Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

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April 2018

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 banks1 and 

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, 2017. 

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

$31 million, excluding administrative costs. In addition, Treasury incurred $4.17 million in obligations 

during fiscal year 2017 for the SBLF program compared to the fiscal year President’s Budget of $17.36 

million.

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, 2018, 274 institutions with aggregate investments of $3.73 billion have fully redeemed 

Treasury’s investment and exited the program (compared with 269 institutions representing aggregate 

investments of $3.67 billion in the previous reporting period) and 5 institutions have partially redeemed 

$28 million (or 66 percent) of Treasury’s investment while continuing to participate in the program.

As of December 31, 2017, 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 $2.1 billion over a $2.1 billion 

 

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.
 

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baseline2. Since the program started, the total increase in small business lending reported by current 

and former SBLF participants is $18.9 billion over the baseline.

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

positive return of $31 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) 2019.

Estimated Cost of SBLF Investments

(Dollars in millions)

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 2011-2017. This data, 

combined with the expected future cash flows, results in a subsidy rate of -0.76 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 rate3(i.e., lost principal, interest, and dividends) of 1.57 percent compared to 0.42 percent in 

the previous year’s estimate. This higher rate is due to two SBLF institutions, with outstanding 

investment amounts totaling approximately $44 million, failing during FY 2017. Currently these 

institutions are valued at $0, with chances of any recoveries considered to be unlikely or minimal. As the 

SBLF model uses historical data to predict future incidence of default, these two failures resulted in a 

higher forecasted cumulative default rate. The realized cost associated with the two defaults and the 

 

2 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.

3

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.

Subsidy Rate

Projected/Actual 

Investment Amount

Projected Lifetime 

Cost (Savings)

Original estimate 7.24% 17,399 1,260

President's Budget for fiscal year 2013 -2.08% 4,028 -84

President's Budget for fiscal year 2014 -1.26% 4,028 -50

President's Budget for fiscal year 2015 -0.63% 4,028 -25

President's Budget for fiscal year 2016 -0.26% 4,028 -10

President's Budget for fiscal year 2017 -1.27% 4,028 -51

President's Budget for fiscal year 2018 -1.82% 4,028 -73

President's Budget for fiscal year 2019 -0.76% 4,028 -31
 

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increase in the forecasted cumulative default rate for the remaining active institutions resulted in the 

program’s projected lifetime positive return decreasing to $31 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 2017 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, 2017, 

outlays for fiscal year 2017 totaled $3.4 million.

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

as of September 30, 2017. Descriptions of the expense categories follow the Outlays and Obligations 

table.

SBLF Outlays and Obligations through September 30, 2017

Budget for 

Fiscal Year 

2017a

Outlays 

as of 

September 30, 

2017b

Obligations

as of 

September 30, 

2017c

Total 

Obligations and 

Outlays

as of September 

30, 2017c

Salaries and benefits 2,816,000 1,337,975 0 1,337,975

Travel 20,000 1,126 0 1,126

Contracts and other

 Legal support n/a 0 0 0

 Custodian and infrastructure provider n/a 0 0 0

 Asset management n/a 0 0 0

 Internal controls n/a 202,976 177,123 380,099

 Office of the Treasury Inspector General n/a 162,369 199,401 361,770

 Other (equipment, supplies, rent) 14,525,000 1,694,901 398,395 2,093,296

Subtotal (contracts and other) 14,525,000 2,060,246 774,919 2,836,291

$ Total 17,361,000 3,399,347 774,919 4,174,266

a

 Represents the total budget for the Small Business Loan Fund program for fiscal year (FY) 2017, 

according to the 2017 President's Budget. 

b

 Includes outlays from Oct. 1, 2016, to September 30, 2017. There are no outlays reported for the 

custodian, asset manager, and legal support because there were no new obligations for those 

providers during this period.

c

 Includes all FY 2017 obligations from Oct. 1, 2016, to September 30, 2017. New obligations for 

the custodian, asset manager, and legal support were not made during this period because funding 

remained on a previous year obligation.
 

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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 revised FY 2017 budgeted amount for audit related 

activities was $361,770.