Small Business Issues During the Covid-19 Pandemic 1536184551, 9781536184556

Table of contents :
Contents
Preface
Chapter 1
Small Business Administration: A Primer on Programs and Funding (Updated) (
Abstract
Introduction
Entrepreneurial Development Programs
Capital Access Programs
Overview
What Is a Small Business?
What Is Small?
Loan Guarantees
Overview
7(a) Loan Guaranty Program
Variations on the 7(a) Program
Special Purpose Loan Guaranty Programs
Community Adjustment and Investment Program
Employee Trusts
Pollution Control
CAPLines
The 504/CDC Loan Guaranty Program
International Trade and Export Promotion Programs
The Microloan Program
Paycheck Protection Program
Disaster Loans
Overview
Types of Disaster Loans
Disaster Loans to Homeowners, Renters, and Personal Property Owners
Personal Property Loans
Real Property Loans
Disaster Loans to Businesses and Nonprofit Organizations
Physical Disaster Loan
Economic Injury Disaster Loans
Contracting Programs
Prime Contracting Programs
Subcontracting Programs for Small Disadvantaged Businesses
The 7(j) Management and Technical Assistance Program
Surety Bond Guarantee Program
Goaling Program
Office of Small and Disadvantaged Business Utilization
Regional and District Offices
Office of Inspector General
Capital Investment Programs
The Small Business Investment Company Program
New Market Venture Capital Program
Small Business Innovation Research Program
Small Business Technology Transfer Program
Growth Accelerator Initiative
Office of Advocacy
Executive Direction Programs
The National Women’s Business Council
Office of Ombudsman
Faith-Based Initiatives
Legislative Activity
Appropriations
Chapter 2
Small Business Administration (SBA) Funding: Overview and Recent Trends (Updated)(
Abstract
Introduction
SBA Funding Trends: FY2000-FY2020
SBA Funding within the Other Programs Category
Salaries and Expenses
Business Loan Administration
Office of Inspector General
Office of Advocacy
Entrepreneurial Development Noncredit Programs
Small Business Development Centers
Microloan Technical Assistance Program
Women Business Centers
The Women’s Business Center (WBC) Renewable Grant Program Was Initially Established by
SCORE
Program for Investment in Microentrepreneurs
Veterans Programs
7(j) Technical Assistance Program
Native American Outreach Program
National Women’s Business Council
HUBZone Administration
The Entrepreneurial Development Initiative (Regional Innovation Clusters)
Entrepreneurship Education Initiative
Growth Accelerator Initiative
Appendix. SBA Appropriations, FY1954-FY1999
Chapter 3
Small Business Management and Technical Assistance Training Programs (Updated)(
Abstract
Federal Management and Technical Assistance Training Programs
SBA Management and Technical Assistance Training Programs
Small Business Development Centers
Legislation
Microloan Technical Assistance Program
Legislation
Women’s Business Centers
Legislation
Veterans Business Development Programs
Legislation
SCORE (Service Corps of Retired Executives)
Legislation
Program for Investment in Micro-entrepreneurs (PRIME)
7(j) Management and Technical Assistance Program
Native American Outreach Program
SBA Initiatives
Entrepreneurial Development Initiative (Regional Innovation Clusters)
Entrepreneurial Education
Growth Accelerators
Department of Commerce Small Business Management and Technical Assistance Training Programs
The Minority Business Development Agency
The EDA Local Technical Assistance Program
Congressional Issues
Program Administration
Program Evaluation
Conclusion
Appendix. Brief Descriptions of SBA Management and Technical Assistance Training Programs
Chapter 4
Small Business Administration and Job Creation (Updated)(
Abstract
Small Business and Net Job Creation
Economic Research on Net Job Creation
Small and Large Business Employment
Job Growth and Opening/Startup Establishments
Job Growth and Small Establishments
The Role of Small Business and Startups in Net Job Creation
The Role of Surviving Startups in Net Job Creation
The Role of High-Impact Businesses in Net Job Creation
The Role of High-Technology Firms in Net Job Creation
Summary Discussion
Implications for Congress and the SBA
Using Net Job Creation to Measure SBA Program Performance
Using Net Job Creation to Target SBA Assistance
Concluding Observations
Chapter 5
Small Business Administration Microloan Program (Updated)(
Abstract
Small Business Microloans and Training Assistance
The SBA Microloan Program: Funding, Eligibility Standards, Program Requirements, and Statistics
Funding
Intermediary Microloan Lender Eligibility Standards
Intermediary Microloan Lender Program Requirements
Intermediary Marketing, Management, and Technical Training Assistance
Nonlending Technical Assistance Providers
Microloan Borrower Eligibility Standards
Microloan Borrower Program Requirements
Microloan Program Statistics
Congressional Issues
Program Duplication
Program Cost
Program Administration
Legislation
Conclusion
Appendix. Microloan Technical Assistance Program Funding
Chapter 6
COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options*
Abstract
Introduction
Disaster Loans
Overview
Types of Disaster Loans
Economic Injury Disaster Loans
Initial EIDL Response to COVID-19
EIDL Funding
Surge Issues and Loan Processing Times
Expedited Disaster Loans and Bridge Loans
SBA EIDL Repayment and Forgiveness
Disaster Grants
SBA EIDL Interest Rates
SBA Capital Access Programs
Overview
What Is a “Small Business”?
What is “Small”?
SBA Loan Guarantee Programs
Overview
7(a) Loan Guaranty Program
The 504/CDC Loan Guaranty Program
504/CDC Refinancing Program
The Microloan Program
SBA Loan Enhancements to Address the Great Recession
Current Issues, Debates, and Lessons Learned
SBA Entrepreneurial Development Programs
Overview
Small Business Development Centers
Microloan Technical Assistance
Women’s Business Centers
SCORE (Formerly the Service Corps of Retired Executives)
Current Issues, Debates and Lessons Learned
SBA Contracting Programs
Overview
8(a) Program
Historically Underutilized Business Zone Program
Service-Disabled Veteran-Owned Small Business Program
Women-Owned Small Business Program
SBA Surety Bond Program
Current Issues, Debates and Lessons Learned
Concluding Observations
Appendix. Major Provisions of the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, and the HEROES Act
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136)
The Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139)
The Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act; H.R. 6800)
Chapter 7
Business Interruption Insurance and COVID-19: State Legislative Initiatives(
Insurers Reimbursed for Paying BI Claims for Policies with Virus Exclusions
Insurers Reimbursed for Paying BI Claims for Policies with Virus Exclusions or Requirement for Evidence of Physical Damage
Insurers Not Reimbursed for Paying BI Claims
Business Interruption Claims Paid by the State
Chapter 8
SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief(
PPP Forgiveness Provisions and Process
Forgiveness Application Process
Payroll Costs
Nonpayroll Costs
Reductions in Forgiveness
Calculating Full-Time Equivalent Employees
Calculating Salaries and Wages
Paycheck Protection Program Flexibility Act (H.R. 7010)
Increasing the Covered Period and Delaying the Rehiring Deadline
Increasing the Cap on Nonpayroll Expenses
Chapter 9
SBA’s Paycheck Protection Program (PPP) Loans and Self-Employed Individuals(
Eligibility
Loan Amount Calculation
Use of PPP Loan Proceeds
PPP Loan Forgiveness
Chapter 10
SBA EIDL and Emergency EIDL Grants for COVID-19(
EIDL Overview
EIDL Eligibility
Emergency EIDL Grants
EIDL and PPP
Chapter 11
SBA EIDL and Emergency EIDL Grants: Data by State(
EIDL Overview
EIDL Eligibility
Emergency EIDL Grants
Index
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Citation preview

BUSINESS ISSUES, COMPETITION AND ENTREPRENEURSHIP

SMALL BUSINESS ISSUES DURING THE COVID-19 PANDEMIC

No part of this digital document may be reproduced, stored in a retrieval system or transmitted in any form or by any means. The publisher has taken reasonable care in the preparation of this digital document, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained herein. This digital document is sold with the clear understanding that the publisher is not engaged in rendering legal, medical or any other professional services.

BUSINESS ISSUES, COMPETITION AND ENTREPRENEURSHIP Additional books and e-books in this series can be found on Nova’s website under the Series tab.

BUSINESS ISSUES, COMPETITION AND ENTREPRENEURSHIP

SMALL BUSINESS ISSUES DURING THE COVID-19 PANDEMIC

CLOVIS LALONDE EDITOR

Copyright © 2020 by Nova Science Publishers, Inc. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical photocopying, recording or otherwise without the written permission of the Publisher. We have partnered with Copyright Clearance Center to make it easy for you to obtain permissions to reuse content from this publication. Simply navigate to this publication’s page on Nova’s website and locate the “Get Permission” button below the title description. This button is linked directly to the title’s permission page on copyright.com. Alternatively, you can visit copyright.com and search by title, ISBN, or ISSN. For further questions about using the service on copyright.com, please contact: Copyright Clearance Center Phone: +1-(978) 750-8400 Fax: +1-(978) 750-4470 E-mail: [email protected].

NOTICE TO THE READER The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of information contained in this book. The Publisher shall not be liable for any special, consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, or reliance upon, this material. Any parts of this book based on government reports are so indicated and copyright is claimed for those parts to the extent applicable to compilations of such works. Independent verification should be sought for any data, advice or recommendations contained in this book. In addition, no responsibility is assumed by the Publisher for any injury and/or damage to persons or property arising from any methods, products, instructions, ideas or otherwise contained in this publication. This publication is designed to provide accurate and authoritative information with regard to the subject matter covered herein. It is sold with the clear understanding that the Publisher is not engaged in rendering legal or any other professional services. If legal or any other expert assistance is required, the services of a competent person should be sought. FROM A DECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THE AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS. Additional color graphics may be available in the e-book version of this book.

Library of Congress Cataloging-in-Publication Data ISBN: 978-1-53618-H%RRN

Published by Nova Science Publishers, Inc. † New York

CONTENTS Preface Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

vii Small Business Administration: A Primer on Programs and Funding (Updated) Robert Jay Dilger and Sean Lowry

1

Small Business Administration (SBA) Funding: Overview and Recent Trends (Updated) Robert Jay Dilger

67

Small Business Management and Technical Assistance Training Programs (Updated) Robert Jay Dilger

131

Small Business Administration and Job Creation (Updated) Robert Jay Dilger

197

Small Business Administration Microloan Program (Updated) Robert Jay Dilger

229

vi Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Index

Contents COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options Robert Jay Dilger, Bruce R. Lindsay and Sean Lowry

269

Business Interruption Insurance and COVID-19: State Legislative Initiatives Diane P. Horn and Baird Webel

333

SBA Paycheck Protection Program (PPP) Loan Forgiveness: In Brief Sean Lowry

337

SBA’s Paycheck Protection Program (PPP) Loans and Self-Employed Individuals Sean Lowry

347

SBA EIDL and Emergency EIDL Grants for COVID-19 Bruce R. Lindsay

353

SBA EIDL and Emergency EIDL Grants: Data by State Bruce R. Lindsay and Maura Mullins

357 363

PREFACE 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. This has grown especially acute in recent months due to the widespread, adverse impact of the novel coronavirus (COVID-19) pandemic on the national economy. This book looks at some of the issues small businesses may face during the pandemic. Chapter 1 - 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

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stimulate economic activity and create jobs. This interest has grown especially acute in recent months due to the widespread, adverse impact of the novel coronavirus (COVID-19) pandemic on the national economy. This chapter provides an overview of the SBA’s programs, including 

 



   

entrepreneurial development programs (including Small Business Development Centers, Women’s Business Centers, SCORE, and Microloan Technical Assistance); disaster assistance; capital access programs (including the 7(a) loan guaranty program, the 504/Certified Development Company loan guaranty program, the Microloan program, International Trade and Export Promotion programs, and lender oversight); contracting 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, the Women-Owned Small Business [WOSB] Federal Contract Program, and the Surety Bond Guarantee Program); SBA regional and district offices; the Office of Inspector General; the Office of Advocacy; and capital investment programs (including the Small Business Investment Company program, the New Markets Venture Capital program, the Small Business Innovation Research [SBIR] program, the Small Business Technology Transfer program [STTR], and growth accelerators).

The chapter also discusses recent programmatic changes resulting from the enactment of legislation, including 

P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, created the $349 billion Paycheck Protection Program (PPP) to

Preface

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ix

provide loans with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations that have been adversely affected by COVID-19. The act also provides for loan deferment and forgiveness under specified conditions. The SBA announced that PPP loans will have a two-year term at an interest rate of 1.0%. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, which, among other provisions, increased the PPP authorization limit to $659 billion and appropriated an additional $321.335 billion to support that authorization level.

This chapter also provides an overview of the SBA’s budget and references other CRS reports that examine the SBA’s programs in greater detail. Chapter 2 - This chapter examines the Small Business Administration’s (SBA’s) appropriations (new budget authority, minus rescissions and sequestration) over time, focusing on developments and trends since FY2000. It also provides total available funding (which includes carryover from the prior fiscal year, carryover into the next fiscal year, account transfers, rescissions, and sequestration) and, for entrepreneurial development noncredit programs, actual and anticipated expenditures for comparative purposes. SBA appropriations, as a whole, have varied significantly from year to year since FY2000 and across all three of the agency’s major spending categories: disaster assistance, business loan credit subsidies, and “other programs,” a category that includes salaries and expenses, business loan administration, the Office of Inspector General, the Office of Advocacy, and entrepreneurial development programs. Overall, the SBA’s appropriations have ranged from a high of $761.4 billion in FY2020 to a low of $571.8 million in FY2007. Much of this volatility is due to significant variation in supplemental appropriations for disaster assistance to address damages

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caused by major hurricanes and for SBA lending program enhancements to help small businesses access capital during and immediately following recessions. For example, in FY2020, the SBA has received $760.4 billion in supplemental appropriations to assist small businesses adversely affected by the novel coronavirus (COVID-19) pandemic. Appropriations for SBA business loan credit subsidies—needed to pay for unanticipated increases in the cost of loan defaults—have also varied since FY2000, primarily due to the impact of changing economic conditions on the SBA’s guaranteed loan portfolios. During good economic times, revenue from SBA fees and collateral liquidation is typically sufficient to cover the costs of purchasing guaranteed loans that have defaulted. During and immediately following recessions, however, that revenue is typically insufficient to cover the costs of purchasing guaranteed loans that have defaulted. Appropriations for the SBA’s other programs, as a collective, have also varied since FY2000, ranging from $455.6 million in FY2007 to $691.1 billion in FY2020. This variation is primarily due to congressional response to changing economic conditions. For example, in FY2009 and FY2010 and again in FY2020, Congress approved significant, temporary increases in appropriations for the SBA’s “other programs” spending category to address (1) the economic slowdown during and immediately following the Great Recession (2007-2009) and (2) the adverse economic impact of the COVID-19 pandemic, respectively. Overall, since FY2000, appropriations for SBA’s other programs, excluding supplemental appropriations, have increased at a pace that exceeds inflation. This chapter provides appropriations for all five major components of the other programs spending category, including the SBA’s entrepreneurial development programs. The SBA’s appropriations for FY1954 through FY1999 are provided in the Appendix. Chapter 3 - The Small Business Administration (SBA) has provided technical and managerial assistance to small businesses since it began operations in 1953. Initially, the SBA provided its own small business management and technical assistance training programs. Over time, the SBA has relied increasingly on third parties to provide that training. The SBA received $239 million in regular appropriations for its management

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and training programs in FY2020. In addition, P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, appropriated $265 million for SBA’s entrepreneurial development programs to assist small businesses adversely affected by the novel coronavirus (COVID-19) pandemic. Congressional interest in the SBA’s management and technical assistance training programs has increased in recent years, primarily because these programs are viewed as a means to assist small businesses create and retain jobs. These programs fund about “14,000 resource partners,” including 63 lead small business development centers (SBDCs) and nearly 900 SBDC local outreach locations, 125 women’s business centers (WBCs), and more than 250 chapters of the mentoring program, SCORE. The SBA reports that nearly 1 million aspiring entrepreneurs and small business owners receive training from an SBA-supported resource partner each year. The Department of Commerce also provides management and technical assistance training for small businesses. For example, its Minority Business Development Agency provides training to minority business owners to assist them in obtaining contracts and financial awards. Some have argued that the SBA should eliminate some management and training programs to reduce duplication of services across federal agencies. Others have argued that the SBA should improve cooperation and coordination among the SBA’s resource partners. Congress has also explored ways to improve the SBA’s measurement of these programs’ effectiveness. This chapter examines the historical development of federal small business management and technical assistance training programs; describes their current structures, operations, and budgets; and assesses their administration and oversight and the measures used to determine their effectiveness. It also discusses recent legislation affecting these programs, including 

P.L. 114-88, the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE After Disaster Act of 2015), which authorizes the SBA to provide up to two years of additional funding to its resource partners to assist small businesses located in a presidentially declared major disaster

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



area and authorizes SBDCs to provide assistance outside the SBDC’s state, without regard to geographical proximity to the SBDC, if the small business is in a presidentially declared major disaster area; P.L. 115-141, the Consolidated Appropriations Act of 2018, which relaxed requirements that Microloan intermediaries may spend no more than 25% of Microloan technical assistance grant funds on prospective borrowers and no more than 25% of those funds on contracts with third parties to provide that technical assistance by increasing those percentages to no more than 50%; and as mentioned, the CARES Act, among other provisions, appropriated $265 million for the SBA’s entrepreneurial development programs ($192 million for SBDCs, $48 million for WBCs, and $25 million for a new SBA Resource Partner Association grant program).

Chapter 4 - The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs, disaster loan programs, management and technical assistance training programs, and federal contracting programs. Congress has always been interested in these programs, primarily because they are viewed as a means to stimulate economic activity and create jobs. That interest has become acute in recent months due to the adverse economic impact of the Coronavirus Disease 2019 (COVID-19) pandemic on the national economy, particularly on small businesses. For example, legislation has been enacted that has dramatically expanded the SBA’s authority to provide loans to small businesses adversely affected by COVID-19. This chapter examines the economic research on net job creation to identify the types of businesses that appear to create the most jobs. That research indicates that small businesses tend to create more jobs than large businesses during economic expansions and lose more jobs during and immediately following recessions. The SBA has reported that preliminary economic data indicate small businesses have been disproportionally

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affected by the COVID-19 pandemic. Economic research also suggests that business startups play an important role in job creation, but have a more limited effect on net job creation over time because fewer than half of all startups are still in business after five years. However, the influence of small business startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20-499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years). This chapter examines the possible implications this research might have for Congress and the SBA. For example, although the current focus is on job retention and assisting as many small businesses as possible to survive the current economic downturn, this chapter examines the potential consequences of targeting SBA non-COVID-19-related lending assistance to small businesses that are the most likely to create and retain the most jobs. In addition, the Government Accountability Office (GAO) has recommended that the SBA use outcome-based program performance measures, such as how well the small businesses do after receiving SBA assistance, rather than focusing on output-based program performance measures, such as the number of loans approved and funded. GAO has argued that using outcome-based program performance measures would better enable the SBA to determine the impact of its programs on participating small businesses. Given congressional interest in job creation, this chapter examines the potential consequences of adding net job creation as an outcome-based SBA program performance measure. This chapter also examines the arguments for providing federal assistance to small businesses, noting that policymakers often view job creation as a justification for such assistance whereas economists argue that over the long term federal assistance to small businesses is likely to reallocate jobs within the economy, not increase them. Nonetheless, most economists support federal assistance to small businesses for other purposes, such as a means to correct a perceived market failure related to the disadvantages small businesses experience when attempting to access capital and credit.

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Chapter 5 - The Small Business Administration’s (SBA’s) Microloan program provides direct loans to nonprofit intermediary lenders to provide “microloans” of up to $50,000 to small businesses and nonprofit child care centers. They also provide marketing, management, and technical assistance to microloan borrowers and potential borrowers. Authorized in 1991 as a five-year demonstration project, it became operational in 1992, and was made permanent, subject to reauthorization, in 1997. The Microloan program is designed to assist women, low-income, veteran, and minority entrepreneurs and small business owners by providing them small-scale loans for working capital or the acquisition of materials, supplies, or equipment. In FY2019, Microloan intermediaries provided 5,533 microloans totaling $81.5 million. The average Microloan was $14,735 and had a 7.5% interest rate. Critics of the SBA’s Microloan program argue that it is expensive relative to alternative programs, duplicative of the SBA’s 7(a) loan guaranty program, and subject to administrative shortfalls. The program’s advocates argue that it assists many who otherwise would not be served by the private sector and is an important source of capital and training assistance for low-income, women, and minority business owners. Congressional interest in the Microloan program has increased in recent years, primarily because microloans are viewed as a means to assist very small businesses, especially women- and minority-owned startups, to get loans that enable them to create and retain jobs. Job creation and preservation, always a congressional interest, has taken on increased importance given the Coronavirus Disease 2019 (COVID-19) pandemic’s adverse impact on the national economy. This chapter describes the program’s eligibility standards and operating requirements. It also examines arguments presented by the program’s critics and advocates. It then discusses 

P.L. 111-240, the Small Business Jobs Act of 2010, which, among other provisions, increased the Microloan program’s loan limit for borrowers from $35,000 to $50,000, and the aggregate loan limit for intermediaries after their first year of participation in the program from $3.5 million to $5 million.

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P.L. 115-141, the Consolidated Appropriations Act, 2018, which, among other provisions, relaxed requirements on Microloan intermediaries that prohibited them from spending more than 25% of their technical assistance grant funds on prospective borrowers and more than 25% of those grant funds on contracts with third parties to provide that technical assistance. The act increased those percentages to 50%. P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which, among other provisions, increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million. P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a), 504/CDC, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due date. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, which, among other provisions, increased the Paycheck Protection Program’s (PPP) authorization limit from $349 billion to $659 billion and required that no less than $30 billion of that amount be set aside for loans issued by “community financial institutions,” including, among others, microloan intermediaries.

Chapter 6 - The U.S. Small Business Administration (SBA) administers several types of programs to support small businesses, including direct disaster loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; loan guaranty and venture capital programs to enhance small business access to capital; small business management and technical assistance training programs to assist business formation and expansion; and contracting programs to increase

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small business opportunities in federal contracting. Congressional interest in these programs has always been high, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs, but it has become especially acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s widespread adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households. This chapter provides a brief description of the SBA’s programs, examines congressional action to assist small businesses during and immediately following the Great Recession (2007-2009), and discusses legislation to assist small businesses adversely affected by the COVID-19 pandemic, including 



P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA’s Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense. P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, created the Paycheck Protection Program (PPP) to provide “covered loans” with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations that have been adversely affected by COVID-19. The act also provides for loan deferment and forgiveness under specified conditions. A covered loan is defined as a loan made to an eligible recipient from February 15, 2020, through June 30, 2020. The SBA announced that PPP loans will have a two-year term at an interest rate of 1.0%.

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P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act (Enhancement Act), among other provisions, appropriates an additional $321.335 billion for the PPP. H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act), among other provisions, would expand PPP eligibility and provide small businesses additional flexibility by extending the PPP loan forgiveness covered period from eight weeks to the earlier of 24 weeks or December 31, 2020. H.R. 6886, the Paycheck Protection Program Flexibility Act, among other provisions, would extend the PPP loan forgiveness covered period from 8 weeks to the earlier of 24 weeks or December 31, 2020.

Some of the CARES Act’s provisions (e.g., fee waivers, increased loan limits, and increased guarantee percentages) were used in legislation passed during the 111th Congress to address the severe economic slowdown during and immediately following the Great Recession (2007-2009). The main difference between that legislation and the CARES Act is that the CARES Act includes loan deferrals, loan forgiveness, and greatly expanded eligibility, including, for the first time, specified types of nonprofit organizations. The SBA started accepting PPP loan applications on April 3, 2020. Because the SBA neared its $349 billion authorization limit for section 7(a) lending, which includes the PPP, the SBA stopped accepting new PPP loan applications on April 15. The SBA started accepting PPP loan applications once again on April 27, following the Enhancement Act’s enactment on April 24, 2020. The act increased the SBA’s section 7(a) loan authorization limit from $349 billion to $659 billion, and appropriated an additional $321.335 billion to support that level of lending. One lesson learned from the actions taken during the 111th Congress to assist small businesses during and immediately following the Great Recession is the potential benefits that can be derived from providing additional funding for the SBA’s Office of Inspector General

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(OIG) and the Government Accountability Office (GAO). GAO and the SBA’s OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA’s administration of legislation to address COVID-19’s adverse economic impact on small businesses, provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud. Requiring the SBA to report regularly on its implementation of the CARES Act could promote transparency and assist Congress in performing its oversight responsibilities. In addition, requiring both output and outcome performance measures and requiring the SBA to report this information to Congress and the public by posting that information on the SBA’s website could enhance congressional oversight and public confidence in the SBA’s efforts to assist small businesses. Chapter 7 - One of the most significant challenges currently facing businesses is the loss of revenue as a result of the coronavirus (COVID-19) pandemic and subsequent stay-at-home orders. Businesses across all sectors are incurring losses, and those with business interruption insurance (BI) are submitting claims to their insurers. However, both individual insurance carriers and the industry as a whole have asserted that BI claims related to COVID-19 are not covered, either because there has been no physical damage to the property or because the policy expressly excludes coverage for viruses, or both. Insurance companies are regulated by states; the role of the federal government in regulating private insurance (other than health insurance) is more limited. Given the likelihood that many COVID-19 losses will not be covered by BI insurance, many small businesses have requested that their elected representatives intervene through legislation to require their claims to be paid, and a number of state lawmakers have drafted legislation to compel coverage. Legislators in at least eight states have introduced bills, with others considering legislation, to require insurers to provide retroactive BI coverage for coronavirusrelated losses even if coverage under the policies otherwise would not be triggered. The state BI bills have certain features in common, requiring insurers with in-force BI policies or property insurance policies to cover BI losses during a defined period of a declared emergency due to COVID-19,

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retroactive to the date when the state of emergency was declared. The claims payment would initially come from insurers, but the proposals vary in the extent to which insurance companies or the government would ultimately fund those payments. Most of these bills would apply only to small businesses. Chapter 8 - The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the Small Business Administration (SBA) Paycheck Protection Program (PPP) to provide short-term loans to certain small business and nonprofits. Congress initially authorized $349 billion for SBA 7(a) loans, including PPP loans. Lending began on April 3, 2020, and the initial authorization was exhausted by April 16. On April 24, 2020, Congress authorized another $310 billion ($659 billion total) for 7(a) loans—including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139). PPP loans used for payroll expenses and for specified nonpayroll operating costs paid or incurred during an eight-week “covered period” can be forgiven if the borrower meets certain payroll and employment retention criteria. Based on previous regulations, not more than 25% of the loan forgiveness amount may be attributable to nonpayroll costs. Borrowers who received the earliest PPP loans can file for forgiveness as soon as May 29, 2020. On May 18, 2020, SBA released the first version of the borrower’s application for PPP forgiveness. On May 22, 2020, SBAissued an Interim Final Rule (IFR) on PPP forgiveness. This chapter discusses statutes, regulations, and agency guidance relevant to the PPP loan forgiveness process and determination. Asummary of the Paycheck Protection Program Flexibility Act (H.R. 7010) is also provided. H.R. 7010 was passed by the House on May 28, 2020, and the Senate on June 3, 2020, and is to be presented to the President. Chapter 9 - To provide short-term, economic relief to certain small businesses and nonprofits, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP). On April 14, 2020, SBA issued an Interim Final Rule (IFR) detailing how the PPP will be applied in the case of self-employed individuals (e.g., sole proprietors and partnerships, with and without employees, and independent

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contractors). The IFR supplements SBA’s previously issued PPP rules and guidance that have been coordinated with the Department of the Treasury. This Insight describes PPP-related statutes, regulations, and guidance that apply to self-employed individuals. Chapter 10 - Congress increased eligibility for certain businesses and organizations for Small Business Administration (SBA) economic injury disaster loans (EIDL) and established an Emergency EIDL Grant program under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) to provide short-term, economic relief to certain small businesses and nonprofits affected by COVID-19. This Insight provides a brief overview of EIDL, including eligibility and loan terms. It also provides an overview of Emergency EIDL Grants, and describes how EIDL can be used in conjunction with Paycheck Protection Program (PPP) loans. EIDL eligibility and loan terms under the CARES Act differ from EIDL provided for other disasters. For non-coronavirus EIDL information, see SBA Disaster Loan Program: Frequently Asked Questions. Chapter 11 - Congress made COVID-19-related economy injury an eligible expense for the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDL) in the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123). It also expanded EIDL eligibility for certain businesses and organizations, and it established an Emergency EIDL Grant program as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136). COVID-19related EIDL and Emergency EIDL grants are available to all 50 states, U.S. territories, and Washington DC. This chapter provides:   

a general overview of SBA EIDL (including eligibility) and the Emergency EIDL Grant program; SBA EIDL data by the number and amount of loans approved by state; and Emergency EIDL Grant program (also referred to as EIDL advance) data by the number and amount of grants approved by state.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 1

SMALL BUSINESS ADMINISTRATION: A PRIMER ON PROGRAMS AND FUNDING (UPDATED)  Robert Jay Dilger and Sean Lowry

ABSTRACT 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 and create jobs. This interest has grown especially acute in recent months 

This is an edited, reformatted and augmented version of Congressional Research Service, Publication No. RL33243, dated May 4, 2020.

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Robert Jay Dilger and Sean Lowry due to the widespread, adverse impact of the novel coronavirus (COVID19) pandemic on the national economy. This chapter provides an overview of the SBA’s programs, including   



   

entrepreneurial development programs (including Small Business Development Centers, Women’s Business Centers, SCORE, and Microloan Technical Assistance); disaster assistance; capital access programs (including the 7(a) loan guaranty program, the 504/Certified Development Company loan guaranty program, the Microloan program, International Trade and Export Promotion programs, and lender oversight); contracting 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, the Women-Owned Small Business [WOSB] Federal Contract Program, and the Surety Bond Guarantee Program); SBA regional and district offices; the Office of Inspector General; the Office of Advocacy; and capital investment programs (including the Small Business Investment Company program, the New Markets Venture Capital program, the Small Business Innovation Research [SBIR] program, the Small Business Technology Transfer program [STTR], and growth accelerators).

The chapter also discusses recent programmatic changes resulting from the enactment of legislation, including 



P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, created the $349 billion Paycheck Protection Program (PPP) to provide loans with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations that have been adversely affected by COVID-19. The act also provides for loan deferment and forgiveness under specified conditions. The SBA announced that PPP loans will have a two-year term at an interest rate of 1.0%. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, which, among other provisions, increased the

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PPP authorization limit to $659 billion and appropriated an additional $321.335 billion to support that authorization level. This chapter also provides an overview of the SBA’s budget and references other CRS reports that examine the SBA’s programs in greater detail.

INTRODUCTION Established in 1953, 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 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).

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Robert Jay Dilger and Sean Lowry 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 and create jobs. This interest has grown especially acute in recent months due to the widespread, adverse impact of the novel coronavirus (COVID-19) pandemic on the national economy. This chapter provides an overview of the SBA’s programs and funding. It also references other CRS reports that examine the SBA’s programs in greater detail.3 The SBA’s FY2021 congressional budget justification document includes funding and program costs for the following programs and offices: 1) entrepreneurial development programs (including Small Business Development Centers, Women’s Business Centers, SCORE, Entrepreneurial Education, Native American Outreach, Regional Innovation Clusters, PRIME, the State Trade Expansion Program, and veterans’ programs); 2

3

P.L. 83-163, the Small Business Act of 1953 (as amended), see https://legcounsel.house.gov/ Comps/Small%20Business%20Act.pdf. The Small Business Administration’s (SBA’s) programs have detailed rules on program requirements and administration that are not covered in this chapter. More detailed information concerning the SBA’s programs is available in the CRS reports referenced later in this chapter, on the SBA’s website at https://www.sba.gov/, in 15 U.S.C. §631 et seq., and in Title 13 of the Code of Federal Regulations, see https://www.govinfo.gov/content/ pkg/CFR-2019- title13-vol1/pdf/CFR-2019-title13-vol1-chapI.pdf.

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2) disaster assistance; 3) capital access programs (including the 7(a) loan guaranty program, the 504/Certified Development Company [CDC] loan guaranty program, the Microloan program, International Trade and Export Promotion programs, and lender oversight); 4) contracting programs (including the 7(j) Management and Technical Assistance program, the 8(a) Minority Small Business and Capital Ownership Development program, the Historically Underutilized Business Zones [HUBZones] program, the Prime Contract Assistance program, the Women’s Business program, the Subcontracting program, and the Surety Bond Guarantee program); 5) regional and district offices (counseling, training, and outreach services); 6) the Office of Inspector General (OIG); 7) capital investment programs (including the Small Business Investment Company [SBIC] program, the New Market Venture Capital program, the Small Business Innovation Research [SBIR] program, the Small Business Technology Transfer program [STTR], and growth accelerators); 8) the Office of Advocacy; and 9) executive direction programs (the National Women’s Business Council, Office of Ombudsman, and Faith-Based Initiatives). This chapter also provides a brief overview of 

P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, created the $349 billion Paycheck Protection Program (PPP) to provide loans with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations that have been adversely affected by

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Robert Jay Dilger and Sean Lowry



COVID-19.4 The act also provides for loan deferment and forgiveness under specified conditions. The SBA announced that PPP loans will have a two-year term at an interest rate of 1.0%. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, which, among other provisions, increased the PPP authorization limit to $659 billion and appropriates an additional $321.335 billion to support that authorization level.5

Table 1. Major SBA program areas, estimated program costs, FY2020 ($ in millions) Program Category Estimated Costs Entrepreneurial Development Programs $260.773 Capital Access Programs $221.888 Disaster Loan Programs $197.727 Contracting Programs $121.146 Regional and District Offices $51.762 Office of Inspector General $36.552 Capital Investment Programs $31.210 Office of Advocacy $14.971 Executive Direction Programs $4.067 Total $940.096 Sources: U.S. Small Business Administration, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 16, 17, at https://www.sba.gov/document/report—congressionalbudget-justification-annual-performance-report; and P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020. Notes: Program costs often differ from new budget authority provided in annual appropriations acts because 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. Anticipated program costs for disaster loan programs includes $20 million provided by P.L. 116123.

4

For additional information and analysis of the SBA provisions in P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. 5 For additional information and analysis of the SBA provisions in P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act (Enhancement Act), see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry; and CRS Report R46325, Fourth COVID-19 Relief Package (P.L. 116-139): In Brief, coordinated by William L. Painter.

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Table 1 shows the SBA’s estimated costs in FY2020 for the SBA’s program areas, excluding $760.42 billion in supplemental appropriations for COVID-19-related programs.6 Program costs often differ from new budget authority provided in annual appropriations acts because 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.

ENTREPRENEURIAL DEVELOPMENT PROGRAMS7 The SBA’s entrepreneurial development (ED) noncredit programs provide a variety of management and training services to small businesses. Initially, the SBA provided its own management and technical assistance training programs. Over time, the SBA has come to rely increasingly on third parties to provide that training. The SBA receives appropriations for seven ED programs and two ED initiatives:     

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Small Business Development Centers (SBDCs); the Microloan Technical Assistance Program; Women Business Centers (WBCs); SCORE; the Program for Investment in Microentrepreneurs (PRIME);

P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, appropriated $20 million for SBA disaster assistance; P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), appropriated $376.965 billion to the SBA ($349 billion for the Paycheck Protection Program (PPP), $17 billion for loan credit subsidies and expenses, $10 billion for Emergency Economic Injury Disaster Loan (EIDL) grants, $675 million for salaries and expenses, $265 million for entrepreneurial development programs, and $25 million for the SBA Office of Inspector General); and P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, appropriated $383.435 billion to the SBA ($321.335 billion for the PPP, $50 billion for EIDL, $10 billion for Emergency EIDL grants, and $2.1 billion for salaries and expenses). 7 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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Robert Jay Dilger and Sean Lowry 

  

Veterans Programs (including Veterans Business Outreach Centers, Boots to Business, Veteran Women Igniting the Spirit of Entrepreneurship [VWISE], Entrepreneurship Bootcamp for Veterans with Disabilities, and Boots to Business: Reboot); the Native American Outreach Program (NAO); the Entrepreneurial Development Initiative (Regional Innovation Clusters); and the Entrepreneurship Education Initiative.

FY2020 appropriations for these programs, excluding $265 billion in COVID-19-related supplemental appropriations ($192 million for SBDCs, $48 million for WBCs, and $25 million for a new SBA Resource Partner Association Grant program), are         

$135 million for SBDCs, $34.5 million for the Microloan Technical Assistance Program, $22.5 million for WBCs, $11.7 million for SCORE, $5.5 million for PRIME, $14 million for Veterans Programs, $2 million for NAO, $5 million for the Entrepreneurial Development Initiative (Regional Innovation Clusters), and $2.5 million for the Entrepreneurship Education Initiative.

Four additional programs are provided recommended funding in appropriations acts under ED programs, but are discussed in other sections of this chapter because of the nature of their assistance: 

the SBA’s Growth Accelerators Initiative ($2 million in FY2020) is a capital investment program and is discussed in the capital access programs section;

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



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the SBA’s 7(j) Technical Assistance Program ($2.8 million in FY2020) provides contacting assistance and is discussed in the contracting programs section; the National Women’s Business Council ($1.5 million in FY2020) is a bipartisan federal advisory council and is discussed in the executive direction programs section; and the State Trade Expansion Program (STEP, $19 million in FY2020) provides grants to states to support export programs that assist small business concerns. STEP is discussed in the capital access programs’ international trade and export promotion programs subsection.

The SBA reports that nearly a million aspiring entrepreneurs and small business owners receive mentoring and training from an SBA-supported resource partner each year. Some of this training is free, and some is offered at low cost.8 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. The SBA’s Microloan Technical Assistance program is part of the SBA’s Microloan program but receives a separate appropriation. It provides grants to Microloan intermediaries to offer management and technical training assistance to Microloan program borrowers and prospective borrowers.9 There are currently 144 active Microloan 8

SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 18, at https://www.sba.gov/document/report—congressional-budget-justification-annualperformance-report. 9 For further analysis of the SBA’s Microloan program, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger.

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intermediaries serving 49 states, the District of Columbia, and Puerto Rico.10 WBCs are similar to SBDCs, except they concentrate on assisting women entrepreneurs. There are currently 125 WBCs, with at least one WBC in most states and territories.11 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 350 chapters and more than 800 branch offices are located throughout the United States and partner with more than 11,000 volunteer counselors, who are working or retired business owners, executives, and corporate leaders, to provide management and training assistance to small businesses.12 PRIME provides SBA grants to nonprofit microenterprise development organizations or programs that have “a demonstrated record of delivering microenterprise services to disadvantaged entrepreneurs; an intermediary; a microenterprise development organization or program that is accountable to a local community, working in conjunction with a state or local government or Indian tribe; or an Indian tribe acting on its own, if the Indian tribe can certify that no private organization or program referred to in this paragraph exists within its jurisdiction.”13

10

SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36, at https://www.sba.gov/document/report—congressional-budget-justification-annualperformance-report. As of February 24, 2020, there were no Microloan intermediaries serving Alaska. See SBA, “List of Lenders,” at https://www.sba.gov/partners/lenders/ microloan-program/list-lenders. An intermediary may not operate in more than one state unless the SBA determines that it would be in the best interests of the small business community for it to operate across state lines. For example, a Microloan intermediary located in Taunton, Massachusetts is allowed to serve small businesses located in Rhode Island because of its proximity to the state and there are currently no Microloan intermediaries located in Rhode Island. 11 SBA, “Find Local Assistance: Women’s Business Center,” at https://www.sba.gov/localassistance/find/?type= Women%27s%20Business%20Center&pageNumber=1. 12 SCORE, “Find a Location,” at https://www.score.org/content/find-location; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 88, at https://www.sba.gov/document/report—congressional-budget-justification-annualperformance-report. 13 P.L. 106-102, the Gramm-Leach-Bliley Act, Section 173. Establishment of Program and Section 175. Qualified Organizations.

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The SBA’s Office of Veterans Business Development (OVBD) administers several management and training programs to assist veteranowned businesses, including 22 Veterans Business Outreach Centers which provide “entrepreneurial development services such as business training, counseling and resource partner referrals to transitioning service members, veterans, National Guard & Reserve members and military spouses interested in starting or growing a small business.”14 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. The SBA reports that “regional innovation clusters are on-the-ground collaborations between business, research, education, financing and government institutions that work to develop and grow the supply chain of a particular industry or related set of industries in a geographic region.”15 The SBA has supported the Entrepreneurial Development Initiative (Regional Innovation Clusters) since FY2009, and the initiative has received recommended appropriations from Congress since FY2010. The SBA’s Entrepreneurship Education initiative provides assistance to high-growth small businesses in underserved communities through the Emerging Leaders initiative and the SBA Learning Center. The Emerging Leaders initiative is a seven-month executive leader education series consisting of “more than 100 hours of specialized training, technical support, access to a professional network, and other resources to strengthen their businesses and promote economic development.”16 At the conclusion of the training, “participants produce a three-year strategic growth action plan with benchmarks and performance targets that help them access the necessary support and resources to move forward for the next stage of

SBA, “Office of Veterans Business Development: Resources,” at https://www.sba.gov/offices/ headquarters/ovbd/ resources/1548576. 15 SBA, FY2017 Congressional Budget Justification and FY2015 Annual Performance Report, p. 64, at https://www.sba.gov/sites/default/files/FY17-CBJ_FY15-APR.pdf. 16 SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 89, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_ 12_post.pdf. 14

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business growth.”17 The Learning Center is the SBA’s primary online training service, which offers free online courses on business planning, marketing, government contracting, accounting, and social media, providing learners an “opportunity to access entrepreneurship education resources through toolkits, fact sheets, infographic tip sheets, instructor guides, and audio content.”18

CAPITAL ACCESS PROGRAMS Overview The SBA has authority to make direct loans but, with the exception of disaster loans and loans to Microloan program intermediaries, has not exercised that authority since 1998.19 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.20 Instead of making direct loans, the SBA guarantees loans issued by approved lenders to encourage those lenders to provide loans to small 17

SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 71, at https://www.sba.gov/sites/default/files/files/1-508-Compliant-FY-2014-CBJ%20FY% 202012%20APR.pdf. 18 SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 88, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_ 12_post.pdf. 19 Prior to October 1, 1985, the SBA provided direct business loans to qualified small businesses. From October 1, 1985, to September 30, 1994, SBA direct business loan eligibility was limited to qualified small businesses owned by individuals with low incomes or located in areas of high unemployment, owned by Vietnam-era or disabled veterans, owned by the handicapped or certain organizations employing them, and certified under the minority small business capital ownership development program. Microloan program intermediaries were also eligible. On October 1, 1994, SBA direct loan eligibility was limited to Microloan program intermediaries and small businesses owned by the handicapped. Funding to support direct loans to the handicapped through the Handicapped Assistance (renamed the Disabled Assistance) Loan program ended in 1996. The last loan under the Disabled Assistance Loan program was issued in FY1998. See U.S. Congress, House Committee on Small Business, Summary of Activities, 105rd Cong., 2nd sess., January 2, 1999, H.Rept. 105-849 (Washington: GPO, 1999), p. 8. 20 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.

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businesses “that might not otherwise obtain financing on reasonable terms and conditions.”21 With few exceptions, to qualify for SBA assistance, an organization must be both a business and small.22

What Is a Small Business? To participate in any of the SBA programs, a business must meet the Small Business Act’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; is not dominant in its field on a national basis;23 and does not exceed size standards established, and updated periodically, by the SBA.24

The business may be a sole proprietorship, partnership, corporation, or any other legal form.

What Is Small?25 The SBA uses two measures to determine if a business is small: SBAderived industry specific size standards or a combination of the business’s 21

SBA, Fiscal Year 2010 Congressional Budget Justification, p. 30, at https://www.sba.gov/ sites/default/files/Congressional_Budget_Justification_2010.pdf. 22 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 child care centers are eligible to participate in SBA’s Microloan program. 23 13 C.F.R. §121.105. 24 P.L. 111-240, the Small Business Jobs Act of 2010, requires the SBA to conduct a detailed review of not less than one-third of the SBA’s industry size standards every 18 months beginning on the new law’s date of enactment (September 27, 2010) and ensure that each size standard is reviewed at least once every five years. 25 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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net worth and net income. For example, businesses participating in the SBA’s 7(a) loan guaranty program are deemed small if they either meet the SBA’s industry-specific size standards for firms in 1,047 industrial classifications in 18 subindustry activities described in the North American Industry Classification System (NAICS) or do not have more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carryover 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.26 The SBA’s industry size standards vary by industry, and they are based on one of the following four measures: the firm’s (1) average annual receipts in the previous three (or five) years, (2) number of employees, (3) asset size, or (4) 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. The SBA’s size standards are designed to encourage competition within each industry; they are derived through an assessment of the following four economic factors: “average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms.”27 The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors “as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses.”28

26

13 C.F.R. §121.201 and P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards. 27 SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April 2019, p. 29, at https://www.sba.gov/document/support—sizestandards-methodology-white-paper (hereinafter cited as SBA, “SBA Size Standards Methodology”). 28 SBA, “SBA Size Standards Methodology,” p. 1.

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LOAN GUARANTEES 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/CDC loan guaranty program, international trade and export promotion programs, and the Microloan program. The SBA’s loan guaranty programs require personal guarantees from borrowers and share the risk of default with lenders 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 businesses 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, and businesses involved in illegal activities) is contained in 13 C.F.R. Section 120.110.29 With one exception, nonprofit and charitable organizations are also ineligible.30 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 fees are set in statute. For example, for 7(a) loans with a maturity exceeding 12 months, the SBA is authorized to charge lenders an up-front 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. Lenders with a 7(a) loan that 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. 29

Title 13 of the Code of Federal Regulations can be viewed at https://www.gpo.gov/ fdsys/browse/collectionCfr.action?selectedYearFrom=2016&go=Go. 30 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 child care business.

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7(a) 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.31 In addition, lenders are authorized to collect fees from borrowers to offset their administrative expenses. In an effort to assist small business owners, the SBA has, from time-totime, reduced its fees. For example, in FY2019, the SBA waived the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone and reduced the up-front one-time guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan.32 In addition, pursuant to P.L. 114-38, the Veterans Entrepreneurship Act of 2015, the SBA is required to waive the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program (up to and including $350,000) “except during any upcoming fiscal year for which the President’s budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero.”33 The CARES Act temporarily increased the maximum SBAExpress loan amount to $1 million (reverts to $350,000 on January 1, 2021). The SBA’s goal is to achieve a zero subsidy rate, meaning that the appropriation of budget authority for new loan guaranties is not required. As shown in Table 2, the SBA’s fees and proceeds from loan liquidations do not always generate sufficient revenue to cover loan losses, resulting in the need for additional appropriations to account for the shortfall.

31

15 U.S.C. §636(a)(23)(a). SBA, “SBA Information Notice: 7(a) Fees Effective on October 1, 2018,” at https://www.sba.gov/document/information-notice-5000-180010-7a-fees-effective-october1-2018. 33 The SBA had waived the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program from January 1, 2014, through the end of FY2015. P.L. 114-38 made the SBAExpress program’s veteran fee waiver permanent, except during any upcoming fiscal year for which the President’s budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The SBA waived the fee, pursuant to P.L. 114-38, in FY2016, FY2017, FY2018, and FY2019. 32

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Table 2. SBA business loan subsidies, authorized amounts, FY2010-FY2020 ($ in millions) Fiscal Year

7(a) Loan 504/CDC Loan Microloan Total Subsidy Guaranty Program Guaranty Program Program 2010 $80.00 $0.00 $3.00 $83.00 2011a $79.84 $0.00 $2.99 $82.83 2012 $139.40 $67.70 $3.68 $210.78 2013b $218.38 $97.87 $3.49 $319.74 2014 $0.00 $107.00 $4.60 $111.60 2015 $0.00 $45.00 $2.50 $47.50 2016 $0.00 $0.00 $3.34 $3.34 2017 $0.00 $0.00 $4.34 $4.34 2018 $0.00 $0.00 $3.44 $3.44 2019 $0.00 $0.00 $4.00 $4.00 2020 $99.00 $0.00 $5.00 $104.00 Sources: SBA, Congressional Budget Justification (Summary of Credit Programs & Revolving Fund), various years, at https://www.sba.gov/about-sba/sba-performance/performance-budget-finances/ congressional-budget- justification-annual-performance-report; P.L. 111-117, the Consolidated Appropriations Act, 2010; 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; SBA, “General Statement Regarding the Implications of Sequestration;” P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019; and P.L. 116-93, the Consolidated Appropriations Act, 2020. a In FY2011, there was a 0.2% across-the-board rescission. Before the rescission, the authorized subsidy amounts were $80.0 million for the 7(a) program, $0.0 for the 504/ Certified Development Companies (CDC) program, and $3.0 million for the Microloan program. b In FY2013, there was a 0.2% across-the-board rescission and sequestration. Before these reductions, the authorized subsidy amounts were $225.5 million for the 7(a) program, $108.1 million for the 504/CDC program, $3.678 million for the Microloan program, and $337.278 million total.

7(a) Loan Guaranty Program34 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 lending partners (mostly banks but also some other financial institutions) and partially guaranteed by the SBA.

34

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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In FY2019, the SBA approved 51,907 7(a) loans to 46,111 small businesses totaling $23.2 billion.35 In FY2019, there were 1,708 active lending partners providing 7(a) loans.36 The CARES Act appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a) loan, 504/CDC loan, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due.37 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. Lenders are permitted to charge borrowers fees to recoup specified expenses and are allowed to charge borrowers “a reasonable fixed interest rate” or, with the SBA’s approval, a variable interest rate.38 The SBA uses a multistep formula to determine the maximum allowable fixed interest rate for all 7(a) loans (with the exception of the Export Working Capital Program and Community Advantage loans) and periodically publishes that rate and the maximum allowable variable interest rate in the Federal Register.39

SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2019),” at https://www.sba.gov/sites/default/files/ 2019-10/WebsiteReport_asof_20190930.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 28, 164, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report. 36 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 41, 166, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report. 37 7(a) loans, 504/CDC loans, and Microloans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. Loans made up until six months after enactment will also receive a full six months of SBA loan payments. 38 13 C.F.R. §120.213. 39 SBA, “Maximum Allowable 7(a) Fixed Interest Rates,” 83 Federal Register 55478, November 6, 2018. For the previously used fixed interest rates formula, see SBA, “Business Loan Program Maximum Allowable Fixed Rate,” 74 Federal Register 50263-50264, September 30, 2009. The SBA has a separate formula for Community Advantage loan interest rates and does not prescribe interest rates for the Export Working Capital Loans, but it does monitor the rates charged for reasonableness. 35

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Table 3. Summary of the 7(a) loan guaranty program’s key features Key Feature Use of Proceeds

Program Summary Fixed assets, working capital, financing of start-ups, or to purchase an existing business; some debt payment allowed, 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 years to 7 years for working capital, up to 25 years for equipment and real estate. All other loan purposes have a maximum term of 10 years. Maximum Fixed Interest For fixed rate loans of $25,000 or less, prime plus 800 basis points; Rates for fixed rate loans over $25,000 but not exceeding $50,000, prime plus 700 basis points; for fixed rate loans greater than $50,000 but not exceeding $250,000, prime plus 600 basis points; and for fixed rate loans over $250,000, prime plus 500 basis points. Guaranty Fees For loans with a maturity of 12 months or less, the SBA normally charges an up- front guaranty fee of 0.25% of the guaranteed portion of the loan (0.25% in FY2020). For loans with maturities of more than 12 months, the SBA is authorized to charge an up-front guaranty fee on the guaranteed portion of the loan of: up to 2% for loans of $150,000 or less (2% in FY2020); up to 3% for loans of $150,001 to $700,000 (3% in FY2020); up to 3.5% for loans of more than $700,000 (3.5% in FY2020); and up to 3.75% for the guaranty portion over $1 million (3.75% in FY2020). The SBA is also allowed to charge an ongoing, annual servicing fee of up to 0.55% (0.55% in FY2020). Job Creation No job creation requirements. Sources: Table compiled by CRS from data from the SBA; and U.S. Small Business Administration, “SBA Information Notice: 5000-19026, 7(a) Fees Effective for the Period December 21, 2019 through September 30, 2020,” December 26, 2019. Notes: In FY2019, the SBA waived the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone; and reduced the up-front one-time guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan. The SBA also waived the up-front, one-time loan guaranty fee for all veteran loans under the 7(a) SBAExpress program because the FY2019 subsidy rate for the 7(a) program was zero.

Maximum interest rates allowed on variable-rate 7(a) loans are pegged to either the prime rate, the 30-day London Interbank Offered Rate (LIBOR) plus 3%, 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 allowed spread over the prime rate, LIBOR base rate, or SBA optional peg rate depends on the loan amount

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and the loan’s maturity (under seven years or seven years or more).40 The adjustment period can be no more than monthly and cannot change over the life of the loan. Table 3 provides information on the 7(a) program’s key features, including its eligible uses, maximum loan amount, loan maturity, fixed interest rates, and guarantee fees. Variations on the 7(a) Program The 7(a) program has several specialized programs that offer streamlined and expedited loan procedures for particular groups of borrowers, including the SBAExpress program (for loans of up to $1 million (reverts to $350,000 on January 1, 2021)), the Export Express program (for loans of up to $500,000 for entering or expanding an existing export market), and the Community Advantage pilot program (for loans of $250,000 or less). The SBA also has a Small Loan Advantage program (for loans of $350,000 or less), but it is currently being used as the 7(a) program’s model for processing loans of $350,000 or less and exists as a separate, specialized program in name only. 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 normally provides a 50% loan guarantee on loan amounts of $350,000 or less.41 As mentioned, the CARES Act temporarily increased the SBAExpress maximum loan amount to $1 million (reverts to $350,000 on January 1, 2021).

SBA, “SOP 50 10 5(K): Lender and Development Company Loan Programs,” (effective April 1, 2019), p. 153, at https://www.sba.gov/document/sop-50-10-5-lender-developmentcompany-loan-programs. 41 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). 40

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SBAExpress 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 program’s fees and loan terms are the same as the 7(a) program, except the term for a revolving line of credit cannot exceed seven years. The Community Advantage pilot program began operations on February 15, 2011, and is limited to mission-focused lenders targeting underserved markets. Originally scheduled to cease operations on March 15, 2014, the program has been extended several times and is currently scheduled to operate through September 30, 2022.42 As of September 12, 2018, there were 113 approved CA lenders, 99 of which were actively making and servicing CA loans.43 The SBA placed a moratorium, effective October 1, 2018, on accepting new CA lender applications, primarily as a means to mitigate the risk of future loan defaults.44 Lenders must receive SBA approval to participate in these 7(a) specialized programs. 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.

SBA, “Community Advantage Pilot Program,” 77 Federal Register 67433, November 9, 2012; SBA, “Community Advantage Pilot Program,” 80 Federal Register 80873, December 28, 2015; and SBA, “Community Advantage Pilot Program,” 83 Federal Register 46238, September 12, 2018. 43 SBA, “Community Advantage Pilot Program,” 83 Federal Register 46238, September 12, 2018. 44 The SBA indicated that “Given the increased risk of CA loans as compared to other 7(a) loans, the need for more resource-intensive oversight of CA Lenders, and the fact that the CA Pilot Program already includes a sufficient number of geographically dispersed CA Lenders, SBA has decided to place a moratorium on acceptance of new CA Lender applications. Effective October 1, 2018, SBA will no longer accept CA Lender Applications (SBA Form 2301).” See SBA, “Community Advantage Pilot Program,” 83 Federal Register 46239, September 12, 2018. 42

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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. The 504/CDC Loan Guaranty Program45 The 504/CDC loan guaranty program uses Certified Development Companies (CDCs), which are private, nonprofit corporations established to contribute to economic development within their communities. Each CDC has its own geographic territory. The program provides long-term, 45

For further information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.

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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.46 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 of more than $5 million for two full fiscal years before the date of application. Also, CDCs must intend to create or retain one job for every $75,000 of the debenture ($120,000 for small manufacturers) or meet an alternative job creation standard if they meet any one of 15 community or public policy goals. In FY2019, the SBA approved 6,099 504/CDC loans to 6,008 small businesses totaling nearly $5.0 billion.47 In FY2019, 212 CDCs provided at least one 504/CDC loan.48 The CARES Act appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a) loan, 504/CDC loan, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due.49 Table 4 summarizes the 504/CDC loan guaranty program’s key features.

46

A debenture is a bond that is not secured by a lien on specific collateral. SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2019),” at https://www.sba.gov/sites/default/files/ 2019-10/WebsiteReport_asof_20190930.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 31, 164, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report. 48 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 41, 166, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report. 49 7(a) loans, 504/CDC loans, and Microloans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. Loans made up until six months after enactment will also receive a full six months of SBA loan payments. 47

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Robert Jay Dilger and Sean Lowry Table 4. Summary of the 504/CDC loan guaranty program’s key features

Key Feature Use of Proceeds Maximum Loan Amount

Program Summary Fixed assets only—no working capital. Maximum 504/CDC participation in a single project is $5 million and $5.5 million for manufacturers and specified energy-related projects; minimum is $25,000. There is no limit on the project size. Maturity 10 years for equipment; 20 or 25 years for real estate. Unguaranteed financing may have a shorter term. Maximum Interest Rates Fixed rate is established when the debenture backing the loan is sold and is pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. Participation 504/CDC projects generally have three main participants: a thirdRequirements party lender provides 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. For good cause shown, the SBA may authorize an increase in the CDC’s percentage of project costs covered up to 50%. No more than 50% of eligible costs can be from federal sources. Guaranty Fees The SBA is authorized to charge CDCs a one-time, up-front guaranty fee of up to 0.5% of the debenture (0.5% in FY2020), an annual servicing fee of up to 0.9375% of the unpaid principal balance (0.3205% for regular 504/CDC loans and 0.322% for 504/CDC debt refinance loans in FY2020), a funding fee (not to exceed 0.25% of the debenture), an annual development company fee (0.125% of the debenture’s outstanding principal balance), and a one-time participation fee (0.5% of the senior mortgage loan if in a senior lien position to the SBA and the loan was approved after September 30, 1996). In addition, CDCs are allowed to charge borrowers a processing (or packaging) fee of up to 1.5% of the net debenture proceeds and a closing fee, servicing fee, late fee, assumption fee, Central Servicing Agent (CSA) fee, other agent fees, and an underwriters’ fee. Job Creation Must intend to create or retain one job for every $75,000 of the Requirements debenture ($120,000 for small manufacturers) or meet an alternative job creation standard if it meets any one of 15 community or public policy goals. Sources: Table compiled by CRS from data from the SBA; and U.S. Small Business Administration, “SBA Information Notice: 5000-19017, 504 Fees Effective October 1, 2019,” September 16, 2019. 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 the CDC loan is 40% of the total package.

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International Trade and Export Promotion Programs50 Although any of SBA’s loan guaranty programs can be used by firms looking to begin exporting or expanding their current exporting operations, the SBA has three loan programs that specifically focus on trade and export promotion: 1) Export Express loan program provides working capital or fixed asset financing for firms that will begin or expand exporting. It offers a 90% guaranty on loans of $350,000 or less and a 75% guaranty on loans of $350,001 to $500,000. 2) Export Working Capital loan program provides financing to support export orders or the export transaction cycle, from purchase order to final payment. It offers a 90% guaranty of loans up to $5 million. 3) International Trade loan program provides long-term financing to support firms that are expanding because of growing export sales or have been adversely affected by imports and need to modernize to meet foreign competition. It offers a 90% guaranty on loans up to $5 million.51 In many ways, the SBA’s trade and export promotion loan programs share similar characteristics with other SBA loan guaranty programs. For example, the Export Express program resembles the SBAExpress program. The SBAExpress program shares several characteristics with the standard 7(a) loan guarantee program except that the SBAExpress program has an expedited approval process, a lower maximum loan amount, and a smaller percentage of the loan guaranteed. Similarly, the Export Express program shares several of the characteristics of the standard International Trade loan program, such as an

50

51

For further information and analysis, see CRS Report R43155, Small Business Administration Trade and Export Promotion Programs, by Sean Lowry. The International Trade loan program limits its guaranty for working capital to $4 million ($4.444 million gross loan amount).

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expedited approval process in exchange for a lower maximum loan amount ($500,000 compared with $5 million) and a lower percentage of guaranty. In addition, the SBA administers grants through the State Trade Expansion Program (STEP), which are awarded to states to execute export programs that assist small business concerns (such as a trade show exhibition, training workshops, or a foreign trade mission). Initially, the STEP program was authorized for three years and appropriated $30 million annually in FY2011 and FY2012. Congress approved $8 million in appropriations for STEP in FY2014, $17.4 million in FY2015, $18 million annually in FY2016-FY2019, and $19 million in FY2020.52

The Microloan Program53 The Microloan program provides direct loans to qualified nonprofit intermediary Microloan lenders that, in turn, provide “microloans” of up to $50,000 to small businesses and nonprofit child care centers. Microloan lenders also provide 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. In FY2019, 5,533 small businesses received a Microloan, totaling $81.5 million.54 The average Microloan was $14,735 and the average interest rate was 7.5%.55 52

53

P.L. 114-125, the Trade Facilitation and Trade Enforcement Act of 2015, provided the STEP program explicit statutory authorization and authorized to be appropriated $30 million for STEP grants from FY2016 through FY2020. The act also included provisions intended to improve coordination between the federal government and the states, among other provisions. For further information and analysis, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger.

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Table 5. Summary of the microloan program’s key features Key Feature Use of proceeds Maximum Loan Amount Maturity Maximum Interest Rates

Guaranty Fees

Program Summary Working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans cannot be made to acquire land or property. $50,000. Up to six years (up to seven years as of March 11, 2020). The SBA charges intermediaries an interest rate that is based on the five-year Treasury rate, adjusted to the nearest one-eighth percent (called the Base Rate), less 1.25% if the intermediary maintains a historic portfolio of Microloans averaging more than $10,000 and less 2.0% if the intermediary maintains a historic portfolio of Microloans averaging $10,000 or less. The Base Rate, after adjustment, is called the Intermediary’s Cost of Funds. The Intermediary’s Cost of Funds is initially calculated one year from the date of the note and is reviewed annually and adjusted as necessary (called recasting). The interest rate cannot be less than zero. On loans of more than $10,000, 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 $10,000 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 7% to 9%. The SBA does not charge intermediaries up-front or ongoing service fees under the Microloan program. No job creation requirements.

Job Creation Requirements Source: Table compiled by CRS from data from the SBA. For information related to the Microloan loan maturity being increased to seven years, see SBA, “Express Loan Programs; Affiliation Standards,” 85 Federal Register 7632, February 10, 2020.

The CARES Act appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a) loan, 504/CDC loan, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due.56

SBA, “Nationwide Microloan Report, October 1, 2018 through September 30, 2019,” October 10, 2019. 55 SBA, “Nationwide Microloan Report, October 1, 2018 through September 30, 2019,” October 10, 2019. 56 7(a) loans, 504/CDC loans, and Microloans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. 54

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Robert Jay Dilger and Sean Lowry Table 5 summarizes the Microloan program’s key features.

Paycheck Protection Program57 As mentioned, the CARES Act, among other provisions, created the $349 billion Paycheck Protection Program (PPP) to provide loans with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations that have been adversely affected by COVID-19.58 The act also provides for loan deferment and forgiveness under specified conditions. The SBA announced that PPP loans will have a two-year term at 1% interest. PPP loans are not subject to the 7(a) loan program’s up-front loan guarantee fee or annual servicing fee, the no credit elsewhere requirement, or 7(a) collateral and personal guarantee requirements. Also, PPP eligibility includes 7(a) eligible businesses and any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or tribal business not currently eligible that has not more than 500 employees or, if applicable, the SBA’s size standard for the industry in which they operate. Sole proprietors, independent contractors, and eligible self-employed individuals are also eligible.59

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Loans made up until six months after enactment will also receive a full six months of SBA loan payments. For further information and analysis of the PPP, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. For additional information and analysis of the SBA provisions in P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. For purposes of determining not more than 500 employees, the term employee includes individuals employed on a full-time, part-time, or other basis. Also, special eligibility considerations are provided for certain businesses and organizations. For example, businesses operating in NAICS Sector 72 (Accommodation and Food Services industry) that employ not more than 500 employees per physical location are also eligible for a covered loan. Affiliation rules are also waived for: (1) NAICS Sector 72 businesses, (2) franchises, and (3) SBIC-owned businesses. In other words, these businesses would not be denied a covered loan solely because they employ more than 500 employees across multiple businesses under common ownership.

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The maximum PPP loan amount is the lesser of (1) 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the one-year period before the date on which the loan is made plus the outstanding balance of any 7(a) loan (made on or after January 31, 2020) that is refinanced into the PPP loan; or (2) $10 million. The SBA started accepting PPP loan applications on April 3, 2020. Because the program neared its $349 billion authorization limit, the SBA stopped accepting new PPP loan applications on April 15, 2020.60 The SBA started accepting applications once again on April 27, 2020, following enactment of the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139) on April 24, 2020. The act increased the PPP loan authorization limit from $349 billion to $659 billion, and appropriated an additional $321.335 billion to support that level of lending.

DISASTER LOANS Overview61 SBA disaster assistance is provided in the form of loans, not grants, which must be repaid to the federal government. The SBA’s disaster loans are unique in two respects: they are the only loans made by the SBA that (1) go directly to the ultimate borrower and (2) are not limited to small businesses.62 SBA disaster loans are available to individuals, businesses, and nonprofit organizations in declared disaster areas.63 About 80% of the SBA, “Statement by Secretary Mnuchin and Administrator Carranza on the Paycheck Protection Program and Economic Injury Disaster Loan Program,” April 15, 2020, at https://www.sba.gov/about-sba/sba-newsroom/press- releases-media-advisories/statementsecretary-mnuchin-and-administrator-carranza-paycheck-protection-program-andeconomic (hereinafter SBA, “Statement by Secretary Mnuchin and Administrator Carranza on the Paycheck Protection Program and Economic Injury Disaster Loan Program”). 61 For additional information and analysis, see CRS Report R41309, The SBA Disaster Loan Program: Overview and Possible Issues for Congress, by Bruce R. Lindsay. 62 13 C.F.R. §123.200. 63 13 C.F.R. §123.105 and 13 §123.203. 60

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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 Program has 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. The SBA disbursed $401 million in disaster loans in FY2016, $889 million in FY2017, $3.59 billion in FY2018, and $1.5 billion in FY2019.64

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, and economic injury disaster loans.65

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 industrial accidents such as oil spills.”66 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 SBA, Office of Legislative and Congressional Affairs, “WDS Report Amount Fiscal Year 2019, Table 1.4 Disbursements by Program,” October 18, 2019. 65 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. 66 13 C.F.R. §123.2. 64

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Emergency Assistance Act (the Stafford Act)67 and three types of SBA declarations.68 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 7-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 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.69 Real Property Loans A creditworthy homeowner may apply for a real property loan of up to $200,000 to repair or restore his or her primary residence to its predisaster condition.70 The loans may not be used to upgrade homes or build additions, unless upgrades or changes are required by city or county

67

P.L. 93-288, Disaster Relief Act Amendments and 42 U.S.C. §5721 et seq. Disaster declarations are published in the Federal Register and can also be found on the SBA website at https://disasterloan.sba.gov/ela/Declarations/Index. 69 13 C.F.R. §123.105(a)(1). 70 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. 68

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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. Other business disaster loans are limited to small businesses. 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 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 that can obtain credit without SBA assistance, the interest rate may not exceed 8% per year. For applicants that cannot obtain credit without SBA assistance, the interest rate may not exceed 4% per year.71 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.72 If the Secretary of Agriculture designates an agriculture 71 72

13 C.F.R. §123.203. 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.

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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 those businesses recover. 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.73 P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, provided EIDL eligibility to small businesses adversely affected by the coronavirus. The CARES Act (P.L. 116-136) temporarily expanded (through December 31, 2020) EIDL eligibility beyond currently eligible small businesses, private nonprofit organizations, and small agricultural cooperatives, to include startups, cooperatives, and eligible employeeowned businesses (employee stock ownership plans) with fewer than 500 employees, sole proprietors, and independent contractors. The act also authorized the SBA Administrator, in response to economic injuries caused by COVID-19, to     

waive the no credit available elsewhere requirement; approve an applicant based solely on their credit score; not require applicants to submit a tax return or tax return transcript for approval; waive any rules related to the personal guarantee on advances and loans of not more than $200,000; and waive the requirement that the applicant needs to be in business for the one-year period before the disaster declaration, except that no waiver may be made for a business that was not in operation on January 31, 2020.

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. 73 13 C.F.R. §123.302.

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The CARES Act also authorizes the SBA Administrator, through December 31, 2020, to provide up to $10,000 as an advance payment in the amount requested within three days after receiving an EIDL application from an eligible entity. Applicants are not required to repay the advance payment, even if subsequently denied an EIDL loan. The funds may be used for any eligible EIDL expense, including, among other expenses, providing paid sick leave to employees unable to work due to COVID-19, maintaining payroll to retain employees, and meeting increased costs to obtain materials due to supply chain disruptions. Due to anticipated high demand, the SBA limited EIDL-advance payments (also known as Emergency EIDL grants) to $1,000 per employee, up to a maximum of $10,000. The act appropriated $10 billion for Emergency EIDL grants. The SBA started accepting EIDL and Emergency EIDL grant loan applications on April 3, 2020. Because the SBA neared its appropriations limit for disaster assistance, the SBA stopped accepting new EIDL and Emergency EIDL grant applications on April 15, 2020.74 The SBA continued to process EIDL and Emergency EIDL grant applications that were submitted prior to April 16, 2020. As mentioned, P.L. 116-139 appropriated an additional $50 billion for EIDL and $10 billion for Emergency EIDL grants. The SBA continues to process previously submitted EIDL and Emergency EIDL grant applications. The agency has not announced when, or if, it will begin accepting new EIDL and Emergency EIDL grant applications.

CONTRACTING PROGRAMS75 Several SBA programs assist small businesses in obtaining and performing federal contracts and subcontracts. These include various prime SBA, “Statement by Secretary Mnuchin and Administrator Carranza on the Paycheck Protection Program and Economic Injury Disaster Loan Program.” 75 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. For additional information and analysis, see CRS Report R45576, An Overview of Small Business Contracting, by Robert Jay Dilger. 74

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contracting programs; subcontracting programs; and other assistance (e.g., contracting technical training assistance, the federal goaling program, federal Offices of Small and Disadvantaged Business Utilization, and the Surety Bond Guarantee program).

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 in which 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: 

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8(a) Program.76 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.77 In addition, an individual’s net worth, excluding ownership interest in the 8(a) firm and equity in his or her primary personal residence, must be less than $250,000 at the time of application to the 8(a) Program, and less than $750,000 thereafter. A firm certified by the 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. In FY2018, the federal government awarded $29.5 billion to 8(a) firms: $17.8 billion was awarded with an 8(a) preference ($9.2 billion through an 8(a) set- aside and $8.6 billion through an 8(a)

For additional information and analysis, see CRS Report R44844, SBA’s “8(a) Program”: Overview, History, and Current Issues, by Robert Jay Dilger. 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.

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



78

sole source award); $5.2 billion was awarded to an 8(a) firm in open competition with other firms; and $6.3 billion was awarded with another small business preference (e.g., set-asides and sole source awards for small businesses generally and for HUBZone firms, women- owned small businesses, and service-disabled veteran-owned small businesses).78 Historically Underutilized Business Zone Program.79 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. The determination of whether an area is a HUBZone is based upon 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. In FY2018, the federal government awarded $9.8 billion to HUBZone-certified small businesses: $2.3 billion was awarded with a HUBZone preference ($2.1 billion through a HUBZone setaside, $112.6 million through a HUBZone sole source award and $100.7 million through a HUBZone price-evaluation preference); $1.8 billion was awarded to HUBZone-certified small businesses in open competition with other firms; and $5.7 billion was awarded with another small business preference (e.g., set-asides and sole source awards for small businesses generally and for 8(a), women-owned, and service-disabled veteran- owned small businesses).80 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

GSA, Federal Procurement Data System—Next Generation, accessed on July 1, 2019, at https://www.fpds.gov/ fpdsng/. 79 For additional information and analysis, see CRS Report R41268, Small Business Administration HUBZone Program, by Robert Jay Dilger. 80 GSA, FPDS-NG, accessed on July 1, 2019, at https://www.fpds.gov/fpdsng/.

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program, veterans and service-related disabilities are defined as they are under the statutes governing veterans affairs.81 In FY2018, the federal government awarded $22.5 billion to SDVOSBs: $9.1 billion was awarded with a SDVOSB preference ($8.9 billion through a SDVOSB set-aside and $226.6 million through a SDVOSB sole source award); $2.4 billion was awarded to a SDVOSB in open competition with other firms; and $10.9 billion was awarded with another small business preference (e.g., set- asides and sole source awards for small businesses generally and for HUBZone firms, 8(a) firms, and WOSBs).82 Women-Owned Small Business Program. Under this program, contracts may be set aside for economically disadvantaged women-owned small businesses in industries in which women are underrepresented and women-owned small businesses in industries in which women are substantially underrepresented. Also, federal agencies may award sole-source contracts to women-owned small businesses so long as the award can be made at a fair and reasonable price, and the anticipated value of the contract is below $4 million ($6.5 million for manufacturing contracts).83 In FY2018, the federal government awarded $23.4 billion to WOSBs: $726.4 million was awarded with a WOSB preference ($630.0 million through a WOSB set-aside and $96.4 million through a WOSB sole source award); $14.7 billion was awarded to a WOSB in open competition with other firms; and $7.7 billion was awarded with another small business preference (e.g., setasides and sole source awards for small businesses generally and for HUBZone firms, 8(a) firms, and SDVOSBs).84

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. 82 GSA, FPDS-NG, accessed on July 1, 2019, at https://www.fpds.gov/fpdsng/. 83 P.L. 113-291, the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015. 84 GSA, FPDS-NG, accessed on July 1, 2019, at https://www.fpds.gov/fpdsng/.

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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). SDBs include 8(a) participants and other small businesses that are at least 51% unconditionally owned and controlled by socially or economically disadvantaged individuals or groups. Individuals owning and controlling non-8(a) SDBs may have net worth of up to $750,000 (excluding ownership interests in the SDB firm and equity in their primary personal residence). Otherwise, however, SDBs must generally satisfy the same eligibility requirements as 8(a) firms, although they do not apply to the SBA to be designated SDBs in the same way that 8(a) firms do. Federal agencies must negotiate “subcontracting plans” with the apparently successful bidder or offer or 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. As of May 4, 2020, the SBA’s Dynamic Small Business Search database included 1,370 SBA- certified SDBs and 136,673 self-certified SDBs.85

85

SBA, “Dynamic Small Business Search,” at http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm.

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The 7(j) Management and Technical Assistance Program The SBA’s 7(j) Management and Technical Assistance program provides “a wide variety of management and technical assistance to eligible individuals or concerns to meet their specific needs, including: (a) counseling and training in the areas of financing, management, accounting, bookkeeping, marketing, and operation of small business concerns; and (b) the identification and development of new business opportunities.”86 Eligible individuals and businesses include “8(a) certified firms, small disadvantaged businesses, businesses operating in areas of high unemployment, or low income or firms owned by low income individuals.”87 In FY2019, the 7(j) Management and Technical Assistance program assisted 8,032 small businesses.88

Surety Bond Guarantee Program89 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.90 The program guarantees individual contracts of up to $6.5 million and up to $10 million for federal contracts if a federal contracting officer certifies that such a 86

13 C.F.R. §124.702. SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 44, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_CBJ_ May_22_2017c.pdf. 88 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 77, 172, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report. 89 For additional information and analysis, see CRS Report R42037, SBA Surety Bond Guarantee Program, by Robert Jay Dilger. 90 Ancillary bonds are also eligible if they are incidental and essential to a contract for which the SBA has guaranteed a 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. 87

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guarantee is necessary. The SBA’s guarantee ranges from not to exceed 80% to not to exceed 90% of the surety’s loss if a default occurs.91 In FY2019, the SBA guaranteed 9,905 bid and final surety bonds with a total contract value of nearly $6.5 billion.92 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 associated with contracting.93 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.94

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 these goals to the SBA.95

91

P.L. 114-92, the National Defense Authorization Act for Fiscal Year 2016, includes a provision that increased the Preferred Surety Bond Guarantee Program’s guarantee rate from not to exceed 70% to not to exceed 90% of losses starting one year from enactment (effective November 25, 2016). For additional information and analysis, see CRS Report R42037, SBA Surety Bond Guarantee Program, by Robert Jay Dilger. 92 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 67, 170, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report. 93 SBA, “Surety Bonds,” at https://www.sba.gov/category/navigation-structure/loansgrants/bonds/surety-bonds. 94 SBA, “Surety Bonds.” 95 P.L. 95-507, a bill to amend the Small Business Act and the Small Business Investment Act of 1958.

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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.96 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.”97 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 Congress.98 The SBA negotiates the goals with each federal agency and establishes a small business eligible baseline for evaluating the agency’s performance.99 The agency head is required to “make consistent efforts to annually expand participation by small business concerns from each industry category.”100 If the SBA and the agency cannot agree on the goals, the agency may submit

96

P.L. 100-656, the Business Opportunity Development Reform Act of 1988. P.L. 100-656. 98 P.L. 100-656. 99 According to a 2001 GAO report, the SBA began to specify what types of contracts the Federal Procurement Data System would exclude when determining agency compliance with federal contracting goals in FY1998. Prior to FY1998, “agencies reported their small business achievements directly to SBA and excluded from their calculations certain types of contracts, such as those for which small businesses had a limited or no chance to compete. SBA then published an annual report summarizing each agency’s achievements. SBA officials said that in some cases they were not aware of all exclusions the agencies made when reporting their numbers.” GAO, Small Business: More Transparency Needed in Prime Contract Goal Program, GAO-01-551, August 1, 2001, pp. 9-10, at http://www.gao.gov/assets/240/231854.pdf. 100 15 U.S.C. §644(g)(2). 97

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the case to the Office of Management and Budget (OMB) Office of Federal Procurement Policy (OFPP) for resolution.101 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 those awarded to mandatory and directed sources), contracts funded predominately from agency-generated sources (i.e., nonappropriated funds), contracts not covered by Federal Acquisition Regulations, acquisitions on behalf of foreign governments, and contracts not reported in the General Services Administration’s (GSA’s) Federal Procurement Data System— Next Generation, or FPDS-NG (such as contracts valued below $10,000 and government procurement card purchases).102 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 and presents the results in the SBA’s annual Small Business Procurement Scorecards. The SBA uses FPDS-NG data, which are published in GSA’s annual Small Business Goaling Report. Each agency that fails to achieve any proposed prime or subcontract goal is required to submit a justification to the SBA on why it failed to achieve a proposed or negotiated goal with a proposed plan of corrective action.103 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. 105135, 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 Reform Act of 1988), women (P.L. 101

SBA, Office of Policy, Planning and Liaison, Office of Government Contracting and Business Development, “FY 2019 Goaling Guidelines,” August 2018, p. 5, at https://www.sba.gov/document/report—sba-goaling-guidelines (hereinafter cited as SBA, “FY2019 Goaling Guidelines”). 102 SBA, “FY2019 Goaling Guidelines,” p. 4; and GSA, FPDS-NG, “What’s in FPDS-NG,” at https://www.fpds.gov/ wiki/index.php/FPDS-NG_FAQ. 103 SBA, Office of Policy, Planning and Liaison, Office of Government Contracting and Business Development, “FY 2019 Goaling Guidelines,” August 2018, p. 6, at https://www.sba.gov/ document/report—sba-goaling-guidelines.

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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.104

There are no punitive consequences for not meeting these goals. However, the SBA’s Small Business Procurement Scorecards and GSA’s Small Business Goaling Report are distributed widely, receive media attention, and heighten public awareness of the issue of small business contracting. For example, agency performance as reported in the SBA’s Small Business Procurement Scorecards is often cited by Members during their questioning of federal agency witnesses during congressional hearings. As shown in Table 6, the FY2018 Small Business Goaling Report indicates that federal agencies met the federal procurement goal for small

104

15 U.S.C. §644(g)(1)-(2).

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businesses generally, small disadvantaged businesses, and service-disabled veteran-owned small businesses in FY2018. Table 6 also provides, for comparative purposes, the percentage of total reported federal contracts (without exclusions) awarded to those small businesses in FY2018. Table 6. Federal contracting goals and percentage of FY2018 federal contract dollars awarded to small businesses, by type Percentage of FY2018 Federal Contracts Business Type

Federal Goal 23.0% 5.0% 5.0% 3.0% 3.0%

Small Business Eligible 25.06% 9.65% 4.75% 2.05% 4.27%

All Reported Contracts 22.43% 8.62% 4.21% 1.78% 4.07%

Small Businesses Small Disadvantaged Businesses Women-Owned Small Businesses HUBZone Small Businesses Service-Disabled Veteran-Owned Small Businesses Sources: SBA, “Statutory Guidelines,” at https://www.sba.gov/content/statutory-guidelines-0 (federal goals); U.S. General Services Administration, Federal Procurement Data System—Next Generation, “Small Business Goaling Report: Fiscal Year 2018,” at https://www.fpds.gov/ downloads/top_requests/FPDSNG_SB_Goaling_FY_2018.pdf; and GSA, FPDS-NG, at https://www.fpds.gov/fpdsng/ (contract dollars). Notes: The Small Business Goaling Report for FY2018 reports that small business eligible contracts, as of June 25, 2019, totaled $482.4 billion and that $120.9 billion was awarded to small businesses, $46.5 billion to small disadvantaged businesses, $22.9 billion to women-owned small businesses, $9.9 billion to SBA-certified HUBZone small businesses, and $20.6 billion to service-disabled veteran-owned small businesses. The Small Business Goaling Report for FY2018 does not indicate the total amount of federal contracts reported in the FPDS-NG on June 25, 2019. The percentages provided in the column for all reported contracts in FY2018 were calculated using FPDS-NG data for all contracts as reported on July 1, 2019: $555.5 billion in total contracts; $124.6 billion to small businesses, $47.9 billion to small disadvantaged businesses, $23.4 billion to women-owned small businesses, $9.9 billion to SBA-certified HUBZone small businesses, and $22.6 billion to service-disabled veteran-owned small 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

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within the agency for small businesses, as well as assist small businesses in their dealings with federal agencies (e.g., obtaining payment).

REGIONAL AND DISTRICT OFFICES As mentioned previously, the SBA provides funding to third parties, such as SBDCs, to provide management and training services to small business owners and aspiring entrepreneurs. The SBA also provides management, training, and outreach services to small business owners and aspiring entrepreneurs through its 68 district offices. These offices are overseen by the SBA Office of Field Operations and 10 regional offices. SBA district offices conduct more than 20,000 outreach events annually with stakeholders and resource partners that include “lender training, government contracting, marketing events in emerging areas, and events targeted to high-growth entrepreneurial markets, such as exporting.”105 SBA district offices focus “on core SBA programs concerning contracting, capital, technical assistance, and exporting.”106 They also perform annual program eligibility and compliance reviews on 100% of the 8(a) business development firms in the SBA’s portfolio and each year conduct on-site examinations of about 10% of all HUBZone certified firms (507 in FY2019) to validate compliance with the HUBZone program’s geographic requirement for principal offices.107

105

106

107

SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 104, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf. SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 104. SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 73, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_19_508Final 5_1.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 76, at https://www.sba.gov/document/report— congressionalbudget-justification-annual-performance-report; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 77, at https://www.sba. gov/document/report—congressional-budget-justification-annual-performance-report.

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OFFICE OF INSPECTOR GENERAL108 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.”109 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.”110 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, waste and abuse; review existing and proposed legislation and regulations and make appropriate recommendations; maintain effective working relationships with other Federal, State and local governmental agencies, and nongovernmental entities, regarding the mandated duties of the Inspector General; keep the SBA Administrator and Congress informed of serious problems and recommend corrective actions and implementation measures; comply with the audit standards of the Comptroller General; avoid duplication of Government Accountability Office (GAO) activities; and

For additional information and analysis, see CRS Report R44589, SBA’s Office of Inspector General: Overview, Impact, and Relationship with Congress, by Robert Jay Dilger. 109 SBA, “Office of Inspector General,” at https://www.sba.gov/office-of-inspector-general. 110 SBA, “Office of the Inspector General Strategic Plan for FY 2012–2017,” p. 3, at https://www.sba.gov/sites/default/files/oig/SBA-OIG%2020122017%20Strategic%20Plan%20.pdf. 108

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report violations of Federal criminal law to the Attorney General.”111

CAPITAL INVESTMENT PROGRAMS The SBA has several programs to improve small business access to capital markets, including the Small Business Investment Company program, the New Market Venture Capital Program (now inactive), two special high technology contracting programs (the Small Business Innovative Research and Small Business Technology Transfer programs), and the growth accelerators initiative.

The Small Business Investment Company Program112 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- term loan funds which smallbusiness 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.”113 The SBA works with 299 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

SBA, “Office of the Inspector General Strategic Plan for FY 2012–2017,” p. 3. For further information and analysis, see CRS Report R41456, SBA Small Business Investment Company Program, by Robert Jay Dilger. 113 15 U.S.C. §661. 111 112

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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);114 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;115 purchasing debt securities from small businesses, which may be convertible into, or have rights to purchase, equity in the small business;116 and subject to limitations, providing small businesses a guarantee of their monetary obligations to creditors not associated with the SBIC.117

The SBIC program currently has invested or committed about $31.5 billion in small businesses, with the SBA’s share of capital at risk about $14.6 billion.118 In FY2019, the SBA provided SBICs $1.93 billion in leverage to SBICs and SBICs invested another $3.94 billion from private capital for a total of nearly $5.9 billion in financing for 1,191 small businesses.119

114

13 C.F.R. §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. 115 13 C.F.R. §107.810 and 13 C.F.R. §107.840. 116 13 C.F.R. §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. 117 13 C.F.R. §107.820. 118 SBA, “Small Business Investment Company (SBIC) Program Overview, as of December 30, 2019,” at https://www.sba.gov/article/2020/feb/25/quarterly-data-december-31-2019 (hereinafter cited as SBA, “SBIC Program Overview December 30, 2019”). 119 SBA, “SBIC Program Overview December 30, 2019.”

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Table 7. Summary of small business investment company program’s key features Key Feature Use of Proceeds

Maximum Leverage Amount

Maturity

Maximum Interest Rates Guaranty Fees

Program Summary 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. A licensed SBIC in good standing with a demonstrated need for funds may apply to the 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 their private capital, and no fund management team may exceed the allowable maximum amount of leverage, currently $175 million per SBIC and $350 million for two or more licenses under common control. 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 semiannual 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 semiannual 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). 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. 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. No job creation requirements.

Job Creation Requirements Source: Table compiled by CRS from data from the SBA.

New Market Venture Capital Program120 The now inactive 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 120

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.

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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 developmental venture capital investments and technical assistance, helping to create quality employment opportunities for low-income area residents, and building 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 public policy objectives are being met. The SBA requires the companies to provide regular performance reports and have annual financial examinations by the SBA. The NMVC program was appropriated $21.952 million in FY2001 to support up to $150 million in SBA-guaranteed debentures and $30 million to fund operational assistance grants for FY2001 through FY2006. The funds were provided in a lump sum in FY2001 and were to remain available until expended. In 2003, the unobligated balances of $10.5 million for the NMVC debenture subsidies and $13.75 million for operational assistance grants were rescinded. The program continued to operate, with the number and amount of financing declining as the program’s initial investments expired and NMVC companies increasingly engaged only in additional follow-on financings with the small businesses in their portfolios. The NMVC program’s active unpaid principal balance (which is composed of the SBA guaranteed portion and the unguaranteed portion of the NMVC companies’ active unpaid principal balance) peaked at $68.1 million in FY2008, and then fell each year thereafter until reaching $0 in FY2018.

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Small Business Innovation Research Program121 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. 122 Current law requires that every federal department with an R&D budget of $100 million or more establish and operate a SBIR program. Currently, 11 federal agencies participate in the SBIR program. A set percentage of that agency’s applicable extramural R&D budget—originally set at not less than 0.2% in FY1983 and currently not less than 3.2%—is to be used to support mission-related work in small businesses.123 Agency SBIR efforts involve a three-phase process. Phase I awards, normally 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. Phase I awards are capped at $256,580, but higher amounts may be awarded with SBA approval. Projects that demonstrate potential after the initial endeavor may compete for Phase II awards lasting one to two years.124 Phase II awards, normally up to $1 million, are for the performance of the principal R&D by

121

122

123

124

For further information and analysis of the SBIR program, see CRS Report R43695, Small Business Innovation Research and Small Business Technology Transfer Programs, by John F. Sargent Jr. See P.L. 97-219, the Small Business Innovation Development Act of 1982 and 15 U.S.C. §638. The percentage of each designated agency’s applicable extramural research and development budget to be used to support mission-related work in small businesses was 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 SBA, “Small Business Innovation Research Program Policy Directive,” 77 Federal Register 46806-46855. See SBA, “About SBIR: Dollar Amount of Awards Adjusted for Inflation,” at https://www.sbir.gov/about/about- sbir. Agencies may exceed these award amounts with SBA approval prior to the release of the solicitation, award, or modification to the award.

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the small business. Phase II awards are capped at $1.71 million, but higher amounts may be awarded with SBA approval. Phase III funding, directed at the commercialization of the product or 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. Eight departments and three other federal agencies currently have SBIR programs, including the Departments of Agriculture, Commerce, Defense, 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).125 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 meet the mission requirements of the federal funding agency.126 Phase I financing, normally up to $150,000, is available for approximately one year to fund the exploration of the scientific, technical,

125

126

See SBA, “About SBIR: SBIR Participating Agencies,” at https://www.sbir.gov/about/aboutsbir. See P.L. 102-564, the Small Business Research and Development Enhancement Act of 1992 and 15 U.S.C. §638.

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and commercial feasibility of an idea or technology. Phase 1 financing is capped at $256,580, but higher amounts may be awarded with SBA approval. Phase II awards, normally up to $1 million, may be made for two years, during which time the developer performs R&D work and begins to consider commercial potential. Phase II awards are capped at $1.71 million, but higher amounts may be awarded with SBA approval.127 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 0.45%, of the extramural R&D budget of departments that spend more than $1 billion per year on this effort.128 The Departments of Energy, Defense, and Health and Human Services participate in the STTR program, as do NASA and NSF. 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.

Growth Accelerator Initiative The SBA describes growth accelerators as “organizations that help entrepreneurs start and scale their businesses.”129 Growth accelerators are typically run by experienced entrepreneurs and help small businesses 127

128

129

See SBA, “About STTR: Dollar Amount of Awards Adjusted for Inflation,” at https://www.sbir.gov/about/about- sttr. The STTR program’s set-aside was not less than 0.4% in FY2015, and was increased to 0.45% in FY2016 and each fiscal year thereafter. See P.L. 112-81, the National Defense Authorization Act for Fiscal Year 2012 and SBA, “Small Business Technology Transfer Program Policy Directive,” 77 Federal Register 46855-46908. SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 75, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf.

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access seed capital and mentors. The SBA claims that growth accelerators “help accelerate a startup company’s path towards success with targeted advice on revenue growth, job, and sourcing outside funding.”130 The SBA’s Growth Accelerator Initiative began in FY2014 when Congress recommended in its appropriations report that the initiative be provided $2.5 million. Congress subsequently recommended that it receive $4 million in FY2015; $1 million in FY2016, FY2017, and FY2018; $2 million in FY2019; and $2 million in FY2020. The Growth Accelerator Initiative provides $50,000 matching grants each year to universities and private sector accelerators to support the development of accelerators and their support of startups in parts of the country where there are fewer conventional sources of access to capital (i.e., venture capital and other investors). The SBA announced the award of 80 growth accelerator grants on August 4, 2015 ($4 million), 68 growth accelerator grants on August 31, 2016 ($3.4 million), 20 growth accelerator grants on October 30, 2017 ($1 million), and 60 growth accelerator grants on September 26, 2019 ($3 million).131 The SBA did not issue a competitive announcement for Growth Accelerator awards in FY2018.

OFFICE OF ADVOCACY132 The SBA’s Office of Advocacy is “an independent voice for small business within the federal government.”133 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

130

SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 75. 131 SBA, “SBA Growth Accelerator Fund Competition: $3 Million for High Tech, Small Business Focused Accelerators in 2019,” at https://www.sba.gov/node/1428931/leadership/. 132 For further information and analysis of the Office of Advocacy, see CRS Report R43625, SBA Office of Advocacy: Overview, History, and Current Issues, by Robert Jay Dilger. 133 SBA, “Office of Advocacy: About Us,” at https://www.sba.gov/category/advocacynavigation-structure/about-us-0.

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“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.134

EXECUTIVE DIRECTION PROGRAMS The SBA’s executive direction programs consist of the National Women’s Business Council, the Office of Ombudsman, and Faith-Based Initiatives.

The National Women’s Business Council The National Women’s Business Council is a bipartisan 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 134

SBA, Office of Advocacy, FY2013 Congressional Budget Justification, p. 2, at https://www.sba.gov/sites/default/files/files/1-508%20Compliant%20FY%202013%20 CBJ%20FY%202011%20APR%281%29.pdf.

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and private sector significance.”135

marketplaces—from

start-up

to

success

to

Office of Ombudsman136 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.”137 The Office of Ombudsman 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. In addition, the National Ombudsman 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.138

Faith-Based Initiatives The SBA sponsors several faith-based initiatives For example, the SBA, in cooperation with the National Association of Government

The National Women’s Business Council, “About the Council,” Washington, DC, at https://www.nwbc.gov/about/. 136 For further information and analysis, see CRS Report R45071, SBA Office of the National Ombudsman: Overview, History, and Current Issues, by Robert Jay Dilger. 137 SBA, “Office of the National Ombudsman,” at https://www.sba.gov/ombudsman. 138 SBA, “National Ombudsman’s Fiscal Year Reports to Congress,” at https://www.sba.gov/ ombudsman/national- ombudsmans-fiscal-year-reports-congress. 135

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Guaranteed Lenders (NAGGL), created the Business Smart Toolkit, “a ready-to-use workshop toolkit that equips faith-based and community organizations to help new and aspiring entrepreneurs launch and build businesses that are credit ready.”139

LEGISLATIVE ACTIVITY During the 111th Congress 

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139

140

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.140

SBA, “SBA and NAGGL Launch Business Smart Toolkit,” September 4, 2015, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-andnaggl-launch-business-smart-toolkit. 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 loan limits for the 7(a) program from $2 million to $5 million and raised the 504/CDC program’s loan limits from $2

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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.

During the 112th Congress, the SBA’s statutory authorization expired (on July 31, 2011).141 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. P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, 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); required the SBA to oversee and establish standards for most federal mentor-protégé programs and establish a mentor-protégé program for all small business concerns; required 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 addressed 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. During the 113th Congress, P.L. 113-76, the Consolidated Appropriations Act, 2014, increased the SBA’s SBIC program’s annual authorization amount to $4 billion from $3 billion. 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 SBAExpress 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, see CRS Report R40985, Small Business: Access to Capital and Job Creation, by Robert Jay Dilger. 141 P.L. 112-17, the Small Business Additional Temporary Extension Act of 2011.

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During the 114th Congress 

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P.L. 114-38, the Veterans Entrepreneurship Act of 2015, authorized and made permanent the SBA’s administrative decision to waive the SBAExpress loan program’s one time, up-front loan guaranty fee for veterans (and their spouse). The act also increased the 7(a) loan program’s FY2015 authorization limit from $18.75 billion to $23.5 billion (later increased to $26.5 billion). P.L. 114-88, the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE After Disaster Act of 2015), includes several provisions designed to assist individuals and small businesses affected by Hurricane Sandy in 2012, and, among other things, authorizes the SBA to provide up to two years of additional financial assistance, on a competitive basis, to SBDCs, WBCs, SCORE, or any proposed consortium of such individuals or entities to assist small businesses located in a presidentially declared major disaster area; authorizes SBDCs to provide assistance to small businesses outside the SBDC’s state, without regard to geographical proximity to the SBDC, if the small business is in a presidentially declared major disaster area; and temporarily increases, for three years, the minimum disaster loan amount for which the SBA may require collateral, from $14,000 to $25,000 (or, as under existing law, any higher amount the SBA determines appropriate in the event of a disaster). P.L. 114-92, the National Defense Authorization Act for Fiscal Year 2016, includes a provision that expands the definition of a Base Realignment and Closure Act (BRAC) military base closure area under the HUBZone program to include the lands within the external boundaries of the closed base and the census tract or nonmetropolitan county in which the lands of the closed base are wholly contained, intersect it, or are contiguous to it. This change is designed to make it easier for businesses located in those areas to meet the HUBZone program’s requirement that at least 35% of its employees reside in a HUBZone area. The act also extends

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

142

BRAC base closure area HUBZone eligibility from five years to not less than eight years, provides HUBZone eligibility to qualified disaster areas, and adds Native Hawaiian Organizations to the list of HUBZone eligible small business concerns.142 Starting one year from enactment (effective November 25, 2016), the act also adds requirements concerning the pledge of assets by individual sureties participating in the SBA’s Surety Bond Guarantee Program and increases the guaranty rate from not less than 70% to not less than 90% for preferred sureties participating in that program. P.L. 114-113, the Consolidated Appropriations Act, 2016, expands the projects eligible for refinancing under the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the 504/CDC program as a whole do not have credit subsidy costs, generally limits refinancing under this provision to no more than 50% of the dollars loaned under the 504/CDC program during the previous fiscal year, and increases the SBIC program’s family of funds limit (the amount of outstanding leverage allowed for two or more SBIC licenses under common control) to $350 million from $225 million. The act also provided the 7(a) loan program a FY2016 authorization limit of $26.5 billion. P.L. 114-125, the Trade Facilitation and Trade Enforcement Act of 2015, renamed the “State Trade and Export Promotion” grant initiative to the “State Trade Expansion Program.” P.L. 114-125 also reformed some of the program’s procedures and provided $30 million in annual authorization for STEP grants from FY2016 through FY2020.143 In terms of program administration, P.L. 114125 allows the SBA’s Associate Administrator (AA) for International Trade to give priority to STEP proposals from states

The act redefined a BRAC base closure area under the HUBZone program to include the lands within the external boundaries of the closed base and the census tract or nonmetropolitan county in which the lands of the closed base are wholly contained, intersect it, or are contiguous to it. 143 P.L. 114-125 also included provisions intended to improve coordination between the federal government and the states, among other provisions.

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that have a relatively small share of small businesses that export or would assist rural, women-owned, and socially and economically disadvantaged small businesses and small business concerns. P.L. 114-328, the National Defense Authorization Act for Fiscal Year 2017, authorizes the SBA to establish different size standards for various types of agricultural enterprises (previously statutorily set at not more than $750,000 in annual receipts), standardizes definitions used by the SBA and the Department of Veterans Affairs concerning service-disabled veteran owned small businesses, requires the SBA to track companies that outgrow or no longer qualify for SBA assistance due to the receipt of a federal contract or being purchased by another entity after an initial federal contract is awarded, and, among other provisions, clarifies the duties of the Offices of Small and Disadvantaged Utilization within federal agencies.

During the 115th Congress 

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P.L. 115-31, the Consolidated Appropriations Act, 2017, increased the 7(a) program’s authorization limit to $27.5 billion in FY2017 from $26.5 billion in FY2016. P.L. 115-56, the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, provided the SBA an additional $450 million for disaster assistance. P.L. 115-123, the Bipartisan Budget Act of 2018, provided the SBA an additional $1.652 billion for disaster assistance and $7.0 million to the SBA’s OIG for disaster assistance oversight. P.L. 115-141, the Consolidated Appropriations Act, 2018, increased the 7(a) program’s authorization limit to $29.0 billion in FY2018. The act also relaxed requirements on Microloan intermediaries that prohibited them from spending more than 25% of their technical assistance grant funds on prospective borrowers and more than 25% of those grant funds on contracts with third

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



parties to provide that technical assistance by increasing those percentages to 50%. P.L. 115-189, the Small Business 7(a) Lending Oversight Reform Act of 2018, among other provisions, codified the SBA’s Office of Credit Risk Management; required that office to annually undertake and report the findings of a risk analysis of the 7(a) program’s loan portfolio; created a lender oversight committee within the SBA; authorized the Director of the Office of Credit Risk Management to undertake informal and formal enforcement actions against 7(a) lenders under specified conditions; redefined the credit elsewhere requirement; and authorized the SBA Administrator to increase the amount of 7(a) loans not more than once during any fiscal year to not more than 115% of the 7(a) program’s authorization limit. The SBA is required to provide at least 30 days’ notice of its intent to exceed the 7(a) loan program’s authorization limit to the House and Senate Committees on Small Business and the House and Senate Committees on Appropriations’ Subcommittees on Financial Services and General Government and may exercise this option only once per fiscal year. P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, included provisions originally in H.R. 5236, the Main Street Employee Ownership Act of 2018, to make 7(a) loans more accessible to employee-owned small businesses (ESOPs) and cooperatives. The act clarifies that 7(a) loans to ESOPs may be made under the Preferred Lenders Program; allows the seller to remain involved as an officer, director, or key employee when the ESOP or cooperative has acquired 100% ownership of the small business; and authorizes the SBA to finance transition costs to employee ownership and waive any mandatory equity injection by the ESOP or cooperative to help finance the change of ownership. The act also directs the SBA to create outreach programs and an interagency working group to promote lending to ESOPs and cooperatives.

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During the 116th Congress 









P.L. 116-6, the Consolidated Appropriations Act, 2019, among other provisions, provided the SBA $715.37 million in FY2019 and increased the 7(a) program’s authorization limit to $30.0 billion. P.L. 116-93, the Consolidated Appropriations Act, 2020, among other provisions, provided the SBA $998.46 million in FY2020, including $99 million for 7(a) program loan credit subsidies. P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, provided EIDL eligibility to small businesses adversely affected by the coronavirus and appropriated $20 million to the SBA for disaster loan assistance administrative costs. The CARES Act (P.L. 116-136), among other provisions, appropriated $376.965 billion to the SBA, including $349 billion for the Paycheck Protection Program (PPP), $17 billion for six months of 7(a), 504/CDC, and Microloan loan payments, $10 billion for Emergency Economic Injury Disaster Loan (EIDL) grants, $675 million for salaries and expenses, $265 million for entrepreneurial development programs, and $25 million for the SBA Office of Inspector General. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, among other provisions, increased the PPP authorization limit to $659 billion and appropriated an additional $321.335 billion to support that authorization level, $50 billion for EIDL, $10 billion for Emergency EIDL grants, and $2.1 billion for SBA salaries and expenses.

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APPROPRIATIONS144 The SBA, excluding $760.420 billion in supplemental appropriations, received an initial appropriation of $998.463 million for FY2020. Table 8. SBA appropriations, FY2017-FY2020 ($ in millions) Program Account

FY2017

FY2018

FY2019

FY2020 Initial $270.157

FY2020 with Supplementals $3,045.157

Salaries and $269.500 $268.500 $267.500 Expenses Entrepreneurial $245.100 $247.100 $247.700 $261.000 $526.000 Development Business Loan $152.726 $152.782 $155.150 $155.150 $687,490.150 Administration Business Loan $4.338 $3.438 $4.000 $104.000 $104.000 Credit Subsidy Office of Inspector $19.900 $26.900 $21.900 $21.900 $46.900 General Office of Advocacy $9.220 $9.120 $9.120 $9.120 $9.120 Disaster Assistance $185.977 $0.000 $10.000 $177.136 177.136 Disaster Assistance $450.000 $1,652.000 $0.000 $0.000 $70,020.000 Supplemental Total $1,336.761 $2,359.840 $715.370 $998.463 $761,418.463 Sources: P.L. 113-76, the Consolidated Appropriations Act, 2014, P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-56, the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017; P.L. 115-123, the Bipartisan Budget Act of 2018; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019; P.L. 116-93, the Consolidated Appropriations Act, 2020; P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020; P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); and P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act. Notes: The sum of the amounts appropriated for each of the program accounts may not equal the total amount appropriated for that fiscal year due to rounding. P.L. 115-123 provided the Office of the Inspector General $7 million in supplemental funding for FY2018 for disaster assistance oversight.

144

For further information concerning SBA appropriations, see CRS Report R43846, Small Business Administration (SBA) Funding: Overview and Recent Trends, by Robert Jay Dilger.

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As shown in Table 8, the SBA’s initial FY2020 appropriation includes    

  

145

$270.157 million for salaries and expenses, $261.0 million for entrepreneurial development and noncredit programs, $155.15 million for business loan administration, $104.0 million for business loan credit subsidies ($99.0 million for the 7(a) loan guaranty program and $5.0 million for the Microloan program), $21.9 million for Office of Inspector General, $9.12 million for the Office of Advocacy, and $177.136 million for disaster assistance, including $20 million in supplemental funding for administrating disaster loans.145

P.L. 116-93, the Consolidated Appropriations Act, 2020, and P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 2

SMALL BUSINESS ADMINISTRATION (SBA) FUNDING: OVERVIEW AND RECENT TRENDS (UPDATED) Robert Jay Dilger

ABSTRACT This chapter examines the Small Business Administration’s (SBA’s) appropriations (new budget authority, minus rescissions and sequestration) over time, focusing on developments and trends since FY2000. It also provides total available funding (which includes carryover from the prior fiscal year, carryover into the next fiscal year, account transfers, rescissions, and sequestration) and, for entrepreneurial development noncredit programs, actual and anticipated expenditures for comparative purposes. SBA appropriations, as a whole, have varied significantly from year to year since FY2000 and across all three of the agency’s major spending categories: disaster assistance, business loan credit subsidies, and “other programs,” a category that includes salaries and expenses, business loan 

This is an edited, reformatted and augmented version of Congressional Research Service, Publication No. R43846, dated April 27, 2020.

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Robert Jay Dilger administration, the Office of Inspector General, the Office of Advocacy, and entrepreneurial development programs. Overall, the SBA’s appropriations have ranged from a high of $761.4 billion in FY2020 to a low of $571.8 million in FY2007. Much of this volatility is due to significant variation in supplemental appropriations for disaster assistance to address damages caused by major hurricanes and for SBA lending program enhancements to help small businesses access capital during and immediately following recessions. For example, in FY2020, the SBA has received $760.4 billion in supplemental appropriations to assist small businesses adversely affected by the novel coronavirus (COVID-19) pandemic. Appropriations for SBA business loan credit subsidies—needed to pay for unanticipated increases in the cost of loan defaults—have also varied since FY2000, primarily due to the impact of changing economic conditions on the SBA’s guaranteed loan portfolios. During good economic times, revenue from SBA fees and collateral liquidation is typically sufficient to cover the costs of purchasing guaranteed loans that have defaulted. During and immediately following recessions, however, that revenue is typically insufficient to cover the costs of purchasing guaranteed loans that have defaulted. Appropriations for the SBA’s other programs, as a collective, have also varied since FY2000, ranging from $455.6 million in FY2007 to $691.1 billion in FY2020. This variation is primarily due to congressional response to changing economic conditions. For example, in FY2009 and FY2010 and again in FY2020, Congress approved significant, temporary increases in appropriations for the SBA’s “other programs” spending category to address (1) the economic slowdown during and immediately following the Great Recession (2007-2009) and (2) the adverse economic impact of the COVID-19 pandemic, respectively. Overall, since FY2000, appropriations for SBA’s other programs, excluding supplemental appropriations, have increased at a pace that exceeds inflation. This chapter provides appropriations for all five major components of the other programs spending category, including the SBA’s entrepreneurial development programs. The SBA’s appropriations for FY1954 through FY1999 are provided in the Appendix.

INTRODUCTION The Small Business Administration (SBA) currently administers several types of programs to support small businesses, including loan

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guaranty and venture capital programs to enhance small businesses’ access to capital; contracting programs to increase small businesses’ opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to aid in their recovery from natural disasters; and small business management and technical assistance training programs to assist in business formation and expansion. Congressional interest in these programs has increased in recent years and has become especially acute during the Coronavirus Disease 2019 (COVID-19) pandemic, because small businesses are viewed as a means to stimulate economic activity and create jobs. Many Members of Congress also regularly receive constituent inquiries about the SBA’s programs. This chapter examines appropriations for the SBA (new budget authority, minus rescissions and sequestration) over time, focusing on developments and trends since FY2000, including the Trump Administration’s FY2021 budget request for the SBA. Total available funding (which includes carryover from the prior fiscal year, carryover into the next fiscal year, account transfers, rescissions, and sequestration) and, for comparative purposes, actual and anticipated expenditures for the SBA’s entrepreneurial development noncredit programs are also presented. SBA appropriations, as a whole, have varied significantly from year to year since FY2000 and across the following three major SBA spending categories:   

disaster assistance, business loan credit subsidies, and “other programs.”

Other programs include appropriations for salaries and expenses, business loan administration, the Office of Inspector General (OIG), the Office of Advocacy, entrepreneurial development noncredit programs, and supplemental appropriations for business loan credit subsides to expand, as opposed to maintain, SBA lending.

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The variation in appropriations for disaster assistance since FY2000— ranging from $0 in FY2009 to $70.2 billion in FY2020—is largely due to supplemental appropriations provided to address disaster needs arising from the impact of major hurricanes and, in FY2020, to address the adverse economic impact of COVID-19. Business loan credit subsidies represent the net present value of cash flows to and from the SBA over the life of the agency’s loan portfolios.1 For guaranteed loans, the net present value of cash flows is affected by several factors, but it is primarily the difference between the cost of purchasing loans that have defaulted and the revenue generated from fees and collateral liquidation. For direct (Microloan) lending, it is primarily the cost of offering below-market interest rates to Microloan intermediaries.2 The variation in appropriations for SBA business loan credit subsidies since FY2000—ranging from $1.3 million in FY2006 and FY2007 to $319.7 million in FY2013 ($337.3 million before sequestration and rescission)—is primarily due to the impact of changing economic conditions on the SBA’s guaranteed loan portfolios. During good economic times, revenue from SBA fees and collateral liquidation is typically sufficient to cover the SBA’s cost of purchasing guaranteed loans that have defaulted. During and immediately following economic slowdowns, however, revenue from SBA fees and collateral liquidation is typically insufficient to cover the SBA’s cost of purchasing The U.S. Small Business Administration’s (SBA’s) Office of Financial Analysis and Modeling is responsible for ensuring that the computation of subsidy rates for the SBA’s credit programs are in compliance with the Federal Credit Reform Act of 1990 (FCRA). As indicated on the office’s website, The FCRA requires all credit agencies, including the SBA, to budget and account for the cost of credit programs by determining the net present value of cash flows to and from the Government over the life of the portfolio and expressing the net amount as a credit subsidy rate. The process to develop a subsidy rate is lengthy and complex, requiring unique data collection techniques and analysis efforts. SBA develops its subsidy rates by creating models that incorporate data on loan maturity, borrowers’ interest rates, fees, grace periods, interest subsidies, delinquencies, purchases or defaults, recoveries, prepayments, advances and borrower characteristics. See SBA, Office of Financial Analysis and Modeling, “Summary of Responsibilities,” at http://www.sba.gov/offices/headquarters/ocfo/resources/13299. 2 Fees and collateral collections have less impact on Microloan credit subsides than on guaranteed loan credit subsidies because the SBA does not charge intermediaries fees and Microloan intermediaries are required to maintain a loss reserve fund to help defray the SBA’s cost of purchasing Microloans that default. 1

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guaranteed loans that have defaulted. The shortfall occurs because the SBA’s cost of purchasing guaranteed loans tends to increase when the economy slows (primarily because guaranteed loans are more likely to default during and immediately following recessions) and revenue from loan liquidation tends to be constrained during slow economic times (primarily because commercial real estate values typically fall during and immediately following recessions). As a result, additional appropriations are needed to cover these expenses, which are guaranteed by the “full faith and credit of the United States.” Otherwise, the SBA would be required to stop issuing new loans. Since FY2000, the variation in appropriations for the other programs spending category—ranging from $455.6 million in FY2007 to $691.1 billion in FY2020—is attributable primarily to supplemental funding provided to address recessions. As the chapter will discuss, appropriations for the SBA’s other programs spending category, excluding supplemental appropriations, have generally increased at a pace that exceeds inflation.3 In addition, Congress approved significant, temporary increases in appropriations for the SBA’s other programs spending category in FY2009 and FY2010 and again in FY2020. These temporary increases were provided to enhance small businesses’ access to capital, which had become constrained during and immediately following the Great Recession (December 2007 to June 2009) and, more recently, to assist small businesses adversely affected by COVID-19.4 3

4

The SBA’s FY2020 appropriation of $717.3 million for other programs (excluding supplemental funding related to the Coronavirus Disease 2019 (COVID-19)) is $487.2 million in constant FY2000 dollars (adjusted for inflation), which is higher than the SBA’s FY2000 appropriation of $459.5 million for other programs. Congressional Research Service (CRS) calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020-TAB/xls/BUDGET-2020- TAB-111.xlsx. Recessions are determined by the National Bureau of Economic Research (NBER), which defines a recession as “a significant decline in economic activity [that] spreads across the economy and can last from a few months to more than a year.” See NBER, “Statement of the NBER Business Cycle Dating Committee on the Determination of the Dates of Turning Points in the U.S. Economy,” at http://www.nber.org/cycles/general_statement.html.

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The SBA’s appropriations for FY1954 through FY1999 are provided in the Appendix.

SBA FUNDING TRENDS: FY2000-FY2020 As shown in Table 1, the SBA’s appropriations have varied significantly since FY2000, ranging from $571.8 million in FY2007 to $761.4 billion in FY2020.5 Much of this volatility is due to significant variation in supplemental appropriations for (1) disaster assistance, typically to address damages caused by major hurricanes, and (2) SBA program enhancements to help small businesses access capital during and immediately following recessions. For example, in FY2020, the SBA has received over $760.4 billion in supplemental funding to assist small businesses adversely affected by the COVID-19 pandemic. These funds were provided to help small businesses sustain operations and retain employees. Appropriations for business loan credit subsidies have also varied significantly since FY2000, ranging from $1.3 million in FY2006 and FY2007 to $319.7 million in FY2013 ($337.3 million before sequestration and rescission). As mentioned, this variation results primarily from the impact of changing economic conditions on the SBA’s loan portfolios. During good economic times, revenue from fees and collateral liquidation is typically sufficient to cover the costs of purchasing defaulted loans. During and immediately following recessions, revenue from fees and collateral liquidation is typically not sufficient to cover those costs.

5

Program costs and expenditures typically differ from new budget authority provided by appropriations due to the carryover of budget authority either from the previous fiscal year or into the next fiscal year or to program transfers.

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Table 1. Small business administration, FY2000-FY2021 (appropriations and available funds; $ in millions) Fiscal Year

Disaster Assistance

Disaster Assistance Supplemental

Other Programs

Appropriation Total Available Funds

$0.0

Business Loan Credit Subsidies $4.0

2021 request 2020 including supplementals 2020 initial 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

$168.0

$647.1

$819.1

NA

$177.1

$70,020.0

$104.0

$691,117.3

$761,418.5

$761,593.6a

$177.1

$0.0

$104.0

$717.3

$998.5

$1,173.6

$10.0 $0.0 $186.0 $186.9 $186.9 $191.9 $111.2 $117.3 $45.4 $78.2 $0.0h $0.0 $114.9 $0.0 $111.8 $198.9 $190.3 $209.7 $184.1 $276.4

$0.0 $1,659.0 $450.0 $0.0 $0.0 $0.0 $740.0 $0.0 $0.0 $0.0 $0.0 $1,052.8 $0.0 $1,700.0 $929.0 $0.0 $0.0 $75.0 $100.0 $40.9

$4.0 $3.4 $4.3 $3.3 $47.5 $111.6 $319.7 $210.8 $82.8 $83.0 $8.5i $2.0 $1.3 $1.3 $1.4 $80.2 $88.5 $154.9 $165.0 $137.8

$701.4 $697.4 $696.5 $680.8 $653.2 $625.4 $583.6 $590.7 $601.5 $1,625.3g $1,336.7j $579.9 $455.6 $532.1 $498.0 $507.1 $507.5 $478.4 $550.4 $459.5

$715.4 $2,359.8 $1,336.8 $871.0 $887.6 $928.9 $1,754.5e $918.8 $729.7f $1,786.5 $1,345.2 $1,634.7 $571.8k $2,233.4l $1,540.2m $786.2n $786.3o $918.0p $999.5q $914.6r

$1,253.0b $1,828.7c $1,123.0d $1,058.1 $921.2 $951.2 $1,375.0 $1,039.3 $1,002.9 $966.7 $980.8 $928.2 $1,053.6 $2,308.0 $907.7 $808.6 $893.6 $973.5 $947.6 $906.0

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; P.L. 106-113, the Consolidated Appropriations Act, 2000; P.L. 106-554, the Consolidated Appropriations Act, 2001; P.L. 107-206, the 2002 Supplemental Appropriations Act for Further Recovery From and Response to Terrorist Attacks on the United States; P.L. 108-7, the Consolidated Appropriations Resolution, 2003; P.L. 108-199, the Consolidated Appropriations Act, 2004; P.L. 108-447, the Consolidated Appropriations Act, 2005; P.L. 109-108, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; P.L. 110-5, the Revised Continuing Appropriations Resolution, 2007; P.L. 110-161, the Consolidated Appropriations Act, 2008; P.L. 110-252, the Supplemental Appropriations Act, 2008; P.L. 110329, the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009; P.L. 111-5, the American Recovery and Reinvestment Act of 2009; P.L. 111-118, the Department of Defense Appropriations

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Act, 2010; P.L. 111-144, the Temporary Extension Act of 2010; P.L. 111-157, the Continuing Extension Act of 2010; P.L. 111-240, the Small Business Jobs and Credit Act of 2010; P.L. 111-150, to permit the use of previously appropriated funds to extend the Small Business Loan Guarantee Program; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012; P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-2, the Disaster Relief Appropriations Act, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-56, the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017; P.L. 115-123, the Bipartisan Budget Act of 2018; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019; P.L. 116-93, the Consolidated Appropriations Act, 2020; P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020; P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); and P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act. a This figure takes into account the rescission of $16.369 million in unobligated balances from the business loans program account (see P.L. 116-93); $20 million in supplemental funding for disaster assistance (see P.L. 116123); $376.965 billion in supplemental funding to address COVID-19 ($349 billion for the Paycheck Protection Program (PPP), $10 billion for Emergency Economic Injury Disaster Loan (EIDL) grants, $675 million for salaries and expenses, $25 million for the Office of Inspector General (OIG), $265 million for entrepreneurial development programs, and $17 billion for borrower debt relief) (see P.L. 116-136); and an additional $383.435 billion to address COVID-19 ($321.335 billion for the PPP, $50 billion for disaster loans, $10 billion for Emergency EIDL grants, and $2.1 billion for salaries and expenses) (see P.L. 116-139). b This figure takes into account the rescission of $50 million in unobligated balances available for the 504/CDC loan guaranty program (see P.L. 116-6). c This figure takes into account the rescission of $2.6 million in unobligated balances available for the Immediate Disaster Assistance Program and the Expedited Disaster Assistance Loan Program (see P.L. 115- 141). d This figure takes into account the rescission of $55 million in unobligated balances available for the 504/CDC loan guaranty program (see P.L. 115-31). e Implementation of P.L. 112-25 and P.L. 113-6 imposed a federal government-wide sequestration process and a required 0.2% across-the-board rescission in FY2013. The SBA’s FY2013 appropriation was reduced by $92.681 million under sequestration and $2.091 million by the rescission. Prior to these reductions, the SBA’s FY2013 appropriation was $897.3 million for disaster assistance, $337.3 million for loan credit subsidies, $615.7 million for other programs, and $1,850.3 million in total. f The SBA’s FY2011 appropriation of $731.201 million ($45.5 million for SBA disaster assistance, $83 million for business loan subsidies, and $602.7 million for other SBA programs) was reduced to $729.738 million by a 0.2% across-the-board rescission imposed on most appropriations accounts by P.L. 112-10. g The initial appropriation for other programs in FY2010 was $662.8 million. An additional $962.5 million was provided: $775 million in temporary funding for 7(a) and 504/Certified Development Company (CDC) loan guaranty program fee subsidies and loan modifications and $187.5 million for other SBA programs. P.L. 111118 provided $125 million; P.L. 111-144 provided $60 million; P.L. 111-157 provided $80 million; and P.L. 111-240 provided $510 million to provide temporary fee subsidies for the SBA’s 7(a) and 504/CDC loan guaranty programs and to temporarily increase the 7(a) program’s maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all 7(a) loans. P.L. 111-240 extended the subsidies and 90% loan guaranty through December 31, 2010, and provided $187.5 million for other SBA programs that remained available through FY2011. Also, P.L. 111-150 authorized the SBA to use $40 million in previously appropriated funds for fee subsidies and the 7(a) loan modification. h SBA disaster assistance funding in FY2009 was carried over from the previous fiscal year. i The initial appropriation for business loan credit subsidies in FY2009 was $2.5 million for direct (Microloan) lending. P.L. 111-5 provided another $6 million for credit subsidies for the Microloan program to remain available through September 30, 2010. j The initial appropriation for other programs in FY2009 was $612.7 million. P.L. 111-5 provided $6 million for Microloan credit subsidies and $724 million for other SBA programs, including $375 million for loan fee

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subsidies and loan modifications for the 7(a) and 504/CDC programs and $255 million for a new, temporary small business stabilization program, later named the America’s Recovery Capital (ARC) Loan program. k Includes reductions by P.L. 109-108 and P.L. 110-5, which rescinded $13.5 million of unobligated balances from the SBA ($6.192 million from unobligated disaster assistance administrative expenses, $5.031 million from unobligated balances in the (7a) general business loan guaranty program, and $2.323 million from unobligated balances in the direct loans program). l Includes reductions by P.L. 109-148, which imposed a rescission of 1.0% on federal agencies, resulting in a $6.992 million reduction from the SBA ($0.017 million from business loan subsidies, $5.160 million from salaries and expenses, $1.6 from business loan administration, $0.178 million from the OIG, and $0.037 million from the surety bond program). m Includes reductions by P.L. 108-447, which imposed a 0.8% rescission on federal agencies, resulting in a $8.277 million reduction from the SBA ($1.395 million from disaster assistance, $0.019 million from business loan subsidies, $4.951 million from salaries and expenses, $1.692 from business loan administration, $0.181 million from the OIG, and $0.039 million from the surety bond program). n Includes reductions by P.L. 108-199, which imposed a rescission of 0.59% on federal agencies, resulting in a $8.042 million reduction from the SBA ($1.7 million from disaster assistance, $0.853 million from business loan subsidies, $4.001 million from salaries and expenses, $1.347 from business loan administration, and $0.141 million from the OIG). o Includes reductions by P.L. 108-7, which imposed a rescission of 0.65% on federal agencies, resulting in a $5.144 million reduction from the SBA ($1.244 million from disaster assistance, $0.579 million from business loan subsidies, $2.401 million from salaries and expenses, $0.839 from business loan administration, and $0.081 million from the OIG). p Includes reductions by P.L. 107-206, which imposed a rescission on federal agencies’ administrative and travel accounts, resulting in a $0.485 million reduction from the SBA ($0.164 million from disaster assistance, $0.315 million from salaries and expenses, and $0.006 million from the OIG). q Includes reductions by P.L. 106-554, which imposed a rescission of 0.22% on federal agencies, resulting in a $1.983 million reduction from the SBA ($0.406 million from disaster assistance, $0.364 million from business loan subsidies, $0.903 million from salaries and expenses, $0.284 million from business loan administration, and $0.026 million from the OIG). r Includes reductions by P.L. 106-113, which imposed a rescission of 0.38% on federal agencies, resulting in a $3.280 million reduction from the SBA ($3.185 million from salaries and expenses and $0.095 million from the OIG).

Appropriations for the other programs category have also varied since FY2000, ranging from $455.6 million in FY2007 to $691.1 billion in FY2020. Much of this variation resulted from significant, temporary increases in appropriations for the SBA’s other programs category in FY2009 ($724 million), FY2010 ($962.5 million), and FY2020 ($690.4 billion). These additional appropriations were provided to enhance small businesses’ access to capital, which had become constrained during and immediately following the Great Recession and, more recently, to assist small businesses adversely affected by COVID-19.6 As mentioned, from 6

For further information and analysis concerning congressional action in recent Congresses to address small business access to capital, see CRS Report R40985, Small Business: Access to Capital and Job Creation, by Robert Jay Dilger; and CRS Report R46284, COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry.

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FY2000 to FY2020, appropriations for the SBA’s other programs spending category, as a whole, excluding supplemental funding, have exceeded the rate of inflation. The Trump Administration’s FY2021 budget request for the SBA is also provided in Table 1. For comparative purposes, Table 1 also presents the SBA’s total available funds. As indicated, the SBA’s carryovers and account transfers tend to reduce variation in its budget from one fiscal year to the next. Much of this “evening out” process is due to disaster assistance appropriations, which are provided in one fiscal year and typically spent over several fiscal years.

SBA FUNDING WITHIN THE OTHER PROGRAMS CATEGORY The following section examines appropriations and total available funding for FY2000-FY2020 for the five main components of the SBA’s other programs spending category: (1) salaries and expenses, (2) business loan administration, (3) the OIG, (4) the Office of Advocacy (Advocacy), and (5) entrepreneurial development (ED) noncredit programs.

Salaries and Expenses The SBA’s salaries and expenses account currently provides funding for the following: 



office operating budgets, which are used by program and administrative offices for daily operations, such as travel, supplies, and contracted services; agency-wide costs, such as rent and telecommunications, which are managed centrally;

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77

employee compensation and benefits, which are also managed centrally; and reimbursable expenses for programs for which the SBA receives reimbursable budget authority from other federal government agencies.

Several adjustments were made to the SBA’s reported appropriations for its salaries and expenses account to enable meaningful comparisons over time. For example, prior to FY2014, appropriations for the SBA’s ED programs were included in the salaries and expenses account. They now have their own, separate appropriations account. Therefore, to allow for meaningful comparisons with current appropriations, Table 2 lists and deducts the reported appropriations for ED programs prior to FY2014 from the reported appropriations for salaries and expenses. In addition, the SBA previously included appropriations for congressional initiatives (earmarks) under the salaries and expenses account. Therefore, to allow for meaningful comparisons with current appropriations and focus the comparison on administrative expenses, appropriations for earmarks are deducted from the reported appropriations for salaries and expenses. Prior to FY2012, Advocacy was funded through the salaries and expenses’ executive direction subaccount. Advocacy now has its own, separate appropriations account. To allow for meaningful comparisons with current appropriations, Table 2 lists Advocacy’s funding provided through the salaries and expenses’ executive direction subaccount prior to FY2012 and deducts that amount from the reported appropriations for salaries and expenses. As discussed in greater detail below (see “Office of Advocacy”), data concerning Advocacy’s funding provided through the salaries and expenses’ executive direction subaccount are not available for FY2006FY2010. However, in FY2003, FY2004, and FY2005, Advocacy’s funding provided through the salaries and expenses’ executive direction subaccount was 79% of its reported total cost. The estimates provided in the table for

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FY2006-FY2010 were derived by multiplying Advocacy’s total program cost reported for each of those fiscal years by 79%. The Trump Administration’s FY2021 budget request for the SBA’s salaries and expenses account is also provided in the table. As shown in Table 2, the SBA’s appropriations for salaries and expenses have varied from year to year, with increases in some years and decreases in others. Overall, appropriations for the SBA’s salaries and expenses have increased from $176.49 million in FY2000 to $270.157 million in FY2020 (excluding supplemental funding related to COVID19). This increase has exceeded the rate of inflation.7 The SBA has statutory authorization to transfer appropriations from the business loan administration account into the salaries and expenses account. As evidenced by the amounts listed in the total available funds column in Table 2, the SBA exercised that authority in every fiscal year from FY2000 to FY2019 (and is expected to do so in FY2020), transferring the entire appropriation for business loan administration into the salaries and expenses account in each of those fiscal years.

The SBA’s FY2020 appropriation of $270.157 million for salaries and expenses (excluding supplemental funding related to COVID-19) is $183.508 million in constant FY2000 dollars (adjusted for inflation), which is higher than the SBA’s FY2000 appropriation of $176.490 million for salaries and expenses. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020TAB/xls/BUDGET-2020-TAB-11-1.xlsx. The salaries and expenses account includes appropriations for congressional initiatives (earmarks). Congress no longer provides appropriations for congressional initiatives. If those appropriations are excluded, the increase in appropriations for the salaries and expenses account further exceeds the rate of inflation. Appropriations for congressional initiatives were $30 million in FY2000; $40 million in FY2001; $30 million in FY2002; $58.45 million in FY2003; $45.9 million in FY2004; $41 million in FY2005; $91 million in FY2006; $0.0 in FY2007 (the SBA was funded by a continuing resolution in FY2007, meaning no new congressional initiatives were specified in the language accompanying the appropriations act); $69.451 million in FY2008; $65.654 million in FY2009; and $59 million in FY2010 (available until September 30, 2011). The Department of Defense and Full-Year Continuing Appropriations Act, 2011, Section 1566, eliminated appropriations earmarked for congressional initiatives related to small business development and entrepreneurship in FY2011. The SBA spent $10.865 million on congressional initiatives in FY2011, presumably using appropriations made available in FY2010 until September 30, 2011. 7

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Table 2. Salaries and expenses, FY2000-FY2021 (appropriations and available funds; $ in millions) Fiscal Year

Initial Appropriation

Minus Office Other of Modifications Advocacyb

Final

Total Available Fundsc

$287.947

Minus Entrepreneurial Development Programsa ‒‒

2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

‒‒

‒‒

NA

NA

$270.157 $267.500 $268.500 $269.500 $268.000 $257.000 $250.000 $417.348e $417.348 $433.438 $492.438

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($172.348) ($172.348) ($185.350) ($185.350)

$2,775.000d ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($21.830)f ‒‒ ($0.867)g $31.500h

$3,045.157 $267.500 $268.500 $269.500 $268.000 $257.000 $250.000 $223.170 $245.000 $238.101 $331.227

$3,231.557 $449.100 $449.340 $451.330 $435.101 $427.126 $430.881 $380.642 $401.701 $427.162 $487.687

2009

$455.503

($162.288)

$45.000i

$329.794

$482.196

2008

$423.574

($140.946)

‒‒

$275.413

$426.116

2007

$327.592

($128.500)

‒‒

$191.304

$339.168

2006

$404.029

($128.500)

($5.160)j

$262.971

$412.705

2005 2004 2003 2002 2001 2000

$362.335 $371.650 $369.457 $338.476 $410.635 $322.800

($134.463) ($139.650) ($136.475) ($145.894) ($200.994) ($167.505)

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($9.120) ($7.361 est.) ($8.421 est.) ($7.215 est.) ($7.788 est.) ($7.398 est.) ($7.481) ($7.394) ($6.857) ($5.019) ($5.443) ($5.620)

($4.951)k ($4.001)l ($2.401)m ($0.315)n ($0.903)o ($3.185)p

$215.440 $220.605 $223.724 $187.248 $203.295 $176.490

$361.321 $362.823 $379.544 $339.278 $321.743 $326.361

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report--congressional- budgetjustification-annual-performance-report; SBA, Performance and Accountability Report [FY2003-FY2005]; P.L. 106113, the Consolidated Appropriations Act, 2000; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 106-1005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; P.L. 108-7, the Consolidated Appropriations Resolution, 2003; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108-792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year

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Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D - Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D - Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; P.L. 111-5, the American Recovery and Reinvestment Act of 2009; P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 111-240, the Small Business Jobs Act of 2010; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012; P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-2, the Disaster Relief Appropriations Act, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019; P.L. 116-93, the Consolidated Appropriations Act, 2020; P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); and P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act. a From FY2000 to FY2005, Congress recommended appropriations for Advocacy’s research program in its discussion of the SBA’s entrepreneurial development (ED) programs. These recommended appropriations were deducted from the total for ED programs to avoid double counting. Advocacy’s funding totals include its research program. b Advocacy’s funding from the salaries and expenses’ executive direction subaccount for FY2006-FY2010 is not available. The figures reported here for FY2006-FY2010 were estimated by CRS using the three previous fiscal year allocations (each were 79% of Advocacy’s reported total program cost). c Appropriations prior to FY2014 for the SBA’s ED programs were deducted from total available funds for comparative purposes. Appropriations prior to FY2012 for Advocacy were deducted from total available funds for comparative purposes. Reported total available funds already accounted for rescissions. d In FY2020, P.L. 116-136 appropriated $675 million and P.L. 116-139 appropriated $2.1 billion for salaries and expenses for expenses related to COVID-19. e P.L. 113-2 appropriated $20 million for salaries and expenses to provide technical assistance related to disaster recovery. The $20 million is not included in the table for comparative purposes. f In FY2013, P.L. 112-25 and P.L. 113-6 imposed a federal government-wide sequestration process and a 0.2% across-theboard rescission, resulting in a $21.830 million reduction for salaries and expenses. g In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.867 million reduction for salaries and expenses. h In FY2010, P.L. 111-240 appropriated $155 million for salaries and expenses ($123.5 million of that amount was for ED programs and is not included in the table for comparative purposes). i In FY2009, P.L. 111-5 appropriated $69 million for salaries and expenses ($24 million of that amount was for the Microloan Technical Assistance program and is not included in the table for comparative purposes). j In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $5.16 million reduction from salaries and expenses. k In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $4.951 million reduction from salaries and expenses. l In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $4.001 million reduction from salaries and expenses. m In FY2003, P.L. 108-7 imposed a 0.65% rescission on federal agencies, resulting in a $2.401 million reduction from salaries and expenses. n In FY2002, P.L. 107-206 imposed a rescission on federal agency administrative and travel accounts, resulting in a $0.315 million reduction from salaries and expenses. o In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies in FY2001, resulting in a $0.903 million reduction from salaries and expenses. p In FY2000, P.L. 106-113 imposed a 0.38% rescission on federal agencies in FY2000, resulting in a $3.185 million reduction from salaries and expenses.

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Business Loan Administration Appropriations for the SBA’s business loan administration account have varied since FY2000, increasing in some years and decreasing in others (see Table 3).8 Overall, appropriations for SBA business loan administration increased from $129 million in FY2000 to $155.15 million in FY2020. The program’s recommended appropriations have not kept pace with inflation.9 The Trump Administration’s FY2021 budget request for the SBA’s business loan administration account is also provided in the table. As evidenced by the $0.0 balance in the total funds available column for the business loan administration account, the SBA has routinely transferred all business loan administration appropriations to the salaries and expenses account. The combined appropriations for SBA salaries and expenses and business loan administration increased from $305.49 million in FY2000 to $425.307 million in FY2020. This increase has not kept pace with inflation.10

The SBA’s business loan administration account provides funding for administrative expenses to carry out the SBA’s direct (Microloan) and guarantied business loan programs (e.g., the 7(a) and 504/Certified Development Company programs). 9 The SBA’s FY2020 appropriation of $155.15 million for business loan administration is $107.532 million in constant FY2000 dollars (adjusted for inflation), which is lower than the SBA’s FY2000 appropriation of $129 million for business loan administration. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020-TAB/xls/BUDGET-2020-TAB-111.xlsx. 10 The SBA’s FY2020 combined appropriations of $425.307 million for salaries and expenses and business loan administration is $288.896 million in constant FY2000 dollars (adjusted for inflation), which is lower than the SBA’s FY2000 combined appropriations for these accounts of $305.490 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020TAB/xls/BUDGET-2020-TAB-11-1.xlsx. 8

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Robert Jay Dilger Table 3. Business loan administration, FY2000-FY2021 (appropriations and available funds; $ in millions)

Fiscal Year

Initial Appropriation

Modifications

Final Appropriation

Total Available Funds 2021 request $160.300 ‒‒ NA $0.0 2020 $155.150 ‒‒ $155.150 $0.0 2019 $155.150 ‒‒ $155.150 $0.0 2018 $152.782 ‒‒ $152.782 $0.0 2017 $152.726 ‒‒ $152.726 $0.0 2016 $152.726 ‒‒ $152.726 $0.0 2015 $147.726 ‒‒ $147.726 $0.0 2014 $151.560 ‒‒ $151.560 $0.0 2013 $147.958 ($7.739)a $140.219 $0.0 2012 $147.958 ‒‒ $147.958 $0.0 2011 $153.000 ($0.306)b $152.694 $0.0 2010 $153.000 $6.500c $159.500 $0.0 2009 $138.480 ‒‒ $138.480 $0.0 2008 $135.414 ‒‒ $135.414 $0.0 2007 $124.862 ‒‒ $124.862 $0.0 2006 $125.307 ($1.600)d $123.707 $0.0 2005 $126.653 ($1.692)e $124.961 $0.0 2004 $128.000 ($1.347)f $126.653 $0.0 2003 $129.000 ($0.839)g $128.161 $0.0 2002 $129.000 ‒‒ $129.000 $0.0 2001 $129.000 ($0.284)h $128.716 $0.0 2000 $129.000 ‒‒ $129.000 $0.0 Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; P.L. 106-554, the Consolidated Appropriations Act, 2001; H.Rept. 106-1005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; P.L. 108-199, the Consolidated Appropriations Act, 2004; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; P.L. 108-447, the Consolidated Appropriations Act, 2005; H.Rept. 108-792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D - Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D - Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; P.L. 111-5, the

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American Recovery and Reinvestment Act of 2009; P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 111-240, the Small Business Jobs Act of 2010; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012; P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-2, the Disaster Relief Appropriations Act, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019: and P.L. 116-93, the Consolidated Appropriations Act, 2020. a In FY2013, P.L. 112-25, and P.L. 113-6 imposed a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $7.739 million reduction from business loan administration. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.306 million reduction from business loan administration. c In FY2010, P.L. 111-240 appropriated $6.5 million for business loan administration (for costs associated with the Small Business Intermediary Lending Pilot Program). d In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $1.6 million reduction from business loan administration. e In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $1.692 million reduction from business loan administration. f In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $1.347 million reduction from business loan administration. g In FY2003, P.L. 108-7 imposed a 0.65% rescission on federal agencies, resulting in a $0.839 million reduction from business loan administration. h In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies in FY2001, resulting in a $0.284 million reduction from business loan administration.

Office of Inspector General11 According to the SBA, the OIG’s mission is to “provide independent, objective oversight to improve the integrity, accountability, and performance of the SBA and its programs for the benefit of the American people.”12 The office was created within the SBA by the Inspector General Act of 1978 (P.L. 95-452, as amended). 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: For further information and analysis concerning the SBA’s Office of Inspector General (OIG), see CRS Report R44589, SBA’s Office of Inspector General: Overview, Impact, and Relationship with Congress, by Robert Jay Dilger. 12 SBA, OIG, “Strategic Plan Fiscal Years 2012-2017,” p. 3, at http://www.sba.gov/sites/ default/files/oig/SBA-OIG%202012-2017%20Strategic%20Plan%20.pdf (hereinafter SBA, OIG, “Strategic Plan Fiscal Years 2012-2017”). 11

84

Robert Jay Dilger     



  

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, waste, and abuse; review existing and proposed legislation and regulations and make appropriate recommendations; maintain effective working relationships with other governmental agencies and nongovernmental 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; comply with the comptroller general’s audit standards; avoid duplication of Government Accountability Office activities; and report violations of federal criminal law to the U.S. attorney general.13

As shown in Table 4, the OIG’s appropriations have increased from $11.405 million in FY2000 to $23.5 million in FY2020 (excluding supplemental funding related to COVID-19). This increase has exceeded the rate of inflation.14 The OIG typically receives a transfer of appropriations from the disaster assistance account for auditing expenses. It was also provided additional appropriations in FY2006, FY2013, and FY2018 for expenses related to the review of SBA disaster loans following major hurricanes

13 14

SBA, OIG, “Strategic Plan Fiscal Years 2012-2017,” p. 3. The OIG’s FY2020 appropriation of $23.5 million (excluding supplemental funding related to COVID-19) is $15.962 million in constant FY2000 dollars (adjusted for inflation), which is higher than its FY2000 appropriation of $11.405 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/ content/pkg/BUDGET-2020-TAB/xls/BUDGET-2020- TAB-11-1.xlsx.

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85

(e.g., Hurricanes Katrina, Rita, and Wilma in 2005, Hurricane Sandy in 2012, and Hurricanes Harvey, Irma, and Maria in 2018). In FY2009, the OIG was provided an additional $10 million to conduct reviews and audits of $730 million provided to the SBA by P.L. 111-5, the American Recovery and Reinvestment Act of 2009. In FY2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) provided the OIG $25 million in additional funding to conduct reviews and audits of the $1.331 billion provided to the SBA to assist small businesses adversely affected by COVID-19. Table 4. Office of inspector general (OIG), FY2000-FY2021 (appropriations and available funds; $ in millions) Fiscal Year

Initial Appropriation

2021 request 2020 2019 2018 2017 2016 2015 2014 2013

$22.011 $21.900 $21.900 $19.900 $19.900 $19.900 $19.400 $19.000 $16.267

Transfer from the Disaster Account $1.600 $1.600 $1.000 $0.000 $1.000 $1.000 $1.000 $1.000 $1.000

2012 2011 2010 2009 2008 2007 2006

$16.267 $16.300 $16.300 $16.750 $18.000 $13.835 $13.900

$1.000 $1.000 $1.000 $0.000 $1.000 $1.985 $1.500

2005 2004 2003 2002

$13.014 $13.000 $12.422 $11.464

$0.500 $0.500 $0.497 $0.500

Other Modifications

Final Appropriation

‒‒ $25.000a ‒‒ $7.000b ‒‒ ‒‒ ‒‒ ‒‒ $5.000 ($1.101)c ‒‒ ($0.033)d ‒‒ $10.000e ‒‒ ‒‒ $5.000 ($0.178)f ($0.181)g ($0.141)h ($0.081)i ($0.006)j

NA $48.500 $22.900 $26.900 $20.900 $20.900 $20.400 $20.000 $21.166

Total Available Funds NA $49.490 $22.706 $21.700 $20.839 $22.012 $19.895 $17.713 $16.524

$17.267 $17.267 $17.300 $26.750 $19.000 $15.820 $20.222

$17.874 $18.189 $18.579 $26.750 $17.374 $16.278 $14.953

$13.333 $13.359 $12.838 $11.958

$13.488 $13.359 $12.635 $12.428

86

Robert Jay Dilger Table 4. (Continued)

Fiscal Year

Initial Appropriation

2001 2000

$11.953 $11.000

Transfer from the Disaster Account $0.500 $0.500

Other Modifications

Final Appropriation

($0.026)k ($0.095)l

$12.427 $11.405

Total Available Funds $12.368 $11.338

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; P.L. 106-113, the Consolidated Appropriations Act, 2000; P.L. 106-554, the Consolidated Appropriations Act, 2001; P.L. 107-206, the 2002 Supplemental Appropriations Act for Further Recovery From and Response to Terrorist Attacks on the United States; P.L. 108-7, the Consolidated Appropriations Resolution, 2003; P.L. 108-199, the Consolidated Appropriations Act, 2004; P.L. 108-447, the Consolidated Appropriations Act, 2005; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; P.L. 110-5, the Revised Continuing Appropriations Resolution, 2007; P.L. 111-5, the American Recovery and Reinvestment Act of 2009; P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 11210, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-2, the Disaster Relief Appropriations Act, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113- 235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-123, the Bipartisan Budget Act of 2018; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019: 2020; P.L. 116-93, the Consolidated Appropriations Act, 2020; and P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). a In FY2020, P.L. 116-136 provided the OIG $25 million for oversight and audit of the CARES Act’s programs to assist small businesses adversely affected by COVID-19. b In FY2018, P.L. 115-123. the Bipartisan Budget Act of 2018, provided the OIG $7 million to remain available until expended for expenses related to several hurricanes. c In FY2013, P.L. 113-2 provided the OIG $5 million to remain available until expended for expenses related to Hurricane Sandy. In addition, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $1.101 million reduction from the OIG. d In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.033 million reduction from the OIG. e In FY2009, P.L. 111-5 provided the OIG $10 million for oversight and audit of ARRA programs, grants, and projects to remain available through September 30, 2013. f In FY2006, P.L. 109-148 provided the OIG $5 million “for necessary expenses related to the consequences of hurricanes in the Gulf of Mexico in calendar year 2005.” The act also imposed a 1.0% rescission on federal agencies, resulting in a $0.178 million reduction from the OIG. g In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.181 million reduction from the OIG. h In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.141 million reduction from the OIG. i In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.081 million reduction from the OIG. j In FY2002, P.L. 107-206 imposed a rescission on federal agency administrative and travel accounts, resulting in a $0.006 million reduction from the OIG. k In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.026 million reduction from the OIG. l In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.095 million reduction from the OIG.

Small Business Administration (SBA) Funding

87

The Trump Administration’s FY2021 budget request for the SBA’s OIG is also provided in Table 4.

Office of Advocacy15 The SBA indicates that its Office of Advocacy is “an independent voice for small business within the federal government” that is responsible for advancing the views and concerns of small businesses before Congress, the White House, federal agencies, the federal courts, and state and local policymakers.16 The chief counsel for Advocacy, who is nominated by the President from civilian life and confirmed by the Senate, directs the office. Advocacy’s mission is to “encourage policies that support the development and growth of American small businesses” by 







15

serving as a focal point for the receipt of complaints, criticisms, and suggestions concerning the policies and activities of the Administration and any other federal agency that affects small businesses; counsel small businesses on how to resolve questions and problems concerning the relationship of the small business to the federal government; developing proposals for changes in the policies and activities of any federal agency that will better fulfill the purposes of the Small Business Act and communicate such proposals to the appropriate federal agencies; intervening early in federal agencies’ regulatory development processes on proposals that affect small businesses and providing

For further information and analysis concerning the Office of Advocacy, see CRS Report R43625, SBA Office of Advocacy: Overview, History, and Current Issues, by Robert Jay Dilger. 16 SBA, “Office of Advocacy: About Us,” at https://www.sba.gov/about-sba.

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



Regulatory Flexibility Act compliance training to federal agency policymakers and regulatory development officials;17 producing research to inform policymakers and other stakeholders on the impact of federal regulatory burdens on small businesses, document the vital role of small businesses in the economy, and explore and explain the wide variety of issues of concern to the small business community; and fostering two-way communication between federal agencies and the small business community.18

As shown in Table 5, Advocacy’s funding has increased from $5.62 million in FY2000 to $9.12 million in FY2020. This increase has exceeded the rate of inflation.19 The Trump Administration’s FY2021 budget request for the SBA’s Office of Advocacy is also provided in the table. P.L. 111-240, the Small Business Jobs Act of 2010, enhanced Advocacy’s independence by ending the practice of funding Advocacy through the SBA’s salaries and expenses’ executive direction subaccount. Instead, P.L. 111-240 requires the President to provide a separate statement of the appropriations request for Advocacy, “which shall be designated in a separate account in the General Fund of the Treasury.” The act also requires the SBA administrator to provide Advocacy with “appropriate and adequate office space at central and field office locations, together with such equipment, operating budget, and communications facilities and services as may be necessary, and ... necessary maintenance services for such offices and the equipment and facilities located in such offices.”

17

P.L. 93-386, the Small Business Amendments of 1974. SBA, Office of Advocacy, FY2013 Congressional Budget Justification, p. 2, at http://www.sba.gov/about-sba-info/ 46741. 19 Advocacy’s FY2020 appropriation of $9.12 million is $6.194 million in constant FY2000 dollars (adjusted for inflation), which is higher than Advocacy’s FY2000 funding from the salaries and expenses’ executive direction subaccount of $5.620 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020- TAB/xls/BUDGET-2020-TAB-111.xlsx. 18

Small Business Administration (SBA) Funding

89

Table 5. Office of advocacy, FY2000-FY2021 (appropriations and available funds; $ in millions) Fiscal Year

Initial Appropriation

Modifications

2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

$9.190 $9.120 $9.120 $9.120 $9.220 $9.120 $9.120 $8.750 $9.120 $9.120 ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($0.477)a ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒

Final Appropriation NA $9.120 $9.120 $9.120 $9.220 $9.120 $9.120 $8.750 $8.643 $9.120 ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒

Total Available Funds NA $9.109 $10.698 $9.344 $8.113 $9.157 $9.120 $8.628 $8.644 $8.440 $9.120 $7.361 est.b $8.421 est.b $7.215 est.b $7.788 est.b $7.398 est.b $7.481 $7.394 $6.857 $5.019 $5.443 $5.620

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; SBA, Office of Advocacy, Congressional Budget Justification, Fiscal Year 2013, p. 3, at http://www.sba.gov/sites/default/files/files/3508%20Compliant%20FY%202013%20Office%20 of%20Advocacy%20CBJ(1).pdf; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012; P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019: and P.L. 116-93, the Consolidated Appropriations Act, 2020. a In FY3013, P.L. 112-25 and P.L. 113-6 imposed a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.477 million reduction for Advocacy. b Estimate of the funding provided from the salaries and expenses’ executive direction subaccount, assuming that 79% of Advocacy’s reported total program cost was provided from the salaries and expenses’ executive direction subaccount, as it was in FY2003, FY2004, and FY2005.

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In addition, Congress has provided Advocacy its own, separate appropriations amount since FY2012. As mentioned, prior to FY2012, the SBA reported Advocacy’s total program cost, which includes funding provided through the salaries and expenses’ executive direction subaccount, agency-wide overhead costs (rent, telecommunications, etc.), and other support costs (e.g., management and administrative support, including human resources support). From FY2000 to FY2005, the SBA provided relatively detailed information concerning Advocacy’s budget, including the amount of funding Advocacy received through the salaries and expenses’ executive direction subaccount. Also, Advocacy’s FY2013 congressional budget justification document included the amount of funding Advocacy received through the salaries and expenses’ executive direction subaccount in FY2011. However, those data are not available for FY2006-FY2010, and it was therefore necessary to estimate Advocacy’s funding from the salaries and expenses’ executive direction subaccount for those years. The estimates provided in the table were derived by multiplying Advocacy’s total program cost for each of those fiscal years by 79%, which was the proportion of Advocacy’s total program costs provided from the salaries and expenses’ executive direction subaccount in FY2003, FY2004, and FY2005.

Entrepreneurial Development Noncredit Programs 20 The SBA’s entrepreneurial development (ED) noncredit programs provide a variety of management and training services to small businesses. Congress provides appropriations for 

20

eight management and technical assistance training programs: Small Business Development Centers, the Microloan Technical

For further information and analysis concerning the SBA’s entrepreneurial development noncredit programs, see CRS Report R41352, Small Business Management and Technical Assistance Training Programs, by Robert Jay Dilger.

Small Business Administration (SBA) Funding

 



91

Assistance Program, Women Business Centers, SCORE, the Program for Investment in Microentrepreneurs (PRIME), Veterans Programs (including Veterans Business Outreach Centers, Boots to Business, Boots to Business: Reboot, Veteran Women Igniting the Spirit of Entrepreneurship [VWISE], and Entrepreneurship Bootcamp for Veterans with Disabilities), the 7(j) Technical Assistance Program, and the Native American Outreach Program; two relatively long-standing nontraining programs: the National Women’s Business Council and HUBZone administration; three initiatives: the Entrepreneurial Development Initiative (Clusters), the Entrepreneurship Education Initiative, and Growth Accelerators; and the Step Trade and Export Promotion (STEP) Pilot Grant program.21

Initially, the SBA provided its own management and technical assistance training programs. Over time, however, the SBA has increasingly relied on third parties to provide that training. The SBA reports that more than 1 million aspiring entrepreneurs and small business owners receive training from an SBA-supported resource partner each year.22 Congress specifies appropriations in appropriations acts for the Small Business Development Center (SBDC) program, the Microloan Technical Assistance program, and the STEP program. Congress provides an overall appropriation for the SBA’s ED programs and recommends appropriations 21

P.L. 111-240, the Small Business Jobs Act of 2010, authorized the Step Trade and Export Promotion (STEP) Pilot Grant program for three years and appropriated $30 million for the program both in FY2011 and FY2012. The SBA awarded STEP grants to states with the goal of assisting eligible small businesses with exporting in FY2011 and FY2012. The STEP program’s authorization expired at the end of FY2013. STEP was subsequently appropriated $8 million FY2014, $17.4 million in FY2015, $18 million in FY2016-FY2019, and $19 million in FY2020. For additional information and analysis, see CRS Report R43155, Small Business Administration Trade and Export Promotion Programs, by Sean Lowry. 22 SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 82, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report.

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Robert Jay Dilger

for the SBA’s other ED programs, typically in the conference agreement or “Explanatory Statement” accompanying the appropriations act. As a result, the following tables refer to appropriations for the SBDC and Microloan Technical Assistance programs and recommended appropriations for other ED programs. Although not legally binding, the SBA has traditionally adhered to these recommended funding amounts. The Trump Administration’s FY2021 budget request for each of these programs is also provided in Table 6.

Small Business Development Centers 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. They are funded by grants from the SBA and matching funds. There are 63 lead SBDC service centers, at least one in each state (with 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. As shown in Table 6, appropriations for SBDCs have increased from $84.179 million in FY2000 to $135 million in FY2020 (excluding supplemental funding related to COVID-19). This increase has exceeded the rate of inflation.23

23

The Small Business Development Center (SBDC) program’s FY2020 appropriation of $135 million (excluding supplemental funding related to COVID-19) is $91.7 million in constant FY2000 dollars (adjusted for inflation), which is higher than its FY2000 appropriation of $84.179 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940– 2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020-TAB/xls/BUDGET-2020TAB-11-1.xlsx.

Small Business Administration (SBA) Funding

93

In addition, as shown in the table, SBDCs received an additional $50 million in FY2010, which was spent over two fiscal years, and an additional $192 million in FY2020.24 The SBA reports actual and anticipated expenditures for its ED programs in its annual budget justification document. SBDC expenditures in FY2000-FY2019 and anticipated SBDC expenditures in FY2020 are presented in the table’s last column for comparative purposes. Table 6. Small business development centers (SBDCs), FY2000-FY2021 (appropriations and expenditures; $ in millions) Fiscal Year

24

2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Initial Appropriation $87.860 $135.000 $131.000 $130.000 $125.000 $117.000 $115.000 $113.625 $112.500 $112.500 $113.000

2010 2009 2008 2007 2006 2005 2004 2003

$113.000 $110.000 $97.120 $89.000 $89.000 $89.000 $89.000 $89.000

Modifications ‒‒ $192.000a ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($9.060)b ‒‒ ($0.226) $33.800c $16.200d ‒‒ ‒‒ ‒‒ ($0.890)e ($0.712)f ($0.525)g ($0.578)h

Final Appropriation NA $327.000 $131.000 $130.000 $125.000 $117.000 $115.000 $113.625 $103.440 $112.500 $146.574

Expenditures

$129.200 $110.000 $97.120 $89.000 $88.110 $88.288 $88.475 $88.422

$128.824 $116.068 $97.321 $88.973 $88.424 $88.576 $89.161 $85.791

NA $327.000 $131.069 $131.394 $126.532 $121.200 $114.895 $110.510 $104.854 $114.558 $153.716

In recent years, SBDCs and their advocates have indicated an interest in receiving additional funding to implement several of the Obama Administration’s management and training initiatives in lieu of (or in combination with) those initiatives receiving their own, separate appropriations.

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Robert Jay Dilger Table 6. (Continued)

Fiscal Year 2002 2001 2000

Initial Appropriation $88.000 $88.000 $84.500

Modifications ‒‒ ($0.194)i ($0.321)j

Final Appropriation $88.000 $87.806 $84.179

Expenditures $90.100 $85.993 $84.074

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019: P.L. 116-93, the Consolidated Appropriations Act, 2020; and P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). a In FY2020, P.L. 116-136 provided the SBDC program $192 million. The act also provided $25 million for SBA resource partners, including SBDCs, to provide online information and training to assist small businesses adversely affected by COVID-19. b In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $9.060 million reduction from SBDCs. c In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.226 million reduction from SBDCs. d In FY2010, P.L. 111-240 provided the SBDC program $50 million to remain available until September 30, 2012. The SBA provided $16.2 million of this amount to the SBDC program in FY2010 and the remaining $33.8 million in FY2011. e In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.890 million reduction from SBDCs. f In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.712 million reduction from SBDCs. g In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.525 million reduction from SBDCs. h In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.578 million reduction from SBDCs. i In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.194 million reduction from SBDCs. j In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies, resulting in a $0.321 million reduction from SBDCs.

Small Business Administration (SBA) Funding

95

Microloan Technical Assistance Program The SBA’s Microloan lending program is designed to address the perceived disadvantages faced by women, low-income, veteran, and minority entrepreneurs and business owners in gaining access to capital for starting or expanding their business (see P.L. 102-140, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1992). Under the Microloan program, the SBA provides direct loans to qualified nonprofit intermediary Microloan lenders who, in turn, provide “microloans” of up to $50,000 to small business owners, entrepreneurs, and nonprofit child care centers. Table 7. Microloan technical assistance program, FY2000-FY2021 (appropriations and expenditures; $ in millions) Fiscal Year 2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Initial Appropriation $25.000 $34.500 $31.000 $31.000 $31.000 $25.000 $22.300 $20.000 $20.000 $20.000 $22.000 $22.000 $20.000 $15.000 $13.000 $13.000 $14.000 $15.000 $15.000

Modifications

Final Appropriation

Expenditures

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($0.191)a ‒‒ ($0.044)b $24.000c ‒‒ ‒‒ ‒‒ ($0.130)d ($0.112)e ($0.089)f ($0.098)g

NA $34.500 $31.000 $31.000 $31.000 $25.000 $22.300 $20.000 $19.809 $20.000 $21.956 $46.000 $20.000 $15.000 $13.000 $12.870 $13.888 $14.911 $14.902

NA $34.500 $34.019 $31.567 $23.535 $24.340 $22.247 $19.267 $19.985 $19.446 $24.603 $43.220 $19.813 $14.816 $12.800 $12.792 $13.813 $14.655 $14.899

96

Robert Jay Dilger Table 7. (Continued)

Fiscal Year 2002 2001 2000

Initial Appropriation $17.500 $20.000 $23.200

Modifications

Final Appropriation

Expenditures

‒‒ ($0.044)h ($0.088)i

$17.500 $19.956 $23.112

$17.742 $18.385 $19.243

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional-budget-justification-annual-performance-report; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; P.L. 111-5, the American Recovery and Reinvestment Act of 2009; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113- 6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019: and P.L. 116-93, the Consolidated Appropriations Act, 2020. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.191 million reduction from the Microloan Technical Assistance program. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.044 million reduction from the Microloan Technical Assistance program. c In FY2009, P.L. 111-5 provided the Microloan Technical Assistance Program an additional $24 million to remain available until September 30, 2010. The funds were awarded in FY2010. d In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.130 million reduction from the Microloan Technical Assistance program. e In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.112 million reduction from the Microloan Technical Assistance program. f In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.089 million reduction from the Microloan Technical Assistance program. g In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.098 million reduction from the Microloan Technical Assistance program. h In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.044 million reduction from the Microloan Technical Assistance program. i In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.088 million reduction from the Microloan Technical Assistance program.

The SBA’s Microloan Technical Assistance program is part of the SBA’s Microloan program but receives a separate appropriation. It provides grants to Microloan intermediaries to offer management and technical training assistance to Microloan program borrowers and prospective borrowers.25 There are currently 147 active Microloan

25

For further analysis of the SBA’s Microloan program, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger.

Small Business Administration (SBA) Funding

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intermediaries, serving 49 states, the District of Columbia, and Puerto Rico.26 As shown in Table 7, the Microloan Technical Assistance program’s appropriations have varied over the years. Overall, Microloan Technical Assistance Program appropriations have increased from $23.112 million in FY2000 to $34.5 million in FY2020. This increase has exceeded the rate of inflation.27 Microloan Technical Assistance expenditures in FY2000-FY2019 and anticipated Microloan Technical Assistance expenditures in FY2020 are presented in the table’s last column for comparative purposes.

Women Business Centers The Women’s Business Center (WBC) Renewable Grant Program Was Initially Established by P.L. 100-533, the Women’s Business Ownership Act of 1988, as the Women’s Business Demonstration Pilot Program. The act directed the SBA to provide financial assistance to private, nonprofit organizations to conduct demonstration projects providing financial, management, and marketing assistance to small businesses, including start-up businesses, owned and controlled by women. Since its inception, the program has targeted the needs of socially and economically disadvantaged women.28

26

SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 38, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. For a list of all Microloan intermediaries, regardless of lending volume, see SBA, Microloan Program: Partner Identification & Management System Participating Intermediary Microlenders Report, June 21, 2017, at https://www.sba.gov/sites/ default/files/articles/microlenderrpt5_20170621.pdf. 27 The Microloan Technical Assistance program’s FY2020 appropriation of $34.5 million is $23.435 million in constant FY2000 dollars (adjusted for inflation), which is less than its FY2000 appropriation of $23.112 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020TAB/xls/BUDGET-2020-TAB-11- 1.xlsx. 28 U.S. Congress, House Committee on Small Business, Review of Women’s Business Center Program, 106th Cong., February 11, 1999, Serial No. 106-2 (Washington: GPO, 1999), p. 4.

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Robert Jay Dilger Table 8. Women business centers (WBCs), FY2000-FY2021 (recommended appropriations and expenditures; $ in millions)

Fiscal Year 2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Initial Recommended Appropriation $17.400 $22.500 $18.500 $18.000 $18.000 $17.000 $15.000 $14.000 $14.000 $14.000 $14.000 $14.000 $13.750 $13.000 $12.500 $12.500 $12.500 $12.500 $12.500 $12.000 $12.000 $9.000

Modifications ‒‒ $48.000a ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($1.112)b ‒‒ ($0.028)c ‒‒ ‒‒ ‒‒ ‒‒ ($0.125)d ($0.100)e ($0.074)f ($0.081)g ‒‒ ($0.026)h ($0.034)i

Final Recommended Appropriation NA $70.500 $18.500 $18.000 $18.000 $17.000 $15.000 $14.000 $12.888 $14.000 $13.972 $14.000 $13.750 $13.000 $12.500 $12.375 $12.400 $12.426 $12.419 $12.000 $11.974 $8.966

Expenditures NA $22.500 $16.696 $17.302 $15.849 $17.335 $14.500 $13.982 $12.887 $13.721 $13.866 $13.997 $13.750 $12.981 $12.340 $12.197 $12.205 $12.245 $12.298 $12.000 $11.989 $8.926

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 1061005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D - Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996;

Small Business Administration (SBA) Funding

99

H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38; and P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). a In FY2020, P.L. 116-136 provided WBCs $48 million. The act also provided $25 million for SBA resource partners, including WBCs, to provide online information and training to assist small businesses adversely affected by COVID-19. b In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $1.112 million reduction from WBCs. c In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.028 million reduction from WBCs. d In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.125 million reduction from WBCs. e In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.100 million reduction from WBCs. f In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.074 million reduction from WBCs. g In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.081 million reduction from WBCs. h In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.026 million reduction from WBCs. i In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.034 million reduction from WBCs.

The WBC program was expanded and provided permanent legislative status by P.L. 109-108, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006.

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Currently, there are 115 WBCs located throughout most of the United States and the territories.29 As shown in Table 8, WBC’s recommended appropriations have increased from $8.966 million in FY2000 to $22.5 million in FY2020 (excluding supplemental funding related to COVID-19). This increase has exceeded the rate of inflation.30 WBC expenditures in FY2000-FY2019 and anticipated WBC expenditures in FY2020 are presented in the table’s last column for comparative purposes.

SCORE The SBA provides financial assistance to SCORE (formerly the Service Corps of Retired Executives) to provide in-person mentoring and online training to small business owners and prospective owners.31 SCORE’s 320 chapters and more than 800 branch offices are located throughout the United States and partner with more than 11,000 volunteer counselors, who are working or retired business owners, executives and corporate leaders, to provide management and training assistance to small businesses “at no charge or at very low cost.”32

29

30

31

32

SBA, “Women’s Business Centers Directory,” at https://www.sba.gov/local-assistance/ find/?type= Women%27s%20Business%20Center&pageNumber=1. The WBC program’s FY2020 recommended appropriation of $22.5 million (excluding supplemental funding related to COVID-19) is $15.283 million in constant FY2000 dollars (adjusted for inflation), which is higher than its FY2000 recommended appropriation of $8.966 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940– 2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020-TAB/xls/BUDGET-2020TAB-11-1.xlsx. U.S. Congress, Senate Select Committee on Small Business and House Select Committee on Small Business, 1966 Federal Handbook for Small Business: A Survey of Small Business Programs in the Federal Government Agencies, committee print, 89th Cong., 3rd sess., January 31, 1966 (Washington: GPO, 1966), p. 5; U.S. Congress, House Committee on Small Business, Subcommittee on Rural Development, Entrepreneurship, and Trade, Subcommittee Hearing on Legislative Initiatives to Modernize SBA’s Entrepreneurial Development Programs, 111th Cong., 1st sess., April 2, 2009 (Washington: GPO, 2009), p. 6; and SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, p. 45, at http://www.sba.gov/sites/default/files/files/FY%202013%20CBJ %20FY%202011%20APR.pdf. SCORE (Service Corps of Retired Executives), “About SCORE,” Washington, DC, at https://www.score.org/about- score.

Small Business Administration (SBA) Funding

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Table 9. SCORE, FY2000-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year 2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Initial Recommended Appropriation $8.000 $11.700 $11.700 $11.500 $10.500 $10.500 $8.000 $7.000 $7.000 $7.000 $7.000 $7.000 $5.000 $4.950 $5.000 $5.000 $5.000 $5.000 $5.000 $5.000 $3.750 $3.500

Modifications ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($0.556)a ‒‒ ($0.014)b ‒‒ ‒‒ ‒‒ ‒‒ ($0.050)c ($0.040)d ($0.030)e ($0.033)f ‒‒ ($0.008)g ($0.013)h

Final Recommended Appropriation NA $11.700 $11.700 $11.500 $10.500 $10.500 $8.000 $7.000 $6.444 $7.000 $6.986 $7.000 $5.000 $4.950 $5.000 $4.950 $4.960 $4.970 $4.967 $5.000 $3.742 $3.487

Expenditures NA $11.700 $11.700 $11.500 $10.500 $10.500 $8.000 $7.000 $6.440 $7.000 $6.986 $7.000 $5.000 $4.950 $4.936 $4.936 $4.933 $4.958 $4.977 $5.010 $3.750 $3.471

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 1061005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D - Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996;

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H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.556 million reduction from SCORE. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.014 million reduction from SCORE. c In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.050 million reduction from SCORE. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.040 million reduction from SCORE. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.030 million reduction from SCORE. f In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.033 million reduction from SCORE. g In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.008 million reduction from SCORE. h In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.013 million reduction from SCORE.

As shown in Table 9, SCORE’s recommended appropriations have increased from $3.487 million in FY2000 to $11.700 in FY2020. This increase has exceeded the rate of inflation.33 SCORE expenditures in

33

SCORE’s FY2020 recommended appropriation of $11.7 million is $7.947 million in constant FY2000 dollars (adjusted for inflation), which is higher than its FY2000 recommended appropriation of $3.487 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020TAB/xls/BUDGET-2020-TAB-11- 1.xlsx.

Small Business Administration (SBA) Funding

103

FY2000-FY2019 and anticipated SCORE expenditures in FY2020 are presented in the table’s last column for comparative purposes.

Program for Investment in Microentrepreneurs The Program for Investment in Microentrepreneurs (PRIME) provides grants to nonprofit microenterprise development organizations or programs that have “a demonstrated record of delivering microenterprise services to disadvantaged entrepreneurs; an intermediary; a microenterprise development organization or program that is accountable to a local community, working in conjunction with a state or local government or Indian tribe; or an Indian tribe acting on its own, if the Indian tribe can certify that no private organization or program referred to in this paragraph exists within its jurisdiction.”34 As shown in Table 10, PRIME’s recommended appropriations have varied, starting at $14.964 million in FY2001 (the program’s first recommended appropriation) and falling to $2 million in FY2006 and FY2007. PRIME received a recommended appropriation of $5.5 million in FY2020. PRIME expenditures in FY2001-FY2019 and anticipated PRIME expenditures in FY2020 are presented in the table’s last column for comparative purposes. The Obama Administration argued that PRIME overlaps and duplicates the SBA’s Microloan Technical Assistance program and recommended in its FY2012-FY2017 budget requests that PRIME receive no appropriations. As shown in the table, in FY2013, the Obama Administration eliminated PRIME’s appropriation as part of the SBA’s sequestration process.

34

P.L. 106-102, the Gramm-Leach-Bliley Act, Section 173. Establishment of Program and Section 175. Qualified Organizations.

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Table 10. Program for investment in microentrepreneurs (PRIME), FY2001-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year 2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

Initial Recommended Appropriation $0.000 $5.500 $5.000 $5.000 $5.000 $5.000 $5.000 $3.500 $3.500 $3.500 $8.000 $8.000 $5.000 $3.000 $2.000 $2.000 $5.000 $5.000 $5.000 $5.000 $15.000

Modifications ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($3.500)a ‒‒ ($0.016)b ‒‒ ‒‒ ‒‒ ‒‒ ($0.020)c ($0.040)d ($0.030)e ($0.033)f ‒‒ ($0.033)g

Final Recommended Appropriation NA $5.500 $5.000 $5.000 $5.000 $5.000 $5.000 $3.500 $0.000 $3.500 $7.984 $8.000 $5.000 $3.000 $2.000 $1.980 $4.960 $4.970 $4.964 $5.000 $14.964

Expenditures NA $5.500 $4.878 $5.296 $4.700 $5.000 $5.000 $3.500 $0.000 $3.343 $7.983 $8.000 $5.000 $2.715 $1.835 $1.920 $4.903 $4.947 $4.537 $4.500 $15.000

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 1061005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D - Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996;

Small Business Administration (SBA) Funding

105

H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $3.5 million reduction from PRIME. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.016 million reduction from PRIME. cI n FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.020 million reduction from PRIME. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.040 million reduction from PRIME. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.030 million reduction from PRIME. f In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.033 million reduction from PRIME. g In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.033 million reduction from PRIME.

The Trump Administration recommended in its FY2018, FY2019, FY2020, and FY2021 budget requests that the PRIME program receive no appropriations for the same reasons that the Obama Administration had presented.35 35

SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_CBJ_ May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, 39, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report; and SBA, FY2021 Congressional Budget Justification and FY2019

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Veterans Programs The SBA’s Office of Veterans Business Development (OVBD) administers several management and training programs to assist veteranowned businesses, including 





36

37

the Entrepreneurship Bootcamp for Veterans with Disabilities Consortium of Universities, which provides “experiential training in entrepreneurship and small business management to post-9/11 veterans with disabilities” at eight universities;36 the Veteran Women Igniting the Spirit of Entrepreneurship (VWISE) program, which is administered through a cooperative agreement with Syracuse University, offers women veterans a 15day, online course focused on entrepreneurship skills and the “language of business,” followed by a 3-day conference (offered twice a year at varying locations) in which participants “are exposed to successful entrepreneurs and CEOs of Fortune 500 companies and leaders in government” and participate in courses on business planning, marketing, accounting and finance, operations and production, human resources, and work-life balance;37 the Operation Endure and Grow Program, which is administered through a cooperative agreement with Syracuse University, offers an eight-week online training program “focused on the fundamentals of launching and/or growing a small business” and is

Annual Performance Report, pp. 11, 37, at https://www.sba.gov/document/report-congressional-budget- justification-annual-performance-report. Syracuse University, “About the EBV,” Syracuse, NY, at http://whitman.syr.edu/ebv/about/; and SBA, “SBA Expands Entrepreneurship Boot Camp for Vets: Announces Two New Programs for Women Vets, Guard, Reservists and Families,” November 10, 2010, at https://www.sba.gov/sites/default/files/news_release_10-63.pdf. Syracuse University, “Women Veterans Igniting the Spirit of Entrepreneurship (V-WISE),” Syracuse, NY, at http://whitman.syr.edu/vwise/about.aspx; and SBA, “SBA Expands Entrepreneurship Boot Camp for Vets: Announces Two New Programs for Women Vets, Guard, Reservists and Families,” November 10, 2010, at https://www.sba.gov/ sites/default/files/news_release_10-63.pdf.

Small Business Administration (SBA) Funding



 

38

39

40

107

available to National Guard and reservists and their family members;38 the Boots to Business program (started in 2012), which is “an elective track within the Department of Defense’s revised Training Assistance Program called Transition Goals, Plans, Success (Transition GPS) and has three parts: the Entrepreneurship Track Overview—a 10-minute introductory video shown during the mandatory five-day Transition GPS course which introduces entrepreneurship as a post-service career option; Introduction to Entrepreneurship—a two-day classroom course on entrepreneurship and business fundamentals offered as one of the three Transition GPS elective tracks; and Foundations of Entrepreneurship—an eight-week, instructor-led online course that offers in-depth instruction on the elements of a business plan and tips and techniques for starting a business”;39 the Boots to Business Reboot program (started in 2014), which assists veterans who have already transitioned to civilian life; and the Veterans Business Outreach Centers (VBOC) program, which provides veterans and their spouses management and technical assistance training at 22 locations, including assistance with the Boots to Business program, the development and maintenance of a five-year business plan, and referrals to other SBA resource partners when appropriate for additional training or mentoring services.40

Syracuse University, “About Operation Endure and Grow,” Syracuse, NY, at http://vets.syr.edu/education/endure- grow/. SBA, “Operation Boots to Business: From Service to Startup,” at https://www.sba.gov/offices/headquarters/ovbd/ resources/160511; and SBA, “Operation Boots to Business: Fact Sheet,” at https://www.sba.gov/sites/default/files/files/ B2B_Fact%20Sheet.pdf. SBA, “Veterans Business Outreach Centers,” at https://www.sba.gov/localassistance/find/?type=Veterans%20Business%20Outreach%20Center&pageNumber=1. VBOC grants, starting at $180,000, “are made for up to a three-year period of performance, consisting of a base period of 12 months from the date of award and up to two renewal option periods of 12 months each. Exercise of the option periods will be solely at SBA’s discretion and is subject to continuing program authority, the availability of funds, and the recipient’s continued satisfactory performance and compliance.” Also, “funding per VBOC will vary based on proposed Boots to Business (B2B) program delivery and associated

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Robert Jay Dilger Table 11. Veterans outreach programs, FY2015-FY2021 (recommended appropriations and expenditures; $ in millions)

Fiscal Year

Initial Modifications Final Expenditures Recommended Recommended Appropriation Appropriation 2021 request $12.840 ‒‒ NA NA 2020 $14.000 ‒‒ $14.000 $14.000 2019 $12.700 ‒‒ $12.700 $12.224 2018 $12.300 ‒‒ $12.300 $12.558 2017 $12.300 ‒‒ $12.300 $12.572 2016 $12.300 ‒‒ $12.300 $12.808 2015 $10.500 ‒‒ $10.500 $10.733 Sources: U.S. Small Business Administration, Congressional Budget Justification [FY2016-FY2021], at https://www.sba.gov/document/report--congressional-budget-justification-annual-performancereport; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38.

outreach.” See SBA, Office of Veterans Business Development, “FY 2015 Program Announcement No. VBOC-2015-02,” pp. 6-7, at https://www.sba.gov/offices/ headquarters/ovbd/spotlight. In FY2013, the Veterans Business Outreach Centers Program conducted its ninth annual “Customer Satisfaction Survey.” The FY2013 survey found that 91% of the clients using the centers were satisfied or highly satisfied with the quality, relevance, and timeliness of the assistance provided. See SBA, FY2015 Congressional Budget Justification and FY2013 Annual Performance Report, p. 81, at https://www.sba.gov/sites/default/files/files/FY%202015%20CBJ%20FY%202013%20AP R%20FINAL%20508(1).pdf.

Small Business Administration (SBA) Funding

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Table 12.Veterans business outreach centers (VBOC) program, FY2000-FY2015 (recommended appropriations and expenditures, $ in millions) Fiscal Year 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Initial Recommended Appropriation $3.000 $2.500 $2.500 $2.500 $2.500 $2.500 $1.200 $0.743 $0.750 $0.750 $0.750 $0.750 $0.750 $0.750 $0.000g $0.615

Modifications ‒‒ ‒‒ ($0.003)a ‒‒ ($0.005)b ‒‒ ‒‒ ‒‒ ‒‒ ($0.008)c ($0.006)d ($0.004)e ($0.005)f ‒‒ ‒‒ ($0.002)h

Final Recommended Appropriation $3.000 $2.500 $2.497 $2.500 $2.495 $2.500 $1.200 $0.743 $0.750 $0.742 $0.744 $0.746 $0.745 $0.750 $0.000 $0.613

Expenditures $3.000 $2.500 $2.497 $2.500 $2.495 $2.500 $1.200 $0.743 $0.741 $0.738 $0.731 $0.737 $0.667 $0.617 NA $0.615

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2016], at https://www.sba.gov/document/report-congressional- budget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 1061005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D - Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; and Rep.

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Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740. a In FY2013, P.L. 112-25, and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.003 million reduction from the VBOC program. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.005 million reduction from the VBOC program. c In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.008 million reduction from the VBOC program. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.006 million reduction from the VBOC program. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.004 million reduction from the VBOC program. f In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.005 million reduction from the VBOC program. g In FY2001, Congress recommended an appropriation of $4 million to establish the National Veterans Business Development Corporation. The SBA funded the four VBOCs operating in FY2001 from the salaries and expenses account. h In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.002 million reduction from the VBOC program.

Prior to FY2016, Congress recommended appropriations for VBOCs and, in FY2014 and FY2015, for the Boots to Business initiative ($7 million in FY2014 and $7.5 million in FY2015). Funding for the OVBD’s other veterans assistance programs were provided through the SBA’s salaries and expenses account. Starting in FY2016, Congress has recommended appropriations for OVBD’s programs as a whole: $12.3 million in FY2016, FY2017, and FY2018, $12.7 million in FY2019, and $14 million in FY2020. This increase has exceeded the rate of inflation.41 OVBD expenditures in FY2015-FY2019 and anticipated OVBD expenditures in FY2020 are presented in the table’s last column for comparative purposes. Recommended appropriations for VBOCs from FY2000-FY2015 are presented in Table 12 for historical comparisons. As the data indicate, recommended appropriations for VBOCs increased from $0.613 million in FY2000 to $3 million in FY2015. This increase exceeded the rate of 41

The Office of Veterans Business Development’s FY2020 recommended appropriation of $14 million is $12.928 million in constant FY2016 dollars (adjusted for inflation), which is higher than its FY2016 recommended appropriation of $12.3 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/ content/pkg/BUDGET-2020- TAB/xls/BUDGET-2020-TAB-11-1.xlsx.

Small Business Administration (SBA) Funding

111

inflation.42 OVBD expenditures in FY2000-FY2015 are presented in the table’s last column for comparative purposes.

7(j) Technical Assistance Program The SBA’s 7(j) Technical Assistance Program provides “a wide variety of management and technical assistance to eligible individuals or concerns to meet their specific needs, including: (a) counseling and training in the areas of financing, management, accounting, bookkeeping, marketing, and operation of small business concerns; and (b) the identification and development of new business opportunities.”43 Eligible individuals and businesses include “8(a) certified firms, small disadvantaged businesses, businesses operating in areas of high unemployment, or low income or firms owned by low income individuals.”44 As shown in Table 13, recommended appropriations for the 7(j) Technical Assistance Program have varied since FY2000, with increases in some years and decreases in others. Overall, the SBA’s 7(j) Technical Assistance Program’s recommended appropriations have decreased from $3.584 million in FY2000 to $2.8 million in FY2020. The 7(j) Technical Assistance Program expenditures in FY2000-FY2019 and anticipated 7(j) Technical Assistance Program expenditures in FY2020 are presented in the table’s last column for comparative purposes.

The Veterans Business Outreach Centers Program’s FY2015 recommended appropriation of $3 million is $2.254 million in constant FY2000 dollars (adjusted for inflation), which is higher than its FY2000 recommended appropriation of $0.613 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2017: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2021,” at https://www.gpo.gov/fdsys/pkg/BUDGET-2017-TAB/pdf/ BUDGET-2017-TAB.pdf. 43 13 C.F.R. §124.702. 44 SBA, FY2017 Congressional Budget Justification and FY2015 Annual Performance Report, p. 50, at https://www.sba.gov/sites/default/files/FY17-CBJ_FY15-APR.pdf. 42

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Robert Jay Dilger Table 13. 7(j) Technical assistance program, FY2000-FY2021 (recommended appropriations and expenditures; $ in millions)

Fiscal Year

2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Initial Recommended Appropriation $0.500 $2.800 $2.800 $2.800 $2.800 $2.800 $2.800 $2.790 $3.100 $3.100 $3.400 $3.400 $2.380 $2.300 $1.500 $1.500 $1.500 $2.000 $1.500 $3.600 $3.600 $3.600

Modifications

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($0.246)a ‒‒ ($0.007)b ‒‒ ‒‒ ‒‒ ‒‒ ($0.015)c ($0.012)d ($0.012)e ($0.010)f ‒‒ ($0.008)g ($0.014)h

Final Recommended Appropriation NA $2.800 $2.800 $2.800 $2.800 $2.800 $2.800 $2.790 $2.854 $3.100 $3.393 $3.400 $2.380 $2.300 $1.500 $1.485 $1.488 $1.988 $1.490 $3.600 $3.592 $3.584

Expenditures

NA $2.800 $3.466 $3.085 $1.796 $1.407 $2.441 $2.723 $3.080 $4.768 $6.354 $3.275 $2.380 $2.300 $1.481 $1.481 $1.479 $1.963 $1.171 $3.189 $3.241 $3.950

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressionalbudget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 106-1005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108-792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006,

Small Business Administration (SBA) Funding

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and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D - Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 11225, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.246 million reduction from the 7(j) program. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.007 million reduction from the 7(j) program. c In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.015 million reduction from the 7(j) program. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.012 million reduction from the 7(j) program. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.012 million reduction from the 7(j) program. f In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.010 million reduction from the 7(j) program. g In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.008 million reduction from the 7(j) program. h In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.014 million reduction from the 7(j) program.

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Native American Outreach Program The SBA’s Native American Outreach (NAO) program provides management and technical educational assistance to American Indians, Alaska natives, native Hawaiians, and “the indigenous people of Guam and American Samoa … to promote entity-owned and individual 8(a) certification, government contracting, entrepreneurial education, and capital access.”45 The program’s management and technical assistance services are available to members of these groups living in most areas of the nation.46 Table 14. Native American outreach (NAO) program, FY2003-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year

2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007

45

Initial Recommended Appropriation $1.500 $2.000 $2.000 $2.000 $2.000 $2.000 $2.000 $2.000 $1.250 $1.250 $1.250 $1.250 $1.033 $1.000 $1.000

Modifications

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($0.318)a ‒‒ ($0.003)b ‒‒ ‒‒ ‒‒ ‒‒

Final Recommended Appropriation NA $2.000 $2.000 $2.000 $2.000 $2.000 $2.000 $2.000 $0.932 $1.250 $1.247 $1.250 $1.033 $1.000 $1.000

Expenditures

NA $2.000 $2.179 $0.695 $1.541 $1.778 $1.924 $1.859 $0.915 $1.245 $1.132 $1.243 $1.027 $0.933 $0.884

SBA, FY2011 Congressional Budget Justification and FY2009 Annual Performance Report, p. 65, at http://www.sba.gov/sites/default/files/Congressional_Budget_Justification.pdf (hereinafter SBA, FY2011 Congressional Budget Justification and FY2009 Annual Performance Report). 46 SBA, FY2011 Congressional Budget Justification and FY2009 Annual Performance Report, p 65.

Small Business Administration (SBA) Funding Fiscal Year

2006 2005 2004 2003

Initial Recommended Appropriation $1.000 $1.000 $2.000 $2.000

Modifications

($0.010)c ($0.008)d ($0.012)e ($0.013)f

Final Recommended Appropriation $0.990 $1.092 $1.988 $1.987

115 Expenditures

$0.978 $0.902 $1.964 $1.778

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressionalbudget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 106-1005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108-792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D - Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 11225, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R.

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1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.318 million reduction from the NAO program. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.003 million reduction from the NAO program. c In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.010 million reduction from the NAO program. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.008 million reduction from the NAO program. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.012 million reduction from the NAO program. f In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.013 million reduction from the NAO program.

As shown in Table 14, the NAO program’s recommended appropriations have varied somewhat since FY2003 (the first year it received recommended appropriations), ranging from $1 million to $2 million. The program’s recommended appropriations have not kept pace with inflation.47 NAO program expenditures in FY2003-FY2019 and anticipated NAO expenditures in FY2020 are presented in the table’s last column for comparative purposes.

National Women’s Business Council The National Women’s Business Council (NWBC) is a bipartisan 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.

47

The SBA’s FY2020 recommended appropriation of $2 million for the Native American Outreach Program is $1.438 million in constant FY2003 dollars (adjusted for inflation), which is lower than its initial FY2003 recommended appropriation of $1.987 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020- TAB/xls/BUDGET-2020-TAB-111.xlsx.

Small Business Administration (SBA) Funding

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Table 15. National business women’s council (NWBC), FY2000-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year

2021 request 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Initial Recommended Appropriation $1.500 $1.500 $1.500 $1.500 $1.500 $1.500 $1.000 $1.000 $0.998 $0.998 $1.000 $1.000 $0.775 $0.743 $0.750 $0.750 $0.750 $0.750 $0.750 $0.750 $0.750 $0.600

Modifications

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($0.080)a ‒‒ ($0.002)b ‒‒ ‒‒ ‒‒ ‒‒ ($0.008)c ($0.006)d ($0.004)e ($0.005)f ‒‒ ($0.002)g ($0.002)h

Final Recommended Appropriation NA $1.500 $1.500 $1.500 $1.500 $1.500 $1.000 $1.000 $0.918 $0.998 $0.998 $1.000 $0.775 $0.743 $0.750 $0.742 $0.744 $0.746 $0.745 $0.750 $0.748 $0.598

Expenditures

NA $1.500 $0.819 $0.485 $1.337 $1.286 $0.958 $0.980 $0.736 $0.875 $0.954 $0.920 $0.751 $0.714 $0.712 $0.675 $0.550 $0.731 $0.699 $0.729 $0.714 $0.600

Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressionalbudget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 106-1005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept. 108-792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and

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Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D - Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 11225, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.080 million reduction from the NWBC. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.002 million reduction from the NWBC. c In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.008 million reduction from the NWBC. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.006 million reduction from the NWBC. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.004 million reduction from the NWBC. f In FY2003, P.L. 108-7 imposed a rescission of 0.65% on federal agencies, resulting in a $0.005 million reduction from the NWBC. g In FY2001, P.L. 106-554 imposed a 0.22% rescission on federal agencies, resulting in a $0.002 million reduction from the NWBC. h In FY2000, P.L. 106-113 required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a $0.002 million reduction from the NWBC.

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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.”48 As shown in Table 15, the recommended appropriation for the NWBC has increased from $0.598 million in FY2000 to $1.5 million in FY2020. This increase has exceeded the rate of inflation.49 NWBC expenditures in FY2000-FY2019 and NWBC anticipated expenditures in FY2020 are presented in the table’s last column for comparative purposes.

HUBZone Administration The HUBZone program helps small businesses located in designated Historically Underutilized Business Zones (HUBZones) to compete for federal contracts. Federal agencies may award contracts directly to HUBZone-certified small businesses through a sole-source contract, limit contact competitions to HUBZone-certified firms through a contract setaside, or provide HUBZone-certified firms a price evaluation preference in full and open competitions.50 The HUBZone program was initially funded through the SBA’s salary and expenses account. As shown in Table 16, Congress started recommending an appropriation for the program in FY2004. This recommended appropriation remained relatively stable until FY2015, when it increased to $3 million. With this increase, the HUBZone program’s recommended appropriations have exceeded the rate of inflation.51 48

49

50

51

The National Women’s Business Council, “About the Council,” Washington, DC, at https://www.nwbc.gov/about/. The SBA’s FY2020 recommended appropriation of $1.5 million for the National Women’s Business Council is $1.018 million in constant FY2000 dollars (adjusted for inflation), which is higher than its FY2000 recommended appropriation of $0.598 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/pkg/BUDGET-2020- TAB/xls/BUDGET-2020-TAB-111.xlsx. For additional information and analysis concerning the HUBZone program, see CRS Report R41268, Small Business Administration HUBZone Program, by Robert Jay Dilger. The SBA’s FY2020 recommended appropriation of $3 million for the HUBZone program is $2.209 million in constant FY2004 dollars (adjusted for inflation), which is higher than its

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Robert Jay Dilger Table 16. Historically underutilized business zones (HUBZone) program, FY2000-FY2021 (recommended appropriations and expenditures; $ in millions)

Fiscal Year

Initial Recommended Modifications Final Recommended Expenditures Appropriation Appropriation 2021 request $2.500 ‒‒ NA NA 2020 $3.000 ‒‒ $3.000 $3.000 2019 $3.000 ‒‒ $3.000 $2.455 2018 $3.000 ‒‒ $3.000 $2.563 2017 $3.000 ‒‒ $3.000 $2.792 2016 $3.000 ‒‒ $3.000 $3.184 2015 $3.000 ‒‒ $3.000 $2.561 2014 $2.250 ‒‒ $2.250 $2.248 2013 $2.500 ($0.524)a $1.976 $1.952 2012 $2.500 ‒‒ $2.500 $2.155 2011 $2.200 ($0.004)b $2.196 $2.194 2010 $2.200 ‒‒ $2.200 $2.189 2009 $2.150 ‒‒ $2.150 $2.150 2008 $2.100 ‒‒ $2.100 $1.924 2007 $2.000 ‒‒ $2.000 $1.931 2006 $2.000 ($0.020)c $1.980 $1.974 2005 $1.979 ($0.016)d $1.963 $1.892 2004 $2.000 ($0.012)e $1.988 $1.974 2003 ‒‒ ‒‒ ‒‒ $1.807 2002 ‒‒ ‒‒ ‒‒ $1.618 2001 ‒‒ ‒‒ ‒‒ $1.791 2000 ‒‒ ‒‒ ‒‒ $1.978 Sources: U.S. Small Business Administration (SBA), Congressional Budget Justification [FY2002-FY2010]; SBA, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report-congressionalbudget-justification-annual-performance-report; H.Rept. 106-479, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2000, and for other Purposes; H.Rept. 106-1005, Making Appropriations for the Government of the District of Columbia and Other Activities Chargeable in Whole or in Part Against Revenues of Said District for the Fiscal Year Ending September 30, 2001, and For Other Purposes; H.Rept. 107-278, Making Appropriations for the Departments of Commerce, Justice, and State, The Judiciary, and Related Agencies for the Fiscal Year Ending September 30, 2002, and For Other Purposes; H.Rept. 108-10, Making Further Continuing Appropriations for the Fiscal Year 2003, and For Other Purposes; H.Rept. 108-401, Making Appropriations for Agriculture, Rural Development, Food and Drug Administration, and Related Agencies for the Fiscal Year Ending September 30, 2004, and For Other Purposes; H.Rept.

FY2004 recommended appropriation of $1.988 million. CRS calculation using inflation data from U.S. Office of Management and Budget (OMB), “Budget of the United States Government, FY2020: Historical Tables, Table 10.1 ‒ Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2024,” at https://www.govinfo.gov/content/ pkg/BUDGET-2020-TAB/xls/BUDGET-2020- TAB-11-1.xlsx.

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108-792, Making Appropriations for Foreign Operations, Export Financing, and Related Programs for the Fiscal Year Ending September 30, 2005, and For Other Purposes; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; H.Rept. 109-272, Making Appropriations for Science, the Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and For Other Purposes; U.S. Congress, House Committee on Appropriations, Consolidated Appropriations Act, 2008 (Division D - Financial Services and General Government Appropriations Act, 2008), committee print, 110th Cong., 2nd sess., January 1, 2008 (Washington: GPO, 2008), p. 908; U.S. Congress, House Committee on Appropriations, Omnibus Appropriations Act, 2009 (Division D Financial Services and General Government Appropriations Act, 2009), committee print, 111th Cong., 2nd sess., January 1, 2010 (Washington: GPO, 2010), p. 996; H.Rept. 111-366, Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 112- 10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 11225, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.520 million reduction from the HUBZone program. b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.004 million reduction from the HUBZone program. c In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a $0.020 million reduction from the HUBZone program. d In FY2005, P.L. 108-447 imposed a 0.8% rescission on federal agencies, resulting in a $0.016 million reduction from the HUBZone program. e In FY2004, P.L. 108-199 imposed a 0.59% rescission on federal agencies, resulting in a $0.012 million reduction from the HUBZone program.

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The HUBZone program’s expenditures in FY2000-FY2019 and the HUBZone program’s anticipated expenditures in FY2020 are presented in the table’s last column for comparative purposes.

The Entrepreneurial Development Initiative (Regional Innovation Clusters) The SBA reports that “regional innovation clusters are on-the-ground collaborations between business, research, education, financing and government institutions that work to develop and grow a particular industry or related set of industries in a particular geographic region.”52 The SBA has supported regional innovative clusters since FY2009, and the initiative has received recommended appropriations from Congress since FY2010. Table 17. Entrepreneurial development initiative (regional innovation clusters), FY2010-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year

2021 request 2020 2019 2018 2017 2016 2015 2014 2013

52

Initial Recommended Appropriation $0.000 $5.000 $5.000 $5.000 $5.000 $6.000 $6.000 $5.000 $5.000

Modifications

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ($1.311)a

Final Recommended Appropriation NA $5.000 $5.000 $5.000 $5.000 $6.000 $6.000 $5.000 $3.689

Expenditures

NA $5.000 $5.473 $2.976 $3.259 $5.824 $5.936 $4.995 $3.590

SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 60, at http://www.sba.gov/sites/default/files/files/1-FY%202014%20CBJ%20FY%2020 12%20APR.PDF.

Small Business Administration (SBA) Funding Fiscal Year

2012 2011 2010

Initial Recommended Appropriation $5.000 $10.000 $10.000

Modifications

‒‒ ($0.020)b ‒‒

Final Recommended Appropriation $5.000 $9.980 $10.000

123 Expenditures

$3.325 $6.581 $9.989

Sources: U.S. Small Business Administration, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report--congressional-budget-justification-annual-performance-report; H.Rept. 111-366, the Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; H.Rept. 112-331, the Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2012 (Consolidated Appropriations Act, 2012); P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; SBA, “General Statement Regarding the Implications of Sequestration,” provided to the author by the SBA, Office of Congressional and Legislative Affairs, on May 5, 2013; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 3547, Consolidated Appropriations Act, 2014,” Congressional Record, vol. 160, part No 9-Book II (January 15, 2014), p. H908; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38. a In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $1.311 million reduction from the Entrepreneurial Development Initiative (Clusters). b In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a $0.020 million reduction from the Entrepreneurial Development Initiative (Clusters).

As shown in Table 17, funding for the Entrepreneurial Development Initiative (Regional Innovation Clusters) has been reduced from a recommended appropriation of $10 million in FY2010 to $5 million in

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FY2020. The table’s last column indicates that the SBA’s expenditures for the initiative have often been less than the amount appropriated. The Trump Administration recommended in its FY2018, FY2019, FY2020, and FY2021 budget requests that the Entrepreneurial Development Initiative receive no appropriations, arguing that it duplicates other federal programs.53

Entrepreneurship Education Initiative The SBA’s Entrepreneurship Education initiative offers high‐growth small businesses in underserved communities “a seven‐month executive leader education series” consisting of “more than 100 hours of specialized training, technical resources, a professional networking system, and other resources to strengthen their business model and promote economic development within urban communities.”54 At the conclusion of the training, “participants produce a three‐year strategic growth action plan with benchmarks and performance targets that help them access the necessary support and resources to move forward for the next stage of business growth.”55 As shown in Table 18, the Entrepreneurship Education initiative received its first recommended appropriation from Congress in FY2014 ($5 million), $7 million in FY2015, $10 million in FY2016, FY2017, and FY2018, $3.5 million in FY2019, and $2.5 million in FY2020. 53

SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, pp. 12, 57, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_ SBA_FY_2018_CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, pp. 13, 90, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_po st.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, 95, at https://www.sba.gov/ document/report--congressional-budgetjustification-annual-performance-report; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 11, 93, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 54 SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p.71, at http://www.sba.gov/sites/default/files/files/1-FY%202014%20CBJ%20FY% 202012%20APR.PDF (hereinafter SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report). 55 SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 71.

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Table 18. Entrepreneurship education initiative, FY2014-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year

2021 request 2020 2019 2018 2017 2016 2015 2014

Initial Recommended Appropriation $2.500 $2.500 $3.500 $6.000 $10.000 $10.000 $7.000 $5.000

Modifications

‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒

Final Recommended Appropriation $2.500 $2.500 $3.500 $6.000 $10.000 $10.000 $7.000 $5.000

Expenditures

NA $2.500 $5.863 $9.293 $2.442 $7.219 $6.711 $4.953

Sources: U.S. Small Business Administration, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report--congressional-budget-justification-annual-performance-report; H.Rept. 111-366, the Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; H.Rept. 112-331, the Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2012 (Consolidated Appropriations Act, 2012); P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; SBA, “General Statement Regarding the Implications of Sequestration,” provided to the author by the SBA, Office of Congressional and Legislative Affairs, on May 5, 2013; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 3547, Consolidated Appropriations Act, 2014,” Congressional Record, vol. 160, part No 9-Book II (January 15, 2014), p. H908; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38.

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Growth Accelerator Initiative The SBA describes growth accelerators as “organizations that help entrepreneurs start and scale their businesses.”56 Growth accelerators are typically run by experienced entrepreneurs and help small businesses access seed capital and mentors. The SBA claims that growth accelerators “help accelerate a startup company’s path towards success with targeted advice on revenue growth, employee growth, sourcing outside funding and avoiding pitfalls.”57 As shown in Table 19, the Growth Accelerator initiative received its first recommended appropriation from Congress in FY2014 ($2.5 million), $4 million in FY2015, $1 million in FY2016, FY2017, and FY2018, $2 million in FY2019, and $2 million in FY2020. It provides $50,000 matching grants each year to universities and private sector accelerators “to support the development of accelerators and their support of startups in parts of the country where there are fewer conventional sources of access to capital (i.e., venture capital and other investors).”58 The Trump Administration recommended in its FY2018, FY2019, FY2020, and FY2021 budget requests that the Growth Accelerator Initiative receive no appropriations, arguing that the program is duplicative of other resources.59 56

SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 59. 57 SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 59. See also Jonathan Porat, “Exploring the Policy Relevance of Startup Accelerators,” SBA, Office of Advocacy, Issue Brief No. 4, November 17, 2014, at https://www.sba.gov/sites/default/files/advocacy/Issue%20Brief%204%20Accelerators%20 FINAL.pdf. 58 SBA, “SBA Growth Accelerator Fund Competition: The 2017 Growth Accelerator Fund Competition,” at https://www.sba.gov/node/1428931/leadership/; and SBA, “SBA Announces $3 Million for 60 Growth Accelerator Fund Competition Recipients Supporting Startups and STEM Focused Entrepreneurs,” September 26, 2019, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sbaannounces-3-million-60-growth-accelerator-fund-competition-recipients-supportingstartups-and. 59 U.S. Office of Management and Budget, America First: A Budget Blueprint to Make America Great Again, p. 45, at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/ budget/fy2018/2018_blueprint.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/sites/ default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, pp. 11, 71, at

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Table 19. Growth accelerator initiative, FY2014-FY2021 (recommended appropriations and expenditures; $ in millions) Fiscal Year 2021 2020 2019 2018 2017 2016 2015 2014

Initial Recommended Appropriation $0.000 $2.000 $2.000 $1.000 $1.000 $1.000 $4.000 $2.500

Modifications ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒ ‒‒

Final Recommended Appropriation NA $2.000 $2.000 $1.000 $1.000 $1.000 $4.000 $2.500

Expenditures NA $2.000 $2.650 $1.000 $1.000 $3.500 $3.950 $2.500

Sources: U.S. Small Business Administration, Congressional Budget Justification [FY2011-FY2021], at https://www.sba.gov/document/report--congressional-budget-justification-annual-performance-report; H.Rept. 111-366, the Departments of Transportation and Housing and Urban Development, and Related Agencies Appropriations Act, 2010; P.L. 111-117, the Consolidated Appropriations Act, 2010; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; H.Rept. 112-331, the Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2012 (Consolidated Appropriations Act, 2012); P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; SBA, “General Statement Regarding the Implications of Sequestration,” provided to the author by the SBA, Office of Congressional and Legislative Affairs, on May 5, 2013; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 3547, Consolidated Appropriations Act, 2014,” Congressional Record, vol. 160, part No 9-Book II (January 15, 2014), p. H908; P.L. 113-76, the Consolidated Appropriations Act, 2014; Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, no. 151-Book II (December 11, 2014), p. H9740; Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10139; P.L. 114-223, the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; H.Rept. 116-9, Consolidated Appropriations Act, 2019, p. 680; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38.

https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 11, 71, at https://www.sba.gov/document/report-congressional-budget- justification-annual-performance-report.

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APPENDIX. SBA APPROPRIATIONS, FY1954-FY1999 Table A-1. Small business administration appropriations, FY1980-FY1999 ($ in millions) FY

Disaster Assistance

FY1999 FY1998 FY1997 FY1996 FY1995 FY1994 FY1993 FY1992 FY1991 FY1990 FY1989 FY1988 FY1987 FY1986 FY1985 FY1984 FY1983 FY1982 FY1981 FY1980

$293.3 $173.2 $326.9 $331.0 $130.2 $18.6 $401.7 $705.0 ($129.3) $342.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $325.0 $1,237.0

Business Loan Capital Appropriation $224.2 $181.2 $183.7 $160.7 $271.0 $223.4 $370.0 $348.3 $157.0 $159.5 $168.6 $165.7 $378.2 $505.0 $511.6 $363.4 $742.7 $326.0 $609.0 $565.0

Other Programs

Total

$302.5 $361.7 $341.8 $322.5 $390.8 $408.7 $436.4 $598.8 $436.2 $426.5 $251.6 $262.6 $225.5 $209.4 $742.1 $234.5 $274.6 $243.9 $265.9 $194.1

$820.0 $716.1 $852.4 $814.2 $792.0 $650.7 $1,208.1 $1,652.1 $463.9 $928.3 $420.2 $428.3 $603.7 $714.4 $1,253.7 $597.9 $1,017.3 $569.9 $1,199.9 $1,996.1

Sources: U.S. House of Representatives, Committee on Appropriations, Subcommittee on the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies, “Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations for [various years],” hearings [various years]; U.S. Office of Management and Budget (OMB), Budget of the United States Government, FY1986; Appendix: Small Business Administration, pp. I-XI – IX9; and OMB, Budget of the United States Government, FY1987; Appendix: Small Business Administration, pp. I-XI – IX10. Notes: In FY1985, an additional $524.96 million was appropriated to the Federal Financing Bank. In FY1995, there was a $6 million rescission, which was subtracted from the other programs column.

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Table A-2. Small business administration appropriations, FY1954-FY1979 ($ in millions) FY FY1979 FY1978 FY1977 FY1976 FY1975 FY1974 FY1973 FY1972 FY1971 FY1970 FY1969 FY1968 FY1967 FY1966 FY1965 FY1964 FY1963 FY1962 FY1961 FY1960 FY1959 FY1958 FY1957 FY1956 FY1955 FY1954

Disaster Assistance $1,235.0 $2,640.8 $291.3 $100.0 $91.8 $1.6 $1,857.2 $172.4 $366.0 $180.0 $3.8 $2.0 $128.3 comingled comingled comingled comingled comingled comingled comingled comingled $8.0 $12.0 $35.0 $10.0 $5.0

Capital Appropriation/ First Revolving Fund $520.5 $605.0 $601.6 $278.8 $307.5 $226.0 $397.0 $278.1 $267.4 $3.3 $6.0 $154.0 $722.6 $310.0 $145.0 $90.0 $300.0 $220.0 $50.0 $150.0 $200.0 $112.0 $83.0 $10.0 $15.0 $50.0

Other Programs

Total

$239.0 $230.0 $90.5 $29.4 $28.5 $23.0 $22.6 $22.8 $20.0 $17.5 $11.4 $9.9 $8.1 $7.2 $7.5 $8.5 $5.9 $7.1 $5.9 $4.9 $31.3 $2.3 $1.9 $2.1 $2.4 $2.7

$1,994.5 $3,475.8 $983.4 $418.2 $445.8 $250.6 $2,276.8 $473.3 $653.4 $200.8 $21.2 $165.9 $859.0 $317.2 $152.5 $98.5 $305.9 $227.1 $55.9 $154.9 $231.3 $122.3 $96.9 $47.1 $27.4 $57.5

Sources: OMB, Budget of the United States Government [various years]; and Appropriations Acts [various years]: P.L. 83-207, P.L. 84-219, P.L. 84-533, P.L. 84-604, P.L.85-19, P.L. 85-170, P.L. 85-457, P.L. 85-766, P.L. 86-88, P.L. 86-451, P.L. 87-125, P.L. 87-332, P.L. 87-843, P.L. 88-245, and P.L. 89-164. Notes: The SBA had a single revolving loan fund for both disaster and business loans until 1966 (P.L. 89409). For FY1954 through FY1958, budgetary documents indicated the amount provided to the revolving loan fund, which was designated for disaster assistance, and the amount designated for business loans. For FY1959 through FY1966, budgetary documents no long provided this level of specificity. In FY1959, $27.5 million was provided for management and training grants, which were awarded through FY1960. The SBA reported that most of the increase in funding for other programs in FY1970 was due to an increase in funding for the SBA’s minority management and technical assistance grant program. Most of the increase in funding for other programs in FY1977 was due to the provision of $36 million for the surety bond guarantee program and $15 million for the pollution control equipment guarantee revolving fund.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 3

SMALL BUSINESS MANAGEMENT AND TECHNICAL ASSISTANCE TRAINING PROGRAMS (UPDATED) Robert Jay Dilger ABSTRACT The Small Business Administration (SBA) has provided technical and managerial assistance to small businesses since it began operations in 1953. Initially, the SBA provided its own small business management and technical assistance training programs. Over time, the SBA has relied increasingly on third parties to provide that training. The SBA received $239 million in regular appropriations for its management and training programs in FY2020. In addition, P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, appropriated $265 million for SBA’s entrepreneurial development programs to assist small businesses adversely affected by the novel coronavirus (COVID-19) pandemic.



This is an edited, reformatted and augmented version of Congressional Research Service, Publication No. R41352, dated April 13, 2020.

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Robert Jay Dilger Congressional interest in the SBA’s management and technical assistance training programs has increased in recent years, primarily because these programs are viewed as a means to assist small businesses create and retain jobs. These programs fund about “14,000 resource partners,” including 63 lead small business development centers (SBDCs) and nearly 900 SBDC local outreach locations, 125 women’s business centers (WBCs), and more than 250 chapters of the mentoring program, SCORE. The SBA reports that nearly 1 million aspiring entrepreneurs and small business owners receive training from an SBA-supported resource partner each year. The Department of Commerce also provides management and technical assistance training for small businesses. For example, its Minority Business Development Agency provides training to minority business owners to assist them in obtaining contracts and financial awards. Some have argued that the SBA should eliminate some management and training programs to reduce duplication of services across federal agencies. Others have argued that the SBA should improve cooperation and coordination among the SBA’s resource partners. Congress has also explored ways to improve the SBA’s measurement of these programs’ effectiveness. This chapter examines the historical development of federal small business management and technical assistance training programs; describes their current structures, operations, and budgets; and assesses their administration and oversight and the measures used to determine their effectiveness. It also discusses recent legislation affecting these programs, including 





P.L. 114-88, the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE After Disaster Act of 2015), which authorizes the SBA to provide up to two years of additional funding to its resource partners to assist small businesses located in a presidentially declared major disaster area and authorizes SBDCs to provide assistance outside the SBDC’s state, without regard to geographical proximity to the SBDC, if the small business is in a presidentially declared major disaster area; P.L. 115-141, the Consolidated Appropriations Act of 2018, which relaxed requirements that Microloan intermediaries may spend no more than 25% of Microloan technical assistance grant funds on prospective borrowers and no more than 25% of those funds on contracts with third parties to provide that technical assistance by increasing those percentages to no more than 50%; and as mentioned, the CARES Act, among other provisions, appropriated $265 million for the SBA’s entrepreneurial development programs

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($192 million for SBDCs, $48 million for WBCs, and $25 million for a new SBA Resource Partner Association grant program).

FEDERAL MANAGEMENT AND TECHNICAL ASSISTANCE TRAINING PROGRAMS The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion. The SBA has provided “technical and managerial aides to small-business concerns, by advising and counseling on matters in connection with government procurement and on policies, principles and practices of good management” since it began operations in 1953.1 Initially, the SBA provided its own management and technical assistance training programs. Over time, the SBA has relied increasingly on third parties to provide that training. Nearly 1 million aspiring entrepreneurs and small business owners receive training from an SBAsupported resource partner each year.2 The SBA has argued that its support of management and technical assistance training for small businesses has contributed “to the long-term success of these businesses and their ability to grow and create jobs.”3 It currently provides financial support to about 14,000 resource partners, including 63 small business development centers (SBDCs) and nearly 900 1

2

3

U.S. Congress, Senate Committee on Banking and Currency, Extension of the Small Business Act of 1953, report to accompany S. 2127, 84th Cong., 1st sess., July 22, 1955, S.Rept. 841350 (Washington: GPO, 1955), p. 17. U.S. Small Business Administration (SBA), FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 17, at https://www.sba.gov/document/report-congressional-budget-justification-annual- performance-report. SBA, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual Performance Report, p. 4, at https://www.sba.gov/sites/default/files/aboutsbaarticle/Congressional_ Budget_Justification.pdf.

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SBDC local outreach locations, 125 women’s business centers (WBCs), and more than 250 chapters of the mentoring program, SCORE (Service Corps of Retired Executives).4 Congress specifies the appropriation amount for SBDCs and the Microloan Technical Assistance Program in its annual appropriation act and includes recommended appropriation amounts for the SBA’s other management and training programs in either the explanatory statement or the committee report accompanying the appropriations act. The SBA is not legally required to adhere to the recommended amounts but has traditionally done so in the past. As shown in Table 1, the SBA received $239 million in regular appropriations for its management and training programs in FY2020.5 In addition, P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, appropriated a total of $265 million for SBA’s entrepreneurial development programs to assist small businesses adversely affected by the novel coronavirus (COVID-19) pandemic: $192 million for SBDCs; $48 million for WBCs; and $25 million for a new SBA Resource Partner Association Grant program to establish a single, online centralized hub for COVID-19 information and a COVID- 19-related training program for SBDC, WBC, SCORE, and veteran business outreach center (VBOC) counselors. The Department of Commerce also provides management and technical assistance training for small businesses. For example, the

4

SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 83-90, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report; SBA, “Women’s Business Centers Directory,” at http://www.sba.gov/ about-offices-content/1/2895/resources/13729; SBA, “SCORE Business Mentor,” at https://www.sba.gov/local-assistance/find/?type=SCORE%20Business%20Mentor& pageNumber=3; and SCORE, “About SCORE,” at https://www.score.org/about-score. 5 The SBA receives an annual appropriation for entrepreneurial development/noncredit programs collectively ($261 million in regular appropriations in FY2020). The SBA uses these funds for its management and training programs ($239 million in regular appropriations in FY2020), HUBZone program administration ($3 million) and the State Trade and Export Promotion program ($19 million). For additional information and analysis of the SBA’s HUBZone program, see CRS Report R41268, Small Business Administration HUBZone Program, by Robert Jay Dilger. For additional information and analysis concerning the STEP program see CRS Report R43155, Small Business Administration Trade and Export Promotion Programs, by Sean Lowry.

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Department of Commerce’s Minority Business Development Agency (MBDA) provides training to minority business owners to assist them in obtaining contracts and financial awards.6 Table 1. SBA Management and technical assistance training programs, specified and recommended appropriations, FY2017-FY2021 ($ in millions) Training Program

Small Business Development Center Grants Program Microloan Technical Assistance Program Women’s Business Center Grants Program COVID-19 Resource Partner Association Grants Veterans Outreach (Veterans Business Outreach Centers, Boots to Business Initiative, Boots to Business Reboot Initiative, Veteran- Women Igniting the Spirit of Entrepreneurship [V-Wise], and Entrepreneurship Bootcamp for Veterans with Disabilities [EBV]) SCORE (Service Corps of Retired Executives) Entrepreneurial Education Initiative Entrepreneurial Development Initiative (Regional Innovation Clusters) PRIME Technical Assistance Program 7(j) Technical Assistance Program

6

FY2017 FY2018 FY2019 FY2020 CARES Act FY2021 Supplementa Request l FY2020 $125.0 $130.0 $131.0 $135.0 $192.0 $87.86 $31.0

$31.0

$31.0

$34.5

—

$25.00

$18.0

$18.0

$18.5

$22.5

$48.0

$17.40

‒‒

‒‒

‒‒

‒‒

$25.0

‒‒

$12.3

$12.3

$12.7

$14.0

—

$12.84

$10.5

$11.5

$11.7

$11.7

—

$8.00

$10.0 $5.0

$6.0 $5.0

$3.5 $5.0

$2.5 $5.0

— —

$2.50 $0.00

$5.0

$5.0

$5.0

$5.5

—

$0.00

$2.8

$2.8

$2.8

$2.8

—

$0.50

U.S. Department of Commerce, Minority Business Development Agency (MBDA), “Annual Performance Report, Fiscal Year 2015,” pp. 1, 2, at https://www.mbda.gov/ sites/mbda.gov/files/migrated/files-attachments/2015Annual PerformanceReport.pdf.

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Training Program

FY2017 FY2018 FY2019 FY2020 CARES Act Supplementa l FY2020 Native American Outreach Program $2.0 $2.0 $2.0 $2.0 — National Women’s Business $1.5 $1.5 $1.5 $1.5 — Council Growth Accelerators Initiative $1.0 $1.0 $2.0 $2.0 — Total $224.1 $226.1 $226.7 $239.0 $265.0

FY2021 Request $1.50 $1.50 $0.00 $157.1

Sources: P.L. 115-31, the Consolidated Appropriations Act, 2017, Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3786; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division E – Financial Services and General Government Appropriations Act, 2018),” p. 87; P.L. 116-6, the Consolidated Appropriations Act, 2019, H.Rept. 116-9, conference report accompanying the Consolidated Appropriations Act, 2019; P.L. 11693, the Consolidated Appropriations Act, 2020; “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division C – Financial Services and General Government Appropriations Act, 2020),” p. 38; U.S. Small Business Administration, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budgetjustification-annual-performance-report; and P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

In addition, the Department of Commerce’s Economic Development Administration’s Local Technical Assistance Program promotes efforts to build and expand local organizational capacity in economically distressed areas. As part of that effort, it funds projects that focus on technical or market feasibility studies of economic development projects or programs, which often include consultation with small businesses.7 For many years, a recurring theme at congressional hearings concerning the SBA’s management and technical assistance training programs was the perceived need to improve program efficiency by eliminating duplication of services or increasing cooperation and coordination both within and among its training resource partners. For example, the Obama Administration recommended in its FY2012-FY2017 budget recommendations that funding for the PRIME technical assistance 7

13 C.F.R. §306.

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program end. The Obama Administration argued that PRIME overlaps and duplicates “the technical assistance provided by SBA’s microlending intermediaries.”8 The Trump Administration has also requested the program’s elimination.9 The House Committee on Small Business majority argued in each of its annual “Views and Estimates” letters to the House Budget Committee for FY2013 through FY2019 that the SBA’s various management and technical assistance training programs were duplicative of each other and of programs offered by other federal agencies.10 As the majority stated in 8

SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 4, at https://www.sba.gov/sites/default/files/aboutsbaarticle/ FINAL%20FY%202012%20 CBJ%20FY%202010%20APR_0.pdf. Also, see SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 22, at https://www.sba.gov/ sites/default/files/files/1-508-Compliant-FY-2014-CBJ%20FY%202012%20APR.pdf; and SBA, FY2017 Congressional Budget Justification and FY2015 Annual Performance Report, p. 19, at https://www.sba.gov/sites/default/files/FY17-CBJ_FY15-APR.pdf. 9 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_CBJ_ May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/aboutsbaarticle/ SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 10 U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2013,” communication to the Chairman, House Committee on the Budget, 112th Cong., 2nd sess., March 7, 2012; U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2014,” communication to the Chairman, House Committee on the Budget, 113th Cong., 1st sess., February 27, 2013; U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2015,” communication to the Chairman, House Committee on the Budget, 113th Cong., 2nd sess., March 25, 2014; U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2016,” communication to the Chairman, House Committee on the Budget, 114th Cong., 1st sess., February 12, 2015; U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2017,” communication to the Chairman, House Committee on the Budget, 114th Cong., 2nd sess., February 4, 2016; U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the

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its FY2014 “Views and Estimates” letter, “given tight budgetary constraints and the need for the SBA to reallocate resources in other critical areas, entrepreneurial outreach at the SBA should be limited to ... the Small Business Development (SBDC) Program. All other entrepreneurial outreach efforts at the SBA either overlap with the SBDC Program or duplicate efforts at other federal agencies.”11 Congress has also explored ways to improve the SBA’s measurement of these programs’ effectiveness. This chapter examines the historical development of federal small business management and technical assistance training programs; describes their current structures, operations, and budgets; and assesses their administration and oversight, including measures used to determine their effectiveness. This chapter also discusses recent legislation affecting the SBA’s management and training programs, including 

P.L. 114-88, the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE After Disaster Act of 2015), which, among other things, authorizes the SBA to provide up to two years of additional financial assistance, on a competitive basis, to SBDCs, WBCs, SCORE, or any proposed consortium of such individuals or entities to assist small businesses located in a presidentially declared major disaster area and authorizes SBDCs

Budget for FY2018,” communication to the Chairman, House Committee on the Budget, 115th Cong., 1st sess., March 1, 2017; and U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2019,” communication to the Chairman, House Committee on the Budget, 115th Cong., 2nd sess., February 14, 2018. 11 U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2014,” communication to the Chairman, House Committee on the Budget, 113th Cong., 1st sess., February 27, 2013, p. 6. Previously, the House Committee on Small Business had recommended that funding for Women Business Centers, PRIME technical assistance, HUBZone outreach, and the Offices of Native American Affairs and International Trade be eliminated; and funding for 7(j) technical assistance, Microloan technical assistance, and the National Women’s Business Council be reduced. See U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2013,” communication to the Chairman, House Committee on the Budget, 112th Cong., 2nd sess., March 7, 2012.

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

139

to provide assistance to small businesses outside the SBDC’s state, without regard to geographical proximity to the SBDC, if the small business is in a presidentially declared major disaster area. This assistance can be provided “for a period of not more than two years after the date on which the President” has declared the area a major disaster;12 P.L. 115-141, the Consolidated Appropriations Act of 2018, among other provisions, relaxed requirements that Microloan intermediaries may spend no more than 25% of Microloan technical assistance grant funds on prospective borrowers and no more than 25% of those funds on contracts with third parties to provide that technical assistance by increasing those percentages to no more than 50% (originally in H.R. 2056, the Microloan Modernization Act of 2017, and S. 526, the Microloan Modernization Act of 2018); and as mentioned, P.L. 116-136 (CARES Act), among other provisions, appropriated an additional $265 million for SBA’s entrepreneurial development programs to assist small businesses adversely affected by the COVID-19 pandemic: $192 million for SBDCs; $48 million for WBCs; and $25 million for a new SBA Resource Partner Association Grant program to establish a single, online centralized hub for COVID-19 information and a COVID19-related training program for SBDC, WBC, SCORE, and veteran business outreach center (VBOC) counselors.

In addition, H.R. 1774, the Developing the Next Generation of Small Businesses Act of 2017, introduced during the 115th Congress, would have required the SBA to only use authorized entrepreneurial development

12

P.L. 114-88 also, among other things, increases, for three years, the minimum disaster loan amount for which the SBA may require collateral, from $14,000 to $25,000 (or, as under existing law, any higher amount the SBA determines appropriate in the event of a disaster); provides a contracting preference for small businesses located in a disaster area if the small business concern will perform the work required under the contract in the disaster area; and doubles the value of the contract for purposes of determining agency compliance with federal small business procurement goals.

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programs (SCORE, WBCs, SBDCs, etc.) to deliver specified entrepreneurial development services. The bill also would have added data collection and reporting requirements for SBDCs; authorized to be appropriated $21.75 million for WBCs for each of FY2018-FY2021 (WBCs were appropriated $18 million in FY2018); increased the WBC annual grant award from not more than $150,000 to not more than $185,000 (adjusted annually to reflect change in inflation); authorized the award of an additional $65,000 to WBCs under specified circumstances; authorized the SBA to waive, in whole or in part, the WBC nonfederal matching requirement for up to two consecutive fiscal years under specified circumstances; modified SCORE program requirements with respect to the role of participating volunteers, program plans and goals, and reporting; and added language concerning the provision and reporting of online counseling by SCORE.

SBA MANAGEMENT AND TECHNICAL ASSISTANCE TRAINING PROGRAMS The SBA supports a number of management and technical assistance training programs, including the following:         

Small Business Development Center Grants Program, Microloan Technical Assistance Program, Women’s Business Center Grants Program, Veterans Business Development Programs, SCORE (Service Corps of Retired Executives), PRIME Technical Assistance Program, 7(j) Technical Assistance Program, Native American Outreach Program, and Several initiatives, including the Entrepreneurial Development Initiative (Regional Innovation Clusters), Boots to Business, Entrepreneurial Education, and Growth Accelerators.

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The legislative history and current operating structures, functions, and budget for each of these programs is presented in this chapter. In addition, if the data are available, the program’s performance based on outcomebased measures, such as their effect on small business formation, survivability, and expansion, and on job creation and retention, is also presented. Also, a brief description of each of these programs is provided in the Appendix.

SMALL BUSINESS DEVELOPMENT CENTERS In 1976, the SBA created the University Business Development Center pilot program to establish small business centers within universities to provide counseling and training for small businesses. The first center was founded at California State Polytechnic University at Pomona in December 1976. Seven more centers were funded over the next six months at universities in seven different states. By 1979, 16 SBDCs received SBA funding and were providing management and technical training assistance to small businesses.13 The SBDC program was provided statutory authorization by P.L. 96302, the Small Business Development Center Act of 1980.14 SBDCs were to “rely on the private sector primarily, and the university community, in partnership with the SBA and its other programs, to fill gaps in making quality management assistance available to the small business owner.”15 Although most SBDCs continued to be affiliated with universities, the legislation authorized the SBA to provide funding

13

14

15

Association of Small Business Development Centers, “A Brief History of America’s Small Business Development Center Network,” Burke, VA, at http://www.asbdcus.org/About_Us/aboutus_history.html. Ibid.; and U.S. Congress, Senate Committee on Small Business, Oversight of the Small Business Administration’s Small Business Development Center Program, 98th Cong., 1st sess., February 8, 1983, S.Hrg. 98-31 (Washington: GPO, 1983), p. 2. U.S. Congress, Senate Committee on Small Business, Oversight of the Small Business Administration’s Small Business Development Center Program, 98th Cong., 1st sess., February 8, 1983, S.Hrg. 98-31 (Washington: GPO, 1983), p. 2.

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Robert Jay Dilger to any State government or any agency thereof, any regional entity, any State-chartered development, credit or finance corporation, any public or private institution of higher education, including but not limited to any land-grant college or university, any college or school of business, engineering, commerce, or agriculture, community college or junior college, or to any entity formed by two or more of the above entities. 16

SBDC funding is allocated on a pro rata basis among the states (defined to include the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa) by a statutory formula “based on the percentage of the population of each State, as compared to the population of the United States.”17 If, as is currently the case, SBDC funding exceeds $90 million, the minimum funding level is “the sum of $500,000, plus a percentage of $500,000 equal to the percentage amount by which the amount made available exceeds $90 million.”18 In 1984, P.L. 98-395, the Small Business Development Center Improvement Act of 1984, required SBDCs, as a condition of receiving SBA funding, to contribute a matching amount equal to the grant amount, and that the match must be provided by nonfederal sources and be comprised of not less than 50% cash and not more than 50% of indirect costs and in-kind contributions.19 It also required SBDCs to have an advisory board and a full-time director who has authority to make expenditures under the center’s budget. It also required the SBA to implement a program of onsite evaluations for each SBDC and to make those evaluations at least once every two years. 16

Ibid., p. 4. 15 U.S.C. 648(a)(4)(C). 18 Ibid., and P.L. 106-554, the Consolidated Appropriations Act, 2001. 19 For American Samoa, Guam, and the U.S. Virgin Islands, the SBA is required to waive the matching requirements on awards less than $200,000 and has discretion to waive the match for awards exceeding $200,000. See 48 U.S.C. Section 1469a. Also, there is one exception to the disallowance of federal funds as a cash match. Community Development Block Grant (CDBG) funds received from the Department of Housing and Urban Development are allowed when: (1) the SBDC activities are consistent with the authorized CDBG activities for which the funds were granted; and (2) the CDBG activities are identified in the Consolidated Plan of the CDBG grantee or in the agreement between the CDBG grantee and the subrecipient of the funds. 17

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Today, the SBA provides grants to SBDCs that are “hosted by leading universities, colleges, and state economic development agencies” to deliver management and technical assistance training “to small businesses and nascent entrepreneurs (pre-venture) in order to promote growth, expansion, innovation, increased productivity and management improvement.”20 These services are delivered, in most instances, on a nonfee, one-on-one confidential counseling basis and are administered by 63 lead service centers, one located in each state (four in Texas and six in California), the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa.21 These lead centers manage nearly 900 service centers located throughout the United States and the territories.22 In FY2019, SBDCs provided technical assistance training and counseling services to 254,821 unique SBDC clients, and 17,810 new businesses were started largely as a result of SBDC training and counseling.23 As shown in Table 1, SBDCs received an appropriation of $125 million in FY2017, $130 million in FY2018, $131 million in FY2019, and $327 million in FY2020 ($135 million in regular appropriations and $192 million in supplemental appropriations). In addition, SBDCs are eligible to receive funding from the CARES Act’s $25 million SBA Resource Partner Association Grants Program. These grants are to be used to establish a single, online centralized hub for COVID-19 information and a COVID-19-related training program for SBDC, WBC, SCORE, and veteran business outreach center (VBOC) counselors.

SBA, “Small Business Development Center Fy/Cy 2011 Program Announcement for Renewal of the Cooperative Agreement for Current Recipient Organizations,” p. 3, at https://www.sba.gov/sites/default/files/files/ 2011%20Program%20Announcement.pdf. 21 Ibid. 22 Association of Small Business Development Centers, “Welcome,” Burke, Virginia, at http://www.asbdc-us.org/. 23 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 85, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 20

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The Trump Administration requested $110 million for SBDCs in FY2018, $110 million in FY2019, $101 million in FY2020, and $87.86 million in FY2021.24 In addition, as mentioned, P.L. 114-88 expanded the role of SBDCs by, among other things 



authorizing the SBA to provide up to two years of additional financial assistance, on a competitive basis, to SBDCs, WBCs, SCORE, or any proposed consortium of such individuals or entities to assist small businesses located in a presidentially declared major disaster area;25 and authorizing SBDCs to provide assistance to small businesses outside the SBDC’s state, without regard to geographical proximity to the SBDC, if the small business is located in a presidentially declared major disaster area. This assistance can be provided “for a period of not more than two years after the date on which the President” has declared the area a major disaster.26

As part of its legislative mandate to evaluate each SBDC, in 2003, the SBA’s Office of Entrepreneurial Development designed “a multi-year time series study to assess the impact of the programs it offers to small

24

SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 25 P.L. 114-88, §2101. The SBA administrator may make one extension of a grant, contract, or cooperative agreement under this paragraph for a period of not more than one year, upon a showing of good cause and need for the extension. 26 P.L. 114-88, §2103. The SBA administrator is authorized to extend the two-year limitation.

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businesses.”27 The survey was administered annually in partnership with a private firm. The 2014 survey (the last one available) was sent to 70,262 SBDC clients who had received five or more hours of counseling assistance in calendar year 2012. The survey was administered in the spring and summer of 2013.28 A total of 10,407 surveys (14.8% return rate) were completed either by mail, email, or the internet.29 The 2014 survey indicated that, of the SBDC clients   



90.7% reported that the services they received from SBDC counselors were beneficial;30 87.8% reported that the knowledge and expertise of their SBDC counselor was excellent (66.0%) or above average (21.8%);31 86.2% reported that their overall working relationship with their SBDC counselor was excellent (68.9%) or above average (17.3%);32 and 94.4% reported that they would recommend that other businesspersons contact the SBDC.33

Legislation As mentioned, P.L. 114-88, among other things, authorizes the SBA to provide up to two years of additional funding to its management and training resource partners to assist small businesses located in a SBA, Office of Entrepreneurial Development, “Impact Study of Entrepreneurial Development Resources,” September 10, 2009, p. 2. 28 SBA, Office of Entrepreneurial Development, “Correspondence with the author,” November 4, 2015. 29 Ibid. 30 Ibid. 31 Ibid. 8.7% of SBDC clients reported that the knowledge and expertise of their SBDC counselor was average, 1.5% of SBDC clients reported that the knowledge and expertise of their SBDC counselor was below average, and 1.9% of SBDC clients reported that the knowledge and expertise of their SBDC counselor was poor. 32 Ibid. 9.3% of SBDC clients reported that their overall working relationship with their SBDC counselor was average, 2% of SBDC clients reported that their overall working relationship with their SBDC counselor was below average, and 2.4% of SBDC clients reported that their overall working relationship with their SBDC counselor was poor. 33 Ibid. 27

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presidentially declared major disaster area and authorizes SBDCs to provide assistance outside the SBDC’s state, without regard to geographical proximity to the SBDC, if the small business is in a presidentially declared major disaster area. This assistance can be provided “for a period of not more than two years after the date on which the President” has declared the area a major disaster. H.R. 4406, the Small Business Development Centers Act of 2019, would have, among other provisions, required the SBA to only use authorized entrepreneurial development programs (SCORE, WBCs, SBDCs, etc.) “to deliver entrepreneurial development services, entrepreneurial education, and support for the development and maintenance of the Regional Innovation Cluster Program (or similar business training services)” and would have added SBDC data collection and reporting requirements. Similar legislation was introduced during the 114th Congress (H.R. 207 and S. 999) and the 115th Congress (H.R. 1702 and H.R. 1774).34 Also, as mentioned, the CARES Act provided SBDCs an additional $192 million to assist small businesses adversely affected by the COVID19 pandemic. SBDCs are also eligible to receive funding from the $25 million Resource Partner Association Grants program.

Microloan Technical Assistance Program Congress authorized the SBA’s Microloan lending program in 1991 (P.L. 102-140, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1992) to address the perceived disadvantages faced by women, low-income, veteran, and minority entrepreneurs and business owners gaining access to capital for

34

The House-passed version of H.R. 2810, the National Defense Authorization Act for Fiscal Year 2018, included provisions similar to those concerning WBCs, SBDCs, and SCORE in H.R. 1774. These provisions were not included in the Senate-passed version of H.R. 2810 or in the bill’s final version (P.L. 115-91, the National Defense Authorization Act for Fiscal Year 2018).

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starting or expanding their business. The program became operational in 1992. Its stated purpose is to assist women, low-income, veteran ... and minority entrepreneurs and business owners and other individuals possessing the capability to operate successful business concerns; to assist small business concerns in those areas suffering from a lack of credit due to economic downturns; ... to make loans to eligible intermediaries to enable such intermediaries to provide small-scale loans, particularly loans in amounts averaging not more than $10,000, to start-up, newly established, or growing small business concerns for working capital or the acquisition of materials, supplies, or equipment; [and] to make grants to eligible intermediaries that, together with non-Federal matching funds, will enable such intermediaries to provide intensive marketing, management, and technical assistance to microloan borrowers.35

Initially, the SBA’s Microloan program was authorized as a five-year demonstration project. It was made permanent, subject to reauthorization, by P.L. 105-135, the Small Business Reauthorization Act of 1997. The SBA’s Microloan Technical Assistance Program, which is affiliated with the SBA’s Microloan lending program but receives a separate appropriation, provides grants to Microloan intermediaries to provide management and technical training assistance to Microloan program borrowers and prospective borrowers.36 There are currently 144 active Microloan intermediaries serving 49 states, the District of Columbia, and Puerto Rico.37 Intermediaries are eligible to receive a Microloan technical assistance grant “of not more than 25% of the total outstanding balance of loans made to it” under the Microloan program.38 Grant funds may be used only to 35

15 U.S.C. §636 7(m)(1)(A). For further analysis of the SBA’s Microloan program, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger. 37 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. For a list of Microloan intermediaries by state, see SBA, “List of Lenders,” at https://www.sba.gov/partners/lenders/microloan- program/list-lenders. 38 15 U.S.C. §636(m)(4)(A). 36

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provide marketing, management, and technical assistance to Microloan borrowers, except that no more than 50% of the funds may be used to provide such assistance to prospective Microloan borrowers and no more than 50% of the funds may be awarded to third parties to provide that technical assistance. Grant funds also may be used to attend required training.39 In most instances, intermediaries must contribute, solely from nonfederal sources, an amount equal to 25% of the grant amount.40 In addition to cash or other direct funding, the contribution may include indirect costs or in-kind contributions paid for under nonfederal programs.41 The SBA does not require Microloan borrowers to participate in the Microloan Technical Assistance Program. However, intermediaries typically require Microloan borrowers to participate in the training program as a condition of the receipt of a microloan. Combining loan and intensive management and technical assistance training is one of the Microloan program’s distinguishing features.42 The program was appropriated $31 million in each of FY2017FY2019, and $34.5 million in FY2020 (see Table 1). The Trump Administration requested $25 million for the Microloan Technical Assistance Program in FY2018, FY2019, FY2020, and FY2021.43 39

13 C.F.R. §120.712. Ibid. 41 Ibid. Intermediaries may not borrow their contribution. 42 Intermediaries that make at least 25% of their loans to small businesses located in or owned by residents of an Economically Distressed Area (defined as having 40% or more of its residents with an annual income that is at or below the poverty level), or have a portfolio of loans made under the program that averages not more than $10,000 during the period of the intermediary’s participation in the program are eligible to receive an additional training grant equal to 5% of the total outstanding balance of loans made to the intermediary. Intermediaries are not required to make a matching contribution as a condition of receiving these additional grant funds. See 13 C.F.R. §120.712; and 15 U.S.C. §636(m)(4)(C)(i). 43 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_CBJ_ May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/about sbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at 40

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As shown in Table 2, the Microloan Technical Assistance Program provided counseling services to 22,100 small businesses in FY2019, and there were 144 grant eligible microloan intermediaries. Table 2. Microloan technical assistance program, FY2014-FY2019 FY 2019 2018 2017 2016 2015 2014

# of Clients Advised 22,100 21,800 19,600 17,948 17,200 15,668

# of Grant Eligible Microloan Intermediaries 144 147 144 140 137 137

Source: U.S. Small Business Administration, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36, at https://www.sba.gov/document/report--congressional-budgetjustification-annual- performance-report.

Legislation As mentioned, P.L. 115-141, among other provisions, relaxed requirements that Microloan intermediaries may spend no more than 25% of Microloan technical assistance grant funds on prospective borrowers and no more than 25% of those funds on contracts with third parties to provide that technical assistance by increasing those percentages to no more than 50%. These provisions were originally in H.R. 2056 and S. 526.44 During the 114th Congress, H.R. 2670 and S. 1857 (its Senate companion bill) would have required the SBA administrator to establish a rule enabling intermediaries to apply for a waiver to the requirement that no more than 25% of Microloan technical assistance grant funds may be used to provide technical assistance to prospective borrowers.45 https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and Small Business Administration, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budgetjustification-annual-performance-report. 44 The bills would also increase the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million. 45 H.R. 2670 was passed by the House on July 13, 2015. S. 1857 was ordered to be reported by the Senate Committee on Small Business and Entrepreneurship on July 29, 2015, and

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Women’s Business Centers The Women’s Business Center (WBC) Renewable Grant Program was initially established by P.L. 100-533, the Women’s Business Ownership Act of 1988, as the Women’s Business Demonstration Pilot Program. The act directed the SBA to provide financial assistance to private, nonprofit organizations to conduct demonstration projects giving financial, management, and marketing assistance to small businesses, including startup businesses, owned and controlled by women. Since its inception, the program has targeted the needs of socially and economically disadvantaged women.46 The WBC program was expanded and provided permanent legislative status by P.L. 109-108, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006. Since the program’s inception, the SBA has awarded WBCs a grant of up to $150,000 per year. Initially, the grant was awarded for one year, with the possibility of being renewed twice, for a total of up to three years. As a condition of the receipt of funds, the WBC was required to raise at least one nonfederal dollar for each two federal dollars during the grant’s first year (1:2), one nonfederal dollar for each federal dollar during year two (1:1), and two nonfederal dollars for each federal dollar during year three (2:1).47 Over the years, Congress has extended the length of the WBC program’s grant award and reduced the program’s matching requirement.

46

47

subsequently reported and placed on the Senate Legislative Calendar under General Orders on September 15, 2015. The bills would have also increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million and the program’s repayment terms from not more than 6 years to not more than 10 years for loans greater than $10,000. For additional information, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger. U.S. Congress, House Committee on Small Business, Review of Women’s Business Center Program, 106th Cong., February 11, 1999, Serial No. 106-2 (Washington: GPO, 1999), p. 4. Matching contributions must come from nonfederal sources such as state and local governments, private individuals, corporations and foundations, and program income. Community Development Block Grant funds, when permissible under the terms of that program, may also be used as a match. At least half of the nonfederal match must be in the form of cash. SBA, “Women’s Business Center (Initial Grant), FY2011” at http://www.sba.gov/sites/default/files/files/ Program%20Announcement%20OWBO-201101-1%20-%20New%20WBC%20in%20Idaho.pdf.

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Today, WBC initial grants are awarded for up to five years, consisting of a base period of 12 months from the date of the award and four 12month option periods.48 The SBA determines if the option periods are exercised and makes that determination subject to the continuation of program authority, the availability of funds, and the recipient organization’s compliance with federal law, SBA regulations, and the terms and conditions specified in a cooperative agreement. WBCs that successfully complete the initial five-year grant period may apply for an unlimited number of three-year funding intervals.49 During their initial five-year grant period, WBCs are now required to provide a nonfederal match of one nonfederal dollar for each two federal dollars in years one and two (1:2), and one nonfederal dollar for each federal dollar in years three, four and five (1:1).50 After the initial five-year grant period, the matching requirement in subsequent three-year funding intervals is not more than 50% of federal funding (1:1).51 The nonfederal match may consist of cash, in-kind, and program income.52 48

P.L. 105-135, the Small Business Reauthorization Act of 1997, authorized the SBA to award grants to WBCs for up to five years—one base year and four option years. P.L. 106-165, the Women’s Business Centers Sustainability Act of 1999, provided WBCs that had completed the initial five-year grant an opportunity to apply for an additional five-year sustainability grant. Thus, the act allowed successful WBCs to receive SBA funding for a total of 10 years. Because the program has permitted permanent three-year funding intervals since 2007, the sustainability grants would be phased out by FY2012, leaving the initial five-year grants with the continuous three-year option. See SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 49, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL%20FY%202012%20CBJ%2 0FY%202010%20APR_0.pdf. 49 P.L. 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, allowed WBCs that successfully completed the initial five-year grant to apply for an unlimited number of three-year funding renewals. 50 P.L. 105-135 reduced the program’s matching to one nonfederal dollar for each two federal dollars in years one through three rather than just during the first year (1:2), one nonfederal dollar for each federal dollar in year four rather than during year two (1:1), and two nonfederal dollars for each federal dollar in year five rather than in year three (2:1). P.L. 106-17, the Women’s Business Center Amendments Act of 1999, reduced the program’s matching requirement to one nonfederal dollar for each two federal dollars in years one and two (1:2), and one nonfederal dollar for each federal dollar in years three, four and five (1:1). 51 P.L. 110-28 reduced the federal share to not more than 50% for all grant years (1:1) following the initial five-year grant. 52 P.L. 105-135 specified that not more than one-half of the nonfederal sector matching assistance may be in the form of in-kind contributions that are budget line items only, including office equipment and office space.

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Today, there are 125 WBCs located throughout most of the United States and the territories.53 In FY2019, WBCs provided technical assistance training and counseling services to 64,527 unique WBC clients, and 2,087 new businesses were started largely as a result of WBC training and counseling.54 Congress recommended that the WBC program receive $18 million in FY2017, $18 million in FY2018, $18.5 million in FY2019, and $70.5 million in FY2020 ($22.5 million in regular appropriations and $48 million in supplemental appropriations) (see Table 1). In addition, WBCs are eligible to receive funding from the CARES Act’s $25 million SBA Resource Partner Association Grants Program. These grants are to be used to establish a single, online centralized hub for COVID-19 information and a COVID-19-related training program for SBDC, WBC, SCORE, and veteran business outreach center (VBOC) counselors. The Trump Administration requested $16 million for WBCs in FY2018 and FY2019, and $17.4 million in FY2020 and FY2021.55 P.L. 105-135 required the SBA to “develop and implement an annual programmatic and financial examination of each” WBC.56 As part of its legislative mandate to implement an annual programmatic and financial examination of each WBC, the SBA’s Office of Entrepreneurial

SBA, “Women’s Business Centers Directory,” at https://www.sba.gov/tools/localassistance/wbc. 54 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 87, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 55 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 56 P.L. 105-135, §29. Women’s Business Center Program. 53

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Development included WBCs in the previously mentioned multiyear time series study of its entrepreneurial development programs. The firm administering the 2013 survey of SBA management and training clients (the last one available concerning WBC clients) contacted 2,997 WBC clients and received 529 completed surveys (17.7% return rate).57 The survey indicated that 

 

80% of WBC clients reported that the services they received from counselors were useful or very useful, 2% had no opinion, and 18% reported that the services they received from counselors were somewhat useful or not useful;58 61% of WBC clients reported that they changed their management practices/strategies as a result of the assistance they received;59 and the top five changes to management practices involved their business plan (56%), marketing plan (46%), general management (36%), cash flow analysis (31%), and financial strategy (30%).60

Legislation As mentioned, P.L. 114-88 expanded the role of WBCs by authorizing the SBA to provide up to two years of additional financial assistance, on a competitive basis, to SBDCs, WBCs, SCORE, or any proposed consortium of such individuals or entities to assist small businesses located in a presidentially declared major disaster area.61 Also, as mentioned, the CARES Act provided WBCs an additional $48 million to assist small businesses adversely affected by the COVID-19

SBA, Office of Entrepreneurial Development, “Impact Study of Entrepreneurial Dynamics: Office of Entrepreneurial Development Resource Partners’ Face-to-Face Counseling,” September 2013, p. 8, at https://www.sba.gov/sites/default/files/files/OED_Impact Report_09302013_Final.pdf. 58 Ibid., p. 19. 59 Ibid., p. 20. 60 Ibid., p. 21. 61 P.L. 114-88, §2101. The SBA administrator may make one extension of a grant, contract, or cooperative agreement under this paragraph for a period of not more than one year, upon a showing of good cause and need for the extension. 57

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pandemic. WBCs are also eligible to receive funding from the $25 million Resource Partner Association Grants program. In addition, H.R. 4406, the Small Business Development Centers Act of 2019, would, among other provisions, require the SBA to only use authorized entrepreneurial development programs (SCORE, WBCs, SBDCs, etc.) “to deliver entrepreneurial development services, entrepreneurial education, and support for the development and maintenance of the Regional Innovation Cluster Program (or similar business training services).” H.R. 4405, the Women’s Business Centers Improvements Act of 2019, would, among other provisions, authorize to be appropriated $31.5 million for WBCs for each of FY2020-FY2023 (WBCs received $22.5 million in FY2020); increase the WBC annual grant award from not more than $150,000 to not more than $300,000 (adjusted annually to reflect change in inflation); and authorize the SBA to waive, in whole or in part, the WBC nonfederal matching requirement for up to two consecutive fiscal years under specified circumstances.62 Similar legislation was introduced during the 114th Congress (H.R. 207 and S. 2126) and 115th Congress (H.R. 1774).

Veterans Business Development Programs The SBA has supported management and technical assistance training for veteran-owned small businesses since its formation as an agency. However, during the 1990s, some in Congress noted that a direct loan program for veterans was eliminated by the SBA in 1995 and that the “training and counseling for veterans dropped from 38,775 total counseling

62

The specified circumstances include the consideration of the economic conditions affecting the recipient organization; the waiver’s impact on the women’s business center program’s credibility; the recipient organization’s demonstrated ability to raise nonfederal funds; and the recipient organization’s performance.

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sessions for veterans in 1993 to 29,821 sessions in 1998.”63 Concerned that “the needs of veterans have been diminished systematically at the SBA,” Congress adopted P.L. 106-50, the Veterans Entrepreneurship and Small Business Development Act of 1999.64 The act reemphasized the SBA’s responsibility “to reach out to and include veterans in its programs providing financial and technical assistance.”65 It also included veterans as a target group for the SBA’s 7(a), 504/CDC, and Microloan programs. In addition, it required the SBA to enter into a memorandum of understanding with SCORE to, among other things, establish “a program to coordinate counseling and training regarding entrepreneurship to veterans through the chapters of SCORE throughout the United States.”66 The act also directed the SBA to enter into a memorandum of understanding with SBDCs, the Department of Veteran Affairs, and the National Veterans Business Development Corporation “with respect to entrepreneurial assistance to veterans, including servicedisabled veterans.”67 It specified, among other things, that the SBA conduct and distribute studies on the formation, management, financing, marketing, and operation of small business concerns by veterans; provide training and counseling on these topics to veterans; assist veterans regarding procurement opportunities with federal, state, and local agencies, especially agencies funded in whole or in part with federal funds; and provide internet or other distance-learning academic instruction for veterans in business subjects, including accounting, marketing, and business fundamentals.68

63

U.S. Congress, House Committee on Small Business, Veterans Entrepreneurship and Small Business Development Act of 1999, report to accompany H.R. 1568, 106th Cong., 1st sess., June 29, 1999, H.Rept. 106-206 (Washington: GPO, 1999), pp. 14, 15. 64 Ibid. 65 U.S. Congress, House Committee on Small Business, Veterans Entrepreneurship and Small Business Development Act of 1999, report to accompany H.R. 1568, 106th Cong., 1st sess., June 29, 1999, H.Rept. 106-206 (Washington: GPO, 1999), p. 14. 66 P.L. 106-50, §301. Score Program. 67 Ibid., §302. Entrepreneurial Assistance. 68 Ibid.

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The SBA’s Office of Veterans Business Development (OVBD) was established to address these statutory requirements.69 The OVBD currently administers several management and training programs to assist veteranowned businesses, including the following: 

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69

The Entrepreneurship Bootcamp for Veterans with Disabilities Consortium of Universities provides “experiential training in entrepreneurship and small business management to post-9/11 veterans with disabilities” at eight universities.70 The Veteran Women Igniting the Spirit of Entrepreneurship (VWISE) program, administered through a cooperative agreement with Syracuse University, offers women veterans a 15-day, online course on entrepreneurship skills and the “language of business,” followed by a 3-day conference (offered twice a year at varying locations) in which participants “are exposed to successful entrepreneurs and CEOs of Fortune 500 companies and leaders in government” and participate in courses on business planning, marketing, accounting and finance, operations and production, human resources, and work-life balance.71 The Operation Endure and Grow Program, administered through a cooperative agreement with Syracuse University, offers an eightweek online training program on “the fundamentals of launching and/or growing a small business” and is available to National Guard and reservists and their family members.72

SBA, FY2016 Congressional Budget Justification and FY2014 Annual Performance Report, p. 97, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%202014%20 APR.PDF. 70 Syracuse University, “About the EBV,” Syracuse, NY, at http://ebv.vets.syr.edu/; and SBA, “SBA Expands Entrepreneurship Boot Camp for Vets: Announces Two New Programs for Women Vets, Guard, Reservists and Families,” November 10, 2010, at https://www.sba.gov/sites/default/files/news_release_10-63.pdf. 71 Syracuse University, “Women Veterans Igniting the Spirit of Entrepreneurship (V-WISE),” Syracuse, NY, at http://vwise.vets.syr.edu/; and SBA, “SBA Expands Entrepreneurship Boot Camp for Vets: Announces Two New Programs for Women Vets, Guard, Reservists and Families,” November 10, 2010, at https://www.sba.gov/sites/default/ files/news_release_10-63.pdf. 72 Syracuse University, “About Operation Endure and Grow,” Syracuse, NY, at http://vets.syr.edu/education/endure- grow/.

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The Boots to Business program (started in 2012), which is “an elective track within the Department of Defense’s revised Training Assistance Program called Transition Goals, Plans, Success (Transition GPS) and has three parts: the Entrepreneurship Track Overview—a 10-minute introductory video shown during the mandatory five-day Transition GPS course which introduces entrepreneurship as a post-service career option; Introduction to Entrepreneurship—a two-day classroom course on entrepreneurship and business fundamentals offered as one of the three Transition GPS elective tracks; and Foundations of Entrepreneurship—an eight-week, instructor-led online course that offers in-depth instruction on the elements of a business plan and tips and techniques for starting a business.”73 The Boots to Business Reboot program (started in 2014) assists veterans who have already transitioned to civilian life.74 The Veterans Business Outreach Centers (VBOC) program provides veterans and their spouses management and technical assistance training at 22 locations, including assistance with the Boots to Business program, the development and maintenance of a five-year business plan, and referrals to other SBA resource partners when appropriate for additional training or mentoring services.75

SBA, “Operation Boots to Business: From Service to Startup,” at https://www.sba.gov/offices/headquarters/ovbd/ resources/160511; and SBA, “Operation Boots to Business: Fact Sheet,” at https://www.sba.gov/sites/default/files/files/ B2B_Fact%20Sheet.pdf. 74 Ibid., pp. 90, 99. 75 SBA, “Veterans Business Outreach Centers,” at https://www.sba.gov/ offices/headquarters/ovbd/resources/1548576. There were 14 VBOCs in 2015 and 20 in 2017. VBOC grants, starting at $180,000, “are made for up to a three-year period of performance, consisting of a base period of 12 months from the date of award and up to two renewal option periods of 12 months each. Exercise of the option periods will be solely at SBA’s discretion and is subject to continuing program authority, the availability of funds, and the recipient’s continued satisfactory performance and compliance.” Also, “funding per VBOC will vary based on proposed Boots to Business (B2B) program delivery and associated outreach.” See SBA, Office of Veterans Business Development, “FY 2015 Program Announcement No. VBOC-2015-02,” pp. 6-7, at https://www.sba.gov/ offices/headquarters/ovbd/spotlight. In FY2013, the Veterans Business Outreach Centers Program conducted its ninth annual “Customer Satisfaction Survey.” The FY2013 survey 73

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Prior to FY2016, Congress recommended appropriations for VBOCs and the Boots to Business program. Funding for the OVBD’s other veterans assistance programs was provided through the SBA’s salaries and expenses account. Starting in FY2016, Congress has recommended a single amount for all OVBD programs (currently $14 million) (see Table 1). Table 3. Office of veterans business development assistance, by program, FY2014-FY2019 FY 2019 2018 2017 2016 2015 2014

Veterans Business Outreach Centers 41,860 51,945 48,839 47,342 62,117 78,124

Boots to Business Program 16,528 17,167 17,320 17,966 14,457 14,684

Source: U.S. Small Business Administration, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 94, 95, at https://www.sba.gov/document/report--congressional-budgetjustification- annual-performance-report.

The Trump Administration requested $11.25 million for these programs in FY2018, FY2019, and FY2020, and $12.84 million in FY2021.76

found that 91% of the clients using the centers were satisfied or highly satisfied with the quality, relevance, and timeliness of the assistance provided. See SBA, FY2015 Congressional Budget Justification and FY2013 Annual Performance Report, p. 81, at https://www.sba.gov/sites/default/files/files/FY%202015%20CBJ%20FY%202013%20AP R%20FINAL%20508(1).pdf. 76 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional% 20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report.

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As shown in Table 3, VBOCs trained or advised 41,860 veterans in FY2019, and 16,528 veterans participated in the Boots to Business Initiative.

Legislation H.R. 3537, the Veteran Entrepreneurship Training Act of 2019, and S. 1998, the Veterans Small Business Ownership Improvements Act, would, among other provisions, provide the Boots to Business program statutory authorization. Similar legislation was introduced during the 114th Congress (S. 1866) and 115th Congress (H.R. 5193 and S. 121).

SCORE (Service Corps of Retired Executives) The SBA has partnered with various voluntary business and professional service organizations to provide management and technical assistance training to small businesses since the 1950s. On October 5, 1964, using authority under the Small Business Act to provide “technical and managerial aids to small business concerns” in cooperation with “educational and other nonprofit organizations, associations, and institutions,” then-SBA Administrator Eugene P. Foley officially launched SCORE (Service Corps of Retired Executives) as a national, volunteer organization with 2,000 members, uniting more than 50 independent nonprofit organizations into a single, national nonprofit organization.77 Since then, the SBA has provided financial assistance to SCORE to provide training to small business owners and prospective owners.78

77

P.L. 83-163, the Small Business Act of 1953; and U.S. Congress, Senate Select Committee on Small Business, Small Business Administration - 1965, 89th Cong., 1st sess., May 19, 1965 (Washington: GPO, 1965), pp. 21, 45; and SCORE (Service Corps of Retired Executives), “Milestones in SCORE History,” Washington, DC, at https://www.score.org/ node/147953. 78 U.S. Congress, Senate Select Committee on Small Business and House Select Committee on Small Business, 1966 Federal Handbook for Small Business: A Survey of Small Business Programs in the Federal Government Agencies, committee print, 89th Cong., 3rd sess., January 31, 1966 (Washington: GPO, 1966), p. 5; and U.S. Congress, House Committee on Small Business, Subcommittee on Rural Development, Entrepreneurship, and Trade, Subcommittee Hearing on Legislative Initiatives to Modernize SBA’s Entrepreneurial

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Over the years, Congress has authorized the SBA to take certain actions relating to SCORE. For example, P.L. 89-754, the Demonstration Cities and Metropolitan Development Act of 1966, authorized the SBA to permit members of nonprofit organizations use of the SBA’s office facilities and services. P.L. 90-104, the Small Business Act Amendments of 1967, added the authority to pay travel and subsistence expenses “incurred at the request of the Administration in connection with travel to a point more than fifty miles distant from the home of that individual in providing gratuitous services to small businessmen” or “in connection with attendance at meetings sponsored by the Administration.”79 P.L. 93-113, the Domestic Volunteer Service Act of 1973, was the first statute to mention SCORE directly, providing the Director of ACTION authority to work with SCORE to “expand the application of their expertise beyond Small Business Administration clients.”80 P.L. 95-510, a bill to amend the Small Business Act, provided the SBA explicit statutory authorization to work with SCORE (Section 8(b)(1)(B)). P.L. 106-554, the Consolidated Appropriations Act, 2001 (Section 1(a)(9)—the Small Business Reauthorization Act of 2000) authorized SCORE to solicit cash and inkind contributions from the private sector to be used to carry out its functions. The SBA currently provides grants to SCORE to provide in-person mentoring, online training, and “nearly 9,000 local training workshops

79

80

Development Programs, 111th Cong., 1st sess., April 2, 2009 (Washington: GPO, 2009), p. 6. U.S. Congress, Senate Select Committee on Small Business, Small Business Act, 90th Cong., 1st sess., November 22, 1967 (Washington: GPO, 1967), pp. 13, 14. P.L. 93-113, the Domestic Volunteer Service Act of 1973, §302. Authority to Establish, Coordinate, and Operate Programs. ACTION was created on July 1, 1971, by President Richard M. Nixon (Reorganization Plan Number One and Executive Order 11603) to oversee several federal volunteer agencies, including the Peace Corps, VISTA (Volunteers in Service to America); and SCORE. P.L. 103-82, the National and Community Service Trust Act of 1993, directed that ACTION be merged with the Commission on National and Community Service to form the Corporation for National and Community Service, which became operational in 1994. See Corporation for National and Community Service, “National Service Timeline,” Washington, DC, at http://www.nationalservice. gov/about/role_impact/ history_timeline.asp.

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annually” to small businesses.81 SCORE’s more than 250 chapters and more than 800 branch offices are located throughout the United States and partner with more than 10,000 volunteer counselors, who are working or retired business owners, executives and corporate leaders, to provide management and training assistance to small businesses “at no charge or at very low cost.”82 In FY2019, SCORE provided technical assistance training and counseling services to 195,242 unique SCORE clients, and 480 new businesses were started largely as a result of SCORE training and counseling.83 Congress recommended that SCORE receive $11 million in FY2017, $11.5 million in FY2018, and $11.7 million in FY2019 and FY2020 (see Table 1). The Trump Administration requested $9.9 million for the program in FY2018 and FY2019, $9.5 million in FY2020, and $8 million in FY2021.84 The SBA Office of Entrepreneurial Development included SCORE in the multiyear time series study to assess its programs’ effectiveness. The 2014 survey was sent to 124,612 SCORE clients who had a valid email address and received at least one mentoring session in any form (telephone, online/email, in-person, or other form) during FY2013 (October 2012September 2013). The survey was initially distributed by email, and 81

SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, p. 45, at https://www.sba.gov/sites/default/files/files/FY%202015%20CBJ%20FY% 202013%20APR%20FINAL%20508(1).pdf. 82 SCORE (Service Corps of Retired Executives), “About SCORE,” Washington, DC, at https://www.score.org/about- score. 83 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 89, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 84 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf: SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional% 20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report.

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telephone calls were used as a follow-up to ensure at least 30 responses were received from each responding SCORE chapter. The survey was administered between October 2013 and December 2013.85 A total of 13,548 surveys (10.9% return rate) were completed either by email or telephone, representing 318 of SCORE’s then-330 chapters.86 The 2014 survey indicated that, of the SCORE clients 

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60.9% reported that they strongly agreed (32.2%) or agreed (28.7%) with the following statement: SCORE is important to my success;87 44.8% reported that they strongly agreed (18.4%) or agreed (26.4%) with the following statement: As a result of working with SCORE, I have changed my business strategies or practices;88 32.6% reported that they strongly agreed (12.1%) or agreed (20.5%) with the following statement: Working with SCORE helped me add employees in the past year;89 and 51.8% reported that they strongly agreed (17.0%) or agreed (34.8%) with the following statement: Working with SCORE helped me grow my business revenue.90

Legislation As mentioned, P.L. 114-88 expanded SCORE’s role by authorizing the SBA to provide up to two years of additional financial assistance, on a competitive basis, to SBDCs, WBCs, SCORE, or any proposed consortium SBA, Office of Entrepreneurial Development, “Correspondence with the author,” November 4, 2015. 86 Ibid. 87 Ibid. 23.8% reported that they were neutral in response to the following statement: SCORE is important to my success; 7.2% disagreed, and 8.1% strongly disagreed. 88 Ibid. 20.9% reported that they were neutral in response to the following statement: As a result of working with SCORE, I have changed my business strategies or practices; 8.2% disagreed, 9.8% strongly disagreed, and 6.4% did not reply or indicated they don’t know. 89 Ibid. 27% reported that they were neutral in response to the following statement: Working with SCORE helped me add employees in the past year; 17.4% disagreed, and 13.6% strongly disagreed. 90 Ibid. 26.9% reported that they were neutral in response to the following statement: Working with SCORE helped me grow my business revenue; 10.1% disagreed, and 11.2% strongly disagreed. 85

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of such individuals or entities to assist small businesses located in a presidentially declared major disaster area.91 Also, H.R. 4406, the Small Business Development Centers Act of 2019, would, among other provisions, require the SBA to only use authorized entrepreneurial development programs (SCORE, WBCs, SBDCs, etc.) “to deliver entrepreneurial development services, entrepreneurial education, and support for the development and maintenance of the Regional Innovation Cluster Program (or similar business training services).” H.R. 4407, the SCORE for Small Business Act of 2019, would specifically authorize the SBA to enter into a cooperative agreement with SCORE to carry out the SCORE program. The bill also provides a list of SBA and SCORE duties, and, among other provisions, requires SCORE to implement webinars and other online training, centralize its accounting and finance systems (in response to a SBA OIG report that was critical of SCORE’s accounting and finance systems), and limits SCORE employee compensation to the maximum rate of pay allowable for SBA Senior Executive Service employees.92 Similar legislation concerning SBA and SCORE duties was introduced during the 114th Congress (H.R. 4788 and S. 1000) and 115th Congress (H.R. 1700 and S. 2034).

Program for Investment in Micro-entrepreneurs (PRIME) P.L. 106-102, the Gramm-Leach-Bliley Act (of 1999) (Subtitle C— Microenterprise Technical Assistance and Capacity Building Program), amended P.L. 103-325, the Riegle Community Development and Regulatory Improvement Act of 1994, to authorize the SBA to “establish a microenterprise technical assistance and capacity building grant 91

P.L. 114-88, §2101. The SBA administrator may make one extension of a grant, contract, or cooperative agreement under this paragraph for a period of not more than one year, upon a showing of good cause and need for the extension. 92 SBA, OIG, Audit of SBA’s Oversight of the SCORE Association, Report Number 19-12, April 25, 2019, at https://www.sba.gov/document/report-19-12-audit-sbas-oversight-scoreassociation.

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program.”93 The program was to “provide assistance from the Administration in the form of grants” to nonprofit microenterprise development organizations or programs (or a group or collaborative thereof) that has a demonstrated record of delivering microenterprise services to disadvantaged entrepreneurs; an intermediary; a microenterprise development organization or program that is accountable to a local community, working in conjunction with a state or local government or Indian tribe; or an Indian tribe acting on its own, if the Indian tribe can certify that no private organization or program referred to in this paragraph exists within its jurisdiction.”94

The SBA was directed “to ensure that not less than 50% of the grants … are used to benefit very low-income persons, including those residing on Indian reservations.”95 It was also directed to (1) provide training and technical assistance to disadvantaged entrepreneurs; (2) provide training and capacity building services to microenterprise development organizations and programs and groups of such organizations to assist such organizations and programs in developing microenterprise training and services; (3) aid in researching and developing the best practices in the field of microenterprise and technical assistance programs for disadvantaged entrepreneurs; and (4) for such other activities as the Administrator determines are consistent with the purposes of this subtitle.96

The SBA’s PRIME program was designed to meet these legislative requirements by providing assistance to organizations that “help lowincome entrepreneurs who lack sufficient training and education to gain access to capital to establish and expand their small businesses.”97 The program offers four types of grants:

93

P.L. 106-102, the Gramm-Leach-Bliley Act, §173. Establishment of Program. P.L. 106-102, §173. Establishment of Program and §175. Qualified Organizations. 95 P.L. 106-102, §176. Allocation of Assistance; Subgrants. 96 P.L. 106-102, §174. Uses of Assistance. 97 SBA, “What is PRIME?” at https://www.sba.gov/offices/headquarters/oca/resources/11416. 94

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Technical Assistance Grants support training and technical assistance to disadvantaged microentrepreneurs, Capacity Building Grants support training and capacity building services to microenterprise development organizations and programs to assist them in developing microenterprise training and services, Research and Development Grants support the development and sharing of best practices in the field of microenterprise development and technical assistance programs for disadvantaged microentrepreneurs, and Discretionary Grants support other activities determined to be consistent with these purposes.98

Grants are awarded on an annual basis. Applicants may be approved for option year funding for up to four subsequent years. Award amounts vary depending on the availability of funds. However, no single grantee may receive more than $250,000 or 10% of the total funds made available for the program in a single fiscal year, whichever is less. The minimum grant award for technical assistance and capacity building grants is $50,000. There is no minimum grant award amount for research and development or discretionary grants.99 The SBA typically awards at least 75% of the grant funds for technical assistance, at least 15% for capacity building, and the remainder for research and development or discretionary activities.100 Recipients must match 50% of the funding from nonfederal sources. Revenue from fees, grants, and gifts; income from loan sources; and inkind resources from nonfederal public or private sources may be used to comply with the matching requirement.101 SBA regulations indicate that 98

Ibid. Ibid. 100 Ibid. For Technical Assistance and Capacity Building Grants, after the initial grant, funding for additional year(s) must be no more than 67% of the initial grant amount. For Research and Development and Discretionary Grants, after the initial grant, funding for additional year(s) will be approved at the SBA’s discretion. 101 SBA, “Program for Investment in Microentrepreneurs Act (“PRIME”): Microenterprise and Technical Assistance Programs to Disadvantaged Entrepreneurs, Fiscal Year 2010,” June 99

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“applicants or grantees with severe constraints on available sources of matching funds may request that the Administrator or designee reduce or eliminate the matching requirements.”102 Any reductions or eliminations must not exceed 10% of the aggregate of all PRIME grant funds made available by SBA in any fiscal year.103 Table 4 provides the number and amount of PRIME awards from FY2014 to FY2019. Table 4. PRIME grant awards, FY2014-FY2019 ($ in millions) FY 2019 2018 2017 2016 2015 2014

# of Grants 30 32 34 37 39 24

$ Awarded $5.0 $5.0 $5.0 $5.0 $5.0 $3.5

Range of Awards $75,000 to $250,000 $75,000 to $250,000 $55,103 to $250,000 $75,000 to $230,913 $35,455 to $200,000 $94,000 to $250,000

Source: U.S. Small Business Administration, “PRIME Grantees,” available by year and state, at https://www.sba.gov/document/support—prime-grantees.

Congress has recommended that the PRIME program receive $5 million in each of FY2015- FY2019, and $5.5 million in FY2020 (see Table 1). As mentioned, the Obama Administration recommended in its FY2012-FY2017 budget requests that funding for the PRIME program be eliminated. It argued that the PRIME program overlaps and duplicates the SBA’s Microloan Technical Assistance Program.104 The Trump 2010, pp. 2, 8, at https://www.sba.gov/sites/default/files/files/serv_fa_2010_prime track123.pdf. 102 13 C.F.R. §119.8. 103 Ibid. 104 SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 4, at https://www.sba.gov/sites/default/files/aboutsbaarticle/ FINAL%20FY%202012% 20CBJ%20FY%202010%20APR_0.pdf; SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, pp. 8, 15, at https://www.sba. gov/sites/default/files/files/1-508%20Compliant%20FY%202013%20CBJ%20FY%202011 %20APR(1).pdf; SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 22, 27, at https://www.sba.gov/sites/default/files/files/1-508Compliant-FY-2014-CBJ%20FY%202012%20APR.pdf; SBA, FY2017 Congressional Budget Justification and FY2015 Annual Performance Report, p. 19, at

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Administration requested that the program receive no funding in FY2018, FY2019, FY2020, and FY2021.105

7(j) Management and Technical Assistance Program Using what it viewed as broad statutory powers granted under Section 8(a) of the Small Business Act of 1958, as amended, the SBA issued regulations in 1970 creating the 8(a) contracting program to “assist small concerns owned by disadvantaged persons to become self-sufficient, viable businesses capable of competing effectively in the market place.”106 Using its statutory authority under Section 7(j) of the Small Business Act to provide management and technical assistance through contracts, grants, and cooperative agreement to qualified service providers, the regulations specified that “the SBA may provide technical and management assistance to assist in the performance of the subcontracts.”107 On October 24, 1978, P.L. 95-507, to amend the Small Business Act and the Small Business Investment Act of 1958, provided the SBA explicit statutory authority to extend financial, management, technical, and other services to socially and economically disadvantaged small businesses. The SBA’s current regulations indicate that the 7(j) Management and Technical https://www.sba.gov/sites/default/files/FY17-CBJ_FY15-APR.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 105 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; and SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf. 106 13 C.F.R. §124.8-1(b) (1970); and Notes, “Minority Enterprise, Federal Contracting, and the SBA’s 8(a) Program: A New Approach to an Old Problem,” Michigan Law Review, vol. 71, no. 2 (December 1972), pp. 377, 378. For further analysis of the Minority Small Business and Capital Ownership Development Program, also known as the 8(a) program, see CRS Report R44844, SBA’s “8(a) Program”: Overview, History, and Current Issues, by Robert Jay Dilger. 107 13 C.F.R. §124.8-1(d) (1970).

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Assistance Program, named after the section of the Small Business Act of 1958, as amended, authorizing the SBA to provide management and technical assistance training, will, “through its private sector service providers” deliver “a wide variety of management and technical assistance to eligible individuals or concerns to meet their specific needs, including: (a) counseling and training in the areas of financing, management, accounting, bookkeeping, marketing, and operation of small business concerns; and (b) the identification and development of new business opportunities.”108 Eligible individuals and businesses include “8(a) certified firms, small disadvantaged businesses, businesses operating in areas of high unemployment, or low income or firms owned by low income individuals.”109 As shown on Table 5, the 7(j) program assisted 8,032 small business owners in FY2019. Table 5. 7(j) Assistance, FY2014-FY2019 FY 2019 2018 2017 2016 2015 2014

# of Clients Trained or Counseled 8,032 6,483 4,100 5,245 5,360 4,104

Source: U.S. Small Business Administration, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 77, at https://www.sba.gov/document/report--congressional-budgetjustification-annual- performance-report.

Congress has recommended that the 7(j) program receive $2.8 million in each fiscal year since FY2017 (see Table 1). The Trump Administration requested $2.8 million for the program in FY2018 and FY2019, and $0.5 million in FY2020 and FY2021.110 108

13 C.F.R. §124.702. SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 75, at https://www.sba.gov/sites/default/files/aboutsbaarticle/ FINAL%20FY%202012 %20CBJ%20FY%202010%20APR_0.pdf. 110 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ 109

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Native American Outreach Program The SBA established the Office of Native American Affairs in 1992 to “address the unique needs of America’s First people.”111 It oversees the Native American Outreach Program, which provides management and technical educational assistance to American Indians, Alaska Natives, Native Hawaiians, and “the indigenous people of Guam and American Samoa … to promote entity- owned and individual 8(a) certification, government contracting, entrepreneurial education, and capital access.”112 The program’s management and technical assistance services are available to members of these groups living in most areas of the nation.113 However, “for Native Americans living in much of Indian Country, actual reservations communities where the land is held in trust by the U.S. federal government, SBA loan guaranties and technical assistance services are not available.”114 In FY2019, the SBA’s Office of Native American Affairs assisted 2,125 small businesses. It provided workshops on business development and financial literacy, training webinars, incubator training, and online

CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. 111 U.S. Congress, Senate Committee on Small Business and Entrepreneurship, SBA Reauthorization: Non-Credit Programs, 108th Cong., 1st sess., April 9, 2003, S.Hrg. 108447 (Washington: GPO, 2003), p. 25; and U.S. Congress, House Committee on Small Business, Subcommittee on Workforce, Empowerment, and Government Programs, Oversight of the Small Business Administration’s Entrepreneurial Development Programs, 109th Cong., 2nd sess., March 2, 2006, Serial No. 109-40 (Washington: GPO, 2006), pp. 5, 37. H.R. 2352, the Job Creation Through Entrepreneurship Act of 2009, would have provided statutory authorization for the Office of Native American Affairs. It was passed by the House on May 20, 2009. 112 SBA, FY2011 Congressional Budget Justification and FY2009 Annual Performance Report, p. 65, at https://www.sba.gov/sites/default/files/aboutsbaarticle/Congressional_Budget_ Justification.pdf. 113 Ibid. 114 Ibid.

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classes for Native American entrepreneurs.115 Congress has recommended that the Native American Outreach Program receive $2 million in each fiscal year since FY2017 (see Table 1). The Trump Administration requested $1.5 million for the program in FY2018, FY2019, FY2020, and FY2021.116

SBA Initiatives In addition to the Boots to Business initiative discussed under “Veterans Business Development Programs,” Congress has recommended appropriations for the following three Obama Administration management and training initiatives: the Entrepreneurial Development Initiative (Regional Innovation Clusters), Entrepreneurial Education, and Growth Accelerators.

Entrepreneurial Development Initiative (Regional Innovation Clusters) The SBA has supported regional innovation clusters since FY2009, when it partnered with small business suppliers working in the field of robotics in Michigan. In FY2010, the SBA was involved in the rollouts of two additional clusters: another robotics cluster in southeast Virginia and a cluster involving a partnership with the Department of Energy and several other federal agencies with the goal of developing a regional cluster in

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SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 99, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report. SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report.

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energy efficiency homes and businesses.117 In FY2011, SBA awarded funds to 10 regional innovation clusters. In FY2012, these clusters “spurred $48 million in private capital raised through venture and angel capital sources, $6.5 million in early stage investment from SBIR [Small Business Innovation Research program] and STTR [Small Business Technology Transfer program] awards, and over $217 million in contracts or subcontracts from the federal government.”118 President Obama requested, and Congress recommended, an appropriation of $5 million for the SBA’s Entrepreneurial Development Initiative (Regional Innovation Clusters) in FY2014. Congress recommended that the program receive $6 million in FY2015, $6 million in FY2016, and $5 million in each fiscal year since FY2017 (see Table 1). The Trump Administration requested that the program receive no funds in FY2018, FY2019, FY2020, and FY2021.119 In 2013, the SBA reported that there were 56 federally supported regional innovation clusters; it was involved in 40 of these clusters and

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SBA, FY2011 Congressional Budget Justification and FY2009 Annual Performance Report, p. 59, at https://www.sba.gov/sites/default/files/aboutsbaarticle/Congressional_Budget_ Justification.pdf. SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 60, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%2020 14%20APR.PDF. The Small Business Innovation Research (SBIR) program is a competitive program that encourages domestic small businesses to engage in federal research and development that has the potential for commercialization. For additional information and analysis concerning the SBIR program, see CRS Report R43695, Small Business Innovation Research and Small Business Technology Transfer Programs, by John F. Sargent Jr. The Small Business Technology Transfer (STTR) program is a competitive program that reserves a specific percentage of federal research and development funding for awards to small business and nonprofit research institutions. SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/ SBA%20FY%202020%20Congressional%20Justification_final%20508%20%204%2023% 202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budgetjustification-annual-performance-report.

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directly funded 10 of them.120 In 2019, the SBA announced that it was funding 7 new clusters, increasing the number of clusters currently supported by the SBA to 14.121 The SBA describes regional innovation clusters as “on-the-ground collaborations between business, research, education, financing and government institutions that work to develop and grow a particular industry or related set of industries in a particular geographic region.”122 The SBA reported that the 7 new clusters funded in FY2019 “are particularly well suited to focus on rural small business creation that will bring much-needed education, training and expertise to support small business growth in rural locations across our country.”123

Entrepreneurial Education The SBA started its Entrepreneurship Education initiative in 2008. At that time, it was called the Emerging 200 Underserved initiative (E200), reflecting the initiative’s provision of assistance to 200 inner city small businesses. In FY2009, it was renamed the Emerging Leaders initiative to reflect the SBA’s decision to increase the number of small businesses participating in the initiative. It was renamed the Entrepreneurial Education 120

The SBA is the lead agency supporting 10 SBA Pilot Contract-Based clusters; partners with the Economic Development Agency, Employment and Training Agency, National Institute of Standards and Technology, and Department of Energy to support 10 Jobs Accelerator Advanced Manufacturing clusters; and partners with the Economic Development Agency and Employment and Training Agency to support 20 Jobs Accelerator Collaboration Clusters. See SBA, “SBA Supports 56 Federally Funded Cluster Initiatives,” at https://www.sba.gov/sba-clusters; and SBA, “56 Federally Supported Cluster Initiatives,” at https://www.google.com/url?q=https://www.sba.gov/sites/ default/files/SBA%2520Supports%252056%2520Federally%2520Funded%2520Cluster%2 520Initiatives_1.pdf&sa=U&ved=0CBMQFjAHahUKEwjinvOB9rXIAhULPD4KHZ_ODF A&client=internal-uds-cse&usg= AFQjCNEcVUjShZkcIYqlUrIn7ma3IZBRQg. 121 SBA, “SBA Announces New Regional Innovation Cluster Awards to Advance Small Business Growth,” April 15, 2019, at https://www.sba.gov/about-sba/sba-newsroom/press-releasesmedia-advisories/sba-announces-new-regional- innovation-cluster-awards-advance-smallbusiness-growth. 122 SBA, FY2016 Congressional Budget Justification and FY2014 Annual Performance Report, p. 63, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%2020 14%20APR.PDF. 123 SBA, “SBA Announces New Regional Innovation Cluster Awards to Advance Small Business Growth,” April 15, 2019, at https://www.sba.gov/about-sba/sba-newsroom/press-releasesmedia-advisories/sba-announces-new-regional-innovation-cluster-awards-advance-smallbusiness-growth.

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initiative in FY2013, and it is funded under that name in appropriation acts, but the SBA, and others, often still call it the Emerging Leaders Initiative. The initiative currently offers high‐growth small businesses in underserved communities a seven‐month executive leader education series that elevates their growth trajectory, creates jobs, and contributes to the economic well‐being of their local communities. Participants receive more than 100 hours of specialized training, technical resources, a professional networking system, and other resources to strengthen their business model and promote economic development within urban communities. At the conclusion of the training, participants produce a three‐ year strategic growth action plan with benchmarks and performance targets that help them access the necessary support and resources to move forward for the next stage of business growth.124

The Entrepreneurial Education initiative was initially offered in 10 communities (Albuquerque, Atlanta, Baltimore, Boston, Chicago, Des Moines, Memphis, Milwaukee, New Orleans, and Philadelphia) and provided training to 200 inner city small businesses. The program was funded through the SBA’s Office of Entrepreneurship Education.125 Since the initiative’s inception, the SBA has requested separate appropriations to fund and expand the initiative. In FY2012, the initiative offered training in 27 communities, with more than 450 small businesses participating.126 The Obama Administration requested $40 million in its FY2014 budget request to sponsor entrepreneur training in 40 locations and to create an online entrepreneurship training program.127 Congress included the Entrepreneurship Education initiative in its list of SBA entrepreneurial development/noncredit programs to be funded in FY2014. This was the 124

SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p.71, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%2020 14%20APR.PDF. 125 SBA, FY2010 Congressional Budget Justification, p.67, at https://www.sba.gov /sites/default/files/aboutsbaarticle/Congressional_Budget_Justification_2010.pdf. 126 SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 71, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%202014 %20APR.PDF. 127 Ibid., p. 10.

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first time that the initiative was included in the list. In the explanatory statement accompanying the Consolidated Appropriations Act, 2014, Congress recommended that the initiative receive $5 million in FY2014. 128 Congress recommended that the program receive $7 million in FY2015, $10 million in FY2016 and FY2017, $6 million in FY2018, $3.5 million in FY2019, and $2.5 million in FY2020 (see Table 1). The Trump Administration requested $2 million for the program in FY2018 and FY2019, and $2.5 million in FY2020 and FY2021.129 The Entrepreneurship Education initiative is currently being offered in 60 cities and serves more than 800 small business owners annually.130 These owners are required to have been in business for at least three years, have annual revenue of at least $250,000, and have at least one employee, other than the owner, to participate in the initiative. There is no cost to the participants.131

Growth Accelerators The SBA describes growth accelerators as “organizations that help entrepreneurs start and scale their businesses.”132 Growth accelerators are typically run by experienced entrepreneurs and help small businesses Recommended funding levels for the SBA’s noncredit programs in FY2014 are provided in the “Explanatory Statement” accompanying the Consolidated Appropriations Act, 2014 (Division E - Financial Services and General Government Appropriations Act, 2014), pp. 37-39, at http://docs.house.gov/billsthisweek/20140113/113-HR3547- JSOM-D-F.pdf. 129 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/ SBA%20FY%202020%20Congressional%20Justification_final%20508%20%204%2023% 202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budgetjustification-annual-performance-report. 130 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 91, 92, at https://www.sba.gov/document/report--congressional-budget-justificationannual-performance-report. 131 SBA, “SBA Emerging Leaders Initiative,” at https://www.sba.gov/about-sba/organization/sbainitiatives#section- header-18. 132 SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 75, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf. 128

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access seed capital and mentors. The SBA claims that growth accelerators “help accelerate a startup company’s path towards success with targeted advice on revenue growth, job, and sourcing outside funding.”133 In FY2012, the SBA sponsored several meetings with university officials and faculty, entrepreneurs, and representatives of growth accelerators to discuss mentoring and how to best assist “high-growth” entrepreneurs. These meetings “culminated with a White House event co‐ hosted by the SBA and the Department of Commerce to help formalize the network of universities and accelerators, provide a series of ‘train the trainers’ events on various government programs that benefit high‐growth entrepreneurs, and provide a playbook of best practices on engaging universities on innovation and entrepreneurship.”134 In FY2014, the Obama Administration requested $5 million, and Congress recommended an appropriation of $2.5 million, for the growth accelerator initiative. The Obama Administration proposed to use the funding to provide matching grants to universities and private sector accelerators “to start a new accelerator program (based on successful models) or scale an existing program.”135 The Obama Administration also indicated that it planned to request funding for five years ($25 million in total funding) and feature a required 4:1 private-sector match.136 However, because it received half of its budget request ($2.5 million), the SBA decided to reconsider the program’s requirements. As part of that reconsideration, the SBA decided to drop the 4:1 private- sector match in an effort to enable the program to have a larger effect.137 The SBA announced the availability of 50 growth accelerator grants of $50,000 each on May 12, 2014, and received more than 800 applications

133

Ibid. SBA, FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 60, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%202014 %20APR.PDF. 135 Ibid. 136 Ibid. 137 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” May 6, 2014. 134

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by the August 2, 2014, deadline. The 50 awards were announced in September 2014.138 Congress recommended that the program receive $4 million in FY2015, $1 million in FY2016, FY2017, and FY2018, and $2 million in FY2019 and FY2020 (see Table 1). Congress also directed the SBA in its explanatory statements accompanying P.L. 113-235 and P.L. 114-113 to “require $4 of matching funds for every $1 awarded under the growth accelerators program.”139 The Trump Administration requested that the program receive no funding in FY2018, FY2019, FY2020, and FY2021.140 The SBA announced the award of 80 growth accelerator grants of $50,000 each on August 4, 2015 ($4 million), 68 growth accelerator grants of $50,000 each on August 31, 2016 ($3.4 million), 20 growth accelerator grants of $50,000 each on October 30, 2017 ($1 million), and 60 growth

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SBA, “SBA Launches Accelerator Competition to Award $2.5 million for Small Business Startups,” May 12, 2014, at https://www.sba.gov/content/sba-launches-acceleratorcompetition-award-25-million-small-business-startups-0; SBA, “More than 800 Small Business Startups Compete for 50 Cash Prizes in SBA’s Growth Accelerator Competition,” August 4, 2014, at https://www.sba.gov/content/more-800-small-business-startups-compete50-cash- prizes-sbas-growth-accelerator-competition; and SBA, “SBA Spurs Economic Growth, Announces 50 Awards to Accelerators,” September 4, 2014, at https://www.sba.gov/content/sba-spurs-economic-growth-announces-50-awardsaccelerators. Rep. Harold Rogers, “Explanatory Statement Submitted by Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendment on H.R. 83,” Congressional Record, vol. 160, part 151 (December 11, 2014), p. H9741; and Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H10140. SBA, FY2018 Congressional Budget Justification and FY2016 Annual Performance Report, p. 12, at https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL_SBA_FY_2018_ CBJ_May_22_2017c.pdf; SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p. 13, at https://www.sba.gov/ sites/default/files/ aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_post.pdf; SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 11, at https://www.sba.gov/sites/default/files/2019-04/SBA%20FY%202020%20Congressional %20Justification_final%20508%20%204%2023%202019.pdf; and SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 11, at https://www.sba.gov/document/report--congressional-budget-justification-annualperformance-report.

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accelerator grants of $50,000 each on September 26, 2019 ($3 million).141 The SBA did not issue a competitive announcement for Growth Accelerator awards in FY2018. H.R. 4387, to establish Growth Accelerator Fund Competition within the Small Business Administration, and for other purposes, would provide the Growth Accelerators initiative statutory authorization. Similar legislation was introduced during the 115th Congress (H.R. 2686).

DEPARTMENT OF COMMERCE SMALL BUSINESS MANAGEMENT AND TECHNICAL ASSISTANCE TRAINING PROGRAMS As mentioned, the Department of Commerce’s Minority Business Development Agency (MBDA) provides training to minority business owners to assist them in obtaining contracts and financial awards.142 In addition, the Department of Commerce’s Economic Development Administration’s Local Technical Assistance Program promotes efforts to build and expand local organizational capacity in distressed areas. As part of that effort, it funds projects that focus on technical or market feasibility studies of economic development projects or programs, which often include consultation with small businesses.143

SBA, “SBA Boosts Economic Impact of Accelerators with $4.4 Million in Prizes,” August 4, 2015, at https://www.sba.gov/content/sba-boosts-economic-impact-accelerators-44-millionprizes-0; SBA, “SBA Announces $3.4 Million for Small Business Startups,” August 31, 2016, at https://www.sba.gov/content/sba-announces-34-million- small-business-startups; SBA, “SBA Announces 20 Growth Accelerator Fund Competition Recipients,” October 30, 2017, at https://www.sba.gov/node/1594788; and SBA, “SBA Announces $3 Million for 60 Growth Accelerator Fund Competition Recipients Supporting Startups and STEM Focused Entrepreneurs,” September 26, 2019, at https://www.sba.gov/about-sba/sbanewsroom/press-releases-media-advisories/sba-announces-3-million-60-growthaccelerator-fund-competition-recipients-supporting-startups-and. 142 U.S. Department of Commerce, MBDA, “Annual Performance Report, Fiscal Year 2011; America: Built to Last,” p. 76, at https://www.mbda.gov/sites/mbda.gov/files/apr2011.pdf. 143 13 C.F.R. §306. 141

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The Minority Business Development Agency The MBDA was established by President Richard M. Nixon by Executive Order 11625, issued on October 13, 1971, and published in the Federal Register the next day. It clarified the authority of the Secretary of Commerce to    

implement federal policy in support of the minority business enterprise program, provide additional technical and management assistance to disadvantaged businesses, assist in demonstration projects, and coordinate the participation of all federal departments and agencies in an increased minority enterprise effort.144

The MBDA received an appropriation of $34 million in FY2017, $39 million in FY2018, $40 million in FY2019, and $42 million in FY2020.145 The CARES Act provided the MBDA an additional $10 million in supplemental funding in FY2020. The Trump Administration requested $6 million to close the agency in FY2018, and a reduction to $10 million in FY2019 and FY2020, and $10.281 million in FY2021.146 As part of its mission, the MBDA seeks to train minority business owners to become first- or second-tier suppliers to private corporations and The Executive Office of the President, “Executive Order 11625,” 36 Federal Register 11625, October 14, 1971; and 3 C.F.R., 1971-1975 Comp. 9. 616. The MBDA superseded the Office of Minority Business Enterprise, which was established by Executive Order 11458 signed by President Richard Nixon on March 5, 1969. 145 P.L. 114-113, P.L. 115-31; P.L. 115-56, P.L. 115-141; P.L. 116-6, and P.L. 116-93. 146 U.S. Office of Management and Budget (OMB), “Appendix: Budget of the U.S. Government, Fiscal Year 2018,” p. 190, at https://www.whitehouse.gov/sites/whitehouse. gov/files/omb/budget/fy2018/appendix.pdf; OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2019,” p. 189, at https://www.gpo.gov/fdsys/pkg/BUDGET-2019APP/ pdf/BUDGET-2019-APP.pdf; OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2020,” p. 186, at https://www.govinfo.gov/content/pkg/BUDGET-2020APP/pdf/BUDGET-2020-APP.pdf: and OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2021,” p. 198, at https://www.whitehouse.gov/wp-content/uploads/2020/ 02/appendix_fy21.pdf. 144

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the federal government. Progress is measured in the business’s increased gross receipts, number of employees, and size and scale of the firms associated with minority business enterprises. The MBDA reported that in FY2015 it helped to create and retain 36,896 jobs and assisted minority-owned and operated businesses in obtaining more than $5.9 billion in contracts and capital awards.147

THE EDA LOCAL TECHNICAL ASSISTANCE PROGRAM P.L. 89-186, the Public Works and Economic Development Act of 1965, authorized the Department of Commerce’s Economic Development Administration (EDA) to provide financial assistance to economically distressed areas in the United States that are characterized by high levels of unemployment and low per-capita income. The EDA currently administers seven Economic Development Assistance Programs (EDAPs) that award matching grants for public works, economic adjustment, planning, technical assistance, research and evaluation, trade adjustment assistance, and global climate change mitigation.148 Grants awarded under the EDA’s Local Technical Assistance Program are designed to help solve specific economic development problems, respond to development opportunities, and build and expand local organizational capacity in distressed areas.149 The majority of local U.S. Department of Commerce, MBDA, “Annual Performance Report, Fiscal Year 2015,” pp. 1, 2, at https://www.mbda.gov/sites/mbda.gov/files/migrated/files-attachments/2015Annual PerformanceReport.pdf. 148 In addition, since 1970, Congress has periodically allocated supplemental funds for the Economic Development Administration (EDA) to assist with disaster mitigation and economic recovery. Also, EDA grant applicants must be designated by EDA as part of an EDD—a multijurisdictional consortium of county and local governments—to be eligible for EDA funding and grants. To be designated as an EDD, an area must meet the definition of economic distress, under 13 C.F.R. 303.3: “(i) An unemployment rate that is, for the most recent twenty-four (24) month period for which data are available, at least one (1) percentage point greater than the national average unemployment rate; (ii) Per capita income that is, for the most recent period for which data are available, eighty (80) percent or less of the national average per capita income; or (iii) A Special Need, as determined by Economic Development Administration (EDA).” 149 13 C.F.R. §306. 147

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technical assistance projects focus on technical or market feasibility studies of economic development projects or programs, including consultation with small businesses. The EDA’s Local Technical Assistance Program received an appropriation of $9 million in FY2017, $9.5 million in FY2018, FY2019, and FY2020.150 The Trump Administration requested $30 million to close the EDA in FY2018, $14.9 million to close it in FY2019, $29.95 million to close it in FY2020, and $31.593 million to close it in FY2021.151

CONGRESSIONAL ISSUES For many years, a recurring theme at congressional hearings concerning the SBA’s management and technical assistance training programs was the perceived need to improve program efficiency by eliminating duplication of services or increasing cooperation and

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Rep. Harold Rogers, “Explanatory Statement Submitted By Mr. Rogers of Kentucky, Chairman of the House Committee on Appropriations Regarding House Amendment No. 1 to the Senate Amendment on H.R. 2029 Consolidated Appropriations Act,” Congressional Record, vol. 161, no. 184-Book II (December 17, 2015), p. H9732; Rep. Rodney Frelinghuysen, “Explanatory Statement Submitted By Mr. Frelinghuysen of New Jersey, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 244 [the Consolidated Appropriations Act, 2017],” Congressional Record, vol. 163, no. 76-Book II (May 3, 2017), p. H3365; “Explanatory Statement Submitted by Mr. Frelinghuysen, Chairman of the House Committee on Appropriations Regarding the House Amendment to the Senate Amendments on H.R. 1625 [the Consolidated Appropriations Act, 2018] (Division B – Commerce, Justice, Science, and Related Agencies Appropriations Act, 2018),” p. 2; H.Rept. 116- 9, conference report to accompany the Consolidated Appropriations Act, 2019; and “Explanatory Statement Submitted by Mrs. Lowey, Chairwoman of the House Committee on Appropriations Regarding the Consolidated Appropriations Act, 2020 (Division B – Commerce, Justice, Science, and Related Agencies Appropriations Act, 2020),” p. 4. OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2018,” pp. 181-183, at https://www.govinfo.gov/ content/pkg/BUDGET-2018-APP/pdf/BUDGET-2018-APP.pdf; OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2019,” pp. 182, 183, at https://www.gpo.gov/fdsys/pkg/BUDGET-2019-APP/pdf/BUDGET-2019-APP-16.pdf; OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2020,” p. 179, at https://www.govinfo.gov/ content/pkg/BUDGET-2020-APP/pdf/BUDGET-2020-APP-16.pdf; and OMB, “Appendix: Budget of the U.S. Government, Fiscal Year 2021,” p. 191, at https://www.whitehouse.gov/wp-content/uploads/2020/02/ appendix_fy21.pdf.

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coordination both within and among SCORE, WBCs, and SBDCs.152 For example, in 2013 the House Committee on Small Business’s majority argued in its “views and estimates letter” to the House Budget Committee that the SBA’s various management and technical assistance training programs should be “folded into the mission of the SBDC program or their responsibilities should be taken over by other agencies” because they “overlap each other and duplicate the educational services provided by other agencies.”153 In addition, as mentioned, the Obama Administration recommended that the PRIME program be eliminated, arguing that it overlaps and duplicates the SBA’s Microloan Technical Assistance Program. The Trump Administration has also recommended that the PRIME program, the Growth Accelerators Initiative, and the Entrepreneurial Development Initiative (Regional Innovation Clusters) be eliminated because they overlap private-sector “mechanisms to foster local business development and investment” or are “duplicative of other federal programs.”154

152

U.S. Congress, House Committee on Small Business, Full Committee Markup of H.R. 2352 The Job Creation Through Entrepreneurship Act of 2009, 111th Cong., 1st sess., May 13, 2009, Doc. No. 111-022 (Washington: GPO, 2009), pp. 2, 14; U.S. Congress, Senate Committee on Small Business, SBA’s Management and Assistance Programs, Roundtable before the Committee on Small Business United States Senate, 106th Cong., 1st sess., May 20, 1999, S. Hrg. 106-337 (Washington: GPO, 1999), pp. 69, 74, 82, 92; U.S. Congress, House Committee on Small Business, To Investigate the Legislation That Would Increase the Extent and Scope of the Services Provided By Small Business Development Centers, 107th Cong., 1st sess., July 19, 2001, Serial No. 107-20 (Washington: GPO, 2001), pp. 13, 59, 60; and U.S. Congress, Senate Committee on Small Business, Oversight on the Small Business Administration’s Small Business Development Center Program, 100th Cong., 1st sess., October 15, 1987, S. Hrg. 100-339 (Washington: GPO, 1987), pp. 6, 165, 168, 230. 153 U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2014,” communication to the Chairman, House Committee on the Budget, 113th Cong., 1st sess., February 27, 2013. Previously, the House Committee on Small Business had recommended that funding for Women Business Centers, PRIME technical assistance, HUBZone outreach, and the Offices of Native American Affairs and International Trade be eliminated; and funding for 7(j) technical assistance, Microloan technical assistance, and the National Women’s Business Council be reduced. See U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for FY2013,” communication to the Chairman, House Committee on the Budget, 112th Cong., 2nd sess., March 7, 2012. 154 OMB, “America First: A Budget Blueprint to Make America Great Again: Small Business Administration,” p. 47, at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/ budget/fy2018/2018_blueprint.pdf; and SBA, FY2018 Congressional Budget Justification

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In contrast, Congress has approved continued funding for these programs and the Boots to Business and Boots to Business: Reboot initiatives. In recent years, Congress has also explored ways to improve the SBA’s measurement of its management and training programs’ effectiveness.

Program Administration In 2007, the U.S. Government Accountability Office (GAO) was asked to assess the SBA’s oversight of WBCs and the coordination and duplication of services among the SBA’s management and technical training assistance programs. GAO found that As described in the terms of the SBA award, WBCs are required to coordinate with local SBDCs and SCORE chapters. In addition, SBA officials told us that they expected district offices to ensure that the programs did not duplicate each other. However, based on our review, WBCs lacked guidance and information from SBA on how to successfully carry out their coordination efforts. Most of the WBCs that we spoke with explained that in some situations they referred clients to an SBDC or SCORE counselor, and some WBCs also took steps to more actively coordinate with local SBDCs and SCORE chapters to avoid duplication and leverage resources. We learned that WBCs used a variety of approaches to facilitate coordination, such as memorandums of understanding, information-sharing meetings, and co-locating staff and services. However, some WBCs told us that they faced challenges in coordinating services with SBDC and SCORE, in part because the programs have similar performance measures, and this could result in competition among the service providers in some locations. We also found that on some occasions SBA encouraged WBCs to provide services that were similar to services already provided by SBDCs in their district.

and FY2016 Annual Performance Report, p. 58, at https://www.sba.gov/sites/ default/files/aboutsbaarticle/FINAL_SBA_FY_2018_CBJ_May_22_2017c.pdf.

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Such challenges thwart coordination efforts and could increase the risk of duplication in some geographic areas.155

Some organizations have argued that the SBA’s management and technical assistance training programs should be merged. For example, the U.S. Women’s Chamber of Commerce argued that over the last 50 years, the SBA entrepreneurial development system has grown into a fragmented array of programs, which has resulted in a disorganized, overlapping, and [in] efficient delivery of service through a system that is ill-prepared to effectively address the challenges of our economy…. if we are to serve the needs of American entrepreneurs, we must commit to a top to bottom restructuring of the delivery of the entrepreneurial services of the SBA. The myriad of entrepreneurial development programs should be unified into one centrally managed organization that has the flexibility to provide services when and where they are needed.156

These organizations argue that merging the SBA’s management and technical assistance training programs would provide greater coordination of services and “one clear channel for assistance” that “is paramount to the average business owner seeking help.”157 Advocates of merging the SBA’s management and technical assistance training programs often mention merging them into the SBDC Program because, in their view, it has the advantage of having a broader connection to mainstream resources and its

155

U.S. Government Accountability Office, Small Business Administration: Opportunities Exist to Improve Oversight of Women’s Business Centers and Coordination among SBA’s Business Assistance Programs, GAO-08-49, November 2007, pp. 6, 24-31, at http://www.gao.gov/new.items/d0849.pdf. 156 U.S. Congress, House Committee on Small Business, Full Committee Hearing on the State of the SBA’s Entrepreneurial Development Programs and Their Role in Promoting an Economic Recovery, 111th Cong., 1st sess., February 11, 2009, Small Business Comm. Doc. No. 111-005 (Washington: GPO, 2009), p. 4. 157 U.S. Congress, House Committee on Small Business, Subcommittee on Rural Development, Entrepreneurship, and Trade, Subcommittee Hearing on Legislative Initiatives to Modernize SBA’s Entrepreneurial Development Programs, 111th Cong., 1st sess., April 2, 2009 (Washington: GPO, 2009), p. 29.

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locations are “greater and more diverse” than other SBA management and technical assistance training programs.158 Others argue that providing separate management and training assistance programs for specific groups is the best means to ensure that those groups’ unique challenges are recognized and their unique needs are met.159 For example, when asked at a congressional hearing about the rationale for having separate management and technical assistance training programs for specific groups, a representative of the Association of Women’s Business Centers stated, I think that there is tremendous rationale for having different programs…. The women’s business center programs really target a very different kind of population than the SBDCs… We serve very different clientele…. We create a very different culture at the women’s business center. We really have made it a welcoming place where … they feel comfortable.… And it’s very important to me that the woman have a place where they feel comfortable … and where they see other women like themselves who are aspiring to reach their dreams. 160

At another congressional hearing, the Association of Women’s Business Centers’ executive director argued that “the new three-year funding arrangement” for WBCs had enabled them to “concentrate on better serving their clients and growing their programs” and that WBCs should be provided continued and expanded funding because they provide effective services:

158

U.S. Congress, House Committee on Small Business, Full Committee Hearing on the State of the SBA’s Entrepreneurial Development Programs and Their Role in Promoting an Economic Recovery, 111th Cong., 1st sess., February 11, 2009, Small Business Committee Doc. No. 111-005 (Washington: GPO, 2009), p. 26. 159 Ibid., pp. 15, 17, 26, 29, 58-65, 72; and U.S. Congress, House Committee on Small Business, Women’s Business Ownership Act of 1988, report to accompany H.R. 5050, 100th Cong., 2nd sess., September 22, 1988, H.Rept. 100-955 (Washington: GPO, 1988), pp. 9, 10, 13, 14. 160 U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on Energy, Veterans Entrepreneurship, and the SBA’s Entrepreneurial Development Programs, 110th Cong., 1st sess., May 16, 2007, Serial Number 110-22 (Washington: GPO, 2007), p. 20.

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We know that when our program performance is measured against any other enterprise assistance program, we will meet or exceed any performance measures. Indeed, the SBA’s own client-based performance reviews have shown our clients to be just as satisfied or in some cases more satisfied with the services they have received compared to the SBA’s other entrepreneurial development efforts. 161

Instead of merging programs, some argue that improved communication among the SBA’s management and technical assistance training resource partners and enhanced SBA program oversight is needed. For example, during the 111th Congress, the House passed H.R. 2352, the Job Creation Through Entrepreneurship Act of 2009, on May 20, 2009, by a vote of 406-15. The Senate did not take action on the bill. In its committee report accompanying the bill, the House Committee on Small Business concluded that Each ED [Entrepreneurial Development] program has a unique mandate and service delivery approach that is customized to its particular clients. However, as a network, the programs have established local connections and resources that benefit entrepreneurs within a region. Enhanced coordination among this network is critical to make the most of scarce resources available for small firms. It can also ensure that best practices are shared amongst providers that have similar goals but work within different contexts.162

In an effort to enhance the oversight and coordination of the SBA’s management and technical assistance training programs, the Job Creation Through Entrepreneurship Act of 2009 would have required the SBA to

161

U.S. Congress, House Committee on Small Business, Full Committee Hearing on the State of the SBA’s Entrepreneurial Development Programs and Their Role in Promoting an Economic Recovery, 111th Cong., 1st sess., February 11, 2009, Small Business Committee Doc. No. 111-005 (Washington: GPO, 2009), pp. 45, 47. 162 U.S. Congress, House Committee on Small Business, Job Creation Through Entrepreneurship Act of 2009, report to accompany H.R. 2352, 111th Cong., 1st sess., May 15, 2009, H.Rept. 111-112 (Washington: GPO, 2009), pp. 17, 18.

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

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create a new online, multilingual distance training and education program that was fully integrated into the SBA’s existing management and technical assistance training programs and “allows entrepreneurs and small business owners the opportunity to exchange technical assistance through the sharing of information.”163 coordinate its management and technical assistance training programs “with State and local economic development agencies and other federal agencies as appropriate.”164 “report annually to Congress, in consultation with other federal departments and agencies as appropriate, on opportunities to foster coordination, limit duplication, and improve program delivery for federal entrepreneurial development activities.”165

During the 112th Congress, S. 3442, the SUCCESS Act of 2012, and S. 3572, the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, sought to address the coordination issue by requiring the SBA, in consultation with other federal departments and agencies, to submit an annual report to Congress “describing opportunities to foster coordination of, limit duplication among, and improve program delivery for federal entrepreneurial development programs.”166 The SUCCESS Act of 2012 was referred to the Senate Committee on Small Business and Entrepreneurship, which held hearings on the bill.167 The Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012 was referred to the Senate Committee on Finance.

163

H.R. 2352, the Job Creation Through Entrepreneurship Act of 2009, §201. Educating Entrepreneurs Through Technology; and H.R. 2352, §601. Expanding Entrepreneurship. 164 H.R. 2352, §601. Expanding Entrepreneurship. 165 Ibid. 166 S. 3442, the SUCCESS Act of 2012, §411. Expanding Entrepreneurship; and S. 3572, the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, §411. Expanding Entrepreneurship. 167 U.S. Senate, Committee on Small Business and Entrepreneurship, “Creating Jobs and Growing the Economy: Legislative Proposals to Strengthen the Entrepreneurial Ecosystem,” November 29, 2012, at http://www.sbc.senate.gov/public/index. cfm?p=Hearings.

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There has also been some discussion of merging SBA’s small business management and training programs with business management and training programs offered by other federal agencies, both as a means to improve program performance and to achieve savings. For example, P.L. 111-139, Increasing the Statutory Limit on the Public Debt, requires GAO to “conduct routine investigations to identify programs, agencies, offices, and initiatives with duplicative goals and activities within Departments and governmentwide and report annually to Congress on the findings.”168 GAO identified 51 programmatic areas in its 2012 annual report on federal duplication “where programs may be able to achieve greater efficiencies or become more effective in providing government services.”169 GAO identified management and training assistance provided to businesses by the SBA and the Departments of Commerce, Housing and Urban Development, and Agriculture as one of these areas.170 GAO identified 53 business management and technical assistance programs sponsored by the SBA and these three departments. GAO reported that “the number of programs that support entrepreneurs—53—and the overlap among these programs raise questions about whether a fragmented system is the most effective way to support entrepreneurs. By exploring alternatives, agencies may be able to determine whether there are more efficient ways to continue to serve the unique needs of entrepreneurs, including consolidating various programs.”171 As mentioned, the House Committee on Small Business previously argued that “given tight budgetary constraints” the SBA’s various management and technical assistance training programs “should be folded into the mission of the SBDC program or their responsibilities should be taken over by other agencies.”172 The House Committee on Small Business 168

P.L. 111-139, Increasing the statutory limit on the public debt, §21. Identification, Consolidation, and Elimination of Duplicative Government Programs. 169 U.S. Government Accountability Office, 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Results, GAO-12342SP, February 28, 2012, p. 1, http://www.gao.gov/ assets/590/588818.pdf. 170 Ibid., pp. 52-61. 171 Ibid., p. 55. 172 U.S. Congress, House Committee on Small Business, “Views and Estimates of the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for

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also indicated its opposition to the Obama Administration’s increased use of, and requests for increased funding for, management and training initiatives. For example, Representative Sam Graves, then-chair of the House Committee on Small Business, indicated in his opening remarks at a congressional hearing in April 2014 that Despite reports that the federal government is riddled with redundant [management and training] programs for entrepreneurs, the SBA has increasingly spawned its own entrepreneurial development initiatives. In doing so, the SBA has repeatedly requested increased funding for its own initiatives while allowing funding for statutorily authorized programs, such as SBDCs, to remain static.… I continue to question the necessity of these initiatives given the potential overlap with both private and public sector efforts already in existence.173

In addition, as mentioned, H.R. 1774 would, among other provisions, require the SBA to only use authorized entrepreneurial development programs (SCORE, WBCs, SBDCs, etc.) to deliver specified entrepreneurial development services.

Program Evaluation GAO noted in its 2007 assessment of the SBA’s management and technical assistance training programs that, in addition to its annual survey of WBC, SBDC, and SCORE participants, the SBA requires WBCs to provide quarterly performance reports that include “the WBCs’ actual accomplishments, compared with their performance goals for the reporting period; actual budget expenditures, compared with an estimated budget;

173

FY2014,” communication to the Chairman, House Committee on the Budget, 113th Cong., 1st sess., February 27, 2013, at http://smallbusiness.house.gov/ uploadedfiles/revised_2014_ views_and_estimates_document.pdf. Rep. Sam Graves, “Opening Statement of Chairman Sam Graves, Committee on Small Business Hearing: ‘SBA- created Initiatives: Necessary or Redundant Spending,” April 30, 214, at http://smallbusiness.house.gov/uploadedfiles/ opening_statement-press_4-302014.pdf.

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cost of client fees; success stories; and names of WBC personnel and board members.”174 GAO also noted that WBCs are also required to issue fourth quarter performance reports that “also include a summary of the year’s activities and economic impact data that the WBCs collect from their clients, such as number of business start- ups, number of jobs created, and gross receipts.”175 SBDCs have similar reporting requirements.176 In recent years, Congress has considered requiring the SBA to expand its use of outcome-based measures to determine the effectiveness of its management and technical training assistance programs. For example, during the 111th Congress, the previously mentioned Job Creation Through Entrepreneurship Act of 2009 would have required the SBA to create “outcome-based measures of the amount of job creation or economic activity generated in the local community as a result of efforts made and services provided by each women’s business center.”177 It would also have required the SBA to “develop and implement a consistent data collection process to cover all entrepreneurial development programs” including “data relating to job creation, performance, and any other data determined appropriate by the Administrator with respect to the Administration’s entrepreneurial development programs.”178 During the 112th Congress, the SUCCESS Act of 2012 and Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012 would have required the SBA to “promulgate a rule to develop and implement a consistent data collection process for the entrepreneurial development programs” that included data “relating to job creation and performance and any other data determined appropriate by the Administrator.”179

174

U.S. Government Accountability Office, Small Business Administration: Opportunities Exist to Improve Oversight of Women’s Business Centers and Coordination among SBA’s Business Assistance Programs, GAO-08-49, November 2007, p. 15, at http://www.gao.gov/new.items/d0849.pdf. 175 Ibid. 176 SBA, “Small Business Development Center Fy/Cy 2011 Program Announcement for Renewal of the Cooperative Agreement for Current Recipient Organizations,” pp. 27-38, at https://www.sba.gov/sites/default/files/files/ 2011%20Program%20Announcement.pdf. 177 H.R. 2352, §404. Performance and Planning. 178 H.R. 2352, §601. Expanding Entrepreneurship. 179 S. 3442, §411. Expanding Entrepreneurship; and S. 3572, §411. Expanding Entrepreneurship.

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During the 114th Congress, H.R. 207 would have required the SBA to issue an annual report concerning “all entrepreneurial development activities undertaken in the current fiscal year.” This chapter would include a description and operating details for each program and activity; operating circulars, manuals, and standard operating procedures for each program and activity; a description of the process used to award grants under each program and activity; a list of all awardees, contractors, and vendors and the amount of awards provided for the current fiscal year for each program and activity; the amount of funding obligated for the current fiscal year for each program and activity; and the names and titles for those individuals responsible for each program and activity. This legislative language was reintroduced during the 115th Congress in H.R. 1774, the Developing the Next Generation of Small Businesses Act of 2017.

CONCLUSION Congress has always shown an interest in the SBA’s management and technical assistance training programs, primarily because small businesses are seen as important contributors to job retention and creation.180 As thenRepresentative Heath Shuler stated during a congressional hearing in 2009: We often talk about the role that small business plays in the creation of jobs and with good reason. Small firms generate between 60 and 80 percent of new positions. Following the recession in the mid-1990s, they created 3.8 million jobs…. we could use that growth today. But unfortunately, many firms are struggling to make ends meet. Let’s allow them to hire new workers. In the face of historic economic challenges, we should be investing in America’s job creators. SBA’s Entrepreneurial Development Programs, or ED, do just that. Of all the tools in the small

180

SBA, Office of Advocacy, Small Business Economic Indicators for 2003, August 2004, p. 3; Brian Headd, “Small Businesses Most Likely to Lead Economic Recovery,” The Small Business Advocate, vol. 28, no. 6 (July 2009), pp. 1, 2; and SBA, “Fiscal Year 2010 Congressional Budget Justification,” p. 1, at https://www.sba.gov/sites/default/files/ aboutsbaarticle/Congressional_Budget_Justification_2010.pdf.

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business toolbox, these are some of the most critical. They help small firms do everything from draft business plans to access capital.181

During the 116th Congress, congressional interest in the SBA’s management and training programs has increased due to the COVID-19 pandemic’s adverse economic impact on the national economy. The general consensus is that the SBA’s management and technical assistance training programs serve an important purpose and, for the most part, are providing needed services that are not available elsewhere. As Karen Mills, then-SBA administrator, stated during a press interview in 2010: We find that our counseling operations are equally important as our credit operations because small businesses really need help and advice, and when they get it, they tend to have more sales and more profits and more longevity, and they hire more people. So we have looked forward and said, “How do we get all the tools small businesses need into their hands?” Maybe they want to export. Maybe they want to know how to use broadband. Maybe they are veterans who are coming back and want to start a business or grow their business. Our job is to make sure all that information and opportunity is accessible for small businesses so they can do what they do, which is keep our economy strong. 182

There is also a general consensus that making federal management and technical assistance training programs more effective and responsive to the needs of small business would help retain and create jobs. However, there are disagreements over how to achieve that goal. Some advocate (1) increased funding for existing programs to enable them to provide additional training opportunities for small businesses while, at the same time, maintaining separate training programs for specific 181

182

U.S. Congress, House Committee on Small Business, Subcommittee on Rural Development, Entrepreneurship and Trade, Subcommittee On Rural Development, Entrepreneurship And Trade Markup On Entrepreneurial Development Programs Legislation, 111th Cong., 1st sess., April 30, 2009, Small Business Committee Document No. 111-118 [ERRATA – printing error, should be 111-018] (Washington: GPO, 2009), p. 1. David Port, “But Where Is the Money?” Entrepreneur Magazine, August 2010, at http://www.entrepreneur.com/ magazine/entrepreneur/2010/august/207500.html.

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demographic groups as a means to ensure that those groups’ specific needs are met; (2) requiring the SBA to make more extensive use of outcomebased measures to better determine the programs’ effect on small business formation and retention, job creation and retention, and the generation of wealth; and (3) temporarily reducing or eliminating federal matching requirements to enable SBA’s management and technical assistance training resource partners to focus greater attention to service delivery and less to fund raising. Others argue for a merger of existing programs to reduce costs and improve program efficiency. They advocate additional funding for SBDCs and less funding for other SBA resource partners. They also would require the SBA to make more extensive use of outcome-based performance measures to determine program effectiveness. No case studies or empirical data are available concerning the efficiencies that might be gained by merging the SBA’s management and technical assistance training programs. Advocates argue that merging the programs would improve communication, reduce confusion by business owners seeking assistance by ensuring that all small business management and technical assistance training centers serve all small business owners and aspiring entrepreneurs, lead to more sustainable and predictable funding for the programs from nonfederal sources, and result in more consistent and standard operating procedures throughout the country. 183 Opponents argue that any gains in program efficiency that might be realized would be more than offset by the loss of targeted services for constituencies that often require different information and training to meet their unique challenges and needs.184 183

U.S. Congress, House Committee on Small Business, Full Committee Hearing on the State of the SBA’s Entrepreneurial Development Programs and Their Role in Promoting an Economic Recovery, 111th Cong., 1st sess., February 11, 2009, Small Business Committee Doc. No. 111-005 (Washington: GPO, 2009), pp. 3-5, 24-27, 29; and U.S. Congress, House Committee on Small Business, Full Committee Hearing on Legislation to Reauthorize and Modernize SBA’s Entrepreneurial Development Programs, 111th Cong., 1st sess., May 6, 2009 (Washington: GPO, 2009), pp. 3-5, 15, 27-34. 184 U.S. Congress, House Committee on Small Business, Full Committee Hearing on the State of the SBA’s Entrepreneurial Development Programs and Their Role in Promoting an Economic Recovery, 111th Cong., 1st sess., February 11, 2009, Small Business Committee Doc. No. 111-005 (Washington: GPO, 2009), pp. 44-49; U.S. Congress, House Committee

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APPENDIX. BRIEF DESCRIPTIONS OF SBA MANAGEMENT AND TECHNICAL ASSISTANCE TRAINING PROGRAMS Table A-1. Brief descriptions of SBA management and technical assistance training programs Program Name

Authority

Brief Description

Number

Small Business Development Center Grant Program

P.L. 96-302, 1980

63 lead centers and nearly 900 local centers

Women Business Center Grant Program

P.L. 100533, 1988

Provides management and technical assistance training to small businesses through centers located in leading universities, colleges, and state economic development agencies. Provides long-term training, counseling, networking, and mentoring to women entrepreneurs, especially those who are socially and economically disadvantaged.

125

Federal Matching Requirement 50% match from nonfederal sources comprised of not less than 50% cash and not more than 50% of indirect costs.

50% match from nonfederal sources; not more than one-half of the nonfederal matching assistance may be in the form of inkind contributions, including office equipment and office space.

on Small Business, Job Creation Through Entrepreneurship Act of 2009, report to accompany H.R. 2352, 111th Cong., 1st sess., May 15, 2009, H.Rept. 111-112 (Washington: GPO, 2009), pp. 16-31; and U.S. Congress, House Committee on Small Business, Women’s Business Ownership Act of 1988, report to accompany H.R. 5050, 100th Cong., 2nd sess., September 22, 1988, H.Rept. 100-955 (Washington: GPO, 1988), pp. 9, 10, 13, 14.

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Robert Jay Dilger Table A-1. (Continued)

Program Name

Authority

Brief Description

Number

SCORE (Service Corps of Retired Executives)

Section 8(b) of the Small Business Act; P.L. 89754, 1966

250+ chapters and 800+ branch offices

7(j) Technical Assistance Program

Section 7(j) of the Small Business Act; Section 8(a) of the Small Business Act; P.L. 95507, 1978

Microloan Technical Assistance Program

P.L. 102140, 1992

Provides technical, managerial, and informational assistance to small business concerns through in- person mentoring by volunteer counselors who are working or, in most instances, retired business owners. Provides management and technical assistance training to 8(a) certified firms, small disadvantaged businesses, businesses operating in areas of high unemployment or low- income and firms owned by low-income individuals. Provides management and technical assistance training to Microloan borrowers and, within specified limits, to prospective Microloan borrowers.

Federal Matching Requirement None

9 service providers in FY2019

None

144 actively lending intermediaries

25% from nonfederal sources; no matching requirement if the intermediary makes at least 50% of its loans in an Economically Distressed Area.

Small Business Management and Technical Assistance … Program Name

Authority

Brief Description

Number

Native American Outreach Program

Section 7(j) of the Small Business Act; SBA regulations, 1994

2 service providers in FY2019

PRIME Technical Assistance Program

P.L. 106102, 1999

Provides management and technical assistance training to American Indians, Alaska Natives, Native Hawaiians and “the indigenous people of Guam and American Samoa … to promote entity-owned and individual 8(a) certification, government contracting, entrepreneurial education, and capital access.” Provides assistance in the form of grants to nonprofit microenterprise development organizations or programs that have a demonstrated record of delivering microenterprise services to disadvantaged entrepreneurs.

Veterans Business Development Programs

P.L. 106-50, 1999

The SBA’s Office of Veterans Business Development mission is to (1) expand the provision of and improve access to technical assistance regarding entrepreneurship for

22 Veterans Business Office Centers and other providers

30 service providers in FY2019

195

Federal Matching Requirement None

50% from nonfederal sources; sources such as fees, grants, gifts, income from loan sources, and inkind resources from nonfederal public or private sources may be used to comply with the matching funds requirement None

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Robert Jay Dilger Table A-1. (Continued)

Program Name

Authority

Brief Description

the Nation’s veterans; and (2) to assist veterans, including service-disabled veterans, with the formation and expansion of small business concerns by working with and organizing public and private resources, including those of the SBA. Sources: Federal statutes cited in table.

Number

Federal Matching Requirement

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 4

SMALL BUSINESS ADMINISTRATION AND JOB CREATION (UPDATED) Robert Jay Dilger

ABSTRACT The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs, disaster loan programs, management and technical assistance training programs, and federal contracting programs. Congress has always been interested in these programs, primarily because they are viewed as a means to stimulate economic activity and create jobs. That interest has become acute in recent months due to the adverse economic impact of the Coronavirus Disease 2019 (COVID-19) pandemic on the national economy, particularly on small businesses. For example, legislation has been enacted that has dramatically expanded the SBA’s authority to provide loans to small businesses adversely affected by COVID-19. This chapter examines the economic research on net job creation to identify the types of businesses that appear to create the most jobs. That research indicates that small businesses tend to create more jobs than 

This is an edited, reformatted and augmented version of Congressional Research Service Publication No. R41523, updated June 15, 2020.

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Robert Jay Dilger large businesses during economic expansions and lose more jobs during and immediately following recessions. The SBA has reported that preliminary economic data indicate small businesses have been disproportionally affected by the COVID-19 pandemic. Economic research also suggests that business startups play an important role in job creation, but have a more limited effect on net job creation over time because fewer than half of all startups are still in business after five years. However, the influence of small business startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20-499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years). This chapter examines the possible implications this research might have for Congress and the SBA. For example, although the current focus is on job retention and assisting as many small businesses as possible to survive the current economic downturn, this chapter examines the potential consequences of targeting SBA non-COVID-19-related lending assistance to small businesses that are the most likely to create and retain the most jobs. In addition, the Government Accountability Office (GAO) has recommended that the SBA use outcome-based program performance measures, such as how well the small businesses do after receiving SBA assistance, rather than focusing on output-based program performance measures, such as the number of loans approved and funded. GAO has argued that using outcome-based program performance measures would better enable the SBA to determine the impact of its programs on participating small businesses. Given congressional interest in job creation, this chapter examines the potential consequences of adding net job creation as an outcome-based SBA program performance measure. This chapter also examines the arguments for providing federal assistance to small businesses, noting that policymakers often view job creation as a justification for such assistance whereas economists argue that over the long term federal assistance to small businesses is likely to reallocate jobs within the economy, not increase them. Nonetheless, most economists support federal assistance to small businesses for other purposes, such as a means to correct a perceived market failure related to the disadvantages small businesses experience when attempting to access capital and credit.

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SMALL BUSINESS AND NET JOB CREATION The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty 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.1 Congress has always shown an interest in the SBA’s programs, primarily because they are viewed as a means to stimulate economic activity and create jobs.2 That interest has become acute in recent months given the widespread adverse economic impact of the Coronavirus Disease 2019 (COVID-19) pandemic on the national economy, particularly on small businesses. For example, legislation 1

2

U.S. Small Business Administration (SBA), “ Fiscal Year 2019 Congressional Budget Justification and FY2017 Annual Performance Report,” p. 2, at https://www.sba. gov/sites/default/files/aboutsbaarticle/SBA_FY_19_508-Final-FINAL.PDF. For further analysis of the SBA’s loan guaranty programs, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program , by Robert Jay Dilger, CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program , by Robert Jay Dilger, and CRS Report R41057, Small Business Administration Microloan Program , by Robert Jay Dilger. For further analysis of the SBA’s disaster loan programs, see CRS Report R41309, The SBA Disaster Loan Program: Overview and Possible Issues for Congress, by Bruce R. Lindsay. For further analysis of the SBA’s contracting programs, see CRS Report R41268, Small Business Administration HUBZone Program , by Robert Jay Dilger. SBA, “ Fiscal Year 2020 Congressional Budget Justification and FY2018 Annual Performance Report,” p. 3, at https://www.sba.gov/document/report—congressionalbudget-justification-annual-performance-report. Isolating the firm-level impact of SBA loans on job creation is a daunting methodological challenge because (1) many factors influence employment and economic growth, (2) SBA loans represent a relatively small portion of the local economy, (3) “ loan receipt may be subject to selection bias (positive or negative), and (4) appropriate firm -level microdata have usually been unavailable.” Also, SBA lending’s impact on employment “may be attenuated if the program crowds out other sources of capital, and the aggregate effect may be reduced if there are general equilibrium displacement effects (negative spillovers onto competing firms).” See J. David Brown and John S. Earle, “ Finance and Growth at the Firm Level: Evidence from SBA Loans,” The Journal of Finance Vol. LXXII, No. 3, June 2017, p. 1040. Using econometric statistical analysis, the authors also linked SBA loans issued from 1992 through the third quarter o f 2009, to the Census Bureau’s employer and nonemployer registers, which include data on firm employment, annual payroll, establishment age, and other economic characteristics. Their analysis found that SBA loans led to an increase of 3-3.5 jobs in the first three years after loan receipt for each million dollars of loans.

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has been enacted that has dramatically expanded the SBA’s authority to provide general business and disaster loans to small businesses adversely affected by COVID-19.3 This chapter opens with an assessment of the economic research on net job creation (employment gains related to business startups and expansions minus employment losses related to business deaths and contractions) to identify the types of businesses that appear to create the most jobs. That research suggests that business startups play an important role in job creation, but have a more limited effect on net job creation over time because about one-third of all startups close by their second year of existence and fewer than half of all startups are still in business after five years. However, the influence of small business startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years).4 This information’s possible implications for Congress and the SBA are then examined. For example, although the current focus is on job retention and assisting as many small businesses as possible to survive the current economic downturn, this chapter examines the potential consequences of targeting SBA non-COVID-19-related lending assistance to small businesses that are the most likely to create and retain the most jobs. About

3

4

For additional information and analysis, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. Zoltan Acs, William Parsons, and Spencer Tracy, “High-Impact Firms: Gazelles Revisited,” SBA, Office of Advocacy, June 2008, at https://ntrl.ntis.gov/NTRL/ dashboard/searchResults/titleDetail/PB2008109311.xhtml (hereafter Acs, Parsons, and Tracy, 2008); Dane Stangler and Robert E. Litan, “ Where Will The Jobs Come From?” Kaufman Foundation Research Series: Firm Formation and Economic Growth, November 2009, at http://www.kauffman.org/-/media/kauffman_org/research-reportsand-covers/ 2009/11/where_will_the_jobs_come_from.pdf (hereafter Stangler and Litan, 2009); John Haltiwanger, Ron S Jarmin, and Javier Miranda, “ Who Creates Jobs? Small vs. Large vs. Young,” Cambridge, MA: National Bureau of Economic Research, Working Paper 16300, August 2010, at http://www.nber.org/papers/w16300; and Ian Hathaway, “ Small Business and Job Creation: The Unconventional Wisdom,” Bloomberg Government, October 31, 2011.

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97% of all business concerns currently meet the SBA’s small business eligibility criteria for non-COVID-19-related lending assistance.5 In addition, the Government Accountability Office (GAO) has argued that the SBA’s program performance measures provide limited information about the impact of its programs on participating small businesses because those measures focus primarily on output, such as the number of loans approved and funded, rather than outcomes, such as how well the small businesses do after receiving SBA assistance.6 Given congressional interest in job creation, this chapter examines the potential consequences of adding net job creation as a SBA program performance measure. This chapter also examines the arguments for providing federal assistance to small businesses, noting that policymakers often view job creation as a justification for such assistance whereas economists argue that over the long term federal assistance to small businesses is likely to reallocate jobs within the economy, not increase them. Nonetheless, most economists support federal assistance to small businesses for other purposes, such as a means to correct a perceived market failure related to the disadvantages small businesses experience when attempting to access capital and credit.

ECONOMIC RESEARCH ON NET JOB CREATION The following sections provide an assessment of employment dynamics in the United States, starting with the latest economic data available from the U.S. Bureau of the Census concerning the number and employment of small and large enterprises, establishments, and firms (small is defined here as having fewer than 500 employees and large as having 500 or more employees). This is followed by assessments of job gains and losses SBA, “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.wcoeusa. org/sites/default/ files/Size%20Standards%20Methodology% 20from%20SBA.pdf. 6 U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 2, 7 -9, at http://www.gao.gov/new.items/d08226t.pdf. 5

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(sometimes referred to as “churning”) by small and large establishments (including opening/startup establishments) using data available from the U.S. Department of Labor’s Bureau of Labor Statistics (BLS).7 Assessments of employment dynamics usually examine the employment decisions of establishments, firms, and/or enterprises. An establishment “is a single physical location where one predominant activity occurs.”8 Afirm “is an establishment or a combination of establishments” and is often “defined by its unique Employer Identification number (EIN) issued by the Internal Revenue Service (IRS).”9 An enterprise “is a firm or a combination of firms that engages in economic activities which are classified into multiple industries. An enterprise may report under one or a number of EINs.”10 Each of these units of analysis provide information that is useful for understanding employment dynamics. As the BLS explains: The perception is that multiunit businesses act as a whole rather than as a collection of individual establishments. On the one hand, it could be that larger multiunit businesses make more unified decisions to control hiring, close a plant or store, or lay off workers during economic downturns. This argument supports the use of a higher level of aggregation than the establishment level. On the other hand, businesses might make such decisions on the basis of each establishment’s profitability, product line, and longer term prospects for contributions to the overall business. Why restrict hiring at a fully profitable and growing location when other locations are suffering from insufficient demand? In this case, the firm may act more like a set of individual establishments rather than a unified set of establishments.11

Bureau of Labor Statistics, “ Research Data on Business Employment Dynamics by Age and Size,” at https://www.bls.gov/bdm/business-employment-dynamics-data-by-ageand-size.htm. 8 Akbar Sadeghi, David M. Talan, and Richard L. Clayton, “ Establishment, firm, or enterprise: does the unit of analysis matter?” Monthly Labor Review, U.S. Bureau of Labor Statistics, November 2016, at https://doi.org/10.21916/ mlr.2016.51 (hereafter Sadeghi, Talan, and Clayton, 2016). 9 Sadeghi, Talan, and Clayton, 2016. 10 Sadeghi, Talan, and Clayton, 2016. 11 Sadeghi, Talan, and Clayton, 2016. 7

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Generally speaking, “the net employment change remains the same for all levels of aggregation, but the magnitude of gross job flows varies with the unit of analysis chosen.”12 There is “a higher level of churning when job flows are estimated at a lower level of aggregation (the establishment)” and a lower level of churning “at a higher level of aggregation (the enterprise or firm) [because] expansions in some units offset contractions in other units, leaving job flows at a lesser magnitude.”13

Small and Large Business Employment In 2017 (the most recent available data), there were 7.86 million employer establishments and nearly 6 million employer firms.14 Also, in 2018 (the most recent available data), there were nearly 26.5 million nonemployer (self-employed) establishments.15 As shown in Table 1, small employer enterprises (fewer than 500 employees) provided almost half (47.1%) of all jobs in 2017.

Job Growth and Opening/Startup Establishments As shown in Table 2, from 2010 to 2019, opening/startup establishments (establishments with positive employment in March of the current year following zero employment in March of the previous year) have accounted for just under 30% of all employment gains (new jobs) in the United States each year since 2011. By definition, opening/startup establishments do not affect employment losses, which result from establishments contracting or closing. 12

Sadeghi, Talan, and Clayton, 2016. Sadeghi, Talan, and Clayton, 2016. 14 U.S. Census Bureau, “ Statistics of U.S. Businesses: U.S. & States, totals,” at https://www2.census.gov/programs-surveys/susb/tables/2017/us_state_totals_2017. xlsx?#. 15 U.S. Census Bureau, “ NES Tables 2018,” at https://data.census.gov/cedsci/table?table =NS1800NONEMP&tid=NONEMP2018.NS1800NONEMP&d=ANN% 20Nonemployer%20Statistics&lastDisplayedRow=33&hidePreview= true.html. 13

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Robert Jay Dilger Table 1. Number and employment of employer enterprises, establishments and firms, by enterprise employment size, 2017

Enterprise Employment Size Fewer than 20 Employees 20-499 Employees 500+ Employees Total

# of Employer Establishments

# of Employer Firms

# of Employees

Share of All Employees

5,392,516

5,339,918

21,096,447

16.4%

1,120,286

636,843

39,459,634

30.7%

1,347,872

20,139

68,035,731

52.9%

7,860,674

5,996,900

128,591,812

100.0%

Source: U.S. Census Bureau, “Statistics of U.S. Businesses: U.S. & States, totals,” at https://www2.census.gov /programs-surveys/susb/tables/2017/us_state_totals_2017. xlsx?#.

Job Growth and Small Establishments Small businesses, which include almost all startups, tend to create more jobs than large businesses during economic expansions and lose more jobs during and immediately following recessions. For example, in 2010, an SBA study found that from 1993 to 2008, small businesses (firms with less than 500 employees) accounted for about 65% of the 17.9 million private-sector net jobs created during that time period but lost 64% of the 1.5 million net jobs lost in 2008 (during the Great Recession [2007-2009]).16 In April 2020, the SBA reported that small firms accounted for 9.3 million net new private-sector jobs from 2005 to 2019, or 64% of the total.17 The SBA also reported that “early signs indicate that small businesses have been disproportionally affected across industries [by the COVID-19

Brian Headd, “ An Analysis of Small Business and Jobs,” SBA, Office of Advocacy, March 1, 2010, pp. 9, 10, at https://www.sba.gov/sites/default/files/files/an% 20analysis%20of%2 0small%20business%20and%20jobs(1).pdf (hereafter Headd, 2010). Net job creation refers to the net result of all hiring minus voluntary and involuntary separations. 17 SBA, Office of Advocacy, “ Small Business Economic Bulletin: April 2020,” at https://cdn.advocacy.sba.gov/wp-content/uploads/2020/04/30103025/April-2020-EconBulletin.pdf. 16

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pandemic], especially those in the accommodation and food services industry.”18 Table 2. Net employment change, gross employment gains and losses overall, and gross employment gains and share of employment gains from opening/startup establishments, 2010-2019 Year

Net Employment Change Overall

Gross Employment Gains Overall

Gross Employment Losses Overall

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(2,684,236) 1,908,912 2,669,334 2,120,900 2,274,389 2,717,966 2,511,589 2,032,665 2,168,233 1,875,053

10,075,081 11,629,458 12,215,721 12,044,755 12,282,242 12,833,679 13,167,936 12,953,630 13,116,333 13,134,027

(12,759,269) (9,720,546) (9,546,387) (9,923,855) (10,007,853) (10,115,713) (10,656,347) (10,920,965) (10,948,100) (11,258,974)

Gross Employment Gains From Opening/Startup Establishments 3,236,263 3,334,090 3,554,056 3,491,508 3,582,255 3,691,014 3,773,906 3,797,214 3,757,496 3,775,168

Share of Gross Employment Gains From Opening/Startup Establishments 32.1% 28.7% 29.1% 29.0% 29.2% 28.8% 28.7% 29.3% 28.6% 28.7%

Source: U.S. Department of Labor, Bureau of Labor Statistics, “Table 1-A-E: Annual gross job gains and gross job losses by age and average size of establishment,” at https://www.bls.gov/bdm/age_by_size/ age_naics_size_20191_t1.xlsx.

The Role of Small Business and Startups in Net Job Creation Until recently, the prevailing view among economists was that although small businesses, defined as firms with fewer than 500 employees, and large businesses “provide roughly equivalent shares of jobs, the major part of job generation and destruction takes place in the small firm sector, and small firms provide the greater share of net new jobs.”19 As the availability of data concerning the life cycle of firms and establishments has improved, and the number of studies examining the

18 19

SBA, Office of Advocacy, “ Small Business Economic Bulletin: April 2020.” Headd, 2010, p. 3.

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relationship between job creation and business size has increased, the prevailing view that small businesses, as a whole, are responsible for the majority of net job creation has been challenged. For example, some researchers have found considerable variation in the role of small businesses in net job creation across different time periods. In some time intervals, small businesses accounted for virtually all job growth and in others they accounted for about the same proportion of new jobs as their share of existing jobs. 20 Some researchers have also argued that the role of small businesses in net job creation is overstated because most new jobs are created by new businesses and most new businesses (startups) are small because the resources needed to launch larger businesses are relatively difficult to obtain. They argue that many startups (defined as businesses in operation for less than a year), and the jobs they create, disappear within a few years.21 For example, several studies have found that about 20% of all startups close in their first year, one-third close within two years, and fewer than half of all startups are still in business after five years.22 Another study, an analysis of job creation in the United States from 1994 to 2006, found that startups with fewer than 20 employees had “a strong positive initial effect” on

20

Charles Brown, James Hamilton, and James Medoff, Employers Large and Small (Cambridge: Harvard University Press, 1990), pp. 21, 22 (hereafter Brown, Hamilton, and Medoff, 1990). The researchers argued that the “ wide swings” from one period to the next were due at least in part to major shocks to specific industries, such as manufacturing, which are dominated by large businesses. 21 Brown, Hamilton, and Medoff, 1990, pp. 21, 22. 22 Stangler and Litan, 2009, p. 5; and Dane Stangler and Paul Kedrosky, “Neutralism and Entrepreneurship: The Structural Dynamics of Startups, Young Firms, and Job Creation,” Kaufman Foundation Research Series: Firm Formation and Economic Growth, September 2010, p. 5, at http://www.kauffman.org/~/media/kauffman_org/ research%20reports%20and%20covers/2010/09/firmformationneutralism.pdf. Some studies have found that startup survival rates vary by industry and region and depend, “ at least to some extent, on when in the business cycle the establishment is born,” with lower survival rates if they were formed during, or just before the onset of, recessions. See Kevin Cooksey, Karina Beckmanm, and Akbar Sadeghi, “ Assessing the Strength of Entrepreneurship in America with the BLS Business Employment Dynamics,” U.S. Bureau of Labor Statistics, presented at the “ Meeting of the Group of Experts on Business Registers,” organized by t he United Nations Economic Commission for Europe (UNECE), Eurostat and the Organisation for Economic Co-operation and Development (OECD), September 27, 2017, Paris, France, pp. 9, 10, at https://www.unece.org/fileadmin/DAM/stats/documents/ece/ ces/ge.42/2017/US.pdf.

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employment growth in the year the business was formed, but that positive employment effect decreased over time and was negligible after six years.23 However, that study also found that startups with 20-499 employees had a positive employment effect that increases after its first year in operation, reaches a maximum after five years, and then moderates. The positive employment effect from these firms continued to remain positive over the entire time period studied (1994-2006). The authors asserted that these larger small businesses were “able to increase their level of productivity sooner after entry” than startups with fewer than 20 employees “due to their size and preconditions,” such as better access to capital, and, as a result, were in a better position to “challenge existing firms and increase the competitiveness of surviving existing firms.”24 The study’s authors argued that their findings suggest that the age of a business is a more important factor in understanding business employment dynamics than the size of a business: Our findings emphasize the critical role played by startups in U.S. employment growth dynamics. We document a rich “up or out” dynamic of young firms in the U.S. That is, conditional on survival, young firms grow more rapidly than their more mature counterparts. However, young firms have a much higher likelihood of exit so that the job destruction from exit is also disproportionately high among young firms. More generally, young firms are more volatile and exhibit higher rates of gross job creation and destruction…. Understanding the process of job creation by private sector businesses requires understanding this dynamic. Policies that favor various simply defined classes of businesses (e.g., by size) and ignore this fundamental dynamic will likely have limited success.25 A 2012 study using U.S. Census Bureau employment data from 1998 to 2011 also found that the age of a business is a more important factor in understanding business employment dynamics than the size of a business.

23

Acs, Parsons, and Tracy, 2008, pp. 13, 14. Acs, Parsons, and Tracy, 2008, p. 14. 25 John Haltiwanger, Ron S Jarmin, and Javier Miranda, “ Who Creates Jobs? Small vs. Large vs. Young,” Cambridge, MA: National Bureau of Economic Research, Working Paper 16300, August 2010, pp. 3, 30, at http://www.nber.org/ papers/w16300. 24

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Robert Jay Dilger The study’s authors found that young firms, defined as firms in their first two years of existence, have higher job creation and job destruction rates than older firms, higher rates of net job creation than older firms, and exhibit significantly higher worker churning (job switching) than older firms. 26

In sum, the prevailing view of the economic literature concerning startups is that they have a significant role in job creation because, by definition, they add jobs to the economy in their founding year and, for the most part, are not old enough to eliminate them yet. However, the positive effect of startups on net job creation diminishes over time because “most businesses start small, stay small, and close just a few years after opening.”27

The Role of Surviving Startups in Net Job Creation Several economic studies have argued that in any given year nearly all net job creation in the United States since 1980 has occurred in businesses that are less than five years old.28 This would seem to suggest that if the SBA were to target its resources to promote net job creation that it would consider targeting those resources to small businesses that are less than five years old. However, other studies have found that startups account for nearly all of the positive employment effect of businesses that are less than five years old in any given year and, as mentioned previously, the positive employment effect of startups diminishes over time. John Haltiwanger, Henry Hyatt, Erika McEntarfer, and Liliana Sousa, “ Job Creation, Worker Churning, and Wages at Young Businesses,” Kaufman Foundation Research Series: November 2012, p. 2, at http://www.kauffman.org/~/ media/kauffman_org/ research%20reports%20and%20covers/2012/11/bds_report_7.pdf. 27 Headd, 2010, p. 7. 28 Stangler and Litan, 2009, p. 4; and Dane Stangler and Paul Kedrosky, “ Neutralism and Entrepreneurship: The Structural Dynamics of Startups, Young Firms, and Job Creation,” Kaufman Foundation Research Series: Firm Formation and Economic Growth, September 2010, pp. 2, 8, at http://www.kauffman.org/~/media/kauffman_org/ research%20reports%20and%20covers/2010/09/firmformationneutralism.pdf. 26

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For example, one study found that, in 2005, nearly all net job creation in that year came from businesses that were less than six years old. However, when the employment effect of startups was separated from the employment effect of businesses in operation for one to five years, startups accounted for nearly all of that year’s net job creation and relatively young businesses (in operation for one year to five years) accounted for most of that year’s job losses.29 Another study found that startups accounted for a significant number of new jobs, but that “the bulk of job flows take place in existing firms’ expansions and contractions.”30 The study also found that continuing firms accounted for 69% of the net jobs created from 1993 to mid-2008 and firm turnover (firm births minus deaths) accounted for 31% of the net jobs created over that time period.31 A 2010 study examined the employment effect of employer firms from 1977 to 2005 as they aged from birth to year five. The study found that, overall, relatively young businesses (in operation for one year to five years) are net job destroyers, but that the net job creation among surviving firms over the first five years of their existence was able to partially balance out the jobs lost by failed and shrinking businesses that started in the same year that they did.32 The study found that although about half of all firms fail within five years “when a given cohort of startups reaches age five, their employment level is 80% of what it was when it began.”33 The authors argued that their findings suggest that “it is true that new startups matter” in net job creation even though “many firms fail in their first few years,” but

Scott Shane, “ Entrepreneurial Job Creation Statistics are Economic Rorschach Test,” Economic Trends, March 15, 2010, at http://smallbiztrends.com/2010/03/entrepren eurial-job-creation-statistics-are-an-economic-rorschach-test.html. 30 Headd, 2010, pp. 8, 9. 31 Headd, 2010, pp. 9, 10. 32 Michael Horrell and Robert Litan, “ After Inception: How Enduring is Job Creation by Startups?” Kaufman Foundation Research Series: Firm Formation and Economic Growth, July 2010, p. 5, at http://www.kauffman.org/~/media/kauffman_org/research %20reports%20and%20covers/2010/08/firmformationinception8210.pdf (hereafter Horrell and Litan, 2010). 33 Horrell and Litan, 2010, pp. 4, 8-10. 29

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that “if we are looking for employment that lasts” it is the surviving startups that “are vital.”34 Another study examined the shares of net job creation, in 2007, from businesses of different ages in an attempt to isolate the contribution of businesses that have survived for at least one year. The study found that net job creation, in 2007, came primarily from three sources: startups, surviving young businesses (in operation for one to five years), and the oldest (and largest) surviving businesses (in operation for more than 28 years). They found relatively little net job creation, in 2007, from businesses that were in operation for at least 6 years but less than 28 years.35 The authors called this a “barbell effect, with job creation occurring at the youngest and oldest ends of the firm age spectrum, and mostly flat in between.”36 The authors noted that they were unable to break out the effects of mergers and acquisitions on their findings, but that they suspected the net addition of jobs in the oldest (and largest) businesses came primarily from the acquisition of younger businesses that “pioneer innovations” that create jobs.37 The authors also found “very little relationship” between the amount of small business employment in an industry and that industry’s job growth. They did find what they termed “an incredibly tight relationship” between any particular industry’s job growth and the performance of young businesses (less than six years old) within that industry. They concluded that this relationship suggested that “young companies are the engines of job creation.”38 A study using Census Bureau employment data from 1980 to 2009 reached a similar conclusion. The study’s author found that “young businesses, not necessarily small businesses, are responsible for the substantial majority of net job creation in the U.S. economy.”39 Also, another study, using Census Bureau employment data from 1998 to 2011, found that young firms, defined as employers in the first two years of 34

Horrell and Litan, 2010, p. 10. Stangler and Litan, 2009, pp. 6-7. 36 Stangler and Litan, 2009, p. 5. 37 Stangler and Litan, 2009, p. 10. 38 Stangler and Litan, 2009, p. 8. 39 Ian Hathaway, “ Small Business and Job Creation: The Unconventional Wisdom,” Bloomberg Government, October 31, 2011. 35

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existence, had much higher job creation rates than older firms, higher job destruction rates than older firms, and, overall, higher net job creation rates than older firms. Specifically, the study’s authors found that “for the youngest firms, the net job creation rate in [economic] booms exceeds 10% and, even in the recent recession, exceeded 6%. In contrast, the net job creation rates for mature businesses are positive in [economic] booms and negative in recessions.”40 The finding that “young companies are the engines of job creation” seems to contradict the previously mentioned finding that businesses between the ages of one year and five years are net job destroyers.41 Both findings are supported by empirical evidence. The explanation for the different findings is largely due to the way the studies treat the role of startups in net job creation. If the job creation that occurs from startups is excluded from the analysis, then the evidence seems to suggest that older businesses have a larger role in net job creation than younger businesses. If the job creation that occurs from startups is included in the analysis, then the evidence seems to suggest that younger businesses have a larger role in net job creation than older businesses.42 Also, as mentioned previously, if the analysis focuses on business survivors, then the evidence seems to suggest that the “barbell effect” takes place, with younger businesses and much older (and larger) businesses having a larger role in net job creation than businesses that are in operation for at least 6 years but less than 28 years.43

40

41

42

43

John Haltiwanger, Henry Hyatt, Erika McEntarfer, and Liliana Sousa, “ Job Creation, Worker Churning, and Wages at Young Businesses,” Kaufman Foundation Research Series: November 2012, p. 2, at http://www.kauffman.org/~/media/kauffman_ org/research%20reports%20and%20covers/2012/11/bds_report_7.pdf. Stangler and Litan, 2009, p. 8; and Horrell and Litan, 2010, p. 5. Also see Scott Shane, “ To Create Jobs, Help Existing Small Employers,” Bloomberg Businessweek, October 29, 2010, at https://www.bloomberg.com/news/articles/ 2010-10-29/to-create-jobshelp-existing-small-employers. Scott Shane, “ Entrepreneurial Job Creation Statistics are Economic Rorschach Test ,” Economic Trends, March 15, 2010, at http://smallbiztrends.com/2010/03/entrepreneurial-job-creation-statistics-are-aneconomic-rorschach-test.html. Stangler and Litan, 2009, p. 5. Also see John Haltiwanger, Ron S Jarmin, and Javier Miranda, “ Who Creates Jobs? Small vs. Large vs. Young,” Cambridge, MA: National Bureau of Economic Research, Working Paper 16300, August 2010, p. 24, at

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The Role of High-Impact Businesses in Net Job Creation Because most small businesses start and remain small, some economists have focused their research on the role of what the SBA and others refer to as “high-impact” businesses (sometimes referred to as gazelles), instead of the relative roles of small versus large businesses, in job creation.44 High-impact businesses are defined as having sales that have doubled over the most recent four-year period and have an employment growth quantifier of two of more over the same time period. The employment growth quantifier equals the product of a firm’s absolute change and percent change in employment.45 High-impact businesses account for a relatively small percentage of businesses (typically 5% to 6% of all businesses with employees), yet account for “almost all [net] job creation in the economy.”46 An analysis of employment in the United States from 1994 to 2006 found that there were 352,114 high-impact businesses during the 19941998 four-year time period, 299,973 during the 1998- 2002 four-year time period, and 376,605 during the 2002-2006 four-year time period.47 The study found that high-impact businesses  

accounted for nearly all employment growth in the economy; came in all sizes (e.g., from 1994 to 2006, businesses with fewer than 20 employees accounted for 93.8% of high-impact businesses and 33.5% of job growth among high-impact businesses; businesses with 20-499 employees accounted for 5.9% of highimpact businesses and 24.1% of job growth among high-impact

http://www.nber.org/papers/w16300. They found that “ conditional on survival, young firms exhibit substantially higher growth than more mature firms.” 44 Acs, Parsons, and Tracy, 2008. The term gazelles was used to describe rapidly growing firms in David L. Birch and James Medoff, “ Gazelles,” in Lewis C. Solmon and Alec R. Levenson, eds., Labor Markets, Employment Policy and Job Creation (Boulder: Westview Press, 1994), pp. 159 -168. 45 Acs, Parsons, and Tracy, 2008, pp. 1, 16, 17. 46 Acs, Parsons, and Tracy, 2008, p. 3. This study also includes a review of the economic literature on high -impact businesses. 47 Acs, Parsons, and Tracy, 2008, p. 1.

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 

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businesses; and businesses with 500 or more employees accounted for 0.3% of high-impact businesses and 42.4% of job growth among high-impact businesses); existed in all regions, all states, and all counties; tended to be located in a metropolitan area (77.6% compared with 22.4% in a rural area), and within 20 miles of a central business district (53.2%); existed in nearly all industries; and on average, were smaller and younger than other businesses, but “the average high-impact business is not a startup and has been in operation for about 25 years.”48

The study’s authors argued that the presence of high-impact businesses in “virtually all” industrial classifications throughout the 1994-2006 time period “suggests that economies that are more diversified will grow more rapidly than ones that are more specialized” and “therefore, encouraging diversity as a policy seems to make much more sense than targeting select industries” for assistance.49 A follow-up study of high-impact businesses and their effect on net job creation in the United States found that there were 368,262 high-impact businesses during the 2004-2008, four-year time period, representing about 6.3% of all firms with employees.50 The study found that high- impact businesses accounted for nearly all net employment growth during the 2004-2008 time period, came in all sizes (95.3% had fewer than 20 employees, 4.5% had 20-499 employees, and 0.2% had 500 or more employees), existed in all regions and states, were relatively evenly distributed across all industries, regardless of whether the industries were

48

Acs, Parsons, and Tracy, 2008, pp. 1-3, 36, 44. Acs, Parsons, and Tracy, 2008, pp. 30-32. 50 Spencer L. Tracy Jr., “ Accelerating Job Creation in America: The Promise of High Impact Companies,” SBA, Office of Advocacy, July 2011, p. 26, at http://www.sba.gov/sites/default/files/rs381tot.pdf (hereafter Tracy Jr., 2011). 49

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stagnant, growing, or declining, and tended to be located in an urban area (85%).51 The study also found that high-impact businesses were, on average, younger than other businesses across all three business size categories. Specifically, high-impact businesses with fewer than 20 employees were, on average, in business for 17 years compared with 22 years for other businesses with fewer than 20 employees. High-impact businesses with 20499 employees were, on average, in business for 25 years compared with 33 years for other businesses with 20- 499 employees. Also, high-impact businesses with 500 or more employees were, on average, in business for 33 years compared with 51 years for other businesses with 500 or more employees.52 The study also found that high-impact businesses were more productive (as measured by revenue per employee) than other businesses during the 2004-2008 time period, and the number of women-owned highimpact businesses was proportionate to the number of women-owned nonhigh-impact businesses.53

THE ROLE OF HIGH-TECHNOLOGY FIRMS IN NET JOB CREATION Using Census Bureau employment data from 1980 to 2011, a 2013 Kauffman Foundation study found that new businesses (aged one to five years) in 14 industries “with very high shares of employees in the STEM fields of science, technology, engineering, and math … played an outsized role in job creation” and while these industries were once relatively geographically concentrated in just a few states they “are becoming

Tracy Jr., 2011, pp. 24-29, 43-46, 54. The study’s author noted that the finding that nearly 85% of all high-impact companies are located in an urban area “ is less compelling when considering that nearly 80% of all people in the U.S. reside in urban areas.” 52 Tracy Jr., 2011, pp. 38, 39. 53 Tracy Jr., 2011, pp. 46-50. 51

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increasingly geographically dispersed.”54 Hathaway, the study’s author, argued that most nascent entrepreneurs report that they are not interested in building “a high-growth business.”55 Instead, most nascent entrepreneurs report that they plan to remain small and focus on providing an existing service to an existing customer base rather than creating new services or building a new customer base.56 In contrast, he argued that entrepreneurs in information and communications high-technology industries (such as manufacturers of computer and peripheral equipment, communications equipment, and semiconductor and other electronic equipment; software publishers; and internet service providers) and in other high-technology industries (such as pharmaceutical and medicine manufacturing; aerospace product and parts manufacturing; architectural, engineering, and related services; and scientific research-and-development services) are more growth oriented and behave differently than other entrepreneurs. He found that over the last three decades these 14 industries had experienced rapid employment grown, even though they had experienced significant employment losses during “the dot-com bust” in the early 2000s and “Great Recession of 2008 and 2009.”57 He noted that despite these downturns, surviving young firms in the 14 high- technology industries provided net job creation rates “more than twice that of businesses across the economy.”58 Ian Hathaway, “Tech Starts: High-Technology Business Formation and Job Creation in the United States,” Kaufman Foundation Research Series: Firm Formation and Economic Growth, August 2013, p. 2, at http://www.kauffman.org/~/ media/kauffman_ org/research%20reports%20and%20covers/2013/08/bdstechstartsreport.pdf (hereafter Hathaway, 2013). The 14 industries identified as having a high concentration of STEM employees, including their NAICS code, are: NAICS 3341, computer and peripheral equipment manufacturing; NAICS 3342, communications equipment manufacturing; NAICS 3344, semiconductor and other electronic component manufacturing; NAICS 3345, navigational, measuring, electromedical, and control inst ruments manufacturing; NAICS 5112, software publishers; NAICS 5161, internet publishing and broadcasting; NAISC 5179, other telecommunications; NAICS 5181, internet service providers and web search portals; NAICS 5182, data processing, hosting, and related services; NAICS 5415, computer systems design and related services; NAICS 3254, pharmaceutical and medicine manufacturing; NAICS 3364, aerospace product and parts manufacturing; NAICS 5413, architectural, engineering, and related services; and NAICS 5417, scientific research-and-development services. 55 Hathaway, 2013, p. 3. 56 Hathaway, 2013, p. 3. 57 Hathaway, 2013, p. 6. 58 Hathaway, 2013, p. 16. 54

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The author concluded his analysis by arguing that job creation and business formation dynamics vary across industries and that “the next few years of data releases will provide critical insights into the state of economic dynamism and entrepreneurship in the United States.”59

Summary Discussion Economic research on net job creation suggests that startups play a very important role in job creation, but have a more limited effect on net job creation over time because about one-third of all startups close by their second year of existence and fewer than half of all startups are still in business after five years. However, that research also suggests that the influence of small startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time while startups with 20-499 employees tend to have a positive employment effect “that continued to increase for five years after their formation before decreasing.”60 This finding would suggest that, if providing assistance to startups was used as a factor in SBA program performance or in the distribution of SBA assistance, the startup’s size should also be taken into consideration. Economic research on net job creation also suggests that net job creation is concentrated among a relatively small group of surviving “highimpact” businesses that are younger and smaller than the typical business, but also have, on average, been in operation for 25 years. This finding suggests that all three groups of businesses—startups, younger small businesses (in operation for one year to five years), and high-impact businesses—are important contributors to net job creation. In addition, recent economic research suggests that employment dynamics vary across U.S. industries, with entrepreneurs in some industries providing a greater emphasis on employment expansion than in other industries. 59 60

Hathaway, 2013, p. 17. Acs, Parsons, and Tracy, 2008, p. 14.

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In sum, current economic research on the dynamics of net job creation does not provide a definitive answer concerning how to identify those businesses that are most likely to contribute to net job creation. However, that research does suggest that small business startups, especially those with at least 20 employees, play a large role in net job creation, as do surviving younger businesses (in operation for one year to five years). It does not, as of yet, provide criteria to predict, with any degree of certainty, which of the surviving younger businesses will emerge as high-impact businesses.

IMPLICATIONS FOR CONGRESS AND THE SBA The Small Business Act of 1953 (P.L. 83-163, as amended) authorized the SBA and justified the agency’s existence on the grounds that small businesses were essential to the maintenance of the free enterprise system: The essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to the economic well-being but to the security of this Nation. Such security and well-being cannot be realized unless the actual and potential capacity of small business is encouraged and developed. 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 for supplies and services for the Government be placed with smallbusinessenterprises, and to maintain and strengthen the overall economy of the Nation.61

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In economic terms, the congressional intent was to use the SBA to deter the formation of monopolies and the market failures they cause by eliminating competition in the marketplace. The congressional emphasis on deterring monopoly formation could help to explain the SBA’s historical reliance on factors related to promoting business competition within the various industrial classifications, as opposed to using other factors, such as job creation, when formulating its industry size standards. The Small Business Act did not mention the SBA’s role in job creation. However, in 1954, Wendell Barnes, the SBA’s second Administrator, was asked at a congressional hearing to discuss the SBA’s role in supporting small businesses. He testified that part of the SBA’s mission was to provide credit to small businesses to enable them to “provide additional employment.”62 For many years, economists and others have argued that providing federal assistance to small businesses is justified because small businesses are perceived to be at a disadvantage, compared with other businesses, in accessing capital and credit.63 In their view, lenders are less likely to lend to small businesses than to larger businesses because small businesses tend to be younger and have less credit history than larger businesses.64 Also, lenders may be reluctant to lend to small businesses with innovative products because it might be difficult to collect enough reliable information to correctly estimate the risk for such products.65 As GAO has reported: 62

U.S. Congress, Senate Select Committee on Small Business, Small Business Administration Loan Policy, 83rd Cong., 2nd sess., May 13, 1954 (Washington: GPO, 1954), p. 10. 63 For a discussion of the economic reasons for and against providing small businesses tax preferences, see CRS Report RL32254, Small Business Tax Benefits: Current Law and Arguments For and Against Them , by Gary Guenther. 64 U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 3, 9 -11, at http://www.gao.gov/new.items/d08226t.pdf; and Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished , Washington, DC: American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at http://www.aei.org/wp-content/uploads/ 2011/10/20060414_wp126. pdf. 65 Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished , Washington, DC: American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at http://www.aei.org/wp-content/uploads/ 2011/10/20060414_wp126.pdf.

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Limited evidence from economic studies suggests that some small businesses may face constraints in accessing credit because of imperfections such as credit rationing in the conventional lending market. Some studies showed, for example, that lenders might lack the information needed to distinguish between creditworthy and noncreditworthy borrowers and thus could “ration” credit by not providing loans to all creditworthy borrowers. Several studies we reviewed generally concluded that credit rationing was more likely to affect small businesses, because lenders could face challenges obtaining enough information on these businesses to assess their risk.66

Others have supported federal assistance to small businesses because they believe that small business ownership provides an opportunity for minorities, women, and immigrants to increase their income and independence and to move into the economic mainstream of the American economy.67 In their view, businesses owned by these demographic groups face even greater barriers in obtaining access to capital and credit than other small business owners due to discrimination and their higher likelihood of locating their business in a low or moderate income community. Operating a business in a low or moderate income community is often viewed by lenders as increasing the risk that the business owner will be unable to repay the loan.68 66

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U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 3, 9 -11, at http://www.gao.gov/new.items/d08226t.pdf. Advocates of federal assistance for small businesses also argue that women-, minority-, and immigrant-owned small businesses benefit their immediate communities and society at large in ways that go beyond direct economic effects. For example, there is evidence that women small business owners are more likely than their male counterparts to encourage openness in workplace communication and decision-making, hire a diverse workforce, put into place desirable child-care programs, and pay full benefits to employees. See Candida Brush and Robert D. Hisrich, “Women- Owned Businesses: Why Do They Matter?” in Are Small Firms Important? Their Role and Impact (Boston: Kluwer Academic Publishers, 1999), pp. 111-127; and John Sibley Butler and Patricia Gene Greene, “Don’t Call Me Small: The Contribution of Ethnic Enterprises to the Economic and Social Well-Being of America,” in Are Small Firms Important? Their Role and Impact (Boston: Kluwer Academic Publishers, 1999), pp. 129 -145. Robert W. Fairlie and Alicia M. Robb, “ Disparities in Capital Access between Minority and Non-Minority-Owned Businesses: The Troubling Reality of Capital Limitations Faced by MBEs,” U.S. Department of Commerce, Minority Business Development

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In recent years, advocates of providing federal assistance to small businesses have focused increased attention on the SBA’s role in job creation.69 For example, the SBA has argued that “improving access to credit by small businesses is a crucial step in supporting economic recovery and job creation.”70 Economists generally do not view job creation as a justification for providing federal assistance to small businesses. They argue that in the long term such assistance will likely reallocate jobs within the economy, not increase them. In their view, jobs arise primarily from the size of the labor force, which depends largely on population, demographics, and factors that affect the choice of home versus market production (e.g., the entry of women in the workforce). However, economic theory does suggest that increased federal spending may result in additional jobs in the short term. For example, the SBA reported in September 2010 that small business funding provided by P.L. 111-5, the American Recovery and Reinvestment Act of 2009, created or retained 785,955 jobs.71 The following sections examine the potential consequences of using net job creation as a SBA program performance measure and for targeting SBA assistance. That assistance, other than for COVID-19-related lending— which has expanded eligibility criteria—is available to businesses that are located in the United States, are a for-profit operating business, qualify as small under the SBA’s size requirements, and, for loan guarantees, demonstrate a need for the desired credit and are certified by a lender that the desired credit is unavailable on reasonable terms and conditions from

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Agency, January 2010, pp. 3-5, 8, 17-23, at http://www.mbda.gov/sites/default/files/ DisparitiesinCapitalAccessReport.pdf. For example, see The White House, “Remarks by the President on Job Creation and Economic Growth,” December 8, 2009, at https://obamawhitehouse.archives. gov/photos-and-video/video/job-creation-and-economic-growth#transcript. SBA, “President Obama Announces New Efforts to Improve Access to Credit for Small Businesses,” 2009, at http://www.sba.gov/idc/groups/public/documents/sba_homepage/ sba_rcvry_new_effort_credit_sb.pdf. SBA, “FY2009/2010 Final – Recovery Program Performance Report, September 2010,” September, 2010, at https://www.sba.gov/sites/default/files/recovery_act_reports/ perform_report_9_2010.pdf.

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nonfederal sources without the SBA’s assistance.72 About 97% of all business concerns currently meet the SBA’s eligibility criteria.73

Using Net Job Creation to Measure SBA Program Performance GAO has argued that the SBA’s program performance measures provide limited information about the impact of its programs on participating small businesses because those measures focus primarily on output, such as the number of loans approved and funded, rather than outcomes, such as how well the small businesses do after receiving SBA assistance.74 GAO has recommended that the SBA devise program performance measures based on outcomes to enable Congress to determine “how well the agency is meeting its strategic goal of helping small businesses succeed.”75 At least one economist has argued that Congress should consider “including performance benchmarks in government loan programs” as “useful assessment tools for distinguishing companies with exceptional capacities and promise” for economic growth and job creation.76 Under this proposal, the government’s guarantee would increase “to a ceiling in accordance with the number of benchmarks an applicant satisfies, though

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13 C.F.R. §120.100; 13 C.F.R. §120.101; and 13 C.F.R. §120.102. A list of ineligible businesses, such as non-profit businesses, insurance companies, and businesses deriving more than one-third of gross annual revenue from legal gambling activities, are contained in 13 C.F.R. §120.110. Also, borrowers can use Microloan proceeds for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment to est ablish nonprofit child care centers, see 13 C.F.R. §120.707. 73 SBA, “ 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.wcoeusa. org/sites/default/files/Size%20Standards%20Methodology% 20from%20SBA.pdf. 74 U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 2, 7-9, at http://www.gao.gov/new.items/d08226t.pdf. 75 U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, p. 2. 76 Tracy Jr., 2011, p. 55.

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meeting some base-level benchmarks would be required of all applicants.”77 Congress has required the SBA to use outcome-based performance measures for some of its programs. For example, borrowers in the SBA’s 504/CDC (Certified Development Company) loan guaranty program, except small manufacturers, are required to create or retain at least one job for every $75,000 of project debenture.78 Small manufacturers (defined as a small business with its primary North American Industry Classification System Code in Sectors 31, 32, and 33, and having all of its production facilities in the United States) must create or retain one job per $120,000 of project debenture.79 The SBA also requires its management and technical assistance training program counselors to report information concerning job creation and retention.80 In addition, as mentioned previously, the SBA released estimates of the number of jobs created and retained by its loan guaranty programs as part of its implementation of P.L. 111-5, the American Recovery and

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Tracy Jr., 2011, p. 55. For further analysis of the 504/CDC program, see CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program , by Robert Jay Dilger. 79 SBA, “ SOP 50 10 5(K): Lender and Development Company Loan Programs,” effective April 1, 2019, p. 309, at https://www.sba.gov/document/sop-50-10-5-lenderdevelopment-company-loan-programs. The jobs created do not have to be at the project facility, but 75% of the jobs must be created in the comm unity where the project is located. Using job retention to satisfy this requirement is allowed only if the Certified Development Company (CDC) can reasonably show “ that jobs would be lost to the community if the project was not done.” The borrower can also retain eligibility by meeting any one of five specified community development goals or 10 specified public policy goals, provided the CDC meets its required job opportunity average of at least one job opportunity created or retained for every $75,000 in project debenture, or for every $85,000 in project debenture for projects located in special geographic areas (Alaska, Hawaii, state-designated enterprise zones, empowerment zones, enterprise communities, and labor surplus areas). Loans to small manufacturers are excluded from the calculation of this average. See SBA, “ Development Company Loan Program - Job Creation and Retention Requirements; Additional Areas for Higher Portfolio Average,” 83 Federal Register 55225-55226, November 2, 2018. 80 For further analysis of SBA management and technical assistance programs, see CRS Report R41352, Small Business Management and Technical Assistance Training Programs, by Robert Jay Dilger. 78

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Reinvestment Act of 2009.81 The SBA’s Office of Advocacy also periodically commissions independent studies of job creation and net job creation by small businesses to draw attention to “the contributions and challenges of small businesses in the U.S. economy.”82 Given increased congressional interest in job creation, it could be argued that using net job creation as an outcome-based performance measure for the SBA’s programs might enhance congressional oversight by providing Congress additional information concerning the nature of the jobs created by the SBA’s programs, such as whether the jobs (and recipient small businesses) last or disappear relatively soon.83 Congress could use this information to compare programs and as a factor in its deliberations concerning SBA funding and priorities. The counterargument is that implementing net job creation as a SBA program performance measure is not necessarily easy. For example, decisions would have to be made concerning how to count part-time workers and seasonal workers, whether to take into account salaries and benefits, how long to track the small business’s employment levels, how to keep reporting requirements manageable for small business owners, and whether to rely on self-reporting, independent consultants, or SBA staff to gather and verify the data. Economists might also argue that using net job creation as a SBA program performance criteria is inappropriate because economic theory suggests that in the long run such assistance does not create additional jobs, it reallocates them within the economy. Some small businesses might also object, worried that the use of net job creation as a SBA program performance measure might result in them receiving less SBA assistance than they would otherwise receive.

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SBA, “FY2009/2010 Final - Recovery Program Performance Report, September 2010,” September 2010, pp. 2, 3, at https://www.sba.gov/sites/default/files/recovery_act_ reports/perform_report_9_2010.pdf. SBA, Office of Advocacy, “About US,” at https://www.sba.gov/category/advocacynavigation-structure/about-us-0. Using net job creation as a performance measure for the SBA’s disaster assistance loan program for individuals and households (renters and property owners) to repair and replace homes and personal property following a disaster may have limited utility because that program is not specifically designed to assist businesses.

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Using Net Job Creation to Target SBA Assistance Given increased congressional interest in job creation, it could be argued that using net job creation as a factor in targeting SBA’s nonCOVID-19-related lending assistance might enhance congressional efforts to promote job growth. Job growth has been one of the top domestic priorities of recent Congresses. The counterargument is that there is little evidence to prove that providing a subsidy to small businesses that currently create the most jobs will be the most effective means of promoting job growth. For example, it could be argued that successful small businesses may not need SBA assistance because their success enables them to attract capital and credit from private sources. Also, given the constantly evolving nature of the economy, the businesses that create the most jobs in the economy change over time. The SBA would need to update its criteria periodically to account for these changes. It could also be argued that using net job creation as a factor in allocating SBA lending assistance is premature because, given the evolving nature of the economic literature, there is no consensus concerning the criteria that should be used to identify businesses that are the most likely to have a positive effect on net job creation. In addition, economists might oppose the use of net job creation to target SBA lending assistance for the same reason they might oppose using net job creation as a SBA program performance measure—because economic theory suggests that in the long run such assistance does not create additional jobs, it reallocates them within the economy. Some small businesses might also object, worried that using net job creation as a factor in allocating SBA assistance might eliminate or reduce the SBA assistance that they would otherwise receive. It could also be argued that the SBA already takes net job creation into account, at least to a limited degree, in its loan guaranty programs. By guaranteeing less than 100% of the SBA loan amount issued by private lenders, the SBA subjects lenders to losses on defaulted loans (ranging from 10% to 50% of the loan amount depending on the SBA program). It

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could be argued that lenders take into account the borrower’s likelihood of repayment (survival) and, therefore, the borrower’s potential for having a positive effect on net job creation, before issuing a SBA guaranteed loan to protect their financial investment. As a result, the lending process, arguably, helps to weed out those firms that are most likely to have a negative effect on net job creation. However, it could also be argued that because lenders are required to certify that the desired credit is unavailable to the applicant on reasonable terms and conditions from nonfederal sources without the SBA’s assistance, SBA borrowers are, by definition, at greater risk of failing than others and, therefore, are also less likely than others to have a positive effect on net job creation. It could also be argued that the SBA’s Small Business Investment Company (SBIC) program already takes net job creation into account, at least indirectly.84 Under the SBIC program, the SBA guarantees debentures (loan obligations) that are sold to investors. The revenue generated by the sale of the debenture is then invested by certified small business investment companies in small businesses. When making those investments, small business investment companies take into account many factors, including the business’s potential for economic growth. As a result, it could be argued that the SBIC program takes into account the borrower’s likelihood of having a positive effect on net job creation and, unlike the SBA’s loan guaranty programs, does not have to certify that the desired credit is unavailable to the applicant on reasonable terms and conditions from nonfederal sources without the SBA’s assistance. The counterargument is that the SBIC program is much smaller than the SBA’s business loan guaranty programs (e.g., the SBA guarantees between $3 billion and $4 billion in SBIC debentures annually compared with nearly $30 billion in business loan guarantees) and the SBA does not use net job creation as a primary factor in allocating those resources. Finally, it could be argued that using net job creation as a factor in the allocation of SBA lending assistance will not have much effect on net job creation because the SBA’s loan programs represent a relatively small 84

For further analysis of the Small Business Investment Company Program, see CRS Report R41456, SBA Small Business Investment Company Program, by Robert Jay Dilger.

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share of the capital accessed by small businesses in any given year. Following this line of argument, it could be argued that a more effective strategy for promoting job creation would be to focus on policies affecting the broader economy rather than the SBA.

CONCLUDING OBSERVATIONS Economic research on net job creation suggests that startups play a very important role in job creation, but have a more limited effect on net job creation over time because about one-third of all startups close by their second year of existence and fewer than half of all startups are still in business after five years. However, economic research also suggests that the influence of small startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20-499 employees tend to have a positive employment effect “that continued to increase for five years after their formation before decreasing.”85 This finding would suggest that, if providing assistance to startups was used as a factor in SBA program performance or in the distribution of SBA assistance, the startup’s size should also be taken into consideration. The economic research on net job creation also suggests that net job creation is concentrated among a relatively small group of surviving “highimpact” businesses that are younger and smaller than the typical business, but also have, on average, been in operation for 25 years. This finding suggests that all three groups of businesses—startups, young small businesses (in operation for one year to five years), and surviving highimpact businesses—are important contributors to net job creation. As mentioned previously, recent economic research suggests that employment dynamics vary across U.S. industries, with entrepreneurs in some industries providing a greater emphasis on employment expansion than entrepreneurs in other industries. 85

Acs, Parsons, and Tracy, 2008, p. 14.

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In sum, economic research on the dynamics of net job creation does not provide a definitive answer concerning how to identify those businesses that are most likely to contribute to net job creation. However, that research does suggest that small business startups, especially those with at least 20 employees, play a large role in net job creation, as do surviving younger businesses (in operation for one year to five years). The economic literature does not, as of yet, provide criteria to predict, with any degree of certainty, which of the surviving younger businesses will emerge as high-impact firms. Nonetheless, given the heightened congressional interest in net job creation, increased attention to the fact that the SBA is not specifically designed to promote net job creation and does not use net job creation as a program performance measure may lead to additional analysis that can better inform the debate over whether the SBA should use net job creation as an outcome-based program performance measure or as a factor in the allocation of its assistance.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 5

SMALL BUSINESS ADMINISTRATION MICROLOAN PROGRAM (UPDATED) Robert Jay Dilger

ABSTRACT The Small Business Administration’s (SBA’s) Microloan program provides direct loans to nonprofit intermediary lenders to provide “microloans” of up to $50,000 to small businesses and nonprofit child care centers. They also provide marketing, management, and technical assistance to microloan borrowers and potential borrowers. Authorized in 1991 as a five-year demonstration project, it became operational in 1992, and was made permanent, subject to reauthorization, in 1997. The Microloan program is designed to assist women, low-income, veteran, and minority entrepreneurs and small business owners by providing them small-scale loans for working capital or the acquisition of materials, supplies, or equipment. In FY2019, Microloan intermediaries provided 5,533 microloans totaling $81.5 million. The average Microloan was $14,735 and had a 7.5% interest rate.

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This is an edited, reformatted and augmented version of Congressional Research Service, Publication No. R41057, dated April 29, 2020.

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Robert Jay Dilger Critics of the SBA’s Microloan program argue that it is expensive relative to alternative programs, duplicative of the SBA’s 7(a) loan guaranty program, and subject to administrative shortfalls. The program’s advocates argue that it assists many who otherwise would not be served by the private sector and is an important source of capital and training assistance for low-income, women, and minority business owners. Congressional interest in the Microloan program has increased in recent years, primarily because microloans are viewed as a means to assist very small businesses, especially women- and minority-owned startups, to get loans that enable them to create and retain jobs. Job creation and preservation, always a congressional interest, has taken on increased importance given the Coronavirus Disease 2019 (COVID-19) pandemic’s adverse impact on the national economy. This chapter describes the program’s eligibility standards and operating requirements. It also examines arguments presented by the program’s critics and advocates. It then discusses 

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P.L. 111-240, the Small Business Jobs Act of 2010, which, among other provisions, increased the Microloan program’s loan limit for borrowers from $35,000 to $50,000, and the aggregate loan limit for intermediaries after their first year of participation in the program from $3.5 million to $5 million. P.L. 115-141, the Consolidated Appropriations Act, 2018, which, among other provisions, relaxed requirements on Microloan intermediaries that prohibited them from spending more than 25% of their technical assistance grant funds on prospective borrowers and more than 25% of those grant funds on contracts with third parties to provide that technical assistance. The act increased those percentages to 50%. P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which, among other provisions, increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million. P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a), 504/CDC, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due date. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, which, among other provisions, increased the Paycheck Protection

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Program’s (PPP) authorization limit from $349 billion to $659 billion and required that no less than $30 billion of that amount be set aside for loans issued by “community financial institutions,” including, among others, microloan intermediaries.

SMALL BUSINESS MICROLOANS AND TRAINING ASSISTANCE The Small Business Administration (SBA) administers programs that support small businesses, including loan guarantees to lenders to encourage them to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions” and grants to nonprofit organizations to provide marketing, management, and technical training assistance to small business owners.1 Historically, one of the justifications presented for funding the SBA’s loan guarantee programs has been that small businesses can be at a disadvantage, compared with other businesses, when trying to obtain access to sufficient capital and credit.2 It has been argued that this disadvantage is particularly acute for startups and microbusinesses (firms with fewer than five employees): Traditional lending institutions, such as banks and investors, are unlikely to offer loans and investment capital to microfirms due to a variety of reasons. One barrier to microlending is a concern that startups and smaller enterprises are risky investments since growing businesses typically exhibit erratic bursts of growth and downturn. The perceived risk of these types of companies reduces the chances of a microbusiness to obtain financing. Another issue is that microbusinesses by and large 1

2

U.S. Small Business Administration (SBA), Fiscal Year 2010 Congressional Budget Justification, pp. 29-30, at https://www.sba.gov/sites/default/files/aboutsbaarticle/ Congressional_Budget_Justification_2010.pdf. Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished, American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at https://www.aei.org/ research-products/working-paper/why-thesmall-business-administrations-loan-programs-should-be-abolished/. Also, see U.S. Government Accountability Office, Small Business Administration: 7(a) Loan Program Needs Additional Performance Measures, GAO-08-226T, November 1, 2007, pp. 3, 9-11, at http://www.gao.gov/new.items/d08226t.pdf.

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Robert Jay Dilger require smaller amounts of capital, and thus banks or investment companies often believe that it is not efficient use of their time or resources, nor will they receive a substantive return on investment from such a small loan amount.3

An Urban Institute survey of SBA 7(a), 504/Certified Development Company (504/CDC), Small Business Investment Company (SBIC), and Microloan borrowers conducted in 2007 found that Microloan borrowers reported having the most difficulty in finding acceptable financing elsewhere. Less than one-third (31%) of Microloan borrowers reported that they would have been able to find acceptable financing elsewhere, compared with 35% of SBIC borrowers, 40% of 7(a) borrowers, and 48% of 504/CDC borrowers.4 Since its inception in 1953, the SBA has provided loan guarantees to encourage lenders to issue small businesses loans.5 Interest in creating a separate loan program to address the specific needs of startups and microbusinesses increased during the 1980s, primarily due to the growth and experience of microlending institutions abroad and evidence concerning private lending practices that led Congress to conclude that a new loan program was necessary “to reach very small businesses that were not being served by traditional lenders of SBA’s credit programs.”6 To address the perceived disadvantages faced by very small businesses in gaining access to capital, Congress authorized the SBA’s Microloan 3

U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 6. 4 Christopher Hayes, An Assessment of the Small Business Administration’s Loan and Investment Programs: Survey of Assisted Businesses (Washington: The Urban Institute, January 2008), p. 5, at http://www.urban.org/UploadedPDF/411599_assisted_business_survey.pdf. 5 The SBA also provided direct loans to small businesses until 1994. For further analysis, see CRS Report R40985, Small Business: Access to Capital and Job Creation, by Robert Jay Dilger. 6 Robert Cull, Asli Demiriguc-Kunt, and Jonathan Morduch, “Microfinance Meets the Market,” Journal of Economic Perspectives, vol. 23, no. 1 (Winter 2009), pp. 169-172; and U.S. Congress, Senate Committee on Small Business and Entrepreneurship, Microloan Program Improvement Act of 2001, report to accompany S. 174, 107th Cong., 1st sess., May 26, 2001, S.Rept. 107-18 (Washington: GPO, 2001). About 3.54 million employer firms in the United States in 2012 had fewer than five employees. See U.S. Census Bureau, Statistics of U.S. Businesses: U.S. & States, Totals, at http://www2.census.gov/econ/susb/data/2012/ us_state_totals_2012.xls.

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lending program in 1991, as a five-year demonstration project (P.L. 102140, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1992). The program became operational in 1992. Its stated purpose is to assist women, low-income, veteran ... and minority entrepreneurs and business owners and other individuals possessing the capability to operate successful business concerns; to assist small business concerns in those areas suffering from a lack of credit due to economic downturns; ... to make loans to eligible intermediaries to enable such intermediaries to provide small-scale loans, particularly loans in amounts averaging not more than $10,000, to start-up, newly established, or growing small business concerns for working capital or the acquisition of materials, supplies, or equipment; [and] to make grants to eligible intermediaries that, together with non-Federal matching funds, will enable such intermediaries to provide intensive marketing, management, and technical assistance to microloan borrowers.7

The SBA’s Microloan lending program was made permanent, subject to reauthorization, in 1997 (P.L. 105-135, the Small Business Reauthorization Act of 1997).8 7 8

15 U.S.C. §636(m)(1)(A). Prior to the Microloan program, the SBA temporarily established, in 1964, the “6 on 6” pilot lending program, which provided up to $6,000 for a term of up to 6 years “aimed specifically at disadvantaged potential entrepreneurs.” See U.S. Congress, House Select Committee on Small Business, Subcommittee on Minority Small Business Enterprise, Government Minority Small Business Programs, hearing pursuant to H. Res. 5 and 19, 92 nd Cong., 1st sess., July 27, 1971 (Washington: GPO, 1972), p. 6. Also, in 1964, P.L. 88-452, the Economic Opportunity Act of 1964 (Title IV-Employment and Investment Incentives), authorized the director of the Office of Economic Opportunity, through the SBA, to provide what were subsequently called Economic Opportunity Loans (EOL). The EOL program became operational in January 1965 and continued through 1992 (the final EOL loan disbursement took place in 1996). P.L. 93-386, the Small Business Amendments (approved August 23, 1974) transferred authority for the EOL program from the Office of Economic Opportunity to the SBA. Initially, the EOL program provided direct loans (of up to $25,000, with loan terms of up to 15 years) to assist small businesses promote employment of the long-term unemployed. Starting in 1968, EOL loans increasingly were issued as guaranteed loans. The program’s loan limits were increased, by law, from $25,000 to $50,000 in 1972 and to $100,000 in 1976. The EOL program’s requirements and operations evolved over time, but remained focused on providing loans to low-income, minority-owned, very small businesses. The EOL program also emphasized the provision of management and technical training assistance to disadvantaged entrepreneurs. See U.S. Congress, House Committee on

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Congressional interest in the Microloan program has increased in recent years, primarily because microloans are viewed as a means to assist very small businesses, especially women- and minority-owned startups, obtain loans that enable them to create jobs. Job creation and preservation, always a congressional interest, has taken on increased importance given the Coronavirus Disease 2019 (COVID-19) pandemic’s adverse impact on the national economy. This chapter describes the Microloan program’s eligibility standards and operating requirements for lenders and borrowers and examines arguments presented by the program’s critics and advocates. It also examines the following laws that affected the program: 



P.L. 111-240, the Small Business Jobs Act of 2010, among other provisions, authorized several changes to the SBA’s loan guaranty programs, including increasing the Microloan program’s loan limit for borrowers from $35,000 to $50,000, and the aggregate loan limit for intermediaries after their first year of participation in the program from $3.5 million to $5 million. It also authorized the SBA to waive, in whole or in part through FY2012, the nonfederal share requirement for loans to the Microloan program’s intermediaries and for grants made to Microloan intermediaries for small business marketing, management, and technical assistance for up to a fiscal year. P.L. 115-141, the Consolidated Appropriations Act, 2018, among other provisions, relaxed requirements on Microloan intermediaries that prohibited them from spending more than 25% of their technical assistance grant funds on prospective borrowers

Education and Labor, Economic Opportunity Act Amendments of 1967, hearing on H.R. 8311, 90th Cong., 1st sess., June 23, 1967 (Washington: GPO, 1967), pp. 1356-1362; U.S. Congress, House Committee on Appropriations, Subcommittee on Commerce, Justice, State, and Judiciary, Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations for 1993, 102nd Cong., 2nd sess., February 19, 1992 (Washington: GPO, 1992), pp. 503-504; and U.S. General Accounting (now Government Accountability) Office, Most Borrowers of Economic Opportunity Loans Have Not Succeeded in Business, CED-81-3, December 8, 1980, pp. 1-8, at http://www.gao.gov/ assets/140/131190.pdf.

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



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and more than 25% of those grant funds on contracts with third parties to provide that technical assistance. The act increased those percentages to 50% (originally in H.R. 2056, the Microloan Modernization Act of 2017, and S. 526, its companion bill in the Senate). P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, among other provisions, increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million (originally in H.R. 2056, the Microloan Modernization Act of 2017, and S. 526, its companion bill in the Senate). P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a), 504/CDC, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due date.9 P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, among other provisions, increased the Paycheck Protection Program’s (PPP) authorization limit from $349 billion to $659 billion and required that no less than $30 billion of that amount be set aside for loans issued by “community financial institutions,” including, among others, microloan intermediaries.10

Also, during the 116th Congress, 

9

S. 996, the Microloan Program Enhancement Act of 2019, would, among other provisions, eliminate the restriction that prevents the SBA from distributing more than $800,000 or 1/55th of available

For additional information about the CARES Act, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. 10 For additional information about the set aside requirements, see CRS Insight IN11355, Paycheck Protection Program (PPP) Lending Set Asides for Community Development Financial Institutions (CDFIs), by Sean Lowry.

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Robert Jay Dilger loan funds (whichever is less) in any state during the first half of each fiscal year. The bill also would increase the annual cap on the total amount that may be committed to an intermediary to provide loans from $2.5 million to $3 million, and the intermediary’s aggregate loan amount after its first year of participation in the program from $6 million to $7 million. The bill also would authorize $80 million for Microloan technical assistance grants and $110 million for Microloan direct loans in each of FY2020FY2022, and require the SBA to annually report information related to the Microloan program to the House and Senate Committees on Small Business and on the SBA’s public website.11

THE SBA MICROLOAN PROGRAM: FUNDING, ELIGIBILITY STANDARDS, PROGRAM REQUIREMENTS, AND STATISTICS Unlike the SBA’s 7(a) and 504/CDC loan guarantee programs, the SBA Microloan program does not guarantee loans.12 Instead, it provides direct loans to qualified nonprofit intermediary Microloan lenders who, in turn, provide “microloans” of up to $50,000 to small business owners,

11

12

The Trump Administration recommended in its FY2021 Congressional Budget Justification document that the 1/55th rule be changed to a 1/25th rule, noting that “The 10 states with the highest percentage of SBA loan funds comprise 36.7% of SBA funds outstanding. This restriction delays deployment of Microloan funds and limits the availability of capital for small businesses regardless of the size of the state or the needs of the small business community. Under the 1/55th rule, funds allocated to these 10 states would total 18.2%. If the rule were adjusted to 1/25th, the SBA could allocate up to 40% of available funds to these 10 states and bring supply and demand more in line. This rule change would maintain a distributional guardrail but provide greater flexibility to lenders and access to financing for small businesses.” See SBA, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 87, at https://www.sba.gov/document/report— congressional-budget-justification-annual-performance-report. For information and analysis concerning the SBA’s 7(a) and 504/CDC programs, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program, by Robert Jay Dilger, and CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.

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entrepreneurs, and nonprofit child care centers.13 There are currently 144 active Microloan intermediaries serving 49 states, the District of Columbia, and Puerto Rico.14

Funding The Microloan program’s total administrative costs (anticipated to be $6.9 million in FY2020) are funded through the SBA’s salaries and expenses and business loan administration accounts. In addition, each year the SBA receives an appropriation for credit subsidies for its direct lending (Microloan) program. Business loan credit subsidies represent the net present value of cash flows to and from the SBA over the life of the loan portfolio. For guaranteed loans, the net present value of cash flows is primarily affected by the difference between the cost of purchasing loans that have defaulted and the revenue generated from fees and collateral liquidation. For direct (Microloan) lending, the net present value of cash flows is primarily affected by the cost of offering below market interest rates to intermediaries because the cost of purchasing loans that have defaulted is typically relatively small because intermediaries are required to maintain a loan loss reserve. In addition, the SBA does not charge intermediaries fees.15 13

P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for borrowers from $35,000 to $50,000. 14 SBA, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 36, 165, at https://www.sba.gov/document/report—congressional-budgetjustification-annual-performance-report. For a list of Microloan intermediaries, regardless of lending volume, see SBA, Microloan Program: Partner Identification & Management System Participating Intermediary Microlenders Report, June 21, 2017, at https://www.sba.gov/sites/default/files/articles/microlenderrpt5_20170621.pdf. 15 The SBA’s Office of Financial Analysis and Modeling is responsible for ensuring that the computation of subsidy rates for the SBA’s credit programs are in compliance with the Federal Credit Reform Act of 1990 (FCRA). As indicated on its website: “The FCRA requires all credit agencies, including the SBA, to budget and account for the cost of credit programs by determining the net present value of cash flows to and from the Government over the life of the portfolio and expressing the net amount as a credit subsidy rate. The process to develop a subsidy rate is lengthy and complex, requiring unique data collection techniques and analysis efforts. SBA develops its subsidy rates by creating models that

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Robert Jay Dilger Table 1. Microloan Technical Assistance Program Counseling Services, FY2010-FY2019

Fiscal Year

Number of Small Businesses Provided Microloan Technical Assistance Counseling Services 2010 14,916 2011 15,900 2012 15,892 2013 19,368 2014 15,668 2015 17,200 2016 17,948 2017 19,600 2018 21,800 2019 22,100 Sources: U.S. Small Business Administration, Fiscal Year 2017 Congressional Budget Justification and FY2015 Annual Performance Report, p. 99, at https://www.sba.gov/sites/default/ files/FY17CBJ_FY15-APR.pdf; and U.S. Small Business Administration, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36, at https://www.sba.gov/ document/report—congressional-budget-justification-annual-performance-report.

In FY2020, the SBA was provided $5 million for direct (Microloan) business loan credit subsidies. This appropriation is expected to support about $46 million in lending to intermediaries over the fiscal year.16 In FY2020, the SBA received an appropriation of $34.5 million for grants to selected Microloan intermediaries and qualified “non-lending technical assistance providers” to provide Microloan borrowers and

incorporate data on loan maturity, borrowers’ interest rates, fees, grace periods, interest subsidies, delinquencies, purchases or defaults, recoveries, prepayments, advances and borrower characteristics. See SBA, Office of Financial Analysis and Modeling, “Summary of Responsibilities,” at https://www.sba.gov/offices/headquarters/ocfo/ resources/13299. Also, see U.S. Congress, Senate Committee on Small Business and Entrepreneurship, Small Business Reauthorization and Improvements Act of 2006, report to accompany S. 3778, 109th Cong., 2nd sess., November 16, 2006, S.Rept. 109-361 (Washington: GPO, 2006), p. 6; and U.S. Government Accountability Office, Participants in SBA’s Microloan Program Could Provide Additional Information to Enhance the Public’s Understanding of Recovery Act Fund Uses and Expected Outcomes, GAO-10-1032R, September 29, 2010, p. 2, at http://www.gao.gov/assets/100/ 97128.pdf. 16 P.L. 116-93, the Consolidated Appropriations Act, 2020; and U.S. Congress, House Committee on Appropriations, Financial Services and General Government Appropriations Bill, 2020, 116th Cong., 1st sess., June 19, 2019, H.Rept. 116-122 (Washington: GPO, 2019), pp. 88-89.

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prospective borrowers marketing, management, and technical training assistance.17 As shown in Table 1, Microloan intermediaries provided counseling services to 22,100 small businesses in FY2019. The data indicate that the number of small businesses served by the Microloan technical assistance program has generally increased in recent years.

Intermediary Microloan Lender Eligibility Standards To become a qualified intermediary Microloan lender, an applicant must 







be organized as a nonprofit community development corporation or other entity, a consortium of nonprofit community development corporations or other entities, a quasigovernmental economic development corporation, or an agency established by a Native American Tribal Government; be located in the United States, including the Commonwealth of Puerto Rico, the U.S. Virginia Islands, Guam, and American Samoa; have made and serviced short-term, fixed rate loans of not more than $50,000 to newly established or growing small businesses for at least one year; and have at least one year of experience providing technical assistance to its borrowers.18

If accepted into the program by the SBA, an intermediary may borrow no more than $750,000 from the SBA during its first year of participation. After the first year, the maximum loan amount is $2.5 million. By law, an

17 18

P.L. 116-93. 13 C.F.R. §120.701; and 13 C.F.R. §120.702. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for borrowers from $35,000 to $50,000.

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intermediary’s total outstanding Microloan program debt must not exceed $6 million.19 The SBA approves and lends funds, subject to the availability of appropriations, to intermediaries based on the order in which applications are received. The amount provided is subject to two statutory limitations.  

No more than 300 intermediaries may participate in the Microloan program at any given time.20 During the first six months of each fiscal year, subject to the availability of appropriations, at least $800,000 or 1/55th of available loan funds (whichever is less) is required to be made available for loans to intermediaries in each state (including the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, and American Samoa).21

Any applications that cannot be funded during the first six months “due to geographic limitations will be kept on file in the order they were received” and, subject to the availability of funds, “will be funded during the seventh month of the fiscal year [April].”22 If the amount of requested loan funds exceeds the amount of available funds, the SBA “may hold back up to 20% of available loan funds to ensure that due consideration is given to new intermediaries and those having the greatest impact to underserved markets.”23 Also, if the amount of requested loan funds from new intermediaries exceeds the amount of available funds, the SBA “may 13 C.F.R. §120.706; and SBA, “SOP 52 00 B: Microloan Program,” (effective July 1, 2018), p. 22, at https://www.sba.gov/document/sop-52-00-microloan-program. P.L. 111-240, the Small Business Jobs Act of 2010, increased the aggregate loan limit for intermediaries after their first year of participation in the program from $3.5 million to $5 million. P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, among other provisions, increased the Microloan program’s aggregate loan limit for Microloan intermediaries after their first year of participation in the program from $5 million to $6 million. 20 15 U.S.C. §636 (m)(7)(A). 21 15 U.S.C. §636 (m)(7)(B)(i). 22 SBA, “SOP 52 00 B: Microloan Program,” (effective July 1, 2018), pp. 20, 21, at https://www.sba.gov/document/ sop-52-00-microloan-program. (Hereinafter cited as SBA, “SOP 52 00 B: Microloan Program”). 23 SBA, “SOP 52 00 B: Microloan Program,” p. 21. 19

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choose to select a new intermediary in an underserved location (a location that is currently unserved by an SBA Microloan Program Intermediary Lender), as determined by the Agency, over a new applicant in an area that is already served by one or more existing Intermediaries.”24

Intermediary Microloan Lender Program Requirements Intermediaries are not required to make any interest payments on the Microloan during the first year, but interest accrues from the date that the SBA disburses the loan proceeds to the intermediary. After that, the SBA determines the schedule for periodic payments. Loans must be repaid within 10 years.25 The SBA charges intermediaries an interest rate that is based on the five-year Treasury rate, adjusted to the nearest one-eighth percent (called the Base Rate), less 1.25% if the intermediary maintains an historic portfolio of Microloans averaging more than $10,000, and less 2.0% if the intermediary maintains an historic portfolio of Microloans averaging $10,000 or less. The Base Rate, after adjustment, is called the Intermediary’s Cost of Funds. The Intermediary’s Cost of Funds is initially calculated one year from the date of the note and is reviewed annually and adjusted as necessary (called recasting). The interest rate cannot be less than zero.26 Intermediaries are required to contribute not less than 15% of the loan amount in cash from nonfederal sources and, as security for repayment of the loan, must provide the SBA first lien position on all notes receivable from any microloans issued under the program.27 Unlike the SBA’s 7(a) and 504/CDC loan guarantee programs, the SBA does not charge SBA, “SOP 52 00 B: Microloan Program,” p. 21. 13 C.F.R. §120.706. 26 15 U.S.C. §636(m)(3)(F)(iii); and SBA, “SOP 52 00 B: Microloan Program,” (effective July 1, 2018), pp. 22, 23, at https://www.sba.gov/document/sop-52-00-microloan-program. In recent years, the Intermediary’s Cost of Funds has been either zero or close to zero. 27 13 C.F.R. §120.706. Note: The 15% contribution must be from nonfederal sources and may not be borrowed. For purposes of this program, Community Development Block Grants are considered nonfederal sources. 24 25

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intermediaries upfront or ongoing service fees under the Microloan program.28 As mentioned, P.L. 111-240 temporarily allowed the SBA to waive, in whole or in part through FY2012, the intermediary’s 15% nonfederal share requirement under specified circumstances (e.g., the economic conditions affecting the intermediary and the intermediary’s performance) for up to a fiscal year.29 Intermediaries are required to deposit the proceeds from the SBA’s loans, their 15% contribution, and payments from their Microloan borrowers into a Microloan Revolving Fund. Intermediaries may only withdraw from this account funds necessary to make microloans to borrowers, repay the SBA, and establish and maintain a Loan Loss Reserve Fund to pay any shortage in the Microloan Revolving Fund caused by delinquencies or losses on its microloans.30 They are required, until they have been in the program for at least five years, to maintain a balance in the Loan Loss Reserve Fund equal to 15% of the outstanding balance of the notes receivable from their Microloan borrowers.31 After five years, if the intermediary’s average annual loss rate during the preceding five years is less than 15% and no other factors exist that may impair the intermediary’s ability to repay its obligations to the SBA, the SBA Administrator may reduce the required balance in the intermediary’s Loan Loss Reserve Fund to the intermediary’s average annual loss rate during the preceding five years, but not less than 10% of the portfolio.32 Intermediaries are required to maintain their Loan Loss Reserve Fund until they have repaid all obligations owed to the SBA. The SBA does not maintain detailed data necessary to determine an aggregate default rate for Microloan borrowers. However, a Government Accountability Office (GAO) analysis of 23,000 SBA microloans issued from 2014 through 2017 found that about 3% of Microloan borrowers were 28

13 C.F.R. §120.706. P.L. 111-240, the Small Business Jobs Act of 2010, §1401. Matching Requirements Under Small Business Programs. 30 13 C.F.R. §120.709. 31 13 C.F.R. §120.710. 32 13 C.F.R. §120.710. 29

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delinquent (payments were more than 30 days late but up to 120 days late) and 7% had defaulted on their loans to intermediaries.33 Because the Loan Loss Reserve Fund is used to contribute toward the cost of borrower defaults, and is often sufficient to cover the entire cost of such defaults, the SBA’s loss rate for intermediary repayment is typically less than 3% each year.34 An intermediary may be suspended or removed from the Microloan program if it fails to comply with a specified list of program performance standards. For example, intermediaries are required to close and fund at least 10 microloans per year, cover the service territory assigned by the SBA, honor the SBA determined boundaries of neighboring intermediaries and nonlender technical assistance providers, fulfill reporting requirements, maintain a loan currency rate of 85% or more (where loans are no more than 30 days late in scheduled payments), maintain a default rate of 15% or less, and “satisfactorily provide” in-house technical assistance to microloan clients and prospective microloan clients.35

Intermediary Marketing, Management, and Technical Training Assistance As mentioned, the SBA has received an appropriation of $34.5 million in FY2020 for grants to Microloan intermediaries and qualified “non33

U.S. Government Accountability Office (GAO), SBA Microloan Program: Opportunities Exist to Strengthen Program Performance Measurement, Collaboration, and Reporting, GAO20-49, November 19, 2019, p. 11, at https://www.gao.gov/products/GAO-20-49. In 2007, the SBA estimated that the borrower default rate for the Microloan program was about 12%. See U.S. Congress, House Committee on Small Business, Full Committee Hearings on the Small Business Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007), p. 15. However, a study released on December 28, 2009, by the SBA’s Office of the Inspector General concluded that Microloan intermediaries may be under-reporting the default rate. See SBA, Office of the Inspector General, “SBA’s Administration of the Microloan Program under the Recovery Act,” December 28, 2009, at https://www.sba.gov/document/report-rom-10-10-rom-10-10-sbasadministration-microloan-program-underrecovery-act. 34 In FY2019, the Microloan program’s intermediary default rate was 2.31%. See SBA, Agency Financial Report, Fiscal Year 2019, p. 70, at https://www.sba.gov/sites/default/files/201911/SBA-AFR-fy2019.pdf. 35 13 C.F.R. §120.716. A new Microloan intermediary is not required to meet the minimum loan requirement during the year it enters the program.

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lending technical assistance providers” to provide Microloan borrowers and prospective borrowers marketing, management, and technical training assistance (see Appendix for previous funding levels). Intermediaries are eligible to receive a Microloan technical assistance grant “of not more than 25% of the total outstanding balance of loans made to it under this subsection.”36 Grant funds may be used only to provide marketing, management, and technical assistance to Microloan borrowers, except that no more than 50% of the funds may be used to provide such assistance to prospective Microloan borrowers. Grant funds may also be used to attend training required by the SBA.37 Also, intermediaries must contribute, solely from nonfederal sources, an amount equal to 25% of the grant amount. In addition to cash or other direct funding, the contribution may include indirect costs or in-kind contributions paid for under nonfederal programs.38 Intermediaries may expend no more than 50% of the grant funds on third-party contracts for the provision of technical assistance.39 In addition, as mentioned earlier, P.L. 111-240 temporarily allowed the SBA to waive, in whole or in part through FY2012, the 25% nonfederal share requirement for grants made to Microloan intermediaries for small business marketing, management, and technical assistance under specified circumstances (e.g., the economic conditions affecting the intermediary and the intermediary’s performance) for up to a fiscal year.40 The SBA does not require Microloan borrowers to participate in the marketing, management, and technical assistance program. However, intermediaries typically require Microloan borrowers to participate in the training program as a condition of the receipt of a microloan. Combining

15 U.S.C. §636(m)(4)(A). Note: The SBA’s Program for Investment in Microentrepreneurs Act (PRIME) program also provides nonprofit organizations grant funding to assist lowincome entrepreneurs with training assistance. See, SBA, “PRIME Program,” at https://www.sba.gov/offices/headquarters/oca/resources/11416. 37 13 C.F.R. §120.712. 38 13 C.F.R. §120.712. Intermediaries may not borrow their contribution. 39 13 C.F.R. §120.712. Intermediaries may not borrow their contribution. 40 P.L. 111-240, the Small Business Jobs Act of 2010, §1401. Matching Requirements Under Small Business Programs. 36

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loan and intensive training assistance is one of the Microloan program’s distinguishing features. Intermediaries that have a portfolio of loans made under the program “that averages not more than $10,000 during the period of the intermediary’s participation in the program” are eligible to receive an additional training grant equal to 5% of “the total outstanding balance of loans made to the intermediary.”41 Intermediaries are not required to make a matching contribution as a condition of receiving these additional grant funds.

Nonlending Technical Assistance Providers Each year, the SBA is authorized to select qualified nonprofit, nonlending technical assistance providers to receive grant funds to provide marketing, management, and technical assistance to Microloan borrowers. Any nonprofit entity that is not an intermediary may apply for these funds.42 The SBA may award up to 55 grants each year to qualified nonlending technical assistance providers to deliver marketing, management, and technical assistance to Microloan borrowers. The grants may be for terms of up to five years and may not exceed $200,000.43 The nonprofit entity must contribute, solely from nonfederal sources, an amount equal to 20% of the grant. In addition to cash or other direct funding, the contribution may include indirect costs or in-kind contributions paid for under nonfederal programs.44 The SBA stopped awarding these grants at the beginning of FY2005. The SBA determined at that time that the nonlending technical assistance providers duplicated much of what was already being provided by

41

13 C.F.R. §120.712; and 15 U.S.C. §636(m)(4)(C)(i). 13 C.F.R. §120.714. 43 13 C.F.R. §120.714. 44 13 C.F.R. §120.714. 42

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Microloan intermediaries and other SBA entrepreneurial development programs.45

Microloan Borrower Eligibility Standards With one exception, Microloan borrowers must be an eligible, forprofit small business as defined by the Small Business Act. P.L. 105-135, the Small Business Reauthorization Act of 1997, expanded the Microloan program’s eligibility to include borrowers establishing a nonprofit childcare business.

Microloan Borrower Program Requirements Intermediaries are directed by legislative language to provide borrowers “small-scale loans, particularly loans in amounts averaging not more than $10,000.”46 They are also directed, “to the extent practicable ... to maintain a microloan portfolio with an average loan size of not more than $15,000.”47 Microloans for more than $20,000 are allowed “only if such small business concern demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has good prospects for success.”48 The maximum loan amount is $50,000 and no borrower may owe an intermediary more than $50,000 at any one time.49 Microloan proceeds may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans cannot be made to acquire land or property, and must be repaid within

SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” August 2, 2012. 46 15 U.S.C. §636(m)(1)(A)(iii)(I). 47 15 U.S.C. §636(m)(6)(B). 48 15 U.S.C. §636(m)(3)(E). 49 13 C.F.R. §120.707. P.L. 111-240, the Small Business Jobs Act of 2010, increased the loan limit for borrowers from $35,000 to $50,000. 45

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seven years (previously, the loan was to be repaid within six years).50 Within these parameters, loan terms vary depending on the loan’s size, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. During the 114th Congress, H.R. 2670 would have increased the program’s repayment terms from not more than 6 years to not more than 10 years for loans greater than $10,000. On loans of more than $10,000, the maximum interest rate that can be charged to the borrower is the interest rate charged by the SBA on the loan to the intermediary, plus 7.75 percentage points. On loans of $10,000 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 percentage points.51 Rates are negotiated between the borrower and the 50

51

13 C.F.R. §120.707 and SBA, “Express Loan Programs; Affiliation Standards,” 85 Federal Register 7632, February 10, 2020. 15 U.S.C. §636(m)(6)(C)(i) and 15 U.S.C. §636(m)(6)(C)(ii) indicate that the threshold average loan amount for determining the maximum interest rate charged to borrowers is $7,500. The SBA increased the threshold average loan amount used to determine the maximum interest rate charged to borrowers from $7,500 to $10,000 in 2001, citing authority provided in P.L. 106-554, the Consolidated Appropriations Act, 2001 (2000 legislation–Small Business Reauthorization Act of 2000): “SBA is amending § 120.707(c) [the section in the U.S. Code of Federal Regulations concerning the threshold average loan amount for determining the maximum interest rate charged to borrowers] to reflect the statutory change which increased the dollar amount to $10,000 up from $7,500.” See SBA, “Microloan Program,” 66 Federal Register 47877, September 4, 2001. However, P.L. 106554 included language amending Section 7(m) of the Small Business Act (15 U.S.C. 636(m)) “in paragraphs (1)(A)(iii)(I), (3)(A)(ii), and (4)(C)(i)(II), by striking “$7,500” each place it appears and inserting “$10,000.” The three sections cited in P.L. 106-554 referred to encouraging intermediaries to make “loans in amounts averaging not more than $7,500;” directing the Administration to “give priority to those applicants that provide loans in amounts averaging not more than $7,500;” and eligibility for technical assistance grants “the intermediary has a portfolio of loans made under this subsection that averages not more than $7,500 during the period of the intermediary’s participation in the program.” According to the SBA, “at the time of the change in the law, SBA staff believed that Congress intended to raise all of the microloan thresholds to $10,000 from $7,500, as evidenced by the fact that Congress revised the general purpose language in §7(m)(1)(A)(iii). That provision was revised to state that one of the purposes of the Microloan program is to enable intermediaries to provide small-scale loans, ‘particularly in amounts averaging not more than $10,000.’ In addition, the legislative history indicates that the loan amounts were increased to reflect inflation, but does not explain why only some loan amounts were adjusted and not others.... Furthermore, it would be confusing to have different thresholds in the several provisions that incentivize intermediaries to make small loans, especially when those thresholds had been the same prior to the changes implemented by P.L. 106-554.... For these reasons, SBA staff believed that increasing all of the microloan thresholds to $10,000 from $7,500 would achieve the Congressional purpose in making more small loans available. The regulations implemented the legislative changes in

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intermediary, and typically range from 6.5% to 9%. In FY2019, the average interest rate charged was 7.5%.52 Each intermediary establishes its own lending and credit requirements. However, borrowers are generally required to provide some type of collateral (consistent with prudent lending practices), and a personal guarantee to repay the loan.53 The SBA does not review the loan for creditworthiness.54 Intermediaries are allowed to charge borrowers reasonable packaging fees limited to 3% of the loan amount for loans with terms of one year or more, and 2% for loans with terms of less than one year. Intermediaries are also allowed to charge borrowers “actual, paid and documented out-ofpocket closing costs ... such as filing or recording fees, collateral appraisals, credit reports, and other such direct charges related to loan closing.”55 These fees may be added to the loan amount and financed over the life of the loan “provided the total loan amount, including the fee, does not exceed $50,000.”56

Microloan Program Statistics Table 2 provides the number and amount of Microloan intermediary loans that the SBA approved, the number and amount of Microloans that

2001. There is Congressional awareness of these longstanding microloan program regulations, which have never been challenged or questioned. There is also Congressional awareness of the discrepancies in the statute, as evidenced by the 13 bills that have been introduced since 2001 to correct them.” SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” November 14, 2013. 52 SBA, “Nationwide Loan Report, October 1, 2018, through September 30, 2019,” October 8, 2019. 53 The SBA urges intermediaries in its Microloan SOP “to temper collateral requirements with strong technical assistance and to be creative in their definition of acceptable collateral.” See SBA, “SOP 52 00 B: Microloan Program,” (effective July 1, 2018), pp. 52, 53, at https://www.sba.gov/document/sop-52-00-microloan-program. 54 SBA, “Microloan Program,” at https://www.sba.gov/content/microloan-program. 55 SBA, “SOP 52 00 B: Microloan Program,” (effective July 1, 2018), p. 53, at https://www.sba.gov/document/sop-52-00-microloan-program. 56 SBA, “SOP 52 00 B: Microloan Program,” p. 53.

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intermediaries provided small businesses, and the unpaid principal balance for the Microloan program from FY2010 through FY2019. Table 2. Microloan Program Statistics, FY2010-FY2019 ($ in millions) FY

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

# of Approved SBA Amount of Approved # of Loans to SBA Loans to Microloans Intermediaries Intermediaries to Small Businesses 78 $40.5 3,729 76 $37.6 4,002 43 $24.6 3,973 72 $43.9 4,426 36 $26.5 3,917 61 $35.0 3,694 50 $35.0 4,506 57 $44.4 4,958 58 $35.9 5,457 53 $42.3 5,532

Amount of Microloans to Small Businesses $44.1 $46.8 $44.7 $51.2 $55.5 $52.1 $61.2 $68.5 $76.7 $81.5

Unpaid Principal Balance $110.3 $116.8 $127.9 $132.7 $136.7 $137.5 $144.7 $157.3 $165.3 $168.1

Sources: U.S. Small Business Administration, “Small Business Administration (SBA) Loan Program Performance: WDS Table 1—Unpaid Principal Balance (UPB) By Program, WDS Table 2—Gross Approval Amount by Program, and WDS Table 3—Number of Approved Loans by Program,” at https://www.sba.gov/document/ report—small-business-administration-loan-program-performance; U.S. Small Business Administration, “Nationwide Loan Report, October 1, 2009 through September 30, 2010,” January 14, 2011; “Nationwide Loan Report, October 1, 2010 through September 30, 2011,” November 2, 2011; “Nationwide Loan Report, October 1, 2011 through September 30, 2012,” October 15, 2012; “Nationwide Loan Report, October 1, 2012 through September 30, 2013,” October 28, 2013; and “Nationwide Loan Report, October 1, 2013 through September 30, 2014,” June 4, 2015; and U.S. Small Business Administration, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 35, 36, at https://www.sba.gov/document/report—congressionalbudget-justification-annual-performance-report.

As shown in Table 2, in FY2019, the SBA approved 53 loans to Microloan intermediaries totaling $42.3 million. The average approved intermediary loan amount was $797,471.57 Microloan intermediaries

57

SBA, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36, at https://www.sba.gov/document/report—congressional-budget-justificationannual-performance-report.

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provided 5,532 loans to small businesses totaling $81.5 million. The average Microloan amount was $14,735.58 As of the end of FY2019, the SBA had disbursed 1,275 loans to Microloan intermediaries totaling $597.8 million.59 At that time, there were 500 active Microloan intermediary loans with an unpaid principal balance of $168.1 million.60 As shown in Table 2, the number and amount of Microloans provided to small businesses have generally increased in recent years. The Microloan program is open to all small business entrepreneurs, but 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.”61 An analysis conducted by the Urban Institute found that about 9.9% of conventional small business loans are issued to minority-owned small businesses and about 16% of conventional small business loans are issued to women-owned businesses.62 In FY2019, of those reporting their race, minority-owned or -controlled firms received 51.2% of the number of microloans issued and 38.4% of the amount issued.63 Women-owned or -controlled firms received 43.7% of the number of microloans issued and 33.1% of the amount issued.64

58

SBA, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36. 59 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” October 22, 2019 (WDS Draft Table 1.3 Disbursements by Program). 60 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” October 22, 2019 (WDS Draft Table 1.1a Unpaid Principal Balance (UPB) by Program). 61 SBA, “Microloans Help Small Businesses Start, Grow and Succeed” (no longer available online). 62 Kenneth Temkin, Brett Theodos, with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap Analysis of the 7(A) and 504 Programs (Washington: The Urban Institute, 2008), p. 13, at http://www.urban.org/ UploadedPDF/411596_504_gap_analysis.pdf. 63 SBA, “Nationwide Loan Report, October 1, 2018 through September 30, 2019,” October 8, 2019. 928 of 5,533 Microloan borrowers (16.8%) did not report their race. These borrowers received $11.3 million in loans. Because the race of these borrowers is unknown, their borrowing was removed from the calculation of the proportional share percentage figures provided for minority-owned or -controlled firms. 64 Ibid.

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More than three-quarters of all Microloan borrowers (84.3%) in FY2019 were located in an urban area. Also, in FY2019, startup companies received 37.8% of the number of microloans issued and 35.2% of the total amount of microloans issued.65 As mentioned, the Microloan program’s estimated borrower default rate is about 7%. Because the Loan Loss Reserve Fund is used to contribute toward the cost of borrower defaults, and is often sufficient to cover the entire cost of such defaults, the SBA’s loss rate for intermediary repayment is typically less than 3% annually. For example, the Microloan program’s intermediary default rate was 1.60% in FY2016, 2.26% in FY2017, 2.29% in FY2018, and 2.31% in FY2019.66 Microloans are often used for more than one purpose. In FY2019, they were most commonly used for working capital (73.4%), equipment (28.3%), inventory (19.0%), and supplies (6.3%).67

CONGRESSIONAL ISSUES Critics of the SBA’s Microloan program argue that it is duplicative of other available programs, expensive relative to alternative programs, and subject to administrative shortfalls. The program’s advocates argue that it provides assistance that “reaches many who otherwise would not be served by the private sector or even the SBA’s 7(a) loan program” and “has

65

Ibid. SBA, Agency Financial Report, Fiscal Year 2016, p. 68, at https://www.sba. gov/sites/default/files/2018-06/SBA_2016_AFR.pdf; SBA, Agency Financial Report, Fiscal Year 2017, p. 71, at https://www.sba.gov/sites/default/files/2018-06/SBA_FY_2017_ AFR_.pdf; SBA, Agency Financial Report, Fiscal Year 2018, p. 70, at https://www.sba.gov/ sites/default/files/2018-11/SBA%20FY%202018%20AFR.pdf; and SBA, Agency Financial Report, Fiscal Year 2019, p. 70, at https://www.sba.gov/sites/default/files/2019-11/SBAAFR-fy2019.pdf. 67 SBA, “Nationwide Loan Report, October 1, 2018 through September 30, 2019,” October 8, 2019. Percentages add to more than 100% as proceeds may be used for more than one purpose. 66

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provided an important source of capital for low-income women business owners and minority borrowers.”68

Program Duplication Critics of the SBA’s Microloan program argue that its direct lending program is duplicative of the SBA’s 7(a) loan guarantee program and its marketing, management, and technical training assistance grant program is duplicative of the SBA’s training assistance provided through Small Business Development Centers, SCORE (Service Corps of Retired Executives), and Women Business Centers. For example, President George W. Bush proposed to eliminate all funding for the Microloan program in his FY2005, FY2006, and FY2007 budget requests to Congress, arguing that “the 7(a) program is capable of serving the same clientele through the Community Express programs for much lower cost to the Government.”69 President Bush also proposed to terminate the Microloan program’s marketing, management, and technical assistance grant program in his FY2008 and FY2009 budget requests to Congress.70 Critics argued in 2007 that about 44% of the SBA’s 7(a) program’s loan guarantees at that time were for loans under $35,000 (the Microloan program’s former loan limit for borrowers), representing more than 17

68

69

70

U.S. Congress, House Committee on Small Business, Full Committee Hearing on the Small Business Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007), pp. 1, 2. U.S. Office of Management and Budget (OMB), Budget of the United States Government: Fiscal Year 2005, p. 334, at https://www.govinfo.gov/content/pkg/BUDGET-2005BUD/pdf/BUDGET-2005-BUD-31.pdf; OMB, Budget of the United States Government: Fiscal Year 2006, p. 313, at https://www.govinfo.gov/content/pkg/BUDGET-2006-BUD/ pdf/BUDGET-2006-BUD-30.pdf; and OMB, Budget of the United States Government: Fiscal Year 2007, p. 283, at https://www.govinfo.gov/content/pkg/BUDGET-2007BUD/pdf/BUDGET-2007-BUD-28.pdf. OMB, Budget of the United States Government: Fiscal Year 2008, pp. 139, 140, at https://www.govinfo.gov/content/ pkg/BUDGET-2008-BUD/pdf/BUDGET-2008-BUD28.pdf; and OMB, Budget of the United States Government: Fiscal Year 2009, p. 130, at https://www.govinfo.gov/content/pkg/BUDGET-2009-BUD/pdf/BUDGET-2009-BUD29.pdf. The Bush Administration also proposed to increase the interest rate charged to intermediaries.

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times the number of loans issued through the SBA’s Microloan program. 71 In their view, the 7(a) program had demonstrated that it can service the needs of small businesses targeted by the SBA’s Microloan program.72 They also argued that the SBA’s Microloan program’s marketing, management, and technical assistance grants program was not necessary because the SBA “already supports a nationwide network of resource partners who provide counseling and training to entrepreneurs, including Small Business Development Centers, Women’s Business Centers, and SCORE.”73 They argued that about 94% of Microloan intermediaries are located within 20 miles of a Small Business Development Center, a Women’s Business Center, or a SCORE partner.74 Advocates argue that the SBA’s Microloan program is complementary, not duplicative, of the SBA’s 7(a) loan guarantee program. They assert that Microloan borrowers are particularly disadvantaged when seeking access to capital, often having no credit history or lower credit scores than most applicants for the SBA’s 7(a) loan guarantee program.75 In their view, it is important that the SBA has a program whose sole focus is to assist Microloan borrowers in starting microbusinesses and have in place intermediaries that “have essential expertise on the needs of this key demographic.”76 Advocates also argue that the SBA’s Microloan marketing, management, and technical assistance grants program is “a crucial element which enables intermediaries to assist microbusiness owners step by step through their development and growth” and “not only increases the likelihood of full repayment of the loan, but augments business survival

71

U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 37. 72 Ibid. 73 Ibid., pp. 37, 38. 74 U.S. Congress, House Committee on Small Business, Full Committee Hearing on the Small Business Administration’s Microloan Program, 110th Cong., 1st sess., June 14, 2007, H.Hrg. 110-30 (Washington: GPO, 2007), p. 7. 75 U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 27. 76 Ibid., p. 7.

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and success.”77 As mentioned, intermediaries typically require Microloan borrowers to participate in the training program as a condition of the receipt of the microloan.

Program Cost Critics of the SBA’s Microloan program argue that it is expensive relative to other SBA programs, with total administrative costs of about $7,517 per small business assisted in FY2019, compared to $1,986 per small business assisted in the SBA’s 7(a) loan guarantee program. 78 President George W. Bush cited the program’s higher expense when he recommended in his FY2005, FY2006, and FY2007 budget requests to Congress that the program be terminated and when he recommended in his FY2008 and FY2009 budget requests to Congress that the interest rate charged to Microloan intermediaries be increased to make the program “self-financing.”79 Advocates argue that the program’s higher cost per small business assisted is unavoidable given the relatively unique nature of the program and the special needs of its borrowers. They assert that intermediaries often have to spend a significant amount of time with Microloan borrowers because those borrowers tend to have less experience with the credit application process and a more difficult time documenting their qualifications for assistance than borrowers in the SBA’s loan guaranty 77

Ibid. SBA, Fiscal Year 2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 27, 28, 35, at https://www.sba.gov/document/report—congressional-budgetjustification-annual-performance-report. 79 OMB, Budget of the United States Government: Fiscal Year 2008, pp. 139, 140, at https://www.govinfo.gov/content/ pkg/BUDGET-2008-BUD/pdf/BUDGET-2008-BUD28.pdf; OMB, Budget of the United States Government: Fiscal Year 2009, p. 130, at https://www.govinfo.gov/content/pkg/BUDGET-2009-BUD/pdf/BUDGET-2009-BUD29.pdf; U.S. Congress, House Committee on Small Business, Full Committee Legislative Hearing on the SBA’s Microloan and Trade Programs, 110th Cong., 1st sess., July 12, 2007, H.Hrg. 110-35 (Washington: GPO, 2007), p. 38; and U.S. Congress, House Committee on Small Business, Subcommittee on Finance and Tax, Subcommittee Hearing on Improving the SBA’s Access to Capital Programs for our Nation’s Small Businesses, 110th Cong., 2nd sess., March 5, 2008, H.Hrg. 110-76 (Washington: GPO, 2008), p. 33. 78

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programs. Also, in their view, raising the interest rate charged to intermediaries to make the program self-financing would reduce the program’s cost, but could also defeat the program’s purpose. They assert that because microloans are small, it is difficult for intermediaries to generate enough interest income to cover their costs. As a result, if the interest rate charged to intermediaries is increased, they contend that intermediaries would have to pass the increase on to Microloan borrowers. In their view, increasing the program’s cost to Microloan borrowers “will create an economic hardship for them and make it more difficult for them to grow their businesses” and “lead to fewer jobs created and fewer tax dollars paid.”80

Program Administration On September 28, 2017, the SBA’s Office of Inspector General (OIG) released an audit of the SBA’s administration of the Microloan program, following up on an earlier audit released on December 28, 2009. The OIG reported a number of deficiencies that it argued needed to be addressed “to ensure effective operation of the Microloan program.”81 In 2009, the OIG found that 

80

the SBA’s oversight of the Microloan program was focused on the intermediaries’ ability to repay their SBA loans and was limited to a cursory review of quarterly financial reports supported by only one monthly bank statement. The bank statements were used to simply verify the outstanding balances reported on the intermediaries’ quarterly reports. This review process did not allow the SBA to analyze the sources and uses of funds “which is

U.S. Congress, House Committee on Small Business, Subcommittee on Finance and Tax, Subcommittee Hearing on Improving the SBA’s Access to Capital Programs for our Nation’s Small Businesses, 110th Cong., 2nd sess., March 5, 2008, H.Hrg. 110-76 (Washington: GPO, 2008), p. 46. 81 SBA, Office of the Inspector General, “SBA’s Administration of the Microloan Program under the Recovery Act,” p. 3, at https://www.sba.gov/sites/default/files/oig/om10-10.pdf.

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 

 



necessary to detect inappropriate fund transfers between the intermediaries’ [Microloan Revolving Funds and Loan Loss Reserve Funds] accounts.”82 onsite reviews were conducted only when an intermediary defaulted on its SBA loan. the program was inadequately staffed, operating at that time “with 6 analysts who oversee more than 160 intermediaries, 460 intermediary loans, and approximately 2,500 microloans per year.”83 the reported Microloan borrower default rate of 12% “appeared low given the high-risk nature of the program.”84 the audit identified duplicate loan reporting and 92 Microloan borrowers with outstanding microloan balances exceeding the then-$35,000 limit. the SBA’s output performance metrics “do not ensure the ultimate program beneficiaries, the microloan borrowers, are truly assisted by the program” and “without appropriate [outcome performance] metrics, SBA cannot ensure the Microloan program is meeting policy goals.”85 The OIG recommended that the SBA “develop additional performance metrics to measure the program’s achievement in assisting microloan borrowers in establishing and maintaining successful small businesses.”86

In its 2017 audit, the OIG found that the SBA had taken several actions (see footnote below) to improve its oversight of the Microloan program since the 2009 audit but that the agency still had “internal control weaknesses” that prevented it from conducting “adequate program

82

Ibid., p. 1. Ibid. 84 Ibid., p. 4. The OIG found that 1 intermediary made 1,182 microloans valued at over $11 million since 1993 and only reported slightly more than a 1% historical default rate, and 39 other intermediaries that reported that none of their loans had defaulted. 85 Ibid., p. 6. 86 Ibid., p. 7. 83

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oversight to measure program performance and ensure program integrity.”87 Specifically, the OIG audited 14 intermediary lenders and 52 microloan files and found documentation deficiencies, or differences between the information contained in the lender’s loan file versus that in the SBA Microloan Program Electronic Reporting System (MPERS) in 44 of the 52 files. The OIG also argued that the audit revealed that inadequate documentation exists to show that the “no credit elsewhere” test had been properly administered; that, in some cases, inadequate supporting documentation existed to show how the microloan funds were used by the borrower; and that, in some cases, interest rates and fees were charged that exceeded the limits allowed under the program rules and regulations.88 The identified internal control weaknesses were due to the SBA not having an overall site visit plan, an adequate information system, available funding for system SBA, Office of the Inspector General, “Audit of SBA’s Microloan Program,” executive summary, at https://www.sba.gov/sites/default/files/oig/SBA_OIG_Report_17-19.pdf. The SBA provided the OIG a list of actions taken to improve Microloan program oversight in recent years, including the following: “In 2010, the program office implemented a comprehensive quarterly reporting analysis, which has been completed on a quarterly basis for each active intermediary in the Microloan Program since that time.... This information enables SBA to understand each Intermediary’s relative health by displaying historical default rate, delinquency rate, collateral coverage rate, loan loss reserve coverage rate and other valuable risk indicators. Performing this quarterly analysis on every Intermediary has enabled SBA to minimize its losses due to Intermediary non-payment by providing warning signs well before performance issues reach a non-recoverable level. Also in 2010, OEO [the Office of Economic Opportunity] implemented an annual financial statement analysis that OEO staff has completed annually for each Intermediary. This analysis also allows SBA to see potential financial issues well in advance of becoming a problem in order to limit the risk of Intermediary non-payment to SBA. Further, in 2012 OEO designed its first Site Visit Checklist to be used by SBA District Office personnel when conducting annual site visits to the Microloan intermediaries.... In 2013 OEO published its first Microloan Standard Operating Procedure (SOP) since the Program’s inception in 1992. This SOP provides guidance to both SBA staff who are involved in managing the Program and the Intermediary lenders who participate. This SOP was updated in 2015 to incorporate changes made to the Microloan Program regulations. In 2014, the Microloan Program Office designed and implemented a grant calculator spreadsheet that is used by both OEO staff and each Intermediary as a project management tool for the technical assistance grants and the Intermediary’s quarterly expense billings and performance reports.... OEO conducts monthly webinar sessions with all participating lenders in order to provide Program-related updates, ongoing training and allow for presentation of best practices.” See ibid., pp. 13, 14. 88 Ibid., p. 14. 87

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Robert Jay Dilger improvements, or clear Standard Operating Procedures (SOPs). Additionally, SBA management focused on output-based performance measures instead of outcome measures. 89

The OIG recommended that the SBA (1) continue efforts to improve the information system to include outcome-based performance measurements and ensure the data captured can be used to effectively monitor the Microloan Program compliance, performance, and integrity; (2) develop and implement a site visit plan to comprehensively monitor microloan portfolio performance and ensure program results can be evaluated program-wide; (3) update the Microloan program’s SOP 52 00 A to clarify requirements regarding evidence for use of proceeds and credit elsewhere; and (4) update the microloan reporting system manual to reflect current technology capabilities. The SBA concurred with the four recommendations and targeted September 30, 2019, for full implementation.90 For example, the Microloan program’s SOP 52 00 B, effective July 1, 2018, clarified requirements regarding evidence for use of proceeds and credit elsewhere and, in 2018, the SBA developed a standardized checklist that district office officials use for carrying out intermediary site visits.91 In 2019, GAO examined the Microloan program and recommended that the SBA 



89

“ensure definitions of data collected, such as income, are clear and instructions are comprehensive for data needed, such as for borrower business outcomes and technical assistance,” “develop a performance target to assess the Microloan program’s progress in achieving its statutory purpose of assisting women, low-income, veteran, and minority entrepreneurs,”

Ibid., p. 7. Ibid., p. 8. 91 U.S. Government Accountability Office (GAO), SBA Microloan Program: Opportunities Exist to Strengthen Program Performance Measurement, Collaboration, and Reporting, GAO20-49, November 19, 2019, p. 16, at https://www.gao.gov/products/GAO-20-49. 90

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

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“ensure that appropriate advance planning occurs during the development of the new [planned] Microloan program data reporting system ... and considering data needed to assess program performance,” “explore opportunities for additional interagency collaboration and information sharing with other federal agencies that engage in microlending activities, such as Treasury and USDA,” and “examine ways to incorporate public reporting of additional Microloan program information into the design of the new data reporting system.”92

The SBA agreed to review and enhance Microloan program guidance, including by clearly defining low-income (recommendation 1); involve relevant SBA offices in the design and development of the new data reporting system and consider data needed to assess program performance within the SBA (recommendation 3); and examine ways to incorporate public reporting of additional program information (recommendation 5). The SBA also agreed to provide aggregate demographic and socioeconomic data collected from borrowers, but cited challenges with data collection because of the voluntary nature of the information provided by loan applicants. The SBA did not commit to creating a performance target to assess the program’s progress in achieving its statutory purpose of assisting women, low-income, veteran, and minority entrepreneurs (recommendation 2). The SBA also indicated that it would continue to seek additional collaboration opportunities with other federal agencies that operate similar programs, but did not commit to systematically collect information on intermediaries’ participation in other similar programs (recommendation 4).93

92 93

Ibid., pp. 36, 37. Ibid., p. 37.

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LEGISLATION As mentioned, during the 111th Congress, P.L. 111-240, the Small Business Jobs Act of 2010, increased the Microloan program’s loan limit for borrowers from $35,000 to $50,000, and increased the loan limit for Microloan intermediaries after their first year of participation in the program from $3.5 million to $5 million.94 It also temporarily allowed the SBA to waive, in whole or in part through FY2012, the nonfederal share requirement for loans to the Microloan program’s intermediaries and for grants made to Microloan intermediaries for small business marketing, management, and technical assistance under specified circumstances (e.g., the economic conditions affecting the intermediary and the intermediary’s performance) for up to a fiscal year.95 No bills were introduced during the 112th Congress concerning the Microloan program. During the 113th Congress, 



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95

H.R. 3191, the Expanding Opportunities to Underserved Businesses Act, would have increased the Microloan program’s loan limit for borrowers from $50,000 to $75,000. S. 2487, the Access to Capital, Access to Opportunity Act, would have increased that limit to $100,000.

P.L. 111-240, the Small Business Jobs Act of 2010, §1113. Maximum Loan Limits Under Microloan Program. P.L. 111-240, §1401. Matching Requirements Under Small Business Programs. During the 111th Congress, H.R. 3854, the Small Business Financing and Investment Act of 2009, passed by the House by a vote of 389-32, on October 29, 2009, would have increased the Microloan program’s loan funding to “such sums as may be necessary” to support $110 million in direct microloans in FY2010 and $110 million in FY2011, increased the program’s technical assistance grant funding to $80 million in FY2010 and $80 million in FY2011, authorized $20 million ($10 million in FY2010 and $10 million in FY2012) for a new Microloan interest assistance grant program, broadened the eligibility requirements for Microloan intermediaries to qualify for lower interest rates, increased the program’s maximum loan amount to intermediaries during their first year in the program from $750,000 to $1 million, and in later years from an aggregate of $3.5 million to $7 million, and increased the percentage of technical assistance grant funds that an intermediary can spend on prospective borrowers from 25% to 35%, and on the provision of technical assistance through third-party providers from 25% to 35%.

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S. 2693, the Women’s Small Business Ownership Act of 2014, and its House companion bill, H.R. 5584, would have increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $7 million. These bills would have also removed the requirements that no more than 25% of Microloan technical assistance grant funds may be used to provide information and technical assistance to prospective borrowers or on third-party contracts to provide the assistance.

During the 114th Congress, 



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S. 1445, the Microloan Act of 2015, would have removed the requirements that no more than 25% of Microloan technical assistance grant funds may be used to provide information and technical assistance to prospective borrowers or on third-party contracts to provide the assistance. It would have also eliminated the Microloan program’s minimum state allocation formula. H.R. 2670, the Microloan Modernization Act of 2015, and its companion bill in the Senate (S. 1857) would have increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million, increased the program’s repayment terms from not more than 6 years to not more than 10 years for loans greater than $10,000, and require the SBA Administrator to establish a rule enabling intermediaries to apply for a waiver of the requirement that no more than 25% of Microloan technical assistance grant funds may be used to provide information and technical assistance to prospective borrowers. The House passed H.R. 2670 on July 13, 2015. S. 1857 was reported by the Senate Committee on Small Business and Entrepreneurship on July 29, 2015. S. 2850, the Microloan Program Modernization Act of 2016, would have increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the

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Robert Jay Dilger program from $5 million to $6 million; eliminated the requirements that intermediaries spend no more than 25% of Microloan technical assistance grant funds on technical assistance to prospective borrowers and no more than 25% of those funds on third-party contracts for technical assistance; required the SBA to study and report on the operations of a representative sample of Microloan intermediaries and other intermediaries and make recommendations on how to reduce costs associated with intermediaries’ participation in the program and to increase intermediary participation in the program; and required the Government Accountability Office to study and report on the SBA’s oversight of the program, SBA’s processes to ensure intermediary compliance with program rules and regulations, and the program’s overall performance. During the 115th Congress, 



P.L. 115-141, the Consolidated Appropriations Act, 2018, relaxed the requirements that intermediaries spend no more than 25% of Microloan technical assistance grant funds on technical assistance to prospective borrowers and no more than 25% of those funds on third-party contracts for technical assistance by increasing those percentages to 50%. These provisions were originally in H.R. 2056, the Microloan Modernization Act of 2017, and S. 526, its companion bill in the Senate (as amended in committee). P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, among other provisions, increased the Microloan program’s aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million. These provisions were originally in H.R. 2056, the Microloan Modernization Act of 2017, and S. 526, its companion bill in the Senate.

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During the 116th Congress, 

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

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P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, appropriated $17 billion to pay the principal, interest, and any associated fees that are owed on an existing 7(a), 504/CDC, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due date.96 P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act, among other provisions, increased the Paycheck Protection Program’s (PPP) authorization limit from $349 billion to $659 billion. The act also required that no less than $30 billion of that amount be set aside for loans issued by “community financial institutions,” including community development financial institutions, minority depository institutions, SBA-certified development companies, microloan intermediaries, and small insured depository institutions and credit unions, defined as having consolidated assets of less than $10 billion.97 This provision was designed to provide underserved populations greater access to PPP loans. S. 996, the Microloan Program Enhancement Act of 2019, would, among other provisions, eliminate the restriction that prevents the SBA from distributing more than $800,000 or 1/55th of available loan funds (whichever is less) in any state during the first half of each fiscal year. The bill also would increase the annual cap on the total amount that may be committed to an intermediary to provide loans from $2.5 million to $3 million, and the intermediary’s aggregate loan amount after its first year of participation in the program from $6 million to $7 million. The bill also would

For additional information about the CARES Act, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. For additional information about the set aside requirements, see CRS Insight IN11355, Paycheck Protection Program (PPP) Lending Set Asides for Community Development Financial Institutions (CDFIs), by Sean Lowry.

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Robert Jay Dilger authorize $80 million for Microloan technical assistance grants and $110 million for Microloan direct loans in each of FY2020FY2022, and require the SBA to annually report information related to the Microloan program to the House and Senate Committees on Small Business and on the SBA’s public website.

CONCLUSION In recent years, congressional debate concerning proposed changes to the SBA’s loan guaranty programs, including the Microloan program, has centered on the likely impact the proposed changes will have on small business access to capital, job retention, and job creation. As a general proposition, some have argued that it is imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs.98 Others have worried about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation.99 In terms of specific program changes, the provisions enacted in P.L. 111-240 (allowing the SBA to temporarily waive the Microloan program’s nonfederal share matching requirements, increasing the loan limit for borrowers from $35,000 to $50,000, and increasing the loan limit for intermediaries after their first year of participation in the program from Rep. Nydia Velázquez, Small Business Financing and Investment Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily edition, vol. 155, no. 185 (December 10, 2009), p. S12910; and The White House, “Remarks by the President on Job Creation and Economic Growth,” December 8, 2009, at https://obamawhitehouse.archives.gov/thepress-office/remarks-president-job-creationand-economic-growth. 99 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” October 21, 2009; and NFIB, “Government Spending,” at https://www.nfib.com/content/issues/ economy/government-spending-small-businesseshave-a-bottom-line-government-shouldtoo-49051/. 98

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$3.5 million to $5 million), P.L. 115-141 (relaxing restraints on the use of technical assistance grants), P.L. 115-232 (increasing the loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million) and P.L. 116-136 (providing six months of loan payments) are all designed to create jobs by enhancing micro borrowers’ access to capital and technical training assistance. Determining how specific changes in federal policy are most likely to lead to job creation is a challenging question. For example, a 2008 Urban Institute study concluded that differences in the term, interest rate, and amount of SBA financing “was not significantly associated with increasing sales or employment among firms receiving SBA financing.”100 However, they also reported that their analysis accounted for less than 10% of the variation in firm performance. The Urban Institute suggested that local economic conditions, local zoning regulations, state and local tax rates, state and local business assistance programs, and the business owner’s charisma or business acumen also “may play a role in determining how well a business performs after receipt of SBA financing.”101 As the Urban Institute study suggests, given the many factors that influence business success, measuring the SBA’s Microloan program’s effect on job retention and creation is complicated. That task is made even more challenging by the absence of performance-oriented measures that could serve as a guide. The SBA’s Office of Inspector General has recommended that the SBA adopt performance-oriented measures, specifically recommending that the SBA track the number of Microloan borrowers who remain in business after receiving a microloan to measure the extent to which the Microloan program contributed to their ability to stay in business. It has also recommended that the SBA require intermediaries to report the technical assistance provided to each Microloan borrower and “use this 100

Shelli B. Rossman and Brett Theodos, with Rachel Brash, Megan Gallagher, Christopher Hayes, and Kenneth Temkin, Key Findings from the Evaluation of the Small Business Administration’s Loan and Investment Programs: Executive Summary (Washington, DC: The Urban Institute, January 2008), p. 58, at http://www.urban.org/UploadedPDF/ 411602_executive_summary.pdf. 101 Ibid.

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data to analyze the effect technical assistance may have on the success of Microloan borrowers and their ability to repay microloans.”102 Other performance-oriented measures that Congress might also consider include requiring the SBA to survey Microloan borrowers to measure the difficulty they experienced in obtaining a loan from the private sector; the ease or difficulty of finding, applying, and obtaining a microloan from an intermediary; and the extent to which the microloan or technical assistance received contributed to their ability to create jobs or expand their scope of operations.

APPENDIX. MICROLOAN TECHNICAL ASSISTANCE PROGRAM FUNDING Table A.1. Microloan Technical Assistance Program Funding, FY2000-FY2020 (appropriations and actual expenditures, $ in millions) Fiscal Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

102

Initial Appropriation $23.200 $20.000 $17.500 $15.000 $15.000 $14.000 $13.000 $13.000 $15.000 $20.000 $22.000 $22.000 $20.000 $20.000 $20.000 $22.300

Modifications ($0.088)a ($0.044)b — ($0.098)c ($0.089)d ($0.112)e ($0.130)f — — — $24.000g ($0.044)h — ($0.191)i — —

Final Appropriation $23.112 $19.956 $17.500 $14.902 $14.911 $13.888 $12.870 $13.000 $15.000 $20.000 $46.000 $21.956 $20.000 $19.809 $20.000 $22.300

Actual Expenditures $19.243 $18.385 $17.742 $14.899 $14.655 $13.813 $12.792 $12.800 $14.816 $19.813 $43.220 $24.603 $19.446 $19.985 $19.267 $22.247

SBA, Office of the Inspector General, “SBA’s Administration of the Microloan Program under the Recovery Act,” pp. 6, 7, at https://www.sba.gov/sites/default/files/oig/om1010.pdf.

Small Business Administration Microloan Program (Updated) Fiscal Year 2016 2017 2018 2019 2020

Initial Appropriation $25.000 $31.000 $31.000 $31.000 $34.500

Modifications — — — — —

Final Appropriation $25.000 $31.000 $31.000 $31.000 $34.500

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Actual Expenditures $24.340 $23.535 $31.567 $34.019 NA

Source: SBA, Congressional Budget Justification, (FY2002-FY2009), no longer available on-line; SBA, Congressional Budget Justification, [FY2010-FY2021], at https://www.sba.gov/document/report— congressionalbudget-justification-annual-performance-report; P.L. 109-148, the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006; P.L. 111-5, the American Recovery and Reinvestment Act of 2009; P.L. 112-10, the Department of Defense and Full-Year Continuing Appropriations Act, 2011; P.L. 112-25, the Budget Control Act of 2011; P.L. 112-74, the Consolidated Appropriations Act, 2012, P.L. 112-175, the Continuing Appropriations Resolution, 2013; P.L. 113- 6, the Consolidated and Further Continuing Appropriations Act, 2013; P.L. 113-76, the Consolidated Appropriations Act, 2014; P.L. 113-235, the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 114-113, Consolidated Appropriations Act, 2016; P.L. 115-31, the Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, the Consolidated Appropriations Act, 2019; and P.L. 116-69, the Further Continuing Appropriations Act, 2020 (FY2020 funding provided through December 20, 2019). a. In FY2000, P.L. 106-113, the Consolidated Appropriations Act, 2000, required a 0.38% across-the-board rescission for federal agencies in FY2000, resulting in a reduction of $0.088 million from the Microloan Technical Assistance program. b. In FY2001, P.L. 106-554, the Consolidated Appropriations Act, 2001, imposed a 0.22% rescission on federal agencies, resulting in a $0.044 million reduction from the Microloan Technical Assistance program. c. In FY2003, P.L. 108-7, the Consolidated Appropriations Resolution, 2003, imposed a rescission of 0.65% on federal agencies, resulting in a $0.098 million reduction from the Microloan Technical Assistance program. d. In FY2004, P.L. 108-199, the Consolidated Appropriations Act, 2004, imposed a 0.59% rescission on federal agencies, resulting in a reduction of $0.089 million from the Microloan Technical Assistance program. e. In FY2005, P.L. 108-447, the Consolidated Appropriations Act, 2005, imposed a 0.8% rescission on federal agencies, resulting in a reduction of $0.112 million from the Microloan Technical Assistance program. f. In FY2006, P.L. 109-148 imposed a 1.0% rescission on federal agencies, resulting in a reduction of $0.130 million from the Microloan Technical Assistance program. g. In FY2009, P.L. 111-5 provided the Microloan Technical Assistance Program an additional $24 million to remain available until September 30, 2010. The funds were awarded in FY2010. h. In FY2011, P.L. 112-10 imposed a 0.2% rescission on federal agencies, resulting in a reduction of $0.044 million from the Microloan Technical Assistance program. i. In FY2013, P.L. 112-25 and P.L. 113-6 imposed in a federal government-wide sequestration process and a required 0.2% across-the-board rescission, resulting in a $0.191 million reduction from the Microloan Technical Assistance program.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 6

COVID-19 RELIEF ASSISTANCE TO SMALL BUSINESSES: ISSUES AND POLICY OPTIONS* Robert Jay Dilger, Bruce R. Lindsay and Sean Lowry

ABSTRACT The U.S. Small Business Administration (SBA) administers several types of programs to support small businesses, including direct disaster loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; loan guaranty and venture capital programs to enhance small business access to capital; small business management and technical assistance training programs to assist business formation and expansion; and contracting programs to increase small business opportunities in federal contracting. Congressional interest in these programs has always been high, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs, but it has become especially acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s widespread adverse economic impact on the national economy, including

*

This is an edited, reformatted and augmented version of a Congressional Research Service publication R46284, prepared for Members and Committees of Congress dated May 22, 2020.

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productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households. This chapter provides a brief description of the SBA’s programs, examines congressional action to assist small businesses during and immediately following the Great Recession (2007-2009), and discusses legislation to assist small businesses adversely affected by the COVID-19 pandemic, including 



 

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P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA’s Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense. P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which, among other provisions, created the Paycheck Protection Program (PPP) to provide “covered loans” with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations that have been adversely affected by COVID-19. The act also provides for loan deferment and forgiveness under specified conditions. A covered loan is defined as a loan made to an eligible recipient from February 15, 2020, through June 30, 2020. The SBA announced that PPP loans will have a two-year term at an interest rate of 1.0%. P.L. 116-139, the Paycheck Protection Program and Health Care Enhancement Act (Enhancement Act), among other provisions, appropriates an additional $321.335 billion for the PPP. H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act), among other provisions, would expand PPP eligibility and provide small businesses additional flexibility by extending the PPP loan forgiveness covered period from eight weeks to the earlier of 24 weeks or December 31, 2020. H.R. 6886, the Paycheck Protection Program Flexibility Act, among other provisions, would extend the PPP loan forgiveness covered period from 8 weeks to the earlier of 24 weeks or December 31, 2020.

Some of the CARES Act’s provisions (e.g., fee waivers, increased loan limits, and increased guarantee percentages) were used in legislation passed during the 111th Congress to address the severe economic slowdown during and immediately following the Great Recession (2007-

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2009). The main difference between that legislation and the CARES Act is that the CARES Act includes loan deferrals, loan forgiveness, and greatly expanded eligibility, including, for the first time, specified types of nonprofit organizations. The SBA started accepting PPP loan applications on April 3, 2020. Because the SBA neared its $349 billion authorization limit for section 7(a) lending, which includes the PPP, the SBA stopped accepting new PPP loan applications on April 15. The SBA started accepting PPP loan applications once again on April 27, following the Enhancement Act’s enactment on April 24, 2020. The act increased the SBA’s section 7(a) loan authorization limit from $349 billion to $659 billion, and appropriated an additional $321.335 billion to support that level of lending. One lesson learned from the actions taken during the 111 th Congress to assist small businesses during and immediately following the Great Recession is the potential benefits that can be derived from providing additional funding for the SBA’s Office of Inspector General (OIG) and the Government Accountability Office (GAO). GAO and the SBA’s OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA’s administration of legislation to address COVID-19’s adverse economic impact on small businesses, provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud. Requiring the SBA to report regularly on its implementation of the CARES Act could promote transparency and assist Congress in performing its oversight responsibilities. In addition, requiring both output and outcome performance measures and requiring the SBA to report this information to Congress and the public by posting that information on the SBA’s website could enhance congressional oversight and public confidence in the SBA’s efforts to assist small businesses.

INTRODUCTION The Small Business Administration (SBA) administers several types of programs to support small businesses, including 

direct disaster loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters;

Robert Jay Dilger, Bruce R. Lindsay and Sean Lowry

272   

loan guaranty and venture capital programs to enhance small business access to capital; small business management and technical assistance training programs to assist business formation and expansion; and contracting programs to increase small business opportunities in federal contracting.

Congressional interest in the SBA’s programs has increased in recent years, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs. Congressional interest, however, has become especially acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s widespread adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households. P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, was the first act during the 116th Congress that included provisions targeting SBA assistance to small businesses adversely affected by COVID-19. The act provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA’s Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense. Congress followed with P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act makes numerous changes to SBA programs, including the creation of the Paycheck Protection Program (PPP), which are loans 100% guaranteed by the SBA with a maximum term of 10 years and a maximum interest rate of no more than 4%. These loans are available to small businesses, small 501(c)(3) nonprofit organizations, and small 501(c)(19) veterans organizations—and are eligible for loan forgiveness. The SBA announced that the loans will have a two-year term at a 1.0% interest rate. The CARES Act provides deferment relief for PPP loans and existing loans made under the 7(a), 504/CDC, and Microloan programs. The act

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also appropriates $349 billion for PPP loan guarantees and subsidies (to remain available through FY2021), $10 billion for Emergency EIDL grants, $675 million for the SBA’s salaries and expenses account, $25 million for the SBA’s Office of Inspector General (OIG), $265 million for entrepreneurial development programs ($192 million for small business development centers (SBDCs), $48 million for women’s business centers (WBCs), and $25 million for SBA resource partners to provide online information and training), and $17 billion for subsidies for the SBA’s 7(a), 504/CDC, and Microloan programs. A summary of the CARES Act’s major small business-related provisions is presented in the Appendix. The SBA started accepting PPP loan applications on April 3, 2020. Because the SBA neared its $349 billion authorization limit for section 7(a) lending, which includes the PPP, the SBA stopped accepting new PPP loan applications on April 15, 2020.1 More than 1.66 million PPP loans totaling nearly $342.3 billion were approved by nearly 5,000 lenders. Most of the loans (74%) were for less than $150,000 (see Table 1).2 The SBA also stopped accepting COVID-19-related EIDL and Emergency EIDL grant applications on April 15, because the SBA was approaching its disaster loan assistance credit subsidy limit.3 COVID-19related EIDL and Emergency EIDL grant applications already received continued to be processed on a first-in first-out basis.

U.S. Small Business Administration (SBA), “Statement by Secretary Mnuchin and Administrator Carranza on the Paycheck Protection Program and Economic Injury Disaster Loan Program,” April 15, 2020, at https://www.sba.gov/ about-sba/sba-newsroom/pressreleases-media-advisories/statement-secretary-mnuchin-and-administrator-carranzapaycheck-protection-program-and-economic (hereinafter SBA, “Statement by Secretary Mnuchin and Administrator Carranza on the Paycheck Protection Program and Economic Injury Disaster Loan Program.”) P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) authorized $349 billion for general business loans authorized under section 7(a) of the Small Business Act. This authorization limit applies to the 7(a) lending programs as well as to the Paycheck Protection Program (PPP). 2 SBA, “Paycheck Protection Program (PPP) Report through April 16, 2020, at 12 PM EST,” at https://www.sba.gov/document/report—paycheck-protection-program-ppp-report-throughapril-16-2020-12-pm-est. 3 SBA, “Statement by Secretary Mnuchin and Administrator Carranza on the Paycheck Protection Program and Economic Injury Disaster Loan Program.” 1

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The SBA began accepting new EIDL and Emergency EIDL grant applications on a limited basis on May 4 to accommodate agricultural businesses that were provided EIDL eligibility by the Paycheck Protection Program and Healthcare Enhancement Act (P.L. 116-139). The SBA is also processing applications from agricultural businesses that had submitted an EIDL application prior to the legislative change. Those agricultural businesses do not need to reapply. All other EIDL loan applications that were submitted before the SBA stopped accepting new applications on April 15 are being processed on a first-in, first-out basis.4 A summary of the Paycheck Protection Program and Healthcare Enhancement Act’s major small business-related provisions is presented in the Appendix. As of May 17, 2020, the SBA had approved 252,340 COVID-19related EIDL loans, totaling $24.8 billion.5 As of May 8, the SBA had approved just over three million Emergency EIDL grants, totaling nearly $9.9 billion.6 The SBA resumed the acceptance of PPP applications on April 27, 2020, following enactment of the Paycheck Protection Program and Health Care Enhancement Act. The act increased the SBA’s section 7(a) loan authorization limit from $349 billion to $659 billion, and appropriated $321.335 billion to support that level of lending. The act also appropriated $50 billion for EIDL, $10 billion for Emergency EIDL grants, and $2.1 billion for SBA salaries and expenses. As of May 16, 2020, the SBA had approved, after cancellations, more than 4.3 million PPP loans totaling more than $513 billion (see Table 1). For comparative purposes, that loan approval amount is more than the amount the SBA has approved in all of its loan programs, including 4

5

6

SBA, “Economic Injury Disaster Loan Emergency Advance,” May 4, 2020, at https://www.sba.gov/funding- programs/loans/coronavirus-relief-options/economic-injurydisaster-loan-emergency-advance SBA, “COVID-19 EIDL Loan Reports, May 18, 2020 (figures as of May 17, 2020), at https://www.sba.gov/document/report—covid-19-eidl-loans-report. SBA, “COVID-19 EIDL Advance Reports, May 8, 2020,” at https://www.sba.gov/ document/report—covid-19-eidl- advance-report-5-8-20. As of April 24, 2020, the SBA had approved nearly 1.2 million Emergency EIDL grants, totaling $4.8 billion. See SBA, “COVID-19 EIDL Advance Reports, April 24, 2020,” at https://www.sba.gov/document/report—covid-19-eidl- advance-report.

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disaster loans, during the last 29 years (from October 1, 1991 through December 31, 2019; $509.9 billion).7 On May 15, 2020, the House passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act). The HEROES Act, among other provisions, would  

 



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expand PPP eligibility to include all 501(c) nonprofit organizations; provide small businesses additional flexibility by extending the PPP loan forgiveness covered period from 8 weeks to the earlier of 24 weeks or December 31, 2020; eliminate the 75%/25% rule on the use of PPP loan proceeds for loan forgiveness purposes; provide borrowers a “safe harbor” from the loan forgiveness rehiring requirement if the borrower is unable to rehire an individual who was an employee of the recipient on or before February 15, 2020, or if the borrower can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; establish a minimum PPP loan maturity of five years to enable small businesses to amortize the loan over a longer period of time, which lowers monthly payments; and appropriate another $10 billion for Emergency EIDL grants.

A summary of the HEROES Act’s major small business-related provisions is presented in the Appendix. Also, H.R. 6886, the Paycheck Protection Program Flexibility Act, introduced on May 15, 2020, would

7

SBA, “WDS Lending Data File,” October 18, 2019; and SBA, “Small Business Administration loan program performance: Table 2 - Gross Approval Amount by Program, December 31, 2019,” at https://www.sba.gov/document/ report—small-business-administration-loanprogram-performance.

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Table 1. Paycheck Protection Program Loan Approvals, through May 16, 2020 Characteristic

Number of Loans Approved 1,661,367

Amount Approved

Average Loan Amount Approved

Round One (4-3-2020 – 4-16$342,277,999,103 $206,022 2020) Round Two (4-27-2020 – 52,763,586 $195,171,874,154 $70,623 16-2020) Total 4,424,953 $537,449,873,257 $121,459 Total (after cancellations) 4,341,145 $513,271,137,359 $118,234 Sources: Small Business Administration (SBA), “Paycheck Protection Program: Additional Program Information,” at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/ paycheck-protection- program; SBA, “COVID-19 Paycheck Protection Program Report Round One (4-16-2020),” at https://content.sba.gov/sites/default/files/2020-05/PPP%20Deck% 20copy.pdf; and SBA, “COVID-19 Paycheck Protection Program (PPP) Report: Approvals through 5/16/2020),” at https://www.sba.gov/document/report— paycheck-protection-programppp-report. Note: Cancellations include duplicative loans, loans not closed for any reason, and loans that have been paid off.

  

 

8

extend the PPP loan forgiveness covered period from 8 weeks to the earlier of 24 weeks or December 31, 2020; eliminate the 75%/25% rule on the use of PPP loan proceeds for loan forgiveness purposes; provide borrowers a “safe harbor” from the loan forgiveness rehiring requirement if the borrower is unable to rehire an individual who was an employee of the recipient on or before February 15, 2020, or if the borrower can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; establish a minimum PPP loan maturity of five years; and eliminate the exception in the CARES Act preventing taxpayers who receive PPP loan forgiveness from delaying the payment of employer payroll taxes.8

For additional explanation, see Frequently Asked Questions 3 and 4 in Internal Revenue Service (IRS), “Deferral of Employment Tax Deposits and Payments Through December 31, 2020,” at https://www.irs.gov/newsroom/deferral-of- employment-tax-deposits-and-paymentsthrough-december-31-2020.

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This chapter begins with an overview of SBA disaster loans and discusses various issues related to providing disaster assistance to small businesses adversely affected by COVID-19. It presents an overview and discussion of SBA access to capital programs (including the 7(a) loan guarantee, 504/CDC loan guarantee, and Microloan program), SBA management and technical training programs (SBDCs, WBCs, SCORE, and Microloan technical assistance), and SBA contracting programs.

DISASTER LOANS Overview SBA disaster assistance is provided in the form of loans, not grants, which must be repaid to the federal government. The SBA’s disaster loans are unique in two respects: (1) they go directly to the ultimate borrower, and (2) they are not limited to small businesses.9 SBA disaster loans for physical damage are available to individuals, businesses of all sizes, and nonprofit organizations in declared disaster areas.10 SBA disaster loans for economic injury (EIDL) are available to eligible small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations in declared disaster areas. The SBA issues about 80% of its direct disaster loans to individuals and households (renters and property owners) to repair and replace homes and personal property. The SBA disbursed $401 million in disaster loans in FY2016, $889 million in FY2017, $3.59 billion in FY2018, and $1.5 billion in FY2019.11

9

13 C.F.R. §123.200. 13 C.F.R. §123.105 and 13 C.F.R. §123.203. 11 SBA, Office of Legislative and Congressional Affairs, “WDS Report Amount Fiscal Year 2019, Table 1.4 Disbursements by Program,” October 18, 2019. 10

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Types of Disaster Loans The SBA Disaster Loan Program includes home disaster loans, business physical disaster loans, and EIDLs.12 This chapter focuses on the EIDL program because it is currently being used to address the adverse economic impact of COVID-19 on small businesses and other EIDLeligible organizations. P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, deemed the coronavirus to be a disaster under the EIDL program. This change made economic injury from the coronavirus an eligible EIDL expense. The act also provided the SBA an additional $20 million for disaster loan administrative expenses.

Economic Injury Disaster Loans EIDLs provide up to $2 million for working capital (including fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact) to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations meet their financial obligations and operating expenses that cannot be met as a direct result of the disaster.13 Public nonprofit organizations and several specific business types are not eligible for EIDL assistance. Ineligible businesses include, but are not limited to, the following: 

12

13

businesses that do not meet the SBA’s small business eligibility criteria, including the SBA’s size standards;

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. These loans are generally not associated with disasters. See CRS Report R42695, SBA Veterans Assistance Programs: An Analysis of Contemporary Issues, by Robert Jay Dilger and Sean Lowry. SBA, “Fact Sheet – Economic Injury Disaster Loans, California Declaration #16332,” March 19, 2020, https://disasterloan.sba.gov/ela/Declarations/ViewDisasterDocument/3485 (hereinafter cited as SBA, “Fact Sheet”).

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businesses that derive more than one-third of their annual gross revenue from legal gambling activities; casinos and racetracks; religious organizations; political and lobbying concerns; government-owned concerns (expect for businesses owned or controlled by a Native American tribe); and businesses determined by the SBA to have credit available elsewhere.14

EIDL loan amounts are based on actual economic injury and financial needs, regardless of whether the business or eligible nonprofit suffered any property damage. If an applicant is a major source of employment, the SBA may waive the $2 million statutory limit.15 In addition, EIDL loan proceeds cannot be used to refinance long-term debt, expand facilities, pay dividends or bonuses, or for relocation.16 Applicants must have a credit history acceptable to the SBA, the ability to repay the loan, and present collateral for all EIDL loans over $25,000 if available. The SBA collateralizes real estate or other assets when available, but it will not deny a loan for lack of collateral.17 EIDL interest rates are determined by formulas established in law (discussed later) and are fixed for the life of the loan. EIDL interest rate ceilings are statutorily set at no more than 4% per annum. EIDL applicants are not eligible if the SBA determines that the applicant has credit available elsewhere. EIDL loans can have maturities up to 30 years. The SBA determines an appropriate installment payment based on each borrower’s financial

SBA, “Disaster Assistance Program, SOP 50 30 9, pp. 70, 71, https://www.sba.gov/document/ sop-50-30-9-disaster- assistance-program-posted-05-31 (hereinafter cited as SBA, “Disaster Assistance Program SOP”). 15 SBA, “Fact Sheet.” 16 For the full list of ineligible uses of EIDL loan proceeds, see SBA, “Disaster Assistance Program SOP,” pp. 75-76. 17 SBA, “Fact Sheet.” 14

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condition, which, in turn, determines the loan term.18 There are no prepayment penalties. SBA EIDL assistance is not automatically available. It must be requested in one of two ways: (1) a state or territory governor can submit a request to the President for a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act19 or (2) a state or governor can submit a request for SBA EIDL from the SBA Administrator under the Small Business Act. There was some initial concern that COVID-19 would not be a declarable disaster under the Small Business Act because it did not meet the legal definition for a disaster. As mentioned, to prevent any potential ambiguity, Title II of P.L. 116-123 deemed the coronavirus a disaster under Section 7(b)(2)(D) of the Small Business Act, making economic injury from the coronavirus an eligible expense under the SBA’s Economic Injury Disaster Loan program.

Initial EIDL Response to COVID-19 On March 16, 2020, the SBA Administrator began issuing declarations for SBA EIDLs in response to states seeking SBA disaster assistance for small businesses.20 The SBA changed its requirement that a state or territory “provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of the disaster, with at least one business located in each declared county/parish.”21 Under new criteria, states and territories now “are only SBA, “Fact Sheet.” P.L. 93-288, as amended. Tribal nations are also authorized to request and receive major disaster assistance. 20 A similar definitional issue may exist under the Stafford Act which does not specify an infectious disease as an incident in its definition of a major disaster. There are, however, indications that the President considers COVID-19 a major disaster. See the White House, Letter from President Donald J. Trump on Emergency Determination Under the Stafford Act, March 13, 2020, https://www.whitehouse.gov/briefings-statements/letter-presidentdonald-j-trump- emergency-determination-stafford-act/. 21 SBA, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19), March 17, 2020, https://www.sba.gov/ 18 19

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required to certify that at least five small businesses within the state/territory have suffered substantial economic injury, regardless of where the businesses are located.”22 The SBA announced that under the new criteria EIDL assistance may be available statewide instead of just within specific identified counties in declarations related to COVID-19.

EIDL Funding Prior to the CARES Act’s enactment, the SBA had about $1.1 billion in disaster loan credit subsidy available to support about $7 billion to $8 billion in disaster loans. Loan credit subsidy is the amount provided to cover the government’s cost of extending or guaranteeing credit.23 The loan credit subsidy amount is about one-seventh of the cost of each disaster loan.24 The credit subsidy amount is used to protect the government against the risk of estimated shortfalls in loan repayments. There was some concern that the SBA’s funding for disaster loan credit subsidies would have proven to be insufficient to meet the demand for disaster loans now that EIDL eligibility has been extended to economic injuries related to COVID-19. The CARES Act addressed this issue by providing an additional $10 billion to support the EIDL program. As mentioned, the Paycheck about-sba/sba-newsroom/press-releases-mediaadvisories/sba-updates-criteria-statesrequesting-disaster-assistance-loans-small-businesses-impacted (hereinafter cited as SBA, SBA Updates Criteria on States for Requesting Disaster Assistance). 22 SBA, SBA Updates Criteria on States for Requesting Disaster Assistance. 23 “The Federal Credit Reform Act of 1990 (FCRA) requires agencies to estimate the cost to the government of extending or guaranteeing credit. This cost, referred to as subsidy cost, equals the net present value of estimated cash flows from the government (e.g., loan disbursements and claim payments to lenders) minus estimated cash flows to the government (e.g., loan repayments, interest payments, fees, and recoveries on defaulted loans) over the life of the loan, excluding administrative costs.” See U.S. Government Accountability Office, Current Method to Estimate Credit Subsidy Costs Is More Appropriate for Budget Estimates Than a Fair Value Approach, GAO-16-41, January 29, 2016, p. i, https://www.gao.gov/products/GAO-16-41. 24 SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report,” p. 13, https://www.sba.gov/document/report—congressional-budget-justification-annualperformance-report (hereinafter cited as SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report”).

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Protection Program and Health Care Enhancement Act (P.L. 116-139) appropriated an additional $50 billion for EIDL and $10 billion for Emergency EIDL grants.

Surge Issues and Loan Processing Times Historically, the majority (80%) of SBA disaster loans have been for individuals and households. The significant number of businesses that will likely apply for EIDL assistance because of the economic damage the coronavirus caused may require the SBA to enhance its disaster business loan portfolio and increase staff to meet demand. As mentioned, in anticipation of increased EIDL demand, Title II of P.L. 116-123 provided the SBA with an additional $20 million, to remain available until expended, for SBA Disaster Loan Program administrative expenses. A Government Accountability Office (GAO) report found that the SBA provided disaster loans in roughly 18 days or less in response to Hurricanes Harvey, Irma, and Maria in 2017.25 Although the 2017 hurricanes created a high demand at that time for SBA disaster loans, it is unclear if GAO’s findings can be extrapolated to the current COVID-19 pandemic. The sheer volume of EIDL applications in response to COVID19 could be significantly higher because COVID-19 affects a much larger number of small businesses and organizations. In addition, the time needed for the SBA to expand the disaster loan portfolio and hire and train new and existing staff could compromise loan processing times. Loan processing times may be of significant concern to Congress and business owners alike. If loans are not processed quickly enough, businesses nationwide may suffer economic damage and, potentially, collapse. Consequently, Congress may examine options that could expedite loan processing, such as increased staffing and surge capabilities, waiving application requirements, and the use of expedited loans or bridge loans. 25

U.S. Government Accountability Office, Disaster Loan Processing Was Timelier, but Planning Improvements and Pilot Program Evaluation Needed, GAO-20-369, March 9, 2020, https://www.gao.gov/products/GAO-20-168.

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Expedited Disaster Loans and Bridge Loans In response to criticism of SBA’s disaster loan processing following the Gulf Coast hurricanes of 2005 and 2008, Congress passed P.L. 110234, the Small Business Disaster Response and Loan Improvements Act of 2008.26 The act created several programs to improve the disaster loan processing.27 Among them were the following: 





Expedited Disaster Assistance Loan Program (EDALP) to provide eligible EIDL applicants with expedited access to short-term guaranteed loans of up to $150,000.28 Immediate Disaster Assistance Program (IDAP) to provide eligible EIDL applicants with guaranteed bridge loans of up to $25,000 from private-sector lenders, with an SBA decision within 36 hours of a lender’s application on behalf of a borrower.29 Private Disaster Assistance Program (PDAP) to make guaranteed loans available to homeowners and eligible EIDL applicants in an amount up to $2 million.30

The SBA, however, had difficulty implementing these programs. In his statement before the House Committee on Small Business, then-acting (and now the current) SBA Inspector General, Hannibal “Mike” Ware, stated, In the wake of disasters like Hurricane Sandy, congressional representatives expressed concern that SBA did not effectively develop and utilize programmatic innovations intended to assist in disbursing funds quickly and effectively. For instance, SBA did not implement statutory provisions of the Immediate Disaster Assistance Program 26

P.L. 110-234, the Small Business Disaster Response and Loan Improvements Act of 2008 (Title XII, subtitle B of the Food, Conservation, and Energy Act of 2008), as amended by P.L. 110-246, the Food, Conservation, and Energy Act of 2008 (Title XII, subtitle B of the Food, Conservation, and Energy Act of 2008)(hereinafter cited as P.L. 110-234). 27 SBA, “Immediate, Expedited, and Private Disaster Assistance Loan Programs,” 80 Federal Register 63715-63717, October 21, 2015. 28 P.L. 110-234, Sec. 12085. 29 P.L. 110-234, Sec. 12084. 30 P.L. 110-234, Sec. 12083.

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(IDAP), Economic Injury Disaster Assistance Program (EDAP), and the Private Disaster Assistance Programs (PDAP), collectively known as the “Guaranteed Disaster Assistance Programs” mandated by Congress in 2008. These provisions were enacted with the expectation that they would allow SBA to provide expedited disaster loans in partnership with private sector lenders. These provisions remain unimplemented.31

He added that the SBA had difficulty implementing the programs because private lenders were reluctant to participate in the program. He mentioned the following impediments: [the] cost of program participation under the current pricing structure and the lender’s lack of infrastructure to deliver loans that meet SBA standards (such as evaluating eligibility and duplication of benefits); loan terms that include longer maturities than conventional lending practices; the high cost of providing these loans; inadequate collateral security; and their lack of expertise in the home loan sector. Lenders were also concerned that loan guarantees would be denied due to improper eligibility determinations.

Because these programs had limited use, Congress included a provision in P.L. 115-141, the Consolidated Appropriations Act, 2018, which permanently cancelled $2.6 million in unobligated balances available for the IDAP and the EDALP. The CARES Act addressed loan processing issues by authorizing the SBA Administrator, in response to economic injuries caused by COVID19, to   

31

waive the “credit not available elsewhere” requirement, approve an applicant based solely on their credit score, not require applicants to submit a tax return or tax return transcript for approval,

Testimony of Hannibal “Mike” Ware, Acting Inspector General, United States Small Business Administration, U.S. Congress, House Committee on Small Business, Storm Watch: Making Sure SBA’s Disaster Loan Program Is Prepared, 115th Cong., 1st sess., April 26, 2017, p. 33.

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waive any rules related to the personal guarantee on advances and loans of not more than $200,000, and waive the requirement that the applicant needs to be in business for the one-year period before the disaster declaration (except that no waiver may be made for a business that was not in operation on January 31, 2020).

SBA EIDL Repayment and Forgiveness Under present law and regulations, the first SBA EIDL payment is normally due five months after disbursement. However, on March 23, 2020, the SBA announced that it would defer payments on existing disaster loans through December 31, 2020, “to help borrowers during this unprecedented time.”32 The SBA also announced that payments on new EIDL loans would be deferred for one year (interest does accrue). The CARES Act provides “impacted borrowers” adversely affected by COVID-19 complete payment deferment relief on a covered loan in its Paycheck Protection Program (PPP). The deferment may be for not less than six months and not more than one year if the borrower was in operation on February 15, 2020, and has an application for a covered loan approved or pending approval on or after the date of enactment. The SBA announced that PPP loan payments will be deferred for six months. However, interest will continue to accrue on these loans during the sixmonth deferment.33 The CARES Act also provides for PPP loan forgiveness under specified conditions related to the borrower’s retention of employees. Loan forgiveness is rare, but has been used in the past to help businesses that were having difficulty repaying their loans. For example, loan forgiveness SBA, “Carranza Implements Automatic Deferment on Existing SBA Disaster Loans Through End of 2020,” March 23, 2020, https://www.sba.gov/about-sba/sba-newsroom/pressreleases-media-advisories/carranza-implements- automatic-deferment-existing-sba-disasterloans-through-end-2020. 33 SBA, “Business Loan Program Temporary Changes; Paycheck Protection Program,” 85 Federal Register 20813, April 15, 2020. 32

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was granted after Hurricane Betsy, when President Lyndon B. Johnson signed the Southeast Hurricane Disaster Relief Act of 1965.34 Section 3 of the act authorized the SBA Administrator to grant disaster loan forgiveness or issue waivers for property lost or damaged in Florida, Louisiana, and Mississippi as a result of the hurricane. The act stated that, to the extent such loss or damage is not compensated for by insurance or otherwise, (1) shall at the borrower’s option on that part of any loan in excess of $500, (A) cancel up to $1,800 of the loan, or (B) waive interest due on the loan in a total amount of not more than $1,800 over a period not to exceed three years; and (2) may lend to a privately owned school, college, or university without regard to whether the required financial assistance is otherwise available from private sources, and may waive interest payments and defer principal payments on such a loan for the first three years of the term of the loan. 35

Disaster Grants Historically, businesses that suffer uninsured loss as a result of a major disaster declaration are not eligible for Federal Emergency Management Agency (FEMA) grant assistance, and grant assistance from other federal sources is limited. On some occasions, Congress has provided disaster assistance to businesses through the Department of Housing and Urban Development’s (HUD’s) Community Development Block Grant (CDBG) program. The CDBG program provides loans and grants to eligible businesses to help them recover from disasters as well as grants intended to attract new businesses to the disaster-stricken area. In a few cases, CDBG has also been used to compensate businesses and workers for lost wages or revenues.

34 35

P.L. 89-339, 79 Stat. 1301. P.L. 89-339, 79 Stat. 1301.

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Although the President issued the first major disaster declaration to New York for COVID-19,36 CDBG disaster assistance is not available for all major disasters. States can use CDBG funding to respond to emergencies or other “urgent needs” through the conventional CDBG entitlement and states program,37 but existing (or future) CDBG monies generally must be reprogrammed in consultation with HUD to respond to the emergency.38 For these reasons, CDBG is generally used for long-term recovery needs rather than providing immediate, direct disaster assistance. Thus, Congress could consider providing business grants through FEMA or the SBA. Enlisting FEMA to administer the program may offer several benefits. First, FEMA already has grant processing operations in place. It might be relatively easier to expand the operations to include small businesses disaster grants rather than establishing new grant-making operations within SBA. Second, having FEMA administer the small business disaster grant program may limit duplication of administrative functions between FEMA and SBA. Third, it would provide access to FEMA’s Disaster Relief Fund (DRF) which at the time of this writing has roughly $41 billion for disaster assistance activities.39 In contrast, Congress could decide to have SBA administer the program because it already has a framework in place to evaluate business disaster needs and disaster loan eligibility. Congress may need to make statutory changes to SBA’s disaster loan account or authorize a new account to receive appropriations for disaster grants. Another concern about providing grants to businesses is whether businesses provided SBA EIDL will be eligible for grant assistance. For 36

Federal Emergency Management Agency, New York Covid-19 Pandemic (DR-4480), March 3, 2020, https://www.fema.gov/disaster/4480. 37 For example, the City of Seattle is currently administering $10,000 grants to small businesses using CDBG funds to respond to COVID-19. 38 For eligible Community Development Block Grant activities related to COVID-19, see U.S. Department of Housing and Urban Development, “Quick Guide to CDBG Eligible Activities to Support Infectious Disease Response,” March 19, 2020, https://files.hudexchange.info/resources/documents/Quick-Guide-CDBG-InfectiousDisease-Response.pdf. 39 Federal Emergency Management Agency, Disaster Relief Fund: Monthly Report, March 6, 2020, https://www.fema.gov/media-library/assets/documents/31789. For more information on the DRF see CRS Report R45484, The Disaster Relief Fund: Overview and Issues, by William L. Painter.

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example, in some cases homeowners and businesses that accepted disaster loans were deemed ineligible for disaster grants. This may make some businesses reluctant to apply for SBA EIDL and instead hold out for the possibility of a grant. Congress may therefore allow businesses to use grant money to pay down their SBA EIDL. Another potential concern is waste, fraud, and abuse. For example, Section 1210 of the Disaster Recovery Reform Act of 2018 (DRRA, Division D of P.L. 115-254) prohibits the President from determining loans as duplicative assistance provided all federal assistance is used toward loss resulting from an emergency or major disaster under the Stafford Act. Consequently, businesses that obtain SBA EIDL and a grant for the same purposes would conceivably not be required to pay back the duplicative award. Congress could consider limiting grants to relatively small businesses as compared to what is considered a small business according to SBA size standards.40 For example, business grants could be limited to businesses with 10 or fewer employees. The CARES Act authorizes the SBA Administrator to provide up to $10,000 as an advance payment in the amount requested within three days after receiving an EIDL application from an eligible entity. Applicants are not required to repay the advance payment, referred to in the CARES Act as an Emergency EIDL grant, even if subsequently denied an EIDL loan. Due to anticipated demand, the SBA limited Emergency EIDL grants to $1,000 per employee, up to a maximum of $10,000. The CARES Act addresses waste, fraud, and abuse by providing the SBA’s OIG $25 million for oversight of the SBA’s administration of its lending programs and for investigations to serve as a general deterrent to fraud, waste, and abuse.

40

For more information and analysis concerning SBA size standards, see CRS Report R40860, Small Business Size Standards: A Historical Analysis of Contemporary Issues, by Robert Jay Dilger.

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SBA EIDL Interest Rates According to the SBA’s March 17, 2020, press release, SBA EIDL interest rates for COVD-19 are 3.75% for businesses and 2.75% for nonprofit organizations.41 SBA disaster loan interest rates have been a long-standing congressional concern. First, there is concern about the ability of disaster victims to pay off their loans. Second, there is concern about how interest rates are determined given the complexity of the statutory language about disaster loan interest rates. 15 U.S.C. §636(d)(5)(C)) states that interest rates are “in the case of a business, private nonprofit organization, or other concern, including agricultural cooperatives, unable to obtain credit elsewhere, not to exceed 4 per centum per annum.”42 To determine EIDL interest rates, SBA uses a formula under 15 U.S.C. §636(d)(4)(A): Notwithstanding the provisions of the constitution of any State or the laws of any State limiting the rate or amount of interest which may be charged, taken, received, or reserved, the maximum legal rate of interest on any financing made on a deferred basis pursuant to this subsection shall not exceed a rate prescribed by the Administration, and the rate of interest for the Administration’s share of any direct or immediate participation loan shall not exceed the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans and adjusted to the nearest one-eighth of 1 per centum, and an additional amount as determined by the Administration, but not to exceed 1 per centum per annum: Provided, That for those loans to assist any public or private organization for the handicapped or to assist any handicapped individual as provided in paragraph (10) of this subsection, the interest rate shall be 3 per centum per annum.

41

42

Small Business Administration, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19), March 17, 2020, https://www.sba.gov/about-sba/sba-newsroom/ press-releases-media-advisories/sbaupdates-criteria-states-requesting-disaster-assistance-loans-small-businesses- impacted. Only businesses and nonprofit organizations that cannot get credit elsewhere are eligible for SBA EIDL.

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Congress could request SBA to reevaluate its interpretation of 15 U.S.C. §636(d)(4)(A) and provide detailed information explaining how the formula provides nonprofit organizations with lower interest rates than small businesses. Alternatively, Congress could change the formula under the Small Business Act if it considered the language ambiguous, or it could designate an interest rate (including a zero interest rate) for all SBA EIDL for the duration of COVID-19.

SBA CAPITAL ACCESS PROGRAMS Overview The SBA has authority to make direct loans but, with the exception of disaster loans and loans to Microloan program intermediaries, has not exercised that authority since 1998.43 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.44 Instead of making direct loans, the SBA 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

43

Prior to October 1, 1985, the SBA provided direct business loans to qualified small businesses. From October 1, 1985, to September 30, 1994, SBA direct business loan eligibility was limited to qualified small businesses owned by individuals with low incomes or located in areas of high unemployment, owned by Vietnam-era or disabled veterans, owned by the handicapped or certain organizations employing them, and certified under the minority small business capital ownership development program. Microloan program intermediaries were also eligible. On October 1, 1994, SBA direct loan eligibility was limited to Microloan program intermediaries and small businesses owned by the handicapped. Funding to support direct loans to the handicapped through the Handicapped Assistance (renamed the Disabled Assistance) Loan program ended in 1996. The last loan under the Disabled Assistance Loan program was issued in FY1998. See U.S. Congress, House Committee on Small Business, Summary of Activities, 105rd Cong., 2nd sess., January 2, 1999, H.Rept. 105-849 (Washington: GPO, 1999), p. 8. 44 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.

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and conditions.”45 With few exceptions, to qualify for SBA assistance, an organization must be both a for-profit business and small.46

What Is a “Small Business”? To participate in any of the SBA loan guaranty programs, a business must meet the Small Business Act’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; is not dominant in its field on a national basis;47 and does not exceed size standards established, and updated periodically, by the SBA.48

The business may be a sole proprietorship, partnership, corporation, or any other legal form.

45

SBA, Fiscal Year 2010 Congressional Budget Justification, p. 30, https://www.sba.gov/sites/ default/files/Congressional_Budget_Justification_2010.pdf. 46 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 child care centers are eligible to participate in SBA’s Microloan program. 47 13 C.F.R. §121.105. 48 P.L. 111-240, the Small Business Jobs Act of 2010, requires the SBA to conduct a detailed review of not less than one-third of the SBA’s industry size standards every 18 months beginning on the new law’s date of enactment (September 27, 2010) and ensure that each size standard is reviewed at least once every five years.

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What is “Small”?49 The SBA uses two measures to determine if a business is small: SBAderived 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 are deemed small if they either meet the SBA’s industry-specific size standards for firms in 1,047 industrial classifications in 18 subindustry activities described in the North American Industry Classification System (NAICS) or do not have more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carryover 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.50 The SBA’s industry size standards vary by industry, and they are based on one of the following four measures: the firm’s (1) average annual receipts in the previous three (or five) years, (2) number of employees, (3) asset size, or (4) 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. The SBA’s size standards are designed to encourage competition within each industry. They are derived through an assessment of the following four economic factors: “average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms.”51 The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors “as they are relevant to the industries and the interests of small businesses, 49

For additional information and analysis, see CRS Report R40860, Small Business Size Standards: A Historical Analysis of Contemporary Issues, by Robert Jay Dilger. 50 13 C.F.R. §121.201 and P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards. 51 SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April 2019, p. 29, https://www.sba.gov/document/support—size-standardsmethodology-white-paper (hereinafter cited as SBA, “SBA Size Standards Methodology”).

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including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses.”52

SBA Loan Guarantee 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/CDC loan guaranty program, and the Microloan program. The SBA’s loan guaranty programs require personal guarantees from borrowers and share the risk of default with lenders 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 businesses are eligible for loan guarantees. A list of ineligible businesses (such as insurance companies, real estate investment firms, firms involved in financial speculation or pyramid sales, and businesses involved in illegal activities) is contained in 13 C.F.R. §120.110.53 With one exception, nonprofit and charitable organizations are also ineligible.54 Most of these programs charge fees to help offset program costs, including costs related to loan defaults. In most instances, the fees are set in statute. For example, for 7(a) loans with a maturity exceeding 12 months, the SBA is authorized to charge lenders an up-front 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 SBA, “SBA Size Standards Methodology,” p. 1. Title 13 of the Code of Federal Regulations can be viewed at https://www.gpo.gov/fdsys/ browse/collectionCfr.action?selectedYearFrom=2016&go=Go. 54 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 child care business. 52 53

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loans exceeding $700,000. Lenders who have a 7(a) loan that 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. 7(a) 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.55 In addition, lenders are authorized to collect fees from borrowers to offset their administrative expenses. In an effort to assist small business owners, the SBA has, from time-totime, reduced its fees. For example, in FY2019, the SBA waived the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone and reduced the up-front one-time guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan.56 In addition, pursuant to P.L. 114-38, the Veterans Entrepreneurship Act of 2015, the SBA is required to waive the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program (up to and including $350,000) “except during any upcoming fiscal year for which the President’s budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero.”57 The SBA’s goal is to achieve a zero subsidy rate, meaning that the appropriation of budget authority for new loan guaranties is not required.

7(a) Loan Guaranty Program58 The 7(a) loan guaranty program is named after the section of the Small Business Act that authorizes it. The loans are made by SBA lending 55

15 U.S.C. §636(a)(23)(a). SBA, “SBA Information Notice: 7(a) Fees Effective on October 1, 2018,” https://www.sba.gov/document/information-notice-5000-180010-7a-fees-effective-october1-2018. 57 The SBA had waived the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program from January 1, 2014, through the end of FY2015. P.L. 114-38 made the SBAExpress program’s veteran fee waiver permanent, except during any upcoming fiscal year for which the President’s budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The SBA waived the fee, pursuant to P.L. 114-38, in FY2016, FY2017, FY2018, and FY2019. 58 For further information and analysis, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program, by Robert Jay Dilger. 56

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partners (mostly banks but also some other financial institutions) and partially guaranteed by the SBA. Borrowers may use 7(a) loan proceeds to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. 7(a) loan proceeds may be used to  

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acquire land (by purchase or lease); improve a site (e.g., grading, streets, parking lots, landscaping), including up to 5% for community improvements such as curbs and sidewalks; purchase one or more existing buildings; convert, expand, or renovate one or more existing buildings; construct one or more new buildings; acquire (by purchase or lease) and install fixed assets; purchase inventory, supplies, and raw materials; finance working capital; and refinance certain outstanding debts.59

In FY2019, the SBA approved 51,907 7(a) loans to 46,111 small businesses totaling $23.2 billion. In FY2019, there were 1,708 active lending partners providing 7(a) loans. 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, or 75% of $5 million).60 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. A 7(a) loan is required to have the shortest appropriate term, depending upon the borrower’s ability to repay. The maximum term is 10 years, unless the loan finances or refinances real estate or equipment with a

59 60

13 C.F.R. §120.120. Exceptions to this general schedule of guaranty rates include loans made under the International Trade, Export Working Capital Program, or Export Express (90% guaranty); and the SBAExpress program (50% guaranty).

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useful life exceeding 10 years. In that case, the loan term can be up to 25 years, including extensions.61 Lenders are permitted to charge borrowers fees to recoup specified expenses and are allowed to charge borrowers “a reasonable fixed interest rate” or, with the SBA’s approval, a variable interest rate. The SBA uses a multistep formula to determine the maximum allowable fixed interest rate for all 7(a) loans (with the exception of the Export Working Capital Program and Community Advantage loans) and periodically publishes that rate and the maximum allowable variable interest rate in the Federal Register.62 In May 2020, the maximum allowable fixed interest rates are 11.25% for 7(a) loans of $25,000 or less; 10.25% for loans over $25,000 but not exceeding $50,000; 9.25% for loans over $50,000 up to and including $250,000; and 8.25% for loans greater than $250,000.63 Maximum interest rates allowed on variable-rate 7(a) loans are pegged to either the prime rate, the 30-day London Interbank Offered Rate (LIBOR) plus 3%, 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 allowed spread over the prime rate, LIBOR base rate, or SBA optional peg rate depends on the loan amount and the loan’s maturity (under seven years or seven years or more).64 The 61

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13 C.F.R. §120.212. A portion of a 7(a) loan used to acquire or improve real property may have a term of 25 years plus an additional period needed to complete the construction or improvements. For fixed interest rates, the SBA, effective November 6, 2018, uses the prime rate (see 13 C.F.R. §120.214(c)) in effect on the first business day of the month as the base rate and increases the maximum allowable interest rate spread as follows: for fixed rate loans of $25,000 or less, prime plus 600 basis points, plus the 200 basis points permitted by 13 C.F.R. §120.215; for fixed rate loans over $25,000 but not exceeding $50,000, prime plus 600 basis points, plus the 100 basis points permitted by 13 C.F.R. §120.215; for fixed rate loans greater than $50,000 but not exceeding $250,000, prime plus 600 basis points; and for fixed rate loans over $250,000, prime plus 500 basis points. SBA, “Maximum Allowable 7(a) Fixed Interest Rates,” 83 Federal Register 55478, November 6, 2018. For the previously used fixed interest rates formula, see SBA, “Business Loan Program Maximum Allowable Fixed Rate,” 74 Federal Register 50263-50264, September 30, 2009. Colson Services Corp., “SBA Base Rates,” New York, https:// colsonservices.bnymellon.com/news/sba-base- rates.jsp. The maximum variable interest rates allowed for 7(a) loans with a maturity less than seven years are the base rate plus 4.25% for loans less than $25,000; the base rate plus 3.25% for loans of $25,000-$50,000; and the base rate plus 2.25% for loans over $50,000. The

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adjustment period can be no more than monthly and cannot change over the life of the loan.

The 504/CDC Loan Guaranty Program65 The 504/CDC loan guaranty program uses Certified Development Companies (CDCs), which are private, nonprofit corporations established to contribute to economic development within their 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.66 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 of more than $5 million for two full fiscal years before the date of application. Also, CDCs must intend to create or retain one job for every $75,000 of the debenture ($120,000 for small manufacturers) or meet an alternative job creation standard if they meet any one of 15 community or public policy goals. Maximum 504/CDC participation in a single project is $5 million and $5.5 million for manufacturers and specified energy-related projects; the minimum is $25,000. There is no limit on the project size. Loan maturity is 10 years for equipment and 20 or 25 years for real estate. Unguaranteed financing may have a shorter term. The maximum fixed interest rate allowed is established when the debenture backing the loan is sold and is

maximum variable interest rates allowed for 7(a) loans with a maturity of seven years or longer are the base rate plus 4.75% for loans less than $25,000; the base rate plus 3.75% for loans of $25,000-$50,000; and the base rate plus 2.75% for loans over $50,000. See 13 C.F.R. §120.214 and 13 C.F.R. §120.215. 65 For further information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger. 66 A debenture is a bond that is not secured by a lien on specific collateral.

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pegged to an increment above the current market rate for 5-year and 10year U.S. Treasury issues. The SBA is authorized to charge CDCs  

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a one-time, up-front guaranty fee of up to 0.5% of the debenture (0.5% in FY2020), an annual servicing fee of up to 0.9375% of the unpaid principal balance (0.3205% for regular 504/CDC loans and 0.322% for 504/CDC debt refinance loans in FY2020), a funding fee (not to exceed 0.25% of the debenture), an annual development company fee (0.125% of the debenture’s outstanding principal balance), and a one-time participation fee (0.5% of the senior mortgage loan if in a senior lien position to the SBA and the loan was approved after September 30, 1996).

In addition, CDCs are allowed to charge borrowers a processing (or packaging) fee of up to 1.5% of the net debenture proceeds and a closing fee, servicing fee, late fee, assumption fee, Central Servicing Agent (CSA) fee, other agent fees, and an underwriters’ fee. In FY2019, the SBA approved 6,099 504/CDC loans to 6,008 small businesses totaling nearly $5.0 billion.67 In FY2019, 212 CDCs provided at least one 504/CDC loan.68

504/CDC Refinancing Program During the Great Recession (2007-2009), Congress authorized the SBA to temporarily allow, under specified circumstances, the use of 504/CDC program funds to refinance existing commercial debt (e.g., not from SBA-guaranteed loans) for business expansion under the 504/CDC

SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2019),” https://www.sba.gov/ sites/default/files/2019-10/WebsiteReport_asof_20190930.pdf; and SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report.” pp. 31, 164. 68 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 41, 166. 67

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program.69 In 2010, Congress authorized, for two years, the expansion of the types of projects eligible for refinancing of existing debt under the 504/CDC program to include projects not involving business expansion, provided the projects met specific criteria.70 In the 114th Congress, Congress reinstated the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the 504/CDC program as a whole do not have credit subsidy costs.71 Specifically, each CDC is required to limit its refinancing so that, during any fiscal year, the new refinancing does not exceed 50% of the dollars it loaned under the 504/CDC program during the previous fiscal year. This limitation may be waived if the SBA determines that the refinance loan is needed for good cause. Commercial loans eligible for the 504/CDC Refinancing program being used to finance long-term fixed asset debt cannot have a loan-tovalue (LTV) ratio of more than 90% of the fair market value of the eligible fixed asset(s) serving as collateral. Loans that are used to partly refinance eligible business operating expenses (e.g., salaries, rent, utilities) cannot exceed an LTV ratio of more than 85% of the fair market value of the 69

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P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA). The specified circumstances include the following: the amount of existing indebtedness does not exceed 50% of the project cost of the expansion; the proceeds of the indebtedness were used to acquire land, including the building situated thereon, to construct a building thereon, or to purchase equipment; the existing indebtedness is collateralized by fixed assets; the existing indebtedness was incurred for the benefit of a small business; the financing is used only for refinancing existing indebtedness or costs related to the project being financed; the refinancing provides a substantial benefit to the borrower; the borrower has been current on all payments due on the existing debt for not less than one year preceding the date of refinancing; and the financing provided will have better terms or rate of interest than the existing indebtedness. P.L. 111-240, the Small Business Jobs Act of 2010. A project that does not involve the expansion of a small business concern may include the refinancing of qualified debt if (I) the amount of the financing is not be more than 90% of the value of the collateral for the financing, except that, if the appraised value of the eligible fixed assets serving as collateral for the financing is less than the amount equal to 125% of the amount of the financing, the borrower may provide additional cash or other collateral to eliminate any deficiency; (II) the borrower has been in operation for all of the two-year period ending on the date of the loan; and (III) for a financing for which the Administrator determines there will be an additional cost attributable to the refinancing of the qualified debt, the borrower agrees to pay a fee in an amount equal to the anticipated additional cost. P.L. 114-113, the Consolidated Appropriations Act, 2016. For additional information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.

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collateral. The fees associated with the 504/CDC Refinancing program are the same as the 504/CDC Loan Guaranty program except the ongoing guaranty servicing fee may vary. In FY2020, the annual guaranty servicing fee is 0.3205% for regular 504/CDC loans and 0.322% for 504/CDC debt refinance loans. In FY2019, the SBA approved 166 refinancing loans totaling $154.8 million.72

The Microloan Program73 The Microloan program provides direct loans to qualified nonprofit intermediary Microloan lenders that, in turn, provide “microloans” of up to $50,000 to small businesses and nonprofit child care centers. Microloan lenders also provide 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. Microloans can be used for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans cannot be made to acquire land or property. Loan terms are up to seven years. The SBA charges intermediaries an interest rate that is based on the five-year Treasury rate, adjusted to the nearest one-eighth percent (called the Base Rate), less 1.25% if the intermediary maintains a historic portfolio 72

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SBA, Office of Congressional and Legislative Affairs, “WDS Report Amount and Count Summary, September 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,” October 18, 2018. For historical data, see Table 3 in CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger. For further information and analysis, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger.

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of Microloans averaging more than $10,000 and less 2.0% if the intermediary maintains a historic portfolio of Microloans averaging $10,000 or less. The Base Rate, after adjustment, is called the Intermediary’s Cost of Funds. The Intermediary’s Cost of Funds is initially calculated one year from the date of the note and is reviewed annually and adjusted as necessary (called recasting). The interest rate cannot be less than zero. On loans of more than $10,000, 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 $10,000 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 7% to 9%. The SBA does not charge intermediaries up-front or ongoing service fees under the Microloan program. In FY2019, 5,533 small businesses received a Microloan, totaling $81.5 million.74 The average Microloan was $14,735 and the average interest rate was 7.5%.75

SBA Loan Enhancements to Address the Great Recession Many of the proposals under consideration to address the capital needs of small businesses adversely affected by the COVID-19 pandemic were used to address the severe economic slowdown during and immediately following the Great Recession (2007-2009). The main difference is that given the unique nature of the COVID-19 pandemic’s impact on households, especially physical distancing and the resulting decrease in consumer spending, there is an added emphasis today on SBA loan deferrals, loan forgiveness, and expanded eligibility, including, for the first time, specified types of nonprofit organizations.

SBA, “Nationwide Microloan Report, October 1, 2018 through September 30, 2019,” October 10, 2019. 75 SBA, “Nationwide Microloan Report, October 1, 2018 through September 30, 2019,” October 10, 2019. 74

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During the 111th Congress, P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), provided the SBA an additional $730 million, including $375 million to temporarily subsidize the 7(a) and 504/CDC loan guaranty programs’ fees ($299 million) and to temporarily increase the 7(a) program’s maximum loan guaranty percentage to 90% ($76 million).76 ARRA also included provisions designed to increase the amount of leverage issued under the SBA’s Small Business Investment Company (SBIC venture capital) program.77 SBICs provide loans and equity investments in small businesses. ARRA’s funding for the fee subsidies and 90% maximum loan guaranty percentage was about to be exhausted in November 2009, when Congress passed the first of six laws to provide additional funding to extend the loan subsidies and 90% maximum loan guaranty percentage. 

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P.L. 111-118, the Department of Defense Appropriations Act, 2010, provided the SBA $125 million to continue the fee subsidies and 90% maximum loan guaranty percentage through February 28, 2010. P.L. 111-144, the Temporary Extension Act of 2010, provided the SBA $60 million to continue the fee subsidies and 90% maximum loan guaranty percentage through March 28, 2010. P.L. 111-150, an act to extend the Small Business Loan Guarantee Program, and for other purposes, provided the SBA authority to reprogram $40 million in previously appropriated funds to continue the fee subsidies and 90% maximum loan guaranty percentage through April 30, 2010. P.L. 111-157, the Continuing Extension Act of 2010, provided the SBA $80 million to continue the SBA’s fee subsidies and 90% maximum loan guaranty percentage through May 31, 2010.

SBA, “Recovery Act Agency Plan,” May 15, 2009, https://www.sba.gov/sites/ default/files/ recovery_act_reports/sba_recovery_act_plan.pdf. For additional information and analysis, see CRS Report R41456, SBA Small Business Investment Company Program, by Robert Jay Dilger.

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P.L. 111-240, the Small Business Jobs Act of 2010, provided $505 million (plus an additional $5 million for administrative expenses) to continue the SBA’s fee subsidies and 90% maximum loan guaranty percentage from the act’s date of enactment (September 27, 2010) through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to use funds provided under the Small Business Jobs Act of 2010 to continue the SBA’s fee subsidies and 90% maximum loan guaranty percentage through March 4, 2011, or until available funding is exhausted.

On January 3, 2011, the SBA announced that the fee subsidies and 90% maximum guarantee percentage ended because funding for these enhancements had been exhausted.78 In addition to providing additional funding for fee subsidies, P.L. 111240, among other provisions  

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increased the 7(a) program’s gross loan limit from $2 million to $5 million; increased the 504/CDC Program’s loan limits from $1.5 million to $5 million for “regular” borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers; temporarily expanded for two years the eligibility for low-interest refinancing under the SBA’s 504/CDC program for qualified debt; temporarily increased for one year the SBAExpress Program’s loan limit from $350,000 to $1 million (expired on September 26, 2011);

SBA, “Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months,” January 3, 2011, https://www.sba.gov/content/jobs-act-supported-more-12billion-sba-lending-small-businesses-just- three-months.

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increased the Microloan Program’s loan limit for borrowers from $35,000 to $50,000; and increased the loan limits for Microloan intermediaries after their first year in the program from $3.5 million to $5 million; authorized the U.S. Treasury to make up to $30 billion of capital investments for a Small Business Lending Fund ($4 billion was issued);79 authorized to be appropriated $1.5 billion for the State Small Business Credit Initiative Program;80 authorized a three-year Intermediary Lending Pilot Program to allow the SBA to make direct loans to not more than 20 eligible nonprofit lending intermediaries each year totaling not more than $20 million. The intermediaries, in turn, would be allowed to make loans to new or growing small businesses, not to exceed $200,000 per business; established an alternative size standard for the 7(a) and 504/CDC loan programs to enable more small businesses to qualify for assistance;81 and provided small businesses with about $12 billion in tax relief.82

For additional information and analysis, see CRS Report R42045, The Small Business Lending Fund, by Robert Jay Dilger. 80 For additional information and analysis, see CRS Report R42581, State Small Business Credit Initiative: Implementation and Funding Issues, by Robert Jay Dilger. 81 P.L. 111-240, the Small Business Jobs Act of 2010, established the following interim alternative size standard for both the 7(a) and 504/CDC programs: the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income after federal taxes (excluding any carry-over losses) in excess of $5 million for two full fiscal years before the date of application. 82 P.L. 111-240 raised the exclusion of gains on the sale or exchange of qualified small business stock from the federal income tax to 100%, with the full exclusion applying only to stock acquired the day after the date of enactment through the end of 2010; increased the deduction for qualified start-up expenditures from $5,000 to $10,000 in 2010, and raised the phaseout threshold from $50,000 to $60,000 for 2010; placed limitations on the penalty for failure to disclose reportable transactions based on resulting tax benefits; allowed general business credits of eligible small businesses for 2010 to be carried back five years; exempted general business credits of eligible small businesses in 2010 from the alternative minimum tax; allowed a temporary reduction in the recognition period for built-in gains tax; increased expensing limitations for 2010 and 2011 and allowed certain real property to be treated as Section 179 property; allowed additional first-year depreciation for 50% of the basis of certain qualified property; and removed cellular telephones and similar

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There were also efforts during the 111th and 112th Congresses to require the SBA to reinstate direct lending to small businesses. During the 111th Congress 

H.R. 3854, the Small Business Financing and Investment Act of 2009, was passed by the House on October 29, 2009, by a vote of 389-32. It would have authorized a temporary SBA direct lending program.83

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H.R. 3007, the Give Credit to Main Street Act of 2011, introduced on September 21, 2011, and referred to the House Committee on Small Business, would have authorized the SBA to provide direct loans to small businesses that have been in operation as a small business for at least two years prior to its application for a direct loan. The maximum loan amount would have been the lesser of 10% of the firm’s annual revenues or $500,000. H.R. 5835, the Veterans Access to Capital Act of 2012, introduced on May 18, 2012, and referred to the House Committee on Small Business, would have authorized the SBA to provide up to 20% of the annual amount available for guaranteed loans under the 7(a) and 504/CDC loan guaranty programs, respectively, in direct loans to veteran-owned and -controlled small businesses.

Current Issues, Debates, and Lessons Learned During the 111th Congress (2009-2010), there was a consensus in Congress that the federal government had to take decisive action to address the capital needs of small businesses, primarily as a means to promote job retention and creation. Similar sentiments are being expressed today as

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telecommunications equipment from listed property so their cost can be deducted or depreciated like other business property. H.R. 3854, the Small Business Financing and Investment Act of 2009 (111 th Congress), §111. Capital Backstop Program.

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Congress considers proposals to assist small businesses adversely affected by the COVID-19 pandemic. Many Members of Congress argued during the 111th Congress that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worried about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocated business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to help small businesses further economic growth and job creation. Given the coronavirus’s widespread adverse economic impact, including productivity losses, supply chain disruptions, labor dislocation, and financial pressure on businesses and households, there has been relatively little concern expressed about federal fiscal restraint during the current pandemic. The debate has been primarily over which specific policies would have the greatest impact and which types of small businesses and small business owners should be helped the most. As mentioned, many of the enhancements to the SBA’s capital access programs that were made during the 111th Congress, such as increasing loan limits, providing fee subsidies, increasing loan guaranty percentages, and expanding eligibility criteria are being considered again. These changes had a demonstrated impact on small business lending during and immediately following the Great Recession. SBA lending increased. For example, the SBA’s OIG found that SBA 7(a) loan approvals increased 39% and 504/CDC loan approval increased 73% from March to July 2009, largely due to ARRA’s fee reductions and increased loan guarantee percentages. Lending volume remained below pre-recession levels, but was much higher than before the fee reductions and increase in the loan guarantee percentage were implemented. The OIG also noted that the increased loan volume “may be impacting Agency staffing requirements and program risk.... Without adequate

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training and supervision, the increased demands on loan center staff could impact the quality of Agency loan reviews.”84 Also, in 2012, the SBA issued a press release lauding P.L. 111-240’s impact on SBA loan volume: With loan volume steadily increasing for the past six quarters, the U.S. Small Business Administration’s loan programs posted the second largest dollar volume ever in FY 2012, supporting $30.25 billion in loans to small businesses. That amount was surpassed only by FY 2011, which was heavily boosted by the loan incentives under the Small Business Jobs Act of 2010.85

The data demonstrate that ARRA and the Small Business Jobs Act of 2010 helped small businesses access capital. However, because the SBA primarily gathers data on program output (e.g., loan volume, number of small businesses served, default rates) as opposed to program outcomes (e.g., small business solvency, job creation, wealth generation) it is difficult to know how effective these programs were in assisting small businesses or if other approaches might have produced better (or different) results. Among the lessons learned from earlier small business stimulus packages is that additional funding for the SBA OIG to conduct oversight of the SBA’s implementation of stimulus changes could help Congress in its oversight responsibilities. Additional funding for the SBA OIG to conduct investigations of potentially fraudulent behaviors by borrowers and lenders could also prove useful in deterring fraud, waste, and abuse. In addition, requiring the SBA to periodically report to Congress and on its website both output and outcome performance data could help Congress in

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SBA, Office of Inspector General (OIG), Review of the Recovery Act’s Impact on SBA Lending, ROM 10-02, November 25, 2009, p. 4, https://www.sba.gov/document/reportrom-10-02-rom-10-02-review-recovery-acts-impact- sba-lending. SBA, “SBA Loan Dollars in FY 2012 Reach Second Largest Total Ever; $30.25 Billion Second Only to FY 2011,” October 9, 2012, https://www.sba.gov/about-sba/sbanewsroom/press-releases-media-advisories/sba-loan-dollars-fy-2012-reach-second-largesttotal-ever-3025-billion-second-only-fy-2011.

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its oversight responsibilities and assure the public that the taxpayer’s dollars are being spent both efficiently and effectively.

SBA ENTREPRENEURIAL DEVELOPMENT PROGRAMS86 Overview The SBA has provided technical and managerial assistance to small businesses since it began operations in 1953. Initially, the SBA provided its own small business management and technical assistance training programs. Over time, the SBA has relied increasingly on third parties to provide that training. Congressional interest in the SBA’s management and technical assistance training programs has increased in recent years, primarily because these programs are viewed as a means to assist small businesses create and retain jobs. The FY2020 budget appropriated $239 million, funding about 14,000 resource partners, including 63 lead small business development centers (SBDCs) and nearly 900 SBDC local outreach locations, 125 women’s business centers (WBCs), and 350 chapters of the mentoring program, SCORE.87 The SBA reports that nearly a million aspiring entrepreneurs and small business owners receive mentoring and training from an SBA-supported resource partner each year. Most of this training is free, and some is offered at low cost.88 86

For additional information and analysis, see CRS Report R41352, Small Business Management and Technical Assistance Training Programs, by Robert Jay Dilger. 87 Other SBA entrepreneurial development programs include the following: the Microloan Technical Assistance Program; the Program for Investment in Microentrepreneurs (PRIME), Veterans Programs (including Veterans Business Outreach Centers, Boots to Business, Veteran Women Igniting the Spirit of Entrepreneurship [VWISE], Entrepreneurship Bootcamp for Veterans with Disabilities, and Boots to Business: Reboot), the Native American Outreach Program, the Entrepreneurial Development Initiative (Regional Innovation Clusters), the Entrepreneurship Education Initiative, the Growth Accelerators Initiative, and the 7(j) Technical Assistance Program. 88 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 18.

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The Department of Commerce also provides management and technical assistance training for small businesses. For example, its Minority Business Development Agency provides training to minority business owners to assist them in obtaining contracts and financial awards.

Small Business Development Centers SBDCs provide free or low-cost assistance to small businesses using programs customized to local conditions. SBDCs support small businesses in marketing and business strategy, finance, technology transfer, government contracting, management, manufacturing, engineering, sales, accounting, exporting, and other topics. SBDCs are funded by SBA grants and matching funds equal to the grant amount. SBDC funding is allocated on a pro rata basis among the states (including the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa) by a statutory formula “based on the percentage of the population of each State, as compared to the population of the United States.”89 If, as is currently the case, SBDC funding exceeds $90 million, the minimum funding level is “the sum of $500,000, plus a percentage of $500,000 equal to the percentage amount by which the amount made available exceeds $90 million.”90 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 U.S. Virgin Islands, Guam, and American Samoa. These centers manage more than 900 SBDC outreach locations. In FY2020, the SBA was provided $135 million for SBDC grants through the regular appropriations process and an additional $192 million in supplemental funding for SBDC grants in the CARES Act.91

89

15 U.S.C. §648(a)(4)(C). 15 U.S.C. §648(a)(4)(C) and P.L. 106-554, the Consolidated Appropriations Act, 2001. 91 The CARES Act also provides $25 million for SBA resource partners, including SBDCs, to establish a centralized hub for COVID-19 information, which includes an online platform 90

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In FY2019, SBDCs provided technical assistance training and counseling services to 254,821 unique SBDC clients, and 17,810 new businesses were started largely as a result of SBDC training and counseling.92

Microloan Technical Assistance Congress authorized the SBA’s Microloan lending program in 1991 (P.L. 102-140, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1992) to address the perceived disadvantages faced by women, low-income, veteran, and minority entrepreneurs and business owners gaining access to capital to start or expand their business. The program became operational in 1992. Initially, the SBA’s Microloan program was authorized as a five-year demonstration project. It was made permanent, subject to reauthorization, by P.L. 105-135, the Small Business Reauthorization Act of 1997. The SBA’s Microloan Technical Assistance Program is affiliated with the SBA’s Microloan lending program but receives a separate appropriation. This program provides grants to Microloan intermediaries for management and technical training assistance to Microloan program borrowers and prospective borrowers.93 There are currently 144 active Microloan intermediaries serving 49 states, the District of Columbia, and Puerto Rico.94 Under the Microloan program, intermediaries are eligible to receive a Microloan technical assistance grant “of not more than 25% of the total

that consolidates resources and information across multiple federal agencies and training program to education resource partner counselors. 92 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 85. 93 For further analysis of the SBA’s Microloan program, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger. 94 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36. For a list of Microloan intermediaries by state, see SBA, “List of Lenders,” https://www.sba.gov/partners/lenders/microloan- program/list-lenders.

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outstanding balance of loans made to it.”95 Grant funds may be used only to provide marketing, management, and technical assistance to Microloan borrowers, and no more than 50% of the funds may be used to provide such assistance to prospective Microloan borrowers and no more than 50% of the funds may be awarded to third parties to provide that technical assistance. Grant funds also may be used to attend required training.96 In most instances, intermediaries must contribute, solely from nonfederal sources, an amount equal to 25% of the grant amount.97 In addition to cash or other direct funding, the contribution may include indirect costs or in-kind contributions paid for under nonfederal programs.98 The SBA does not require Microloan borrowers to participate in the Microloan Technical Assistance Program. However, intermediaries typically require Microloan borrowers to participate in the training program as a condition of the receipt of a microloan. Combining loan and intensive management and technical assistance training is one of the Microloan program’s distinguishing features.99 The SBA was provided $34.5 million for Microloan Technical Assistance grants in FY2020.

Women’s Business Centers The WBC Renewable Grant Program was initially established by P.L. 100-533, the Women’s Business Ownership Act of 1988, as the Women’s 95

15 U.S.C. §636(m)(4)(A). 13 C.F.R. §120.712. 97 13 C.F.R. §120.712. 98 13 C.F.R. §120.712. Intermediaries may not borrow their contribution. 99 Intermediaries that make at least 25% of their loans to small businesses located in or owned by residents of an Economically Distressed Area (defined as having 40% or more of its residents with an annual income that is at or below the poverty level), or have a portfolio of loans made under the program that averages not more than $10,000 during the period of the intermediary’s participation in the program are eligible to receive an additional training grant equal to 5% of the total outstanding balance of loans made to the intermediary. Intermediaries are not required to make a matching contribution as a condition of receiving these additional grant funds. See 13 C.F.R. §120.712; and 15 U.S.C. §636(m)(4)(C)(i). 96

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Business Demonstration Pilot Program, targeting the needs of socially and economically disadvantaged women. The act directed the SBA to provide financial assistance to private, nonprofit organizations to conduct demonstration projects giving financial, management, and marketing assistance to small businesses, including start-up businesses, owned and controlled by women. The WBC program was expanded and provided permanent legislative status by P.L. 109-108, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006. Since the program’s inception, the SBA has awarded WBCs a grant of up to $150,000 per year. WBC initial grants are currently awarded for up to five years, consisting of a base period of 12 months from the date of the award and four 12-month option periods.100 The SBA determines if the option periods are exercised and makes that determination subject to the continuation of program authority, the availability of funds, and the recipient organization’s compliance with federal law, SBA regulations, and the terms and conditions specified in a cooperative agreement. WBCs that successfully complete the initial five-year grant period may apply for an unlimited number of three-year funding intervals.101 During their initial five-year grant period, WBCs are required to provide a nonfederal match of one nonfederal dollar for each two federal dollars in years one and two (1:2), and one nonfederal dollar for each federal dollar in years three, four, and five (1:1). After the initial five-year grant period, the matching requirement in subsequent three-year funding

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P.L. 105-135, the Small Business Reauthorization Act of 1997, authorized the SBA to award grants to WBCs for up to five years—one base year and four option years. P.L. 106-165, the Women’s Business Centers Sustainability Act of 1999, provided WBCs that had completed the initial five-year grant an opportunity to apply for an additional five-year sustainability grant. Thus, the act allowed successful WBCs to receive SBA funding for a total of 10 years. Because the program has permitted permanent three-year funding intervals since 2007, the sustainability grants would be phased out by FY2012, leaving the initial five-year grants with the continuous three-year option. See SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 49, https:// www.sba.gov/sites/ default/files/aboutsbaarticle/FINAL%20FY%202012%20CBJ%20FY%202010%20APR_0. pdf. 101 P.L. 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, allowed WBCs that successfully completed the initial five-year grant to apply for an unlimited number of three-year funding renewals.

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intervals is not more than 50% of federal funding (1:1).102 The nonfederal match may consist of cash, in-kind, and program income.103 Today, there are 125 WBCs located throughout most of the United States and the territories.104 In FY2019, WBCs provided technical assistance training and counseling services to 64,527 unique WBC clients, and 2,087 new businesses were started largely as a result of WBC training and counseling.105 In FY2020, the SBA was provided $22.5 million for WBC grants in the regular appropriations process and an additional $48 million in supplemental funding for WBC grants in the CARES Act.106

SCORE (Formerly the Service Corps of Retired Executives) 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. The SBA currently provides grants to SCORE to provide in-person mentoring, online training, and “nearly 9,000 local training workshops annually” to small businesses.107 SCORE’s 350 chapters and more than 800 branch offices are located throughout the United States and partner with more than 10,000 volunteer counselors, who are working or retired 102

P.L. 110-28 reduced the federal share to not more than 50% for all grant years (1:1) following the initial five-year grant. 103 P.L. 105-135 specified that not more than one-half of the nonfederal sector matching assistance may be in the form of in-kind contributions that are budget line items only, including office equipment and office space. 104 SBA, “Women’s Business Centers Directory,” https://www.sba.gov/tools/localassistance/wbc. 105 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 87. 106 The CARES Act also provides $25 million for SBA resource partners, including WBCs, to establish a centralized hub for COVID-19 information, which includes an online platform that consolidates resources and information across multiple federal agencies and training program to education resource partner counselors. 107 SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, p. 45, https://www.sba.gov/sites/default/files/files/1-508%20Compliant%20FY%202013 %20CBJ%20FY%202011%20APR(1).pdf.

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business owners, executives and corporate leaders, to provide management and training assistance to small businesses “at no charge or at very low cost.”108 In FY2019, SCORE provided technical assistance training and counseling services to 195,242 unique SCORE clients, and 480 new businesses were started largely as a result of SCORE training and counseling.109 In FY2020, the SBA was provided $11.7 million for SCORE grants.

Current Issues, Debates and Lessons Learned Congress provided additional funding for SBA entrepreneurial development programs during and immediately following the Great Recession. For example, ARRA provided an additional $24 million for Microloan Technical Assistance grants. The Small Business Jobs Act of 2010 provided SBDCs an additional $50 million and temporarily waived SBDC, Microloan Technical Assistance, and WBC matching requirements. Similar proposals have been made to address the COVID-19 pandemic. For example, S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, would provide an additional $150 million for SBA’s entrepreneurial development programs, including $40 million for SBDCs, $18.75 for WBCs, $1 million to SCORE, and $50 million for Microloan Technical Assistance grants. The bill also would waive SBDC, Microloan Technical Assistance, and WBC grant matching requirements. The CARES Act appropriates $265 million for entrepreneurial development programs ($192 million for SBDCs, $48 million for WBCs, and $25 million for SBA resource partners to provide online information and training). The act also waives SBDC and WBC matching requirements.

SCORE (Service Corps of Retired Executives), “About SCORE,” Washington, DC, https://www.score.org/about- score. 109 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 89. 108

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Congress could require the SBA’s resource partners to report to the SBA both output and outcome performance data for these grants and to require the SBA to report that information to Congress and make that information available to the public on the SBA website.

SBA CONTRACTING PROGRAMS110 Overview Federal agencies are required to facilitate the maximum participation of small businesses as prime contractors, subcontractors, and suppliers. For example, federal agencies are generally required to reserve contracts that have an anticipated value greater than the micro-purchase threshold (currently $10,000), but not greater than the simplified acquisition threshold (currently $250,000) exclusively for small businesses unless the contracting officer is unable to obtain offers from two or more small businesses that are competitive with market prices and the quality and delivery of the goods or services being purchased.111 Several SBA 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., contracting technical training assistance and oversight of the federal small business goaling program and the Surety Bond Guarantee program).112

110

For additional information and analysis concerning SBA contracting programs, see CRS Report R45576, An Overview of Small Business Contracting, by Robert Jay Dilger. 111 15 U.S.C. §644(j)(1). Certain regulations implementing this provision of the Small Business Act effectively narrows its scope. For example, certain small business contracts awarded or performed overseas are not necessarily required to be set aside for small businesses, and the small business provisions contained in Part 19 of the Federal Acquisition Regulation (FAR) generally do not apply to blanket purchase agreements and orders placed against Federal Supply Schedule contracts. 112 For additional information and analysis concerning the SBA’s Surety Bond Program, see CRS Report R42037, SBA Surety Bond Guarantee Program, by Robert Jay Dilger.

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8(a) Program113 The SBA’s 8(a) Minority Small Business and Capital Ownership Development Program provides business development assistance to businesses owned and controlled by persons who are socially and economically disadvantaged, have good character, and demonstrate a potential for success.114 Although the 8(a) Program was originally established in the 1980s for the benefit of disadvantaged individuals, Congress expanded the program to include small businesses owned by four disadvantaged groups. Small businesses owned by Alaska Native Corporations (ANCs), Community Development Corporations (CDCs), Indian tribes, and Native Hawaiian Organizations (NHOs) are also eligible to participate in the 8(a) Program under somewhat different requirements. Federal agencies are authorized to award contracts for goods or services, or to perform construction work, to the SBA for subcontracting to 8(a) firms. The SBA is authorized to delegate the function of executing contracts to the procuring agencies and often does so. Once the SBA has accepted a contract for the 8(a) Program, the contract is awarded through either a restricted competition limited to just 8(a) participants (a set aside) or on a sole source basis, with the contract amount generally determining the acquisition method used. For individually owned small businesses, when the contract’s anticipated total value, including any options, is less than $4 million ($7 million for manufacturing contracts), the contract is normally awarded without competition (as a sole source award). In contrast, when the contract’s anticipated value exceeds these thresholds, the contract generally must be awarded via a set aside with competition limited to 8(a) firms so long as there is a reasonable expectation that at least two eligible

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For additional information and analysis concerning the 8(a) Program, see CRS Report R44844, SBA’s “8(a) Program”: Overview, History, and Current Issues, by Robert Jay Dilger. 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.

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and responsible 8(a) firms will submit offers and the award can be made at fair market price.115 Similar to other participants, firms owned by ANCs, CDCs, NHOs, and Indian tribes are eligible for 8(a) set asides and may receive sole source awards valued at less than $4 million ($7 million for manufacturing contracts). However, firms owned by ANCs and Indian tribes can also receive sole source awards in excess of $4 million ($7 million for manufacturing contracts) even when contracting officers reasonably expect that at least two eligible and responsible 8(a) firms will submit offers and the award can be made at fair market price.116 NHO-owned firms may receive sole source awards from the Department of Defense under the same conditions.117 The 8(a) program is designed to help federal agencies achieve their statutory goal of awarding at least 5% of their federal contracting dollars to small disadvantaged businesses. In FY2018, the federal government awarded $29.5 billion to 8(a) firms.

Historically Underutilized Business Zone Program118 The SBA oversees the Historically Underutilized Business Zones (HUBZones) Program. The program assists small businesses located in HUBZone-designated areas through set asides, sole source awards (so long 15 U.S.C. §637(a)(1)(D)(ii); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small Business Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018. 116 P.L. 100-656, §602(a), 102 Stat. 3887-88 (November 15, 1988) (codified at 15 U.S.C. §637 note); and 48 C.F.R. §19.805-1(b)(2). 117 DOD’s authority to make sole source awards to NHO-owned firms of contracts valued at more than $4 million ($7 million for manufacturing contracts) even if contracting officers reasonably expect that offers will be received from at least two responsible small businesses existed on a temporary basis in 2004-2006 and became permanent in 2006. See P.L. 109148, Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act of 2006, §8020, 119 Stat. 2702-03 (December 30, 2005); 48 C.F.R. §219.805-1(b)(2)(A)-(B). 118 For additional information and analysis, see CRS Report R41268, Small Business Administration HUBZone Program, by Robert Jay Dilger. 115

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as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million, or $7 million for manufacturing contracts) and price evaluation preferences (of up to 10%) in full and open competitions.119 The HUBZone program targets assistance to small businesses located in areas with low income, high poverty, or high unemployment.120 To be certified as a HUBZone small business, at least 35% of the small business’s employees must generally reside in a HUBZone. The HUBZone contracting program is designed to help federal agencies achieve their statutory goal of awarding at least 3% of their federal contracting dollars to HUBZone small businesses. In FY2018, the federal government awarded $9.8 billion to HUBZonecertified small businesses.

Service-Disabled Veteran-Owned Small Business Program The SBA oversees the Service-Disabled Veteran-Owned Small Business (SDVOSB) Program. The program allows agencies to set aside contracts for SDVOSBs. Federal agencies may award sole source contracts to SDVOSBs so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million ($6.5 million for manufacturing contracts).121 For purposes of this program, veterans with service- related disabilities are defined as they are under the statutes governing veterans affairs.122 15 U.S.C. §657a(b)(2-3); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small Business Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018. 120 For specific criteria, see 15 U.S.C. §632(p)(4); and 13 C.F.R. §126.103. 121 15 U.S.C. §657f(a-b); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small Business Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018. 122 38 U.S.C. §8127(f). 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 P.L. 109-461, the Veterans Benefits, Health Care, and Information Technology Act of 2006, as amended by P.L. 110-389, the Veterans’ Benefits Improvements Act of 2008. 119

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The SDVOSB contracting program is designed to help federal agencies achieve their statutory goal of awarding at least 3% of their federal contracting dollars to SDVOSBs. In FY2018, the federal government awarded $22.5 billion to SDVOSBs.

Women-Owned Small Business Program The SBA oversees the Women-Owned Small Businesses (WOSB) Program. Under this program, federal contracting officers may set aside federal contracts (or orders) for WOSBs and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) in industries in which the SBA determines WOSBs are substantially underrepresented in federal procurement. Federal contracting officers can also set aside federal contracts for EDWOSBs exclusively in industries in which the SBA determines WOSBs are underrepresented in federal procurement. The WOSB Program is designed to help federal agencies achieve their statutory goal of awarding at least 5% of their federal contracting dollars to WOSBs. Federal agencies may award sole source contracts to WOSBs so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million ($6.5 million for manufacturing contracts).123 In FY2018, the federal government awarded $23.4 billion to WOSBs.

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15 U.S.C. §637(m); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small Business Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018.

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SBA Surety Bond Program124 The SBA’s Surety Bond Guarantee Program has been operational since April 1971.125 It is designed to increase small business’ access to federal, state, and local government contracting, as well as private sector contracting, by guaranteeing bid, performance, payment, and specified ancillary bonds “on contracts … for small and emerging contractors who cannot obtain bonding through regular commercial channels.”126 The program guarantees individual contracts of up to $6.5 million, and up to $10 million for federal contracts if a federal contracting officer certifies that such a guarantee is necessary. The $6.5 million limit is periodically adjusted for inflation.127 The SBA’s guarantee currently ranges from 80% to 90% of the surety’s loss if a default occurs. In FY2019, the SBA guaranteed 9,905 bid and final surety bonds (a payment bond, performance bond, or both a payment and performance bond) with a total contract value of nearly $6.5 billion.128 A surety bond is a three-party instrument between a surety (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 For additional information and analysis concerning the SBA’s Surety Bond Program, see CRS Report R42037, SBA Surety Bond Guarantee Program, by Robert Jay Dilger. 125 P.L. 91-609, the Housing and Urban Development Act of 1970; and U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Small Business Legislation - 1974, hearing on S. 3137 and S. 3138, 93rd Cong., 2nd sess., March 13, 1974 (Washington: GPO, 1974), p. 19. 126 SBA, “FY2016 Congressional Budget Justification and FY2014 Annual Performance Report,” p. 44, https://www.sba.gov/sites/default/files/1FY%202016%20CBJ%20FY%202014%20APR.PDF. An ancillary bond, which ensures that requirements integral to the contract, but not directly performance related, are performed, is eligible if it is incidental and essential to a contract for which SBA has guaranteed a 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. 127 P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, increased the program’s guarantee limit from $2.0 million to $6.5 million, and up to $10 million for a federal contract if certified. The act also includes a provision to increase the $6.5 million limit periodically for inflation “by striking ‘does not exceed’ and all that follows through the period at the end, and inserting ‘does not exceed $6,500,000,’ as adjusted for inflation in accordance with section 1908 of title 41, United States Code.” That section of the U.S. Code provides for an inflation adjustment on October 1 of each year evenly divisible by five. 128 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, January 14, 2020. 124

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contract’s terms and conditions. If the contractor is unable to successfully perform the contract, the surety assumes the contractor’s responsibilities and ensures that the project is completed. Surety bonds encourage project owners to contract with small businesses that may not have the credit history or prior experience of larger businesses and may be at greater risk of failing to comply with the contract’s terms and conditions. Surety bonds are important to small businesses interested in competing for federal contracts because the federal government requires prime contractors—prior to the award of a federal contract exceeding $150,000 for the construction, alteration, or repair of any building or public work of the United States—to furnish a performance bond issued by a surety satisfactory to the contracting officer in an amount that the officer considers adequate to protect the government.

Current Issues, Debates and Lessons Learned Congress included enhancements for small business contracting in both ARRA (increased funding and higher maximum bond amounts for the SBA Surety Bond program) and the Small Business Jobs Act of 2010 (new restrictions on the consolidation or bundling of contracts that make it more difficult for small businesses to be awarded the contract). The CARES Act authorizes federal agencies to modify a contract’s terms and conditions to reimburse contractors—at the minimum billing rate not to exceed an average of 40 hours per week—for any paid leave (including sick leave) the contractor provides to keep its employees or subcontractors in a ready state through September 30, 2020. Eligible contractors are those whose employees or subcontractors cannot perform work on a federally-approved site due to facility closures or other restrictions because of COVID-19 and cannot telework because their job duties cannot be performed remotely.

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CONCLUDING OBSERVATIONS In response to the Great Recession, Congress took a number of actions to enhance small businesses’ access to capital, management and training programs, and contracting opportunities. The goal then, as it is now, was to provide small businesses with the resources necessary to survive the economic downturn and retain or create jobs. Some of the CARES Act’s provisions (e.g., fee waivers, increased loan limits, and increased guarantee percentages) were used in legislation passed during the 111th Congress to address the severe economic slowdown during and immediately following the Great Recession (2007-2009). The main difference between that legislation and the CARES Act is that the CARES Act includes loan deferrals, loan forgiveness, and greatly expanded eligibility, including, for the first time, specified types of nonprofit organizations. The CARES Act’s inclusion of loan deferral and forgiveness is, at least partly, due to the unique economic dislocations and reduction in consumer spending resulting from individuals and households engaging in physical distancing to avoid COVID-19 infection. As mentioned, because COVID-19’s adverse economic impact is so widespread, including productivity losses, supply chain disruptions, labor dislocation, and financial pressure on businesses and households, there has been relatively little concern expressed about federal fiscal restraint during the current pandemic. The debate has been primarily over which specific policies would have the greatest impact and which types of small businesses and small business owners should be helped the most. Among the lessons learned from the 111th Congress is the potential benefits that can be derived from providing additional funding for the SBA’s Office of Inspector General and the Government Accountability Office. GAO and the SBA’s OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA’s administration of the CARES Act, provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud.

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Requiring the SBA to report regularly on its implementation of the CARES Act could also promote transparency and assist Congress in performing its oversight responsibilities. In addition, requiring output and outcome performance measures and requiring the SBA to report this information directly to both Congress and the public by posting that information on the SBA’s website could enhance both congressional oversight and public confidence in the SBA’s efforts to assist small businesses.

APPENDIX. MAJOR PROVISIONS OF THE CARES ACT, THE PAYCHECK PROTECTION PROGRAM AND HEALTH CARE ENHANCEMENT ACT, AND THE HEROES ACT The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) 

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established a Paycheck Protection Program (PPP) to provide “covered loans” with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses and other organizations adversely affected by the Coronavirus Disease 2019 (COVID-19). The SBA announced that PPP loans will have a two-year term at a 1.0% interest rate; defines a covered loan as a loan made to an eligible recipient from February 15, 2020, through June 30, 2020; waives the up-front loan guarantee fee and annual servicing fee, the no credit elsewhere requirement, and the requirements for collateral and a personal guarantee for a covered loan; expands eligibility for a covered loan to include 7(a) eligible businesses and any business, 501(c)(3) nonprofit organization, 501(c)(19) veteran’s organization, or tribal business not currently eligible that has not more than 500 employees or, if applicable, the SBA’s size standard in number of employees for the industry in

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which they operate. Sole proprietors, independent contractors, and eligible self- employed individuals are also eligible to receive a covered loan;129 increases the maximum loan amount for a covered loan to the lesser of (1) 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the one-year period before the date on which the loan is made plus the outstanding balance of any 7(a) loan (made on or after January 31, 2020) that is refinanced as part of a covered loan, or (2) $10 million; allows borrowers to refinance 7(a) loans (made on or after January 31, 2020) as part of a covered loan; specifies that covered loans are nonrecourse (meaning that the SBA cannot pursue collections actions against the recipient(s) in the case of nonpayment) except to the extent that the covered loan proceeds are used for nonauthorized purposes; allows covered loans to be used for payroll costs, costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums, employee salaries, commissions, or similar compensations, mortgage payments, rent, utilities, and interest on any other debt obligations that were incurred before the covered period; expands lender delegated loan approval authority for making covered loans to all 7(a) lenders to expedite PPP loan processing; requires lenders, when evaluating borrower eligibility for a covered loan, to consider whether the borrower was in operation on February 15, 2020, had employees for whom the borrower paid salaries and payroll taxes, and paid independent contractors;

For purposes of determining not more than 500 employees, the term employee includes individuals employed on a full-time, part-time, or other basis. Also, special eligibility considerations are provided for certain businesses and organizations. For example, businesses operating in NAICS Sector 72 (Accommodation and Food Services industry) that employ not more than 500 employees per physical location are also eligible for a covered loan. Affiliation rules are also waived for: (1) NAICS Sector 72 businesses, (2) franchises, and (3) SBIC-owned businesses. In other words, these businesses would not be denied a covered loan solely because they employ more than 500 employees across multiple businesses under common ownership.

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requires borrowers to, among other acknowledgements, o make a good faith certification that the covered loan is needed because of the uncertainty of current economic conditions and to support ongoing operations, and o acknowledge that the funds will be used to retain workers, maintain payroll, or make mortgage payments, lease payments, and utility payments; requires lenders to provide “impacted borrowers” adversely affected by COVID-19 “complete payment deferment relief”130 on a covered PPP loan for not less than six months and not more than one year if the borrower was in operation on February 15, 2020, and has an application for a covered loan approved or pending approval on or after the date of enactment. The SBA announced that covered loan payments will be deferred for six months. However, interest will continue to accrue on these loans during the six-month deferment;131 presumes that each eligible recipient that applies for a PPP loan is an impacted borrower and authorizes the SBA Administrator to purchase covered loans sold on the secondary market so that affected borrowers may receive a deferral for not more than one year. The SBA has announced that the deferment relief on covered loans will be for six months; provides for the forgiveness of covered loan amounts equal to the amount the borrower spent during an 8-week period after the loan’s origination date on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. The amount of loan forgiveness cannot exceed the covered loan’s principal amount. The forgiveness is reduced proportionally by

According to the bill text, “complete deferment relief” includes payment of principal, interest, and fees. 131 SBA, “Business Loan Program Temporary Changes; Paycheck Protection Program,” 85 Federal Register 20813, April 15, 2020. 130

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formulas related to the borrower’s retention of full-time equivalent employees compared to the borrower’s choice of either: (1) the period beginning on February 15, 2019, and ending on June 30, 2019, or (2) January 1, 2020, and February 29, 2020; and by the amount of any reduction in pay of any employee beyond 25% of their salary or wages during the most recent full quarter before the covered period.132 Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Cancelled debt resulting from loan forgiveness would not be included in the borrower’s taxable federal income; The SBA has announced that due to likely high subscription, at least 75% of the forgiven loan amount must have been used for payroll;133 requires the SBA to pay the principal, interest, and any associated fees that are owed on an existing 7(a), 504/CDC, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due. Loans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. Loans made up until six months after enactment will also receive a full six months of SBA loan payments; requires federal banking agencies or the National Credit Union Administration Board applying capital requirements under their respective risk-based capital requirements to provide a covered loan with a 0%-risk weight; increases the SBA’s lending authorization under Section 7(a) of the Small Business Act from $30 billion to $349 billion during the covered period;

For the purposes of the reduction formula, reductions in employees with wages or salary at an annualized rate of pay more than $100,000 are not taken into account. Businesses may also receive forgiveness amounts for additional wages paid to tipped employees. 133 SBA, “Business Loan Program Temporary Changes; Paycheck Protection Program,” 85 Federal Register 20813-20814, April 15, 2020.

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increases the SBAExpress loan limit from $350,000 to $1 million (reverts to $350,000 on January 1, 2021); permanently eliminates the zero subsidy requirement to waive SBAExpress loan fees for veterans; appropriates $349 billion for loan guarantees and subsidies (remaining available through FY2021), $675 million for the SBA’s salaries and expenses account, $25 million for the SBA’s Office of Inspector General (OIG), $265 million for entrepreneurial development programs ($192 million for SBDCs, $48 million for WBCs, and $25 million for SBA resource partners to provide online information and training), $17 billion for subsidies for certain loan payments, and $10 million for the Department of Commerce’s Minority Business Development Agency; allows the period of use of FY2018 and FY2019 grant awards made under the State Trade Expansion Program (STEP) through FY2021; reimburses (up to the grant amount received) STEP award recipients for financial losses relating to a foreign trade mission or a trade show exhibition that was cancelled solely due to a public health emergency declared due to COVID-19; waives SBDC and WBC matching requirements; requires federal agencies to continue to pay small business contractors and revise delivery schedules, holding small contractors harmless for being unable to perform a contract due to COVID-19 caused interruptions until September 2021; requires federal agencies to promptly pay small business prime contractors and requires prime contractors to promptly pay small business subcontractors within 15 days, notwithstanding any other provision of law or regulation, for the duration of the President invoking the Defense Production Act in response to COVID-19; and provides SBA Emergency Injury Disaster Loan (EIDL) enhancements during the covered period of January 31, 2020, through December 31, 2020, including

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expanding eligibility beyond currently eligible small businesses, private nonprofit organizations, and small agricultural cooperatives, to include startups, cooperatives, and eligible ESOPs (employee stock ownership plans) with not more than 500 employees, sole proprietors, and independent contractors; authorizing the SBA Administrator, in response to economic injuries caused by COVID-19, to o waive the no credit available elsewhere requirement, o approve an applicant based solely on their credit score, o not require applicants to submit a tax return or tax return transcript for approval, o waive any rules related to the personal guarantee on advances and loans of not more than $200,000, o waive the requirement that the applicant needs to be in business for the one-year period before the disaster declaration, except that no waiver may be made for a business that was not in operation on January 31, 2020; authorizing the SBA Administrator, through December 31, 2020, to provide up to $10,000 as an advance payment in the amount requested within three days after receiving an EIDL application from an eligible entity. Applicants are not required to repay the advance payment, even if subsequently denied an EIDL loan. The funds may be used for any eligible EIDL expense, including, among other expenses, providing paid sick leave to employees unable to work due to COVID-19, maintaining payroll to retain employees, and meeting increased costs to obtain materials due to supply chain disruptions. The SBA limited EIDL-advance payments to $1,000 per employee, up to a maximum of $10,000; and appropriating an additional $10 billion for EIDL assistance.

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increases the SBA’s lending authorization under Section 7(a) of the Small Business Act from $349 billion during the covered period to $659 billion; requires that no less than $30 billion of this authorization amount be set aside for loans issued by insured depository institutions and credit unions with consolidated assets of $10 billion to $50 billion; requires that no less than $30 billion of this authorization amount be set aside for loans issued by community financial institutions (including community development financial institutions (CDFIs), minority depository institutions, SBA-certified development companies, and SBA microloan intermediaries), and insured depository institutions and credit unions with consolidated assets less than $10 billion; increases the PPP appropriation amount from $349 billion to $670.335 billion; appropriates an additional $50 billion for EIDL loans; appropriates an additional $10 billion for Emergency EIDL grants; appropriates an additional $2.1 billion for the SBA’s salaries and expenses account (to remain available until September 30, 2021); and provides agricultural enterprises eligibility for Emergency EIDL grants and EIDL loans during the covered period (January 31, 2020 through December 31, 2020).

The Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act; H.R. 6800) H.R. 6800, would, among other provisions

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expand the PPP loan covered period from June 30, 2020, to December 31, 2020; extend PPP eligibility to all 501(c) nonprofit organizations of all sizes; establish a minimum PPP loan maturity of five years; require, as of the date of enactment, that 25% of existing PPP funds be issued to small businesses with 10 or fewer employees; 25% of existing funds be issued to nonprofit organizations, with at least half of this amount going to nonprofit organizations with not more than 500 employees; and the lesser of 25% of existing PPP funds or $10 billion be issued to community financial institutions, such as Community Development Financial Institutions (CDFIs), SBA microloan intermediaries, and SBA-certified development companies; establish technical assistance grants for small community financial institutions with assets of less than $10 billion; bifurcate the SBA’s lending authority for the 7(a) and PPP programs; increase the SBA’s 7(a) loan authorization amount from $30 billion to $75 billion for FY2020; provide SCORE and veterans business outreach centers eligibility for $10 million each from the CARES Act’s $265 million entrepreneurial development resource partners grant program; amend the PPP loan forgiveness by extending the 8-week period to the earlier of 24 weeks or December 31, 2020, mandate loan forgiveness data collection and reporting, and eliminate the 75%/25% rule on the use of loan proceeds; provide borrowers a “safe harbor” from the loan forgiveness rehiring requirement if the borrower is unable to rehire an individual who was an employee of the recipient on or before February 15, 2020, or if the borrower can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020;

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allow certain previously incarcerated individuals to be approved for PPP and SBA disaster loans; temporarily increase, for FY2020, the 7(a) loan program guaranty from up to 75% for loans with an outstanding loan balance exceeding $150,000, and 85% for loans with an outstanding loan balance of $150,000 or less, to 90% of the outstanding loan balance; temporarily increase, through December 31, 2020, the SBAExpress loan guaranty from not more than 50% of the outstanding loan balance to not more than 90% of the outstanding loan balance on loans up to $350,000, and not more than 75% of the outstanding loan balance on loans greater than $350,000; temporarily reduce, for FY2020, 7(a) and 504/CDC fees to the maximum extent possible given available appropriations; temporarily increase, for FY2020, the maximum 7(a) loan amount from $5 million to $10 million and the maximum 504/CDC loan amount from $5.5 million to $10 million; and permanently increase the 504/CDC maximum loan amount for small manufacturers from $5.5 million to $10 million; eliminate the exception in the CARES Act preventing taxpayers who receive PPP loan forgiveness from delaying the payment of employer payroll taxes; authorize, for each of FY2021-FY2025, $80 million for Microloan technical assistance grants and $110 million for Microloan; and authorize to be appropriated during FY2020, to remain available until expended, $50 million for Microloan technical assistance grants and $7 million for Microloans; appropriate $500 million for fee reductions and guaranty and maximum loan amount increases; and appropriate $10 billion for Emergency EIDL grants.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 7

BUSINESS INTERRUPTION INSURANCE AND COVID-19: STATE LEGISLATIVE INITIATIVES Diane P. Horn and Baird Webel One of the most significant challenges currently facing businesses is the loss of revenue as a result of the coronavirus (COVID-19) pandemic and subsequent stay-at-home orders. Businesses across all sectors are incurring losses, and those with business interruption insurance (BI) are submitting claims to their insurers. However, both individual insurance carriers and the industry as a whole have asserted that BI claims related to COVID-19 are not covered, either because there has been no physical damage to the property or because the policy expressly excludes coverage for viruses, or both. Insurance companies are regulated by states; the role of the federal government in regulating private insurance (other than health insurance) is more limited. 

This is an edited, reformatted and augmented version of Congressional Research Service Publication No. IN11382, dated May 11, 2020.

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Given the likelihood that many COVID-19 losses will not be covered by BI insurance, many small businesses have requested that their elected representatives intervene through legislation to require their claims to be paid, and a number of state lawmakers have drafted legislation to compel coverage. Legislators in at least eight states have introduced bills, with others considering legislation, to require insurers to provide retroactive BI coverage for coronavirus-related losses even if coverage under the policies otherwise would not be triggered. The state BI bills have certain features in common, requiring insurers with in-force BI policies or property insurance policies to cover BI losses during a defined period of a declared emergency due to COVID-19, retroactive to the date when the state of emergency was declared. The claims payment would initially come from insurers, but the proposals vary in the extent to which insurance companies or the government would ultimately fund those payments. Most of these bills would apply only to small businesses.

INSURERS REIMBURSED FOR PAYING BI CLAIMS FOR POLICIES WITH VIRUS EXCLUSIONS New Jersey A-3844, New York A.10226-B, New York S.8178, New York S.8211, Ohio H.B. 589, and Pennsylvania H.B.2372 would require insurers to pay BI claims even if the policy expressly excludes losses due to viruses. Insurers would pay the claims and apply to the state insurance regulator for reimbursement, who would impose a special purpose assessment on all insurers to recover costs of reimbursement. Reimbursement would be distributed to companies which paid BI claims according to the proportion of net premiums written by the company. New York A.10226 and New York S.8211 would nullify any exclusion clauses in an insurance policy, including but not limited to loss of use and occupancy and business interruption, which allows the insurer to deny coverage for a virus, bacterium, or other microorganism. Ohio H.B.589

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would create a Business Interruption Insurance Fund, and any amount remaining in the Fund after claims are reimbursed would be returned to insurers.

INSURERS REIMBURSED FOR PAYING BI CLAIMS FOR POLICIES WITH VIRUS EXCLUSIONS OR REQUIREMENT FOR EVIDENCE OF PHYSICAL DAMAGE Massachusetts S.D.2888, South Carolina S.1188, and Washington, DC, B23-750 would require insurers to pay BI claims for losses caused directly or indirectly by COVID-19, including all mutated forms of the virus, even if the policy expressly excludes losses due to viruses and/or requires evidence of physical damage. The South Carolina and Washington, DC bills would apply to orders issued by any civil authority. The Washington, DC bill would only apply to businesses with fewer than 50 employees and less than $2.5 million in federal gross receipts or sales. All three bills would require insurers to pay the claims and apply for reimbursement from the state regulator. The state regulator would be authorized to make one or more special assessments in each fiscal year on all insurers to recover the amounts paid to insurers, who would be reimbursed according to the proportion of net premiums written by the company. In Massachusetts, noncompliant insurers could be subject to penalties under state law regulating unfair practices in the insurance industry.

INSURERS NOT REIMBURSED FOR PAYING BI CLAIMS Louisiana H.B.858 and Louisiana S.B.477 would require insurers to pay BI losses to businesses with BI policies in force, even if the policy expressly excludes losses due to viruses. Louisiana S.B.477 does not specify a business size. Michigan H.B.5739 would require insurers to pay

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all BI claims due to the coronavirus. None of these bills contain any provision for reimbursing insurers. Pennsylvania S.1114 would require insurers to pay BI losses to businesses with BI policies in force, even if the policy expressly excludes losses due to viruses or due to civil authority orders and/or requires evidence of physical damage. Policyholders classified as small businesses according to the criteria of the Small Business Administration would receive 100% of the policy limit for eligible claims for covered losses, while policyholders not classified as a small business would receive 75% of the policy limit. The bill would apply to insurance companies providing coverage against business interruption or loss or damage to property, including the loss of use and occupancy. The bill defines property damage as damage including, but not limited to the presence of a person positively identified as having been infected with COVID-19: (1) in the property; (2) in the municipality in which the property is located; or (3) in the Commonwealth of Pennsylvania. The bill does not contain any provision for reimbursing insurers.

BUSINESS INTERRUPTION CLAIMS PAID BY THE STATE Pennsylvania H.B. 2386 would establish a COVID-19 Business Interruption Grant Program to provide grants to businesses that have been impacted by COVID-19 and whose BI claim has been denied. Funding for the grant would be appropriated by the state from the general fund. If a business receives a grant, it would be required to remain open and not lay off any employees for the duration of the COVID-19 disaster emergency. Any business which receives a grant and does not comply with these requirements would be required to repay the amount of the grant plus an additional 10%.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 8

SBA PAYCHECK PROTECTION PROGRAM (PPP) LOAN FORGIVENESS: IN BRIEF Sean Lowry The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the Small Business Administration (SBA) Paycheck Protection Program (PPP) to provide short-term loans to certain small business and nonprofits. Congress initially authorized $349 billion for SBA 7(a) loans, including PPP loans. Lending began on April 3, 2020, and the initial authorization was exhausted by April 16. On April 24, 2020, Congress authorized another $310 billion ($659 billion total) for 7(a) loans—including PPP loans—in the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116139). PPP loans used for payroll expenses and for specified nonpayroll operating costs paid or incurred during an eight-week “covered period” can be forgiven if the borrower meets certain payroll and employment retention 

This is an edited, reformatted and augmented version of Congressional Research Service Publication No. R46397, dated June 5, 2020.

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criteria. Based on previous regulations, not more than 25% of the loan forgiveness amount may be attributable to nonpayroll costs.1 Borrowers who received the earliest PPP loans can file for forgiveness as soon as May 29, 2020. On May 18, 2020, SBA released the first version of the borrower’s application for PPP forgiveness.2 On May 22, 2020, SBAissued an Interim Final Rule (IFR) on PPP forgiveness.3 This In Brief report discusses statutes, regulations, and agency guidance relevant to the PPP loan forgiveness process and determination. Asummary of the Paycheck Protection Program Flexibility Act (H.R. 7010) is also provided. H.R. 7010 was passed by the House on May 28, 2020, and the Senate on June 3, 2020, and is to be presented to the President.

PPP FORGIVENESS PROVISIONS AND PROCESS The PPP loan forgiveness process is summarized and key terms are defined below, followed by an explanation of situations in which loan forgiveness amounts may be reduced.4

Forgiveness Application Process According to the IFR, borrowers must complete the SBA application (or a lender equivalent) for PPP forgiveness and submit it to their lender, Small Business Administration (SBA) and Department of the Treasury (Treasury), “Interim Final Rule - Business Loan Program Temporary,” 85 Federal Register 20811, April 15, 2020, at https://home.treasury.gov/system/files/136/ PPP—IFRN%20FINAL.pdf. 2 SBA, “Paycheck Protection Program – Loan Forgiveness Application,” at https:// home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-ForgivenessApplication.pdf. 3 SBA and Treasury, “ Interim Final Rule - Business Loan Program Temporary,” 85 Federal Register 33004, June 1, 2020. Hereinafter referred to as the “IFR.” 4 The CARES Act gives private lenders “delegated authority” to issue PPP loans. These lenders (e.g., banks, credit unions, community financial institutions) have enrolled with SBA to issue PPP loans (or SBA loans, generally). SBA is not issuing the loans directly to borrowers. 1

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who is to then make a decision on the application within 60 days after submission.5 If the lender determines that the borrower is entitled to some or all of the applied forgiveness amount, then the lender must request payment from the SBA. SBA is to review all loans in excess of $2 million following the lender’s submission of the borrower’s loan forgiveness application.6 Data on loans approved through May 30, 2020, indicate that less than 1% of all loans were larger than $2 million, representing slightly more than 20% of loan amounts.7 SBA is to then remit the appropriate forgiveness amount to the lender, plus any interest accrued through the payment date, no later than 90 days after the lender issues its decision to SBA. The borrower must repay any amount not forgiven within the PPP loan’s two-year maturity period.

Payroll Costs According to the IFR, generally only payroll costs paid or incurred during the eight-week (56 consecutive days) “covered period” are eligible for forgiveness. Borrowers can consistently apply one of two start dates: (1) the date that their lender disbursed their PPP loan or (2) the first day of their first payroll cycle in the covered period (termed the “alternative payroll covered period”).8 There is an exception for payroll costs incurred during the borrower’s last pay period of the covered period, which are

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According to the PPP Forgiveness application, borrowers must retain documentation for six years after the loan is forgiven and make it available to the SBA or its Office of Inspector General upon request. 6 SBA may also review other smaller loans as it deems appropriate, following the lender’s submission for loan forgiveness. During a review process, SBA could choose to review the initial PPP loan application, forgiveness application, or both. (In addition, borrowers may request that SBA review the lender’s forgiveness decision.) See FAQ #39 in SBA, “Paycheck Protection Program Frequently Asked Questions,” at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-FrequentlyAsked-Questions.pdf. 7 SBA, “Paycheck Protection Program Loan Report (Approvals through 5/30/2020),” at https://www.sba.gov/sites/ default/files/2020-06/PPP_Report_200530-508.pdf. 8 According to the IFR, payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an automated clearing house (ACH) credit transaction.

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eligible for forgiveness only if paid on or before the next regular payroll date. This is intended for the borrower’s administrative convenience.9 Compensation to furloughed employees, even if they are not performing their day-to-day functions, is considered a “payroll cost” eligible for forgiveness. No more than $15,385 in cash compensation per individual during the covered period is eligible for forgiveness ($100,000 prorated for eight weeks). Noncash compensation, such as retirement or health plan contributions, is not subject to this limitation.10 Self-employed individuals (e.g., sole proprietors, independent contractors) are limited to forgiveness based on their positive net profit or earnings amounts from their 2019 federal income tax filings.11 The SBA has labeled this as “owner compensation replacement.”

Nonpayroll Costs Nonpayroll costs eligible for forgiveness include payments for the following expenses: 1. interest on any business mortgage obligation on real or personal property, 2. business rent obligations on real or personal property under a lease agreement, and 3. business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access.12

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The IFR is silent on cases in which a business incurred an eligible cost before the covered period but made a payment within the covered period. 10 See FAQ #37 in SBA, “Paycheck Protection Program Frequently Asked Questions,” at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-FrequentlyAsked-Questions.pdf. 11 CRS Insight IN11341, SBA’s Paycheck Protection Program (PPP) Loans and SelfEmployed Individuals, by Sean Lowry. 12 Advance interest payments (prepayment) on a covered mortgage or loan principal payments are not eligible for forgiveness.

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Eligible expenses must have been incurred, in force, or in service as of February 15, 2020. No more than 25% of the loan forgiveness amount can be attributed to nonpayroll costs. Nonpayroll costs are eligible for forgiveness if they were paid during the covered period, or incurred during the covered period and paid on the next regular billing date. If a billing cycle covers a period within and outside of the covered period, only the portion of the payment attributed to costs incurred during the covered period is eligible for forgiveness.

Reductions in Forgiveness Under Section 1106 of the CARES Act, forgiveness for borrowers’ PPP-eligible expenses during the covered period is to be reduced if they reduce employment or employee compensation by certain amounts. Specifically, the CARES Act reduces the forgiven amount if a borrower (1) reduces its full-time equivalent (FTE) employees, or (2) reduces the amount of compensation paid to certain FTE employees by more than 25% below levels in a reference period.13 There is also a “safe harbor” provision that overrides the two-prong forgiveness formula calculation if the borrower “cures” any reductions in FTE employees and compensation reductions in excess of 25% by June 30, 2020. This is commonly referred to as the “rehiring provision.” Reducing loan forgiveness means borrowers would have to repay some or all of their original PPP loan amount.

Calculating Full-Time Equivalent Employees If the average number of FTE employees during the covered period is less than during the reference period, then the forgiveness amount is reduced proportionately. For example, if an employer had an average of 100 FTE employees in its reference period and 80 FTE employees during 13

Borrowers have the following options for their reference period: (1) February 15, 2019, through June 30, 2019; (2) January 1, 2020, through February 29, 2020; or (3) in the case of a seasonal employer, either of the two preceding methods or a consecutive 12week period between May 1, 2019, and September 15, 2019.

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the covered period, then it would be eligible for loan forgiveness on up to 80% (8/10) of its total eligible expenses (payroll and nonpayroll) during the covered period. The IFR defines an FTE as an employee who works 40 hours per week.14 FTE employee counts are determined on an aggregate basis, based on the hours of all employees on the borrower’s payroll divided by the number of employees. An employee working more than 40 hours per week is capped as counting as one FTE employee. For example, an employee who was paid 48 hours per week during the covered period would be considered to be 1.0 FTE employee. As an administrative convenience, employees who were paid for less than 40 hours per week may be counted in one of two ways: (1) based on the average hours worked per week, or (2) counting each part-time employee as 0.5 FTE employees. Borrowers must consistently apply their calculation methods across all employees.

Calculating Salaries and Wages A reduction in an employee’s salary or wages in excess of 25% will generally result in a reduction in the loan forgiveness amount. However, employees who earned more than $100,000 in 2019 are not taken into account for the compensation reduction part of the reduction formula. In other words, such employees may have their pay reduced by more than 25% without affecting the borrower’s forgiveness amounts. According to the IFR, the salary and wages reduction formula only applies to the decline in compensation that is not attributed to FTE employee reductions to prevent borrowers from being “doubly penalized” for FTE employee reductions. For example, an employee worked 40 hours per week during the reference period and was reduced to 20 hours per week during the covered period with no hourly wage reduction. Although

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Note that this is different than the 30 hour per week FTE employee definition and determination under the Affordable Care Act’s Employer Shared Responsibility Provision. See CRS Report R45455, The Affordable Care Act’s (ACA’s) Employer Shared Responsibility Provisions (ESRP), by Ryan J. Rosso.

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the employee earned half the compensation during the covered period, the employer’s forgiveness amount will only be reduced with respect to a reduction in FTE employees (from 1.0 to 0.5 FTE employees). Three other groups of employees do not affect a borrower’s forgiveness: 1. employees who were laid off or forced to reduce their hours, but then declined their employer’s subsequent offer to return to work or restore their previous schedules;15 2. employees who were fired for cause; and 3. employees who requested a schedule reduction. The borrower must make a good faith certification attesting to the above conditions and maintain various documentation (e.g., employeeemployer communications) outlined in the IFR.

PAYCHECK PROTECTION PROGRAM FLEXIBILITY ACT (H.R. 7010) This section summarizes the provisions of H.R. 7010 and discusses the potential effects of two of its features: (1) increasing the covered period and rehiring safe harbor, and (2) the forgiveness cap on nonpayroll expenses. H.R. 7010 would 

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increase the minimum maturity for PPP loans from two years (under SBA regulations) to five years for loans made on or after the date of enactment, giving borrowers more time to pay off any remaining loan balances (not forgiven) at the 1% interest rate;

According to the IFR, the offer must be for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours. For example, an employer cannot offer an employee compensation at half the employee’s previous pay rate or hours and qualify for the safe harbor.

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change the forgiveness covered period from eight weeks after the origination date to the sooner of 24 weeks or December 31, 2020;16 change the rehiring safe harbor deadline from June 30, 2020, to December 31, 2020; expand the three groups of employees in the IFR that do not affect a borrower’s forgiveness to account for instances in which a borrower could not rehire the same individual or a comparable individual, or is unable to return to its February 15, 2020, level of business activity due to compliance with COVID-19 related safety standards; increase the cap on PPP forgiveness that can be attributed to nonpayroll costs from 25% (under SBA regulations) to 40%; allow borrowers to elect for an eight-week covered period to apply for forgiveness; extend the PPP loan deferral period from 6 months (under SBAregulations) to the sooner of 10 months or the date on which the lender receives the amount of forgiveness determined; and allow PPP borrowers to defer employer payroll taxes even after obtaining PPP forgiveness.17

These changes, other than the five-year minimum loan term, would apply to all PPP loans (including those made prior to enactment). 16

A 24-week covered period for the earliest PPP loans (issued April 24, 2020) would end on September 18, 2020. 17 Section 2302 of the CARES Act allows employers and self-employed individuals to defer, or postpone, the employer share of the Social Security payroll tax through the end of 2020. Deferred tax liability can be paid in two installments: one due by December 31, 2021, and the second by December 31, 2022. The Social Security trust funds are not affected. See CRS Report R46279, The Coronavirus Aid, Relief, and Economic Security (CARES) Act—Tax Relief for Individuals and Businesses, coordinated by Molly F. Sherlock. Section 2302 prohibits taxpayers who obtain PPP forgiveness from also benefiting from deferral, though. Based on Internal Revenue Service (IRS) guidance, employers who obtain a PPP loan are able to defer their payroll taxes. However, “Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer ’s share of Social Security tax due after that date.” IRS, “Deferral of employment tax deposits and payments through December 31, 2020,” at https://www.irs.gov/newsroom/deferral-ofemployment-tax-deposits-and-payments-through- december-31-2020. H.R. 7010 would repeal the prohibition in Section 2302 of the CARES Act.

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Increasing the Covered Period and Delaying the Rehiring Deadline Proponents may argue that increasing the covered period and rehiring deadline would give businesses more time to wait until governmentimposed limitations on business operations are lifted, or until economic conditions improve. Then, borrowers could use their PPP loan amounts to meet business demand, rather than paying employees to stay on payroll even if they are not working. In addition, proponents of extending the forgiveness covered period may argue that under the June 30 deadline, some borrowers could rehire employees and restore compensation just to obtain forgiveness and then lay off these workers right after. In other words, the June 30 deadline could create a short-term incentive for borrowers to artificially inflate their payrolls to obtain loan forgiveness. They may also argue that more time could enable some borrowers to meet requirements that a certain percentage of the loan be used for payroll costs. Opponents may argue that these changes could delay paycheck assistance to workers and create uncertainty for borrowers. If borrowers are not obligated to spend their PPP funds earlier, then they may choose not to pay their workers. These workers may have to rely on unemployment payments, if they are eligible. Further, lengthening the forgiveness covered period could delay the forgiveness application process for small businesses.

Increasing the Cap on Nonpayroll Expenses Proponents may argue that increasing the SBA-imposed cap on nonpayroll expenses is warranted because some businesses might have higher nonpayroll costs, such as business facilities in high- rent areas. Other businesses might also have fewer employees, making it more difficult for them to meet the 25% nonpayroll cost limit. Opponents may argue that relaxing the requirement could reduce the amount of PPP proceeds used to maintain payroll for employees. However, it is unclear whether the 25%

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restriction encourages employers to retain employees throughout the covered period since businesses still may receive loan forgiveness as long as they restore FTE counts and compensation payments by the rehiring safe harbor deadline.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 9

SBA’S PAYCHECK PROTECTION PROGRAM (PPP) LOANS AND SELF-EMPLOYED INDIVIDUALS Sean Lowry To provide short-term, economic relief to certain small businesses and nonprofits, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) created the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP). On April 14, 2020, SBA issued an Interim Final Rule (IFR) detailing how the PPP will be applied in the case of self-employed individuals (e.g., sole proprietors and partnerships, with and without employees, and independent contractors). The IFR supplements SBA’s previously issued PPP rules and guidance that have been coordinated with the Department of the Treasury. This Insight describes PPP-related statutes, regulations, and guidance that apply to self-employed individuals.



This is an edited, reformatted and augmented version of Congressional Research Service Publication No. IN11341, dated April 16, 2020.

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ELIGIBILITY In addition to the general PPP eligibility criteria, self-employed individuals can apply for a PPP loan if 1. they were in operation on February 15, 2020; 2. they had self-employment income (e.g., an independent contractor or a sole proprietor); 3. their principal place of residence is in the United States; and 4. they have filed or will file a 2019 Form 1040 Schedule C. SBA is to issue additional guidance for those individuals with selfemployment income who (1) were not in operation in 2019 but were in operation on February 15, 2020, and (2) will file a Form 1040 Schedule C for 2020. Partners may not file separate PPP loan applications for themselves. Instead, the self-employment income of “general active partners” may be reported as a payroll cost, up to $100,000 annualized per person on a PPP loan application filed by or on behalf of the partnership. The April 14 IFR does not define a “general active partner,” but this term could be intended to distinguish between those who actively participate in the day-to-day management and business activities compared to a limited partner, who does not. Further, the April 14 IFR does not define “self-employment income” of general active partners with precise references to lines on partnership tax forms. Some tax practitioners have commented that partners should include the amount listed on line 14 (“Self-employment earnings”) of their Schedule K-1, Form 1065 for the purposes of “payroll costs.” Further guidance might be needed. As per regulations, independent contractors are not included in the PPP loans of other businesses (e.g., their clients or the business that provides them with work). Independent contractors must file their own PPP application. Additionally, self-employed individuals with more than one eligible business must roll all of their expenses into a single PPP loan application.

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LOAN AMOUNT CALCULATION Step 1 in the PPP loan calculation depends on whether or not the selfemployed individual has employees. 



For self-employed individuals with no employees, take the 2019 IRS Form 1040 Schedule C line 31 net profit amount (even if the individual has not yet filed a 2019 return, they must fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. For self-employed individuals with employees, compute 2019 payroll costs by adding 2019 IRS Form 1040 Schedule C line 31 net profit amount (up to $100,000 annualized), plus certain forms of employee compensation detailed in the April 14 IFR (pp. 7-8).

After Step 1, the remaining steps are the same for all self-employed individuals:   

Step 2: Divide the amount from Step 1 by 12 to determine the average monthly amount. Step 3: Multiply the average monthly amount from Step 2 by 2.5. This amount cannot exceed $10 million. Step 4: If applicable, add the outstanding amount of any SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020, to be refinanced, less the amount of any advance under an EIDL COVID-19 loan (because the advance does not have to be repaid).

USE OF PPP LOAN PROCEEDS PPP loan amounts can be used for “owner compensation replacement,” calculated based on the 2019 net profit and the other allowable uses listed

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in the CARES Act (e.g., employee payroll costs, and certain business expenses). The April 14 IFR (p. 10) limits self-employed individuals to using their PPP loans only for types of allowable uses for which the borrower made expenditures in 2019. This includes up to $100,000 of annualized pay per employee and for the self-employed business owner for eight weeks (a maximum of $15,385 per individual). Owner compensation replacement for self-employed individuals is based on the amount they paid themselves in 2019. Under earlier regulations still in force, if the borrower wants the maximum amount of loan forgiveness available, then no more than 25% of the loan amount can be used for non-“payroll costs.”

PPP LOAN FORGIVENESS Up to eight weeks’ worth of eligible expenses, including principal and accrued interest, can be forgiven. By regulation, payments on interest and principal are deferred for the first six months of the loan, though. Thus, PPP borrowers might not have to make any payments before applying for forgiveness. For self-employed individuals with no employees, the April 14 IFR (pp. 12-13) limits forgivable expenses of owner compensation replacement to eight weeks of their 2019 average net profit calculation (described in Step 1, above, under “Loan Amount Calculation”), or a maximum of $15,385. The April 14 IFR (pp. 13-14) contains more information on the documents that the borrower must provide to substantiate their application for forgiveness. For self-employed individuals with employees, the two-part formulas specified in the CARES Act determine whether the amount of forgiveness will be reduced. Broadly speaking, these formulas reduce the amount to be forgiven if the business does not maintain employment or salaries at certain levels. Specifically, if the business (1) does not maintain at least the same number of full-time equivalent employees during defined time periods; or

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(2) decreases salaries and wages by more than 25% for any employee that makes less than $100,000 annualized in 2019 during the eight-week period after the loan’s origination date, then the forgiven amount is reduced. For any amounts not forgiven, the terms of the loan are 1% interest rate for a term of two years. There is ambiguous and potentially contradictory language in the April 14 IFR (for example, see p. 12) as to whether forgiveness for selfemployed individuals is limited solely based on owner compensation replacement or whether it can include nonpayroll costs. This could potentially be a drafting error, as it would imply that self-employed individuals could not claim forgiveness for expenses related to employee compensation, rent, utilities, etc. As of the publication date of this Insight, SBA has not provided detailed guidance on how the PPP forgiveness process will work. According to the CARES Act, borrowers must apply to their lender for forgiveness and provide documentation substantiating their actual expenses during the eight-week period after disbursement of their PPP loan. They must also certify that they used the loan proceeds only for eligible purposes. The SBA Administrator may issue further regulations on documentation requirements. The CARES Act requires lenders to issue a decision no later than 60 days after receiving an application for loan forgiveness. The SBA Administrator is required to remit to the lender an amount equal to the forgiveness, plus any interest accrued through the date of payment not later than 90 days after the date on which the forgiveness amount is determined. Under the CARES Act, forgiven loan amounts are not to be included in the borrower’s taxable gross income. Otherwise, this type of “cancellation of indebtedness income” would be subject to income tax.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 10

SBA EIDL AND EMERGENCY EIDL GRANTS FOR COVID-19 Bruce R. Lindsay Congress increased eligibility for certain businesses and organizations for Small Business Administration (SBA) economic injury disaster loans (EIDL) and established an Emergency EIDL Grant program under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) to provide short-term, economic relief to certain small businesses and nonprofits affected by COVID-19. This Insight provides a brief overview of EIDL, including eligibility and loan terms. It also provides an overview of Emergency EIDL Grants, and describes how EIDL can be used in conjunction with Paycheck Protection Program (PPP) loans. EIDL eligibility and loan terms under the CARES Act differ from EIDL provided for other disasters. For non-coronavirus EIDL information, see SBA Disaster Loan Program: Frequently Asked Questions.



This is an edited, reformatted and augmented version of Congressional Research Service Publication No. IN11370, Updated April 30, 2020.

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EIDL OVERVIEW EIDLs provide up to $2 million, with a loan term of up to 30 years, which can be used to pay for expenses that could have been met had the disaster not occurred, including working capital needs such as fixed debt and payroll and other operating expenses. COVID-19-related EIDLs have an interest rate of 3.75% for businesses and 2.75% for nonprofits and have an automatic one-year deferment on repayment (the first payment is not due for one full year, although interest does accrue).

EIDL ELIGIBILITY Under the CARES Act, COVID-19-related EIDL eligibility has been expanded, through December 31, 2020, to include businesses with 500 or fewer employees; sole proprietorships (with or without employees); independent contractors; cooperatives; employee-owned businesses; tribal businesses; and agricultural enterprises with 500 or fewer employees. EIDL eligibility also includes small agricultural cooperatives, small aquaculture businesses, and nurseries deriving more than 50% of their annual receipts from the production of nursery or other agricultural products. Private nonprofit organizations of any size are also eligible, if they have an effective ruling letter from the IRS granting tax exemption under Sections 501(c), (d), or (e) of the Internal Revenue Code of 1954, or satisfactory evidence from the state that the non-revenue producing organization or entity is a nonprofit organization or doing business under state law. Public nonprofit organizations and several specific business types, such as political and lobbying businesses and government-owned businesses, are not eligible for EIDL assistance.

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EMERGENCY EIDL GRANTS The CARES Act established the Emergency EIDL Grant program to provide EIDL advance payments of up to $10,000. The advance payment does not need to be repaid, even if the borrower is later denied the EIDL. Due to high demand, the SBA is limiting the grant to $1,000 per employee, up to the statutory cap of $10,000. The Emergency EIDL grant (also referred to as an EIDL advance) may be used to keep employees on payroll, pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent, and mortgage payments. The applicant must request the advance when applying for an SBA EIDL.

EIDL AND PPP The CARES Act also established a Paycheck Protection Program (PPP) to provide “covered loans” with a 100% SBA loan guarantee, a maximum term of 10 years, and an interest rate not to exceed 4% to assist small businesses and other organizations adversely affected by COVID-19. The SBA announced that PPP loans will have a two-year term at a 1.0% interest rate. Eligible entities that receive an EIDL (including EIDLs unrelated to COVID-19) between January 31, 2020, and June 30, 2020, may also apply for a PPP loan. Borrowers may then roll over their EIDL into a PPP loan. However, EIDL and PPP cannot be used for the same purposes. If a borrower refinances the EIDL into a PPP loan, any advance amount received under the Emergency EIDL Grant Program would be subtracted from the amount forgiven in the PPP. More information on COVID-19 funding options for small businesses can be found at the SBA’s relief option website.

In: Small Business Issues … Editor: Clovis Lalonde

ISBN: 978-1-53618-455-6 © 2020 Nova Science Publishers, Inc.

Chapter 11

SBA EIDL AND EMERGENCY EIDL GRANTS: DATA BY STATE Bruce R. Lindsay and Maura Mullins Congress made COVID-19-related economy injury an eligible expense for the Small Business Administration’s (SBA) Economic Injury Disaster Loans (EIDL) in the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123). It also expanded EIDL eligibility for certain businesses and organizations, and it established an Emergency EIDL Grant program as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136). COVID-19-related EIDL and Emergency EIDL grants are available to all 50 states, U.S. territories, and Washington DC. This Insight provides: 



a general overview of SBA EIDL (including eligibility) and the Emergency EIDL Grant program;

This is an edited, reformatted and augmented version of Congressional Research Service Publication No. IN11379, dated May 5, 2020.

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SBA EIDL data by the number and amount of loans approved by state; and Emergency EIDL Grant program (also referred to as EIDL advance) data by the number and amount of grants approved by state.

EIDL OVERVIEW EIDLs provide up to $2 million, with a loan term of up to 30 years that can be used to pay for expenses that could have been met had the disaster not occurred, including working capital needs such as fixed debt and payroll and other operating expenses. COVID-19-related EIDLs have an interest rate of 3.75% for businesses and 2.75% for nonprofits. EIDLs also have an automatic one-year deferment on repayment (the first payment is not due for one full year, although interest does accrue). Because of high demand, the SBA is limiting COVID-19-related EIDLs to $15,000 and, as discussed below, Emergency EIDL grants to $1,000 per employee, up to the statutory cap of $10,000.

EIDL Eligibility The CARES Act expanded COVID-19-related EIDL eligibility, through December 31, 2020, to include       

businesses with 500 or fewer employees, sole proprietorships (with or without employees), independent contractors, cooperatives, employee-owned businesses, tribal businesses, and agricultural enterprises with 500 or fewer employees.

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EIDL eligibility also includes small agricultural cooperatives, small aquaculture businesses, and nurseries deriving more than 50% of their annual receipts from the production of nursery or other agricultural products.

Source: U.S. Small Business Administration: https://www.sba.gov/document/report— covid-19-eidl-loans-report. Note: Not all applicants accept approved loans. Figure 1. Small Business Administration: Disaster Assistance Update, Nationwide Economic Injury Disaster Loans COVID-19. Cumulative Loan Amounts by State as of April 24, 2020.

Private nonprofit organizations of any size are also eligible, if they have a ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954 or satisfactory

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evidence from the state that the nonrevenue producing organization or entity is a nonprofit organization or doing business under state law. Public nonprofit organizations and several specific business types, such as political and lobbying businesses and government-owned businesses, are not eligible for EIDL assistance. Figure 1 shows the number of EIDLs approved and the cumulative loan amount by state as of April 24, 2020.

Source: U.S. Small Business Administration: https://www.sba.gov/document/report— covid-19-eidl-advance-report. Figure 2. Small Business Administration: Disaster Assistance Update, EIDL Advance COVID-19. Cumulative Advance Amounts by State as of April 24, 2020.

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Emergency EIDL Grants The CARES Act established the Emergency EIDL Grant program to provide EIDL advance payments of up to $10,000. The advance payment does not need to be repaid, even if the borrower is later denied the EIDL. Because of high demand, the SBA is limiting the grant to $1,000 per employee, up to the statutory cap of $10,000. The Emergency EIDL grant (also referred to as an EIDL advance) may be used to keep employees on payroll, pay for sick leave, meet increased production costs caused by supply chain disruptions, or pay business obligations, including debts, rent, and mortgage payments. The applicant must request the advance when applying for an SBA EIDL. Figure 2 shows the number of EIDL advances by number processed and total dollar amount by state as of April 24, 2020.

INDEX # 504/Certified Development Company loan guaranty program, viii, 2

A accelerator, 54, 126, 127, 175, 176, 177 access, vii, viii, x, xiii, xv, 1, 2, 4, 5, 8, 9, 11, 39, 47, 54, 57, 68, 69, 71, 72, 75, 95, 114, 124, 126, 133, 146, 164, 169, 173, 175, 191, 195, 198, 199, 201, 207, 219, 220, 231, 232, 236, 253, 263, 264, 265, 269, 272, 277, 283, 287, 306, 307, 310, 320, 322, 340 accounting, 9, 12, 39, 92, 106, 111, 155, 156, 163, 168, 309 adjustment, 20, 27, 179, 241, 297, 301, 320 advocacy, 54, 89, 126, 204, 223 age, 199, 202, 205, 207, 209, 210 agencies, xi, 37, 38, 41, 42, 43, 44, 46, 51, 52, 55, 56, 61, 70, 75, 77, 80, 83, 84, 86, 87, 88, 94, 96, 99, 102, 105, 110, 113, 116, 118, 119, 121, 123, 132, 137, 143,

155, 160, 170, 178, 181, 186, 187, 193, 237, 259, 267, 281, 310, 313, 315, 316, 317, 318, 319,321, 326, 327 aggregation, 202, 203 agriculture, 32, 142 American Recovery and Reinvestment Act, 57, 73, 80, 83, 85, 86, 96, 220, 223, 267, 299, 302 American Recovery and Reinvestment Act of 2009, 57, 73, 80, 83, 85, 86, 96, 220, 223, 267, 299, 302 American Samoa, 9, 11, 92, 114, 142, 143, 169, 195, 239, 240, 309 aquaculture, 277, 278, 354, 359 assets, 14, 19, 23, 24, 41, 57, 60, 187, 234, 238, 263, 279, 287, 292, 295, 297, 299, 329, 330 authority, ix, xii, 6, 7, 12, 16, 34, 35, 37, 44, 56, 58, 67, 69, 72, 77, 78, 107, 142, 151, 157, 159, 160, 178, 197, 200, 233, 247, 290, 294, 302, 312, 317, 318, 324, 330, 335, 336, 338

364

Index B

banks, 17, 57, 231, 295, 338 benefits, 77, 219, 223, 284, 287, 304, 324 borrowers, xii, xiv, xv, 9, 15, 16, 18, 20, 24, 26, 58, 61, 70, 96, 132, 139, 147, 148, 149, 194, 219, 221, 222, 225, 229, 230, 232, 233, 234, 237, 238, 239, 242, 244, 245, 246, 247, 248, 250, 251, 252, 253, 254, 256, 259, 260, 261, 262, 264, 265, 275, 276, 285, 293, 294, 296, 298, 300, 303, 304, 307, 310, 311, 324, 325, 330, 338, 339, 341, 342, 343, 344, 345, 350, 351 budget line, 151, 313 building code, 32 business management, vii, x, xv, 1, 4, 69, 131, 187, 199, 269, 308 business model, 124, 173 business strategy, 9, 92, 309

C capacity building, 163, 164, 165 capital access programs, viii, 2, 5, 6, 8, 9, 12, 57, 290, 306 capital markets, 47 capital programs, 277 cash, 70, 142, 148, 150, 151, 153, 160, 176, 193, 237, 241, 244, 245, 281, 299, 311, 313, 340 cash flow, 70, 153, 237, 281 challenges, xviii, 182, 183, 184, 190, 192, 219, 223, 259, 333 clients, 108, 143, 145, 152, 153, 158, 160, 161, 162, 182, 184, 185, 189, 243, 310, 313, 314, 348 collateral, x, 15, 23, 28, 59, 68, 70, 72, 139, 237, 248, 257, 279, 284, 293, 297, 299, 323

commercial, 23, 24, 39, 53, 71, 297, 298, 320 community, xv, 10, 23, 24, 55, 57, 88, 141, 142, 219, 222, 231, 235, 236, 239, 263, 295, 297, 329, 330, 338 compensation, 31, 340, 341, 342, 345, 346, 349, 350, 351 competition, 3, 14, 25, 36, 37, 126, 176, 177, 182, 217, 218, 292, 316 compliance, 41, 45, 55, 56, 70, 88, 107, 139, 151, 157, 237, 258, 262, 312, 344 computation, 70, 237 conference, 92, 106, 136, 156, 180 congressional budget, 4, 90 congressional hearings, 43, 136, 180 construction, 3, 296, 316, 321 contracting programs, vii, viii, xv, 1, 2, 4, 5, 6, 9, 34, 35, 47, 69, 199, 269, 272, 277, 315 cooperation, xi, 48, 56, 132, 136, 159, 180 cooperative agreements, 52 coordination, xi, 26, 60, 132, 136, 181, 182, 183, 185, 186 coronavirus, vii, viii, x, xi, xvi, xviii, xx, 2, 4, 33, 63, 68, 131, 134, 270, 272, 274, 276, 278, 280, 282, 306, 333, 334, 336, 353 Coronavirus Aid, Relief, and Economic Security Act (CARES Act), viii, xi, xii, xv, xvi, xvii, xix, xx, 2, 5, 6, 7, 16, 18, 20, 23, 27, 28, 33, 34, 63, 64, 74, 80, 85, 86, 94, 99, 131, 132, 134, 135, 136, 139, 143, 146, 152, 153, 178, 230, 235, 263, 270, 271, 272, 273, 276, 281, 284, 285, 288, 309, 313, 314, 321, 322,323, 330, 331, 337, 338, 341, 344, 347, 350, 351, 353, 354, 355, 357, 358, 361 cost, x, 9, 16, 31, 48, 68, 70, 77, 80, 89, 90, 92, 100, 161, 174, 189, 237, 243, 251, 252, 254, 281, 284, 294, 299, 305, 308, 309, 314, 340, 345, 348

Index counseling, 5, 11, 39, 111, 133, 140, 141, 143, 145, 149, 152, 154, 155, 161, 168, 191, 193, 239, 253, 310, 313, 314 COVID-19, vi, vii, viii, ix, x, xi, xii, xiv, xvi, xviii, xx, 2, 4, 6, 7, 8, 28, 33, 34, 68, 69, 70, 71, 72, 74, 75, 78, 80, 84, 85, 86, 92, 94, 99, 100, 131, 134, 135, 139, 143, 146, 152, 153, 191, 197, 198, 199, 200, 204, 220, 224, 230, 234, 235, 263, 269, 270, 271, 272, 273, 274, 276, 277, 278, 280, 281, 282, 284, 285, 287, 289, 290, 301, 306, 309, 313, 314, 321, 322, 323, 325, 327, 328, 333, 334, 335, 336, 344, 349, 353, 354, 355, 357, 358, 359, 360 credit history, 26, 40, 218, 250, 253, 279, 300, 321 credit market, 264, 306 creditors, 48, 49 creditworthiness, 248

D data collection, 70, 140, 146, 189, 237, 259, 330 data processing, 215 database, 38 debts, 278, 295, 355, 361 deficiencies, 255, 257 Department of Commerce, xi, 132, 134, 175, 177, 179, 309, 327 Department of Defense, 17, 73, 78, 79, 82, 86, 89, 94, 96, 98, 101, 104, 107, 109, 112, 115, 117, 121, 123, 125, 127, 157, 267, 302, 317 Department of Energy, 170, 172 Department of Labor, 22 Department of the Treasury, xx, 22, 338, 347 Departments of Agriculture, 52 depository institutions, 263, 329 destruction, 205, 207, 208, 211

365

development assistance, 158, 316 direct loan programs, vii, 1, 4, 69, 199 disaster area, xii, 29, 30, 59, 60, 132, 138, 139, 144, 146, 153, 163, 277 disaster assistance, viii, ix, xvi, 2, 5, 7, 29, 34, 61, 64, 65, 67, 69, 70, 72, 73, 74, 75, 76, 84, 128, 129, 223, 270, 272, 277, 279, 280, 281, 283, 286, 287, 289, 359, 360 disbursement, 233, 285, 351 dislocation, xvi, 270, 272, 306, 322 distribution, 14, 216, 226, 292, 340

E economic activity, viii, xii, xvi, 1, 4, 69, 71, 189, 197, 199, 269, 272 economic damage, 282 economic development, 11, 22, 124, 136, 143, 173, 177, 179, 186, 193, 239, 297 economic downturn, xiii, 147, 198, 200, 202, 233, 322 economic growth, 199, 221, 225, 264, 306 economic mainstream, 219 economic theory, 220, 223, 224 economic well-being, 217 education, 11, 107, 114, 122, 124, 125, 133, 146, 154, 156, 163, 164, 169, 172, 173, 186, 195, 310, 313 educational services, 181 eligibility criteria, 201, 220, 278, 306, 348 emergency, xviii, 274, 280, 287, 288, 327, 334, 336 employee compensation, 77, 163, 341, 343, 349, 351 employees, xiii, xix, 14, 28, 33, 34, 36, 59, 72, 162, 163, 179, 198, 200, 201, 203, 204, 205, 206, 207, 212, 213, 214, 215, 216, 217, 219, 226, 227, 231, 232, 275, 276, 285, 288, 292, 318, 321, 323, 324, 326, 328, 330, 335, 336, 340, 341, 342,

366

Index

343, 344, 345, 347, 349, 350, 354, 355, 358, 361 employers, 210, 211, 344, 346 employment, xiii, xix, 50, 198, 199, 200, 201, 202, 203, 204, 205, 207, 208, 209, 210, 212, 213, 214, 216, 218, 223, 226, 233, 265, 276, 279, 337, 341, 344, 348, 350 employment growth, 207, 212, 213 employment levels, 223 employment opportunities, 50 engineering, 9, 92, 142, 214, 215, 309 entrepreneurs, xi, xiv, 9, 10, 26, 45, 50, 53, 56, 57, 91, 95, 103, 106, 126, 132, 133, 143, 146, 147, 156, 163, 164, 170, 174, 175, 183, 185, 186, 187, 188, 192, 193, 195, 215, 216, 226, 229, 233, 237, 244, 250, 253, 258, 259, 300, 308, 310 entrepreneurship, 12, 78, 106, 107, 155, 156, 157, 173, 175, 195, 216 equipment, xiv, 19, 23, 24, 27, 32, 88, 129, 147, 151, 193, 215, 221, 229, 233, 246, 251, 295, 297, 299, 300, 305, 313 equity, 23, 24, 35, 38, 47, 48, 49, 50, 62, 297, 302 evidence, 211, 219, 224, 232, 258, 335, 336, 354, 360 expenditures, ix, 67, 69, 72, 93, 95, 97, 98, 100, 101, 102, 103, 104, 108, 109, 110, 111, 112, 114, 116, 117, 119, 120, 122, 124, 125, 127, 142, 188, 266, 304, 350 expertise, 145, 160, 172, 253, 284 export promotion, 9, 15, 25

F family members, 107, 156 federal advisory, 9, 55, 116 federal agency, 40, 41, 43, 53, 55, 56, 80, 86, 87, 88

federal assistance, xiii, 198, 201, 218, 219, 220, 288 federal contracting, vii, xii, xvi, 1, 4, 14, 39, 41, 44, 58, 69, 133, 167, 197, 199, 269, 272, 292, 317, 318, 319, 320 federal courts, 87 federal criminal law, 84 federal funds, 22, 142, 155 federal government, xviii, 3, 19, 26, 29, 35, 36, 37, 42, 54, 60, 74, 77, 80, 83, 86, 87, 89, 94, 96, 99, 102, 105, 110, 113, 116, 118, 121, 123, 169, 171, 179, 188, 267, 277, 296, 305, 317, 318, 319, 321, 333 federal law, 151, 312 financial, xi, xv, xvi, 13, 15, 17, 24, 49, 50, 52, 59, 97, 100, 132, 133, 135, 138, 144, 150, 152, 153, 155, 159, 162, 167, 169, 177, 179, 225, 231, 235, 255, 257, 263, 264, 270, 272, 278, 279, 286, 291, 293, 295, 306, 309, 312, 322, 327, 329, 330, 338 financial condition, 280 financial institutions, xv, 17, 231, 235, 263, 295, 329, 330, 338 financial reports, 255 financial support, 52, 133 firm size, xiii, 14, 32, 198, 200, 216, 226, 292 fiscal year, ix, 6, 7, 14, 16, 23, 40, 41, 43, 51, 53, 60, 62, 64, 67, 69, 72, 74, 76, 78, 80, 90, 93, 140, 154, 165, 166, 168, 170, 171, 190, 234, 236, 238, 240, 242, 244, 260, 263, 292, 294, 297, 299, 304, 335 flexibility, xvii, 183, 236, 270, 275 Food and Drug Administration, 79, 82, 98, 101, 104, 109, 112, 115, 117, 120 formation, vii, xv, 1, 4, 69, 133, 141, 154, 155, 192, 196, 199, 216, 218, 226, 269, 272 fraud, xviii, 46, 84, 271, 288, 307, 322 funding, ix, xi, xvii, 3, 4, 8, 24, 45, 50, 52, 53, 54, 57, 58, 64, 65, 67, 69, 71, 72, 74,

Index 76, 77, 78, 80, 81, 84, 85, 88, 89, 90, 92, 93, 100, 107, 123, 126, 129, 132, 136, 138, 141, 142, 143, 145, 146, 148, 151, 152, 154, 157, 165, 166, 171, 172, 174, 175, 176, 178, 179, 181, 182, 184, 188, 190, 191, 192, 220, 223, 231, 244, 245, 252, 257, 260, 267, 271, 274, 276, 281, 287, 298, 302, 303, 307, 308, 309, 311, 312, 313, 314, 321, 322, 355 funds, xii, xv, 9, 22, 33, 34, 42, 47, 49, 50, 60, 61, 72, 73, 74, 76, 78, 79, 80, 81, 82, 85, 89, 92, 96, 107, 132, 134, 136, 139, 142, 147, 148, 149, 150, 151, 154, 157, 165, 166, 171, 176, 177, 179, 195, 230, 233, 234, 236, 240, 242, 244, 245, 247, 255, 257,260, 261, 262, 263, 267, 283, 287, 298, 302, 303, 309, 311, 312, 325, 328, 330, 345

G government procurement, 42, 133 grants, xx, 7, 9, 10, 26, 29, 32, 34, 40, 50, 52, 54, 60, 63, 74, 86, 91, 92, 96, 103, 107, 126, 129, 143, 147, 151, 152, 157, 160, 164, 165, 167, 175, 176, 179, 190, 195, 231, 233, 234, 236, 238, 243, 244, 245, 247, 253, 257, 260, 264, 265, 273, 274, 275, 277, 282, 286, 287, 288, 309, 310, 311, 312, 313, 314, 315, 329, 330, 331, 336, 357, 358 growth, viii, 2, 5, 11, 14, 45, 47, 53, 54, 55, 87, 124, 126, 143, 172, 173, 174, 175, 176, 177, 190, 206, 210, 212, 215, 217, 220, 224, 231, 232, 253, 264, 293 growth accelerators, viii, 2, 5, 8, 47, 53, 91, 126, 136, 140, 170, 174, 175, 176, 177, 181, 308 Gulf of Mexico, 73, 79, 82, 86, 94, 96, 98, 101, 104, 109, 112, 115, 117, 121, 267, 317

367 H

health, xviii, 257, 324, 333, 340 homeowners, vii, xv, 1, 4, 30, 69, 133, 199, 269, 271, 283, 288 human resources, 90, 106, 156 hurricanes, x, 68, 70, 72, 84, 86, 282, 283

I improvements, 32, 258, 295, 296 income, xiv, 14, 23, 26, 39, 49, 50, 95, 111, 146, 147, 148, 150, 151, 164, 165, 168, 179, 194, 195, 219, 229, 230, 233, 244, 250, 252, 255, 258, 259, 292, 297, 300, 304, 310, 311, 313, 318, 326, 340, 348, 351 individuals, xix, 12, 28, 29, 38, 39, 41, 42, 51, 59, 111, 138, 144, 147, 150, 153, 163, 168, 190, 194, 223, 233, 277, 282, 290, 316, 322, 324, 331, 340, 344, 347, 348, 349, 350, 351 industry, xviii, 11, 13, 14, 28, 32, 41, 58, 122, 172, 205, 206, 210, 218, 291, 292, 323, 324, 333, 335 inflation, x, 68, 71, 76, 78, 81, 84, 88, 92, 97, 100, 102, 110, 111, 116, 119, 140, 154, 247, 320 injury, iv, xvi, xx, 30, 32, 270, 272, 274, 277, 278, 279, 280, 353, 357 inspector general, viii, ix, xvii, 2, 5, 6, 7, 46, 47, 56, 63, 64, 65, 68, 69, 74, 83, 84, 85, 243, 255, 257, 265, 266, 271, 273, 283, 284, 307, 322, 327, 339 institutions, 11, 122, 159, 172, 231, 232, 263, 329 interest rates, 18, 19, 20, 70, 237, 238, 246, 257, 260, 279, 289, 290, 296 intermediaries, xii, xiv, xv, 9, 10, 12, 27, 61, 70, 96, 97, 132, 137, 139, 147, 148, 149, 150, 194, 229, 230, 231, 233, 234, 235,

368

Index

237, 238, 239, 240, 241, 242, 243, 244, 246, 247, 248, 249, 250, 252, 253, 254, 255, 256, 257, 259, 260, 261, 262, 263, 264, 265, 290, 300,301, 304, 310, 311, 329, 330 international trade, 9, 15 international trade and export promotion programs, 9, 15 investment, viii, 2, 5, 8, 15, 22, 49, 50, 104, 171, 181, 225, 231, 293 investment capital, 231 investments, 49, 50, 225, 231, 302, 304 issues, vii, 24, 55, 88, 116, 257, 264, 277, 284, 298, 339

loan guarantees, 15, 220, 225, 231, 232, 252, 273, 284, 293, 327 loan guaranty, vii, viii, xii, xiv, xv, 1, 2, 4, 5, 12, 14, 15, 17, 19, 21, 22, 23, 24, 25, 57, 58, 59, 60, 65, 69, 74, 75, 133, 197, 199, 222, 224, 225, 230, 234, 236, 254, 264, 269, 272, 290, 291, 292, 293, 294, 297, 299, 300, 302, 303, 305, 306, 331 loan principal, 340 local community, 10, 103, 164, 189 local conditions, 9, 92, 309 local government, 10, 39, 46, 103, 150, 164, 179, 320

M J job creation, xii, xiii, 19, 23, 24, 27, 49, 141, 189, 192, 197, 198, 199, 200, 201, 204, 206, 207, 208, 209, 210, 211, 212, 213, 214, 216, 217, 218, 220, 221, 222, 223, 224, 225, 226, 227, 264, 265, 297, 306, 307 job flows, 203, 209

L labor force, 220 legislation, viii, xi, xii, xvi, xvii, xviii, 2, 20, 46, 57, 84, 132, 138, 141, 146, 154, 159, 163, 177, 197, 199, 247, 270, 271, 322, 334 lender oversight, viii, 2, 5, 62 lending, x, xiii, xvii, 17, 18, 29, 57, 62, 68, 69, 70, 74, 95, 97, 146, 147, 194, 198, 199, 200, 219, 220, 224, 225, 231, 232, 233, 237, 238, 244, 248, 252, 271, 273, 274, 284, 288, 294, 295, 303, 304, 305, 306, 307, 310, 326, 329, 330 lending process, 225

manufacturing, 9, 14, 37, 92, 206, 215, 292, 309, 316, 317, 318, 319 market failure, xiii, 198, 201, 218 marketing, xiv, 9, 12, 26, 39, 45, 92, 97, 106, 111, 147, 148, 150, 153, 155, 156, 168, 229, 231, 233, 234, 239, 244, 245, 252, 253, 260, 300, 309, 311, 312 materials, xiv, 13, 27, 34, 147, 221, 229, 233, 246, 291, 300, 328 measurement, xi, 132, 138, 182 media, 12, 29, 30, 43, 57, 126, 172, 177, 200, 206, 208, 209, 211, 215, 273, 281, 285, 287, 289, 307 mentoring, xi, 9, 100, 107, 132, 134, 157, 160, 161, 175, 193, 194, 308, 313 mentoring program, xi, 132, 134, 308 methodology, 14, 292 microloan, xiv, xv, 10, 27, 147, 148, 149, 229, 231, 233, 235, 240, 241, 243, 244, 246, 247, 248, 254, 256, 257, 258, 263, 265, 310, 311, 329, 330 microloan program, v, viii, xiv, xv, 2, 5, 9, 12, 13, 15, 17, 26, 27, 28, 58, 65, 74, 95, 96, 97, 147, 148, 149, 150, 155, 199, 229, 230, 232, 233, 234, 235, 236, 237,

Index 238, 240, 241, 242, 243, 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256, 257, 258, 259, 260, 261, 262, 263, 264, 265, 266, 272, 277, 290, 291, 293, 300, 301, 304, 310, 311 microloan technical assistance, viii, xii, 2, 7, 8, 9, 80, 91, 95, 96, 97, 103, 132, 134, 135, 138, 139, 140, 146, 147, 148, 149, 166, 181, 194, 236, 238, 239, 244, 261, 262, 264, 266, 267, 277, 308, 310, 311, 314, 331 microorganism, 334 military, 11, 30, 59, 278 mission, 3, 21, 26, 46, 51, 52, 54, 55, 56, 83, 87, 119, 178, 181, 187, 195, 218, 327

369

191, 233, 262, 264, 266, 287, 306, 308, 325, 345 opportunities, vii, xvi, 1, 4, 14, 39, 51, 69, 111, 133, 155, 168, 179, 186, 191, 199, 217, 259, 269, 272, 292, 322 outreach, xi, 5, 9, 45, 62, 92, 108, 109, 114, 132, 134, 138, 139, 143, 152, 157, 181, 308, 309, 330 oversight, viii, xi, xviii, 2, 5, 21, 46, 61, 62, 64, 83, 86, 132, 138, 163, 182, 185, 223, 255, 256, 257, 262, 271, 288, 307, 315, 322, 323 ownership, 12, 28, 33, 35, 38, 62, 219, 290, 324, 328

P N natural disaster, vii, xv, 1, 4, 69, 133, 199, 269, 271 new markets venture capital program, 49 nonprofit organizations, ix, xvi, xvii, 2, 5, 10, 13, 28, 29, 32, 33, 97, 150, 159, 160, 231, 244, 270, 271, 272, 275, 277, 278, 289, 290, 291, 301, 312, 313, 322, 328, 330, 354, 359, 360 novel coronavirus, vii, viii, x, xi, 2, 4, 68, 131, 134

O Obama Administration, 93, 103, 105, Office of Management and Budget, 42, 71, 78, 81, 84, 88, 92, 97, 100, 102, 110, 111, 116, 119, 120, 126, 128, 178, 252 Office of the Inspector General, 46, 47, 64, 243, 255, 257, 266 officials, 41, 55, 88, 175, 182, 258 online information, 94, 99, 273, 314, 327 operations, x, xi, 21, 25, 46, 47, 50, 52, 72, 76, 84, 106, 131, 132, 133, 138, 156,

pandemic, vii, viii, x, xi, xii, xiv, xvi, xviii, 2, 4, 68, 69, 72, 73, 79, 82, 86, 94, 96, 98, 101, 104, 109, 112, 115, 118, 121, 131, 134, 139, 146, 154, 191, 197, 198, 199, 205, 230, 234, 267, 269, 270, 272, 282, 287, 301, 306, 314, 317, 322, 333 Paycheck Protection Program (PPP), vi, viii, ix, xv, xvi, xvii, xix, xx, 2, 5, 6, 7, 28, 29, 34, 63, 64, 74, 80, 230, 231, 235, 263, 270, 271, 272, 273, 274, 275, 276, 282, 285, 323, 324, 325, 326, 329, 330, 331, 337, 338, 339, 340, 341, 343, 344, 345, 347, 348, 349, 350, 351, 353, 355 Paycheck Protection Program and Health Care Enhancement Act, ix, xv, xvii, xix, 2, 6, 7, 29, 63, 64, 74, 80, 230, 235, 263, 270, 274, 282, 323, 329, 337 payroll, xix, 29, 34, 199, 276, 278, 324, 325, 326, 328, 331, 337, 339, 340, 342, 344, 345, 348, 349, 350, 354, 355, 358, 361 policy, xviii, 3, 52, 53, 178, 213, 217, 256, 265, 333, 334, 335, 336 policymakers, xiii, 55, 87, 88, 198, 201 pollution, 21, 22, 129

370

Index

population, 142, 184, 220, 309 portfolio, 27, 45, 62, 70, 148, 237, 241, 242, 245, 246, 247, 258, 282, 300, 311 potential benefits, xvii, 271, 322 private sector, xiv, 52, 53, 54, 56, 119, 126, 141, 160, 168, 175, 207, 230, 251, 266, 284, 320 procurement, 40, 41, 42, 43, 44, 58, 139, 155, 319 profit, 13, 220, 221, 246, 291, 340, 349, 350 program administration, 60, 134 program outcomes, 307 project, xiv, 21, 24, 26, 39, 40, 51, 147, 222, 229, 233, 257, 297, 299, 300, 310, 320 protection, 29, 273, 276 public awareness, 43 public debt, 187 public health, 327 public policy, 23, 24, 50, 222, 297, 303 public sector, 188 public-private partnerships, 50 publishing, 215

relief, xix, xx, 57, 74, 272, 274, 276, 285, 304, 325, 347, 353, 355 rent, 76, 90, 299, 324, 325, 340, 345, 351, 355, 361 renters, vii, xv, 1, 4, 30, 69, 133, 199, 223, 269, 271, 277 repair, 3, 30, 31, 223, 277, 321 requirement, 28, 33, 45, 59, 62, 140, 149, 150, 151, 154, 165, 194, 195, 222, 234, 242, 243, 244, 260, 261, 275, 276, 280, 284, 285, 312, 323, 327, 328, 330, 345 resources, 11, 70, 107, 124, 126, 134, 138, 157, 164, 165, 173, 182, 183, 185, 195, 196, 206, 208, 225, 232, 238, 244, 264, 287, 306, 310, 313, 322 response, x, 33, 68, 162, 163, 280, 282, 283, 284, 322, 327, 328 revenue, x, xviii, 16, 54, 68, 70, 72, 126, 162, 174, 175, 214, 221, 225, 237, 279, 333, 354 risk, 15, 21, 40, 48, 62, 183, 218, 219, 225, 231, 256, 257, 281, 293, 306, 321, 326

R

S

real estate, 15, 19, 24, 71, 279, 293, 295, 297 real property, 31, 32, 296, 304 recession, 71, 190, 211, 306 recommendations, iv, 46, 84, 136, 258, 262 recovery, vii, xv, 1, 4, 69, 80, 133, 179, 199, 220, 223, 269, 271, 287, 302, 307 Recovery Improvements for Small Entities After Disaster Act, xi, 59, 132, 138 recreational, 31 reform, 264, 306 Reform, 41, 42, 62, 70, 237, 281, 288 regulations, xix, xx, 22, 32, 34, 46, 84, 151, 165, 167, 195, 247, 257, 262, 265, 285, 312, 315, 338, 343, 344, 347, 348, 350, 351

SCORE, viii, xi, 2, 4, 7, 8, 10, 59, 91, 100, 101, 102, 132, 134, 135, 138, 139, 140, 143, 144, 146, 152, 153, 154, 155, 159, 160, 161, 162, 163, 181, 182, 188, 194, 252, 253, 277, 308, 313, 314, 330 Secretary of Agriculture, 32 Secretary of Commerce, 32, 178 Secretary of the Treasury, 57 self-employed, xix, 28, 203, 344, 347, 348, 349, 350, 351 self-employment, 348 Senate, xix, 3, 12, 46, 54, 62, 83, 87, 99, 100, 102, 105, 108, 110, 113, 115, 118, 121, 123, 125, 127, 133, 136, 141, 146, 149, 159, 160, 169, 176, 180, 181, 185,

Index 186, 218, 232, 235, 236, 238, 261, 262, 264, 290, 320, 338 service organization, 159 service provider, 167, 168, 182, 194, 195, 215 Service-Disabled Veteran-Owned Small Business Program, viii, 2, 36, 318 services, iv, xi, 3, 5, 7, 10, 11, 45, 76, 88, 90, 103, 107, 114, 132, 136, 140, 143, 145, 146, 149, 152, 153, 154, 157, 160, 161, 163, 164, 165, 167, 169, 180, 182, 183, 184, 185, 187, 188, 189, 191, 192, 195, 215, 217, 239, 310, 313, 314, 315, 316 Small Business Development Centers, viii, 2, 4, 7, 90, 92, 93, 141, 143, 146, 154, 163, 181, 252, 253, 309 Small Business Innovation Research (SBIR) program, 51, 52, 171 small business investment company program, 47, 225, 302 small business management, v, vii, x, xv, 1, 4, 7, 69, 90, 106, 131, 132, 138, 156, 177, 187, 192, 199, 222, 269, 272, 308 small business opportunities, vii, xvi, 1, 4, 133, 199, 269, 272 small business technology transfer (STTR) program, 51, 52, 53, 171 small firms, 185, 191, 204, 205 sole proprietor, xix, 13, 33, 291, 328, 340, 347, 348, 354, 358 spending, ix, x, xv, 61, 67, 68, 69, 71, 76, 220, 230, 234, 264, 301, 306, 322 subsidy, 12, 16, 17, 19, 60, 70, 224, 237, 273, 281, 290, 294, 299, 327 supply chain, xvi, 11, 34, 270, 272, 306, 322, 328, 355, 361 Surety Bond Guarantee Program, viii, 2, 39, 40, 60, 315, 320 survival, 206, 207, 212, 225, 253 survival rate, 206

371 T

target, 155, 184, 208, 224, 258, 259 tax rates, 265 taxes, 13, 14, 276, 291, 292, 304, 324, 331, 344 taxpayers, 276, 331, 344 technical assistance training programs, v, vii, x, xii, xv, 1, 4, 7, 69, 90, 91, 131, 132, 133, 135, 136, 137, 138, 140, 180, 183, 184, 185, 186, 187, 188, 190, 191, 192, 193, 197, 199, 222, 269, 272, 308 technological change, 14, 293 technology transfer, 9, 92, 309 telecommunications, 76, 90, 215, 305 training programs, vii, x, xi, xii, xv, 1, 4, 7, 11, 69, 90, 91, 106, 131, 132, 133, 134, 135, 136, 137, 138, 140, 156, 180, 182, 183, 184, 185, 186, 187, 188, 190, 191, 192, 193, 194, 197, 199, 269, 272, 277, 308, 322

U U.S. Bureau of Labor Statistics, 202, 206 U.S. Department of Commerce, 135, 177, 179, 219 U.S. Department of Labor, 202, 205 U.S. economy, 13, 210, 223, 291 U.S. Treasury, 24, 298, 304 United States, 10, 13, 71, 73, 78, 81, 84, 86, 88, 92, 97, 100, 102, 110, 111, 116, 119, 120, 128, 129, 142, 143, 152, 155, 161, 179, 181, 201, 203, 206, 208, 212, 213, 215, 216, 220, 222, 232, 239, 240, 252, 254, 284, 289, 291, 309, 313, 320, 321, 348 universities, 54, 106, 126, 141, 143, 156, 175, 193 urban, 26, 124, 173, 214, 232, 250, 251, 265, 300

372

Index

urban areas, 26, 214, 250, 300

V venture capital, vii, xv, 1, 4, 47, 50, 54, 69, 126, 269, 272, 302 venture capital programs, vii, xv, 1, 4, 69, 269, 272

viruses, xviii, 333, 334, 335, 336

W workers, 190, 202, 223, 286, 325, 326, 345