Rural Economic Development: Collaboration between SBA and USDA Could Be Improved
Published: 2008-09-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Small Business Administration (SBA) and the Rural Development offices of the U.S. Department of Agriculture both work in rural areas to foster economic development by promoting entrepreneurship and community development. This report discusses (1) the complementary nature of some SBA and Rural Development programs and the extent to which it provides a rationale for the agencies to collaborate, (2) past and current efforts by SBA and Rural Development to work together and with other agencies, and (3) opportunities for the agencies to improve their collaborative efforts. In completing its work, GAO analyzed agency documentation and prior reports on collaboration, conducted site visits at locations where SBA and Rural Development were working together, and interviewed agency and selected economic development officials.
section_title: What GAO Found
paragraphs: The complementary nature of some SBA loan programs and Rural Development business programs provides a rationale for the agencies to collaborate. SBA and Rural Development have similar economic development missions, and their programs provide financing for similar purposes, including start-up and expansion projects, equipment purchases, and working capital for small businesses. According to SBA and Rural Development officials currently involved in collaborative working relationships, working together allows the agencies to leverage the unique strengths of each other's programs, increase the number of financing options available to borrowers in rural areas, and ultimately better promote economic development in these areas. However, collaboration between SBA and Rural Development to date has been sporadic and mostly self-initiated by officials in field offices. GAO found that the extent of the collaborative efforts and use of formal agreements such as memorandums of understanding (MOU) varied across locations. The two agencies worked together frequently in a few locations, infrequently in others, and not at all in many locations. The SBA and Rural Development offices in North Dakota that GAO visited collaborated frequently and had formal agreements in place. Officials there established an MOU with other community development organizations to provide "one-stop" shopping assistance to borrowers at a single location. The SBA and Rural Development offices in Nebraska and New Mexico that GAO visited worked with each other less frequently and more informally, conducting community outreach sessions and holding periodic meetings and joint training sessions. But many other locations--about half of SBA and Rural Development's field offices--did not appear to be collaborating at all or to have an established framework to facilitate collaboration. Opportunities exist for SBA and Rural Development to improve their collaborative efforts. In an October 2005 report, GAO identified key practices that could help federal agencies enhance and sustain their collaborative efforts. In comparing SBA and Rural Development's efforts with these criteria, GAO found that the agencies could take steps to improve their efforts by implementing a more formal approach to encourage collaboration. This approach would provide the agencies with a mechanism that reflected several of GAO's key practices--to define and articulate a common outcome, agree on roles and responsibilities, monitor key progress and results, and reinforce accountability for collaborative efforts. With such an approach, SBA and Rural Development could more effectively leverage each other's unique strengths and help to improve small business opportunities in rural communities.

section_title: Letter
paragraphs: More than 80 programs administered by several different federal agencies  target rural economic development. Of these agencies, the Small Business  Administration (SBA) and the Rural Development offices of the U.S.  Department of Agriculture (USDA) share a mission of attending to  underserved markets, fostering economic development, and improving the  quality of life in America through the promotion of entrepreneurship and  community development. Both agencies offer business loans and grant  programs for rural development and play vital roles in spurring economic  growth in rural areas. In the past, these agencies have developed  collaborative working relationships to help manage their loan and grant  programs. They have also entered into a joint agreement under the Rural  Business Investment Program (RBIP) to create investment companies that  would provide equity for rural small businesses.
Congress has long expressed interest in increasing collaboration among  federal agencies. Collaboration that cuts across more than one federal  agency is one way for the federal government to deliver results more  efficiently—that is, in a way that utilizes limited resources to better  address multiple demands. Congress has been enacting laws for more than  a decade mandating that federal agencies coordinate their rural policies  and programs. These laws have authorized the establishment of  interagency agreements, cooperative agreements, and interagency working  groups for specific collaborative purposes. For example, a provision of the  Federal Agriculture Improvement and Reform Act of 1996 required the  Secretary of Agriculture to establish and chair a rural development  interagency working group to establish rural policy, coordinate assistance,  and evaluate the performance of federal rural assistance programs.  Additionally, the Farm Security and Rural Investment Act of 2002 formally  established the National Rural Development Partnership so that USDA,  other federal agencies including SBA, state and local entities, and  businesses could better collaborate in delivering services to rural  communities.
Increasingly, Congress has also focused attention on businesses and  entrepreneurs in rural areas and small communities with underserved  financial needs that could benefit from joint efforts between SBA and  Rural Development offices. In an effort to ensure that SBA and Rural  Development programs provide maximum benefit to rural communities,  on November 14, 2007, the House Small Business Subcommittee on Rural  and Urban Entrepreneurship held a hearing on interagency collaboration  and on SBA’s and Rural Development’s ability to work together to better  serve small businesses in rural areas. We testified at that hearing and  provided preliminary views on collaborative efforts between these  agencies. We also were requested to review the agencies’ programs to  determine whether coordination among them could be improved.
As agreed, this report examines SBA and Rural Development’s efforts to  work collaboratively and the degree to which their efforts could be  improved. Specifically, the report discusses (1) the complementary nature  of some SBA and Rural Development loan and business programs and the  extent to which it provides a rationale for collaboration, (2) past and  current efforts at collaboration between SBA and Rural Development and  between SBA and Rural Development and other agencies, and (3)  opportunities to facilitate more effective collaboration between SBA and  Rural Development.
Although there is no commonly accepted definition for collaboration, in  this report we define collaboration as any joint activity that is intended to  produce more public value than can be produced when the agencies act  alone, including activities that others have previously defined as  cooperation, coordination, integration, or networking. To determine the  extent to which SBA and Rural Development’s primary loan and business  programs are complementary and to identify the rationale for the agencies  to work together, we examined laws, regulations, and policies on each  agency’s loans, grants, and other business products and services, and  interviewed officials from both agencies. We reviewed prior reports that  defined collaboration and identified key practices that could help enhance  and sustain collaboration. We also sought input from SBA resource  partners, lenders, and select nonprofit organizations involved in the rural  economic development process. To determine the types of collaborative  efforts that are currently taking place between SBA and Rural  Development, we requested that both SBA and Rural Development  conduct a query of their respective district office Directors and state office  Directors regarding all formal or informal efforts to work collaboratively  with the other agency. We received responses from about half of the SBA  district offices and all of the Rural Development state offices. We  conducted site visits at three locations where SBA and Rural Development  were working together: Lincoln, Nebraska; Albuquerque, New Mexico; and  Bismarck, North Dakota. We also reviewed internal agency documents,  interagency agreements, and training documentation and obtained  detailed information from both agencies’ district and state field offices  regarding formal and informal efforts to work together. To identify past  collaborative efforts, we reviewed documentation and examined the  mechanisms (e.g., contractual work agreements, memorandums of  understanding, statutory provisions, etc.) the agencies used to collaborate.  Finally, to determine opportunities to improve collaboration between SBA  and Rural Development, we reviewed our prior work in this area and  conducted interviews with agency officials, select SBA resource partners,  and nonprofit organizations. Appendix I contains a more detailed  description of our scope and methodology.
We conducted this performance audit from October 2007 to September  2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: SBA is charged with providing support to the nation’s small businesses,  including those in urban and rural areas. Its support takes several forms.  First, it ensures access to credit, primarily by guaranteeing loans through  various loan guarantee programs. Second, it provides entrepreneurial  assistance through partnerships with private entities that offer small  business counseling and technical assistance. Third, SBA administers  various small business development and procurement programs that are  designed to assist small and disadvantaged businesses in obtaining federal  contracts. Finally, SBA makes loans to businesses as well as individuals  trying to recover from major disasters. Although most SBA disaster loans  are processed at the SBA loan processing center in Sacramento,  California, SBA has a network of 68 field offices nationwide.
SBA administers several business loan programs, including the Basic 7(a)  Loan Guaranty Program, 504/CDC Loan Program , 7(m) Micro Loan  Program, and the Small Business Investment Company (SBIC) Program.  Recently, it added the Small/Rural Lender Advantage Pilot Program, under  its 7(a) Program, specifically for small businesses in rural areas (see fig.  1). Appendix II provides a more detailed description of each program.
In addition to its loan programs, SBA offers grant programs that support  nonprofit organizations. These grant programs are generally designed to  expand and enhance nonprofit organizations that provide small businesses  with management, technical, or financial assistance. For example, SBA’s  Women’s Business Development Center Program is an SBA grant program  available to private, nonprofit organizations to run women’s business  centers. The program was established by the Women’s Business  Ownership Act of 1988 after Congress found that existing assistance  programs for small business owners were not addressing women’s needs.  The program, which specifically targets economically and socially  disadvantaged women, provides long-term training, counseling,  networking, and mentoring to women who own businesses or are potential  entrepreneurs. The program’s ultimate goal is to add more well-trained  women entrepreneurs to the U.S. business community.
Additionally, SBA’s Small Business Development Center (SBDC) Program,  which was created by Congress in 1980, provides management and  technical assistance to individuals and small businesses. SBDC services  include, but are not limited to, assisting prospective and existing small  businesses with financial, marketing, production, organization,  engineering, and technical problems and feasibility studies. Each state and  U.S. territory has a lead organization that sponsors and manages the SBDC  program there. The lead organization coordinates program services  offered to small businesses through a network of centers and satellite  locations at colleges, universities, vocational schools, chambers of  commerce, and economic development corporations. Nationwide, 63 lead  SBDCs and more than 1,000 satellite locations have contracted to conduct  SBDC services.
USDA’s Rural Development is responsible for leading and coordinating  federal rural development assistance. Rural Development administers over  40 development programs for rural communities, most of which provide  assistance in the form of loans, loan guarantees, and grants, through a  network of 47 state offices and about 500 area or local field offices. Rural  Development has three agencies: Rural Housing Service (RHS), Rural  Utilities Service (RUS), and Rural Business and Cooperative Service  (RBS). RHS helps rural communities and individuals by providing loans,  grants, and technical assistance for housing and community facilities. It  provides funding for single-family homes; apartments for low-income  persons, the elderly, and farm laborers; and various community facilities  such as fire and police stations, hospitals, libraries, and schools. RUS is  responsible for administering electric, telecommunications, and water  programs that help finance the infrastructure necessary to improve the  quality of life and promote economic development in rural areas.
RBS administers programs that provide business planning and financial  and technical assistance to rural businesses and cooperatives.  Specifically, RBS’ guaranteed loans and other loan and grant programs  work in partnership with private sector and community-based  organizations to meet the business and credit needs of rural businesses.  Recipients of RBS’ services include individuals, farmers, producers,  corporations, partnerships, public bodies, nonprofits, American Indian  tribes, and private companies. The primary business programs include the  Business and Industry (B&I) Guaranteed Loan Program, Intermediary  Relending Program (IRP), Rural Business Enterprise Grant Program  (RBEG), Rural Business Opportunity Grant Program (RBOG), Rural  Economic Development Loan and Grant Program (REDLG), and the  Renewable Energy Systems and Energy Efficiency Improvements  Guaranteed Loan and Grant Program (see fig. 2). Appendix II provides a  more detailed description of each program.
Rural Development business programs are available in areas that meet the  program’s definition of rural—for example, for the B&I program, any area  other than a city or town with a population of 50,000 or less and the area  contiguous and adjacent to such a city or town. As a result, in general, only  individuals and businesses in identified areas with 50,000 or fewer people  are eligible for most of these programs. One exception is the Intermediary  Relending Program, which is available only to businesses in rural areas  with 25,000 or fewer people.
section_title: The Complementary Nature of Some SBA and Rural Development Programs Provides a Rationale for Collaboration
paragraphs: Some SBA loan programs and Rural Development business programs are  complementary, providing a rationale for the agencies to collaborate. Both  types of programs can fund start-up and expansion projects, equipment  purchases, and working capital to rural borrowers and, in some cases, the  eligibility requirements for the programs are comparable. However, the  various programs have different and sometimes unique strengths—for  example, larger loan amounts, shorter processing times, or targeting of  different market segments. According to SBA and Rural Development  officials, collaborative efforts could allow each agency to leverage the  strengths of the other. For example, Rural Development can finance larger  projects than SBA and lend to nonprofit organizations, something SBA  cannot do. However, SBA can offer entrepreneurs a faster turnaround time  in loan processing. Similarly, officials noted that certain SBA and Rural  Development loan products complemented one another and were used  jointly to finance individual projects. To the extent that SBA’s resource  partners are considered part of SBA’s rural presence, both agencies have a  strong rural presence that provides another rationale for the agencies to  collaborate.
subsections: section_title: Some SBA and Rural Development Programs Serve the Same Areas and Groups, Offer Comparable Products, and Have Similar Eligibility Requirements
paragraphs: SBA and Rural Development, which share a similar mission of increasing  economic opportunity and improving the quality of life for people in  underserved markets, including rural America, serve the same rural  geographic areas and communities and have some programs that offer  similar products to borrowers for comparable purposes. For example,  SBA’s 504 Loan Program and Rural Development’s Intermediary Relending  Program both offer economic development loans that can support the  growth of rural small businesses and help enhance rural communities  through business expansion and job creation. The 504 and Intermediary  Relending programs both also provide financing for the acquisition and  improvement of land, buildings and equipment, particularly when such  funding will help create or retain jobs.
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Both agencies’ loan and business programs are designed to help local  entrepreneurs start up or expand their businesses. For instance, SBA’s  7(a) Loan Guaranty Program and Rural Development’s Business and  Industry Guaranteed Loan Programs both provide financing that can be  used to establish a new business or to assist in the operation, acquisition,  or expansion of an existing business. Specifically, the 7(a) program  provides funding for business start-ups, expansion, equipment, working  capital, and real estate acquisition. Similarly, the Business and Industry  Guaranteed Loan Program provides funding for start-ups and expansion  purposes, including acquisition, inventory, real estate, working capital,  equipment, construction, and enlargement or modernization of rural  businesses. These programs are provided through loan guarantees that  limit the risk to lenders. Private lenders underwrite and service the loans  and make the decisions to approve or not approve loan requests, and SBA  and Rural Development decide whether to guarantee a portion of the  outstanding loan balance if the borrower defaults.
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Further, both agencies offer programs that provide technical assistance to  eligible borrowers and, while SBA does not offer grants to start or grow a  business, it has resource partners, such as its SBDCs and Women’s  Business Centers, which provide management and technical assistance to  prospective small business owners. Rural Development offers grant  programs that provide management and technical assistance to rural  borrowers. The Rural Business Enterprise Grant and Rural Business  Opportunity Grant programs provide technical assistance for business  development and to conduct economic planning in rural areas.
In addition, some of the loan and business programs have similar eligibility  requirements. For example, in administering its Renewable Energy  Systems and Energy Efficiency Improvements Guaranteed Loan and Grant  Program, Rural Development relies on SBA’s definition of eligible small  businesses, including sole proprietorships, partnerships, corporations, and  cooperatives. Borrowers must also meet SBA’s small business standards  for the type of industry, number of employees, or annual revenue.  Moreover, some of SBA’s and Rural Development’s programs have  established comparable credit criteria for the borrower. SBA’s 7(a) Loan  Guaranty, 504, and Mirco Loan programs and Rural Development’s  Business and Industry Guaranteed Loan Program all use similar criteria  that are based on the type of project being funded and the borrower’s  ability to meet normal commercial lending standards and provide a  personal guaranty, if necessary.
section_title: SBA and Rural Development Programs Have Several Key Differences
paragraphs: SBA and Rural Development officials we spoke to stated there was little  overlap or duplication between the two agencies’ loan and business  programs, in part because of several key differences. First, Rural  Development can finance larger projects than SBA. The maximum loan  amount for SBA’s 7(a) loan is $2 million, compared with a maximum loan  amount for Rural Development’s Business and Industry loan of $25  million. Second, the 7(a) and Business and Industry programs also offer  different loan guaranties. The maximum guaranty for 7(a) loans is 85  percent for loans up to $150,000 and 75 percent for loans over $150,000.  The maximum guaranty percentage for Business and Industry loans is 80  percent for loans up to $5 million, 70 percent for loans between $5 million  and $10 million, and 60 percent for loans of more than $10 million. Third,  the costs, fees, and loan terms differ for the two types of loans. For  example, SBA charges a guaranty fee of 2 percent for loans up to $150,000,  3 percent for loans between $150,000 and $700,000, and 3.5 percent for  loans up to $1 million. SBA also charges an additional quarter of a percent  of the guaranteed portion over $1 million. Rural Development charges an  initial guaranty fee not to exceed 2 percent of the guaranteed portion of  the loan. The maximum loan terms for SBA 7(a) loans are determined by  the following: (1) the shortest appropriate term, depending on the  borrower’s ability to repay; (2) 10 years or less, unless it finances or  refinances real estate or equipment with a useful life exceeding 10 years;  and (3) a maximum of 25 years, including extensions. However, the  maximum loan terms for Rural Development’s Business and Industry loans  are 7 years for working capital, 15 years for equipment, and 30 years for  real estate loans.
Each program also offers some unique strengths. While Rural  Development’s fees tend to be lower than SBA’s, SBA usually processes its  loans faster. In general, the average processing time by SBA for SBA loans  is 5 to 7 business days and for Rural Development business programs 10 to  60 days, depending on the scope of the project and completeness of the  application. SBA can offer shorter turnaround in loan processing,  particularly for its 7(a) program (which sometimes takes as little as 2  business days), because of its various express loan options, preapproved  lenders, and consolidated loan processing center. Rural Development  makes credit and underwriting decisions itself rather than relying on  preapproved lenders, and its loans can take as long as 60 days to process.  Moreover, Rural Development has certain restrictions on the maximum  dollar amount of loans that can be approved by field offices—typically  varying by state based on the loan approval authority. Therefore, Business  and Industry loans above a state’s loan approval limit must be approved by  Rural Development headquarters officials, resulting in additional loan  processing times.
While both agencies serve rural areas, their programs differ in the types of  entities they serve. SBA’s loan programs only serve the for-profit sector,  focusing on individual entrepreneurs and small businesses. However,  Rural Development’s business programs focus on individual entrepreneurs  and small and mid-size businesses, as well as nonprofits. Appendix III  further illustrates some of the similarities and differences between SBA’s  and Rural Development’s loan and business programs.
section_title: Collaboration Allows SBA and Rural Development to Leverage Each Agency’s Strengths and Increase Financing Options in Rural Areas
paragraphs: According to SBA and Rural Development officials who are engaged in  collaborative relationships, collaboration allows the agencies to leverage  the unique strengths of each agency’s programs and increase the number  of financing options to better promote economic development. For  instance, SBA and USDA officials in North Dakota said that SBA’s 504  program and Rural Development’s Intermediary Relending programs were  frequently coupled in loan packages. In those cases, the 504 program  provided funding for land and buildings, and the Intermediary Relending  program provided funding for machinery, equipment, working capital, and  other uses. The officials estimated that about one of every four 504 loans  in rural communities in North Dakota with populations of less than 25,000  residents had been used jointly with Intermediary Relending loans to  finance individual projects. Examples of businesses in North Dakota that  have received joint financing from SBA and Rural Development include an  agricultural retail service that sells chemicals and fertilizer and employs 7  workers and a manufacturer of electric thermal storage heating equipment  that employs 140 workers. In each of these examples, the businesses used  SBA’s 504 program to acquire a building and used the IRP program to  acquire machinery and equipment.
Other officials with whom we spoke cited further rationale for the  agencies to collaborate. In one instance, a Rural Development official in  New Mexico noted that collaboration with SBA allowed him to tap into  SBA’s preexisting constituency of banks, expanding the number of lenders  that could help provide Rural Development loans to potential borrowers.  Similarly, SBA officials in New Mexico said that collaboration with Rural  Development allowed SBA to provide additional assistance to small  businesses after Rural Development provided initial financing for a  community’s infrastructure.
The officials involved in the limited instances of collaboration that we  identified acknowledged that working together allowed both agencies to  coordinate the delivery of their loan and business programs to solve  specific credit needs. SBA and Rural Development officials in North  Dakota also told us that by collaborating they were able to provide  borrowers with more financing options than they could by acting alone,  thereby improving service to borrowers. Moreover, according to officials  in North Dakota and New Mexico, collaboration also created a synergistic  effect to better promote economic development in rural areas.
Finally, while some consolidation has occurred over time, both agencies  have a strong presence in rural areas. Prior to its 1994 reorganization,  USDA had field staff in almost every rural county. Consistent with its  reorganization, and as we reported in September 2000, USDA closed or  consolidated about 1,500 county offices into USDA service centers and  transferred more than 600 Rural Development field positions to the St.  Louis Centralized Servicing Center. The number of Rural Development  offices across the nation is now closer to the number of SBA offices—47  Rural Development state offices and 68 SBA district offices (see fig.3).
In addition to its state offices, Rural Development also has about 500 field  offices, including area, subarea, and other local offices in rural areas. SBA  officials we spoke to in headquarters believe that SBA has a similar  presence in rural communities because of its more than 950 SBDC  locations in the 50 states, U.S. territories, and the District of Columbia. In  contrast to SBA’s view, Rural Development officials believe that the  presence of its 500 field offices in rural areas is unique because each office  is staffed by USDA employees. Although SBA’s SBDCs may provide  services that differ from services provided by Rural Development field  offices, to the extent that SBDCs are considered part of SBA’s rural  presence, both agencies have a strong rural presence that provides  another rationale for the agencies to collaborate.
section_title: SBA and Rural Development’s Collaborative Efforts Have Been Sporadic
paragraphs: Overall, in the areas where SBA and Rural Development were  collaborating, the efforts were sporadic, were initiated and administered at  local levels, and appeared to be dependent on established working  relationships among those involved. The results of a query by Rural  Development and SBA officials asking their offices whether collaborative  efforts were under way also indicated that such efforts were sporadic. We  found that the extent of the collaboration that was taking place and the  level of formality—that is, the use of cooperative agreements, such as  MOUs and other mechanisms to collaborate—varied across the agencies’  field offices. For example, in North Dakota, SBA and Rural Development  collaborated frequently and on a relatively formal basis by communicating  at least weekly, hosting several joint lender training sessions yearly, and  establishing an MOU to deliver financing and technical assistance at one  location. In other states we visited, such as Nebraska and New Mexico,  SBA and Rural Development worked with each other less frequently and  on a more informal basis. In a number of other states, such as Arizona,  Colorado, and Georgia, no collaborative efforts appeared to be under way.
subsections: section_title: Most of the Current Collaborative Efforts between SBA and Rural Development Have Been Initiated at the Local Level
paragraphs: Federal agencies that are involved in collaborative efforts are generally  required by statute to collaborate, but no such specific requirement exists  for SBA and Rural Development. As a result, we found that most ongoing  collaborative efforts between the agencies had been initiated at the local  level and were based on established working relationships among the  involved individuals. For example, some SBA and Rural Development field  office officials at the three sites we visited told us that they frequently  collaborated with each other because they had held the same job  positions, within their respective agencies, and worked together for many  years and thus had established a rapport. Other officials told us that they  were involved in collaborative efforts because they had initiated the  efforts on their own or had prior experience in partnering with other  agencies and had chosen to continue similar efforts.
SBA and Rural Development headquarters officials conducted a query of  their respective field office staff to determine the extent to which these  offices were involved in any formal or informal collaborative efforts. In  addition to information we obtained from the three locations we visited,  the query results showed that collaborative efforts developed sporadically  among a limited number of offices. For example, of SBA’s 68 district  offices, only about half reported having ongoing collaborative efforts with  Rural Development. Similarly, only about half of Rural Development’s 47  state offices reported having ongoing collaborative efforts. Of those Rural  Development offices that reported not having any ongoing efforts, a few  indicated that they had partnered with SBA in the past. Each agency’s  query also showed that some SBA and Rural Development field offices  seemed to have good working relationships that had been established over  the years by the specific individuals involved.
section_title: A Few SBA and Rural Development Field Offices Have Established Formal Collaborative Efforts
paragraphs: Our site visits and the results of the query of field offices identified a few  SBA and Rural Development offices, such as those in North Dakota, Ohio,  and Washington state that appeared to be collaborating frequently. These  offices used formal mechanisms such as MOUs to establish a framework  for their efforts. In North Dakota, for example, SBA and Rural  Development offices offered at least eight joint lender trainings each year  and held quarterly meetings. In addition, in North Dakota the agencies had  established an MOU that created the Entrepreneur Centers of North  Dakota (ECND), a single entity involving SBA, Rural Development, and  other state and local stakeholders. According to officials at the center,  the ECND provides “one-stop” access to a variety of products and services,  a concept that has been widely used by USDA in its service centers for  over 10 years and that was a cornerstone of the agency’s reorganization  efforts.
Through the ECND, a prospective small business borrower in North  Dakota can work with the five ECND partners to obtain financing and  technical assistance from any of the more than 15 programs that are  offered. ECND partners work with the borrower from the initial point of  contact and continue their assistance through the process of securing the  appropriate financing and may stay involved until a project is completed.  Borrowers can also work with “resource partners,” including SBA’s SBDC  and the North Dakota Women’s Business Center (i.e., Center for Women  and Technology) to obtain technical assistance in areas such as business  management, marketing, production, and the development of feasibility  studies. According to SBA and Rural Development officials in North  Dakota, the ECND is one of the best examples of teamwork and has  proven to be beneficial in helping to provide a high level of customer  service to rural borrowers.
The SBA and Rural Development offices in Ohio also reported ongoing  collaborative efforts. The officials reported having an MOU, which was  established in the late 1990s, to guide various joint activities and to  promote the use of each other’s programs in marketing and outreach  efforts. Under the MOU, which is still used today, the offices provide  referrals, conduct periodic meetings to update program information, and  engage in forums and joint lender training sessions to educate lenders on  their programs. The SBA and Rural Development offices in Washington  reported having annual forums to share updated program information.  They also said that they had sponsored three joint lender training sessions  and a regional lender conference to educate lenders on the various aspects  of their loan and business programs. The SBA and Rural Development  offices plan to conduct a series of joint lender workshops in 2008 and to  establish an MOU that will guide their efforts and cover advertising for the  workshops.
section_title: SBA and Rural Development Collaborated Less Frequently, Informally, or Not At All in Many Locations
paragraphs: The two agencies reported several other instances of collaboration, but  these were less extensive and formal than those in North Dakota, Ohio,  and Washington state. For example, Nebraska SBA and Rural  Development officials reported conducting joint lender training sessions  to educate loan officers on the agencies’ various loan and business  programs and provide information on the technical resources that are  available to small businesses throughout the state. In New Mexico, SBA  and Rural Development officials reported conducting joint monthly  meetings and community outreach sessions, or “Access to Capital” forums.  The forums are 1-day events during which Rural Development, SBA, and  SBDC officials and other local economic development professionals make  presentations on the various types of loan programs that are available to  small businesses. The forums’ goal is to involve local economic and  political leaders in assisting small businesses in rural areas of the state and  to obtain their buy-in and support for SBA and Rural Development  programs.
SBA and Rural Development officials in other locations reported that they  were involved in informal collaborative efforts. In Arkansas, Missouri, and  Virginia, these activities were based on referrals. According to officials in  these areas, SBA and Rural Development field personnel often refer  applicants in need of financing to each other’s agency if the other agency’s  programs seem better suited to the applicants’ needs. SBA and Rural  Development offices in Massachusetts also reported that they had recently  sponsored a joint educational event on renewable energy and energy  efficiency grants and loans and had held meetings to exchange program  information. Additionally, in New Hampshire, Rhode Island, and Vermont,  the offices reported that they had informal relationships and generally  kept each other up to date on their respective programs.
In many states, however, SBA and Rural Development do not appear to be  collaborating at all or to have formal or informal mechanisms to facilitate  collaboration. These states include, among others, Arizona, Colorado,  Georgia, Maine, North Carolina, Utah, and West Virginia. Because of this  lack of collaboration, SBA and Rural Development offices in these states  may be missing out on opportunities to work together to better serve  entrepreneurs and small businesses in their local communities.
section_title: SBA and Rural Development have Collaborated with Each Other and Other Agencies in the Past
paragraphs: SBA and Rural Development have collaborated in the past with each other  and with other agencies. Generally speaking, these efforts enabled the  agencies to achieve results that they could not have achieved acting alone.  For example, SBA and Rural Development collaborated with each other  under the RBIP. Section 6029 of the Farm Security and Rural Investment  Act of 2002 required USDA to establish the RBIP. The purpose of the  program was twofold: first, to promote economic development and create  jobs in rural areas by encouraging investments of venture capital to help  develop small rural businesses; and second, to establish a developmental  venture capital program to address the unmet equity investment needs of  small rural businesses.
RBIP was modeled after SBA’s Small Business Investment Company  program and its New Markets Venture Capital program, and Rural  Development was expected to draw upon the experience that SBA had  gained in administering these programs. Under an interagency agreement  required by the act, Rural Development had oversight responsibility for  RBIP, and SBA had the day-to-day responsibility for managing and  operating the program using its own staff, procedures, and forms.  According to both SBA and Rural Development officials, the success of  RBIP was limited due to a lack of funding, in part because the Deficit  Reduction Act of 2005 rescinded fiscal year 2007 and subsequent funding  for the program. Both agencies also encountered challenges during  planning and implementation. For instance, it took about 2 years from the  time that the law was enacted in 2002 to finalize and sign the operating  agreements, establish interim final rules, and announce funding  availability in 2004. Prior to the loss of funding in 2006, only one company  was able to raise the necessary capital (i.e., private equity matching  dollars) for full approval to become licensed as a rural business  investment company under RBIP.
According to SBA and Rural Development officials, the agencies have also  collaborated with other agencies, and the results have reportedly been  beneficial for both SBA and USDA. For instance, both SBA and Rural  Development each collaborated with FCA to examine specialized lending  institutions. Specifically, SBA oversees small business lending companies  (SBLC), which are nondepository lending institutions licensed by SBA that  play a significant role in SBA’s 7(a) Loan Guaranty Program. However,  SBLCs are not generally regulated or examined by financial institution  regulators. SBA entered into a contractual agreement with FCA in 1999  that tasked FCA with conducting safety and soundness examinations of  the SBLCs. Under the agreement, FCA would conduct examinations of  SBLCs on a full cost-recovery basis, and the agencies would have the  option to terminate or extend the agreement after 1 year. Rural  Development also collaborated with FCA under an Economy Act  agreement to conduct examinations of its nontraditional lenders (i.e.,  lenders that provide loans to borrowers that do not meet the traditional  credit criteria) that participate in Rural Development’s B&I, Renewable  Energy Systems and Energy Efficiency Improvements, and Community  Facilities Guaranteed Loan Programs. Under the agreement, FCA  conducts, on a full cost-recovery basis, examinations of the lending  institutions’ safety and soundness, lending practices, and regulatory  compliance. These agreements have allowed both SBA and Rural  Development to take advantage of FCA’s expertise in examining  specialized financial institutions and offered FCA the opportunity to  broaden its experience through exposure to different lending  environments.
Additionally, Rural Development and FEMA collaborated in providing  disaster assistance to Hurricane Katrina victims. Through this  collaborative effort, Rural Development assisted victims of Katrina by (1)  making multifamily rental units available nationwide; (2) providing grants  and loans for home repair and replacement; and (3) providing mortgage  relief through a foreclosure moratorium and mortgage payment  forbearance. Over the years, Rural Development’s Housing and  Community Facilities Program and HUD have routinely collaborated with  each other to provide affordable housing assistance in rural communities,  and the working relationship still exists today. Rural Development and  HUD have together created a voucher program, modeled after HUD’s  Housing Choice Voucher program that provides rental assistance to  families in rural areas. They have also developed cooperative agreements  for their multifamily housing assistance programs that allow tenants to use  HUD vouchers in USDA subsidized multifamily housing units. We were  told that each of the collaborative efforts allowed the agencies to establish  common approaches to working together, clarify priorities as well as roles  and responsibilities, and align their resources to accomplish common  outcomes.
section_title: SBA and Rural Development Could Take Steps to Establish a Formal Approach to Collaboration
paragraphs: SBA and Rural Development have not had a lasting approach to guide  them in collaborating with one another more effectively. Our October 2005  report on key practices that can help enhance and sustain collaboration  among federal agencies identified a number of practices critical to  successful collaboration and identified other factors such as leadership,  trust, and organizational culture that are necessary elements of an  effective working relationship. In December 2000, SBA and Rural  Development entered into an MOU that provided an approach to  collaboration. The MOU incorporated three of the key practices we have  identified. The MOU expired in 2003 and SBA and Rural Development do  not appear to have implemented the MOU when it was active. The  ineffective implementation of the MOU has likely contributed to the  sporadic and limited amount of collaboration that is taking place between  the two agencies. SBA and Rural Development also do not have formal  incentives focused on collaboration and do not track the results or impact  of collaborative efforts. As a result, the agencies are unable to share  information on the benefits of working together and encourage additional  efforts to do so. Without a formal approach to encourage further  collaboration, the agencies will be less likely to fully leverage each other’s  unique strengths to help improve small business opportunities and  encourage economic development in rural communities.
subsections: section_title: SBA and Rural Development Do Not Have A Current Cooperative Agreement to Facilitate Collaboration
paragraphs: In our October 2005 report, we identified eight key practices federal  agencies could undertake to enhance and sustain their collaborative  efforts. These practices included the following:    Define and articulate a common outcome—to overcome significant  differences in agency cultures and established ways of doing business,  collaborating agencies must have a clear and compelling rationale to work  together.
Establish mutually reinforcing or joint strategies—to achieve a common  outcome, collaborating agencies need to establish strategies that work in  concert with those of their partners or are joint in nature.
Identify and address needs by leveraging resources—collaborating  agencies should identify the human, information technology, physical, and  financial resources needed to initiate or sustain their collaborative effort.  By assessing their relative strengths and limitations, agencies can look for  opportunities to address resource needs by leveraging each others’  resources.
Agree on agency roles and responsibilities—collaborating agencies  should work together to define and agree on their respective roles and  responsibilities, including how the collaborative effort will be led.
Establish compatible policies, procedures, and other means to operate  across agency boundaries—to facilitate collaboration, agencies need to  address the compatibility of standards, policies, procedures, and data  systems that will be used in the collaborative effort.
Develop mechanisms to monitor, evaluate, and report on results— agencies involved in collaborative efforts need to create the means to  monitor and evaluate their efforts to enable them to identify areas for  improvement.
Reinforce agency accountability for collaborative efforts through agency  plans ands reports—collaborating agencies should ensure that goals are  consistent and, as appropriate, program efforts are mutually reinforced  through tools such as strategic and annual performance plans; and   Reinforce individual accountability for collaborative efforts through  performance management systems—collaborating agencies should use  their performance management systems to strengthen accountability for  results, specifically by placing greater emphasis on fostering the necessary  collaboration both within and across organizational boundaries to achieve  results.
In comparing SBA and Rural Development’s efforts to these key practices,  we found that the agencies have taken steps in the past that were  consistent with three of the key practices. In particular, the agencies  entered into a cooperative agreement—an MOU—in December 2000 that  (1) defined and articulated a common outcome; (2) reached agreement on  roles and responsibilities; and (3) established a mechanism to monitor,  evaluate, and report on results.
Specifically, the MOU defined and articulated a common purpose,  including to better serve rural areas by coordinating the delivery of  programs; increase the number of small business loans guaranteed by both  agencies; and develop relationships with federal, state, county, and local  agencies, private organizations, and commercial and financial institutions  to facilitate and support the development of strong rural businesses. In  addition, the MOU described the respective roles and responsibilities each  agency would maintain in providing training on their programs, credit  analysis techniques, and processing and servicing policies. Finally, the  MOU stated that, at least annually, SBA’s Associate Administrator for Field  Operations, SBA’s Associate Administrator for Financial Assistance, and  Rural Development’s Deputy Administrator for Business Programs, or  their designees, would monitor and evaluate the previous year’s joint  activities and plan any future work.
The MOU, signed in December 2000, was to become active on the date of  execution and remain in effect for 3 calendar years at which time the two  agencies had the option to extend it for an additional 2 years by written  agreement. SBA’s Deputy Administrator and USDA’s Undersecretary for  Rural Development signed the MOU and it expired in 2003. Both SBA and  Rural Development officials recently confirmed that the MOU was not  renewed.
section_title: SBA and Rural Development Do Not Appear to Have Implemented the December 2000 MOU When it Was Active
paragraphs: Although SBA and Rural Development’s December 2000 MOU contained  provisions that are consistent with some of our key practices as described  above, the agencies do not appear to have implemented the MOU when it  was active. Based on our analysis, there are two potential reasons for this  lack of implementation.
First, SBA and Rural Development may not have implemented the 2000  MOU when it was active because of a lack of direction and focus from high  levels of each agency emphasizing the need for and importance of  collaboration. Rural Development officials confirmed that a change in  USDA administration occurred after the 2000 MOU was signed, and the  officials who signed the MOU were no longer in the positions they  occupied at the time of the signing. This explanation is consistent with  what others told us about barriers to more effective collaboration between  federal agencies. For example, a representative of a rural community  development organization with whom we spoke stated that the initial  momentum for some collaborative efforts may come from officials in  management level positions of a federal agency, but after the responsible  officials leave the agency, or a change in administration occurs, the  momentum for a collaborative effort may drop off and not be resumed by  the officials’ successors.
Second, the 2000 MOU may not have been fully implemented because  neither agency appeared to be actively monitoring the extent to which  collaboration was ongoing. For instance, when we began our work for this  review, we asked SBA and Rural Development officials in headquarters to  provide examples of formal or informal efforts the agencies have  undertaken to work together. The officials were not able to provide any  descriptions of such efforts and told us that ongoing collaborative efforts  were likely to be sporadic and occurred only as needed in the agencies’  field offices. Because we could not obtain information on the extent and  nature of SBA and Rural Development’s collaborative efforts, we asked  each agency to query its field offices to provide us with this information.  As discussed previously, based on the results of each agency’s query, we  found a few locations where SBA and Rural Development are involved in  frequent and formal collaborative efforts, some locations where the  agencies are involved in informal efforts, and many locations where the  agencies appear not to be working together at all.
SBA and Rural Development officials did not cite the December 2000 MOU  when we began work for this review and, for a period of months, the  agencies did not appear to be in agreement as to whether the MOU was  active. In March 2008, Rural Development officials informed us that they  were operating as though the MOU was active, even though it had expired.  However, when we asked about the December 2000 MOU during some of  our visits to locations where SBA and Rural Development were  collaborating, some officials in the locations were unfamiliar with it.  During the course of our review, neither SBA nor Rural Development  officials cited actions taken, past or present, in response to the provisions  contained in the MOU. Had SBA and Rural Development implemented the  MOU, the agencies would have had a framework to guide them and  improve upon their collaborative efforts.
section_title: SBA and Rural Development Lack Incentives for Collaboration and Do Not Track the Results of Collaborative Efforts
paragraphs: Based on our analysis, we found that SBA and Rural Development field  offices do not have formal incentives to encourage collaboration and do  not track the results of their efforts. As mentioned, as we reported in our  2005 report, one of the key practices that can help agencies to enhance  and sustain their collaborative efforts involved ensuring that the agencies’  goals are consistent and that their program efforts are mutually reinforced  through strategic and annual performance plans. Specifically, federal  programs contributing to the same or similar results should collaborate  and use their strategic and annual performance plans as tools to drive  their efforts to work together. Such plans can reinforce accountability for  the collaboration by establishing complementary goals and measures for  achieving results and aligning them with the goals and measures of the  collaborative efforts. SBA and Rural Development’s performance goals  and measures do not focus on their efforts to work together  collaboratively. Specifically, in describing their performance goals for  district offices, SBA officials stated that each office has goals for technical  assistance, including activities such as training, marketing, and outreach.  The officials noted that each SBA district office also has goals and  measures for the number of loans to be made in underserved markets,  which may include rural areas. While these goals and measures focus on  participation in SBA’s programs and may encourage offices to partner with  others, they do not focus specifically on collaboration with Rural  Development. Similarly, Rural Development’s program performance  measures, particularly for the B&I program, do not focus on collaboration  with another agency. Rural Development’s goals and measures focus on  employment opportunities (i.e., jobs created or saved) and community  economic benefits (i.e., value added to a community as a result of the  economic impact of Rural Development’s programs). Both SBA and Rural  Development officials stated that performance goals and measures  focused on collaboration could provide an incentive to collaborate. Once  established, such goals and measures could provide both agencies a  mechanism to encourage interagency working relationships and reward  those efforts already occurring.
Additionally, SBA and Rural Development officials at the three locations  we visited said that they are not currently tracking the results of some  collaborative efforts, such as the joint training of lenders and community  outreach sessions. The officials did view these collaborative efforts as  beneficial in increasing awareness of each agency’s respective programs.
According to Rural Development officials in New Mexico, while they are  satisfied with the attendance at their “Access to Capital” forums targeted  at local economic and political leaders and lenders, they have not been  able to document a loan resulting from the forums. Rural Development  officials in Nebraska said that they have received phone calls from some  lenders after the lenders have attended a joint training session. In these  cases, according to the officials, Rural Development has been active in  meeting with lenders one-on-one to provide assistance. However, the  officials said that they could do a better job of proactively contacting the  lenders after the training to solicit feedback and determine if the lender  has initiated any new loans as a result of having attended the training  session.
SBA and Rural Development officials stated that one way to document the  benefits of collaboration would be to prepare “success stories” of ventures  that SBA and Rural Development had jointly undertaken. The officials  further stated that because each agency already prepared success stories  that are based upon participation in their individual programs, this  practice could be used to document positive benefits stemming from  collaborative efforts between the two agencies. Moreover, the officials  said that those locations where SBA and Rural Development were not  currently working together were more likely to begin doing so if they were  made aware of specific, tangible benefits that could be realized through  collaboration.
section_title: Conclusions
paragraphs: The complementary nature of some SBA loan programs and Rural  Development business programs provides a rationale for the agencies to  collaborate. SBA and Rural Development officials engaged in collaborative  working relationships said that they have been able to work together to  offer rural borrowers more financing options and better services, as well  as to improve efforts to promote economic development in rural areas  when collaboration has occurred. However, SBA and Rural Development’s  collaborative efforts to date have been sporadic and mostly self-initiated  by specific officials in each agency’s field offices. Officials of each agency  worked together frequently in some locations and infrequently in others.  In many areas, SBA and Rural Development neither appear to be  collaborating at all nor have formal or informal mechanisms to guide their  collaboration.
For SBA and Rural Development, working together to encourage  economic development in rural areas is not a new or novel concept. Both  agencies entered into earlier cooperative agreements to work  collaboratively. However, when comparing these past efforts with our  criteria for effective interagency collaboration, we found that the agencies  could take further steps to facilitate collaboration by establishing and  implementing a formal approach. Such an approach could help SBA and  Rural Development establish the guidance, direction, and incentive  structure needed to bring about a productive working relationship on a  more systematic basis. Our previous work in this area shows that adopting  key practices—such as defining and articulating a common outcome;  specifying roles and responsibilities; establishing a mechanism to monitor,  evaluate, and report on results; and reinforcing agency accountability for  collaborative efforts—can help federal agencies enhance and sustain their  collaborative efforts. One way SBA and Rural Development can adopt  these key practices is to enter into a written cooperative agreement and,  just as important, implement that agreement and take appropriate steps to  monitor and report on results. Moreover, by creating formal incentives,  such as performance goals and measures specifically focused on  collaboration or, similarly, preparing success stories to document the  benefits of their collaborative efforts, SBA and Rural Development can  share and publicize information that would help encourage the two  agencies to work together. Such an approach can help SBA and Rural  Development to effectively leverage each other’s unique strengths to help  improve small business opportunities and promote economic development  in rural communities.
section_title: Recommendations for Executive Action
paragraphs: To improve SBA and Rural Development’s collaborative efforts, we  recommend that the Administrator of SBA and Secretary of Agriculture:  take steps to adopt a formal approach to encourage further collaboration  in support of common economic development goals in rural areas. Such  steps could include establishing and implementing a written agreement;  defining and articulating a common outcome for rural economic  development; specifying roles and responsibilities to ensure proper  coordination; establishing mechanisms to monitor, evaluate, and report on  results; and reinforcing accountability for collaborative efforts.
section_title: Agency Comments
paragraphs: We provided a copy of our draft report to the Acting Administrator of the  Small Business Administration and the Secretary of Agriculture for review  and comment. Both agencies provided technical comments, which we  incorporated into the final report where appropriate.
We are sending copies of this report to other interested congressional  committees as well as the Administrator of the Small Business  Administration and the Secretary of Agriculture. We also will make copies  of this report available to others upon request. In addition, this report will  be available at no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-8678 or ShearW@gao.gov if you or your  staff have any questions about this report. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: The Small Business Administration (SBA) programs in our scope   (see fig. 4) include the major business loan programs—Basic 7(a) Loan  Guaranty, 504/Community Development Corporation Loan and the 7(m)  Micro Loan, as well as the Small Business Investment Company (SBIC)  and the Rural Lender Advantage Pilot programs. The Department of  Agriculture (USDA) Rural Development programs in our scope include the  primary business programs including the Business and Industry  Guaranteed Loan, Intermediary Relending, Rural Business Enterprise  Grant, Rural Business Opportunity Grant, Rural Economic Development  Loans and Grants, and the Renewable Energy Systems and Energy  Efficiency Improvements Guaranteed Loan and Grant programs.
In this report, we define collaboration as any joint activity that is intended  to produce more public value than can be produced when the agencies act  alone. It can include interagency activities that others have previously  defined as cooperation, coordination, integration, or networking.
To determine the extent to which SBA and Rural Development’s primary  loan and business programs are complementary and to identify the  rationale for SBA and Rural Development to collaborate, we reviewed the  mission and structure of SBA and Rural Development offices. We reviewed  relevant agency documents and examined laws, regulations and policies  on each agency’s loans, grants, and other business programs. We reviewed  eligibility requirements and the type of assistance (i.e., direct loan, loan  guaranty, grant, etc.), funding levels, and eligible use of program funds, as  well as information about each agency’s loan processes and procedures,  participation requirements, number of awarded loans and grants, and loan  process times. We also interviewed agency officials on the similarities and  differences between the two agencies’ primary loan and business  programs, and whether the similarities may have an effect on  collaboration. We reviewed our prior work on interagency collaboration  and key practices that can help enhance and sustain collaborative efforts.  We obtained input from SBA and USDA agency officials, SBA resource  partners, lenders, and nonprofit organizations involved in the rural  economic development process on the goals and common outcomes they  envision from increased collaboration between the SBA and Rural  Development. Also, using information collected on the mission and  structure of SBA and Rural Development offices, and the purpose, eligible  use, and terms/conditions of their primary business programs, we assessed  whether factors such as complementary mission or task, compatible  geographic location and organizational structure, common client base,  program overlap and duplication, or similarities and differences in  statutory authority, provide a rationale for the two agencies to work  together. As collaboration between SBA and USDA Rural Development is  not specifically required by law or regulation, we relied on established  practices and agency officials’ and stakeholder views in examining the  rationale for why SBA and USDA should collaborate.
To determine the types of collaborative efforts currently taking place and  that have taken place in the past between SBA and Rural Development, we  reviewed internal documents, such as memorandums of understanding  (MOU) and training documentation, showing ongoing and past  collaborative efforts between SBA and Rural Development. We requested  that both SBA and Rural Development conduct a query of their respective  district offices and state offices regarding all formal or informal efforts to  work collaboratively with the other agency. We received responses from  about half the SBA district offices and all of the Rural Development state  offices that either described the extent of their collaborative efforts with  the other agency, or reported that there were no collaborative efforts  ongoing. Of those SBA and Rural Development district and state offices  that reported they were working together, we selected three locations and  conducted site visits and interviews with knowledgeable staff at each  location to obtain a thorough understanding of ongoing collaborative  efforts. We selected the sites to visit based on the reported amount of  collaboration and degree of formality of the effort. We defined formality  by the presence of a written document, such as an MOU, that served as a  guide for collaborative efforts. The goal of our selection approach was to  obtain information on a range of collaborative efforts, from frequent and  formal to infrequent and informal. The locations that we selected and  visited were Lincoln, Nebraska; Bismarck, North Dakota; and  Albuquerque, New Mexico. For two of these locations, we also spoke with  lenders that have participated in both SBA and Rural Development  programs.
To determine the types of collaborative efforts that have taken place  between SBA and other agencies, and Rural Development and other  agencies, we reviewed documentation describing the collaborative effort.  We examined the mechanisms (e.g., contractual work agreement, MOU or  other cooperative agreement, statutory provision, etc.) the agencies used  to collaborate. Additionally, we interviewed agency officials on their  knowledge of any past collaborative effort.
To determine the opportunities to facilitate and remove barriers to more  effective collaboration between SBA and Rural Development, we reviewed  our prior work on key practices that can help enhance and sustain  collaboration and address barriers to more effective collaboration. We  also obtained the views and experience of agency officials, SBA resource  partners, lenders, and select nonprofit organizations, regarding rural  economic issues, and opportunities and barriers to more effective  collaboration. We used certain characteristics, such as personnel at both  agencies, budget, training, and management, to evaluate opportunities or  barriers to collaboration. We also assessed the potential that may be  present for Rural Development offices to help market SBA programs and  services by making information available through their field offices and  whether SBA can play a similar role for Rural Development programs.  Finally, we compared SBA and Rural Development’s policies, practices,  and performance goals with key practices that can help federal agencies  enhance and sustain their collaborative efforts.
We conducted this performance audit from October 2007 to September  2008, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Description of SBA’s and USDA Rural Developments’ Primary Loan and Business Programs
paragraphs: Both SBA and USDA Rural Development have several loan and business  programs that provide funds to start or expand businesses in rural areas.  Through these programs, the two agencies work with individual  entrepreneurs, existing or start-up small businesses, state, local, and tribal  governments, as well as cooperatives and nonprofit agencies to increase  economic opportunity and improve the quality of life for people in rural  communities across the country.
The following sections describe the primary SBA loan programs and Rural  Development business programs.
subsections: section_title: SBA Loan Programs
paragraphs: Basic 7(a) Loan Guaranty Program serves as the primary business loan  program to help qualified small businesses obtain financing. It can be used  for a variety of general business purposes including, working capital,  machinery and equipment, land and building (including purchase,  renovation, and new construction), leasehold improvements, and certain  debt refinancing. SBA sets the guidelines for the loans and backs the loan  with a guaranty, while lenders make the loans to the small businesses. SBA  offers multiple variations of the Basic 7(a) Loan Program to accommodate  targeted needs. For example, the Patriot Express Loan Program, which is  specifically geared toward veterans, members of the military community  and their spouses, and the Community Express Loan Program, which is  aimed at women, minorities, and veterans in underserved communities  who want to start or expand a small business, are both expedited versions  of the Basic 7(a) Loan Program.  504/Certified Development Company (CDC) Loan Program provides  long-term, fixed-rate financing to small businesses to acquire real estate,  machinery, or equipment for expansion or modernization. The 504/CDC  Loan Program cannot be used for working capital or inventory,  consolidating or repaying debt, or refinancing. Typically a 504/CDC project  includes a loan secured by a lien from a private-sector lender, a loan  secured by an additional lien from a certified development company  (CDC) (covering up to 40 percent of the total cost) and a contribution of at  least 10 percent equity from the borrower. CDCs are private, nonprofit  corporations set up to contribute to the economic development of their  communities or regions. The program is designed to enable small  businesses to create and retain jobs—the CDC’s portfolio must create or  retain one job for every $35,000 provided by the SBA.  7(m) Micro Loan Program provides short-term loans of up to $35,000 to  small businesses and not-for-profit child-care centers for working capital  or the purchase of inventory, supplies, furniture, fixtures, machinery, or  equipment. The average loan size is about $13,000, and proceeds can be  used for typical business purposes such as working capital, machinery and  equipment, inventory, and leasehold improvements. The proceeds cannot  be used to pay existing debts or to purchase real estate. Under this  program, SBA makes funds available to intermediaries (nonprofit  community-based organizations with experience in lending) that, in turn,  make the loan directly to the entrepreneur. The intermediary lenders also  provide entrepreneurs with management and technical assistance.
SBIC Program provides venture capital to small independent businesses,  both new and already established. The structure of the program is unique  in that SBICs are privately owned and managed investment funds, licensed  and regulated by SBA, that use their own capital plus funds borrowed with  an SBA guarantee to make equity capital and long-term loans to qualifying  small businesses. In addition to investments and loans, SBICs also provide  management assistance to small businesses.
Small/Rural Lender Advantage Pilot Program, a part of SBA’s 7 (a) loan  program, is aimed at encouraging rural lenders to finance small businesses  by streamlining the application and approval processes. Specifically, the  Small/Rural Lender Advantage offers a simplified application form for  loans of $350,000 or less, the ability to apply online, expedited loan  processing, and limited documentation requirements. SBA will guarantee  85 percent of the loan amount for loans of $150,000 and less, and 75  percent of loans above $150,000. It is part of a broader initiative to boost  economies in areas that face unique challenges due to factors such as  declining population or high unemployment. The pilot program was  initiated and tested in SBA’s Region VIII (North Dakota, South Dakota,  Colorado, Wyoming, Utah, and Montana) in January 2008. Following  enhancements to further streamline it, SBA is now extending the initiative  to Region V, which covers Illinois, Indiana, Michigan, Minnesota, Ohio, and  Wisconsin. SBA also plans to expand the initiative nationwide by the end  of fiscal year 2008.
section_title: Rural Development Loan and Grant Programs
paragraphs: Business and Industry (B&I) Guarantee Loan Program (often referred  to as the B&I program) provides financial assistance to rural businesses in  the form of a loan guarantee for up to 80 percent of the loan amount.  Borrowers work with a local lending agency (e.g., bank or credit union),  which in turn seeks a guarantee from Rural Development. A borrower may  be an individual; a cooperative organization, corporation, partnership, or  other legal entity organized on a profit or nonprofit basis; an American  Indian tribe or other federally recognized tribal group; or a public body  (i.e., town, community, state agency, and authority). Loan purposes must  be consistent with the purpose of the program, which is to improve,  develop, or finance business, industry, and employment and improve the  economic climate in rural communities. They include, but are not limited  to, the following:    business and industrial acquisitions under certain conditions;    business conversion, enlargement, repair, modernization, or development;    purchase and development of land, easements, buildings, or facilities; and    purchase of equipment, leasehold improvements, machinery, supplies, or  inventory or working capital.
The total loan amount available to any one borrower under this program is  limited to $25 million. An exception to the limit for loans up to $40 million  may be granted for rural cooperative organizations that process value- added agricultural commodities. B&I loans are available to borrowers in  rural areas, which include all areas other than cities or towns of more than  50,000 people and the contiguous and adjacent urbanized area of such  cities or towns. The B&I Guaranteed Loan Program, with a fiscal year 2007  funding level of $953 million, is Rural Development’s largest business  program.
Intermediary Relending Program (IRP) finances business and economic  development activities that seek to create or retain jobs in disadvantaged  and remote communities. Under the IRP program, loans are provided to  local organizations (intermediary lenders) for the establishment of  revolving loan funds that provide loans to ultimate recipient borrowers.  The revolving loan funds are used to assist the borrower with financing  business facilities and community development projects. Projects must be  located in a rural area, which for this program excludes cities with a  population of 25,000 or more. Some examples of eligible projects are as  follows:    business and industrial acquisitions under certain conditions;    business construction, conversion, enlargement, and repair;    purchase and development of land, easements, rights-of-way, buildings, or  facilities;    purchase of equipment, leasehold improvements, machinery, and supplies;    start-up operating costs and working capital;  transportation services, and;   debt refinancing.
Intermediary lenders may first borrow up to $2 million and then up to $1  million each time thereafter, not to exceed the total aggregate loan amount  of $15 million. An ultimate recipient borrower may borrow the lesser of  $250,000 or 75 percent of the total cost of the ultimate recipient’s project  for which the loan is being made. Private nonprofit corporations, public  entities (i.e., towns, communities, state agencies, and authorities),  American Indian tribes or other federally recognized tribal groups, and  some cooperatives are eligible to intermediaries. Borrowers that are  generally eligible to apply for loans from intermediary lenders include  individuals, corporations or partnerships, trusts or other profit-oriented or  nonprofit organizations, and public entities.
Rural Business Enterprise Grant Program (RBEG) provides grants to  public bodies, including American Indian tribes and other federally  recognized tribal groups, and private nonprofit corporations, to finance  and facilitate the development of small and emerging private businesses in  rural areas (i.e., any area other than a city or town that has a population of  greater than 50,000 and the urbanized area contiguous and adjacent to  such a city or town. Small and emerging private businesses are those that  will employ 50 or fewer new employees and have less than $1 million in  projected gross revenues. Grants may be used for    easements, and rights of way;    construction, conversion, or modernization of buildings, facilities,  machinery, roads, parking areas, utilities, and pollution control and  abatement;  loans for start-up operating costs and working capital; technical assistance for private business enterprises;  training, when necessary, in connection with technical assistance; and   production of television programs to provide information on issues of  importance to farmers and rural residents.
There is no maximum level of grant funding under RBEG. However,  smaller projects are given higher priority.
Rural Business Opportunity Grant Program provides grants to public  entities, nonprofit corporations, cooperatives, and American Indian tribes  and other federally recognized tribal groups for training, technical  assistance, and planning activities in rural areas (i.e., any area other than a  city or town that has a population of greater than 50,000, and the  urbanized area contiguous and adjacent to such a city or town). Grants  may be used to  identify and analyze business opportunities that will use local rural  materials or human resources; identify, train, and provide technical assistance to existing or prospective  rural entrepreneurs and managers;   establish business support centers;    conduct local community or multicounty economic development planning;    establish centers for training, technology, and trade; and    conduct leadership development training.
The maximum grant for a project serving a single state is $50,000. The  maximum grant for a project serving two or more states is $150,000.
Rural Economic Development Loan and Grant Program (REDLG)  provides funding to rural projects through local utility organizations.  Under the loan program, Rural Development provides zero interest loans  to lending utility organizations that, in turn, pass make loans to for-profit  or nonprofit businesses and public entities (i.e., ultimate recipient  borrowers), for projects that will create and retain employment in rural  areas. The ultimate recipient borrower must repay the lending utility  directly, and the lending utility is responsible for repayment to Rural  Development. Under the grant program, Rural Development provides  grant funds to local utility organizations, which may only use the funding  to establish revolving loan funds. Loans are made from the revolving loan  fund to projects that will create or retain jobs in rural areas. When the  revolving loan fund is terminated, the grant is then repaid to Rural  Development. Eligible project costs include    start-up venture costs, including working capital;    project feasibility studies and;    advanced telecommunications services and computer networks for  medical, educational, and job training services.
The maximum loan and grant to any eligible recipient under the Rural  Economic Development Loan and Grant Program is established on an  annual basis.
Renewable Energy Systems and Energy Efficiency Improvements  Guaranteed Loan and Grant Program (renamed Rural Energy for  America Program) provides loan guarantees and grants to eligible small  businesses, farmers, and ranchers to assist in developing renewable  energy systems and to make energy efficiency improvements. The types of  energy projects include biofuel, wind, solar, geothermal, and hydrogen- based projects. They must be located in a rural area (i.e., any area other  than cities or towns of greater than 50,000 population and the immediate  and adjacent urbanized areas of the cities or towns). Under the loan  program, borrowers work with local lenders in applying for a loan  guaranty up to 85 percent of the loan, depending on the amount of the  loan. The loan cannot exceed 50 percent of the project cost, and the  project must use commercially proven technology. The maximum loan  amount is $10 million per project, and the minimum is $5,000. Grants are  limited to a maximum of $500,000 and a minimum of $2,500 for renewable  energy systems, and a maximum of $250,000 and a minimum of $1,500 for  energy efficiency improvements. Eligible applicants are agricultural  producers or rural small businesses. Small businesses must meet SBA’s  small business size standards.
section_title: Appendix III: Comparison of SBA and Rural Development Primary Business Loan and Grant Programs
paragraphs: Small  business, for  profit  corporation,  partnership,  or  proprietorship  that will  create and/or  retain jobs  through long- term  financing.
Start-up and  existing micro  business that  can meet basic  lending  requirement.  Borrowers may  be required to  attend  meetings/classes  with technical  assistance  providers. including  individual,  cooperative,  corporation,  partnership, tribal  group,  government  entity, and  agency.
Any legal  entity  including  individual,  public, and  private  organization,  government  entity, and  agency.
Rural electric  cooperatives  and rural  telephone  cooperatives.
Rural small  business,  individual,  agricultural  producer, or group  of agriculture  producers. Must  meet SBA’s small  business size  standards.
Through  CDCs, SBA  can fund up  to 40% of the  total project  costs, from  $50,000 to  $1,500,000,  or in certain  cases up to  $2,000,000.
Maximum loan  amount is  $35,000.
Development can  guarantee up to  $25 million.
Maximum  loan amount  is $740,000.
Maximum  renewable energy  grant is $500,000.
Maximum  grant amount  is $300,000.
70%-$5 to $10  million  60%-over $10  million  No minimum loan.
Intermediaries  can make  loans to  qualified  applicants for  up to 75% of  eligible  project.  Maximum  loan is  $250,000.
Maximum energy  efficiency grant is  $250,000.
Subject to  change  annually.
Minimum for both  grants is $10,000.
Maximum loan is  $10,000,000.
Long-term  financing of  real estate  and  equipment.
Working capital,  inventory, and  small equipment. working capital,  hard asset  acquisition, real  estate, equipment  and limited  refinancing. Up to  50% of loan.
New and  existing  business,  equipment  purchase, or  lease and  working  capital.
Business  start-up or  expansion  projects that  create rural  jobs. Grants  may only  establish a  revolving loan  fund.
Purchase  equipment,  construction  energy audits,  feasibility studies,  business plans,  and  permit/professional  service fees.
Renewable  Energy Systems  & Energy  Efficiency  Improvements  Guaranteed Loan  and Grant  Program  10–45 business  days.
10–60 business  days depending  on scope of  project. Subject to  in-state loan  approval limit.
10–45  business  days.
3 months to 1  year. Subject  to national  funding  competition.
Subject to national  funding  competition.
CDC  origination  fee of 2.25%  portion and  .5% on bank  portion.
Nominal fees to  cover costs of  loan closing. guaranty fee not  to exceed 2% of  guaranteed  portion of the loan  and .25% annual  renewal fee.
1% origination  fee of  intermediary  loan amount  plus closing  costs.
Varies and is  negotiated  with  cooperatives.
Typically, 1% of  guaranteed portion  of the loan and  .125% annual  servicing fee.
Available  anywhere. An  SBA program  administered  by a CDC.  Commercial  lender  required.
Available  anywhere. A  direct loan from  an SBA  intermediary. rural areas with a  population of less  than 50,000.  Generally  negotiated  between the  commercial  lending institution  and the borrower.
Available only  in rural areas  with a  population of  less than  25,000.
Rural areas  with  populations of  2,500 or less  are given  priority. The  rural utility  cooperatives  provide loans  to small  businesses.
Available only in  rural areas with a  population of less  than 50,000.  Requires 75%  minimum applicant  match for grants,  and 50%  maximum project  level for  guaranteed loans.
section_title: Appendix IV: Recent Congressional Proposals That May Require Collaboration between Rural Development and Other Federal Agencies
paragraphs: H.R. 6124, the Food, Conservation, and Energy Act of 2008, (the 2008 Farm  Bill) became law on June 18, 2008. The 2008 Farm Bill contains 15 titles  covering, among other things, support for commodity crops, horticulture  and livestock production, conservation, nutrition, trade and food aid,  agricultural research, farm credit, rural development, energy, forestry, and  other related programs. The 2008 Farm Bill guides most federal farm and  food policies through fiscal year 2012.
Section 6028 of the 2008 Farm Bill requires the Secretary of Agriculture to  establish a new Rural Collaborative Investment Program to support  comprehensive regional investment strategies for achieving rural  competitiveness. The purpose of the program is to    provide rural areas with a flexible investment vehicle, allowing for local  control with federal oversight, assistance, and accountability;   provide rural areas with incentives and resources to develop and  implement comprehensive strategies for achieving regional  competitiveness, innovation, and prosperity; foster multisector collaborations that will optimize the asset-based  competitive advantages of rural regions, with particular emphasis on  innovation, entrepreneurship, and the creation of quality jobs; foster collaborations necessary to provide the professional technical  expertise, institutional capacity, and economies of scale that are essential  for the long-term competitiveness of rural regions; and   better use USDA and other federal, state, and local governmental  resources, and to leverage those resources with private, nonprofit, and  philanthropic investments, in order to achieve measurable community and  economic prosperity, growth, and sustainability.
The Act also directed the Secretary to establish within USDA the National  Rural Investment Board. The Board’s duties are to provide advice to  regional boards on issues, best practices, and emerging trends relating to  rural development; to provide advice to the Secretary and the National  Institute on Regional Rural Competitiveness and Entrepreneurship, also  created by the Act, on the development and execution of the program; and  to provide advice to the Secretary and subsequently review the design,  development, and execution of the National Rural Investment Plan. The  National Rural Investment Plan is expected to, among other things, create  a framework to encourage and support a more collaborative and targeted  rural investment portfolio in the United States; and cooperate with state  and local governments, organizations, and entities to create and enhance  the pool of resources committed to rural community and economic  development.
Section 6028 of the 2008 Farm Bill is one of many actions taken by  Congress over the years to encourage the coordination of rural policies  and programs. It also further demonstrates Congress’ commitment to  promoting rural entrepreneurship and community development through  collaboration across federal, state, and local agencies. A total of $135  million in funding has been authorized for the new program.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Paul Schmidt, Assistant  Director; Charles Adams; Michelle Bowsky; Tania Calhoun; Emily  Chalmers; Elizabeth Curda; Ronald Ito; Marc Molino; and Carl Ramirez  made key contributions to this report.