The transcript of the video follows below for further review.
In fiscal year 2014, the Office of Inspector General (OIG) established the High Risk 7(a) Loan Review Program to minimize losses on Small Business Administration (SBA) guaranteed loans, help SBA improve the effectiveness and integrity of its 7(a) Program, and protect program dollars.
The OIG reviewed eight (8) early-defaulted loans and consequently identified material lender origination and closing deficiencies that justified denial of the SBA guaranty for three (3) loans totaling $3.2 million.
To facilitate SBA’s timely review and recovery of these payments, the OIG formally issued separate reports on each loan that included detailed descriptions of the identified material deficiencies. The OIG also identified suspicious activity on two (2) purchased loans totaling $1.4 million, resulting in formal referrals to the Investigations Division.
In the OIG’s judgment, change of ownership transactions continued to be an area of high risk for the SBA. Further, three out of the five loans that were either formally reported on, or referred due to potentially fraudulent activity, were included in SBA’s FY 2015 review of improper payments. SBA did not identify the improper payments on these loans. In a previous audit, the OIG determined that SBA’s limited reviews of the original lender’s underwriting guidelines resulted in improper payments.
Some of the key reviews detailed in the OIG report are highlighted below:
Change of Ownership Transactions
The OIG indicated that 8 of the 15 loans that were reviewed had financed change of ownership transactions. Additionally, 4 of these 8 loans, purchased for a total of $2.8 million, either had material lender deficiencies or indications of suspicious activity. The OIG believes that change of ownership transactions has been one of the riskiest transactions financed by SBA. Prior audits have identified the following deficiencies in change of ownership transactions:
Further, the Investigations Division has identified significant fraud in change of ownership transactions. In FY 2009, the OIG issued an information notice that recommended lenders and other program participants perform a higher level of due diligence in reviewing change of ownership transactions.
Identifying Improper Payments
While the OIG noted improvement in SBA’s 7(a) purchase review process, it remains concerned about the effectiveness of SBA’s efforts to prevent improper payments. Specifically, four loans the OIG formally reported on or referred to the Investigations Division were included in either SBA’s FY 2014 or FY 2015 reviews for improper payments. During its improper payments reviews, SBA examines loan files to determine if lenders complied with the 7(a) Loan Program requirements.
SBA did not identify or report the improper payments totaling $4.5 million associated to these loans. Upon receiving these reports, SBA substantially concurred with the OIG findings on the loans and confirmed them as improper payments.
A complete copy of the OIG’s Report to Congress can be found here: The OIG High Risk SBA 7(a) Loan Review Report
If you are facing an SBA loan default, contact us today for a consultation with an experienced SBA workout attorney at 888-756-9969
We analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for your SBA loan default.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’s ureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.
Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection. Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest. We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.
Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) where borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.
Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.
This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.
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