Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

2

January 2015

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 (CDLFs) in order 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 pursuant to 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 with respect 

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

and the outlays and obligations for the period ending March 31, 2014. 

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

$25 million, excluding administrative costs. In addition, Treasury is currently projected to incur $13.8 

million in fiscal year 2014 obligations for the SBLF program, which is $6.7 million less than the operating 

budget of $20.5 million as presented in the President’s Budget for fiscal year 2014. 

Estimated Cost of SBLF Investments

Treasury invested more than $4.0 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 CDLFs. Collectively, 

these institutions operate in more than 3,000 locations across 48 states. The initial disbursement of 

SBLF funding occurred on June 21, 2011, with subsequent transactions completed thereafter until the 

program’s September 27, 2011 statutory funding deadline. 

As of December 1, 2014, 51 institutions with aggregate investments of $752 million have fully redeemed 

their SBLF securities and exited the program, and 20 institutions have partially redeemed a total of $155

million but continue to participate in the program.

2

 

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

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

2 Only redemptions through FY2014 are included in the calculation of the lifetime subsidy.
 

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As of June 30, 2014, institutions participating in SBLF had made important progress in increasing their 

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

total, SBLF participants have increased their small business lending by $13.5 billion over a $33 billion 

baseline3

, and by $1.1 billion over the prior quarter.

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

lifetime positive return of $25 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 2014.

Estimated Cost of SBLF Investments

(Dollars in millions)

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

the Federal Credit Reform Act (FCRA) methodology using actual program data for fiscal years 2011, 

2012, and 2013. This data, combined with the expected future cash flows, results in a subsidy rate of 

-0.63 percent compared to an original subsidy rate of 7.24 percent. 

Per FCRA requirements, Treasury estimated the lifetime cost and subsidy rate of the SBLF program on a 

present value basis. Assumptions used to estimate future cash flows include, but are not limited to: (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 rate (i.e., lost principal, interest, and dividends) of 4.03 percent compared to a 5.49 percent rate 

in the prior year’s estimate.4

 This lower rate reflects an overall improvement in the financial condition 

of program participants and, independent of other factors, would result in greater projected lifetime 

savings for the program. The current year estimate also incorporates, however, a reduction in expected 

 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 derivation of the default rate reflects a change in SBLF’s reporting methodology: Prior versions of the forecasted 

cumulative default rate were reflective of lost principal investment only. Interest was not reported due to extreme variability of 

the dividend and interest rates in the lending incentive period that ended in Q3 2013. The change in the default rate 

methodology relates to the specific default components described in this report alone and does not reflect a change to any 

projected cash flows or subsidy rates in the 2015 President’s Budget, or any previously reported subsidy rates. 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. The SBLF portfolio has had no defaults to date.

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
 

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lifetime dividend and interest payments to Treasury as a result of higher-than-projected increases in 

small business lending by program participants, in accordance with the lending incentives provided for 

by the Act. Changes in economic projections also contributed to the decrease in program cost. Inclusive 

of these changes, the program’s projected lifetime positive return is $25 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 projected outlays

for fiscal year2014, reported herein, 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, 

projected outlays for fiscal year 2014 totaled $13.8 million.

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

as of March 31, 2014. Descriptions of the expense categories follow the table.

SBLF Outlays and Obligations for Fiscal Year 2014

 

Budget for 

fiscal year 

20141

Outlays 

as of 

3/31/142

Obligations

as of 

3/31/143

Projected 

outlays for 

fiscal year 

2014

Salaries and benefits 3,609,000 1,255,100 1,255,100 2,928,479

Travel 20,000 0 0 20,000

Contracts and other

Legal support n/a 0 0 0

Custodian and infrastructure provider n/a 1,533,342 2,748,294 2,501,000

Asset management n/a 1,167,575 2,251,509 4,573,000

Internal controls n/a 0 0 1,600,000

Office of the Treasury Inspector General n/a 295,174 969,489 1,001,011

Other (equipment, supplies, rent) n/a 290,797 485,150 1,158,207

Subtotal (contracts and other) 16,840,000 3,286,888 6,454,442 10,833,218

Total 20,469,000 4,541,988 7,709,541 13,781,697 

[1] Represents the total budget for the SBLF program for fiscal year 2014 per the 2015 President's Budget. 

[2] Includes outlays from 10/1/13 to 3/31/14 for fiscal year 2014 obligations only.

[3] Includes all fiscal year 2014 obligations as of 3/31/14. 

[4] Includes all fiscal year 2014 obligations and projected outlays for the year as of 3/31/14.

 
 

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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. The projected outlays of $13.8 million for fiscal year 2014 are 33 percent below 

budget for the period. 

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) are 

presented below:

• Legal Support: These expenses are for legal services incurred in connection with transactions 

related to the management of the investments. 

• Custodian and Infrastructure Provider: These expenses relate to bank custodial services with 

respect to SBLF securities and documents, and payments processing for SBLF participants. 

• Asset Management: These expenses relate to 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, systems, information databases, and other documentation for monitoring 

and managing program activities. Because internal controls work performed in fiscal year 2014

was obligated in fiscal year 2013, no additional obligation for fiscal year 2014 was required.

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

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

the SBLF no less than two times each year. The Fiscal Year 2014 obligation amount for audit 

related activities is $1,001,011.