Please make sure that it is your own work and not copy and paste off of some one else work because the professor will check. This is a DBA course and needs to be done on this level. Please watch out for spelling and grammar errors. Please use the APA 7th format edition. Please read the study guide.
Book reference: Gliner, J. A., Morgan, G. A., Leech, N. L. (2017). Research methods in applied settings: An integrated approach to design and analysis (3rd ed.)Routledgehttps://online.vitalsource.com/#/books/9781317526896
I have attach the ebook for small business which is the topic of the research paper for Unit V and VI
I have attached Unit V
For this assignment, you will design a research plan on the topic that you presented in Unit V. You will not conduct the actual research; rather, you will simply provide a written plan as if you were going to prepare to conduct the research.
First, provide a design specification for your research project. The purpose of the design specification is to set out a detailed plan of the method(s) you have chosen to investigate your research problem.
Next, include the elements below in your research plan.
Support your research plan by including three peer-reviewed academic sources that you located for your Annotated Bibliography in Unit V.
Your assignment must be a minimum of five pages in length, not counting the title or reference pages. This assignment must follow proper APA format.
The following resource(s) may help you with this assignment.
RCH 8301, Quantitative Research Methods 1
Upon completion of this unit, students should be able to:
6. Create research questions appropriate for a selected research method and design.
6.1 Develop a research topic, and include appropriate research questions.
7. Formulate hypotheses appropriate for a selected research method and design.
7.1 Design hypotheses that are suitable for a selected research method and design.
Course/Unit
Learning Outcomes
Learning Activity
6.1, 7.1
Chapter 18, pp. 318–331
Chapter 19, pp. 334–346
Unit VI Research Paper
Required Unit Resources
Chapter 18: General Design Classifications for Selection of Difference Statistical Methods, pp. 318–331
Chapter 19: Selection of Appropriate Statistical Methods: Integration of Design and Analysis, pp. 334–346
Unit Lesson
General Design Classifications
Researchers must think critically about the type of information that is needed to address a research problem,
and then researchers must make sure that the overall research problem will be adequately addressed. If they
do not do this, they may reach conclusions that are unconvincing, and the overall validity of the study may be
questioned. In this unit, we will focus on general design classifications, which will help us determine the
proper format and statistical approach to use.
Present-day statistics offer the basis for inference in various
research studies. In the various differential methods for statistical
analysis, there are procedures called general design classifications.
These general design classifications are between-group design,
within-subject design (repeated measures design), and mixed
design. However, the focus in this unit is to distinguish the general
design classification for comparative research, experimental, and
quasi-experimental approaches with the aim of understanding the
selection of appropriate statistical methods.
The study design is considered a general plan that is used in
setting up and testing a research question or a specific hypothesis
(Thompson & Panacek, 2006). This implies that the research
design directs the researcher on the who, when, what, and how
regarding how the study project is conducted. Consequently, the
general design classifications are important in the determination of
the appropriate statistical methods that the researcher adopts in the data analysis stage. Therefore, it is a
necessity in the randomized experimental, comparative, and quasi-experimental approaches that all of the
UNIT VI STUDY GUIDE
Selection of Appropriate Statistical
Measures
(Alexmillos, n.d.)
RCH 8301, Quantitative Research Methods 2
UNIT x STUDY GUIDE
Title
designs be appropriately fitted in the categories (i.e., between-group design, within-subject design, and mixed
design). The between-group design refers to a design whereby each participant in a research project is in
only one group or condition (Morgan et al., 2002). Accordingly, this design requires that each participant in the
research study receive only one of the two conditions set in the experiment. For example, in a study where
the effects of high temperature on the growth of a plant might have two groups of the independent variable
(retarded growth or improved growth), each plant will only achieve one condition. Thus, the choice of study
participants (sample size) will be influenced by these groups, where each group will have the number of
participants doubled.
In a within-subject design (repeated measures design), which is the opposite of the between-group design, a
general design classification is realized. According to Morgan et al., a within-subject design is where each
participant in the research project receives all of the conditions. This implies that each participant in the study
experiences all levels of an independent variable to complete the study. For example, in a study where a drug
is tested among children to establish the outcome between the two sets of doses (current and new
medications as independent variables), the within-subject design requires that each participant in the study
receive both medications; therefore, a number of symptoms would be measured on both of the independent
variables. Furthermore, in this design, the number of participants is not affected by the variables used like it is
in the case of between-group design since each participant receives all or both conditions of the independent
variable in the study. Therefore, the within-subject design is referred to as a repeated measures design
because of the experimental conditions where each participant is assessed more than once depending on the
research conditions. Despite the existing advantages of the within-subject design, such as a reduction in the
error variance and a reduction in the number of participants, this design is considered less appropriate
compared to the between-group design. Its inappropriateness is derived from the possibility of participants
having carryover effects, especially in studies where the change over time in the response to medication
(example provided earlier) is an independent variable. Otherwise, both the between-group design and the
within-subject design have a similarity in the number of independent variables considered, which is only one.
A mixed design has more than one between-group independent variable as well as one within-subject
independent variable. This implies that this design has at least two independent variables studied. Consider
the aforementioned experiment where the effects of high temperature on the plant growth are to be
investigated; in the mixed design, an additional independent variable (between-group) will be required, thus
identifying this as a mixed design. In this case, the variety of the plant may be introduced as the additional
independent variable to study the effects of high temperature on the growth of the plants. In the design
considerations for a mixed design, there is the need for the researcher to appreciate the dimensions of the
design (e.g., issues of validity). The design dimensions in the mixed research include the theoretical drive,
purpose, timing, design complexity, and planned design (Schoonenboom & Johnson, 2017). Thus, in the
mixed design, both qualitative and quantitative approaches are considered in the use of theory, the use of
logic, the purpose of the results, the view of objectivity, the sampling of strategies, and the choice of statistical
methods for data analysis.
Selection of Appropriate Statistical Methods
There are various aspects that must be considered when selecting an appropriate statistical method in the
design and analysis of a research project. When selecting a statistical method, the concepts that must be
considered include the research approaches and questions, dependent and independent variables, design
classification, statistical assumptions, and the levels of measurement. The first step toward selecting a
statistical method is defining the level of measurement for all of the variables (nominal, interval, ratio, or
ordinal level) that are studied and included in the analysis. However, the use of tables is also effective when
trying to select the appropriate statistics for the design and analysis of the result findings. For example, in the
common single comparison tests, the dependent variable (scale) and the independent variable (nominal)
would require different parametric tests and non-parametric tests, such as the independent-samples t-test and
the Wilcoxon rank-sum test, respectively.
RCH 8301, Quantitative Research Methods 3
UNIT x STUDY GUIDE
Title
To arrive at the most suitable statistical method, it is
recommended to identify whether the research question
focuses on the association or the difference between
variables and to identify the number of independent
variables in the study. Moreover, the aspects of general
design classifications (between-group, within-subject,
and mixed designs) come into play. By using a
schematic diagram, which describes the purpose,
approach, type of question, and general type of
statistics, it can be useful in helping one identify and
select the appropriate statistical method that suits the
research project.
For example, one is required to distinguish between the
relationship between variables (experimental or non-
experimental) and thereby use the variables to identify
the specific approach to be adopted in the study
(randomized or quasi for an experimental approach and
comparative or associational for a non-experimental approach). Having identified the specific purpose for the
variables, one would then identify the type of questions (e.g., difference for an experimental approach and
associational or descriptive for a non-experimental approach), one would then determine the general type of
statistic to be used. For example, difference inferential statistics would be used for the difference type of
question, and associational inferential or descriptive statistics would be used for associational and descriptive
statistics for descriptive-type questions. For example, difference inferential statistics use the t-test and
analysis of variance (ANOVA); descriptive statistics use histograms, percentages, and means; and
associational inferential statistics use correlation and regression (Gliner et al., 2017).
As covered in the readings for this unit, selection of the appropriate statistical method requires good
judgement. Since each research study is different, the most suitable research design and statistical analysis
must be chosen.
References
Alexmillos. (n.d.). Business icons and target infographics (ID 64597036) [Illustration]. Dreamstime.
https://www.dreamstime.com/stock-illustration-business-icons-target-infographics-illustration-design-
graphic-image64597036
Gliner, J. A., Morgan, G. A., & Leech, N. L. (2017). Research methods in applied settings: An integrated
approach to design and analysis (3rd ed.). Routledge.
Morgan, G. A., Gliner, J. A., & Harmon, R. J. (2002). General design classifications. Journal of the American
Academy of Child and Adolescent Psychiatry, 41(2), 226–228. https://www.jaacap.org/article/S0890-
8567(09)60667-5/fulltext
Schoonenboom, J., & Johnson, R. B. (2017). How to construct a mixed methods research design. Cologne
Journal of Sociology and Social Psychology, 69,107–131.
https://link.springer.com/article/10.1007/s11577-017-0454-1
Tashatuvango (n.d.). Data analysis on white-golden compass (ID 44076262) [Illustration]. Dreamstime.
https://www.dreamstime.com/stock-illustration-data-analysis-white-golden-compass-needle-field-
pointing-image44076262
Thompson, C. B., & Panacek, E. A. (2006). Research study designs: Experimental and quasi-experimental.
Air Medical Journal, 25(6), 242–246. https://www.airmedicaljournal.com/article/S1067-
991X(06)00286-0/abstract
(Tashatuvango, n.d.)
RCH 8301, Quantitative Research Methods 4
UNIT x STUDY GUIDE
Title
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
Review the “Interpretation Questions” and “Application Problems” at the end of Chapters 18 and 19.
2020 Success Center
Citation Guide
Based on the Publication Manual of the American
Psychological Association—7th Edition
2020 [COLUMBIA SOUTHERN UNIVERSITY] 2
Citation Guide – 7th Edition
This document covers certain citation formats addressed in the 7th edition of the
Publication Manual of the American Psychological Association (APA) but is not a complete
guide. Should you have any questions, please contact the CSU Success Center by email at
teamsucceed@columbiasouthern.edu or by phone at (877) 875-0533.
For all rules and requirements of APA, please refer to the 7th edition of the Publication
Manual of the American Psychological Association, which can be purchased through the
American Psychological Association at https://apastyle.apa.org/products/publication-manual-
7th-edition/.
The Writing Center also provides an accompanying tutorial for the CSU Citation
Guide. This tutorial provides further explanation on several APA formatting topics:
Citation Guide Tutorial.
mailto:teamsucceed@columbiasouthern.edu
https://apastyle.apa.org/products/publication-manual-7th-edition/
https://apastyle.apa.org/products/publication-manual-7th-edition/
http://columbiasouthern.adobeconnect.com/citationguidetutorial7/
2020 [COLUMBIA SOUTHERN UNIVERSITY] 3
Contents
What is APA format and why is it used? ………………………………………………………………………………….. 4
Citing Sources …………………………………………………………………………………………………………………….. 5
Citations in In-text …………………………………………………………………………………………………………………… 5
Examples of in-text citations ………………………………………………………………………………………………… 6
Example of block quote in-text citation …………………………………………………………………………………. 7
Reference List …………………………………………………………………………………………………………………………. 7
Examples of reference list entries …………………………………………………………………………………………. 8
Selecting Appropriate Research Sources ………………………………………………………………………………….. 12
Formatting ……………………………………………………………………………………………………………………….. 12
Document formatting in APA style ………………………………………………………………………………………….. 12
Steps for document formatting ………………………………………………………………………………………………. 13
Specific formatting steps for documents …………………………………………………………………………………. 16
Library Resources and Services for CSU Students ……………………………………………………………………. 17
Sample Essay ……………………………………………………………………………………………………………………. 18
Sample Research Paper ………………………………………………………………………………………………………. 19
References ……………………………………………………………………………………………………………………….. 20
2020 [COLUMBIA SOUTHERN UNIVERSITY] 4
What is APA Format and Why is it Used?
The American Psychological Association is a professional organization representing
psychologists in the United
States.
APA format is a set of rules developed to assist with writing
and the citing of sources. Following the rules laid out in the Publication Manual helps to
prevent plagiarism and acknowledges the original author of the information used. It is meant
to provide a concise and standardized citation format for written assignments (such as essays,
research papers, and article critiques, among others) and is used for all Columbia Southern
University courses.
In educational institutions, academic integrity is an area of great concern. Academic
integrity refers to being intellectually honest by “avoiding… cheating, plagiarism, self-
plagiarism, and/or poor scholarship” (Columbia Southern University, 2019, p.28). Adhering to
APA guidelines can prevent academic integrity violations (especially plagiarism) by clearly
marking which words and ideas belong to outside sources. Committing an academic integrity
violation of any kind can have serious consequences.
Plagiarism is the act of stealing someone else’s work and passing it off as one’s own. It
can be deliberate or accidental; deliberate plagiarism includes directly copying, summarizing, or
paraphrasing a source without giving credit to the author or putting it in quotation marks. This
type of plagiarism also includes turning in a paper that has been bought, written by another
student, or copied from another source. Accidental plagiarism is when a writer uses another
author’s thoughts or ideas without realizing credit must be provided. This includes working in
groups and submitting the same answers as other students, forgetting to place quotation marks
around a direct quotation, omitting an in-text citation for a summary or a paraphrase, and
omitting an in-text citation for the ideas of another writer. Accidental plagiarism also includes
submitting an assignment that has already been previously submitted in another course.
Unfortunately, both types of plagiarism can result in a failing grade, suspension from the
university, or even expulsion.
There are a few ways APA can help students avoid plagiarism. The primary way to avoid
it is to cite any ideas that are not one’s own. Citations help readers to locate the sources used in
a paper. Citations should not only be used for direct quotes, but they should also be provided
when information is paraphrased or summarized from another author. Paraphrasing a source’s
material is a good way to avoid copying directly from an outside source and possibly being
reprimanded. If any questions or concerns about APA format, please feel free to contact the
CSU Success Center by email at teamsucceed@columbiasouthern.edu or by phone at (877) 875-
0533.
mailto:teamsucceed@columbiasouthern.edu
2020 [COLUMBIA SOUTHERN UNIVERSITY] 5
Citing Sources
When writing a paper in APA 7th edition style, there are two specific ways to cite the
information that is used: within the text and in the reference list at the end of the paper.
Citations are utilized when a phrase, a piece of specific information, or a sequence of sentences
is drawn from an outside source. To meet APA requirements specified for CSU written essay
responses, in-text citations and a reference list must be included if any outside sources are
used. For formal papers, follow all guidelines listed in this handout. For all rules and
requirements of APA, please refer to the 7th edition of the Publication Manual of the American
Psychological Association, which can be purchased through the American Psychological
Association at https://apastyle.apa.org/products/publication-manual-7th-edition/.
In-text Citations
An in-text citation should be used when a phrase, a piece of specific information, or an
idea is drawn from an outside source.
In-text citations are also required when putting the author’s information in your own
words (paraphrasing).
Citing helps to prevent plagiarism, and it acknowledges the original author of the
information used.
In-text citations and reference citations must always correspond; each in-text citation
must have a matching reference citation and vice-versa. APA uses the author-year
method of citation.
It is standard practice for the period at the end of the sentence to be placed after the
last parentheses of the in-text citation. An exception is made if inserting a direct quote
that contains more than 40 words; in this instance, the period is placed directly before
the in-text citation.
Paraphrased
Information
When paraphrasing or summarizing a source, provide the author’s last name and year of
publication (separated by a comma). Page and paragraph numbers are not required when you
are paraphrasing information. However, be sure to consult with your faculty member to
determine his or her preference on adding page numbers in citations.
Direct Quotations
If utilizing a direct quote, this must be indicated by placing the passage in quotation marks.
Further, the specific page or paragraph number is always required. If there is no page or
paragraph number, as is the case for many electronic sources, provide a section heading or
other label to indicate the passage the quote was borrowed from.
For additional information, please see the Writing Center’s In-text Citations Tutorial.
https://apastyle.apa.org/products/publication-manual-7th-edition/
http://columbiasouthern.adobeconnect.com/in-textcitations7/
2020 [COLUMBIA SOUTHERN UNIVERSITY] 6
Examples of in-text citations
Reference
Type
Examples of in-text citations
Paraphrased
information from
one author
It has been found … can be concluded (Simpson, 2007).
According to Simpson (2007), … can cause problems.
Other people say… based on Simpson (2007).
Paraphrased
information from
two authors
There are … at this point (Stemmer & Tisdale, 2008).
Stemmer and Tisdale (2008) mention … a set of styles.
This plan will … according to Stemmer and Tisdale (2008).
Paraphrased
information from
three or more
authors
When stating…. can be located (Padgett et al., 2004).
Padgett et al. (2004) explain … is further noted.
Direct quotation less
than 40 words
“It is amazing…with confidence” (OSHA, 2010, p. 121).
According to Davis and Dudley (2005), “We are…to save” (para. 5).
“What is lost…come at all” (Ingram et al., 2001, pp. 8-9).
Paraphrased
information with no
author listed
When using data … can be seen (“Title of Document,” 2003).
If information is … was conquered (“Driving and Talking,” 2004).
According to “Leadership Versus Management” (2001), … is an art form.
Information from a
secondary source
It can be found … in Stemmer’s work (as cited in Pratt, 2008).
According to Stemmer’s work (as cited in Pratt, 2008), “…” (p. 65).
**Add the page number if you use a direct quote from Stemmer found in Pratt’s work.
Information via
personal
communication
J. M. Newsome (personal communication, May 30, 2008) expressed …
…of time (V. P. DeLuca, personal communication, November 9, 2007).
**Personal communication should only be listed in the in-text, not on the reference list.
Information found in
classical works
…will have everlasting life (King James Bible, 1769/2017, John 3:16).
…as read in the Bible in John 3:16 (King James Bible, 1769/2017).
2020 [COLUMBIA SOUTHERN UNIVERSITY] 7
Direct Quotations of 40 or more words
Block quotations (quotes that contain 40 words or more) are formatted differently, as they
have no quotation marks. In formal writing, block quotations are acceptable, although their use
should not be in excess. While block quotes are accepted in formal writing, the use of them in
essay responses is not encouraged due to the length of the assignment. Block quotations are
indented an additional .5” and double spaced. The period is placed before the citation.
Block Quotation Example
The solutions proposed by a number of advocacy groups underscore this interest in
political and cultural change. A report outlined trends that may have contributed to the
childhood obesity crisis.
This includes food advertising for children as well as a reduction in physical
education classes and after-school athletic programs, an increase in the availability
of sodas and snacks in public schools, the growth in the number of fast-food outlets,
and the increasing number of highly processed high-calorie and high-fat grocery
products. (Kaiser, 2004, pp. 1-2)
Reference List
The reference list is of the utmost importance, as it allows the reader to access the sources
cited in the in-text and enables the student writer to give credit where credit is due. For this
reason, the references should contain accurate information, as well as proper punctuation and
spelling. References will follow the conclusion of any APA document. For each reference listed,
there will be at least one corresponding in-text citation in the document. Examples of reference
source formatting can be found on the following pages.
If there is a digital object identifier (DOI) available, include that in the reference. The DOI
is precisely used to give the reader information about where the document can be
found on the Internet. The DOI is typically located near the copyright notice on the first
page of the electronic journal article. In the case that there is no DOI, provide the
homepage URL of the web page where you found the article. (Please note the DOI,
when available, is required in doctoral courses.)
Multiple citations containing the same author and year should first be listed
chronologically by the specific date (with newer sources being listed first) and then
alphabetically by the title. A lowercase a, b, c, etc. should be placed after the year to
distinguish between the entries. This is also used in the in-text citations. For example:
Smith, J. (2013a, March 8). How to groom cats. Garden Press.
Smith, J. (2013b, January 20). How to groom dogs. Garden Press.
For additional information, please see the Writing Center’s References Tutorial.
http://columbiasouthern.adobeconnect.com/references7/
2020 [COLUMBIA SOUTHERN UNIVERSITY] 8
Examples of reference list entries
Reference
List
What to Include Information and Examples
General
Referencing
Information
When listing the author on the reference list, the
last name should be first, followed by the
author’s first and middle (if applicable) initials.
For example: Smith, J. R.
References should be placed in alphabetical order
by the first author’s last name, by associates (if
the work is authorized by an organization), or by
anonymous. Anonymous should only be listed as
the author if it is signed as such.
If a particular person did not create the document
being cited, use the organization that created the
document.
The document title can be substituted as the
author if no author is provided. In this case, the
first word of the title will dictate the alphabetical
placement (“a,” “an,” and “the” notwithstanding).
The letters “n.d.” (no date) can be utilized if the
source listed has no listed date. Substitute “n.d.”
where the date would normally go.
For example: Smith, R. T. (n.d.)…
Professional credentials, such as Ph. D., should
not be used on
the reference page.
References beginning with numerals should be
alphabetized based on the spelling of the numeral
States should be identified with their two letter
abbreviations, such as AL, MS, and NY.
Spell out cities and countries outside the United
States.
2020 [COLUMBIA SOUTHERN UNIVERSITY] 9
Reference
List
What to Include Information and Examples
Books
For titles on the reference list, only capitalize the
first word of the title, proper nouns, and the first
word after a colon or dash.
Journal articles and books only require the year,
rather than the entire date.
Book titles should be italicized within the
reference list.
Book
Author(s). (date of
publication). Book
title. Publisher.
Book Examples:
Erickson, C. K. (2007). The science of addiction: From
neurobiology to treatment. W.W. Norton &
Company.
Morenberg, M. (2014). Doing grammar (5th ed.).
Oxford University Press.
Periodicals:
Journals,
magazines,
and
newspaper
articles
For the name of the actual publication the article
appears in (journal, magazine, or newspaper), use
standard title capitalization. Capitalize all words
with the exception of conjunctions, articles, and
short propositions; however, capitalize all words
that have four letters or more.
Magazine articles, newsletters, and newspaper
articles require the listing of the entire date when
available (month or month and day).
For example: (2001, May) or (2001, May 2)
Journal articles and books only require the year.
For journal articles, there is no need to write out
the words volume, issue, p., or pp. The order of
the numbers indicate what they represent.
2020 [COLUMBIA SOUTHERN UNIVERSITY] 10
Reference
List
What to Include Information and Examples
Periodicals:
Journals,
magazines,
and
newspaper
articles
continued
Author(s). (date of
publication). Article
title. Journal Title,
volume (issue), page
numbers.
Retrieval
information.
*Retrieval
information for
online sources can
be either a URL or a
DOI. If neither is
available, treat the
journal like a print
source.
Journal Examples:
Clark, L. B. (2019, April). Education as property.
Virginia Law Review, 105(2), 397-424.
Rouw, R., & Erfanian, M. (2018, March). A large-scale
study of misophonia. Journal of Clinical
Psychology, 74(3), 453-479.
doi:10.1002/jclp.22500.
Smith, J. E. (2003). Addiction and environmental
change. Journal of Personality and Social
Psychology, 66(3), 47-68.
http://www.apa.org/pubs/journals/psp/
Websites
Do not add a period after the retrieval
information (URL or DOI). Otherwise, the
period might be mistaken as part of the URL.
The URL can either be an active hyperlink
(blue and underlined), or the hyperlink
formatting can be removed.
To ensure accuracy, always test the URL prior
to submission.
Italicize the titles of webpages.
Author(s). (date of
publication). Title of
page. Retrieval
information
(including direct
URL)
Website Examples:
Cain, A., & Burris, M. (1999). Investigation of the use
of mobile phones while driving.
http://www.cutr.eng.usf.edu/oldpubs
/mobile_phone
2020 [COLUMBIA SOUTHERN UNIVERSITY] 11
Reference
List
What to Include Information and Examples
Websites
continued
Starbucks Coffee Company. (n.d.). Starbucks social
impact. https://starbucks.com/responsibility
If there is not an author listed, you can use the
company that created the website as an
organizational author.
PowerPoint
slides
The PowerPoint format description in brackets is
used because the format is something out of the
ordinary.
The title of the PowerPoint should be italicized.
Author(s). (date of
publication). Title of
slideshow [Format
of document].
Retrieval
information
PowerPoint Examples:
Sprott, J. C. (2000). Is global warming for real?
[PowerPoint slides].
http://sprott.physics.wisc.edu/
lectures.htm#warming
How to succeed in business [PowerPoint slides].
(n.d.). http://online.columbiasouthern.edu
/webapps.jsp
If there is no author, list the title of the document in
the author’s position.
Personal
conversations,
emails,
interviews,
and letters
Do not include on
the reference page.
Due to retrieval inability, personal conversations,
emails, interviews, and letters should not be listed on
the reference page. Instead, cite these as a personal
communication in the in-text. For an example, see
the chart on page 6 (information via personal
communication).
http://sprott.physics.wisc.edu/%20lectures.htm#warming
http://sprott.physics.wisc.edu/%20lectures.htm#warming
2020 [COLUMBIA SOUTHERN UNIVERSITY] 12
Selecting Appropriate Research Sources
In academic writing, only certain types of resources are considered acceptable. All sources
mentioned in this guide are sources that are considered to be academic. If you have any
questions regarding acceptable and unacceptable sources or how different types of sources can
be used, please contact the CSU Library. Additional information about the CSU Library can be
found on page 17 of this guide.
Formatting
When writing any type of formal paper, the document should have in-text citations and a
reference list, and should be formatted in accordance to APA format. The following are specific
instructions on how to set up a document in APA format using Microsoft Word.
Document formatting in APA style
General
Formatting
Information
Margins All margins (top, bottom, and sides) should be set at one inch.
Microsoft Word allows the user to set the margin at a default of
one inch on all sides.
Page Numbers Page numbers should be listed in the top right corner of the
document, beginning on the title page.
Alignment/
Line Spacing
All documents following APA guidelines are required to be flush-left
style and double-spaced throughout the entire document.
Additional spacing should not be used between headings and
paragraphs.
Font Type and
Size
APA font options include the following:
o Times New Roman, size 12
o Calibri, size 11
o Arial, size 11
o Lucida Sans Unicode, size 10
o Georgia, size 11
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2020 [COLUMBIA SOUTHERN UNIVERSITY] 13
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2020 [COLUMBIA SOUTHERN UNIVERSITY] 15
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2020 [COLUMBIA SOUTHERN UNIVERSITY] 17
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2020 [COLUMBIA SOUTHERN UNIVERSITY] 18
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2020 [COLUMBIA SOUTHERN UNIVERSITY] 19
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2020 [COLUMBIA SOUTHERN UNIVERSITY] 20
References
American Psychological Association. (2020). Publication manual of the American Psychological
Association (7th ed.). https://doi.org/10.1037/0000165-000
Columbia Southern University. (2019). Student handbook.
https://www.columbiasouthern.edu/downloads/pdf/handbook/csustudenthandbook.aspx
In: Small Business ISBN: 978-1-53615-749-9
Editor: John D. Mijovic © 2019 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
This is an edited, reformatted and augmented version of Congressional Research Service,
Publication No. RL33243, dated February 21, 2019.
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EBSCO Publishing : eBook Collection (EBSCOhost) – printed on 1/8/2021 7:17 PM via COLUMBIA SOUTHERN EDUCATION GROUP
AN: 2225683 ; John D. Mijovic.; Small Business: Issues, Programs and Investments
Account: s3921192.main.eds
Robert Jay Dilger and Sean Lowry 2
and create jobs. Many Members of Congress also regularly receive
constituent inquiries about the SBA’s programs.
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 (such as P.L. 111-5, the American
Recovery and Reinvestment Act of 2009, P.L. 111- 240, the
Small
Business Jobs Act of 2010, P.L. 114-38, the Veterans Entrepreneurship
Act of 2015, P.L. 114-88, the Recovery Improvements for Small Entities
After Disaster Act of 2015 [RISE After Disaster Act of 2015], P.L. 115-
123, the Bipartisan Budget Act of 2018, and P.L. 115- 189, the Small
Business 7(a) Lending Oversight Reform Act of 2018).
In addition, it provides an overview of the SBA’s budget and
references other CRS reports that examine these programs in greater
detail.
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Small Business Administration 3
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
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
1 U.S. Congress, Senate Committee on Expenditures, Subcommittee on Investigations, Influence
in Government Procurement, 82nd Cong., 1st sess., September 13-15, 17, 19-21, 24-28,
October 3-5, 1951 (Washington: GPO, 1951) and U.S. Congress, Senate Banking and
Currency, RFC Act Amendments of 1951, hearing on bills to amend the Reconstruction
Finance Corporation Act, 82nd Cong., 1st sess., April 27, 30, May 1, 2, 22, 23, 1951
(Washington: GPO, 1951).
2 P.L. 83-163, the Small Business Act of 1953 (as amended), see http://legcoun.house.gov/
members/Comps/SBA .
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Robert Jay Dilger and Sean Lowry 4
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. Many Members of Congress also
regularly receive constituent inquiries about the SBA’s programs.
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 FY2019 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, PRIME,
the State Trade Expansion Program, and veterans’ programs);
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
3 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-2018- title13-vol1/pdf/CFR-2018-title13-vol
1 .
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Small Business Administration 5
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).
Table 1. Major SBA Program Areas, Estimated Program Costs,
FY2018
($ in millions)
Program Category Estimated Costs
Entrepreneurial Development Programs $354.827
Disaster Loan Programs $183.721
Capital Access Programs $163.945
Contracting Programs $92.419
Regional and District Offices $30.156
Office of Inspector General $29.539
Capital Investment Programs $26.486
Office of Advocacy $12.432
Executive Direction Programs $4.007
Total $897.532
Source: U.S. Small Business Administration, FY2019 Congressional Budget Justification and
FY2017 Annual Performance Report, pp. 18, 19, at https://www.sba.gov/sites/default/
files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_
2_12_post .
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.
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Robert Jay Dilger and Sean Lowry 6
Table 1 shows the SBA’s estimated costs in FY2018 for these program
areas. 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 PROGRAMS4
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:
Small Business Development Centers (SBDCs);
the Microloan Technical Assistance Program;
Women Business Centers (WBCs);
SCORE;
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 (NAO);
the Entrepreneurial Development Initiative (Regional Innovation
Clusters); and
the Entrepreneurship Education Initiative.
4 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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Small Business Administration 7
FY2019 appropriations for these programs are $131 million for
SBDCs, $31 million for the Microloan Technical Assistance Program,
$18.5 million for WBCs, $11.7 million for SCORE, $5 million for PRIME,
$12.7 million for Veterans Programs, $2 million for NAO, $5 million for
the Entrepreneurial Development Initiative (Regional Innovation Clusters),
and $3.5 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: (1) the SBA’s
Growth Accelerators Initiative ($2 million in FY2019) is a capital
investment program and is discussed in the capital access programs
section; (2) the SBA’s 7(j) Technical Assistance Program ($2.8 million in
FY2019) provides contacting assistance and is discussed in the
contracting
programs section; (3) the National Women’s Business Council ($1.5
million in FY2019) is a bipartisan federal advisory council and is discussed
in the executive direction programs section; and (4) the State Trade
Expansion Program (STEP, $18 million in FY2019) 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 over 1 million aspiring entrepreneurs and small
business owners receive training from an SBA-supported resource partner
each year. Some of this training is free, and some is offered at low cost.
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
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Robert Jay Dilger and Sean Lowry 8
provides grants to Microloan intermediaries to offer management and
technical training assistance to Microloan program borrowers and
prospective borrowers.5 There are currently 144 active
Microloan
intermediaries serving 49 states, the District of Columbia, and Puerto
Rico.6
WBCs are similar to SBDCs, except they concentrate on assisting
women entrepreneurs. There are currently 121 WBCs, with at least one
WBC in most states and territories.
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 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.
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.”7
5 For further analysis of the SBA’s Microloan program, see CRS Report R41057, Small Business
Administration
Microloan Program, by Robert Jay Dilger.
6.SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p.
38, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_
2_12_post . As of June 27, 2018, there were no Microloan intermediaries serving
Alaska. 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.
7. P.L. 106-102, the Gramm-Leach-Bliley Act, Section 173. Establishment of Program and
Section 175. Qualified Organizations.
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Small Business Administration 9
The SBA’s Office of Veterans Business Development (OVBD)
administers several management and training programs to assist veteran-
owned 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.”8
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.”9
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.”10 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
8. SBA, “Office of Veterans Business Development: Resources,” at https://www.sba.gov/offices/
headquarters/ovbd/resources/1548576.
9 SBA, FY2017 Congressional Budget Justification and FY2015 Annual Performance Report, p.
64, at https://www.sba.gov/sites/default/files/FY17-CBJ_FY15-APR .
10 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 ..
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Robert Jay Dilger and Sean Lowry 10
business growth.”11 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.”12
DISASTER LOANS
Overview13
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.14
SBA disaster loans are available to individuals, businesses, and
nonprofit organizations in declared disaster areas.15 About 80% of the
SBA’s direct disaster loans are issued to individuals and households
(renters and property owners) to repair and replace homes and personal
property. In recent years, the SBA Disaster Loan 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
11 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 .
12 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 ..
13 For additional information and analysis, see CRS Report R41309, The SBA Disaster Loan
Program: Overview and Possible Issues for Congress, by Bruce R. Lindsay.
14 13 C.F.R. §123.200.
15 13 C.F.R. §123.105 and 13 §123.203.
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Small Business Administration 11
applications. The SBA disbursed $401 million in disaster loans in FY2016,
$889 million in FY2017, and $3.59 billion in FY2018.16
Types of Disaster Loans
The SBA Disaster Loan Program includes the following categories of
loans for disaster-related losses: home disaster loans, business physical
disaster loans, economic injury disaster loans, and predisaster mitigation
loans.17
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.”18 Five categories of declarations put the SBA Disaster Loan
Program into effect. These include two types of presidential major disaster
declarations as authorized by the Robert T. Stafford Disaster Relief and
Emergency Assistance Act (the Stafford Act)19 and three types of SBA
declarations.20
16 SBA, Office of Legislative and Congressional Affairs, correspondence with the author,
December 18, 2018.
17 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.
18 13 C.F.R. §123.2.
19 P.L. 93-288, Disaster Relief Act Amendments and 42 U.S.C. §5721 et seq.
20 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.
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Robert Jay Dilger and Sean Lowry 12
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.21
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.22 The loans may not be used to upgrade homes or build
additions, unless upgrades or changes are required by city or county
building codes. The interest rate for real property loans is determined in the
same way as it is determined for personal property
loans.
21 13 C.F.R. §123.105(a)(1).
22 13 C.F.R. §123.105(a)(2). For mitigation measures implemented after a disaster has occurred
to protect the damaged property from a similar disaster in the future, a homeowner can
request that the approved loan amount be increased by the lesser of the cost of the
mitigation measure or up to 20% of the verified loss (before deducting compensation from
other sources), to a maximum of $200,000. 13 C.F.R. §127.
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Small Business Administration 13
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.23
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.24 If the Secretary of Agriculture designates an agriculture
production disaster, small farms and small cooperatives are eligible. EIDLs
23 13 C.F.R. §123.203.
24 See 13 C.F.R. §123.300 for eligibility requirements. Size standards vary according to a variety
of factors, including industry type, average firm size, and start-up costs and entry barriers.
Size standards can be located in 13 C.F.R. 121. For further information and analysis, see
CRS Report R40860, Small Business Size Standards: A Historical Analysis of
Contemporary Issues, by Robert Jay Dilger.
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Robert Jay Dilger and Sean Lowry 14
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.25
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 1998.26 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.27
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
25 13 C.F.R. §123.302.
26 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.
27 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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Small Business Administration 15
and conditions.”28 With few exceptions, to qualify for SBA assistance, an
organization must be both a business and small.29
What Is a 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;30 and
does not exceed size standards established, and updated
periodically, by the SBA.31
The business may be a sole proprietorship, partnership, corporation, or
any other legal form.
What Is Small?32
The SBA uses two measures to determine if a business is small: SBA-
derived industry specific size standards or a combination of the business’s
net worth and net income. For example, businesses participating in the
28 SBA, Fiscal Year 2010 Congressional Budget Justification, p. 30, at
https://www.sba.gov/sites/default/files/ Congressional_Budget_Justification_2010 .
29 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.
30 13 C.F.R. §121.105.
31 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.
32 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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Robert Jay Dilger and Sean Lowry 16
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.33
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 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.”34 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.”35
33 13 C.F.R. §121.201 and P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size
Standards.
34 SBA, Office of Government Contracting and Business Development, “SBA Size Standards
Methodology,” April 2018, pp. 29, 30, at http://www.sba.gov/sites/default/files/size_
standards_methodology .
35 Ibid., p. 1.
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Small Business Administration 17
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 120.110.36 With one exception,
nonprofit and charitable organizations are also ineligible.37
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.
36 Title 13 of the Code of Federal Regulations can be viewed at https://www.gpo.gov/fdsys/
browse/collectionCfr.action?selectedYearFrom=2016&go=Go.
37 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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Robert Jay Dilger and Sean Lowry 18
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.38 In
addition, lenders are authorized to collect fees from borrowers to offset
their administrative expenses.
In an effort to assist small business owners, in FY2019, the SBA is
waiving
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
reducing the up-front one-time guaranty fee for these loans from
2.0% to 0.6667% of the guaranteed portion of the loan in
FY2019;39 and
pursuant to P.L. 114-38, the Veterans Entrepreneurship Act of
2015, the up-front, one-time guaranty fee on all veteran loans
under the 7(a) SBAExpress program (up to and including
$350,000).40
The SBA’s goal is to achieve a zero subsidy rate, meaning that the
appropriation of budget authority for new loan guaranties is not required.
As shown in Table 2, the SBA’s fees and proceeds from loan
liquidations do not always generate sufficient revenue to cover loan losses,
resulting in the need for additional appropriations to account for the
shortfall. However, “due to the continued improvement in performance in
the loan portfolio,” the SBA did not request funding for credit subsidies for
the 7(a) and 504/CDC loan guaranty programs in FY2016-FY2019.41
38 15 U.S.C. §636(a)(23)(a).
39 SBA, “SBA Information Notice: 7(a) Fees Effective on October 1, 2018,” at
https://www.sba.gov/document/ information-notice-5000-180010-7a-fees-effective-october-
1-2018.
40 The SBA had waived the up-front, one-time guaranty fee on all veteran loans under the 7(a)
SBAExpress program from January 1, 2014, through the end of FY2015. P.L. 114-38 made
the SBAExpress program’s veteran fee waiver permanent, except during any upcoming
fiscal year for which the President’s budget, submitted to Congress, includes a cost for the
7(a) program, in its entirety, that is above zero. The SBA waived the fee, pursuant to P.L.
114-38, in FY2016, FY2017, and FY2018.
41 SBA, FY2016 Congressional Budget Justification and FY2014 Annual Performance Report, p.
6, at https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%202014%
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Small Business Administration 19
7(a) Loan Guaranty Program42
Table 2. SBA Business Loan Subsidies, Authorized Amounts,
FY2010-FY2019 ($ in millions)
Fiscal Year 7(a) Loan Guaranty
Program
504/CDC Loan
Guaranty Program
Microloan
Program
Total
Subsidy
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
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-budgetjustification-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; and P.L. 116-6, the Consolidated
Appropriations Act, 2019.
aIn 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.
bIn 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.
20APR.PDF; U.S. Office of Management and Budget, Budget of the United States
Government, Fiscal Year 2017; Appendix: Small Business Administration, pp. 1213-1223,
at https://www.gpo.gov/fdsys/pkg/BUDGET-2017-APP/pdf/BUDGET-2017-APP-1-
29 ; U.S. Office of Management and Budget, “Appendix: Budget of the U. S.
Government, Fiscal Year 2018,” p. 1105, at https://www.whitehouse.gov/sites/
whitehouse.gov/files/omb/budget/fy2018/sba ; and SBA, FY2019 Congressional Budget
Justification and FY2017 Annual Performance Report, pp. 8, 14, at
https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_po
st .
42 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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Robert Jay Dilger and Sean Lowry 20
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.
In FY2018, the SBA approved 60,353 7(a) loans totaling nearly $25.4
billion.43 In FY2017, there were 1,978 active lending partners providing
7(a) loans.44
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.45 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.46
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,
43 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2018),” at
https://www.sba.gov/sites/default/files/aboutsbaarticle/WebsiteReport_asof_20180930 .
44 SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p.
30, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_
2_12_post .
45 13 C.F.R. §120.213.
46 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.
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Small Business Administration 21
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).47 The
adjustment period can be no more than monthly and cannot change over
the life of the loan.
Table 3. Summary of the 7(a) Loan Guaranty Program’s Key Features
Key Feature Program Summary
Use of Proceeds Fixed assets, working capital, financing of start-ups, or to purchase an
existing business; some debt payment 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
Rates
For fixed rate loans of $25,000 or less, prime plus 800 basis points; 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 FY2019). 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
FY2019 for most loans); up to 3% for loans of $150,001 to $700,000 (3%
in FY2019 for most loans); up to 3.5% for loans of more than $700,000
(3.5% in FY2019); and up to 3.75% for the guaranty portion over $1
million (3.75% in FY2019). The SBA is also allowed to charge an ongoing,
annual servicing fee of up to 0.55% (0.55% in FY2019).
Job Creation
No job creation requirements.
Source: Table compiled by CRS from data from the SBA.
Notes: In FY2019, the SBA is waiving 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 is reducing 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 is also waiving the up-front, onetime loan guaranty fee for all veteran loans under the 7(a)
SBAExpress program (loans of up to $350,000) because the subsidy rate for the 7(a) program for
FY2019 is zero.
47 SBA, “SOP 50 10 5(J): Lender and Development Company Loan Programs,” (effective
January 1, 2018), p. 147, at https://www.sba.gov/sites/default/files/2017-11/SOP%2050
%2010%205%28J%29 .
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Robert Jay Dilger and Sean Lowry 22
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 $350,000 or
less), 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 provides a 50% loan guarantee on loan
amounts of $350,000 or less.48 The loan proceeds can be used for the same
purposes as the 7(a) program, except participant debt restructuring cannot
exceed 50% of the project and may be used for revolving credit. The
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
48 P.L. 111-240, the Small Business Jobs Act of 2010, temporarily increased the SBAExpress
program’s loan limit to $1 million for one year following enactment (through September 26,
2011).
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Small Business Administration 23
scheduled to operate through September 30, 2022.49 As of September 12,
2018, there were 113 approved CA lenders, 99 of which were actively
making and servicing CA loans.50 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.51
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.
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.
49 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.
50 SBA, “Community Advantage Pilot Program,” 83 Federal Register 46238, September 12,
2018.
51 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.
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Robert Jay Dilger and Sean Lowry 24
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 Program52
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.53 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
52 For further information and analysis, see CRS Report R41184, Small Business Administration
504/CDC Loan Guaranty Program, by Robert Jay Dilger.
53 A debenture is a bond that is not secured by a lien on specific collateral.
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Small Business Administration 25
goals. In FY2018, the SBA approved 5,874 504/CDC loans totaling nearly
$4.8 billion.54
Table 4. Summary of the 504/CDC Loan Guaranty Program’s
Key Features
Key Feature Program Summary
Use of
Proceeds
Fixed assets only—no working capital.
Maximum
Loan Amount
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
Requirements
504/CDC projects generally have three main participants: a third-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 FY2019), an annual servicing fee of up to 0.9375%
of the unpaid principal balance (0.368% for regular 504/CDC loans and 0.395% for
504/CDC debt refinance loans in FY2019), 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
Requirements
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 it meets any
one of 15 community or public policy goals.
Source: Table compiled by CRS from data from the SBA.
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.
54 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2018),” at
https://www.sba.gov/sites/default/files/aboutsbaarticle/WebsiteReport_asof_20180930 .
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Robert Jay Dilger and Sean Lowry 26
Table 4 summarizes the 504/CDC loan guaranty program’s key
features.
International Trade and Export Promotion Programs55
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.56
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
55 For further information and analysis, see CRS Report R43155, Small Business Administration
Trade and Export Promotion Programs, by Sean Lowry.
56 The International Trade loan program limits its guaranty for working capital to $4 million
($4.444 million gross loan amount).
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Small Business Administration 27
shares several of the characteristics of the standard International Trade loan
program, such as an expedited approval process in exchange for a lower
maximum loan amount ($500,000 compared with $5 million) and a lower
percentage of guaranty.
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, and $18 million annually since FY2016.57
The Microloan Program58
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.
57 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.
58 For further information and analysis, see CRS Report R41057, Small Business Administration
Microloan Program, by Robert Jay Dilger.
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Robert Jay Dilger and Sean Lowry 28
Table 5. Summary of the Microloan Program’s Key Features
Key Feature Program Summary
Use of proceeds Working capital and acquisition of materials, supplies, furniture, fixtures,
and equipment. Loans cannot be made to acquire land or property.
Maximum Loan
Amount
$50,000.
Maturity Up to six years.
Maximum Interest
Rates
The 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%
Guaranty Fees The SBA does not charge intermediaries up-front or ongoing service fees
under the Microloan program.
Job Creation
Requirements
No job creation requirements.
Source: Table compiled by CRS from data from the SBA.
In FY2018, 5,459 small businesses received a Microloan, totaling
$76.8 million.59 The average Microloan was $14,071 and the average
interest rate was 7.6%.60
Table 5 summarizes the Microloan program’s key features.
59 SBA, “Nationwide Microloan Report, October 1, 2017 through September 30, 2018,” October
26, 2018.
60 Ibid.
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Small Business Administration 29
CONTRACTING PROGRAMS61
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, 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:
8(a) Program.62 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.63 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.
61 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.
62 For additional information and analysis, see CRS Report R44844, SBA’s “8(a) Program”:
Overview, History, and Current Issues, by Robert Jay Dilger.
63 Section 8(a) of the Small Business Act, P.L. 85-536, as amended, can be found at 15 U.S.C.
637(a). Regulations are in 13 C.F.R. §124. For recent legal developments, see CRS Report
R40987, “Disadvantaged” Small Businesses: Definitions and Designations for Purposes of
Federal and Federally Funded Contracting Programs, coordinated by Erika K. Lunder.
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Robert Jay Dilger and Sean Lowry 30
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 FY2017, the federal
government awarded $27.2 billion to 8(a) firms. About $16.4
billion of that amount was awarded with an 8(a) preference ($8
billion through an 8(a) set-aside and $8.4 billion through an 8(a)
sole-source award). About $4.8 billion was awarded to an 8(a) firm
in open competition with other firms. The remaining $6 billion
was awarded with another small business preference (e.g., set aside
and sole source awards for small business generally and for
HUBZone firms, women-owned small businesses, and service-
disabled veteran-owned small businesses).64
Historically Underutilized Business Zone Program.65 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 FY2017, the federal government awarded $7.53
billion to HUBZone-certified small businesses. About $1.90
billion of that amount was awarded with a HUBZone preference
($1.49 billion through a HUBZone set-aside, $65.3 million through
a HUBZone sole-source award, and $346.9 million through a
HUBZone price-evaluation preference). About $1.53 billion was
awarded to HUBZone certified small businesses in open
competition with other firms. The remaining $4.10 billion was
awarded with another small business preference (e.g., set aside and
64 U.S. General Services Administration (GSA), Federal Procurement Data System—Next
Generation, accessed on June 5, 2018, at https://www.fpds.gov/fpdsng/.
65 For additional information and analysis, see CRS Report R41268, Small Business
Administration HUBZone Program, by Robert Jay Dilger.
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Small Business Administration 31
sole source awards for small business generally and for 8(a),
women-owned, and service-disabled veteran-owned small
businesses).66
Service-Disabled Veteran-Owned Small Business Program. This
program assists service-disabled veteran-
owned small businesses
through set-asides and sole-source awards. For purposes of this
program, veterans and service-related disabilities are defined as
they are under the statutes governing veterans affairs.67
In FY2017, the federal government awarded $18.2 billion to
service-disabled veteran-owned small businesses. About $6.8
billion of that amount was awarded through a service-disabled
veteran-owned small business set aside award. About $4.3 billion
of that amount was awarded to a service-disabled veteran-owned
small business in open competition with other firms. The
remaining $7.1 billion was awarded with another small business
preference (e.g., set aside and sole source awards for small
business generally and for HUBZone firms, 8(a) firms, and
women-owned small businesses).68
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
66 GSA, Federal Procurement Data System—Next Generation, accessed on June 5, 2018, at
https://www.fpds.gov/ fpdsng/.
67 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.
68 GSA, Federal Procurement Data System—Next Generation, accessed on June 5, 2018, at
https://www.fpds.gov/ fpdsng/.
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Robert Jay Dilger and Sean Lowry 32
$4 million ($6.5 million for manufacturing contracts).69 In
FY2017, the federal government awarded $21.3 billion to women
owned small businesses. About $648.9 million of that amount was
awarded with a women owned small business preference ($580.5
million through a women owned small business set-aside and
$68.4 million through a women owned small business sole-source
award). About $7.0 billion of that amount was awarded to a
women owned small business in open competition with other
firms. The remaining $13.7 billion was awarded with another
small business preference (e.g., set aside and sole source awards
for small business generally and for HUBZone firms, 8(a) firms,
and service-disabled veteran-owned small businesses).70
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.
69 P.L. 113-291, the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization
Act for Fiscal Year 2015.
70 GSA, Federal Procurement Data System—Next Generation, accessed on June 5, 2018, at
https://www.fpds.gov/ fpdsng/.
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Small Business Administration 33
Federal agencies must negotiate “subcontracting plans” with the
apparently successful bidder or offeror on eligible prime contracts prior to
awarding the contract.
Subcontracting plans set goals for the percentage of subcontract dollars
to be awarded to SDBs, among others, and describe efforts that will be
made to ensure that SDBs “have an equitable opportunity to compete for
subcontracts.” Federal agencies may also consider the extent of
subcontracting with SDBs in determining to whom to award a contract or
give contractors “monetary incentives” to subcontract with SDBs.
As of February 21, 2019, the SBA’s Dynamic Small Business Search
database included 2,493 SBA-certified SDBs and 104,861 self-certified
SDBs.71
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.”72
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.”73
In FY2017, the 7(j) Management and Technical Assistance program
assisted 4,100 small businesses.74
71 SBA, “Dynamic Small Business Search,” at http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm.
72 13 C.F.R. §124.702.
73 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 .
74 SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p.
74, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_
2_12_post .
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Robert Jay Dilger and Sean Lowry 34
Surety Bond Guarantee Program75
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.76 The program
guarantees individual contracts of up to $6.5 million and up to $10 million
if a federal contracting officer certifies that such a guarantee is necessary.
The SBA’s guarantee ranges from not to exceed 80% to not to exceed 90%
of the surety’s loss if a default occurs.77 In FY2018, the SBA guaranteed
10,800 bid and final surety bonds with a total contract value of nearly $6.5
billion.78
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.79
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
75 For additional information and analysis, see CRS Report R42037, SBA Surety Bond Guarantee
Program, by Robert Jay Dilger.
76 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.
77 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.
78 SBA Office of Congressional and Legislative Affairs, correspondence with the author,
February 15, 2019.
79 SBA, “Surety Bonds,” at https://www.sba.gov/category/navigation-structure/loans-
grants/bonds/surety-bonds.
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Small Business Administration 35
experience of larger businesses and are considered to be at greater risk of
failing to comply with the contract’s terms and conditions.80
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.81
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.82
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.”83 The SBA was required to
report to the President annually on the attainment of these goals and to
include this information in an annual report to Congress.84 The SBA
80 Ibid.
81 P.L. 95-507, a bill to amend the Small Business Act and the Small Business Investment Act of
1958.
82 P.L. 100-656, the Business Opportunity Development Reform Act of 1988.
83 Ibid.
84 Ibid.
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Robert Jay Dilger and Sean Lowry 36
negotiates the goals with each federal agency and establishes a “small
business eligible” baseline for evaluating the agency’s performance.
The small business eligible baseline excludes certain contracts that the
SBA has determined do not realistically reflect the potential for small
business participation in federal procurement (such as 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 Federal
Procurement Data System (such as contracts valued below $10,000 and
government procurement card purchases).85 These exclusions typically
account for 18% to 20% of all federal prime contracts each
year.
The SBA then evaluates the agencies’ performance against their
negotiated goals annually, using data from the Federal Procurement Data
System—Next Generation, managed by the U.S. General Services
Administration, to generate the small business eligible baseline. This
information is compiled into the official Small Business Goaling Report,
which the SBA releases annually.
Over the years, federal government-wide procurement contracting
goals have been established for small businesses generally (P.L. 100-656,
the Business Opportunity Development Reform Act of 1988, and P.L. 105-
135, the HUBZone Act of 1997—Title VI of the Small Business
Reauthorization Act of 1997), small businesses owned and controlled by
socially and economically disadvantaged individuals (P.L. 100-656, the
Business Opportunity Development Reform Act of 1988), women (P.L.
103-355, the Federal Acquisition Streamlining Act of 1994), small
businesses located within a HUBZone (P.L. 105-135, the HUBZone Act of
1997—Title VI of the Small Business Reauthorization Act of 1997), and
small businesses owned and controlled by a service disabled veteran (P.L.
85 SBA, Office of Policy, Planning & Liaison, Office of Government Contracting & Business
Development, “FY 2018 Goaling Guidelines,” August 30, 2017, p. 3, at
https://www.sba.gov/document/report–sba-goaling-guidelines and U.S. General Services
Administration (GSA), Federal Procurement Data System—Next Generation, “What’s In
FPDS-NG,” at https://www.fpds.gov/wiki/index.php/FPDS-NG_FAQ.
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Small Business Administration 37
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.86
Although there are no punitive consequences for not meeting the small
business procurement goals, the SBA’s Small Business Goaling Report is
distributed widely, receives media attention, and serves to heighten public
awareness of the issue of small business contracting. For example, agency
performance as reported in the SBA’s Small Business Goaling Report is
often cited by Members during their questioning of federal agency
witnesses during congressional hearings.
As shown in Table 6, the FY2017 Small Business Goaling Report,
using data in the Federal Procurement Data System, indicates that federal
agencies met the federal contracting goal for small businesses generally,
small disadvantaged businesses, and service-disabled veteran-owned small
businesses in FY2017.
86 15 U.S.C. §644(g)(1)-(2).
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Robert Jay Dilger and Sean Lowry 38
Table 6. Federal Contracting Goals and Percentage of FY2017 Federal
Contract Dollars Awarded to Small Businesses, by Type
Business Type Federal
Goal
Percentage of FY2017
Federal Contracts Small
Business Eligible
All
Reported
Contracts
Small Businesses 23.0% 23.88% 21.70%
Small Disadvantaged Businesses 5.0% 9.10% 8.41%
Women-Owned Small Businesses 5.0% 4.71% 4.20%
HUBZone Small Businesses 3.0% 1.65% 1.48%
Service-Disabled Veteran- Owned
Small Businesses
3.0% 4.05% 3.59%
Sources: SBA, “Statutory Guidelines,” at https://www.sba.gov/content/statutory-guidelines-0 (federal
goals); U.S. General Services Administration (GSA), Federal Procurement Data System—Next
Generation, “Small Business Goaling Report: Fiscal Year 2017,” at https://www.fpds.gov/
downloads/top_requests/FPDSNG_SB_Goaling_FY_2017 ; and GSA, Federal Procurement
Data System—Next Generation, at https://www.fpds.gov/fpdsng/ (contract dollars).
Notes: The Federal Procurement Data System (FPDS) is a dynamic system with records updated daily.
The Small Business Goaling Report for FY2017 reports that small business eligible contracts, as
of May 18, 2018, totaled $442.5 billion and that $105.7 billion was awarded to small businesses,
$40.2 billion to small disadvantaged businesses, $20.8 billion to women-owned small businesses,
$7.3 billion to SBA-certified HUBZone small businesses, and $17.9 billion to service-disabled
veteran-owned small businesses. The Small Business Goaling Report for FY2017 does not
indicate the total amount of federal contracts reported in the FPDS on May 18, 2018. The
percentages provided in the column for all reported contracts in FY2017 were calculated using
FPDS data for all contracts as reported on June 5, 2018: $508.8 billion in total contracts; $110.4
billion to small businesses, $42.8 billion to small disadvantaged businesses, $21.4 billion to
women-owned small businesses, $7.5 billion to SBA-certified HUBZone small businesses, and
$18.3 billion to service-disabled veteran-owned small businesses.
Federal agencies awarded 23.88% of the value of their small business
eligible contracts ($442.5 billion) to small businesses ($105.7 billion),
9.10% to small disadvantaged businesses ($40.2 billion), 4.71% to women-
owned small businesses ($20.8 billion), 1.65% to HUBZone small
businesses ($7.3 billion), and 4.05% to service-disabled veteran-owned
small businesses ($17.9 billion).87
87 U.S. General Services Administration, Federal Procurement Data System—Next Generation,
“Small Business Goaling Report: Fiscal Year 2017,” at https://www.fpds.gov/downloads/
top_requests/FPDSNG_SB_Goaling_FY_2017 .
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Small Business Administration 39
The percentage of total reported federal contracts (without exclusions)
awarded to those small businesses in FY2017 is also provided in the table
for comparative purposes.
Office of Small and Disadvantaged Business
Utilization
Government agencies with procurement authority have an Office of
Small and Disadvantaged Business Utilization (OSDBU) to advocate
within the agency for small businesses, as well as assist small businesses in
their dealings with federal agencies (e.g., obtaining payment).
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.”88
SBA district offices focus “on core SBA programs concerning
contracting, capital, technical assistance, and exporting.”89
88 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 .
89 Ibid.
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Robert Jay Dilger and Sean Lowry 40
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 (505 in FY2017) to validate compliance with the HUBZone
program’s geographic requirement for principal offices.90
OFFICE OF INSPECTOR GENERAL91
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.”92 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.”93 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;
90 SBA, FY2019 Congressional Budget Justification and FY2017 Annual Performance Report, p.
73, at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_19_508Final5_
1 .
91 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
92 SBA, “Office of Inspector General,” at https://www.sba.gov/office-of-inspector-general.
93 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%202012-2017%20Strategic%20
Plan%20 .
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Small Business Administration 41
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
report violations of Federal criminal law to the Attorney
General.”94
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, 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 Program95
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 longterm loan funds which small-
business concerns need for the sound financing of their business operations
94 Ibid.
95 For further information and analysis, see CRS Report R41456, SBA Small Business Investment
Company Program, by Robert Jay Dilger.
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Robert Jay Dilger and Sean Lowry 42
and for their growth, expansion, and modernization, and which are not
available in adequate supply.”96
The SBA works with 305 privately owned and managed SBICs
licensed by the SBA to provide financing to small businesses with private
capital the SBIC has raised and with funds the SBIC borrows at favorable
rates because the SBA guarantees the debenture (loan obligation).
SBICs provide equity capital to small businesses in various ways,
including by
purchasing small business equity securities (e.g., stock, stock
options, warrants, limited partnership interests, membership
interests in a limited liability company, or joint venture interests);97
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;98
purchasing debt securities from small businesses, which may be
convertible into, or have rights to purchase, equity in the small
business;99 and
subject to limitations, providing small businesses a guarantee of
their monetary obligations to creditors not associated with the
SBIC.100
The SBIC program currently has invested or committed about $30.1
billion in small businesses, with the SBA’s share of capital at risk about
96 15 U.S.C. §661.
97 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.
98 13 C.F.R. §107.810 and 13 C.F.R. §107.840.
99 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.
100 13 C.F.R. §107.820.
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Small Business Administration 43
$14.3 billion.101 In FY2018, the SBA committed to guarantee $2.52 billion
in SBIC small business investments. SBICs invested another $2.98 billion
from private capital for a total of $5.50 billion in financing for 1,151 small
businesses.102
Table 7. Summary of Small Business Investment
Company Program’s Key Features
Key Feature Program Summary
Use of
Proceeds
To purchase small business equity securities, make loans to small businesses,
purchase debt securities from small businesses, and provide, subject to
limitations, small businesses a guarantee of their monetary obligations to
creditors not associated with the SBIC.
Maximum
Leverage
Amount
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.
Maturity SBA-guaranteed debenture participation certificates can have a term of up to 15
years, although currently only one outstanding SBA-guaranteed debenture
participation certificate has a term exceeding 10 years and all recent public
offerings have specified a term of 10 years. SBA-guaranteed debentures provide
for 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).
Maximum
Interest Rates
The debenture’s coupon (interest) rate is determined by market conditions and
the interest rate of 10-year Treasury securities at the time of the sale.
Guaranty Fees The SBA requires the SBIC to pay a 3% origination fee for each debenture
issued (1% at commitment and 2% at draw), an annual fee on the leverage
drawn, which is fixed at the time of the leverage commitment, and other
administrative and underwriting fees, which are adjusted annually.
Job Creation
Requirements
No job creation requirements.
Source: Table compiled by CRS from data from the SBA.
101 SBA, “Small Business Investment Company (SBIC) Program Overview, as of September
30, 2018,” at https://www.sba.gov/article/2018/nov/16/fiscal-year-data-period-ending-
september-30-2018.
102 Ibid.
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Robert Jay Dilger and Sean Lowry 44
New Market Venture Capital Program103
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
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
103 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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Small Business Administration 45
portion of the NMVC companies’ active unpaid principal balance) peaked
at $698 million in FY2008, and then fell each year thereafter until reaching
$0 in FY2018.
Small Business Innovation Research Program104
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.105 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.106 Agency SBIR efforts
involve a three-phase process. During Phase I, awards of up to $163,952
for six months are made to evaluate a concept’s scientific or technical
merit and feasibility. The project must be of interest to and coincide with
the mission of the supporting organization. Projects that demonstrate
potential after the initial endeavor may compete for Phase II awards of up
104 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.
105 See P.L. 97-219, the Small Business Innovation Development Act of 1982 and 15 U.S.C.
§638.
106 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.
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Robert Jay Dilger and Sean Lowry 46
to $1.09 million, lasting one to two years.107 Phase II awards are for the
performance of the principal R&D by the small business. Phase III
funding, directed at the commercialization of the product or 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).108 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
107 See SBA, “About SBIR: Dollar Amount of Awards Adjusted for Inflation,” at
https://www.sbir.gov/about/aboutsbir. Agencies may issue an award exceeding these award
guideline amounts by no more than 50%.
108 See SBA, “About SBIR: SBIR Participating Agencies,” at https://www.sbir.gov/about/about-
sbir.
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Small Business Administration 47
agency.109 Up to $163,952 in Phase I financing is available for
approximately one year to fund the exploration of the scientific, technical,
and commercial feasibility of an idea or technology. Phase II awards of up
to $1.09 million may be made for two years, during which time the
developer performs R&D work and begins to consider commercial
potential. Agencies may issue an award exceeding these award guidelines
by no more than 50%.110 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.111 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.”112 Growth accelerators are
109 See P.L. 102-564, the Small Business Research and Development Enhancement Act of 1992
and 15 U.S.C. §638.
110 See SBA, “About STTR: Dollar Amount of Awards Adjusted for Inflation,” at
https://www.sbir.gov/about/aboutsttr. Agencies may issue an award exceeding these award
guideline amounts by no more than 50%.
111 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.
112 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 .
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Robert Jay Dilger and Sean Lowry 48
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, job, and sourcing outside funding.”113
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, and
$2 million in FY2019. 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).”114
OFFICE OF ADVOCACY115
The SBA’s Office of Advocacy is “an independent voice for small
business within the federal government.”116 The Chief Counsel for
Advocacy, who is nominated by the President and confirmed by the
Senate, directs the office. The Office of Advocacy’s mission is to
“encourage policies that support the development and growth of American
small businesses” by
intervening early in federal agencies’ regulatory development
process on proposals that affect small businesses and providing
Regulatory Flexibility Act compliance training to federal agency
policymakers and regulatory development officials;
113 Ibid.
114 SBA, “SBA Growth Accelerator Fund Competition: The 2017 Growth Accelerator Fund
Competition,” at https://www.sba.gov/node/1428931/leadership/.
115 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.
116 SBA, “Office of Advocacy: About Us,” at https://www.sba.gov/category/advocacy-
navigation-structure/about-us-0.
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Small Business Administration 49
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.117
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
and private sector marketplaces—from start-up to success to
significance.”118
117 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 .
118 The National Women’s Business Council, “About the Council,” Washington, DC, at
https://www.nwbc.gov/about/.
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Robert Jay Dilger and Sean Lowry 50
Office of Ombudsman119
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.”120 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.121
Faith-Based Initiatives
The SBA sponsors several faith-based initiatives For example, the
SBA, in cooperation with the National Association of Government
Guaranteed Lenders (NAGGL), created the Business Smart Toolkit, “a
ready-to-use workshop toolkit that equips faith-based and community
119 For further information and analysis see CRS Report R45071, SBA Office of the National
Ombudsman: Overview, History, and Current Issues, by Robert Jay Dilger.
120 SBA, “Office of the National Ombudsman and Assistant Administrator for Regulatory
Enforcement Fairness,” at https://www.sba.gov/ombudsman.
121 SBA, “National Ombudsman’s Fiscal Year Reports to Congress,” at https://www.
sba.gov/ombudsman/nationalombudsmans-fiscal-year-reports-congress.
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Small Business Administration 51
organizations to help new and aspiring entrepreneurs launch and build
businesses that are credit ready.”122
LEGISLATIVE ACTIVITY
During the 111th Congress
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.123
122 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-and-
naggl-launch-business-smart-toolkit.
123 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
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
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Robert Jay Dilger and Sean Lowry 52
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).124 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.
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.
124 P.L. 112-17, the Small Business Additional Temporary Extension Act of 2011.
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Small Business Administration 53
During the 114th Congress
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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Robert Jay Dilger and Sean Lowry 54
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.125 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 FY2020.126 In terms of program administration, P.L. 114
125 allows the SBA’s Associate Administrator (AA) for
International Trade to give priority to STEP proposals from states
125 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.
126 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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Small Business Administration 55
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
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 FY
2016.
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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Robert Jay Dilger and Sean Lowry 56
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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Small Business Administration 57
During the 116th Congress
P.L. 116-6, the Consolidated Appropriations Act, 2019, increased
the 7(a) program’s authorization limit to $30.0 billion in FY2019.
APPROPRIATIONS127
The SBA’s received an appropriation of $887.604 million for FY2015,
$871.042 million for FY2016, $1.337 billion for FY2017, $2.360 billion
for FY2018, and $715.370 million for FY2019.
As shown in Table 8, the SBA’s FY2019 appropriation of $715.37
million includes
$267.50 million for salaries and expenses,
$247.70 million for entrepreneurial development and noncredit
programs,
$155.15 million for business loan administration,
$4.0 million for business loan credit subsidies (for the Microloan
program),
$21.9 million for Office of Inspector General,
$9.12 million for the Office of Advocacy, and
$10.0 million for disaster assistance.128
127 For further information concerning SBA appropriations, see CRS Report R43846, Small
Business Administration (SBA) Funding: Overview and Recent Trends, by Robert Jay
Dilger.
128 P.L. 115-123, the Bipartisan Budget Act of 2018 and P.L. 115-141, the Continuing
Appropriations Act, 2018.
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Robert Jay Dilger and Sean Lowry 58
Table 8. SBA Appropriations, FY2015-FY2019
($ in millions)
Program Account FY2015 FY2016 FY2017 FY2018 FY2019
Salaries and Expenses $257.000 $268.000 $269.500 $268.500 $267.500
Entrepreneurial Development $220.000 $231.100 $245.100 $247.100 $247.700
Business Loan Administration $147.726 $152.726 $152.726 $152.782 $155.150
Business Loan Credit Subsidy $47.500 $3.338 $4.338 $3.438 $4.000
Office of Inspector General $19.400 $19.900 $19.900 $26.900 $21.900
Office of Advocacy $9.120 $9.120 $9.220 $9.120 $9.120
Disaster Assistance $186.858 $186.858 $185.977 $0.000 $10.000
Disaster Assistance $0.000 $0.000 $450.000 $1,652.000 $0.000
Supplemental
Total $887.604 $871.042 $1,336.761 $2,359.840 $715.370
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; and P.L. 116-6, the Consolidated Appropriations Act, 2019.
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.
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In: Small Business ISBN: 978-1-53615-749-9
Editor: John D. Mijovic © 2019 Nova Science Publishers, Inc.
Chapter 2
SMALL BUSINESS ADMINISTRATION:
ACTIONS NEEDED TO IMPROVE
CONFIDENCE IN SMALL BUSINESS
PROCUREMENT SCORECARD*
United States Government Accountability Office
ABBREVIATIONS
2016 NDAA National Defense Authorization Act for Fiscal
Year 2016
eSRS Electronic Subcontracting Reporting System
FPDS-NG Federal Procurement Data System-Next
Generation
GSA General Services Administration
HUBZone Historically Underutilized Business Zone
* This is an edited, reformatted and augmented version of United States Government
Accountability Office, Report to Congressional Committees, Publication No. GAO-18-672,
dated September 2018.
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United States Government Accountability Office 60
MOSRC Management and Operating Subcontract
Reporting Capability
OSDBU Office of Small and Disadvantaged Business
Utilization
SBA Small Business Administration
Scorecard Small Business Procurement Scorecard
WHY GAO DID THIS STUDY
Each year SBA produces a scorecard measuring federal contract
spending allocated to small businesses. The 2016 NDAA included a
provision for SBA to revise the scorecard’s methodology and for GAO to
evaluate the effects of those revisions for fiscal year 2017. This chapter
discusses, among other things, (1) SBA’s changes to the scorecard
methodology and plans, if any, to evaluate the effects of these changes, (2)
the extent to which SBA has processes to disseminate reliable information,
and (3) views of selected stakeholders on the scorecard’s effects on small
business procurement
opportunities.
GAO analyzed SBA’s prior and revised scorecard methodology and
results and interviewed officials from SBA, four other federal agencies
selected based on small business procurement volume and other attributes,
and three groups representing the interests of small businesses.
WHAT GAO RECOMMENDS
GAO is recommending that SBA (1) design and implement a
comprehensive evaluation to assess scorecard revisions and (2) institute a
process for reviewing scorecards for accuracy prior to publication and a
mechanism for disclosing corrected information. SBA generally agreed
with GAO’s recommendations.
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Small Business Administration 61
WHAT GAO FOUND
For fiscal year 2017, the Small Business Administration (SBA) revised
the methodology for its Small Business Procurement Scorecard, which is
used to assess federal agencies’ progress toward small business
procurement goals. SBA made revisions to address requirements specified
in the National Defense Authorization Act for Fiscal Year 2016 (2016
NDAA). SBA (1) reduced the share of the total scorecard grade devoted to
prime contracting achievement, which is the dollar amount of contracts
awarded directly to small businesses, and (2) added an element calculating
changes in the number of small businesses receiving prime contracts. SBA
made two additional revisions—with input from other agencies’
representatives—to increase the share of subcontracting achievement
results and peer review of required activities designed to facilitate small
business procurement (see Figure).
Source: GAO presentation of Small Business Administration information. | GAO-18-
672.
Note: Prime contracting involves direct federal awards to a contractor.
Subcontracting
involves decisions by prime contractors to allocate certain activities and payments
to other businesses. The peer review process assesses federal agencies’
compliance with required activities designed to facilitate small business
procurement.
Changes to Small Business Procurement Scorecard Methodology by Scorecard
Element, Fiscal Years (FY) 2016 and 2017 (Scorecard elements are expressed as a
percentage of total scorecard grade).
In July 2018, officials said they had begun developing a plan to
evaluate the effects of the revised scorecard methodology but did not
provide a draft plan. Conducting a well-designed and comprehensive
evaluation could aid SBA in determining whether the scorecard is an
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United States Government Accountability Office 62
effective tool for helping to achieve the agency’s strategic goals. The
published fiscal year 2017 scorecards originally contained errors, including
an incorrect grade and numeric score for one agency, and SBA does not
have a process to ensure that scorecard results are published accurately.
Although SBA later corrected the errors, the agency did not initially
document that scorecards had been changed, which is inconsistent with
SBA’s policy on information quality. SBA officials said that errors
occurred in the process of formatting scorecards for publication. Errors in
the published scorecards—and the initial lack of disclosure about
corrections—weaken data reliability and may undermine confidence in
scorecard data.
Agency officials and representatives of small business groups that
GAO interviewed generally expected the scorecard revisions to have little
impact on small business procurement opportunities. However, one
agency’s officials said they would focus more on tracking
subcontracting
activity as a result of changes to the scorecard.
September 27, 2018
The Honorable James Risch
Chairman
The Honorable Ben Cardin
Ranking Member
Committee on Small Business and Entrepreneurship
United States Senate
The Honorable Steve Chabot
Chairman
The Honorable Nydia Velázquez
Ranking Member
Committee on Small Business
United States House of Representatives
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Small Business Administration 63
The federal government, through contracts, purchased more than $440
billion worth of goods and services in fiscal year 2017. To help small
businesses access these federal contracting opportunities, Congress set a
requirement that the federal government allocate at least 23 percent of its
contracted spending to small businesses.1 In turn, according to the Small
Business Administration (SBA), small businesses provide the federal
government with quality, performance, innovation, agility, and competitive
pricing and are a key source of job creation. Each year, SBA produces a
Small Business Procurement Scorecard (scorecard) to measure how much
contracted spending federal agencies allocate to small businesses and
whether the federal government is meeting its goals for awarding contracts
to small businesses.
As part of the National Defense Authorization Act for Fiscal Year
2016 (2016 NDAA), Congress directed SBA to take steps to revise the
scorecard methodology for measuring small business procurement. The
2016 NDAA also included a provision for us to evaluate how well the
scorecard methodology accurately and effectively measures federal
agencies’ compliance with small business contracting goals and how well
it encourages federal agencies to expand small businesses’ procurement
opportunities.
This chapter discusses (1) revisions to the Small Business Procurement
Scorecard methodology and results of the revised fiscal year 2017
scorecard, as well as the extent to which SBA plans to evaluate the effects
of revisions; (2) the extent to which SBA’s revised scorecard methodology
uses relevant and reliable information and SBA publishes accurate
scorecards; and (3) views of selected federal agencies and industry
stakeholders on the extent to which SBA’s revised scorecard methodology
may encourage agencies to expand small business procurement
opportunities.
To examine changes SBA made to the Small Business Procurement
Scorecard, we reviewed SBA’s documentation describing the revised
1 Congress first enacted requirements for specific procurement goals for federal contracting for
small businesses in 1988. Since then, the specific goals were increased in 1997 to the
current 23 percent of prime contracting (direct federal awards to contractors) and were
extended to firms participating in various small business programs.
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United States Government Accountability Office 64
scorecard methodology and interviewed SBA officials about their process
for implementing a revised scorecard methodology. We also interviewed
SBA officials about their plans, if any, to evaluate the revised scorecard.
We reviewed and analyzed scorecard data from fiscal years 2014 through
2017. We assessed the reliability of these data by analyzing them for
obvious errors of accuracy. We determined that SBA’s corrected data were
sufficiently reliable for the purpose of our analyzing scorecard results for
fiscal year 2017.2 We evaluated SBA’s process for revising the scorecard
against federal internal control standards.3 We also used GAO guidance on
evaluation design to identify examples of key attributes of effective
evaluation planning.4 We also interviewed representatives from a
judgmental, nongeneralizable sample of four agencies (the Departments of
Agriculture, Defense, Energy, and Homeland Security) to obtain their
views about the process of providing input on scorecard revisions and the
revised scorecard methodology. We selected the four departments based on
a variety of attributes, including small business procurement volume,
recent improvement in scorecard results, and level of participation in
discussions with SBA and other agencies about potential changes to the
scorecard. To determine the extent to which SBA’s revised scorecard
methodology uses relevant and reliable information, we examined SBA
documentation about the revised scorecard methodology for fiscal year
2017, as well as prior GAO work. We also interviewed officials from SBA
and the four departments listed above. Finally, to obtain stakeholder views
on the extent to which SBA’s revised scorecard methodology might
encourage agencies to expand small business procurement opportunities,
we interviewed representatives from the selected departments, as well as
officials from three groups representing the interests of small businesses.
Appendix I describes our objectives, scope, and methodology in greater
detail.
2 Our report describes reporting errors in SBA’s initial published scorecard results that the
agency later corrected. The scorecard results that we report use SBA’s corrected
information.
3 GAO, Standards for Internal Control in the Federal Government, GAO-14-704G (Washington,
D.C.: September 2014).
4 GAO, Designing Evaluations, GAO-12-208G
(Washington, D.C.: January 2012).
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Small Business Administration 65
We conducted this performance audit from January 2018 to September
2018 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
BACKGROUND
Overview of the Scorecard Process
According to SBA, the purposes of the scorecard program are to
monitor government-wide performance in meeting small business
contracting goals and to provide accurate and transparent information
through the public reporting of small business procurement data for
individual agencies and government-wide.5 SBA uses its scorecard
methodology to calculate a numeric score for each agency annually. SBA
then converts those numeric scores to letter grades on an A+ through F
scale.6 Each year, SBA negotiates small business prime contracting
goals
with each federal agency with procurement authority such that, in the
aggregate, the federal government meets its overall 23-percent goal for the
percentage of prime contract dollars awarded to small businesses.7 In
setting annual agency goals, SBA considers prior-year achievement and
other factors.
5 We are describing SBA’s overall scorecard process and procedures as the scorecard “program.”
A program may be any activity, project, function, or policy that has an identifiable purpose
or set of objectives.
6 Letter grades are based on a scale in which agencies can score more than 100 percent. For
example, an agency would receive an A+ grade if it had a combined score of 120 percent or
higher; it would receive an F if it scored less than 70 percent.
7 As noted earlier, a prime contract is awarded directly to a contractor by the federal government.
A subcontract is awarded by the prime contractor. SBA also negotiates subcontracting goals
with agencies, though those do not apply to the 23-percent prime contracting goal.
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United States Government Accountability Office 66
In addition to an overall prime contracting goal, Congress also
established statutory contracting goals for various socioeconomic
subcategories of small businesses. These small business subcategories are
small disadvantaged businesses, women-owned small businesses, service-
disabled veteran-owned small businesses, and businesses located in
Historically Underutilized Business Zones (HUBZone).8 SBA does not
negotiate agency-specific goals for prime contracting and subcontracting
achievement within each small business socioeconomic subcategory.
Instead, each agency’s goal is the same as the government-wide goals.
Prime contracting and subcontracting achievement goals for each
subcategory are shown in Table 1 below.
Table 1. Annual Small Business Subcategory Goals for Prime
Contracting and
Subcontracting Achievement
Small business
subcategory
Prime contracting
subcategory goal as a
percentage of total prime
contracting
Subcontracting
subcategory goal as a
percentage of total
subcontracting
Small disadvantaged
businesses
5 5
Women-owned small
businesses
5 5
Service-disabled veteran-
owned small businesses
3 3
Small businesses in
Historically
Underutilized
Business Zones
3 3
Source: GAO presentation of Small Business Administration information. | GAO-18-672.
8 SBA defines a small disadvantaged business generally as a firm that is 51 percent or more
unconditionally owned and controlled by one or more socially and economically
disadvantaged persons. The disadvantaged person or persons must be both socially and
economically disadvantaged, and the firm must be considered small according to SBA’s
size standards. For a complete definition see 13 C.F.R. § 124.1002(b). SBA’s HUBZone
program helps small businesses located in designated urban and rural communities gain
preferential access to federal procurement opportunities.
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Small Business Administration 67
Procurement Data Systems
SBA uses two government-wide data systems maintained by the
General Services Administration (GSA) to measure agencies’ small
business contracting activity. SBA uses the Federal Procurement Data
System-Next Generation (FPDS-NG) to calculate agencies’ prime
contracting awards to small businesses. Federal agencies are required to
report to FPDS-NG all contracts whose estimated value is $3,500 or more,
and FPDS-NG also records whether the contract has gone to a small
business. GSA requires that agencies annually certify the accuracy of data
submitted. To measure subcontracting, SBA uses the Electronic
Subcontracting Reporting System (eSRS), which captures data on spending
on first-tier subcontracts, including spending directed to small businesses.9
Prime contractors that hold one or more government contracts totaling
more than $700,000 are required to report their small business
subcontracting activity in eSRS.10
Role of the OSBDUs
In 1978 Congress amended the Small Business Act to require that all
federal agencies with procurement powers establish an Office of Small and
Disadvantaged Business Utilization (OSDBU).11 These offices are
intended to advocate for small businesses in procurement and contracting
9 First-tier subcontracts are agreements between a prime contractor and a subcontractor. In some
cases, first-tier subcontractors may further subcontract work under their agreement with the
prime contractor, but these activities are not part of SBA’s calculations of small business
subcontracting activities.
10 There are exceptions to this requirement—for example, for some Department of Defense
contracts and subcontracts performed outside the United States.
11 The provisions regarding OSDBUs have been amended multiple times throughout the years,
including in the National Defense Authorization Act for Fiscal Year 2013 (Pub. L. No. 112-
239, § 1691, 126 Stat. 1632, 2087 (2013)); the National Defense Authorization Act for
Fiscal Year 2016 (Pub. L. No. 114-92, § 870, 129 Stat. 726, 938 (2015)); and the National
Defense Authorization Act for Fiscal Year 2017 (Pub. L. No. 114-328, §§ 1812, 1813,
1821, 130 Stat. 2000, 2652, 2654 (2016)).
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United States Government Accountability Office 68
processes, and thus work with agencies to achieve contracting goals.12
OSDBUs have multiple functions and duties that are codified in section
15(k) of the Small Business Act, as amended. In addition to their agency
responsibilities, OSDBU directors serve with the SBA administrator or a
designee on the Small Business Procurement Advisory Council, which was
established in 1994.13 The council’s duties include identifying best
practices for maximizing small business utilization in federal contracting
and conducting peer reviews of each OSDBU to determine compliance
with section 15(k). SBA has included the results of this peer review as part
of its scorecard calculations for several years.
SBA MADE SEVERAL REVISIONS TO THE SCORECARD
FOR FISCAL YEAR 2017 BUT HAS NOT COMPLETED
A PLAN TO EVALUATE THOSE CHANGES
Scorecard Revisions Focused Largely on Mandated Changes
SBA revised the scorecard methodology prior to fiscal year 2017 to
make it consistent with changes required by the 2016 NDAA. Specifically,
SBA reduced the proportion of the total scorecard results related to prime
contracting performance from 80 percent to 50 percent and added an
element to calculate changes in the number of small business prime
contractors compared to the prior year.14 SBA officials said they
considered, but did not add, a scorecard element that calculated changes in
the number of small business subcontractors, which the 2016 NDAA
12 Other officials within each agency are also responsible for helping small businesses participate
in federal procurement. For example, the heads of procurement departments (sometimes
with a title of senior procurement executive) are responsible for implementing the small
business programs at their agencies, including achieving program goals.
13 The council’s membership also includes the director of the Minority Business Development
Agency, which is part of the Department of Commerce.
14 To calculate this measure, SBA used FPDS-NG to identify the number of unique data universal
numbering system identifiers that had a small business designation and obligated funds
greater than zero for fiscal year 2017 and compared that to a similar analysis for fiscal year
2016.
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Small Business Administration 69
required to be included if data were available. Officials said that unlike
prime contracting data, which are validated by agencies, subcontracting
data are recorded by the prime contractor and are based on contracting
plans and not obligated federal funds. As a result, SBA officials said they
determined that data were not available to implement this change.
Source: GAO presentation of Small Business Administration information. | GAO-18-
672.
Note: The fiscal year 2016 scorecard did not measure change in the number of small
business prime contractors.
Figure 1. Changes in the Small Business Procurement Scorecard Methodology
between Fiscal Years 2016 and 2017.
SBA also made other changes to the scorecard methodology, as the
agency was permitted to do under the 2016 NDAA. SBA adjusted the
weights of other scorecard elements, increasing subcontracting
performance from 10 percent to 20 percent of the total scorecard result and
increasing the peer review evaluation element from 10 percent to 20
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United States Government Accountability Office 70
percent. SBA also established that the new statutorily required element to
assess changes in the number of prime contractors would be weighted at 10
percent. (See Figure 1 for a summary of revisions to the scorecard
methodology). Officials said they increased the subcontracting weight
because it was an increasingly important area of small business
procurement activity.
In addition, SBA officials and other Small Business Procurement
Advisory Council members revised the peer review evaluation
methodology in an effort to facilitate a more in-depth review of agencies’
compliance with section 15(k) requirements. SBA included the results
from this new peer review process in its revised scorecard methodology.
Specifically, the council changed the peer review process in an effort to
have peer reviewers make compliance determinations for categories that
directly corresponded to the individual subparts of section 15(k). The prior
peer review process asked reviewers to assign scores in seven areas, which
the process termed “success factors.”15 For the fiscal year 2017 scorecard,
SBA asked peer reviewers to assess and provide scores for 18 of the 21
individual subparts.16 Categories for the three remaining 15(k) subparts
were incorporated starting with the fiscal year 2018 scorecard
methodology.17
SBA officials said members of the Small Business Procurement
Advisory Council were active participants in determining the revisions to
the scorecard methodology.
15 We previously reported on the prior review process that used “success factors.” See GAO,
Small Business Contracting: Actions Needed to Demonstrate and Better Review
Compliance with Select Requirements for Small Business Advocates, GAO-17-675
(Washington, D.C.: Aug. 25, 2017).
16 Seventeen of the compliance categories are mandatory under section 15(k) and therefore were
required to be scored as part of the peer review evaluation. One category was not required
as part of the peer review evaluation. That category, which focused on training for small
business concerns and contract specialists, was not required because the section 15(k)
language provides that OSDBU directors “may,” rather than “shall,” perform the activity,
and agencies were permitted to choose whether to be scored on that category.
17 The additional elements added for fiscal year 2018 are related to compliance with purchase
card summary data, vendor compliance education and training, and subcontract plan review.
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Small Business Administration 71
For example, SBA officials said the council members gave input on
proposed revisions and recommended changes prior to the adoption of the
new scorecard methodology. OSDBU directors also discussed potential
methodological revisions in meetings of the Federal OSDBU Directors
Interagency Council.18 SBA officials said the OSDBU directors’ input was
incorporated into SBA’s revised scorecard guidance and, as a result, the
criteria within the scorecard were more robust. Officials we interviewed
from SBA and other agencies said the adopted scorecard revisions were the
result of a consensus among Small Business Procurement Advisory
Council members, although no formal votes were taken. Revisions to the
scorecard methodology were outlined in a memorandum circulated to
agencies in August 2016, about 8 weeks before the start of fiscal year
2017. SBA officials said that many agencies were tracking their progress
toward goals using the revised methodology before results were issued.
Agencies also had an opportunity to review preliminary scorecard results
for fiscal year 2017 before the official scorecard results were published in
May 2018.
Fiscal Year 2017 Scorecard Outcomes Were Similar to Those
of Prior Years
Scorecard results under the revised methodology were similar to those
of prior years. For example, in fiscal year 2017, the distribution of
agencies’ letter grade results was similar to those of fiscal years 2014
through 2016, with between 19 and 21 of the 24 scored agencies achieving
at least an A grade each year (see Table 2).
18 The Federal OSDBU Directors Interagency Council is an organization of federal agency
officials focusing on small business concerns. The organization is led by the directors of
OSDBUs and heads of contracting for each agency. The group meets monthly to discuss
issues and strategies related to small business program initiatives and processes.
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United States Government Accountability Office 72
Table 2. Distribution of Small Business Procurement Scorecard
Results among the 24 Scored Federal Agencies,
Fiscal Years 2014–2017
Fiscal year A+ A B C D F A or above
2014 3 17 2 1 0 1 20
2015 3 18 3 0 0 0 21
2016 7 12 4 1 0 0 19
2017 8 13 2 1 0 0 21
Source: GAO analysis of Small Business Administration data. | GAO-18-672.
Prime Contracting Achievement
Agencies’ performance in small business prime contracting was
similar in fiscal year 2017 and fiscal year 2016 (see Table 3). In both years,
18 of 24 agencies met their overall prime contracting goals. In fiscal year
2017, 15 of 24 agencies met at least three of the four small business
subcategory goals—one fewer than in fiscal year 2016.19
Table 3. Distribution of Agency Performance toward Meeting Prime
Contracting Goals, Fiscal Years 2016 and 2017
Small business subcategory achievementa
Fiscal
year
Number of
agencies that
met overall
goal
Met 0
subcategory
goals
Met 1
subcategory
goal
Met 2
subcategory
goals
Met 3
subcategory
goals
Met all 4
subcategory
goals
2016 18 1 2 5 8 8
2017 18 1 3 5 6 9
Source: GAO analysis of Small Business Administration data. | GAO-18-672.
Note: Twenty-four agencies received scorecards in fiscal year 2016 and fiscal year 2017.
aSBA assigns each agency the following prime contracting goals as a percentage of total prime
contracting activity for four small business subcategories: small disadvantaged businesses
(5 percent), women-owned small businesses (5 percent), service-disabled veteran-owned
small businesses (3 percent), and small businesses in Historically Underutilized Business
Zones (3 percent).
19 As previously described in Table 1, agencies also have achievement goals for the following
small business subcategories: small disadvantaged businesses, women-owned small
businesses, service-disabled veteran-owned small businesses, and small businesses in
HUBZones.
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Small Business Administration 73
Subcontracting Achievement
In fiscal year 2017, 15 of 24 agencies met their subcontracting goals
compared to 16 of 24 in the prior year. However, among the small business
subcategories, more agencies met at least three subcategory goals in 2017
(14 agencies) than in fiscal year 2016 (10 agencies) (see Table 4).
Table 4. Distribution of Agency Performance toward Meeting
Subcontracting Goals, Fiscal Years 2016 and 2017
Small business subcategory achievementa
Fiscal
year
Number of
agencies that
met overall goal
Met 0
subcategory
goals
Met 1
subcategory
goal
Met 2
subcategory
goals
Met 3
subcategory
goals
Met all 4
subcategory
goals
2016 16 2 3 9 7 3
2017 15 3 1 6 7 7
Source: GAO analysis of Small Business Administration data. | GAO-18-672.
Note: Twenty-four agencies received scorecards in fiscal year 2016 and fiscal year 2017.
aSBA assigns each agency the following subcontracting goals as a percentage of total
subcontracting activity for four small business subcategories: small disadvantaged
businesses (5 percent), women-owned small businesses (5 percent), service-disabled
veteran-owned small businesses (3 percent), and small businesses in Historically
Underutilized Business Zones (3 percent).
Peer Review Evaluations Element
The fiscal year 2017 government-wide score for the peer review of
section 15(k) compliance (a score of 19.25 out of a maximum 20.00) was
nearly identical to the government-wide score for fiscal year 2016, once we
adjusted for changes in the scoring scale between the 2 years.20 The
government-wide score in fiscal year 2016 was 9.60 out of 10, which
equates to 19.20 on a 20-point scale.
Number of Small Business Prime Contractors
The overall number of small business prime contractors declined
between fiscal years 2016 and 2017. The number of prime contractors
20 As previously described, the fiscal year 2016 results used a methodology based on seven
“success factors,” and the fiscal year 2017 results used a methodology based on 18
individual subparts of section 15(k).
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United States Government Accountability Office 74
overall decreased from 120,009 in fiscal year 2016 to 117,480 in fiscal
year 2017, a decrease of approximately 2 percent. However, the 24
agencies, in aggregate, had more small business prime contractors in three
of the four small business subcategories in fiscal year 2017 than in the
prior year (see Table 5).
Table 5. Changes in the Number of Small Business Prime Contractors
by Small Business Subcategories, Fiscal Years 2016 and 2017
Fiscal year Small
Disadvantaged
Businesses
Women Owned
Small
Businesses
Service
Disabled
Veteran Owned
Small
Businesses
Historically
Underutilized
Business Zones
2016 36,821 26,612 11,334 5,962
2017 37,848 26,149 12,128 6,264
Difference +1,027 -463 +794 +302
Source: GAO presentation of Small Business Administration information. | GAO-18-672.
Note: Data cannot be summed to calculate an overall change in the number of small business
prime contractors. Some small business prime contractors are not designated in any of these
categories, and other businesses may be designated in more than one category.
Comparison with Prior Scorecard Weighting Formula
We found that agencies’ numerical scores for fiscal year 2017 were
generally lower under the revised scorecard methodology than they would
have been under the fiscal year 2016 methodology’s weighting of
scorecard elements. Twenty-two of 24 agencies had a lower score than
they would have had under the prior methodology’s weighting. The revised
methodology adjusted the weight of multiple scorecard elements, and there
are a variety of reasons why an agency might have received a lower score
than under the fiscal year 2016 methodology’s weighting. However,
reducing the weight for prime contracting achievement under the revised
methodology could explain at least part of the lower score for 21 of the 22
agencies. The overall median score for fiscal year 2017 was about 7 points
lower than it would have been under the weighting formula used in fiscal
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Small Business Administration 75
year 2016. (The median score for fiscal year 2017 scorecards was 111 and
would have been 118 under the prior methodology’s weighting formula).
SBA Said It Was Preparing But Had Not Completed a Plan
to Evaluate the Effects of Scorecard Revisions
In June 2018, SBA officials told us they were not preparing a plan for
evaluating the effects of scorecard revisions because they thought such a
plan would be premature. At that time, SBA officials said they had
identified some aspects of the revised methodology for further review,
including two issues related to the peer review evaluations—the peer
review scoring scale and whether agencies believed SBA’s requests for
supporting information were reasonable. In July 2018, however, SBA
officials said that, in response to our preliminary findings, they had begun
to develop a plan for evaluating the revised scorecard methodology’s
effects, if any, on meeting the government-wide procurement goals. The
officials did not provide us a draft plan or details about the plan. They said
they expected to complete the evaluation plan by October 2018 and to
complete the evaluation itself by the end of December 2018.
Federal internal control standards state that management should use
quality information to achieve the entity’s objectives, such as those in an
agency’s strategic plan.21 These standards also call for management to
design control activities to achieve goals and respond to risks—for
example, activities to monitor performance measures and indicators.
SBA’s strategic plan includes an objective to ensure federal contract and
innovation set-aside goals are met or exceeded. The agency uses scorecard
results to measure progress toward meeting or exceeding the statutory goal
of 23 percent for overall small business prime contracting.
21 GAO-14-704G.
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United States Government Accountability Office 76
Scorecard results are also used to measure progress toward other goals
for the small business socioeconomic subcategories.22
We have previously identified key attributes of effective program
evaluation design, which include the following:
clear criteria for making comparisons that would lead to strong,
defensible evaluation conclusions;
an established evaluation scope that would ensure that the
evaluation is tied to its research questions, effectively defines the
subject matter to be assessed, and can be completed in a timely
fashion to meet reporting deadlines;
clear and specific research evaluation questions that use terms that
can be readily defined and measured; and
carefully thought-out data and analysis choices, which can enhance
the quality, credibility, and usefulness of the evaluation.23
A comprehensive evaluation of revisions to the scorecard that includes
the key attributes outlined above could aid SBA officials in determining
whether the revised scorecard provides better information and whether the
scorecard revisions are designed and implemented appropriately. Such an
evaluation also could assist SBA in understanding whether the scorecard
revisions may contribute to maximizing contract dollars awarded to small
businesses, which is one of the goals in SBA’s strategic plan. In addition,
the 2016 NDAA requires that SBA report to Congress by March 31, 2019,
about changes stemming from the revised methodology and recommend
whether the scorecard program should continue or be further modified.
Such an evaluation could also be used by SBA to inform its report to
Congress and future decisions about the scorecard methodology and
program.
22 U.S. Small Business Administration, Strategic Plan, Fiscal Years 2018—2022 (Washington,
D.C.).
23 GAO-12-208G.
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Small Business Administration 77
SBA USES AVAILABLE PROCUREMENT DATA TO
CALCULATE SCORECARD OUTCOMES, BUT THE PROCESS
FOR PRODUCING SCORECARDS HAS WEAKNESSES
Subcontracting Data Have Known Limitations That May Affect
the Reliability of Scorecard Calculations
The two data systems SBA uses to measure agencies’ small business
contracting activity—FPDS-NG and eSRS—are the best available sources
of procurement data for calculating scorecard results, according to SBA.
However, eSRS has limitations that agency officials cited and that we have
previously identified that could hinder the reliability of scorecard results on
subcontracting. Federal law prohibits SBA from requiring agencies to use
alternative data collection methods for the purposes of the scorecard
calculations. GSA intends to replace both systems as part of an initiative to
consolidate the functions of several existing data systems, according to
GSA documents. As we reported in 2014, this new system is intended to
better link prime contracting and subcontracting data.24
Agency officials we interviewed said eSRS has limitations that make it
challenging to verify the accuracy of reported subcontracting activity, and
we also have identified eSRS limitations in our prior work.25 Prime
contractors are responsible for reporting their subcontracting activity to the
federal government, and the self-reported nature of these data is a
limitation that could hamper the accuracy of eSRS data, agency officials
said. Although prime contractors generally are required to submit a plan
describing planned subcontracting activity, officials explained that eSRS
did not provide a method to allow agency officials to verify that actual
subcontracting activity matched the levels described in prime contractors’
plans. In addition, not all prime contractors are required to file
subcontracting plans. Exceptions to the requirement include, for example,
24 GAO, Federal Subcontracting: Linking Small Business Subcontractors to Prime Contracts Is
Not Feasible Using Current Systems, GAO-15-116 (Washington, D.C.: Dec. 11, 2014).
25 GAO-15-116.
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United States Government Accountability Office 78
when the prime contract is for goods or services worth $700,000 or less or
if the prime contractor is exempt.26 Small business prime contractors are
one example of an exempt group that is not required to prepare
subcontracting plans.
SBA officials added that measuring subcontracting activity also is
challenging because there are no federal funds obligated for subcontracts.
Therefore, the federal government does not have a verified record of who
performed subcontracting work and the amount paid. In addition, our
previous work has found that eSRS was not designed to provide a list of
subcontractors associated with a particular prime contract and that linking
small business subcontractors to prime contracts when there is a
subcontracting plan that pertains to multiple contracts is especially
difficult.27
In addition, our previous work has identified some limitations with
FPDSNG focused on specific agencies and small business programs,
although we have not more broadly assessed the reliability of the FPDS-
NG data fields that SBA uses to compile scorecard results. For example,
we found mismatches between certain accounting records from the
Department of Veterans Affairs and data captured in FPDS-NG,28 and we
identified challenges in using FPDS-NG data to monitor the eligibility of
Alaska Native Corporations for certain small business contracts available
to small disadvantaged businesses.29 However, officials from SBA and two
departments we interviewed for this work said prime contracting data in
FPDS-NG generally do not have the same weaknesses they identified with
subcontracting data in eSRS.
26 A threshold of $1.5 million is used for construction contracts.
27 GAO-15-116.
28 See GAO, Veterans Affairs Contracting: Improvements in Policies and Processes Could Yield
Cost Savings and Efficiency, GAO-16-810 (Washington, D.C.: Sept. 16, 2016).
29 See GAO, Alaska Native Corporations: Oversight Weaknesses Continue to Limit SBA’s Ability
to Monitor Compliance with 8(a) Program Requirements, GAO-16-113 (Washington, D.C.:
Mar. 21, 2016).
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Small Business Administration 79
Errors in Published Scorecard Results Weaken Reliability
and Perceived Integrity of Scorecard Program
Scorecard results originally published by SBA on May 22, 2018,
contained errors, including one agency scorecard published with an
incorrect letter grade. SBA officials said they discovered the publication
errors within approximately 2 days of publication and published corrected
versions. However, these corrections occurred after SBA issued a public
announcement highlighting the new results, and interested parties may
have downloaded erroneous results prior to the corrected versions being
posted on SBA’s website.
We identified errors from SBA’s originally published scorecards
independent of SBA’s determination that the agency had published
scorecards containing errors. The errors we and SBA identified were
concentrated in the scorecard for the Department of Education and the
government-wide scorecard:
The scorecard for the Department of Education showed an
incorrect letter grade of A+, rather than the correct grade of A. The
published scorecard also showed an incorrect overall numeric
score.
The Department of Education’s score for the peer review
component of the scorecard was incorrect.
The government-wide scorecard showed incorrect scores for
changes in the number of women-owned small business
contractors and the number of service-disabled veteran-owned
small business contractors.
SBA did not initially document on the corrected scorecards how they
had been changed from the original scorecards. However, SBA later added
documentation that the scorecards for the Department of Education and
government-wide results had been corrected. SBA took this step after we
inquired about the absence of documentation about revisions that had been
made to the fiscal year 2017 scorecards.
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United States Government Accountability Office 80
SBA officials said they performed accurate calculations for
determining agencies’ performance and that inaccuracies in the published
scorecards were the result of transcription errors associated with formatting
the results for publication. Officials said SBA used new software to publish
the fiscal year 2017 scorecards so that they could be accessible to visually
impaired readers. Making the scorecards more accessible required some
additional steps and at times required manual data entry due to limitations
in SBA’s software. These additional steps resulted in errors, officials said.
One set of errors—the inaccurate government-wide scores for changes in
the number of women-owned small business contractors and the number of
service-disabled veteran-owned small business contractors—canceled each
other out and did not lead to erroneous overall scorecard results.30 SBA
officials said they review the scorecard data and calculations before they
are prepared for publication. However, the agency does not have a process
to review formatted scorecards prior to publication to confirm that the
version for publication matches actual calculations. Agency officials said
they believed that such a process was not necessary. Additionally, agency
officials said SBA has instituted a process to update previously issued
scorecards to make them accessible for the visually impaired. SBA
officials said they intend to review the accuracy of these updated
scorecards for characteristics such as accurate letter grades as agency
resources permit.
Both the Office of Management and Budget and SBA have issued
policies related to transparency and integrity of government data. The
Office of Management and Budget has issued government-wide guidance
on transparency in sharing government data and instructed federal agencies
to develop their own policies.31 SBA’s policy on information quality says
the policy is intended, in part, to ensure the integrity of information SBA
30 SBA officials said the calculations showing changes in the number of contractors were correct.
However, the scores associated with government-wide performance on changes in the
number of women-owned small businesses and service-disabled veteran-owned small
businesses were transposed.
31 Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity of
Information Disseminated by Federal Agencies; Republication, 67 Fed. Reg. 8452 (Feb. 22,
2002).
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Small Business Administration 81
disseminates.32 SBA’s policy also says the agency should have full,
accurate, transparent documentation and should identify and disclose to
users any error sources affecting data quality. In addition, federal internal
control standards cite the need for management to design controls—
including controls over information processing—to achieve objectives.33
Errors in the published scorecards may impair the other agencies’ or
Congress’s access to quality information to make informed decisions and
evaluate an agency’s performance in meeting small business goals. The
scorecard errors that we and SBA identified after publication—and the lack
of any indicator that scorecards had been corrected—also may undermine
confidence in the integrity and transparency of the scorecard data.
AGENCY OFFICIALS AND OTHER STAKEHOLDERS
EXPECTED THE REVISED SCORECARD TO HAVE LITTLE
IMPACT ON SMALL BUSINESS OPPORTUNITIES
Agency officials and representatives of small business groups we
spoke with generally expected the revised scorecard methodology for fiscal
year 2017 to have little impact on small business procurement
opportunities. OSDBU officials in the four agencies we interviewed said
their offices, in general, are not altering existing efforts at advocating for
small business opportunities as a result of scorecard revisions.34 Some
agency officials also said they would need additional years of scorecard
data before making any changes to their efforts or reassessing how their
priorities align with the revised scorecard’s formula. However, officials
from one agency said they updated their agency’s internal monitoring of
subcontracting activity as a result of the revised scorecard methodology’s
32 U.S. Small Business Administration, “Information Quality Guidelines,” Dec. 5, 2007.
33 GAO-14-704G.
34 For example, OSDBU directors described existing efforts such as holding small business
outreach events, organizing mentor-protégé programs for mentors to advise small
businesses, and small business awards ceremonies to recognize agency efforts in providing
opportunities for small business procurement.
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United States Government Accountability Office 82
increased emphasis on subcontracting measures. Officials said they
updated the monitoring process so the agency would place more emphasis
on small business subcontracting activity. Officials said the change to this
agency’s internal monitoring process took effect for fiscal year 2018.
Officials from three of the four federal departments and representatives
from the three small business groups we interviewed said they had not seen
any changes in opportunities for small business prime contracting as a
result of the scorecard’s methodological changes. Instead, representatives
from three small business groups and officials from two departments said
any changes in prime contracting opportunities that might have occurred
would be influenced by other government-wide procurement initiatives.
Specifically, representatives from the three small business groups said the
federal government’s emphasis on “category management” was resulting
in fewer prime contracts available to all government contractors, including
small business contractors. Under the category management initiative, the
federal government groups commonly purchased goods and services into
categories to streamline procurement processes with the goal of
eliminating redundancies and reducing costs. However, representatives of
small business groups said these policies result in fewer contract awards
and opportunities for small businesses. Representatives from the three
small business groups said that the new scorecard element that calculates
the annual changes in the number of small business contractors could help
highlight the effects of these prime contracting trends on procurement
opportunities.
According to agency officials and small business representatives,
subcontracting opportunities are also unlikely to be impacted by the
revised scorecard methodology, which increased the weight of
subcontracting performance. Officials from two of the four departments we
interviewed told us that their agencies have stable purchasing patterns and
that subcontracting activity is not likely to change as a result of scorecard
revisions. Representatives from two of the three small business groups said
the influence of the scorecard revisions in incentivizing agencies to focus
on subcontracting opportunities is limited by the reliability of available
subcontracting data, discussed previously. For example, one agency told us
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Small Business Administration 83
that the shift from prime to subcontracting performance reduces the
agency’s ability to influence scorecard outcomes because the agency has
no means of validating the subcontracting data that are recorded. Similarly,
representatives from two of the three small business groups said that
because the data on subcontracting are entered by the prime contractors at
the time of proposed contracting rather than confirmed contracting, the
data do not include verification of subcontracting activity and therefore
might not be an accurate measure of subcontracting activity.
Representatives from agencies and small business groups said the
scorecard program has generally played a role in drawing attention to
agencies’ performance in identifying small business procurement
opportunities. For example, SBA officials said the scorecard results
provide public information about how well the government performed
overall in providing small business procurement opportunities and help to
ensure that all agencies are contributing toward those goals. Officials at
one agency told us that the scorecard was an important factor in driving
internal goals and opportunities for small businesses. Another agency said
that while it had been reaching its overall prime contracting goal, its
performance in certain small business subcategories was falling short of
goals. As a result, the agency has directed additional outreach efforts to
those types of small businesses. In addition, representatives of all three
small business groups said because results are public, the scorecard has
created additional pressure on agencies to meet procurement goals.
CONCLUSION
SBA uses its scorecard program to monitor federal agencies’
compliance with goals set by Congress to promote small business
participation in federal contracting, and SBA has identified having
agencies meet or exceed those participation benchmarks as one of its
agency-wide goals in its strategic plan. The effects of recent changes to the
scorecard and their potential benefits for improving federal contracting
opportunities for small businesses are uncertain. SBA recently began to
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United States Government Accountability Office 84
develop a plan for evaluating whether or how changes to the scorecard
might facilitate SBA’s ability to meet government-wide procurement
goals. Completing such an evaluation and making sure the evaluation plan
is aligned with key attributes for effective evaluations could help SBA
management:
determine whether the revised scorecard provides quality
information—consistent with federal internal control standards—
and whether it helps meet the agency’s strategic goals;
fully address whether the revisions are effective in measuring and
creating small business procurement opportunities; and
make a well-supported recommendation about whether to continue
or modify the scorecard program. Congress required that SBA
recommend by March 31, 2019, whether to continue or modify the
scorecard program.
In addition, the scorecard appears to have played a role in drawing
attention to agencies’ performance in identifying small business
procurement opportunities. However, there were errors in the initial fiscal
year 2017 scorecards published on SBA’s website, and SBA did not
initially take steps to notify the public after it made corrections. SBA
officials said that SBA does not have a process to ensure that published
scorecard results are accurate. Errors in the published scorecards and a lack
of timely disclosure about corrections may impair other agencies’ or
Congress’s access to quality information to make informed decisions.
RECOMMENDATIONS
We are making the following two recommendations to SBA: The SBA
Administrator or her designee should complete the design and
implementation of a comprehensive evaluation of the Small Business
Procurement Scorecard aligned with key attributes of effective program
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Small Business Administration 85
evaluations to assess the effectiveness of the revised scorecard in
measuring agency performance and promoting small business procurement
opportunities. (Recommendation 1).
The SBA Administrator or her designee should institute a process to
review Small Business Procurement Scorecards for accuracy prior to
publication and a mechanism for publicly identifying when issued
scorecards have been revised. (Recommendation 2).
AGENCY COMMENTS AND OUR EVALUATION
We provided a draft of this chapter to SBA for review and comment.
In written comments, reproduced in appendix II, SBA generally agreed
with both of our recommendations.
Regarding our recommendation that SBA design and implement an
evaluation of the revised scorecard methodology, SBA said it planned to
evaluate the changes to the scorecard methodology mandated by the 2016
NDAA. As discussed in our report, in revising the scorecard, SBA also
made other changes not specifically mandated by the 2016 NDAA, such as
increasing the emphasis on small business subcontracting activity and
incorporating a revised peer review process to facilitate a more in-depth
review of agencies’ compliance with section 15(k) requirements. As stated
in our report, we recommend that SBA plan and implement an evaluation
of all aspects of the revised scorecard methodology. SBA also indicated
that it will not complete the evaluation until after it has validated data for
the fiscal year 2018 procurement scorecard. We note that SBA can prepare
an evaluation plan and begin to consider potential evaluation findings
using available scorecard data from fiscal year 2017. We also note that our
recommendation states that SBA’s evaluation plan should be aligned with
the key attributes of effective evaluation design.
Regarding our recommendation that SBA institute a process to review
scorecards for accuracy prior to publication and a mechanism for publicly
identifying when issued scorecards have been revised, SBA said it had
taken several steps to revise the processes for publishing accurate
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United States Government Accountability Office 86
scorecard results, including adding steps to compare the prepared scorecard
documents to source documents prior to publication and to annotate any
score corrections that are made to published scorecards. While we have not
yet had the opportunity to assess SBA’s actions, the steps SBA describes in
response to our recommendation could improve other agencies’ or
Congress’s access to quality information.
William B. Shear
Director, Financial Markets and Community Investment.
APPENDIX I: OBJECTIVES, SCOPE, AND METHODOLOGY
This chapter describes (1) revisions to the Small Business Procurement
Scorecard (scorecard) methodology for fiscal year 2017 and results of the
fiscal year 2017 scorecard, as well as the extent to which the Small
Business Administration (SBA) plans to evaluate the effects of revisions;
(2) the extent to which SBA’s revised scorecard methodology uses relevant
and reliable information and SBA publishes accurate scorecards; and (3)
views of selected federal agencies and industry stakeholders on the extent
to which SBA’s revised scorecard methodology may encourage agencies to
expand small business procurement opportunities.
To examine the changes SBA made to the Small Business Procurement
Scorecard and the rationale for these changes, we reviewed relevant
documents, including the National Defense Authorization Act for Fiscal
Year 2016, SBA’s descriptions of the prior and revised scorecard
methodology, and revised peer review guidance used for the scorecard
element that assesses compliance with section 15(k) of the Small Business
Act. We also interviewed officials from SBA and four other agencies about
the revisions to the scorecard calculation methodology, the peer review
guidance, the process for providing input on scorecard revisions, and how
revisions were implemented. The four agencies (the Departments of
Agriculture, Defense, Energy, and Homeland Security) represented a
judgmental, nongeneralizable sample of federal agencies with procurement
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Small Business Administration 87
powers, selected based on small business procurement volume, recent
improvement in scorecard results, and level of participation in discussions
with SBA and other agencies about potential changes to the scorecard. We
also interviewed SBA officials about their plans to evaluate the effects of
scorecard revisions on small business procurement opportunities and about
their plans, if any, to evaluate the revised scorecard. In addition, we
reviewed federal internal control standards and GAO’s key attributes for
designing effective evaluations.35
We analyzed the distribution of agencies’ letter grade results (A+, A,
B, C, D, and F) from the fiscal year 2017 scorecard and compared this
distribution to fiscal years 2014 through 2016, which used a different
scorecard methodology. We also reviewed the distribution of results of
fiscal year 2017 individual scorecard elements—specifically, results of
prime contracting achievement, subcontracting achievement, and peer
reviews—and compared this distribution to results for fiscal year 2016.
We compared agencies’ prime contracting and subcontracting
performance against their small business procurement goals for fiscal years
2016 and 2017. To compare peer review results across years, we made
adjustments to account for changes in the value of peer review results
(raised from 10 points to 20 points from fiscal years 2016 to 2017). To
adjust for this difference, we doubled the value of fiscal year 2016 scores
to put both years’ scores on a 20-point scale. Finally, we compared actual
fiscal year 2017 scorecard results to the results if SBA had used the 2016
scorecard weighting. To do this, we increased the weighting of fiscal year
2017 prime contracting results from 50 percent to 80 percent of each
agency’s total scorecard grade, decreased the weight of subcontracting
results from 20 percent to 10 percent, and decreased the weight of peer
review results from 20 percent to 10 percent. We also excluded results
from the new scorecard element calculating changes in the number of
small business contractors, which was not part of the 2016 methodology.
35 GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: September 2014) and GAO, Designing Evaluations, GAO-12-208G
(Washington, D.C.: January 2012).
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United States Government Accountability Office 88
To examine the extent to which SBA’s revised scorecard methodology
considers relevant and reliable information, we interviewed officials from
SBA and the Departments of Agriculture, Defense, Energy, and Homeland
Security. We reviewed documents describing the prior and revised
scorecard methodology. We discussed limitations, if any, in the electronic
data systems that capture government-wide data on prime contracting and
subcontracting (which SBA uses to calculate those respective scorecard
elements).36 We also reviewed our prior work that assessed these data
systems.37 To assess the data reliability of the published scorecards, we
reviewed them for obvious errors and interviewed SBA officials about the
cause of errors we identified. We found the scorecards to be reliable for
analyzing scorecard results for fiscal year 2017. We also compared SBA’s
revised scorecard methodology against the agency’s policies on
information quality and against GAO’s standards for internal control in the
federal government.38
To collect views on the extent to which SBA’s revised scorecard
methodology may encourage agencies to expand small business
procurement opportunities, we interviewed officials from SBA and the four
selected departments cited above, as well as representatives from three
organizations representing the interests of small businesses. These three
36 The prime contracting data system SBA primarily uses is the Federal Procurement Data
System-Next Generation (FPDS-NG), and the subcontracting data system SBA uses is the
Electronic Subcontracting Reporting System. SBA uses a different data system—
Management and Operating Subcontract Reporting Capability (MOSRC)—to calculate the
prime contracting results for the Department of Energy. Department of Energy officials
explained that most of the agency’s budget goes toward procurement contracts in which a
federal laboratory is considered the prime contractor and outside entities are considered
subcontractors. MOSRC was developed to capture detail on contracts in which the federal
laboratories make direct awards to other entities. This authority to count certain types of
subcontracting as prime contracting for the purposes of the scorecard was included in
Consolidated Appropriations Act, 2014, Pub. L. No. 113-76, § 318, 128 Stat. 5, 178 (2014).
We collected information from officials from SBA and the Department of Energy about the
purposes and use of MOSRC for this engagement.
37 Our review included the following: GAO, DATA Act: As Reporting Deadline Nears,
Challenges Remain That Will Affect Data Quality, GAO-17-496 (Washington, D.C.: Apr.
28, 2017); Veterans Affairs Contracting: Improvements in Policies and Processes Could
Yield Cost Savings and Efficiency, GAO-16-810 (Washington, D.C.: Sept. 16, 2016); and
Federal Subcontracting: Linking Small Business Subcontractors to Prime Contracts Is Not
Feasible Using Current Systems, GAO-15-116 (Washington, D.C.: Dec. 11, 2014).
38 GAO-14-704G.
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Small Business Administration 89
organizations were selected to represent a mix of small business types: one
(The American Small Business Chamber of Commerce) represented all
types of small businesses; one (Women Impacting Public Policy)
represented a small business socioeconomic subcategory with a 5 percent
goal for prime contracting and subcontracting (as a percentage of total
prime contracting and subcontracting); and one (The Task Force for
Veterans’ Entrepreneurship, also known as Vet-Force) represented a small
business subcategory with a 3 percent goal for prime contracting and
subcontracting.39
We conducted this performance audit from January 2018 to September
2018 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
APPENDIX II: COMMENTS FROM THE SMALL
BUSINESS ADMINISTRATION
39 Federal agencies have 5 percent goals for small business prime contracting and subcontracting
for women-owned small business and small disadvantaged business. Federal agencies have
3 percent goals for the small business subcategories of service-disabled veteran-owned
small businesses and small businesses located in Historically Underutilized Business Zones.
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United States Government Accountability Office 90
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In: Small Business ISBN: 978-1-53615-749-9
Editor: John D. Mijovic © 2019 Nova Science Publishers, Inc.
Chapter 3
SBA SMALL BUSINESS INVESTMENT
COMPANY PROGRAM (UPDATED)
Robert Jay Dilger
ABSTRACT
The Small Business Administration’s (SBA’s) Small Business
Investment Company (SBIC) program is designed to enhance small
business access to venture capital by stimulating and supplementing “the
flow of private equity capital and long-term loan funds which small-
business concerns need for the sound financing of their business
operations and for their growth, expansion, and modernization, and which
are not available in adequate supply.” Facilitating the flow of capital to
small businesses to stimulate the national economy was, and remains, the
SBIC program’s primary
objective.
As of September 30, 2018, there were 305 privately owned and
managed SBA-licensed SBICs providing small businesses private capital
the SBIC has raised (called regulatory capital) and funds the SBIC
borrows at favorable rates (called leverage) because the SBA guarantees
the debenture (loan obligation). SBICs pursue investments in a broad
This is an edited, reformatted and augmented version of Congressional Research Service,
Publication No. R41456, dated December 26, 2018.
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Robert Jay Dilger 92
range of industries, geographic areas, and stages of investment. Some
SBICs specialize in a particular field or industry, and others invest more
generally. Most SBICs concentrate on a particular stage of investment
(i.e., startup, expansion, or turnaround) and geographic area.
The SBIC program currently has invested or committed about $30.1
billion in small businesses, with the SBA’s share of capital at risk about
$14.3 billion. In FY2018, the SBA committed to guarantee $2.52 billion
in SBIC small business investments. SBICs invested another $2.98 billion
from private capital for a total of $5.50 billion in financing for 1,151
small businesses.
In recent years, some Members of Congress have argued that the
program should be expanded as a means to stimulate economic activity
and create jobs. For example, P.L. 113-76, the Consolidated
Appropriations Act, 2014, increased the annual amount of leverage the
SBA is authorized to provide to SBICs to $4 billion from $3 billion. P.L.
114-113, the Consolidated Appropriations Act, 2016, increased the
amount of outstanding leverage allowed for two or more SBIC licenses
under common control (the multiple licenses/family of funds limit) to
$350 million from $225 million. P.L. 115-187, the Small Business
Investment Opportunity Act of 2017, increased the amount of outstanding
leverage allowed for individual SBICs to $175 million from $150 million.
Others worry that an expanded SBIC program could result in losses and
increase the federal deficit. In their view, the best means to assist small
business, promote economic growth, and create jobs is to reduce business
taxes and exercise federal fiscal restraint.
Some Members have also proposed that the program target additional
assistance to startup and early stage small businesses, which are generally
viewed as relatively risky investments but also as having a relatively high
potential for job creation. During the Obama Administration, the SBA
established a five-year, early stage SBIC initiative. Early stage SBICs are
required to invest at least 50% of their investments in early stage small
businesses, defined as small businesses that have never achieved positive
cash flow from operations in any fiscal year. The SBA stopped accepting
new applicants for the early stage SBIC initiative in 2017.
This chapter describes the SBIC program’s structure and operations,
focusing on SBIC eligibility requirements, investment activity, and
program statistics. It also includes information concerning the SBIC
program’s debenture SBIC program, participating securities SBIC
program, impact investment SBIC program (targeting underserved
markets and communities facing barriers to access to credit and capital),
and early stage SBIC initiative.
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SBA Small Business Investment Company Program (Updated) 93
SBIC PROGRAM OVERVIEW
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.1 It also administers the Small Business Investment Company
(SBIC) program.
Authorized by P.L. 85-699, the Small Business Investment Act of
1958, as amended, the SBIC program is designed to “improve and
stimulate the national economy in general and the small-business segment
thereof in particular” by stimulating and supplementing “the flow of
private equity capital and long-term loan funds which small-business
concerns need for the sound financing of their business operations and for
their growth, expansion, and modernization, and which are not available in
adequate supply.”2
The SBIC program was created to address concerns raised in a Federal
Reserve Board report to Congress that identified a gap in the capital
markets for long-term funding for growth-oriented small businesses. The
report noted that the SBA’s loan programs were “limited to providing
short-term and intermediate-term credit when such loans are unavailable
from private institutions” and that the SBA “did not provide equity
financing.”3 Equity financing (or equity capital) is money raised by a
company in exchange for a share of ownership in the business. Ownership
is represented by owning shares of stock outright or having the right to
convert other financial instruments into stock. Equity financing allows a
1 U.S. Small Business Administration (SBA), “Fiscal Year 2019 Congressional Budget
Justification and FY2017 Annual Performance Report,” pp. 2-4, at
https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY_2019_CBJ_APR_2_12_po
st .
2 15 U.S.C. §661.
3 U.S. Congress, House Committee on Banking and Currency, Small Business Investment Act of
1958, report to accompany S.3651, 85th Cong., 2nd sess., June 30, 1958, H.Rept. 85-2060
(Washington: GPO, 1958), pp. 4, 5.
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Robert Jay Dilger 94
business to obtain funds without incurring debt, or without having to repay
a specific amount of money at a particular time. The Federal Reserve
Board’s report concluded there was a need for a federal government
program to “stimulate the availability of capital funds to small business” to
assist these businesses in gaining access to long-term financing and equity
financing.4 Facilitating the flow of capital to small businesses to stimulate
the national economy was, and remains, the SBIC program’s primary
objective.
The SBA does not make direct investments in small businesses. It
partners with privately owned and managed SBICs licensed by the SBA to
provide financing to small businesses with private capital the SBIC has
raised (called regulatory capital) and with funds (called leverage) the SBIC
borrows at favorable rates because the SBA guarantees the debenture (loan
obligation).5 As of September 30, 2018, there were 305 licensed SBICs
participating in the SBIC program.6 In FY2018, the SBA provided $2.52
billion in leverage to SBICs.7
In recent years, some Members of Congress have argued that the
program should be expanded as a means to stimulate economic activity and
create jobs. For example, P.L. 113-76, the Consolidated Appropriations
Act, 2014, increased the annual amount of leverage the SBA is authorized
to provide to SBICs to $4 billion from $3 billion and P.L. 114-113, the
Consolidated Appropriations Act, 2016, increased the amount of
outstanding leverage allowed for two or more SBIC licenses under
common control (the multiple licenses/family of funds limit) to $350
million from $225 million.8 In addition, P.L. 115-187, the Small Business
4 Ibid., p. 5.
5 Small business investment companies must invest in small businesses, which are defined as
those with less than $19.5 million in tangible net worth and average after-tax income for the
preceding two years of less than $6.5 million, or businesses qualifying as small under the
SBA’s NAICS industry code size standards.
6 SBA, “SBIC Program: Fiscal Year Data for the period ending September 30, 2018,” at
https://www.sba.gov/article/2018/nov/16/fiscal-year-data-period-ending-september-30-
2018.
7 Ibid.
8 According to a U.S. Government Accountability (GAO) report released on January 27, 2016,
“About 70% (130 of 187) of debenture SBICs—the most common SBIC fund type—were
managed by 69 multiple licensees in 2014…. The proportion of debenture SBICs managed
by multiple licensees has sharply increased, rising from about 20% in 2005 to about 70% in
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SBA Small Business Investment Company Program (Updated) 95
Investment Opportunity Act of 2017, increased the amount of outstanding
leverage allowed for individual SBICs to $175 million from $150 million.
Others worry that an expanded SBIC program could result in losses
and increase the federal deficit. In their view, the best means to assist small
business, promote economic growth, and create jobs is to reduce business
taxes and exercise federal fiscal restraint.
Some Members and small business advocates have also proposed that
the program target additional assistance to startup and early stage small
businesses, which are generally viewed as relatively risky investments but
also as having a relatively high potential for job creation. For example,
during the 113th Congress, S. 1285 and H.R. 30, the Small Business
Investment Enhancement and Tax Relief Act, would have authorized the
Administration to establish a separate SBIC program for early stage small
businesses. In addition, as part of the Obama Administration’s Startup
America Initiative, the SBA established a five-year, $1 billion early stage
SBIC initiative in 2012. Early stage SBICs are required to allocate at least
50% of their investments in early stage small businesses, defined as small
businesses that have never achieved positive cash flow from operations in
any fiscal year.
The SBA stopped accepting new applicants for the early stage SBIC
initiative in 2017.
2014… For debenture SBICs specifically, multiple licensees also increased their share of
total SBA leverage during 2005–2014. These SBICs held about 24% of SBA leverage in
2005, but about 74% of the approximately $7 billion in SBA leverage in 2014…. from 2009
to 2014, no more than 2.8% of multiple licensees reached the then-applicable $225 million
leverage limit … The Small Business Investor Alliance and some SBIC fund managers told
us they believed the leverage limit nonetheless has a significant effect because it deters
some SBIC managers who want to substantially grow their fund over the long-term from
continuing to participate in the program…. SBIC characteristics, including geographic
distribution and management demographics, were largely similar for single and multiple
licensees…. Multiple licensees, in the aggregate, demonstrated better investment
performance than single licensees from 2005 to 2014.” See GAO, Small Business
Investment Companies: Characteristics and Investment Performance of Single and Multiple
Licensees, GAO-16-107, January 27, 2016, pp. 8, 10, 11, 13, at
https://www.gao.gov/assets/680/674813 .
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Robert Jay Dilger 96
In addition, on June 11, 2018, the SBA withdrew a proposed rule
published on September 19, 2016, to amend the initiative to make it “more
attractive and … a permanent part of the SBIC program.”9 The SBA
indicated that it withdrew the proposed rule “because very few qualified
funds applied to the Early Stage SBIC initiative, the costs were not
commensurate with the results, and the comments to the proposed rule did
not demonstrate broad support for a permanent Early Stage SBIC
program.”10
This chapter examines the SBIC program’s structure and operations,
focusing on SBIC eligibility requirements, investment activity, and
program statistics. It includes information concerning the SBA’s debenture
SBIC program, participating securities SBIC program, impact investment
SBIC program (targeting underserved markets and communities facing
barriers to access to credit and capital), and early stage SBIC initiative.
This chapter also discusses legislative efforts that led to an increase in
(1) the maximum annual leverage the SBA is authorized to provide to
SBICs and (2) the maximum amount of outstanding leverage allowed for
two or more SBIC licenses under common control.11
9 The proposed changes would have allowed early stage applicants to apply at any time, similar
to other SBIC applicants, instead of only during limited time frames identified in the
Federal Register (which the SBA has published on an annual basis since 2012); allowed
early stage SBICs to obtain an unsecured line of credit without SBA approval under
specified conditions; allowed an application from an applicant under common control with
an existing early stage SBIC that has outstanding debentures or debenture commitments;
and increased the initiative’s maximum leverage commitment of 100% of regulatory capital
or $50 million, whichever is less, to 100% of regulatory capital or $75 million, whichever is
less. See SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83
Federal Register 26875, June 11, 2018; and SBA, “Small Business Investment Companies
(SBIC); Early Stage Initiative,” 81 Federal Register 64075-64080, September 19, 2016.
10 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal
Register 26875, June 11, 2018.
11 In addition, S. 2831, A bill to amend the Small Business Investment Act of 1958 to provide
priority for applicants for a license to operate as a small business investment company that
are located in a disaster area, was introduced on April 21, 2016, and reported favorably,
with an amendment, by the Senate Committee on Small Business and Entrepreneurship on
May 24, 2016. The bill would require the SBA Administrator to give priority to an
application for a license to operate as a SBIC that is from an applicant located in a disaster
area. The bill would also prohibit the SBA from including the cost basis of any investment
made by a SBIC in a small business concern located in a major disaster area during the one-
year period beginning on the date of the disaster declaration when determining if that SBIC
has reached its leverage limit.
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SBA Small Business Investment Company Program (Updated) 97
SBIC TYPES
There are two types of SBICs. Investment companies licensed under
Section 301(c) of the Small Business Investment Act of 1958, as amended,
are referred to as original, or regular, SBICs. Investment companies
licensed under Section 301(d) of the act, called Specialized Small Business
Investment Companies (SSBICs), focus on providing financing to small
business entrepreneurs “whose participation in the free enterprise system is
hampered because of social or economic disadvantage.”12 Section 301(d)
was repealed by P.L. 104-208, the Omnibus Consolidated Appropriations
Act, 1997 (Title II of Division D, the Small Business Programs
Improvement Act of 1996). As a result, no new SSBIC licenses have been
issued since October 1, 1996. However, existing SSBICs were
“grandfathered” and allowed to remain in the program.
With few exceptions, SBICs and SSBICs are subject to the same
eligibility requirements and operating rules and regulations. Therefore, the
term SBIC is usually used to refer to both SBICs and SSBICs.
Five types of regular SBICs exist. Debenture SBICs, impact
investment SBICs, and early stage SBICs receive leverage through the
issuance of debentures.13 Debentures are debt obligations issued by SBICs
and held or guaranteed by the SBA.14 Participating securities SBICs
receive leverage through the issuance of participating securities.
Participating securities are redeemable, preferred, equity-type securities,
often in the form of limited partnership interests, preferred stock, or
debentures with interest payable only to the extent of earnings.15 Bank-
owned, non-leveraged SBICs do not receive leverage.16 This chapter
12 P.L. 92-595, the Small Business Investment Act Amendments of 1972.
13 A debenture SBIC may issue and have outstanding both guaranteed debentures and
participating securities, provided that the total amount of participating securities outstanding
does not exceed 200% of its private capital. See 13 C.F.R. §107.1170. The SBA stopped
issuing new commitments for participating securities on October 1, 2004.
14 13 C.F.R. §107.50.
15 Ibid.
16 Commercial banks may invest up to 5% of their capital and surplus to partially or wholly own
a SBIC. Bank investments in a SBIC are presumed by federal regulatory agencies to be a
“qualified investment” for Community Reinvestment Act purposes. See P.L. 90-104, the
Small Business Act Amendments of 1967; The Board of Governors of the Federal Reserve
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Robert Jay Dilger 98
focuses on the four types of regular SBICs that receive leverage from the
SBA.
SBIC ELIGIBILITY REQUIREMENTS
A SBIC can be organized in any state as either a corporation, a limited
partnership (LP), or a limited liability company (LLCs must be organized
under Delaware law). Most SBICs are owned by relatively small groups of
local investors, although many are partially owned, and some (47 of 305)
are wholly owned, by commercial banks. A few SBICs are corporations
with publicly traded stock.17
One of the primary criteria for licensure as a SBIC is having qualified
management. The SBA reviews and approves a prospective SBIC’s
management team based upon its professional capabilities and character.
Specifically, the SBA examines the SBIC’s management team and looks
for
at least two principals with substantive and analogous principal
investment experience;
realized track record of superior returns, based on an overall
evaluation of appropriate quantitative performance measures;
evidence of a strong rate of business proposals and investment
offers (deal flow) in the investment area proposed for the new
fund;
a cohesive management team, with complementary skills and a
history of working together;
Board, “Small Business Investment Companies,” 33 Federal Register 6967, May 9, 1968;
and SBA, “Small Business Investment Companies (SBICs),” Small Business Notes, 2009, at
http://www.smallbusinessnotes.com/business-finances/small-business-investment-
companies-sbics.html. H.R. 2364, the Investing in Main Street Act of 2017, would increase
to 15% the 5% limit on commercial bank investments in SBICs. The bill was favorably
reported by the House Committee on Small Business on June 15, 2017.
17 SBA, “For SBIC Applicants: Phase III: Licensing Review,” at https://www.sba.gov/
content/phase-iii-licensingreview.
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SBA Small Business Investment Company Program (Updated) 99
managerial, operational, or technical experience that can add value
at the portfolio company level; and
a demonstrated ability to manage cash flows so as to provide
assurance the SBA will be repaid on a timely basis.18
SBIC APPLICATION PROCESS
Applying for a SBIC debenture license is a multi-step process,
beginning with the submission of the SBA Management Assessment
Questionnaire (MAQ) and an initial, nonrefundable licensing fee of
$10,000.19 The questionnaire includes, among others, questions concerning
the fund’s legal name and the name and addresses of its principals
and control persons;20
the fund’s investment strategy (including geographic focus,
industry focus, diversification strategy, primary types of securities
to be used, whether it plans to be primarily an equity or debt
investor, etc.);
the management team’s history and professional experience;
the fund’s investment decisionmaking process, from deal
origination to portfolio monitoring;
the fund’s economics (including a description of the fund’s carried
interest,21 the formula used to calculate management fees and the
18 SBA, “For SBIC Applicants: Phase I, Initial Review,” at https://www.sba.gov/content/phase-i-
initial-review.
19 SBA, “Small Business Investment Companies-Administrative Fees,” 82 Federal Register
52174-52186, November 13, 2017. An applicant under common control with one of more
licenses must submit a written request to the SBA, and the initial licensing fee, to be
considered for a license and is exempt from the requirement to submit a MAQ unless
otherwise determined by the SBA in its discretion.
20 A control person is generally defined as someone with the power to direct corporate
management and policies.
21 General partners in most private equity and hedge funds are compensated in two ways. First, to
the extent that they contribute their capital in the funds, they share in the appreciation of the
assets. Second, they charge the limited partners two kinds of annual fees: a percentage of
total fund assets (usually in the 1% to 2% range) and a percentage of the fund’s earnings
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Robert Jay Dilger 100
fund’s policy on the allocation of fees between the fund and any
management or other affiliated entities, details concerning
compensation the principals earn outside of this partnership, etc.);
the fund’s capitalization (including investment strategy, whether a
placement agent has been or will be hired, information concerning
any third-party borrowing arrangements, etc.);
the fund’s governance structure (including an organizational
chart); and
a 10-year financial forecast for the fund.22
After receiving the firm’s application, a member of the SBA’s Program
Development Office reviews the MAQ; assesses the investment company’s
proposal in light of the program’s minimum requirements and management
qualifications; performs initial due diligence, including making reference
telephone calls; and prepares a written recommendation to the SBA’s
Investment Division’s Investment Committee (composed of senior
members of the division).
If, after reviewing the MAQ and the SBA’s Program Development
Office’s evaluation, the Investment Committee concludes, by majority vote
at a regularly scheduled meeting, that the investment company’s
management team may be qualified for a license, that management team is
invited to the SBA’s headquarters in Washington, DC, for an in-person
interview. If, following the interview, the Investment Committee votes to
proceed, the investment company is provided a “Green Light” letter
formally inviting it to proceed to the final licensing phase of the
application process.
Once an applicant receives a Green Light letter, the applicant typically
has up to 18 months to raise the requisite private capital. During this time
frame, the SBA “keeps in touch with the applicant, conducts SBIC training
(usually 15% to 25%, once specified benchmarks are met). The latter performance fee is
called “carried interest” and is treated, or characterized, as capital gains under current tax
rules. See CRS Report RS22717, Taxation of Private Equity and Hedge Fund Partnerships:
Characterization of Carried Interest, by Donald J. Marples.
22 SBA, “SBIC Management Assessment Questionnaire and License Application: Form 2181,” at
https://www.sba.gov/ content/application-forms.
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0 (0.00%)
Points Range:0 (0.00%) – 23 (23.00%)
Excessive directly quoted material is present. The annotation does not offer a concise summary of the type of source, topic, argument, rationale, or interpretation. Introduction explaining research topic, research question, and hypotheses is missing. Summary explaining why the sources are important to upcoming research paper is missing.
10 (10.00%)
Points Range:9 (9.00%) – 10 (10.00%)
Writing is clear and concise. Sentence structure and grammar are excellent. Correct use of punctuation. No spelling errors.
27 (27.00%) – 30 (30.00%)
Sources were critically evaluated. Student explained why each source was selected and how it is of value to the topic. High-quality sources, such as peer-reviewed articles and empirical studies (quantitative and qualitative), published within the last five years were used.
9 (9.00%)
Points Range:9 (9.00%) – 10 (10.00%)
APA guidelines are correctly followed. Reference entries and in-text citations follow APA formatting guidelines and are free of errors. All in-text citations are referenced and vice versa.
10 (10.00%)
Points Range:9 (9.00%) – 10 (10.00%)
The number of sources meets or exceeds any expressed assignment requirements. Every source used is peer-reviewed or academic in nature. All articles are relevant to the topic.
You failed to do Part I of the assignment and final part of Part II.
6
Unit V Annotated Bibliography
Name
Institution
Course
Professor
Date
Unit V Annotated Bibliography
Pifer, M. J., & Baker, V. L. (2016). Stage-based challenges and strategies for support in doctoral education: A practical guide for students, faculty members, and program administrators. International Journal of Doctoral Studies, 11(1), 15-34.
In this study, the authors try to define how someone can achieve success in higher education, more specifically in doctoral studies. She also looks at some of the factors which have been described as the concepts that can assist one to be successful in the doctoral studies such as advising, student characteristics and other particular measures such as grades and test scores. Having this in mind, they argue that success can have different meanings ranging from year to year persistence as well as high grade point averages to the level of degree completion.
Many scholars have studied the concepts of success but have always come up with different conclusions to the same. Extending the same analogy to doctoral studies, on can conclude that a customizable combination of traits in different people can determine the kind of success one can achieve in their doctoral studies. The paper therefore starts by giving a brief overview of the relevant literature as well as the conceptual framework that guides the study.
The authors ended up making a finding on different indicators which served to show a successful completion of a doctoral study. While some of the respondents were of the idea that getting a good job after graduation was an indicator of successful completion, others focused on the status and the rankings that they received after gaining the title. This effect uplifts the esteem of those who complete and even gives them a sense of pride on their achievements.
Others also found this as an opportunity of getting better funding for their future projects, considering that the sponsors find them to be more reliable at doing a successful project in the future.
Wilson, M. E., Liddell, D. L., Hirschy, A. S., & Pasquesi, K. (2016). Professional identity, career commitment, and career entrenchment of midlevel student affairs professionals. Journal of College Student Development, 57(5), 557-572.
In this article, the authors attempt to further explain the process of socialization and professional identity construction process that exists among doctoral students that conduct research on public affairs. They tend to develop a model with a multilevel approach that will assist in organizational, relational and individual level tactics that students can use and become better researchers. Additionally, they try to provide insights on interactions that exists between the students and faculties that can significantly contribute to their development and even their own proactivity.
In this study, the authors use data from students in a wide range of disciplines to conduct their research. The authors also attempt to explain the significance of professional socialization as a way of developing and acquiring skills and knowledge necessary for being a member of an organization or profession. They further explain that people who get introduction as new comers have to undergo an adaptation process which will ensure they mature up in the particular organization. The code of conduct found in every profession have a variety of characteristics which differ from one profession to the other, and profession after achieving the doctorate is not quite different. However, considering that this profession transcends almost all professions available, there is a mixture of behaviors and characters that are influenced by the different professions.
The authors therefore argue that professional socialization involves learning about developing one’s identity within the profession while having in mind the kind of work that one needs to accomplish in the long run. Socialization in the doctorate profession is therefore very crucial to ensuring that the graduate develops his own professional identity.
Mawson, K., & Abbott, I. (2017). Supervising the professional doctoral student: Less process and progress, more peripheral participation and personal identity. Management in Education, 31(4), 187-193.
When it comes to making a comprehensive study on a particular course, many students find the system quite lacking as the procedures needed for appropriate learning are never available. Because of this the students start from a point of confusion as they work their way up in the academic field. In this paper, the authors try to explain the intricacies in the academic field, with a main focus in doctoral studies. The main goal of the author is to shed light on the necessary information through this paper, which will enable students to transition from being dependent to being independent in their preferred course of study.
To make this development, the authors have made a reliance on a theoretical framework that tends to bring together the sociocultural perspectives needed for learning. The authors also make a focus on relationships and learning, an interrelation that is potent enough to determine how a student will develop in his academic life. Highlights is also made on the effect of such relationships and interactions on the strategies and experiences which are associated with the second stage of the doctoral education, which enables the students to develop their identity and make a transition to independence.
In their study, the authors show the success that is achieved by a doctorate student when he develops the right relationships intended to ensure that he succeeds in his studies. They also point out that a relationship built in the studies can either be constructive or destructive, depending on the basis on which it is formed and the main goal of the relationship. The authors also end up showing how identities can be established in such relationships.
References
Mawson, K., & Abbott, I. (2017). Supervising the professional doctoral student: Less process and progress, more peripheral participation and personal identity. Management in Education, 31(4), 187-193.
Pifer, M. J., & Baker, V. L. (2016). Stage-based challenges and strategies for support in doctoral education: A practical guide for students, faculty members, and program administrators. International Journal of Doctoral Studies, 11(1), 15-34.
Wilson, M. E., Liddell, D. L., Hirschy, A. S., & Pasquesi, K. (2016). Professional identity, career commitment, and career entrenchment of midlevel student affairs professionals. Journal of College Student Development, 57(5), 557-572.
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