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Small Business Administration
Microloan Program
Robert Jay Dilger
Senior Specialist in American National Government
August 9, 2011February 12, 2013
Congressional Research Service
7-5700
www.crs.gov
R41057
CRS Report for Congress
Prepared for Members and Committees of Congress
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Small Business Administration Microloan Program
Summary
The Small Business Administration’s (SBA’s) Microloan program provides direct loans to qualified
qualified non-profit intermediary Microloan lenders who, in turn, provide “microloans” of up to
$50,000 to
small business owners, entrepreneurs, and non-profit child care centers. It also provides
provides marketing, management, and technical assistance to Microloan borrowers and potential
borrowers. The program was authorized in 1991 as a five-year demonstration project and became
operational in 1992. It was made permanent, subject to reauthorization, in 1997.
The SBA’s Microloan program is designed to assist women, low-income, veteran, and minority
entrepreneurs and small business owners and other individuals possessing the capability to
operate successful business concerns by providing them small-scale loans for working capital or
the acquisition of materials, supplies, or equipment.
In FY2012, Microloan intermediaries provided 3,973 Microloans amounting to $44.7 million.
The average Microloan was $11,254 and had a 8.18% interest rate.
Critics of the SBA’s Microloan program argue that it is expensive relative to alternative programs,
duplicative of the SBA’s 7(a) loan guaranty program, and subject to administrative shortfalls. The
program’s advocates argue that it provides assistance that reaches many who otherwise would not
be served by the private sector and is an important source of capital and training assistance for
low-income women and minority business owners.
Congressional interest in the Microloan program has increased in recent years, primarily because
microloans are viewed as a means to assist very small businesses, especially women- and
minority-owned startups, to get loans that enable them to create and retain jobs. Job creation,
always a
congressional interest, has taken on increased importance given the nation’s current economic
economic difficulties.
This report opens with a discussion of the rationale provided for having a Microloan program,
describes the program’s eligibility standards and operating requirements for lenders and
borrowers, and examines the arguments presented by the program’s critics and by its advocates. It
concludes with an examination of changes to the program authorized by P.L. 111-240, the Small
Business Jobs Act of 2010.
The actSmall Business Jobs Act increased the Microloan program’s loan limit for borrowers from
$35,000 to $50,000, and
for intermediaries after their first year of participation in the program
from $3.5 million to $5
million. It also authorizesauthorized the SBA to waive, in whole or in part through
FY2012, the non-federal
share requirement for loans to the Microloan program’s intermediaries
and for grants made to
Microloan intermediaries for small business marketing, management, and
technical assistance for
up to a fiscal year.
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Small Business Administration Microloan Program
Contents
Small Business Microloans and Training Assistance....................................................................... 1
The SBA Microloan Program: Funding, Eligibility Standards, Program Requirements,
and Statistics ................................................................................................................................. 3
Funding ...................................................................................................................................... 3
Intermediary Microloan Lender Eligibility Standards ............................................................... 4
Intermediary Microloan Lender Program Requirements ..........................................................4. 5
Intermediary Marketing, Management, and Technical Training Assistance.............................. 6
Non-lending Technical Assistance Providers ............................................................................ 7
Microloan Borrower Eligibility Standards .............................................................................7... 8
Microloan Borrower Program Requirements ............................................................................ 8
Microloan Program Statistics ................................................................................................8.... 9
Congressional Issues ...................................................................................................................... 109
Program Duplication .............................................................................................................9.. 10
Program Cost ........................................................................................................................... 11
Program Administration ...................................................................................................... 11.... 12
Program Oversight ............................................................................................................ 12
Reliability of the Microloan Program’s Performance Data ............................................... 13 12
Outcome-Oriented Performance Measures ....................................................................... 14 13
Legislation ..................................................................................................................................... 14
Concluding Observations..... 13
Concluding Observations .......................................................................................................... 1617
Contacts
Author Contact Information .......................................................................................................... 17. 18
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Small Business Administration Microloan Program
Small Business Microloans and Training Assistance
The Small Business Administration (SBA) administers programs that support small businesses,
including loan guarantees to lenders to encourage them to provide loans to small businesses “that
might not otherwise obtain financing on reasonable terms and conditions” and grants to nonprofit organizations to provide marketing, management, and technical training assistance to small
business owners.1 Historically, one of the justifications presented for funding the SBA’s loan
guarantee programs has been that small businesses can be at a disadvantage, compared with other
businesses, when trying to obtain access to sufficient capital and credit.2 It has been argued that
this disadvantage is particularly acute for startups and microbusinesses (firms with fewer than
five employees):
Traditional lending institutions, such as banks and investors, are unlikely to offer loans and
investment capital to microfirms due to a variety of reasons. One barrier to microlending is a
concern that startups and smaller enterprises are risky investments since growing businesses
typically exhibit erratic bursts of growth and downturn. The perceived risk of these types of
companies reduces the chances of a microbusiness to obtain financing. Another issue is that
microbusinesses by and large require smaller amounts of capital, and thus banks or
investment companies often believe that it is not efficient use of their time or resources, nor
will they receive a substantive return on investment from such a small loan amount.3
An Urban Institute survey of SBA 7(a), 504/Certified Development Company (504/CDC), Small
Business Investment Company (SBIC), and Microloan borrowers conducted in 2007 found that
Microloan borrowers reported having the most difficulty in finding acceptable financing
elsewhere. Less than one-third (31%) of Microloan borrowers reported that they would have been
able to find acceptable financing elsewhere, compared towith 35% of SBIC borrowers, 40% of 7(a)
borrowers, and 48% of 504/CDC borrowers.4
The SBA has provided loan guarantees to encourage lenders to issue small businesses loans since
the agency’s inception in 1953.5 Interest in creating a separate loan program to address the
specific needs of startups and microbusinesses increased during the 1980s, primarily due to the
growth and experience of microlending institutions abroad and evidence concerning private
lending practices that led Congress to the conclusion that a new loan program was necessary “to
reach very small businesses that were not being served by traditional lenders of SBA’s credit
programs.”6
1
U.S. Small Business Administration, “Fiscal Year 2010 Congressional Budget Justification (Washington: GPO, 2009),
,” pp. 29, -30.
2
Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished, American
Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at http://www.aei.org/docLib/
files/
2006/04/13/20060414_wp126.pdf. Also, see U.S. Government Accountability Office, Small Business Administration:
7(a) Loan
Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 3, 9-11, at
http://www.gao.gov/new.items/d08226t.pdf.
3
U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan
and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 6.
4
Christopher Hayes, An Assessment of the Small Business Administration’s Loan and Investment Programs: Survey of
Assisted Businesses (Washington: The Urban Institute, January 2008), p. 5, at http://www.urban.org/UploadedPDF/
411599_assisted_business_survey.pdf.
5
The SBA also provided direct loans to small businesses until 1994. For further analysis, see CRS Report R40985,
Small Business: Access to Capital and Job Creation, by Robert Jay Dilger and Oscar R. Gonzales..
6
Robert Cull, Asli Demiriguc-Kunt, and Jonathan Morduch, “Microfinance Meets the Market,” Journal of Economic
(continued...)
2
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Small Business Administration Microloan Program
reach very small businesses that were not being served by traditional lenders of SBA’s credit
programs.”6
To address the perceived disadvantages faced by very small businesses in gaining access to
capital, Congress authorized the SBA’s Microloan lending program in 1991 (P.L. 102-140, the
Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations
Act, 1992). The program became operational in 1992. Its stated purpose is
to assist women, low-income, veteran ... and minority entrepreneurs and business owners and
other individuals possessing the capability to operate successful business concerns; to assist
small business concerns in those areas suffering from a lack of credit due to economic
downturns; ... to make loans to eligible intermediaries to enable such intermediaries to
provide small-scale loans, particularly loans in amounts averaging not more than $10,000, to
start-up, newly established, or growing small business concerns for working capital or the
acquisition of materials, supplies, or equipment; [and] to make grants to eligible
intermediaries that, together with non-Federal matching funds, will enable such
intermediaries to provide intensive marketing, management, and technical assistance to
microloan borrowers.7
The SBA’s Microloan lending program was authorized initially as a five-year demonstration
project. It was made permanent, subject to reauthorization, in 1997 (P.L. 105-135, the Small
Business Reauthorization Act of 1997).
Congressional interest in the Microloan program has increased in recent years, primarily because
microloans are viewed as a means to assist very small businesses, especially women- and
minority-owned startups, obtain loans that enable them to create jobs. Job creation and
preservation, always a congressional interest, has taken on increased importance given the
nation’s current economic difficulties.8
This report describes the Microloan program’s eligibility standards and operating requirements
for lenders and borrowers, and examines the arguments presented by the program’s critics and by
its advocates. It concludes with an examination of congressional action taken during the 111th
Congress that led to P.L. 111-240changes to the program authorized by P.L. 111240, the Small Business Jobs Act of 2010.
P.L. 111-240 authorizesauthorized the Secretary of the Treasury to establish a $30 billion Small Business
Lending Fund (SBLF) to encourage community banks to provide small business loans ($4.0
billion was issued), a $1.5 , a $1.5
billion State Small Business Credit Initiative to provide funding to
participating states with small
business capital access programs, and about $12 billion in tax relief
for small businesses.9 It also
authorizes authorized changes to the SBA’s loan guaranty programs, including increasing the Microloan
program’s loan limit for borrowers from $35,000 to $50,000, and for intermediaries after their
6
Robert Cull, Asli Demiriguc-Kunt, and Jonathan Morduch, “Microfinance Meets the Market,” Journal of Economic
(...continued)
Perspectives, vol. 23, no. 1 (Winter 2009), pp. 169-172; and U.S. Congress, Senate Committee on Small Business and
Entrepreneurship, Microloan Program Improvement Act of 2001, report to accompany S. 174, 107th Cong., 1st sess.,
May 26, 2001, S.Rept. 107-18 (Washington: GPO, 2001). About 3.755 million firms in the United States have in 2009 had
fewer than
five employees. See U.S. Census Bureau, Statistics of U.S. Businesses: U.S. & States, Totals, Washington, DC,at
http://www.census.gov/econ/susb/index.html.
7
15 U.S.C. § 636 7(m)(1)(A).
8
U.S. Small Business Administration, Office of Advocacy, Small Business Economic Indicators for 2003, Washington,
DC, August August
2004, p. 3; and Brian Headd, “Small Businesses Most Likely to Lead Economic Recovery,” The Small
Business Advocate, vol. 28, no. 6 (July 2009), pp. 1, 2.
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Small Business Administration Microloan Program
Business
Advocate, vol. 28, no. 6 (July 2009), pp. 1, 2.
9
For further information and analysis concerning the Small Business Lending Fund see CRS Report R42045, The
Small Business Lending Fund, by Robert Jay Dilger. For further information and analysis concerning the State Small
Business Credit Initiative see CRS Report R42581, State Small Business Credit Initiative: Implementation and Funding
Issues, by Robert Jay Dilger.
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increasing the Microloan program’s loan limit for borrowers from $35,000 to $50,000, and for
intermediaries after their first year of participation in the program from $3.5 million to $5 million.
It also authorizes the
authorized the SBA to waive, in whole or in part through FY2012, the non-federal share
requirement for loans to
the Microloan program’s intermediaries and for grants made to
Microloan intermediaries for
small business marketing, management, and technical assistance for
up to a fiscal year.
The SBA Microloan Program: Funding, Eligibility
Standards, Program Requirements, and Statistics
Unlike the SBA’s 7(a) and 504/CDC loan guarantee programs, the SBA Microloan program does
not guarantee loans. 910 Instead, it provides direct loans to qualified non-profit intermediary
Microloan lenders who, in turn, provide “microloans” of up to $50,000 to small business owners,
entrepreneurs, and non-profit child care centers.1011 There are 179180 intermediaries participating in
the program, located in 4748 states, the District of Columbia, and Puerto Rico. 11
Funding
In FY2010, the SBA provided 78 loans amounting to $38.1 million to intermediaries, and
intermediaries provided 3,621 microloans amounting to $44.2 million to small businesses. The
average loan to an intermediary was $488,832, and the average microloan to a small business was
$12,195.12 The program’s lending volume in FY2010 was somewhat higher than in previous years
due to additional temporary funding provided by P.L. 111-5, the American Recovery and
Reinvestment Act of 2009 (ARRA), for program expenses.13 The Microloan program’s $3 million
appropriation for FY2011 is expected to support about $25 million in lending to intermediaries.
Microloan intermediaries and qualified “non-lending technical assistance providers” selected by
the SBA also received $43.2 million in FY2010 to provide Microloan borrowers and Microloan
prospective borrowers marketing, management, and technical training assistance.14 Of that $43.2
million, $24 million was additional temporary funding provided by P.L. 111-5.
912
Funding
The program received an appropriation of $3.678 million in FY2012, which was expected to
support about $25.0 million in lending to intermediaries.13 The Obama Administration
recommended that the program receive an appropriation of $2.844 million for FY2013, which
was expected to support about $18.0 million in lending to intermediaries.14 P.L. 112-175, the
10
For information and analysis concerning the SBA’s 7(a) and 504/CDC programs, see CRS Report R41146, Small
Business Administration 7(a) Loan Guaranty Program, by Robert Jay Dilger and CRS Report R41184, Small Business Administration
Administration 504/CDC Loan Guaranty Program, both by Robert Jay Dilger.
1011
P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for borrowers from $35,000 to $50,000.
1112
There are no Microloan intermediaries located in Alaska, Rhode Island, and Utah. A microloan intermediary located
in Washington, Pennsylvania provides services to three West Virginia counties and Utah. U.S. Small Business Administration,
Microloan “Microloan
Program: Partner Identification & Management System Participating Intermediary Microlenders Report,
Washington, DC, ” at
http://www.sba.gov/sites/default/files/Microloan%20Intermediary%20List_420Listing%2020121031.pdf. An intermediary
may may
not operate in more than one state unless the SBA determines that it would be in the best interests of the small
business business
community for it to operate across state lines. For example, the microloan intermediary located in
Washington,
Pennsylvania is allowed to service three West Virginia counties due to the lack of participating
intermediaries in those counties.
12
U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with the
author, January 14, 2011.
13
P.L. 111-5, the American Recovery and Reinvestment Act of 2009, provided the Microloan program an additional $6
million over two fiscal years.
14
U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and Fiscal Year 2009
Annual Performance Report (Washington: GPO, 2010), p. 42; and U.S. Small Business Administration, Fiscal Year
2012 Congressional Budget Justification and Fiscal Year 2010 Annual Performance Report (Washington: GPO, 2011),
(continued...)
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Small Business Administration Microloan Program
The Microloan technical assistance program provided counseling services to 14,916 small
businesses in FY2010, compared with 2,757 in FY2009.15 It received a FY2011 appropriation of
$22 million.16 The SBA’s FY2011 goal for the Microloan technical assistance program is to
provide counseling services to 6,500 Microloan program participantsten West Virginia counties due to its proximity to these counties and the distance to
the only other intermediary serving West Virginia, which is located in Charleston, West Virginia. Also, a microloan
intermediary located in Laguna Nigel, California, which focuses on the capital needs of disabled veteran-owned
businesses, serves many jurisdictions throughout the nation that lack a participating intermediary.
13
The Obama Administration and the House Committee on Appropriations recommended that the Microloan program
receive an appropriation of $3.765 million for FY2012, which was expected to support about $25.0 million in lending
to intermediaries. The Senate Committee on Appropriations recommended that the Microloan program receive an
appropriation of $3.678 million for FY2012, which was expected to support about $25.0 million in lending to
intermediaries. See U.S. Office of Management and Budget, FY2012, Budget of the United States Government,
Appendix, pp. 1161-1172; U.S. Congress, House Committee on Appropriations, Financial Services and General
Government Appropriations Bill, 2012, report to accompany H.R. 2434, 112th Cong., 1st sess., July 7, 2012, H.Rept.
112-136 (Washington: GPO, 2012), p. 67; and U.S. Congress, Senate Committee on Appropriations, Financial Services
and General Government Appropriations Bill, 2012, report to accompany S. 1573, 112th Cong., 1st sess., September 15,
2011, S.Rept. 112-79 (Washington: GPO, 2011), p. 115.
14
U.S. Office of Management and Budget, FY2013, Budget of the United States Government, Appendix, p. 1267. The
House Committee on Appropriations recommended that the Microloan program receive an appropriation of $2.844
million for FY2013, which is expected to support about $18.0 million in lending to intermediaries. The Senate
Committee on Appropriations recommended that the Microloan program receive an appropriation of $4.0 million for
(continued...)
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Continuing Appropriations Resolution, 2013, which provides appropriations for FY2013 through
March 27, 2013, provided the program a projected $3,700,509 for FY2013 (the FY2012
appropriation amount plus 0.612%).
Microloan intermediaries and qualified “non-lending technical assistance providers” selected by
the SBA also received $20.0 million in FY2012 to provide Microloan borrowers and prospective
borrowers marketing, management, and technical training assistance.15 The Obama
Administration recommended that the Microloan technical assistance program receive $19.76
million in FY2013.16 P.L. 112-175, the Continuing Appropriations Resolution, 2013, which
provides appropriations through March 27, 2013, provided the program a projected $20.124
million for FY2013 (the FY2012 appropriation amount plus 0.612%).
The Microloan technical assistance program provided counseling services to 15,892 small
businesses in FY2012.17
Intermediary Microloan Lender Eligibility Standards
To become a qualified intermediary Microloan lender, an applicant must be organized as a
nonprofit organization, quasi-governmental economic development corporation, or an agency
established by a Native American Tribal Government. It must also have made and serviced shortterm, fixed rate loans of not more than $50,000 to newly established or growing small businesses
for at least one year and have at least one year of experience providing technical assistance to its
borrowers.18 If accepted into the program by the SBA, it can borrow no more than $750,000 from
the SBA during its first year of participation, and no more than an aggregate of $5 million in later
years.19
Intermediary Microloan Lender Program Requirements
After receiving an SBA microloan, intermediaries are not required to make any interest payments
on the loan during the first year, but interest accrues from the date that the SBA disburses the loan
proceeds to the intermediary. After that, the SBA determines the schedule for periodic payments.
Loans must be repaid within 10 years.20
The interest rate charged to the intermediary is based on the five-year Treasury rate, adjusted to
the nearest one-eighth percent, less 1.25%. The SBA’s interest rate is updated on a monthly basis.
In addition, intermediaries that maintain an average loan size of $10,000 or less are charged an
interest rate based on the five-year Treasury rate, adjusted to the nearest one-eighth percent, less
2.0%. Portfolios are evaluated annually to determine the applicable rate.21
Intermediaries are required to contribute not less than 15% of the loan amount in cash from nonfederal sources and, as security for repayment of the loan, must provide the SBA first lien
(...continued)
p. 18. Of the total, $24 million was provided by P.L. 111-5, the American Recovery and Reinvestment Act of 2009.
15
U.S. Small Business Administration, Fiscal Year 20121 Congressional Budget Justification and Fiscal Year 2010
Annual Performance Report (Washington: GPO, 2011), p. 38.
16
P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 111-242, the Continuing Appropriations Act, 2011;
and P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011.
17
U.S. Small Business Administration, Fiscal Year 20121 Congressional Budget Justification and Fiscal Year 2010
Annual Performance Report (Washington: GPO, 2011), p. 38.
18
13 C.F.R § 120.701; and 13 C.F.R § 120.702. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan
limit for borrowers from $35,000 to $50,000.
19
13 C.F.R § 120.706. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for intermediaries
after their first year of participation in the program from $3.5 million to $5 million.
20
13 C.F.R § 120.706.
21
15 U.S.C. § 636 7(m)(3)(F)(iii). In January 2011, the SBA’s interest rate to intermediaries was 0% if the average
loan size in the intermediary’s portfolio was under $10,000. The rate was 0.5% if the average loan size was greater than
$10,000. U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with
the author, January 11, 2011.
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position on all notes receivable from any microloans issued under the program. 22 Unlike the
SBA’s 7(a) and 504/CDC loan guarantee programs, the SBA does not charge intermediaries
upfront or on-going service fees under the Microloan program. 23
As mentioned previously, P.L. 111-240, the Small Business Jobs Act of 2010, temporarily allows
(...continued)
FY2013, which is expected to support about $25.0 million in lending to intermediaries. See U.S. Congress, House
Committee on Appropriations, Financial Services and General Government Appropriations Bill, 2013, report to
accompany H.R. 6020, 112th Cong., 2nd sess., June 26, 2012, H.Rept. 112-550 (Washington: GPO, 2012), p. 78; and
U.S. Congress, Senate Committee on Appropriations, Financial Services and General Government Appropriations Bill,
2013, report to accompany S. 3301, 112th Cong., 2nd sess., June 14, 2012, S.Rept. 112-177 (Washington: GPO, 2012),
p. 115.
15
U.S. Small Business Administration, “Fiscal Year 2013 Congressional Budget Justification and Fiscal Year 2011
Annual Performance Report,” p. 15; and P.L. 112-74, the Consolidated Appropriations Act, 2012.
16
U.S. Office of Management and Budget, FY2013, Budget of the United States Government, Appendix, p. 1265. The
House Committee on Appropriations recommended that the Microloan technical assistance program receive an
appropriation of $20.0 million for FY2013. The Senate Committee on Appropriations recommended that the Microloan
technical assistance program receive an appropriation of $24.0 million. See U.S. Congress, House Committee on
Appropriations, Financial Services and General Government Appropriations Bill, 2013, report to accompany H.R.
6020, 112th Cong., 2nd sess., June 26, 2012, H.Rept. 112-550 (Washington: GPO, 2012), p. 76; and U.S. Congress,
Senate Committee on Appropriations, Financial Services and General Government Appropriations Bill, 2013, report to
accompany S. 3301, 112th Cong., 2nd sess., June 14, 2012, S.Rept. 112-177 (Washington: GPO, 2012), p. 111.
17
U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with the
author, October 16, 2012. The Microloan technical assistance program provided counseling services to 15,900 small
businesses in FY2011, 14,916 small businesses in FY2010, and 2,757 in FY2009. See U.S. Small Business
Administration, “Fiscal Year 2013 Congressional Budget Justification and Fiscal Year 2011 Annual Performance
Report,” p. 34.
18
13 C.F.R §120.701; and 13 C.F.R §120.702. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan
limit for borrowers from $35,000 to $50,000.
19
13 C.F.R §120.706. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for intermediaries
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Intermediary Microloan Lender Program Requirements
After receiving an SBA microloan, intermediaries are not required to make any interest payments
on the loan during the first year, but interest accrues from the date that the SBA disburses the loan
proceeds to the intermediary. After that, the SBA determines the schedule for periodic payments.
Loans must be repaid within 10 years.20
The interest rate charged to the intermediary is based on the five-year Treasury rate, adjusted to
the nearest one-eighth percent, less 1.25%. The SBA’s interest rate is updated on a monthly basis.
In addition, intermediaries that maintain an average loan size of $10,000 or less are charged an
interest rate based on the five-year Treasury rate, adjusted to the nearest one-eighth percent, less
2.0%. Portfolios are evaluated annually to determine the applicable rate.21
Intermediaries are required to contribute not less than 15% of the loan amount in cash from nonfederal sources and, as security for repayment of the loan, must provide the SBA first lien
position on all notes receivable from any microloans issued under the program.22 Unlike the
SBA’s 7(a) and 504/CDC loan guarantee programs, the SBA does not charge intermediaries
upfront or on-going service fees under the Microloan program.23
As mentioned previously, P.L. 111-240, the Small Business Jobs Act of 2010, temporarily allowed
the SBA to waive, in whole or in part through FY2012, the intermediary’s 15% non-federal share
requirement under specified circumstances (e.g., the economic conditions affecting the
intermediary and the intermediary’s performance) for up to a fiscal year.24
Intermediaries are required to deposit the proceeds from the SBA’s loans, their 15% contribution,
and payments from their microloan borrowers into an interest-bearing Microloan Revolving
Fund. Intermediaries may only withdraw from this account funds necessary to make microloans
to borrowers, repay the SBA, and establish and maintain an interest-bearing Loan Loss Reserve
Fund to pay any shortage in the Microloan Revolving Fund caused by delinquencies or losses on
its microloans.25 They are required, until they have been in the program for at least five years, to
maintain a balance in the Loan Loss Reserve Fund equal to 15% of the outstanding balance of the
notes receivable from their microloan borrowers.26 After five years, if the intermediary’s average
annual loss rate during the preceding five years is less than 15% and no other factors exist that
may impair the intermediary’s ability to repay its obligations to the SBA, the SBA Administrator
may reduce the required balance in the intermediary’s Loan Loss Reserve Fund to the
intermediary’s average annual loss rate during the preceding five years, but not less than 10% of
the portfolio.27 Intermediaries are required to maintain their Loan Loss Reserve Fund until they
have repaid all obligations owed to the SBA.
The borrower default rate for the Microloan program is about 12%.28 Because the Loan Loss
Reserve Fund is used to contribute toward the cost of borrower defaults, and is often sufficient to
cover the entire cost of such defaults, the SBA’s default rate for intermediary repayment in the
Microloan program in FY2010 was 2.77%.29
22
13 C.F.R § 120.706. Note: The 15% contribution must be from non-Federal(...continued)
after their first year of participation in the program from $3.5 million to $5 million.
20
13 C.F.R §120.706.
21
15 U.S.C. §636 7(m)(3)(F)(iii). In August 2012, the SBA’s interest rate to intermediaries was 0.0% if the average
loan size in the intermediary’s portfolio was under $10,000. The rate was also 0.0% if the average loan size was greater
than $10,000. U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence
with the author, August 2, 2012.
22
13 C.F.R §120.706. Note: The 15% contribution must be from non-federal sources and may not be borrowed. For
purposes of this program, Community Development Block Grants are considered non-Federalfederal sources.
23
Ibid.
24
P.L. 111-240, the Small Business Jobs Act of 2010, Sec. §1401. Matching Requirements Under Small Business
Programs.
25
13 C.F.R § 120.709.
26
13 C.F.R § 120.710. If the intermediary’s average annual loss rate during the preceding five years is less than 15%
and no other factors exist that may impair the intermediary’s ability to repay its obligations to the SBA, the SBA
Administrator may reduce the required balance in the intermediary’s Loan Loss Reserve Fund to the intermediary’s
average annual loss rate during the preceding five years, but not less than 10% of the portfolio.
27
Ibid.
28
U.S. Congress, House Committee on Small Business, Full Committee Hearings on the Small Business
Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007),
p. 15. Note: A study released on December 28, 2009 by the U.S. Small Business Administration, Office of the
Inspector General, concluded that Microloan intermediaries may be under-reporting the default rate. See U.S. Small
Business Administration, Office of the Inspector General, SBA’s Administration of the Microloan Program under the
Recovery Act, Washington, DC, December 28, 2009, http://www.sba.gov/office-of-inspector-general/868/12427.
29
U.S. Small Business Administration, 2008 Loss Report, Washington, DC, p. 10, http://archive.sba.gov/idc/groups/
public/documents/sba_program_office/cfo_2008_loss_report.pdf; and U.S. Small Business Administration, Agency
Financial Report, Fiscal Year 2010, Washington, DC, http://www.sba.gov/sites/default/files/afr_2010_final.pdf.
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may impair the intermediary’s ability to repay its obligations to the SBA, the SBA Administrator
may reduce the required balance in the intermediary’s Loan Loss Reserve Fund to the
intermediary’s average annual loss rate during the preceding five years, but not less than 10% of
the portfolio.27 Intermediaries are required to maintain their Loan Loss Reserve Fund until they
have repaid all obligations owed to the SBA.
The borrower default rate for the Microloan program is about 12%.28 Because the Loan Loss
Reserve Fund is used to contribute toward the cost of borrower defaults, and is often sufficient to
cover the entire cost of such defaults, the SBA’s loss rate for intermediary repayment is typically
less than 3%.29
An intermediary may be suspended or removed from the Microloan program if it fails to comply
with a specified list of program performance standards. For example, intermediaries are required
to close and fund a minimum of four microloans per year, cover the service territory assigned by
the SBA, honor the SBA determined boundaries of neighboring intermediaries and non-lender
technical assistance providers, fulfill reporting requirements, maintain a loan currency rate of
85% or more (where loans are no more than 30 days late in scheduled payments), maintain a
default rate of 15% or less, and “satisfactorily provide” in-house technical assistance to microloan
clients and prospective microloan clients. 30
Intermediary Marketing, Management, and Technical
Training Assistance
As mentioned previously, the SBA provided intermediaries and qualified “non-lending technical
assistance providers” $43.220.0 million in FY2010FY2012 to provide Microloan borrowers and Microloan
prospective borrowers marketing, management, and technical training assistance.31 P.L. 112-175,
the Continuing Appropriations Resolution, 2013, which provides appropriations through March
27, 2013, provides the SBA a projected $20.124 million in FY2013 for this purpose.
Intermediaries are eligible to receive a Microloan technical assistance grant “of not more than
25% of the total outstanding balance of loans made to it under this subsection.”32 Grant funds
may be used only to provide marketing, management, and technical assistance to microloan
borrowers, except that up to 25% of the funds may be used to provide such assistance to
prospective Microloan borrowers. Grant funds may also be used to attend training required by the
SBA. 33 In most instances, intermediaries must contribute, solely from non-federal sources, an
amount equal to 25% of the grant amount.34 In addition to cash or other direct funding, the
contribution may include indirect costs or in-kind contributions paid for under non-federal
programs. 35 Intermediaries may expend no more than 25% of the grant funds on third-party
contracts for the provision of technical assistance. 36
Also, as mentioned earlier, P.L. 111-240, the Small Business Jobs Act of 2010, temporarily allows
the SBA to waive, in whole or in part through FY2012, the 25% non-federal share requirement
for grants made to Microloan intermediaries for small business marketing, management, and
30
13 C.F.R § 120.716.
U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and Fiscal Year 2009
Annual Performance Report (Washington: GPO, 2010), p. 42; and U.S. Small Business Administration, Fiscal Year
2012 Congressional Budget Justification and Fiscal Year 2010 Annual Performance Report (Washington: GPO, 2011),
p. 18. Of the total, $24 million was provided by P.L. 111-5, the American Recovery and Reinvestment Act of 2009.
32
15 U.S.C. § 636(m)(4)(A). Note: The SBA’s Program for Investment in Microentrepreneurs Act (PRIME) program
also provides non-profit organizations grant funding to assist low-income entrepreneurs with training assistance. See,
U.S. Small Business Administration, PRIME Program, Washington, DC, http://www.sba.gov/content/prime-program0.
33
13 C.F.R § 120.712.
31
34
Ibid. Intermediaries who make at least 50% of their loans to small businesses located in or owned by residents of
Economically Distressed Areas are not subject to the 25% contribution requirement. An economically distressed area is
a county or equivalent division of local government in which, according to the most recent available data from the U.S.
Census Bureau, 40% or more of the residents have an annual income that is at or below the poverty level. See 13 C.F.R
§ 120.701.
35
13 C.F.R § 120.712. Intermediaries may not borrow their contribution.
36
Ibid.
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technical assistance under specified circumstances (e.g., the economic conditions affecting the
intermediary and the intermediary’s performance) for up to a fiscal year.3731 Grant funds
27
Ibid.
U.S. Congress, House Committee on Small Business, Full Committee Hearings on the Small Business
Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007),
p. 15. Note: A study released on December 28, 2009 by the U.S. Small Business Administration, Office of the
Inspector General, concluded that Microloan intermediaries may be under-reporting the default rate. See U.S. Small
Business Administration, Office of the Inspector General, “SBA’s Administration of the Microloan Program under the
Recovery Act,” December 28, 2009, at http://www.sba.gov/office-of-inspector-general/868/12427.
29
U.S. Small Business Administration, “2008 Loss Report,” p. 10, at http://archive.sba.gov/idc/groups/public/
documents/sba_program_office/cfo_2008_loss_report.pdf; and U.S. Small Business Administration, Office of
Congressional and Legislative Affairs, correspondence with the author, August 2, 2012. In FY2011, the Microloan
program’s intermediary default rate was 2.15%. See U.S. Small Business Administration, “Agency Financial Report,
Fiscal Year 2011,” p. 8, at http://www.sba.gov/sites/default/files/
Agency%20Financial%20Report%20FY%202011_0.pdf. A total of 27 loans to intermediaries have been charged off
over the life of the Microloan program, through August 2, 2012. The amount charged off on these 27 loans is
$3,985,056.54. This represents 1.11% of total funds disbursed to intermediaries and 3.20% of the current outstanding
principal balance of loans to intermediary lenders.
30
13 C.F.R §120.716.
31
15 U.S.C. §636(m)(4)(A). Note: The SBA’s Program for Investment in Microentrepreneurs Act (PRIME) program
(continued...)
28
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Small Business Administration Microloan Program
may be used only to provide marketing, management, and technical assistance to microloan
borrowers, except that up to 25% of the funds may be used to provide such assistance to
prospective Microloan borrowers. Grant funds may also be used to attend training required by the
SBA.32 In most instances, intermediaries must contribute, solely from non-federal sources, an
amount equal to 25% of the grant amount.33 In addition to cash or other direct funding, the
contribution may include indirect costs or in-kind contributions paid for under non-federal
programs.34 Intermediaries may expend no more than 25% of the grant funds on third-party
contracts for the provision of technical assistance.35
Also, as mentioned earlier, P.L. 111-240, the Small Business Jobs Act of 2010, temporarily
allowed the SBA to waive, in whole or in part through FY2012, the 25% non-federal share
requirement for grants made to Microloan intermediaries for small business marketing,
management, and technical assistance under specified circumstances (e.g., the economic
conditions affecting the intermediary and the intermediary’s performance) for up to a fiscal year.36
The SBA does not require Microloan borrowers to participate in the marketing, management, and
technical assistance program. However, intermediaries typically require microloan borrowers to
participate in the training program as a condition of the receipt of a microloan. Combining loan
and intensive training assistance is one of the Microloan program’s distinguishing features.
Intermediaries that make at least 25% of their loans to small businesses located in or owned by
residents of an Economically Distressed Area (defined as having 40% or more of its residents
with an annual income that is at or below the poverty level), or have a portfolio of loans made
under the program “that averages not more than $10,000 during the period of the intermediary’s
participation in the program” are eligible to receive an additional training grant equal to 5% of
“the total outstanding balance of loans made to the intermediary.”3837 Intermediaries are not
required to make a matching contribution as a condition of receiving these additional grant funds.
Non-lending Technical Assistance Providers
Each year, the SBA selectsis authorized to select qualified non-profit, non-lending technical assistance
providers to
receive grant funds to provide marketing, management, and technical assistance to Microloan
Microloan borrowers. Any non-profit entity that is not an intermediary may apply for these funds.39
funds.38
(...continued)
also provides non-profit organizations grant funding to assist low-income entrepreneurs with training assistance. See,
U.S. Small Business Administration, “PRIME Program,” at http://www.sba.gov/content/prime-program-0.
32
13 C.F.R §120.712.
33
Ibid. Intermediaries who make at least 50% of their loans to small businesses located in or owned by residents of
Economically Distressed Areas are not subject to the 25% contribution requirement. An economically distressed area is
a county or equivalent division of local government in which, according to the most recent available data from the U.S.
Census Bureau, 40% or more of the residents have an annual income that is at or below the poverty level. See 13 C.F.R
§120.701.
34
13 C.F.R §120.712. Intermediaries may not borrow their contribution.
35
Ibid.
36
P.L. 111-240, the Small Business Jobs Act of 2010, §1401. Matching Requirements Under Small Business Programs.
37
13 C.F.R §120.712; and 15 U.S.C. §636(m)(4)(C)(i).
38
13 C.F.R §120.714.
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The SBA may award up to 55 grants each year to qualified non-lending technical assistance
providers to deliver marketing, management, and technical assistance to Microloan borrowers.
The grants may be for terms of up to five years and may not exceed $200,000.40
39 The nonprofit
entity must contribute, solely from non-federal sources, an amount equal to 20% of
the grant. In
addition to cash or other direct funding, the contribution may include indirect costs
or in-kind
contributions paid for under non-federal programs.40
The SBA stopped awarding these grants at the beginning of FY2005. The SBA determined at that
time that the non-lending technical assistance providers duplicated much of what was already
being provided by Microloan intermediaries and other SBA entrepreneurial development
programs.41
Microloan Borrower Eligibility Standards
With one exception, Microloan borrowers must be an eligible, for-profit small business as defined
by the Small Business Act. P.L. 105-135, the Small Business Reauthorization Act of 1997,
expanded the Microloan program’s eligibility to include borrowers establishing a nonprofit
childcare business.
37
P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 1401. Matching Requirements Under Small Business
Programs.
38
13 C.F.R § 120.712; and 15 U.S.C. § 636(m)(4)(C)(i).
39
13 C.F.R § 120.714.
40
Ibid.
41
Ibid.
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Small Business Administration Microloan Program
Microloan Borrower Program Requirements
Intermediaries are directed by legislative language to provide borrowers “small-scale loans,
particularly loans in amounts averaging not more than $10,000.”42 They are also directed, “to the
extent practicable ... to maintain a microloan portfolio with an average loan size of not more than
$15,000.”43 Microloans for more than $20,000 are allowed “only if such small business concern
demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has
good prospects for success.”44 The maximum loan amount is $50,000 and no borrower may owe
an intermediary more than $50,000 at any one time. 45
Microloan proceeds may be used only for working capital and acquisition of materials, supplies,
furniture, fixtures, and equipment. Loans cannot be made to acquire land or property, and must be
repaid within six years. 46 Within these parameters, loan terms vary depending on the loan’s size,
the planned use of funds, the requirements of the intermediary lender, and the needs of the small
business borrower. On loans of more than $7,500, the maximum interest rate that can be charged
to the borrower is the interest rate charged by the SBA on the loan to the intermediary, plus 7.75
percentage points. On loans of $7,500 or less, the maximum interest rate that can be charged to
the borrower is the interest charged by the SBA on the loan to the intermediary, plus 8.5
39
Ibid.
Ibid.
41
U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with the
author, August 2, 2012.
42
15 U.S.C. §636(m)(1)(A)(iii)(I).
43
15 U.S.C. §636(m)(6)(B).
44
15 U.S.C. §636(m)(3)(E).
45
13 C.F.R §120.707. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for borrowers from
$35,000 to $50,000.
46
Ibid.
40
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Small Business Administration Microloan Program
percentage points.47 Rates are negotiated between the borrower and the intermediary, and
typically range from 8% to 10%.48 Each intermediary establishes its own lending and credit
requirements. However, borrowers are generally required to provide some type of collateral, and
a personal guarantee to repay the loan. The SBA does not review the loan for creditworthiness.48
Microloan Program Statistics
49
Microloan Program Statistics
In FY2012, the SBA provided 42 loans amounting to $23.9 million to intermediaries, and
intermediaries provided 3,973 microloans amounting to $44.7 million to small businesses. The
average loan to an intermediary was $568,238, and the average microloan to a small business was
$11,255.50
The Microloan program is open to all small business entrepreneurs, but targets new and earlystage businesses in “underserved markets, including borrowers with little to no credit history,
low-income borrowers, and women and minority entrepreneurs in both rural and urban areas who
generally do not qualify for conventional loans, or other, larger SBA guaranteed loans.”4951 An
analysis conducted by the Urban Institute found that about 9.9% of conventional small business
loans are issued to minority-owned small businesses and about 16% of conventional small
business loans are issued to women-owned businesses.50 In FY2010, almost half (47.4%) of the
42
15 U.S.C. § 636(m)(1)(A)(iii)(I).
15 U.S.C. § 636(m)(6)(B).
44
15 U.S.C. § 636(m)(3)(E).
43
45
13 C.F.R § 120.707. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for borrowers from
$35,000 to $50,000.
46
Ibid.
47
15 U.S.C. § 636 7(m)(6)(C)(i); and 15 U.S.C. § 636 7(m)(6)(C)(ii).
48
U.S. Small Business Administration, “Microloan Program,” Washington, DC, http://www.sba.gov/content/
microloan-program.
49
U.S. Small Business Administration, Microloans Help Small Businesses Start, Grow and Succeed, Washington, DC,
http://archive.sba.gov/idc/groups/public/documents/sba_homepage/recovery_act_microloans.pdf.
5052 In FY2012, more than half (57.4%) of
the Microloan program’s loans went to women-owned or -controlled firms and, of those reporting
their race, 43.0% went to minority-owned or -controlled firms.53
More than three-quarters of all microloan borrowers (79.8%) in FY2012 were located in an urban
area. Also, startup companies received about half (51.9%) of all microloans in FY2012.54
As mentioned previously, the borrower default rate for the Microloan program is about 12%.55
Because the Loan Loss Reserve Fund is used to contribute toward the cost of borrower defaults,
47
15 U.S.C. §636 7(m)(6)(C)(i); and 15 U.S.C. §636 7(m)(6)(C)(ii).
In FY2012, Microloan borrowers were charged, on average, an interest rate of 8.18, compared to 8.45% in FY2011.
U.S Small Business Administration, “Nationwide Loan Report, October 1, 2011 through September 30, 2012,” October
15, 2012; and U.S Small Business Administration, “Nationwide Loan Report, October 1, 2010 through September 30,
2011,” November 2, 2011.
49
U.S. Small Business Administration, “Microloan Program,” at http://www.sba.gov/content/microloan-program.
50
U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with the
author, October 16, 2012.
51
U.S. Small Business Administration, “Microloans Help Small Businesses Start, Grow and Succeed,” at
http://archive.sba.gov/idc/groups/public/documents/sba_homepage/recovery_act_microloans.pdf.
52
Kenneth Temkin, Brett Theodos, with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 Programs (Washington: The Urban Institute, 2008), p. 13, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf.
53
U.S Small Business Administration, “Nationwide Loan Report, October 1, 2011 through September 30, 2012,”
October 15, 2012.
54
Ibid.
55
U.S. Congress, House Committee on Small Business, Full Committee Hearings on the Small Business
Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007),
p. 15. Note: A study released on December 28, 2009 by the U.S. Small Business Administration, Office of the
Inspector General, concluded that Microloan intermediaries may be under-reporting the default rate. See U.S. Small
Business Administration, Office of the Inspector General, “SBA’s Administration of the Microloan Program under the
Recovery Act,” December 28, 2009, at http://www.sba.gov/office-of-inspector-general/868/12427.
48
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Small Business Administration Microloan Program
and is often sufficient to cover the entire cost of such defaults, the SBA’s loss rate for
intermediary repayment is typically less than 3%.56
Microloans are often used for more than one purpose. In FY2012, they were most commonly
used to finance working capital (65.5%), purchase new equipment (26.0%), and purchase
inventory (24.3%).57http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf.
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Small Business Administration Microloan Program
Microloan program’s loans went to women-owned or -controlled firms and 55.3% went to
minority-owned or -controlled firms.51
As mentioned previously, in FY2010, the SBA provided 78 loans amounting to $38.1 million to
intermediaries, and intermediaries provided 3,621 microloans amounting to $44.2 million to small
businesses. The average loan to an intermediary was $488,832, and the average microloan to a
small business was $12,195.52 About three-quarters of all microloan borrowers were located in an
urban area. Also, about 42% of microloans were provided to startup companies.53
The default rate for Microloan borrowers is about 12% and the Microloan intermediary default
rate in FY2010 was 2.77%.54 Microloans are often used for more than one purpose. In FY2010,
they were most commonly used to finance working capital (66.6%), purchase new equipment
(31.9%), and purchase inventory (22.8%).55
Congressional Issues
Critics of the SBA’s Microloan program argue that it is duplicative of other available programs,
expensive relative to alternative programs, and subject to administrative shortfalls. The program’s
advocates argue that it provides assistance that “reaches many who otherwise would not be served
by the private sector or even the SBA’s 7(a) loan program” and “has provided an important source
of capital for low-income women business owners and minority borrowers.”5658
Program Duplication
Critics of the SBA’s Microloan program argue that its direct lending program is duplicative of the
SBA’s 7(a) loan guarantee program and its marketing, management, and technical training
assistance grant program is duplicative of the SBA’s training assistance provided through Small
Business Development Centers, SCORE (Service Corps of Retired Executives), and Women
Business Centers. For example, President George W. Bush proposed to eliminate all funding for
the Microloan program in his FY2005, FY2006, and FY2007 budget requests to Congress,
arguing that “the 7(a) program is capable of serving the same clientele through the Community
Express programs for much lower cost to the Government.”5759 President Bush also proposed to
51
U.S. Small Business Administration, Office of terminate the Microloan program’s marketing, management, and technical assistance grant
program in his FY2008 and FY2009 budget requests to Congress.60
56
U.S. Small Business Administration, “2008 Loss Report,” p. 10, at http://archive.sba.gov/idc/groups/public/
documents/sba_program_office/cfo_2008_loss_report.pdf; and U.S. Small Business Administration, Office of
Congressional and Legislative Affairs, correspondence with the
author, January 14, 2011.
52
Ibid.
53
Ibid.
54
author, August 2, 2012. In FY2011, the Microloan
program’s intermediary default rate was 2.15%. See U.S. Small Business Administration, “Agency Financial Report,
Fiscal Year 2010 (Washington: GPO, 2010), p. 66.
55
U.S. Small Business Administration, Office of Congressional and Legislative Affairs, correspondence with the
author, January 14, 2011.
56
2011,” p. 8, at http://www.sba.gov/sites/default/files/
Agency%20Financial%20Report%20FY%202011_0.pdf. A total of 27 loans to intermediaries have been charged off
over the life of the Microloan program, through August 2, 2012. The amount charged off on these 27 loans is
$3,985,056.54. This represents 1.11% of total funds disbursed to intermediaries and 3.20% of the current outstanding
principal balance of loans to intermediary lenders.
57
U.S Small Business Administration, “Nationwide Loan Report, October 1, 2011 through September 30, 2012,”
October 15, 2012.
58
U.S. Congress, House Committee on Small Business, Full Committee Hearing on the Small Business
Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007),
pp. 1, 2.
5759
U.S. Office of Management and Budget, Budget of the United States Government: Fiscal Year 2005 (Washington:
GPO, 2005), p. 334, at
http://www.gpoaccess.gov/usbudget/fy05/pdf/budget/sba.pdf; U.S. Office of Management and
Budget, Budget of the
United States Government: Fiscal Year 2006 (Washington: GPO, 2006), p. 313,
, p. 313, at http://www.gpoaccess.gov/usbudget/fy06/pdf/budget/sba.pdf;
and U.S. Office of Management and Budget, Budget of
the United States Government: Fiscal Year 2007 (Washington: GPO, 2007), p. 283, at
http://www.gpoaccess.gov/
usbudget/fy07/pdf/budget/sba.pdf.
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Small Business Administration Microloan Program
terminate the Microloan program’s marketing, management, and technical assistance grant
program in his FY2008 and FY2009 budget requests to Congress.58
Critics of the SBA’s Microloan program argue that about 44% of the SBA’s 7(a) program’s loan
guarantees are for loans under $35,000 (the Microloan program’s former loan limit for
borrowers), representing more than 17 times the number of loans issued through the SBA’s
Microloan program.59 In their view, the 7(a) program has demonstrated that it can service the
needs of small businesses targeted by the SBA’s Microloan program.60 They also argue that the
SBA’s Microloan program’s marketing, management, and technical assistance grants program is
not necessary because the SBA “already supports a nationwide network of resource partners who
provide counseling and training to entrepreneurs, including Small Business Development Centers,
Women’s Business Centers, and SCORE.”61 They argue that about 94% of Microloan
intermediaries are located within 20 miles of a Small Business Development Center, a Women’s
Business Center, or SCORE partner.62
60
U.S. Office of Management and Budget, Budget of the United States Government: Fiscal Year 2008, pp. 139, 140, at
http://www.gpoaccess.gov/usbudget/fy08/pdf/budget/sba.pdf; and U.S. Office of Management and Budget, Budget of
the United States Government: Fiscal Year 2009, p. 130, at http://www.gpoaccess.gov/usbudget/fy09/pdf/budget/
(continued...)
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Critics of the SBA’s Microloan program argued in 2007 that about 44% of the SBA’s 7(a)
program’s loan guarantees at that time were for loans under $35,000 (the Microloan program’s
former loan limit for borrowers), representing more than 17 times the number of loans issued
through the SBA’s Microloan program.61 In their view, the 7(a) program had demonstrated that it
can service the needs of small businesses targeted by the SBA’s Microloan program.62 They also
argued that the SBA’s Microloan program’s marketing, management, and technical assistance
grants program was not necessary because the SBA “already supports a nationwide network of
resource partners who provide counseling and training to entrepreneurs, including Small Business
Development Centers, Women’s Business Centers, and SCORE.”63 They argued that about 94%
of Microloan intermediaries are located within 20 miles of a Small Business Development Center,
a Women’s Business Center, or a SCORE partner.64
The program’s advocates argue that the SBA’s Microloan program is complementary, not
duplicative of the SBA’s 7(a) loan guarantee program. They assert that microloan borrowers are
particularly disadvantaged when seeking access to capital, often having no credit history or lower
credit scores than most applicants for the SBA’s 7(a) loan guarantee program.6365 In their view, it is
important that the SBA has a program whose sole focus is to assist microloan borrowers in
starting a microbusiness and have in place intermediaries that “have essential expertise on the
needs of this key demographic.”6466
They also argue that the SBA’s Microloan marketing, management, and technical assistance
grants program is “a crucial element which enables intermediaries to assist microbusiness owners
step by step through their development and growth” and “not only increases the likelihood of full
repayment of the loan, but augments business survival and success.”6567 As mentioned previously,
intermediaries typically require Microloan borrowers to participate in the training program as a
condition of the receipt of the microloan.
58
U.S. Office of Management and Budget, Budget of the United States Government: Fiscal Year 2008 (Washington:
GPO, 2008), pp. 139, 140, http://www.gpoaccess.gov/usbudget/fy08/pdf/budget/sba.pdf; and U.S. Office of
Management and Budget, Budget of the United States Government: Fiscal Year 2009 (Washington: GPO, 2009), p.
130, http://www.gpoaccess.gov/usbudget/fy09/pdf/budget/Program Cost
Critics of the SBA’s Microloan program argue that it is expensive relative to other SBA programs,
costing about $9,685 per small business assisted in FY2011, compared to $1,882 per small
business assisted in the SBA’s 7(a) loan guarantee program.68 President George W. Bush cited the
program’s higher expense when he recommended in his FY2005, FY2006, and FY2007 budget
(...continued)
sba.pdf. The Bush Administration also proposed to increase
the interest rate charged to intermediaries.
59
61
U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan
and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 37.
6062
Ibid.
6163
Ibid., pp. 37, 38.
62
64
U.S. Congress, House Committee on Small Business, Full Committee Hearing on the Small Business
Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007),
p. 7.
6365
U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan
and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 27.
6466
Ibid., p. 7.
65
Ibid.
Congressional Research Service
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Small Business Administration Microloan Program
Program Cost
Critics of the SBA’s Microloan program argue that it is expensive relative to other SBA programs,
costing about 88 cents per dollar loaned compared to 3 cents per dollar loaned in the SBA’s 7(a)
loan guarantee program. 66 President George W. Bush cited the program’s expense when he
recommended in his FY2005, FY2006, and FY2007 budget requests to Congress that the program
67
Ibid.
68
U.S. Small Business Administration, “Fiscal Year 2013 Congressional Budget Justification and Fiscal Year 2011
Annual Performance Report,” pp. 31, 34.
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Small Business Administration Microloan Program
requests to Congress that the program be terminated and when he recommended in his FY2008
and FY2009 budget requests to
Congress that the interest rate charged to Microloan
intermediaries be increased to make the
program “self-financing.”6769
The SBA’s Microloan program’s advocates argue that the program’s costs are actually less than
the SBA’s 7(a) program if one considers the cost per loan made instead of the cost per dollar
loaned. The SBA estimates that in FY2010 the Microloan direct lending program cost $1,169 per
loan funded, compared to $1,436 per loan funded by the 7(a) program. 68
The program’s advocates also argue that the program’s higher cost on a per dollar loaned basis is
unavoidable because microloans, by definition, are small. In their view, raising the interest rate
higher cost per small
business assisted is unavoidable given the relatively unique nature of the program and the special
needs of its borrowers. They assert that intermediaries often have to spend a significant amount of
time with Microloan borrowers because those borrowers tend to have less experience with the
credit application process and a more difficult time documenting their qualifications for
assistance than borrowers in the SBA’s loan guaranty programs. Also, in their view, raising the
interest rate charged to intermediaries to make the program self-financing would improve the reduce the
program’s cost
per dollar loaned ratio, but, but could also defeat the program’s purpose. They assert that because microloans are
are small, it is difficult for intermediaries to generate enough interest income to cover their costs. As
As a result, if the interest rate charged to intermediaries is increased, they contend that intermediaries
intermediaries would have to pass the increase on to microloanMicroloan borrowers. In their view,
increasing the
program’s cost to microloan borrowers “will create an economic hardship for them
and make it
more difficult for them to grow their businesses” and “lead to fewer jobs created and
fewer tax
dollars paid.”6970
Program Administration
On December 28, 2009, the SBA’s Office of Inspector General released an analysis of the SBA’s
administration of the Microloan program. It reported a number of deficiencies that it argued
needed to be addressed. The analysis was undertaken in response to language in P.L. 111-5, the
American Recovery and Reinvestment Act of 2009 (ARRA), directing Offices of Inspector
66
U.S. Office of Management and Budget, Budget of the United States Government: Fiscal Year 2009 (Washington:
GPO, 2009), p. 130, http://www.gpoaccess.gov/usbudget/fy09/pdf/budget/sba.pdf.
67
General to perform audits of their respective agencies to determine whether adequate safeguards
exist concerning the use of ARRA funds.71
Program Oversight
The SBA’s Office of Inspector General found that the SBA’s oversight of the Microloan program
“was not sufficient to ensure effective operation of the Microloan program”:
SBA’s oversight is focused on the intermediaries’ ability to repay their SBA loans and is
limited to a cursory review of quarterly financial reports supported by only one monthly
bank statement.... The bank statements are used to simply verify the outstanding balances
69
U.S. Office of Management and Budget, Budget of the United States Government: Fiscal Year 2008 (Washington:
GPO, 2008), ,pp. 139, 140, at
http://www.gpoaccess.gov/usbudget/fy08/pdf/budget/sba.pdf; U.S. Office of Management
and Budget, Budget of the
United States Government: Fiscal Year 2009 (Washington: GPO, 2009), p. 130,
, p. 130, at http://www.gpoaccess.gov/usbudget/fy09/pdf/budget/sba.pdf;
U.S. Congress, House Committee on Small Business,
Full Committee Legislative Hearing on the SBA’s Microloan and
Trade Programs, 110th Cong., 1st sess., July 12, 2007,
H.Hrg. 110-35 (Washington: GPO, 2007), p. 38; and U.S.
Congress, House Committee on Small Business,
Subcommittee on Finance and Tax, Subcommittee Hearing on
Improving the SBA’s Access to Capital Programs for
our Nation’s Small Businesses, 110th Cong., 2nd sess., March 5,
2008, H.Hrg. 110-76 (Washington: GPO, 2008), p. 33.
68
U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification (Washington: GPO,
2009), pp. 34, 38.
6970
U.S. Congress, House Committee on Small Business, Subcommittee on Finance and Tax, Subcommittee Hearing on
Improving the SBA’s Access to Capital Programs for our Nation’s Small Businesses, 110th Cong., 2nd sess., March 5,
2008, H.Hrg. 110-76 (Washington: GPO, 2008), p. 46.
Congressional Research Service
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Small Business Administration Microloan Program
General to perform audits of their respective agencies to determine whether adequate safeguards
exist concerning the use of ARRA funds. 70
Program Oversight
The SBA’s Office of Inspector General found that the SBA’s oversight of the Microloan program
“was not sufficient to ensure effective operation of the Microloan program”:
SBA’s oversight is focused on the intermediaries’ ability to repay their SBA loans and is
limited to a cursory review of quarterly financial reports supported by only one monthly
bank statement.... The bank statements are used to simply verify the outstanding balances
71
U.S. Small Business Administration, Office of the Inspector General, “SBA’s Administration of the Microloan
Program under the Recovery Act,” p. 1, at http://www.sba.gov/office-of-inspector-general/868/12427.
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Small Business Administration Microloan Program
reported on the intermediaries’ quarterly reports. This review process does not allow SBA to
analyze the sources and uses of funds ... which is necessary to detect inappropriate fund
transfers between the intermediaries’ [Microloan Revolving Funds and Loan Loss Reserve
Funds] accounts.7172
The Office of Inspector General’s report noted that the SBA only conducts onsite reviews when
an intermediary defaults on its SBA loan. It also argued that the program was inadequately
staffed, operating at that time “with 6 analysts who oversee more than 160 intermediaries, 460
intermediary loans, and approximately 2,500 microloans per year.”7273
The SBA agreed with the Office of Inspector General that a more detailed review of the financial
information provided by intermediaries was appropriate. It now collects three months of bank
statements each quarter from intermediaries. It also hired three additional staff members to
monitor the program’s ARRA funding, and indicated that it will continue to reassess the
program’s overall staffing needs.7374
Reliability of the Microloan Program’s Performance Data
The SBA’s Office of Inspector General found that the SBA’s reported Microloan borrower default
rate of 12% “appeared low given the high-risk nature of the program.”7475 It found that one
intermediary made 1,182 microloans valued at over $11 million since 1993 and only reported
slightly more than a 1% historical default rate, and 39 other intermediaries that reported that none
of their loans had defaulted. It also identified duplicate loan reporting,; multiple loans to
microloan borrowers in the same amount, indicating the use of revolving lines of credit, which is
disallowed by program regulations,; and 92 microloan borrowers with outstanding microloan
balances exceeding the $35,000 limit. It noted that ARRA “makes clear the importance of data
verification” yet “all of the data used by SBA to report on the Microloan program performance is
based on unverified information that is self-reported by intermediaries.”75 It concluded that “as a
70
U.S. Small Business Administration, Office of the Inspector General, SBA’s Administration of the Microloan
Program under the Recovery Act, Washington, DC, p. 1, http://www.sba.gov/office-of-inspector-general/868/12427.
71
Ibid., p. 4.
72
Ibid.
73
Ibid., p. 8.
74
Ibid., p. 4.
75
Ibid., p. 5.
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Small Business Administration Microloan Program
76 It concluded that “as a
result, SBA cannot ensure that the reported microloan default rates are accurate and comply with
the statutory requirement.”7677
In response, the SBA agreed with the Office of Inspector General with the need for accurate
program data and indicated that microloan data will be evaluated as part of a “data quality
initiative to identify areas for improvement.”7778 The SBA also indicated that it will revise its SOPs
(standard operating procedures) to “include guidance on data review and procedures for following
up with intermediaries to resolve data discrepancies.”7879
72
Ibid., p. 4.
Ibid.
74
Ibid., p. 8.
75
Ibid., p. 4.
76
Ibid., p. 5.
77
Ibid.
78
Ibid., p. 8.
79
Ibid., p. 9.
73
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Small Business Administration Microloan Program
Outcome-Oriented Performance Measures
The SBA’s Office of Inspector General found that the SBA’s program performance is based on the
number of microloans funded and small businesses assisted. It argued that these “performance
metrics ... do not ensure the ultimate program beneficiaries, the microloan borrowers, are truly
assisted by the program” and “without appropriate metrics, SBA cannot ensure the Microloan
program is meeting policy goals.”7980 It noted that the SBA does not track the number of microloan
borrowers who remain in business after receiving a microloan to measure the extent to which the
loans contributed to the success of borrowers and does not determine the effect that technical
training assistance may have on the success of microloan borrowers and their ability to repay
loans.8081 It recommended that the SBA “develop additional performance metrics to measure the
program’s achievement in assisting microloan borrowers in establishing and maintaining
successful small businesses.”8182
In response, the SBA indicated that it has “contracted with the Aspen Institute to advise on
appropriate program and performance metrics for both microloans and technical assistance
grants.”8283 It also indicated that the program metrics developed will be used to assist the agency in
measuring the Microloan program’s effectiveness.
Legislation
Congress considereddid not consider any bills during the 112th Congress that would have affected the
Microloan program. However, it did consider several bills during the 111th Congress that would
have affected the SBA’s
Microloan program before passing the Small Business Jobs Act of 2010,
which President Obama
signed into law (P.L. 111-240) on September 27, 2010.
H.R. 3854, the Small Business Financing and Investment Act of 2009, was passed by the House
by a vote of 389-32, on October 29, 2009. 83 The Senate did not act on the bill. It would have
76
Ibid.
Ibid., p. 8.
78
Ibid., p. 9.
79
Ibid., p. 6.
80
Ibid.
81
Ibid., p. 7.
82
Ibid., p. 9.
77
83
H.R. 3854 combined language from eight bills and would have authorized changes to several SBA programs and
create several new programs. For further analysis, see CRS Report R41385, Small Business Legislation During the
111th Congress, by Robert Jay Dilger, Oscar R. Gonzales, and Gary Guenther.
Congressional Research Service
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Small Business Administration Microloan Program
84 The Senate did not act on the bill. It would have
authorized several new SBA programs and changed several existing SBA programs, including the
Microloan program. For example, it would have
•
increased the Microloan program’s loan funding to “such sums as may be
necessary” to support $110 million in direct microloans in FY2010 and $110
million in FY2011.8485
•
increased the program’s marketing, management, and technical assistance grant
funding to $80 million in FY2010 and $80 million in FY2011.
•
authorized $20 million ($10 million in FY2010 and $10 million in FY2012) for a
new Microloan interest assistance grant program. 8586
80
Ibid., p. 6.
Ibid.
82
Ibid., p. 7.
83
Ibid., p. 9.
84
H.R. 3854 combined language from eight bills and would have authorized changes to several SBA programs and
create several new programs. For further analysis, see CRS Report R41385, Small Business Legislation During the
111th Congress, by Robert Jay Dilger and Gary Guenther.
85
H.R. 3854, the Small Business Financing and Investment Act of 2009, §310. Authorization of Appropriations.
81
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Small Business Administration Microloan Program
•
broadened the eligibility requirements for Microloan intermediaries to qualify for
lower interest rates.8687
•
increased the program’s maximum loan amount to intermediaries during their
first year of participation in the program from $750,000 to $1 million, and in later
years from an aggregate of $3.5 million to $7 million. The SBA’s Administrator
would have been provided discretion to increase the limit to $10 million if such
treatment was determined by the SBA Administrator to be appropriate.8788
•
broadened the eligibility requirements for Microloan intermediaries “to help
expand access to the Microloan program.”8889
•
required the SBA to establish a process under which Microloan intermediaries
“provide to the major credit reporting agencies the information about the
84
H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. 310. Authorization of Appropriations.
H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. 310. Authorization of Appropriations.
86
borrower, both positive and negative, that is relevant to credit reporting, such as
the payment activity of the borrower on the loan.”90
•
provided lenders with the authority to offer more flexible loan terms to
Microloan borrowers, particularly with longer-term loans or revolving lines of
credit, by removing existing requirements that all microloans be “short-term.”91
(...continued)
86
Ibid.
87
H.R. 3854, the Small Business Financing and Investment Act of 2009, SEC. §307. Interest Rates and Loan Size. The
interest rate charged to intermediaries is based on the five-year Treasury rate, adjusted to the nearest one-eighth
percent, less 1.25%. However, intermediaries that maintain an average loan size of $7,500 or less are charged an
interest rate based on the five-year Treasury rate, adjusted to the nearest one-eighth percent, less 2.0%. H.R. 3854
would have enabled more intermediaries to qualify for the lower rate by increasing the required average loan size from
$7,500 to $10,000.
8788
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 34;
and H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. §304. Increased Limit on Intermediary
Borrowing.
8889
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 34.
At that time, intermediaries must have made and serviced short-term, fixed rate loans of not more than $35,000 (now
$50,000) to newly established or growing small businesses for at least one year and have at least one year of experience
providing technical assistance to its borrowers. Under H.R. 3854, intermediaries would have been required to have at
least one year of experience making microloans to startup, newly established, or growing small business concerns, or
have a full-time employee who has not less than three years’ experience in managing a portfolio of loans to startup,
newly established, or growing small business concerns. They would have been required to also have at least one year of
experience providing, as an integral part of its microloan program, intensive marketing, management, and technical
assistance to its borrowers, or one full-time employee who has not less than one year experience providing, as an
integral part of its microloan program, intensive marketing, management, and technical assistance to its borrowers. This
change would have allowed an aspiring intermediary with no direct experience in microlending and technical assistance
to hire trained employees with considerable, equivalent experience and still qualify to participate in the program.
85
Congressional Research Service
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.
Small Business Administration Microloan Program
borrower, both positive and negative, that is relevant to credit reporting, such as
the payment activity of the borrower on the loan.”89
•
provided lenders with the authority to offer more flexible loan terms to
Microloan borrowers, particularly with longer-term loans or revolving lines of
credit, by removing existing requirements that all microloans be “short-term.”9090
H.R. 3854, the Small Business Financing and Investment Act of 2009, §301. Microloan Credit Building Initiative.
This change was designed to enhance Microloan borrowers’ credit scores and their future access to capital.
Intermediaries generally opposed the provision, viewing it as an administrative burden. U.S. Congress, House
Committee on Small Business, Small Business Financing and Investment Act of 2009, report to accompany H.R. 3854,
111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 34.
91
H.R. 3854, the Small Business Financing and Investment Act of 2009, §302. Flexible Credit Terms; and U.S.
Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report to
accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 34.
Congressional Research Service
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Small Business Administration Microloan Program
•
increased the percentage of technical assistance grant funds that an intermediary
can spend on prospective borrowers from 25% to 35%, and on the provision of
technical assistance through third-party providers from 25% to 35%.9192
•
required the SBA to annually provide the House Committee on Small Business
and the Senate Committee on Small Business and Entrepreneurship a detailed,
comprehensive report on the Microloan program. 9293
S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, was ordered to be
reported by the Senate Committee on Small Business and Entrepreneurship on December 10,
2009. It would have authorized changes to several SBA programs, including the Microloan
program. The Senate did not take further action on the bill, but several of its provisions, including
those affecting the Microloan program, were later included in P.L. 111-240. For example, it would
have
•
increased the SBA’s Microloan program’s maximum loan amount to
intermediaries after their first year of participation in the program from $3.5
million to $5 million.9394
•
increased the maximum loan amount to Microloan borrowers from $35,000 to
$50,000.94
89
H.R. 3854,95
As mentioned previously, P.L. 111-240 the Small Business Financing and InvestmentJobs Act of 2009, Sec. 301. Microloan Credit Building
Initiative. This change was designed to enhance Microloan borrowers’ credit scores and their future access to capital.
Intermediaries generally opposed the provision, viewing it as an administrative burden. U.S. Congress, House
Committee on Small Business, Small Business Financing and Investment Act of 2009, report to accompany H.R. 3854,
111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 34.
90
H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. 302. Flexible Credit Terms; and U.S.
Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report to
accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 34.
91
2010, authorized the
Secretary of the Treasury to create a $30 billion SBLF to encourage community banks to provide
small business loans ($4 billion was issued), a $1.5 billion State Small Business Credit Initiative,
and about $12 billion in tax relief for small businesses. It also includes revenue raising provisions
to offset the act’s cost, and authorizes a number of changes to the SBA’s loan guaranty, export
promotion, and contracting programs, including changes to the SBA’s Microloan program. For
example, it
•
authorized the SBA to increase the Microloan program’s loan limit for borrowers
from $35,000 to $50,000, and for Microloan intermediaries after their first year
of participation in the program from $3.5 million to $5 million.96
92
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 35.
9293
H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. §308. Reporting Requirement. The report
was was
to include the following information: the names and locations of each intermediary participating in the program;
the the
amounts of each loan and each grant provided to each intermediary during the fiscal year and in prior fiscal years; a
description of the contributions from non-federal sources; the number and amounts of microloans made by
intermediaries to all borrowers and to each of the following: women entrepreneurs and business owners, low-income
entrepreneurs and business owners, veteran entrepreneurs and business owners, disabled entrepreneurs and business
owners, and minority entrepreneurs and business owners; a description of the marketing, management, and technical
assistance provided by each intermediary to all borrowers and to each of the following: women entrepreneurs and
business owners, low-income entrepreneurs and business owners, veteran entrepreneurs and business owners, disabled
entrepreneurs and business owners, and minority entrepreneurs and business owners; the number of jobs created and
retained as a result of microloans and marketing, management, and technical assistance provided by each intermediary;
the repayment history of each intermediary; and the number of businesses that achieved success after receipt of a
microloan.
9394
S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, Sec. §103. Maximum Loan Limits Under
Microloan Program.
94
Ibid.
Congressional Research Service
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.
Small Business Administration Microloan Program
As mentioned previously 95
Ibid.
96
P.L. 111-240, the Small Business Jobs Act of 2010, §1113. Maximum Loan Limits Under Microloan Program.
Congressional Research Service
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Small Business Administration Microloan Program
•
temporarily allowed the Small Business Jobs Act of 2010, authorizes the
Secretary of the Treasury to create a $30 billion SBLF to encourage community banks to provide
small business loans, a $1.5 billion State Small Business Credit Initiative, and about $12 billion in
tax relief for small businesses. It also includes revenue raising provisions to offset the act’s cost,
and authorizes a number of changes to the SBA’s loan guaranty, export promotion, and
contracting programs, including changes to the SBA’s Microloan program. For example, it
•
authorizes the SBA to increase the Microloan program’s loan limit for borrowers
from $35,000 to $50,000, and for Microloan intermediaries after their first year
of participation in the program from $3.5 million to $5 million. 95
•
temporarily allows the SBA to waive, in whole or in part through FY2012, the
non-federal share requirement for loans to the Microloan program’s
intermediaries and for grants made to Microloan intermediaries for small
business marketing, management, and technical assistance under specified
circumstances (e.g., the economic conditions affecting the intermediary and the
intermediary’s performance) for up to a fiscal year.9697
Concluding Observations
During the 111th Congress, congressional debate concerning proposed changes to the SBA’s loan
guaranty programs, including the Microloan program, centered on the likely impact the changes
would have on small business access to capital, job retention, and job creation. As a general
proposition, some, including President Obama, argued that economic conditions made it
imperative that the SBA be provided additional resources to assist small businesses in acquiring
capital necessary to start, continue, or expand operations and create jobs. 9798 Others worried about
the long-term adverse economic effects of spending programs that increase the federal deficit.
They advocated business tax reduction, reform of financial credit market regulation, and federal
fiscal restraint as the best means to assist small business economic growth and job creation.9899
In terms of specific program changes, the provisions considered in H.R. 3854 and S. 2869 and
authorized by P.L. 111-240 (allowing the SBA to temporarily waive the Microloan program’s
non-federal
share matching requirements, increasing its loan limit for borrowers from $35,000 to
$50,000,
and increasing its loan limit for intermediaries after their first year of participation in the program
program from $3.5 million to $5 million) were all designed to achieve the same goal: to enhance job
job creation by increasing the ability of Microloan borrowers to obtain credit at affordable rates.
Determining how specific changes in federal policy are most likely to enhance job creation is a
95
P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 1113. Maximum Loan Limits Under Microloan Program.
P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 1401. Matching Requirements Under Small Business
Programs.
97
challenging question. For example, a 2008 Urban Institute study concluded that differences in the
term, interest rate, and amount of SBA financing “was not significantly associated with increasing
sales or employment among firms receiving SBA financing.”100 However, they also reported that
their analysis accounted for less than 10% of the variation in firm performance. The Urban
Institute suggested that local economic conditions, local zoning regulations, state and local tax
rates, state and local business assistance programs, and the business owner’s charisma or business
97
P.L. 111-240, the Small Business Jobs Act of 2010, §1401. Matching Requirements Under Small Business Programs.
Representative Nydia Velázquez, Small Business Financing and Investment Act of 2009,” House debate,
Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary
Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily
edition, vol. 155, no. 185 (December 10, 2009), p. S12910; and The White House, “Remarks by the President on Job
Creation and Economic Growth,” Washington, DC, December 8, 2009, at http://www.whitehouse.gov/the-press-office/
remarks-presidentremarkspresident-job-creation-and-economic-growth.
9899
Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21,
2009, at http://www.nfib.com/newsroom/newsroom-item/cmsid/50080/press-media/press-media-item?cmsid=50080; and NFIB, “Government Spending,”
Washington, DC, at http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
100
Shelli B. Rossman and Brett Theodos, with Rachel Brash, Megan Gallagher, Christopher Hayes, and Kenneth
Temkin, Key Findings from the Evaluation of the Small Business Administration’s Loan and Investment Programs:
Executive Summary (Washington, DC: The Urban Institute, January 2008), p. 58, at http://www.urban.org/
UploadedPDF/411602_executive_summary.pdf.
98
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http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
96
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.
Small Business Administration Microloan Program
challenging question. For example, a 2008 Urban Institute study concluded that differences in the
term, interest rate, and amount of SBA financing “was not significantly associated with increasing
sales or employment among firms receiving SBA financing.”99 However, they also reported that
their analysis accounted for less than 10% of the variation in firm performance. The Urban
Institute suggested that local economic conditions, local zoning regulations, state and local tax
rates, state and local business assistance programs, and the business owner’s charisma or business
acumen also “may play a role in determining how well a business performs after receipt of SBA
financing.”100101
As the Urban Institute study suggests, given the many factors that influence business success,
measuring the SBA’s Microloan program’s effect on job retention and creation is complicated.
That task is made even more challenging by the absence of performance-oriented measures that
could serve as a guide.
The SBA’s Office of Inspector General has recommended that the SBA adopt performanceoriented measures, specifically recommending that the SBA track the number of Microloan
borrowers who remain in business after receiving a microloan to measure the extent to which the
Microloan program contributed to their ability to stay in business. It has also recommended that
the SBA require intermediaries to report the technical assistance provided to each Microloan
borrower and “use this data to analyze the effect technical assistance may have on the success of
Microloan borrowers and their ability to repay microloans.”101102 Other performance-oriented
measures that Congress might also consider during the 112th Congress include requiring the SBA
to survey Microloan
borrowers to measure the difficulty they experienced in obtaining a loan
from the private sector;
the ease or difficulty of finding, applying, and obtaining a microloan from
an intermediary; and
the extent to which the microloan or technical assistance received
contributed to their ability to
create jobs or expand their scope of operations.
Author Contact Information
Robert Jay Dilger
Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110
99
Shelli B. Rossman and Brett Theodos, with Rachel Brash, Megan Gallagher, Christopher Hayes, and Kenneth
Temkin, Key Findings from the Evaluation of the Small Business Administration’s Loan and Investment Programs:
Executive Summary (Washington, DC: The Urban Institute, January 2008), p. 58, http://www.urban.org/UploadedPDF/
411602_executive_summary.pdf.
100
101
Ibid.
101
U.S. Small Business Administration, Office of the Inspector General, “SBA’s Administration of the Microloan
Program under the Recovery Act, Washington, DC,” pp. 6, 7, at http://www.sba.gov/office-of-inspector-general/868/
12427.
102
Congressional Research Service
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