Do Small Business Lending Programs Work?

small business lending programsYou gotta love the Government Accountability Office (GAO). Their job is to do the research requested by Congress or written into legislation in order to make sure that government programs are doing what they are supposed to be doing.

My only complaint about them is that they are not required or requested to go back and look at tax policy to make sure it accomplishes what it was designed to accomplish. If I had to guess, I’d say there are probably some folks on Capitol Hill who don’t care whether it accomplishes its goals or not, because they have ideology to defend and never mind the practical concerns involved with running the country.

But that’s a different article.

The GAO was just doing its job when it recently released a report on the implementation of a couple of new Treasury Department small business lending programs created through the Small business Jobs Act of 2010. The two programs are the Small Business Lending Fund (SBLF) and the State Small Business Credit Initiative (SSBCI) and they appear to be doing mostly okay.

The SBLF provides capital to small banks — defined as qualifying banks with less than $10 billion in assets and comprised of local community banks and community development loan funds — in order to encourage them to increase their lending to small businesses. The SSBCI supports state and municipality small business lending programs that operate on much the same premise as the SBA small business lending programs do. These are state and local programs that provide loans to creditworthy small firms and manufacturers that cannot (for unspecified reasons) otherwise get credit.

Naturally, the Treasury Department has developed processes and procedures in order to monitor participating banks’ compliance with the legal and reporting requirements of the SBLF program. There are also such requirements for the financial institutions with which the states partner if they want to use SSBCI funds within the context of that relationship. The GAO’s last audit of the programs recommended those procedures and so they were happy to see that Treasury took at least some of their advice.

Meanwhile, the programs appear to have had some measurable impact. On average, SBLF participants increased their total business lending by 31% and increased small business loans under $1 million by 14%. The SSBCI program has not made quite the same impact, at least in the context of what has been used versus what was made available. States have used about 10% of program funds so far and the law provides that Treasury can (but doesn’t have to) terminate funds that haven’t been allocated to states with two years of that state’s participation in the program.

In this most recent annual report, the GAO notes that the Treasury Department has had some reporting issues with both programs. It’s methodology in its evaluation of the SBLF program, the results of which were publishined in a report to Congress, had some problems that the GAO found appeared to overreport the impact of the program. SBLF officials, in response to teh GAO’s findings, said they are continuing to evaluate possible evalutation methods, including possibly collecting additional data from a sample of participating financial institutions.

Meanwhile, another set of stuff Treasury has yet to do concerns the SSBCI program. For starters, they haven’t figured out what their procedure is going to be for terminating state funds that have not been allocated to states with the 2 year timeframe. Treasury officials say they currently have no intention of using this authority but, as the GAO points out, just because you aren’t going to do it right now, that doesn’t mean you don’t need to figure out how it will be done later or down the line or under another Administration. The proceedure should be developed, finalized and written out whether it is used now or not.

Another problem with the SSBCI is that, while Treasury has developed performance measures for the program, they have not yet figured out how to make the information public. (I wonder if that sounds as strange to you as it does to me? How hard is it to figure out how to publicize this information?) The information is shared with the states “through conferences and technical assistance,” but apparently it is not written down in a form in which it can be of real use to either the states, the Congress or the voting public. The GAO seems to object to that.

In light of the probability that these programs are gonig to continue to operate at least during the current Administration, it would probably be a good thing for Treasury to get its reporting act together. With all the talk of fiscal cliffs and looming budget cuts, every program is going to have to justify its existence and, if these programs are really helping firms to stay afloat and create jobs, then Treasury should be shouting that news from every rooftop in Washington.

United States flag with american money Photo via Shutterstock

3 Comments ▼

Dawn R. Rivers


Dawn R. Rivers Dawn R. Rivers, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the publisher of the MicroEnterprise Journal. She also publishes research at the Microbusiness Research Institute and she blogs at The MicroEnterprise Journal Blog.

3 Reactions

  1. Great post, Dawn. It’s great to know that there’s lending programs available to small businesses that may need them. You’ve provided a great resource to go by. Thanks for sharing your insights.

    Ti

  2. Thanks for the post. This was a great resource about programs that many don’t even know are available.

  3. Thanks for publishing your thoughts on this dawn. At times I really have to wonder what’s going on on The Hill. What are ther true motives behind what they do. Baffling…

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