Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

2

April 2017

Cost Report

Report to Congress submitted pursuant to Section 4106(2) 

of the Small Business Jobs Act of 2010

Introduction

Small businesses are a vital part of the American economy, and their success is a critical component of 

the economic recovery. Established by the Small Business Jobs Act of 2010 (the Act), the Small Business 

Lending Fund (SBLF) is a dedicated fund designed to provide capital to qualified community banks1and 

community development loan funds to encourage small business lending. The purpose of the SBLF is to 

encourage Main Street banks and small businesses to work together, help create jobs, and promote 

economic growth in communities across the nation. 

This report is submitted as a requirement of Section 4106(2) of the Act, which directs the Secretary of 

the Treasury to provide a semiannual written report to Congress on all projected costs and liabilities, all 

operating expenses, including compensation for financial agents, and all transactions made for the SBLF 

program. This report reflects the estimated lifetime returns on the program’s investments and the 

outlays and obligations for the period ended September 30, 2016. 

Investments made through the SBLF program are currently expected to generate a positive return of 

$51 million2, excluding administrative costs. In addition, Treasury incurred $6.3 million in obligations 

during fiscal year 2016 for the SBLF program, $11 million less than the operating budget of $17.3 million 

as presented in the President’s Budget for fiscal year 2016. 

Estimated Cost of SBLF Investments

Treasury invested more than $4 billion in 332 institutions through the SBLF program. These amounts 

include investments of $3.9 billion in 281 community banks and $104 million in 51 community 

development loan funds. Collectively, these institutions operate in more than 3,000 locations across 48 

states. Initial disbursement of SBLF funding occurred on June 21, 2011, with subsequent transactions 

until the program’s September 27, 2011, statutory funding deadline. 

As of March 31, 2017, 269 institutions with aggregate investments of $3.66 billion have fully redeemed 

Treasury’s investment and exited the program (compared with 264 institutions representing aggregate 

investments of $3.63 billion in the previous reporting period) and 5 institutions have partially redeemed 

$36 million (or 68 percent) of Treasury’s investment while continuing to participate in the program. 

 

1

In this report, the terms “banks” and “community banks” include banks, thrifts, and bank and thrift holding companies with 

consolidated assets of less than $10 billion, as of December 31, 2010.

2

On April 28, 2017, an SBLF participant bank was placed into receivership with the Federal Deposit Insurance Corporation by its 

State regulator. The receivership will impact the estimated program return, however SBLF continues to expect a positive return 

to taxpayers.
 

3

As of December 31, 2016, institutions participating in SBLF had made important progress in increasing 

small business lending, helping to support small businesses and local economies across the nation. In 

total, current SBLF participants have increased small business lending by $3.2 billion over a $3.5 billion 

baseline.

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Since the program started, the total increase in small business lending reported by current 

and former SBLF participants is $18.8 billion over the baseline. 

Treasury currently estimates that investments made through the SBLF program will generate a lifetime 

positive return of $51 million for the Treasury General Fund. The figures in the following table reflect 

Treasury’s calculation of the estimated cost of SBLF investments, as presented in the President’s Budget 

for fiscal year (FY) 2017.

Estimated Cost of SBLF Investments

(Dollars in millions)

Subsidy 

Rate

Projected/Actual 

Investment 

Amount

Projected 

Lifetime Cost 

(Savings)

Original estimate 7.24% 17,399 1,260

President's Budget for fiscal year (FY) 

2013 -2.08% 4,028 (84)

President's Budget for FY 2014 -1.26% 4,028 (50)

President's Budget for FY 2015 -0.63% 4,028 (25)

President's Budget for FY 2016 -0.26% 4,028 (10)

President's Budget for FY 2017 -1.27% 4,028 (51)

Treasury estimated the budgetary cost of investments made through the program in conformance with 

Federal Credit Reform Act methodology using actual program data for FYs 2011, 2012, 2013, 2014, and

2015. This data, combined with the expected future cash flows, results in a subsidy rate of

-1.27 percent compared to an original subsidy rate of 7.24 percent. 

As required by the Federal Credit Reform Act, Treasury estimated the lifetime cost and subsidy rate of 

the SBLF program on a present value basis. Assumptions used to estimate future cash flows included: (1) 

the forecasted cumulative default rate for program participants; (2) the actual and projected cash flows 

received by Treasury from the participants’ dividend, interest, and other payments; and (3) Treasury’s 

cost of raising funds to make the SBLF investments. 

The current estimate of the program’s projected lifetime savings incorporates a forecasted cumulative 

default rate4(i.e., lost principal, interest, and dividends) of 0.42 percent compared to 2.32 percent in the 

 

3

As established in 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 ended June 30, 2010. The aggregate baseline lending decreases as 

participants redeem and those participants’ baseline lending is removed from the aggregate baseline. 

4

The default rate is estimated based on the financial condition of program participants relative to the historical performance of 

institutions rated by the major ratings agencies.
 

4

previous year’s estimate. This lower rate reflects an overall improvement in the financial condition of 

program participants. The current year estimate also incorporates a reduction in expected lifetime 

dividend and interest payments to Treasury as a result of increases in SBLF security redemptions. 

Including these changes, the program’s projected lifetime positive return is $51 million.

Outlays and Obligations for Operating Expenses 

Treasury is committed to implementing the SBLF in a cost-effective manner to protect taxpayer interests 

while achieving the program’s objectives of encouraging small business lending. The outlays for fiscal 

year 2016 primarily reflect the costs of monitoring the performance and compliance of participating 

institutions, reporting on program performance and expenses, maintaining program accounts, and 

managing the portfolio and the disposition of securities purchased. In total, as of September 30, 2016, 

outlays for fiscal year 2016 totaled $5 million.

The figures shown in the following table reflect outlays and obligations for operating expenses incurred 

as of September 30, 2016. Descriptions of the expense categories follow the Outlays and Obligations 

table.

SBLF Outlays and Obligations through September 30, 2016

Budget for 

Fiscal Year 

2016a

Outlays 

as of 

September 

30, 2016b

Obligations

as of 

September 30, 

2016c

Total 

Obligations 

and Outlays

as of 

September 30, 

2016c

Salaries and benefits 2,816,000 1,826,940 0 1,826,940

Travel 20,000 7,481 0 7,481

Contracts and other

 Legal support n/a 0 0 0

 Custodian and infrastructure provider n/a 0 0 0

 Asset management n/a 655,080 367,420 1,022,500

 Internal controls n/a 334,203 221,713 555,917

 Office of the Treasury Inspector General n/a 199,351 360,649 560,000

 Other (equipment, supplies, rent) 14,525,000 1,987,720 383,021 2,370,740

Subtotal (contracts and other) 14,525,000 3,176,354 1,332,803 4,509,157

$ Total 17,361,000 5,010,774 1,332,803 6,343,578

a

Represents the total budget for the Small Business Loan Fund program for fiscal year (FY) 2016, 

according to the President's 2016 Budget. 

b

Includes outlays from Oct. 1, 2015, to September 30, 2016. There are no outlays reported for the 

custodian because there were no new obligations for that provider during this period.
 

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c

Includes all FY 2016 obligations from Oct. 1, 2015, to September 30, 2016. New obligations for the 

custodian were not made during this period because funding remained on a previous year 

obligation.

 

On September 27, 2011, the SBLF program’s core investment activities were completed. SBLF is now 

staffed primarily to monitor, manage, and report on these investments and related participant lending 

and program activities. 

Contract and other expenses are reported in the period obligated. Descriptions of costs related to legal 

support, financial agents, internal controls, and the Treasury’s Office of the Inspector General (OIG) 

follow:

 Legal Support: These expenses are for legal services for transactions related to the 

management of the investments. 

 Custodian and Infrastructure Provider: These expenses relate to bank custodial services for

SBLF securities and documents and payments processing for SBLF participants. 

 Asset Management: These expenses are for financial analysis and monitoring of SBLF 

participants and applicable market research regarding the community banking sector. 

 Internal Controls: These expenses relate principally to the design and implementation of 

processes and internal controls associated with the program’s asset management, operating, 

reporting, and compliance functions. This activity includes work performed by consultants to 

develop procedures, information databases, and other documentation for monitoring and 

managing program activities. 

 Office of the Treasury Inspector General: These expenses reflect reimbursements to the 

Treasury’s OIG for audits of the SBLF program. The OIG is required to issue reports on the SBLF 

no less than two times each year. The FY 2016 budgeted amount for audit related activities was

$560,000.