Agency Finds Some SBA Loan Lenders in Violation of Regulation

The Small Business Administration (SBA) has a regulation for SBA loan lenders, called the “Credit Not Available Elsewhere” requirement, that requires lenders to ensure that their borrower clients are unable to obtain reasonable credit elsewhere.

According to a report published this month by the Government Accountability Office (GAO), over 40 percent of the SBA loan lender reviews in 2016 showed noncompliance with this requirement.

“SBA provides business loan assistance only to applicants for whom the desired credit is not otherwise available on reasonable terms from non-Federal sources,” the regulation reads.

According to a blog post published last year by Janet M. Dery, a partner at Starfield & Smith who specializes in commercial lending, the SBA’s credit elsewhere test is a very significant part of the SBA 7(a) loan program.

“Failure to comply with the SBA’s credit elsewhere requirements may subject a lender to a denial of the SBA guaranty as well as a possible enforcement action by the Office of Credit Risk Management,” Dery wrote.

Furthermore, she writes that in order to comply with the SBA’s credit elsewhere requirements, which appear on pages 83-84 of SOP 50 10 5(I), “[t]he lender must determine that: (a) The Small Business Applicant is unable to obtain the loan on reasonable terms without a Federal government guaranty, and (b) Some or the entire loan is not available from any of the following sources: i. Non-Federal sources; or ii. The resources of the applicant business.”

Todd Stone was a reporter for deBanked.