SBA Microloan Program: Opportunities Exist to Strengthen Program Performance Measurement, Collaboration, and Reporting
Fast Facts
The Small Business Administration is an important funding source for small businesses that may have trouble getting loans through conventional channels like commercial banks. SBA offers microloans—up to $50,000—to small businesses including those owned by women, veterans, minorities, or low-income entrepreneurs.
While SBA collects data and assesses this program, it does not clearly define what qualifies an entrepreneur as low-income. As a result, SBA may not be able to determine whether the program really helps low-income borrowers. We made 5 recommendations, including defining low-income.
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Highlights
What GAO Found
GAO analysis of data for the Small Business Administration's (SBA) Microloan Program found that in 2014–2018, approximately 80 percent of microloans went to borrowers who identified themselves as women-owned, veteran-owned, or minority-owned businesses or low-income. In addition, most of the intermediaries (nonprofit lenders) that provide the loans participated in at least one other federal microlending activity. For example, 73 percent of intermediaries (122 of 168) in the program are also Department of the Treasury's Community Development Financial Institutions (designated private-sector financial institutions).
SBA has mechanisms in place for oversight of intermediaries and borrowers, including some established in response to recommendations of the SBA Office of Inspector General (OIG). For example, SBA
- developed a plan for conducting site visits of intermediaries, and
- updated guidance for documentation requirements from certain borrowers.
SBA also requires intermediaries to report various loan and borrower information into the program's data reporting system.
The Microloan Program has data collection and performance measurement procedures, but GAO identified identified weaknesses in these efforts. For example, one of the objectives of the program is to assist low-income borrowers, but program guidance does not define low-income. Another program objective is to develop and provide timely, accurate, and useful output and outcome data. However, GAO and the SBA OIG found deficiencies in how some information on borrower business outcomes was collected and recorded. As a result, SBA lacks quality information to help assess program performance in these areas. SBA also has not taken steps to ensure its planned new data reporting system will capture information needed for assessing program performance. Specifically, as of August 2019, SBA had not taken appropriate advance planning steps—such as involving relevant offices in SBA or considering what data will be needed to assess program performance.
The Microloan Program collaborates informally with other SBA programs on oversight and other activities, but has little collaboration—for example, no information-sharing agreements—with other federal agencies that engage in microlending activities. As a result, the program may be missing opportunities to enhance collaboration and leverage existing resources from agencies that collect similar types of data. In addition, although SBA reports some aggregate data on the financial performance of the program, it does not include data on the populations served. Publicly reporting such data, as other agencies do, could provide greater transparency around program results and achievements.
Why GAO Did This Study
SBA's Microloan Program integrates microlevel financing (loans up to $50,000) with training and technical assistance for small businesses, including those owned by women, low-income, veteran, and minority entrepreneurs. The John S. McCain National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the program.
This report examines (1) characteristics of borrowers and intermediaries in the Microloan Program, (2) program oversight of intermediaries and borrowers, (3) program performance measures, and (4) collaboration within SBA and with other agencies.
GAO reviewed program documents; analyzed SBA demographic and performance data; reviewed documents on similar programs from the Departments of the Treasury and Agriculture; and interviewed agency officials. GAO also reviewed documents and interviewed officials from a non-generalizable sample of 10 intermediaries, selected to provide a range in the number of loans made and average loan size.
Recommendations
GAO is making five recommendations to SBA, including that it enhance program guidance on data collection and performance measurement, explore opportunities for additional collaboration with other federal agencies, and develop plans for providing additional public reporting on the program. SBA agreed with three recommendations and partially agreed with two. GAO maintains that its recommendations should be fully addressed to improve the program.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Small Business Administration | The Director of the Office of Financial Assistance should review and enhance guidance for the Microloan Program to ensure definitions of data collected, such as income, are clear and instructions are comprehensive for data needed, such as for borrower business outcomes and technical assistance. (Recommendation 1) |
SBA agreed with this recommendation. As of February 2024, SBA has implemented the recommendation related to the definition of income and updated guidance for data on borrower business outcomes. SBA has defined low income, rural areas, and economically distressed areas for the purposes of the Microloan Program and has updated its guidance to reflect these changes. In addition, SBA developed an enhancement to its Microloan Program data reporting system to allow reporting of loans made in economically distressed and/or rural areas to be automated based on the small business borrower's business location. According to officials, as it relates to borrower business outcomes, SBA is finalizing its guidance to provide instructions to intermediaries (generally nonprofit lenders) for reporting these outcomes. SBA stated the borrower business outcome data it collects at the time a new microloan is closed and again when the microloan is either paid-in-full or charged off, are in addition to the demographic data that help indicate that the microloan funds are going to underserved markets. SBA intends to use the data to see the extent of growth in revenue, income and employment of small businesses that receive loan funds over an extended period. However, SBA stated it will take time to obtain enough data to fully realize how the SBA microloans to contributed to the small business's success. For technical assistance, SBA is still working on including these data collection into its microloan program data reporting system, with a goal of completion of by the end of fiscal year 2024. By providing additional clarity on certain data points for the Microloan Program, SBA can begin to use the additional information to help assess program performance in these areas.
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| Small Business Administration | The Directors of the Office of Financial Assistance and Office of Program Performance, Analysis, and Evaluation should develop a performance target to assess the Microloan Program's progress in achieving its statutory purpose of assisting women, low-income, veteran, and minority entrepreneurs. (Recommendation 2) |
As of February 2024, SBA has implemented this recommendation. With the implementation of the new microloan data reporting system, SBA identified borrowers located in economically distressed and rural areas. SBA stated that it produced monthly and weekly reporting on microloan targets, which includes lending to women, veteran, and minority entrepreneurs and it also enhanced the reports to include low-to-moderate income borrowers. SBA established a performance target for percentage of microloans to underserved businesses in its fiscal year 2024 congressional budget justification. By developing performance targets to assess how many women, low-income, veteran, and minority entrepreneurs are being served, the agency has developed a mechanism to assess the extent to which the microloan program achieves its statutory purposes.
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| Small Business Administration | The Directors of the Office of Financial Assistance and Office of Program Performance, Analysis, and Evaluation should ensure that appropriate advance planning occurs during the development of the new Microloan Program data reporting system by involving relevant offices within SBA in system design and considering data needed to assess program performance. (Recommendation 3) |
As of November 2023, SBA has implemented this recommendation. SBA involved relevant offices in system design and considering data needed to assess program performance. Specifically, the Microloan Program manager, the Director of the Office of Performance and Systems Management, and the Director of the Office of Program Performance, Analysis, and Evaluation consulted on plans for enhancements to its current data reporting system. In FY 2020 and FY 2021, according to officials, SBA implemented business rules in its current data reporting system to help ensure that data entered was accurate and that microloans were being closed in accordance with program rules and regulations. SBA made additional enhancements to the system, such as capturing microloans made in certain areas and allowing lenders to submit quarterly data directly to the platform. Officials also provided documentation on how the Office of Financial Assistance and Office of Performance and Systems Management continue to collaborate and plan in advance on requirements and issues on a routine basis (every 3 weeks). By involving relevant offices within SBA in system design and considering data needed to assess program performance, SBA has incorporated a range of perspectives into the development of the new system and also plans to use these perspectives to inform how they assess the performance of the Microloan Program in the future.
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| Small Business Administration | The SBA Administrator should explore opportunities for additional interagency collaboration and information sharing with other federal agencies that engage in microlending activities, such as Treasury and USDA, and take steps to implement new collaborative efforts as warranted. (Recommendation 4) |
This recommendation is an action identified in GAO's annual Duplication and Cost Savings reports. As of February 2024, SBA has implemented this recommendation. SBA explored interagency collaboration with Treasury in 2023. As a result, SBA and Treasury planned to meet quarterly to collaborate on potential initiatives related to microlending. In addition, SBA developed a process to annually request community development financial institution data from Treasury. Moreover, SBA plans to collaborate with additionally agencies. SBA has begun to discuss a data sharing agreement with the Department of Agriculture and plans to begin developing the data sharing agreement during the third quarter of fiscal year 2024. By beginning to engage in information sharing with other agencies on their microlending activities, SBA will be able to leverage this information as a way to get a more comprehensive understanding of how intermediaries use microloans, the types of borrowers that receive the funds, and the types of performance goals and measures collected across the agencies.
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| Small Business Administration | The Director of the Office of Financial Assistance should examine ways to incorporate public reporting of additional Microloan Program information into the design of the new data reporting system. (Recommendation 5) |
SBA agreed with this recommendation. As of September 2023, SBA had completed upgrades to the existing Microloan Program data reporting system platform that has allowed the agency to publish summary data, such as demographic information related to those that receive microloans (such as gender, ethnicity, and race) and information on microloan approvals by lender and by state. By reporting more public data, such as aggregate borrower information, SBA has begun to provide greater transparency on how it has been achieving the purpose and objective of the Microloan Program.
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