Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

2

September 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 that was designed to provide capital to qualified community 

banks1 and community development loan funds to encourage small business lending. The purpose of the 

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

promote economic growth in communities across the nation. 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. 

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 ending March 31, 2017. 

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

$73 million2

, excluding administrative costs. In addition, by March 31, 2017, Treasury incurred $1.9

million in obligations for the SBLF program, $10.5 million less than the operating budget of $12.4 million 

based on actual FY17 budget authority. 

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 

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

As of August 31, 2017, 273 institutions with aggregate investments of $3.71 billion have fully redeemed 

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

 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

investments of $3.66 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.3

 

As of March 31, 2017, the total increase in small business lending reported by current and former SBLF 

participants is $18.8 billion over the baseline4

. 

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

positive return of $73 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) 2018.

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

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

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

the Federal Credit Reform Act methodology using actual program data for FYs 2011 - 2016. This data, 

combined with the expected future cash flows, results in a subsidy rate of -1.82 percent compared to an 

original subsidy rate of 7.24 percent. 

As required by the 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 rate (i.e., lost principal, interest, and dividends) of 0.39 percent compared to 0.42 percent in the 

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

 3 Only redemptions through fiscal year 2016 are included in the calculation of the lifetime subsidy. 4 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. 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

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 $73 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 March 31, 2017, 

outlays for fiscal year 2017 totaled $1.38 million.

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

as of March 31, 2017. Descriptions of the expense categories follow the Outlays and Obligations table.

Budget for 

Fiscal Year 

2017a

Outlays 

as of March 

31, 2017b

Obligations

as of March 31, 

2017c

Total Obligations 

and Outlays

as of March 31, 

2017c

Salaries and benefits 2,382,770 730,910 0 730,910

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 0 0 0

 Office of the Treasury IG n/a 84,544 677,226 761,770

 Other (equipment, supplies, rent) n/a 572,349 1,407,472 2,175,069

Subtotal (contracts and other) 10,001,615 656,893 2,084,698 2,936,839

$ Total 12,404,385 1,388,929 2,084,698 3,668,875

a Represents actual budget authority for the Small Business Loan Fund program for fiscal year 

(FY) 2017. 

b Includes outlays from Oct. 1, 2016, to March 31, 2017. There are no outlays reported for 

custodian and infrastructure provider, asset management, and internal controls because there 

were no new obligations for these providers during this period.

c Includes all FY 2017 obligations from Oct. 1, 2016, to March 31, 2017. New obligations for 

custodian and infrastructure provider, asset management, and internal controls were not made 

during this period because funding remained on previous year obligations.

 
 

5

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 legal support 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, systems, 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 2017 budgeted amount for audit related activities was

$761,770.