PATRIOT EXPRESS

SBA Should Evaluate 

the Program and 

Enhance Eligibility 

Controls

Report to Congressional Requesters

September 2013

GAO-13-727

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-727, a report to 

congressional requesters

September 2013

PATRIOT EXPRESS 

SBA Should Evaluate the Program and Enhance 

Eligibility Controls

Why GAO Did This Study

In June 2007, SBA established the 

Patriot Express Pilot Loan Program

within its 7(a) loan guarantee program

to provide small businesses owned 

and operated by veterans and other 

eligible members of the military 

community access to capital. Through 

Patriot Express, SBA guarantees 

individual small business loans that 

lenders originate. GAO was asked to 

evaluate the program. This report 

examines (1) trends in the volume and 

performance of Patriot Express and 

related SBA loan programs; (2) the 

effect of the program on eligible 

members of the military community; 

and (3) SBA internal controls to ensure 

that only eligible borrowers participate. 

GAO analyzed data on performance 

and costs of Patriot Express and other 

similar SBA loan programs from 2007 

through 2012; interviewed selected 

borrowers, lenders, and veteran 

service organizations; and reviewed 

SBA internal control guidance on 

borrower eligibility.

What GAO Recommends

SBA should design and implement an 

evaluation plan to assess how well the 

Patriot Express pilot is achieving 

program objectives and goals and 

serving the needs of veterans and 

eligible borrowers. Going forward, SBA 

should include an evaluation plan as 

part of any pilot programs initiated 

under its own authority and consider 

the results of the evaluation when 

deciding whether to extend or 

terminate a pilot. Further, SBA should 

enhance internal controls over 

borrower eligibility requirements. SBA 

said that it will consider the findings 

from this report as it reviewed the 

extension of the Patriot Express pilot.

What GAO Found

Patriot Express loans valued at about $703 million have defaulted at a higher 

rate than loans under the Small Business Administration’s (SBA) other related 

loan guarantee programs, and losses for Patriot Express have exceeded its 

income. With the exception of loans approved in 2007, Patriot Express loans 

have defaulted at a higher rate than loans made under SBA’s main 7(a) program 

or loans made under SBA’s streamlined loan guarantee program (SBA Express). 

The Patriot Express program’s overall default rate was significantly higher for 

smaller loans, especially for loans below $25,000 (20 percent). Additionally, one 

lender accounted for more than 64 percent of these smaller loans and 

experienced higher default rates than the remaining lenders. From 2007 through

2012, losses in the Patriot Express program exceeded income by $31.1 million 

(not accounting for future fee revenues or funds recovered from loans in default). 

Selected borrowers and lenders, as well as veteran service organizations GAO

met with, reported various benefits and challenges to the Patriot Express 

program, but SBA has yet to evaluate the effect of this pilot program on eligible 

members of the military community. Borrowers and lenders said that some 

benefits of the program were that it helped veterans expand their businesses and

allowed them to take advantage of the streamlined application process. Some 

challenges they identified were low awareness of the program and which lenders 

participated in the program. In 2010, SBA extended the Patriot Express pilot 

through 2013 to allow time to evaluate the effect of the program. To date, SBA 

has not evaluated the program or established a plan of what it intends to do to 

evaluate it. SBA officials told us that they focused their resources on evaluating 

7(a) loans because there are many more of them and, therefore, they pose a 

greater risk to SBA than Patriot Express loans. In addition to Patriot Express, 

SBA has previously initiated other pilot programs that it has not evaluated. GAO

has found that a program evaluation gives an agency the opportunity to refine 

program design, assess if program operations have resulted in the desired 

benefits, and, for pilots, determine whether to make the programs permanent.

Without conducting evaluations of pilot programs, SBA lacks the information 

needed to assess their performance and their effects on eligible participants and 

decide whether to extend these programs, including Patriot Express. 

SBA’s internal controls over lenders may not provide reasonable assurance that 

Patriot Express loans are only made to eligible members of the military 

community and that only these members benefit from loan proceeds. SBA relies 

on lenders to verify and document borrower eligibility at the time of loan approval. 

One of SBA’s controls over lenders’ compliance with eligibility requirements 

consists of sampling loan files during examinations of the 7(a) program, but few 

Patriot Express loans are reviewed. Patriot Express is intended to assist only 

eligible members of the military community and SBA officials told us that they 

expect borrowers to maintain eligibility after the loan is disbursed. But SBA has 

not developed procedures for lenders to provide reasonable assurance that 

borrowers maintain this eligibility. Federal internal control standards and GAO’s 

fraud-prevention framework indicate that ongoing monitoring is an important 

component of an effective internal control system. Without enhanced internal 

controls, particularly with respect to monitoring of borrowers, SBA lacks 

assurance that Patriot Express loans are serving only eligible borrowers.

View GAO-13-727. For more information, 

contact William B.Shear at (202) 512-8678 or 

shearw@gao.gov.
Page i GAO-13-727 SBA Patriot Express

Letter 1 

Background 4

Patriot Express Loans Default at a Higher Rate Than Other SBA 

Loans, and Costs Have Exceeded Overall Program Income Since 

2007 10

Stakeholders Reported Benefits and Challenges, but SBA Has Not 

Evaluated the Effects of the Patriot Express Pilot 30

SBA’s Internal Controls May Not Provide Assurance of Borrower 

Eligibility 46

Conclusions 51

Recommendations for Executive Action 52

Agency Comments 53

Appendix I Objectives, Scope, and Methodology 55

Appendix II Comparison of SBA’s 7(a), SBA Express, and Patriot Express 

Loan Programs 64

Appendix III GAO Contact and Staff Acknowledgments 67

Tables

Table 1: Top 11 and Remaining Lenders for Patriot Express Based 

on Loans Approved, 2007-2012 13

Table 2: Average Loan Amounts, Number of Loans, and Total 

Dollar Amount of Loans for the Patriot Express, SBA 

Express, and 7(a) Programs, June 2007-2012 16

Table 3: Patriot Express Program Fees, Recoveries, Purchases, and 

Net Cash Flows, Fiscal Years 2007-2012 27

Table 4: Patriot Express Loans Sampled in Most Recent SBA 

Examination and Number of Patriot Express Loans Made 

by Top 10 Lenders from 2007 to the Year Prior to 

Examination 48

Table 5: Selected Characteristics of Loan Recipients Included in 

Our Sample 59

Table 6: Comparison of 7(a), SBA Express, and Patriot Express 

Loan Programs 64

Contents 
Page ii GAO-13-727 SBA Patriot Express

Figures

Figure 1: Patriot Express Loan Origination Process and Costs 7

Figure 2: Purchase Process for Patriot Express Loan 9

Figure 3: Number, Average Value, and Total Value of Patriot 

Express Loans Approved, 2007-2012 12

Figure 4: Number, Average Value, and Total Value of SBA Express 

Loans Approved, 2007-2012 14

Figure 5: Number, Average Value, and Total Value of 7(a) Loans 

Approved, 2007-2012 15

Figure 6: Default Rates for Patriot Express, SBA Express, and 7(a) 

by Loan Approval Year, as of December 31, 2012 17

Figure 7: Default Rates and Number of Loans Approved for 

Different Loan Amounts for the Patriot Express Program, 

2007-2012 18

Figure 8: Total Number of Patriot Express Loans and Default Rates 

by Lender and Loan Approval Year 2007-2012, as of 

December 31, 2012 19

Figure 9: Default Rates by Loan Amounts Approved for Patriot 

Express, SBA Express, and 7(a), 2007-2012 20

Figure 10: Number of Patriot Express, SBA Express, and 7(a) 

Loans Made to Veterans, 2001-2012 22

Figure 11: Dollar Amounts Approved for Patriot Express, SBA 

Express, and 7(a) Loans Made to Veterans, 2007-2012 24

Figure 12: Default Rates of Loans Made to Veterans through Patriot 

Express, SBA Express, and 7(a) by Year of Approval, as of 

December 31, 2012 25

Figure 13: Patriot Express Purchases and Offsets, Fiscal Years 

2007-2012 28

Figure 14: Examples of Loan Terms for a Patriot Express, Express, 

7(a), and Small Loan Advantage Loan to a Veteran 

Borrower 38
Page iii GAO-13-727 SBA Patriot Express

Abbreviations

ARRA American Recovery and Reinvestment Act of 2009

EBV Entrepreneurship Bootcamp for Veterans with Disabilities

FICO Fair Isaac Corporation

GPRA Government Performance and Results Act of 1993

GPRAMA GPRA Modernization Act of 2010

NAGGL National Association of Government Guaranteed Lenders

OEG Operation Endure and Grow

OIG Office of Inspector General

OMB Office of Management and Budget

OVBD Office of Veterans Business Development

PLP Preferred Lenders Program

SBA Small Business Administration

SBDC Small Business Development Centers

SBLC small business lending company

SBPS Small Business Portfolio Solutions

SLA Small Loan Advantage

VBOC Veteran Business Outreach Centers

VET Veteran Entrepreneurship Task Force

V-WISE Veteran Women Igniting the Spirit of Entrepreneurship

WBC Women’s Business Centers

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Page 1 GAO-13-727 SBA Patriot Express

441 G St. N.W.

Washington, DC 20548

September 12, 2013

The Honorable Mary L. Landrieu

Chair

Committee on Small Business and Entrepreneurship

United States Senate

The Honorable Mark Pryor

United States Senate

Since the Small Business Administration (SBA) established the Patriot 

Express Pilot Loan Initiative to provide veterans and other eligible 

members of the military community access to capital to establish or 

expand small businesses in June 2007, lenders have made about $703 

million in Patriot Express loans. The Patriot Express program, a pilot loan 

initiative under SBA’s 7(a) loan guarantee program, allows lenders to use 

their own underwriting criteria and loan documents to expedite loan 

decisions for eligible borrowers.1 Patriot Express borrowers must have a 

business that is owned and controlled (51 percent or more) by veterans or 

other eligible members of the military community.2 The Patriot Express 

program provides the same loan guarantee to SBA-approved lenders as 

the 7(a) program and is available on loan amounts up to $500,000, and 

the loan proceeds can be used for the same purposes as the 7(a) loan 

proceeds.3

You asked us to evaluate the program. This report examines (1) trends in 

the Patriot Express program and related SBA guarantee programs, 

SBA announced on December 14, 2010, that it would continue 

to operate the Patriot Express program through December 31, 2013.

 

1

Section 7(a) of the Small Business Act, as amended, codified at 15 U.S.C. § 636(a).

2

Other eligible members of the military include service-disabled veterans, active duty 

military participating in the military’s Transition Assistance Program, reservists or National 

Guard members or a current spouse of any of these groups, a widowed spouse of a 

service member who died while in service, or a widowed spouse of a veteran who died of 

a service-connected disability.

3

The proceeds of 7(a) loans may be used for working capital and other general business 

purposes. The program is intended to serve small business borrowers who could not 

otherwise obtain credit under reasonable terms and conditions from the private sector 

without an SBA guarantee. The 7(a) program provides an 85 percent guarantee on loan 

amounts of $150,000 or less and a 75 percent guarantee on loan amounts over $150,000.

 
 

Page 2 GAO-13-727 SBA Patriot Express

including performance of these loans, and what is known about the costs 

of the Patriot Express program, (2) the benefits and challenges of the 

Patriot Express program for members of the military community eligible to 

participate as well as training and counseling opportunities available to 

them, and (3) what internal controls SBA has in place to ensure that the 

Patriot Express program is available only to eligible members of the 

military community.

To describe how Patriot Express loans approved from 2007 through 2012 

have performed, we obtained SBA loan-level data from the second 

quarter of 2007 through the fourth quarter of 2012 for the Patriot Express 

program and analyzed them for various performance measures, including 

default rates.4 To compare the performance of Patriot Express loans to 

those of SBA’s 7(a) and SBA Express programs, we obtained and 

analyzed SBA loan-level data for loans approved in these programs from 

2007 through 2012 and compared default rates to those of the Patriot 

Express program.5

To assess the effect of the Patriot Express program on members of the 

military community eligible to participate in the program, we selected and 

interviewed a nongeneralizable, stratified random sample of 24 Patriot 

Express loan recipients. We conducted interviews with these recipients to 

inquire how the Patriot Express loan affected their businesses and to 

To describe what is known about the costs of the 

Patriot Express program from 2007 through 2012, we obtained and 

analyzed SBA cash-flow data on SBA purchases of defaulted loans, as 

well as data on fees generated by the program and recovery rates of 

defaulted loans. To assess data reliability, we interviewed SBA 

representatives about how they collected data and helped ensure data 

integrity, and we reviewed internal agency procedures for ensuring data 

reliability. In addition, we conducted reasonableness checks on the data 

to identify any missing, erroneous, or outlying figures. We determined that 

the data were sufficiently reliable for our purposes.

 

4

In this report, we define the default rate as the number of loans that SBA has purchased 

from the lender divided by the outstanding number of loans approved.

5

The SBA Express program is a subprogram of the 7(a) loan program and was 

established as a pilot program by SBA on February 27, 1995. The program was made 

permanent through legislation in 2004. The program was designed to increase the 

availability of credit to small businesses by permitting lenders to use their existing 

documents and procedures in return for receiving a reduced SBA guarantee on loans. It 

provides a 50 percent loan guarantee on loan amounts up to $350,000.
 

Page 3 GAO-13-727 SBA Patriot Express

obtain their views on how the program could be improved. To obtain the 

perspectives of veteran entrepreneurs who were aware of the Patriot 

Express program and appeared to meet the eligibility requirements for a 

Patriot Express loan but instead obtained a 7(a) loan, we selected and 

interviewed a nongeneralizable stratified random sample of four veteran 

entrepreneurs who obtained a 7(a) loan. We conducted interviews with 

these recipients to inquire about their experiences with the 7(a) loan and 

obtain their views on the Patriot Express program. We also interviewed 

SBA officials and selected lenders and veteran service organizations. To 

describe other ways in which veteran entrepreneurs accessed capital, as 

part of our interviews of Patriot Express and 7(a) loan recipients, we 

inquired about other ways in which they had gained access to capital. For 

this purpose, we also interviewed selected lenders and veteran service 

organizations. To describe the training and counseling efforts SBA has in 

place for veteran entrepreneurs, we obtained and reviewed SBA annual 

reports and other documents related to training and counseling efforts. 

We also interviewed SBA officials responsible for these efforts. To obtain 

the perspectives of veteran entrepreneurs on the effectiveness of SBA’s 

training and counseling efforts, we interviewed veteran service 

organizations and selected Patriot Express and 7(a) loan recipients.

To evaluate SBA’s internal controls related to ensuring that the Patriot 

Express program is available only to members of the military community 

eligible to participate in the program, we reviewed SBA’s standard 

operating procedures related to oversight of lenders, federal internal 

control standards, and GAO’s fraud-prevention framework. We 

interviewed officials from the Office of Credit Risk Management to inquire 

about SBA’s oversight of its lenders, including how it addresses the 

program’s vulnerability to fraud and abuse. To determine how SBA 

examiners review lenders for compliance with eligibility requirements for 

the Patriot Express program, we reviewed examination reports for the top 

10 Patriot Express lenders (based on the number of loans made) from 

2007 through 2012. Finally, to help assess the extent to which the Patriot 

Express program could be susceptible to fraud and abuse, we reviewed 

SBA’s internal control standards related to ensuring that Patriot Express 

loans were made to eligible members of the military community. We also 

interviewed officials from SBA’s Office of Credit Risk Management and 

Office of Inspector General to learn about scenarios under which the 

Patriot Express program could be susceptible to fraud and abuse.

We conducted this performance audit from November 2012 to September 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 
 

Page 4 GAO-13-727 SBA Patriot Express

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. Appendix I contains 

additional information on our scope and methodology.

SBA was created in 1953 to assist and protect the interests of small 

businesses, in part by addressing constraints in the supply of credit for 

these firms. The 7(a) program, named after the section of the Small 

Business Act that authorized it, is SBA’s largest business loan program.6

The program is intended to serve creditworthy small business borrowers 

who cannot obtain credit through a conventional lender at reasonable 

terms and do not have the personal resources to provide financing 

themselves. Under the 7(a) program, SBA guarantees loans made by 

commercial lenders to small businesses for working capital and other 

general business purposes.7 These lenders are mostly banks, but some 

are nondepository lenders, including small business lending companies 

(SBLC).8

 

6

Section 7(a) of the Small Business Act, as amended, and now codified at 15 U.S.C. 

Section 636(a), provides the authority for the 7(a) program.

The guarantee assures the lender that if a borrower defaults on 

a loan, SBA will purchase the loan and the lender will receive an agreedupon portion (generally between 50 percent and 85 percent) of the 

outstanding balance. For a majority of 7(a) loans, SBA relies on lenders 

with delegated authority to process and service 7(a) loans and to ensure 

that borrowers meet the program’s eligibility requirements. To be eligible 

for the 7(a) program, a business must be an operating for-profit small firm 

(according to SBA’s size standards) located in the United States and 

7

SBA has limited legislative authority to make direct loans to borrowers unable to obtain

loans from conventional lenders.

8

In addition to depository institutions, SBA has authorized other types of lenders to make 

SBA-guaranteed loans. These lenders include SBLCs, which are generally not subject to 

oversight and examination by a federal financial institution regulator. SBLCs are 

nondepository lenders that enter into agreements with SBA to provide 7(a) loans and 

microloans to qualified small businesses. By statute, SBA is the primary federal regulator 

for SBLCs and conducts safety and soundness examinations of these institutions.

Background 
 

Page 5 GAO-13-727 SBA Patriot Express

meet the “credit elsewhere” requirement, including the personal resources 

test.9

Within the 7(a) program, there are several delivery methods—including 

regular 7(a), the Preferred Lenders Program (PLP), and SBA Express. 

Under the regular (nondelegated) 7(a) programs, SBA makes the loan 

approval decision, including the credit determination. Under PLP and SBA 

Express, SBA delegates to the lender the authority to make loan approval 

decisions, including credit determinations, without prior review by SBA. 

The maximum loan amount under the SBA Express program is $350,000 

(as opposed to $5 million for 7(a) loans). This program allows lenders to 

utilize, to the maximum extent possible, their respective loan analyses, 

procedures, and documentation. In return for the expanded authority and 

autonomy provided by the program, SBA Express lenders agree to accept 

a maximum SBA guarantee of 50 percent. Regular (nondelegated) 7(a) 

loans and delegated 7(a) loans made by PLP lenders generally have a 

maximum guarantee of 75 or 85 percent, depending on the loan 

amount.10

In June 2007, under its own authority, SBA established the Patriot 

Express pilot loan program, which has features that are similar to those of 

the SBA Express and other 7(a) loan programs. Like the SBA Express 

program, the Patriot Express program allows lenders to use their own 

loan analyses and documents to expedite loan decisions for eligible 

 

9

In establishing size standards, SBA considers economic characteristics of the industry, 

including degree of competition, average firm size, start-up costs and entry barriers, and 

distribution of firms by size. It also considers growth trends, competition from other 

industries, and unique factors within an industry that may distinguish small firms from 

other firms. SBA’s size standards seek to ensure that a firm that meets a specific size 

standard is not dominant in its field of operation. In addition, the Small Business Act 

specifies that SBA shall not make or guarantee loans for borrowers who are able to obtain 

credit elsewhere, which is defined as “the availability of credit from non-Federal sources 

on reasonable terms and conditions taking into consideration the prevailing rates and 

terms in the community in or near where the concern transacts business, or the 

homeowner resides, for similar purposes and periods of time.” See, 15 U.S.C. § 636(a)(1); 

15 U.S.C. § 632(h). Further, SBA requires lenders to ensure that the borrower or any 

principal of the business do not have the personal resources to cover the needed funding.

10The 7(a) program formally includes all subprograms, including Patriot Express and SBA 

Express. However, in this report, when we make comparisons of loan volume, 

performance, and benefits and challenges of Patriot Express to SBA Express and 7(a), we 

use “7(a) loans” to refer to both (1) regular (nondelegated) 7(a) loans and (2) delegated 

7(a) loans made by PLP lenders but excluding Patriot Express and SBA Express, unless 

otherwise noted.
 

Page 6 GAO-13-727 SBA Patriot Express

borrowers. However, the Patriot Express has a different guarantee rate 

than SBA Express and different eligibility requirements. Patriot Express 

borrowers must have a business that is owned and controlled (51 percent 

or more) by the following members of the military community:

• veterans (other than dishonorably discharged),

• service-disabled veterans,

• active duty military participating in the military’s Transition Assistance 

Program,

• reservists or National Guard members,

• spouse of any of these groups,

• a widowed spouse of a service member who died while in service, or

• a widowed spouse of a veteran who died of a service-connected 

disability.

Like the 7(a) program, the Patriot Express program provides the same 

loan guarantee to SBA-approved lenders on loan amounts up to 

$500,000, and the loan proceeds can be used for the same purposes. 

SBA initially intended to operate the Patriot Express pilot for about 3 

years, after which it would evaluate the program. However, SBA 

announced on December 14, 2010, that it would continue to operate the 

program for at least 3 more years to allow the agency to evaluate the 

program. SBA determined that it was premature to assess the results of 

the pilot because most of the loans were made in the previous 2 years 

and there had not been enough time to measure their performance. 

Appendix II compares the key features of the Patriot Express program to 

those of the regular 7(a) and SBA Express programs. Figure 1 depicts the 

Patriot Express loan process, including the roles played by the lender and 

SBA in the transaction and the fees associated with the loans.
 

Page 7 GAO-13-727 SBA Patriot Express

Figure 1: Patriot Express Loan Origination Process and Costs

a

The guaranteed portion is the percentage of the loan balance that SBA agrees to cover if the 

borrower defaults on the loan.

b

The lender is required to pay SBA a one-time guarantee fee that is a percentage of the guaranteed 

portion. This fee can be passed on to the borrower and is paid within 90 days of loan approval. For 

this example, the guarantee fee was 2 percent of the guaranteed amount and was passed on to the 

borrower.

c

”Packaging services” include assisting the applicant with completing the application, such as 

preparing a business plan and cash-flow projections. “Other services” include consulting fees related 

to the need for financing and the type of financing, as well as broker fees or referral fees. These fees 
 

Page 8 GAO-13-727 SBA Patriot Express

are optional and SBA guidelines state that the fees must be reasonable and customary for the 

services actually performed and must be consistent with those charged on the lender’s similarlysized, non-SBA-guaranteed loans.

d

For this example, the payment was calculated by assuming the prime interest rate was 3.25 percent 

for an $85,000 Patriot Express loan with a term of 60 months (5 years).

e

A lender may request that SBA honor its guarantee by purchasing the 

loan if a borrower is in default on an SBA loan for more than 60 calendar 

days and if the borrower is unable to cure the loan after working with the 

lender. The lender is required by regulation to liquidate all business 

personal property collateral before demanding that SBA honor the 

guarantee.

The lender is required to pay SBA an annual ongoing fee, and the amount is not to exceed 0.55 

percent. Because the fee is applied to the outstanding balance of the guaranteed portion of the loan, 

the amount of this fee will change every year. This fee cannot be passed onto the borrower.

11

 

11SBA’s collateral policies for Patriot Express loans vary depending on the loan amount. 

For example, no collateral is required for Patriot Express loans of less than $25,000. 

However, lenders that make Patriot Express loans above $350,000 are required to 

collateralize the loan to the maximum extent possible up to the loan amount. If business 

assets do not fully secure the loan, the lender must take available personal assets of the 

principals as collateral. SBA considers liquidation of business personal property collateral 

to be completed when a lender has exhausted all prudent and commercially reasonable 

efforts to collect upon these assets. 

As shown in figure 2, after the lender has liquidated all 

business personal property collateral, it submits the purchase request to 

one of SBA’s Office of Financial Program Operation’s centers, which 

processes loan guarantee requests. The center reviews the lender’s 

package to determine if it has complied with SBA rules and regulations. If 

SBA finds that the lender has complied with the agency’s rules and 

regulations and conducted proper due diligence when originating the 

loan, SBA honors the guarantee and pays the lender the guaranteed 

portion of the outstanding loan amount.
 

Page 9 GAO-13-727 SBA Patriot Express

Figure 2: Purchase Process for Patriot Express Loan

a

According to SBA officials, the 7(a) program—including its subprograms, 

such as SBA Express and Patriot Express—is projected to be a “zero 

subsidy” program in fiscal year 2014, meaning that the program does not 

require annual appropriations of budget authority for new loan 

According to SBA, for loans approved on or after May 14, 2007, a lender may demand in writing that 

SBA honor its guarantee if the borrower is in default on any installment for more than 60 calendar 

days and the default has not been cured, provided all business personal property securing the 

defaulted SBA loan has been liquidated.
 

Page 10 GAO-13-727 SBA Patriot Express

guarantees.12

SBA’s Office of Credit Risk Management is responsible for overseeing 

7(a) lenders, including those with delegated authority. SBA created this 

office in fiscal year 1999 to better ensure consistent and appropriate 

supervision of SBA’s lending partners.

To offset some of the costs of the program, such as the 

costs of purchasing defaulted loans, SBA assesses lenders two fees on 

each 7(a) loan, including Patriot Express loans. The guarantee fee must 

be paid by the lender at the time of application for the guarantee or within 

90 days of the loan being approved, depending upon the loan term. This 

fee is based on the amount of the loan and the level of the guarantee, 

and lenders can pass the fee on to the borrower. The ongoing servicing 

fee must be paid annually by the lender and is based on the outstanding 

balance of the guaranteed portion of the loan.

13 The office is responsible for 

managing all activities regarding lender oversight, including lender risk 

ratings and lender activities, and preparing written reports based on such 

oversight.

From 2007 through 2012, SBA made 8,511 Patriot Express loans. The 

majority of these loans were valued below $150,000, and close to half 

were uncollateralized loans valued below $25,000. Although Patriot 

Express loans represent a fraction of SBA’s larger loan portfolio and are 

concentrated among 11 lenders, these loans have defaulted at higher 

rates compared to similar SBA loans made in the same time frame. At the 

current default and recovery rates, the costs of the Patriot Express 

program will likely continue to exceed overall program income.

 

12Credit subsidy costs represent the net present value of expected lifetime cash flows, 

excluding administrative costs. The subsidy rate reflects the net present value cost for 

each dollar of credit assistance. According to SBA, the Patriot Express program does not 

have a separate subsidy rate. The 7(a) subsidy rate is also applied to the Patriot Express 

program.

13Prior to reorganization in May 2007, the office was called the Office of Lender Oversight.

Patriot Express Loans 

Default at a Higher 

Rate Than Other SBA 

Loans, and Costs 

Have Exceeded 

Overall Program 

Income Since 2007
 

Page 11 GAO-13-727 SBA Patriot Express

From the start of the program through the fourth quarter of 2012, lenders 

made a total of 8,511 Patriot Express loans. Taken together, these loans 

are valued at $702,753,406, with an average of about $82,570 per loan. 

As shown in figure 3, after a rapid expansion in the first 2 years of the 

program from 2007 through 2009, the number of Patriot Express loans 

declined from 2,176 approved in 2009 to 869 approved in 2012. Similarly, 

the total loan amounts of Patriot Express loans approved each year grew 

from approximately $67 million in 2007 to over $150 million in 2008 and 

2009, but have since decreased. The higher numbers of Patriot Express 

loans approved in 2009 and 2010 may be attributable, in part, to the 

American Recovery and Reinvestment Act of 2009 (ARRA)14 and 

subsequent legislation, which provided funding to temporarily subsidize 

the overall 7(a) guarantee program’s fees and to increase the maximum 

loan guarantee percentage from 75 or 85 percent to 90 percent, with the 

exception of loans approved under the SBA Express 7(a) subprogram.15

 

14The American Recovery and Reinvestment Act of 2009 (ARRA). Pub. L. No. 111-5 

Division A. Title V. §§ 501, 502, 123 Stat. 115, 151-153 (2009), enacted on February 17, 

2009, permitted the temporary reduction of fees in the 7(a), Patriot Express, and 504/CDC 

loan guarantee programs until September 30, 2010, or until $375 million of appropriated 

funds was expended and increased the 7(a) program’s maximum loan guarantee 

percentage to 90 percent for all standard 7(a) loans except for SBA Express loans.

With a 5 to 15 percent increase in the maximum allowed guarantee 

through ARRA, lenders had a greater incentive to approve SBA loans in 

general (including Patriot Express loans), knowing that SBA would 

guarantee a higher percentage of the loan. Figure 3 also shows that 

average loan amounts have varied over the years. For loans approved in 

2007, the average loan amount was for about $100,000, decreasing to 

about $70,000 in 2009, and increasing since then to just under $100,000 

in 2012.

15For example, the Small Business Jobs Act of 2010, Pub. L. No. 111-240. §§ 1111,1114, 

124 Stat. 2504, 2507, 2508 (2010) provided funding to extend the fee subsidies and 90 

percent loan guarantee percentage through December 31, 2010 or until available funds 

were exhausted. Also, the Continuing Appropriations and Surface Transportation 

Extensions Act, 2011, Pub. L. No. 111-322. § 1(a)(2), 124 Stat. 3518, 3520 (2011), 

authorized SBA to continue the fee subsidies and the 7(a) program’s 90 percent maximum 

loan guarantee through March 4, 2011.

Lenders Have Made 8,511 

Patriot Express Loans 

Since 2007
 

Page 12 GAO-13-727 SBA Patriot Express

Figure 3: Number, Average Value, and Total Value of Patriot Express Loans Approved, 2007-2012

Based on our analysis of SBA data from 2007 through 2012, about 67 

percent of borrowers used Patriot Express loans for working capital, and 

about half of these loans funded businesses that were either new or had 

been in existence for less than 2 years. The majority of Patriot Express 

loans approved since the program’s inception are valued at 30 percent of 

the maximum loan limit, and about half are small enough that they do not 

require collateral. Although SBA allows Patriot Express loans of up to 

$500,000, about 84.2 percent of the loans made since 2007 (7,166) were 

below $150,000. Further, 41.2 percent of Patriot Express loans (3,509) 

were $25,000 or less. More than 64 percent of loans up to $25,000 were 

provided by one lender and this lender accounted for about 26 percent of 

total loans in the program. This lender primarily provided loans between 

$5,000 and $25,000, and its average Patriot Express loan made from 

2008 through 2012 was $9,759. As noted previously, loans under the 

Patriot Express program below $25,000 do not require collateral.
 

Page 13 GAO-13-727 SBA Patriot Express

The Patriot Express program is highly concentrated in a small number of 

lenders. For example, the top 11 lenders (in terms of number of loans 

made) represent 52 percent of the Patriot Express loans made since the 

program’s inception (see table 1). These top 11 lenders accounted for 

27.55 percent of the total amount approved for the Patriot Express

program. This concentration is explained, in part, by one lender that 

focuses on providing low-dollar loans to veteran-owned businesses and 

represents about 26 percent of the Patriot Express program, as discussed 

previously. In contrast, the remaining 782 lenders that participate in 

Patriot Express have approved fewer loans. For example, 246 of these 

782 lenders approved one loan each since the program began in 2007.

Table 1: Top 11 and Remaining Lenders for Patriot Express Based on Loans Approved, 2007-2012 

Average loan 

amount

Number of 

loans

Percentage of total 

number of loans 

approved

Total amount 

approved

Percentage of total 

amount approved

Lender 1 $9,759 2,248 26.41% $21,937,500 3.12%

Next 10 lenders 79,154 2,169 25.48 171,684,100 24.43

Remaining lenders (782) 124,360 4,094 48.10 509,131,806 72.45

Total 8,511 $702,753,406

Source: GAO analysis of SBA data.

Note: Total percentage may not equal 100% due to rounding.

As previously discussed, in addition to reviewing data on the Patriot 

Express program from 2007 through 2012, we also reviewed similar data 

from two other SBA loan programs: the SBA Express program and SBA’s 

7(a) program. SBA Express and the 7(a) program, which are not limited to 

borrowers in the military community, are significantly larger than the 

Patriot Express program. Since 2007, the SBA Express program has 

surpassed Patriot Express in total number of loans (156,280) and total 

amount ($10.9 billion) approved, but the average loan amounts for Patriot 

Express are larger than those for SBA Express. SBA Express has seen a 

decline in loan numbers and amounts approved since 2007 (see fig. 4). 

The number of SBA Express loans approved each year declined by about 

50 percent from 2007 through 2008, and that number has remained at 

lower levels since then. SBA officials told us that part of the decline from 

2007 through 2008 may have been due to the economic downturn, which 

prompted lenders to cut back on these loans. Figure 4 also shows the 

total value of SBA Express loans peaked in 2007 ($2.9 billion) but then 

decreased by nearly half in 2008 ($1.7 billion). The total value of SBA 

The Patriot Express 

Program Is Much Smaller 

Than the SBA Express or 

7(a) Programs
 

Page 14 GAO-13-727 SBA Patriot Express

Express loans then increased to about $2 billion in 2011 before falling to 

about $1.3 billion in 2012.

Figure 4: Number, Average Value, and Total Value of SBA Express Loans Approved, 2007-2012

The 7(a) program is also significantly larger than the Patriot Express 

program in all measures, including total numbers of loans approved, 

average loan amounts, and total loan amounts approved. Annually, the 

total numbers of 7(a) loans approved have declined since peaking in 

2010 at 19,131, while the average loan amount for 7(a) approvals 

annually has steadily increased from about $470,784 in 2007 to $716,489 

in 2012 (see fig. 5). The total value of 7(a) loans approved within each 

year has been relatively steady, as shown in figure 5, ranging from 

around $7.7 billion to around $9.2 billion, with the exception of 2010, 

when the total value of loans approved was around $12 billion.
 

Page 15 GAO-13-727 SBA Patriot Express

Figure 5: Number, Average Value, and Total Value of 7(a) Loans Approved, 2007-2012

Table 2 shows the total numbers of loans, total dollar values, and average 

loan amounts approved for Patriot Express, SBA Express, and 7(a) from 

June 2007 through 2012. Additionally, the table shows the relative 

percentage of loans made and dollar values for each program when 

compared among all three programs. When comparing the three 

programs since the inception of Patriot Express in June 2007 through the 

end of 2012, Patriot Express is significantly smaller than SBA Express 

and 7(a) in terms of number of total loans approved (3.76 percent) and 

dollar amount (1.15 percent). However, the average loan amount for 

Patriot Express is larger than the average loan approved under SBA 

Express.
 

Page 16 GAO-13-727 SBA Patriot Express

Table 2: Average Loan Amounts, Number of Loans, and Total Dollar Amount of Loans for the Patriot Express, SBA Express, 

and 7(a) Programs, June 2007-2012 

Average loan 

amount

Number of 

loans

Percentage of total 

number of 

loans approved

Total dollar

amount

Percentage of total 

amount approved

Patriot Express $82,570 8,511 3.76% $702,753,406 1.15%

SBA Express 73,194 130,385 57.67 9,543,343,424 15.57

7(a) 585,431 87,192 38.57 51,044,912,552 83.28

Total 226,088 $61,291,009,382

Source: GAO analysis of SBA data.

When comparing loans approved in each year from the inception of 

Patriot Express through December 31, 2012, Patriot Express loans (with 

the exception of 2007) defaulted at a higher rate than SBA Express or 

7(a) loans (see fig. 6).16 For loans approved in 2009, the default rate for 

Patriot Express was 17 percent, approximately three times that of SBA 

Express and 7(a) loans. Additionally, the default rate for Patriot Express 

loans approved in 2010 was 7.4 percent, again more than three times that 

of SBA Express and 7(a) loans. Loans approved in more recent years 

have had a shorter amount of time during which to observe defaults, 

which may at least partially explain lower default rates in more recent 

years of the program.17 The higher default rates for Patriot Express are 

generally consistent with one of the key measures of creditworthiness that 

SBA collects, the Small Business Portfolio Solutions (SBPS) scores.18

 

16We calculated defaults by examining the number of loans that were purchased by SBA 

(as of December 31, 2012) based on the year that the loan was approved. As mentioned 

earlier, lenders can request that SBA purchase a loan if a borrower is in default on an SBA 

loan for more than 60 calendar days and if a borrower is unable to cure the loan after 

working with the lender. A loan is in default when a borrower fails to make a regular 

installment of principal and/or interest when due to the lender. 

For 

17The average time to default, as measured by the time period from approval to purchase 

of the defaulted loan by SBA, was 34 months for 7(a) and SBA Express, and 28 months 

for Patriot Express. 

18SBPS is a credit score specific to small business that each SBA loan receives on a 

quarterly basis. It is an off-the-shelf product produced by the Fair Isaac Corporation 

(FICO) and Dun & Bradstreet. It uses Dun & Bradstreet’s commercial and TransUnion’s 

consumer credit bureau data for all disbursed and outstanding 7(a) loans. It includes 

business data reported by third parties, such as venders, utilities, and insurance 

companies. SBPS is categorized by risk (high, medium, and low) and contains a range of 

credit scores consistent with each level of risk.

Patriot Express Loans 

Generally Default at a 

Higher Rate Than SBA 

Express and 7(a) Loans
 

Page 17 GAO-13-727 SBA Patriot Express

example, 61.6 percent and 52.1 percent of 7(a) and SBA Express loans 

approved from 2007 through 2012 had SBPS scores of 180 or greater, 

compared to just 48.3 percent of Patriot Express loans approved in the 

same time period. Finally, although the economic downturn may account 

for some of the overall higher default rates in all three programs from 

2007 through 2009, Patriot Express has maintained a higher default rate 

compared to SBA Express and 7(a) since 2008.

Figure 6: Default Rates for Patriot Express, SBA Express, and 7(a) by Loan 

Approval Year, as of December 31, 2012

Note: This figure presents default rates for Patriot Express, SBA Express, and 7(a) as of December 

31, 2012. We did not include the default rate for loans approved in 2012 because too little time had 

passed as of December 31, 2012, to fully assess the default rate for this cohort. The Patriot Express 

program began on June 28, 2007. In the figure, we present 2007 default rates for the entire year for 

the 7(a) and SBA Express programs. Limiting our analysis to July 1, 2007, for Patriot Express, SBA 

Express, and 7(a) produced similar results. Starting in 2008, one lender that specialized in Patriot 

Express loans valued up to $25,000 began approving loans that defaulted at a higher rate than loans 

approved by other lenders. A more detailed comparison of this lender to other Patriot Express lenders 

is shown later in figure 8.

The default rates for the Patriot Express program are generally higher for 

the smaller loan amounts. For example, as shown in figure 7, loans under 

$10,000, which represent 21.3 percent of all Patriot Express loans from 
 

Page 18 GAO-13-727 SBA Patriot Express

2007 through 2012, had an overall 22 percent default rate. Additionally, 

Patriot Express loans under $25,000, which represent 41.2 percent of 

loans made in the same period, had a default rate of 20 percent.

Figure 7: Default Rates and Number of Loans Approved for Different Loan Amounts for the Patriot Express Program, 2007-

2012

Note: This figure presents default rates for Patriot Express, from 2007 to 2012. The Patriot Express 

program began on June 28, 2007.

Our analysis of SBA data identified a concentration of low-dollar, 

uncollateralized Patriot Express loans with significantly higher default 

rates (compared to other Patriot Express loans) that were approved by a 

single lender. In 2009, the peak year for Patriot Express, this lender 

accounted for about 39 percent of Patriot Express loans approved, as 

shown in figure 8. Patriot Express loans approved by this lender have 

been defaulting at rates as high as 38 percent for loans approved in 2008 

and 25 percent for loans approved in 2009, approximately 13 percentage 

points higher than loans approved by other lenders in the same years, 

also shown in figure 8. Although overall default rates have decreased 
 

Page 19 GAO-13-727 SBA Patriot Express

since 2008, the default rates for this lender remain significantly higher 

than those of all other lenders. For example, in 2009, at 25 percent, the 

default rate of the one lender was more than double that of the remaining 

lenders, at 12 percent. In May 2013, SBA decided not to renew this 

lender’s delegated authority to make SBA loans, which includes its

authority to make Patriot Express loans.

Figure 8: Total Number of Patriot Express Loans and Default Rates by Lender and 

Loan Approval Year 2007-2012, as of December 31, 2012

Note: We did not include the default rate for loans approved in 2012 because too little time has 

passed as of December 31, 2012, to fully assess the default rate for this cohort. The Patriot Express 

program began on June 28, 2007.

Figure 9 shows the default rates of Patriot Express, SBA Express, and 

7(a) by loan amounts. When comparing default rates with different loan 

amounts based on program requirements, the performance of Patriot 

Express loans improves as loan amounts increase. For example, the 

largest improvement in performance for Patriot Express loans was 

between loans of less than $25,000 and loans valued from $25,000 to 

$150,000; for loans in this range, the default rate drops by almost half, 
 

Page 20 GAO-13-727 SBA Patriot Express

from 20 percent to 12 percent. As mentioned earlier, more than 64 

percent of loans up to $25,000 were provided by one lender. However, 

even when loans approved by this one lender were excluded, the default 

rate for loans up to $25,000 did not change significantly.

Figure 9: Default Rates by Loan Amounts Approved for Patriot Express, SBA 

Express, and 7(a), 2007-2012

Note: This figure presents default rates for Patriot Express, SBA Express, and 7(a) from 2007-2012. 

The Patriot Express program began on June 28, 2007. In the figure, we present 2007 default rates for 

the entire year for the 7(a) and SBA Express programs. Limiting our analysis to June 1, 2007, for 

Patriot Express and July 1, 2007, for 7(a) and SBA Express, produced similar results. These loan 

categories were chosen based on characteristics of each of the programs. For example, the first 

category was chosen because SBA Express and Patriot Express loans of $25,000 or less do not 

require collateral. The third and fourth loan categories were chosen because they were the maximum 

loan limits for SBA Express ($350,000) and Patriot Express ($500,000).

a

SBA was provided authority under the Small Business Jobs Act of 2010 to raise the limit on SBA 

Express to $1 million for loans for 1 year following the act’s enactment on September 27, 2010.
 

Page 21 GAO-13-727 SBA Patriot Express

Consistent with overall SBA lending through Patriot Express, SBA 

Express, and 7(a), available data suggest that the number of loans made 

to veterans through these programs are currently at similar levels, but 

overall lending to veterans through these programs has decreased over 

the past 8 years. Although some SBA loans made to veterans may not be 

identified, the available data using the veteran status field in SBA’s 

database show that the differences in levels of lending to veterans across 

the 7(a), SBA Express, and Patriot Express programs have been lower 

over the last 2 years, as shown in figure 10. For example, in 2012, 664 

loans were made to veterans through the Patriot Express program, 551 

loans through the SBA Express program, and 391 loans through the 7(a) 

program. In comparison, there were more than twice as many Patriot 

Express loans made to veterans compared to SBA Express loans and 

7(a) loans in 2009.19

 

19The SBA loan-level data for these three programs include a field that indicates whether 

a loan has been made to a veteran, service-disabled veteran, or Vietnam War veteran. 

However, unlike borrowers in the Patriot Express program—which requires lenders to 

confirm a veteran’s status for eligibility purposes—veterans who receive 7(a) or SBA 

Express loans self-report their veteran status to SBA, and the lender is not required to 

verify this information. Because this information is self-reported, SBA officials indicated 

that the veteran status field for 7(a) and SBA Express borrowers may not be accurately or 

consistently capturing all veterans who have received a loan through these programs.

The trends shown in figure 10 are consistent with 

overall lending from 2007 through 2012 in terms of total loans made 

under Patriot Express, SBA Express, and 7(a).

Loans to Veterans through 

Patriot Express, SBA 

Express, and 7(a) Have 

Declined over Time
 

Page 22 GAO-13-727 SBA Patriot Express

Figure 10: Number of Patriot Express, SBA Express, and 7(a) Loans Made to Veterans, 2001-2012

Note: The Patriot Express program began on June 28, 2007. Because this information is selfreported, SBA officials indicated that the veteran status field in its database for 7(a) and SBA Express 

borrowers may not be accurately or consistently capturing all veterans who have received a loan 

through these programs. The numbers for 2001-2006 are based on data provided by SBA, while the 

numbers for 2007-2012 are based on our analysis of SBA data.

Although veterans have been able to access capital through the Patriot 

Express, SBA Express, and 7(a) loan programs, overall lending to 

veterans peaked in 2004—at which time only the 7(a) and SBA Express 

programs existed—and has continued to decrease since then, even after 

the Patriot Express program started in 2007. Between 2004 and 2012, the 

number of loans made to veterans decreased 77 percent, from about 

7,000 loans in 2004 to 1,600 loans in 2012. Further, even with the 

introduction of the Patriot Express program in 2007, the overall levels of 

lending to veterans through all three SBA programs has remained lower 

than the overall level of lending to veterans before the program’s 

inception. A number of factors could have contributed to this decrease in 

overall lending to veterans through SBA programs, including more 

conservative lender credit standards and the economic downturn in 2008. 
 

Page 23 GAO-13-727 SBA Patriot Express

In addition, as mentioned previously, veteran status information is selfreported by 7(a) and SBA Express borrowers, and the veteran status field 

may not accurately and consistently capture all veterans who have 

received a loan through these programs.

In addition to a decrease in the total number of loans, the total dollar 

amount of loans made to veterans through Patriot Express, SBA Express, 

and 7(a) and also decreased from 2007 through 2012. As shown in figure 

11, the overall dollar amount of loans to veterans through these three 

programs decreased from 2007 through 2009 before spiking in 2010 and 

continuing to decline again through 2012.20

 

20As mentioned earlier, the higher number of 7(a) and Patriot Express loans approved in 

2009 and 2010 may be attributable, in part, to ARRA and subsequent legislation, which 

provided funding to temporarily subsidize the 7(a) guarantee programs’ fees and to 

increase the programs’ maximum loan guarantee percentage from 75 or 85 percent to 90 

percent.

The trends shown in figure 11 

are consistent with overall lending in terms of total value of loans made 

under the Patriot Express, SBA Express, and 7(a) programs from 2007 

through 2012. In May 2013, SBA announced a new initiative to increase 

lending to veteran entrepreneurs by $475 million over the next 5 years 

across all SBA loan programs.
 

Page 24 GAO-13-727 SBA Patriot Express

Figure 11: Dollar Amounts Approved for Patriot Express, SBA Express, and 7(a) 

Loans Made to Veterans, 2007-2012

Note: The Patriot Express program began on June 28, 2007.

Figure 12 shows the default rates of Patriot Express, SBA Express, and 

7(a) loans made to veterans by approval year. Loans made to veterans 

through these programs in 2007 and 2008 had higher default rates than 

those in more recent years, which may be at least partially explained by 

the longer time periods these loans have had in which to observe 

defaults. While the default rates for veteran loans for SBA Express and 

7(a) have decreased for more recent loan cohorts, the Patriot Express 

default rates for veteran loans remained relatively high. For example, 

Patriot Express loans made to veterans in 2009 and 2010 defaulted more 

than twice as often as loans made to veterans through SBA Express and 

7(a).
 

Page 25 GAO-13-727 SBA Patriot Express

Figure 12: Default Rates of Loans Made to Veterans through Patriot Express, SBA 

Express, and 7(a) by Year of Approval, as of December 31, 2012

Note: We did not include the default rate for loans approved in 2012 because too little time has 

passed as of December 31, 2012, to fully assess the default rate for this cohort. The Patriot Express 

program began on June 28, 2007. In the figure, we present 2007 default rates for the entire year for 

the 7(a) and SBA Express programs. Limiting our analysis to July 1, 2007, for Patriot Express, SBA 

Express, and 7(a) produced similar results.

According to our analysis of SBA’s data on Patriot Express, program 

costs exceed the fees collected, funds recovered from borrowers in 

default, and other funds collected by SBA to offset the costs of the 

program. SBA’s costs for the Patriot Express program are primarily based 

on the guaranteed portion of the purchased loan. As described earlier, 

when a loan defaults, the lender asks SBA to honor the guarantee (that 

is, purchase the loan). For the Patriot Express program, as indicated 

previously, the guaranteed portion is 85 percent for loans of $150,000 or 

Patriot Express Costs 

Exceed Fees Collected and 

Recoveries
 

Page 26 GAO-13-727 SBA Patriot Express

less and 75 percent for loans over $150,000.21 The exact amount that 

SBA purchases is offset by any proceeds of sale of collateral prior to 

purchase. Following default, if SBA determines that it will honor the 

guarantee, SBA purchases these loans from the lender at either 85 

percent or 75 percent, depending on the approved value of the loan.22

These costs are partially offset by guarantee fees that SBA collects at 

origination and annual fees it collects from lenders. Additional offsets are

based on recoveries in the form of borrower payments following purchase 

or from proceeds from the liquidation of collateral that was not liquidated 

within 60 days following default of the loan.23 According to SBA officials, 

Patriot Express lenders are required to liquidate non-real-estate collateral 

prior to purchase, unless situations arise that would prevent them from 

liquidating, such as a bankruptcy or stay on liquidation.24

As shown in table 3, from fiscal years 2007 through 2012, SBA purchased 

$45.3 million in Patriot Express loans. These default costs were offset by 

$12.9 million in collected fees and $1.3 million in recoveries, resulting in 

$31.1 million in losses for this period (excluding future revenues from fees 

and potential additional recoveries). Based on these cash flows, the 

Patriot Express program has had an overall recovery rate of 2.87 percent 

since 2008—that is, of $45.3 million in Patriot Express loans that SBA 

purchased from 2008 through 2012, SBA has recovered almost $1.3 

In these 

situations, SBA will purchase a loan prior to full liquidation.

 

21As indicated earlier, the guarantee was increased to 90 percent as part of ARRA and 

subsequent legislation for 7(a) loans made from February 17, 2009, through March 4, 

2011.

22According to SBA guidance, the guarantee portion of the loan is 85 percent for loans of

$150,000 or less, and 75 percent for loans above $150,000. 

23As stated earlier in figure 2, according to SBA, for loans approved on or after May 14, 

2007, a lender may demand in writing that SBA honor its guarantee if the borrower is in 

default on any installment for more than 60 calendar days and the default has not been 

cured, provided all business personal property securing the defaulted SBA loan has been 

liquidated.

24As mentioned earlier, SBA considers liquidation of business personal property collateral 

to be complete when a lender has exhausted all prudent and commercially reasonable 

efforts to collect upon those assets. 
 

Page 27 GAO-13-727 SBA Patriot Express

million (2.87 percent) of the funds.25

Table 3: Patriot Express Program Fees, Recoveries, Purchases, and Net Cash Flows, Fiscal Years 2007-2012

The low recovery rate for Patriot 

Express makes it more likely that the program will continue operating at a 

loss. In addition, SBA provided projected cash flows for the Patriot 

Express program, which show projected losses of $36 million including 

future revenues from fees and potential recoveries.

Fiscal year Up-front fee Annual fee Recovery Purchase Net cash flow

2007

a 

$338,274 $122 N/A N/A $338,397

2008 2,621,719 218,692 $4,077 - $275,603 2,568,884

2009 1,083,855 661,610 4,058 - 3,589,587 - 1,840,063

2010 657,255 1,124,399 219,147 - 12,800,709 - 10,799,908

2011 1,273,529 1,495,612 439,620 - 15,626,195 - 12,417,434

2012 1,903,299 1,518,379 631,337 - 13,004,418 - 8,951,403

Total $7,877,931 $5,018,815 $1,298,239 - $45,296,512 -$31,101,527

Source: SBA. 

Note: Totals for each column may not add up exactly due to rounding.

a

Net cash flow is equal to the sum of all fees and recoveries minus purchases.

Figure 13 shows SBA’s loan purchases compared to the funds collected 

to offset those costs, including both fees and recoveries. Purchases 

peaked in 2011 and then declined slightly, but have remained significantly 

higher than the offsets.

 

25The estimated recovery rate was calculated from 2008 because no recoveries or 

purchases occurred in 2007. The recovery rate is calculated by dividing the total of all 

recoveries from 2008 to 2012 by the total purchases for the same time period. Recoveries 

include proceeds from the sale of any collateral attached to the loan at the time of 

purchase, including other payments from the borrower following purchase.
 

Page 28 GAO-13-727 SBA Patriot Express

Figure 13: Patriot Express Purchases and Offsets, Fiscal Years 2007-2012

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. In a program that 

currently has high defaults and relatively small recoveries, SBA faces 

challenges in taking in offsets sufficient to cover the costs of the program. 

Recoveries are particularly limited in loans of a low-dollar value (below 

$25,000) because no collateral is attached to these loans. As discussed 

earlier, 41.2 percent of all Patriot Express loans were for amounts less 

than $25,000, and 21.3 percent were for amounts less than $10,000.

Another factor that may affect the net cost of the Patriot Express program 

is the extent to which SBA has been making improper payments—that is, 

making guarantee payments that should not have been made—on Patriot
 

Page 29 GAO-13-727 SBA Patriot Express

Express loans.26 According to SBA, the improper payment review for 7(a) 

includes loans made under the Patriot Express program. In November 

2012, the SBA Office of Inspector General (OIG) calculated that the 

improper payment rate for the 7(a) program could be as high as 20

percent, a significantly higher rate than SBA reports (about 2 percent).27

According to OIG officials, some of the reasons that SBA did not identify 

improper payments were that its reviewers were unfamiliar with or 

misinterpreted agency policies or did not have sufficient time to conduct 

improper payment reviews. The SBA OIG’s higher estimated rate could 

indicate that SBA is paying more than is necessary on defaulted loans in 

the 7(a) program, including the Patriot Express program. The SBA OIG 

found that SBA did not detect all improper payments when conducting 

improper payment reviews to estimate its fiscal year 2011 improper 

payment rate for 7(a) guarantee purchases. From a sample of 303 

guarantee purchases made between April 1, 2010, and March 31, 2011, 

originally selected by SBA, the SBA OIG sampled 30 purchases for 

improper payment review and determined that SBA did not detect 6 loans 

that were purchased improperly.28 Although SBA disagreed with the 

OIG’s assessment, SBA acknowledged that the improper payment rate 

could be as high as close to 10 percent. OIG reviewed and reaffirmed its 

original methodology as an accurate assessment of SBA’s real improper 

payment rate and concluded that the rate could potentially be as high as 

20 percent.29

 

26When a loan goes into default and the lender requests guarantee payment from SBA, 

SBA reviews loan documentation to evaluate the lender’s compliance with program rules 

and regulations to justify the guarantee purchase. According to Office of Management and 

Budget (OMB) guidance, an improper payment is any payment that should not have been 

made or that was made in an incorrect amount under statutory, contractual, 

administrative, or other legally applicable requirement.

The SBA OIG made 12 recommendations to SBA, including 

that SBA create more comprehensive guidance and policies to better 

detect improper payments, provide training for SBA staff to conduct 

27SBA, Office of Inspector General, The Small Business Administration’s Improper 

Payment Rate for 7(a) Guaranty Purchases Remains Significantly Underestimated, Report 

No. 13-07 (Washington, D.C.: Nov. 15, 2012).

28According to the OIG audit, the OIG’s statistician tested the sampling methodology used 

by SBA and the OIG to ensure it would produce a statistically valid estimate of the rate of 

improper payments. 

29In response to SBA’s written response stating that OIG’s estimated improper payment 

rate was based on a flawed statistical approach, OIG noted that it would be extremely 

unlikely—1 chance in 1.72 million—that the deficiencies would only exist in the subsample 

of 30 and nowhere else. 
 

Page 30 GAO-13-727 SBA Patriot Express

reviews, and determine the appropriate amount of time needed for loan 

reviews to better identify erroneous payments. The SBA OIG indicated 

that SBA is making progress on these recommendations.

Finally, according to SBA officials, administrative costs directly associated 

with Patriot Express are minimal because they have no dedicated staff for 

Patriot Express. The only unique administrative costs they have 

dedicated to the program were those involved in creating it in 2007. 

These officials reported that SBA is able to administer the program using 

existing staff and resources dedicated to 7(a) and SBA Express programs 

and there are no separate line items for administrative costs for Patriot 

Express. SBA’s administrative expenses for fiscal year 2012 for all 

business loan programs (which includes Patriot Express) were $148 

million.

Selected loan recipients and lenders, as well as veteran service 

organizations we met with, identified various benefits and challenges to 

Patriot Express, but SBA has not evaluated the effects of the Patriot 

Express pilot. Lenders and borrowers we met with most frequently 

identified supporting veteran businesses and providing veterans with a 

streamlined application process as benefits of the program. Low 

awareness among veterans of the program and participating lenders were 

among the most frequently cited challenges by selected lenders, 

borrowers, and veteran service organizations. In addition to Patriot 

Express, veterans also access capital through alternate SBA-guaranteed 

loan products and other means. SBA provides optional training and 

counseling through a variety of resources to help veteran entrepreneurs 

navigate the options available to them. However, as with some of its 

previous pilot loan programs, SBA has not conducted an evaluation of the 

Patriot Express program to assess the extent to which it is achieving its 

objectives, including an assessment of its effect on eligible borrowers. 

Our previous work has shown that an evaluation gives an agency the

opportunity to refine the design of a program and determine whether 

program operations have resulted in the desired benefits for participants.

Stakeholders 

Reported Benefits and 

Challenges, but SBA 

Has Not Evaluated the 

Effects of the Patriot 

Express Pilot
 

Page 31 GAO-13-727 SBA Patriot Express

Participating loan recipients and lenders, as well as veteran service 

organizations we met with, identified supporting veteran businesses as a 

top benefit of the Patriot Express program. Specifically, 21 of the 24 

Patriot Express loan recipients we met with said that the loan had 

enabled them to start their business, expand operations, or keep their 

business open during challenging times. In addition, four of the six 

recipients we spoke with who received a line of credit through the 

program said that having available credit increased their attractiveness as 

a potential contractor because it signaled to other businesses that they 

could pay for the costs to complete projects. Ten loan recipients believed 

that if they had not received the loan, they would currently not be in 

business because the loan provided capital at a critical point in time. The 

remaining 14 loan recipients believed that they would still be in business if 

they had not received the loan but would have faced difficult decisions to 

cover the costs, including firing staff and foregoing key projects. All loan 

recipients we met with said that they would apply for the program again 

based on their experience, and 6 recipients had pursued and received 

another Patriot Express loan. Likewise, the three veteran service 

organizations that we met with stated that the program benefited veterans 

who obtained Patriot Express loans.

The Patriot Express program provides veterans with a streamlined 

application process, and loan recipients and lenders we met with noted 

that this was a benefit of the program. Six of the eight lenders and one 

veteran service organization we met with said that the program provided 

veterans with a less onerous application process and reduced SBA 

paperwork requirements, particularly when compared to SBA’s 7(a) loan 

program. For example, SBA requires borrowers to submit additional 

documents to apply for a 7(a) loan, such as monthly cash-flow 

projections, income statements, and balance sheets for the last 3 years. 

Further, since 7(a) borrowers must pledge all available collateral up to the 

loan amount, SBA requires borrowers to complete a schedule of collateral 

of all real estate and personal property used to secure the loan and 

provide supporting documents for such collateral, including real estate 

appraisals and environmental investigation reports.30

 

30Patriot Express loans of less than $25,000 do not require collateral and lenders may use 

their own collateral policies for their nonguaranteed loans for Patriot Express loans over 

$25,000 but below $350,000. For loans greater than $350,000, the lender must take all 

available collateral up to the loan amount. As mentioned previously, 41.2 percent of 

Patriot Express loans made since the program’s inception were less than $25,000 and 

are, therefore, uncollateralized.

Almost all loan 

Helping Veterans Expand 

Their Business and 

Providing a Streamlined 

Loan Process Were among 

the Cited Benefits of the 

Program
 

Page 32 GAO-13-727 SBA Patriot Express

recipients we met with reported that they had a positive experience with 

the Patriot Express loan application process, including satisfaction with 

the amount of documentation required. In addition, nearly all loan 

recipients said that they received the loan proceeds in a timely manner, 

ranging from a few days to 3 months from the time they applied for the 

loan.

Selected loan recipients, lenders, and veteran service organizations also 

identified other benefits to the program, such as providing veterans with 

favorable loan terms. For example, nearly all lenders, one veteran service 

organization, and officials from the National Association of Government 

Guaranteed Lenders (NAGGL) said that the program provided veterans 

with more favorable loan terms than an SBA Express loan, such as lower 

interest rates or higher maximum loan amounts.31

Finally, borrowers, lenders, and veteran service organizations we met 

with said that having a dedicated program solely for those in the military 

community was a benefit. For example, 10 Patriot Express loan recipients 

said that they appreciated that the program targeted veterans specifically 

and noted that it played a large role in their decision to obtain the loan. In 

addition, one lender said that having a loan program that also targets the 

business needs of spouses of service members or reservists is valuable, 

particularly if the business is jointly owned by the couple, because it 

provides access to capital to expand the business if one spouse is 

deployed. Further, two veteran service organizations we met with 

stressed that having a program for veterans also helped to initiate 

conversations between the veteran entrepreneur and the lender about 

other small business resources and financing options available.

In addition, seven loan 

recipients we met with said that the Patriot Express loan terms provided a 

more cost-effective credit alternative to fund their small business 

expenses compared to other financing options. For instance, four 

recipients stated that receiving a Patriot Express loan saved them from 

using credit cards and other expensive lines of credit to obtain the 

necessary capital for their business.

 

31NAGGL is a trade organization that represents SBA 7(a) lenders.
 

Page 33 GAO-13-727 SBA Patriot Express

Selected loan recipients, lenders, and veteran service organizations said 

that a low awareness of the Patriot Express program among the military 

community was among the most frequently cited challenges. Specifically, 

over half of the Patriot Express loan recipients, six of the eight lenders, 

and two veteran service organizations we met with said that SBA could 

do more to increase outreach to veteran entrepreneurs and better market 

the program to the military community. In addition, five loan recipients did 

not know about the program until they approached a lender for financing 

and were notified about it. Further, awareness of the program among 

selected veteran entrepreneurs who have not participated in the program 

was also low. For example, 11 of the 16 veterans that received 7(a) loans 

and all 15 SBA Express veteran loan recipients that we were able to 

contact were unaware that Patriot Express existed.32

SBA officials said the agency tries to increase awareness of the program 

through district offices, resource partners, and lenders. For example, SBA 

officials noted that there is a veteran loan specialist at each SBA district 

office who could recommend specific small business resources, including 

the Patriot Express program, to veteran entrepreneurs. Additionally, SBA 

officials said that their resource partners, such as Small Business 

Development Centers (SBDC) and SCORE (formerly the Service Corps 

of Retired Executives) chapters, could advertise the program through 

hosted events that discuss potential options for financing small business 

needs. Five loan recipients we met with said that they learned about the 

program through an SBA resource partner, including SBDCs and SCORE 

counselors, and two noted that these resources further helped them to 

find a participating lender. For example, one loan recipient said that the 

SBDC staff member who told him about the program also recommended 

a lender, assisted him with his loan application, and followed up with him 

after the loan was approved.

 

32In addition to the 24 Patriot Express loan recipients, we attempted to contact veterans

who were aware of the program and have received SBA 7(a) and SBA Express loans. As 

part of our attempt to contact these veterans, we found that some were not aware of the 

Patriot Express program, and we did not interview them as part of our review.

Low Awareness of the 

Program and Its 

Participating Lenders Were 

Reported as Challenges, 

among Others

Lack of Awareness of the 

Program 
 

Page 34 GAO-13-727 SBA Patriot Express

SBA officials also said that they have reached out to NAGGL to increase 

marketing of the program at the lender level. According to NAGGL 

officials, NAGGL hosted roundtables at its 2013 Lender Leadership 

Summit and Lending Technical Conference to discuss ways that lenders 

can better serve veteran entrepreneurs, including the Patriot Express 

program. Although NAGGL does not participate in marketing SBA 

programs to borrowers, NAGGL officials said that individual lenders 

typically advertise certain SBA loans based on their involvement with 

those programs. For example, some lenders we met with noted that they 

try to increase awareness by marketing themselves as Patriot Express 

lenders, particularly if they have branches in locations with large 

concentrations of veterans. These lenders also partnered with veteran 

groups at their branch locations and presented their loan products, 

including Patriot Express loans, to interested members at events hosted 

by veteran groups. One lender, however, noted that it was difficult to 

market SBA loan products at their branches because identifying 

borrowers who can qualify for SBA loans can be challenging. According 

to this lender, pursuant to SBA’s “credit elsewhere” requirement, the 

lender needs to first evaluate a borrower’s ability to obtain credit against 

their own lending policies for conventional loans in order to determine if 

an SBA loan product is appropriate for the borrower.33 This approach is 

consistent with what we have previously reported regarding how lenders 

make credit elsewhere decisions.34

Patriot Express and 7(a) loan recipients we met with stated that low 

awareness of which lenders make Patriot Express loans is also a 

challenge to the program. For example, 7 of the 24 Patriot Express 

recipients and 3 of the 4 7(a) veteran loan recipients we met with reported 

that SBA could provide better information about which lenders currently 

participate in the program. A majority of these 10 recipients found that the 

search for a participating lender was difficult and required many phone 

calls and visits to lenders. Three recipients also noted that the SBA 

resources they used incorrectly identified banks as participating lenders. 

For example, one veteran said that he spent significant time away from 

his business to contact six banks—which the district SBA office said were 

 

33For purposes of this report, a conventional loan is a loan without a federal guarantee.

34GAO, Small Business Administration: Additional Guidance on Documenting Credit 

Elsewhere Decisions Could Improve 7(a) Program Oversight, GAO-09-228 (Washington 

D.C.: Feb. 12, 2009).

Low Awareness among 

Borrowers of Participating 

Lenders
 

Page 35 GAO-13-727 SBA Patriot Express

participating lenders—and found that none of them participated in Patriot 

Express. Additionally, two 7(a) veteran loan recipients said they initially 

sought financing through the Patriot Express program but they said that 

they settled for a 7(a) loan when they could not find a participating lender. 

Further, two Patriot Express loan recipients told us that they paid fees to 

a third-party entity that could identify lenders that made Patriot Express 

loans. All 10 of these recipients stated that having a consolidated and upto-date list of participating lenders would have been helpful to their search 

for a loan.

SBA officials said that they did not have a list of participating lenders on 

their website because the agency did not want to appear to be steering 

borrowers toward financing their businesses through loans, especially 

loans from particular lenders. Rather, SBA officials stated that prospective 

veteran borrowers interested in the program should first contact an SBA 

district office or SBDC to determine if financing through a loan would be 

suitable for their business. Further, SBA officials said that if financing 

through a loan was the best solution for the veteran, SBDCs would then 

give the veteran a list of local lenders that participate in the program. As 

mentioned previously, two of the loan recipients we met with found a 

lender through these SBA resources, such as SBDCs and SCORE 

counselors.

Other challenges reported by selected borrowers, lenders, and veteran 

service organizations included high fees associated with the loan, 

stringent collateral requirements, and limited maximum loan amount.

• High Fees: Six Patriot Express loan recipients and five lenders we 

met with said that the SBA guarantee fees were unaffordable for 

some veterans and suggested that they should be reduced or waived. 

These six Patriot Express loan recipients also noted that the lender 

packaging fees were unaffordable and suggested that they should be 

reduced or waived as well. According to SBA officials, the guarantee 

fee plays an important role in the continuation of the loan guarantee 

program because fees are collected to offset potential losses from 

defaulted and purchased loans. SBA officials also noted that the 

guarantee fee is ultimately the responsibility of the lender, though 

Other Challenges 
 

Page 36 GAO-13-727 SBA Patriot Express

often it is passed on to the borrower.35 In addition, SBA guidance 

establishes limits to the amount of packaging and other fees a lender 

can charge based on a percentage of the loan amount.36

• Stringent Collateral Requirements: Three Patriot Express loan 

recipients noted that they struggled to meet the collateral 

requirements for their loans.

SBA officials 

said that issues regarding potentially excessive fees charged at 

origination could be identified either through complaints from the SBA 

OIG’s hotline or during SBA’s 7(a) lender on-site examinations, which 

are discussed in the next section of this report. According to SBA 

officials, there has only been one complaint about fees, which was 

reported to the SBA OIG hotline. SBA officials said they resolved the 

issue by confirming that the fees were inconsistent with SBA guidance 

and working with the lender to compensate the borrower.

37 Additionally, three lenders felt that the 

SBA collateral requirement for Patriot Express loans above 

$350,000—for which the borrower must make all collateral available 

to the lender up to the loan amount— was excessive and a 

disincentive for prospective veteran borrowers to participate in the 

program. According to SBA officials, the agency is considering some 

modifications to the collateral requirements for regular 7(a) that would 

still maintain a strong underwriting process. To the extent those 

changes are adopted, they would apply as well to Patriot Express 

loans in excess of $350,000.

• Limited Maximum Loan Amount: Two Patriot Express loan recipients, 

two veteran service organizations, and one lender we met with said 

 

35The President’s 2014 budget waives guarantee fees on loans of less than $150,000 in 

SBA’s 7(a) loan program, including the Patriot Express program. However, existing fees 

on loans $150,000 and greater will remain, and SBA’s budget would need to be adjusted 

accordingly in order to offset the fees that would have been collected from loans less than 

$150,000.

36SBA SOP-51-10 5(E) states that packaging and other fees must be consistent with 

those charged on the lender’s similarly sized, non-SBA-guaranteed loans. For more 

information on maximum allowable fees, see appendix II.

37SBA’s collateral policies for Patriot Express loans vary depending on the loan amount. 

For example, no collateral is required for Patriot Express loans of less than $25,000. On 

the other hand, lenders that make Patriot Express loans above $350,000 are required to 

collateralize the loan to the maximum extent possible up to the loan amount. If business 

assets do not fully secure the loan, the lender must take available personal assets of the 

principals as collateral. See appendix II for more information on the program’s collateral 

policies.
 

Page 37 GAO-13-727 SBA Patriot Express

that the current maximum loan amount for the program was 

challenging because certain projects and contracts require more than 

$500,000.38 For example, one veteran service organization we met 

with noted that veterans who are federal contractors often need a loan 

for more than $500,000 to win a contract. SBA officials noted that the 

agency has not considered changing the maximum loan amount for 

Patriot Express loans.

Veterans access capital through other SBA-guaranteed loan products, 

including 7(a), SBA Express, and Small Loan Advantage (SLA) loans.39

 

38As previously discussed, the maximum loan amount for the Patriot Express program is 

$500,000.

These loan products have some terms that are similar to those of Patriot 

Express and some that are different, as shown in figure 14.

39Announced in 2010, the SLA initiative was aimed at increasing lower-dollar SBA loans in 

underserved communities by offering lenders a prescreen credit score from SBA that the 

applicant’s business has sufficient creditworthiness to warrant giving the applicant full 

consideration for financing. 

Veterans Also Access 

Capital through Alternate 

SBA Programs and Other

Means
 

Page 38 GAO-13-727 SBA Patriot Express

Figure 14: Examples of Loan Terms for a Patriot Express, Express, 7(a), and Small Loan Advantage Loan to a Veteran 

Borrower

Note: 7(a) loans refer to (1) regular (nondelegated) 7(a) loans and (2) delegated 7(a) loans made by 

lenders in the Preferred Lenders Program (PLP).

As shown above, there are several similarities and differences between 

the programs, and three lenders we met with reported that deciding which 
 

Page 39 GAO-13-727 SBA Patriot Express

SBA loan products to offer veteran borrowers was challenging. For 

example, Patriot Express loans offer veteran recipients lower maximum 

interest rates, but higher guarantee percentages and fees compared to 

SBA Express. Additionally, while regular 7(a) loans can provide veterans 

with similar loan terms and fees, these loans typically have longer 

processing times than Patriot Express loans due to the increased SBA 

paperwork requirements previously discussed. While Patriot Express and 

SLA have some similar loan terms, SBA officials identified other 

differences in the programs.40

While 7(a) and SBA Express are alternatives to Patriot Express, loan 

recipients noted that other ways veterans could access capital were less 

advantageous and all loan recipients we met with were not aware of any 

veteran-specific loan guarantee programs aside from Patriot Express. For 

example, nine recipients said that veterans could finance their small 

business needs through conventional loans or credit cards, but they 

stated these options may be more expensive than a Patriot Express loan 

because they typically have higher interest rates. Two recipients 

considered bringing on an investor, which would inject capital into their 

business, but would require the recipient to give up ownership of a part of 

the business to the new investor. Finally, five recipients thought about 

financing their business through their personal savings accounts, but said 

that this option could have depleted their savings and a few noted that it 

might not have been enough to cover the amount of capital needed.

Three of the eight lenders we met with said 

that deciding what product to offer a veteran entrepreneur was difficult 

because the loan terms and underwriting process for a Patriot Express 

loan were similar to those of other SBA loans they offered. Additionally, 

seven of the eight lenders believed that if the Patriot Express program 

were not available, veterans could still access capital through these other 

SBA loan programs.

 

40SBA officials identified differences in the programs such as differences in the credit 

analysis used by the programs and the type of loan products allowed. For example, SBA 

officials said that lenders could use their own credit analyses for Patriot Express loans, but 

had to follow specific credit analysis requirements for SLA loans. Additionally, SBA 

officials noted that the Patriot Express program allowed revolving lines of credit, but the 

SLA program did not.
 

Page 40 GAO-13-727 SBA Patriot Express

SBA provides training and counseling to veteran entrepreneurs through a 

variety of resources, although Patriot Express loan recipients are not 

required to use them. According to SBA officials, the agency delivers 

training and counseling to veterans through the following ways:

• Cooperative agreements: SBA has cooperative agreements with 16 

organizations that serve as Veteran Business Outreach Centers 

(VBOC), which offer services such as business plan preparations and 

veteran entrepreneur counseling for service-disabled veterans. 

Additionally, SBA has cooperative agreements with other resource 

partners through which veteran entrepreneurs can receive training 

and counseling, including SBDCs, SCORE chapters, and Women’s 

Business Centers (WBC). According to SBA data on veteran 

participation in training and counseling offered by the aforementioned 

resource partners (VBOCs, SBDCs, SCORE chapters, and WBCs) 

from fiscal year 2008 through fiscal year 2012, overall veteran 

participation remained steady from 2008 through 2010. However, it 

increased over 40 percent from approximately 115,000 veterans in 

2010 to about 163,000 veterans in 2012. Further, veteran participation 

in training and counseling offered through VBOCs also increased in 

2011, from about 45,000 veterans in 2010 to about 90,000 veterans in 

2012. As of June 2013, about 36,000 veterans had received training 

and counseling through SCORE, SBDCs, and WBCs.41

• SBA-sponsored activities: According to SBA officials, some SBAsponsored activities may be provided in coordination with the 

previously mentioned resource partners, and veterans can also 

receive training and counseling through these efforts. For example, 

Operation Boots to Business leverages SBA’s resource partner 

network—VBOCs, SBDCs, SCORE chapters, and WBCs—and SBA’s 

partnership with, among other entities, Syracuse University’s Institute 

for Veterans and Military Families to provide an entrepreneurship 

training program for transitioning service members.42

 

41Veteran participation figures in VBOCs have not yet been collected through fiscal year 

2013. As of the third quarter of 2013, 28,119 veterans had been counseled and 13,619 

veterans had been trained at VBOCs.

Operation Boots 

to Business consists of several phases, including a 2-day training 

42The full title of the program is “Operation Boots to Business: From Service to Startup” 

and it was launched in 2012. Operation Boots to Business is currently in its pilot phase 

and is currently being tested in four Marine Corps bases before a complete national rollout 

to all branches of the military later in 2013.

SBA Offers Several 

Veteran-Specific Training 

and Counseling Efforts
 

Page 41 GAO-13-727 SBA Patriot Express

session on creating a feasibility analysis for a business plan and an 8-

week online course on the fundamentals of small business ownership, 

including marketing, accounting, and finance. As of March 2013, a 

total of 1,390 veterans (1,309 for the 2-day session and 81 for the 

online course) had participated in this effort.

• SBA participation in third-party activities: Veteran entrepreneurs can 

access training and counseling services provided through SBA’s 

participation in third-party activities, including events hosted by other 

federal agencies and nonprofit entities. For example, SBA awarded a 

3-year grant to Syracuse University to create the Entrepreneurship 

Bootcamp for Veterans with Disabilities (EBV), which provided small 

business management training to post-9/11 veterans with 

disabilities.43 According to SBA, 463 veterans participated in EBV 

during this 3-year grant period. In 2010, SBA provided Syracuse 

University with funding for two additional programs that support 

veteran entrepreneurship: Veteran Women Igniting the Spirit of 

Entrepreneurship (V-WISE), which focuses on the training and 

mentorship of women veterans and spouses, and Operation Endure 

and Grow (OEG), which features an 8-week online course geared 

toward National Guard and Reserve members, their families, and their 

business partners.44

Veterans who have participated in certain training and counseling efforts 

have generally found them to be helpful. For example, SBA’s Office of 

Veterans Business Development (OVBD) conducts an annual VBOC 

client satisfaction survey, which shows that client satisfaction with VBOC 

services had increased from 85 percent in 2008 to 93 percent in 2012.

As of April 2013, 857 women veterans, female 

spouses and partners of active service members, and transitioning 

female members of the military community had participated in VWISE, and 168 reservists had received training through OEG.

45

 

43The 3-year grant period began on November 11, 2009, and was terminated on 

November 10, 2012.

According to these SBA officials, the survey results are used to, among 

other things, identify areas for improvement and new training topics. 

OVBD officials said they are responsible for collecting feedback surveys 

44The funding period for the V-WISE and OEG grant ends on September 30, 2013.

45The Office of Veterans Business Development’s mission is to maximize the availability, 

applicability, and usability of all SBA small business programs for veterans, servicedisabled veterans, reserve component members, and their dependents or survivors.
 

Page 42 GAO-13-727 SBA Patriot Express

for the VBOC program only. Veterans whom we met with who participated 

in these efforts also found them to be helpful. Specifically, 14 of the 28 

loan recipients we met with—Patriot Express loan recipients as well as 

7(a) veteran loan recipients—participated in an SBA-sponsored training 

or counseling session, and the most commonly used resources among 

these recipients were SBDCs and SCORE counselors. Eight of the 

recipients said these sessions were helpful in starting and growing their 

business, such as assisting in the development of business plans and 

marketing strategies, and they noted that these sessions were free. Two 

loan recipients suggested that SBA develop more advanced workshops 

for seasoned entrepreneurs, but acknowledged that these training and 

counseling resources would be helpful for first-time business owners.

SBA has not evaluated the Patriot Express program’s performance or its 

effect on eligible borrowers. GAO’s guide for designing evaluations states 

that an evaluation gives an agency the opportunity to refine the design of 

a program and provides a useful tool to determine whether program 

operations have resulted in the desired benefits for participants.46 In 

addition, evaluations can inform future program decisions. Program 

evaluations are individual, systematic studies that use research methods 

to assess how well a program, operation, or project is achieving its 

objectives and the reasons why it may or may not be performing as 

expected.47 Program evaluations are distinct from routine monitoring or 

performance measurement activities in that performance measurement 

entails the ongoing monitoring of a program’s progress, whereas program 

evaluation typically assesses the achievement of a program’s objectives 

and other aspects of performance in the context in which the program 

operates.48

 

46GAO, Designing Evaluations: 2012 Revision, 

At a minimum, a well-developed and documented program 

evaluation plan includes measurable objectives, standards for 

performance, methods for data collection, and time frames for completion. 

GAO-12-208G (Washington D.C.: Jan. 31, 

2012).

47GAO, Managing for Results: 2013 Federal Managers Survey on Organizational 

Performance and Management Issues, GAO-13-519SP (an E-supplement to 

GAO-13-518) (Washington D.C.: June 26, 2013).

48GAO, Program Evaluation: Strategies to Facilitate Agencies’ Use of Evaluation in 

Program Management and Policy Making, GAO-13-570 (Washington D.C.: June 26, 

2013).

As with Some of Its 

Previous Pilot Programs, 

SBA Has Not Evaluated 

Patriot Express
 

Page 43 GAO-13-727 SBA Patriot Express

Incorporating these elements and executing the plan can help ensure that 

the implementation of a pilot generates performance information needed 

to make effective management decisions about the future of the program. 

In addition, recent legislation has highlighted the importance of program 

evaluation for federal agencies. Specifically, Congress updated the 

Government Performance and Results Act of 1993 (GPRA) with the 

GPRA Modernization Act of 2010 (GPRAMA), which requires agencies to 

describe program evaluations that were used to establish or revise 

strategic goals.49

When Patriot Express was created in 2007 under SBA’s authority to 

initiate pilots, SBA indicated that it would evaluate the program’s 

performance and make a decision whether to modify or continue the 

program after December 31, 2010. In December 2010, SBA announced 

through a Federal Register notice that it would extend the pilot through 

2013 in order to have more time to evaluate the effect of the program and 

determine whether any changes need to be made.50

As mentioned previously, SBA announced a new initiative to increase 

loans to veteran entrepreneurs by $475 million over the next 5 years 

across all SBA loan programs. Because SBA had not conducted an 

evaluation of the pilot, the agency had little information available to inform 

such decisions, such as a comparison of benefits that veterans receive 

from Patriot Express in relation to those received by veterans participating 

According to SBA 

officials, they have not established any measurable goals for the pilot, but 

have begun to hold meetings on what information they will need to assess 

the performance of Patriot Express loans. However, although SBA 

officials said that they have begun to hold meetings, the program 

extension ends in only a few months on December 31, 2013. As of 

August 2013, SBA had not established a plan for the evaluation of the 

program, and such a plan should include clear and measurable 

objectives, standards for performance, methods for data collection, and 

time frames for completion. In addition, SBA has taken several actions in 

an attempt to increase lending to veterans across its programs, but these 

initiatives have not been substantiated by findings from an evaluation of 

the Patriot Express program or the current state of SBA lending to 

veterans.

 

49Pub. L. No. 111-352, 124 Stat. 3866 (2011). 

5075 Fed. Reg. 77935 (Dec. 14, 2010).
 

Page 44 GAO-13-727 SBA Patriot Express

in other SBA loan programs. SBA has conducted performance 

measurement and monitoring activities—such as internally reporting the 

number of Patriot Express loans made each quarter and deciding not to 

renew a top lender’s delegated authority to make Patriot Express loans 

based on ongoing monitoring, as previously mentioned—but these 

activities are not the same as program evaluation.51

In addition to Patriot Express, SBA has authorized other pilot loan 

programs that it has subsequently not evaluated when making decisions 

about the future of the program. For example, in 2010, SBA’s OIG 

conducted an assessment of the Community Express program, which 

was established in 1999, to determine, among other things, whether the 

program was properly structured to ensure success and minimize the risk 

of fraud.

Because there are 

many more 7(a) loans, which therefore pose a greater risk to SBA than 

the smaller volume of Patriot Express loans, SBA officials told us that 

they have focused more resources on evaluating the performance of 7(a) 

loans.

52 This assessment was completed in response to a concern 

presented by SBA to the SBA OIG regarding poor performance of the 

Community Express program. In this assessment, the SBA OIG found 

that SBA did not establish measurable performance goals and outcomes 

for evaluating the Community Express program until 9 years after the 

pilot’s inception. Further, though the OIG determined that these 

performance measures were adequate, SBA had extended the pilot 

without using the measures to assess the program’s effectiveness.53

Similarly, in 2006 the OIG found that SBA had not reviewed the SBA 

Express program—which was initiated in 1995 as a pilot—to determine, 

among other things, if final rules and regulations would be developed.54

 

51On July 23, 2013, SBA provided us documentation on some calculations of performance 

(as of Jan. 31, 2009) of Patriot Express loans originated from July 2007 through January 

2009. 

52SBA, Office of Inspector General, Assessment of the Community Express Pilot Loan 

Program, Report No. 10-12 (Washington, D.C.: Aug. 25, 2010). The Community Express 

program authorized approved lenders to adopt streamlined and expedited loan 

procedures to provide financial and technical assistance to borrowers in the nation’s 

underserved communities. 

53SBA terminated the Community Express program on April 30, 2011.

54SBA, Office of Inspector General, Management Advisory Report: Policies and 

Procedures for the SBA Express and Community Express Loan Programs, Report No. 6-

34 (Washington, D.C.: Sept. 29, 2006).
 

Page 45 GAO-13-727 SBA Patriot Express

Rather than evaluate the program to develop regulations, SBA continued 

to extend the program as a pilot for 9 years until Congress made it 

permanent in 2004. Because of this lack of review and establishment of 

regulations, the OIG recommended in 2006 that the agency issue 

regulations to, among other things, ensure that that SBA has legally 

enforceable rules to manage the program. SBA agreed that regulations 

were needed for the program, but did not establish such regulations, 

according to OIG officials. 

The Administrator of SBA has the authority to suspend, modify, or waive 

rules for a limited period of time to test new programs or ideas through 

pilot programs, but this authorization does not include a specific 

requirement for SBA to conduct a pilot evaluation.55 Congress has 

established an annual limit for the number of loans made through pilots 

within the 7(a) program. Specifically, no more than 10 percent of all 7(a) 

loans guaranteed in a fiscal year can be made through a pilot program.56

Without designing and conducting evaluations of the pilot programs it 

conducts under its own authority, SBA has little information to assess the 

performance of the programs and their effects on eligible borrowers, 

which could be used in decisions on the future of these pilots, including 

the Patriot Express program. For example, information on the financial 

performance of veteran-owned businesses participating in various SBA 

loan programs could help inform policy decisions. Further, the information 

drawn from an evaluation of Patriot Express could also be used to inform 

training and counseling resources for veterans. In turn, input from veteran 

borrowers participating in SBA loan programs and from counselors at 

SBA resource partners assisting veteran borrowers could provide a basis 

for improvements in existing SBA loan programs.

According to SBA officials, a pilot program’s duration and the number of 

times the agency can extend it depend on the length of time needed to 

complete testing of the pilot. However, as shown by SBA’s experience 

with the Patriot Express, Community Express, and SBA Express pilots, 

SBA does not always test pilots or evaluate their effects when initiating 

pilot programs under its own authority.

 

5513 C.F.R. § 120.3.

5615 U.S.C. § 636(a)(25).
 

Page 46 GAO-13-727 SBA Patriot Express

SBA has two primary internal control activities to ensure lender 

compliance with borrower eligibility requirements—on-site examinations 

and purchase reviews. However, these reviews may not provide the 

agency with reasonable assurance that Patriot Express loans are only 

made to eligible borrowers. SBA only reviews a small number of Patriot 

Express loans for eligibility as part of on-site examinations, and although 

it examines eligibility as part of purchase reviews, these reviews occur 

only for loans that have defaulted, in some cases long after an ineligible 

borrower may have received proceeds from a Patriot Express loan. In 

addition, although SBA officials told us that they expect borrowers to 

maintain their eligibility throughout the term of the loan, SBA has not 

developed procedures to provide reasonable assurance that Patriot 

Express loans continue to serve eligible borrowers after a loan is 

disbursed. Internal control standards for federal agencies and GAO’s 

fraud-prevention framework state that oversight programs should be 

designed to ensure that ongoing monitoring occurs in the course of 

normal operations.57 Furthermore, the intent of the Patriot Express 

program is to support eligible members of the military community. Without 

greater review of Patriot Express transactions during on-site examinations 

of lenders and requirements for lenders to ensure that borrowers remain 

eligible after disbursement, 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 program.

GAO’s fraud-prevention framework identifies three elements needed to 

minimize fraud: (1) up-front preventive controls, (2) detection and 

monitoring, and (3) investigations and prosecutions.58

 

57See GAO, Standards for Internal Control in the Federal Government, 

For Patriot 

Express, SBA addresses the first element of the framework through the 

steps lenders are required to take under their delegated authority to 

ensure borrower eligibility at loan origination. It addresses the third 

element by the steps it must take to refer potential cases of fraud to its 

OIG for investigation and possible prosecution. However, we found that 

SBA’s detection and monitoring—the second element of the framework—

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999) and Service-Disabled VeteranOwned Small Business Program: Fraud Prevention Controls Needed to Improve Program 

Integrity, GAO-10-740T (Washington, D.C.: May 24, 2010).

58GAO-10-740T. 

SBA’s Internal 

Controls May Not 

Provide Assurance of 

Borrower Eligibility

SBA Has Reviewed Few 

Patriot Express Loans 

during On-Site 

Examinations of the 

Largest Participating 

Lenders 
 

Page 47 GAO-13-727 SBA Patriot Express

could be strengthened. One of SBA’s primary monitoring activities to 

provide reasonable assurance that Patriot Express loans are made only 

to eligible borrowers is the reviews it performs as part of its on-site 

examinations of lenders. However, since the program’s inception in 2007, 

SBA has reviewed only a small number of Patriot Express loans for the 

10 largest Patriot Express lenders.59

SBA does not conduct specific Patriot Express program examinations. 

Instead, it reviews a lender’s compliance with Patriot Express program 

eligibility requirements as part of its examination of the lender’s 7(a) 

program or as part of a safety and soundness examination of an SBLC.60

These examinations are known as risk-based reviews or safety and 

soundness examinations for SBLCs.61 During these reviews, SBA draws 

a sample of loans from a lender’s files to assess, among other things, 

whether the loans met specific program eligibility requirements at the time 

of approval.62

 

59These are the top 10 lenders based on the number of Patriot Express loans made since 

the program’s inception.

For example, if an SBA examiner selects a Patriot Express 

loan, the examiner is expected to review the lender’s documents to 

determine whether that loan was provided to a veteran or other eligible 

member of the military community. The lenders must document in their 

files how they determined the borrower’s eligibility for the Patriot Express 

program, including what Department of Defense and Department of 

Veteran Affairs documents they used to verify veteran status. Additionally, 

the examiner is expected to review lender documentation to determine 

whether the veteran or other eligible borrower owned 51 percent or more 

of the small business at the time of loan approval. As part of the riskbased review, SBA’s examiners are required to compile a list of all 

eligibility deficiencies by issue type and errors, and identify any trends of 

deficiencies that warrant lender attention.

60In this context, 7(a) refers to (1) regular (nondelegated) 7(a) loans, (2) delegated 7(a) 

loans made by PLP lenders, and (3) all subprograms including Patriot Express and SBA 

Express. 

61The risk-based review and examination process allocates on-site review resources to 

SBA lenders with higher-risk characteristics in terms of credit risk, portfolio performance, 

SBA exposure, and compliance.

62Based on our review of examinations of the 10 largest Patriot Express lenders, SBA 

selected the sample of loans based on (1) a random sample of the lender’s SBA loans 

and (2) a judgmental sample to ensure that loans from different SBA programs (e.g., 7(a), 

SBA Express, Patriot Express) were selected.
 

Page 48 GAO-13-727 SBA Patriot Express

We reviewed the most recent 7(a) risk-based examination and an SBLC 

safety and soundness examination for the 10 largest Patriot Express 

lenders and found that with the exception of 3 lenders, SBA examined 

few Patriot Express loans. As table 4 shows, for the first 3 lenders, SBA 

sampled at least six Patriot Express loans during the examination. 

However, for the remaining lenders, SBA sampled one or two loans at 

two of the lenders and did not sample any Patriot Express loans at the 

other 5 lenders. For the 5 lenders in table 4 for which SBA sampled at 

least one Patriot Express loan, 4 lenders were found by SBA to be in 

compliance with eligibility requirements. For the remaining lender, SBA 

did not report on its assessment of eligibility requirements in the 

examination.

Table 4: Patriot Express Loans Sampled in Most Recent SBA Examination and 

Number of Patriot Express Loans Made by Top 10 Lenders from 2007 to the Year 

Prior to Examination

Lender

Year of most 

recent 

examinations

Patriot 

Express loans 

sampled

Number of Patriot 

Express loans made 

from 2007 to year prior 

to examination

Lender 1 2010 35 1,285

Lender 2 2012 8 172

Lender 3 2010 6 223

Lender 4 2012 2 410

Lender 5 2012 1 99

Lender 6 2012 0 220

Lender 7 2011 0 170

Lender 8 2012 0 148

Lender 9 2011 0 140

Lender 10 2012 0 68

Source: GAO analysis of SBA data.

SBA officials said SBA examined few or no Patriot Express loans for 7 of 

these 10 lenders because Patriot Express comprised a small percentage 

of these lenders’ overall lending. At six of the 7 lenders, the Patriot 

Express loan volume as of the program’s inception to the year prior to the 

examination ranged from 1 percent to 8 percent of their overall SBA 
 

Page 49 GAO-13-727 SBA Patriot Express

lending activities.63 However, while these percentages are relatively 

small, in a program that has a specific target population—veterans and 

other eligible members of the military community—assessing lenders’ 

compliance with eligibility requirements is particularly important to help 

ensure that the guaranteed loans are assisting only eligible veteran 

entrepreneurs as intended. The monitoring of borrower eligibility that 

occurs through on-site examinations is a key internal control and fraudprevention element for Patriot Express because the loan program serves 

a specific population with loan provisions intended only for this population 

of borrowers.64

Another primary internal control that SBA uses to monitor borrower 

eligibility is the purchase reviews that it conducts for loans that have 

defaulted and for which the lender is seeking the guarantee payment.65

As part of the purchase review, an SBA official must review 

documentation relied upon by the lender to determine whether the 

borrower was eligible for the program. However, purchase reviews are 

only conducted for loans that have defaulted and would not identify 

ineligible borrowers who continue to make their loan payments. 

Additionally, ineligible borrowers may have the loan for years before 

ultimately defaulting. Because SBA conducts so few on-site examinations 

of Patriot Express loans, opportunities to identify these ineligible 

borrowers prior to a default are limited. For a program with a specific 

target population, an increased emphasis on reviewing borrower eligibility 

is important. Without sampling more Patriot Express loans during 

examinations, SBA may have difficulty identifying deficiencies related to 

eligibility. This, in turn, could increase the risk to SBA of Patriot Express 

loans being provided to borrowers who do not qualify for the program.

 

63For the other lender, Patriot Express loan volume as of the date of the examination was 

45 percent of their overall SBA lending activities.

64Regular (nondelegated) 7(a) loans, delegated 7(a) loans made by PLP lenders, and 

SBA Express loans do not have any comparable specific targeted borrowers, other than 

the common goal of serving small businesses. 

65More broadly, the purchase review is SBA’s primary control for ensuring lender 

compliance and preventing improper payments. 
 

Page 50 GAO-13-727 SBA Patriot Express

Although SBA requires lenders to assess borrowers’ eligibility for Patriot 

Express at the time of loan approval, it does not require them to reassess 

eligibility, including the 51 percent ownership requirement, after the loan 

has been disbursed. SBA does not have a stated requirement for 

borrowers to maintain their eligibility after the loan has been disbursed, 

but SBA officials told us that they do expect borrowers to maintain 51 

percent ownership after a loan has been disbursed to remain eligible for 

the program. SBA requires that borrowers certify that they will not change 

the ownership structure or sell the business without the consent of the 

lender.66

These examples illustrate the importance of effective monitoring and 

detection activities, which are key internal controls and an element of the 

fraud-prevention framework. Detection and monitoring controls include 

activities such as periodically evaluating lender procedures to provide 

Additionally, SBA officials told us that in the event of a borrower 

default, a lender could lose the SBA guarantee if the borrower had sold

his or her business to an individual who does not qualify for a Patriot 

Express loan. However, in the examples below, lenders may not be 

aware of changes in ownership structure or sale of the business if the 

borrower has not informed lenders of such actions and the lender is not 

periodically reassessing Patriot Express eligibility after the loan has been 

disbursed. Borrowers may initially be approved as meeting Patriot 

Express eligibility requirements at the time of loan approval, but 

subsequent events may affect their eligibility and result in the loan being 

used by an ineligible borrower. For example, according to SBA OIG 

officials, a business may recruit a veteran to pose as the majority 

business owner in order to be eligible for a Patriot Express loan and add 

the veteran to legal ownership documents that would be provided to the 

lender when applying for the loan. Once the loan is disbursed, however, 

the business could reduce the ownership interest or remove the veteran 

as an owner of the business. Such cases could also involve the 

businesses giving the veteran a kickback after the loan was disbursed. In 

another example, after the loan has been disbursed, an eligible Patriot 

Express borrower might sell all or part of his or her ownership interest in 

the qualifying business. In these examples, an ineligible party benefits 

from the Patriot Express loan proceeds.

 

66Borrowers who own at least 51 percent of the business must personally guarantee all 

loans, including Patriot Express loans. In order for borrowers to be released from this 

guarantee, such as through the sale of their ownership interest in the business, lenders 

must obtain SBA’s approval.

SBA Has Not Provided 

Clarity to Lenders 

Regarding Borrowers’ 

Ongoing Ownership 

Requirements
 

Page 51 GAO-13-727 SBA Patriot Express

reasonable assurance that only eligible borrowers obtain loans and 

benefit from the program as intended. Such assurance is particularly 

important in a program that has specific eligibility requirements and was 

created to serve a specific population. Four of six lenders we spoke with 

thought that borrowers needed to remain eligible for the loan after 

disbursement, but these four lenders stated that they did not think that 

they needed to check on borrowers to make sure that they remain eligible 

after loan disbursement. The other two lenders we spoke with told us that 

they did not think ongoing borrower eligibility was a requirement of the 

program. In the absence of formal SBA eligibility procedures to ensure 

that only borrowers who maintain 51 percent ownership receive 

assistance after a loan has been disbursed, Patriot Express loan 

proceeds may ultimately be used by those other than the intended 

program beneficiaries. As a result, SBA may not have reasonable 

assurance that Patriot Express loans are serving the intended population.

Prior to 2007, SBA served the small business needs of veteran 

entrepreneurs through its 7(a) and SBA Express programs. SBA 

established the Patriot Express Pilot Loan initiative in 2007 as a targeted 

effort to provide veterans and other eligible members of the military 

community access to capital to establish or expand small businesses. 

However, the effect this initiative has had on the small business financing 

needs of veterans and other entrepreneurs in the military community is 

unknown. While SBA recently announced an initiative to increase overall 

lending to veteran small businesses by $475 million over the next 5 years, 

the role of the Patriot Express pilot initiative is unclear given that SBA has 

yet to evaluate the effectiveness of the program. Based on our analysis, 

with the exception of 2007, Patriot Express loans made to veterans have 

had a relatively high default rate, and losses for the initiative have 

exceeded its income. Moreover, SBA has not conducted an evaluation of 

the pilot initiative that would include standards for pilot performance, 

comparative measures with other programs that may also serve veterans, 

methods for data collection, evaluation of data on the performance of the 

loans, data and analysis from external reports and evaluations, and time 

frames for completion. Although SBA officials said that they have begun 

to hold meetings on what information they will need to assess the 

performance of Patriot Express loans, SBA has not established a plan to 

evaluate the program, and only a few months remain before the current 

extension of the program is set to end. Program evaluations can be useful 

in informing future program decisions, including SBA’s planned efforts to 

expand lending to veterans.

Conclusions 
 

Page 52 GAO-13-727 SBA Patriot Express

In addition, the lack of an evaluation or an evaluation plan for Patriot 

Express follows a pattern for SBA pilot loan programs. As with the Patriot 

Express pilot initiative, SBA has authorized other pilot loan programs in 

the past that it has subsequently not evaluated when making decisions 

about the future of those programs. SBA’s past experience with pilots 

raises questions about its commitment and capacity to fully implement 

pilots that include a rigorous evaluation. Without evaluations of pilot 

initiatives, SBA lacks the information needed to determine if a pilot 

program is achieving its intended goals and whether it should be 

cancelled, modified, or expanded.

Finally, SBA’s reliance on lenders to assess borrowers’ eligibility for 

Patriot Express highlights the importance of strong internal controls over 

lenders to ensure that only eligible borrowers are served by the program. 

Federal internal control guidance and GAO’s fraud-prevention framework 

indicate that program controls should include monitoring and detection. 

However, SBA currently samples few Patriot Express loans during on-site 

examinations. In addition, while SBA expects borrowers to maintain 51 

percent ownership after a loan has been disbursed, SBA has not 

developed procedures to require lenders to verify that the 51 percent 

ownership requirement is maintained, nor does it monitor the lenders’ 

activities to ensure eligibility after disbursement. As a result, SBA’s 

internal controls may not provide the necessary assurance that Patriot 

Express loans are made to and used by only eligible members of the 

military community—the intended mission of the program.

As SBA considers whether or not to extend the Patriot Express Pilot Loan 

program, we recommend that the Administrator of SBA design and 

implement an evaluation plan for the pilot program that assesses how 

well the Patriot Express pilot is achieving program goals and objectives 

regarding its performance and its effect on eligible borrowers. The 

evaluation plan should include information such as

• evaluation of SBA data on performance of Patriot Express loans;

• evaluation of borrowers served by Patriot Express in relation to 

veteran borrowers served by other SBA loan programs; and

• review of relevant SBA OIG reports and other external studies. 

Recommendations for 

Executive Action
 

Page 53 GAO-13-727 SBA Patriot Express

To help ensure that SBA makes informed decisions on the future of pilot 

programs it creates under its own authority, we recommend that the 

Administrator of SBA require the agency to design an evaluation plan for 

any such pilot program prior to implementation—including an assessment 

of the program’s performance and its effect on program recipients—and 

to consider the results of such an evaluation before any pilot is extended.

To help ensure that Patriot Express loans are only provided to members 

of the military community eligible to participate in the program, we 

recommend that the Administrator of SBA strengthen existing internal 

controls, including

• sampling a larger number of Patriot Express loans during 

examinations;

• developing a requirement in SBA’s Standard Operating Procedures 

for lenders to verify the eligibility of the borrower, including the 51 

percent ownership requirement, after the loan has been disbursed; 

and

• periodically monitoring the lenders’ implementation of this eligibility 

requirement.

We provided the Administrator of the Small Business Administration with 

a draft of this report for review and comment. On August 26, 2013, the 

SBA liaison—Program Manager, Office of Congressional and Legislative 

Affairs—provided us with the following comment via email on the draft. He 

stated that the agency will consider the findings from this report as it 

reviews the extension of the Patriot Express Pilot Loan Program. SBA 

also provided technical comments, which we incorporated into the report 

where appropriate.

We are sending copies of this report to SBA, appropriate congressional 

committees and members, and other interested parties. The report also is 

available at no charge on the GAO website at http://www.gao.gov. 

Agency Comments
 

Page 54 GAO-13-727 SBA Patriot Express

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix III. 

William B. Shear

Director, Financial Markets and

 Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-13-727 SBA Patriot Express

Our objectives were to examine (1) trends in the Patriot Express program 

and related Small Business Administration (SBA) guarantee programs, 

including performance of these loans, and what is known about the costs 

of the Patriot Express program, (2) the benefits and challenges of the 

Patriot Express program for members of the military community eligible to 

participate as well as training and counseling opportunities available to 

them, and (3) what internal controls SBA has in place to ensure that the 

Patriot Express program is available only to eligible members of the 

military community.

To describe trends in the Patriot Express program, including how Patriot 

Express loans approved from 2007 through 2012 have performed, we 

obtained SBA loan-level data on loans approved from the second quarter 

of 2007 through the fourth quarter of 2012 for Patriot Express and from 

the first quarter of 2007 through the fourth quarter of 2012 for the 7(a), 

and SBA Express programs. We took a number of steps to develop a 

dataset we could use for our analyses.1 We excluded loans with missing 

disbursement dates unless they had positive balances at some point in 

their history, which to us indicated loan activity. Additionally, we excluded 

loans that in December 2012 were indicated to have been cancelled. 

Once we arrived at our final dataset, we analyzed it for various 

performance measures, including default rates.2

• Cohort analysis—Using the loan approval date data field, we identified 

loans for all three programs and grouped them in calendar year 

cohorts reflecting loans approved from 2007 through 2012. Once 

these loans were identified, we calculated the default rates, total 

number of loans, and total loan values approved from 2007 through 

2012 for all three programs.

A loan was defined as 

defaulted (purchased) if it had a purchase date on or after the approval 

date. Specifically, we analyzed the default rates by the following 

categories:

 

1

Because SBA provided us with loans from Patriot Express, 7(a), and SBA Express in one 

file, we used the subprogram code field to identify loans from the different programs. In 

the process of inquiring with SBA about SBA Express loans, SBA identified 55 loans that 

according to the subprogram code were SBA Express loans but that SBA, through the use 

of another field we did not have access to, identified as Export Express loans. 

2

In this report, we define default rate as the number of loans that SBA has purchased from 

the lender divided by the outstanding number of loans approved.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 56 GAO-13-727 SBA Patriot Express

• Loan amount—Using the gross amount approved data field, we 

identified the number of loans by loan amounts that were approved for 

all three programs from 2007 through 2012. We grouped these loans 

into major categories based on requirements of the programs. For 

example, we focused on loans below $25,000 because the Patriot 

Express and SBA Express programs require no collateral for these 

loans. We selected the next category, loans valued between $25,001 

and $150,000, based on the guarantee percentage change from 85 

percent to 75 percent for Patriot Express and 7(a) that occurs at 

$150,000. We selected the next two categories of loans valued 

between $150,001 and $350,000 and between $350,001 and 

$500,000 to capture the maximum allowable loans for SBA Express 

and Patriot Express, respectively. Additionally, we focused on loans 

valued between $500,001 and $1,000,000 and between $1,000,001 to 

$5,000,000 to account for the larger loan amounts for 7(a). Once 

these loans were identified by loan amounts, we calculated the default 

rates for all three programs based on loans approved from 2007 

through 2012.

• Lender concentration—Using the main bank data field, we identified 

the top 11 lenders based on the number of approved Patriot Express 

loans from 2007 through 2012. Once these lenders were identified, 

we calculated the default rates, average loan amounts, and total loan 

amounts approved from 2007 through 2012. Additionally, we 

calculated the relative percentage of loans made by each of the top 

11 lenders compared to the overall number of Patriot Express loans 

approved from 2007 through 2012. After we identified that one lender 

accounted for 26 percent of all Patriot Express loans approved, we 

calculated the relative percentage and default rates of this one lender 

compared to all other lenders from 2007 through 2012.

• Veteran status—Using a data field that identifies borrowers based on 

their veteran status, we identified borrowers that self-identified as 

either a veteran, service-disabled veteran, or Vietnam-era veteran 

from each of the three programs. Once these loans were identified, 

we calculated the default rates, total number of loans, and total loan 

values approved from 2001 through 2012 for SBA Express and 7(a), 

and 2007 through 2012 for Patriot Express.

• New Business—Using the new or existing business data field and 

information provided by SBA, we identified new businesses that had 

been in operation 2 years or less prior to loan approval, and existing 

businesses that had been in operation for more than 2 years at time of 

loan approval. Once these loans were identified, we calculated the 
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-13-727 SBA Patriot Express

relative percentage of new businesses for loans approved from 2007 

through 2012.

• Use of Proceeds—Using the loan proceeds data field and information 

provided by SBA, we identified the most common use of loan 

proceeds for Patriot Express loans approved from 2007 through 2012.

• Small Business Portfolio Scores (SBPS)—Using a data field that 

identifies borrowers by their SBPS scores, based on available data, 

we grouped businesses based on having a low (139 or lower), 

medium (140-179) or high (180 or greater) SBPS score. We then 

calculated the default rates, total number of loans, total value of loans, 

and relative percentage of loans for Patriot Express, SBA Express 

and 7(a).

For all of our analyses on the performance of Patriot Express, 7(a), and 

SBA Express loans, we did not weight default rates by loan amount. In 

addition, for each analysis we did not include loans with missing values. 

To assess data reliability, we interviewed SBA representatives from the 

Office of Performance and Systems Management and the Office of Credit 

Risk Management about how they collected data and helped ensure data 

integrity. We also reviewed internal agency procedures for ensuring data 

reliability. In addition, we conducted reasonableness checks on the data 

to identify any missing, erroneous, or outlying figures, and when 

necessary, submitted follow-up questions to SBA officials at the Office of 

Performance and Systems Management and the Office of Credit Risk 

Management to clarify our understanding of the data. Through our 

electronic data testing, we identified irregularities in the data in a small 

percentage of cases, such as loans with approval amounts in excess of 

what we understood to be the limits of the program or loans with disbursal 

dates, but zero dollars disbursed. However, SBA was able to explain 

these cases as being due to periods in which the limits of the program 

were temporarily expanded, or provided other explanations. We did not 

find more than a minimal amount of missing values in fields relating to 

approved amount, approval year of purchase, and key variables for our 

analysis of performance. As such, we determined that the data were 

sufficiently reliable for our purposes.

To describe what is known about the costs of the Patriot Express program 

from 2007 through 2012, we obtained and analyzed SBA cash-flow data 

on SBA purchases of defaulted loans, as well as data on offsets, which 

include the following three categories: (1) upfront fees generated by the 

program at time of approval, (2) annual fees based on loans in a lender’s 

portfolio in good standing, and (3) recoveries either from the proceeds of 
Appendix I: Objectives, Scope, and 

Methodology

Page 58 GAO-13-727 SBA Patriot Express

attached collateral to the defaulted loans or subsequent payments on 

loans following purchase by SBA. Additionally, we reviewed SBA 

guidance, the agency’s standard operating procedures, and inspector 

general reports to obtain more information on cash-flow data. To assess 

data reliability, we interviewed SBA representatives from the Office of 

Financial Analysis and Modeling, the Office of Performance and Systems 

Management, and the Office of Credit Risk Management to understand 

how they collect data and help ensure the integrity of the cash-flow data, 

as well as how they use these data for budgetary purposes. We also 

submitted follow-up questions to SBA officials at both the Office of 

Financial Analysis and Modeling and the Office of Credit Risk 

Management to clarify our understanding of the data. We determined that 

the data were sufficiently reliable for our purposes.

To assess the effect of the Patriot Express program on members of the 

military community eligible to participate in the program, we conducted 

semi-structured interviews with a sample of 24 Patriot Express loan 

recipients about how the Patriot Express loan affected their businesses 

and their views on how the program could be improved.3 We selected this 

nongeneralizable, stratified random sample of loan recipients to reflect 

two factors: the recipient’s loan amount and the number of Patriot 

Express loans their lender has made since the program’s inception to 

2012. While the results of these interviews could not be generalized to all 

Patriot Express loan recipients, they provided insight into the benefits and 

challenges of the program.4 Table 5 below highlights selected 

characteristics of the Patriot Express loan recipients we interviewed.5

 

3

In order to arrive at our final sample of 24 Patriot Express loan recipients, we contacted 

or attempted to contact 132 Patriot Express loan recipients. We found that a high 

percentage of SBA’s contact information on these borrowers was inaccurate or missing. 

SBA officials told us that they do not contact borrowers but that if they needed to and 

found that the borrower’s contact information was inaccurate or missing in SBA’s data, 

they could get the correct contact information from the lender.

4

For loan recipients that we contacted who received multiple Patriot Express loans, we 

only analyzed the experiences drawn from the Patriot Express loan included in our 

sample.

5

All 24 loan recipients we met with were still in business at the time we interviewed them. 

In contacting Patriot Express loan recipients, we encountered some borrowers who had 

gone out of business or declared bankruptcy, and they declined to speak with us.
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-13-727 SBA Patriot Express

Table 5: Selected Characteristics of Loan Recipients Included in Our Sample

Characteristic

Number of loan recipients in 

sample

Patriot Express loan amount

a

Less than $20,000 9 

$20,000-$149,999 10

Greater than $150,000 5 

Lender

Top 11 Patriot Express lenders 13 b

Remainder of lenders 11

Loan approval year 

2008 3 

2009 8 

2010 4 

2011 5 

2012 4 

Type of eligible borrower 

Veteran 19

Spouse 5 

Type of loan product

Term loan 18

Line of credit 6 

Source: GAO analysis of SBA data.

a

The number of loan recipients within each characteristic category total to 24 and individual loan 

recipients are categorized into multiple categories.

b

To obtain the perspectives of veteran entrepreneurs who were aware of 

the Patriot Express program and appeared to meet the eligibility 

requirements for a Patriot Express loan but instead obtained an SBA 

Express or 7(a) loan, we attempted to contact a nongeneralizable sample 

These are the top 11 lenders that made the most number of Patriot Express loans from 2007 through 

2012.
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-13-727 SBA Patriot Express

of veterans who participated in these two other programs.6 Of the 15 SBA 

Express veteran loan recipients and 16 7(a) veteran loan recipients whom 

we were able to contact, we interviewed 4 veteran entrepreneurs who 

obtained a 7(a) loan.7

We also interviewed a sample of lenders to obtain their perspectives on 

the benefits and challenges of the Patriot Express program. We selected 

the top 10 lenders that made the greatest number of Patriot Express 

loans from 2007 through 2012.

We conducted interviews with these recipients to 

inquire about their experiences with the 7(a) loan and to obtain their views 

on the Patriot Express program.

8 The selected lenders made 

approximately 48 percent of the Patriot Express loans over this period 

and consisted of various types of lending institutions, including large 

banks, a credit union, and a small business lending company (SBLC).9

 

6

To sample veteran entrepreneurs who appeared to meet the eligibility requirements for a 

Patriot Express loan, we limited our sample to veterans who received SBA Express and 

7(a) loans that were $500,000 or less (the same loan amount range as Patriot Express) 

and made after June 2007, when the Patriot Express program was initiated. Information 

on veteran status for SBA Express and 7(a) loan recipients is self-reported by the 

borrower and is not verified by the lender. Therefore, this information may not accurately 

or consistently capture all veterans who have received a loan through these programs.

While the results of these interviews could not be generalized to all 

lenders participating in the Patriot Express program, they provided insight 

into the key differences in administering the program as compared to 

other SBA loan programs. To obtain a broader set of lender perspectives 

on the program, we interviewed representatives from the National 

Association of Government Guaranteed Lenders (NAGGL), a trade 

organization representing SBA 7(a) lenders. We also interviewed 

representatives from three veteran service organizations with an interest 

in veteran entrepreneurship, namely the Veteran Entrepreneurship Task 

(VET) Force, Veteran Chamber of Commerce, and American Legion, to 

gather information on the benefits and challenges of the program that 

their members have experienced. Finally, we interviewed SBA officials 

from the Offices of Capital Access and Veterans Business Development 

7

As part of our attempt to contact these veterans, we found that some were not aware of 

the Patriot Express program. Because we wanted to obtain perspectives of veteran 

entrepreneurs that received other SBA loans and could share their views on Patriot 

Express, we did not interview those that were unaware of the program.

8

Two of the top 10 lenders we contacted declined to speak to us. 

9

The term “large bank” refers to banks with over $10 billion in assets.
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-13-727 SBA Patriot Express

who are responsible for managing and promoting the program. We 

interviewed these officials to obtain their perspectives on identified 

benefits and challenges to the program, promotion of the program and its 

lenders, and efforts to evaluate the program’s effect on members of the 

military community eligible to participate.

To describe other ways in which veteran entrepreneurs accessed capital, 

as part of our interviews with Patriot Express and 7(a) loan recipients, as 

well as selected lenders and veteran service organizations, we also 

inquired about other ways in which veterans can gain access to capital. 

To describe the training and counseling efforts SBA has in place for 

veteran entrepreneurs, we obtained and reviewed reports by the 

Interagency Task Force on Veterans Small Business Development from 

2011 and 2012.10

To determine SBA’s prior experience with pilots initiated under its own 

authority, we obtained and reviewed pertinent regulations on SBA’s 

authority to initiate pilots and applicable limitations. We also reviewed two 

SBA Office of Inspector General (OIG) reports pertaining to SBA’s 

experience with the Community Express and SBA Express pilot 

We also reviewed SBA documents related to training 

and counseling resources and SBA information on the number of 

veterans that have used these resources from 2008 through 2012. We 

also interviewed SBA officials responsible for these efforts. To describe 

the perspectives of veteran entrepreneurs on the effectiveness of SBA’s 

training and counseling efforts, we reviewed results from SBA’s annual 

Veteran Business Outreach Center client satisfaction survey from 2008 

through 2012. We also interviewed the selected veteran service 

organizations and Patriot Express and 7(a) loan recipients on their 

perspective on the quality of training and counseling efforts sponsored by 

SBA.

 

10The Interagency Task Force on Veterans Small Business Development was created in 

2010 by the President and is chaired by the Administrator of SBA. It is tasked to, among 

other things, develop proposals related to improving access to capital for veteran-owned 

businesses and increasing training and counseling services provided to veteran 

entrepreneurs. For the task force’s annual reports, see Interagency Task Force on 

Veterans Small Business Development, Report to the President: Empowering Veterans 

Through Entrepreneurship, (Washington D.C.: Nov. 1, 2011) and Interagency Task Force 

on Veterans Small Business Development, Heroes on the Home Front: Supporting 

Veteran Success as Small Business Owners (Washington D.C.: Nov. 29, 2012).
Appendix I: Objectives, Scope, and 

Methodology

Page 62 GAO-13-727 SBA Patriot Express

programs.11 To assess how well SBA has conducted pilot programs, 

including Patriot Express, we reviewed components identified in our 

previous work as key features of a program evaluation and an evaluation

plan.12

To evaluate SBA’s internal controls related to ensuring that the Patriot 

Express program is available only to members of the military community 

eligible to participate in the program, we reviewed SBA’s standard 

operating procedures related to borrower eligibility requirements. Also, as 

part of our interviews with the selected lenders and borrowers previously 

discussed, we inquired about the documentation used to establish 

eligibility for the program. To determine how SBA oversees lenders to 

ensure they are complying with the Patriot Express eligibility 

requirements, we reviewed SBA’s standard operating procedures related 

to lender oversight. We also obtained copies of examination reports for 

the top 10 Patriot Express lenders (based on the number of loans made) 

from 2007 through 2012. We reviewed these reports to determine the 

number of Patriot Express loans sampled during the examination and 

SBA’s disposition on whether the lender was complying with SBA rules 

and regulations related to borrower eligibility. Additionally, we interviewed 

officials from the Office of Credit Risk Management to inquire about 

SBA’s oversight of its lenders as it relates to the Patriot Express program. 

To determine how SBA reviews defaulted loans as part of its purchase 

review, we reviewed SBA’s standard operating procedures related to 

these reviews, as well as an SBA OIG report on improper payments, 

which also described the purchase reviews.13

 

11SBA, Office of Inspector General, Assessment of the Community Express Pilot Loan 

Program, Report No. 10-12 (Washington, D.C.: Aug. 25, 2010) and SBA, Office of 

Inspector General, Management Advisory Report: Policies and Procedures for the SBA 

Express and Community Express Loan Programs, Report No. 6-34 (Washington, D.C.: 

Sept. 29, 2006).

We also met with officials 

from SBA’s Office of Financial Program Operations to understand how 

SBA staff review submissions from lenders requesting that SBA purchase 

defaulted loans. Finally, to help assess the extent to which the Patriot 

Express program could be susceptible to fraud and abuse, we reviewed 

12GAO-13-519SP, GAO-13-570, and GAO, Designing Evaluations: 2012 Revision, 

GAO-12-208G (Washington D.C.: January 2012).

13SBA, Office of Inspector General, The Small Business Administration’s Improper 

Payment Rate for 7(a) Guaranty Purchases Remains Significantly Underestimated, Report 

No. 13-07 (Washington, D.C.: Nov. 15, 2012).
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-13-727 SBA Patriot Express

SBA’s internal control standards related to ensuring that Patriot Express 

loans were made to eligible members of the military community. We 

compared these internal controls to federal internal control standards, as 

well as to GAO’s Fraud Prevention Framework.14

We conducted this performance audit from November 2012 to September 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

We also interviewed 

officials from SBA’s Office of Inspector General to learn about scenarios 

under which the Patriot Express program could be susceptible to fraud 

and abuse.

 

14See GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999) and GAO, Service-Disabled 

Veteran-Owned Small Business Program: Fraud Prevention Controls Needed to Improve 

Program Integrity, GAO-10-740T (Washington, D.C.: May 24, 2010).
Appendix II: Comparison of SBA’s 7(a), SBA 

Express, and Patriot Express Loan Programs

Page 64 GAO-13-727 SBA Patriot Express

In addition to the Patriot Express pilot program, there are several delivery 

methods within the SBA 7(a) program, including regular (nondelegated) 

7(a), delegated 7(a) loans made by lenders in the Preferred Lenders 

Program (PLP), and SBA Express loans.1

Table 6: Comparison of 7(a), SBA Express, and Patriot Express Loan Programs

While all delivery methods 

provide a borrower with an SBA-guaranteed loan, there are several 

similarities and differences between these three programs, such as 

eligibility restrictions, maximum loan amounts, and percent of guarantee. 

Table 6 below compares the key features of these three loan programs 

discussed throughout this report.

7(a) SBA Express Patriot Express

Type of loan Short-term (12 months) or long-term loan. No 

revolving features.

Same as 7(a) or may be 

used for revolving lines 

of credit (up to 7 years).

Same as SBA Express.

Use of loan 

proceeds

SBA-guaranteed loan proceeds may be used for 

the following purposes:

1. Acquisition of land or purchase, construction 

or renovation of buildings

a

2. Improvement of a site

3. Acquisition and installation of fixed assets

4. Inventory

5. Supplies

6. Raw Materials

7. Working Capital

8. Refinancing

Same as 7(a) plus 

Renewable Energy and 

Energy Efficiency Loans.

Same as 7(a).

Loan decision 

process

Regular (nondelegated) 7(a) loans: SBA approves 

the loan for both credit and eligibility.

Delegated 7(a) loans made by PLP lenders

Lender is delegated the credit decision and 

completes a checklist for eligibility which SBA 

reviews.

: 

Authorized lenders make 

loan approval decisions, 

including credit 

determinations, without 

prior SBA review.

Same as SBA Express.

Target processing 

time

Regular (nondelegated) 7(a) loans: 6 business 

days

Delegated 7(a) loans made by PLP lenders

1 business day.

: 1 

business day 

Same as SBA Express.

 

1

As mentioned previously, when we refer to 7(a) loans, we are referring to (1) regular 

(nondelegated) 7(a) loans and (2) delegated 7(a) loans made by PLP lenders, unless 

otherwise noted.

Appendix II: Comparison of SBA’s 7(a), SBA 

Express, and Patriot Express Loan Programs
Appendix II: Comparison of SBA’s 7(a), SBA 

Express, and Patriot Express Loan Programs

Page 65 GAO-13-727 SBA Patriot Express

7(a) SBA Express Patriot Express

Eligibility 

restrictions

1. The small business applicant must:

a. Be an operating business

b

b. Be organized for profit

c. Be located in the U.S.

d. Be small (as defined by 13 C.F.R. 121)

e. Demonstrate a need for the desired credit 2. Lender must certify that credit is not available 

elsewhere on reasonable terms. 3. Applicant must show that funds are not 

available from alternative sources, including 

personal resources of the principals.

c 

4. The business must be an eligible type of 

business.

d 

e

Same as 7(a).

 

Same as 7(a).

In addition to meeting the 

eligibility requirements of the 7(a) 

program, the business must be 

51% or more owned and 

controlled by one or more of the 

following:

• Veteran, certain active-duty 

military, reservist or National 

Guard member

• A spouse of any of the above 

groups, or

• A widowed spouse of a 

service member or veteran 

who died during service, or of 

a service-connected 

disability.

Maximum loan 

amount

$5,000,000 f $350,000 $500,000

Percent of 

guarantee

• 85% for loans $150,000 or less.

• 75% for loans over $150,000.

50% Same as 7(a).

Collateral policy Available collateral (liquidation value) up to loan 

amount.

No collateral is required 

for loans $25,000 or less.

Lenders may use their 

own collateral policies 

used for their non-SBAguaranteed loans for 

loans more than 

$25,000.

• Same as SBA Express for 

loans $350,000 or less.

• Same as 7(a) for loans more 

than $350,000.

SBA guarantee 

fees

Lender’s Annual Ongoing Fee:

g

Lender Guarantee Fee:

Not to exceed 

0.55% of the outstanding balance of the 

guaranteed portion of loanh

Loans with maturities of 12 months or less: 0.25% 

of the guaranteed portion

• $150,000 or less: 2% of the guaranteed 

portion

Loans with maturities of over 12 months:

• $150,001 - $700,000: 3% of the guaranteed 

portion

• $700,001 - $5,000,000: 3.5% of the 

guaranteed portion up to $1,000,000 plus 

3.75% of the guaranteed portion over $1 

million

Same as 7(a). Same as 7(a).
Appendix II: Comparison of SBA’s 7(a), SBA 

Express, and Patriot Express Loan Programs

Page 66 GAO-13-727 SBA Patriot Express

7(a) SBA Express Patriot Express

Borrower 

Packaging and 

Other Services 

Feesi

• Packaging and other service fees that a 

lender charges a borrower based on a 

percentage of the loan amount cannot 

exceed:

• 3% for loans $50,000 or less

• 2% for loans between $50,001 to $1 

million and an additional 0.25% on the 

remaining amount over $1 million 

(maximum fee of $30,000).

Same as 7(a). Same as 7(a).

Maximum Interest 

rates

Loans less than 7 years: j

• $0 - $25,000: Base Ratek

• $25,000 - $50,000: Base Rate + 3.25%

+ 4.25%

• Over $50,000: Base Rate + 2.25%

Loans 7 years or longer:

• 0 - $25,000: Base Rate + 4.75%

• $25,001 - $50,000: Base Rate + 3.75%

• Over $50,000: Base Rate + 2.75%

Loans $50,000 or less: 

Cannot Exceed Primel

+ 

6.5%

Loans over $50,000: 

Cannot Exceed Prime +

4.5%

Same as 7(a)

Source: SBA.

m

a

13 C.F.R. 120.120.

b

13 C.F.R. 120.100.

c

13 C.F.R. 120.101.

d

13 C.F.R. 120.102.

e

13 C.F.R. 120.110.

f

Amounts listed are gross loan amounts.

g

This fee cannot be passed to the borrower and SBA may charge the lender a late fee if the ongoing 

guarantee fee is not paid in a timely manner.

h

This fee can be passed on to the borrower and is a one-time fee paid when the loan is approved or 

after initial disbursement.

i

Packaging services” include the lender assisting the applicant with completing the application and 

preparing cash-flow projections and other documents related to the application. “Other services” 

include consulting as to what financing is needed and what type. The fees must be reasonable and 

customary for the services performed and must be consistent with those charged on the lender’s 

similarly sized, non-SBA-guaranteed commercial loans. In addition, fees for packaging and other 

services may be based on a percentage of the loan amount. 

j

Lenders are permitted to add an additional 2 percentage points to the maximum interest rate listed for 

loans of $25,000 or less and an additional 1 percentage point to the maximum interest rate listed for 

loans between $25,000 and $50,000.

k

For standard 7(a), there are three acceptable base rates: (1) the Prime Rate; (2) One Month London 

Interbank Offered Rate (LIBOR) plus 3 percentage points (LIBOR Base Rate); or (3) the SBA 

Optional Peg Rate.

l

For SBA Express, a lender may use the same base rate of interest it uses on its similar non-SBA 

loans as long as the resulting interest rate does not exceed Prime + 6.5% or Prime + 4.5%, 

depending on the loan amount. However, if the loan is sold in the secondary market only the Prime 

Rate, LIBOR, and SBA Optional Peg Rate are permitted.

mSimilar to SBA Express, a lender may use the same base rate of interest it uses on its similar nonSBA loans as long as the resulting interest rate does not exceed the amounts stated in the 7(a)’s 

maximum interest rates. However, if the loan is sold in the secondary market, only the Prime Rate, 

LIBOR, and SBA Optional Peg Rate are permitted.
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 67 GAO-13-727 SBA Patriot Express

William B. Shear, (202) 512-8678 or shearw@gao.gov

In addition to the contact named above, Andrew Pauline (Assistant 

Director), Benjamin Bolitzer, Daniel Kaneshiro, José R. Peña, Christine 

Ramos, Jessica Sandler, Jennifer Schwartz, Jena Sinkfield, and Andrew 

Stavisky made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff

Acknowledgments 

(250693)
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