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.
Cash exchanging hands
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)|
|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)|
|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)|
|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)|
|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)|