2011 before increasing to 35 percent by 2016.

Gender. From fiscal years 2007 through 2016, the share of the total value  of approved 7(a) loans by gender of owner remained fairly consistent (see  fig. 3). An average of 70 percent of the total loan value went to male- owned businesses, and the remaining 30 percent went to businesses that  were majority (more than 50 percent) or partially (50 percent or less)  owned by women.

Economically distressed areas. SBA did not provide data on whether  7(a) loans go to businesses located in economically distressed  neighborhoods. However, we used data from the American Community  Survey for 2011 through 2015, the most recent version available at the  time of our analysis, along with zip code information provided by SBA to  determine the average poverty rate by zip code (see fig. 4). From fiscal years 2007 through 2016, the proportion of the total value of 7(a) loans  approved that went to borrowers in economically distressed areas  remained between 23 percent and 26 percent. We defined distressed  areas as zip codes where at least 20 percent of the households had  incomes below the national poverty line.

Minority/Nonminority status of borrower. From fiscal years 2007  through 2016, the proportion of the total value of 7(a) loans approved that  went to minority borrowers decreased overall—from 43 percent to 30  percent—with the lowest share at 24 percent in fiscal year 2010 (see fig.  5). The share of approved loan dollars that went to nonminority  borrowers varied, increasing to 69 percent in fiscal year 2010 before  decreasing to 56 percent in fiscal year 2016. Notably, the share of the  total value of loans approved that went to borrowers whose race/ethnicity  was categorized as undetermined increased from 5 percent in fiscal year  2007 to 13 percent in fiscal year 2016. This increase does not fully  account for the declined share for minority borrowers. However,  according to SBA officials, borrowers voluntarily provide self-reported  information on race and ethnicity and therefore the associated trend data  should be viewed with caution.

SBA Has Processes in Place to Evaluate Lender Compliance, but Its Lender Reviews Do Not Document Reasons for Noncompliance

SBA Conducts On-site and Targeted Lender Reviews to Evaluate Lender Compliance with the Credit Elsewhere Documentation Requirement

SBA relies on on-site reviews as its primary mechanism for evaluating  lenders’ compliance with the credit elsewhere requirement. The reviews  are performed by third-party contractors with SBA staff participation and  additional oversight from SBA. According to SBA’s standard operating  procedures, these reviews are generally conducted every 12 to 24  months for all 7(a) lenders with outstanding balances on the SBA- guaranteed portions of their loan portfolios of $10 million or more,  although SBA may conduct on-site reviews of any SBA lender at any time  as it considers necessary. In fiscal year 2016, SBA conducted 40 on-site  reviews of 7(a) lenders, representing approximately 35 percent of SBA’s  total outstanding 7(a) loan portfolio.

As part of SBA’s on-site reviews, reviewers judgmentally selected a  sample of approximately 30 to 40 loan files using a risk-based approach.  These loan files accounted for approximately 6 percent to 19 percent of  each lender’s total gross SBA dollars in fiscal year 2016. For each  lender, approximately 70 percent to 90 percent of the loan files in the  sample were reviewed to evaluate compliance with the credit elsewhere  requirement. According to SBA’s contractors, loans that were selected  for other reasons, such as issues related to liquidation, were not required  to be reviewed for credit elsewhere compliance.

SBA requires lenders to provide a narrative to support the credit  elsewhere determination in the credit memorandum included in each loan  file. SBA’s standard operating procedures state that lenders must  substantiate that credit is not available elsewhere by (1) discussing the  criteria that demonstrate an identifiable weakness in a borrower’s credit  and (2) including the specific reasons why the borrower does not meet  the lender’s conventional loan policy requirements.

In keeping with SBA’s documentation requirement, third-party contractors  and SBA staff who conduct on-site reviews are supposed to assess  whether lenders have adequately documented the credit elsewhere  criteria and provided specific reasons supporting the criteria in the credit  memorandum. According to SBA’s contractors, adequate documentation  of the credit elsewhere determination in the credit memorandum would  include not just which of the criteria a borrower met but also a discussion  of the basis or justification for the decision. For example, if a lender  determined that a borrower needed a longer maturity, the lender should  explain in the credit memorandum the reasons why a longer maturity was  necessary. SBA’s contractors also told us that they carefully review a  lender’s loan policies in preparation for on-site reviews and refer to a  lender’s policies throughout the reviews. Reviewers do not attempt to  verify the evidence given in support of the credit elsewhere reason  beyond the information provided in the credit memorandum.

Based on our review of fiscal year 2016 reports, on-site reviews can  result in three levels of noncompliance response:

Finding: This is the most severe result and is associated with a  corrective action for the lender to remedy the issue.

Observation: This is a deficiency recorded in the review’s summary  but may not warrant a corrective action for the lender.

Deficiency Noted: This is the lowest level of response. It is a  deficiency noted as part of the review that is not included in the  review’s summary and also may not warrant a corrective action.

According to SBA officials, SBA’s policy has been that any  noncompliance with SBA loan program requirements results in a finding.  However, according to SBA officials and our review of the fiscal year  2016 on-site review reports, if a single instance of noncompliance was  identified in fiscal year 2016, SBA generally would not issue a finding.  Instead, SBA’s contractors said they would attempt to determine whether  that instance was an inadvertent error, such as by examining additional  loan files.

Lenders that are subject to corrective actions are generally required to  submit a response to SBA within 30 days to document how they have  addressed or plan to address the identified issues. SBA subsequently  asks for documentation to show that the lender has remedied the issue,  and in some cases will conduct another review that usually includes an  assessment of 5 to 10 additional loan files to determine whether the credit  elsewhere reason has been adequately documented. According to SBA  officials, SBA may also review lenders’ compliance with corrective actions  from recent on-site reviews during targeted reviews (discussed below)  and delegated authority renewal reviews (for lenders with delegated  authority).

In addition to on-site reviews, SBA also monitors lenders’ compliance with  the credit elsewhere requirement through targeted reviews (performed  on- or off-site). Targeted reviews of a specific process or issue may be  conducted for a variety of reasons at SBA’s discretion, including  assessing a lender’s compliance with the credit elsewhere requirement. In  fiscal year 2016, SBA conducted 24 targeted reviews that included an  examination of lenders’ compliance with the credit elsewhere  documentation requirement. For these reviews, SBA examined loan files  for 5 judgmentally selected loans that were provided to SBA  electronically, as well as copies of the credit elsewhere reasoning (among  other underwriting documentation) for 10 additional recently-approved  loans.

SBA also conducts periodic off-site reviews that use loan- and lender- level portfolio metrics to evaluate the risk level of lenders’ 7(a) portfolios.  According to agency officials, SBA also began using off-site reviews to  evaluate lenders’ compliance with the credit elsewhere requirement in  fiscal year 2016. In that year, SBA conducted off-site reviews of 250  lenders and required these lenders to report the credit elsewhere  justification for a sample of 10 loans per lender that were identified by  SBA’s selection process. Lenders were not required to provide  supporting documentation, and SBA did not follow up with lenders or  review loan files to ensure the validity of the self-reported reasons.  According to SBA, off-site reviews followed the same procedures in fiscal  year 2017 as in 2016 and that the agency planned to use the same  procedures for these reviews in the future. According to the agency, it  also routinely evaluates and revises its review processes and procedures.

In addition, SBA’s Loan Guaranty Processing Center and National  Guaranty Purchase Center conduct Improper Payments Elimination and  Recovery Act and quality control reviews at the time of loan approval and  at the time of guaranty purchase, respectively. These reviews examine  the credit elsewhere requirement, among other issues. Lastly, since 2014  SBA’s Office of Inspector General has also examined whether high-dollar  or early-defaulted 7(a) loans were made in accordance with rules;  regulations; policies; and procedures, including the credit elsewhere  requirement.

SBA’s Lender Reviews in 2016 Identified a High Rate of Noncompliance with the Credit Elsewhere Documentation Requirement

Our review of the on-site reviews conducted in fiscal year 2016 found that  17 of the 40 reviews—more than 40 percent—identified compliance  issues with the credit elsewhere documentation requirement. Of those 17  reviews,

10 reviews resulted in a Finding (all with associated corrective

3 reviews resulted in an Observation (none with associated corrective  actions or requirements), and

4 reviews resulted in a Deficiency Noted (one with an associated  requirement).

For all of the 17 on-site reviews that identified an instance of  noncompliance, the issue was related to the lender’s documentation of  the credit elsewhere criteria or justification. For example, one review  found that the lender’s “regulatory practices demonstrate material  noncompliance with SBA Loan Program requirements regarding  documentation of the Credit Elsewhere Test.” Another review found that  the lender “failed to demonstrate with adequate documentation that credit  was not available elsewhere on reasonable terms and conditions.” For 2  of the 17 reviews, the issue was partly related to a discrepancy between  the credit elsewhere justification used for some of the sample loan files  and the lender’s own loan policy limits.

With regard to SBA’s targeted reviews, 7 of 24 reviews (29 percent)  conducted in fiscal year 2016 found a compliance issue with the credit  elsewhere requirement. Of those 7 reviews,

6 reviews resulted in a Finding (all with associated corrective actions),

1 review resulted in an Observation (without an associated corrective no reviews resulted in a Deficiency Noted.

For all of the 7 targeted reviews that identified a compliance issue, the  issue was wholly related to the lender’s documentation of the credit  elsewhere reason or justification. For example, 4 reviews found that for at  least one loan reviewed, “the Lender failed to document justification that  credit was unavailable elsewhere.” Another review found that for “three  SBA Express loans and one Small Loan Advantage loan   reported “other factors relating to the credit that in the lender’s opinion  cannot be overcome except for the guaranty’ without specific identification  of the factors.”

Lack of Internal Controls Led to Lender Noncompliance, but Were Not Documented by SBA’s Reviews

Based on our review of on-site review reports and an interview with one  reviewer, the key factors underlying lenders’ high rate of noncompliance  with the credit elsewhere documentation requirement were lenders’ lack  of proper internal controls and procedures and lack of awareness of the  credit elsewhere documentation requirement. In fiscal year 2016, SBA’s  corrective actions related to the credit elsewhere requirement required the  lenders to establish or strengthen their policies; procedures; underwriting  processes; or internal controls. In addition, contractors conducting the on- site reviews with whom we spoke stated that some lenders appeared to  be unfamiliar with SBA’s standard operating procedures or were unclear  on how to interpret them.

For the 11 on-site reviews conducted in 2016 that included corrective  actions, SBA generally required lenders to improve controls or  procedures. For example, one lender was required to “correct its policy,  modify its procedure, and amend its internal controls to ensure that its  consideration and documentation of credit unavailable elsewhere  identifies the specific fact(s) which are applicable to the specific loan and  the determination is rendered and accurate for each individual SBA loan  that it originates.” Another lender was required to “improve underwriting  processes and controls to ensure that the borrower meets the [credit  elsewhere] requirement” and to “document the loan file with the reasons  for the determination.”

Similarly, for the six targeted reviews in 2016 that included corrective  actions, SBA issued a general requirement for the lender to “identify the  causes for the Findings and implement corrective actions.” Based on our  review of these targeted reviews, lenders generally remedied or intended  to remedy the issue by amending their internal controls or procedures.  For example, one lender stated that the “Credit Elsewhere test will be  incorporated into the Credit Department process.” Another lender stated  that it would “centralize all SBA underwriting and has developed an SBA  addendum that will be utilized for all SBA-guaranteed loans.”

Although some of SBA’s on-site reviews for fiscal year 2016 identified  factors leading to noncompliance, they generally did not document  reviewers’ assessment of lenders’ policies and practices for complying  with the credit elsewhere documentation requirement. SBA’s standard  operating procedures state that the on-site reviewers should determine  whether or not lenders’ policies and practices adhere to the requirement,  but they do not require them to document their assessment of these  policies and practices. Only 4 of the 40 fiscal year 2016 review reports  that we examined included such an assessment. As a result, although  SBA required corrective actions by the lender to address deficiencies,  there usually was no record of the underlying factors that resulted in the  lender’s noncompliance.

Federal internal control standards state that management should design  control activities to achieve objectives and respond to risks, including  appropriate documentation of transactions and internal control. Because  SBA does not require reviewers to document their assessment of lenders’  policies and practices for complying with the credit elsewhere  documentation requirement, the agency does not have good information  to help explain why so many lenders are not in compliance. This hinders  SBA’s ability to take informed and effective actions to improve lender  compliance with the requirement and ensure that the program is reaching  its intended population.

SBA Collects Limited Data on Criteria Used for Credit Elsewhere Justifications and Does Not Analyze Patterns in Lender Practices

SBA Collects Limited Data on Criteria Used for Credit Elsewhere Justifications

SBA does not routinely collect information on the criteria lenders use in  their credit elsewhere justifications. As previously discussed, lenders are  required to maintain documentation of borrower eligibility (including the  credit elsewhere justification) in each loan file for loans approved through  lenders’ delegated authority. However, SBA cannot readily aggregate  information on lenders’ credit elsewhere justifications for both delegated  and nondelegated loans:

For delegated loans, lenders are required to certify the loan’s credit  elsewhere eligibility on E-Tran, SBA’s online portal for origination of  delegated and nondelegated loans. However, lenders are only  required to check a box to certify that the loan file contains the  required credit elsewhere justification and are not required to submit  any additional information, including which of the criteria was used to  make the determination. According to SBA officials, delegated loans  account for loans approved by approximately 70 percent of lenders.

For nondelegated loans, lenders are required to submit credit  elsewhere documentation to be reviewed by SBA’s Loan Guaranty  Processing Center. For these loans, which comprise loans approved  by the remaining 30 percent of lenders, SBA might maintain paper  records of data on borrowers’ eligibility but does not compile such  data electronically and thus cannot readily aggregate the data for  analysis.

Instead, SBA relies on on-site reviews or lender-reported information to  review lenders’ credit elsewhere justifications and collects limited data  from these reviews. For its on-site reviews, SBA does not collect sample  data on lenders’ use of the credit elsewhere criteria. For its off-site  reviews, SBA collected sample data on lenders’ use of the credit  elsewhere criteria based on 250 such reviews conducted in fiscal year  2016. For these reviews, SBA asked lenders to self-report a short  description of the credit elsewhere justifications used for an SBA-selected  sample of 10 loans. However, as discussed earlier, SBA did not request  or examine loan files as part of these off-site reviews and did not follow  up with lenders or review loan files to ensure the validity of the self- reported reasons.

One reason why SBA does not routinely collect complete information on  lenders’ use of the credit elsewhere criteria is that SBA’s loan origination  system, E-Tran, is not equipped to record or tabulate this information. In  addition, according to an SBA official, on-site reviews do not collect data  on the credit elsewhere criteria because the loans reviewed are  judgmentally selected and would not accurately represent the larger  population.

Federal internal control standards state that management should use  quality information to achieve the entity’s objectives. To do so,  management should identify the information needed to achieve the  objectives and address the risks, obtain relevant data from reliable  internal and external sources in a timely manner, and process the  obtained data into quality information. More robust information on  lenders’ credit elsewhere justifications, including the credit elsewhere  criteria, would allow SBA to evaluate patterns in lender practices related  to the credit elsewhere requirement and, in turn, help the agency ensure  compliance with the requirement. In this context, generalizable data,  which can be collected through random sampling, or complete data  through required reporting for every loan would allow SBA to better  understand patterns in lender practices across the 7(a) program. Further,  nongeneralizable data, which are available through SBA’s current off- and  on-site review processes, would allow SBA to examine specific groups of  lenders and could help SBA determine if it is necessary to collect  additional data.

SBA Has Not Conducted Analysis to Determine If There Are Any Patterns of Noncompliance or Identified Lenders That May Be at Risk

SBA does not analyze the limited data it collects to help it monitor  lenders’ compliance with the credit elsewhere requirement. According to  agency officials, SBA has not performed lender-level analyses of the  criteria lenders use for their credit elsewhere justifications. Additionally,  SBA has not analyzed 7(a) lenders’ use of the “other factors” criterion— that is, factors not specified in the other criteria that, in the lender’s  opinion, cannot be overcome except for the guarantee—for example, by  collecting data on the frequency of its use or examining why lenders rely  on it. While some 7(a) lenders told us they avoided relying on the “other  factors” criterion because it was vague and open to interpretation, some  lenders have used it when a borrower’s profile did not meet any of the  other criteria. For example, one lender stated that this criterion was used  for a borrower who was no longer a start-up but had experienced  fluctuations in cash flow due to relocation or change in ownership.  Another lender stated that the criterion was used more frequently during  the 2007-2009 financial recession to extend financing to borrowers whose  owners had experienced a home foreclosure but were otherwise sound.

Federal internal control standards state that management should  establish and operate monitoring activities to monitor the internal control  system and evaluate the results. Analyzing data on lenders’ use of the  credit elsewhere criteria as part of its monitoring procedures could help  SBA determine whether there are patterns in lender practices related to  the criteria that could predict lender noncompliance. For example, SBA  could analyze lenders’ use of the criteria along with lender review results  and other data on loan characteristics and performance to determine  whether certain patterns indicate that a lender might be applying the  requirement inconsistently. Additionally, such analysis could inform SBA’s  selection of which lenders to review by improving its ability to identify  lenders at risk of noncompliance with the credit elsewhere requirement.  Better selection criteria for its lender reviews could, in turn, improve  identification and remediation of such noncompliance, helping ensure that  the 7(a) program serves its target population.

Lenders Generally View Credit Elsewhere Criteria as Adequate, and SBA Has Implemented New Procedures for Reviewing Eligibility

Lenders Said Credit Elsewhere Criteria are Generally Adequate for Determining Borrower Eligibility

Representatives at 8 of the 11 lenders that we contacted said they  believed that SBA’s current credit elsewhere criteria are adequate in  targeting small business borrowers who cannot obtain credit at  reasonable terms. Representatives of these lenders also agreed that  the criteria generally serve the types of small businesses that would  otherwise have trouble obtaining conventional credit, such as new  businesses or those with a shortage of collateral. One lender  representative told us its most commonly used criterion related to the  overall time in business because of the higher risk of failure. Another  lender representative cited the lack of collateral as the most common  criterion used. Additionally, representatives at an industry association told  us that one of the most commonly used criteria was the one related to  loan maturity and many small businesses seek 7(a) loans because they  offer repayment terms of up to 10 years, compared to 1 to 3 years for  conventional loans.

Representatives of two other lenders suggested that the credit elsewhere  criteria should not be overly prescriptive, which could limit lenders’ ability  to make 7(a) loans to some businesses. For example, one representative  said the credit elsewhere criteria should remain flexible because banks  have different lending policies.

In addition, representatives at three lenders indicated that they were  hesitant to use the “other factors” criterion. One lender believed the  requirement was open to interpretation and could be used inappropriately  with lenders determining their own individual conventional loan policies.  Another lender commented that the criterion was vague and rarely used  by his institution, noting that SBA should provide some additional  guidance on its use.

Factors Such as Lender Policies and Economic Conditions Also Affect Lenders’ Decisions to Offer a SBA 7(a) Loan

Lenders consider multiple factors in determining whether to offer small  businesses a conventional loan or a 7(a) loan, according to stakeholders  with whom we spoke. For example, representatives at an industry  association stated that a bank goes through several analyses to  determine what loan product to offer the borrower. These representatives  stated that the credit elsewhere requirement is embedded in the analysis  a bank performs, such as whether the borrower qualifies for a loan and  has a financial need for an SBA loan and whether the 7(a) program is  right for that borrower.

Representatives at two other lenders also stated that many small  businesses have already been turned down for conventional loans before  they seek a 7(a) loan. One representative noted that the “reasonable  rates and terms” component of the 7(a) program was important as it  allows lenders to look more broadly at a borrower’s needs. For instance,  the representative explained, lenders can assess whether repayment  terms are reasonable given a particular borrower’s situation and the  resources the borrower will have to repay the loan.

Economic conditions also affect lending policies, including whether  borrowers qualify for a conventional loan, according to representatives at  seven lenders with whom we spoke. For example, during the recent  economic downturn, banks tightened their underwriting standards for  small businesses and were less willing to lend without a government  guarantee, according to one lender representative.

SBA Has Issued New Procedures for Reviewing Liquidity of Small Business Borrowers, and Additional Lender Training Is Underway

SBA has issued revised primary operational guidance for the 7(a)  program, effective January 1, 2018. As discussed previously, lenders  are required to make a determination that the desired credit is not  available to the applicant from nonfederal sources. Under the previous  guidance, the lender had to determine that some or the entire loan was  not available from nonfederal sources or the resources of the applicant  business. However under the revised guidance, the scope of nonfederal  sources a lender must review was further defined to include sources both  related and unrelated to the applicant. The updated guidance states that  lenders must consider:

Nonfederal sources related to the applicant, including the liquidity of  owners of 20 percent or more of the equity of the applicant, their  spouses and minor children, and the applicant itself; or

Nonfederal sources unrelated to the applicant, including conventional  lenders or other sources of credit.

Representatives of five lenders told us they have been determining how  to interpret the new procedures with a few stating they would like  additional guidance, including what information to retain in the file.  Representatives of two lenders stated that there is some ambiguity in how  to determine nonfederal resources and how to assess whether small  business owners have too many available liquid resources to qualify for a  7(a) loan. One representative said that lenders can have different  interpretations of what constitutes “available resources,” which is not  specified in the new SOP. As a result, he said, there may be some  confusion about how to assess family members of the borrower who have  high net worths and whether the borrower should decline a family  member contribution to qualify for an SBA loan. A representative of one  lender stated that lenders will not know what SBA expects until loans are  approved under the new procedures, default, and are then reviewed.  Another lender’s representative suggested additional guidance on  documentation, such as whether the bank must obtain a personal  financial statement for each owner of the business.

A SBA staff told us SBA has provided multiple training presentations to  SBA staff, lenders, and trade associations on the statutory changes to the  credit elsewhere requirements and standard operating procedure  updates. These have included a presentation at a trade association  conference, four monthly conference calls for SBA staff, and two  conference calls for SBA lenders. SBA staff said SBA also plans to hold  monthly training sessions with SBA field offices, quarterly training  sessions with the industry, and at least four training sessions in 2018 at  lender trade conferences. Additionally, a representative from an industry  association told us it is providing industry training on SBA’s revised  procedures, including the credit elsewhere liquidity requirement.

SBA’s 7(a) loan program is required to serve creditworthy small business  borrowers who cannot obtain credit through a conventional lender at  reasonable terms, and SBA largely relies on lenders with delegated  authority to make credit elsewhere determinations. However, although  there is a high rate of lender noncompliance with the credit elsewhere  documentation requirement, SBA does not require its reviewers to  document their assessment of the policies and procedures lenders use to  meet the requirement. Without better information from lender reviews on  how lenders are implementing the requirement to document their credit  elsewhere decisions, SBA may be limited in its ability to promote  compliance with requirements and, in turn, use such information to help  ensure that 7(a) loans are reaching their target population.

Furthermore, SBA does not routinely collect or analyze information on the  criteria used for credit elsewhere justifications to evaluate patterns in  lender practices. SBA recently began collecting some information on  lenders’ use of the criteria, but this information is limited, and SBA does  not analyze the information that it does collect to better understand  lenders’ practices. Without more robust information and analysis, SBA  may be limited in its ability to understand how lenders are using the credit  elsewhere criteria and whether 7(a) loans are reaching borrowers who  cannot obtain credit from other sources at reasonable terms.

We are making the following three recommendations to SBA.

The Administrator of SBA should require reviewers to consistently  document their assessments of a lender’s policies and practices.  (Recommendation 1)

The Administrator of SBA should use its on-site and off-site reviews to  routinely collect information on lenders’ use of credit elsewhere criteria as  part of its monitoring of lender practices related to the credit elsewhere  requirement. (Recommendation 2)

The Administrator of SBA should analyze information on lenders’ use of  credit elsewhere criteria obtained from its reviews to identify lenders that  may be at greater risk of noncompliance and to inform its selection of  lenders for further review for credit elsewhere compliance.  (Recommendation 3)

We provided a draft of this report for review and comment. SBA’s written  comments are reprinted in appendix IV. SBA generally agreed with the  recommendations. SBA also provided additional comments on certain  statements in the draft report, which are summarized below with our  responses.

SBA noted that the draft Highlights did not discuss how credit  elsewhere is determined for nondelegated loans. We have not revised  the Highlights in response to this comment because our review  focused on delegated lenders. In the body of the report we note that  approximately 70 percent of 7(a) loans are approved under delegated  authority. We also refer to SBA’s nondelegated loans in the report for  additional context.

According to SBA, the statement on our draft Highlights did not fully  reflect its monitoring of lender compliance. SBA identified a variety of  reviews it uses in addition to on-site reviews by third party contractors,  which we discuss in the body of the report. We have modified the  Highlights to reflect these other reviews.

Also in reference to the draft Highlights, SBA stated that it provides  oversight on every on-site lender review and that an SBA employee is  present as a subject-matter expert on every review. We revised the  Highlights by adding that SBA provides oversight to the on-site  reviews conducted by third-party contractors.

In response to a statement in our draft report that SBA guarantees  loans to small businesses for working capital and other general  business purposes, SBA commented that working capital generally is  not the primary purpose for SBA-guaranteed loans. We did not revise  the statement because SBA’s SOP 50 10 5 (version J) specifies that  SBA’s 7(a) loan proceeds may be used for permanent working capital  and revolving working capital, among other things.

In relation to a footnote in our report that mentions two lender reviews  for which we did not receive documentation, SBA stated that on  February 15, 2018, it provided documentation to us related to the  reviews and that we had confirmed its receipt. However, the text in the  footnote in question refers to two targeted lender reviews from 2016  that included corrective actions. The information SBA provided to us  on February 15, 2018, was related to on-site reviews conducted in  2016. As a result, we did not revise the footnote.

SBA’s letter also contained technical comments that we incorporated as  appropriate.

We are sending copies of this report to congressional committees,  agencies, and other interested parties. In addition, this report will be  available at no charge on our website at http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This report discusses (1) 7(a) lending to selected categories of small  business borrowers from fiscal years 2007 through 2016; (2) how the  Small Business Administration (SBA) monitors lenders’ compliance with  the credit elsewhere requirement; (3) the extent to which SBA evaluates  trends in lender practices related to the credit elsewhere requirement; and  (4) lenders’ views on the criteria used to determine eligibility for 7(a) loans  and other issues related to the 7(a) program.

For background on the 7(a) program and the credit elsewhere  requirement, we reviewed the legislative history of the 7(a) program and  our previous reports. We also interviewed officials from SBA’s Office of  Credit Risk Management on guidance provided to 7(a) lenders.

For background on constraints in the small business credit market, we  reviewed recent academic literature on the characteristics of small  businesses that historically have had more difficulty accessing credit. In  addition, we reviewed recent studies published by the Federal Reserve  Banks of Atlanta; Cleveland; Kansas City; and New York.

To describe the population of borrowers served by the 7(a) program, we  selected characteristics (such as gender, minority status, and percentage  of new business) that we used in our 2007 report and that were the  subject of the recent studies by Federal Reserve Banks. We obtained  and analyzed SBA loan-level data to describe 7(a) loans and borrowers.  Specifically, SBA provided us with 581,393 records from its administrative  data systems, which contained information on all loans approved and  disbursed in fiscal years 2007 through 2016. The SBA data included  various types of information describing each loan, including the total  gross approval amount; the amount guaranteed by SBA; the loan term;  and the interest rate; delivery method; and status of the loan. The SBA  data also included information on borrower characteristics:

Age of business. Firms were classified as new (less than 2 years in  operation) or existing.

Gender. Firms were classified as 100 percent male-owned; 50  percent or greater women owned; 50 percent or less women-owned;  or “unknown.” Information on gender was voluntarily provided by  borrowers.

Economically distressed area. We identified borrowers in  economically distressed areas by matching borrower zip codes  provided by SBA to those in the 2011 through 2015 American  Community Survey. We defined distressed areas as zip codes where  at least 20 percent of households had incomes below the national  poverty line. In about 1 percent of the cases, we were unable to  classify a lender because a zip code had changed or had insufficient  population to report a poverty rate. We consider 1 percent of  unmatched cases to be low by data reliability standards.

Race/ethnicity. Borrowers were placed in one of nine categories of  race/ethnicity, including an “unknown” category. We aggregated these  to create minority, nonminority, and undetermined categories. The  minority category included all borrowers who reported being a  race/ethnicity other than white. The nonminority category included  borrowers who reported being white. Information on race was  voluntarily provided by borrowers.

Industry. Firms were assigned a North American Industrial  Classification code. These six-digit codes begin with a two-digit sector  code that we used to draw more general conclusions about  industries.

Geographic information. The data provided the state where the  borrower is located.

In addition, we obtained information from SBA on loan- and lender-level  Small Business Risk Portfolio Solution scores (predictive scores) provided  by Dunn & Bradstreet and Fair Isaac Company, for loans approved in  fiscal year 2016, the latest available. We were able to obtain predictive  scores for approximately 81 percent of the loans for which SBA had  provided other information. According to SBA, some loans may not have been disbursed at the time we obtained the predictive scores and, as a  result, we do not have scores associated with these loans. We analyzed  the information to determine the range of predictive scores and the range  of average predictive scores by lender.

To assess the reliability of loan-level data on borrower and loan  characteristics and predictive scores we received from SBA, we  interviewed agency officials knowledgeable about the data and reviewed  related documentation. We also conducted electronic testing, including  checks for outliers, missing data, and erroneous values. We determined  that the data were sufficiently reliable for the purposes of describing the  characteristics of borrowers who received 7(a) loans and the distribution  of predictive scores.

To assess how SBA monitors lenders’ compliance with the credit  elsewhere requirement and criteria, we reviewed SBA’s standard  operating procedures and other guidance on 7(a) program regulations  and lender oversight. Specifically, we reviewed SOP 50 10 5 (versions I  and J) on Lender and Development Company Loan Programs, SOP 50  53(A) on Lender Supervision and Enforcement, and SOP 51 00, On-Site  Lender Reviews/Examinations, as well as information and policy notices  related to the credit elsewhere requirement. Additionally, we interviewed  representatives including those at SBA’s Office of Capital Access and  Office of Credit Risk Management on lender oversight and lender review  processes. We reviewed all the on-site lender review reports (40  reviews), including corrective actions or requirements related to the credit  elsewhere requirement (documentation for 11 lenders), and targeted  review reports that had credit elsewhere findings (7 reviews) that SBA  conducted in fiscal year 2016. We also interviewed officials and reviewed  recent reports from SBA’s Office of Inspector General.

To assess the extent to which SBA evaluates trends in lender practices  related to the credit elsewhere requirement, we interviewed SBA officials  and reviewed documentation for SBA’s online portal for loan origination.  We also incorporated information from interviews with a  nongeneralizable, nonrepresentative sample of 7(a) lenders, which we  discuss below.

To obtain lenders’ views on the criteria used to determine eligibility for  7(a) loans and other program-related issues, we interviewed SBA staff  including from the Office of Capital Access, and representatives of the  National Association of Government Guaranteed Lenders; American  Bankers Association; Independent Community Bankers Association; and  National Federation of Independent Businesses. We also interviewed 11  banks (one bank provided written responses) in order to obtain the lender  perspective of credit elsewhere. Nine of the banks were selected by us  using a random process that concentrated on larger lenders. These nine  lenders selected by us represent about 13 percent of the loans approved  and 16 percent of the dollars approved in 2016. In addition, we  interviewed two additional banks that represented an industry group –  one larger bank and one small bank. Although we partially selected at  random, the lenders we interviewed should not be considered  generalizable because of the small number.

Appendix II: Selected Characteristics of 7(a) Lending, Fiscal Years 2007–2016

In this appendix, we provide information on the total amount and number  of approved 7(a) loans and the top eight industry sectors receiving 7(a)  loans. Data are also presented on fiscal year 2016 loan volume by state  and per capita. As shown in figure 6 below, the total amount of approved  7(a) loans decreased during the period associated with the Great  Recession (2007 through 2009). From fiscal year 2009 on, the total  amount of approved 7(a) loans increased until a decline in fiscal year  2012. During this timeframe, the American Recovery and Reinvestment  Act of 2009 and the Small Business Jobs Act of 2010 provided fee relief  and higher guaranties. The Small Business Jobs Act of 2010 also  provided a temporary increase in Small Business Administration (SBA)  Express loan limits to $1 million (instead of $350,000). These programs  have since expired.  7(a) Loans by North American Industry Classification System  (NAICS) code. Table 1 shows the largest eight industrial sectors by  proportion of the total amount of 7(a) loans approved, using the NAICS  code. The combined share of the top eight sectors declined slightly from  85 percent to 80 percent of the total lending from fiscal years 2007  through 2016, with an average of 82 percent. During this period, the  Accommodation and Food Services sector had the largest average share  of total loan amount at 17 percent, followed by the Retail Trade sector at  15 percent.

Approved loan amount and per capita dollars by state. As shown in  figure 7, California; Texas; Florida; Georgia; and New York received the  highest total of approved loan dollars in fiscal year 2016. The average  approval amount across all loans was $380,619. Georgia and Arkansas  had the largest average approval amount in 2016. Also, during this  period, Utah; Colorado; Georgia; California; and Washington received the  highest per capita approved loan dollars.

Appendix III: Information on Borrower Characteristics Based on SBA’s Predictive Scores

In fiscal-year 2016, creditworthiness varied widely among 7(a) program  borrowers. We analyzed creditworthiness using the Small Business  Administration’s (SBA) Small Business Risk Portfolio Solution score  (predictive score), which ranges from 70 to 300, with 300 indicating the  least risky loan. According to SBA, loans with scores above 180 are  considered “lower risk,” scores between 140 and 179 are considered  “moderate risk,” and scores 139 and lower are considered “higher risk.”  There did not appear be differences in score based on the gender of the  borrower or the age of the business. While SBA relies on the Predictive  Score data to identify lenders that may pose excessive risk to the SBA  7(a) portfolio, the data also provide potential insights related to lender  implementation of the credit elsewhere requirement.

Variation. We found that some 7(a) borrowers were much more  creditworthy than others. In 2016, the only year for which we obtained  data, the predictive score at origination varied widely among  borrowers. In 2016, the scores of borrowers ranged from a low of 91  to a high of 246. However, most scores were between 171 and 203,  and the median score was 188.

Race/ethnicity. We found that there were slight differences in  creditworthiness by race/ethnicity, with median scores ranging from  180 to 189 depending on the category. Specifically, loans to African  Americans in 2016 had a median score of 180, and loans to Hispanics  had a median score of 183. In contrast, loans to whites had a median  score of 188, and loans to Asian and Pacific Islanders had a median  score of 189.

Lender size. We found that lenders with larger numbers of SBA loans  tended to have slightly more creditworthy borrowers. The top 5  percent of lenders had a median average score of 187, whereas the  bottom 75 percent of lenders had a median average score of 182.5.  Among the top 5 percent of lenders (with 374 loans per lender on  average, collectively representing about 70 percent of the loans  approved), the average score ranged from 171 to 195. Among all  lenders, the average score ranged from 116 to 233. However,  because many lenders only approved one or two loans in 2016, the  average may reflect very few borrowers for that lender, making it  difficult to tell whether the scores reflect a real difference between  lenders.

Appendix IV: Comments from the Small Business Administration

Appendix V: GAO Contact and Acknowledgments

In addition to the contact named above, Harry Medina (Assistant  Director); Janet Fong (Analyst in Charge); Benjamin A. Bolitzer; Gita  DeVaney; David S. Dornisch; Amanda D. Gallear (intern); Marc W.  Molino; Jennifer W. Schwartz; and Tyler L. Spunaugle made key  contributions to this report.