Pursuant to a congressional request, GAO reviewed the role that the Small Business Administration's (SBA) 7(a) Program plays in small business financing, focusing on: (1) the characteristics of 7(a) loans compared to small business loans in general; (2) how the characteristics of 7(a) borrowers compare with small business borrowers that did not obtain 7(a) loans; and (3) the reasons underlying private lending institutions' decisions to participate or not participate in the 7(a) program.

GAO found that: (1) as of June 1995, about 60 percent of SBA outstanding 7(a) loans were for amounts exceeding $100,000, compared to 18 percent of small business loans in general; (2) 7(a) loans had longer maturities and higher interest rates than non-7(a) loans; (3) 7(a) and non-7(a) businesses tended to be organized as corporations, have the same average number of employees, and focus on the services and retail trade; (4) the majority of both 7(a) and non-7(a) borrowers tended to be nonminority males; (5) the number of female-owned 7(a) businesses increased from about 13.2 percent in fiscal year (FY) 1991 to 24.3 percent in FY 1995; (6) 13.5 percent of 7(a) businesses were owned by minorities, compared to 8.2 percent of non-7(a) businesses; (7) lenders who participated in the 7(a) program believed that the program enabled them to offer loans to new businesses, make longer-maturity loans, and offer loans to businesses with less equity; and (8) the reasons cited by lenders who did not participate in the 7(a) program included their company's limited focus on small businesses, SBA time-consuming loan requirements, and the lack of demand for 7(a) loans.