SBA Microloan Program: Opportunities Exist to Strengthen Program Performance Measurement, Collaboration, and Reporting
The Small Business Administration is an important funding source for small businesses that may have trouble getting loans through conventional channels like commercial banks. SBA offers microloans—up to $50,000—to small businesses including those owned by women, veterans, minorities, or low-income entrepreneurs.
While SBA collects data and assesses this program, it does not clearly define what qualifies an entrepreneur as low-income. As a result, SBA may not be able to determine whether the program really helps low-income borrowers. We made 5 recommendations, including defining low-income.
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What GAO Found
GAO analysis of data for the Small Business Administration's (SBA) Microloan Program found that in 2014–2018, approximately 80 percent of microloans went to borrowers who identified themselves as women-owned, veteran-owned, or minority-owned businesses or low-income. In addition, most of the intermediaries (nonprofit lenders) that provide the loans participated in at least one other federal microlending activity. For example, 73 percent of intermediaries (122 of 168) in the program are also Department of the Treasury's Community Development Financial Institutions (designated private-sector financial institutions).
SBA has mechanisms in place for oversight of intermediaries and borrowers, including some established in response to recommendations of the SBA Office of Inspector General (OIG). For example, SBA
- developed a plan for conducting site visits of intermediaries, and
- updated guidance for documentation requirements from certain borrowers.
SBA also requires intermediaries to report various loan and borrower information into the program's data reporting system.
The Microloan Program has data collection and performance measurement procedures, but GAO identified identified weaknesses in these efforts. For example, one of the objectives of the program is to assist low-income borrowers, but program guidance does not define low-income. Another program objective is to develop and provide timely, accurate, and useful output and outcome data. However, GAO and the SBA OIG found deficiencies in how some information on borrower business outcomes was collected and recorded. As a result, SBA lacks quality information to help assess program performance in these areas. SBA also has not taken steps to ensure its planned new data reporting system will capture information needed for assessing program performance. Specifically, as of August 2019, SBA had not taken appropriate advance planning steps—such as involving relevant offices in SBA or considering what data will be needed to assess program performance.
The Microloan Program collaborates informally with other SBA programs on oversight and other activities, but has little collaboration—for example, no information-sharing agreements—with other federal agencies that engage in microlending activities. As a result, the program may be missing opportunities to enhance collaboration and leverage existing resources from agencies that collect similar types of data. In addition, although SBA reports some aggregate data on the financial performance of the program, it does not include data on the populations served. Publicly reporting such data, as other agencies do, could provide greater transparency around program results and achievements.
Why GAO Did This Study
SBA's Microloan Program integrates microlevel financing (loans up to $50,000) with training and technical assistance for small businesses, including those owned by women, low-income, veteran, and minority entrepreneurs. The John S. McCain National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the program.
This report examines (1) characteristics of borrowers and intermediaries in the Microloan Program, (2) program oversight of intermediaries and borrowers, (3) program performance measures, and (4) collaboration within SBA and with other agencies.
GAO reviewed program documents; analyzed SBA demographic and performance data; reviewed documents on similar programs from the Departments of the Treasury and Agriculture; and interviewed agency officials. GAO also reviewed documents and interviewed officials from a non-generalizable sample of 10 intermediaries, selected to provide a range in the number of loans made and average loan size.
GAO is making five recommendations to SBA, including that it enhance program guidance on data collection and performance measurement, explore opportunities for additional collaboration with other federal agencies, and develop plans for providing additional public reporting on the program. SBA agreed with three recommendations and partially agreed with two. GAO maintains that its recommendations should be fully addressed to improve the program.
Recommendations for Executive Action
|Small Business Administration||The Director of the Office of Financial Assistance should review and enhance guidance for the Microloan Program to ensure definitions of data collected, such as income, are clear and instructions are comprehensive for data needed, such as for borrower business outcomes and technical assistance. (Recommendation 1)||
SBA agreed with this recommendation. As of November 2022, SBA has implemented aspects of the recommendation related to the definition of income and has made progress on guidance for data on, borrower business outcomes, and technical assistance. SBA has defined low income, rural areas, and economically distressed areas for the purposes of the Microloan Program and, as of February 2022, has updated its guidance to reflect these changes. In addition, SBA developed an enhancement to its Microloan Program data reporting system to allow reporting of loans made in economically distressed and/or rural areas to be automated based on the small business borrower's business location. According to officials, SBA is also in the process of updating its guidance to provide instructions to intermediaries (generally nonprofit lenders) for reporting borrower business outcomes and technical assistance provided. SBA stated it has made incremental progress by integrating Microloan Program metrics into its Office of Credit Risk Management portfolio reporting. We will continue to monitor SBA's progress in implementing other aspects of the recommendation to ensure instructions are comprehensive for data needed, such as for borrower business outcomes and technical assistance.
|Small Business Administration||The Directors of the Office of Financial Assistance and Office of Program Performance, Analysis, and Evaluation should develop a performance target to assess the Microloan Program's progress in achieving its statutory purpose of assisting women, low-income, veteran, and minority entrepreneurs. (Recommendation 2)||
SBA partially agreed with this recommendation citing challenges with data collection because of the voluntary basis on which the information is provided by loan applicants. In November 2021, SBA stated it is working on identifying borrowers located in economically distressed and rural areas and completing implementation of the new Microloan data reporting system. In November 2022, SBA stated that it produces monthly and weekly reporting for microloan targets, which includes lending to women, veteran, and minority entrepreneurs and it is enhancing the reports to include low-to-moderate income borrowers. To fully implement this recommendation, SBA should ensure these microloan targets outline how many women, low-income, veteran, and minority entrepreneurs are being served so the agency has a mechanism to assess the extent to which the microloan program achieves its statutory purposes. We will continue to monitor SBA's progress in implementing our recommendation.
|Small Business Administration||The Directors of the Office of Financial Assistance and Office of Program Performance, Analysis, and Evaluation should ensure that appropriate advance planning occurs during the development of the new Microloan Program data reporting system by involving relevant offices within SBA in system design and considering data needed to assess program performance. (Recommendation 3)||
SBA agreed with this recommendation. SBA stated that the Microloan Program manager, the Director of the Office of Performance and Systems Management, and the Director of the Office of Program Performance, Analysis, and Evaluation are consulting on plans and design enhancements to its current data reporting system. In FY 2020 and FY 2021, SBA implemented business rules in its current data reporting system to help ensure that data entered is accurate and that microloans are being closed in accordance with program rules and regulations. SBA has been making additional enhancements in the system, such as capturing microloans made in certain areas. In FY 2022, SBA tested enhancements to the data reporting system to allow lenders to submit quarterly data directly to the platform. We will continue to monitor SBA's progress in developing its new Microloan Program data reporting system and how it has been coordinating internally to implement our recommendation.
|Small Business Administration||The SBA Administrator should explore opportunities for additional interagency collaboration and information sharing with other federal agencies that engage in microlending activities, such as Treasury and USDA, and take steps to implement new collaborative efforts as warranted. (Recommendation 4)||
This recommendation is an action identified in GAO's annual Duplication and Cost Savings reports. SBA partially agreed with this recommendation. SBA stated collaborative efforts are most successful when there is synergy and commitment on both sides. SBA planned to schedule meetings with Treasury and USDA to strategize on data sharing and development of interagency initiatives focused on increasing awareness of resources available to underserved markets. SBA also wanted to explore how the interagency initiatives could identify completing rules across the microlending programs that may limit program participation. Moreover, SBA wanted these efforts to help determine how multi-agency programs may complement each other in efforts to serve small businesses in target areas. In November 2022, SBA stated it has prioritized making enhancements to its data reporting system but plans to increase its focus on interagency collaboration and information sharing by sharing data and data visualizations for the Microloan Program during fiscal year 2023. We will continue to monitor SBA's progress in implementing our recommendation.
|Small Business Administration||The Director of the Office of Financial Assistance should examine ways to incorporate public reporting of additional Microloan Program information into the design of the new data reporting system. (Recommendation 5)||
SBA agreed with this recommendation. In November 2022, SBA stated that it continues to review how to publicly report data on microloans made in certain areas. However, progress on sharing this information requires completion of the enhancements to the Microloan Program data system, which is still in process. According to SBA, it has developed internal reporting that includes metrics to assess microloan risk. We will continue to monitor SBA's progress in implementing our recommendation.