Source: https://www.everycrsreport.com/reports/R46284.html
Timestamp: 2020-03-30 00:21:50
Document Index: 30450453

Matched Legal Cases: ['§636', '§636', '§636', '§120', '§123', '§123', '§121', '§1116', '§120', '§120', '§120', '§120', '§120', '§111', '§648', '§648', '§120', '§644', 'art 19', '§8020', '§219', '§8127']

COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options - EveryCRSReport.com
March 25, 2020 – March 27, 2020 R46284
The U.S. Small Business Administration (SBA) administers several types of programs to support small businesses, including direct disaster loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; loan guaranty and venture capital programs to enhance small business access to capital; small business management and technical assistance training programs to assist business formation and expansion; and contracting programs to increase small business opportunities in federal contracting.
Congressional interest in these programs has always been high, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs, but it has become especially acute in the wake of the coronavirus (COVID-19) pandemic’s widespread adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households.
This report provides a brief description of the SBA’s programs, examines congressional action to assist small businesses during and immediately following the Great Recession (2007-2009), and discusses recent legislation to assist small businesses adversely affected by the COVID-19 pandemic. This legislation includes
P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA’s Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense.
S. 3519, the Small Business Debt Relief Act, as introduced, which would authorize to be appropriated $16.8 billion to pay the principal, interest, and any associated fees that are owed on a 7(a) loan, 504/CDC loan, or Microloan for six-months.
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, which would make numerous changes to the SBA’s programs.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as passed by the Senate (see H.R. 748), would make numerous changes to the SBA’s programs.
Many of the proposals being considered to address the needs of small businesses adversely affected by the COVID-19 pandemic were used to address the severe economic slowdown during and immediately following the Great Recession. The main difference today is that given the unique nature of the COVID-19 pandemic’s impact on households, especially physical distancing and the resulting decrease in consumer spending, there is an added emphasis today on SBA loan deferrals and loan forgiveness.
One lesson learned from the actions taken during the 111th Congress to assist small businesses during and immediately following the Great Recession is the potential benefits that can be derived from providing additional funding for the SBA’s Office of Inspector General (OIG) and the Government Accountability Office (GAO). GAO and the SBA’s OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA’s administration of legislation to address the adverse economic impact of COVID-19 on small businesses, provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud. Requiring the SBA to report regularly on its implementation of this legislation could promote transparency and assist Congress in performing its oversight responsibilities. In addition, requiring both output and outcome performance measures and requiring the SBA to report this information to Congress and the public by posting that information on the SBA’s website could enhance congressional oversight and public confidence in the SBA’s efforts to assist small businesses.
Updated March 27, 2020 (R46284)
Initial EIDL Response to COVID-19
EIDL Funding
Surge Issues and Loan Processing Times
SBA EIDL Repayment and Forgiveness
SBA EIDL Interest Rates
SBA Capital Access Programs
504/CDC Refinancing Program
SBA Loan Enhancements to Address the Great Recession
Current Issues, Debates, and Lessons Learned
SBA Entrepreneurial Development Programs
SCORE (formerly the Service Corps of Retired Executives)
Current Issues, Debates and Lessons Learned
Appendix. Summary of Legislative Provisions
Congressional interest in these programs has always been high, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs, but it has become especially acute in the wake of the coronavirus (COVID-19) pandemic's widespread adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households.
This report provides a brief description of the SBA's programs, examines congressional action to assist small businesses during and immediately following the Great Recession (2007-2009), and discusses recent legislation to assist small businesses adversely affected by the COVID-19 pandemic. This legislation includes
P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA's Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense.
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, which would make numerous changes to the SBA's programs.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as passed by the Senate (see H.R. 748), would make numerous changes to the SBA's programs.
Many of the proposals being considered to address the needs of small businesses adversely affected by the COVID-19 pandemic were used to address the severe economic slowdown during and immediately following the Great Recession. The main difference today is that given the unique nature of the COVID-19 pandemic's impact on households, especially physical distancing and the resulting decrease in consumer spending, there is an added emphasis today on SBA loan deferrals and loan forgiveness.
One lesson learned from the actions taken during the 111th Congress to assist small businesses during and immediately following the Great Recession is the potential benefits that can be derived from providing additional funding for the SBA's Office of Inspector General (OIG) and the Government Accountability Office (GAO). GAO and the SBA's OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA's administration of legislation to address the adverse economic impact of COVID-19 on small businesses, provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud. Requiring the SBA to report regularly on its implementation of this legislation could promote transparency and assist Congress in performing its oversight responsibilities. In addition, requiring both output and outcome performance measures and requiring the SBA to report this information to Congress and the public by posting that information on the SBA's website could enhance congressional oversight and public confidence in the SBA's efforts to assist small businesses.
The Small Business Administration (SBA) administers several types of programs to support small businesses, including
direct disaster loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters;
loan guaranty and venture capital programs to enhance small business access to capital;
small business management and technical assistance training programs to assist business formation and expansion; and
contracting programs to increase small business opportunities in federal contracting.
Congressional interest in the SBA's programs has increased in recent years, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs. Congressional interest, however, has become especially acute in the wake of the coronavirus (COVID-19) pandemic's widespread adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households.
Congress has already taken action to address COVID-19's impact on small businesses by passing P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020. The act provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA's Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense.
Congress is also considering further action. For example,
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, would make numerous changes to SBA programs, including authorize to be appropriated $5 billion for fee reductions, increasing loan guarantee amounts, and 7(a) program levels, $177 million for disaster loan administrative expenses, $1.04 billion for disaster loan credit subsidies, and $200 million for the SBA's salaries and expenses account.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as passed by the Senate (see H.R. 748), would make numerous changes to SBA programs, including appropriate $349 billion for loan guarantees and subsidies, $675 million for the SBA's salaries and expenses account, $25 million for the SBA's Office of Inspector General (OIG), $265 million for entrepreneurial development programs ($192 million for SBDCs, $48 million for WBCs, and $25 million for SBA resource partners to provide online information and training), $17 billion for subsidies for certain loan payments, and $10 million for the Department of Commerce's Minority Business Development Agency.
A summary of the provisions in S. 3518 and S. 3548, as introduced and as passed by the Senate, is presented in the Appendix.
This report begins with an overview of SBA disaster loans and discusses various issues related to providing disaster assistance to small businesses adversely affected by the coronavirus. It presents an overview and discussion of SBA access to capital programs (including the 7(a) loan guarantee, 504/CDC loan guarantee, and Microloan program), SBA management and technical training programs (SBDCs, WBCs, SCORE, and Microloan technical assistance), and SBA contracting programs.
SBA disaster assistance is provided in the form of loans, not grants, which must be repaid to the federal government. The SBA's disaster loans are unique in two respects: (1) they go directly to the ultimate borrower, and (2) they are not limited to small businesses.1
SBA disaster loans for physical damage are available to individuals, businesses of all sizes, and nonprofit organizations in declared disaster areas.2 SBA disaster loans for economic injury (EIDL) are available to eligible small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations in declared disaster areas. The SBA issues about 80% of its direct disaster loans to individuals and households (renters and property owners) to repair and replace homes and personal property. The SBA disbursed $401 million in disaster loans in FY2016, $889 million in FY2017, $3.59 billion in FY2018, and $1.5 billion in FY2019.3
The SBA Disaster Loan Program includes home disaster loans, business physical disaster loans, and EIDLs.4 This report focuses on the EIDL program because it is currently being used to address the adverse economic impact of the coronavirus (COVID-19) on small businesses and other EIDL-eligible organizations.
P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, deemed the coronavirus to be a disaster under the EIDL program. This change made economic injury from the coronavirus an eligible EIDL expense. The act also provided the SBA an additional $20 million for disaster loan administrative expenses.
For a discussion of all SBA disaster loans, see CRS Report R41309, The SBA Disaster Loan Program: Overview and Possible Issues for Congress, by Bruce R. Lindsay.
EIDLs provide up to $2 million for working capital (including fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster's impact) to help small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations meet their financial obligations and operating expenses that cannot be met as a direct result of the disaster.5
Public nonprofit organizations and several specific business types are not eligible for EIDL assistance. Ineligible businesses include, but are not limited to, the following:
businesses that do not meet the SBA's small business eligibility criteria, including the SBA's size standards;
businesses that derive more than one-third of their annual gross revenue from legal gambling activities;
casinos and racetracks;
political and lobbying concerns;
government-owned concerns (expect for businesses owned or controlled by a Native American tribe); and
businesses determined by the SBA to have credit available elsewhere.6
EIDL loan amounts are based on actual economic injury and financial needs, regardless of whether the business or eligible nonprofit suffered any property damage. If an applicant is a major source of employment, the SBA may waive the $2 million statutory limit.7 In addition, EIDL loan proceeds cannot be used to refinance long-term debt, expand facilities, pay dividends or bonuses, or for relocation.8
Applicants must have a credit history acceptable to the SBA, the ability to repay the loan, and present collateral for all EIDL loans over $25,000 if available. The SBA collateralizes real estate or other assets when available, but it will not deny a loan for lack of collateral.9
EIDL interest rates are determined by formulas established in law (discussed later) and are fixed for the life of the loan. EIDL interest rate ceilings are statutorily set at no more than 4% per annum. EIDL applicants are not eligible if the SBA determines that the applicant has credit available elsewhere.
EIDL loans can have maturities up to 30 years. The SBA determines an appropriate installment payment based on each borrower's financial condition, which, in turn, determines the loan term.10 There are no prepayment penalties.
SBA EIDL assistance is not automatically available. It must be requested in one of two ways: (1) a state or territory governor can submit a request to the President for a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act11 or (2) a state or governor can submit a request for SBA EIDL from the SBA Administrator under the Small Business Act.
There was some initial concern that COVID-19 would not be a declarable disaster under the Small Business Act because it did not meet the legal definition for a disaster. As mentioned, to prevent any potential ambiguity, Title II of P.L. 116-123 deemed the coronavirus a disaster under Section 7(b)(2)(D) of the Small Business Act, making economic injury from the coronavirus an eligible expense under the SBA's Economic Injury Disaster Loan program.
On March 16, 2020, the SBA Administrator began issuing declarations for SBA EIDLs in response to states seeking SBA disaster assistance for small businesses.12 The SBA changed its requirement that a state or territory "provide documentation certifying that at least five small businesses have suffered substantial economic injury as a result of the disaster, with at least one business located in each declared county/parish."13 Under new criteria, states and territories now "are only required to certify that at least five small businesses within the state/territory have suffered substantial economic injury, regardless of where the businesses are located."14 The SBA announced that under the new criteria EIDL assistance may be available statewide instead of just within specific identified counties in declarations related to COVID-19.
The SBA currently has about $1.1 billion in disaster loan credit subsidy available to support about $7 billion to $8 billion in disaster loans. Loan credit subsidy is the amount provided to cover the government's cost of extending or guaranteeing credit.15 The loan credit subsidy amount is about one-seventh of the cost of each disaster loan.16 The credit subsidy amount is used to protect the government against the risk of estimated shortfalls in loan repayments. It remains to be seen if the SBA's current funding for disaster loan credit subsidies will meet the demand for disaster loans now that EIDL eligibility has been extended to economic injuries related to the coronavirus.
The CARES Act, as passed by the Senate, would provide temporary EIDL program enhancements and an additional $10 billion to support the program.
Historically, the majority (80%) of SBA disaster loans have been for individuals and households. The significant number of businesses that will likely apply for EIDL assistance because of the economic damage the coronavirus caused may require the SBA to enhance its disaster business loan portfolio and increase staff to meet demand. As mentioned, in anticipation of increased EIDL demand, Title II of P.L. 116-123 provided the SBA with an additional $20 million, to remain available until expended, for SBA Disaster Loan Program administrative expenses.
A Government Accountability Office (GAO) report found that the SBA provided disaster loans in roughly 18 days or less in response to Hurricanes Harvey, Irma, and Maria in 2017.17 Although the 2017 hurricanes created a high demand at that time for SBA disaster loans, it is unclear if GAO's findings can be extrapolated to the current COVID-19 pandemic. The sheer volume of EIDL applications in response to COVID-19 could be significantly higher because COVID-19 affects a much larger number of small businesses and organizations. In addition, the time needed for the SBA to expand the disaster loan portfolio and hire and train new and existing staff could compromise loan processing times.
Loan processing times may be of significant concern to Congress and business owners alike. If loans are not processed quickly enough, businesses nationwide may suffer economic damage and, potentially, collapse. Consequently, Congress may examine options that could expedite loan processing, such as increased staffing and surge capabilities, waiving application requirements, and the use of expedited loans or bridge loans.
Expedited Disaster Loans and Bridge Loans
In response to criticism of SBA's disaster loan processing following the Gulf Coast hurricanes of 2005 and 2008, Congress passed P.L. 110-234, the Small Business Disaster Response and Loan Improvements Act of 2008.18 The act created several programs to improve the disaster loan processing.19 Among them were the following:
Expedited Disaster Assistance Loan Program (EDALP) to provide eligible EIDL applicants with expedited access to short-term guaranteed loans of up to $150,000.20
Immediate Disaster Assistance Program (IDAP) to provide eligible EIDL applicants with guaranteed bridge loans of up to $25,000 from private-sector lenders, with an SBA decision within 36 hours of a lender's application on behalf of a borrower.21
Private Disaster Assistance Program (PDAP) to make guaranteed loans available to homeowners and eligible EIDL applicants in an amount up to $2 million.22
The SBA, however, had difficulty implementing these programs. In his statement before the House Committee on Small Business, then-acting (and now the current) SBA Inspector General, Hannibal "Mike" Ware, stated,
In the wake of disasters like Hurricane Sandy, congressional representatives expressed concern that SBA did not effectively develop and utilize programmatic innovations intended to assist in disbursing funds quickly and effectively. For instance, SBA did not implement statutory provisions of the Immediate Disaster Assistance Program (IDAP), Economic Injury Disaster Assistance Program (EDAP), and the Private Disaster Assistance Programs (PDAP), collectively known as the "Guaranteed Disaster Assistance Programs" mandated by Congress in 2008. These provisions were enacted with the expectation that they would allow SBA to provide expedited disaster loans in partnership with private sector lenders. These provisions remain unimplemented.23
He added that the SBA had difficulty implementing the programs because private lenders were reluctant to participate in the program. He mentioned the following impediments:
[the] cost of program participation under the current pricing structure and the lender's lack of infrastructure to deliver loans that meet SBA standards (such as evaluating eligibility and duplication of benefits); loan terms that include longer maturities than conventional lending practices; the high cost of providing these loans; inadequate collateral security; and their lack of expertise in the home loan sector. Lenders were also concerned that loan guarantees would be denied due to improper eligibility determinations.
Because these programs had limited use, Congress included a provision in P.L. 115-141, the Consolidated Appropriations Act, 2018, which permanently cancelled $2.6 million in unobligated balances available for the IDAP and the EDALP.
Rather than relying on outside lenders, Congress could make express loans and bridge loans available directly from the SBA. Congress could also implement measures to expedite loan processing, such as waiving collateral requirements, instituting measures that would streamline the application process (such as waiving certain document requirements), and requiring SBA to adhere to certain timelines with respect to loan evaluations and disbursals.
The CARES Act, as passed by the Senate, would authorize several changes that could expedite the EIDL approval process. For example, the bill, as amended, would authorize the SBA Administrator, in response to economic injuries caused by COVID-19, to waive the "no credit available elsewhere" requirement, approve an applicant based solely on their credit score, not require applicants to submit a tax return or tax return transcript for approval, waive any rules related to the personal guarantee on advances and loans of not more than $200,000, and waive the requirement that the applicant be in business for the one-year period before the disaster declaration.
The SBA Administrator would also be authorized to provide up to $10,000 as an advance payment in the amount requested within three days after receiving an EIDL application from an eligible entity. Applicants are not required to repay the advance payment, even if subsequently denied an EIDL loan.
Under present law and regulations, the first SBA EIDL payment is normally due five months after disbursement. However, the SBA has announced that it is changing the terms of new EIDL assistance to allow for deferment through December 31, 2020 "to help borrowers during this unprecedented time."24 However, according to SBA's standard operating procedures manual (SOP) "the interest accrual during these deferment periods can be significant, and may result in substantially higher installment payments to amortize the loan within the term."
The CARES Act, as passed by the Senate, would require lenders to provide "impacted borrowers" adversely affected by COVID-19 complete payment deferment relief on a covered loan for not more than one year if the borrower was in operation on February 15, 2020, and has an application for a covered loan approved or pending approval on or after the date of enactment. The bill, as amended, presumes that each eligible recipient that applies for a covered loan is an impacted borrower and authorizes the SBA Administrator to purchase covered loans sold on the secondary market so that impacted borrowers may receive a deferral for not more than one year.
The CARES Act, as passed by the Senate, also provides for loan forgiveness under specified conditions. Loan forgiveness is rare, but has been used in the past to help businesses that were having difficulty repaying their loans. For example, loan forgiveness was granted after Hurricane Betsy, when President Lyndon B. Johnson signed the Southeast Hurricane Disaster Relief Act of 1965.25 Section 3 of the act authorized the SBA Administrator to grant disaster loan forgiveness or issue waivers for property lost or damaged in Florida, Louisiana, and Mississippi as a result of the hurricane. The act stated that,
to the extent such loss or damage is not compensated for by insurance or otherwise, (1) shall at the borrower's option on that part of any loan in excess of $500, (A) cancel up to $1,800 of the loan, or (B) waive interest due on the loan in a total amount of not more than $1,800 over a period not to exceed three years; and (2) may lend to a privately owned school, college, or university without regard to whether the required financial assistance is otherwise available from private sources, and may waive interest payments and defer principal payments on such a loan for the first three years of the term of the loan.26
Historically, businesses that suffer uninsured loss as a result of a major disaster declaration are not eligible for Federal Emergency Management Agency (FEMA) grant assistance, and grant assistance from other federal sources is limited. On some occasions, Congress has provided disaster assistance to businesses through the Department of Housing and Urban Development's (HUD's) Community Development Block Grant (CDBG) program. The CDBG program provides loans and grants to eligible businesses to help them recover from disasters as well as grants intended to attract new businesses to the disaster-stricken area. In a few cases, CDBG has also been used to compensate businesses and workers for lost wages or revenues.
Although the President issued the first major disaster declaration to New York for COVID-19,27 CDBG disaster assistance is not available for all major disasters. States can use CDBG funding to respond to emergencies or other "urgent needs" through the conventional CDBG entitlement and states program,28 but existing (or future) CDBG monies generally must be reprogrammed in consultation with HUD to respond to the emergency.29 For these reasons, CDBG is generally used for long-term recovery needs rather than providing immediate, direct disaster assistance.
Thus, Congress could consider providing business grants through FEMA or the SBA. Enlisting FEMA to administer the program may offer several benefits. First, FEMA already has grant processing operations in place. It might be relatively easier to expand the operations to include small businesses disaster grants rather than establishing new grant-making operations within SBA. Second, having FEMA administer the small business disaster grant program may limit duplication of administrative functions between FEMA and SBA. Third, it would provide access to FEMA's Disaster Relief Fund (DRF) which at the time of this writing has roughly $41 billion for disaster assistance activities.30
In contrast, Congress could decide to have SBA administer the program because it already has a framework in place to evaluate business disaster needs and disaster loan eligibility. Congress may need to make statutory changes to SBA's disaster loan account or authorize a new account to receive appropriations for disaster grants.
Another concern about providing grants to businesses is whether businesses provided SBA EIDL will be eligible for grant assistance. For example, in some cases homeowners and businesses that accepted disaster loans were deemed ineligible for disaster grants. This may make some businesses reluctant to apply for SBA EIDL and instead hold out for the possibility of a grant. Congress may therefore allow businesses to use grant money to pay down their SBA EIDL.
Another potential concern is waste, fraud, and abuse. For example, Section 1210 of the Disaster Recovery Reform Act of 2018 (DRRA, Division D of P.L. 115-254) prohibits the President from determining loans as duplicative assistance provided all federal assistance is used toward loss resulting from an emergency or major disaster under the Stafford Act. Consequently, businesses that obtain SBA EIDL and a grant for the same purposes would conceivably not be required to pay back the duplicative award.
Congress could consider limiting grants to relatively small businesses as compared to what is considered a small business according to SBA size standards.31 For example, business grants could be limited to businesses with 10 or fewer employees.
The CARES Act, as passed by the Senate, would authorize the SBA Administrator to provide up to $10,000 as an advance payment in the amount requested within three days after receiving an EIDL application from an eligible entity. Applicants are not required to repay the advance payment, even if subsequently denied an EIDL loan. The bill, as amended, addresses waste, fraud, and abuse by providing the SBA's OIG $25 million for oversight of the SBA's administration of its lending programs and for investigations to serve as a general deterrent to fraud, waste, and abuse.
According to the SBA's March 17, 2020, press release, SBA EIDL interest rates for COVD-19 are 3.75% for businesses and 2.75% for nonprofit organizations.32
SBA disaster loan interest rates have been a long-standing congressional concern. First, there is concern about the ability of disaster victims to pay off their loans. Second, there is concern about how interest rates are determined given the complexity of the statutory language about disaster loan interest rates. 15 U.S.C. §636(d)(5)(C)) states that interest rates are "in the case of a business, private nonprofit organization, or other concern, including agricultural cooperatives, unable to obtain credit elsewhere, not to exceed 4 per centum per annum."33 To determine EIDL interest rates, SBA uses a formula under 15 U.S.C. §636(d)(4)(A):
Notwithstanding the provisions of the constitution of any State or the laws of any State limiting the rate or amount of interest which may be charged, taken, received, or reserved, the maximum legal rate of interest on any financing made on a deferred basis pursuant to this subsection shall not exceed a rate prescribed by the Administration, and the rate of interest for the Administration's share of any direct or immediate participation loan shall not exceed the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans and adjusted to the nearest one-eighth of 1 per centum, and an additional amount as determined by the Administration, but not to exceed 1 per centum per annum: Provided, That for those loans to assist any public or private organization for the handicapped or to assist any handicapped individual as provided in paragraph (10) of this subsection, the interest rate shall be 3 per centum per annum.
Congress could request SBA to reevaluate its interpretation of 15 U.S.C. §636(d)(4)(A) and provide detailed information explaining how the formula provides nonprofit organizations with lower interest rates than small businesses. Alternatively, Congress could change the formula under the Small Business Act if it considered the language ambiguous, or it could designate an interest rate (including a zero interest rate) for all SBA EIDL for the duration of COVID-19.
The SBA has authority to make direct loans but, with the exception of disaster loans and loans to Microloan program intermediaries, has not exercised that authority since 1998.34 The SBA indicated that it stopped issuing direct business loans primarily because the subsidy rate was "10 to 15 times higher" than the subsidy rate for its loan guaranty programs.35 Instead of making direct loans, the SBA guarantees loans issued by approved lenders to encourage those lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions."36 With few exceptions, to qualify for SBA assistance, an organization must be both a for-profit business and small.37
To participate in any of the SBA loan guaranty programs, a business must meet the Small Business Act's definition of small business. This is a business that
is not dominant in its field on a national basis;38 and
does not exceed size standards established, and updated periodically, by the SBA.39
What Is "Small"?40
The SBA uses two measures to determine if a business is small: SBA-derived industry specific size standards or a combination of the business's net worth and net income. For example, businesses participating in the SBA's 7(a) loan guaranty program are deemed small if they either meet the SBA's industry-specific size standards for firms in 1,047 industrial classifications in 18 subindustry activities described in the North American Industry Classification System (NAICS) or do not have more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes (excluding any carryover losses) for the two full fiscal years before the date of the application. All of the company's subsidiaries, parent companies, and affiliates are considered in determining if it meets the size standard.41
The SBA's industry size standards vary by industry, and they are based on one of the following four measures: the firm's (1) average annual receipts in the previous three (or five) years, (2) number of employees, (3) asset size, or (4) for refineries, a combination of number of employees and barrel per day refining capacity. Historically, the SBA has used the number of employees to determine if manufacturing and mining companies are small and average annual receipts for most other industries.
The SBA's size standards are designed to encourage competition within each industry. They are derived through an assessment of the following four economic factors: "average firm size, average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as a measure of industry competition, and size distribution of firms."42 The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors "as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses."43
The SBA provides loan guarantees for small businesses that cannot obtain credit elsewhere. Its largest loan guaranty programs are the 7(a) loan guaranty program, the 504/CDC loan guaranty program, and the Microloan program.
The SBA's loan guaranty programs require personal guarantees from borrowers and share the risk of default with lenders by making the guaranty less than 100%. In the event of a default, the borrower owes the amount contracted less the value of any collateral liquidated. The SBA can attempt to recover the unpaid debt through administrative offset, salary offset, or IRS tax refund offset. Most types of businesses are eligible for loan guarantees. A list of ineligible businesses (such as insurance companies, real estate investment firms, firms involved in financial speculation or pyramid sales, and businesses involved in illegal activities) is contained in 13 C.F.R. §120.110.44 With one exception, nonprofit and charitable organizations are also ineligible.45
Most of these programs charge fees to help offset program costs, including costs related to loan defaults. In most instances, the fees are set in statute. For example, for 7(a) loans with a maturity exceeding 12 months, the SBA is authorized to charge lenders an up-front guaranty fee of up to 2% for the SBA guaranteed portion of loans of $150,000 or less, up to 3% for the SBA guaranteed portion of loans exceeding $150,000 but not more than $700,000, and up to 3.5% for the SBA guaranteed portion of loans exceeding $700,000. Lenders who have a 7(a) loan that has a SBA guaranteed portion in excess of $1 million can be charged an additional fee not to exceed 0.25% of the guaranteed amount in excess of $1 million.
7(a) loans are also subject to an ongoing servicing fee not to exceed 0.55% of the outstanding balance of the guaranteed portion of the loan.46 In addition, lenders are authorized to collect fees from borrowers to offset their administrative expenses.
In an effort to assist small business owners, the SBA has, from time-to-time, reduced its fees. For example, in FY2019, the SBA waived the annual service fee for 7(a) loans of $150,000 or less made to small businesses located in a rural area or a HUBZone and reduced the up-front one-time guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan.47
In addition, pursuant to P.L. 114-38, the Veterans Entrepreneurship Act of 2015, the SBA is required to waive the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program (up to and including $350,000) "except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero."48
7(a) Loan Guaranty Program49
The 7(a) loan guaranty program is named after the section of the Small Business Act that authorizes it. The loans are made by SBA lending partners (mostly banks but also some other financial institutions) and partially guaranteed by the SBA. Borrowers may use 7(a) loan proceeds to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. 7(a) loan proceeds may be used to
refinance certain outstanding debts.50
In FY2019, the SBA approved 51,907 7(a) loans to 46,111 small businesses totaling $23.2 billion. In FY2019, there were 1,708 active lending partners providing 7(a) loans.
The 7(a) program's current guaranty rate is 85% for loans of $150,000 or less and 75% for loans greater than $150,000 (up to a maximum guaranty of $3.75 million, or 75% of $5 million).51 Although the SBA's offer to guarantee a loan provides an incentive for lenders to make the loan, lenders are not required to do so.
A 7(a) loan is required to have the shortest appropriate term, depending upon the borrower's ability to repay. The maximum term is 10 years, unless the loan finances or refinances real estate or equipment with a useful life exceeding 10 years. In that case, the loan term can be up to 25 years, including extensions.52
Lenders are permitted to charge borrowers fees to recoup specified expenses and are allowed to charge borrowers "a reasonable fixed interest rate" or, with the SBA's approval, a variable interest rate. The SBA uses a multistep formula to determine the maximum allowable fixed interest rate for all 7(a) loans (with the exception of the Export Working Capital Program and Community Advantage loans) and periodically publishes that rate and the maximum allowable variable interest rate in the Federal Register.53
In March 2020, the maximum allowable fixed interest rates are 12.75% for 7(a) loans of $25,000 or less; 11.75% for loans over $25,000 but not exceeding $50,000; 10.75% for loans over $50,000 up to and including $250,000; and 9.75% for loans greater than $250,000.54
Maximum interest rates allowed on variable-rate 7(a) loans are pegged to either the prime rate, the 30-day London Interbank Offered Rate (LIBOR) plus 3%, or the SBA optional peg rate, which is a weighted average of rates that the federal government pays for loans with maturities similar to the guaranteed loan. The allowed spread over the prime rate, LIBOR base rate, or SBA optional peg rate depends on the loan amount and the loan's maturity (under seven years or seven years or more). 55 The adjustment period can be no more than monthly and cannot change over the life of the loan.
The 504/CDC Loan Guaranty Program56
The 504/CDC loan guaranty program uses Certified Development Companies (CDCs), which are private, nonprofit corporations established to contribute to economic development within their communities. Each CDC has its own geographic territory. The program provides long-term, fixed-rate loans for major fixed assets, such as land, structures, machinery, and equipment. Program loans cannot be used for working capital, inventory, or repaying debt. A commercial lender provides up to 50% of the financing package, which is secured by a senior lien. The CDC's loan of up to 40% is secured by a junior lien. The SBA backs the CDC with a guaranteed debenture.57 The small business must contribute at least 10% as equity.
Maximum 504/CDC participation in a single project is $5 million and $5.5 million for manufacturers and specified energy-related projects; the minimum is $25,000. There is no limit on the project size. Loan maturity is 10 years for equipment and 20 or 25 years for real estate. Unguaranteed financing may have a shorter term. The maximum fixed interest rate allowed is established when the debenture backing the loan is sold and is pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues.
The SBA is authorized to charge CDCs
a one-time, up-front guaranty fee of up to 0.5% of the debenture (0.5% in FY2020),
an annual servicing fee of up to 0.9375% of the unpaid principal balance (0.3205% for regular 504/CDC loans and 0.322% for 504/CDC debt refinance loans in FY2020),
a funding fee (not to exceed 0.25% of the debenture), an annual development company fee (0.125% of the debenture's outstanding principal balance), and
a one-time participation fee (0.5% of the senior mortgage loan if in a senior lien position to the SBA and the loan was approved after September 30, 1996).
In addition, CDCs are allowed to charge borrowers a processing (or packaging) fee of up to 1.5% of the net debenture proceeds and a closing fee, servicing fee, late fee, assumption fee, Central Servicing Agent (CSA) fee, other agent fees, and an underwriters' fee.
In FY2019, the SBA approved 6,099 504/CDC loans to 6,008 small businesses totaling nearly $5.0 billion.58 In FY2019, 212 CDCs provided at least one 504/CDC loan.59
During the Great Recession (2007-2009), Congress authorized the SBA to temporarily allow, under specified circumstances, the use of 504/CDC program funds to refinance existing commercial debt (e.g., not from SBA-guaranteed loans) for business expansion under the 504/CDC program.60 In 2010, Congress authorized, for two years, the expansion of the types of projects eligible for refinancing of existing debt under the 504/CDC program to include projects not involving business expansion, provided the projects met specific criteria.61 In the 114th Congress, Congress reinstated the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the 504/CDC program as a whole do not have credit subsidy costs.62 Specifically, each CDC is required to limit its refinancing so that, during any fiscal year, the new refinancing does not exceed 50% of the dollars it loaned under the 504/CDC program during the previous fiscal year. This limitation may be waived if the SBA determines that the refinance loan is needed for good cause.
Commercial loans eligible for the 504/CDC Refinancing program being used to finance long-term fixed asset debt cannot have a loan-to-value (LTV) ratio of more than 90% of the fair market value of the eligible fixed asset(s) serving as collateral. Loans that are used to partly refinance eligible business operating expenses (e.g., salaries, rent, utilities) cannot exceed an LTV ratio of more than 85% of the fair market value of the collateral. The fees associated with the 504/CDC Refinancing program are the same as the 504/CDC Loan Guaranty program except the ongoing guaranty servicing fee may vary. In FY2020, the annual guaranty servicing fee is 0.3205% for regular 504/CDC loans and 0.322% for 504/CDC debt refinance loans.
In FY2019, the SBA approved 166 refinancing loans totaling $154.8 million.63
The Microloan Program64
The Microloan program provides direct loans to qualified nonprofit intermediary Microloan lenders that, in turn, provide "microloans" of up to $50,000 to small businesses and nonprofit child care centers. Microloan lenders also provide marketing, management, and technical assistance to Microloan borrowers and potential borrowers.
The program was authorized in 1991 as a five-year demonstration project and became operational in 1992. It was made permanent, subject to reauthorization, by P.L. 105-135, the Small Business Reauthorization Act of 1997. Although the program is open to all small businesses, it targets new and early stage businesses in underserved markets, including borrowers with little to no credit history, low-income borrowers, and women and minority entrepreneurs in both rural and urban areas who generally do not qualify for conventional loans or other, larger SBA guaranteed loans.
Microloans can be used for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans cannot be made to acquire land or property. Loan terms are up to seven years.
In FY2019, 5,533 small businesses received a Microloan, totaling $81.5 million.65 The average Microloan was $14,735 and the average interest rate was 7.5%.66
Many of the proposals under consideration to address the capital needs of small businesses adversely affected by the COVID-19 pandemic were used to address the severe economic slowdown during and immediately following the Great Recession (2007-2009). The main difference today is that given the unique nature of the COVID-19 pandemic's impact on households, especially physical distancing and the resulting decrease in consumer spending, there is an added emphasis today on SBA loan deferrals and loan forgiveness.
During the 111th Congress, P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), provided the SBA an additional $730 million, including $375 million to temporarily subsidize the 7(a) and 504/CDC loan guaranty programs' fees ($299 million) and to temporarily increase the 7(a) program's maximum loan guaranty percentage to 90% ($76 million).67 ARRA also included provisions designed to increase the amount of leverage issued under the SBA's Small Business Investment Company (SBIC venture capital) program.68 SBICs provide loans and equity investments in small businesses.
ARRA's funding for the fee subsidies and 90% maximum loan guaranty percentage was about to be exhausted in November 2009, when Congress passed the first of six laws to provide additional funding to extend the loan subsidies and 90% maximum loan guaranty percentage.
P.L. 111-118, the Department of Defense Appropriations Act, 2010, provided the SBA $125 million to continue the fee subsidies and 90% maximum loan guaranty percentage through February 28, 2010.
P.L. 111-144, the Temporary Extension Act of 2010, provided the SBA $60 million to continue the fee subsidies and 90% maximum loan guaranty percentage through March 28, 2010.
P.L. 111-150, an act to extend the Small Business Loan Guarantee Program, and for other purposes, provided the SBA authority to reprogram $40 million in previously appropriated funds to continue the fee subsidies and 90% maximum loan guaranty percentage through April 30, 2010.
P.L. 111-157, the Continuing Extension Act of 2010, provided the SBA $80 million to continue the SBA's fee subsidies and 90% maximum loan guaranty percentage through May 31, 2010.
P.L. 111-240, the Small Business Jobs Act of 2010, provided $505 million (plus an additional $5 million for administrative expenses) to continue the SBA's fee subsidies and 90% maximum loan guaranty percentage from the act's date of enactment (September 27, 2010) through December 31, 2010.
P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to use funds provided under the Small Business Jobs Act of 2010 to continue the SBA's fee subsidies and 90% maximum loan guaranty percentage through March 4, 2011, or until available funding is exhausted.
On January 3, 2011, the SBA announced that the fee subsidies and 90% maximum guarantee percentage ended because funding for these enhancements had been exhausted.69
In addition to providing additional funding for fee subsidies, P.L. 111-240, among other provisions
increased the 7(a) program's gross loan limit from $2 million to $5 million;
increased the 504/CDC Program's loan limits from $1.5 million to $5 million for "regular" borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers;
temporarily expanded for two years the eligibility for low-interest refinancing under the SBA's 504/CDC program for qualified debt;
temporarily increased for one year the SBAExpress Program's loan limit from $350,000 to $1 million (expired on September 26, 2011);
increased the Microloan Program's loan limit for borrowers from $35,000 to $50,000; and increased the loan limits for Microloan intermediaries after their first year in the program from $3.5 million to $5 million;
authorized the U.S. Treasury to make up to $30 billion of capital investments for a Small Business Lending Fund ($4 billion was issued);70
authorized to be appropriated $1.5 billion for the State Small Business Credit Initiative Program;71
authorized a three-year Intermediary Lending Pilot Program to allow the SBA to make direct loans to not more than 20 eligible nonprofit lending intermediaries each year totaling not more than $20 million. The intermediaries, in turn, would be allowed to make loans to new or growing small businesses, not to exceed $200,000 per business;
established an alternative size standard for the 7(a) and 504/CDC loan programs to enable more small businesses to qualify for assistance;72 and
provided small businesses with about $12 billion in tax relief.73
There were also efforts during the 111th and 112th Congresses to require the SBA to reinstate direct lending to small businesses.
H.R. 3854, the Small Business Financing and Investment Act of 2009, was passed by the House on October 29, 2009, by a vote of 389-32. It would have authorized a temporary SBA direct lending program.74
H.R. 3007, the Give Credit to Main Street Act of 2011, introduced on September 21, 2011, and referred to the House Committee on Small Business, would have authorized the SBA to provide direct loans to small businesses that have been in operation as a small business for at least two years prior to its application for a direct loan. The maximum loan amount would have been the lesser of 10% of the firm's annual revenues or $500,000.
H.R. 5835, the Veterans Access to Capital Act of 2012, introduced on May 18, 2012, and referred to the House Committee on Small Business, would have authorized the SBA to provide up to 20% of the annual amount available for guaranteed loans under the 7(a) and 504/CDC loan guaranty programs, respectively, in direct loans to veteran-owned and -controlled small businesses.
During the 111th Congress (2009-2010), there was a consensus in Congress that the federal government had to take decisive action to address the capital needs of small businesses, primarily as a means to promote job retention and creation. Similar sentiments are being expressed today as Congress considers proposals to assist small businesses adversely affected by the COVID-19 pandemic.
Many Members of Congress argued during the 111th Congress that the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations with the expectation that in so doing small businesses will create jobs. Others worried about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocated business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to help small businesses further economic growth and job creation.
Given the coronavirus's widespread adverse economic impact, including productivity losses, supply chain disruptions, labor dislocation, and financial pressure on businesses and households, there has been relatively little concern expressed about federal fiscal restraint during the current pandemic. The debate has been primarily over which specific policies would have the greatest impact and which types of small businesses and small business owners should be helped the most.
As mentioned, many of the enhancements to the SBA's capital access programs that were made during the 111th Congress, such as increasing loan limits, providing fee subsidies, increasing loan guaranty percentages, and expanding eligibility criteria are being considered again. These changes had a demonstrated impact on small business lending during and immediately following the Great Recession. SBA lending increased. For example, the SBA's OIG found that SBA 7(a) loan approvals increased 39% and 504/CDC loan approval increased 73% from March to July 2009, largely due to ARRA's fee reductions and increased loan guarantee percentages. Lending volume remained below pre-recession levels, but was much higher than before the fee reductions and increase in the loan guarantee percentage were implemented.
The OIG also noted that the increased loan volume "may be impacting Agency staffing requirements and program risk.... Without adequate training and supervision, the increased demands on loan center staff could impact the quality of Agency loan reviews." 75
Also, in 2012, the SBA issued a press release lauding P.L. 111-240's impact on SBA loan volume:
With loan volume steadily increasing for the past six quarters, the U.S. Small Business Administration's loan programs posted the second largest dollar volume ever in FY 2012, supporting $30.25 billion in loans to small businesses. That amount was surpassed only by FY 2011, which was heavily boosted by the loan incentives under the Small Business Jobs Act of 2010.76
The data demonstrate that ARRA and the Small Business Jobs Act of 2010 helped small businesses access capital. However, because the SBA primarily gathers data on program output (e.g., loan volume, number of small businesses served, default rates) as opposed to program outcomes (e.g., small business solvency, job creation, wealth generation) it is difficult to know how effective these programs were in assisting small businesses or if other approaches might have produced better (or different) results.
Among the lessons learned from earlier small business stimulus packages is that additional funding for the SBA OIG to conduct oversight of the SBA's implementation of stimulus changes could help Congress in its oversight responsibilities. Additional funding for the SBA OIG to conduct investigations of potentially fraudulent behaviors by borrowers and lenders could also prove useful in deterring fraud, waste, and abuse. In addition, requiring the SBA to periodically report to Congress and on its website both output and outcome performance data could help Congress in its oversight responsibilities and assure the public that the taxpayer's dollars are being spent both efficiently and effectively.
SBA Entrepreneurial Development Programs77
The SBA has provided technical and managerial assistance to small businesses since it began operations in 1953. Initially, the SBA provided its own small business management and technical assistance training programs. Over time, the SBA has relied increasingly on third parties to provide that training.
Congressional interest in the SBA's management and technical assistance training programs has increased in recent years, primarily because these programs are viewed as a means to assist small businesses create and retain jobs. The FY2020 budget appropriated $239 million, funding about 14,000 resource partners, including 63 lead small business development centers (SBDCs) and nearly 900 SBDC local outreach locations, 125 women's business centers (WBCs), and 350 chapters of the mentoring program, SCORE.78
The SBA reports that nearly a million aspiring entrepreneurs and small business owners receive mentoring and training from an SBA-supported resource partner each year. Most of this training is free, and some is offered at low cost.79
SBDCs provide free or low-cost assistance to small businesses using programs customized to local conditions. SBDCs support small businesses in marketing and business strategy, finance, technology transfer, government contracting, management, manufacturing, engineering, sales, accounting, exporting, and other topics. SBDCs are funded by SBA grants and matching funds equal to the grant amount.
SBDC funding is allocated on a pro rata basis among the states (including the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa) by a statutory formula "based on the percentage of the population of each State, as compared to the population of the United States."80 If, as is currently the case, SBDC funding exceeds $90 million, the minimum funding level is "the sum of $500,000, plus a percentage of $500,000 equal to the percentage amount by which the amount made available exceeds $90 million."81
There are 63 lead SBDC service centers, one located in each state (four in Texas and six in California), the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa. These centers manage more than 900 SBDC outreach locations. The SBA was provided $135 million for SBDC grants in FY2020.
In FY2019, SBDCs provided technical assistance training and counseling services to 254,821 unique SBDC clients, and 17,810 new businesses were started largely as a result of SBDC training and counseling.82
Congress authorized the SBA's Microloan lending program in 1991 (P.L. 102-140, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1992) to address the perceived disadvantages faced by women, low-income, veteran, and minority entrepreneurs and business owners gaining access to capital to start or expand their business. The program became operational in 1992. Initially, the SBA's Microloan program was authorized as a five-year demonstration project. It was made permanent, subject to reauthorization, by P.L. 105-135, the Small Business Reauthorization Act of 1997.
The SBA's Microloan Technical Assistance Program is affiliated with the SBA's Microloan lending program but receives a separate appropriation. This program provides grants to Microloan intermediaries for management and technical training assistance to Microloan program borrowers and prospective borrowers.83 There are currently 144 active Microloan intermediaries serving 49 states, the District of Columbia, and Puerto Rico.84
Under the Microloan program, intermediaries are eligible to receive a Microloan technical assistance grant "of not more than 25% of the total outstanding balance of loans made to it."85 Grant funds may be used only to provide marketing, management, and technical assistance to Microloan borrowers, and no more than 50% of the funds may be used to provide such assistance to prospective Microloan borrowers and no more than 50% of the funds may be awarded to third parties to provide that technical assistance. Grant funds also may be used to attend required training.86
In most instances, intermediaries must contribute, solely from nonfederal sources, an amount equal to 25% of the grant amount.87 In addition to cash or other direct funding, the contribution may include indirect costs or in-kind contributions paid for under nonfederal programs.88
The SBA does not require Microloan borrowers to participate in the Microloan Technical Assistance Program. However, intermediaries typically require Microloan borrowers to participate in the training program as a condition of the receipt of a microloan. Combining loan and intensive management and technical assistance training is one of the Microloan program's distinguishing features.89
The SBA was provided $34.5 million for Microloan Technical Assistance grants in FY2020.
The WBC Renewable Grant Program was initially established by P.L. 100-533, the Women's Business Ownership Act of 1988, as the Women's Business Demonstration Pilot Program, targeting the needs of socially and economically disadvantaged women. The act directed the SBA to provide financial assistance to private, nonprofit organizations to conduct demonstration projects giving financial, management, and marketing assistance to small businesses, including start-up businesses, owned and controlled by women. The WBC program was expanded and provided permanent legislative status by P.L. 109-108, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006.
Since the program's inception, the SBA has awarded WBCs a grant of up to $150,000 per year. WBC initial grants are currently awarded for up to five years, consisting of a base period of 12 months from the date of the award and four 12-month option periods.90 The SBA determines if the option periods are exercised and makes that determination subject to the continuation of program authority, the availability of funds, and the recipient organization's compliance with federal law, SBA regulations, and the terms and conditions specified in a cooperative agreement. WBCs that successfully complete the initial five-year grant period may apply for an unlimited number of three-year funding intervals.91
During their initial five-year grant period, WBCs are required to provide a nonfederal match of one nonfederal dollar for each two federal dollars in years one and two (1:2), and one nonfederal dollar for each federal dollar in years three, four, and five (1:1). After the initial five-year grant period, the matching requirement in subsequent three-year funding intervals is not more than 50% of federal funding (1:1).92 The nonfederal match may consist of cash, in-kind, and program income.93
Today, there are 125 WBCs located throughout most of the United States and the territories.94 In FY2019, WBCs provided technical assistance training and counseling services to 64,527 unique WBC clients, and 2,087 new businesses were started largely as a result of WBC training and counseling.95
In FY2020, the SBA was provided $22.5 million for WBC grants.
SCORE was established on October 5, 1964, by then-SBA Administrator Eugene P. Foley as a national, volunteer organization, uniting more than 50 independent nonprofit organizations into a single, national nonprofit organization.
The SBA currently provides grants to SCORE to provide in-person mentoring, online training, and "nearly 9,000 local training workshops annually" to small businesses.96 SCORE's 350 chapters and more than 800 branch offices are located throughout the United States and partner with more than 10,000 volunteer counselors, who are working or retired business owners, executives and corporate leaders, to provide management and training assistance to small businesses "at no charge or at very low cost."97
In FY2019, SCORE provided technical assistance training and counseling services to 195,242 unique SCORE clients, and 480 new businesses were started largely as a result of SCORE training and counseling.98
In FY2020, the SBA was provided $11.7 million for SCORE grants.
Congress provided additional funding for SBA entrepreneurial development programs during and immediately following the Great Recession. For example, ARRA provided an additional $24 million for Microloan Technical Assistance grants. The Small Business Jobs Act of 2010 provided SBDCs an additional $50 million and temporarily waived SBDC, Microloan Technical Assistance, and WBC matching requirements.
Similar proposals have been made to address the COVID-19 pandemic. For example, S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, would provide an additional $150 million for SBA's entrepreneurial development programs, including $40 million for SBDCs, $18.75 for WBCs, $1 million to SCORE, and $50 million for Microloan Technical Assistance grants. The bill also would waive SBDC, Microloan Technical Assistance, and WBC grant matching requirements. The CARES Act, as amended, would appropriate $240 million for entrepreneurial development programs ($192 million for SBDCs and $48 million for WBCs), and $25 million for SBA resource partners to provide online information and training. The bill would also waive SBDC and WBC matching requirements.
Congress could require the SBA's resource partners to report to the SBA both output and outcome performance data for these grants and to require the SBA to report that information to Congress and make that information available to the public on the SBA website.
SBA Contracting Programs99
Federal agencies are required to facilitate the maximum participation of small businesses as prime contractors, subcontractors, and suppliers. For example, federal agencies are generally required to reserve contracts that have an anticipated value greater than the micro-purchase threshold (currently $10,000), but not greater than the simplified acquisition threshold (currently $250,000) exclusively for small businesses unless the contracting officer is unable to obtain offers from two or more small businesses that are competitive with market prices and the quality and delivery of the goods or services being purchased.100
Several SBA programs assist small businesses in obtaining and performing federal contracts and subcontracts. These include various prime contracting programs, subcontracting programs, and other assistance (e.g., contracting technical training assistance and oversight of the federal small business goaling program and the Surety Bond Guarantee program).101
8(a) Program102
The SBA's 8(a) Minority Small Business and Capital Ownership Development Program provides business development assistance to businesses owned and controlled by persons who are socially and economically disadvantaged, have good character, and demonstrate a potential for success.103
Although the 8(a) Program was originally established in the 1980s for the benefit of disadvantaged individuals, Congress expanded the program to include small businesses owned by four disadvantaged groups. Small businesses owned by Alaska Native Corporations (ANCs), Community Development Corporations (CDCs), Indian tribes, and Native Hawaiian Organizations (NHOs) are also eligible to participate in the 8(a) Program under somewhat different requirements.
Federal agencies are authorized to award contracts for goods or services, or to perform construction work, to the SBA for subcontracting to 8(a) firms. The SBA is authorized to delegate the function of executing contracts to the procuring agencies and often does so. Once the SBA has accepted a contract for the 8(a) Program, the contract is awarded through either a restricted competition limited to just 8(a) participants (a set aside) or on a sole source basis, with the contract amount generally determining the acquisition method used.
For individually owned small businesses, when the contract's anticipated total value, including any options, is less than $4 million ($7 million for manufacturing contracts), the contract is normally awarded without competition (as a sole source award). In contrast, when the contract's anticipated value exceeds these thresholds, the contract generally must be awarded via a set aside with competition limited to 8(a) firms so long as there is a reasonable expectation that at least two eligible and responsible 8(a) firms will submit offers and the award can be made at fair market price.104
Similar to other participants, firms owned by ANCs, CDCs, NHOs, and Indian tribes are eligible for 8(a) set asides and may receive sole source awards valued at less than $4 million ($7 million for manufacturing contracts). However, firms owned by ANCs and Indian tribes can also receive sole source awards in excess of $4 million ($7 million for manufacturing contracts) even when contracting officers reasonably expect that at least two eligible and responsible 8(a) firms will submit offers and the award can be made at fair market price.105 NHO-owned firms may receive sole source awards from the Department of Defense under the same conditions.106
The 8(a) program is designed to help federal agencies achieve their statutory goal of awarding at least 5% of their federal contracting dollars to small disadvantaged businesses.
In FY2018, the federal government awarded $29.5 billion to 8(a) firms.
Historically Underutilized Business Zone Program107
The SBA oversees the Historically Underutilized Business Zones (HUBZones) Program. The program assists small businesses located in HUBZone-designated areas through set asides, sole source awards (so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million, or $7 million for manufacturing contracts) and price evaluation preferences (of up to 10%) in full and open competitions.108 The HUBZone program targets assistance to small businesses located in areas with low income, high poverty, or high unemployment.109 To be certified as a HUBZone small business, at least 35% of the small business's employees must generally reside in a HUBZone.
The HUBZone contracting program is designed to help federal agencies achieve their statutory goal of awarding at least 3% of their federal contracting dollars to HUBZone small businesses.
In FY2018, the federal government awarded $9.8 billion to HUBZone-certified small businesses.
The SBA oversees the Service-Disabled Veteran-Owned Small Business (SDVOSB) Program. The program allows agencies to set aside contracts for SDVOSBs. Federal agencies may award sole source contracts to SDVOSBs so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million ($6.5 million for manufacturing contracts).110 For purposes of this program, veterans with service-related disabilities are defined as they are under the statutes governing veterans affairs.111
The SDVOSB contracting program is designed to help federal agencies achieve their statutory goal of awarding at least 3% of their federal contracting dollars to SDVOSBs.
In FY2018, the federal government awarded $22.5 billion to SDVOSBs.
The SBA oversees the Women-Owned Small Businesses (WOSB) Program. Under this program, federal contracting officers may set aside federal contracts (or orders) for WOSBs and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) in industries in which the SBA determines WOSBs are substantially underrepresented in federal procurement. Federal contracting officers can also set aside federal contracts for EDWOSBs exclusively in industries in which the SBA determines WOSBs are underrepresented in federal procurement.
The WOSB Program is designed to help federal agencies achieve their statutory goal of awarding at least 5% of their federal contracting dollars to WOSBs.
Federal agencies may award sole source contracts to WOSBs so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million ($6.5 million for manufacturing contracts).112
In FY2018, the federal government awarded $23.4 billion to WOSBs.
SBA Surety Bond Program113
The SBA's Surety Bond Guarantee Program has been operational since April 1971.114 It is designed to increase small business' access to federal, state, and local government contracting, as well as private sector contracting, by guaranteeing bid, performance, payment, and specified ancillary bonds "on contracts … for small and emerging contractors who cannot obtain bonding through regular commercial channels."115 The program guarantees individual contracts of up to $6.5 million, and up to $10 million for federal contracts if a federal contracting officer certifies that such a guarantee is necessary. The $6.5 million limit is periodically adjusted for inflation.116 The SBA's guarantee currently ranges from 80% to 90% of the surety's loss if a default occurs.
In FY2019, the SBA guaranteed 9,905 bid and final surety bonds (a payment bond, performance bond, or both a payment and performance bond) with a total contract value of nearly $6.5 billion.117
A surety bond is a three-party instrument between a surety (who agrees to be responsible for the debt or obligation of another), a contractor, and a project owner. The agreement binds the contractor to comply with the contract's terms and conditions. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed. Surety bonds encourage project owners to contract with small businesses that may not have the credit history or prior experience of larger businesses and may be at greater risk of failing to comply with the contract's terms and conditions.
Surety bonds are important to small businesses interested in competing for federal contracts because the federal government requires prime contractors—prior to the award of a federal contract exceeding $150,000 for the construction, alteration, or repair of any building or public work of the United States—to furnish a performance bond issued by a surety satisfactory to the contracting officer in an amount that the officer considers adequate to protect the government.
Congress included enhancements for small business contracting in both ARRA (increased funding and higher maximum bond amounts for the SBA Surety Bond program) and the Small Business Jobs Act of 2010 (new restrictions on the consolidation or bundling of contracts that make it more difficult for small businesses to be awarded the contract). Several proposals for enhancing small business contracting have also been offered to address COVID-19's adverse economic impact on small businesses.
For example, S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, would temporarily (ending on September 30, 2021) increase the caps and provide parity for sole source contract awards to SDBs, WOSBs, HUBZone small businesses, and SDVOSBs. The caps would be increased from less than $4 million ($7 million for manufacturing contracts) for SDBs and HUBZone small businesses and from less than $4 million ($6.5 million for manufacturing contracts) for WOSBs and SDVOSBs to less than $8 million ($10 million for manufacturing contracts) for all four types of small businesses.
The bill would also require the federal government to continue to pay small business contractors and revise delivery schedules, holding small contractors harmless for being unable to perform a contract due to COVID-19-caused interruptions until September 2021. Federal agencies would be required to promptly pay small business prime contractors and prime contractors would be required to promptly pay small business subcontractors within 15 days, notwithstanding any other provision of law or regulation, for the duration of the President invoking the Defense Production Act in response to COVID-19.
The CARES Act, as passed by the Senate, has similar provisions concerning paying small business contractors. The bill would not increase and provide parity for sole source contract awards to SDBs, WOSBs, HUBZone small businesses, and SDVOSBs.
In response to the Great Recession, Congress took a number of actions to enhance small businesses' access to capital, management and training programs, and contracting opportunities. The goal then, as it is now, was to provide small businesses with the resources necessary to survive the economic downturn and retain or create jobs. Many of the actions taken then are under consideration now as Congress considers proposals to assist small businesses adversely affected by the COVID-19 pandemic. The current consideration of proposals providing for loan deferral and forgiveness is, at least partly, due to the unique economic dislocations resulting from individuals and households engaging in physical distancing to avoid COVID-19 infection.
As mentioned, because the coronavirus's adverse economic impact is so widespread, including productivity losses, supply chain disruptions, labor dislocation, and financial pressure on businesses and households, there has been relatively little concern expressed about federal fiscal restraint during the current pandemic. The debate has been primarily over which specific policies would have the greatest impact and which types of small businesses and small business owners should be helped the most.
Among the lessons learned from the 111th Congress is the potential benefits that can be derived from providing additional funding for the SBA's Office of Inspector General and the Government Accountability Office. GAO and the SBA's OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA's administration of the stimulus package, provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud. Requiring the SBA to report regularly on its implementation of the stimulus package could also promote transparency and assist Congress in performing its oversight responsibilities. In addition, requiring output and outcome performance measures and requiring the SBA to report this information directly to both Congress and the public by posting that information on the SBA's website could enhance both congressional oversight and public confidence in the SBA's efforts to assist small businesses.
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020
As introduced S. 3518 would, among other provisions,
authorize to be appropriated $16.8 billion to pay the principal, interest, and any associated fees that are owed on a 7(a), 504/CDC, or Microloan for six-months (see S. 3518);
create a grant program (typically up to $50,000, or up to $100,000 if the SBA finds that the recipient is vital to their local economy) for small businesses, private nonprofit organizations, and small agricultural cooperatives with not less than 2 and not more than 50 employees that are adversely affected by COVID-19. Applicants must lack access to credit through the existing SBA disaster loan program;
create a no-interest, fee-free, direct lending program for borrowers otherwise eligible for a 7(a) loan (with a loan term of up to 10 years and without obligation to repay the loan during the first 12 months beginning on the date of loan disbursement) to be used to pay for a specified list of eligible expenses, including employee wages and related payroll taxes, rent or utilities, refinancing of up to 50% of existing debt, employee benefits, and past-due payroll, sales, or similar taxes. The direct lending program would no longer issue new loans after September 30, 2022, although the SBA Administrator could request an additional 6 months by notifying Congress (the bill also includes a loan forgiveness provision of up to 50% of the outstanding principal balance for borrowers that retain or create additional jobs as of December 31, 2021, compared to December 31, 2019);
permanently eliminate the zero subsidy requirement to waive SBAExpress loan fees for veterans;
provide statutory authorization and program requirements for the 7(a) Community Advantage Pilot program (to be called the Community Advantage Loan Program); and
increase the 7(a) program's authorization level from $30 billion to $80 billion for both FY2020 and FY2021.
Through September 30, 2021, the act would
authorize to be appropriated $150 million for SBA's entrepreneurial development programs, including $40 million in additional funding to Small Business Development Centers (SBDCs), $18.75 million to Women Business Centers (WBCs), $1 million to SCORE, and $50 million for Microloan Technical Assistance grants;
waive SBDC, Microloan Technical Assistance, and WBC grant matching requirements;
increase the caps and provide parity for sole source contract awards to small disadvantaged businesses (SDBs), women-owned small businesses (WOSBs), HUBZone small businesses, and service-disabled veteran owned small businesses (SDVOSBs). The caps would be increased from less than $4 million ($7 million for manufacturing contracts) for SDBs and HUBZone small businesses and from less than $4 million ($6.5 million for manufacturing contracts) for WOSBs and SDVOSBs to less than $8 million ($10 million for manufacturing contracts) for all four types of small businesses;
waive, to the maximum extent possible, both the 7(a) one-time up-front loan guarantee fee and the annual servicing fee (the bill would also waive fees for 504/CDC loans);
increase the 7(a) loan guarantee percentage from not more than 75% or 85% to not more than 90%;
increase the SBAExpress loan guarantee percentage from not more than 50% to not more than 90% for loans less than or equal to $350,000 and not more than 75% for loans greater than $350,000;
increase the SBAExpress loan limit from $350,000 to $1 million (on September 30, 2021, the guarantee percentage would revert to 50% and the loan limit would be set at $500,000);
increase the maximum loan amounts for 7(a) and 504/CDC loans from $5 million to $10 million (including a permanent increase to $10 million for 504/CDC loans to small manufacturers); and
authorize to be appropriated $5 billion for fee reductions, increase loan guarantee amounts, and 7(a) program levels, $177 million for disaster loan administrative expenses, $1.04 billion for disaster loan credit subsidies, and $200 million for the SBA's salaries and expenses account.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as introduced
As introduced, the CARES Act would have, among other provisions, temporarily (during the "covered period" of March 1, 2020 through December 31, 2020):
require lenders to provide "impacted borrowers" adversely affected by COVID-19 complete payment deferment relief for not more than one year if the borrower was in operation on March 1, 2020, and has an application for a 7(a) loan approved or pending approval on or after the date of enactment.118 The bill presumes that all aforementioned 7(a) borrowers are an impacted borrower. The bill also provides for the forgiveness of certain amounts of 7(a) loans made during the covered period that are needed to maintain payroll continuity through the covered period;
expand 7(a) eligibility to include any business or nonprofit organization not currently eligible that has 500 or fewer employees (except for nonprofits eligible to receive payments for items or services under Medicaid);
increase the maximum 7(a) loan amount to the lesser of (1) four times the average total monthly payments by the applicant for payroll, mortgage payments, rent payments, and payments on any other debt obligations incurred during the one-year period before the date on which the loan is made, or (2) $10 million;
increase the SBAExpress loan limit from $350,000 to $1 million (reverts to $350,000 on January 1, 2021);
allow 7(a) loan proceeds to be used for payroll support, including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave, employee salaries, mortgage payments, rent, utilities, and any other debt obligations that were incurred before the covered period;
expand lender delegated loan approval authority to all 7(a) lenders;
relax 7(a) loan underwriting requirements, notably the credit elsewhere requirement, so lenders consider only whether the borrower was in operation on March 1, 2020, and had employees for whom the borrower paid salaries and payroll taxes;
waive, to the maximum extent possible, both the 7(a) one-time up-front loan guarantee fee and the annual servicing fee;
increase the 7(a) loan guarantee percentage from not more than 75% or 85% to 100% through December 31, 2020;
require lenders to provide "impacted borrowers" adversely affected by COVID-19 complete payment deferment relief for not more than one year if the borrower was in operation on March 1, 2020, and has an application for a 7(a) loan approved or pending approval on or after the date of enactment;
presume that all aforementioned 7(a) borrowers are an impacted borrower and authorizes the SBA Administrator to purchase 7(a) loans sold on the secondary market so that impacted borrowers may receive a deferral for not more than one year;
waive the 7(a) loan program's $30 billion authorization limit;
appropriate $299.4 billion for loan guarantees and subsidies, $300 million for the SBA's salaries and expenses account, $25 million for the SBA's Office of Inspector General (OIG), $240 million for entrepreneurial development programs ($192 million for SBDCs and $48 million for WBCs), $25 million for SBA resource partners to provide online information and training, and $10 million for the Department of Commerce's Minority Business Development Agency;
waive SBDC and WBC matching requirements for funding provided by the bill and waive for three months from the date of enactment matching requirements for all WBCs; and
provide for the forgiveness of certain amounts of 7(a) loans made during the covered period that are needed to maintain payroll continuity through the covered period.
The CARES Act (as amended to include Title I, Keeping American Workers Employed and Paid Act)
As passed by the Senate, the CARES Act would, among other provisions,
establish a Paycheck Protection Program under Section 7(a) of the Small Business Act to provide "covered loans" with a 100% SBA loan guarantee and interest rate not to exceed 4% to assist small businesses and other organizations that have been adversely affected by COVID-19;
define a covered loan as a loan made to an eligible recipient from February 15, 2020, through June 30, 2020;
waive both the one-time up front loan guarantee fee and annual servicing fee, the no credit elsewhere requirement, and the requirements for collateral and a personal guarantee for a covered loan;
expand eligibility for a covered loan to include businesses currently eligible for a 7(a) loan and any business, 501(c)(3) nonprofit organization, 501(c)(19) veteran's organization, or Tribal business not currently eligible that has not more than 500 employees or, if applicable, the size standard in number of employees established by the Administration for the industry in which the business, nonprofit organization, veterans organization, or Tribal business operates. Individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals are also eligible to receive a covered loan;119
increase the maximum loan amount for a covered loan to the lesser of (1) 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the one-year period before the date on which the loan is made plus the outstanding balance of any 7(a) loan (made on or after January 31, 2020) that is refinanced as part of a covered loan, or (2) $10 million;
allow borrowers to refinance 7(a) loans (made on or after January 31, 2020) as part of a covered loan;
specify that covered loans are nonrecourse (meaning that the SBA cannot pursue collections actions against the recipient(s) in the case of nonpayment) except to the extent that the covered loan proceeds are used for nonauthorized purposes;
allow the covered loan to be used for payroll costs, costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums, employee salaries, commissions, or similar compensations, mortgage payments, rent, utilities, and interest on any other debt obligations that were incurred before the covered period;
expand lender delegated loan approval authority for making covered loans to all 7(a) lenders;
require lenders, when evaluating borrower eligibility for a covered loan, to consider whether the borrower was in operation on February 15, 2020, had employees for whom the borrower paid salaries and payroll taxes, and paid independent contractors;
require borrowers to, among other acknowledgements,
make a good faith certification that the covered loan is needed because of the uncertainty of current economic conditions and to support ongoing operations, and
acknowledge that the funds will be used to retain workers, maintain payroll, or make mortgage payments, lease payments, and utility payments;
require lenders to provide "impacted borrowers" adversely affected by COVID-19 "complete payment deferment relief"120 on a covered Paycheck Protection Program loan for not less than six months and not more than one year if the borrower was in operation on February 15, 2020, and has an application for a covered loan approved or pending approval on or after the date of enactment;
presume that each eligible recipient that applies for a Paycheck Protection Payment loan is an impacted borrower and authorizes the SBA Administrator to purchase covered loans sold on the secondary market so that affected borrowers may receive a deferral for not more than one year;
require the SBA to pay the principal, interest, and any associated fees that are owed on an existing 7(a), 504/CDC, or Microloan that is in a regular servicing status for a six-month period starting on the next payment due. Loans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. Loans made up until six months after enactment will also receive a full six months of SBA loan payments;
require federal banking agencies or the National Credit Union Administration Board applying capital requirements under their respective risk-based capital requirements to provide a covered loan with a 0%-risk weight;
provide for the forgiveness of covered loan amounts equal to the amount the borrower spent during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. The amount of loan forgiveness cannot exceed the covered loan's principal amount. The forgiveness is to be reduced proportionally by formulas related to the borrower's retention of full-time equivalent employees compared to the borrower's choice of either: (1) the period beginning on February 15, 2019, and ending on June 30, 2019, or (2) January 1, 2020, and February 29, 2020; and by the amount of any reduction in pay of any employee beyond 25% of their salary or wages during the most recent full quarter before the covered period.121 Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Cancelled debt resulting from loan forgiveness would not be included in the borrower's taxable federal income;
increase the SBA's lending authorization under Section 7(a) of the Small Business Act from $30 billion to $349 billion during the covered period;
appropriate $349 billion for loan guarantees and subsidies, $675 million for the SBA's salaries and expenses account, $25 million for the SBA's Office of Inspector General (OIG), $265 million for entrepreneurial development programs ($192 million for SBDCs, $48 million for WBCs, and $25 million for SBA resource partners to provide online information and training), $17 billion for subsidies for certain loan payments, and $10 million for the Department of Commerce's Minority Business Development Agency;
allows the period of use of FY2018 and FY2019 grant awards made under the State Trade Expansion Program (STEP) through FY2021;
reimburses (up to the grant amount received) STEP award recipients for financial losses relating to a foreign trade mission or a trade show exhibition that was cancelled solely due to a public health emergency declared due to COVID-19;
waive SBDC and WBC matching requirements;
require federal agencies to continue to pay small business contractors and revise delivery schedules, holding small contractors harmless for being unable to perform a contract due to COVID-19 caused interruptions until September 2021;
require federal agencies to promptly pay small business prime contractors and requires prime contractors to promptly pay small business subcontractors within 15 days, notwithstanding any other provision of law or regulation, for the duration of the President invoking the Defense Production Act in response to COVID-19; and
provide SBA Emergency Injury Disaster Loan (EIDL) enhancements during the covered period of January 31, 2020, through December 31, 2020, including
expanding eligibility beyond currently eligible small businesses, private nonprofit organizations, and small agricultural cooperatives, to include startups, cooperatives, and eligible ESOPs (employee stock ownership plans) with fewer than 500 employees, sole proprietors, and independent contractors;
authorizing the SBA Administrator, in response to economic injuries caused by COVID-19, to
waive the no credit available elsewhere requirement,
approve an applicant based solely on their credit score,
not require applicants to submit a tax return or tax return transcript for approval,
waive any rules related to the personal guarantee on advances and loans of not more than $200,000,
waive the requirement that the applicant needs to be in business for the one-year period before the disaster declaration, except that no waiver may be made for a business that was not in operation on January 31, 2020;
authorizing the SBA Administrator, through December 31, 2020, to provide up to $10,000 as an advance payment in the amount requested within three days after receiving an EIDL application from an eligible entity. Applicants are not required to repay the advance payment, even if subsequently denied an EIDL loan. The funds may be used for any eligible EIDL expense, including, among other expenses, providing paid sick leave to employees unable to work due to COVID-19, maintaining payroll to retain employees, and meeting increased costs to obtain materials due to supply chain disruptions; and
appropriating an additional $10 billion for EIDL assistance.
13 C.F.R. §123.105 and 13 C.F.R. §123.203.
U.S. Small Business Administration (SBA), Office of Legislative and Congressional Affairs, "WDS Report Amount Fiscal Year 2019, Table 1.4 Disbursements by Program," October 18, 2019.
The SBA also offers military reservist economic injury disaster loans. These loans are available when economic injury is incurred as a direct result of a business owner or an essential employee being called to active duty. These loans are generally not associated with disasters. See CRS Report R42695, SBA Veterans Assistance Programs: An Analysis of Contemporary Issues, by Robert Jay Dilger and Sean Lowry.
SBA, "Fact Sheet – Economic Injury Disaster Loans, California Declaration #16332," March 19, 2020, https://disasterloan.sba.gov/ela/Declarations/ViewDisasterDocument/3485 (hereinafter cited as SBA, "Fact Sheet").
SBA, "Disaster Assistance Program, SOP 50 30 9, pp. 70, 71, https://www.sba.gov/document/sop-50-30-9-disaster-assistance-program-posted-05-31 (hereinafter cited as SBA, "Disaster Assistance Program SOP").
SBA, "Fact Sheet."
For the full list of ineligible uses of EIDL loan proceeds, see SBA, "Disaster Assistance Program SOP," pp. 75-76.
P.L. 93-288, as amended. Tribal nations are also authorized to request and receive major disaster assistance.
A similar definitional issue may exist under the Stafford Act which does not specify an infectious disease as an incident in its definition of a major disaster. There are, however, indications that the President considers COVID-19 a major disaster. See the White House, Letter from President Donald J. Trump on Emergency Determination Under the Stafford Act, March 13, 2020, https://www.whitehouse.gov/briefings-statements/letter-president-donald-j-trump-emergency-determination-stafford-act/.
SBA, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19), March 17, 2020, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-updates-criteria-states-requesting-disaster-assistance-loans-small-businesses-impacted (hereinafter cited as SBA, SBA Updates Criteria on States for Requesting Disaster Assistance).
SBA, SBA Updates Criteria on States for Requesting Disaster Assistance.
"The Federal Credit Reform Act of 1990 (FCRA) requires agencies to estimate the cost to the government of extending or guaranteeing credit. This cost, referred to as subsidy cost, equals the net present value of estimated cash flows from the government (e.g., loan disbursements and claim payments to lenders) minus estimated cash flows to the government (e.g., loan repayments, interest payments, fees, and recoveries on defaulted loans) over the life of the loan, excluding administrative costs." See U.S. Government Accountability Office, Current Method to Estimate Credit Subsidy Costs Is More Appropriate for Budget Estimates Than a Fair Value Approach, GAO-16-41, January 29, 2016, p. i, https://www.gao.gov/products/GAO-16-41.
SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report," p. 13, https://www.sba.gov/document/report—congressional-budget-justification-annual-performance-report (hereinafter cited as SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report").
U.S. Government Accountability Office, Disaster Loan Processing Was Timelier, but Planning Improvements and Pilot Program Evaluation Needed, GAO-20-369, March 9, 2020, https://www.gao.gov/products/GAO-20-168.
P.L. 110-234, the Small Business Disaster Response and Loan Improvements Act of 2008 (Title XII, subtitle B of the Food, Conservation, and Energy Act of 2008), as amended by P.L. 110-246, the Food, Conservation, and Energy Act of 2008 (Title XII, subtitle B of the Food, Conservation, and Energy Act of 2008)(hereinafter cited as P.L. 110-234).
SBA, "Immediate, Expedited, and Private Disaster Assistance Loan Programs," 80 Federal Register 63715-63717, October 21, 2015.
P.L. 110-234, Sec. 12085.
P.L. 110-234, Sec. 12084.
P.L. 110-234, Sec. 12083.
Testimony of Hannibal "Mike" Ware, Acting Inspector General, United States Small Business Administration, U.S. Congress, House Committee on Small Business, Storm Watch: Making Sure SBA's Disaster Loan Program Is Prepared, 115th Cong., 1st sess., April 26, 2017, p. 33.
SBA, "Carranza Implements Automatic Deferment on Existing SBA Disaster Loans Through End of 2020," March 23, 2020, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/carranza-implements-automatic-deferment-existing-sba-disaster-loans-through-end-2020.
P.L. 89-339, 79 Stat. 1301.
Federal Emergency Management Agency, New York Covid-19 Pandemic (DR-4480), March 3, 2020, https://www.fema.gov/disaster/4480.
For example, the City of Seattle is currently administering $10,000 grants to small businesses using CDBG funds to respond to COVID-19.
For eligible Community Development Block Grant activities related to COVID-19, see U.S. Department of Housing and Urban Development, "Quick Guide to CDBG Eligible Activities to Support Infectious Disease Response," March 19, 2020, https://files.hudexchange.info/resources/documents/Quick-Guide-CDBG-Infectious-Disease-Response.pdf.
Federal Emergency Management Agency, Disaster Relief Fund: Monthly Report, March 6, 2020, https://www.fema.gov/media-library/assets/documents/31789. For more information on the DRF see CRS Report R45484, The Disaster Relief Fund: Overview and Issues, by William L. Painter.
For more information and analysis concerning SBA size standards, see CRS Report R40860, Small Business Size Standards: A Historical Analysis of Contemporary Issues, by Robert Jay Dilger.
Small Business Administration, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19), March 17, 2020, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-updates-criteria-states-requesting-disaster-assistance-loans-small-businesses-impacted.
Only businesses and nonprofit organizations that cannot get credit elsewhere are eligible for SBA EIDL.
U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S.Hrg. 103-583 (Washington: GPO, 1994), p. 20.
SBA, Fiscal Year 2010 Congressional Budget Justification, p. 30, https://www.sba.gov/sites/default/files/Congressional_Budget_Justification_2010.pdf.
For additional information and analysis, see CRS Report R40860, Small Business Size Standards: A Historical Analysis of Contemporary Issues, by Robert Jay Dilger.
13 C.F.R. §121.201 and P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards.
SBA, Office of Government Contracting and Business Development, "SBA Size Standards Methodology," April 2019, p. 29, https://www.sba.gov/document/support—size-standards-methodology-white-paper (hereinafter cited as SBA, "SBA Size Standards Methodology").
SBA, "SBA Size Standards Methodology," p. 1.
SBA, "SBA Information Notice: 7(a) Fees Effective on October 1, 2018," https://www.sba.gov/document/information-notice-5000-180010-7a-fees-effective-october-1-2018.
The SBA had waived the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program from January 1, 2014, through the end of FY2015. P.L. 114-38 made the SBAExpress program's veteran fee waiver permanent, except during any upcoming fiscal year for which the President's budget, submitted to Congress, includes a cost for the 7(a) program, in its entirety, that is above zero. The SBA waived the fee, pursuant to P.L. 114-38, in FY2016, FY2017, FY2018, and FY2019.
For further information and analysis, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program, by Robert Jay Dilger.
Exceptions to this general schedule of guaranty rates include loans made under the International Trade, Export Working Capital Program, or Export Express (90% guaranty); and the SBAExpress program (50% guaranty).
For fixed interest rates, the SBA, effective November 6, 2018, uses the prime rate (see 13 C.F.R. §120.214(c)) in effect on the first business day of the month as the base rate and increases the maximum allowable interest rate spread as follows: for fixed rate loans of $25,000 or less, prime plus 600 basis points, plus the 200 basis points permitted by 13 C.F.R. §120.215; for fixed rate loans over $25,000 but not exceeding $50,000, prime plus 600 basis points, plus the 100 basis points permitted by 13 C.F.R. §120.215; for fixed rate loans greater than $50,000 but not exceeding $250,000, prime plus 600 basis points; and for fixed rate loans over $250,000, prime plus 500 basis points. SBA, "Maximum Allowable 7(a) Fixed Interest Rates," 83 Federal Register 55478, November 6, 2018. For the previously used fixed interest rates formula, see SBA, "Business Loan Program Maximum Allowable Fixed Rate," 74 Federal Register 50263-50264, September 30, 2009.
Colson Services Corp., "SBA Base Rates," New York, https://colsonservices.bnymellon.com/news/sba-base-rates.jsp.
The maximum variable interest rates allowed for 7(a) loans with a maturity less than seven years are the base rate plus 4.25% for loans less than $25,000; the base rate plus 3.25% for loans of $25,000-$50,000; and the base rate plus 2.25% for loans over $50,000. The maximum variable interest rates allowed for 7(a) loans with a maturity of seven years or longer are the base rate plus 4.75% for loans less than $25,000; the base rate plus 3.75% for loans of $25,000-$50,000; and the base rate plus 2.75% for loans over $50,000. See 13 C.F.R. §120.214 and 13 C.F.R. §120.215.
For further information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.
SBA, "SBA Lending Statistics for Major Programs (as of 9/30/2019)," https://www.sba.gov/sites/default/files/2019-10/WebsiteReport_asof_20190930.pdf; and SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report." pp. 31, 164.
SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 41, 166.
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA). The specified circumstances include the following: the amount of existing indebtedness does not exceed 50% of the project cost of the expansion; the proceeds of the indebtedness were used to acquire land, including the building situated thereon, to construct a building thereon, or to purchase equipment; the existing indebtedness is collateralized by fixed assets; the existing indebtedness was incurred for the benefit of a small business; the financing is used only for refinancing existing indebtedness or costs related to the project being financed; the refinancing provides a substantial benefit to the borrower; the borrower has been current on all payments due on the existing debt for not less than one year preceding the date of refinancing; and the financing provided will have better terms or rate of interest than the existing indebtedness.
P.L. 111-240, the Small Business Jobs Act of 2010. A project that does not involve the expansion of a small business concern may include the refinancing of qualified debt if (I) the amount of the financing is not be more than 90% of the value of the collateral for the financing, except that, if the appraised value of the eligible fixed assets serving as collateral for the financing is less than the amount equal to 125% of the amount of the financing, the borrower may provide additional cash or other collateral to eliminate any deficiency; (II) the borrower has been in operation for all of the 2-year period ending on the date of the loan; and (III) for a financing for which the Administrator determines there will be an additional cost attributable to the refinancing of the qualified debt, the borrower agrees to pay a fee in an amount equal to the anticipated additional cost.
P.L. 114-113, the Consolidated Appropriations Act, 2016. For additional information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.
SBA, Office of Congressional and Legislative Affairs, "WDS Report Amount and Count Summary, September 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort," October 18, 2018. For historical data, see Table 3 in CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.
For further information and analysis, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger.
SBA, "Nationwide Microloan Report, October 1, 2018 through September 30, 2019," October 10, 2019.
SBA, "Recovery Act Agency Plan," May 15, 2009, https://www.sba.gov/sites/default/files/recovery_act_reports/sba_recovery_act_plan.pdf.
For additional information and analysis, see CRS Report R41456, SBA Small Business Investment Company Program, by Robert Jay Dilger.
SBA, "Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months," January 3, 2011, https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-three-months.
For additional information and analysis, see CRS Report R42045, The Small Business Lending Fund, by Robert Jay Dilger.
For additional information and analysis, see CRS Report R42581, State Small Business Credit Initiative: Implementation and Funding Issues, by Robert Jay Dilger.
P.L. 111-240, the Small Business Jobs Act of 2010, established the following interim alternative size standard for both the 7(a) and 504/CDC programs: the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income after federal taxes (excluding any carry-over losses) in excess of $5 million for two full fiscal years before the date of application.
P.L. 111-240 raised the exclusion of gains on the sale or exchange of qualified small business stock from the federal income tax to 100%, with the full exclusion applying only to stock acquired the day after the date of enactment through the end of 2010; increased the deduction for qualified start-up expenditures from $5,000 to $10,000 in 2010, and raised the phaseout threshold from $50,000 to $60,000 for 2010; placed limitations on the penalty for failure to disclose reportable transactions based on resulting tax benefits; allowed general business credits of eligible small businesses for 2010 to be carried back five years; exempted general business credits of eligible small businesses in 2010 from the alternative minimum tax; allowed a temporary reduction in the recognition period for built-in gains tax; increased expensing limitations for 2010 and 2011 and allowed certain real property to be treated as Section 179 property; allowed additional first-year depreciation for 50% of the basis of certain qualified property; and removed cellular telephones and similar telecommunications equipment from listed property so their cost can be deducted or depreciated like other business property.
H.R. 3854, the Small Business Financing and Investment Act of 2009 (111th Congress), §111. Capital Backstop Program.
SBA, Office of Inspector General (OIG), Review of the Recovery Act's Impact on SBA Lending, ROM 10-02, November 25, 2009, p. 4, https://www.sba.gov/document/report-rom-10-02-rom-10-02-review-recovery-acts-impact-sba-lending.
SBA, "SBA Loan Dollars in FY 2012 Reach Second Largest Total Ever; $30.25 Billion Second Only to FY 2011," October 9, 2012, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-loan-dollars-fy-2012-reach-second-largest-total-ever-3025-billion-second-only-fy-2011.
For additional information and analysis, see CRS Report R41352, Small Business Management and Technical Assistance Training Programs, by Robert Jay Dilger.
Other SBA entrepreneurial development programs include the following: the Microloan Technical Assistance Program; the Program for Investment in Microentrepreneurs (PRIME), Veterans Programs (including Veterans Business Outreach Centers, Boots to Business, Veteran Women Igniting the Spirit of Entrepreneurship [VWISE], Entrepreneurship Bootcamp for Veterans with Disabilities, and Boots to Business: Reboot), the Native American Outreach Program, the Entrepreneurial Development Initiative (Regional Innovation Clusters), the Entrepreneurship Education Initiative, the Growth Accelerators Initiative, and the 7(j) Technical Assistance Program.
SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 18.
15 U.S.C. §648(a)(4)(C).
15 U.S.C. §648(a)(4)(C) and P.L. 106-554, the Consolidated Appropriations Act, 2001.
SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 85.
For further analysis of the SBA's Microloan program, see CRS Report R41057, Small Business Administration Microloan Program, by Robert Jay Dilger.
SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36. For a list of Microloan intermediaries by state, see SBA, "List of Lenders," https://www.sba.gov/partners/lenders/microloan-program/list-lenders.
13 C.F.R. §120.712. Intermediaries may not borrow their contribution.
P.L. 105-135, the Small Business Reauthorization Act of 1997, authorized the SBA to award grants to WBCs for up to five years—one base year and four option years. P.L. 106-165, the Women's Business Centers Sustainability Act of 1999, provided WBCs that had completed the initial five-year grant an opportunity to apply for an additional five-year sustainability grant. Thus, the act allowed successful WBCs to receive SBA funding for a total of 10 years. Because the program has permitted permanent three-year funding intervals since 2007, the sustainability grants would be phased out by FY2012, leaving the initial five-year grants with the continuous three-year option. See SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 49, https://www.sba.gov/sites/default/files/aboutsbaarticle/FINAL%20FY%202012%20CBJ%20FY%202010%20APR_0.pdf.
SBA, "Women's Business Centers Directory," https://www.sba.gov/tools/local-assistance/wbc.
SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 87.
SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, p. 45, https://www.sba.gov/sites/default/files/files/1-508%20Compliant%20FY%202013%20CBJ%20FY%202011%20APR(1).pdf.
SCORE (Service Corps of Retired Executives), "About SCORE," Washington, DC, https://www.score.org/about-score.
SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 89.
For additional information and analysis concerning SBA contracting programs, see CRS Report R45576, An Overview of Small Business Contracting, by Robert Jay Dilger.
15 U.S.C. §644(j)(1). Certain regulations implementing this provision of the Small Business Act effectively narrows its scope. For example, certain small business contracts awarded or performed overseas are not necessarily required to be set aside for small businesses, and the small business provisions contained in Part 19 of the Federal Acquisition Regulation (FAR) generally do not apply to blanket purchase agreements and orders placed against Federal Supply Schedule contracts.
For additional information and analysis concerning the SBA's Surety Bond Program, see CRS Report R42037, SBA Surety Bond Guarantee Program, by Robert Jay Dilger.
For additional information and analysis concerning the 8(a) Program, see CRS Report R44844, SBA's "8(a) Program": Overview, History, and Current Issues, by Robert Jay Dilger.
DOD's authority to make sole source awards to NHO-owned firms of contracts valued at more than $4 million ($7 million for manufacturing contracts) even if contracting officers reasonably expect that offers will be received from at least two responsible small businesses existed on a temporary basis in 2004-2006 and became permanent in 2006. See P.L. 109-148, Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act of 2006, §8020, 119 Stat. 2702-03 (December 30, 2005); 48 C.F.R. §219.805-1(b)(2)(A)-(B).
38 U.S.C. §8127(f). Veteran-owned small businesses and service-disabled veteran-owned small businesses are eligible for separate preferences in procurements conducted by the Department of Veterans Affairs under the authority of P.L. 109-461, the Veterans Benefits, Health Care, and Information Technology Act of 2006, as amended by P.L. 110-389, the Veterans' Benefits Improvements Act of 2008.
SBA, "FY2016 Congressional Budget Justification and FY2014 Annual Performance Report," p. 44, https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%202014%20APR.PDF. An ancillary bond, which ensures that requirements integral to the contract, but not directly performance related, are performed, is eligible if it is incidental and essential to a contract for which SBA has guaranteed a final bond. A reclamation bond is eligible if it is issued to reclaim an abandoned mine site and for a project undertaken for a specific period of time.
P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, increased the program's guarantee limit from $2.0 million to $6.5 million, and up to $10 million for a federal contract if certified. The act also includes a provision to increase the $6.5 million limit periodically for inflation "by striking 'does not exceed' and all that follows through the period at the end, and inserting 'does not exceed $6,500,000,' as adjusted for inflation in accordance with section 1908 of title 41, United States Code." That section of the U.S. Code provides for an inflation adjustment on October 1 of each year evenly divisible by five.
SBA, Office of Congressional and Legislative Affairs, correspondence with the author, January 14, 2020.
The bill does not define what "complete payment deferment relief" entails, and delegates authority to the SBA Administrator to promulgate guidance to carry out this section. Typically, deferral, in a loan context, delays an obligation to pay, but does not reduce or eliminate that future obligation.
For purposes of determining not more than 500 employees, the term employee includes individuals employed on a full-time, part-time, or other basis. Also, special eligibility considerations are provided for certain businesses and organizations. For example, businesses operating in NAICS Sector 72 (Accommodation and Food Services industry) that employ not more than 500 employees per physical location are also eligible for a covered loan. Affiliation rules are also waived for: (1) NAICS Sector 72 businesses, (2) franchises, and (3) SBIC-owned businesses. In other words, these businesses would not be denied a covered loan solely because they employ more than 500 employees across multiple businesses under common ownership. Also eligible are businesses with more than one physical location that employ not more than 500 employees per physical location in certain industries.
According to the bill text, "complete deferment relief" includes payment of principal, interest, and fees.
For the purposes of the reduction formula, reductions in employees with wages or salary at an annualized rate of pay more than $100,000 are not taken into account. Businesses may also receive forgiveness amounts for additional wages paid to tipped employees.