SBA OIG Report 26-12: SBA’s 7(a) Loan Guaranty Purchase Denial Review Process (Aug. 27, 2026)
Summary
SBA Office of Inspector General evaluation Report 26-12, dated August 27, 2026, on SBA’s 7(a) loan guaranty purchase denial review process. It covers final decisions made from October 1, 2021, through March 31, 2025, when the Portfolio Management and Quality Control team made final decisions on 545 loans previously recommended for repair or denial. The report states that of 32 loans OIG reviewed, SBA made appropriate decisions on 16 and lacked sufficient evidence for the other 16, resulting in approximately $11.5 million in potential improper payments. It also states SBA did not seek repair or denial for 13 loans, totaling about $5.4 million, because the statute of limitations expired. OIG made six recommendations, and SBA agreed with Recommendations 2, 3 and 5 and partially agreed with 1, 4 and 6.
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U.S. SMALL BUSINESS ADMINISTRATION OFFICE OF INSPECTOR GENERAL
SBA’s 7(a) Loan Guaranty Purchase
Denial Review Process
Evaluation Report
Report 26-12
August 27, 2026
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U.S. Small Business Administration
Office of Inspector General
EXECUTIVE SUMMARY
SBA’s 7(a) Loan Guaranty Purchase Denial Review Process
(Report 26-12)
What OIG Reviewed found the agency made final decisions on 16 of
This report presents the results of our 32 loans we reviewed without sufficient
evaluation of the Small Business evidence to support its decisions, resulting in
about $11.5 million in potential improper
Administration’s (SBA) 7(a) loan guaranty
payments.
purchase denial review process for loans
previously recommended for repair or denial. Also, while SBA improved its timeliness in
making final loan review decisions, opportunities
SBA’s 7(a) loan program provides access to
exist to further enhance timely decision making
credit for eligible small businesses, through
lenders. If a borrower defaults on a loan, the and mitigate financial loss. For example, the
lender can request that SBA purchase the agency did not seek repair or denial for 13 loans,
guaranty. SBA honors the guaranty if its loan totaling about $5.4 million, because the statute
review finds the lender complied with program of limitations expired. Further, SBA did not
requirements; however, SBA is released from pursue administrative offset for these 13 loans,
which could have allowed the agency to collect
liability, in part (repair) or in full (denial), if the
on the loan guaranties owed by lenders.
lender did not comply.
By strengthening internal guidance and controls,
If the lender disagrees with the agency’s initial
SBA can better foster transparency, accuracy,
decision to repair or deny, the file is routed to
SBA’s Portfolio Management and Quality Control and consistency in its repair and denial process.
(PMQC) team to review and make a final This will provide reasonable assurance that the
decision. process is working as intended, promote
program integrity, and mitigate financial loss.
From October 1, 2021, through March 31, 2025,
the PMQC team reviewed and made final What OIG Recommended
decisions on 545 loans with guaranty purchase We made six recommendations to enhance
requests previously recommended for repair or internal controls to promote program integrity
denial. and mitigate the risk of improper payments.
Our objective was to assess whether SBA’s final Agency Response
decisions for 7(a) loan guaranty purchases
SBA management agreed with
previously recommended for repair or denial
Recommendations 2, 3, and 5; and partially
were appropriate to ensure program integrity
agreed with Recommendations 1, 4, and 6.
and mitigate financial loss.
Management’s planned actions resolve all
What OIG Found recommendations, which can be closed when
SBA’s final decisions on loan guaranty purchase they provide evidence of implementation.
requests previously recommended for repair or
denial were not always appropriate to ensure
program integrity or mitigate financial loss. We
Contents
Introduction .................................................................................................................................... 1
Background ............................................................................................................................... 1
Objective ................................................................................................................................... 2
Results ............................................................................................................................................. 2
Finding 1: SBA’s Final Decisions for 7(a) Loans Previously Recommended for Repair or Denial
Were not Always Supported .................................................................................................. 3
Recommendations .............................................................................................................. 5
Finding 2: Timely Decisions for Guaranty Purchase Loan Reviews ............................................ 6
Timeliness for Final Review Decisions Improved yet Opportunities Exist to Strengthen
Process Controls............................................................................................................... 6
SBA’s Ability to Pursue Recovery Through Administrative Offset ....................................... 8
Recommendations .............................................................................................................. 9
Evaluation of Agency Response................................................................................................. 9
Tables
Table 1: OIG Reviews of PMQC Overturned Final Decisions ........................................................... 3
Table 2: Total Days from Loan Default to Repair or Denial Review Completion ............................. 7
Figure
Figure 1: Average Days to Complete PMQC Repair or Denial Reviews ........................................... 6
Appendices
Appendix 1: Scope and Methodology .......................................................................................... 1-1
Appendix 2: Monetary Impact ...................................................................................................... 2-1
Appendix 3: Results of SBA OIG Reviews of PMQC Overturned Final Decisions .......................... 3-1
Appendix 4: Agency Response...................................................................................................... 4-1
i
Introduction
This report presents the results of our evaluation of the Small Business Administration’s (SBA)
7(a) loan guaranty purchase denial review process for loans previously recommended for repair
or denial with final decisions made from October 1, 2021, through March 31, 2025.
Background
SBA’s 7(a) loan program provides access to credit to eligible small businesses that are unable to
obtain credit from other sources. Both bank and non-bank lenders provide the loans, which the
government guaranties through SBA.
While the majority of SBA’s 7(a) portfolio is in good standing, some borrowers do not make their
scheduled payments and default on their loans. After a default, the lender may request that SBA
purchase the guaranty and SBA conducts a loan review to determine if the lender complied with
program requirements. The decision to honor the guaranty is contingent on whether the lender
originated, closed, serviced, and liquidated the loan in accordance with requirements. If SBA
finds the lender did not comply with program requirements and their actions resulted in a
material loss or harm to program integrity, SBA is released from liability on the guaranty. 1 In
these instances, the review results in a repair (SBA will honor a portion of the guaranty) or denial
(SBA will not honor any of the guaranty). 2
The Office of Financial Program Operations, under the supervision of the Office of Capital Access,
is responsible for the 7(a) guaranty purchase repair or denial review process. When an SBA loan
servicing center recommends that SBA fully or partially deny its guaranty, the lender can agree
or disagree with SBA’s initial decision. If the lender agrees, the center cancels or reduces the
guaranty and the review is closed. If the lender disagrees with the decision, the file is routed to
the Office of Financial Program Operations’ Portfolio Management and Quality Control (PMQC)
team to review the specific reason(s) the loan was recommended for repair or denial. After the
review, the PMQC team communicates the decision to repair, deny, or honor the loan guaranty
with the lender. If PMQC decides to honor the guaranty, they overturn the original decision, and
SBA pays the guaranty to the lender.
1
SBA SOP 50 57 2 Chap 24 (B)(1).
2
13 C.F.R. 120.524(a).
1
From October 1, 2021, through March 31, 2025, PMQC reviewed and made final decisions on
545 loans with guaranty purchase requests previously recommended for repair or denial. PMQC
made the final decisions as follows:
• Upheld 247 loans (or 45 percent) for denial
• Upheld 101 loans (or 19 percent) for repair
• Overturned 197 loans (or 36 percent) initially recommended for repair or denial, which
resulted in SBA purchasing guaranties totaling approximately $168 million
Objective
Our objective was to assess whether SBA’s final decisions for 7(a) loan guaranty purchases
previously recommended for repair or denial were appropriate to ensure program integrity and
mitigate financial loss.
Results
SBA’s final decisions on loan guaranty purchases previously recommended for repair or denial
were not always appropriate to ensure program integrity or mitigate financial loss. Of the 32
loans we reviewed, we found SBA made appropriate decisions on 16; however, for the remaining
16, SBA did not have sufficient evidence to support its loan review decisions, resulting in
approximately $11.5 million in potential improper payments.
The unsupported decisions were generally caused by limited internal guidance for the repair or
denial review process. As a result, SBA does not have reasonable assurance that its repair or
denial review process is effectively mitigating the risk of improper payments. PMQC repair or
denial review process decisions are the final control for 7(a) guaranty purchases. Accuracy and
consistency in this process is critical to ensuring taxpayer funds are not provided to lenders who
do not comply with loan program requirements.
We also found that SBA improved the timeliness of final decisions for guaranty purchase loan
reviews previously recommended for repair or denial. Specifically, the average time for PMQC to
make final decisions for 306 of 545 loans that entered the process prior to October 1, 2021 3, and
were finalized during our review period, was 1,156 days, compared to 362 days for the
remaining 239 loans that entered the process on or after October 1, 2021. However,
3
Loans that entered the PMQC process prior to October 1, 2021, entered as early as December 3, 2013.
2
opportunities exist to further enhance timely decision making to promote program integrity and
mitigate financial loss. Specifically, the agency did not seek repair or denial as recommended for
an additional 13 loans, totaling about $5.4 million, because timeframe requirements for the
statute of limitations expired. Further, the agency did not seek recovery via administrative offset
for these 13 loans. 4
Finding 1: SBA’s Final Decisions for 7(a) Loans Previously
Recommended for Repair or Denial Were not Always
Supported
We reviewed 32 loans from high-risk categories, 5 previously recommended for repair or denial,
and subsequently overturned. We found that SBA made appropriate final decisions for 16 loans;
however, its final decisions for the remaining 16 loans, totaling approximately $11.5 million,
were not appropriate. For these 16 loans, SBA did not adequately support the final decisions it
made to honor the 7(a) loan guaranties, overturning the previous recommendations from the
servicing centers to repair or deny the guaranty. Specifically, SBA did not have sufficient evidence
for its decisions to overturn the previous recommendations as follows:
Table 1: OIG Reviews of PMQC Overturned Final Decisions
Number of Loans with
Number of Loans Insufficient Evidence to Potential Material
High-Risk Category Reviewed Support Review Decisions Loss
Repayment Ability 6 5 $4,875,975
Other Eligibility 12 4 $2,709,180
Equity Injection 7 3 $2,148,660
IRS Tax Verification 4 2 $1,529,196
Debt Refinance 3 2 $279,958
Total 32 16 $11,542,969
Note: See Appendix 3 for expanded results of OIG reviews of 32 overturned final decisions.
Source: Office of Inspector General (OIG) analysis of PMQC final decisions.
4
Administrative offset refers to the withholding of funds payable by the United States to a person to satisfy a claim.
5
We determined high-risk categories based on prior OIG work in the 7(a) program, which found recurring material
issues on defaulted 7(a) loans. See Table 1 for the high-risk categories selected for review.
3
Below are detailed examples of where we found that SBA did not adequately support its
decisions in several high-risk areas.
• Repayment Ability: For one early defaulted loan (default occurs within 18 months of
disbursement), SBA did not have adequate support to show the borrower could repay
the loan through cash flow of the business 6 and relied on an unsupported explanation
for the business failure to justify its decision to honor the loan guaranty. The lender did
not provide SBA with evidence that it had addressed an existing $45,000 tax lien prior to
approval, as required. Further, the lender stated the loan defaulted due to the
borrower’s loss of a major client. There was no evidence provided to justify this claim.
• Other Eligibility: One loan was recommended for denial because the seller of a business
stayed on as a key employee in violation of 7(a) change of ownership requirements. 7 The
Office of General Counsel (OGC), Office of Credit Risk Management, PMQC, and Office of
Capital Access officials reviewed the loan and concurred with the denial
recommendation. However, Office of Capital Access leadership ultimately overturned the
decision at the stage of final approval; but SBA’s explanation that the key employee was
an unpaid volunteer was not supported to justify the decision to overturn the denial
recommendation.
• Equity Injection: For one early defaulted loan, the lender was required to verify a cash
injection prior to loan disbursement; however, the lender did not provide adequate
evidence that demonstrated the cash injection was made from a legitimate source, as
required. 8 The PMQC reviewer used criteria unrelated to the facts of the loan to justify
overturning the denial.
These unsupported decisions were generally caused by limited internal guidance for the repair
or denial review process. SBA used Standard Operating Procedures (SOP) to conduct its guaranty
purchase repair or denial reviews which contain 7(a) loan program requirements for originating,
closing, servicing, and liquidating 7(a) loans. However, the agency did not have supplemental
guidance, such as desk guides or manuals, to apply the criteria in complex, high-risk loan
scenarios.
Therefore, SBA’s PMQC loan reviewers did not consistently have the necessary supporting
documentation to analyze or resolve the material issues for which several loans were referred
for additional review. Further, some repair or denial reviews confirmed loans had material issues
6
SBA SOP 50 10 5 (H) Subpart B Chap 4 (I)(A)(2)(m).
7
SBA SOP 50 10 5 (H) Subpart B Chap 2 (IV)(H)(2).
8
SBA SOP 50 10 5 (H) Subpart B Chap 4 (I)(E)(3)(a).
4
that warranted denial of the lenders’ guaranty; however, Office of Capital Access leadership at
the time overturned PMQC’s decisions without resolving the material issue or documenting their
rationale.
Internal procedures are necessary to provide specific instructions to reviewers on how to analyze
complex material issues with sufficient evidence to support their decisions. This should include
requiring reviewers and approvers to document and support their rationale for overturning
supported PMQC denial decisions. 9 Providing clear internal guidance allows reviewers to analyze
complex loans previously recommended for repair or denial, accurately and consistently.
By inappropriately overturning 16 of the 32 loans (or 50 percent) we reviewed, SBA made
potential improper payments resulting in approximately $11.5 million in questioned costs,
increasing the financial loss to taxpayers. PMQC repair or denial review decisions are the final
control for 7(a) guaranty purchases. Accuracy and consistency in this process is critical to
mitigating improper payments and ensuring taxpayer funds are not provided to lenders who do
not comply with loan program requirements. Further, resolving material issues or documenting
the rationale for overriding these controls promotes program integrity, transparency, and
provides reasonable assurance that the repair or denial review process is operating as intended.
Recommendations
To address potential improper payments in the 7(a) loan program, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to:
Recommendation 1: Remedy or seek recovery, when appropriate, of the guaranties for the 16
loans, totaling approximately $11.5 million, to promote program integrity and mitigate financial
loss to taxpayers.
Recommendation 2: Update guidance and procedures for the repair and denial process and
implement controls to ensure final decisions are documented with properly supported rationale
to prevent unsupported or inappropriate decisions that impact program integrity or result in
financial loss.
9
GAO Standards for Internal Control in the Federal Government state that management should design control
activities to mitigate risks to achieving the entity’s objectives to acceptable levels. Further, management designs
control activities to prevent and detect improper payments. These control activities may include obtaining
supporting documentation before making payments.
5
Finding 2: Timely Decisions for Guaranty Purchase Loan
Reviews
SBA improved its timeliness in making final decisions for guaranty purchase loan reviews
previously recommended for repair or denial. However, opportunities exist to further enhance
timely decision making to promote program integrity and mitigate financial loss. For example,
SBA did not seek repair or denial for 13 loans, totaling about $5.4 million, due to the expiration
of the 6-year statute of limitations. Additionally, SBA did not pursue recovery for these loans
through administrative offset, which could have allowed the agency to collect on the loan
guaranties owed by lenders.
Timeliness for Final Review Decisions Improved yet Opportunities Exist to
Strengthen Process Controls
On average, SBA improved timeliness of PMQC final review decisions on the 545 guaranty
purchase loan reviews that were finalized between October 1, 2021, and March 31, 2025. As
shown in Figure 1, the average time for PMQC to make a final decision for the 306 loans
previously recommended for repair or denial that entered the process prior to October 1, 2021,
was 1,156 days compared to 362 days for the remaining 239 loans that entered the process on
or after that date.
Figure 1: Average Days to Complete PMQC Repair or Denial Reviews
1400
1200
Avg. Days to Complete Review
1156 Days
1000
808 Day Avg. for All Loans
800
600
400
306 Loans 362 Days
239 Loans
200
0
Prior to FY22 FY22 - March 31, 2025
FY Entered PMQC Review Process
6
Source: OIG analysis of repair or denial review decision data.
Although SBA improved its timeliness in making final decisions, opportunities exist for additional
enhancements to promote program integrity and mitigate financial loss. We found the agency
did not seek repair or denial as recommended but instead overturned the decisions for 13 loans
that were in the PMQC repair or denial review process for more than 1,500 days or 4 years.
Table 2 depicts the total time it took for a final decision to be made for each loan after it
defaulted. 10
Table 2: Total Days from Loan Default to Repair or Denial Review Completion
Days Between
Loan Default and
Servicing Center Days to Total Days to Total Years to Percentage
Completing Complete Complete from Complete from Time in PMQC
Loan Review 11 PMQC Review Default Date Default Date Review
1 1787 5807 7594 20.8 76%
2 3078 4424 7502 20.6 59%
3 4675 2554 7229 19.8 35%
4 5264 1555 6819 18.7 23%
5 1596 3654 5250 14.4 70%
6 82 4979 5061 13.9 98%
7 2770 1895 4665 12.8 41%
8 725 3506 4231 11.6 83%
9 1511 2563 4074 11.2 63%
10 1195 2592 3787 10.4 68%
11 271 3220 3491 9.6 92%
12 950 2296 3246 8.9 71%
13 461 2749 3210 8.8 86%
Source: OIG analysis of PMQC final decision data.
Delays were due to inadequate tracking controls that allowed the loans to remain in the repair or
denial review process for extended periods prior to PMQC making a final decision. We also noted
that SBA servicing centers, in some cases, took extensive time to make repair or denial
10
SBA officials stated they generally used the default date to determine a potential statute of limitation expiration
date. Therefore, we used the default date as the basis for our analysis.
11
The days between loan default and servicing center completing review includes both the time the lender had the
loan before submitting it for guaranty purchase and the time taken by the servicing center to complete their review.
7
recommendations; however, we did not review the centers’ goals and objectives as our scope of
work focused on PMQC’s process and final review decisions. PMQC stated that its goal was to
complete reviews of loans recommended for repair or denial within 1 year of receiving the loans
from the servicing centers; however, we found that PMQC did not meet this goal. SBA took
approximately 808 days on average to make final decisions for the 545 loans we analyzed. We
identified the following two process points that led to the goal not being met:
• SBA did not initiate a repair or denial review for 352 days, on average, after the loan was
placed into the PMQC process.
• SBA legal opinions requested as part of the PMQC repair or denial process took 305
days, on average, to complete.
SBA officials stated delays in processing repair or denial reviews were due to competing
responsibilities and priorities in the program office. OGC officials noted that they supported
multiple SBA program offices and would at times be tasked with other priorities. Additionally,
one PMQC official stated they were assigned to other projects or tasks. In 2023, SBA changed its
internal processes to move OGC reviews to the backend, as needed, in an effort to improve
timeliness.
While SBA officials noted the reviews were expected to be completed within 1 year, we found
that SBA did not have formalized metrics to ensure consistent timely performance for repair or
denial reviews.
SBA’s Ability to Pursue Recovery Through Administrative Offset
As previously mentioned, we found SBA did not pursue recovery on the 13 loans presented in
Table 2 or resolve the material issues because the statute of limitations had expired. However,
we also found that federal law provided other remedies for collection of loan guaranties, such as
through administrative offset.
Although federal law states that every action for monetary damages is barred unless a complaint
is filed within 6 years, 12 it does not prevent SBA from seeking recovery through administrative
offset. Administrative offset refers to the withholding of funds payable by the United States to a
person to satisfy a claim. 13 If a material reason to repair or deny the loan exists, SBA is entitled to
12
28 U.S.C. §2415.
13
31 U.S.C. §2415.3701(a)(1).
8
recover the guaranty plus interest from the lender. SBA may use all legal means available to
recover its guaranty, including administrative offset. 14
SBA did not pursue administrative offset because PMQC personnel did not believe they had
additional recourse once the statute of limitations expired. Further, SBA did not have a process
to recover guaranties on loans that had statute of limitations concerns. As a result, SBA did not
pursue resolution or recovery for the 13 loans, totaling approximately $5.4 million.
Recommendations
To address loan review timeliness and mitigate the risk of financial loss, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to:
Recommendation 3: Formalize metrics for loan review timeframes.
Recommendation 4: Ensure SBA’s repair or denial review tracking system flags loans that are at
risk of expiration under the statute of limitations to ensure SBA has legal means to recover on
loans with material issues to mitigate the risk of financial loss in the program.
Recommendation 5: Develop a process to pursue administrative offset, when applicable, on 7(a)
loans recommended for repair or denial to minimize the risk of financial loss.
Recommendation 6: Complete repair or denial reviews on the 13 loans totaling approximately
$5.4 million that were overturned due to statute of limitations concerns and, if the material
issues cannot be remedied, pursue administrative offset to ensure program integrity and
minimize financial loss.
Evaluation of Agency Response
SBA management provided formal comments that are included in their entirety in Appendix 4.
Management agreed with Recommendations 2, 3, and 5 and partially agreed with
Recommendations 1, 4, and 6. Management’s planned actions satisfy the intent of the
recommendations. These recommendations are resolved and can be closed when management
provides evidence that they implemented the planned actions, including sufficient evidence to
support their loan review decisions.
14
13 C.F.R 120.524(a)-(b).
9
Summary of Actions Necessary to Close the Recommendations
The following section summarizes the status of our recommendations and the actions necessary
to close them.
Recommendation 1
To address potential improper payments in the 7(a) loan program, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to remedy or
seek recovery, when appropriate, of the guaranties for the 16 loans, totaling approximately
$11.5 million, to promote program integrity and mitigate financial loss to taxpayers.
Status: Resolved
SBA partially agreed with this recommendation, stating that the applicable statutes, regulations,
and Agency guidance used to make repair and denial determinations include considering
material loss and harm to program integrity and that the existence of a technical or procedural
deficiency does not, by itself, result in repair or denial. Each determination requires an
individualized assessment of the facts, legal authorities, and the effect of any identified
noncompliance on the Agency's interests. SBA agreed that it should evaluate each loan the OIG
identified and reviewed the 16 loans, finding that the guaranty purchases for 15 of them were
appropriate. SBA stated that, if legally supported, it will pursue recovery of the remaining loan by
March 31, 2027.
While management partially agreed with this recommendation, their corrective actions are
responsive, and we appreciate the agency’s commitment to pursuing recovery for the one loan,
if legally supported. This recommendation can be closed when SBA provides sufficient evidence
to support its final guaranty purchase decisions for the 15 loans it deemed appropriate, and
evidence that it is seeking recovery for the one loan.
Recommendation 2
To address potential improper payments in the 7(a) loan program, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to update
guidance and procedures for the repair and denial process and implement controls to ensure
final decisions are documented with properly supported rationale to prevent unsupported or
inappropriate decisions that impact program integrity or result in financial loss.
Status: Resolved
10
SBA management agreed with this recommendation, stating they will update internal guidance
and documentation requirements, clarify approval responsibilities, and address quality assurance
controls by January 1, 2027.
This recommendation can be closed when management provides evidence that they have
updated internal guidance, documentation requirements, approval responsibility, and quality
assurance controls.
Recommendation 3
To address loan review timeliness and mitigate the risk of financial loss, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to formalize
metrics for loan review timeframes.
Status: Resolved
SBA management agreed with this recommendation, stating they will update documented loan
review timeframes, routine aging reports, and periodic management reviews by January 18,
2027.
This recommendation can be closed when management provides evidence that they have
incorporated formalized metrics for loan review timeframes, routine aging reports, and periodic
management reviews.
Recommendation 4
To address loan review timeliness and mitigate the risk of financial loss, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to ensure SBA’s
repair or denial review tracking system flags loans that are at risk of expiration under the statute
of limitations to ensure SBA has legal means to recover on loans with material issues to mitigate
the risk of financial loss in the program.
Status: Resolved
SBA management partially agreed with this recommendation, stating they agree enhanced
tracking controls can be implemented; however, they maintain that their review responsibilities
do not begin immediately upon borrower default. Rather they begin after SBA receives the
lender’s guaranty purchase request and documentation necessary for the agency to conduct its
review. Management stated that enhanced tracking and monitoring will align with the legal
milestones that dictate SBA’s review. Accordingly, they will evaluate enhancements to case
11
tracking, including automated alerts and management reporting based on appropriate legal
milestones by February 4, 2027.
During our evaluation, SBA officials stated they generally used the default date to determine the
potential statute of limitation expiration date, which is inconsistent with management’s
response. Based on the information SBA provided during our evaluation, we used the default
date, as it provides a reasonable basis to identify loans at risk of expiration under the statute of
limitations.
Although management partially agreed with the recommendation, SBA’s proposed actions are
responsive to the recommendation. This recommendation can be closed when management
provides evidence that they have evaluated and implemented enhancements to their tracking
system that identifies loans at risk of expiration under the statute of limitations to mitigate the
risk of financial loss in the program.
Recommendation 5
To address loan review timeliness and mitigate the risk of financial loss, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to develop a
process to pursue administrative offset, when applicable, on 7(a) loans recommended for repair
or denial to minimize the risk of financial loss.
Status: Resolved
SBA management agreed with this recommendation, stating they will coordinate with the Office
of General Counsel to develop procedures to implement administrative offset and other
available remedies where legally appropriate by March 31, 2027.
This recommendation can be closed when management provides evidence that they have
implemented a process to pursue administrative offset, when applicable, on 7(a) loans
recommended for repair or denial to minimize the risk of financial loss.
Recommendation 6
To address loan review timeliness and mitigate the risk of financial loss, we recommend the
Administrator direct the Associate Administrator for the Office of Capital Access to complete
repair or denial reviews on the 13 loans totaling approximately $5.4 million that were overturned
due to statute of limitations concerns and, if the material issues cannot be remedied, pursue
administrative offset to ensure program integrity and minimize financial loss.
Status: Resolved
12
SBA management partially agreed with this recommendation, stating it agrees the identified
loans should be evaluated as appropriate. However, each loan requires an independent legal and
factual analysis before determining whether any additional administrative action is warranted.
Following consultation with the Office of General Counsel, SBA stated it will determine whether
additional administrative action is warranted for any identified loan consistent with applicable
law, Agency policy, and the evidentiary record by March 31, 2027.
Management partially agreed with the recommendation, however, their planned actions are
responsive. This recommendation can be closed when management provides evidence that they
have reviewed the 13 loans to determine if additional administrative actions were warranted and
pursued recovery through administrative offset, when applicable.
13
Appendix 1: Scope and Methodology
This report presents the results of our evaluation of the U.S. Small Business Administration’s
(SBA) 7(a) loan guaranty purchase denial review process for loans previously recommended for
repair or denial by SBA servicing centers. Our scope of work included 545 loan guaranty purchase
requests with final decisions made by SBA’s Office of Financial Program Operations, Portfolio
Management and Quality Control (PMQC) team from October 1, 2021, through March 31, 2025.
To answer our objective, we reviewed pertinent public laws, federal regulations, and other
agency guidance used to make final determinations for 7(a) loan guaranty purchase requests
previously recommended for repair or denial by SBA servicing centers. We also interviewed SBA
officials responsible for the denial review process to gain an understanding of the process.
We analyzed SBA decision-level data and found 197 loans recommended for repair or denial that
were overturned during our scope period. Further analysis of the referred denial or repair reason
(i.e., eligibility, repayment ability, equity injection) as recorded by SBA found that 119 of 197
loans were in high-risk categories, as determined by the Office of Inspector General (OIG). We
determined high-risk categories based on prior OIG work in the 7(a) program which found
recurring material issues (such as repayment ability, etc.) on defaulted 7(a) loans. We selected a
judgmental sample of 32 of 119 high-risk loans to assess whether the final decisions to purchase
the loan guaranties were appropriate.
Our assessment of loans was generally limited to the reason a servicing center referred a loan for
repair or denial (i.e., a loan referred to and reviewed by PMQC for an eligibility issue was
reviewed by the OIG for the same eligibility issue). The OIG analyzed the loans using an internally
developed review checklist to determine if loan program requirements related to the referral
reason were followed and then determined the appropriateness of PMQC’s final decisions.
To determine the timeliness of 545 loans with final decisions made by the PMQC review process
during our scope period, we analyzed final decision data from an internal tracker which
contained the dates a loan entered the process and the date the loan was resolved by the
process. We then analyzed the overturned loans to determine the amount of time elapsed
between the default date of a loan and the date of final decision made by PMQC. Loans
identified as having more than 6 calendar years elapsed between the default date and final
decision date were further analyzed to determine whether federal statute of limitations
concerns were a factor in the PMQC final decision.
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We conducted this evaluation in accordance with the Council of the Inspectors General on
Integrity and Efficiency’s Quality Standards for Inspection and Evaluation. These standards
require that we adequately plan and perform this evaluation to obtain sufficient and appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our objective.
We believe the evidence obtained provides a reasonable basis for our findings and conclusions
based on our objective.
Use of Computer-Processed Data
We relied on data from Office of Financial Program Operations’ PMQC internal tracking system
to perform data analysis on the timeliness of PMQC reviews. Data in the PMQC tracking system is
manually entered by staff. We performed work to validate and reconcile key data fields used in
our analysis to support documentation, including fields for when a loan entered the PMQC
review process, when it was resolved, and the final decision date. Further, we validated
information used in the PMQC tracking system to ensure the accuracy of the number of loans in
our universe of final decisions made from October 1, 2021, through March 31, 2025. Specifically,
we validated repair, denial, and overturned statuses from the tracker against the loan accounting
system data, and other source documents, to determine if the data in the tracker was reliable to
support the findings and conclusions presented in the report. We found data from the system to
be sufficiently reliable to support the findings and conclusions presented in this report.
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Prior Audit Coverage
The following lists the OIG’s previous audit coverage related to the objective of this report:
Report Number Report Title Report Date
18-07 Accuracy of the FY 2015 7(a) Loan Guaranty December 11, 2017
Purchase Improper Payment Rate
18-21 Office of Inspector General High Risk 7(a) Loan August 15, 2018
Review Program
18-23 Office of Inspector General High Risk 7(a) Loan September 13, 2018
Review Program
19-15 Office of Inspector General High Risk 7(a) Loan July 10, 2019
Review Program
19-16 Office of Inspector General High-Risk 7(a) Loan August 14, 2019
Review Program
19-19 Office of Inspector General High Risk 7(a) Loan September 19, 2019
Review Program
20-18 Office of Inspector General High Risk 7(a) Loan August 25, 2020
Review Program
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Appendix 2: Monetary Impact
Monetary impact identified in this report is categorized as questioned costs. Questioned costs
are expenses not supported by adequate documentation at the time of the audit, or which
otherwise do not comply with legal, regulatory, or contractual requirements.
Recommendation Category Amount
1 Unsupported costs $11,542,969
6 Unsupported costs $ 5,381,740
Total $16,924,709
Source: U.S. Small Business Administration’s Office of Inspector General analysis.
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Appendix 3: Results of SBA OIG Reviews of PMQC
Overturned Final Decisions
This table shows the breakout of the 32 loans that the U.S. Small Business Administration’s Office
of Inspector General (SBA OIG) selected for review that were recommended for denial but
subsequently overturned as summarized in Finding 1.
SBA OIG Determined
Sample PMQC Final Decision Questioned
Number SBA Guaranty High Risk Category Appropriate Amount
1 $3,486,750 Other Eligibility No $486,480
2 $180,000 Other Eligibility Yes -
3 $1,190,700 Other Eligibility Yes -
4 $1,500,000 Other Eligibility Yes -
5 $502,500 Other Eligibility No $305,570
6 $1,168,875 Other Eligibility No $725,605
7 $1,125,000 Other Eligibility Yes -
8 $1,125,000 Other Eligibility Yes -
9 $1,404,900 Other Eligibility Yes -
10 $311,250 Other Eligibility Yes -
11 $1,176,000 Other Eligibility No $1,191,525
12 $1,224,900 Other Eligibility Yes -
13 $660,000 Equity Injection Yes -
14 $285,000 Equity Injection Yes -
15 $344,250 Equity Injection No $301,783
16 $1,390,500 Equity Injection No $1,381,837
17 $316,500 Equity Injection Yes -
18 $276,750 Equity Injection Yes -
19 $832,500 Equity Injection No $465,040
20 $712,500 Repayment Ability No $609,756
21 $3,750,000 Repayment Ability No $3,674,357
22 $300,225 Repayment Ability No $232,990
23 $1,162,500 Repayment Ability Yes -
24 $263,250 Repayment Ability No $258,769
25 $106,250 Repayment Ability No $100,103
26 $1,620,003 IRS Tax Transcripts No $1,236,110
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27 $3,319,050 IRS Tax Transcripts Yes -
28 $337,500 IRS Tax Transcripts No $293,086
29 $750,000 IRS Tax Transcripts Yes -
30 $1,309,725 Debt Refinance No $109,665
31 $753,750 Debt Refinance No $170,293
32 $1,149,525 Debt Refinance Yes
Total $34,035,653 $11,542,969
Source: SBA OIG analysis.
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Appendix 4: Agency Response
Small Business Administration
Response to the Evaluation Report
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U.S. SMALL BUSINESS ADMINISTRATION
WASHINGTON, DC 20416
To: William W. Kirk
Inspector General
U.S. Small Business Administration (SBA)
Digitally signed by MARTIN
From: Martin Andrews MARTIN ANDREWS ANDREWS
Date: 2026.07.17 11:07:14 -04'00'
Director, Business Loan Operations
Office of Financial Program Operations
Office of Capital Access
Date: July 10, 2026
Subject: SBA’s 7(a) Loan Guaranty Purchase Denial Review Process (25007)
Background:
The Office of Capital Access (OCA) appreciates the Office of Inspector General's (OIG's) review
of the 7(a) Loan Guaranty Purchase Denial Review Process and values the professional
engagement throughout the evaluation. OCA shares OIG's commitment to protecting taxpayer
resources, preserving program integrity, and ensuring guaranty purchase determinations are
made in accordance with applicable law, regulation, and Agency policy.
OCA is committed to continuously evaluating and enhancing its policies, procedures, and
internal controls to promote consistent, well-supported repair and denial determinations. The
Agency supports recommendations that strengthen documentation, quality assurance,
consistency, and operational efficiency.
However, OCA respectfully disagrees with several legal and methodological assumptions
underlying the draft report. Accordingly, the Agency's responses distinguish between process
improvements that OCA intends to implement and conclusions with which OCA does not
concur.
Most notably, OCA disagrees with the report's use of the borrower default date as the benchmark
for evaluating Agency timeliness. SBA's statutory and regulatory responsibilities associated with
a guaranty purchase review do not arise upon borrower default. Rather, those responsibilities
begin only after a participating lender submits a guaranty purchase request and SBA receives the
documents necessary to evaluate lender compliance with applicable program requirements. It is
at that time that the statute of limitations generally begins to run for SBA to seek recovery of a
guarantee paid. Prior to that time, the guaranty represents a contingent liability, and SBA has
neither the legal authority nor the operational ability to adjudicate the guaranty purchase
determination. Measuring elapsed time beginning with borrower default therefore attributes
periods outside SBA's authority and operational control to the Agency and does not accurately
reflect the performance of the repair and denial review process.
OCA disagrees with the conclusion that documentation limitations, standing alone, establish that
a guaranty purchase determination was inappropriate. SBA's repair and denial determinations are
made in accordance with applicable statutes, regulations, and Agency policy, including the
decision framework set forth in SOP 50 57, Chapter 25, which requires consideration of material
loss and harm to program integrity when determining whether repair or denial of SBA's guaranty
is warranted. Documentation supporting a decision and the substantive correctness of that
decision are related but distinct considerations. While OCA recognizes opportunities to further
strengthen documentation practices, documentation limitations do not necessarily establish that a
determination was inconsistent with Agency policy or resulted in material loss or harm to
program integrity.
Further, OCA disagrees with the characterization that all loans identified in the report constitute
unsupported guaranty purchases or potential improper payments. Throughout the evaluation,
OCA provided legal, factual, and programmatic support for numerous final determinations and
continues to believe that several challenged decisions reflect reasonable exercises of
administrative judgment based on the complete evidentiary record, applicable legal authorities,
and governing Agency guidance.
Recommendation 1: Remedy or seek recovery, when appropriate, of the guaranties for the 16
loans, totaling approximately $11.5 million, to promote program integrity and mitigate financial
loss to taxpayers.
SBA Response: SBA partially agrees with this recommendation.
SBA repair and denial determinations are governed by applicable statutes, regulations, and
Agency guidance, including SOP 50 57, Chapter 25, which requires consideration of material
loss and harm to program integrity when determining whether release of SBA's guaranty is
appropriate. Under this framework, the existence of a technical or procedural deficiency does
not, by itself, result in repair or denial. Each determination requires an individualized assessment
of the facts, legal authorities, and the effect of any identified noncompliance on the Agency's
interests.
OCA agrees that the loans identified by OIG should be evaluated individually. However, the
Agency does not agree that recovery is appropriate for every loan identified. Agreement to
evaluate individual loans should not be construed as agreement with OIG's characterization of
those loans or with every conclusion presented in the draft report.
Planned Actions: OCA completed an individualized evaluation of each of the 16 loans
identified by OIG using the applicable statutes, regulations, Agency guidance, administrative
record, and other relevant information. Based on that evaluation, SBA determined that the
guaranty purchase determinations for 15 of the 16 loans were appropriate. SBA will, if legally
supported, pursue appropriate recovery action of the remaining loan.
Final Action Target Date: March 31, 2027
Recommendation 2: Update guidance and procedures for the repair and denial process and
implement controls to ensure final decisions are documented with properly supported rationale to
prevent unsupported or inappropriate decisions that impact program integrity or result in financial
loss.
SBA Response: SBA agrees with this recommendation.
Planned Actions: Update internal guidance and documentation requirements, clarify approval
responsibilities, and address quality assurance controls.
Final Action Target Date: January 1, 2027
Recommendation 3: Formalize metrics for loan review timeframes.
SBA Response: SBA agrees with this recommendation.
Planned Actions: Update documented loan review timeframes, routine aging reports, and
periodic management reviews.
Final Action Target Date: January 18, 2027
Recommendation 4: Ensure SBA’s repair or denial review tracking system flags loans that are at
risk of expiration under the statute of limitations to ensure SBA has legal means to recover on
loans with material issues to mitigate the risk of financial loss in the program.
SBA Response: SBA partially agrees with this recommendation. OCA agrees enhanced tracking
controls can be implemented; however, SBA’s position remains that its review responsibilities
do not begin immediately upon borrower default. Rather they begin after SBA receives the
lender’s guaranty purchase request and documentation necessary for the Agency to conduct its
review. Enhanced tracking and monitoring will align with the legal milestones that dictate SBA’s
review.
Planned Actions: Evaluate enhancements to case tracking, including automated alerts and
management reporting based on appropriate legal milestones.
Final Action Target Date: February 4, 2027
Recommendation 5: Develop a process to pursue administrative offset, when applicable, on
7(a) loans recommended for repair or denial to minimize the risk of financial loss.
SBA Response: SBA agrees with the recommendation.
Planned Actions: Coordinate with the Office of General Counsel to develop procedures to
implement administrative offset and other available remedies where legally appropriate.
Final Action Target Date: March 31, 2027
Recommendation 6: Complete repair or denial reviews on the 13 loans totaling approximately
$5.4 million, that were overturned due to statute of limitations concerns and, if the material
issues cannot be remedied, pursue administrative offset to ensure program integrity and
minimize financial loss.
SBA Response: SBA partially agrees with this recommendation.
OCA agrees the identified loans should be evaluated, as appropriate. However, each loan
requires an independent legal and factual analysis before determining whether any additional
administrative action is warranted.
Planned Actions: Following consultation with the Office of General Counsel, determine
whether additional administrative action is warranted for any identified loan consistent with
applicable law, Agency policy, and the evidentiary record.
Final Action Target Date: March 31, 2027
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