Small businesses lending

The Budget expands the Section 7(a) program to enable $12.5 billion in guaranteed loan volume in 2005, a more than 25-percent increase from 2004. This will provide financing to entrepreneurs who could not obtain loans without a Government guarantee. Altogether, the 2005 Budget requests $129 million in administrative expenses to support $24 billion in guaranteed lending and equity investments for the Section 7(a) General Business Loan, Section 504 Certified Development Company Guaranteed Loan, and Small Business Investment Company (SBIC) programs. To continue to effectively address the financing needs of small businesses, SBA will: 1) assess the impact and effectiveness of its capital access programs; 2) administer programs more efficiently; and

3) target and expand access to credit. Assess Program Impact and Effectiveness. 

The Program Assessment Rating Tool (PART) revealed that although SBA’s technical assistance programs provide similar education, training, and information services to over four million entrepreneurs annually, standard measures to compare the effectiveness of each program are lacking. To address this finding, SBA is developing methods to measure the impact of these programs in helping entrepreneurs to start, sustain, and grow their businesses. PART findings also revealed that the structural flaws in the SBIC program are based upon a number of factors: 1) the Federal Government’s profit share is not commensurate with its investments; 2) SBICs do not have incentives to repay capital expeditiously, extending the government’s risk exposure; and 3) the methodology for calculating the program’s cost should be reexamined to more accurately capture the risk of subsidizing venture capital investments. The 2005 Budget takes necessary steps to address these issues.

The 2005 Budget also includes a legislative proposal to improve the performance of SBA’s venture capital program, the SBIC program. The proposal would increase the government’s share of profits, increase borrower fees, encourage SBICs to repay principal faster, and minimize the Government’s risk exposure. With estimated losses to the taxpayer of about $2 billion on the Federal Government’s outstanding guarantees of about $5 billion, these changes are necessary to make the program fiscally sound.