Rural Development: Rural Business-Cooperative Service Business Loan Losses Page: 23 of 29
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Loans, Loan Losses, and Loan File
Documentation for 24 Guaranteed Business
and Industry Loans
Loss study plan
The company was in Chapter 11 bankruptcy
proceedings and hoping to restart when it
obtained loans. The company had a history
of declining sales and proposed to
reestablish sales with prior customers and
develop a new product line. The feasibility
study was not clear about the potential for
quickly reviving sales levels. After the loan
was made, the company found that prior
customers had made other plans, and the
The idea was innovative but could not be
marketed in a depressed oil industry. Only
one loan payment was made, and that was 7
A special disaster loan was made to a
bowling alley mechanic with some day-to-day
experience in operations but no financial
management experience. Waiving the
feasibility study was questionable because
the business was highly leveraged with
loans. Financial management of the business
This project was designed to commercialize
a laboratory experiment. The feasibility study
did not clearly identify the problems with this
idea. The plant equipment could not extract
metals from waste streams as envisioned and
could not be put into operation.
The restaurant was located at a distance
from the lunchtime crowds on which it
depended. A feasibility study might have
identified this location problem. The
restaurant also developed a poor reputation
for quality, and there were management and
The loan application indicates a successful
company, but key financial documents were
not on file, including an evaluation of the loan
application. The company sustained losses
after obtaining the loan.
The purchaser owned another restaurant.
The business failed through lack of
customers, poor management, and personal
GAO/RCED-99-249 Rural Business and Industry Loans
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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/m1/23/: accessed May 19, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.