Rural Development: Rural Business-Cooperative Service Business Loan Losses Page: 21 of 29
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Appendix I
Loans, Loan Losses, and Loan File
Documentation for 24 Guaranteed Business
and Industry LoansFeasibility Business
Loss study plan
$177,578 No a$305,850
211,040
142,156
189,866
$848,912$1,474,687 Yes
$936,368
661,436
$1,597,804Yes
Yes
Lender's
credit
analysis
a
Yes
YesYes
Service
evaluation
Yes
Yes
YesYes
Comments
This was an on-going business, but its
market risk was not clear. The loan file did
not document the basis for not obtaining a
feasibility study. After the loan was made,
doctors began directing patients to the local
hospital for therapy, and the business failed.
The bank's credit analysis noted that the
guarantee would greatly mitigate the fact that
the company had losses in 3 of the 4
previous years, with sales declining from $1.6
million to $1 million-a feasibility study
should have been done. After expansion, the
company experienced production difficulties
because of problems with new equipment. It
was unable to overcome these problems and
sales declined.
The Service guaranteed a loan to get this
business started in 1991. The feasibility study
for the 1991 loan was prepared by a
researcher who became the company's
scientist-and it called for a very large
expansion of a noncommercial project
developed by this individual. Although the
original study was not done by an
independent consultant, as required, and the
company had sustained losses, the feasibility
of the project was not reexamined before this
additional loan was made. Production
problems continued, and creditors eventually
forced the company into bankruptcy.
This was a long-established business. A
feasibility study identified significant
concerns with its organization, management,
and sales. However, the study did not
conclude whether the company could
succeed with a loan. After obtaining the loan,
sales and profit margins were lower than
forecast because of a depressed market. The
company was not in compliance with its loan
terms 7 months after receiving the loan.
(continued)GAO/RCED-99-249 Rural Business and Industry Loans
Page 19
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United States. General Accounting Office. Rural Development: Rural Business-Cooperative Service Business Loan Losses, report, August 25, 1999; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc290922/m1/21/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.