SBA Loan Defaults Surge at Two Nonbank Lenders, $1.3 Billion Entering Liquidation

A new report from the Small Business Administration's (SBA) Inspector General indicates that two SBA-approved third-party loan servicers (SBLCs) have experienced substantially higher default rates compared to traditional lenders over the past decade.

The report examined $9.5 billion in SBA 7(a) loans disbursed by SBLCs between fiscal years 2016 and 2023. By the end of March 2025, 1,657 loans had defaulted, and $1.3 billion worth of loans were slated for liquidation. The default rate for SBLCs reached 14.87 percent, compared to 9.79 percent for traditional lenders.

Critically, the poor loan performance was heavily concentrated among two SBLCs, which accounted for 84 percent of the total amount of defaulted loans. The SBA was aware of past issues with these two entities but failed to intervene effectively to mitigate the risks associated with the underperforming loans, according to the report.

The SBA acknowledges a significant increase in early defaults, though it disputes some of the report's interpretations and offers an alternative method of comparison. The Inspector General's office recommends that the SBA conduct its own analysis to identify the root causes of these defaults and implement measures to manage associated risks.