Lax federal oversight dating back years allowed lenders to repeatedly make bad loans to small businesses under a government program that has cost taxpayers $1.3 billion since 2000 on defaulted loans, a Dayton Daily News investigation found.
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Small Business Administration 7(a) Loans
- Lenders provide money to borrower and SBA currently guarantees up to 85 percent of loan against default.
- Target small, for-profit businesses with ability to repay loan but difficulty getting credit.
- Can be used to acquire land or building, improve site, construct, convert or renovate building, purchase inventory, supplies and raw materials, finance working capital or refinance certain debt.
- Cannot be used to refinance debt leading to loss for lender or SBA, to repay delinquent taxes or for changes that will not benefit the business.
- Maximum loan is $5 million.
- Maximum term is typically 10 years but exceptions can be made to allow a 25 year term.
- Interest rate can be fixed or variable and based on SBA rules.
Source: Congressional Research Service, Small Business Administration 7(a) Loan Guaranty Program - 2013.
Dayton Daily News reporters spent two months analyzing U.S. Small Business Administration loan data, reviewing dozens of documents and interviewing more than 30 people with expertise on the government’s largest and oldest small business lending program. SBA data was fraught with problems and inconsistencies, but after reviewing and discarding four versions of the data and working with SBA staff, the newspaper obtained an accurate database of more than 1 million loans made since 1990 under the SBA’s 7(a) program. That data is the basis for the findings, tables and graphics in this report.