Nonbank SBA Lenders Default at Nearly 15 Percent. The Agency Hasn't Inspected Them Since 2023.

Small business lending companies that make government-guaranteed loans defaulted at a rate of 14.97 percent through March 2025. That compares with 9.79 percent for banks, credit unions and other traditional 7(a) lenders, the agency's inspector general found in a report dated September 17. The 53 percent gap sits on top of $9.5 billion in loans the industry's 16 licensed companies approved and disbursed between fiscal 2016 and 2023. Of that total, $1.3 billion had entered liquidation as of March 31, 2025.

Two lenders, most of the losses

Small business lending companies, or SBLCs, are non-depository firms the SBA licenses to make government-guaranteed 7(a) loans without also being a bank. There were 16 of them as of April 2025. Two of those companies wrote 69 percent of SBLC loan volume by dollar amount, $5.7 billion of the $9.5 billion total, between fiscal 2016 and 2023. Those same two lenders accounted for 84 percent of all defaulted SBLC loans and 88 percent of early defaults, the ones that soured within 18 months of disbursement. The inspector general's report does not name either company.

OCRM officials reviewed 18 risk-based reviews and one examination report for those two lenders between October 2021 and March 2025, and found the same categories of problems recurring year after year: missing IRS transcript verification, incomplete lien documentation, prohibited fees charged to borrowers, and incomplete SBA paperwork. Regulators recommended corrective actions each time. The inspector general found no evidence SBA verified whether the lenders actually made the fixes.

No exam since 2023

OCRM has not conducted a full safety-and-soundness examination, the SBA's deepest form of review, on any SBLC since April 4, 2023. Officials told the inspector general they lack a contractor with the training to run the exams and are waiting on approval to hire one. The pause began the same month SBA lifted a four-decade moratorium on new SBLC licenses and started expanding the program.

SBA disputes its own watchdog

SBA management largely disagreed with the findings. In written comments included in the report, the agency said one lender, not two, drove most of the underperformance, and that excluding it, the remaining SBLCs actually beat the broader 7(a) portfolio's default rate between fiscal 2016 and 2019. That lender entered a voluntary supervisory agreement with SBA in March 2020 and stopped originating new 7(a) loans in April 2023, after its parent company acquired a bank and began operating as a traditional lender instead.

The inspector general did not accept that framing. Its analysis found two lenders, not one, responsible for 84 percent of defaults, and said SBLC default rates stayed above the broader portfolio's rate in fiscal 2022 and 2023 even with the disputed lender excluded. Loans SBLCs approved and disbursed after that lender left the program still defaulted at 4.56 percent through September 30, 2025, more than double the 1.90 percent rate for every other type of 7(a) lender.

1. Recommendation 1: SBA agreed to study the root cause of SBLC underperformance and adjust its procedures, with a deadline of March 31, 2027.
2. Recommendation 2: SBA partially agreed to tighten follow-up on corrective actions, with a deadline of June 30, 2027; it disputed how the inspector general counted repeat deficiencies.
3. Recommendation 3: SBA agreed to assess the risk of skipping safety exams and build a mitigation plan, with a deadline of June 30, 2027.

Every 7(a) loan carries a federal guarantee, typically 75 to 85 percent of the balance, so a default is not just the borrower's problem. When a guaranteed loan is purchased out of liquidation, the loss lands on the SBA's loan program budget, funded by taxpayers and the fees other borrowers pay into the system. SBA expanded SBLC licensing in 2023 and has kept adding capacity since, even as the office responsible for catching problem lenders has gone without a single direct examination for more than two years.