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Friday, October 29, 2010

Small Business Administration 7(a) Loan Guaranty Program


Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs designed to encourage lenders to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” The SBA’s 7(a) loan guaranty program is considered the agency’s flagship loan guaranty program. It is named from section 7(a) of the Small Business Act of 1953 (P.L. 83-163, as amended), which authorized the SBA to provide business loans and loan guaranties to American small businesses. In FY2010, the SBA approved 47,002 7(a) loans amounting to more than $12.4 billion.

Congressional interest in small business access to capital, in general, and the SBA’s 7(a) program, in particular, has increased in recent years for three interrelated reasons. First, small businesses have reportedly found it more difficult than in the past to access capital from private lenders. Second, there is evidence to suggest that small business has led job formation during previous economic recoveries. Third, both the number of SBA 7(a) loans funded and the total amount of 7(a) loans guaranteed have declined. The combination of these three factors has led to increased concern in Congress that small businesses might be prevented from accessing sufficient capital to enable small business to assist in the economic recovery.

This report opens with a discussion of the rationale provided for the 7(a) program, the program’s borrower and lender eligibility standards and program requirements, and program statistics, including loan volume, loss rates, use of the proceeds, borrower satisfaction, and borrower demographics.

It then examines congressional action taken during the 111
th Congress to help small businesses gain greater access to capital, including the enactment of P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), which provided additional funding to temporarily subsidize the 7(a) program’s fees and to increase the program’s loan guaranty percentage to 90%; and P.L. 111-240, the Small Business Jobs Act of 2010, which provides additional funding to extend the 7(a) program’s fee subsidies and 90% loan guaranty percentage through December 31, 2010, increases the program’s loan guaranty limit from $2 million to $5 million, and establishes an alternative size standard for the 7(a) and 504/CDC loan programs which is designed to increase the number of small businesses that can participate in the two programs. It also examines issues raised concerning the SBA’s administration of the 7(a) program, including the oversight of 7(a) lenders and the program’s lack of outcome-based performance measures.


Date of Report: October 22, 2010
Number of Pages: 31
Order Number: R41146
Price: $29.95

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“Disadvantaged” Small Businesses: Definitions and Designations for Purposes of Federal and Federally Funded Contracting Programs


Kate M. Manuel
Legislative Attorney

This report discusses what constitutes a “disadvantaged” small business for purposes of federal and federally funded contracting programs and how firms are certified or otherwise designated as such. Three primary categories of disadvantaged small businesses are currently eligible for various contracting programs: (1) small businesses participating in the Small Business Administration’s (SBA’s) 8(a) Program (8(a) participants); (2) “small disadvantaged businesses” (SDBs) and (3) “disadvantaged business enterprises” (DBEs).

These firms are characterized as “disadvantaged” because they are at least 51% owned by one or more socially and economically disadvantaged individuals or groups. However, social and economic disadvantage is defined somewhat differently for each program. Members of certain racial and ethnic groups are presumed to be socially disadvantaged for purposes of the 8(a) and SDB programs, while women are also presumed to be socially disadvantaged for purposes of the DBE program. Similarly, individuals’ net worth must be $250,000 or less for entry into the 8(a) Program, while net worth can be as high as $750,000 for newly designated SDBs or DBEs.

The programs for the various types of firms also differ in their operation. The 8(a) Program is open only to firms that have been certified by SBA, and firms and their owners may participate in the 8(a) Program for a maximum of nine years. 8(a) participants are eligible for set-aside or solesource contracts, as well as other assistance from the SBA. All 8(a) firms qualify as SDBs. Other firms must be certified by procuring agencies, private certifying entities, or state or local governments to qualify for federal programs for SDB prime contractors, although they may self certify for similar programs for SDB subcontractors. SDB certification, when required, lasts three years, but firms may be certified multiple times. There are government-wide and agency-specific goals for the percentage of federal contract and subcontract dollars awarded to SDBs. Additionally, certain prime contractors must have “plans” for subcontracting with SDBs as terms of their contracts; agencies may use past performance in subcontracting with SDBs as an evaluation factor in source selection decisions; and agencies may give prime contractors “monetary incentives” for subcontracting with SDBs. DBEs must be certified by the state of the funding recipient. Certifications last at least three years, and firms cannot be required to reapply for certification as a condition of continuing participation in the program unless the factual basis upon which the certification was made changes. There is a national goal that 10% of federal funding in certain transportation-related projects be awarded to DBE contractors and subcontractors. Funding recipients must set similar goals, including on individual contracts.

All programs are based in statute. Section 8(a) of the Small Business Act authorizes the 8(a) Program; Section 8(d) of the Small Business Act, the SDB program; and various transportation statutes, the DBE program. However, many of the specific requirements pertaining to these programs derive from agency regulations.

In part because of small businesses’ widely reported role in job creation and concerns that the recent recession has disproportionately affected disadvantaged small businesses, Members of the 111
th Congress have enacted or proposed legislation that would assist disadvantaged small businesses in various ways (e.g., P.L. 111-5, P.L. 111-8, P.L. 111-88, P.L. 111-240, H.R. 915, H.R. 1586, H.R. 2200, H.R. 2299, H.R. 2847, H.R. 3371, H.R. 3619, H.R. 4220, H.R. 4253, H.R. 4842, H.R. 4929, H.R. 5010, H.R. 5013, H.R. 5590, H.R. 5939, S. 1451, S. 2862, S. 2971, S. 3429, S. 3458, S. 3676). The Obama Administration has also issued proposed regulations that would change certain eligibility and certification requirements for 8(a) firms and DBEs.


Date of Report: October 20, 2010
Number of Pages: 21
Order Number: R40987
Price: $29.95

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Tuesday, October 26, 2010

SBA Small Business Investment Company Program


Robert Jay Dilger
Senior Specialist in American National Government

Oscar R. Gonzales
Analyst in Economic Development Policy


The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion. It also administers the Small Business Investment Company (SBIC) Program. Authorized by P.L. 85-699, the Small Business Investment Act of 1958, as amended, the SBIC program enhances small business access to venture capital by stimulating and supplementing “the flow of private equity capital and long term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.” Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program’s primary objective.

The SBA does not make direct investments in small businesses. It works with 307 privately owned and managed SBICs licensed by the SBA to provide financing to small businesses with private capital the SBIC has raised and with funds the SBIC borrows at favorable rates because the SBA guarantees the debenture (loan obligation).

SBICs pursue investments in a broad range of industries, geographies, and stage of investment. Some SBICs specialize in a particular field or industry in which their management has expertise, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., start-up, expansion, or turnaround) and identify a geographic area in which to focus. The SBIC program currently has invested about $15.0 billion in small businesses, with about $8.7 billion raised from private capital and $6.3 billion guaranteed by the SBA. In FY2010, the SBA guaranteed $931 million in SBIC small business investments, and SBICs provided another $1.1 billion in investments from private capital, for a total of more than $2.0 billion in financing for 1,331 small businesses.

Congressional interest in the SBIC program has increased in recent years primarily because it is viewed as another means to stimulate economic activity, create jobs, and assist in the national economic recovery. However, there are disagreements concerning whether the program should target additional assistance to startup and early-stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation.

This report examines the structure and operation of the SBIC program, focusing on SBIC eligibility requirements, investment activity, and program statistics. It also examines legislation, including H.R. 3854, the Small Business Financing and Investment Act of 2009, H.R. 5554, the Small Business Assistance and Relief Act of 2010, and P.L. 111-240, the Small Business Jobs Act of 2010, which address the following SBIC-related issues: (1) the targeting of additional assistance to startup and early-stage small businesses, (2) the SBA’s management of the program’s financial risk and its processing of SBIC applications, and (3) whether the program’s financing levels are appropriate given the nation’s current economic circumstances. 
.


Date of Report: October 21, 2010
Number of Pages: 34
Order Number: R41456
Price: $29.95

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Social Security: Cost-of-Living Adjustments


Gary Sidor
Information Research Specialist

To compensate for the effects of inflation, Social Security recipients received cost-of-living adjustments (COLAs) sporadically through the legislative process from 1950 to 1974, and automatically through a trigger mechanism in each year from 1975 to 2009. No adjustment was made in 2010, and one will not be made in 2011. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), updated monthly by the Department of Labor’s Bureau of Labor Statistics (BLS), is the measure that can trigger a change. The Social Security COLA is based on the percentage change in the index from the highest third calendar quarter average CPIW recorded (most often, from the previous year) to the average CPI-W for the third calendar quarter of the current year. The COLA becomes effective in December of the current year and is payable in January of the following year. (Social Security payments always reflect the benefits due for the preceding month.) If there is no percentage increase in the CPI-W between the measuring periods, no COLA is payable.

No COLA was payable in January 2010 because the average CPI-W for the third quarter of 2009 did not increase from the average CPI-W for the third quarter of 2008. No COLA will be payable in January 2011 because the average CPI-W for the third quarter of 2010 has still not exceeded the average for the third quarter of 2008.

Because no COLA will be paid to Social Security beneficiaries in 2010, identical percentage increases in Supplemental Security Income (SSI), veterans’ pensions, and railroad retirement benefits, and additional changes in the Social Security program, will not be triggered. Although COLAs under the federal Civil Service Retirement System (CSRS) and the federal military retirement program are not triggered by the Social Security COLA, these programs use the same measuring period and formula for computing their COLAs. As a result, their recipients similarly will not receive a COLA, for the second consecutive year, in January 2011.

Current law retains the average CPI-W for the third quarter of 2008, the reigning highest third quarter average, as the baseline for comparison for a COLA in 2012. The Congressional Budget Office (CBO) and the trustees of the Social Security trust funds have projected that there will be a small increase in the average CPI-W for the third quarter of 2011 relative to the average CPI-W for the third quarter of 2008, which would result in a COLA for 2012.



Date of Report: October 19, 2010
Number of Pages: 8
Order Number: 94-803
Price: $19.95

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Penny Hill Press  or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.

Monday, October 25, 2010

SBA Small Business Investment Company Program

Robert Jay Dilger
Senior Specialist in American National Government

Oscar R. Gonzales
Analyst in Economic Development Policy


The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty programs to enhance small business access to capital; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion. It also administers the Small Business Investment Company (SBIC) Program. Authorized by P.L. 85-699, the Small Business Investment Act of 1958, as amended, the SBIC program enhances small business access to venture capital by stimulating and supplementing “the flow of private equity capital and long term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.” Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program’s primary objective.

The SBA does not make direct investments in small businesses. It works with 307 privately owned and managed small business investment companies (SBICs) licensed by the SBA to provide financing to small businesses with private capital the SBIC has raised and with funds the SBIC borrows at favorable rates because the SBA guarantees the debenture (loan obligation).

SBICs pursue investments in a broad range of industries, geographies, and stage of investment. Some SBICs specialize in a particular field or industry in which their management has expertise, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., start-up, expansion, or turnaround) and identify a geographic area in which to focus. The SBIC program currently has invested about $15.0 billion in small businesses, with about $8.7 billion raised from private capital and $6.3 billion guaranteed by the SBA. In FY2009, the SBA guaranteed $787 million in SBIC small business investments, and SBICs provided another $1.06 billion in investments from private capital, for a total of about $1.85 billion in financing for 1,481 small businesses.

Congressional interest in the SBIC program has increased in recent years primarily because it is viewed as another means to stimulate economic activity, create jobs, and assist in the national economic recovery. However, there are disagreements concerning whether the program should target additional assistance to startup and early-stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation.

This report examines the structure and operation of the SBIC program, focusing on SBIC eligibility requirements, investment activity, and program statistics. It also examines legislation, including H.R. 3854, the Small Business Financing and Investment Act of 2009, H.R. 5554, the Small Business Assistance and Relief Act of 2010, and P.L. 111-240, the Small Business Jobs Act of 2010, which address the following SBIC-related issues: (1) the targeting of additional assistance to startup and early-stage small businesses, (2) the SBA’s management of the program’s financial risk and its processing of SBIC applications, and (3) whether the program’s financing levels are appropriate given the nation’s current economic circumstances