RBS operates the following loan programs: the business and industry (B&I) program, the intermediary relending program (IRP), and the rural economic development (RED) program. Increasing Total Volume and Value of Loans in Recent Years

RBS approved more than 2,900 rural business loans during fiscal year 1993 through the first half of fiscal 1998. The total amount of these loans was more than $3.2 billion, or approximately $1.1 million, on average, per loan. Specifically, RBS approved the following loans during this 5.5-year period:
2,299 guaranteed B&I loans totaling almost $2.9 billion and averaging $1.2 million, and 58 direct B&I loans totaling about $17 million and averaging about $300,000 and
315 IRP loans totaling about $280 million and averaging about $900,000, and 256 RED loans totaling about $70 million and averaging about $275,000. Subsidies Account for a Large Part of RBS’ Costs of Operating the Loan Programs

RBS’ estimated cost for the business loan programs totaled about $290 million during fiscal year 1993 through fiscal 1997. The cost of operating a federal credit program consists of two components: subsidy costs, which involve the estimates of default costs, interest rate subsidies, fees, and other costs and revenues; and administrative costs, which cover salaries and other expenses. Borrowers that were delinquent (at least 30 days past due on loan repayment) held about $116 million, or 5.4 percent, of the total outstanding principal. Specifically, the agency lost $263.8 million on guaranteed B&I loans during fiscal year 1993 through March 31, 1998. Over $100 Million of Guaranteed B&I Loans Are at Risk

According to RBS’ automated files, over $112 million, or 6.1 percent of the more than $1.8 billion in outstanding principal on guaranteed B&I loans as of March 31, 1998, was held by 76 borrowers that were delinquent. There were no delinquencies on these loans. This appendix provides information on RBS’ three loan programs: the business and industry (B&I) program, the intermediary relending program (IRP), and the rural economic development (RED) program. 2. 3. 4. 6. 7. Concerned about the financial status of RBS’ business loan programs, the former Chairman of the House Committee on Agriculture asked that we report on (1) the number and dollar value of loans approved by the agency, (2) the federal government’s costs associated with the agency’s loans, and (3) the financial condition of the agency’s loan portfolio, including the losses incurred.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the: (1) number and dollar value of business assistance loans approved by the Department of Agriculture's Rural Business-Cooperative Service (RBS); (2) federal government's costs associated with the agency's loans; and (3) financial condition of the agency's loan portfolio, including the losses incurred.

What GAO Found

GAO noted that: (1) RBS approved more than 2,900 rural business loans during fiscal year (FY) 1993 through the first 6 months of FY 1998; (2) these loans totalled about $3.2 billion; (3) more than three quarters of these loans and almost 90 percent of the total loan amount were guaranteed business and industry loans; (4) only 2 percent of the loans were direct government-funded business and industry loans; (5) the remaining loans were direct loans under the intermediary relending program and the rural economic development program; (6) the estimated total cost of these loan programs was about $290 million during FY 1993 through FY 1997; (7) of this amount, the subsidy costs of the loans, which primarily involve the estimates of default costs and interest rate subsidies, were almost $195 million; (8) administrative costs, which cover estimates of salaries and other expenses associated with operating the programs, totalled about $95 million; (9) as of March 31, 1998, the unpaid principal on the RBS's outstanding guaranteed and direct loans totalled about $2.2 billion; (10) delinquent borrowers held about $116 million--$112 million on guaranteed business and industry loans and about $4 million on direct business and industry loans and intermediary relending loans--or 5.4 percent of the total outstanding principal; (11) furthermore, from the start of FY 1993 through March 31, 1998, the agency incurred loan losses totalling about $266 million: about $264 million on guaranteed business and industry loans and about $2 million on intermediary relending loans; and (12) the agency did not experience any losses on debt associated with direct business and industry loans or with rural economic development loans.