SMALL BUSINESS 

LENDING

Opportunities Exist to 

Improve Performance 

Reporting of 

Treasury’s Programs

Report to Congressional Committees

December 2012

GAO-13-76

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-76, a report to 

congressional committees

December 2012

SMALL BUSINESS LENDING 

Opportunities Exist to Improve Performance 

Reporting of Treasury’s Programs 

Why GAO Did This Study

The Small Business Jobs Act of 2010 

aimed to stimulate job growth by, 

among other things, establishing the 

SBLF and SSBCI programs within 

Treasury. SBLF uses capital 

investments to encourage community 

banks with assets of less than $10 

billion to increase their small business 

lending. SSBCI provides funding to 

strengthen state and municipal 

programs that support lending to small 

businesses. Under the act, GAO is 

required to conduct an audit of both 

programs annually. GAO’s first reports 

were on the programs’ implementation 

and made recommendations. This 

second report examines (1) the status 

of Treasury’s efforts to monitor 

participants’ compliance with program 

requirements under SBLF and SSBCI, 

(2) the status of SBLF’s and SSBCI’s 

small business lending, and (3) 

Treasury’s evaluation of SBLF and 

SSBCI and communication of 

outcomes to Congress and interested 

parties. GAO reviewed Treasury 

documents on SBLF and SSBCI 

procedures; analyzed the most recent 

available performance information for 

both programs and data on financial 

institutions; and interviewed officials 

from Treasury and nine states 

participating in SSBCI. 

What GAO Recommends

Treasury should develop a policy on 

how it will use its authority to terminate 

SSBCI funds. Treasury should also 

expand its methodology discussion in 

SBLF reports and make the results of 

SSBCI performance measures public.

In written comments on a draft of this 

report, Treasury agreed to implement 

these recommendations.

What GAO Found

The U.S. Department of the Treasury (Treasury) has made progress in 

developing guidance and procedures to monitor participants’ compliance with 

requirements for the Small Business Lending Fund (SBLF) and the State Small 

Business Credit Initiative (SSBCI) programs. In response to GAO’s previous 

recommendation on SBLF monitoring, Treasury has developed procedures for 

monitoring SBLF participant compliance with legal and reporting requirements. 

Treasury also issued standards to provide states with best practices for reviewing 

participants’ compliance with SSBCI’s legal and policy requirements and 

developed procedures for sampling transaction-level data to evaluate the 

accuracy of the states’ SSBCI annual reports. 

As of June 30, 2012, SBLF participants had increased their business lending 

over the 2010 baseline. The median SBLF participant had a 31 percent increase 

in total business lending and a 14 percent increase for small business loans 

under $1 million, according to GAO’s analysis. For SSBCI, states had used about 

10 percent of the funds as of June 30, 2012. The act provides Treasury with 

authority to terminate funds that have not been allocated to states within 2 years 

of Treasury’s approval of the state’s participation in SSBCI. However, Treasury 

has not yet developed a formal written policy explaining what actions it will take if 

SSBCI participants have not met the requirements to receive their full allocation 

of funds within the 2-year time frame. Treasury officials said that they currently 

have no plans to use this authority but retain the ability to do so in the future. 

Nevertheless, formal guidelines on how Treasury will use this authority could 

help ensure consistent use of the authority if used in the future and provide clarity 

to states about the consequences of not using the funds in a timely manner.

Treasury has taken steps to evaluate SBLF’s and SSBCI’s performance but 

could enhance public reporting of program outcome information. In a quarterly

report to Congress, Treasury compares business lending in SBLF participants to 

a large comparison group that it adjusted for certain aspects of bank size and 

geography. GAO’s analysis using a peer group that was adjusted for financial 

health as well geography and size showed that in nearly every case, the 

difference in total business lending growth was somewhat smaller than in 

Treasury’s analysis. Treasury considered using a more refined peer group that 

adjusted for these factors but judged that the differences were not significant. 

However, Treasury did not disclose these options in the report or explain why the 

larger comparison group was chosen, which compromised the transparency of

Treasury’s methodology. Furthermore, Treasury’s approach did not isolate the 

impact of SBLF from other factors that could affect lending, as GAO 

recommended in its first SBLF report. Treasury officials said they are continuing 

to explore evaluation approaches, including collecting additional data from a 

survey of SBLF institutions. In response to GAO’s 2011 recommendation on 

SSBCI performance measures, Treasury has designed performance measures, 

such as the amount of private leverage states have achieved with SSBCI funds. 

However, Treasury has not yet developed a way to make this performance 

information public. Treasury shares information with the states through 

conferences and technical assistance, but performance information could help

Congress and the states to better understand the effectiveness of SSBCI’s 

various programs. 

View GAO-13-76. For more information, 

contact Daniel Garcia-Diaz (202) 512-8678 or 

garciadiazd@gao.gov.
Page i GAO-13-76 Small Business Lending Programs

Letter 1 

Background 4

Treasury Has Made Progress in Developing Compliance Guidance 

and Processes for SBLF and SSBCI 9

SBLF-Funded Institutions and SSBCI-Funded States Have Begun to 

Support Small Business Lending, but Treasury’s Policy for 

Timely Use of SSBCI Funds Is Unclear 16

Treasury Could Enhance Its Reporting of Program Performance 

Information 26

Conclusions 38

Recommendations for Executive Action 40

Agency Comments and Our Evaluation 41

Appendix I Objectives, Scope, and Methodology 44

Appendix II Comments from the Department of the Treasury 49

Appendix III GAO Contact and Staff Acknowledgments 51

Table

Table 1: Summary Data on SBLF Participants, GAO’s Peer Group, 

and Treasury’s Comparison Group 48

Figures

Figure 1: Distribution of Dividend or Interest Rates Paid by 

Institutions on SBLF Funds, as of June 30, 2012 18

Figure 2: Distribution of SBLF Participants’ Changes in Business 

Lending, from Baseline Level to the Quarter Ended June 

30, 2012 20

Figure 3: Median Changes in SBLF Participants’ Business Lending 

by CPP Status, from Baseline Level to the Quarter Ended 

June 30, 2012 21

Figure 4: Cumulative SSBCI Funds Used by Program Type, as of 

June 30, 2012 22

Contents 
Page ii GAO-13-76 Small Business Lending Programs

Figure 5: SSBCI Allocation by State, Territory, or Municipality and 

Cumulative SSBCI Funds Transferred and Used, as of 

June 30, 2012 23

Figure 6: Distribution of Changes in Total Business Lending, from 

Baseline Level to the Quarter Ending June 30, 2012 29

Figure 7: Median Changes in Total Business Lending by 

Geographical Region, from Baseline Level to the Quarter 

Ending June 30, 2012 30

Figure 8: Median Changes in Total Business Lending by Institution 

Size in Total Assets, from Baseline Level to the Quarter 

Ended June 30, 2012 31

Abbreviations

CAMELS capital adequacy, asset quality, management, earnings, 

 liquidity, and sensitivity to market risk

CAP capital access programs

CDFI community development financial institution

CDLF community development loan funds

CPP Capital Purchase Program

FDIC Federal Deposit Insurance Corporation

GPRAMA Government Performance and Results Act 

 Modernization Act

OCSP other credit support programs

OIG Office of Inspector General (Treasury)

SBLF Small Business Lending Fund

SSBCI State Small Business Credit Initiative

TARP Troubled Asset Relief Program

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Page 1 GAO-13-76 Small Business Lending Programs

United States Government Accountability Office

Washington, DC 20548

December 5, 2012

Congressional Committees

Small businesses play a vital role in the U.S. economy, accounting for 

about half of private-sector output and employing more than half of 

private-sector workers. Congressional interest in assisting small 

businesses has increased in recent years, primarily because of continued 

concerns about unemployment and the sustainability of the current 

economic recovery. In 2008 and early 2009, major disruptions of business 

credit markets made accessing credit difficult for small businesses. 

Currently, there is still concern that small businesses might not be able to 

access enough capital to create jobs. Recent data show that net 

employment growth at small businesses is not increasing at the same 

rate as in previous economic recoveries.

To address these concerns, Congress passed the Small Business Jobs 

Act of 2010, which was signed by the President on September 27, 2010.1

Among other things, this legislation aims to stimulate job growth by 

establishing the Small Business Lending Fund (SBLF) and the State 

Small Business Credit Initiative (SSBCI). The SBLF program is designed 

to encourage banks and community development loan funds (CDLF) with 

assets of less than $10 billion to increase their lending to small 

businesses with up to $50 million in annual revenues.2

 

1

Pub. L. No. 111-240, 124 Stat. 2504 (2010). 

The act authorized 

the Secretary of the Treasury to make up to $30 billion of capital available 

and offered incentives to increase small business lending. However, 

interest in SBLF was lower than anticipated, with 935 financial institutions 

applying to the program for a combined funding request of $11.7 billion. 

By September 2011, the Department of the Treasury (Treasury) had 

ultimately approved $4.0 billion for 332 institutions through Treasury 

purchases of preferred stock or debt instruments—$3.9 billion to 281 

banks and $104 million to 51 CDLFs. No additional SBLF funds will be 

awarded to banks or CDLFs. 

2

In this report, “banks” refers to banks, thrifts, and bank and thrift holding companies. For 

purposes of the SBLF program, a CDLF is an entity that is certified by Treasury as a 

community development financial institution (CDFI) loan fund. A CDFI is a specialized 

financial institution that works in market niches that are underserved by traditional financial 

institutions. 

 
 

Page 2 GAO-13-76 Small Business Lending Programs

Funded with $1.5 billion, SSBCI is designed to strengthen state programs 

that support private financing to small businesses and small 

manufacturers that, according to Treasury, are not obtaining the loans or 

investments they need to expand and to create jobs. States are expected 

to use their SSBCI funds to leverage private financing and investment 

that is at least ten times the amount of their SSBCI funds (a leverage ratio 

of 10:1) by December 31, 2016. Forty-seven states, American Samoa; 

the District of Columbia; Guam; the Northern Mariana Islands; Puerto 

Rico; the U.S. Virgin Islands; Carrington, North Dakota; Mandan, North

Dakota; and Anchorage, Alaska currently participate in the program.3

The 2010 Small Business Jobs Act requires us to conduct an annual audit 

of the SBLF and SSBCI programs.4 In our first reports, we reviewed the 

implementation of SBLF and SSBCI and made recommendations to 

improve the management oversight of the programs.5

To examine the status of Treasury’s efforts to monitor participants’ 

compliance with program requirements under SBLF and SSBCI, we 

analyzed Treasury’s documentation and interviewed relevant officials. For 

SBLF, we reviewed and analyzed Treasury’s compliance procedures. We 

interviewed Treasury officials on the process by which staff review the 

Quarterly Supplemental Reports for accuracy. For SSBCI, we reviewed 

SSBCI National Standards for Compliance and Oversight and SSBCI 

Policy Guidelines. We interviewed Treasury officials on implementing the 

This second report 

examines (1) the status of Treasury’s efforts to monitor participants’ 

compliance with program requirements under SBLF and SSBCI; (2) the 

status of SBLF and SSBCI participants’ small business lending; and (3) 

the extent to which Treasury evaluates the SBLF and SSBCI programs 

and communicates their outcomes, such as an increase in small business 

lending, to Congress and interested parties.

 

3

North Dakota and Wyoming did not submit an SSBCI application. Alaska initially applied 

for its maximum SSBCI allocation before the June 27, 2011, deadline but subsequently 

withdrew its application. SSBCI also accepted applications from municipalities in states 

that did not apply and territories. For purposes of this report, when we refer to “states” we 

are referring generally to all SSBCI participants. 

4

12 U.S.C. § 4107(c) and 12 U.S.C. § 5710 (b).

5

GAO, Small Business Lending Fund: Additional Actions Needed to Improve 

Transparency and Accountability, GAO-12-183 (Washington, D.C.: Dec. 14, 2011) and 

State Small Business Credit Initiative: Opportunities Exist to Improve Program Oversight, 

GAO-12-173, (Washington, D.C.: Dec. 7, 2011). 
 

Page 3 GAO-13-76 Small Business Lending Programs

SSBCI compliance procedures and officials from the states of Colorado, 

Florida, Georgia, Illinois, Massachusetts, Michigan, New Jersey, Oregon, 

and Texas. Factors we used for selecting these states included the 

amount of funding provided by Treasury, geographic diversity, number 

and types of small business programs, and status of use of funds. Our 

selection process is more fully described in appendix I. We reviewed the 

Allocation Agreements between Treasury and each of the nine 

participating states that we interviewed to analyze the conditions and the 

requirements placed on the states.

To determine the status of SBLF participants’ small business lending, we 

reviewed Treasury’s Use of Funds Reports to determine the most current 

level of qualified small business lending and the distribution of dividend or 

interest rates paid by program participants.6 Because Treasury requires 

only SBLF participants to submit data on qualified small business 

lending—generally, lending below $10 million—we also analyzed total 

business lending as well as small business lending under $1 million, 

which is available through the Call Reports.7 We accessed Call Report 

data using SNL Financial—a private financial database that contains 

publicly filed regulatory and financial reports—and analyzed lending by 

SBLF participants for the quarter ending June 30, 2012. For the SSBCI 

program, we collected and reviewed data from the quarterly reports as of 

June 30, 2012, of all SSBCI participants.8

To examine the extent to which Treasury evaluates and communicates 

SBLF and SSBCI program outcomes, we reviewed Treasury 

documentation for both programs. To determine the extent to which 

Treasury evaluates the performance of SBLF, we reviewed Treasury’s 

Use of Funds Report to identify how Treasury analyzed the performance 

These data were the most 

recent available for our analysis. We determined that the data collected 

by Treasury on SBLF and SSBCI were sufficiently reliable for our 

purposes.

 

6

The Use of Funds Report is a quarterly report to Congress describing how participating 

institutions have used the funds they have received under the program.

7

A Call Report is the common reference name for the quarterly reports of condition and 

income filed with regulators by every national bank, state-chartered Federal Reserve 

member bank, and insured state nonmember bank.

8

The act requires that SSBCI participants provide to Treasury a quarterly report on the 

use of SSBCI funds during the previous quarter. 
 

Page 4 GAO-13-76 Small Business Lending Programs

of SBLF. We assessed the methodology and the comparison group 

Treasury used in evaluating the performance of SBLF participants as well 

as institutions that did not participate in SBLF. We interviewed Treasury 

officials on their comparison group analysis to understand the process by 

which the analysis was developed. To help understand the usefulness of 

the comparison group, we chose a peer group of non-SBLF institutions 

that we adjusted for geographical and size distribution as well as financial 

health. By analyzing a peer group, we could account for differences 

between SBLF participants and other financial institutions. For 

determining the extent to which Treasury evaluates SSBCI performance 

outcomes, we collected and reviewed the performance measures that 

Treasury developed for evaluating SSBCI. In addition, we interviewed 

officials from the nine selected states to collect information on their 

evaluation relating to their state’s SSBCI performance and identify what 

type of performance information they think would be helpful in 

administering their state small business programs.

We conducted this performance audit from March 2012 to December 

2012 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.

For the purpose of the SBLF program, the Small Business Jobs Act of 

2010 defines qualified small business lending—as defined in an 

institution’s quarterly regulatory filings (Call Reports)—as one of the 

following:

• commercial and industrial loans;

• owner-occupied nonfarm, nonresidential real -estate loans;

• loans to finance agricultural production and other loans to farmers; 

and

• loans secured by farmland.

In addition, qualifying small business loans cannot be for more than $10 

million, and the business may not have more than $50 million in revenue. 

The act specifically prohibits Treasury from accepting applications from 

Background 

Small Business Lending 

Fund 
 

Page 5 GAO-13-76 Small Business Lending Programs

institutions that are on the Federal Deposit Insurance Corporation’s 

(FDIC) problem bank list or have been removed from that list during the 

previous 90 days.9

Fewer institutions applied to SBLF than initially anticipated, in part 

because many banks did not anticipate that demand for small business 

loans would increase. The institutions that applied to and were funded by 

SBLF were primarily institutions with total assets of less than $500 million. 

In addition, in our 2011 report, we reported that the lack of clarity by 

Treasury in explaining the program’s requirements created confusion 

among applications and Treasury faced multiple delays in implementing 

the SBLF program and disbursing SBLF funds by the statutory deadline 

of September 27, 2011.

The initial baseline small business lending amount for 

the SBLF program was the average amount of qualified small business 

lending that was outstanding for the four full quarters ending on June 30, 

2010, and the dividend or interest rates paid by an institution are adjusted 

by comparing future lending against this baseline. Also, the institution is 

required to list any loans resulting from mergers and acquisitions so that 

its qualified small business lending baseline is adjusted accordingly.

10

The amount of funding a bank received under the SBLF program 

depended on its asset size as of the end of the fourth quarter of calendar 

year 2009. Specifically, if the qualifying bank had total assets of $1 billion 

or less, it was eligible for SBLF funding that equaled up to 5 percent of its 

risk-weighted assets.

 

11

 

9

The problem bank list is a confidential list created and maintained by the FDIC of banks 

that are in jeopardy of failing. In general, “problem” institutions are those institutions with 

financial, operational, or managerial weaknesses that threaten their continued financial 

condition. Depending upon the degree of risk and supervisory concern, they received a 

composite CAMELS rating of either “4” or “5.” The CAMELS rating system is a U.S. 

supervisory tool that describes a bank’s overall condition and that is used to classify the 

nation’s banks. The composite rating is based on financial statements and regulators’ onsite examinations and has six components—capital adequacy, asset quality, 

management, earnings, liquidity, and sensitivity to market risk—that make up the 

acronym. It rates banks on a scale of 1 to 5, with 1 being the strongest. 

 If the qualifying bank had assets of more than $1 

billion but less than $10 billion, it was eligible for funding that equaled up 

10GAO-12-183. 

11Risk-weighted assets are weighted according to credit risk and are used in the 

calculation of required capital levels. Specifically, all assets are assigned a risk weight 

according to the credit risk of the obligor or the nature of the exposure and the nature of 

any qualifying collateral or guarantee, where relevant. 
 

Page 6 GAO-13-76 Small Business Lending Programs

to 3 percent of its risk-weighted assets. The SBLF program provided an 

option for eligible institutions to refinance preferred stock or subordinated 

debt issued to the Treasury through the Troubled Asset Relief Program’s 

(TARP) Capital Purchase Program (CPP).12 Participating SBLF banks 

must pay dividends or interest of 5 percent per year initially to Treasury, 

with reduced rates available if they increase their small business lending. 

Specifically, the dividend rate payable will decrease as banks increase 

small business lending over their baselines. While the dividend rate will 

be no more than 5 percent for the first 2 years, a bank can reduce the 

rate to 1 percent by generating a 10 percent increase in its lending to 

small businesses compared with its baseline. After 2 years, the dividend 

rate on the capital will increase to 7 percent if participating banks have 

not increased their small business lending. After 4.5 years, the dividend 

rate on the capital will increase to 9 percent for all banks regardless of a 

bank’s small business lending. For S-corporations and mutual institutions, 

the initial interest rate was at most 7.7 percent. The rate would fall as low 

as 1.5 percent if these institutions increase their small business lending 

by 10 percent or more from the previous quarter.13

Under the act, Treasury has a number of reporting requirements to 

Congress related to SBLF: (1) monthly reports describing all of the 

transactions made under the program during the reporting period; (2) a 

semiannual report (for the periods ending each March and September) 

For CDLFs, the initial 

dividend rate will be 2 percent for the first 8 years. After 8 years, the rate 

will increase to 9 percent if the CDLF has not repaid the SBLF funding. 

This structure is designed to encourage CDLFs to repay the capital 

investment by the end of the 8-year period. Treasury will allow an SBLF 

participant to exit the program at any time, with the approval of its 

regulator, by repaying the funding provided along with dividends owed for 

that period.

 

12As the largest TARP program, the Capital Purchase Program was designed to provide 

capital investments to financially viable financial institutions. Treasury received preferred 

shares and subordinated debentures, along with warrants.

13Some banking institutions are formed as either S-corporations or mutual organizations, 

which will affect the form of Treasury’s investment. An S-corporation makes a valid 

election to be taxed under subchapter S of chapter 1 of the Internal Revenue Code and 

thus does not pay any income taxes. Instead, the corporation’s income or losses are 

divided among and passed through to its shareholders. A mutual organization is a 

company that does not issue capital stock and, therefore, has no shareholders. It is also 

“owned” by its members (e.g., deposit customers) rather than by stockholders. Many 

thrifts and insurance companies are mutuals. 
 

Page 7 GAO-13-76 Small Business Lending Programs

providing all projected costs and liabilities and all operating expenses; 

and (3) a quarterly report known as the Use of Funds Report. 

SSBCI was established to support existing and new state programs that 

support private financing to small businesses and small manufacturers 

that, according to Treasury, are not obtaining the loans or investments 

they need to expand and to create jobs. The act allowed Treasury to 

provide SSBCI funding for two state program categories: capital access 

programs (CAP) and other credit support programs (OCSP). For both 

CAP and OCSPs, lenders are required to have at least 20 percent of their 

own capital at risk in each loan. Also, origination and annual utilization 

fees are determined by each state to defray the program’s cost. Loan 

terms, such as interest and collateral, are typically negotiated between 

the lender and the borrower, although in some cases loan terms are 

subject to state approval and, in many cases, the state and lender will 

discuss and negotiate loan terms and guarantee options prior to reaching 

agreement to approve the loan and issue a guarantee. A CAP is a loan 

portfolio insurance program wherein the borrower and lender, such as a 

small business owner and a bank, contribute to a reserve fund held by the 

lender. Under a CAP, when a participating lender originates a loan, the 

lender and borrower combine to contribute an amount equal to a 

percentage of the loan to a loan reserve fund, which is held by the lender. 

Under SSBCI, the contribution must be from 2 percent to 7 percent of the 

amount borrowed. Typically, the contribution ranges from 3 percent to 4 

percent. The state then matches the combined contribution and sends 

that amount to the lender, which deposits the funds into the lender-held 

reserve fund. Under SSBCI, approved CAPs are eligible to receive 

federal contributions to the reserve funds held by each participating 

financial institution in an amount equal to the total amount of the 

contributions paid by the borrower and the lender on a loan-by-loan basis.

In addition, the following OCSPs are examples of programs eligible to 

receive funding under the act:

• Collateral support programs: A Collateral Support Program is 

designed to enable financing that might otherwise be unavailable due 

to a collateral shortfall. It provides pledged cash collateral to lenders 

to enhance the collateral coverage of individual loans. The state and 

lender negotiate the amount of cash collateral to be pledged by the 

state.

• Loan participation programs: States may structure a loan participation 

program in two ways: (1) through purchase transactions, also known 

State Small Business 

Credit Initiative
 

Page 8 GAO-13-76 Small Business Lending Programs

as purchase participation, in which the state purchases a portion of a 

loan originated by a lender, or (2) by participating in a loan as a colender, where a lender originates a senior loan and the state 

originates a second loan to the same borrower that is usually 

subordinate to the lender’s senior loan should a default occur. State 

loan participation programs encourage lending to small businesses 

because the lender is able to reduce its potential loss by sharing its 

exposure to loan losses with the state.

• Loan guarantee programs: These programs enable small businesses 

to obtain a term loan or line of credit by providing the lender with the 

necessary security in the form of a partial guarantee. In most cases, a 

state sets aside funds in a dedicated reserve or account to 

collateralize the guarantee of a specified percentage of each 

approved loan. The guarantee percentage is determined by the states 

and lenders but, under SSBCI, may not exceed 80 percent of loan 

losses. 

• Venture capital programs: These programs provide investment capital 

to create and grow start-ups and early-stage businesses, often in one 

of two forms: (1) a state-run venture capital fund (which may include 

other private investors) that invests directly in businesses, or (2) a 

fund of funds, which is a fund that invests in other venture capital 

funds that in turn invest in individual businesses.

• Direct loan programs: Although Treasury does not consider these 

programs to be a separate SSBCI program type, it acknowledges that 

some states may identify programs that they plan to support with 

SSBCI funds as direct loan programs. The programs that some states 

label as direct loan programs are viewed by Treasury as co-lending 

programs categorized as loan participation programs, which have 

lending structures that are allowable under the statute.

OCSPs approved to receive SSBCI funds are required to target small 

businesses with an average size of 500 or fewer employees and to target 

support towards loans with an average principal amount of $5 million or 

less. In addition, these programs cannot lend to borrowers with more than 

750 employees or make any loans in excess of $20 million.

After their applications were approved, the states entered into Allocation 

Agreements with Treasury before they received their funds. SSBCI

Allocation Agreements are the primary tool signed by Treasury and each 

participating state and outline how recipients are to comply with program 

requirements. The act requires that each state receive its SSBCI funds in 

three disbursements or tranches of approximately one-third of its 

approved allocation. Prior to receipt of the second and third 
 

Page 9 GAO-13-76 Small Business Lending Programs

disbursements, a state must certify that it has expended, transferred, or 

obligated 80 percent or more of the previous disbursement. Treasury may 

terminate any portion of a state’s allocation that Treasury has not yet 

transferred to the state within 2 years of the date on which its SSBCI 

Allocation Agreement was signed. Treasury may also reduce, suspend or 

terminate a state’s allocation at any time during the term of the Allocation 

Agreement upon an event of default under the agreement. Under the act, 

states are required to submit quarterly and annual reports on their use of 

SSBCI funds. All SSBCI Allocation Agreements will expire on March 31, 

2017.

In response to our previous recommendation on SBLF compliance 

procedures, Treasury has developed procedures for monitoring SBLF 

participant compliance with legal and reporting requirements. Treasury 

has also issued compliance standards for SSBCI and procedures to 

review states’ annual reports. The standards provide the participating 

states with best practices for reviewing borrower and lender compliance 

with SSBCI’s legal and policy requirements.

We recommended in December 2011 that Treasury should finalize 

procedures for monitoring SBLF participants, including procedures to 

better ensure that Treasury is receiving accurate information on 

participants’ small business lending.14 In response to the 

recommendation, Treasury officials told us they had written compliance 

procedures in March 2012 and finalized compliance procedures on 

September 28, 2012, for monitoring participant conformance with 

program terms, including documentation requirements, certification 

requirements, and other requirements under the Securities Purchase 

Agreement. 15

 

14

In addition, according to Treasury officials, SBLF 

compliance procedures include a review of the Quarterly Supplemental 

GAO-12-183. 

15The Securities Purchase Agreement is the terms between Treasury and SBLF 

participants on which the SBLF participants issued preferred stock to the Treasury, which 

Treasury purchased using SBLF funds. 

Treasury Has Made 

Progress in 

Developing 

Compliance Guidance 

and Processes for 

SBLF and SSBCI

Treasury Has Developed 

Procedures to Monitor 

SBLF Participant 

Compliance and Report of 

Lending Data
 

Page 10 GAO-13-76 Small Business Lending Programs

Reports (quarterly reports) for accuracy to monitor that the dividend or 

interest rates paid by the institutions are correct.16

As mandated by the act, Treasury requires each SBLF participant to 

submit two annual certifications:

(1) Any businesses receiving a loan from an SBLF participant 

using SBLF funds must certify to the institution that the principals 

of the business have not been convicted of a sex offense against 

a minor. Under the Securities Purchase Agreement, annually until 

redemption, the SBLF participant is required to provide the 

certifications to Treasury that businesses receiving loans from the 

bank have certified that their principals have not been convicted of 

a sex offense against a minor.

(2) Each SBLF participant must certify that it is in compliance with 

the requirements of the Customer Identification Program, which is 

intended to enable the bank to form a reasonable belief that it 

knows the true identity of each customer.

In addition to these certifications, Treasury requires, through the 

Securities Purchase Agreement, that SBLF participants meet certain 

additional conditions and certifications, such as the bank’s Chief 

Executive Officer and Chief Financial Officer attesting to the accuracy of 

the bank’s Call Report and certifying to Treasury that information provided 

on each supplemental quarterly report, is complete and accurate. 

Treasury developed a compliance monitoring tool for verifying the proper 

certification submission by SBLF participants. The tool is a set of 

spreadsheets Treasury uses to track the receipt of documents from SBLF 

participants, as required by the Securities Purchase Agreement, including 

annual financial statements, independent auditor certifications, and 

executive officer certifications.

An important SBLF compliance focus is the review and monitoring of the 

quarterly reports. Each SBLF participant is required to correctly calculate 

its quarter-end adjusted small business lending baseline and the qualified 

 

16Quarterly Supplemental Reports supplement the Call Reports filed by the SBLF 

participants and include the calculations for the qualified small business lending for the 

quarter and the dividend or interest rate to be paid by the SBLF participants. 
 

Page 11 GAO-13-76 Small Business Lending Programs

small business lending for that quarter.17

According to Treasury documentation, Treasury will review the following 

elements in the quarterly reports: 

The quarterly reports are the 

primary source on which Treasury bases its Use of Funds Report of 

qualified small business lending and the dividend or interest rate paid by 

the SBLF participants. The quarterly reports are forms in which the SBLF 

participants calculate their qualified small business lending for the quarter 

and the resulting dividend or interest rate. The dividend or interest 

payment depends on the growth or the decline of qualified small business 

lending. Thus, if the baseline or the qualified small business lending is 

incorrectly calculated, Treasury will not receive an accurate dividend or 

interest payment amounts.

• certification of accuracy by the institution’s executives (including Chief 

Executive Officer, Chief Financial Officer, and all directors or trustees 

who attested to the Call Report);

• independent auditor certification;

• real-time validation of the calculations for the quarterly reports;

• analysis of the quarterly reports; and

• explanation letters and auditor attestations if the quarterly report is a 

resubmission.

According to Treasury officials, the review performed by SBLF 

compliance staff is primarily to identify discrepancies between data on the 

quarterly reports and the Call Reports. According to Treasury staff, they 

use a system that allows staff to monitor discrepancies or errors and 

follow up with participants. Treasury staff review participants’ quarterly 

reports to identify any potential errors or missing information. Staff 

compare the quarterly report submissions to the Call Reports to check for 

discrepancies for the same period. According to Treasury officials, staff

also compare quarterly reports to prior Call Reports to check for errors in 

reported changes in loan balances and net charge-offs and apply 

statistical tests, such as a comparison of government guaranteed lending 

amounts in the quarterly reports, to lending figures publicly reported by 

 

17The SBLF qualified baseline is adjusted each quarter to take into account any gains 

resulting from mergers, acquisitions, and loan purchases during the period that SBLF 

participants may have acquired during the period. The baseline is adjusted so that the 

small business lending being measured is new small business lending, not lending from 

mergers, acquisitions, or purchases of small business loans. 
 

Page 12 GAO-13-76 Small Business Lending Programs

the Small Business Administration.18

Treasury has also responded to the findings and recommendations of the 

Treasury’s Office of Inspector General (OIG). In August 2012, Treasury’s 

OIG reported on a small judgmental sample of 10 initial supplemental 

reports submitted by SBLF participants.

Treasury staff said they use a 

verification check for arithmetic errors for calculating the adjusted 

baseline exclusions and qualified small business lending. Treasury 

follows up with institutions to address identified issues and errors and 

requests resubmission of corrected quarterly reports, as appropriate.

19

• follow up with the 8 banks where errors were identified and determine 

whether corrected initial supplemental reports and quarterly reports 

should be submitted and make the necessary adjustments to dividend 

rates for the banks, as appropriate; 

To establish initial dividend 

rates, SBLF participants completed the initial supplemental reports using 

small business lending data from their quarterly Call Reports and loans 

records and submitted them to Treasury. The OIG reviewed the 

calculations for the small business lending baseline and the initial 

dividend rate payment and found errors in 8 of the 10 reviewed reports. 

OIG’s recommendations included the following:

• notify all SBLF participants about the types of errors identified by this 

audit to help prevent similar errors from occurring in the future; and

• ensure that the October 2012 Use of Funds Report contains 

corrections for errors identified by this audit.

Treasury agreed with the OIG’s recommendations and commented that it 

would review the identified errors with each institution and direct these 

institutions to resolve any errors in the third quarter of 2012, including 

resubmitting corrected initial and quarterly supplemental reports, as 

appropriate. Further, Treasury conducted training webinars in July and 

August 2012 to address common errors identified in their reviews of 

quarterly report submissions. According to Treasury officials, they 

completed the review of the eight banks where quarterly report errors 

 

18Net charge-offs are total loans and leases charged off (removed from balance sheet 

because of uncollectibility), less amounts recovered on loans and leases previously 

charged off. 

19Department of the Treasury, Office of Inspector General, Small Business Lending Fund:

Initial Dividend Rate Calculations Used Incorrect Lending Information, (Washington, D.C.: 

Aug. 21, 2012). 
 

Page 13 GAO-13-76 Small Business Lending Programs

were identified and banks resubmitted quarterly reports as appropriate. 

Two banks submitted revised reports identifying a combined total of 

$258.00 in overpayments to Treasury.

Treasury has developed SSBCI Policy Guidelines and compliance 

standards for participating states to follow in implementing their state 

small business programs using SSBCI funds. According to Treasury 

officials, primary oversight of the use of SSBCI funds is the responsibility 

of each participating state. The participating states we interviewed viewed 

their responsibility as monitoring SSBCI lender and borrower compliance 

with program requirements. Under the act, specific lender and borrower 

assurances and certifications must be delivered before a transaction is 

enrolled in the participating state’s approved program. For example, 

borrowers must provide assurance that proceeds will be used for an 

eligible business purpose and that the borrower is not an executive 

officer, director, or principal shareholder (or a member or the immediate 

family or a related interest of such individual) of the lender. Similarly, 

lenders must submit certifications to the participating state providing 

assurance that, for example, the loan is not a refinancing of a loan 

previously made to that borrower by the lender or an affiliate of the 

lender. In addition to these certifications, the act requires that borrowers 

and the lenders certify that their principals have not been convicted of a 

sex offense against a minor as such terms are defined in section 111 of 

the Sex Offender Registration and Notification Act.20

In May 2012 Treasury issued the SSBCI National Standards for 

Compliance and Oversight, which was intended to provide the states with 

guidance for reviewing, monitoring, and managing compliance.

 Eight states we 

interviewed told us that they reviewed borrower and lender certifications 

for meeting the legal requirements and assurances before enrolling the 

loans.

21

 

2042 U.S.C. § 16911.

Treasury 

considers the standards as best practices that the states should adopt or 

incorporate, as appropriate, into existing procedures. For example, 

according to the standards, if a participating state delegates to an 

administrative entity the responsibility to obtain the certifications to 

21U.S. Department of the Treasury, SSBCI National Standards for Compliance and 

Oversight, (Washington, D.C.: May 15, 2012). 

Treasury Has Developed 

Guidance to Assist SSBCIParticipating States in 

Their Oversight of Lenders 

and Borrowers
 

Page 14 GAO-13-76 Small Business Lending Programs

individual lenders, the participating state must exercise oversight to 

ensure compliance. One means of ensuring oversight would be for the 

participating state to conduct an annual audit of each lender’s transaction 

files to verify that the use of proceeds certifications are on file and signed 

by an authorized representative of the lender. As another example of a 

best practice, the standards recommend that, when overseeing entities 

that administer the state small business programs, states should perform 

site visits, require periodic status update reports, or conduct regular 

conference calls with the administering entity.

The participating states we interviewed found the SSBCI National 

Standards for Compliance and Oversight to be helpful as they were 

developing their compliance procedures. Three of the nine states already 

had similar compliance procedures in place for their small business 

lending and amended their procedures to include SSBCI compliance 

standards. Six states told us that they established or are establishing 

compliance standards using the SSBCI National Standards for 

Compliance and Oversight as guidance. According to state officials of the 

nine states we interviewed, as part of their procedures, staff reviewed the 

borrower and lender documentation for compliance.

Under the act, SSBCI participants are subject to two reporting 

requirements: annual reports and quarterly reports. As part of its 

responsibilities for overseeing the use of SSBCI funds, Treasury is 

planning to conduct a review of the Annual Report data submitted to them 

by the states. Under the act, SSBCI participants are to submit to Treasury 

an Annual Report no later than March 31 of each year. The data included

• transaction-level data for each loan or investment made using SSBCI 

funds for that year;

• the number of borrowers that received new loans originated under the 

approved state program;

• the total amount of such new loans;

• breakdowns by industry type, loan size, annual sales, and number of 

employees of the borrowers that received such new loans;

• the zip code of each borrower that received such a new loan; and

• other data that the Secretary may require to carry out the purposes of 

the program. 

As part of its review of the 2012 Annual Report data, Treasury plans to 

review a sample of loans and investments for the appropriate 

documentation of borrower and lender assurances and certifications for 

data accuracy. To conduct this review, SSBCI staff designed an 
 

Page 15 GAO-13-76 Small Business Lending Programs

evaluation form to review the certifications and the Annual Report data. 

SSBCI participants are required to submit their 2012 annual data to 

Treasury by March 31, 2013. The loans or investment will be reviewed 

for the following assurances and certifications: 

• Each lender or investor that has received credit support for a 

particular transaction has at least 20 percent of their own capital at 

risk unless Treasury has waived this requirement.

• Signed borrower and lender use-of-proceeds certifications have been 

provided, and the borrower/lender signature block matches the 

borrower on the loan documents.

• Signed borrower and lender sex offender certifications have been 

provided.

In the data accuracy review, Treasury plans to verify a sample of SSBCI 

Annual Report data submitted by the states with the actual loan or 

investment documentation. The types of data that Treasury intends to 

verify include the following:

• date of disbursement for the loan or investment;

• borrower’s annual revenue and the year of business incorporation;

• enrolled loan amount and any public subsidy associated with the 

enrolled loan or venture capital investment;

• SSBCI federal contribution to CAP loan; and

• amount the state had contributed to a loan participation, loan 

guarantee, or loan collateral program.

Treasury also intends to verify that the amount of subsequent private 

financing matches the documentation provided and that the 

documentation supports the relationship between the SSBCI loan 

program and the private financing.

The states are required to submit to Treasury a quarterly report on the 

use of SSBCI funds during the previous quarter. Under the act, states are 

required to report the total amount of federal funding used and to certify 

that the information provided is accurate and that the state is 

implementing its approved programs in accordance with the act and the 

regulations or other guidance issued by Treasury. As part of the 

Allocation Agreements, Treasury also requires states to submit reports on 

the total amount of allocated funds used for administrative costs, the 

amount of program income generated, and the amount of charge-offs 

against the federal contributions to the reserve funds. Treasury conducts 

a more limited review of the SSBCI quarterly reports compared to the 
 

Page 16 GAO-13-76 Small Business Lending Programs

Annual Report. Specifically, Treasury staff conduct checks on the 

administrative costs to ensure that the costs do not exceed the statutory 

caps. In addition, staff verify that the amount of funds used does not

exceed the amount allocated to the state and that the state official signing 

the SSBCI quarterly reports is authorized to do so.

According to Treasury officials, they would not approve a new 

disbursement of funds if they had substantial evidence that a state’s 

compliance with SSBCI program requirements was inadequate. When a 

participating state requests a disbursement of funds, according to 

Treasury staff, they will conduct a pre-disbursement review. In addition to 

confirming that the participating state has expended, obligated, or 

transferred 80 percent of its previous disbursement, Treasury staff review 

the results of Treasury’s SSBCI compliance monitoring. According to 

Treasury documentation, this review will include a review of a sample of 

transactions in which SSBCI funds were used; a review of financial 

audits, if submitted; the review of the quarterly reports and if available, the 

annual reports for accuracy and completeness; and the review of any of 

the states’ compliance activities or records that would indicate whether a 

participating state had failed to comply with any program requirements.

As of June 30, 2012, SBLF participants had increased their business 

lending over the baseline from 2010.22

 

22These financial data are reported on a quarterly basis, and June 30, 2012, represents 

the most recent data available.

For SSBCI, Treasury had 

transferred to the states nearly one-third of the program’s $1.5 billion in 

total funding as of June 30, 2012. States had used about $154 million 

(about 10 percent) of these funds through a variety of programs. States 

had received and used funds at differing levels, but some states were 

concerned that Treasury may take actions to suspend disbursements 

after participants have been in the program for more than 2 years. 

Treasury has the authority to terminate disbursements to SSBCI 

participants who have not met the requirements to receive their full 

allocation within 2 years of having been accepted into the program. 

Treasury has not yet developed a policy that reflects how it will use this 

authority even though this 2-year period will end for most states sometime 

in 2013. Treasury officials stated that they do not plan to use this authority 

SBLF-Funded 

Institutions and 

SSBCI-Funded States 

Have Begun to 

Support Small 

Business Lending, but 

Treasury’s Policy for 

Timely Use of SSBCI 

Funds Is Unclear
 

Page 17 GAO-13-76 Small Business Lending Programs

at this time and that Treasury will provide all participants with sufficient 

lead time so that they can modify or adjust their programs, as necessary.

According to Treasury, SBLF participants have increased their qualified 

small business lending by $6.7 billion over their $36.0 billion baseline, as 

of June 30, 2012. This number includes a $1.5 billion increase over the 

prior quarter. Further, Treasury reported that 89 percent of participants 

had increased their qualified small business lending over baseline levels 

and about 76 percent of participants had increased their qualified small 

business lending by 10 percent or more. As previously discussed, SBLF 

uses a dividend or interest rate incentive structure to encourage 

participating institutions to increase qualified small business lending. 

SBLF participants paid an average dividend or interest rate of 2.1 percent 

on their SBLF funds as of June 30, 2012. Over half of SBLF participants 

paid a dividend or interest rate of 1 percent on their SBLF funds—

because their qualified small business lending growth was 10 percent or 

higher—and 15 percent of institutions paid 5 percent or more (see

fig. 1).23

 

23As mentioned earlier, dividends or interest rates for S-corporations range from 1.5 

percent to 7.7 percent depending on their increases in qualified small business lending. 

Treasury used these differing rates to ensure that S-corporations’ after-tax rate was equal 

to that of other participating institutions (1.0 percent to 5.0 percent). Figure 1 displays the 

pre-tax dividend or interest rates, but groups the rates in a way that more closely mirrors 

the corresponding loan growth changes.

SBLF Participants Have 

Generally Increased Their 

Levels of Both Small 

Business and Total 

Business Lending
 

Page 18 GAO-13-76 Small Business Lending Programs

Figure 1: Distribution of Dividend or Interest Rates Paid by Institutions on SBLF 

Funds, as of June 30, 2012

SBLF participants also showed increases in small business loans under 

$1 million, as well as total business lending. While the Small Business 

Jobs Act set the threshold for qualified small business lending at $10 

million, depository institutions are required to submit Call Reports with 

detailed financial information including small business lending, which the 

reports define as loans under $1 million.24 Such data are useful for 

comparing certain small business lending of SBLF participants with that of 

institutions that did not participate in SBLF.25

 

24Call Reports require reporting only on loans up to $500,000 for two of the loan 

categories—loans to finance agricultural production and loans secured by farmland. The 

$1 million threshold applies to the other two categories—commercial and industrial loans 

and nonfarm, nonresidential real estate loans.

Total business lending—

which includes all business loans, including loans over $10 million and 

25Because qualified small business lending—lending below the $10 million threshold—is 

defined by the Small Business Jobs Act, only SBLF participants are required to submit 

these data, leaving the data unavailable for institutions that did not participate in SBLF.
 

Page 19 GAO-13-76 Small Business Lending Programs

those to businesses with over $50 million in revenue—can also help 

illustrate differences in lending activity between these two groups.26

SBLF participants increased both small business loans under $1 million 

as well as total business lending. In particular, the median SBLF 

participant had a 31 percent increase in total business lending for the 

quarter ending June 30, 2012, over the baseline level.

Treasury uses total business lending in its reporting to compare SBLF 

participants to non-SBLF institutions and noted that qualified small 

business lending makes up a large part of total business lending for SBLF 

participants. For example, qualified small business lending totaled 95 

percent of total business lending for the median SBLF participant as of 

December 31, 2011.

27

 

26Total business lending only includes lending to the same four loan categories as 

qualified small business lending.

The median 

SBLF participant had a 14 percent increase for small business loans 

under $1 million over the same period. When categorizing SBLF 

participants by the changes in their lending, the SBLF participants fell into 

the higher growth categories for total business lending, but were more 

evenly distributed for small business loans under $1 million except for 

participants whose lending increased over 40 percent (see fig. 2).

27The act establishes the baseline for measuring the change in small business lending as 

the average of the amounts that were reported for each of the four calendar quarters 

ended June 30, 2010. Call Reports did not begin requiring quarterly reporting of small 

business lending under $1 million until the second quarter of this four quarter baseline 

period. Accordingly, we calculated the baseline for small business lending under $1 million 

using the average of each of the three calendar quarters ended June 30, 2010. The act 

also defines one of the categories of qualified small business lending as owner-occupied 

nonfarm, nonresidential real estate loans. For quarterly reports of small business lending, 

Call Reports use a broader category of all nonfarm, nonresidential real estate without a 

distinction for owner occupancy. As a result, the small business lending under $1 million 

includes the broader category. The total business lending numbers use the full baseline 

and the narrower categorization of owner-occupied nonfarm, nonresidential real estate 

and should therefore not be compared to the numbers for small business lending under $1 

million.
 

Page 20 GAO-13-76 Small Business Lending Programs

Figure 2: Distribution of SBLF Participants’ Changes in Business Lending, from Baseline Level to the Quarter Ended June 30, 

2012

About half of SBLF participants used their program funds to repay and 

exit TARP’s CPP. These CPP refinance participants had noticeably lower 

lending growth than SBLF participants that did not participate in CPP (see 

fig. 3). In particular, CPP refinance participants increased small business 

loans under $1 million by 5 percent compared with 33 percent for nonCPP participants. For total business lending, CPP refinance participants 

saw increases of 17 percent compared with 45 percent for non-CPP 

participants. Treasury officials said that one possible reason for this 

difference is that CPP refinance participants were only eligible for a 

limited amount of incremental SBLF funds, beyond the amount of CPP 

funds refinanced. As a result, unlike other SBLF participants, these 

institutions did not receive as much “new” capital to increase small 

business lending. Nevertheless, all SBLF participants are subject to the 

same incentive structure based on the dividend or interest rate. 

Furthermore, Treasury officials also noted that in many instances the 

CPP refinance participants may have already experienced an increase in 

lending from the CPP capital they originally received.
 

Page 21 GAO-13-76 Small Business Lending Programs

Figure 3: Median Changes in SBLF Participants’ Business Lending by CPP Status, 

from Baseline Level to the Quarter Ended June 30, 2012

As of June 30, 2012, Treasury had transferred $468 million in SSBCI 

funding to the states, representing about one-third of the $1.5 billion that 

was set aside for the program. States had used $150 million of these 

funds—about 10 percent of the program total—disbursing them to lending 

institutions through a variety of programs. Loan participation programs 

accounted for 47 percent of the funds used, as of June 30, 2012, followed 

by venture capital programs (28 percent), collateral support programs (17 

percent), and loan guarantee programs (6 percent), as shown in figure 4. 

The remaining program categories—capital access programs, direct 

lending, and other—combined for the remaining 2 percent of funds used.

States Disbursed SSBCI 

Funds through Different 

Types of Programs and at 

Varying Rates
 

Page 22 GAO-13-76 Small Business Lending Programs

Figure 4: Cumulative SSBCI Funds Used by Program Type, as of June 30, 2012

Participating states have received and used SSBCI funds at differing 

levels, partially because of when applications were approved and funds 

were allocated (see fig. 5). Of the 53 states, territories, or municipalities 

that received SSBCI funding, 47 had used a proportion of their funds as 

of June 30, 2012. Montana had the highest proportion used of the amount 

that Treasury had allocated, as of June 30, 2012. States we interviewed 

said that disbursing funds was much faster for state programs that were 

in existence before SSBCI because the infrastructure was already in 

place and lenders were already familiar with the programs. Moreover, 

some states implementing new programs told us that it could take time to 

use the funds because they had to conduct extensive outreach to lenders 

to make them aware of the programs and encourage them to commit to 

small business lending.
 

Page 23 GAO-13-76 Small Business Lending Programs

Figure 5: SSBCI Allocation by State, Territory, or Municipality and Cumulative SSBCI Funds Transferred and Used, as of June 

30, 2012

Note: States are in order of the largest to smallest allocation amount. California had been allocated 

$168.6 million, but its transferred and used amounts were not available for the June 30, 2012, 

quarterly report due to an extension granted. Washington’s amount used is greater than its 

transferred amount because it includes loan commitments that are contingent upon receipt of its next 

disbursement. Alaska did not participate in SSBCI, and “AK” reflects the city of Anchorage, which 

applied for funding at the municipal level. “N” refers to the Northern Mariana Islands. North Dakota did 

not apply for SSBCI funds, but two consortia of municipalities in North Dakota—the Mandan 

Consortium and the Carrington Consortium—applied, approved, and received funding on August 31, 

2012, and September 28, 2012, respectively. Wyoming did not apply for SSBCI funds, but one 

consortium of municipalities—the Laramie Consortium—applied for funds and was approved.
 

Page 24 GAO-13-76 Small Business Lending Programs

Under the act, the Secretary may revoke any portion of a participating 

state’s allocated amount that has not been transferred to the state by the 

end of the 2-year period beginning on the date the state received 

approval, but Treasury has not developed a written policy on how it will 

use this authority. For most of the participating states, this 2-year period 

will end sometime during 2013, but it is still unknown if they all will be able 

to use their funds in time to obtain the third and final disbursement within 

this time frame. This time frame is quickly approaching for five states 

(California, Hawaii, Missouri, North Carolina, and Vermont) that signed 

their Allocation Agreements with Treasury before May 2011. For 39 states 

the 2-year time frame will end by September 30, 2013, in terms of their 

allocation agreement. As of November 16, 2012, according to Treasury, 

ten states (Idaho, Indiana, Kansas, Michigan, Missouri, Montana, North 

Carolina, South Carolina, South Dakota, and Washington) had requested 

and received their second disbursement; eight states (Arkansas, 

Delaware, Florida, Louisiana, Massachusetts, New Hampshire, New 

Jersey, and West Virginia) had requested their second disbursement but 

had not yet received it; and one state, Montana, had requested and 

received a partial third disbursement. The remaining 38 SSBCI 

participants were still working to use their first disbursement, as of 

November 16, 2012.

Some states told us that the 2-year time frame is short for disbursing 

SSBCI funds especially for states with new state small business 

programs. One state official told us that because their programs are 

relatively new and lending institutions are unfamiliar with them, the 2-year 

time frame is too tight for lenders to make informed decisions about 

participating in the program. Similarly, officials from two states told us that 

the 2-year time frame for disbursing the SSBCI funds is short because 

their state small business programs were newly created.

According to Treasury officials, Treasury is aware of the 2-year time 

frame and the potential concerns of the states. After reviewing the law, 

Treasury officials told us that the Secretary has discretion on whether or 

not to revoke the undisbursed allocation if it has not been transferred to a 

participating state as of the 2-year anniversary. According to Treasury 

officials, they have not drafted a policy or procedures on what actions 

they may implement if the states miss the 2-year time frame for their final 

disbursement of funds. However, they told us that the states were 

encouraged to describe in their applications how they would disburse the 

funds within the 2-year time frame and that they advised the states of the 

importance of meeting the 2-year time frame. Moreover, they said that 

they do not consider the 2-year time frame to be a requirement that funds 

Treasury Has Not Yet 

Developed a Policy on 

How to Treat States That 

Do Not Meet SSBCI’s 2-

Year Time Frame
 

Page 25 GAO-13-76 Small Business Lending Programs

not yet transferred must be deemed unavailable at that time. At an 

October 2012 conference attended by many SSBCI participants, 

according to Treasury staff, the Deputy Assistant Secretary for Small 

Business, Community Development, and Affordable Housing Policy told 

the participants that Treasury did not currently plan to exercise this 

authority in the near future. However, these statements are not currently 

documented in a written or formal policy statement explaining its position. 

Treasury staff told us when Treasury develops a policy on its 

discretionary authority, it will provide all participants with sufficient lead 

time so that they can modify or adjust their programs, as necessary. 

Treasury officials told us that the purpose of the Deputy Assistant 

Secretary’s conference announcement was to address the concern and 

clarify that Treasury would not be taking action at this time if an SSBCI 

participant had not met the 2-year requirement and to affirm that Treasury 

retains its discretionary authority going forward.

In prior work, we have recommended that when states are required to 

spend federal funds to meet a statutory deadline or specific program 

requirements, agencies should provide guidance to the states on what 

they should expect if they are unable to meet the deadline.28 The act 

provides Treasury’s discretionary authority to encourage the states to use 

the funds in a timely manner, but without a formal written policy, how 

Treasury would use this authority in a consistent manner is unclear.

Having clear guidelines on how Treasury plans to use its discretionary 

authority to terminate funds could help ensure consistent application of 

the authority. In addition, such guidelines could help states understand 

the need to use the funds in a timely manner while meeting program 

requirements and could provide clarity to states about the associated 

consequences of not meeting the 2-year time frame.

 

28GAO, Recovery Act: Progress and Challenges in Spending Weatherization Funds, 

GAO-12-195 (Washington, D.C.: Dec. 16, 2011) and Recovery Act: States’ and Localities’ 

Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster 

Accountability, GAO-10-604 (Washington, D.C.: May 26, 2010).
 

Page 26 GAO-13-76 Small Business Lending Programs

Treasury has established performance measures to manage its programs 

but could enhance its public reporting of program performance 

information. In its Use of Funds Report, Treasury compared business 

lending by SBLF participants to that of non-SBLF institutions, but the 

report does not disclose Treasury’s rationale for choosing its comparison 

group over other possibly more representative alternatives. Treasury 

officials told us that they are continuing to consider different approaches 

for evaluating SBLF. In addition, Treasury has designed SSBCI timeliness 

and outcome performance measures but has not made this information 

publicly available. Treasury officials are considering different options for 

presenting this information and said they plan to eventually to make some 

of it public. However, Treasury has not made any decisions on the 

specific SSBCI performance information that it might publicly release. 

Treasury has also taken actions to enhance its communications with 

SBLF and SSBCI program participants, such as dedicating staff to assist 

with participants’ inquiries.

Our review found that SBLF participants had noticeably higher changes in 

lending rates when compared to similar non-SBLF institutions, but that 

Treasury’s methods for analyzing SBLF participants’ lending may 

somewhat overstate differences between SBLF participants’ lending and 

that of other eligible banks. In our December 2011 report on SBLF, we 

recommended that Treasury finalize plans for assessing the performance 

of the SBLF program, including measures that can isolate the impact of 

SBLF from other factors that affect small business lending.29

In its Use of Funds Report, Treasury compared total business lending by 

SBLF participants to that of a comparison group of non-SBLF institutions 

and found that SBLF participants had noticeably higher increases in total 

business lending. In its analysis, Treasury adjusted the comparison group 

for a number of factors, including an institution’s asset size and 

geography, thereby excluding institutions that fell outside the asset size 

range of SBLF participants and that were headquartered in states that did 

Treasury 

officials explained to us that they explored different comparison methods 

that more closely mirror SBLF participants, but this information is not 

disclosed in its Use of Funds Report to Congress.

 

29GAO-12-183. 

Treasury Could 

Enhance Its Reporting 

of Program 

Performance 

Information

Additional Information on 

Treasury’s Methods for 

Analyzing SBLF Outcomes 

Would Enhance 

Transparency
 

Page 27 GAO-13-76 Small Business Lending Programs

not have an institution participating in SBLF.30

To analyze the differences in lending between SBLF participants and 

non-SBLF institutions, we chose a peer group that we adjusted for 

geographical and size distribution as well as financial health.

Such a comparison is a 

helpful step in understanding the possible effects of SBLF funding. 

However, Treasury did not adjust its comparison group to better ensure 

that its distribution among various asset sizes and states mirrored that of 

SBLF participants. Moreover, Treasury did not adjust its comparison 

group to account for differences in financial health despite requiring SBLF 

applicants to demonstrate a certain degree of financial health before 

approving them for funding. For example, the act specifically restricted 

Treasury from accepting applications from institutions that were on or 

recently removed from the FDIC problem bank list. Because the 

comparison group did not exclude such institutions that were unable to 

qualify for SBLF funding, these institutions may have downwardly skewed 

the group’s small business lending growth rate, thus causing Treasury’s 

results to overstate the implied effect of the program. As a result, 

Treasury’s analysis seemingly links SBLF funding to the increase in small 

business lending when that increase, to some extent, may have been 

associated with the factors mentioned above or other factors such as 

improved local economic growth.

31

 

30Treasury’s comparison group was comprised of the 6,463 non-SBLF insured depository 

institutions that were established prior to September 30, 2009, had total assets between 

$7.0 million and $6.4 billion (the range of total assets for SBLF participants) as of March 

31, 2011 (the end of the first quarter prior to SBLF participants receiving funding), and are 

located in one of the jurisdictions (44 states and the District of Columbia) in which SBLF 

participants are headquartered.

In nearly 

every case, the loan growth of our peer group was slightly closer than 

Treasury’s comparison group to the loan growth of SBLF participants, 

implying that Treasury’s choice not to adjust for these differences may 

have resulted in it slightly overstating the differences between these 

groups, and by implication, the program’s effect on small business loan 

31We used the Texas Ratio as a proxy for financial health. It is defined as nonperforming 

assets plus loans 90 or more days past due divided by tangible equity and reserves. The 

Texas Ratio helps determine a bank’s likelihood of failure by comparing its troubled loans 

to its capital. Because SBLF funding increases the equity portion of the ratio, we used 

Texas Ratios as of March 31, 2011, which was the last quarter preceding the initial 

disbursements of SBLF funding.
 

Page 28 GAO-13-76 Small Business Lending Programs

growth.32 That is, growth rates of SBLF participants remained noticeably 

higher than those of our peer group. This growth could indicate a 

beneficial effect of SBLF funding on lending, or it could be due to other 

factors, including differences between SBLF participants and our peer 

group for which we were not able to adjust. When categorizing institutions 

by the level of change in their business lending, SBLF participants were 

more heavily concentrated in the higher growth categories compared with 

the peer and comparison groups (see fig. 6).33

 

32We replicated Treasury’s comparison group using the methodology it outlined in its Use 

of Funds Report. This replication may not be identical to Treasury’s actual comparison 

group, but we determined that it was sufficiently similar for the purposes of our analysis. In 

all comparisons of total business lending growth between SBLF, peer, and comparison 

groups, we calculated the baseline using the average of the four quarters ending June 30, 

2010. The data limitation mentioned earlier that required us to use only three quarters in 

the calculation of the baseline only applied to the availability of data on small business 

loans under $1 million, and the three-quarter baseline was used only in those earlier 

sections.

Moreover, the median 

SBLF participant had a 31 percent increase in total business lending, 

compared with a 2 percent increase for the comparison group and a 6 

percent increase for the peer group.

33As mentioned earlier, Treasury used total business lending to compare lending between 

SBLF participants and the comparison group because qualified small business lending 

data were not available for non-SBLF institutions and because qualified small business 

lending totaled 95 percent of total business lending for the median SBLF participant as of 

December 31, 2011.
 

Page 29 GAO-13-76 Small Business Lending Programs

Figure 6: Distribution of Changes in Total Business Lending, from Baseline Level to 

the Quarter Ending June 30, 2012

Further, SBLF participants had a higher median growth rate of total 

business lending than both our peer group and Treasury’s comparison 

group in all six geographical regions (see fig. 7). Moreover, the peer 

group had higher rates of growth than the comparison group in five of the 

six regions.
 

Page 30 GAO-13-76 Small Business Lending Programs

Figure 7: Median Changes in Total Business Lending by Geographical Region, from 

Baseline Level to the Quarter Ending June 30, 2012

SBLF participants also had a higher median growth rate of total business 

lending across all five asset size categories (see fig. 8). Again, the peer 

group’s growth rate was slightly closer to that of SBLF participants than 

the comparison group was for all five asset groups, yet it remained well 

below it. Moreover, SBLF participants in the larger asset categories had 

lower growth rates in total business lending. However, the peer and 

comparison groups had no noticeable trend across different asset size 

groups. In addition, the peer and comparison groups were closest to 

SBLF participants among institutions with assets over $1 billion.
 

Page 31 GAO-13-76 Small Business Lending Programs

Figure 8: Median Changes in Total Business Lending by Institution Size in Total 

Assets, from Baseline Level to the Quarter Ended June 30, 2012

Treasury officials said that in determining the comparison group to use in 

their analysis, they analyzed distributional differences in asset size and 

geography between the groups, as well as some indicators of financial 

health. They judged that the differences in the variables they analyzed 

were modest and believed that adjusting for these differences—that is, 

making the comparison group more representative of SBLF participants—

would only provide a limited benefit while making the analysis less 

transparent and more difficult for others to replicate. They were also 

concerned that using what they considered to be a more judgmental 

approach, such as selecting a peer group, would require certain arbitrary 

decisions which might raise concerns about the validity of their selection 

criteria. As a result, Treasury determined that the differences found in 

their analyses did not warrant an approach that would adjust for these 

factors. 

In addition, although Treasury officials told us they considered but 

decided against using a comparison group that would have been adjusted 
 

Page 32 GAO-13-76 Small Business Lending Programs

to more closely mirror SBLF participants; they did not explain this 

decision in the methodology section of the Use of Funds Report. In prior 

work on another Treasury program, we said that Treasury should 

enhance its communications relating to financial assistance so that they 

are transparent to the Congress and the public.34

Treasury’s comparison group analysis in its Use of Funds Report also 

does not isolate the impact of SBLF relative to other factors affecting 

small business lending to the extent that other approaches would. While a 

comparison group is an important step and provides useful context, a 

more rigorous analysis of peer banks to help assess what might have 

happened without SBLF, as our 2011 report on SBLF recommends, may 

help Treasury better understand the effects of the program. Our prior 

work on program evaluation suggests that a carefully constructed control 

group should be as similar to program participants as possible to help 

identify the impact of a program, and a number of statistical methods can 

help account for differences.

Without disclosing its 

rationale for choosing its comparison group over other possibly more 

representative alternatives, Treasury may not be providing policymakers 

with a full understanding of its approach and may not be transparent 

regarding the potential for its analysis to overstate the effects of SBLF.

35 Furthermore, Treasury’s concerns about 

making arbitrary judgments in the selection of peers could be addressed 

by conducting a sensitivity analysis—a best practice also identified by the 

Office of Management and Budget—which involves varying assumptions 

to determine how sensitive results are to changes in those assumptions.36

Treasury officials said they are looking for a way to improve their analysis 

of SBLF and they have designed a lending survey to collect information 

from SBLF participants on their small business lending and outreach 

activities. They said that the survey will help them assess SBLF. The 

survey covers the following issues: the participant’s standards for 

 

34See GAO, Troubled Asset Relief Program: As Treasury Continues to Exit Programs 

Opportunities to Enhance Communication on Cost Exist, GAO-12-229 (Washington, D.C.:

Jan. 9, 2012).

35See GAO, Program Evaluation: A Variety of Rigorous Methods Can Help Identify 

Effective Interventions, GAO-10-30 (Washington, D.C.: Nov. 23, 2009) and Designing 

Evaluations: 2012 Revision, GAO-12-208G (Washington, D.C.: Jan. 2012).

36Office of Management and Budget, Circular A-4: Regulatory Analysis, September 17, 

2003.
 

Page 33 GAO-13-76 Small Business Lending Programs

approving applications for small business loans or credit lines; the 

demand for small business loans; the participant’s practices regarding 

approvals of loans and lines of credit for small business; use of SBLF 

funding or the type of actions the institution has taken because of SBLF 

funding; and outreach activities to minority, women, and veteran 

communities. Treasury also leveraged the Federal Reserve’s Senior Loan 

Officer Opinion Survey on Bank Lending Practices as it developed 

questions for the survey and is exploring how it may analyze results from 

both surveys to assess SBLF. Responses were due from the SBLF 

participants by October 4, 2012. Treasury plans to issue the results in a 

report at a later date.

In our December 2011 SSBCI report, we recommended that Treasury 

develop and finalize SSBCI-specific performance measures for evaluating 

the effectiveness of the program and when developing these measures 

consider key attributes of successful performance measures.

37

• 90 percent of requests for modifications to Allocation Agreements are 

approved or rejected within 90 days of receiving a final submission,

In 

response to the recommendation, Treasury developed measures for both 

the timeliness of program administration and program performance. In 

establishing measures on timeliness, Treasury considered its own role in 

administering the program, which includes evaluating the eligibility of the 

participating states and approving state programs; overseeing compliance 

with the provisions of the act, the SSBCI policy guidelines, and the terms 

and conditions of the Allocation Agreement; and providing ongoing 

technical assistance for each state’s and municipality’s program 

implementation. According to Treasury, the timeliness measures will 

assess the quality of the direction provided by Treasury to the states, 

including the efficiency of Treasury’s administration of program resources 

and program oversight. These goals for these measures are

• 90 percent of requests for subsequent disbursements under existing 

Allocation Agreements are approved or rejected within 90 days of 

receipt of a formal submission, and

• 90 percent of quarterly reports received within 5 days of the deadline.

 

37GAO-12-173. 

Treasury Has Developed 

Performance Indicators for 

SSBCI 
 

Page 34 GAO-13-76 Small Business Lending Programs

According to Treasury staff, for the first two goals, the measurement 

period starts once Treasury has received all documentation required by 

the established procedures for each underlying activity from the state 

requesting a modification or disbursement. Treasury staff advised us that 

these measures are tracked continuously and that Treasury reports the 

12-month data to the Office of Management and Budget annually as part 

of SSBCI’s annual budget submission, which should be publicly available.

In addition, Treasury has developed measures for evaluating 

performance for SSBCI:

• amount of SSBCI funds used over time, as reported on SSBCI 

quarterly reports;

• volume and dollar amount of loans or investments supported by 

SSBCI funds, as reported on SSBCI annual report;

• amount, in dollars, of private-sector leverage in SSBCI annual reports; 

and

• estimated number of jobs created or retained in SSBCI annual 

reports.

Although Treasury has established measures for SSBCI performance, 

Treasury is considering how it will use these program performance

indicators for evaluating the overall progress of SSBCI. Treasury staff 

recognized that performance indicators can help policymakers 

understand the results of the policy, but they emphasized that they do not 

have a full year of SSBCI data to use in evaluating the program. Many 

states did not receive their first SSBCI allocation until late 2011 and thus, 

Treasury had limited data to evaluate SSBCI. For example, Treasury told 

us that only 23 states reported using SSBCI funds to support small 

business loans or investments as of December 31, 2011. Treasury 

officials told us that after they have received the 2012 annual report data 

in early 2013, which would constitute a full year of SSBCI funds for almost 

all participants, they will be able to decide how they will review and 

analyze the performance measures going forward.

In addition, Treasury explained that SSBCI’s performance cannot be 

evaluated using a single number or performance indicator because 

SSBCI consists of 140 different programs, and most states have multiple 

small business programs. For instance, Treasury has not created a 

specific number of estimated jobs as a target because so many factors 

can determine the use of funds—for example, the degree of interest by 

financial institutions and private investors, the performance of the state 

agency and any contractors that operate the approved program, and the 
 

Page 35 GAO-13-76 Small Business Lending Programs

effectiveness of the program features designed by the state. How this 

program activity affects the level of employment in a state introduces 

many variables that can be difficult to predict. According to Treasury 

officials, specific numeric indicators, such as the number of loans 

resulting from state business programs, may or may not be indicative of 

the performance of SSBCI. In analyzing performance outcomes for 

SSBCI, Treasury staff advised us that outcomes are highly dependent on 

factors outside of the program’s control, such as the demand for credit in 

a given locality and the quality of the small business borrowers’ requests 

for such funds. Also, the states have different economies that may affect 

the results of the SSBCI funds. For example, Michigan’s SSBCI funds are 

more concentrated in manufacturing, while other states may be more 

focused on providing assistance to small technological firms.

In contrast to SBLF, the act does not require Treasury or the states and 

municipalities to report to Congress or the public on the status of SSBCI. 

Rather, the act requires that SSBCI participants include certain data, such 

as the number and the dollar amounts of the loans resulting from SSBCI 

funds, in annual reports to Treasury. Treasury’s performance measures 

will rely on the data from these annual reports. Treasury officials told us 

that they are considering making public some of the SSBCI performance 

data, but have not decided what specific SSBCI information will be 

released publicly or how it will be presented because they want to make 

sure the information reflects the outcomes in an appropriate context. As 

noted earlier, SSBCI covers a large number of programs across the 

country and other factors, such as local demand for credit, could lead to 

different performance outcomes across the participating states. Officials 

told us they plan to decide after they receive and review the 2012 annual 

reports. The GPRA Modernization Act (GPRAMA) requires agency 

performance information to be publicly available.38 In reporting on the 

governmentwide implementation of GPRAMA in 2011, we noted that 

agencies need to consider the differing needs of various stakeholders, 

including Congress, to ensure that performance information will be both 

useful and used.39

 

38Pub. L. No. 111-352, 124 Stat. 3866 (2011).

We reported that federal officials must understand how 

39See, GAO, Managing for Results: GPRA Modernization Act Implementation Provides 

Important Opportunities to Address Government Challenges, GAO-11-617T (Washington, 

D.C.: May 10, 2011). 

Information on SSBCI 

Performance Measures 

May Be Useful for 

Stakeholders 
 

Page 36 GAO-13-76 Small Business Lending Programs

the performance information they gather can be used to provide insight 

into the factors that impede or contribute to program successes; to 

assess the effect of the program; or to help explain the relationships 

between program inputs, activities, outputs, and outcomes.

Information on SSBCI’s performance measures regarding the amount of 

small business loans or investments and the amount of private leveraging 

resulting from SSBCI funds would provide Congress and SSBCI 

participants with useful information on the progress of SSBCI and its 

effectiveness in increasing small business lending. For example, two 

states told us that they would like more information on the performance 

measures of the other states’ programs in order to better implement their 

own programs. Making the 2012 performance outcome data publicly 

available may assist the participating states in identifying successful small 

business state programs and the level of private leveraging that the states 

have achieved at this point in the SSBCI program. SSBCI applications 

were required to demonstrate a reasonable expectation that the programs 

would achieve a 10:1 ratio of new small business lending to SSBCI funds 

within specified timeframes. Information on the progress of SSBCI 

programs may help participating states to make necessary adjustments to 

their programs to more efficiently and effectively use their entire allocation 

of SSBCI funds.

Treasury has taken steps to address our December 2011 

recommendation that it apply lessons learned from the SBLF application 

review process in order to improve how it communicates with program 

participants and other stakeholders, such as the bank regulators and 

Congress.40

 

40

In response to the recommendation, Treasury officials told us 

that they have enhanced their communication strategy with SBLF 

participants and stakeholders and that they are better positioned to 

GAO-12-183. 

Treasury Has Taken 

Actions to Enhance 

Communications with 

SBLF and SSBCI Program 

Participants

SBLF
 

Page 37 GAO-13-76 Small Business Lending Programs

respond to questions about SBLF. Shortly after the application review and 

approval period ended, Treasury assigned points of contact for each of 

the SBLF participants. Each point of contact was responsible for 

responding to inquiries from a designated group of participants and 

generally helping to ensure that the participants understood the 

compliance and reporting requirements. As the volume of inquiries has 

declined, Treasury shifted to a more centralized approach for handling 

inquiries. For example, all inquiries from SBLF participants are submitted 

to a centralized e-mail system, and they are then assigned to the staff 

responsible for (1) compliance, (2) investment management, and (3) 

operations. Compliance staff address questions about the Securities 

Purchase Agreements and the quarterly reports, and the reporting of 

qualified small business lending and the investment rates paid by SBLF 

participants. Investment management responds to inquiries relating to 

acquisitions and mergers and operations handle questions about 

redemption of SBLF shares and dividend payments. In addition, Treasury 

has assigned a staff member to handle external communications with 

Congress, the media, and the general public, including the reporting of 

qualified small business and the investment rates paid by SBLF 

participants. According to Treasury officials, they also communicate with 

industry and trade associations. Other communication methods 

established by Treasury included a webinar for instructing SBLF 

participants on completing the quarterly reports. Treasury staff told us that 

the purpose of the webinars was to reduce the number of errors in the 

quarterly reports.

In addition, on September 28, 2012, Treasury finalized written procedures 

to provide guidelines for answering inquiries to provide for consistency, 

continuity, and validity in communications with SBLF participants and 

their representatives. The guidelines describe the process by which a 

contact manager or staff member will communicate with SBLF 

participants. The process steps include the tracking and handling of 

incoming inquiries, outgoing mass communications, periodic reviews by 

business lines for potential Frequently Asked Questions, and the control 

manager’s reviews of control effectiveness. The procedures outline the 

communication roles and responsibilities of SBLF employees, the contact 

manager, and management.

SSBCI has also developed communication mechanisms to assist states 

in developing and implementing their state small business programs. 

Treasury has assigned three relationship managers whose role is to work 

with an assigned group of states in successfully allocating the funds to 

lenders and subsequently to borrowers. Moreover, Treasury has assigned 

SSBCI
 

Page 38 GAO-13-76 Small Business Lending Programs

a consultant for three states that requested additional technical expertise 

in implementing their small business programs. Additionally, according to 

Treasury officials, Treasury has engaged a consultant to assist in 

educating lenders nationwide about the approved state programs and two 

consultants to assist with expertise in state-run venture capital to support 

SSBCI staff in providing technical assistance to state program managers

In addition to the relationship managers and consultants, Treasury has 

held two conferences for communicating with SSBCI participants. Under 

the act, Treasury is generally required to disseminate best practices to 

the states, and Treasury staff view the conferences as one method of 

doing so. The SSBCI National Standards for Compliance and Oversight

are another example of disseminating best practices. According to 

Treasury staff, conferences provide state officials with the opportunity to 

discuss their programs with peers that are running similar programs and 

can potentially make modifications to their applications. During the March 

2012 conference, states received information on the different types of 

small business programs, lenders, and Treasury assistance. The 

conference agenda showed that several panels were held. Generally, the 

panels consisted of state officials, who discussed their small business 

programs, such as the Loan Participation Program and the Venture 

Capital Program. In addition, four banks participated in the panels. 

Training sessions were held during the conference on the National 

Compliance Standards, on requests for modifications to the Allocation 

Agreements, and on subsequent disbursement requests of SSBCI funds. 

Officials from two states we interviewed told us that they found the March 

2012 conference helpful. For example, one official stated that she found 

the conference assisted her in answering questions on compliance and 

on SSBCI small business programs. Treasury held a similar conference in 

early October 2012.

SBLF and SSBCI officials have made progress in developing procedures 

to monitor participants’ compliance. In response to our previous 

recommendation on SBLF monitoring, Treasury has developed 

procedures for monitoring SBLF participant compliance with legal and 

reporting requirements. Treasury also issued the standards for 

compliance to provide states with best practices for reviewing 

participants’ compliance with SSBCI’s legal and policy requirements and 

developed procedures for sampling transaction-level data to evaluate the 

accuracy of the states’ annual reports.

Conclusions 
 

Page 39 GAO-13-76 Small Business Lending Programs

Most SSBCI participants have only received the first of three 

disbursements of their full allocation approved by Treasury, and some 

participants were concerned that they may have difficulty using the funds 

in time to meet the requirements to get their third and final allocation 

within 2 years. SSBCI participants lack a clear understanding of what 

actions Treasury plans to take if they do not meet the 2-year time frame. 

Although a Treasury official has publicly indicated that Treasury does not 

currently plan to exercise the authority to terminate funds that have not 

been allocated within 2 years from the states’ approval date, it retains the 

authority to do so in the future. Treasury has yet to develop a formal 

written policy or guidance explaining its position. Clear and specific 

guidelines on how Treasury plans to use this authority to terminate funds 

will help ensure Treasury is consistent in how it applies this authority and 

may further encourage participants to develop programs and approaches 

to use the funds in a timely manner. Moreover, such a policy could also 

facilitate the ongoing communication between Treasury and the 

participants on how best to allocate and use the funds.

Treasury has taken some steps to evaluate the performance of SBLF and 

the extent to which SBLF participants are increasing their small business 

lending, but further refinements could provide a better assessment of the 

effectiveness of SBLF. As we found in our December 2011 SBLF report, 

Treasury has yet to finalize plans for assessing the performance of the 

program, including measures that can isolate the impact of SBLF from 

other factors that affect small business lending. As we found in Treasury’s 

analysis as well as our own, SBLF participants appear to be increasing 

their small business lending since entering the program. However, as we 

recommended in our 2011 report, many factors can contribute to such 

increases, and Treasury should assess these trends taking other factors 

into account. While Treasury compared SBLF participants to non-SBLF 

institutions and reported this analysis in its Use of Funds Report, it did not 

provide important information on why it selected the comparison group 

that it used rather than using a peer group more closely matched to the 

SBLF participants. Our own analysis using a peer group showed that 

SBLF participants had increased their lending compared to peers, but 

also showed that the difference in small business lending growth was 

somewhat smaller than what Treasury’s analysis suggests. The lack of 

explanation for Treasury’s approach in the Use of Funds Report could 

create confusion about the rigorousness of the comparison. Furthermore, 

a more transparent description of the methodological decisions would 

help to enhance the transparency of the information reported. In addition, 

as we recommended in the 2011 report, Treasury should include in its 

plans for assessing the program a more robust evaluation that controls for 
 

Page 40 GAO-13-76 Small Business Lending Programs

factors that affect small business lending, such as improved local 

economic growth. Without such an evaluation, policymakers, including 

Congress, may not have the information they need to assess whether the 

SBLF approach of using capital injections is a desirable policy option for 

increasing small business lending. Furthermore, a more transparent 

description of the methodological decisions would help to enhance the 

transparency of the information reported.

In addition, as we recommended last year, Treasury has created 

performance indicators to help monitor and measure the effectiveness of 

SSBCI. However, Treasury has not yet determined how and when it will 

make this information public. Treasury officials acknowledged the 

importance of this information for policymakers and have said they hope 

to develop a method for sharing this information publicly after they have 

had time to review the second annual reports that will be completed by 

the states next year. While we recognize that it is still early in the program 

and results vary greatly across the program participants for a variety of 

reasons, performance information is an important tool for policymakers, 

particularly as Congress reviews and considers programs to assist small 

businesses going forward. In addition, making this information public in a 

timely manner may help program participants, who could observe how 

their peers are performing and use this information to help them improve 

their own programs.

We recommend that the Secretary of the Treasury take the following 

three actions:

• To help ensure that Treasury is transparent and accountable in its 

decision making, Treasury should develop a written policy explaining 

how it will use the Secretary’s discretionary authority to terminate the 

availability of allocated funds to SSBCI participating states if funds 

have not been transferred to the participant by the end of the 2-year 

period beginning on the date that the Secretary approved the state for 

participation.

• To enhance the transparency of its reporting on SBLF, Treasury 

should expand its methodology discussion in its Use of Funds Report

to include the rationale for its methodology and alternative 

methodologies it considered.

• To provide Congress and the participating states with information on 

the progress of SSBCI, Treasury should make information publicly 

Recommendations for 

Executive Action
 

Page 41 GAO-13-76 Small Business Lending Programs

available on its performance indicators measuring SSBCI’s 

performance.

We provided a draft of this report to Treasury for review and comment. 

The Deputy Assistant Secretary for Small Business, Community 

Development, and Affordable Housing Policy provided written comments, 

which are reprinted in appendix II. Treasury also provided technical 

comments on the draft report, which we incorporated as appropriate. In 

the written comments, Treasury agreed with the three recommendations 

and stated that it has begun to take steps to implement each of them. 

Specifically, Treasury said it has begun to develop a written policy for 

exercising its discretion to terminate any portion of a state’s allocation not 

yet transferred to the state after two years. Treasury said it also will 

include the rationale for Treasury’s methodology along with alternative 

methodologies that were considered in the methodology section of the 

next Use of Funds Report and that work is underway on publishing 

performance indicators that measure SSBCI outcomes. Treasury noted 

that the report reflected the progress SBLF and SSBCI had made in 

setting up compliance procedures and taking steps to improve 

communication with program participants. Treasury also stated that both 

programs are working as intended and that it expects both programs to 

continue to promote lending to small businesses. 

We are sending copies of this report to the appropriate congressional 

committees and Treasury. The report also is available at no charge on the 

GAO website at http://www.gao.gov. If you or your staff members have 

any questions about this report, please contact Daniel Garcia-Diaz at 

(202) 512-8678 or garciadiazd@gao.gov. Contact points for our Offices of 

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

of this report. GAO staff who made major contributions to this report are 

listed in appendix III.

Daniel Garcia-Diaz

Acting Director

Financial Markets and Community Investment

Agency Comments 

and Our Evaluation
 

Page 42 GAO-13-76 Small Business Lending Programs

List of Committees

The Honorable Debbie Stabenow

Chairwoman

The Honorable Pat Roberts

Ranking Member

Committee on Agriculture, Nutrition, and Forestry

United States Senate

The Honorable Daniel K. Inouye

Chairman

The Honorable Thad Cochran

Vice Chairman

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Richard C. Shelby

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Kent Conrad

Chairman

The Honorable Jeff Sessions

Ranking Member

Committee on the Budget

United States Senate

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Mary L. Landrieu

Chairman

The Honorable Olympia J. Snowe

Ranking Member

Committee on Small Business and Entrepreneurship

United States Senate
 

Page 43 GAO-13-76 Small Business Lending Programs

The Honorable Frank Lucas

Chairman

The Honorable Collin Peterson

Ranking Member

Committee on Agriculture

House of Representatives

The Honorable Harold Rogers

Chairman

The Honorable Norman D. Dicks

Ranking Member

Committee on Appropriations

House of Representatives

The Honorable Paul Ryan

Chairman

The Honorable Chris Van Hollen

Ranking Member

Committee on the Budget

House of Representatives

The Honorable Spencer Bachus

Chairman

The Honorable Barney Frank

Ranking Member

Committee on Financial Services

House of Representatives

The Honorable Sam Graves

Chairman

The Honorable Nydia Velazquez

Ranking Member

Committee on Small Business

House of Representatives

The Honorable Dave Camp

Chairman

The Honorable Sander Levin

Ranking Member

Committee on Ways and Means

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 44 GAO-13-76 Small Business Lending Programs

Our objectives were to examine: (1) the status of the U.S. Department of 

the Treasury’s (Treasury) efforts to monitor participants’ compliance with 

program requirements under the Small Business Lending Fund (SBLF) 

and the State Small Business Credit Initiative (SSBCI); (2) the status of 

SBLF and SSBCI participants’ small business lending; and (3) the extent 

to which Treasury evaluates and communicates SBLF and SSBCI 

program outcomes.

To examine the status of Treasury’s efforts to monitor participants’ 

compliance with program requirements under SBLF and SSBCI, we 

analyzed Treasury’s documentation. For SBLF, we reviewed and 

analyzed SBLF’s Participant Compliance Monitoring Procedures, which 

were issued on September 28, 2012. We interviewed Treasury officials on 

their compliance program and the process by which staff review the 

Quarterly Supplemental Reports for their accuracy.

For SSBCI, we reviewed SSBCI National Standards for Compliance and 

Oversight and SSBCI Policy Guidelines. We reviewed the Allocation 

Agreements between Treasury and nine participating states that we 

interviewed to analyze the conditions and the requirements placed on the 

states. We interviewed Treasury officials on implementing the SSBCI 

compliance standards and officials from the states of Colorado, Florida, 

Georgia, Illinois, Massachusetts, Michigan, New Jersey, Oregon, and 

Texas. We judgmentally selected these nine states based on the 

following criteria: (1) the top 25 states awarded the most SSBCI funds; (2) 

geographical diversity; (3) states with at least two small business 

programs; (4) states that began using funds as of March 31, 2012, and 

states that had not yet used funds for any loans or investments as of 

March 31, 2012; and (5) avoiding states which have been reviewed 

previously by GAO or the Treasury’s Office of the Inspector General. 

Because a large number of states had not spent their first allocation as of 

December 31, 2011, we used both the 2011 Annual Report and the 

Quarterly Report for March 31, 2012, to identify states’ progress in 

allocating their funds. In terms of geographical diversity, we selected at 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 45 GAO-13-76 Small Business Lending Programs

least two states from each of four regions: Midwest, Northeast, South, 

and West.1

To determine the status of SBLF, we reviewed the SBLF Use of Funds 

Reports to determine the most current level of qualified small business 

lending and the distribution of dividend or interest rates paid by program 

participants. Because Treasury requires only SBLF participants to submit 

data on qualified small business lending—generally, lending below $10 

million— we also analyzed total business lending as well as small 

business loans under $1 million, which is available through the Call 

Reports.2

 

1

The Midwest region includes: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, 

Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. The Northeast 

region includes: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New 

York, and Pennsylvania. The South region includes: Alabama, Arkansas, Delaware, 

District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North 

Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia. The 

West region includes: Arizona, California, Colorado, Idaho, Montana, Nevada, Utah, 

Oregon, Washington, and Wyoming. 

We accessed the Call Report data using SNL Financial—a 

private financial database that contains publicly filed regulatory and 

financial reports—and analyzed lending by SBLF participants for the 

quarter ending June 30, 2012. The Small Business Jobs Act of 2010 (the 

act) establishes the baseline for measuring the change in small business 

lending as the average of the amounts that were reported for each of the 

four calendar quarters ended June 30, 2010. Call Reports did not begin 

requiring quarterly reporting of small business loans under $1 million until 

the second quarter of this four quarter baseline period. Accordingly, we 

calculated the baseline for small business loans under $1 million using

the average of each of the three calendar quarters ended June 30, 2010. 

The act also defines one of the categories of qualified small business 

lending as owner-occupied nonfarm, nonresidential real estate loans. For 

quarterly reports of small business lending, Call Reports use a broader 

category of all nonfarm, nonresidential real estate without a distinction for 

owner occupancy. As a result, the small business loans under $1 million 

include the broader category. The total business lending numbers use the 

full baseline and the narrower categorization of owner-occupied nonfarm, 

nonresidential real estate and should therefore not be compared to the 

2

Call Reports require reporting only on loans up to $500,000 for two of the loan 

categories—loans to finance agricultural production and loans secured by farmland. The 

$1 million threshold still applies to the other two categories—commercial and industrial 

loans and nonfarm, nonresidential real estate loans.
Appendix I: Objectives, Scope, and 

Methodology

Page 46 GAO-13-76 Small Business Lending Programs

numbers for small business loans under $1 million. We assessed the 

reliability of these data, for example, by analyzing missing data and 

performing various logic tests and determined that the data were 

sufficiently reliable for the purpose of reporting on SBLF lending.

To review SSBCI participants’ small business lending, we collected and 

reviewed data from the Quarterly Report as of June 30, 2012—the most 

recent quarter available. We conducted data reliability checks on the 

SSBCI quarterly data for the dollar amounts transferred to the states and 

the dollar amounts used by each participating state to identify any 

potential discrepancies in the data. We interviewed Treasury officials on 

how they assessed these data. In addition, we verified with three states 

the data that they had sent to Treasury on the SSBCI Quarterly Report as 

of June 30, 2012. We also interviewed state and Treasury officials about 

the status of the use of SSBCI funds and Treasury’s authority to suspend 

disbursements to SSBCI participants. Based on these steps, we 

determined that the data collected by Treasury for SSBCI were 

sufficiently reliable for the purpose of reporting total amounts of funds 

allocated and used by the states.

To examine the extent to which Treasury evaluates and communicates 

SBLF and SSBCI program outcomes, we reviewed Treasury 

documentation for both programs. For determining the extent to which 

Treasury evaluates the performance of SBLF, we reviewed the Use of

Funds Report to evaluate the methodology Treasury used to assess the 

performance of SBLF participants against a comparison group of 

institutions that did not participate in SBLF. We interviewed Treasury 

officials to understand the process for developing the comparison group 

as well as the alternatives they considered. We used the methodology in 

the report to replicate Treasury’s group for our analysis. To help 

understand the usefulness of the comparison group, we also chose a 

peer group of non-SBLF institutions that we adjusted for geographical and 

size distribution as well as financial health, using the Texas Ratio as a 

proxy.3

 

3

The Texas Ratio is defined as nonperforming assets plus loans 90 or more days past due 

divided by tangible equity and reserves. It helps determine a bank’s likelihood of failure by 

comparing its troubled loans to its capital. Because SBLF funding increases the equity 

portion of the ratio, we used Texas Ratios as of March 31, 2011, which was the last 

quarter preceding the initial disbursements of SBLF funding.

To select the peer group, we started with our replication of 

Treasury’s comparison group of 6,175 institutions and categorized them 
Appendix I: Objectives, Scope, and 

Methodology

Page 47 GAO-13-76 Small Business Lending Programs

into six asset-size groups. We then sorted the institutions by state, asset 

group, and Texas Ratio and generally assigned two peer institutions to 

each SBLF participant with the closest Texas Ratios, within the same 

state and asset group. In some cases, we had to make judgments in 

choosing the peers—for example, when two SBLF participants were 

similar to one another and when too few potential peers existed. We 

determined that any potential judgment factors were mitigated by the fact 

that the peer group mirrored the SBLF more closely than the comparison 

group across geographical and size distribution as well as financial health 

(see table 1). Consistent with the Use of Funds Report, we analyzed the 

growth in total business lending because qualified small business lending 

data were not available for non-SBLF institutions and because qualified 

small business lending totaled 95 percent of total business lending for the 

median SBLF participant as of December 31, 2011. Here we calculated 

the baseline using the average of the four quarters ending June 30, 2010. 

The data limitation mentioned earlier that required us to use only three 

quarters in the calculation of the baseline only applied to the availability of 

small business lending data, and the three-quarter baseline was used 

only in those earlier sections. We compared our peer group with 

Treasury’s comparison group and compared both to SBLF participants. 

We also compared Treasury’s analysis against our previous work on 

program evaluation as well as best practices identified by the Office of 

Management and Budget. In assessing the SBLF communication 

process, we reviewed and analyzed SBLF’s Contact Management 

Procedures and interviewed Treasury officials on how they communicated 

with SBLF participants.
Appendix I: Objectives, Scope, and 

Methodology

Page 48 GAO-13-76 Small Business Lending Programs

Table 1: Summary Data on SBLF Participants, GAO’s Peer Group, and Treasury’s Comparison Group

 

SBLF

participants

GAO

peer group

Treasury 

comparison group

Number of institutions 267 503 6,175

Small business lending growth, under $1 million (median) 14.4% N/A N/A

Total business lending growth (median) 31.0% 6.1% 2.2%

Assets (median) $356,082 $356,687 $155,354

Texas Ratio (median) 15.74 17.29 18.21

Southeast 23% 23% 19%

West 12% 11% 7%

Southwest 15% 15% 16%

Northeast 6% 6% 3%

Mid-Atlantic 15% 15% 7%

Midwest 29% 31% 48%

Source: GAO analysis of Treasury and SNL data.

For determining the extent to which Treasury evaluates SSBCI 

performance outcomes, we collected and reviewed the performance 

measures that Treasury developed for evaluating SSBCI. We interviewed 

Treasury officials on how they were planning to use the performance 

outcome measures in evaluating SSBCI. We also interviewed officials 

from the same nine states we described earlier—Colorado, Florida, 

Georgia, Illinois, Massachusetts, Michigan, New Jersey, Oregon, and 

Texas—to collect information on their evaluation and the performance 

information they reviewed relating to SSBCI. To analyze the 

communication of SSBCI performance outcomes, we reviewed the 

relevant provisions of the Small Business Jobs Act of 2010 and 

Treasury’s outreach information that they had drafted for the states, such 

as conference materials.

We conducted this performance audit from March 2012 to December 

2012 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.
Appendix II: Comments from the Department 

of the Treasury

Page 49 GAO-13-76 Small Business Lending Programs

Appendix II: Comments from the Department 

of the Treasury
Appendix II: Comments from the Department 

of the Treasury

Page 50 GAO-13-76 Small Business Lending Programs
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 51 GAO-13-76 Small Business Lending Programs

Daniel Garcia-Diaz, (202)-512-8678, garciadiazd@gao.gov

In addition to the individual named above, Kay Kuhlman (Assistant 

Director), Pamela Davidson, Nancy Eibeck, Chris Forys, Michael 

Hoffman, Jonathan Kucskar, Marc Molino, Jennifer Schwartz, and Jena 

Sinkfield made key contributions to this report. 

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(250665)
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