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The Small Business Administration's Economic Opportunity Loan Program

Published: Oct 27, 1981. Publicly Released: Oct 27, 1981.
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Highlights

GAO reviewed the Small Business Administration's (SBA) Economic Opportunity Loan Program. At the time of the review, the Program was one of several SBA programs to help socially or economically disadvantaged people create and develop small businesses. Established with a difficult mission, the Program funded businesses that could not get assistance from other SBA programs or from the private sector. More than half of the loans disbursed through fiscal year 1978 were made to borrowers who had defaulted on their loans and lost their businesses. It was estimated that only 15 percent of all the borrowers no longer in the SBA portfolio of outstanding loans had succeeded in establishing ongoing businesses. Most of these businesses remain very small, with about 60 percent having two or fewer employees. As of August 1981, the proportion of portfolio loans which were delinquent or in liquidation was higher than it had been at the end of any of the last 9 fiscal years. Borrowers' inexperience, low capital investment, and disadvantageous locations were significant causes of business failures. Management and operating deficiencies within SBA contributing to the Program's low yield included: (1) SBA district loan officers frequently did not assess loan applicants' business projections, management abilities, and the sufficiency of loan amounts; (2) SBA focused on lending in quantity but not on lending effectively; and (3) long waiting periods resulted in less qualified applicants being able to receive loans at the expense of better qualified applicants whom they preceded on the waiting list. SBA tried some special assistance techniques, but borrowers did not usually accept the management assistance offered to them. In addition, the assistance came too late or was too limited in scope or duration. In a recent report, GAO concluded that Program results were unsatisfactory and that attempts need to be made to improve them. GAO recommended that the congressional oversight committees monitor the SBA implementation of the GAO recommendations for management improvement and their impact on Program results. If improvement does not result, the committees should determine whether objectives of the Program could be achieved more efficiently by recommitting the Program's funds to other Federal programs for socially or economically disadvantaged business owners.

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