Small Business Finance News

SBA Veteran Loan Program On Shaky Ground

Written by Tim Morral
Published: 9/30/2013

Default rate for the SBA's Patriot Express loan program is significantly higher than other lending programs and some loan proceeds may not be reaching the program's intended recipients.

The Small Business Administration (SBA) plays an important role in helping entrepreneurs secure funding for startups and business expansion. Without the agency's government back loans to small businesses, it would be next to impossible for many small business borrowers to receive commercial financing.

Veteran Small Business Loan

But a recent report in the Washington Post showed that the SBA's Patriot Express loan program is in serious trouble. Designed to provide loan guarantees for veterans and their families in amounts up to $500,000, the Patriot Express program has cost taxpayers as much as $31 million in defaults, based on figures provided by a Government Accountability Office (GAO) report.

Since it began in 2007, the Patriot Express program has guaranteed more than $7.9 billion in loans to 17,000 veteran entrepreneurs. However, the default rate for the program is substantially higher than other SBA programs. Additionally, the GAO contends that a lack of lender follow-up means that some loans may be going to borrowers who are not veterans or do not qualify for the program.

"Given the losses in the Patriot Express program since inception, if the program continues on its current trend, Patriot Express costs will likely continue to exceed fees collected and recoveries. Without greater review of Patriot Express transactions .?.?. there is an increased risk that the proceeds of Patriot Express loans will be provided to or used by borrowers who do not qualify for the programs," the GAO report said.

Although the SBA disputes many of the GAO's conclusions, the takeaway from the report is that the future of the Patriot Express and possibly other SBA pilot lending programs is murky, at best. Without stricter oversight and changes to the existing program, it seems unlikely that Patriot Express will be financially viable over the long term.

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