Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

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June 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 September 30, 2014. 

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

$10 million, excluding administrative costs. In addition, Treasury incurred $16.5 million in fiscal year 

2014 obligations for the SBLF program, which is $4 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 March 1, 2015, 57 institutions with aggregate investments of $873 million have fully redeemed 

their SBLF securities and exited the program, and 26 institutions have partially redeemed a total of $271

million but continue to participate in the program.

2

 

As of September 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. 

 

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 2014 are included in the calculation of the lifetime subsidy.
 

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In total, SBLF participants have increased their small business lending by $14.3 billion over a $31.6 billion 

baseline3, and by $720 million over the prior quarter.

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.

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 2014, reported herein, primarily reflect the costs of monitoring the performance and compliance of 

 

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. 

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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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, 2014, outlays for fiscal year 2014 totaled $12.1 million.

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

as of September 30, 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 9/30/142

Obligations

as of 9/30/143

Projected Outlays for 

Fiscal Year 

2014

Salaries and benefits 3,609,000 2,239,705 2,239,705 2,239,705

Travel 20,000 1,898 1,898 3,796

Contracts and other

Legal support n/a 0 111,755 111,755

Custodian and infrastructure 

provider n/a 2,835,482 3,509,249 3,509,249

Asset management n/a 4,555,700 5,544,891 5,544,891

Internal controls n/a 0 1,624,925 1,624,925

Office of the Treasury Inspector 

General n/a 730,279 1,001,011 1,001,011

Other (equipment, supplies, rent) n/a 1,779,140 2,504,696 2,504,696

Subtotal (contracts and other) 16,840,000 9,900,601 14,296,528 14,296,528

Total 20,469,000 12,142,203 16,538,130 16,538,130

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

[2] Includes outlays from 4/1/2014 to 9/30/2014 for fiscal year 2014 obligations only.

[3] Includes all fiscal year 2014 obligations as of 9/30/2014 

 
 

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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

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 in which outlays totaled $730,279.