United States Government Accountability Office

GAO Report to Congressional Requesters

RURAL ECONOMIC 

DEVELOPMENT 

Collaboration between 

SBA and USDA Could 

Be Improved 

September 2008 

 

GAO-08-1123 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2008

RURAL ECONOMIC DEVELOPMENT

Collaboration between SBA and USDA Could Be 

Improved

Highlights of GAO-08-1123, a report to 

congressional requesters 

The Small Business Administration

(SBA) and the Rural Development 

offices of the U.S. Department of

Agriculture both work in rural 

areas to foster economic

development by promoting 

entrepreneurship and community 

development. This report discusses

(1) the complementary nature of

some SBA and Rural Development

programs and the extent to which it 

provides a rationale for the 

agencies to collaborate, (2) past 

and current efforts by SBA and

Rural Development to work 

together and with other agencies,

and (3) opportunities for the 

agencies to improve their 

collaborative efforts. In completing

its work, GAO analyzed agency

documentation and prior reports

on collaboration, conducted site 

visits at locations where SBA and 

Rural Development were working

together, and interviewed 

agency and selected economic 

development officials. 

What GAO Recommends

To improve SBA and Rural 

Development’s efforts to work 

together, GAO recommends that

the agencies establish a formal

approach to encourage further

collaboration. Both agencies 

provided technical comments on a 

draft of this report, which have 

been incorporated into GAO’s final

report where appropriate.

The complementary nature of some SBA loan programs and Rural 

Development business programs provides a rationale for the agencies to 

collaborate. SBA and Rural Development have similar economic development 

missions, and their programs provide financing for similar purposes, including 

start-up and expansion projects, equipment purchases, and working capital 

for small businesses. According to SBA and Rural Development officials 

currently involved in collaborative working relationships, working together 

allows the agencies to leverage the unique strengths of each other’s programs, 

increase the number of financing options available to borrowers in rural areas, 

and ultimately better promote economic development in these areas. 

However, collaboration between SBA and Rural Development to date has 

been sporadic and mostly self-initiated by officials in field offices. GAO found 

that the extent of the collaborative efforts and use of formal agreements such

as memorandums of understanding (MOU) varied across locations. The two 

agencies worked together frequently in a few locations, infrequently in others,

and not at all in many locations. The SBA and Rural Development offices in 

North Dakota that GAO visited collaborated frequently and had formal 

agreements in place. Officials there established an MOU with other 

community development organizations to provide “one-stop” shopping 

assistance to borrowers at a single location. The SBA and Rural Development 

offices in Nebraska and New Mexico that GAO visited worked with each other 

less frequently and more informally, conducting community outreach sessions 

and holding periodic meetings and joint training sessions. But many other 

locations—about half of SBA and Rural Development’s field offices—did not 

appear to be collaborating at all or to have an established framework to 

facilitate collaboration. 

Opportunities exist for SBA and Rural Development to improve their 

collaborative efforts. In an October 2005 report, GAO identified key practices

that could help federal agencies enhance and sustain their collaborative 

efforts. In comparing SBA and Rural Development’s efforts with these 

criteria, GAO found that the agencies could take steps to improve their efforts 

by implementing a more formal approach to encourage collaboration. This 

approach would provide the agencies with a mechanism that reflected several

of GAO’s key practices—to define and articulate a common outcome, agree on

roles and responsibilities, monitor key progress and results, and reinforce 

accountability for collaborative efforts. With such an approach, SBA and 

Rural Development could more effectively leverage each other’s unique 

strengths and help to improve small business opportunities in rural 

communities. 

To view the full product, including the scope 

and methodology, click on GAO-08-1123. 

For more information, contact William B. 

Shear at (202) 512-8678 or shearw@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 6

The Complementary Nature of Some SBA and Rural Development 

Programs Provides a Rationale for Collaboration 11 

SBA and Rural Development’s Collaborative Efforts Have Been 

Sporadic 17

SBA and Rural Development Could Take Steps to Establish a 

Formal Approach to Collaboration 23 

Conclusions 28

Recommendations for Executive Action 29 

Agency Comments 29 

Appendix I Scope and Methodology 32 

Appendix II Description of SBA’s and USDA Rural Developments’ 

Primary Loan and Business Programs 36 

Appendix III Comparison of SBA and Rural Development Primary 

Business Loan and Grant Programs 42 

Appendix IV Recent Congressional Proposals That May Require 

Collaboration between Rural Development and 

Other Federal Agencies 44 

Appendix V GAO Contact and Staff Acknowledgments 46

Page i GAO-08-1123 Rural Economic Development
Figures 

Figure 1: SBA’s Primary Loan Programs 7 

Figure 2: Rural Development’s Business Programs 10 

Figure 3: SBA District Offices and Rural Development State 

Offices, by Location 16 

Figure 4: Summary of Programs Included in Our Scope 32 

Abbreviations 

B&I Business and Industry 

CDC certified development company 

ECND Entrepreneur Centers of North Dakota 

FCA Farm Credit Administration 

HUD Department of Housing and Urban Development 

IRP Intermediary Relending Program 

MOU memorandum of understanding 

NMVC New Markets Venture Capital 

RBEG Rural Business Enterprise Grant 

RBIP Rural Business Investment Program 

RBOG Rural Business Opportunity Grant 

RBS Rural Business and Cooperative Service 

REDLG Rural Economic Development Loan and Grant Program 

RHS Rural Housing Service 

RUS Rural Utilities Service 

SBA Small Business Administration 

SBDC Small Business Development Center 

SBIC Small Business Investment Company 

SBLC small business lending company 

USDA U.S. Department of Agriculture 

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Page ii GAO-08-1123 Rural Economic Development
United States Government Accountability Office

Washington, DC 20548 

September 18, 2008 

Congressional Requesters

More than 80 programs administered by several different federal agencies

target rural economic development.1

 Of these agencies, the Small Business 

Administration (SBA) and the Rural Development offices of the U.S. 

Department of Agriculture (USDA) share a mission of attending to 

underserved markets, fostering economic development, and improving the 

quality of life in America through the promotion of entrepreneurship and 

community development. Both agencies offer business loans and grant 

programs for rural development and play vital roles in spurring economic 

growth in rural areas.2

 In the past, these agencies have developed 

collaborative working relationships to help manage their loan and grant 

programs. They have also entered into a joint agreement under the Rural 

Business Investment Program (RBIP) to create investment companies that 

would provide equity for rural small businesses.3

Congress has long expressed interest in increasing collaboration among 

federal agencies. Collaboration that cuts across more than one federal

agency is one way for the federal government to deliver results more 

efficiently—that is, in a way that utilizes limited resources to better 

address multiple demands. Congress has been enacting laws for more than 

a decade mandating that federal agencies coordinate their rural policies 

and programs. These laws have authorized the establishment of 

interagency agreements, cooperative agreements, and interagency working 

groups for specific collaborative purposes. For example, a provision of the 

Federal Agriculture Improvement and Reform Act of 1996 required the 

Secretary of Agriculture to establish and chair a rural development 

interagency working group to establish rural policy, coordinate assistance, 

 1

See GAO, Rural Economic Development: More Assurance Is Needed That Grant Funding 

Information Is Accurately Reported, GAO-06-294 (Washington, D.C.: Feb. 24, 2006). 

2

SBA does not offer grants to start or expand small businesses but offers grant programs 

that generally support nonprofit organizations in providing management, technical, or 

financial assistance to small businesses.

3

Section 6029 of the Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, 

116 Stat. 134, 387 (2002), codified at 7 U.S.C. §§ 2009cc et seq., amended the Consolidated 

Farm and Rural Development Act by requiring the Secretary of USDA to establish RBIP. 

Page 1 GAO-08-1123 Rural Economic Development
and evaluate the performance of federal rural assistance programs.4

Additionally, the Farm Security and Rural Investment Act of 2002 formally 

established the National Rural Development Partnership so that USDA, 

other federal agencies including SBA, state and local entities, and 

businesses could better collaborate in delivering services to rural 

communities.5

Increasingly, Congress has also focused attention on businesses and 

entrepreneurs in rural areas and small communities with underserved 

financial needs that could benefit from joint efforts between SBA and 

Rural Development offices. In an effort to ensure that SBA and Rural 

Development programs provide maximum benefit to rural communities, 

on November 14, 2007, the House Small Business Subcommittee on Rural 

and Urban Entrepreneurship held a hearing on interagency collaboration 

and on SBA’s and Rural Development’s ability to work together to better 

serve small businesses in rural areas. We testified at that hearing and 

provided preliminary views on collaborative efforts between these 

agencies. We also were requested to review the agencies’ programs to 

determine whether coordination among them could be improved. 

As agreed, this report examines SBA and Rural Development’s efforts to 

work collaboratively and the degree to which their efforts could be 

improved. Specifically, the report discusses (1) the complementary nature

of some SBA and Rural Development loan and business programs and the 

extent to which it provides a rationale for collaboration, (2) past and 

current efforts at collaboration between SBA and Rural Development and 

between SBA and Rural Development and other agencies, and (3) 

opportunities to facilitate more effective collaboration between SBA and 

Rural Development. 

Although there is no commonly accepted definition for collaboration, in 

this report we define collaboration as any joint activity that is intended to

produce more public value than can be produced when the agencies act 

alone, including activities that others have previously defined as 

cooperation, coordination, integration, or networking. To determine the 

extent to which SBA and Rural Development’s primary loan and business 

programs are complementary and to identify the rationale for the agencies

to work together, we examined laws, regulations, and policies on each

 4

Pub. L. No. 104-127, § 761, 110 Stat. 888, 1139, 1146 (1996). 

5

Pub. L. No. 107-171, § 6021, 116 Stat. 134, 363 (2002). 

Page 2 GAO-08-1123 Rural Economic Development
agency’s loans, grants, and other business products and services, and 

interviewed officials from both agencies. We reviewed prior reports that 

defined collaboration and identified key practices that could help enhance 

and sustain collaboration.6

 We also sought input from SBA resource 

partners, lenders, and select nonprofit organizations involved in the rural 

economic development process. To determine the types of collaborative 

efforts that are currently taking place between SBA and Rural 

Development, we requested that both SBA and Rural Development 

conduct a query of their respective district office Directors and state office 

Directors regarding all formal or informal efforts to work collaboratively

with the other agency. We received responses from about half of the SBA 

district offices and all of the Rural Development state offices. We 

conducted site visits at three locations where SBA and Rural Development 

were working together: Lincoln, Nebraska; Albuquerque, New Mexico; and 

Bismarck, North Dakota. We also reviewed internal agency documents, 

interagency agreements, and training documentation and obtained 

detailed information from both agencies’ district and state field offices 

regarding formal and informal efforts to work together. To identify past 

collaborative efforts, we reviewed documentation and examined the 

mechanisms (e.g., contractual work agreements, memorandums of 

understanding, statutory provisions, etc.) the agencies used to collaborate. 

Finally, to determine opportunities to improve collaboration between SBA 

and Rural Development, we reviewed our prior work in this area and

conducted interviews with agency officials, select SBA resource partners, 

and nonprofit organizations. Appendix I contains a more detailed 

description of our scope and methodology. 

We conducted this performance audit from October 2007 to September 

2008, 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. 

 6

GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain

Collaboration among Federal Agencies, GAO-06-15 (Washington, D.C.: Oct. 21, 2005). 

GAO, Financial Market Regulation: Agencies Engaged in Consolidated Supervision Can

Strengthen Performance Measurement and Collaboration, GAO-07-154 (Washington, D.C.: 

Mar. 15, 2007). GAO, Electronic Government: Potential Exists for Enhancing

Collaboration on Four Initiatives, GAO-04-6 (Washington, D.C.: Oct. 10, 2003). See E.

Bardach, Getting Agencies to Work Together: The Practice and Theory of Managerial

Craftsmanship (Washington, D.C.: Brookings Institution, 1998). 

Page 3 GAO-08-1123 Rural Economic Development
The complementary nature of some SBA loan programs and Rural 

Development business programs provides a rationale for the agencies to 

collaborate. SBA and Rural Development have similar economic 

development missions and programs that provide financing for start-up or 

expansion projects, equipment purchases, and working capital for rural 

small businesses. The programs also have different strengths—for 

example, some SBA loan products have shorter loan processing times 

while, in some cases, Rural Development offers higher levels of financial 

assistance. According to SBA and Rural Development officials involved in 

ongoing collaborative relationships, working together has allowed each 

agency to leverage the other agency’s unique strengths, which has 

increased the number of financing options available to borrowers in rural 

areas, improved service, and enhanced efforts to promote economic 

development in rural areas. A Rural Development official in New Mexico 

said that collaboration with SBA allowed Rural Development to tap into 

SBA’s preexisting constituency of banks, increasing the number of banks 

that might consider making Rural Development loans in the future. 

Similarly, SBA officials in New Mexico said that collaboration with Rural 

Development allowed SBA to provide additional assistance to small 

businesses after Rural Development provided initial financing for a 

community’s infrastructure. Officials in North Dakota said some SBA and 

Rural Development loan products were complementary and had been 

bundled together in loan packages used to finance individual projects. 

Where such collaboration has occurred, it appears that SBA and Rural 

Development have been able to better meet the needs of borrowers who 

were not able to obtain financing elsewhere on reasonable terms and 

through normal lending channels. 

Results in Brief 

SBA and Rural Development’s collaborative efforts have been sporadic.

They have been initiated mostly by officials at the local level and have

often depended on established working relationships among the officials 

involved. A query by SBA and USDA officials asking their offices whether 

collaborative efforts were under way also suggested that such efforts were 

sporadic. We found that the extent of the collaboration and the use of 

formal mechanisms such as memorandums of understanding (MOU) to 

facilitate collaboration varied across locations. The two agencies 

collaborated frequently in some locations and infrequently or not at all in

others. For example, the SBA and Rural Development offices in North 

Dakota that we visited collaborated frequently and had formal agreements 

in place. Officials there communicated at least weekly, conducted joint 

quarterly meetings, sponsored at least eight joint lender training sessions 

yearly, and participated in each other’s annual meetings. SBA and Rural 

Development officials in North Dakota had established an MOU with other 

Page 4 GAO-08-1123 Rural Economic Development
state and local entities to establish “one-stop” shopping to deliver 

financing, business management, counseling, and other technical 

assistance at one location. The SBA and Rural Development offices in 

Nebraska and New Mexico that we visited worked with each other less 

frequently and more informally, conducting a few community outreach

sessions to build support for their programs and holding periodic joint 

meetings and training sessions. In other locations, such as Arizona, 

Colorado, and Georgia, SBA and Rural Development offices did not 

collaborate at all. We also identified instances in which SBA and Rural 

Development collaborated with each other and with other agencies in the 

past. For example, the agencies collaborated with each other under the 

Rural Business Investment Program, allowing SBA to share its expertise 

on venture capital programs that could provide equity investments to rural 

small businesses. Similarly, both SBA and Rural Development have 

partnered with the Farm Credit Administration (FCA), allowing each 

agency to take advantage of FCA’s expertise in conducting safety and 

soundness examinations of specialized financial institutions. Additionally, 

Rural Development and the Department of Housing and Urban 

Development (HUD) worked together to create a voucher program 

modeled after HUD’s Housing Choice Voucher program that provides 

rental assistance to families in rural areas. Generally, these efforts have 

enabled all agencies to achieve greater results than they could have 

achieved by acting alone.

Opportunities exist to better facilitate the agencies’ collaborative efforts. 

In our October 2005 report, we identified key practices that could help 

enhance and sustain collaboration among federal agencies and identified

other factors such as leadership, trust, and organizational culture that are 

necessary elements of an effective working relationship.7

 In comparing the 

agencies’ efforts against these criteria, we found that SBA and Rural 

Development could take steps to facilitate more effective collaboration. 

First, they could make more extensive use of cooperative agreements such 

as MOUs that help establish a framework for and demonstrate leadership 

commitment to collaboration. In December 2000, for example, SBA and 

Rural Development entered into an MOU that incorporated three of the 

key practices we identified in our October 2005 report. The MOU defined 

and articulated a common outcome; specified roles and responsibilities; 

and provided a mechanism to monitor, evaluate, and report on the results 

of collaboration. The MOU expired in 2003, but SBA and Rural 

 7

GAO-06-15. 

Page 5 GAO-08-1123 Rural Economic Development
Development did not appear to have implemented it when it was active.

Second, SBA and Rural Development do not have formal incentives to 

encourage collaboration and do not track the results, or impact, of 

collaborative efforts. As a result, the agencies are unable to share 

information on the benefits of working together and encourage additional 

efforts to do so in the future. Without a formal approach to encourage 

further collaboration, the likelihood that the agencies will be able to fully 

leverage each other’s unique strengths to help improve small business 

opportunities and promote economic development in rural communities is 

reduced. 

To improve SBA and Rural Development’s collaborative efforts, we 

recommend that the Administrator of SBA and Secretary of Agriculture 

take steps to adopt a formal approach to encourage further collaboration

in support of common economic development goals in rural areas. 

We provided a draft of this report to SBA and USDA for review and 

comment. Both agencies provided technical comments, which we 

incorporated into the final report where appropriate. 

SBA is charged with providing support to the nation’s small businesses, 

including those in urban and rural areas. Its support takes several forms. 

First, it ensures access to credit, primarily by guaranteeing loans through 

various loan guarantee programs. Second, it provides entrepreneurial 

assistance through partnerships with private entities that offer small 

business counseling and technical assistance. Third, SBA administers 

various small business development and procurement programs that are 

designed to assist small and disadvantaged businesses in obtaining federal 

contracts. Finally, SBA makes loans to businesses as well as individuals 

trying to recover from major disasters. Although most SBA disaster loans 

are processed at the SBA loan processing center in Sacramento, 

California, SBA has a network of 68 field offices nationwide. 

Background 

SBA administers several business loan programs, including the Basic 7(a)

Loan Guaranty Program, 504/CDC Loan Program , 7(m) Micro Loan 

Program, and the Small Business Investment Company (SBIC) Program. 

Recently, it added the Small/Rural Lender Advantage Pilot Program, under 

its 7(a) Program, specifically for small businesses in rural areas (see fig. 

1). Appendix II provides a more detailed description of each program. 

Page 6 GAO-08-1123 Rural Economic Development
Figure 1: SBA’s Primary Loan Programs 

In addition to its loan programs, SBA offers grant programs that support 

nonprofit organizations. These grant programs are generally designed to 

expand and enhance nonprofit organizations that provide small businesses 

with management, technical, or financial assistance. For example, SBA’s 

Women’s Business Development Center Program is an SBA grant program 

available to private, nonprofit organizations to run women’s business 

centers. The program was established by the Women’s Business 

Page 7 GAO-08-1123 Rural Economic Development
Ownership Act of 1988 after Congress found that existing assistance 

programs for small business owners were not addressing women’s needs. 

The program, which specifically targets economically and socially 

disadvantaged women, provides long-term training, counseling, 

networking, and mentoring to women who own businesses or are potential 

entrepreneurs. The program’s ultimate goal is to add more well-trained 

women entrepreneurs to the U.S. business community. 

Additionally, SBA’s Small Business Development Center (SBDC) Program, 

which was created by Congress in 1980, provides management and 

technical assistance to individuals and small businesses. SBDC services 

include, but are not limited to, assisting prospective and existing small 

businesses with financial, marketing, production, organization, 

engineering, and technical problems and feasibility studies. Each state and 

U.S. territory has a lead organization that sponsors and manages the SBDC 

program there. The lead organization coordinates program services 

offered to small businesses through a network of centers and satellite 

locations at colleges, universities, vocational schools, chambers of 

commerce, and economic development corporations. Nationwide, 63 lead 

SBDCs and more than 1,000 satellite locations have contracted to conduct

SBDC services.8

USDA’s Rural Development is responsible for leading and coordinating 

federal rural development assistance. Rural Development administers over 

40 development programs for rural communities, most of which provide 

assistance in the form of loans, loan guarantees, and grants, through a 

network of 47 state offices and about 500 area or local field offices.9

 Rural 

Development has three agencies: Rural Housing Service (RHS), Rural 

Utilities Service (RUS), and Rural Business and Cooperative Service 

(RBS). RHS helps rural communities and individuals by providing loans, 

grants, and technical assistance for housing and community facilities. It 

provides funding for single-family homes; apartments for low-income 

persons, the elderly, and farm laborers; and various community facilities 

such as fire and police stations, hospitals, libraries, and schools. RUS is 

 8

The 63 lead SBDCs include one in every state (Texas has 4 and California 6), the District of 

Columbia, Guam, Puerto Rico, Samoa and the U.S. Virgin Islands. 

9

The 47 state offices include one in every state except Connecticut and Rhode Island 

(which are combined with the Massachusetts state office), New Hampshire (which is 

combined with the Vermont state office), and Maryland (which is combined with the

Delaware state office). 

Page 8 GAO-08-1123 Rural Economic Development
responsible for administering electric, telecommunications, and water 

programs that help finance the infrastructure necessary to improve the 

quality of life and promote economic development in rural areas. 

RBS administers programs that provide business planning and financial

and technical assistance to rural businesses and cooperatives.10

Specifically, RBS’ guaranteed loans and other loan and grant programs 

work in partnership with private sector and community-based 

organizations to meet the business and credit needs of rural businesses. 

Recipients of RBS’ services include individuals, farmers, producers, 

corporations, partnerships, public bodies, nonprofits, American Indian

tribes, and private companies. The primary business programs include the

Business and Industry (B&I) Guaranteed Loan Program, Intermediary 

Relending Program (IRP), Rural Business Enterprise Grant Program 

(RBEG), Rural Business Opportunity Grant Program (RBOG), Rural 

Economic Development Loan and Grant Program (REDLG), and the 

Renewable Energy Systems and Energy Efficiency Improvements 

Guaranteed Loan and Grant Program (see fig. 2).11 Appendix II provides a 

more detailed description of each program. 

 10For purposes of this report, we are focusing on the business programs administered by 

Rural Development’s Business and Cooperative Programs area. We have excluded 

cooperative programs, including the Value-Added Producer Grants, Rural Cooperative 

Development Grants, Cooperative Stock Purchase Program, and the Biomass Research and 

Development Grant Program. 

11Under the 2008 Farm Bill, the Renewable Energy Systems and Energy Efficiency 

Improvements Guaranteed Loan and Grant Program has been renamed the Rural Energy 

for America Program. 

Page 9 GAO-08-1123 Rural Economic Development
Figure 2: Rural Development’s Business Programs 

Business and Industry (B&I) Guaranteed Loan Program 

Business and Industry (B&I) Guaranteed Loan Program provides financial assistance to rural 

businesses in the form of a loan guaranty. The B&I Guaranteed Loan Program, which provided 

over $836 million in loan guarantees during fiscal year 2007, is Rural Development’s largest 

business program.

Intermediary Relending Program (IRP) 

Intermediary Relending Program (IRP) finances business facilities and community development 

projects in rural areas. Under the IRP program, loans are provided to local organizations such as

state agencies and authorities, and private nonprofit corporations (intermediaries) for the establishment of revolving loan funds. IRP spending in fiscal year 2007 totaled about $34 million. 

Rural Business Enterprise Grant Program (RBEG) 

Rural Business Enterprise Grant Program (RBEG) provides grants for rural projects that finance 

and facilitate development of small and emerging rural businesses, and help fund employment 

related adult education programs. Approximately $43 million in grants were provided in fiscal year 

2007. 

Rural Business Opportunity Grant Program (RBOG) 

Rural Business Opportunity Grant Program (RBOG) provides grants for technical assistance, 

business development, and planning to improve economic conditions in rural areas. Under this

program, about $7 million in funding was provided during fiscal year 2007. 

Rural Economic Development Loan and Grant Program (REDLG)

Rural Economic Development Loan and Grant Program (REDLG) provides loans and grants, 

which can be used for business start-up or expansion projects that create rural jobs. The loans

and grants are made to local utility groups (i.e., phone and electric borrowers), and the maximum 

loan and grant amount is established on an annual basis. In fiscal year 2007, about $26 million in 

loans and about $10 million in grants were provided to eligible recipients. 

Renewable Energy Systems & Energy Efficiency Improvements Guaranteed Loan and 

Grant Program 

Renewable Energy Systems & Energy Efficiency Improvements Guaranteed Loan and Grant 

Program (also referred to as the Section 9006 program) provides grants, loans, and loan 

guarantees to rural small businesses for assistance in developing renewable energy systems and 

making energy efficiency improvements. Approximately $48 million in energy loans and $11 

million in energy grants were provided during fiscal year 2007. Additionally, recipients received 

over $18 million in joint funding from the program during the same period.

Source: USDA.

Programs

Rural Development business programs are available in areas that meet the 

program’s definition of rural—for example, for the B&I program, any area 

other than a city or town with a population of 50,000 or less and the area 

contiguous and adjacent to such a city or town. As a result, in general, only 

individuals and businesses in identified areas with 50,000 or fewer people 

are eligible for most of these programs. One exception is the Intermediary 

Page 10 GAO-08-1123 Rural Economic Development
Relending Program, which is available only to businesses in rural areas 

with 25,000 or fewer people.12

Some SBA loan programs and Rural Development business programs are 

complementary, providing a rationale for the agencies to collaborate. Both

types of programs can fund start-up and expansion projects, equipment 

purchases, and working capital to rural borrowers and, in some cases, the 

eligibility requirements for the programs are comparable. However, the 

various programs have different and sometimes unique strengths—for 

example, larger loan amounts, shorter processing times, or targeting of 

different market segments. According to SBA and Rural Development 

officials, collaborative efforts could allow each agency to leverage the 

strengths of the other. For example, Rural Development can finance larger 

projects than SBA and lend to nonprofit organizations, something SBA 

cannot do. However, SBA can offer entrepreneurs a faster turnaround time 

in loan processing. Similarly, officials noted that certain SBA and Rural 

Development loan products complemented one another and were used 

jointly to finance individual projects. To the extent that SBA’s resource 

partners are considered part of SBA’s rural presence, both agencies have a 

strong rural presence that provides another rationale for the agencies to 

collaborate.

The Complementary 

Nature of Some SBA 

and Rural 

Development 

Programs Provides a 

Rationale for 

Collaboration 

Some SBA and Rural 

Development Programs 

Serve the Same Areas and 

Groups, Offer Comparable

Products, and Have Similar 

Eligibility Requirements 

SBA and Rural Development, which share a similar mission of increasing 

economic opportunity and improving the quality of life for people in 

underserved markets, including rural America, serve the same rural 

geographic areas and communities and have some programs that offer 

similar products to borrowers for comparable purposes. For example, 

SBA’s 504 Loan Program and Rural Development’s Intermediary Relending 

Program both offer economic development loans that can support the 

growth of rural small businesses and help enhance rural communities 

 12Section 6018 (a) of the Food, Conservation and Energy Act of 2008, Pub. L. No. 110-246, 

122 Stat. 923 (2008), enacted in June 2008, generally revises the definition of rural and rural 

area, but allows for consideration of population density in some situations and adds some

definitions that are specific to certain programs. Section 6018(b) directs the Secretary to 

assess the various definitions of the terms “rural” and “rural area” that are used with 

respect to USDA programs; describe the effects that the variations in those definitions have 

on those programs; make recommendations for ways to better target funds provided

through rural development programs; and determine the effect of changing the definitions, 

as directed by section 6018(a), on the level of rural development funding and participation 

in those programs in each state. 

Page 11 GAO-08-1123 Rural Economic Development
through business expansion and job creation. The 504 and Intermediary 

Relending programs both also provide financing for the acquisition and 

improvement of land, buildings and equipment, particularly when such 

funding will help create or retain jobs. 

Both agencies’ loan and business programs are designed to help local

entrepreneurs start up or expand their businesses. For instance, SBA’s 

7(a) Loan Guaranty Program and Rural Development’s Business and 

Industry Guaranteed Loan Programs both provide financing that can be 

used to establish a new business or to assist in the operation, acquisition, 

or expansion of an existing business. Specifically, the 7(a) program 

provides funding for business start-ups, expansion, equipment, working 

capital, and real estate acquisition. Similarly, the Business and Industry 

Guaranteed Loan Program provides funding for start-ups and expansion 

purposes, including acquisition, inventory, real estate, working capital, 

equipment, construction, and enlargement or modernization of rural 

businesses. These programs are provided through loan guarantees that 

limit the risk to lenders. Private lenders underwrite and service the loans 

and make the decisions to approve or not approve loan requests, and SBA 

and Rural Development decide whether to guarantee a portion of the 

outstanding loan balance if the borrower defaults. 

Examples of Assistance SBA and USDA 

Rural Development Provide to Businesses

According to SBA, the agency provided a 504 

loan to the owners of a health care business

to purchase a new $7.2 million headquarters

building. Two Native American sisters from 

Lumberton, North Carolina, launched the 

business in 2000 and were named the 2007 

National Small Business Persons of the Year. 

When it first opened, the health care business had only one cell phone, two patients, and a

certified nursing assistant. Today, according to 

SBA, the business provides a broad range of 

services, employing 301 professionals and 

serving 760 patients daily, with annual sales over $9 million. 

According to USDA, the Southeast Iowa

Regional Planning Commission sought 

financing for a revolving loan fund to serve 

Des Moines, Henry, Lee, and Louisa counties

in Southeast Iowa. In response to this

request, Rural Development, through its

Intermediary Relending Program, awarded 

the commission $600,000 to provide 

low-interest loans to public and nonprofit 

organizations that, in turn, would relend those funds to support business and community 

development. As a result of the project, 

according to USDA, 7 businesses were 

assisted, 200 jobs were created, and 259 

jobs were saved.

Further, both agencies offer programs that provide technical assistance to 

eligible borrowers and, while SBA does not offer grants to start or grow a 

business, it has resource partners, such as its SBDCs and Women’s 

Business Centers, which provide management and technical assistance to

prospective small business owners. Rural Development offers grant 

programs that provide management and technical assistance to rural 

borrowers. The Rural Business Enterprise Grant and Rural Business 

Opportunity Grant programs provide technical assistance for business 

development and to conduct economic planning in rural areas. 

In addition, some of the loan and business programs have similar eligibility 

requirements. For example, in administering its Renewable Energy 

Systems and Energy Efficiency Improvements Guaranteed Loan and Grant 

Program, Rural Development relies on SBA’s definition of eligible small 

businesses, including sole proprietorships, partnerships, corporations, and 

cooperatives. Borrowers must also meet SBA’s small business standards 

for the type of industry, number of employees, or annual revenue. 

Moreover, some of SBA’s and Rural Development’s programs have 

established comparable credit criteria for the borrower. SBA’s 7(a) Loan 

Guaranty, 504, and Mirco Loan programs and Rural Development’s 

Business and Industry Guaranteed Loan Program all use similar criteria 

Page 12 GAO-08-1123 Rural Economic Development
that are based on the type of project being funded and the borrower’s 

ability to meet normal commercial lending standards and provide a 

personal guaranty, if necessary. 

SBA and Rural 

Development Programs 

Have Several Key 

Differences 

SBA and Rural Development officials we spoke to stated there was little 

overlap or duplication between the two agencies’ loan and business 

programs, in part because of several key differences. First, Rural 

Development can finance larger projects than SBA. The maximum loan 

amount for SBA’s 7(a) loan is $2 million, compared with a maximum loan 

amount for Rural Development’s Business and Industry loan of $25 

million.13 Second, the 7(a) and Business and Industry programs also offer 

different loan guaranties. The maximum guaranty for 7(a) loans is 85 

percent for loans up to $150,000 and 75 percent for loans over $150,000. 

The maximum guaranty percentage for Business and Industry loans is 80 

percent for loans up to $5 million, 70 percent for loans between $5 million 

and $10 million, and 60 percent for loans of more than $10 million. Third, 

the costs, fees, and loan terms differ for the two types of loans. For 

example, SBA charges a guaranty fee of 2 percent for loans up to $150,000,

3 percent for loans between $150,000 and $700,000, and 3.5 percent for 

loans up to $1 million. SBA also charges an additional quarter of a percent 

of the guaranteed portion over $1 million. Rural Development charges an

initial guaranty fee not to exceed 2 percent of the guaranteed portion of 

the loan.14 The maximum loan terms for SBA 7(a) loans are determined by 

the following: (1) the shortest appropriate term, depending on the 

borrower’s ability to repay; (2) 10 years or less, unless it finances or 

refinances real estate or equipment with a useful life exceeding 10 years; 

and (3) a maximum of 25 years, including extensions.15 However, the 

maximum loan terms for Rural Development’s Business and Industry loans 

are 7 years for working capital, 15 years for equipment, and 30 years for 

real estate loans. 

 13Subject to additional credit criteria, Rural Development may approve guaranteed loans in 

excess of $25 million, up to $40 million, for rural cooperative organizations that process 

value-added agricultural commodities. 

14See 7 C.F.R. § 4279.107(a). Rural Development’s guaranty fees are subject to change

annually. Rural Development operates the B&I Loan Guaranty Program at an estimated 

subsidy rate of about 4 percent. SBA’s 7(a) Loan Guaranty is a zero-subsidy program, which 

requires no appropriated funding to operate, but tends to carry higher costs and fees 

associated with the program. 

15See 13 C.F.R. § 120.212. 

Page 13 GAO-08-1123 Rural Economic Development
Each program also offers some unique strengths. While Rural 

Development’s fees tend to be lower than SBA’s, SBA usually processes its 

loans faster. In general, the average processing time by SBA for SBA loans 

is 5 to 7 business days and for Rural Development business programs 10 to 

60 days, depending on the scope of the project and completeness of the 

application. SBA can offer shorter turnaround in loan processing, 

particularly for its 7(a) program (which sometimes takes as little as 2 

business days), because of its various express loan options, preapproved

lenders, and consolidated loan processing center. Rural Development 

makes credit and underwriting decisions itself rather than relying on

preapproved lenders, and its loans can take as long as 60 days to process. 

Moreover, Rural Development has certain restrictions on the maximum 

dollar amount of loans that can be approved by field offices—typically 

varying by state based on the loan approval authority. Therefore, Business 

and Industry loans above a state’s loan approval limit must be approved by

Rural Development headquarters officials, resulting in additional loan 

processing times. 

While both agencies serve rural areas, their programs differ in the types of

entities they serve. SBA’s loan programs only serve the for-profit sector, 

focusing on individual entrepreneurs and small businesses. However, 

Rural Development’s business programs focus on individual entrepreneurs 

and small and mid-size businesses, as well as nonprofits. Appendix III 

further illustrates some of the similarities and differences between SBA’s 

and Rural Development’s loan and business programs. 

Collaboration Allows SBA 

and Rural Development to 

Leverage Each Agency’s 

Strengths and Increase 

Financing Options in Rural 

Areas 

According to SBA and Rural Development officials who are engaged in 

collaborative relationships, collaboration allows the agencies to leverage 

the unique strengths of each agency’s programs and increase the number 

of financing options to better promote economic development. For 

instance, SBA and USDA officials in North Dakota said that SBA’s 504 

program and Rural Development’s Intermediary Relending programs were 

frequently coupled in loan packages. In those cases, the 504 program 

provided funding for land and buildings, and the Intermediary Relending 

program provided funding for machinery, equipment, working capital, and 

other uses. The officials estimated that about one of every four 504 loans 

in rural communities in North Dakota with populations of less than 25,000 

residents had been used jointly with Intermediary Relending loans to 

finance individual projects. Examples of businesses in North Dakota that 

have received joint financing from SBA and Rural Development include an

agricultural retail service that sells chemicals and fertilizer and employs 7 

workers and a manufacturer of electric thermal storage heating equipment 

Page 14 GAO-08-1123 Rural Economic Development
that employs 140 workers. In each of these examples, the businesses used 

SBA’s 504 program to acquire a building and used the IRP program to 

acquire machinery and equipment. 

Other officials with whom we spoke cited further rationale for the 

agencies to collaborate. In one instance, a Rural Development official in 

New Mexico noted that collaboration with SBA allowed him to tap into 

SBA’s preexisting constituency of banks, expanding the number of lenders

that could help provide Rural Development loans to potential borrowers. 

Similarly, SBA officials in New Mexico said that collaboration with Rural 

Development allowed SBA to provide additional assistance to small 

businesses after Rural Development provided initial financing for a 

community’s infrastructure.16

The officials involved in the limited instances of collaboration that we 

identified acknowledged that working together allowed both agencies to 

coordinate the delivery of their loan and business programs to solve 

specific credit needs. SBA and Rural Development officials in North 

Dakota also told us that by collaborating they were able to provide 

borrowers with more financing options than they could by acting alone, 

thereby improving service to borrowers. Moreover, according to officials 

in North Dakota and New Mexico, collaboration also created a synergistic 

effect to better promote economic development in rural areas. 

Finally, while some consolidation has occurred over time, both agencies 

have a strong presence in rural areas. Prior to its 1994 reorganization, 

USDA had field staff in almost every rural county. Consistent with its 

reorganization, and as we reported in September 2000, USDA closed or 

consolidated about 1,500 county offices into USDA service centers and 

transferred more than 600 Rural Development field positions to the St. 

Louis Centralized Servicing Center. The number of Rural Development 

offices across the nation is now closer to the number of SBA offices—47 

Rural Development state offices and 68 SBA district offices (see fig.3). 

 16While collaborative efforts can benefit borrowers in rural areas, such actions can also 

lead to a higher concentration of federal loan guarantees in individual projects. As a result, 

when choosing to jointly fund projects, SBA and Rural Development need to work together

to appropriately manage the financial risks associated with jointly funding a project. 

Page 15 GAO-08-1123 Rural Economic Development
Figure 3: SBA District Offices and Rural Development State Offices, by Location

Sources: SBA and USDA (data); Art Explosion (map).

USDA Rural Development State Offices

SBA District Offices

Cities with both types of offices

In addition to its state offices, Rural Development also has about 500 field

offices, including area, subarea, and other local offices in rural areas. SBA 

officials we spoke to in headquarters believe that SBA has a similar 

presence in rural communities because of its more than 950 SBDC 

locations in the 50 states, U.S. territories, and the District of Columbia. In 

contrast to SBA’s view, Rural Development officials believe that the 

presence of its 500 field offices in rural areas is unique because each office

is staffed by USDA employees. Although SBA’s SBDCs may provide 

services that differ from services provided by Rural Development field 

Page 16 GAO-08-1123 Rural Economic Development
offices, to the extent that SBDCs are considered part of SBA’s rural 

presence, both agencies have a strong rural presence that provides 

another rationale for the agencies to collaborate.

Overall, in the areas where SBA and Rural Development were 

collaborating, the efforts were sporadic, were initiated and administered at 

local levels, and appeared to be dependent on established working 

relationships among those involved. The results of a query by Rural 

Development and SBA officials asking their offices whether collaborative 

efforts were under way also indicated that such efforts were sporadic. We 

found that the extent of the collaboration that was taking place and the 

level of formality—that is, the use of cooperative agreements, such as 

MOUs and other mechanisms to collaborate—varied across the agencies’ 

field offices. For example, in North Dakota, SBA and Rural Development 

collaborated frequently and on a relatively formal basis by communicating 

at least weekly, hosting several joint lender training sessions yearly, and 

establishing an MOU to deliver financing and technical assistance at one 

location. In other states we visited, such as Nebraska and New Mexico, 

SBA and Rural Development worked with each other less frequently and 

on a more informal basis. In a number of other states, such as Arizona, 

Colorado, and Georgia, no collaborative efforts appeared to be under way. 

SBA and Rural 

Development’s 

Collaborative Efforts 

Have Been Sporadic 

Most of the Current 

Collaborative Efforts 

between SBA and Rural 

Development Have Been 

Initiated at the Local Level 

Federal agencies that are involved in collaborative efforts are generally

required by statute to collaborate, but no such specific requirement exists 

for SBA and Rural Development. As a result, we found that most ongoing 

collaborative efforts between the agencies had been initiated at the local 

level and were based on established working relationships among the 

involved individuals. For example, some SBA and Rural Development field 

office officials at the three sites we visited told us that they frequently 

collaborated with each other because they had held the same job 

positions, within their respective agencies, and worked together for many 

years and thus had established a rapport. Other officials told us that they

were involved in collaborative efforts because they had initiated the 

efforts on their own or had prior experience in partnering with other 

agencies and had chosen to continue similar efforts. 

SBA and Rural Development headquarters officials conducted a query of

their respective field office staff to determine the extent to which these 

offices were involved in any formal or informal collaborative efforts. In 

addition to information we obtained from the three locations we visited, 

the query results showed that collaborative efforts developed sporadically

Page 17 GAO-08-1123 Rural Economic Development
among a limited number of offices. For example, of SBA’s 68 district 

offices, only about half reported having ongoing collaborative efforts with 

Rural Development. Similarly, only about half of Rural Development’s 47 

state offices reported having ongoing collaborative efforts. Of those Rural 

Development offices that reported not having any ongoing efforts, a few 

indicated that they had partnered with SBA in the past. Each agency’s 

query also showed that some SBA and Rural Development field offices 

seemed to have good working relationships that had been established over 

the years by the specific individuals involved. 

A Few SBA and Rural 

Development Field Offices 

Have Established Formal 

Collaborative Efforts 

Our site visits and the results of the query of field offices identified a few 

SBA and Rural Development offices, such as those in North Dakota, Ohio, 

and Washington state that appeared to be collaborating frequently. These 

offices used formal mechanisms such as MOUs to establish a framework 

for their efforts. In North Dakota, for example, SBA and Rural 

Development offices offered at least eight joint lender trainings each year 

and held quarterly meetings. In addition, in North Dakota the agencies had 

established an MOU that created the Entrepreneur Centers of North 

Dakota (ECND), a single entity involving SBA, Rural Development, and 

other state and local stakeholders.17 According to officials at the center, 

the ECND provides “one-stop” access to a variety of products and services, 

a concept that has been widely used by USDA in its service centers for 

over 10 years and that was a cornerstone of the agency’s reorganization 

efforts.18

Through the ECND, a prospective small business borrower in North 

Dakota can work with the five ECND partners to obtain financing and 

technical assistance from any of the more than 15 programs that are 

 17These entities include the Dakota Certified Development Corporation, the state 

Department of Commerce, and the Bank of North Dakota. The ECND, which is located in

Bismarck, delivers financing, business management, counseling, and other technical 

assistance at one location as part of these groups’ ongoing activities to enhance economic

development and increase services to rural communities and small businesses. 

18The Department of Agriculture Reorganization Act of 1994 gave the Secretary of

Agriculture authority to reorganize USDA headquarters and field structures. USDA

consolidated many field offices into service centers that were collocated with its other 

farm service agencies, including Rural Development, the Natural Resources Conservation 

Service, and the Farm Services Agency. USDA service centers, which provide one-stop 

shopping for services such as farming, business, and housing loans, have streamlined 

service delivery and helped field offices establish partnerships with other federal agencies,

state and local governments, and community organizations. 

Page 18 GAO-08-1123 Rural Economic Development
offered. ECND partners work with the borrower from the initial point of 

contact and continue their assistance through the process of securing the 

appropriate financing and may stay involved until a project is completed. 

Borrowers can also work with “resource partners,” including SBA’s SBDC 

and the North Dakota Women’s Business Center (i.e., Center for Women 

and Technology) to obtain technical assistance in areas such as business 

management, marketing, production, and the development of feasibility 

studies. According to SBA and Rural Development officials in North 

Dakota, the ECND is one of the best examples of teamwork and has 

proven to be beneficial in helping to provide a high level of customer 

service to rural borrowers. 

The SBA and Rural Development offices in Ohio also reported ongoing 

collaborative efforts. The officials reported having an MOU, which was 

established in the late 1990s, to guide various joint activities and to 

promote the use of each other’s programs in marketing and outreach 

efforts. Under the MOU, which is still used today, the offices provide 

referrals, conduct periodic meetings to update program information, and 

engage in forums and joint lender training sessions to educate lenders on

their programs. The SBA and Rural Development offices in Washington 

reported having annual forums to share updated program information. 

They also said that they had sponsored three joint lender training sessions 

and a regional lender conference to educate lenders on the various aspects 

of their loan and business programs. The SBA and Rural Development 

offices plan to conduct a series of joint lender workshops in 2008 and to 

establish an MOU that will guide their efforts and cover advertising for the 

workshops. 

SBA and Rural 

Development Collaborated 

Less Frequently, 

Informally, or Not At All in 

Many Locations 

The two agencies reported several other instances of collaboration, but 

these were less extensive and formal than those in North Dakota, Ohio, 

and Washington state. For example, Nebraska SBA and Rural 

Development officials reported conducting joint lender training sessions 

to educate loan officers on the agencies’ various loan and business 

programs and provide information on the technical resources that are 

available to small businesses throughout the state. In New Mexico, SBA 

and Rural Development officials reported conducting joint monthly 

meetings and community outreach sessions, or “Access to Capital” forums. 

The forums are 1-day events during which Rural Development, SBA, and 

SBDC officials and other local economic development professionals make 

presentations on the various types of loan programs that are available to 

small businesses. The forums’ goal is to involve local economic and 

political leaders in assisting small businesses in rural areas of the state and 

Page 19 GAO-08-1123 Rural Economic Development
to obtain their buy-in and support for SBA and Rural Development 

programs. 

SBA and Rural Development officials in other locations reported that they

were involved in informal collaborative efforts. In Arkansas, Missouri, and 

Virginia, these activities were based on referrals. According to officials in

these areas, SBA and Rural Development field personnel often refer 

applicants in need of financing to each other’s agency if the other agency’s 

programs seem better suited to the applicants’ needs. SBA and Rural 

Development offices in Massachusetts also reported that they had recently 

sponsored a joint educational event on renewable energy and energy 

efficiency grants and loans and had held meetings to exchange program 

information. Additionally, in New Hampshire, Rhode Island, and Vermont, 

the offices reported that they had informal relationships and generally

kept each other up to date on their respective programs. 

In many states, however, SBA and Rural Development do not appear to be

collaborating at all or to have formal or informal mechanisms to facilitate 

collaboration. These states include, among others, Arizona, Colorado, 

Georgia, Maine, North Carolina, Utah, and West Virginia. Because of this 

lack of collaboration, SBA and Rural Development offices in these states 

may be missing out on opportunities to work together to better serve 

entrepreneurs and small businesses in their local communities. 

SBA and Rural 

Development have 

Collaborated with Each 

Other and Other Agencies 

in the Past 

SBA and Rural Development have collaborated in the past with each other 

and with other agencies. Generally speaking, these efforts enabled the 

agencies to achieve results that they could not have achieved acting alone.

For example, SBA and Rural Development collaborated with each other

under the RBIP. Section 6029 of the Farm Security and Rural Investment 

Act of 2002 required USDA to establish the RBIP.19 The purpose of the 

program was twofold: first, to promote economic development and create 

jobs in rural areas by encouraging investments of venture capital to help 

develop small rural businesses; and second, to establish a developmental 

venture capital program to address the unmet equity investment needs of

small rural businesses. 

RBIP was modeled after SBA’s Small Business Investment Company 

program and its New Markets Venture Capital program, and Rural 

 19Pub. L. No. 107-171, § 6029, 116 Stat. 134, 387 (2002). 

Page 20 GAO-08-1123 Rural Economic Development
Development was expected to draw upon the experience that SBA had 

gained in administering these programs.20 Under an interagency agreement 

required by the act, Rural Development had oversight responsibility for 

RBIP, and SBA had the day-to-day responsibility for managing and 

operating the program using its own staff, procedures, and forms. 

According to both SBA and Rural Development officials, the success of 

RBIP was limited due to a lack of funding, in part because the Deficit 

Reduction Act of 2005 rescinded fiscal year 2007 and subsequent funding 

for the program. Both agencies also encountered challenges during 

planning and implementation. For instance, it took about 2 years from the 

time that the law was enacted in 2002 to finalize and sign the operating 

agreements, establish interim final rules, and announce funding 

availability in 2004. Prior to the loss of funding in 2006, only one company 

was able to raise the necessary capital (i.e., private equity matching 

dollars) for full approval to become licensed as a rural business 

investment company under RBIP.21

According to SBA and Rural Development officials, the agencies have also

collaborated with other agencies, and the results have reportedly been

beneficial for both SBA and USDA. For instance, both SBA and Rural 

Development each collaborated with FCA to examine specialized lending 

institutions. Specifically, SBA oversees small business lending companies 

(SBLC), which are nondepository lending institutions licensed by SBA that 

play a significant role in SBA’s 7(a) Loan Guaranty Program. However, 

SBLCs are not generally regulated or examined by financial institution 

regulators. SBA entered into a contractual agreement with FCA in 1999 

that tasked FCA with conducting safety and soundness examinations of 

the SBLCs. Under the agreement, FCA would conduct examinations of 

SBLCs on a full cost-recovery basis, and the agencies would have the 

option to terminate or extend the agreement after 1 year.22 Rural 

 20In December 2000, to address the unmet equity needs of low-income communities, 

Congress passed new legislation creating the New Markets Venture Capital (NMVC) 

Program. The NMVC program was designed to promote economic development and create 

wealth and job opportunities in low-income areas by making equity-type investments in 

smaller enterprises located in those areas, and by providing operating assistance (in the

form of grants) to such enterprises. 

21Rural Development officials told us that in March 2007 they began exploring ways to 

continue RBIP. Recently, as part of its 2008 Farm Bill, Congress acted to restore the 

program. The Food, Conservation and Energy Act of 2008 reauthorized the appropriation of

$50 million in funding for RBIP through fiscal year 2012. Pub. L. No. 110-246, § 6027, 122

Stat. 1944, 1651 (2008). 

22As of July 2008, FCA had conducted 14 examinations of SBLCs on SBA’s behalf. 

Page 21 GAO-08-1123 Rural Economic Development
Development also collaborated with FCA under an Economy Act 

agreement to conduct examinations of its nontraditional lenders (i.e., 

lenders that provide loans to borrowers that do not meet the traditional 

credit criteria) that participate in Rural Development’s B&I, Renewable 

Energy Systems and Energy Efficiency Improvements, and Community 

Facilities Guaranteed Loan Programs.23 Under the agreement, FCA 

conducts, on a full cost-recovery basis, examinations of the lending 

institutions’ safety and soundness, lending practices, and regulatory 

compliance. These agreements have allowed both SBA and Rural 

Development to take advantage of FCA’s expertise in examining 

specialized financial institutions and offered FCA the opportunity to 

broaden its experience through exposure to different lending 

environments. 

Additionally, Rural Development and FEMA collaborated in providing 

disaster assistance to Hurricane Katrina victims. Through this 

collaborative effort, Rural Development assisted victims of Katrina by (1)

making multifamily rental units available nationwide; (2) providing grants 

and loans for home repair and replacement; and (3) providing mortgage 

relief through a foreclosure moratorium and mortgage payment 

forbearance. Over the years, Rural Development’s Housing and 

Community Facilities Program and HUD have routinely collaborated with 

each other to provide affordable housing assistance in rural communities, 

and the working relationship still exists today. Rural Development and 

HUD have together created a voucher program, modeled after HUD’s 

Housing Choice Voucher program that provides rental assistance to 

families in rural areas. They have also developed cooperative agreements 

for their multifamily housing assistance programs that allow tenants to use 

HUD vouchers in USDA subsidized multifamily housing units. We were 

told that each of the collaborative efforts allowed the agencies to establish 

common approaches to working together, clarify priorities as well as roles 

and responsibilities, and align their resources to accomplish common 

outcomes. 

 23The Economy Act is a general statutory provision that permits federal agencies to enter 

into mutual agreements with other agencies to purchase goods or services and take 

advantage of specialized experience or expertise. 

Page 22 GAO-08-1123 Rural Economic Development
SBA and Rural Development have not had a lasting approach to guide 

them in collaborating with one another more effectively. Our October 2005 

report on key practices that can help enhance and sustain collaboration 

among federal agencies identified a number of practices critical to 

successful collaboration and identified other factors such as leadership, 

trust, and organizational culture that are necessary elements of an 

effective working relationship.24 In December 2000, SBA and Rural 

Development entered into an MOU that provided an approach to 

collaboration. The MOU incorporated three of the key practices we have

identified. The MOU expired in 2003 and SBA and Rural Development do 

not appear to have implemented the MOU when it was active. The 

ineffective implementation of the MOU has likely contributed to the 

sporadic and limited amount of collaboration that is taking place between

the two agencies. SBA and Rural Development also do not have formal 

incentives focused on collaboration and do not track the results or impact 

of collaborative efforts. As a result, the agencies are unable to share 

information on the benefits of working together and encourage additional 

efforts to do so. Without a formal approach to encourage further 

collaboration, the agencies will be less likely to fully leverage each other’s 

unique strengths to help improve small business opportunities and 

encourage economic development in rural communities. 

SBA and Rural 

Development Could 

Take Steps to 

Establish a Formal 

Approach to 

Collaboration 

Rural Economic Development

In our October 2005 report, we identified eight key practices federal 

agencies could undertake to enhance and sustain their collaborative 

efforts.25 These practices included the following: 

• Define and articulate a common outcome—to overcome significant 

differences in agency cultures and established ways of doing business, 

collaborating agencies must have a clear and compelling rationale to work 

together. 

SBA and Rural 

Development Do Not Have 

A Current Cooperative 

Agreement to Facilitate 

Collaboration 

• Establish mutually reinforcing or joint strategies—to achieve a common 

outcome, collaborating agencies need to establish strategies that work in 

concert with those of their partners or are joint in nature. 

• Identify and address needs by leveraging resources—collaborating 

agencies should identify the human, information technology, physical, and 

 24GAO-06-15. 

25GAO-06-15. 

Page 23 GAO-08-1123
financial resources needed to initiate or sustain their collaborative effort.

By assessing their relative strengths and limitations, agencies can look for 

opportunities to address resource needs by leveraging each others’ 

resources. 

• Agree on agency roles and responsibilities—collaborating agencies 

should work together to define and agree on their respective roles and 

responsibilities, including how the collaborative effort will be led. 

• Establish compatible policies, procedures, and other means to operate 

across agency boundaries—to facilitate collaboration, agencies need to 

address the compatibility of standards, policies, procedures, and data 

systems that will be used in the collaborative effort. 

• Develop mechanisms to monitor, evaluate, and report on results—

agencies involved in collaborative efforts need to create the means to 

monitor and evaluate their efforts to enable them to identify areas for 

improvement. 

• Reinforce agency accountability for collaborative efforts through agency 

plans ands reports—collaborating agencies should ensure that goals are

consistent and, as appropriate, program efforts are mutually reinforced 

through tools such as strategic and annual performance plans; and 

• Reinforce individual accountability for collaborative efforts through 

performance management systems—collaborating agencies should use 

their performance management systems to strengthen accountability for 

results, specifically by placing greater emphasis on fostering the necessary 

collaboration both within and across organizational boundaries to achieve 

results. 

In comparing SBA and Rural Development’s efforts to these key practices, 

we found that the agencies have taken steps in the past that were 

consistent with three of the key practices. In particular, the agencies 

entered into a cooperative agreement—an MOU—in December 2000 that 

(1) defined and articulated a common outcome; (2) reached agreement on 

roles and responsibilities; and (3) established a mechanism to monitor, 

evaluate, and report on results.26

 26SBA and Rural Development had entered into agencywide MOUs before: once in 1977 and 

again in 1988. 

Page 24 GAO-08-1123 Rural Economic Development
Specifically, the MOU defined and articulated a common purpose, 

including to better serve rural areas by coordinating the delivery of 

programs; increase the number of small business loans guaranteed by both 

agencies; and develop relationships with federal, state, county, and local 

agencies, private organizations, and commercial and financial institutions 

to facilitate and support the development of strong rural businesses. In 

addition, the MOU described the respective roles and responsibilities each

agency would maintain in providing training on their programs, credit 

analysis techniques, and processing and servicing policies. Finally, the 

MOU stated that, at least annually, SBA’s Associate Administrator for Field 

Operations, SBA’s Associate Administrator for Financial Assistance, and

Rural Development’s Deputy Administrator for Business Programs, or 

their designees, would monitor and evaluate the previous year’s joint 

activities and plan any future work. 

The MOU, signed in December 2000, was to become active on the date of 

execution and remain in effect for 3 calendar years at which time the two 

agencies had the option to extend it for an additional 2 years by written 

agreement. SBA’s Deputy Administrator and USDA’s Undersecretary for 

Rural Development signed the MOU and it expired in 2003. Both SBA and 

Rural Development officials recently confirmed that the MOU was not 

renewed. 

Although SBA and Rural Development’s December 2000 MOU contained 

provisions that are consistent with some of our key practices as described 

above, the agencies do not appear to have implemented the MOU when it 

was active. Based on our analysis, there are two potential reasons for this 

lack of implementation.

First, SBA and Rural Development may not have implemented the 2000

MOU when it was active because of a lack of direction and focus from high 

levels of each agency emphasizing the need for and importance of 

collaboration. Rural Development officials confirmed that a change in

USDA administration occurred after the 2000 MOU was signed, and the

officials who signed the MOU were no longer in the positions they 

occupied at the time of the signing. This explanation is consistent with 

what others told us about barriers to more effective collaboration between 

federal agencies. For example, a representative of a rural community 

development organization with whom we spoke stated that the initial 

momentum for some collaborative efforts may come from officials in 

management level positions of a federal agency, but after the responsible 

officials leave the agency, or a change in administration occurs, the 

SBA and Rural 

Development Do Not 

Appear to Have 

Implemented the 

December 2000 MOU 

When it Was Active 

Page 25 GAO-08-1123 Rural Economic Development
momentum for a collaborative effort may drop off and not be resumed by 

the officials’ successors. 

Second, the 2000 MOU may not have been fully implemented because 

neither agency appeared to be actively monitoring the extent to which 

collaboration was ongoing. For instance, when we began our work for this 

review, we asked SBA and Rural Development officials in headquarters to 

provide examples of formal or informal efforts the agencies have 

undertaken to work together. The officials were not able to provide any 

descriptions of such efforts and told us that ongoing collaborative efforts 

were likely to be sporadic and occurred only as needed in the agencies’ 

field offices. Because we could not obtain information on the extent and

nature of SBA and Rural Development’s collaborative efforts, we asked 

each agency to query its field offices to provide us with this information. 

As discussed previously, based on the results of each agency’s query, we 

found a few locations where SBA and Rural Development are involved in

frequent and formal collaborative efforts, some locations where the 

agencies are involved in informal efforts, and many locations where the 

agencies appear not to be working together at all. 

SBA and Rural Development officials did not cite the December 2000 MOU 

when we began work for this review and, for a period of months, the 

agencies did not appear to be in agreement as to whether the MOU was 

active. In March 2008, Rural Development officials informed us that they 

were operating as though the MOU was active, even though it had expired.

However, when we asked about the December 2000 MOU during some of 

our visits to locations where SBA and Rural Development were 

collaborating, some officials in the locations were unfamiliar with it. 

During the course of our review, neither SBA nor Rural Development 

officials cited actions taken, past or present, in response to the provisions

contained in the MOU. Had SBA and Rural Development implemented the

MOU, the agencies would have had a framework to guide them and 

improve upon their collaborative efforts. 

Page 26 GAO-08-1123 Rural Economic Development
Based on our analysis, we found that SBA and Rural Development field 

offices do not have formal incentives to encourage collaboration and do 

not track the results of their efforts. As mentioned, as we reported in our 

2005 report, one of the key practices that can help agencies to enhance 

and sustain their collaborative efforts involved ensuring that the agencies’ 

goals are consistent and that their program efforts are mutually reinforced 

through strategic and annual performance plans.

27 Specifically, federal 

programs contributing to the same or similar results should collaborate 

and use their strategic and annual performance plans as tools to drive 

their efforts to work together. Such plans can reinforce accountability for 

the collaboration by establishing complementary goals and measures for 

achieving results and aligning them with the goals and measures of the 

collaborative efforts. SBA and Rural Development’s performance goals 

and measures do not focus on their efforts to work together

collaboratively. Specifically, in describing their performance goals for 

district offices, SBA officials stated that each office has goals for technical

assistance, including activities such as training, marketing, and outreach.

The officials noted that each SBA district office also has goals and 

measures for the number of loans to be made in underserved markets, 

which may include rural areas. While these goals and measures focus on 

participation in SBA’s programs and may encourage offices to partner with 

others, they do not focus specifically on collaboration with Rural 

Development. Similarly, Rural Development’s program performance 

measures, particularly for the B&I program, do not focus on collaboration 

with another agency. Rural Development’s goals and measures focus on 

employment opportunities (i.e., jobs created or saved) and community 

economic benefits (i.e., value added to a community as a result of the 

economic impact of Rural Development’s programs). Both SBA and Rural 

Development officials stated that performance goals and measures 

focused on collaboration could provide an incentive to collaborate. Once 

established, such goals and measures could provide both agencies a 

mechanism to encourage interagency working relationships and reward 

those efforts already occurring. 

Additionally, SBA and Rural Development officials at the three locations 

we visited said that they are not currently tracking the results of some 

collaborative efforts, such as the joint training of lenders and community 

outreach sessions. The officials did view these collaborative efforts as 

beneficial in increasing awareness of each agency’s respective programs. 

SBA and Rural 

Development Lack 

Incentives for 

Collaboration and Do Not 

Track the Results of

Collaborative Efforts 

 27GAO-06-15. 

Page 27 GAO-08-1123 Rural Economic Development
According to Rural Development officials in New Mexico, while they are

satisfied with the attendance at their “Access to Capital” forums targeted 

at local economic and political leaders and lenders, they have not been 

able to document a loan resulting from the forums. Rural Development 

officials in Nebraska said that they have received phone calls from some 

lenders after the lenders have attended a joint training session. In these 

cases, according to the officials, Rural Development has been active in 

meeting with lenders one-on-one to provide assistance. However, the

officials said that they could do a better job of proactively contacting the 

lenders after the training to solicit feedback and determine if the lender 

has initiated any new loans as a result of having attended the training 

session. 

SBA and Rural Development officials stated that one way to document the 

benefits of collaboration would be to prepare “success stories” of ventures 

that SBA and Rural Development had jointly undertaken. The officials 

further stated that because each agency already prepared success stories 

that are based upon participation in their individual programs, this 

practice could be used to document positive benefits stemming from 

collaborative efforts between the two agencies. Moreover, the officials 

said that those locations where SBA and Rural Development were not 

currently working together were more likely to begin doing so if they were

made aware of specific, tangible benefits that could be realized through 

collaboration. 

The complementary nature of some SBA loan programs and Rural 

Development business programs provides a rationale for the agencies to 

collaborate. SBA and Rural Development officials engaged in collaborative 

working relationships said that they have been able to work together to 

offer rural borrowers more financing options and better services, as well 

as to improve efforts to promote economic development in rural areas 

when collaboration has occurred. However, SBA and Rural Development’s 

collaborative efforts to date have been sporadic and mostly self-initiated 

by specific officials in each agency’s field offices. Officials of each agency

worked together frequently in some locations and infrequently in others. 

In many areas, SBA and Rural Development neither appear to be 

collaborating at all nor have formal or informal mechanisms to guide their 

collaboration. 

For SBA and Rural Development, working together to encourage 

economic development in rural areas is not a new or novel concept. Both

agencies entered into earlier cooperative agreements to work 

Conclusions 

Page 28 GAO-08-1123 Rural Economic Development
collaboratively. However, when comparing these past efforts with our 

criteria for effective interagency collaboration, we found that the agencies 

could take further steps to facilitate collaboration by establishing and 

implementing a formal approach. Such an approach could help SBA and 

Rural Development establish the guidance, direction, and incentive 

structure needed to bring about a productive working relationship on a 

more systematic basis. Our previous work in this area shows that adopting 

key practices—such as defining and articulating a common outcome; 

specifying roles and responsibilities; establishing a mechanism to monitor, 

evaluate, and report on results; and reinforcing agency accountability for 

collaborative efforts—can help federal agencies enhance and sustain their 

collaborative efforts. One way SBA and Rural Development can adopt 

these key practices is to enter into a written cooperative agreement and,

just as important, implement that agreement and take appropriate steps to 

monitor and report on results. Moreover, by creating formal incentives, 

such as performance goals and measures specifically focused on 

collaboration or, similarly, preparing success stories to document the 

benefits of their collaborative efforts, SBA and Rural Development can 

share and publicize information that would help encourage the two 

agencies to work together. Such an approach can help SBA and Rural 

Development to effectively leverage each other’s unique strengths to help 

improve small business opportunities and promote economic development 

in rural communities. 

To improve SBA and Rural Development’s collaborative efforts, we 

recommend that the Administrator of SBA and Secretary of Agriculture: 

take steps to adopt a formal approach to encourage further collaboration

in support of common economic development goals in rural areas. Such 

steps could include establishing and implementing a written agreement; 

defining and articulating a common outcome for rural economic 

development; specifying roles and responsibilities to ensure proper 

coordination; establishing mechanisms to monitor, evaluate, and report on 

results; and reinforcing accountability for collaborative efforts. 

We provided a copy of our draft report to the Acting Administrator of the 

Small Business Administration and the Secretary of Agriculture for review

and comment. Both agencies provided technical comments, which we 

incorporated into the final report where appropriate. 

Recommendations for 

Executive Action 

Agency Comments 

Page 29 GAO-08-1123 Rural Economic Development
We are sending copies of this report to other interested congressional 

committees as well as the Administrator of the Small Business 

Administration and the Secretary of Agriculture. We also will make copies

of this report available to others upon request. In addition, this report will 

be available at no charge on the GAO Web site at http://www.gao.gov. 

Please contact me at (202) 512-8678 or ShearW@gao.gov if you or your 

staff have any questions about this report. Contact points for our Office of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix V. 

William B. Shear 

Director, Financial Markets and 

 Community Investment 

Page 30 GAO-08-1123 Rural Economic Development
List of Congressional Requesters 

The Honorable John F. Kerry 

Chairman, Committee on Small Business 

 and Entrepreneurship 

United States Senate

The Honorable Steve Chabot 

Ranking Member 

Committee on Small Business 

House of Representatives 

The Honorable Heath Shuler 

Chairman, Subcommittee on Rural and Urban 

 Entrepreneurship 

Committee on Small Business 

House of Representatives 

The Honorable Jeff Fortenberry 

Ranking Member 

Subcommittee on Rural and Urban 

 Entrepreneurship 

Committee on Small Business 

House of Representatives 

The Honorable Vern Buchanan 

House of Representatives 

Page 31 GAO-08-1123 Rural Economic Development
Appendix I: Scope and Methodology 

Page 32 GAO-08-1123

Appendix I: Scope and Methodology 

The Small Business Administration (SBA) programs in our scope 

(see fig. 4) include the major business loan programs—Basic 7(a) Loan 

Guaranty, 504/Community Development Corporation Loan and the 7(m) 

Micro Loan, as well as the Small Business Investment Company (SBIC) 

and the Rural Lender Advantage Pilot programs. The Department of 

Agriculture (USDA) Rural Development programs in our scope include the 

primary business programs including the Business and Industry 

Guaranteed Loan, Intermediary Relending, Rural Business Enterprise 

Grant, Rural Business Opportunity Grant, Rural Economic Development 

Loans and Grants, and the Renewable Energy Systems and Energy 

Efficiency Improvements Guaranteed Loan and Grant programs. 

Figure 4: Summary of Programs Included in Our Scope

— Business and Industry (B&I) 

 Guaranteed Loan Program 

— Intermediary Relending Program (IRP) 

— Rural Business Enterprise Grant Program (RBEG) 

— Rural Business Opportunity Grant Program (RBOG) 

— Rural Economic Development Loan 

and Grant Program (REDLG) 

— Renewable Energy Systems & Energy Efficiency 

 Improvements Guaranteed Loan and Grant 

 Program 

— Basic 7(a) Loan Guaranty Program 

— 504/CDC Loan Program 

— 7(m) Micro Loan Program 

— Small Business Investment 

 Company (SBIC) Program 

— Rural Lender Advantage Pilot Program

Sources: SBA; USDA.

Programs covered by GAO

Rural Business-Cooperative Service

Rural Housing Service

Rural Utilities Service

5 programs 6 programs

Small Business Administration U.S. Department of

Agriculture Rural Development

In this report, we define collaboration as any joint activity that is intended 

to produce more public value than can be produced when the agencies act 

alone. It can include interagency activities that others have previously 

defined as cooperation, coordination, integration, or networking. 

Rural Economic Development
Appendix I: Scope and Methodology 

To determine the extent to which SBA and Rural Development’s primary 

loan and business programs are complementary and to identify the 

rationale for SBA and Rural Development to collaborate, we reviewed the 

mission and structure of SBA and Rural Development offices. We reviewed 

relevant agency documents and examined laws, regulations and policies 

on each agency’s loans, grants, and other business programs. We reviewed

eligibility requirements and the type of assistance (i.e., direct loan, loan 

guaranty, grant, etc.), funding levels, and eligible use of program funds, as 

well as information about each agency’s loan processes and procedures, 

participation requirements, number of awarded loans and grants, and loan

process times. We also interviewed agency officials on the similarities and 

differences between the two agencies’ primary loan and business 

programs, and whether the similarities may have an effect on

collaboration. We reviewed our prior work on interagency collaboration 

and key practices that can help enhance and sustain collaborative efforts. 

We obtained input from SBA and USDA agency officials, SBA resource 

partners, lenders, and nonprofit organizations involved in the rural 

economic development process on the goals and common outcomes they 

envision from increased collaboration between the SBA and Rural 

Development. Also, using information collected on the mission and 

structure of SBA and Rural Development offices, and the purpose, eligible

use, and terms/conditions of their primary business programs, we assessed 

whether factors such as complementary mission or task, compatible 

geographic location and organizational structure, common client base, 

program overlap and duplication, or similarities and differences in 

statutory authority, provide a rationale for the two agencies to work 

together. As collaboration between SBA and USDA Rural Development is 

not specifically required by law or regulation, we relied on established 

practices and agency officials’ and stakeholder views in examining the 

rationale for why SBA and USDA should collaborate. 

To determine the types of collaborative efforts currently taking place and 

that have taken place in the past between SBA and Rural Development, we 

reviewed internal documents, such as memorandums of understanding 

(MOU) and training documentation, showing ongoing and past 

collaborative efforts between SBA and Rural Development. We requested 

that both SBA and Rural Development conduct a query of their respective 

district offices and state offices regarding all formal or informal efforts to 

work collaboratively with the other agency. We received responses from 

about half the SBA district offices and all of the Rural Development state 

offices that either described the extent of their collaborative efforts with 

the other agency, or reported that there were no collaborative efforts 

ongoing. Of those SBA and Rural Development district and state offices 

Page 33 GAO-08-1123 Rural Economic Development
Appendix I: Scope and Methodology 

that reported they were working together, we selected three locations and 

conducted site visits and interviews with knowledgeable staff at each 

location to obtain a thorough understanding of ongoing collaborative 

efforts. We selected the sites to visit based on the reported amount of 

collaboration and degree of formality of the effort. We defined formality 

by the presence of a written document, such as an MOU, that served as a 

guide for collaborative efforts. The goal of our selection approach was to 

obtain information on a range of collaborative efforts, from frequent and 

formal to infrequent and informal. The locations that we selected and 

visited were Lincoln, Nebraska; Bismarck, North Dakota; and 

Albuquerque, New Mexico. For two of these locations, we also spoke with 

lenders that have participated in both SBA and Rural Development 

programs. 

To determine the types of collaborative efforts that have taken place

between SBA and other agencies, and Rural Development and other 

agencies, we reviewed documentation describing the collaborative effort. 

We examined the mechanisms (e.g., contractual work agreement, MOU or 

other cooperative agreement, statutory provision, etc.) the agencies used 

to collaborate. Additionally, we interviewed agency officials on their 

knowledge of any past collaborative effort. 

To determine the opportunities to facilitate and remove barriers to more 

effective collaboration between SBA and Rural Development, we reviewed 

our prior work on key practices that can help enhance and sustain 

collaboration and address barriers to more effective collaboration. We 

also obtained the views and experience of agency officials, SBA resource 

partners, lenders, and select nonprofit organizations, regarding rural 

economic issues, and opportunities and barriers to more effective 

collaboration. We used certain characteristics, such as personnel at both 

agencies, budget, training, and management, to evaluate opportunities or 

barriers to collaboration. We also assessed the potential that may be 

present for Rural Development offices to help market SBA programs and 

services by making information available through their field offices and 

whether SBA can play a similar role for Rural Development programs. 

Finally, we compared SBA and Rural Development’s policies, practices, 

and performance goals with key practices that can help federal agencies 

enhance and sustain their collaborative efforts. 

We conducted this performance audit from October 2007 to September 

2008, 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 

Page 34 GAO-08-1123 Rural Economic Development
Appendix I: Scope and Methodology 

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. 

Page 35 GAO-08-1123 Rural Economic Development
Appendix II: De

Rural 

Busine

scription of SBA’s and USDA 

Developments’ Primary Loan and 

ss Programs 

Page 36 GAO-08-1123

Appendix II: Description of SBA’s and USDA 

Rural Developments’ Primary Loan and 

Business Programs 

Both SBA and USDA Rural Development have several loan and business 

programs that provide funds to start or expand businesses in rural areas. 

Through these programs, the two agencies work with individual 

entrepreneurs, existing or start-up small businesses, state, local, and tribal 

governments, as well as cooperatives and nonprofit agencies to increase 

economic opportunity and improve the quality of life for people in rural 

communities across the country. 

The following sections describe the primary SBA loan programs and Rural 

Development business programs. 

Basic 7(a) Loan Guaranty Program serves as the primary business loan 

program to help qualified small businesses obtain financing. It can be used 

for a variety of general business purposes including, working capital, 

machinery and equipment, land and building (including purchase, 

renovation, and new construction), leasehold improvements, and certain 

debt refinancing. SBA sets the guidelines for the loans and backs the loan 

with a guaranty, while lenders make the loans to the small businesses. SBA 

offers multiple variations of the Basic 7(a) Loan Program to accommodate 

targeted needs. For example, the Patriot Express Loan Program, which is 

specifically geared toward veterans, members of the military community 

and their spouses, and the Community Express Loan Program, which is 

aimed at women, minorities, and veterans in underserved communities 

who want to start or expand a small business, are both expedited versions 

of the Basic 7(a) Loan Program. 

SBA Loan Programs 

504/Certified Development Company (CDC) Loan Program provides 

long-term, fixed-rate financing to small businesses to acquire real estate, 

machinery, or equipment for expansion or modernization. The 504/CDC 

Loan Program cannot be used for working capital or inventory, 

consolidating or repaying debt, or refinancing. Typically a 504/CDC project 

includes a loan secured by a lien from a private-sector lender, a loan 

secured by an additional lien from a certified development company 

(CDC) (covering up to 40 percent of the total cost) and a contribution of at 

least 10 percent equity from the borrower. CDCs are private, nonprofit 

corporations set up to contribute to the economic development of their 

communities or regions. The program is designed to enable small 

businesses to create and retain jobs—the CDC’s portfolio must create or

retain one job for every $35,000 provided by the SBA. 

7(m) Micro Loan Program provides short-term loans of up to $35,000 to 

small businesses and not-for-profit child-care centers for working capital

Rural Economic Development
Appendix II: Description of SBA’s and USDA 

Rural Developments’ Primary Loan and 

Business Programs 

or the purchase of inventory, supplies, furniture, fixtures, machinery, or 

equipment. The average loan size is about $13,000, and proceeds can be 

used for typical business purposes such as working capital, machinery and 

equipment, inventory, and leasehold improvements. The proceeds cannot 

be used to pay existing debts or to purchase real estate. Under this 

program, SBA makes funds available to intermediaries (nonprofit 

community-based organizations with experience in lending) that, in turn, 

make the loan directly to the entrepreneur. The intermediary lenders also

provide entrepreneurs with management and technical assistance. 

SBIC Program provides venture capital to small independent businesses, 

both new and already established. The structure of the program is unique 

in that SBICs are privately owned and managed investment funds, licensed 

and regulated by SBA, that use their own capital plus funds borrowed with 

an SBA guarantee to make equity capital and long-term loans to qualifying

small businesses. In addition to investments and loans, SBICs also provide 

management assistance to small businesses. 

Small/Rural Lender Advantage Pilot Program, a part of SBA’s 7 (a) loan 

program, is aimed at encouraging rural lenders to finance small businesses 

by streamlining the application and approval processes. Specifically, the 

Small/Rural Lender Advantage offers a simplified application form for 

loans of $350,000 or less, the ability to apply online, expedited loan 

processing, and limited documentation requirements. SBA will guarantee 

85 percent of the loan amount for loans of $150,000 and less, and 75 

percent of loans above $150,000. It is part of a broader initiative to boost 

economies in areas that face unique challenges due to factors such as 

declining population or high unemployment. The pilot program was 

initiated and tested in SBA’s Region VIII (North Dakota, South Dakota, 

Colorado, Wyoming, Utah, and Montana) in January 2008. Following 

enhancements to further streamline it, SBA is now extending the initiative 

to Region V, which covers Illinois, Indiana, Michigan, Minnesota, Ohio, and 

Wisconsin. SBA also plans to expand the initiative nationwide by the end 

of fiscal year 2008. 

Business and Industry (B&I) Guarantee Loan Program (often referred 

to as the B&I program) provides financial assistance to rural businesses in 

the form of a loan guarantee for up to 80 percent of the loan amount. 

Borrowers work with a local lending agency (e.g., bank or credit union), 

which in turn seeks a guarantee from Rural Development. A borrower may 

be an individual; a cooperative organization, corporation, partnership, or 

other legal entity organized on a profit or nonprofit basis; an American 

Rural Development 

Loan and Grant 

Programs 

Page 37 GAO-08-1123 Rural Economic Development
Appendix II: Description of SBA’s and USDA 

Rural Developments’ Primary Loan and 

Business Programs 

Indian tribe or other federally recognized tribal group; or a public body 

(i.e., town, community, state agency, and authority). Loan purposes must 

be consistent with the purpose of the program, which is to improve, 

develop, or finance business, industry, and employment and improve the 

economic climate in rural communities. They include, but are not limited 

to, the following: 

• business and industrial acquisitions under certain conditions; 

• business conversion, enlargement, repair, modernization, or development; 

• purchase and development of land, easements, buildings, or facilities; and 

• purchase of equipment, leasehold improvements, machinery, supplies, or 

inventory or working capital. 

The total loan amount available to any one borrower under this program is 

limited to $25 million. An exception to the limit for loans up to $40 million 

may be granted for rural cooperative organizations that process valueadded agricultural commodities. B&I loans are available to borrowers in 

rural areas, which include all areas other than cities or towns of more than 

50,000 people and the contiguous and adjacent urbanized area of such 

cities or towns. The B&I Guaranteed Loan Program, with a fiscal year 2007

funding level of $953 million, is Rural Development’s largest business 

program. 

Intermediary Relending Program (IRP) finances business and economic

development activities that seek to create or retain jobs in disadvantaged 

and remote communities. Under the IRP program, loans are provided to 

local organizations (intermediary lenders) for the establishment of 

revolving loan funds that provide loans to ultimate recipient borrowers. 

The revolving loan funds are used to assist the borrower with financing 

business facilities and community development projects. Projects must be 

located in a rural area, which for this program excludes cities with a 

population of 25,000 or more. Some examples of eligible projects are as 

follows: 

• business and industrial acquisitions under certain conditions; 

• business construction, conversion, enlargement, and repair; 

• purchase and development of land, easements, rights-of-way, buildings, or

facilities; 

Page 38 GAO-08-1123 Rural Economic Development
Appendix II: Description of SBA’s and USDA 

Rural Developments’ Primary Loan and 

Business Programs 

• purchase of equipment, leasehold improvements, machinery, and supplies; 

• start-up operating costs and working capital; 

• transportation services, and; 

• debt refinancing. 

Intermediary lenders may first borrow up to $2 million and then up to $1 

million each time thereafter, not to exceed the total aggregate loan amount 

of $15 million. An ultimate recipient borrower may borrow the lesser of 

$250,000 or 75 percent of the total cost of the ultimate recipient’s project 

for which the loan is being made. Private nonprofit corporations, public 

entities (i.e., towns, communities, state agencies, and authorities), 

American Indian tribes or other federally recognized tribal groups, and 

some cooperatives are eligible to intermediaries. Borrowers that are 

generally eligible to apply for loans from intermediary lenders include 

individuals, corporations or partnerships, trusts or other profit-oriented or 

nonprofit organizations, and public entities. 

Rural Business Enterprise Grant Program (RBEG) provides grants to 

public bodies, including American Indian tribes and other federally 

recognized tribal groups, and private nonprofit corporations, to finance 

and facilitate the development of small and emerging private businesses in 

rural areas (i.e., any area other than a city or town that has a population of 

greater than 50,000 and the urbanized area contiguous and adjacent to

such a city or town. Small and emerging private businesses are those that 

will employ 50 or fewer new employees and have less than $1 million in 

projected gross revenues. Grants may be used for 

• easements, and rights of way; 

• construction, conversion, or modernization of buildings, facilities, 

machinery, roads, parking areas, utilities, and pollution control and 

abatement; 

• loans for start-up operating costs and working capital; 

• technical assistance for private business enterprises; 

• training, when necessary, in connection with technical assistance; and 

Page 39 GAO-08-1123 Rural Economic Development
Appendix II: Description of SBA’s and USDA 

Rural Developments’ Primary Loan and 

Business Programs 

• production of television programs to provide information on issues of 

importance to farmers and rural residents. 

There is no maximum level of grant funding under RBEG. However, 

smaller projects are given higher priority. 

Rural Business Opportunity Grant Program provides grants to public 

entities, nonprofit corporations, cooperatives, and American Indian tribes 

and other federally recognized tribal groups for training, technical 

assistance, and planning activities in rural areas (i.e., any area other than a

city or town that has a population of greater than 50,000, and the 

urbanized area contiguous and adjacent to such a city or town). Grants 

may be used to 

• identify and analyze business opportunities that will use local rural 

materials or human resources; 

• identify, train, and provide technical assistance to existing or prospective

rural entrepreneurs and managers; 

• establish business support centers; 

• conduct local community or multicounty economic development planning; 

• establish centers for training, technology, and trade; and 

• conduct leadership development training. 

The maximum grant for a project serving a single state is $50,000. The 

maximum grant for a project serving two or more states is $150,000. 

Rural Economic Development Loan and Grant Program (REDLG) 

provides funding to rural projects through local utility organizations. 

Under the loan program, Rural Development provides zero interest loans 

to lending utility organizations that, in turn, pass make loans to for-profit 

or nonprofit businesses and public entities (i.e., ultimate recipient 

borrowers), for projects that will create and retain employment in rural 

areas. The ultimate recipient borrower must repay the lending utility 

directly, and the lending utility is responsible for repayment to Rural 

Development. Under the grant program, Rural Development provides 

grant funds to local utility organizations, which may only use the funding 

to establish revolving loan funds. Loans are made from the revolving loan 

fund to projects that will create or retain jobs in rural areas. When the 

Page 40 GAO-08-1123 Rural Economic Development
Appendix II: Description of SBA’s and USDA 

Rural Developments’ Primary Loan and 

Business Programs 

revolving loan fund is terminated, the grant is then repaid to Rural 

Development. Eligible project costs include 

• start-up venture costs, including working capital;

• business expansion; 

• business incubators; 

• technical assistance; 

• project feasibility studies and; 

• advanced telecommunications services and computer networks for 

medical, educational, and job training services. 

The maximum loan and grant to any eligible recipient under the Rural 

Economic Development Loan and Grant Program is established on an 

annual basis. 

Renewable Energy Systems and Energy Efficiency Improvements 

Guaranteed Loan and Grant Program (renamed Rural Energy for 

America Program) provides loan guarantees and grants to eligible small 

businesses, farmers, and ranchers to assist in developing renewable 

energy systems and to make energy efficiency improvements. The types of

energy projects include biofuel, wind, solar, geothermal, and hydrogenbased projects. They must be located in a rural area (i.e., any area other 

than cities or towns of greater than 50,000 population and the immediate 

and adjacent urbanized areas of the cities or towns). Under the loan 

program, borrowers work with local lenders in applying for a loan 

guaranty up to 85 percent of the loan, depending on the amount of the 

loan. The loan cannot exceed 50 percent of the project cost, and the 

project must use commercially proven technology. The maximum loan 

amount is $10 million per project, and the minimum is $5,000. Grants are 

limited to a maximum of $500,000 and a minimum of $2,500 for renewable 

energy systems, and a maximum of $250,000 and a minimum of $1,500 for

energy efficiency improvements. Eligible applicants are agricultural 

producers or rural small businesses. Small businesses must meet SBA’s 

small business size standards. 

Page 41 GAO-08-1123 Rural Economic Development
Appendix III: Comparison of SBA and Rural 

Development Primary Business Loan and 

Grant Programs

SBA loan programs Rural development loan and grant programs 

Program 

title 

Basic 7(a) 

Loan 

Guaranty 

Program 

504/CDC 

Loan 

Program 

7(m) Micro

Loan Program

Business and

Industry Loan

Guaranteed

Program 

Intermediary 

Relending 

Program 

Rural 

Economic

Development 

Loan and

Grant 

Program 

Renewable

Energy Systems 

& Energy 

Efficiency 

Improvements

Guaranteed Loan

and Grant 

Program 

Borrower Any 

creditworthy 

start-up or 

existing 

business 

that cannot 

obtain 

financing on

reasonable 

terms 

through 

normal 

lending 

channels. 

Small 

business, for 

profit 

corporation, 

partnership, 

or 

proprietorship

that will 

create and/or 

retain jobs 

through longterm 

financing. 

Start-up and 

existing micro 

business that 

can meet basic

lending 

requirement. 

Borrowers may

be required to 

attend 

meetings/classes 

with technical 

assistance 

providers. 

Any legal entity

including 

individual, 

cooperative, 

corporation, 

partnership, tribal 

group, 

government 

entity, and 

agency. 

Any legal 

entity 

including 

individual, 

public, and 

private 

organization, 

government 

entity, and 

agency. 

Rural electric 

cooperatives 

and rural 

telephone 

cooperatives. 

Rural small 

business, 

individual, 

agricultural 

producer, or group 

of agriculture 

producers. Must 

meet SBA’s small 

business size 

standards. 

Funding limit SBA can 

guaranty a 

maximum 

of 

$1,500,000. 

The 

maximum 

guaranty is 

85% for 

loans up to 

$150,000, 

and 75% for 

loans over 

$150,000. 

Through 

CDCs, SBA 

can fund up

to 40% of the 

total project 

costs, from 

$50,000 to 

$1,500,000, 

or in certain 

cases up to 

$2,000,000. 

Maximum loan 

amount is 

$35,000. 

Rural

Development can 

guarantee up to 

$25 million. 

80%-to $5 million 

70%-$5 to $10 

million 

60%-over $10 

million 

No minimum loan.

Intermediaries 

can make 

loans to 

qualified 

applicants for 

up to 75% of 

eligible 

project. 

Maximum 

loan is 

$250,000. 

Maximum 

loan amount 

is $740,000. 

Maximum 

grant amount 

is $300,000. 

Subject to 

change 

annually. 

Maximum 

renewable energy 

grant is $500,000. 

Maximum energy 

efficiency grant is 

$250,000. 

Minimum for both 

grants is $10,000. 

Maximum loan is 

$10,000,000. 

Use of 

proceeds 

Business 

start-ups, 

expansion, 

equipment, 

working 

capital, 

inventory of 

real estate 

acquisition. 

Long-term 

financing of 

real estate 

and 

equipment. 

Working capital, 

inventory, and 

small equipment.

Permanent

working capital, 

hard asset 

acquisition, real

estate, equipment 

and limited 

refinancing. Up to 

50% of loan. 

New and 

existing 

business, 

equipment 

purchase, or 

lease and 

working 

capital. 

Business 

start-up or 

expansion 

projects that 

create rural 

jobs. Grants 

may only 

establish a 

revolving loan 

fund. 

Purchase 

equipment, 

construction

energy audits, 

feasibility studies, 

business plans, 

and 

permit/professional 

service fees. 

Appendix III: Comparison of SBA and Rural 

Development Primary Business Loan and 

Grant Programs 

Page 42 GAO-08-1123 Rural Economic Development
Appendix III: Comparison of SBA and Rural 

Development Primary Business Loan and 

Grant Programs

SBA loan programs Rural development loan and grant programs 

Program 

title 

Basic 7(a) 

Loan 

Guaranty 

Program 

504/CDC 

Loan 

Program 

7(m) Micro

Loan Program

Business and

Industry Loan

Guaranteed

Program 

Intermediary 

Relending 

Program 

Rural 

Economic

Development 

Loan and

Grant 

Program 

Renewable

Energy Systems 

& Energy 

Efficiency 

Improvements

Guaranteed Loan

and Grant 

Program 

Average 

processing 

time 

5–7 

business 

days for 

loans 

processed 

by SBA. 

10–45 

business 

days. 

10–45 business 

days. 

10–60 business

days depending

on scope of 

project. Subject to 

in-state loan 

approval limit. 

10–45 

business 

days. 

3 months to 1 

year. Subject 

to national 

funding 

competition. 

Subject to national 

funding 

competition. 

Cost & fees Guaranty 

fee of 2% 

for loans up

to 

$150,000; 

3% 

between 

$150,000 

and 

$700,000; 

3.5% up to 

$1 million; 

and 

additional 

.25% of 

guaranteed 

portion over 

$1 million. 

CDC 

origination 

fee of 2.25% 

portion and 

.5% on bank 

portion. 

Nominal fees to

cover costs of 

loan closing. 

Typically, initial

guaranty fee not 

to exceed 2% of 

guaranteed 

portion of the loan 

and .25% annual 

renewal fee. 

1% origination 

fee of 

intermediary 

loan amount 

plus closing 

costs. 

Varies and is 

negotiated 

with 

cooperatives. 

Typically, 1% of

guaranteed portion 

of the loan and

.125% annual 

servicing fee. 

Participation 

requirements 

Available 

anywhere. 

An SBAapproved 

lender 

(commercial 

lending 

institution) 

is required. 

Available 

anywhere. An 

SBA program 

administered 

by a CDC. 

Commercial 

lender 

required. 

Available 

anywhere. A 

direct loan from

an SBA 

intermediary. 

Available only in

rural areas with a 

population of less 

than 50,000. 

Generally 

negotiated 

between the 

commercial 

lending institution 

and the borrower. 

Available only 

in rural areas 

with a 

population of 

less than 

25,000. 

Rural areas 

with 

populations of 

2,500 or less 

are given 

priority. The 

rural utility 

cooperatives 

provide loans 

to small 

businesses. 

Available only in

rural areas with a 

population of less 

than 50,000. 

Requires 75%

minimum applicant 

match for grants, 

and 50% 

maximum project 

level for 

guaranteed loans. 

Sources: GAO analysis of SBA and USDA Rural Development data. 

Page 43 GAO-08-1123 Rural Economic Development
Appendix IV: Recent Congressional Proposals

That May Require Collaboration between 

Rural Development and Other Federal 

Agencies 

Appendix IV: Recent Congressional Proposals 

That May Require Collaboration between Rural 

Development and Other Federal Agencies 

H.R. 6124, the Food, Conservation, and Energy Act of 2008, (the 2008 Farm

Bill) became law on June 18, 20081

. The 2008 Farm Bill contains 15 titles 

covering, among other things, support for commodity crops, horticulture 

and livestock production, conservation, nutrition, trade and food aid, 

agricultural research, farm credit, rural development, energy, forestry, and 

other related programs. The 2008 Farm Bill guides most federal farm and 

food policies through fiscal year 2012. 

Section 6028 of the 2008 Farm Bill requires the Secretary of Agriculture to 

establish a new Rural Collaborative Investment Program to support 

comprehensive regional investment strategies for achieving rural 

competitiveness. The purpose of the program is to 

• provide rural areas with a flexible investment vehicle, allowing for local 

control with federal oversight, assistance, and accountability; 

• provide rural areas with incentives and resources to develop and 

implement comprehensive strategies for achieving regional

competitiveness, innovation, and prosperity; 

• foster multisector collaborations that will optimize the asset-based 

competitive advantages of rural regions, with particular emphasis on 

innovation, entrepreneurship, and the creation of quality jobs; 

• foster collaborations necessary to provide the professional technical 

expertise, institutional capacity, and economies of scale that are essential 

for the long-term competitiveness of rural regions; and 

• better use USDA and other federal, state, and local governmental 

resources, and to leverage those resources with private, nonprofit, and 

philanthropic investments, in order to achieve measurable community and 

economic prosperity, growth, and sustainability. 

The Act also directed the Secretary to establish within USDA the National 

Rural Investment Board. The Board’s duties are to provide advice to 

regional boards on issues, best practices, and emerging trends relating to 

rural development; to provide advice to the Secretary and the National 

Institute on Regional Rural Competitiveness and Entrepreneurship, also 

created by the Act, on the development and execution of the program; and 

to provide advice to the Secretary and subsequently review the design, 

 1

Pub. L. No. 110-246, 122 Stat. 923 (2008). 

Page 44 GAO-08-1123 Rural Economic Development
Appendix IV: Recent Congressional Proposals

That May Require Collaboration between 

Rural Development and Other Federal 

Agencies 

development, and execution of the National Rural Investment Plan. The

National Rural Investment Plan is expected to, among other things, create 

a framework to encourage and support a more collaborative and targeted

rural investment portfolio in the United States; and cooperate with state 

and local governments, organizations, and entities to create and enhance

the pool of resources committed to rural community and economic 

development. 

Section 6028 of the 2008 Farm Bill is one of many actions taken by 

Congress over the years to encourage the coordination of rural policies 

and programs. It also further demonstrates Congress’ commitment to 

promoting rural entrepreneurship and community development through 

collaboration across federal, state, and local agencies. A total of $135 

million in funding has been authorized for the new program.

Page 45 GAO-08-1123 Rural Economic Development
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 46 GAO-08-1123

Appendix V: GAO Contact and Staff 

Acknowledgments 

William B. Shear (202) 512-8678 or shearw@gao.gov

In addition to the individual named above, Paul Schmidt, Assistant 

Director; Charles Adams; Michelle Bowsky; Tania Calhoun; Emily 

Chalmers; Elizabeth Curda; Ronald Ito; Marc Molino; and Carl Ramirez 

made key contributions to this report. 

GAO Contact 

Staff 

Acknowledgments 

(250365) Rural Economic Development
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