Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

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December 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 banks1and 

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, 2015. 

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

$10 million, excluding administrative costs. In addition, Treasury incurred $11.1 million in fiscal year 

2015 obligations for the SBLF program, which is $6 million less than the operating budget of $17.3

million as presented in the President’s Budget for fiscal year 2015. 

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 September 1, 2015, 79 institutions with aggregate investments of $1.3 billion have fully redeemed 

their SBLF securities and exited the program, and 32 institutions have partially redeemed a total of $348

million but continue to participate in the program.

2

 

As of June 30, 2015, 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 

 

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 FY 2015 are included in the calculation of the lifetime subsidy.
 

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total, SBLF participants have increased their small business lending by $14.8 billion over a $30 billion 

baseline.

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.

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

lifetime positive return of $10 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 2016.

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, 2013 and 2014. This data, combined with the expected future cash flows, results in a subsidy rate 

of -0.26 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 2.32 percent compared to a 4.03 percent rate 

in the prior year’s estimate. 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 a reduction in expected lifetime 

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

Inclusive of these changes, the program’s projected lifetime positive return is $10 million.

 

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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. 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

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

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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 2015, 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, as of March 

31, 2015, outlays for fiscal year 2015 totaled $4.6 million.

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

as of March 31, 2015. Descriptions of the expense categories follow the table.

SBLF Outlays and Obligations for Fiscal Year 2015

Budget for 

fiscal year 

2015

1

Outlays 

as of 

3/31/15

2

Obligations

as of 

3/31/15

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Projected 

outlays for 

fiscal year 

2015

Salaries and benefits 3,727,000 1,106,088 1,106,088 2,212,176

Travel 20,000 397 1,604 2,002

Contracts and other

Legal support n/a 0 0 0

Custodian and infrastructure provider n/a 542,007 453,833 995,840

Asset management n/a 2,040,367 1,940851 3,981,218

Internal controls n/a 0 0 1,390,520

Office of the Treasury Inspector General n/a 0 0 628,108

Other (equipment, supplies, rent) n/a 946,577 1,012,692 1,959,865

Subtotal (contracts and other) 13,634,000 3,528,951 3,407,376 8,955,551

Total 17,361,000 4,635,314 4,513,189 11,167,620

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

[2] Includes outlays from 10/1/2014 to 3/31/2015 for fiscal year 2015 obligations only.

[3] Includes all fiscal year 2015 obligations as of 3/31/2015 

 
 

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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) 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

and 2015 was obligated in fiscal year 2013, no additional obligation for fiscal year 2015 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 2015 budgeted amount for audit 

related activities was $628,000.