Small Business Administration:

Inadequate Documentation of Eligibility of Businesses Receiving SSBIC Financing

RCED-94-182: Published: Apr 26, 1994. Publicly Released: Apr 29, 1994.

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Pursuant to a congressional request, GAO reviewed the Small Business Administration's (SBA) efforts to help small businesses obtain financing for starting, maintaining, and expanding operations, focusing on whether the specialized small business investment companies (SSBIC) have complied with SBA guidance and eligibility criteria for firms seeking SSBIC financing.

GAO found that: (1) SSBIC often do not comply with SBA guidance for documenting and determining the eligibility of the small businesses they finance; (2) SSBIC did not prepare required eligibility profiles for more than one-third of all the small businesses financed; (3) SSBIC base most of their eligibility determinations on a firm's minority status; (4) although SSBIC examiners are required to use a composite of factors for determining small businesses' eligibility, SBA allows examiners to accept eligibility determinations based upon minority status alone because SBA guidance is inconsistent and confusing; (5) examiners are not able to detect which SSBIC are financing small businesses that are not socially or economically disadvantaged because of inconsistent criteria in SSBIC instructions; and (6) SBA is considering changing its criteria for establishing social or economic disadvantage.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendation for Executive Action

    Recommendation: The Administrator, SBA, should resolve the inconsistency between its guidance to SSBIC and SBA examiners as to whether minority status alone is sufficient to establish eligibility. If SBA deems that minority status alone is sufficient to establish eligibility, its should modify Policy Release 2017 to instruct SSBIC to use a composite of factors in determining the eligibility of the businesses they finance, then SBA should instruct examiners to look for such a composite when assessing SSBIC compliance with SBA requirements for documenting and determining eligibility.

    Agency Affected: Small Business Administration

    Status: Closed - Implemented

    Comments: SBA's revision to its policy release number 2017 should clarify for SSBICs and SBA examiners the requirements for determining and documenting the eligibility of businesses receiving SSBIC financial status.

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