A Small Business Administration program intended to give veteran-owned companies easier access to loans has come under fire for high default rates that have cost taxpayers over $31 million.

The Patriot Express program, founded in 2007, offers loans of up to $500,000 to eligible members of the military community who want to start or expand a small business. The program's costs far exceed its benefits, according to a study by the federal Government Accountability Office, first reported Thursday in the Washington Post.

Patriot Express has a higher loan default rate than any other SBA loan-guarantee program, according to the GAO report. In 2011, the most recent year for which data was available, the program's default rate was 2.2%, compared to 0.6% for SBA Express loans and 0.5% for 7(a) loans. The year before, Patriot Express loans defaulted at a rate of 7.4%, well above the 1.7% default rates for the two other programs. From 2008 to 2012, the program has recovered just 2.9% on defaulted loans it had to purchase.

"Given the losses in the Patriot Express program since inception," the report concludes, "if the program continues on its current trend, Patriot Express costs will likely continue to exceed feeds collected and recoveries."

The GAO report also faults Patriot Express for failing to ensure that loans are extended exclusively to eligible veterans and their families. The program relies on lenders to assess eligibility and rarely reviews loan files to ensure that borrowers meet requirements, according to the report. "Without enhanced internal controls," the report says, "particularly with respect to monitoring of borrowers, SBA lacks assurance that Patriot Express loans are serving only eligible borrowers."

A lack of oversight appears to characterize the SBA's pilot programs, the report says. The fact that the SBA has yet to evaluate the effectiveness of Patriot Express or establish a framework for assessing the program's performance "follows a pattern for SBA pilot loan programs," according to the report.

"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," the report says.

The SBA's former head administrator, Karen Mills, stepped down in August. The Obama administration has not yet named a successor.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.