Finding Text
2023-03 – Require evidence demonstrating that credit is not otherwise available (13 CFR 307.11(a))
Criteria – Evidence should be obtained and retained in the loan file demonstrating credit to the borrower was not otherwise available on terms and conditions that permit the completion or successful operations of the activity to be financed as stated in the Economic Development Administration’s (EDA) Specific Award Conditions as one of the requirements prior to initial disbursement.
Condition – During the audit it was noted, loan file documentation did not include evidence credit was not otherwise available to the borrower from a financial institution (i.e. denial letter) before submitting a loan application with Rockford Local Development Corporation.
Cause – Management was not obtaining denial letters from borrowers indicating credit was not available elsewhere.
Effects – The EDA may require repayment for loans not in compliance with the Specific Award Conditions; however, the EDA waived this specific requirement during the time period of May 5, 2020 through June 30, 2022 to provide revolving loan fund recipients with increased flexibility to respond to the impact of the coronavirus pandemic on small businesses in their communities; therefore, loans originated during this time period were exempt from this particular requirement.
Recommendation – We recommend Management obtain denial letters from potential borrowers and retain the letter as evidence credit was not otherwise available to the borrower.
Management Response – Management will implement the procedure of obtaining support of denial as part of the application process on all new loans going forward under this program.