Small Business Administration:
A Primer on Programs
Robert Jay Dilger
Senior Specialist in American National Government
Sean Lowry
Analyst in Public Finance
May 2, 2013
Congressional Research Service
7-5700
www.crs.gov
RL33243
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Small Business Administration: A Primer on Programs
Summary
The Small Business Administration (SBA) administers several types of programs to support small
businesses, including loan guaranty and venture capital programs to enhance small business
access to capital; contracting programs to increase small business opportunities in federal
contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery
from natural disasters; and small business management and technical assistance training programs
to assist business formation and expansion.
Congressional interest in the SBA’s loan, venture capital, training, and contracting programs has
increased in recent years, primarily because small businesses are viewed as a means to stimulate
economic activity, create jobs, and assist in the national economic recovery. Many Members of
Congress also regularly receive constituent inquiries about the SBA’s programs.
This report provides an overview of these programs, including programmatic changes resulting
from enactment of P.L. 111-5, the American Recovery and Reinvestment Act of 2009, P.L. 111-
240, the Small Business Jobs Act of 2010, and P.L. 112-239, the National Defense Authorization
Act for Fiscal Year 2013. It also provides an overview of the SBA’s budget, including changes in
funding resulting from enactment of P.L. 113-2, the Disaster Relief Appropriations Act, 2013, and
P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013. This report
references other CRS reports that examine the SBA’s programs in greater detail.
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Contents
Introduction ...................................................................................................................................... 1
SBA Disaster Loans ......................................................................................................................... 3
Overview ................................................................................................................................... 3
Types of Disaster Loans ............................................................................................................ 3
Disaster Loans to Homeowners, Renters, and Personal Property Owners .......................... 3
Disaster Loans to Businesses and Nonprofit Organizations ................................................ 4
SBA Financial Programs .................................................................................................................. 6
Overview ................................................................................................................................... 6
What Is a Business?............................................................................................................. 6
What Is Small? .................................................................................................................... 6
Loan Guaranty and Venture Capital Programs .......................................................................... 7
Overview ............................................................................................................................. 7
7(a) Loan Guaranty Program ............................................................................................... 9
The 504/CDC Loan Guaranty Program............................................................................. 11
The Microloan Program .................................................................................................... 12
The Small Business Investment Company Program ......................................................... 12
Entrepreneurial Development Programs ................................................................................. 14
Small Business Contracting Programs .................................................................................... 15
Prime Contracting Programs ............................................................................................. 15
Subcontracting Programs for Small Disadvantaged Businesses ....................................... 16
Goaling Program ............................................................................................................... 17
Office of Small and Disadvantaged Business Utilization ................................................. 19
Capital Access Programs ......................................................................................................... 19
Surety Bond Guarantee Program ....................................................................................... 19
Small Business Innovation Research Program .................................................................. 20
Small Business Technology Transfer Program .................................................................. 21
New Market Venture Capital Program .............................................................................. 22
Office of Inspector General ..................................................................................................... 22
Office of Advocacy .................................................................................................................. 23
Executive Direction Programs ................................................................................................. 23
The National Women’s Business Council ......................................................................... 23
Office of Ombudsman ....................................................................................................... 24
Legislative Activity ........................................................................................................................ 24
Discontinued Programs ........................................................................................................... 25
Appropriations ............................................................................................................................... 25
Tables
Table 1. Major SBA Program Areas, Estimated Program Costs, FY2013 ....................................... 2
Table 2. Summary of the 7(a) Loan Guaranty Program’s Key Features .......................................... 9
Table 3. Summary of the 504/Certified Development Company Loan Guaranty Program’s
Key Features ............................................................................................................................... 11
Table 4. Summary of the Microloan Program’s Key Features ....................................................... 12
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Small Business Administration: A Primer on Programs
Table 5. Summary of Small Business Investment Company Program’s Key Features.................. 13
Table 6. Federal Contracting Goals and Percentage of FY2011 Federal Contract Dollars
Awarded to Small Businesses, by Type ...................................................................................... 19
Contacts
Author Contact Information........................................................................................................... 26
Acknowledgments ......................................................................................................................... 26
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Small Business Administration: A Primer on Programs
Introduction
The Small Business Administration’s (SBA’s) origins can be traced to the Great Depression of the
1930s and World War II, when concerns about unemployment and war production were
paramount. The SBA assumed some of the functions of the Reconstruction Finance Corporation
(RFC), which had been created by the federal government in 1932 to provide funding for
businesses of all sizes during the Depression and later financed war production. During the early
1950s, the RFC was disbanded following charges of political favoritism in the granting of loans
and contracts.1
In 1953, Congress passed the Small Business Act (P.L. 83-163), which authorized the SBA. The
act specifies that the SBA’s mission is to promote the interests of small businesses to enhance
competition in the private marketplace:
It is the declared policy of the Congress that the Government should aid, counsel, assist, and
protect, insofar as is possible, the interests of small-business concerns in order to preserve
free competitive enterprise, to insure that a fair proportion of the total purchases and
contracts or subcontracts for property and services for the Government (including but not
limited to contracts or subcontracts for maintenance, repair, and construction) be placed with
small-business enterprises, to insure that a fair proportion of the total sales of Government
property be made to such enterprises, and to maintain and strengthen the overall economy of
the Nation.2
The SBA currently administers several types of programs to support small businesses, including
loan guaranty and venture capital programs to enhance small business access to capital;
contracting programs to increase small business opportunities in federal contracting; direct loan
programs for businesses, homeowners, and renters to assist their recovery from natural disasters;
and small business management and technical assistance training programs to assist business
formation and expansion. Congressional interest in these programs has increased in recent years,
primarily because small businesses are viewed as a means to stimulate economic activity, create
jobs, and assist in the national economic recovery. Many Members of Congress also regularly
receive constituent inquiries about the SBA’s programs.
This report provides an overview of the SBA’s programs, including changes made by P.L. 111-5,
the American Recovery and Reinvestment Act of 2009, P.L. 111-240, the Small Business Jobs Act
of 2010, and P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013. It also
provides an overview of the SBA’s budget and references other CRS reports that examine the
SBA’s programs in greater detail.3
1 U.S. Congress, Senate Committee on Expenditures, Subcommittee on Investigations, Influence in Government
Procurement, 82nd Cong., 1st sess., September 13-15, 17, 19-21, 24-28, October 3-5, 1951 (Washington: GPO, 1951);
and U.S. Congress, Senate Banking and Currency, RFC Act Amendments of 1951, hearing on bills to amend the
Reconstruction Finance Corporation Act, 82nd Cong., 1st sess., April 27, 30, May 1, 2, 22, 23, 1951 (Washington: GPO,
1951).
2 P.L. 83-163, the Small Business Act of 1953 (as amended), see http://legcoun.house.gov/members/Comps/SBA.pdf.
3 The SBA’s programs have detailed rules on program requirements and administration that are not covered in this
report. More detailed information concerning the SBA’s programs is available in the CRS reports referenced later in
this report, on the SBA’s website at http://www.sba.gov, in 15 U.S.C. §631 et seq., and in Title 13 of the Code of
Federal Regulations.
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The SBA’s FY2014 congressional budget justification document includes funding and program
costs for the following programs and offices:
1. disaster assistance;
2. business loan guaranty programs (including the 7(a) program, the 504/Certified
Development Company program, and the Microloan program) and venture
capital programs (including the Small Business Investment Company program);
3. entrepreneurial development programs (including Small Business Development
Centers, Women’s Business Centers, and SCORE, among others);
4. government contracting and business development programs (including the 8(a)
Minority Small Business and Capital Ownership Development Program, the
Historically Underutilized Business Zones (HUBZones) program, the Service-
Disabled Veteran-Owned Small Business Program, and the Women-Owned Small
Business (WOSB) Federal Contract program);
5. capital access programs (including international trade programs, the new market
venture capital program, and the surety bond guarantee program);
6. the SBA Office of Inspector General (OIG);
7. the SBA Office of Advocacy;
8. executive direction programs (National Women’s Business Council and
Ombudsman); and
9. other programs, including regional and district office programs.
Table 1 shows the SBA’s estimated costs in FY2013 for these program areas. Program costs often
differ from new budget authority provided in annual appropriations acts as the SBA has specified
authority to carry over appropriations from previous fiscal years. The SBA also has limited,
specified authority to shift appropriations among various programs.
Table 1. Major SBA Program Areas, Estimated Program Costs, FY2013
Program Category
Estimated Costs
Disaster loan programs
$976,410,950a
Business loan guaranty and venture capital programs
$181,691,300
Entrepreneurial development programs
$169,685,200
Government contracting and business development programs
$104,270,100
Capital access programs
$14,975,800
SBA Office of Inspector General
$22,904,500
SBA Office of Advocacy
$13,053,000
Executive direction programs
$3,111,250
Other programs, including regional and district office programs
$25,732,650
Total
$1,511,834,750
Source: U.S. Small Business Administration, FY2014 Congressional Budget Justification and FY2012 Annual
Performance Report, pp. 27-29; adjusted to account for sequestration and supplemental funding for Hurricane
Sandy (P.L. 113-2, the Disaster Relief Appropriations Act, 2013).
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Notes: Program costs often differ from new budget authority provided in annual appropriations acts as the SBA
has specified authority to carry over appropriations from previous fiscal years. The SBA also has limited,
specified authority to shift appropriations among various programs.
a. Supplemental funding for Hurricane Sandy amounted to $804 million prior to sequestration, with $799
mil ion to disaster loans ($779 mil ion for disaster loans and $20 mil ion for disaster loan administrative
costs) and $5 million to the Office of Inspector General. Because these funds are available until expended,
actual disaster loan program costs for FY2013 may be somewhat less than the estimated amount in the
table depending on the demand for disaster loans in FY2013.
SBA Disaster Loans
Overview4
SBA disaster assistance is provided in the form of loans, not grants, and therefore must be repaid
to the federal government. The SBA’s disaster loans are unique in two respects: (1) they are the
only loans made by the SBA that go directly to the ultimate borrower and (2) they are the only
loans made by the SBA that are not limited to small businesses.5
SBA disaster loans are available to individuals, businesses, and nonprofit organizations in
declared disaster areas.6 About 80% of the SBA’s direct disaster loans are issued to individuals
and households (renters and property owners) to repair and replace homes and personal property.
In recent years, the SBA disaster loan programs have been the subject of regular congressional
and media attention because of concerns expressed about the time it takes the SBA to process
disaster loan applications.
Types of Disaster Loans
The SBA Disaster Loan Program includes the following categories of loans for disaster-related
losses: home disaster loans, business physical disaster loans, economic injury disaster loans, and
pre-disaster mitigation loans.7
Disaster Loans to Homeowners, Renters, and Personal Property Owners
Homeowners, renters, and personal property owners located in a declared disaster area (and in
contiguous counties) may apply to the SBA for loans to help recover losses from a declared
disaster. Only victims located in a declared disaster area (and contiguous counties) are eligible to
apply for disaster loans. Disaster declarations are “official notices recognizing that specific
geographic areas have been damaged by floods and other acts of nature, riots, civil disorders, or
4 For additional information and analysis, see CRS Report R41309, The SBA Disaster Loan Program: Overview and
Possible Issues for Congress, by Bruce R. Lindsay.
5 13 C.F.R. §123.
6 13 C.F.R. §123.105 and 13 §123.203.
7 The SBA also offers military reservist economic injury disaster loans. These loans are available when economic
injury is incurred as a direct result of a business owner or an essential employee being called to active duty. Generally,
these loans are not associated with disasters. See CRS Report R42695, SBA Veterans Assistance Programs: An
Analysis of Contemporary Issues, by Robert Jay Dilger and Sean Lowry.
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industrial accidents such as oil spills.”8 Five categories of declarations put the SBA Disaster Loan
Program into effect. These include two types of presidential major disaster declarations as
authorized by the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford
Act)9 and three types of SBA declarations.10
The SBA’s Home Disaster Loan Program falls into two categories: personal property loans and
real property loans. These loans are limited to uninsured losses. The maximum term for SBA
disaster loans is 30 years, but the law restricts businesses with credit available elsewhere to a
maximum seven-year term. The SBA sets the installment payment amount and corresponding
maturity based upon each borrower’s ability to repay.
Personal Property Loans
A personal property loan provides a creditworthy homeowner or renter with up to $40,000 to
repair or replace personal property items, such as furniture, clothing, or automobiles damaged or
lost in a disaster. These loans cover only uninsured or underinsured property and primary
residences and cannot be used to replace extraordinarily expensive or irreplaceable items, such as
antiques or recreational vehicles. Interest rates vary depending on whether applicants are able or
unable to obtain credit elsewhere. For applicants who can obtain credit without SBA assistance,
the interest rate may not exceed 8% per year. For applicants who cannot obtain credit without
SBA assistance, the interest rate may not exceed 4% per year.11
Real Property Loans
A creditworthy homeowner may apply for a “real property loan” of up to $200,000 to repair or
restore the homeowner’s primary residence to its pre-disaster condition.12 The loans may not be
used to upgrade homes or build additions, unless upgrades or changes are required by city or
county building codes. The interest rate for real property loans is determined in the same way as it
is determined for personal property loans.
Disaster Loans to Businesses and Nonprofit Organizations
Several types of loans, discussed below, are available to businesses and nonprofit organizations
located in counties covered by a presidential disaster declaration. In certain circumstances, the
SBA will also make these loans available when a governor, the Secretary of Agriculture, or the
Secretary of Commerce makes a disaster declaration. Physical disaster loans are available to
almost any nonprofit organization or business. The other business disaster loans are limited to
small businesses.
8 13 C.F.R. §123.2.
9 P.L. 93-288, Disaster Relief Act Amendments; and 42 U.S.C. §5721 et seq.
10 Disaster declarations are published in the Federal Register and can also be found on the SBA website at
http://www.sba.gov/content/current-disaster-declarations.
11 13 C.F.R. §123.105(a)(1).
12 13 C.F.R. §123.105(a)(2). For mitigation measures implemented after a disaster has occurred to protect the damaged
property from a similar disaster in the future, a homeowner can request that the approved loan amount be increased by
the lesser of the cost of the mitigation measure, or up to 20% of the verified loss (before deducting compensation from
other sources), to a maximum of $200,000. 13 C.F.R. §127.
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Physical Disaster Loan
Any business or nonprofit organization, regardless of size, can apply for a physical disaster
business loan of up to $2 million for repairs and replacements to real property, machinery,
equipment, fixtures, inventory, and leasehold improvements that are not covered by insurance.
Physical disaster loans for businesses may use up to 20% of the verified loss amount for
mitigation measures in an effort to prevent loss from a similar disaster in the future. Nonprofit
organizations that are rejected or are approved by the SBA for less than the requested amount for
a physical disaster loan are in some circumstances eligible for grants from the Federal Emergency
Management Agency (FEMA). For applicants who can obtain credit without SBA assistance, the
interest rate may not exceed 8% per year. For applicants who cannot obtain credit without SBA
assistance, the interest rate may not exceed 4% per year.13
Economic Injury Disaster Loans
Economic injury disaster loans (EIDLs) are limited to small businesses as defined by the SBA’s
size regulations, which vary from industry to industry.14 If the Secretary of Agriculture designates
an agriculture production disaster, small farms and small cooperatives are eligible. EIDLs are
available in the counties included in a presidential disaster declaration and contiguous counties.
The loans are designed to provide small businesses with operating funds until the business
recovers. The maximum loan is $2 million and the terms are the same as personal and physical
disaster business loans. The loan can have a maturity of up to 30 years and has an interest rate of
4% or less.15
Pre-Disaster Mitigation Loan Program
To support FEMA’s Pre-Disaster Mitigation Program, SBA may make low-interest, fixed-rate
loans to small businesses to finance measures to protect commercial property, leasehold
improvements, or contents from disaster-related damages that may occur in the future.16 A
business that participates in the program may borrow up to $50,000 each fiscal year. The business
applying for the loan must be located in a Special Flood Hazard Area (SFHA).17 The interest rate
for a pre-disaster mitigation loan is fixed at 4% per annum or less.18
13 13 C.F.R. §123.203.
14 See 13 C.F.R. §123.300 for eligibility requirements. Size standards vary according to a variety of factors, including
industry type, average firm size, and start-up costs and entry barriers. Size standards can be located in 13 C.F.R. 121.
For further information and analysis, see CRS Report R40860, Small Business Size Standards: A Historical Analysis of
Contemporary Issues, by Robert Jay Dilger.
15 13 C.F.R. §123.302.
16 For further information and analysis concerning FEMA’s Pre-Disaster Mitigation Program see CRS Report
RL34537, FEMA’s Pre-Disaster Mitigation Program: Overview and Issues, by Francis X. McCarthy and Natalie
Keegan.
17 13 C.F.R. §123.403(a).
18 13 C.F.R. §123.406.
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SBA Financial Programs
Overview
The SBA has the authority to make direct loans to small businesses, but, with the exception of
disaster loans, has not exercised that authority since 1994. The SBA indicated that it stopped
issuing direct business loans primarily because the subsidy rate was “10 to 15 times higher” than
the subsidy rate for its loan guaranty programs.19 Instead of making direct loans, it guarantees
loans issued by approved lenders to encourage those lenders to provide loans to small businesses
“that might not otherwise obtain financing on reasonable terms and conditions.”20 With few
exceptions, to qualify for SBA assistance, an organization must be both a business and small.21
What Is a Business?
To participate in any of the SBA programs, a business must meet the SBA’s definition of “small
business.” This is a business that
• is organized for profit;
• has a place of business in the United States;
• operates primarily within the United States or makes a significant contribution to
the U.S. economy through payment of taxes or use of American products,
materials, or labor;
• is independently owned and operated; and
• is not dominant in its field on a national basis.22
The business may be a sole proprietorship, partnership, corporation, or any other legal form.
What Is Small?23
The SBA uses two measures to determine if a business is small: SBA-derived industry specific
size standards or a combination of the business’s net worth and net income. For example,
businesses participating in the SBA’s 7(a) loan guaranty program, including its express programs,
are deemed small if they meet the SBA’s industry-specific size standards for firms in 1,047
industrial classifications in 18 sub-industry activities described in the North American Industry
Classification System (NAICS) or if they do not have more than $15 million in tangible net worth
19 U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the
Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S. Hrg. 103-583 (Washington: GPO, 1994), p.
20.
20 U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification, p. 30.
21 The SBA provides financial assistance to nonprofit organizations to provide training to small business owners, and to
provide loans to small businesses through the SBA Microloan program. Also, nonprofit childcare centers are eligible to
participate in SBA’s Microloan program.
22 13 C.F.R. §121.105.
23 For additional information and analysis, see CRS Report R40860, Small Business Size Standards: A Historical
Analysis of Contemporary Issues, by Robert Jay Dilger.
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and not more than $5 million in average net income after federal taxes (excluding any carry-over
losses) for the two full fiscal years before the date of the application. All of the company’s
subsidiaries, parent companies, and affiliates are considered in determining if it meets the size
standard.24
The SBA’s industry size standards vary by industry, are designed to encourage competition within
the industry, and are based on one of the following five measures: the firm’s (1) average annual
receipts in the previous three years, (2) number of employees, (3) asset size, (4) for electrical
power industries, the extent of its power generation, or (5) for refineries, a combination of
number of employees and barrel per day refining capacity. Historically, the SBA has used the
number of employees to determine if manufacturing and mining companies are small and average
annual receipts for most other industries.
As a starting point, the SBA presumes $7.0 million in average annual receipts in the previous
three years as an appropriate size standard for the services, retail trade, construction, and other
industries with receipts based size standards; 500 employees for the manufacturing, mining, and
other industries with employee-based size standards; and 100 employees for the wholesale trade
industries. These three levels, referred to as “anchor size standards,” are used by the SBA as
benchmarks or starting points when establishing its size standards. To the extent an industry
displays “differing industry characteristics” necessary to enable small businesses to compete
successfully with larger businesses within that industry, the SBA will consider a size standard
higher, or in some cases lower, than an anchor size standard.25
Overall, more than 97% of all businesses are considered small by the SBA.26 These firms
represent about 30% of industry receipts.
Loan Guaranty and Venture Capital Programs
Overview
The SBA provides loan guarantees for small businesses that cannot obtain credit elsewhere. Its
largest loan guaranty programs are the 7(a) loan guaranty program, the 504/Certified
Development Company loan guaranty program, and the Microloan program. The SBA also offers
venture capital programs to enhance the ability of small businesses, especially those with high-
growth potential, to access capital. The Small Business Investment Company program is the
SBA’s largest venture capital program.
24 13 C.F.R. §121.201; and P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards.
25 U.S. Small Business Administration, Office of Government Contracting and Business Development, “SBA Size
Standards Methodology,” April 2009, pp. 1-8, at http://www.sba.gov/sites/default/files/
size_standards_methodology.pdf.
26 U.S. Small Business Administration, “Table of Small Business Size Standards Matched to North American Industry
Classification System Codes,” at http://www.sba.gov/content/small-business-size-standards; and U.S. Small Business
Administration, “SBA’s Size Standards Analysis: An Overview on Methodology and Comprehensive Size Standards
Review,” power point presentation, Khem R. Sharma, SBA Office of Size Standards, July 13, 2011, p. 4, at
http://www.actgov.org/sigcom/SIGs/SIGs/SBSIG/Documents/2011%20-%20Documents%20and%20Presentations/
Size%20Stds%20Presentation_SIG%20Meeting.pdf.
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The SBA’s loan guaranty programs require personal guarantees from borrowers and share the risk
of default with the lender by making the guaranty less than 100%. In the event of a default, the
borrower owes the amount contracted less the value of any collateral liquidated. The SBA can
attempt to recover the unpaid debt through administrative offset, salary offset, or IRS tax refund
offset. Most types of business are eligible for loan guarantees, but a few are not. A list of
ineligible businesses (such as insurance companies, real estate investment firms, firms involved in
financial speculation or pyramid sales, businesses involved in illegal activities, and businesses
deriving more than one-third of gross annual revenue from legal gambling activities) is contained
in 13 C.F.R. Section 120.110.27 With one exception, nonprofit and charitable organizations are
also ineligible.28
Also, as shown in the following tables, most of these programs charge fees to help offset program
costs, including costs related to loan defaults. In most instances, the SBA’s fees are set in statute.
For example, for 7(a) loans with a maturity exceeding 12 months the SBA is authorized to charge
lenders a guaranty fee of up to 2% for the SBA guaranteed portion of loans of $150,000 or less,
up to 3% for the SBA guaranteed portion of loans exceeding $150,000 but not more than
$700,000, and up to 3.5% for the SBA guaranteed portion of loans exceeding $700,000. Also,
lenders with a 7(a) loan which has a SBA guaranteed portion in excess of $1 million can be
charged an additional fee not to exceed 0.25% of the guaranteed amount in excess of $1 million.
These loans are also subject to an ongoing servicing fee not to exceed 0.55% of the outstanding
balance of the guaranteed portion of the loan.29 Lenders are also authorized to collect fees from
borrowers to offset their administrative expenses.
The SBA’s goal is to achieve a zero subsidy rate, meaning that the loan guarantee programs do
not require annual appropriations of budget authority for new loan guaranties. However, in recent
years, the fees have not generated enough revenue to cover loan losses, resulting in the need for
additional appropriations to account for the shortfall. In FY2010, and again in FY2011, the SBA
was provided an additional $80 million for the cost of guaranteed loans (in addition to $3 million
to $4 million provided each year for the Microloan program). The SBA was provided an
additional $207.1 million for this purpose in FY2012, and an additional $333.6 million for
FY2013 ($316.9 million after sequestration).30 President Obama’s FY2014 budget request
recommended an additional $107.0 million for loan cost subsidies in the 504/CDC program, plus
$4.6 million for the Microloan program (for a total of $111.6 million).31
27 Title 13 of the Code of Federal Regulations can be viewed at http://www.gpo.gov/fdsys/pkg/CFR-2012-title13-vol1/
pdf/CFR-2012-title13-vol1-chapI.pdf.
28 P.L. 105-135, the Small Business Reauthorization Act of 1997, expanded the SBA’s Microloan program’s eligibility
to include borrowers establishing a nonprofit childcare business.
29 15 U.S.C. §636(a)(23)(a).
30 H.Rept. 112-136, Financial Services and General Government Appropriations Bill, 2012; S.Rept. 112-79, Financial
Services and General Government Appropriations Bill, 2012; U.S. Office of Management and Budget, The Appendix,
Budget of the United States Government, Fiscal Year 2013, p. 1267, at http://www.whitehouse.gov/sites/default/files/
omb/budget/fy2013/assets/sba.pdf; P.L. 112-175, the Continuing Appropriations Resolution, 2013; U.S. Office of
Management and Budget, OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013,
March 1, 2013, p. 59, at http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/
fy13ombjcsequestrationreport.pdf; and P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013.
31 U.S. Small Business Administration, FY2014 Congressional Budget Justification and FY2012 Annual Performance
Report, pp. 4, 17, 37, 69.
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7(a) Loan Guaranty Program32
The 7(a) loan guaranty program is named after the section of the Small Business Act that
authorizes it. These are loans made by SBA partners (mostly banks, but also some other financial
institutions) and partially guaranteed by the SBA. The 7(a) program’s current guaranty rate is
85% for loans of $150,000 or less and 75% for loans greater than $150,000 (up to a maximum
guaranty of $3.75 million─75% of $5 million). Although the SBA’s offer to guarantee a loan
provides an incentive for lenders to make the loan, lenders are not required to do so.
Table 2 provides information on the 7(a) program’s key features, including its eligible uses,
maximum loan amount, loan maturity, interest rates, and guarantee fees.
Table 2. Summary of the 7(a) Loan Guaranty Program’s Key Features
Key Feature
Program Summary
Use of Proceeds
Fixed assets, working capital, financing of start-ups or to purchase an existing business;
some debt payment al owed, but lender’s loan exposure may not be reduced with the
Express products. Lines of credit are offered with the Express programs.
Maximum Loan Amount
$5 million.
Maturity
5 to 7 years for working capital, up to 25 years for equipment & real estate. All other loan
purposes have a maximum term of 10 years.
Maximum Interest Rates Base rate plus 2.25% for maturities fewer than 7 years. Base rate plus 2.75% for maturities
of 7 years or longer. Loans of $50,000 or less may add an additional 1% and loans under
$25,000 may add an additional 2%. There is a prepayment penalty for loans with
maturities of 15 years or more if prepaid during the first 3 years.
Guaranty Fees
A fee of 0.25% of the guaranteed portion of the loan is charged for loans with maturities
of 12 months or less. For loans with maturities over 12 months, the fees are 2% for loans
of $150,000 or less; 3% for loans of $150,001 to $700,000; 3.5% for loans over $700,000;
and 3.75% for the guaranty portion over $1 million. There is an on-going servicing fee of
0.55%.
Job Creation
No job creation requirements.
Source: Table compiled by CRS from data from the Smal Business Administration.
Note: In 2009 and 2010, Congress provided $962.5 million to temporarily eliminate some of the SBA’s fees. For
example, the Small Business Jobs Act of 2010 (P.L. 111-240) provided $510 million to subsidize fees in the SBA’s
7(a) and 504/CDC loan guarantee programs from its date of enactment (September 27, 2010) through
December 31, 2010.
Variable-rate loans can be pegged to either the prime rate or the SBA optional peg rate, which is a
weighted average of rates that the federal government pays for loans with maturities similar to the
guaranteed loan. The spread over the prime rate or SBA optional peg rate is negotiable between
the borrower and the lender, but no more than 6%. The adjustment period can be no more than
monthly and cannot change over the life of the loan.
32 For further information and analysis, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty
Program, by Robert Jay Dilger.
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Variations on the 7(a) Program
The 7(a) program has four specialized programs that offer streamlined and expedited loan
procedures for particular groups of borrowers, the SBAExpress program, the Small Loan
Advantage program, Community Advantage program, and the Patriot Express program. Lenders
must be approved by the SBA for participation in these programs. For example, the SBAExpress
program was established as a pilot program by the SBA on February 27, 1995, and made
permanent through legislation, subject to reauthorization, in 2004 (P.L. 108-447, the Consolidated
Appropriations Act, 2005). The program is designed to increase the availability of credit to small
businesses by permitting lenders to use their existing documentation and procedures in return for
receiving a reduced SBA guarantee on loans. It provides a 50% loan guarantee on loan amounts
up to $350,000.33 The loan proceeds can be used for the same purposes as the 7(a) program
except participant debt restructuring cannot exceed 50% of the project and may be used for
revolving credit. The loan terms are the same as the 7(a) program, except that the term for a
revolving line of credit cannot exceed seven years.
Special Purpose Loan Guaranty Programs
In addition to the 7(a) loan guaranty program, the SBA has special purpose loan guaranty
programs for small businesses adjusting to the North American Free Trade Agreement (NAFTA),
to support Employee Stock Ownership Program trusts, pollution control facilities, and working
capital.
Community Adjustment and Investment Program. The Community Adjustment and Investment
Program (CAIP) uses federal funds to pay the fees on 7(a) and 504/CDC loans to businesses
located in communities that have been adversely affected by NAFTA.
Employee Trusts. The SBA will guarantee loans to Employee Stock Ownership Plans (ESOPs)
that are used either to lend money to the employer or to purchase control from the owner. ESOPs
must meet regulations established by the IRS, Department of the Treasury, and Department of
Labor. These are 7(a) loans.
Pollution Control. In 1976, the SBA was provided authorization to guarantee the payment of
rentals or other amounts due under qualified contracts for pollution control facilities. P.L. 100-
590, the Small Business Reauthorization and Amendment Act of 1988, eliminated the revolving
fund for pollution control guaranteed loans and transferred its remaining funds to the SBA’s
business loan and investment revolving fund. Since 1989, loans for pollution control have been
guaranteed under the 7(a) loan guaranty program.
CAPLines. CAPLines are five special 7(a) loan guaranty programs designed to meet the
requirements of small businesses for short-term or cyclical working capital. The maximum term
is five years.
33 P.L. 111-240, the Small Business Jobs Act of 2010, temporarily increased the SBAExpress program’s loan limit to
$1 million for one year following enactment (through September 26, 2011).
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The 504/CDC Loan Guaranty Program34
The 504/CDC loan guaranty program uses Certified Development Companies (CDCs), which are
private, nonprofit corporations established to contribute to economic development within its
communities. Each CDC has its own geographic territory. The program provides long-term,
fixed-rate loans for major fixed assets such as land, structures, machinery, and equipment.
Program loans cannot be used for working capital, inventory, or repaying debt. A commercial
lender provides up to 50% of the financing package, which is secured by a senior lien. The CDC’s
loan of up to 40% is secured by a junior lien. The SBA backs the CDC with a guaranteed
debenture.35 The small business must contribute at least 10% as equity. To participate in the
program, small businesses cannot exceed $15 million in tangible net worth and cannot have
average net income over $5 million for two full fiscal years before the date of application. Table
3 summarizes the 504/CDC loan guaranty program’s key features.
Table 3. Summary of the 504/Certified Development Company Loan Guaranty
Program’s Key Features
Key Feature
Program Summary
Use of Proceeds
Fixed assets only—no working capital.
Maximum Loan Amount
Maximum CDC/504 participation in a single project is $5 million, and $5.5 million for
manufacturers; minimum is $50,000. There is no limit on the project size.
Maturity
10 years for equipment; 20 years for real estate.
Maximum Interest Rates
Based on current market rate for 5 and 10 year Treasury Bonds.
Participation
504/CDC projects general y have three main participants: a third-party lender provides
Requirements
50% or more of the financing; a CDC provides up to 40% of the financing through a
504/CDC debenture, which is guaranteed 100% by the SBA; and the borrower
contributes at least 10% of the financing. No more than 50% of eligible costs can be
from federal sources.
Guaranty Fees
There is a 0.5% fee on the lender’s share, plus the CDC may charge up to 1.5% on their
share. CDC charges a monthly servicing fee of 0.625% to 1.5% on the unpaid balance.
There is an on-going guaranty fee of 0.749% of the principal outstanding.
Job Creation
Must intend to create or retain one job for every $65,000 of the debenture ($100,000
Requirements
for small manufacturers) or meet an alternative job creation standard if it meets any one
of 15 Community or Public Policy Goals. A minimum down payment of 10% is required.
Source: Table compiled by CRS from data from the Smal Business Administration.
Notes: The maximum loan amount is the total financial package including the commercial loan and the CDC
loan. It does not include the owner’s minimum 10% equity contribution. It assumes that the CDC loan is 40% of
the total package.
34 For further information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan
Guaranty Program, by Robert Jay Dilger.
35 A debenture is a bond that is not secured by a lien on specific collateral.
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Small Business Administration: A Primer on Programs
The Microloan Program36
The Microloan program provides direct loans to qualified non-profit intermediary Microloan
lenders who, in turn, provide “microloans” of up to $50,000 to small businesses and non-profit
child care centers. It also 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, by P.L. 105-135, the Small Business Reauthorization Act of 1997. Although the
program is open to all small businesses, it targets new and early-stage 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.
Table 4 summarizes the Microloan program’s key features.
Table 4. Summary of the Microloan Program’s Key Features
Key Feature
Program Summary
Use of proceeds
Working capital and acquisition of materials, supplies, furniture, fixtures, and equipment.
Loans cannot be made to acquire land or property.
Maximum Loan Amount
$50,000.
Maturity
Up to six years.
Maximum Interest Rates 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 annual y to
determine the applicable rate.
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%. 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%.
Rates are negotiated between the borrower and the intermediary, and typically range
from 8% to 10%.
Guaranty Fees
The SBA does not charge intermediaries upfront or on-going service fees under the
Microloan program.
Job Creation
No job creation requirements.
Requirements
Source: Table compiled by CRS from data from the Smal Business Administration.
The Small Business Investment Company Program37
The Small Business Investment Company (SBIC) program enhances small business access to
venture capital by stimulating and supplementing “the flow of private equity capital and long
36 For further information and analysis, see CRS Report R41057, Small Business Administration Microloan Program,
by Robert Jay Dilger.
37 For further information and analysis, see CRS Report R41456, SBA Small Business Investment Company Program,
by Robert Jay Dilger.
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term loan funds which small business concerns need for the sound financing of their business
operations and for their growth, expansion, and modernization, and which are not available in
adequate supply.”38 The SBA works with nearly 300 privately owned and managed SBICs
licensed by the SBA to provide financing to small businesses with private capital the SBIC has
raised and with funds the SBIC borrows at favorable rates because the SBA guarantees the
debenture (loan obligation). SBICs provide equity capital to small businesses in various ways,
including by
• purchasing small business equity securities (e.g., stock, stock options, warrants,
limited partnership interests, membership interests in a limited liability company,
or joint venture interests);39
• making loans to small businesses, either independently or in cooperation with
other private or public lenders, that have a maturity of no more than 20 years;40
• purchasing debt securities from small businesses, which may be convertible into,
or have rights to purchase, equity in the small business;41 and
• subject to limitations, providing small businesses a guarantee of their monetary
obligations to creditors not associated with the SBIC.42
Table 5. Summary of Small Business Investment Company Program’s Key Features
Key Feature
Program Summary
Use of Proceeds
To purchase small business equity securities, make loans to small businesses, purchase
debt securities from small businesses, and provide, subject to limitations, small
businesses a guarantee of their monetary obligations to creditors not associated with
the SBIC.
Maximum Leverage
A licensed SBIC in good standing, with a demonstrated need for funds, may apply to the
Amount
SBA for financial assistance (called leverage) of up to 300% of its private capital.
However, most SBICs are approved for a maximum of 200% of its private capital and no
fund management team may exceed the allowable maximum amount of leverage,
currently $150 million per SBIC and $225 million for two or more licenses under
common control. SBICs licensed on or after October 1, 2009, may elect to have a
maximum leverage amount of $175 million per SBIC and $250 million for two or more
licenses under common control if it has invested at least 50% of its financings in low-
income geographic areas and certifies that at least 50% of its future investments will be
in low-income geographic areas.
38 15 U.S.C. §661.
39 13 CFR §107.800. The SBIC is not allowed to become a general partner in any unincorporated business or become
jointly or severally liable for any obligations of an unincorporated business.
40 13 CFR §107.810; and 13 CFR §107.840
41 13 CFR §107.815. Debt securities are instruments evidencing a loan with an option or any other right to acquire
equity securities in a small business or its affiliates, or a loan which by its terms is convertible into an equity position,
or a loan with a right to receive royalties that are excluded from the cost of money.
42 13 CFR §107.820.
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Key Feature
Program Summary
Maturity
SBA-guaranteed debenture participation certificates can have a term of up to 15 years,
although currently only one outstanding SBA-guaranteed debenture participation
certificate has a term exceeding 10 years and all recent public offerings have specified a
term of 10 years. SBA-guaranteed debentures provide for semi-annual interest payments
and a lump sum principal payment to investors at maturity. SBICs are allowed to prepay
SBA-guaranteed debentures without penalty. However, a SBA-guaranteed debenture
must be prepaid in whole and not in part, and can only be prepaid on a semi-annual
payment date. Also, low-to-moderate income area (LMI) debentures are available in two
maturities, for 5 years and 10 years (plus the stub period).
Maximum Interest Rates
The debenture’s coupon (interest) rate is determined by market conditions and the
interest rate of 10-year treasury securities at the time of the sale.
Guaranty Fees
The SBA requires the SBIC to pay a 3% origination fee for each debenture issued (1% at
commitment and 2% at draw), an annual fee on the leverage drawn which is fixed at the
time of the leverage commitment, and other administrative and underwriting fees which
are adjusted annually.
Job Creation
No job creation requirements.
Requirements
Source: Table compiled by CRS from data from the Smal Business Administration.
Entrepreneurial Development Programs43
The SBA’s entrepreneurial development programs provide technical and managerial training to
small businesses. Some of this training is free and other training is at low cost and includes
services provided by the Service Corps of Retired Executives (SCORE), Small Business
Development Centers (SBDCs), Women’s Business Centers (WBCs), Veteran Business Outreach
Centers, and Native American Outreach programs, among others.
SCORE was established on October 5, 1964, by then-SBA Administrator Eugene P. Foley, as a
national, volunteer organization, uniting more than 50 independent nonprofit organizations into a
single, national nonprofit organization. SCORE’s 364 chapters and more than 800 branch offices
are located throughout the United States and partner with nearly 13,000 volunteer counselors,
who are working or retired business owners, executives, and corporate leaders, to provide
management and training assistance to small businesses.
SBDCs provide free or low-cost assistance to small businesses using programs customized to
local conditions. SBDCs support small business in marketing and business strategy, finance,
technology transfer, government contracting, management, manufacturing, engineering, sales,
accounting, exporting, and other topics. SBDCs are funded by grants from the SBA and matching
funds. There are 63 lead SBDC service centers, one located in each state (four in Texas and six in
California), the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and American
Samoa. These lead SBDC service centers manage more than 900 SBDC outreach locations.
WBCs are similar to SBDCs, except they concentrate on assisting women entrepreneurs. There
are currently 101 WBCs, with at least one WBC in most states and territories.
43 For further information and analysis, see CRS Report R41352, Small Business Management and Technical
Assistance Training Programs, by Robert Jay Dilger.
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The SBA’s 15 Veterans Business Outreach Centers Program provides “outreach, assessment, long
term counseling, training, coordinated service delivery referrals, mentoring and network building,
procurement assistance and E-based assistance to benefit Small Business concerns and potential
concerns owned and controlled by Veterans, Service Disabled Veterans and Members of Reserve
Components of the U.S. Military.”44
The SBA’s Office of Native American Affairs provides management and technical educational
assistance to Native Americans (American Indians, Alaska Natives, Native Hawaiians and the
indigenous people of Guam and American Samoa) to start and expand small businesses.
Small Business Contracting Programs45
A number of programs assist small businesses in obtaining and performing federal contracts and
subcontracts. These include various prime contracting programs; subcontracting programs; and
other assistance (e.g., the federal goaling program and federal Offices of Small and
Disadvantaged Business Utilization).
Prime Contracting Programs
Several contracting programs allow small businesses to compete only with similar firms for
government contracts, or receive sole-source awards in circumstances when such awards could
not be made to other firms. These programs, which give small businesses a chance to win
government contracts without having to compete against larger and more experienced companies,
include the following:
• 8(a) Program:46 The 8(a) Minority Small Business and Capital Ownership
Development Program (named for the section of the Small Business Act from
which it derives its authority) is for businesses owned by persons who are
socially and economically disadvantaged.47 A firm that is certified by SBA as an
8(a) firm is eligible for set-aside and sole-source contracts. The SBA also
provides technical assistance and training to 8(a) firms. Firms may participate in
the 8(a) Program for no more than nine years. As of May 2, 2013, there were
8,027 firms with active certifications in the 8(a) program.48
44 U.S. Small Business Administration, Office of Veterans Business Development, “Special Program Announcement:
Veterans Business Outreach Center Program,” April 2010, p. 1, at http://archive.sba.gov/idc/groups/public/documents/
sba_program_office/ovbd_vboc_prgm_announce2010.pdf; and U.S. Small Business Administration, “Veterans
Business Outreach Centers,” at http://www.sba.gov/content/veterans-business-outreach-centers. There were eight
veterans business outreach centers in FY2009.
45 These programs apply government-wide, but are implemented under the authority of the Small Business Act
pursuant to regulations promulgated by the SBA that determine, in part, eligibility for the programs.
46 For further information and analysis, see CRS Report R40744, The “8(a) Program” for Small Businesses Owned and
Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues, by Kate M. Manuel and
John R. Luckey.
47 Section 8(a) of the Small Business Act, P.L. 85-536, as amended, can be found at 15 U.S.C 637(a). Regulations are
in 13 C.F.R. §124. For recent legal developments, see CRS Report R40987, “Disadvantaged” Small Businesses:
Definitions and Designations for Purposes of Federal and Federally Funded Contracting Programs, by Kate M.
Manuel, and CRS Report RL33284, Minority Contracting and Affirmative Action for Disadvantaged Small Businesses:
Legal Issues, by Jody Feder.
48 U.S. Small Business Administration, “Dynamic Small Business Search,” at http://dsbs.sba.gov/dsbs/search/
(continued...)
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• Historically Underutilized Business Zone Program:49 This program assists
small businesses located in Historically Underutilized Business Zones
(HUBZones) through set-asides, sole source awards, and price evaluation
preferences in full and open competitions.50 The determination of whether or not
an area is a HUBZone is based on criteria specified in 13 C.F.R. Section 126.103.
To be certified as a HUBZone small business, at least 35% of the small
business’s employees must generally reside in a HUBZone. As of May 2, 2013,
there were 5,712 firms with active HUBZone certifications.51
• Service-Disabled Veteran-Owned Small Business Program: This program
assists service-disabled veteran-owned small businesses through set-asides and
sole-source awards. For purposes of this program, veterans and service-related
disabilities are defined as they are under the statutes governing veterans affairs.52
• Women-Owned Small Business Program: Under this program, contracts may
be set aside for economically disadvantaged women-owned small businesses in
industries in which they are underrepresented, and women-owned small
businesses in which they are substantially underrepresented.
• Other small businesses: Agencies may also set-aside contracts or make sole-
source awards to small businesses not participating in any other program under
certain conditions.
Subcontracting Programs for Small Disadvantaged Businesses
Other federal programs promote subcontracting with small disadvantaged businesses (SDBs).
Agencies must negotiate “subcontracting plans” with the apparently successful bidder or offeror
on eligible prime contracts prior to awarding the contract. Subcontracting plans set goals for the
percentage of subcontract dollars to be awarded to SDBs, among others, and describe efforts that
will be made to ensure that SDBs “have an equitable opportunity to compete for subcontracts.”
Federal agencies may also consider the extent of subcontracting with SDBs in determining to
whom to award a contract, or give contractors “monetary incentives” to subcontract with SDBs.
All 8(a) firms qualify as SDBs, but firms that are not participants in the 8(a) Program can also
qualify as SDBs. As of May 2, 2013, there were 8,053 certified SDBs.53
(...continued)
dsp_dsbs.cfm.
49 For additional information and analysis, see CRS Report R41268, Small Business Administration HUBZone
Program, by Robert Jay Dilger.
50 For recent legal developments relating to the priority given to the HUBZone program, see CRS Report R40591, Set-
Asides for Small Businesses: Recent Developments in the Law Regarding Precedence Among the Set-Aside Programs
and Set-Asides Under Indefinite-Delivery/Indefinite-Quantity Contracts, by Kate M. Manuel.
51 U.S. Small Business Administration, “Dynamic Small Business Search,” at http://dsbs.sba.gov/dsbs/search/
dsp_dsbs.cfm.
52 It should be noted that veteran-owned small businesses and service-disabled veteran-owned small businesses are
eligible for separate preferences in procurements conducted by the Department of Veterans Affairs under the authority
of the Veterans Benefits, Health Care, and Information Technology Act, as amended by the Veterans’ Benefits
Improvements Act of 2008.
53 U.S. Small Business Administration, “Dynamic Small Business Search,” at http://dsbs.sba.gov/dsbs/search/
dsp_dsbs.cfm.
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Goaling Program
Since 1978, federal agency heads have been required to establish federal procurement contracting
goals, in consultation with the SBA, “that realistically reflect the potential of small business
concerns” to participate in federal procurement. Each agency is required, at the conclusion of
each fiscal year, to report its progress in meeting the goals to the SBA.54
In 1988, Congress authorized the President to annually establish government-wide minimum
participation goals for procurement contracts awarded to small businesses and small businesses
owned and controlled by socially and economically disadvantaged individuals. Congress required
the government-wide minimum participation goal for small businesses to be “not less than 20%
of the total value of all prime contract awards for each fiscal year” and “not less than 5% of the
total value of all prime contract and subcontract awards for each fiscal year” for small businesses
owned and controlled by socially and economically disadvantaged individuals.55
Each federal agency was also directed to “have an annual goal that presents, for that agency, the
maximum practicable opportunity for small business concerns and small business concerns
owned and controlled by socially and economically disadvantaged individuals to participate in the
performance of contracts let by such agency.”56 The SBA was also required to report to the
President annually on the attainment of the goals and to include the information in an annual
report to the Congress.57 The SBA negotiates the goals with each federal agency and establishes a
“small business eligible” baseline for evaluating the agency’s performance.
The small business eligible baseline excludes certain contracts that the SBA has determined do
not realistically reflect the potential for small business participation in federal procurement (such
as contracts awarded to mandatory and directed sources), contracts awarded and performed
overseas, contracts funded predominately from agency-generated sources, contracts not covered
by Federal Acquisition Regulations, and contracts not reported in the Federal Procurement Data
System (such as contracts or government procurement card purchases valued less than $3,000).58
These exclusions typically account for 18% to 20% of all federal prime contracts each year.
The SBA then evaluates the agencies’ performance against their negotiated goals annually, using
data from the Federal Procurement Data System—Next Generation, managed by the U.S. General
Services Administration, to generate the small business eligible baseline. This information is
compiled into the official Small Business Goaling Report, which the SBA releases annually.
Over the years, federal government-wide procurement contracting goals have been established for
small businesses generally (P.L. 100-656, the Business Opportunity Development Reform Act of
1988, and P.L. 105-135, the HUBZone Act of 1997 ─ Title VI of the Small Business
Reauthorization Act of 1997), small businesses owned and controlled by socially and
economically disadvantaged individuals (P.L. 100-656, the Business Opportunity Development
54 P.L. 95-507, a bill to amend the Small Business Act and the Small Business Investment Act of 1958.
55 P.L. 100-656, the Business Opportunity Development Reform Act of 1988.
56 Ibid.
57 Ibid.
58 See U.S. General Services Administration, Federal Procurement Data System—Next Generation, “Small Business
Goaling Report: Fiscal Year 2011,” at https://www.fpds.gov/downloads/top_requests/
FPDSNG_SB_Goaling_FY_2011.pdf.
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Reform Act of 1988), women (P.L. 103-355, the Federal Acquisition Streamlining Act of 1994),
small businesses located within a HUBZone (P.L. 105-135, the HUBZone Act of 1997 ─ Title VI
of the Small Business Reauthorization Act of 1997), and small businesses owned and controlled
by a service disabled veteran (P.L. 106-50, the Veterans Entrepreneurship and Small Business
Development Act of 1999).
The current federal small business contracting goals are
• at least 23% of the total value of all small business eligible prime contract awards
to small businesses for each fiscal year,
• 5% of the total value of all small business eligible prime contract awards and
subcontract awards to small disadvantaged businesses for each fiscal year,
• 5% of the total value of all small business eligible prime contract awards and
subcontract awards to women-owned small businesses,
• 3% of the total value of all small business eligible prime contract awards and
subcontract awards to HUBZone small businesses, and
• 3% of the total value of all small business eligible prime contract awards and
subcontract awards to service-disabled veteran-owned small businesses.59
There are no punitive consequences for not meeting the small business procurement goals.
However, the SBA’s Small Business Goaling Report is distributed widely, receives media
attention, and serves to heighten public awareness of the issue of small business contracting. For
example, agency performance as reported in the SBA’s Small Business Goaling Report is often
cited by Members during their questioning of federal agency witnesses during congressional
hearings.
As shown in Table 6, in FY2011, federal agencies met the federal contracting goal for small
disadvantaged businesses, but not the other goals. Federal agencies awarded 21.65% of the value
of their small business eligible contracts to small businesses, 7.67% to small disadvantaged
businesses, 3.98% to women-owned small businesses, 2.35% to HUBZone small businesses, and
2.65% to service-disabled veteran-owned small businesses.60 The percentage of total reported
federal contracts (without exclusions) awarded to small businesses, small disadvantaged
businesses, women-owned small businesses, HUBZone small businesses, and service-disabled
veteran-owned small businesses in FY2011 is also provided in the table for comparative
purposes.
59 15 U.S.C. §644(g)(1)-(2).
60 U.S. General Services Administration, Federal Procurement Data System—Next Generation, “Small Business
Goaling Report: Fiscal Year 2011,” at https://www.fpds.gov/downloads/top_requests/
FPDSNG_SB_Goaling_FY_2011.pdf.
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Table 6. Federal Contracting Goals and Percentage of FY2011 Federal Contract
Dollars Awarded to Small Businesses, by Type
Percentage of FY2011
Percentage of FY2011
Federal Contracts
Federal Contracts (all
Business Type
Federal Goal
(small business eligible)
reported contracts)
Smal Businesses
23.0%
21.65%
17.0%
Small Disadvantaged
5.0% 7.67% 6.0%
Businesses
Women-Owned Smal
5.0% 3.98% 3.1%
Businesses
HUBZone Smal Businesses
3.0%
2.35%
1.8%
Service-Disabled Veteran-
3.0% 2.65% 2.1%
Owned Small Businesses
Source: U.S. Small Business Administration, “Statutory Guidelines,” at http://www.sba.gov/content/goaling-
guidelines-0 (federal goals); U.S. General Services Administration, Federal Procurement Data System—Next
Generation, “Small Business Goaling Report: Fiscal Year 2011,” at https://www.fpds.gov/downloads/
top_requests/FPDSNG_SB_Goaling_FY_2011.pdf; and U.S. General Services Administration, Federal
Procurement Data System—Next Generation, at https://www.fpds.gov/fpdsng/ (contract dol ars).
Notes: The total amount of federal contracts awarded in FY2011, as reported in the FPDS, was $536.8 billion;
$422.5 billion of this amount was deemed by the SBA to be small business eligible. Of the total amount reported,
$91.5 billion was awarded to small businesses, $32.4 billion to small disadvantaged businesses, $16.8 billion to
women owned small businesses, $9.9 billion to SBA-certified HUBZone small businesses, and $11.2 billion to
service-disabled veteran-owned smal businesses.
Office of Small and Disadvantaged Business Utilization
Government agencies with procurement authority have an Office of Small and Disadvantaged
Business Utilization (OSDBU) to advocate within the agency for small businesses, as well as
assist small businesses in their dealings with federal agencies (e.g., obtaining payment).
Capital Access Programs
The SBA has several programs to improve small businesses access to capital markets, including
the Surety Bond Guarantee Program, two special high technology contracting programs (the
Small Business Innovative Research and Small Business Technology Transfer programs), and the
New Market Venture Capital program. In addition, the previously discussed Small Business
Investment Company program is also designed to improve access to capital markets.
Surety Bond Guarantee Program61
The SBA’s Surety Bond Guarantee Program is designed to increase small businesses’ access to
federal, state, and local government contracting, as well as private-sector contracts, by
guaranteeing bid, performance, and payment bonds for small businesses that cannot obtain surety
bonds through regular commercial channels.62 The program guarantees individual contracts of up
61 For additional information and analysis, see CRS Report R42037, SBA Surety Bond Guarantee Program, by Robert
Jay Dilger.
62 Ancillary bonds are also eligible if they are incidental and essential to a contract for which SBA has guaranteed a
(continued...)
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to $6.5 million, and up to $10 million if a federal contracting officer certifies that such a
guarantee is necessary. The SBA’s guarantee ranges from 70% to 90% of the surety’s loss if a
default occurs.
A surety bond is a three-party instrument between a surety (someone who agrees to be
responsible for the debt or obligation of another), a contractor, and a project owner. The
agreement binds the contractor to comply with the terms and conditions of a contract. If the
contractor is unable to successfully perform the contract, the surety assumes the contractor’s
responsibilities and ensures that the project is completed. The surety bond reduces the risk of
contracting.63
Surety bonds are viewed as a means to encourage project owners to contract with small
businesses that may not have the credit history or prior experience of larger businesses and are
considered to be at greater risk of failing to comply with the contract’s terms and conditions.64
Small Business Innovation Research Program65
The Small Business Innovation Research (SBIR) program is designed to increase the participation
of small, high technology firms in federal research and development (R&D) endeavors, provide
additional opportunities for the involvement of minority and disadvantaged individuals in the
R&D process, and result in the expanded commercialization of the results of federally funded
R&D.66 Current law requires that every federal department with an R&D budget of $100 million
or more establish and operate an SBIR program. A set percentage of that agency’s applicable
extramural research and development budget—originally set at not less than 0.2% in FY1983,
and currently not less than 2.7 in FY2013—is to be used to support mission-related work in small
businesses.67
Agency SBIR efforts involve a three-phase process. First, phase I awards of up to $150,000 for
six months are made to evaluate a concept’s scientific or technical merit and feasibility. The
project must be of interest to and coincide with the mission of the supporting organization.
Projects that demonstrate potential after the initial endeavor may compete for Phase II awards of
up to $1 million, lasting one to two years. Phase II awards are for the performance of the principal
R&D by the small business. Phase III funding, directed at the commercialization of the product or
(...continued)
final bond. A reclamation bond is eligible if it is issued to reclaim an abandoned mine site, and for a project undertaken
for a specific period of time.
63 U.S. Small Business Administration, “Surety Bonds,” at http://www.sba.gov/category/navigation-structure/loans-
grants/bonds/surety-bonds.
64 Ibid.
65 For further information and analysis of the SBIR program, see CRS Report 96-402, Small Business Innovation
Research (SBIR) Program, by Wendy H. Schacht.
66 See P.L. 97-219, the Small Business Innovation Development Act of 1982; and 15 U.S.C. §638.
67 The percentage of each designated agency’s applicable extramural research and development budget to be used to
support mission-related work in small businesses is scheduled to increase to: not less than 2.7% in FY2013, not less
than 2.8% in FY2014, not less than 2.9% in FY2015, not less than 3.0% in FY2016, and not less than 3.2% in FY2017
and each fiscal year thereafter. See P.L. 112-81, the National Defense Authorization Act for Fiscal Year 2012; and U.S.
Small Business Administration, “Small Business Innovation Research Program Policy Directive,” 77 Federal Register
46806-46855.
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process, is expected to be generated in the private sector. Federal dollars may be used if the
government perceives that the final technology or technique will meet public needs.
Eleven departments currently have SBIR programs, including the Departments of Agriculture,
Commerce, Defense (DOD), Education, Energy, Health and Human Services, Homeland Security,
and Transportation; the Environmental Protection Agency; the National Aeronautics and Space
Administration (NASA); and the National Science Foundation (NSF). Each agency’s SBIR
activity reflects that organization’s management style. Individual departments select R&D
interests, administer program operations, and control financial support. Funding can be disbursed
in the form of contracts, grants, or cooperative agreements. Separate agency solicitations are
issued at established times.
The SBA is responsible for establishing the broad policy and guidelines under which individual
departments operate their SBIR programs. The SBA monitors and reports to Congress on the
conduct of the separate departmental activities.
Small Business Technology Transfer Program
The Small Business Technology Transfer program (STTR) provides funding for research
proposals that are developed and executed cooperatively between a small firm and a scientist in a
nonprofit research organization and fall under the mission requirements of the federal funding
agency.68 Up to $150,000 in Phase I financing is available for approximately one year to fund the
exploration of the scientific, technical, and commercial feasibility of an idea or technology. Phase
II awards of up to $1 million may be made for two years. During this period, the R&D work is
performed and the developer begins to consider commercial potential. Only Phase I award
winners are considered for Phase II. Phase III funding, directed at the commercialization of the
product or process, is expected to be generated in the private sector. The small business must find
funding in the private sector or other non-STTR federal agency.
The STTR program is funded by a set-aside, initially set at not less than 0.05% in FY1994 and
now at not less than 0.35%, of the extramural R&D budget of departments that spend over $1
billion per year on this effort.69 The Departments of Energy, Defense, and Health and Human
Services, NASA, and NSF participate in the STTR program.
The SBA is responsible for establishing the broad policy and guidelines under which individual
departments operate their STTR programs. The SBA monitors and reports to Congress on the
conduct of the separate departmental activities.
68 See P.L. 102-564, the Small Business Research and Development Enhancement Act of 1992; and 15 U.S.C. §638.
69 The STTR program’s set-aside is scheduled to increase to: 0.4% in FY2014 and 0.45% in FY2016 and each fiscal
year thereafter. See P.L. 112-81, the National Defense Authorization Act for Fiscal Year 2012; and U.S. Small
Business Administration, “Small Business Technology Transfer Program Policy Directive,” 77 Federal Register 46855
– 46908.
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New Market Venture Capital Program70
The New Market Venture Capital (NMVC) program encourages equity investments in small
businesses in low-income areas that meet specific statistical criteria established by regulation.
The program operates through public-private partnerships between the SBA and newly formed
NMVC investment companies and existing Specialized Small Business Investment Companies
(SSBICs) that operate under the Small Business Investment Company program.
The NMVC program’s objective is to serve the unmet equity needs of local entrepreneurs in low-
income areas by providing them developmental venture capital investments and technical
assistance, create quality employment opportunities for low-income area residents, and build
wealth within those areas.
The SBA’s role is essentially the same as with the SBIC program. The SBA selects participants
for the NMVC program, provides funding for their investments and operational assistance
activities, and regulates their operations to ensure that public policy objectives are being met. The
SBA requires the companies to provide regular performance reports and have annual financial
examinations by the SBA.
Office of Inspector General
The Office of Inspector General’s (OIG’s) mission is “to improve SBA management and
effectiveness, and to detect and deter fraud in the Agency’s programs.”71 It serves as “an
independent and objective oversight office created within the SBA by the Inspector General Act
of 1978 (P.L. 95-452 as amended).”72 The Inspector General, who is nominated by the President
and confirmed by the Senate, directs the office. The Inspector General Act provides the OIG with
the following responsibilities:
• promote economy, efficiency, and effectiveness in the management of SBA
programs and supporting operations;
• conduct and supervise audits, investigations, and reviews relating to the SBA’s
programs and support operations;
• detect and prevent fraud and abuse;
• review existing and proposed legislation and regulations and make appropriate
recommendations;
• maintain effective working relationships with other governmental agencies, and
non-governmental entities, regarding the Inspector General’s mandated duties;
• keep the SBA Administrator and Congress informed of serious problems and
recommend corrective actions and implementation measures;
70 For further information and analysis of the New Markets Venture Capital program, see CRS Report R42565, SBA
New Markets Venture Capital Program, by Robert Jay Dilger.
71 U.S. Small Business Administration, “Office of Inspector General,” at http://www.sba.gov/office-of-inspector-
general.
72 U.S. Small Business Administration, “Office of the Inspector General Strategic Plan for FY 2006 – 2011,” at
http://www.sba.gov/office-of-inspector-general/860/4753#Mission.
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• comply with the Comptroller General’s audit standards;
• avoid duplication of Government Accountability Office (GAO) activities; and
• report violations of law to the U.S. Attorney General.73
Office of Advocacy
The SBA’s Office of Advocacy is “an independent voice for small business within the federal
government.”74 The Chief Counsel for Advocacy, who is nominated by the President and
confirmed by the Senate, directs the office. The Office of Advocacy’s mission is to “encourage
policies that support the development and growth of American small businesses” by
• intervening early in federal agencies’ regulatory development process on
proposals that affect small businesses and providing Regulatory Flexibility Act
compliance training to federal agency policymakers and regulatory development
officials;
• producing research to inform policymakers and other stakeholders on the impact
of federal regulatory burdens on small businesses, to document the vital role of
small businesses in the economy, and to explore and explain the wide variety of
issues of concern to the small business community; and
• fostering a two-way communication between federal agencies and the small
business community.75
Executive Direction Programs
The SBA’s executive direction programs consist of the National Women’s Business Council and
the Office of Ombudsman.
The National Women’s Business Council
The National Women’s Business Council is a bi-partisan federal advisory council created to serve
as an independent source of advice and counsel to the President, Congress, and the SBA on
economic issues of importance to women business owners. The council’s mission “is to promote
bold initiatives, policies, and programs designed to support women’s business enterprises at all
stages of development in the public and private sector marketplaces—from start-up to success to
significance.”76
73 Ibid.
74 U.S. Small Business Administration, “Office of Advocacy: About Us,” at http://www.sba.gov/category/advocacy-
navigation-structure/about-us.
75 U.S. Small Business Administration, Office of Advocacy, “FY 2013 Congressional Budget Justification,” p. 2, at
http://www.sba.gov/about-sba-info/46741.
76 The National Women’s Business Council, “About the Council,” Washington, DC, at http://www.nwbc.gov/aboutus/
ABOUT_THE_COUNCIL.html.
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Office of Ombudsman
The National Ombudsman’s mission “is to assist small businesses when they experience
excessive or unfair federal regulatory enforcement actions, such as repetitive audits or
investigations, excessive fines, penalties, threats, retaliation or other unfair enforcement action by
a federal agency.”77 It works with federal agencies that have regulatory authority over small
businesses to provide a means for entrepreneurs to comment about enforcement activities and
encourage agencies to address those concerns promptly. It also receives comments from small
businesses about unfair federal compliance or enforcement activities and refers those comments
to the Inspector General of the affected agency in appropriate circumstances. It also files an
annual report with Congress and affected federal agencies that rates federal agencies based on
substantiated comments received from small business owners. Affected agencies are provided an
opportunity to comment on the draft version of the annual report to Congress before it is
submitted.78
Legislative Activity
During the 111th Congress, several laws were enacted which included provisions designed to
increase small business access to capital. For example, P.L. 111-5, the American Recovery and
Reinvestment Act of 2009 (ARRA) provided the SBA an additional $730 million in temporary
funding, including $375 million to subsidize fees for the SBA’s 7(a) and 504/CDC loan guaranty
programs and to increase the 7(a) program’s maximum loan guaranty percentage to 90% for all
regular 7(a) loans through September 30, 2010, or when appropriated funding for the subsidies
and loan modification was exhausted. P.L. 111-240, the Small Business Jobs Act of 2010,
authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund
(SBLF) to encourage community banks with less than $10 billion in assets to increase their
lending to small businesses (about $4.0 billion was issued) and a $1.5 billion State Small
Business Credit Initiative to provide funding to participating states with small business capital
access programs. The act also provided the SBA an additional $697.5 million, including $510
million to continue the SBA’s fee subsidies and the 7(a) program’s 90% maximum loan guaranty
percentage through December 31, 2010, and about $12 billion in tax relief for small businesses.79
P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011,
authorized the SBA to continue its fee subsidies and the 7(a) program’s 90% maximum loan
guaranty percentage through March 4, 2011, or until available funding was exhausted, which
occurred on January 3, 2011.
77 U.S. Small Business Administration, “Office of the National Ombudsman and Assistant Administrator for
Regulatory Enforcement Fairness,” at http://www.sba.gov/ombudsman.
78 U.S. Small Business Administration, “2010 Fiscal Year National Ombudsman Annual Report to Congress,” at
http://www.sba.gov/ombudsman/886/13145.
79 P.L. 111-240, the Small Business Jobs Act of 2010, made several changes relating to the SBA’s loan guaranty
programs. The legislation increased the loan limits for the 7(a) program from $2 million to $5 million. It increased the
504/CDC Program’s loan limits from $2 million to $5 million for standard borrowers, and from $4 million to $5.5
million for manufacturers. It temporarily expanded for two years the eligibility for low-interest refinancing under the
SBA’s 504/CDC program for qualified debt. It also amended the SBA Express Program, the SBA Microloan Program,
the SBA secondary market program, the SBA size standards, and the SBA International Trade Finance Program. For
further information and analysis concerning P.L. 111-240, the Small Business Jobs Act of 2010, see CRS Report
R41385, Small Business Legislation During the 111th Congress, by Robert Jay Dilger and Gary Guenther; and CRS
Report R40985, Small Business: Access to Capital and Job Creation, by Robert Jay Dilger.
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During the 112th Congress, the SBA’s statutory authorization expired (on July 31, 2011).80 Since
then, the SBA has been operating under authority provided by annual appropriations acts. Prior to
July 31, 2011, the SBA’s authorization had been temporarily extended 15 times since 2006.
Also, P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, made a number
of changes to several SBA programs. For example, among other provisions, the act increased the
SBA’s surety bond limit from $2 million to $6.5 million, and up to $10 million if a federal
contracting officer certifies that such a guarantee is necessary; requires the SBA to oversee and
establish standards for most federal mentor-protégé programs and establish a mentor-protégé
program for all small business concerns; requires the SBA’s Chief Counsel for Advocacy to enter
into a contract with an appropriate entity to conduct an independent assessment of the small
business procurement goals, including an assessment of which contracts should be subject to the
goals; and addresses the SBA’s recent practice of combining size standards within industrial
groups as a means to reduce the complexity of its size standards by requiring the SBA to make
available a justification when establishing or approving a size standard that the size standard is
appropriate for each individual industry classification.
Discontinued Programs
Over the years, the SBA has discontinued many programs. Some of these cancellations were done
administratively, others at the direction of Congress. In many cases key features of the programs
were incorporated in other programs. In recent years, the small loans FA$TRAK loan program
(now called SBAExpress, which continues), LowDoc loan program, handicapped assistance loan
program, disabled assistance loan program, and community express pilot program have been
discontinued. The SBA has also ended its support of the veterans franchise program
(VETFRAN), but the Department of Veterans Affairs continues its support. Also, during the 112th
Congress, both the House and Senate Committees on Small Business have considered legislation
to legislatively terminate several smaller SBA programs, such as the Drug-Free Workplace
Program, and several authorized but inactive programs, such as the lease guarantee loan program,
the pollution control loan program, and the small business telecommuting pilot program.81
Appropriations82
The SBA’s appropriation for FY2013 (including supplemental funding for disaster assistance and
the effects of sequestration) is $1.754 billion: $414.5 million for salaries and expenses (including
$155.4 million for non-credit programs such as HUBZones, Microloan Technical Assistance,
SCORE, SBDCs, Veteran’s Business Development, and WBCs), $851.2 million for disaster
assistance, $140.2 million for administrative expenses related to the SBA’s business loan
80 P.L. 112-17, the Small Business Additional Temporary Extension Act of 2011.
81 See the legislative history of H.R. 2608, the Continuing Appropriations Act, 2012. Before becoming the legislative
vehicle for the continuing appropriations bill, the bill contained the Small Business Program Extension and Reform Act
of 2011.
82 For further information concerning appropriations for the Small Business Administration and other independent
agencies, see CRS Report R42476, Financial Services and General Government: A Summary of the President’s
FY2013 Budget Request, by Garrett Hatch.
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programs, $319.7 million for business loan credit subsidies, and $28.8 million for all other
programs.83
The Obama Administration has requested that the SBA be provided $968.8 million in FY2014.
The Administration requested $485.9 million for salaries and expenses. Included in that amount is
$210.3 million for non-credit programs, such as HUBZones, Microloan Technical Assistance,
SCORE, SBDCs, Veteran’s Business Development, WBCs, and several management and training
initiatives. The Administration also requested $191.9 million for the SBA’s disaster loan program,
$151.6 million for administrative expenses related to the SBA’s business loan programs, $111.6
million for business loan credit subsidies, and $27.9 million for all other SBA programs.84
Author Contact Information
Robert Jay Dilger
Sean Lowry
Senior Specialist in American National Government
Analyst in Public Finance
rdilger@crs.loc.gov, 7-3110
slowry@crs.loc.gov, 7-9154
Acknowledgments
Oscar R. Gonzales, formerly an analyst in Economic Development Policy, who has since left CRS, and N.
Eric Weiss, a specialist in Financial Economics, authored earlier versions of this report.
83 P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 111-242, the Continuing Appropriations Act, 2011;
P.L. 112-4, the Further Continuing Appropriations Amendments, 2011; P.L. 112-8, the Further Additional Continuing
Appropriations Amendments, 2011; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations
Act, 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012; P.L. 112-175, the Continuing Appropriations
Resolution, 2013; U.S. Office of Management and Budget, OMB Report to the Congress on the Joint Committee
Sequestration for Fiscal Year 2013, March 1, 2013, p. 59, at http://www.whitehouse.gov/sites/default/files/omb/assets/
legislative_reports/fy13ombjcsequestrationreport.pdf; P.L. 113-2, the Disaster Relief Appropriations Act, 2013; P.L.
113-6, the Consolidated and Further Continuing Appropriations Act, 2013; U.S. Office of Management and Budget,
OMB Final Sequestration Report to the President and Congress for Fiscal Year 2013, at http://www.whitehouse.gov/
sites/default/files/omb/assets/legislative_reports/sequestration/sequestration_final_april2013.pdf; and U.S. Small
Business Administration, Office of Congressional and Legislative Affairs, “Correspondence with the author,” May 2,
2013.
84 U.S. Small Business Administration, FY2014 Congressional Budget Justification and FY2012 Annual Performance
Report, pp. 17, 22.
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