SMALL BUSINESS 

LENDING FUND

Treasury Should 

Ensure Evaluation 

Includes Methods to 

Isolate Program 

Impact

Report to Congressional Committees

December 2013

GAO-14-135

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-135, a report to 

congressional committees

December 2013

SMALL BUSINESS LENDING FUND

Treasury Should Ensure Evaluation Includes Methods 

to Isolate Program Impact 

Why GAO Did This Study

The Small Business Jobs Act of 2010 

aimed to stimulate job growth by, 

among other things, establishing the 

SBLF program within Treasury. SBLF 

was authorized to make up to $30 

billion in capital investments to 

encourage banks and community 

development loan funds with assets of 

less than $10 billion to increase their 

small business lending. The act 

generally defined “small business 

lending” as loans not more than $10 

million originally. Under the act, GAO is 

mandated to conduct an audit of SBLF

annually. GAO’s first and second 

reports were on the program’s 

implementation and performance 

reporting and made recommendations

on management oversight, program 

evaluation, and performance reporting. 

This third report examines (1) the 

growth in qualified small business 

lending and reasons for variations in 

the growth at SBLF banks and (2) 

actions Treasury has taken to evaluate 

participant lending patterns. GAO 

analyzed the most recent available 

performance and financial information 

on SBLF participants; reviewed 

government and private sector surveys 

on small business credit conditions; 

and interviewed officials from Treasury

and representatives from SBLF 

participants. 

What GAO Recommends

Treasury should follow through in 

conducting an impact evaluation that 

includes methods to isolate the effect 

of SBLF from other factors on 

participants’ small business lending. In 

written comments on a draft of this 

report, Treasury agreed to implement 

the recommendation. 

 

What GAO Found 

According to the U.S. Department of the Treasury (Treasury), as of June 30, 

2013, Small Business Lending Fund (SBLF) participants had increased their

qualified small business lending by $10.4 billion over their aggregate 2010 

baseline of $36.5 billion. However, SBLF participants varied greatly in the extent 

to which they had increased small business lending. GAO analysis for the quarter 

ending June 30, 2013, showed that the median SBLF bank in the top (first) 

quartile had over a 100 percent increase over the baseline, compared to a 9.1 

percent increase for the median SBLF bank in the bottom (fourth) quartile. 

Several factors GAO analyzed could help explain this variation. For example, the 

median bank in the bottom quartile had more troubled loans than banks in the top 

quartile, which could affect a bank’s lending capacity. Also, a majority of banks in 

the bottom lending quartile used much of their SBLF funds to repay investments 

received from Treasury’s Capital Purchase Program, leaving them with a much 

smaller net increase in available capital. Several banks GAO interviewed said 

that they have seen increased demand for credit as the economy improved. In 

addition, publicly reported surveys indicate that credit conditions have improved, 

but some small businesses continue to face challenges securing credit. 

Median Changes in SBLF Banks’ Qualified Small Business Lending by Quartile, June 30, 2013

Note: SBLF banks in the first quartile had the highest levels of qualified small business lending and 

the most growth in small business lending compared to SBLF banks in the other three quartiles. 

Treasury has taken steps to assess SBLF participants’ lending patterns, 

including conducting a peer-group analysis and collecting performance data 

through an annual survey of SBLF participants. However, these steps are not 

sufficient to isolate the net impact of SBLF on participants’ lending. Treasury 

officials said that they are exploring evaluation approaches and have a firm under 

contract to help identify statistical analyses that could be used, but have not 

provided documentation of its evaluation plan committing to an approach. GAO 

guidance on program evaluation suggests that impact evaluations are usually 

required to assess the net impact of a program by comparing the observed 

outcomes to an estimate of what would have happened in the program’s 

absence. By conducting an evaluation that includes methods to assess the net 

impact of SBLF, Treasury could more effectively inform the public and Congress 

on how SBLF has affected the participants’ lending compared to other factors, 

such as economic conditions, and could better assist Congress in making future 

decisions about similar capital investment programs or alternative programs that 

support small business access to capital. 

View GAO-14-135. For more information, 

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

or garciadiazd@gao.gov.
Page i GAO-14-135 Small Business Lending Fund

Letter 1 

Background 5

SBLF-Funded Participants Continue to Lend to Small Businesses 

and Some Participants Have Left the Program 8

Several Factors Help Explain Variation in Small Business Lending 

Growth 11

Treasury Has Taken Steps to Assess Performance and Is 

Exploring Program Evaluation Methods 20

Conclusions 25

Recommendation for Executive Action 25

Agency Comments and Our Evaluation 25

Appendix I Objectives, Scope, and Methodology 29

Appendix II Econometric Model of Qualified Small Business Lending Growth 

at SBLF Banks 36

Appendix III Comments from the Department of the Treasury 39

Appendix IV GAO Contact and Staff Acknowledgments 41

Tables

Table 1: Aggregate Financial Health Information on SBLF Banks 

by Quartiles, as of March 31, 2011, and June 30, 2013 31

Table 2: Regression Model of Qualified Small Business Lending 

Growth, Baseline to First Quarter 2013 37

Figures

Figure 1: Distribution of Dividend or Interest Rates Paid by 

Participants on SBLF Funds, as of June 30, 2013 9

Figure 2: Median Changes in SBLF Banks’ Qualified Small 

Business Lending by Quartile, from Baseline Level to the 

Quarter Ending June 30, 2013 12

Contents
Page ii GAO-14-135 Small Business Lending Fund

Figure 3: Median Texas Ratios across the Four Quartiles, as of 

June 30, 2013 13

Figure 4: Percentage of Capital Purchase Program (CPP) 

Participants by Quartile, as of June 30, 2013 14

Figure 5: Median Net SBLF Capital Received as a Percentage of 

Assets, as of March 31, 2011 15

Figure 6: Percentage of SBLF Banks Reporting Weak Demand by 

Quartile, as of June 30, 2012 19

Abbreviations

CAMELS capital adequacy, asset quality, management, 

 earnings, liquidity, and sensitivity to market risk

CDLF community development loan funds 

CPP Capital Purchase Program 

FDIC Federal Deposit Insurance Corporation

Federal Reserve Board of Governors of the Federal Reserve System

NFIB National Federation of Independent Business

OCC Office of the Comptroller of the Currency

SBLF Small Business Lending Fund

TARP Troubled Asset Relief Program

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Page 1 GAO-14-135 Small Business Lending Fund

441 G St. N.W.

Washington, DC 20548

December 11, 2013

Congressional Committees

In response to concerns about challenges faced by small businesses in 

recent years, Congress enacted the Small Business Jobs Act of 2010, 

which authorized the Secretary of the Department of the Treasury 

(Treasury) to make up to $30 billion of capital available and offered 

incentives to financial institutions to increase small business lending.1

Among other things, the law aimed to stimulate job growth by establishing 

the Small Business Lending Fund (SBLF) to encourage financial 

institutions with assets of less than $10 billion to increase their lending to 

small businesses with up to $50 million in annual revenues. In 2011, 935 

financial institutions applied to the program for a combined funding 

request of $11.7 billion. By September 2011, Treasury had approved $4 

billion for 332 institutions through Treasury purchases of preferred stock 

or debt instruments. Of this $4 billion, $3.9 billion went to 281 banks and 

$104 million to 51 community development loan funds (CDLF).2 No 

additional SBLF funds will be awarded to financial institutions.

The 2010 Small Business Jobs Act mandates us to conduct an annual 

audit of the SBLF program.3 In our first and second reports, we reviewed 

the implementation of SBLF and made recommendations to improve the 

program’s management oversight, program evaluation, and performance 

reporting.4 This third report examines (1) the status of SBLF; (2) identified 

reasons for variation in growth of qualified small business lending at 

SBLF banks; and (3) actions Treasury has taken to evaluate SBLF 

participant lending patterns.

 

1

Pub. L. No. 111-240, § 4103, 124 Stat. 2504, 2585 (codified at 12 U.S.C. § 4741).

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. 

3

§ 4107(c), 124 Stat. at 2594 (codified at 12 U.S.C. § 4741).

4

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

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

Small Business Lending: Opportunities Exist to Improve Performance Reporting of 

Treasury’s Programs, GAO-13-76 (Washington, D.C.: Dec. 5, 2012).
 

Page 2 GAO-14-135 Small Business Lending Fund

To examine program status, including participants’ lending, and dividend 

and interest payments, we reviewed Treasury data as of June 30, 2013, 

and Treasury’s July and October 2013 Lending Growth Reports.5 We also 

interviewed Treasury officials. To examine the process for exiting the 

program and participants’ reasons for exiting, we collected documents 

and interviewed officials from Treasury and three bank regulatory 

agencies: the Office of the Comptroller of the Currency (OCC), the Board 

of Governors of the Federal Reserve System (Federal Reserve), and the 

Federal Deposit Insurance Corporation (FDIC). We spoke to these bank 

regulators to obtain information about their role in approving SBLF 

redemptions. Sixteen participants had left the program as of July 1, 2013. 

Six of these participants told Treasury the reasons why they were leaving 

the program. We contacted the other 10 participants that had left the 

program and had not shared their reasons for leaving with Treasury, and 

obtained responses from 9. To determine what is known about the 

reasons for variation in growth of small business lending at SBLF banks, 

we relied on Treasury’s Lending Growth Report to divide 265 banks into 

four quartiles based on their level of qualified small business lending as of 

June 30, 2013, and compared the four quartiles to one another using 

financial and regulatory data, including Call Report data and CAMELS 

composite ratings.6 We accessed Call Report data of SBLF banks using 

SNL Financial—a company that manages a financial database containing 

publicly filed regulatory and financial reports—and analyzed data such as 

asset size, Texas Ratios, and net SBLF capital received, among other 

variables, as a way to assess the factors associated with different lending 

levels.7 We also analyzed CAMELS composite ratings from FDIC to 

 

5

The Lending Growth Report is Treasury’s quarterly report to Congress describing how 

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

Prior to the October 2013 report, these reports were titled Use of Funds Report. 

6

SBLF banks in the first quartile had the highest levels of qualified small business lending 

and the most growth in small business lending compared to SBLF banks in the other three 

quartiles. 

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. The Texas Ratio is defined as 

nonperforming assets (“troubled loans”) plus loans 90 or more days past due divided by 

tangible equity and reserves. The observations in the dataset are banks participating in 

SBLF or their subsidiaries with available financial data. 
 

Page 3 GAO-14-135 Small Business Lending Fund

determine if there was variation across the quartiles of SBLF banks.8 In 

addition, we performed a regression analysis to simultaneously control for 

multiple aspects of SBLF banks’ financial condition, as well as to attempt 

to account for state-level economic conditions. To describe the reasons 

why some SBLF banks were more or less successful in increasing 

lending to small businesses, we also selected and attempted to contact a 

nonprobability, judgmental sample of 12 banks based on geographic 

distribution and participation in Treasury’s Capital Purchase Program 

(CPP), and we obtained responses from 10 of them.9 We also interviewed 

Treasury officials responsible for the program and contacted 

representatives of the National Federation of Independent Business, 

because it regularly surveys small businesses, and the American Bankers 

Association and Independent Community Bankers Association, because 

they represent the interests of community banks. We also used a number 

of other survey indicators that provide a variety of perspectives on small 

business credit market conditions. We assessed the reliability of the data 

used for our analyses by, for example, inspecting data for missing 

observations and outliers and reviewing prior GAO work and updating 

information as appropriate. We determined that the data collected by 

Treasury, FDIC, and SNL Financial and the survey indicators we 

reviewed were sufficiently reliable for our purposes of providing a highlevel overview of the program status and variations of changes in SBLF 

banks’ qualified small business lending. To determine actions Treasury 

has taken to evaluate SBLF participant lending patterns, we reviewed 

Treasury’s Lending Growth Reports issued in October 2012, and January, 

April, July and October 2013, and its first annual lending survey 

instrument and results report, as well as relevant supporting 

 

8

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’ on-site 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. Evaluations of the six CAMELS components take into consideration a bank’s 

size and sophistication, the nature and complexity of its banking activities, and its risk 

profile. 

9

As the largest capital infusion program under the Troubled Asset Relief Program, CPP 

was designed to provide capital investments to financially viable financial institutions. 

Treasury received preferred shares and subordinated debentures, along with warrants. 
 

Page 4 GAO-14-135 Small Business Lending Fund

documentation of these reports.10 We interviewed Treasury officials to 

understand the agency’s efforts to assess program performance. We also 

reviewed our 2011 and 2012 reports on SBLF to document Treasury’s 

past efforts in assessing SBLF performance. Furthermore, we reviewed 

GAO guidance on program evaluation and past GAO work on federal 

government performance management, and compared them with 

Treasury actions.11 In addition, we reviewed impact evaluations 

conducted by GAO and other federal agencies to enhance our 

understanding and provide examples of impact evaluations and statistical 

techniques.12 See appendix I for a more detailed discussion of our scope 

and methodology.

We conducted this performance audit from March 2013 to December 

2013 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.

 

10The SBLF lending survey is an annual survey required by Treasury for all SBLF 

participants as part of the agreement between Treasury and SBLF participants. The first 

annual survey covered from July 1, 2011, to June 30, 2012. 

11See GAO, Program Evaluation: A Variety of Rigorous Methods Can Help Identify 

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

Measurement and Evaluation: Definitions and Relationships, GAO-11-646SP

(Washington, D.C.: May 2011); Designing Evaluations: 2012 Revision, GAO-12-208G

(Washington, D.C.: January 2012); and Program Evaluation: Strategies to Facilitate 

Agencies’ Use of Evaluation in Program Management and Policy Making, GAO-13-570

(Washington, D.C.: June 26, 2013).

12See GAO, Tax Policy: New Markets Tax Credit Appears to Increase Investment by 

Investors in Low-Income Communities, but Opportunities Exist to Better Monitor 

Compliance, GAO-07-296 (Washington, D.C.: Jan. 31, 2007); Social Policy Research 

Associates and Mathematica Policy Research, Inc., Estimated Impacts for Participants in 

the Trade Adjustment Assistance (TAA) Program Under the 2002 Amendments (August 

2012); Urban Institute Justice Policy Center, The Multi-Site Adult Drug Court Evaluation: 

The Impact of Drug Courts (November 2011); and Institute of Education Sciences and 

Mathematical Policy Research, Impacts of Title I Supplemental Educational Services on 

Student Achievement (May 2012). 
 

Page 5 GAO-14-135 Small Business Lending Fund

The Small Business Jobs Act of 2010 defines qualified small business 

lending—as defined by and reported in an institution’s quarterly regulatory 

filings, also known as 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 an original 

amount of 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 institutions that are on FDIC’s problem bank 

list or have been removed from that list during the previous 90 days. 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 

report any loans resulting from purchases, mergers, and acquisitions so 

that its qualified small business lending baseline is adjusted accordingly.

Fewer institutions applied to SBLF than were 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 found that the lack of clarity by 

Treasury in explaining the program’s requirements created confusion 

among applicants and that Treasury faced multiple delays in 

implementing the SBLF program and disbursing SBLF funds by the 

statutory deadline of September 27, 2011.13 We recommended Treasury 

apply lessons learned from the application review phase of SBLF to help 

improve its communications with SBLF participants and other interested 

stakeholders, such as Congress and bank regulators. In 2012, in 

response to our recommendation, Treasury officials said that they had 

enhanced their communication strategy with SBLF participants and 

 

13GAO-12-183. 

Background
 

Page 6 GAO-14-135 Small Business Lending Fund

stakeholders and developed written communication guidelines to provide 

for consistency, continuity, and validity.

The amount of funding an institution 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 financial institution 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. If the qualifying institution had 

assets of more than $1 billion but less than $10 billion, it was eligible for 

funding that equaled up to 3 percent of its risk-weighted assets. In the 

case of bank or thrift holding companies, assets were to be measured 

based on the total combined assets of the insured depository institution 

subsidiaries and risk-weighted assets were to be measured based on the 

combined risk-weighted assets of the insured depository institution 

subsidiaries. The SBLF program provided an option for eligible institutions 

to refinance preferred stock or subordinated debt issued to Treasury 

through CPP. At the time of application, the institution was required to 

submit a small business lending plan to its regulator describing how the 

applicant’s business strategy and operating goals will allow it to address 

the needs of small businesses in the area it serves.

Participating SBLF C-corporation banks and bank holding companies pay 

dividends of up to 5 percent per year initially to Treasury, with reduced 

rates available if they increase their small business lending.14 The initial 

dividend rate is based on the difference between the baseline level and 

the lending reported in the second calendar quarter preceding the SBLF 

closing date. Additionally, the dividend rate payable decreases quarterly 

as banks increase small business lending over their baselines. While the 

dividend rate was no more than 5 percent for the first 9 quarters (a little 

over 2 years), a bank could reduce the rate to 1 percent by generating a 

10 percent increase in its lending to small businesses compared with its 

baseline. After 9 quarters, the dividend rate on the capital became fixed at 

the rate the participating banks were paying at that time if they had 

increased their small business lending; otherwise, the dividend rate 

increased to 7 percent if participating banks had not increased their small 

business lending. After 4.5 years, the dividend rate on the capital 

 

14Some banking institutions are formed as C-corporations. C-corporations pay federal and 

state income tax on earnings. When earnings are distributed to shareholders as dividends 

they are subject to taxation. C-corporations, unlike S-corporations, are taxed separately 

from their owners. 
 

Page 7 GAO-14-135 Small Business Lending Fund

increases 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 fell as low as 1.5 percent for the 

institutions that increased their small business lending by 10 percent or 

more from the previous quarter.15 For CDLFs, the initial dividend rate is 2 

percent for the first 8 years. After 8 years, the rate increases 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 allows 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.

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) 

providing all projected costs and liabilities and all operating expenses; 

and (3) a quarterly report, known as the Lending Growth Report, detailing 

how participants have used the funds they have received under the 

program.

 

15Some banking institutions are formed as S-corporations. S-corporations elect not to pay 

income tax. Instead the corporation’s income or losses are divided among and passed 

through to shareholders. Some banking institutions are formed as mutual companies. A 

mutual company does not issue stock and therefore does not have shareholders. In 

mutual companies profits are set aside for the benefit of the depositors or are held as 

surplus reserves to maintain liquidity. 
 

Page 8 GAO-14-135 Small Business Lending Fund

SBLF participants had increased lending over baseline levels as of June 

30, 2013, according to Treasury’s Lending Growth Report.16 Total 

qualified small business lending for SBLF participants—banks and 

CDLFs—increased by almost $10.4 billion over their aggregate baseline 

of about $36.5 billion. Bank participants increased their qualified small 

business lending by about $10.1 billion over a baseline of about $35.7 

billion. CDLFs increased their qualified small business lending by about 

$256.3 million over a baseline of about $796.8 million. Of the 265 

participating banks, 246 (93 percent) increased their qualified small 

business lending, and 45 of the 50 CDLFs (90 percent) increased their 

qualified small business lending.

SBLF participants had made about $188 million in dividend or interest 

payments to Treasury as of June 30, 2013—$185 million from banks and 

$3 million from CDLFs. As of June 30, 2013, SBLF participants had not 

missed any payments. Figure 1 shows the numbers of program 

participants in different dividend or interest rate categories.

 

16As established by the act, the baseline for measuring the change in small business 

lending is the average of the amounts that were reported for each of the four calendar 

quarters which ended June 30, 2010. 

SBLF-Funded 

Participants Continue 

to Lend to Small 

Businesses and 

Some Participants 

Have Left the 

Program
 

Page 9 GAO-14-135 Small Business Lending Fund

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

Funds, as of June 30, 2013

As of July 1, 2013, 16 participants with aggregate investments of $147.3 

million had fully redeemed Treasury’s investment. The structure of the 

SBLF program is designed to encourage banks to repay the capital 

investment by the end of 4.5 years and CDLFs to repay at the end of 8 

years. However, Treasury allows an SBLF participant to exit the program 

at any time. SBLF securities may be redeemed at any time subject to the 

submission of a formal request to Treasury. Treasury reviews the notice 

to determine whether it meets a number of conditions. The redemption 

amount must equal at least 25 percent of the original funding balance. 

The redemption date must be no more than 60 days and no fewer than 30 

days from the date the notice is sent to Treasury. Payment of accrued 

dividends or interest for the current dividend period must be made in 

addition to the principal balance.

Because exiting the SBLF program would affect a participant’s capital, 

banks that want to leave the program also need approval from their 

appropriate federal banking regulator. If the SBLF participant is a bank or 

thrift, upon receipt of a redemption notice, Treasury notifies the 

appropriate federal banking regulator to determine if it has any objection. 

The federal banking regulator then reviews the redemption request to 
 

Page 10 GAO-14-135 Small Business Lending Fund

analyze the impact of the redemption of SBLF securities on capital levels. 

The analysis bank regulators perform for SBLF redemptions is similar to 

the analysis they would undertake for other banks and thrifts engaging in 

activities that would reduce their capital. In general, federal banking 

regulators assess whether banks will have sufficient capital after 

redeeming their SBLF securities and whether the banks have the financial 

ability or capital strength to exit the SBLF program. The decision is based 

in part on the bank’s condition and the bank’s capital planning process, 

including performance and leverage ratios, classified assets, 

nonperforming loans, allowance for loan and lease losses, outstanding 

enforcement actions, and other factors.17 If the federal banking regulator 

does not object to the redemption, Treasury proceeds with the 

redemption after verifying that they meet requirements for redemption.

SBLF participants exited the program for a variety of reasons. Some 

participants shared with Treasury the reasons for leaving the program, 

though they are not required to do so. Four participants told Treasury that 

they wanted to redeem their SBLF securities prior to an acquisition by 

another bank. Another participant told Treasury it was redeeming SBLF 

securities due to a difficult economic environment and the potential 

impact of revised regulatory capital guidelines. Another participant said it 

wanted to eliminate ongoing dividend expenses and compliance costs 

associated with the SBLF program requirements. For those participants 

that did not provide a reason to Treasury, we contacted 10 former 

participants that fully repaid their SBLF funds to ask them their reasons 

for leaving the program. We received responses from nine participants 

and some gave multiple reasons for leaving. For example, eight 

participants told us that they exited the program to avoid dividend 

expenses and said that they could obtain less expensive funding 

elsewhere. Two participants told us that reporting and compliance were 

 

17Classified assets are designated as "substandard," "doubtful," and "loss." A substandard 

asset is inadequately protected by the current sound worth and paying capacity of the 

obligor or of the collateral pledged, if any. Assets so classified must have a well-defined 

weakness or weaknesses that jeopardize the liquidation of the debt. They are 

characterized by the distinct possibility that the institution will sustain some loss if the 

deficiencies are not corrected. An asset classified doubtful has all the weaknesses 

inherent in one classified substandard with the added characteristic that the weaknesses 

make collection or liquidation in full, on the basis of currently existing facts, conditions, and 

values, highly questionable and improbable. Assets classified loss are considered 

uncollectible and of such little value that their continuance as bankable assets is not 

warranted.
 

Page 11 GAO-14-135 Small Business Lending Fund

burdensome, and officials from two banks said that demand for small 

business loans was not as strong as they had expected.

Factors that help to explain the variation in qualified small business 

lending across SBLF banks include the condition of banks’ loan portfolios, 

amount of net capital received from SBLF, and demand for credit, among 

others. In addition, our analysis of survey data indicates that credit is still 

difficult to obtain, although it has eased some compared with 2009. 

Further, while some banks confirmed to us that demand for credit has 

improved, some also said they face several challenges in increasing their 

qualified small business loan portfolios.

To determine reasons for variation in small business lending among 

SBLF banks, we divided banks into four quartiles based on their level of 

qualified small business lending. We then analyzed financial conditions 

for each quartile to determine if differences in qualified small business 

lending could be explained in part by differences in financial conditions 

across the four quartiles.18 We also performed a regression analysis to 

simultaneously control for multiple aspects of banks’ financial condition, 

as well as to attempt to account for state-level economic conditions.19 As 

shown in figure 2, SBLF banks in the first quartile increased qualified 

small business lending 114.1 percent over their baseline, compared to 

47.6 percent for banks in the second quartile, 25 percent for banks in the 

third quartile, and 9.1 percent for banks in the fourth quartile, as of June 

30, 2013.

 

18Qualified small business lending—lending below the $10 million threshold—is defined by 

the Small Business Jobs Act, and only SBLF participants are required to submit these 

data. We did not assess banks’ individual financial condition; rather, we looked at the 

medians of certain indicators to make comparisons between the four quartiles. We 

analyzed financial characteristics of the four quartiles as of March 31, 2011, and June 30, 

2013, to determine if any differences were associated with the initial financial condition of 

SBLF banks or changes in their financial condition that occurred during the program. 

Appendix I contains a more detailed description of our scope and methodology.

19A regression analysis can isolate the relationship between a variable and an outcome, 

accounting for the fact that other variables may also contribute to the outcome. For 

purposes of this report, the regression analysis can help determine which conditions, 

among those we were able to quantify, are most strongly associated with success at 

increasing qualified small business lending. See appendix II for more information.

Several Factors Help 

Explain Variation in 

Small Business 

Lending Growth

Certain Financial 

Conditions Affected 

Growth in Small Business 

Lending
 

Page 12 GAO-14-135 Small Business Lending Fund

Figure 2: Median Changes in SBLF Banks’ Qualified Small Business Lending by 

Quartile, from Baseline Level to the Quarter Ending June 30, 2013

Note: SBLF banks in the first quartile had the highest levels of qualified small business lending and 

the most growth in small business lending compared to SBLF banks in the other three quartiles.

Our analysis of the financial condition of SBLF banks found that banks in 

the quartiles with lower levels of qualified small business lending had 

more troubled loans compared to those in the quartiles with higher 

lending levels, which may have negatively affected their ability to lend. As 

illustrated in figure 3, as of June 30, 2013, the median Texas Ratios 

increased across the four quartiles, with the first quartile having the 

lowest median Texas Ratio.20 The Texas Ratio can indicate a bank’s 

likelihood of failure by comparing its troubled loans to its capital. The 

higher the ratio, the more likely the institution is to fail because more of its 

capital could be eroded by realized losses on these troubled loans. We 

also found the Texas Ratio was higher for all banks prior to SBLF funding, 

which is to be expected because capital received under SBLF would tend 

to decrease the bank’s Texas Ratio.

 

20As previously discussed, the Texas Ratio is defined as nonperforming assets (“troubled 

loans”) plus loans 90 or more days past due divided by tangible equity and reserves.
 

Page 13 GAO-14-135 Small Business Lending Fund

Figure 3: Median Texas Ratios across the Four Quartiles, as of June 30, 2013

In addition, we also reviewed CAMELS composite ratings for each 

quartile as another factor that may have contributed to variation in lending 

but found minimal differences across the quartiles. Institutions were 

generally satisfactorily rated when approved for the program in 2011 

because institutions with a CAMELS rating of either “4” or “5” were not 

allowed to participate in the program. On average, banks across the four 

quartiles as of March 31, 2011, and June 30, 2013, had similar median 

and average CAMELS ratings, ranging from 1.81 to 2.0. See appendix I 

for other indicators of financial health we analyzed, including measures of 

equity, asset liquidity, reliance on wholesale funding, and troubled loans.

Another factor associated with a bank’s ability to increase qualified small 

business lending in the program is the amount of net SBLF capital 

received. Our analysis revealed that banks in the third and fourth quartiles 

had the lowest amount of net SBLF capital received. This trend can be at 

least partly explained by the fact that 67 percent of banks in the third 

quartile and 60 percent of banks in the fourth quartile were CPP 

participants and may have received only enough SBLF capital to repay 
 

Page 14 GAO-14-135 Small Business Lending Fund

CPP funds (see fig. 4).21 We identified several cases where banks in the 

third and fourth quartiles that converted through CPP either did not 

receive enough SBLF capital to repay CPP or received just enough 

funding to break even.22 Hence, these banks did not receive any net 

SBLF capital to support increased qualified small business lending.23

Figure 4: Percentage of Capital Purchase Program (CPP) Participants by Quartile, 

as of June 30, 2013

For all banks, we found a significant difference among the quartiles in net 

capital received as a percentage of assets, as of March 31, 2011 (see fig. 

5). Specifically, for the median bank in the first quartile, SBLF net capital 

 

21Approximately 46 percent of banks participating in SBLF refinanced preferred stock or 

subordinated debt issued to Treasury through CPP. 

22While some SBLF banks may not have received enough SBLF capital to repay CPP, 

they could have exited the program by other means, such as repurchasing remaining 

preferred shares or subordinated debt. In addition, we found some SBLF banks exited 

CPP before participating in SBLF, that is, they did not rely on SBLF or another federal 

program to exit CPP. 

23The initial capital that banks received from CPP was also intended to support lending.
 

Page 15 GAO-14-135 Small Business Lending Fund

represented 2.9 percent of total assets compared to 2.2 percent for the 

median bank in the second quartile, 1.3 percent for the median bank in 

the third quartile, and 0.87 percent for the median bank in the fourth 

quartile. These differences may help explain the lower lending of banks in 

the fourth quartile, which our analysis found to have the highest median 

asset size. These banks had less net capital to support increased 

qualified small business lending because they were more likely to have 

converted through CPP. Although SBLF banks may not have received a 

large amount of additional capital to increase lending, the capital these 

institutions received through CPP was also intended to increase lending.

Figure 5: Median Net SBLF Capital Received as a Percentage of Assets, as of March 

31, 2011

Our regression analysis indicates that lower growth in qualified small 

business lending was associated with more troubled loans, greater 

leverage, less net capital received from SBLF, and lower reported 
 

Page 16 GAO-14-135 Small Business Lending Fund

demand for small business loans.24 After controlling for net capital 

received, CPP status was no longer a statistically significant determinant 

of qualified small business lending growth. This result suggests that the 

lower lending at CPP institutions was driven in part by lower net capital 

rather than some other factor associated with prior CPP status that we did 

not observe. Our measure of state-level economic conditions—Gross 

Domestic Product growth—did not provide additional insight into any local 

economic conditions that might be driving differences in qualified small 

business lending. However, a participant-reported measure of demand for 

small business loans that was included in Treasury’s survey of SBLF 

participants was a significant predictor of growth.25 The magnitude of 

these various factors is summarized as follows:

• For every 14 percentage point increase in troubled loans (roughly one 

standard deviation) relative to capital and reserves, qualified small 

business lending growth decreased by 13 percentage points.

• For every 2 percentage points (roughly one standard deviation) more 

capital relative to assets (less leverage) prior to receiving SBLF 

capital, participants increased qualified small business lending by an 

additional 13 percentage points.

• A participant that received net SBLF capital of 1.9 percent (the mean) 

of assets relative to a participant that received no net capital (a 

potential outcome for participants that converted through CPP) 

increased qualified small business lending by an additional 18 

percentage points.

• Participants that reported stronger demand for small business loans 

relative to those that reported weaker demand for small business 

loans increased qualified small business lending by an additional 24 

percentage points.

 

24Leverage is broadly defined as the ratio between some measure of risk exposure and 

capital that can be used to absorb unexpected losses from the exposure. A highly 

leveraged bank could find it difficult to increase lending while maintaining a safe level of 

capital. 

25Because demand was self-reported, we were unable to independently corroborate this 

variable. Participants with low growth in qualified small business lending may have had an 

incentive to report low demand to avoid the perception that they had underperformed. 
 

Page 17 GAO-14-135 Small Business Lending Fund

The SBLF program was designed to improve small businesses’ access to 

credit, which had become difficult to obtain after the onset of the 2007-

2009 recession. Based on our review of survey data and interviews with 

officials from 10 SBLF banks, factors that continue to affect small 

business lending include credit conditions and demand for small business 

loans, among others. Our analysis indicates that credit is still difficult to 

obtain, confirming that the lending environment remains challenging, 

although it has eased some compared with 2009. For example, according 

to the Wells Fargo/Gallup Small Business Index, as of the third quarter of 

2013, 25 percent of businesses reported difficulty obtaining credit when 

they needed it compared to 33 percent in the third quarter of 2009.26

Similarly, the Federal Reserve Senior Loan Officer Opinion Survey on 

Bank Lending Practices in July 2013 showed some large domestic banks 

having eased their credit standards.27 Specifically, 90 percent of 

respondents reported that credit standards to small firms remained 

basically unchanged, and 10 percent reported that credit standards to 

small firms had eased somewhat. Some banks surveyed cited more 

aggressive competition from other banks or nonbank lenders as an 

important reason for easing standards or terms on loans. The conditions 

reported in the July 2013 survey improved from those reported in July 

2009, when banks indicated they had continued to tighten standards on 

all major loan types.28 Finally, the percentage of businesses whose 

borrowing needs were not satisfied improved from 10 percent in June 

2009 to 5 percent in June 2013, while the percentage of businesses 

whose borrowing needs were satisfied was largely unchanged from June 

 

26Wells Fargo conducts a survey of small businesses with a sample constructed by 

Gallup. Results of the third-quarter 2013 survey are based on telephone interviews with 

602 small business owners, conducted July 22 through 26, 2013. 

27The Federal Reserve Senior Loan Officer Opinion Survey surveys up to 80 large 

domestic banks and 24 U.S. branches and agencies of foreign banks. The July 2013 

survey was based on the responses from 73 domestic banks and 22 U.S. branches and 

agencies of foreign banks. Large banks are defined as those with total domestic assets of 

$20 billion or more as of March 31, 2013. The survey addressed changes in the standards 

and terms on, and demand for, bank loans to businesses and households. Questions to 

respondents include whether lending standards and terms have tightened or eased for 

commercial and industrial loans to small, medium, and large firms. The survey asks 

respondents separately about their standards for and demand from large and middlemarket firms, which are generally defined as firms with annual sales of $50 million or 

more, and small firms, those with annual sales of less than $50 million. 

28The July 2009 survey results are based on responses from 55 domestic banks and 23 

U.S. branches and agencies of foreign banks. 

Credit Conditions and 

Other Factors Continue to 

Affect Banks’ Ability to 

Lend
 

Page 18 GAO-14-135 Small Business Lending Fund

2009 to June 2013 according to the Small Business Economic Trends 

survey from the National Federation of Independent Business (NFIB).29

Banks generally report stronger demand for credit from small businesses 

compared to 2009 conditions, which could help explain why SBLF banks 

could increase their lending, but weaknesses exist. For example, as of 

July 2013, 61.4 percent of respondents of the Senior Loan Officer Opinion 

Survey reported that demand for commercial and industrial loans for 

small firms remained unchanged, and 30 percent reported moderately 

stronger demand for these loans. Conversely, as of July 2009, 34 percent 

of respondents reported that demand for commercial and industrial loans 

for small firms remained unchanged, and 52.8 percent reported

moderately weaker demand (5.7 percent reported moderately stronger 

demand). Based on our analysis of SBLF banks and the results of 

Treasury’s SBLF annual survey, banks with lower levels of qualified small 

business lending were more likely to report weaker demand (see fig. 6).30

Overall, 46 percent of respondents to Treasury’s survey reported stronger 

demand for credit compared to 14 percent reporting weaker demand. 

Respondents also reported a net increase in the number of inquiries from 

small business borrowers regarding the availability and terms of lending.

A recent Federal Reserve study noted many of the same factors have 

affected small businesses’ access to credit since the onset of the 2007-

2009 recession.31 Specifically, the study reflected that banks noted small 

business owners are not expanding as a result of weak sales and 

earnings, among other factors. However, banks also viewed small 

businesses as less creditworthy because small businesses do not have 

 

29The NFIB Research Foundation has collected data on small business economic trends 

with quarterly surveys since 1974 and monthly surveys since 1986. The survey asks NFIB 

members about economic outlook, employment, earnings, sales, prices, credit conditions, 

interest rates, inventories, and capital outlays. Respondents are NFIB members, with 

nearly half of all respondents from firms with five or fewer employees. In previous work we 

found that the composition of NFIB survey respondents is broadly representative of the 

size distribution of firms in the United States. However, we found that the survey 

overrepresents some industries, including manufacturing and construction, while 

underrepresenting some skilled service industries. As such, respondents may not reflect 

the credit experiences of all firms in the economy. 

30As mentioned previously, all active SBLF participants are required to respond to the 

SBLF annual survey.

31Federal Reserve Bank of Cleveland, “Why Small Business Lending Isn’t What It Used to 

Be,” Economic Commentary, August 14, 2013, accessed on August 15, 2013, 

http://www.clevelandfed.org/research/commentary/2013/2013-10.cfm. 
 

Page 19 GAO-14-135 Small Business Lending Fund

the necessary collateral or cash flows at the same time that banks have 

increased their credit standards.

Figure 6: Percentage of SBLF Banks Reporting Weak Demand by Quartile, as of 

June 30, 2012

We spoke with officials from 10 SBLF banks representing a range of 

success in increasing qualified small business lending, and they cited 

several reasons that they have had some success in increasing small 

business lending, as well as some challenges. Officials from five banks 

we interviewed across the quartiles attributed their lending growth to their 

ability to expand into new markets and hire additional loan officers. In 

addition, two banks cited strong loan growth in the agricultural, energy, 

and commercial and industrial sectors. Further, officials from some banks 

reported their customers are generally in better condition than they were 

a few years ago, but are uncomfortable taking on additional debt given 

the continued uncertainty around economic conditions and interest and 

tax rates. Officials from other banks cited difficulties based on their 

inability to compete with interest rates from larger banks and their local 

counterparts. Specifically, officials from four banks told us that while there 

are more creditworthy borrowers, there are more banks competing for 

these same borrowers. We also heard from officials at one bank that 

some small businesses in the area are less creditworthy than they used 
 

Page 20 GAO-14-135 Small Business Lending Fund

to be as a result of highly leveraged owner-occupied commercial real 

estate. Officials from the banks we interviewed that participated in CPP 

told us that they did so to obtain better dividend rates on the equity they 

received through SBLF.32 One prior CPP participant told us that the 

bank’s shareholders had a negative opinion of their participation in CPP, 

but had not raised any concerns since the bank had redeemed its shares 

through SBLF.

Treasury has taken steps to assess SBLF participants’ lending patterns, 

including collecting additional performance data and adopting additional 

analytical methods. Although actions taken to date do not represent an 

impact evaluation of SBLF, which would include analysis that isolates the 

impact of SBLF from other factors that affect small business lending, 

Treasury officials noted that they are exploring options to evaluate SBLF 

impact and are working with a contractor with expertise on statistical 

evaluation techniques. However, Treasury has not produced a written 

plan for completing the evaluation. By conducting an impact evaluation, 

Treasury could more effectively inform the public and Congress on how 

SBLF has affected the participants’ lending compared to other factors, 

such as economic conditions, and could better assist Congress in making 

future decisions about similar capital investment programs or alternatives 

to such programs that support small businesses’ access to capital.

Treasury has taken steps to assess SBLF program performance 

(participants’ lending patterns) by including a peer-group analysis in the 

Lending Growth Reports and collecting additional performance 

information through annual surveys of program participants. In our 

December 2011 SBLF report, we recommended that Treasury finalize 

plans for assessing SBLF program performance.33 Treasury explored 

different comparison methods in its Lending Growth Reports and in its 

January 2013 report added a peer-group comparison that mirrored the 

characteristics of SBLF participants more closely than the comparison 

 

32In order to receive a better dividend rate in SBLF the bank had to increase qualified 

small business lending, otherwise the rates in SBLF were the same or higher than those in 

CPP. 

33GAO-12-183. 

Treasury Has Taken 

Steps to Assess 

Performance and Is 

Exploring Program 

Evaluation Methods

Treasury Has Taken Steps 

to Assess SBLF 

Participants’ Lending
 

Page 21 GAO-14-135 Small Business Lending Fund

group alone that Treasury had used in previous reports.34 Treasury 

officials stated that they have considered additional options to evaluate 

the performance of SBLF and have included some of these in the Lending 

Growth Report. For example, they have included information on increases 

in lending following investment, increases in lending by financial 

condition, and additional loans based on annual survey results. However, 

they explored additional analyses using the peer-group comparison to 

review loan activity at the local level using census data but found this finer 

segmentation of loan data not available.

In addition, Treasury has collected additional performance information 

through an annual lending survey of SBLF participants. In 2012, Treasury 

initiated an annual survey of SBLF program participants and analyzed the 

survey results to obtain additional quantitative and qualitative data on how 

the program is performing. Treasury required that all active SBLF

participants respond to the survey as part of the agreement to participate 

in the program. Treasury officials explained that while they collect 

information on the dollar amount of qualified small business loans at the 

end of each quarter, they intended to use the annual survey to 

supplement the quarterly data—such as by gathering additional 

information on the volume of the loans originated over time—and to 

provide additional information on how the participants are using SBLF 

funds. The survey covered several topics for the period from July 1, 2011, 

to June 30, 2012:

• changes in participants’ small business lending standards and 

demand;

• obstacles to increasing small business lending;

• actual increases in small business lending by industry sector, number, 

and dollar value;

• actions associated with use of SBLF funds, including projected total 

increase in small business lending over 2 years; and

 

34According to Treasury’s January 2013 Lending Growth Report, Treasury’s peer group 

was composed of 543 non-SBLF banks that were selected to match the specific size, 

geography, and financial condition of SBLF banks; and its comparison group was 

comprised of 6,297 non-SBLF banks that were established prior to March 31, 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), are located in one of the jurisdictions (44 states and the District of 

Columbia) in which SBLF participants are headquartered, and reported receiving a 

positive amount of business lending in the baseline period.
 

Page 22 GAO-14-135 Small Business Lending Fund

• small business outreach activities required by the Small Business 

Jobs Act of 2010.35

After receiving the survey responses from SBLF participants, Treasury 

analyzed the results of the SBLF annual survey and reported the 

aggregate results in June 2013.36 The survey results report (1) provides 

Treasury’s analysis of the aggregate survey results; (2) includes the 

results of each survey question; (3) discusses the methods Treasury 

followed to validate and review individual responses to each survey 

question for completeness and reasonableness; and (4) discusses the 

general methods Treasury used to review the aggregate survey results 

for reasonableness, including describing examples of the specific 

analyses for 9 of the 14 survey questions. For example, the report says 

that Treasury compared aggregate responses to six questions to similar 

questions related to credit standards and loan demand for commercial 

and industrial loans that are included in the Federal Reserve July 2012 

Senior Loan Officer Opinion Survey and concluded that the SBLF 

aggregate results were reasonable. Treasury officials said they did not 

perform this type of analysis for some of the survey questions that were 

unique to SBLF, such as the question on participants’ use of SBLF 

funding and questions related to outreach activities, because there was 

no appropriate data source to compare these aggregate responses.

Treasury officials explained that they have identified areas for 

improvement based on feedback obtained on the 2012 survey and made 

adjustments to the design and administration of the 2013 survey. Based 

on some questions from participants during the 2012 survey, Treasury 

provided additional guidance in responding to certain survey questions. In 

response to the questions and feedback, Treasury has refined some 

questions and is considering deleting and adding some questions to the 

2013 survey. Treasury officials said they expect to continue to make 

adjustments to the survey in future years.

 

35 Pub. L. No. 111-240, § 4103(d)(8), 124 Stat. 2504, 2591 (codified at 12 U.S.C. § 4741).

36U.S. Department of the Treasury, Results of the First Annual SBLF Lending Survey, 

June 2013.
 

Page 23 GAO-14-135 Small Business Lending Fund

Although Treasury has taken actions to improve its reporting and analysis 

of SBLF program performance, Treasury officials told us they recently 

started to review additional methods for evaluating the effectiveness of 

the program and its impact on participants’ small business lending, but 

have not yet provided us with a plan to evaluate the program’s impact or 

selected an approach for conducting the evaluation. Treasury’s peergroup analysis in the Lending Growth Reports and the annual survey of 

program participants are valuable steps that contribute to an assessment 

of SBLF program performance. However, these actions are not sufficient 

to isolate the impact of SBLF on participants’ lending compared to other 

factors—a component of performance measurement that we specifically 

highlighted in our 2011 and 2012 reports—which an impact evaluation 

could help to achieve. While we did not specifically recommend that 

Treasury conduct an impact evaluation in 2011, our recommendation that 

Treasury finalize plans for assessing SBLF performance noted that such 

plans should include measures that isolate the impact of the program.

During our review, Treasury officials told us that they have started 

considering options to conduct a one-time evaluation of SBLF. For 

example, in October 2013, Treasury officials told us that since August 

2013 they have been working with an existing contractor with expertise in 

statistical evaluation techniques to help plan and conduct the analysis, 

and that the contractor has begun to test out various techniques using 

available data. Treasury officials further explained that the evaluation will 

use data from September 30, 2013, when the dividend rate for most 

SBLF participants will become fixed, and the data will be available in 

November 2013.37 Treasury officials stated that they intend to complete 

the analysis and publish the results in fiscal year 2014, but they had not 

yet provided us with a written plan for the evaluation committing to an 

approach.

According to GAO guidance on program evaluation, when a program is 

influenced by outside factors, as is the SBLF program, impact evaluations

are usually required to assess the net effect of a program (or its actual 

effectiveness) by comparing the observed outcomes to an estimate of 

what would have happened in the program’s absence.38 The guidance 

 

37As discussed in this report, 9 quarters (a little over 2 years) after the start of the SBLF 

program, SBLF participating banks, who had increased their small business lending, 

started to pay a fixed dividend rate based on the last quarter and those who had not 

increased lending would pay a fixed rate at 7 percent. 

38GAO-12-208G and GAO-11-646SP. 

Treasury Is Exploring 

Evaluation Methods but 

Has Not Yet Provided a 

Plan to Evaluate and 

Isolate the Program’s 

Impact
 

Page 24 GAO-14-135 Small Business Lending Fund

further suggests that the design of an impact evaluation often includes 

using comparison groups and statistical tools and identifying the most 

important external influences on the desired program outcomes.39 GAO 

and other federal agencies have conducted impact evaluations that have 

employed techniques, such as statistical tools, to isolate the impact of 

programs, and these could be useful examples for Treasury in designing 

its impact evaluation of SBLF.40 All four evaluations included comparison 

groups in their evaluation design, while three of the four evaluations used 

a statistical tool known as propensity score matching—just one potential 

approach—in addition to other methods to consider in designing an 

impact evaluation of a program.41 GAO has acknowledged that 

conducting program evaluations could be costly and time consuming—

particularly collecting and ensuring the quality of data—and GAO 

guidance states that evaluators should aim to select the least 

burdensome way to obtain the information necessary to address the 

evaluation question.42 Treasury already has existing performance 

information and has already demonstrated that it could readily obtain 

financial data on SBLF participants and their peers that have been 

regularly collected by third parties as it does for its peer analysis in the 

Lending Growth Report. An impact evaluation would help Treasury more 

effectively inform the public and Congress about how SBLF has affected 

the participants’ lending compared to other factors, such as economic 

conditions. The impact evaluation would also provide useful information to 

Congress in designing future programs that use capital investments or in 

considering alternatives to SBLF that support small business access to 

capital.

 

39GAO-12-208G. 

40See, for example, GAO-07-296; Social Policy Research Associates and Mathematica 

Policy Research, Inc., Estimated Impacts; Urban Institute Justice Policy Center, The MultiSite Adult Drug Court Evaluation; and Institute of Education Sciences and Mathematical 

Policy Research, Impacts of Title I Supplemental Educational Services. 

41Propensity score matching is a statistical technique used to model the variables that 

influence participants’ assignment to the program and are then applied to the analysis of 

outcome data to reduce the influence of those variables on the program’s estimated net 

impact. 

42GAO-12-208G. 
 

Page 25 GAO-14-135 Small Business Lending Fund

Treasury has continued to develop and refine its approach to assessing 

the performance of SBLF and measuring the extent to which SBLF 

participants have increased small business lending. However, these 

actions do not provide a clear picture of how SBLF has impacted 

participants’ lending compared to other factors that could explain the 

increases in lending. Our guidance on program evaluation notes that 

impact evaluations are usually required to assess the net impact of a 

program by comparing the program outcomes to an estimate of what 

would have happened in the program’s absence, often using statistical 

tools. Treasury officials have told us that they are exploring various 

approaches to evaluating the program and have a firm under contract that

is helping to identify different statistical analyses that could be used. 

These actions are important initial steps in conducting an impact 

evaluation. Nevertheless, Treasury has not yet developed a written 

evaluation plan committed to a specific approach that would show that 

their evaluation assesses the net impact of SBLF apart from other factors. 

Given that capital investment programs had been used to address an 

immediate need during the recent financial crisis and policymakers may 

face similar changing economic conditions in the future and need to make 

quick decisions, it is important that Congress and other stakeholders have 

information about the performance of SBLF and the extent to which it had 

a meaningful impact on small business lending. An impact evaluation of 

SBLF would help provide critical information for decision makers, who will 

likely face another constrained credit environment for small business in 

the future and will seek options, such as a capital investment approach, 

or other approaches to promote small business credit, for addressing it.

To help ensure that Treasury can provide a useful assessment of SBLF 

that informs Congress and stakeholders of the effectiveness of this capital 

investment program in increasing lending, Treasury should follow through 

in conducting an impact evaluation of the program. In such an evaluation, 

Treasury should ensure that the analytical approaches identified by its 

contractor will isolate the role of SBLF from other factors that could affect 

small business lending to show the net impact of the program.

We provided a draft of this report to Treasury, FDIC, the Federal Reserve 

and OCC for review and comment. Treasury provided written comments, 

which are reprinted in appendix III. FDIC, Federal Reserve, and OCC did 

not provide written comments on the draft report. In its written comments, 

Treasury agreed with our recommendation and stated that it will complete 

analysis using data from the conclusion of the program’s two-year 

Conclusions

Recommendation for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 26 GAO-14-135 Small Business Lending Fund

incentive period, which ended on September 30, 2013. It anticipates 

publishing the results of its evaluation in fiscal year 2014. Treasury stated

that it will continue to explore analytical approaches that isolate SBLF’s 

role from other factors affecting small business lending. Treasury also 

noted that the statistical technique of random assignment cannot be used 

to assess SBLF program impact and therefore unmeasured factors could

account for differences in lending growth between participants and 

comparison groups. We agree that even powerful statistical techniques 

cannot perfectly replicate random assignment. However, these 

techniques can improve confidence in whether or not observed results 

are attributable to SBLF. Treasury and FDIC also provided technical 

comments on the draft report, which we’ve incorporated in the final report, 

as appropriate.

We are sending copies of this report to the appropriate congressional 

committees, Treasury, FDIC, the Federal Reserve, and OCC. 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 IV.

Daniel Garcia-Diaz

Director

Financial Markets and Community Investment 
 

Page 27 GAO-14-135 Small Business Lending Fund

List of Committees

The Honorable Debbie Stabenow

Chairwoman

The Honorable Thad Cochran

Ranking Member

Committee on Agriculture, Nutrition and Forestry

United States Senate

The Honorable Barbara Mikulski

Chairwoman

The Honorable Richard Shelby

Vice Chairman

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Mike Crapo

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Patty Murray

Chairwoman

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

Chairwoman

The Honorable James E. Risch

Ranking Member

Committee on Small Business and Entrepreneurship

United States Senate
 

Page 28 GAO-14-135 Small Business Lending Fund

The Honorable Frank D. Lucas

Chairman

The Honorable Collin Peterson

Ranking Member

Committee on Agriculture

House of Representatives

The Honorable Harold Rogers

Chairman

The Honorable Nita M. Lowey

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 Jeb Hensarling

Chairman

The Honorable Maxine Waters

Ranking Member

Committee on Financial Services

House of Representatives

The Honorable Sam Graves

Chairman

The Honorable Nydia Velázquez

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 29 GAO-14-135 Small Business Lending Fund

Our objectives were to examine (1) the status of the Small Business 

Lending Fund (SBLF); (2) identify reasons for variation in growth of 

qualified small business lending at SBLF banks; and (3) actions the 

Department of the Treasury (Treasury) has taken to evaluate SBLF 

participant lending patterns.

To examine program status, including participants’ lending, and dividend 

and interest payments, we reviewed Treasury data as of June 30, 2013, 

and Treasury’s July and October 2013 Lending Growth Reports.1 We also 

reviewed Treasury documents related to SBLF redemptions as of July 1, 

2013, and interviewed Treasury officials about the reasons participants 

had left the program. We also interviewed officials from the Office of the 

Comptroller of the Currency (OCC), the Board of Governors of the 

Federal Reserve System (Federal Reserve), and the Federal Deposit 

Insurance Corporation (FDIC) on their role in approving SBLF 

redemptions and on the reasons why banks have left the program. All 

three of these bank regulators provided us documents describing their 

procedures for capital redemptions. Sixteen participants had left the 

program as of July 1, 2013. Six of these participants told Treasury the 

reasons why they were leaving the program. We contacted the other 10 

participants that left the program and did not share their reasons for 

leaving with Treasury, and we obtained responses from 9. One participant 

did not respond to our contact attempts.

To determine reasons for variation in growth of qualified small business 

lending at SBLF banks, we used the most current level of qualified small 

business lending as of June 30, 2013, reported in Treasury’s October 

2013 Lending Growth Report, to divide 265 banks into four quartiles 

based on their level of qualified small business lending and compared the 

four quartiles to one another using financial and regulatory data.2 We did 

 

1

The Lending Growth Report is Treasury’s quarterly report to Congress describing how 

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

Prior to the October 2013 report, these reports were titled Use of Funds Report. 

2

Qualified small business lending—lending below the $10 million threshold—is defined by 

the Small Business Jobs Act of 2010, and only SBLF participants are required to submit 

these data. We excluded community development loan funds from the analysis as they 

are not regulated depository institutions, and the lack of supervisory information prevented 

us from describing comparable financial characteristics.

Appendix I: Objectives, Scope, and 

Methodology

SBLF Program Status

Reasons for Variation in 

Small Business Lending
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-14-135 Small Business Lending Fund

not assess banks’ individual financial condition; rather, we looked at the 

medians of certain indicators to make comparisons between the four 

quartiles. We analyzed the financial condition of the SBLF banks in each 

of the four quartiles as of March 31, 2011, and June 30, 2013, to 

determine if any differences were associated with the initial financial 

condition of SBLF banks or changes in their financial condition that 

occurred during the program. To analyze the financial condition of the 

four quartiles, we accessed Call Report data using SNL Financial—a 

company that manages a financial database that contains publicly filed 

regulatory and financial reports.3 To assess the factors associated with 

different lending levels, we used data from SNL Financial to analyze 

asset size, Texas Ratios, liquidity ratios, leverage ratios, wholesale 

funding, participation in Treasury’s Capital Purchase Program (CPP), and 

geographic distribution for each of the four quartiles.4 In addition, we 

calculated the net SBLF capital received using SNL Financial data and 

Treasury’s Lending Growth Reports. We also obtained and analyzed 

CAMELS composite ratings from FDIC as of June 30, 2013, and March 

31, 2011, to determine if there was variation across the quartiles.5 Table 1 

shows how the factor we analyzed varied by quartile as of June 30, 2013, 

and March 31, 2011.

 

3

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. 

4

As the largest capital infusion program under the Troubled Asset Relief Program, CPP 

was designed to provide capital investments to financially viable financial institutions. 

Treasury received preferred shares and subordinated debentures, along with warrants.

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’ on-site 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.
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-14-135 Small Business Lending Fund

Table 1: Aggregate Financial Health Information on SBLF Banks by Quartiles, as of March 31, 2011, and June 30, 2013

For the quarter ending June 30, 2013

 1st Quartile 2nd Quartile a 3rd Quartile 4th Quartile

Median asset size $300,022 $390,442 $399,978 $602,114

Median Texas ratiob 7.23 9.85 14.72 19.17

Median liquidity ratio 16.57 c 18.22 14.48 22.89

Median leverage ratiod 10.95 10.10 10.51 10.28

Median wholesale funding 6.63 e 6.82 6.84 6.08

Median CAMELS score 2 f 2 2 2 

For the Quarter Ending March 31, 2011

1st Quartile 2nd Quartile 3rd Quartile 4th Quartile

Median asset size $217,767 $281,417 $361,676 $535,294

Median Texas ratio 8.53 b 13.74 15.90 23.02

Median liquidity ratio 17.96 c 20.03 16.67 21.28

Median leverage ratio 10.04 d 9.12 8.97 9.42

Median wholesale funding 6.58 e 7.38 7.13 6.57

Median CAMELS score 2 f 2 2 2 

Source: GAO analysis of Treasury, FDIC, and SNL Financial data.

a

The figures in the table represent the median values for all banks in the particular quartile. SBLF 

banks in the first quartile had the highest level of qualified small business lending and growth in 

qualified small business lending compared to SBLF banks in the other three quartiles.

b

The Texas ratio is defined as nonperforming assets (“troubled loans”) plus loans 90 or more days 

past due divided by tangible equity and reserves.

c

The liquidity ratio is defined as liquid assets divided by total liabilities.

d

The leverage ratio is tier 1 capital divided by adjusted average assets.

e

Reliance on wholesale funding depicts the portion of a bank’s total funds that are from wholesale 

sources. Banks use wholesale funding sources to make up for the absence of local deposit funding, 

to provide greater flexibility in managing their asset/liability position, and to avoid the expenses 

associated with extensive branch networks.

f

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’ on-site 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.

We assessed the reliability of the data used for our analyses by, for 

example, inspecting data for missing observations and outliers and 

reviewing prior GAO work and updating information as appropriate. We 

determined that the data collected by Treasury, FDIC, and SNL Financial 

we reviewed were sufficiently reliable for our purposes of providing a 

high-level overview of variations of changes in SBLF banks’ qualified 

small business lending.
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-14-135 Small Business Lending Fund

We also performed a regression analysis to assess the relationship 

between variation in qualified small business lending levels and indicators 

of banks’ financial condition. Specifically, we analyzed the relationship 

between qualified small business lending levels and the Texas Ratio, 

reliance on wholesale funding, liquidity ratios, leverage ratios, net SBLF 

capital received, state Gross Domestic Product (GDP), and participantreported demand for small business loans. We used financial measures 

for SBLF banks that we have identified in prior reports to demonstrate an 

institution’s financial health as it relates to asset quality and capital 

adequacy. We relied on SNL Financial for the Texas Ratio, reliance on 

wholesale funding, liquidity ratios, leverage ratios, and net SBLF capital 

received. We measured GDP in a state using data from the U.S. 

Department of Commerce’s Bureau of Economic Analysis. Finally, we 

measured participant-reported demand for small business loans by using 

responses from SBLF respondents to two questions in Treasury’s first 

annual SBLF survey and incorporated these responses through program 

identifiers into our analysis.6 We assessed the reliability of data from each 

of these sources by, for example, inspecting data for missing 

observations and outliers, reviewing prior GAO work, reviewing any 

changes in survey methodologies, and updating information as 

appropriate, and found the data to be sufficiently reliable for our 

purposes. See appendix II for additional information on the regression 

model.

To describe the reasons why some SBLF banks were more or less 

successful in increasing lending to small businesses, we selected and 

attempted to contact a nonprobability, judgmental sample of 12 banks 

based on geographic distribution and participation in CPP. Specifically, 

using the quartile breakdown we selected four banks from the first and 

fourth quartiles (banks with the highest and lowest levels of qualified 

small business lending) and two banks each from the second and third 

quartiles. We first selected banks from each of six U.S. regions (Midwest, 

 

6

U.S. Department of the Treasury, Results of the First Annual SBLF Lending Survey, June 

2013. The SBLF lending survey is an annual survey required by Treasury for all SBLF 

participants as part of the agreement between Treasury and SBLF participants. The first 

annual survey covered from July 1, 2011, to June 30, 2012. The questions to which we 

obtained responses from banks on the demand for small business loans included, “How 

has demand for overall small business lending changed over the past year?” and “At your 

institution, how has the number of inquiries for new small business lending commitments 

or increases in outstanding small business lending commitments changed over the past 

year?” 
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-14-135 Small Business Lending Fund

West, Southeast, Southwest, Mid-Atlantic, and Northeast) and then 

narrowed the selection to obtain a mix of prior CPP participants.7 We 

obtained responses from 10 of them. The results of these interviews 

cannot be generalized to all SBLF banks but provide insights to reasons 

for variation in lending.

To describe trends in small business credit markets and how these trends 

may have affected a bank’s ability to lend, we used a number of survey 

indicators to describe market conditions as of June 2013 and before the 

implementation of SBLF. These indicators included data from a survey 

conducted by the National Federation of Independent Business on 

whether members’ borrowing needs are being satisfied; a survey by Wells 

Fargo addressing banks’ ease or difficulty in obtaining credit; and data 

from the Federal Reserve Senior Loan Officer Opinion Survey on the 

demand for credit across small firms and whether lending standards have 

tightened or eased. We also relied on the results report of Treasury’s first 

SBLF annual survey. We also interviewed Treasury officials responsible 

for the program and contacted representatives of the National Federation 

of Independent Business, who regularly survey small businesses, and the 

American Bankers Association and Independent Community Bankers 

Association, who represent the interests of community banks. To 

determine the reliability of these data sources, we interviewed company 

representatives as appropriate to learn about their data collection 

methods and any changes to their controls. We also reviewed previous 

GAO work and survey methodologies to determine if there were any 

changes made that would affect the data’s reliability. Based on our 

analysis we determined that, while the survey indicators were not 

independently critical to our findings, they were sufficiently reliable 

together to document patterns in the small business credit markets and 

how these may affect a bank’s ability to lend. To determine the reliability 

of the Treasury survey data we used, we interviewed Treasury officials on 

 

7

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, and New Hampshire. 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 Southwest region includes parts of 

Texas and Oklahoma, along with Arizona and New Mexico. The West region includes 

Arizona, California, Colorado, Idaho, Montana, Nevada, Utah, Oregon, Washington, and 

Wyoming. The Mid-Atlantic region includes Delaware, Maryland, New Jersey, New York, 

Pennsylvania, and Washington, D.C. 
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-14-135 Small Business Lending Fund

their procedures for reviewing the survey responses, reviewed the 

nonresponse rate (none), and checked for consistency. Based on these 

steps, we determined that the data collected by Treasury were sufficiently 

reliable for the purpose of reporting on credit standards to SBLF banks.

To determine actions Treasury has taken to evaluate SBLF participant 

lending patterns, we reviewed multiple Treasury documents, including the 

SBLF Lending Growth Reports issued in October 2012, and January, 

April, July, and October 2013, the first SBLF annual lending survey 

instrument, and the June 2013 results report for the first annual lending 

survey, as well as relevant supporting documentation of these reports. 

We also interviewed Treasury officials to understand the agency’s efforts 

to assess program performance of SBLF. We also reviewed our 2011 and 

2012 reports on SBLF to document Treasury’s past efforts in assessing 

SBLF performance.8 In addition, we reviewed GAO guidance on program 

evaluation and past GAO work on federal government performance 

management and compared Treasury’s actions to this guidance and 

work.9 Further, we reviewed impact evaluations conducted by other 

federal agencies and GAO to enhance our understanding and provide 

examples of impact analysis and statistical techniques.10

 

8

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

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

Small Business Lending: Opportunities Exist to Improve Performance Reporting of 

Treasury’s Programs, GAO-13-76 (Washington, D.C.: Dec. 5, 2012).

9

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

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

Measurement and Evaluation: Definitions and Relationships, GAO-11-646SP

(Washington, D.C.: May 2011); Designing Evaluations: 2012 Revision, GAO-12-208G

(Washington, D.C.: Jan. 2012); and Program Evaluation: Strategies to Facilitate Agencies’ 

Use of Evaluation in Program Management and Policy Making, GAO-13-570 (Washington, 

D.C.: June 26, 2013).

10See GAO, Tax Policy: New Markets Tax Credit Appears to Increase Investment by 

Investors in Low-Income Communities, but Opportunities Exist to Better Monitor 

Compliance, GAO-07-296 (Washington, D.C.: Jan. 31, 2007); Social Policy Research 

Associates and Mathematica Policy Research, Inc., Estimated Impacts for Participants in 

the Trade Adjustment Assistance (TAA) Program Under the 2002 Amendments (August 

2012); Urban Institute Justice Policy Center, The Multi-Site Adult Drug Court Evaluation: 

The Impact of Drug Courts (November 2011); and Institute of Education Sciences and 

Mathematical Policy Research, Impacts of Title I Supplemental Educational Services on 

Student Achievement (May 2012). 

Treasury’s Evaluation of 

SBLF Lending
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-14-135 Small Business Lending Fund

We conducted this performance audit from March 2013 to December 

2013 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: Econometric Model of Qualified 

Small Business Lending Growth at SBLF 

Banks

Page 36 GAO-14-135 Small Business Lending Fund

To help determine factors that may have influenced Small Business 

Lending Fund (SBLF) banks’ ability to successfully translate SBLF equity 

into new lending we estimated a number of econometric models. We 

utilized information on SBLF banks’ initial financial condition, Capital 

Purchase Program (CPP) conversion status, net capital received (netting 

out any equity used to repay Treasury CPP capital), state-level economic 

growth, and participant-reported small business loan demand.1

We first estimated a model based solely on the initial financial conditions 

as of March 31, 2011, of SBLF banks, using measures of equity, asset 

liquidity, reliance on wholesale funding, profitability, and troubled loans.

All models were estimated via linear least squares with White 

heteroskedasticity-consistent standard errors.2 We used two alternative 

measures of initial equity: the leverage ratio and the tier 1 risk-based 

capital ratio. We found that the leverage ratio was a somewhat stronger 

predictor (p-value =0.0009 vs. p-value = 0.0498) of growth in qualified 

small business lending, so we used that measure of equity in subsequent 

models. All other measures of financial conditions were statistically 

significant predictors of qualified small business lending growth with the 

exception of return on assets (a measure of profitability), which we 

excluded from subsequent models.

Next we added CPP conversion status to our model with financial 

conditions. CPP conversion status was a statistically significant predictor 

of qualified small business lending growth; however, once we add net 

capital to the model, CPP status was no longer statistically significant, 

while net capital was statistically significant (p-value =0.02). Because 

CPP conversion status and net capital are strongly negatively correlated, 

we excluded CPP status from subsequent models to avoid 

multicollinearity and associated variance inflation. After excluding CPP 

status from the model, the statistical significance of the net capital 

coefficient increased dramatically (p-value < 0.0001). These results 

suggest that net capital is driving differences between SBLF banks that 

 

1

As the largest capital investment program under the Troubled Asset Relief Program, CPP 

was designed to provide capital investments to financially viable financial institutions. 

Treasury received preferred shares and subordinated debentures, along with warrants. 

The initial capital that banks received from CPP was also intended to support lending.

2

In all models we excluded a single outlier with extremely high qualified small business 

lending growth (19,471 percent over baseline). Several observations with missing data 

were also excluded. 

Appendix II: Econometric Model of Qualified 

Small Business Lending Growth at SBLF 

Banks
Appendix II: Econometric Model of Qualified 

Small Business Lending Growth at SBLF 

Banks

Page 37 GAO-14-135 Small Business Lending Fund

paid off CPP capital with SBLF capital and other SBLF banks that did not, 

rather than an unobserved factor associated with CPP status.

To attempt to capture local economic conditions, we added state Gross 

Domestic Product (GDP) growth to the model with financial conditions 

and net capital. State GDP growth was not a statistically significant (pvalue > 0.23) predictor of qualified small business lending growth.

However, when we added a self-reported measure of demand for small 

business loans from Treasury’s survey of SBLF participants to the model 

as an alternative, we found that this measure was a statistically significant 

predictor. These results suggest that state-level economic growth is not a 

precise measure of demand for loans at SBLF banks. We present the 

regression results of this final model in table 2 below. Because demand 

was self-reported, this variable could not be independently corroborated.3

Participants with low growth in qualified small business lending may have 

had an incentive to report low demand to avoid the perception that they 

had underperformed. This tendency would cause our model to overstate 

the impact of local demand.

Table 2: Regression Model of Qualified Small Business Lending Growth, Baseline 

to First Quarter 2013

Variable Coefficient p-value

Leverage ratio 0.06287 a 0.0023

Texas ratio -0.00961 b < 0.0001

Liquidity ratioc 0.00905 0.0201

Wholesale funding 0.03377 d 0.2141

Net capital 9.1929 e < 0.0001

Loan demand “same” 0.20706 f 0.0082

Loan demand “stronger” 0.23599 f 0.0004

R-squared 0.2759 NA

Source: GAO analysis of Treasury and SNL Financial data.

a

The leverage ratio is tier 1 capital divided by adjusted average assets.

b

The Texas ratio is defined as nonperforming assets (“troubled loans”) plus loans 90 or more days 

past due divided by tangible equity and reserves.

c

 

3

However, we did assess this variable for item nonresponse (none) and compared it to 

another measure of demand from the survey based on credit line inquiries, and found that 

it was strongly associated with this measure.

The liquidity ratio is defined as liquid assets divided by total liabilities.
Appendix II: Econometric Model of Qualified 

Small Business Lending Growth at SBLF 

Banks

Page 38 GAO-14-135 Small Business Lending Fund

d

Reliance on wholesale funding depicts the portion of a bank’s total funds that are from wholesale 

sources. Banks use wholesale funding sources to make up for the absence of local deposit funding, 

to provide greater flexibility in managing their asset/liability position, and to avoid the expenses 

associated with extensive branch networks.

e

Net capital received is the amount of capital received under SBLF netting out any equity used to 

repay Treasury Capital Purchase Program (CPP) capital.

f

Responses based on U.S. Department of the Treasury, Results of the First Annual SBLF Lending 

Survey, June 2013, “How has demand for overall small business lending changed over the past 

year?” 

The economic significance (magnitude) of some of these factors is 

summarized below:

• For every 14 percentage point increase in troubled loans (roughly one 

standard deviation) relative to capital and reserves, qualified small 

business lending growth decreased by 13 percentage points.

• For every 2 percentage points (roughly one standard deviation) more 

capital relative to assets (less leverage) prior to receiving SBLF 

capital, participants increased qualified small business lending by an 

additional 13 percentage points.

• A participant that received net SBLF capital of 1.9 percent (the mean) 

of assets relative to a participant that received no net capital (a 

potential outcome for participants that converted through CPP) 

increased qualified small business lending by an additional 18 

percentage points.

• Participants that reported stronger demand for small business loans 

relative to those that reported weaker demand for small business 

loans increased qualified small business lending by an additional 24 

percentage points. 
Appendix III: Comments from the Department 

of the Treasury

Page 39 GAO-14-135 Small Business Lending Fund

Appendix III: Comments from the 

Department of the Treasury
Appendix III: Comments from the Department 

of the Treasury

Page 40 GAO-14-135 Small Business Lending Fund
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 41 GAO-14-135 Small Business Lending Fund

Daniel Garcia-Diaz, (202)-512-8678, garciadiazd@gao.gov. 

In addition to the individual named above, Kay Kuhlman (Assistant 

Director), Bethany Benitez, Anna Chung, Pamela Davidson, Patrick 

Dynes, Michael Hoffman, Lauren Nunnally, Jennifer Schwartz, and Jena 

Sinkfield made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250719)
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