WASHINGTON — Improvements in credit quality in the U.S. Small Business Administration’s guaranteed loan program produced record cash collections in fiscal year 1997 and the lowest level of loan buybacks in seven years.

Much of the improvement stems from a comprehensive agencywide project to boost the efficiency of the SBA’s loan liquidation process, including recovering more in cash and assets from loan defaults while encouraging workouts of troubled loans.

The SBA’s Office of Borrower and Lender Servicing reported that net cash collections from restructured loans and recoveries on collateral in fiscal year 1997 increased by 16.4 percent over fiscal year 1996, from $265.3 million to $308.9 million.

The increase represents a 41 percent improvement over the average for the previous three fiscal years. It is also a single-year liquidation record.

At the same time the agency’s purchases of delinquent loans from banks declined from $501.9 million to $427.2 million, a 14.9 percent decrease from FY 1996 and the lowest level recorded since FY 1990.

The focus of the Liquidation Improvement Project has been to find ways to increase recoveries on defaulted loans, and to reduce purchases of guaranteed loans by encouraging workouts. In FY 1997 the SBA guaranteed $9.5 billion in loans.

If a loan becomes more than 60 days past due, a lender may ask the SBA to exercise its guaranty, and SBA then purchases the remaining guaranteed portion from the lender. Many of those loans are restructured, and roughly 30 percent are returned to current paying status.

In cases where little chance of repayment exists, the SBA attempts to collect the outstanding debt through foreclosure, liquidation of collateral, compromises or collections from guarantors. Most of the program’s net costs result from losses on bad loans.