PUBLIC SECTOR DUPLICATION OF SMALL BUSINESS ADMINISTRATION AND INVESTMENT PROGRAMS: AN ANALYSIS OF OVERLAP BETWEEN FEDERAL, STATE, AND LOCAL PROGRAMS PROVIDING FINANCIAL ASSISTANCE TO SMALL BUSINESSES

Final Report January 2008

Prepared for: U.S. Small Business Administration

Prepared by: Rachel Brash

The Urban Institute 2100 M Street, NW ● Washington, DC 20037

Public Sector Duplication of Small Business Administration Loan and Investment Programs: An Analysis of Overlap between Federal, State, and Local Programs Providing Financial Assistance to Small Businesses

Final Report

January 2008

Prepared By:

Rachel Brash

The Urban Institute Metropolitan Housing and Communities Policy Center 2100 M Street, NW Washington, DC 20037

Submitted To:

U.S. Small Business Administration 409 Third Street, SW Washington, DC 20416

Contract No. GS23F8198H UI No. 07112-020-00

The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Public Sector Duplication of SBA Loan and Investment Programs i

CONTENTS

INTRODUCTION ...... 1 BACKGROUND...... 2 Definition of Duplication ...... 2 Program Overviews ...... 3 2.2.1 Section 7(a) Program ...... 4 Certified Development Company (504) Loan Program ...... 5 MicroLoan Program...... 5 Small Business Investment Company (SBIC) Program ...... 6 METHODOLOGY ...... 7 FINDINGS...... 11 Duplication Overview ...... 11 State and Local Programs Benefiting Businesses of All Sizes ...... 17 Duplication Analysis by Program and Sector...... 18 Section 7(a) Loan Guarantee Program ...... 18 504/CDC Loan Program...... 39 MicroLoan Program...... 43 SBIC Program ...... 45 CONCLUSION...... 47 REFERENCES ...... 49

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INDEX OF TABLES Table 1: SBA Program Overview ...... 4 Table 2: Study States...... 8 Table 3: Study Cities...... 9 Table 4: Public Sector Financial Assistance Programs for Small Businesses...... 11 Table 5: Federal Financial Assistance Available to Small Businesses ...... 13 Table 6: State and Local Financial Assistance Programs for Small Businesses ...... 16 Table 7: Size Standards for 504 and 7(a) ...... 20 Table 8: Comparison of 7(a) and 504 Loan Program Attributes ...... 21 Table 9: Use of Proceeds by Firms Receiving 7(a) Loans Only, 1997–2005 ...... 24 Table 10: Average Loan Amount for Firms Receiving 504 and/or 7(a) Loans, 1997–2005...... 24 Table 11: Average Maturity Term (in months) and Rate, 1997–2005...... 25 Table 12: Comparison of Ownership and Firm Characteristics for Recipients of 7(a) and/or 504 Loans, 1997–2005...... 27 Table 13: Comparison of Industry for Recipients of 7(a) and/or 504 Loans, 1997–2005 ...... 28 Table 14: Comparison of Business Location for Recipients of 7(a) and/or 504 Loans, FY 1997–2005...... 29 Table 15: Nonprofit Microenterprise Programs ...... 45

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INTRODUCTION This study investigates government programs that provide assistance similar to the assistance provided through SBA’s 7(a) Loan Guarantee, 504 Loan, MicroLoan, and Debenture Small Business Investment Company Programs: that is, programs that potentially “duplicate” or “overlap” with SBA’s programs. The study was conducted using SBA administrative data, on- line research, and conversations with SBA district staff and Small Business Development Center officials. The research found that at the federal level some potential duplication exists between SBA’s 504 and 7(a) programs: between 1997 and 2005, almost half of the loan volume to firms receiving only 7(a) loans—which can be used for working capital, equipment, and real estate—went toward real estate, despite the fact that the 504 program provides loans exclusively for fixed assets, typically to finance real estate purchases. The research also found that although several federal agencies have financial assistance programs for small business, the SBA is the most significant federal source of financing for small businesses not in rural areas. The U.S. Department of Agriculture (USDA) appears to be the primary provider of loans and loan guarantees for small businesses in rural areas. A greater amount of potential duplication exists at the state and, to a lesser extent, local level. This duplication exists for the most part among federal, state, and local general-purpose loan and loan guarantee programs that resemble the SBA’s 7(a) program. There are fewer state and local loan and loan guarantee programs that resemble the 504 program, which provides loans exclusively for fixed assets, typically to finance real estate purchases. Few states or localities run microloan programs, though a handful of nonprofit microenterprise organizations receiving a majority of their funding from government sources (i.e., “public” nonprofits) have loan programs. It appears that many states rely on local and national “public” and private nonprofit organizations—in addition to the SBA—to provide businesses with small loans. All of the study states have state-run or state-funded venture capital programs, but these state programs focus much more heavily on technology, science, and healthcare than the debenture SBIC program does. The extent of similarities among federal, state, and local loan and loan guarantee programs varies by state and program. In general, SBA programs have higher maximum loan and loan guarantee amounts and longer terms than state and local programs. Size standards are similar for SBA, state, and local programs, although a few study states and localities have size standards considerably smaller than SBA standards. Standards for industry sector, geographic market, and growth stage are similar for SBA programs and state and local programs. Whether a business chooses a state or local program instead of an SBA program— or whether a decides an applicant should apply for a particular program—may be

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influenced by factors such as history, differences in fees, interest rates, amount of paperwork required, job creation requirements, or prevailing wage standards. The next section discusses the issue of duplication and provides a description of the four SBA programs of interest. Section III presents the study methodology, which explains how chose the state and city samples were selected, and what program characteristics were used to assess whether overlap exists. The findings section is divided into two subsections: one that provides an overview of the array of loan and loan guarantee programs within states and localities, and one that provides an analysis of the duplication between the SBA’s 504 and 7(a) programs and of each of the four programs at the federal, state, and local levels. Because the greatest amount of duplication exists among state and local general-purpose loan and loan guarantee programs, the sections on state and local duplication of the 7(a) program are further divided into subsections addressing program characteristics, including eligible businesses, eligible uses, industry sector, geographic market, growth stage, loan or investment amount, and loan term. Appendix A presents the number of federal, state, and local programs potentially duplicating SBA’s programs. Appendix B presents the program characteristics for each of the four SBA programs of interest. The complete inventory of federal, state, and local programs identified in this study can be found in Appendices C-F. Appendix G presents average interest rates and maturity terms from 1997 to 2005 for firms receiving 504, 7(a), and both types of loans as part of the comparison of those two SBA programs.

BACKGROUND This study investigates government programs that provide assistance similar to the assistance provided through SBA’s 7(a), 504, MicroLoan, and debenture SBIC programs: that is, programs that potentially “duplicate” or “overlap” with SBA’s programs.

Definition of Duplication For the purposes of this paper, programs are considered as duplicative if there is overlap in type of aid, eligible businesses, eligible uses, industry, geographic market, growth stage, loan or loan guarantee amount, and maturity term. The analysis of duplication between the SBA’s 7(a) and 504 program examines whether funds from the 7(a) program, the general-purpose loan program, were being used for real estate purposes. The comparison of the 7(a) and 504 programs also includes an analysis of the business characteristics of firms receiving only 7(a) loans, those receiving only 504 loans, and those receiving both loan types. Even if the program proceeds were being used for the same purpose the programs might not be duplicative if they

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were serving different types of businesses. However, duplication might exist if the programs were serving similar populations and being used for the same purpose (i.e., fixed assets). A more general definition might define duplication as programs that overlap in stage of financing, industry and region served and where there is not enough demand for the supply of assistance offered by the coinciding programs. For the purpose of this study, such a definition is inappropriate because of the difficulty of establishing market demand for small business financing. That multiple programs provide similar services does not necessarily mean that resources are being wasted. If duplication does exist among loan and loan guarantee programs, it may result in higher overall administrative costs or a more complex application process than would exist with fewer programs. Fewer programs might simplify the process for applicant businesses and for lenders helping businesses determine which programs they are eligible for. However, some duplication is inevitable, and having multiple access points might mean that a broader range of small businesses is able to access capital. Additionally, the existence of parallel programs may mean that the demand for such assistance exceeds the supply.

Program Overviews All four SBA programs studied here have the effect of making capital available to small businesses that might otherwise have difficulty accessing funds. The programs differ in their scope, vehicle, and purpose. The SBA’s largest programs, the 7(a) and 504 programs, are similar because they provide large amounts of money to businesses that have been denied credit by private funding sources. As is discussed in more detail below, the financing mechanisms for the programs differ: Under the 7(a) program, SBA guarantees a loan issued by a bank or other private lender, whereas under the 504 program, the SBA guarantees a debenture issued by a nonprofit “certified development company.” As shown in Table 1, the two programs also differ in that 7(a) loans can be used to finance most business purposes, including both working capital and fixed assets, while 504 loans can only be used to finance fixed assets. The MicroLoan program differs from the 7(a) and 504 programs in that it provides much smaller loan amounts and the SBA originates the loans. Rather than providing or guaranteeing loans for small businesses, the debenture SBIC program guarantees issued by venture capital firms that invest in small businesses.

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Table 1: SBA Program Overview Program Program Use of Proceeds Maximum SBA Does program Loan Volume, Type Exposure have a “credit 1997-2005 elsewhere” requirement?

Section 7(a) Loan Working capital, $1.5 million Yes $86.8 billion Loan guarantee fixed assets, and Guarantee other general business purposes

CDC/504 Debenture Fixed assets only $4 million Yes $18.0 billion guarantee

MicroLoan Loan General business $35,000 Yes $235 million purposes Small Debenture Investment in small 300 percent of No $6.6 billion Business guarantee businesses equity raised by Investment small business Company investment (SBIC) company

2.2.1 Section 7(a) Loan Guarantee Program The Section 7(a) Loan Guarantee Program provides loan financing to small businesses deemed unable to obtain financial assistance on reasonable terms in the private credit markets. The Office of Management and Budget (OMB) PART Assessment for the 7(a) program states: “the loans guaranteed by SBA are of a lower quality from what the private sector is willing to make…” (Office of Management and Budget, 2005). Most of the small businesses aided in the 7(a) program are minority-, women-, or veteran- owned, or located either in rural areas or in special zones determined by federal legislation to be in special need of economic development aid. About one-third of businesses are start-ups. The Section 7(a) program is delivered by private lenders that make, service, and liquidate loans. Under the program, the SBA guarantees up to 85 percent of principal and interest of any loan. Lenders set loan terms and conditions according to the purpose of the loan and form of (e.g., real estate or equipment), loan size, and perceived risk, consistent with maximum rates and terms set by SBA. SBA charges a loan guarantee fee, which is usually paid by the borrower. These loans are intended to supply the kinds of credit that may not be easily available to the class of borrowers the program targets. This credit includes loans of longer maturity to borrowers of higher , who can offer only single-purpose collateral and have limited equity (Office of Management and Budget, 2005).

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As detailed in Appendix B, the maximum amount that the SBA guarantees under the program is $1.5 million. Interest rates are negotiated between the borrower and the lender, but are subject to SBA maximums, which are pegged to the prime rate. Businesses can use 7(a) loans to finance working capital and fixed assets, and for limited refinancing of existing . Refinancing is permitted in limited cases; a borrower cannot use 7(a) loan proceeds to pay a creditor in a position to sustain a certain loss that would be shifted to the SBA. Between 1997 and 2005, the SBA guaranteed $86.8 billion in loans under the 7(a) program.

Certified Development Company (504) Loan Program Like the 7(a) program, the 504 program provides loan financing to small businesses deemed unable to obtain financial assistance on reasonable terms in the private credit market. It differs from the 7(a) program in two significant ways: (1) loans obtained through the program can only be used for fixed assets (i.e., land and buildings) and (2) the 504 loans have fixed interest rates (under the 7(a) program, rates are fixed or variable). Under the 504 program, businesses obtain loans through a certified development company (CDC), local nonprofit organizations that work with the SBA, and a private-sector lender. There are about 270 CDC’s nationwide. The typical 504 project includes a loan secured with a senior lien from a private-sector lender, covering up to 50 percent of the project cost; a loan secured with a junior lien from a CDC, covering 40 percent of the project cost (backed by a 100 percent SBA-guaranteed debenture); and a contribution of at least 10 percent equity from the small business. Maximum amounts allowed under the program vary based on the goal of the loan. Under the 504 program, the maximum debenture for businesses other than small manufacturers is $1.5 million. For small manufacturers, the maximum debenture is set considerably higher, at $4 million. Refinancing is permitted under the 504 program in very limited circumstances. Interest rates are pegged to an increment above the current market rate for five- and ten-year U.S. Treasury issues. Program fees are approximately three percent and can be financed with the loan (U.S. Small Business Administration, 2006a). From 1997 to 2005, the SBA guaranteed $18.0 billion in loans under the program (SBA administrative data).

MicroLoan Program The MicroLoan program provides very small loans to start-up and early-stage businesses. The SBA provides funds to community-based “intermediaries” that accept applications from potential borrowers, evaluate ability to repay, provide technical assistance to prospective and current

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borrowers, and originate and service loans.1 The maximum loan amount is $35,000, although the average loan size is about $10,500. Loan terms are for a maximum of six years, although actual terms vary, and interest rates are set by the intermediaries, in part based on their own cost of funds. All intermediaries are required to supply technical assistance to firms seeking loans, supported by SBA grant funds of up to 25 percent of the total balance owed to SBA on loans the intermediaries originate. For any loan exceeding $20,000, intermediaries are obliged to certify that the borrowers are not otherwise able to obtain credit. Industry sources claim that the overwhelming majority of microloan borrowers have no established credit record. Between 1997 and 2005, the SBA provided $235 million in microloans.

Debenture Small Business Investment Company (SBIC) Program The debenture SBIC program makes capital available to small business investment companies that are privately owned, for-profit companies licensed by the SBA to provide venture capital to start-up and expanding small businesses. Rather than provide assistance directly to small businesses, under the debenture SBIC program, the SBA allows privately operated venture capital funds to leverage their capital through SBA-guaranteed. Debenture SBICs may issue securities that provide for a maximum of 300 percent leverage of equity raised by the SBIC (U.S. Small Business Administration, 2004). Debentures issued by SBICs pay market interest rates to investors through semi-annual interest payments for ten-year terms. Debenture SBICs may prepay their securities at any time; prepayments after five years carry no penalty (U.S. Small Business Administration, 2004). Debenture SBICs are obligated to make all payments to investors, and so companies in which debenture SBICs invest must have sufficient cash flow to allow the SBIC to service its debt by the time the first semi-annual interest payment is due. Debenture SBICs provide equity capital, long-term loans, near-equity investments, and management assistance to qualifying small businesses, using their own funds and funds borrowed or otherwise obtained at favorable rates with SBA guarantees. In general, assistance provided by debenture SBICs is some form of mezzanine financing: subordinate debt2 that also includes warrants or options that can be exercised by the SBIC to take an equity position in the company. From 1997 to 2005, the SBA provided $6.6 billion in guarantees to debenture SBICs.

1 As of spring, 2005, there were 170 active intermediaries.

2 The debt instrument originated by the debenture SBIC is often subordinate to other debt–which could be conventional or with an SBA guarantee–that the firm already has on its .

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METHODOLOGY The research question answered by this report is, Do SBA programs duplicate or overlap with other public programs? Of interest are federal, state, and local programs providing services similar to those offered through four of SBA’s major financial assistance programs—the Section 7(a) Loan Guarantee Program, 504 Loan Program, MicroLoan Program, and SBIC Debenture Program. Also of interest is overlap between SBA’s two largest programs, the 7(a) and 504 programs. Time and resources permitted a comprehensive review of most federal programs, but not most state or local programs. The examination of state and local programs uses a sample of 12 states and 12 cities. To create an inventory of public programs, a search of on-line information was conducted; this included reviewing Web sites run by federal, state, and local government agencies, as well as on-line reports, directories, and journal articles. To confirm and augment the information found on-line, discussions were conducted with ten SBA district officials and with ten state directors of Small Business Development Centers, one-stop shops for small business assistance that are partially funded by the SBA. The review of federal programs examines programs that target small businesses in addition to ones that provide financial aid to both small businesses and a wider range of businesses.3 A significant amount of assistance may go to small businesses by way of these broader programs. The inventory of federal programs appears in Appendix C. The standards for inclusion for the state and local programs were more restrictive; only those programs specifically targeted at small businesses are included in the list of state and local programs (Appendix D). Including finance programs for businesses of all sizes would have increased the number of programs to a degree not within the scope of this study. Major state and local programs providing financial aid to all businesses are not included in the inventory, but are discussed in the text of this section. Also discussed in the text, but not included in the inventory, are

3 To develop the inventory of federal financial assistance programs, the authors consulted a GAO study, Multiple Federal Programs Fund Similar Economic Development Activities (September 2000). All the programs mentioned in the GAO study were reviewed. Many of the programs provided technical assistance or funds for planning, strategic development, or research (but not loans, loan guarantees, or other investment) to businesses or financial assistance to nonprofit or public bodies for the purpose of economic development not specifically related to small business development. Programs that provide loans, loan guarantees, and grants to small businesses (i.e., programs providing assistance similar to the four SBA programs of interest) were included in this duplication study. Programs that provide grants to entities that may re-lend to small businesses were not included in the inventory because they are not explicitly designed to provide assistance similar to SBA assistance. However, these programs are discussed in the text and detailed in Appendix C.

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programs targeted at businesses run by certain groups, such as women or minorities. These programs are of interest because many of their recipients are likely to be small businesses. To determine the sample sizes for the state and local program inventory, data on lending frequency and volume for the 7(a) and 504 programs from fiscal years 2003 to 2005 were examined. Recent data were used to determine the current state of potential duplication; this research analyzed data for only these two programs because it seemed likely that high lending activity for these programs would correspond with high volume and frequency for the MicroLoan and SBIC programs.4 The sample size was initially set at ten states because a natural break in the lending frequency occurred after the tenth state. Because the ten high-activity states did not include states that are mostly rural, the SBA requested that two such states, Maine and North Dakota, be added to the sample. These ten high-activity and two rural states are listed in Table 2 with their 7(a) and 504 loan activity.

Table 2: Study States State Loan Activity

1 California 33,297

2 Texas 16,357

3 New York 12,825

4 Florida 12,671

5 Pennsylvania 12,530

6 Massachusetts 7,822

7 Ohio 7,310

8 New Jersey 6,544

9 Illinois 6,229

10 Michigan 5,536

11 Maine 1,185

12 North Dakota 870

Note: Loan activity equals the number of firms receiving 7(a) and 504 loans in fiscal years 2003 to 2005.

4 Analysis of SBA administrative data indicates that the study states are among the states with the highest levels of SBIC and MicroLoan activity, as measured by lending volume and frequency, for fiscal years 2003 to 2005.

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To create a local sample, ten cities with the highest frequency of 7(a) and 504 loans from fiscal years 2003 to 2005 in each of the ten high-activity study states were selected. Two study states, California and Texas, each had two cities with high frequency of loans relative to other cities nationally. Both cities in those states were included in order to highlight variation in borrowing opportunities across a state. The ten cities of interest are listed in Table 3 with their 7(a) and 504 loan activity. Had the city sample been drawn to include the 10 cities with the highest frequency nationally, regardless of whether they fell within the ten study states, the list would have included Phoenix and Las Vegas, and not Cleveland, Boston, Jersey City, or Detroit. However, this study examines only cities that fall within study states because the research suggests that the greatest amount of overlap exists between federal and state programs—and not at the local level. Therefore, looking at a city without examining the state programs did not seem to add value to the research. UI’s approach examines the range of programs available, from federal to local, in each of the study states.

Table 3: Study Cities City Loan Activity

1 Los Angeles 3,821

2 Houston 2,489

3 New York City 2,363

4 Miami 1,976

5 Dallas 1,213

6 Chicago 1,183

7 Philadelphia 1,129

8 San Diego 1,116

9 Boston 548

10 Cleveland 431

11 Detroit 288

12 Jersey City 117

Note: Loan activity equals the number of 7(a) and 504 loans in fiscal years 2003 to 2005.

The analysis of duplication between the SBA’s 504 and 7(a) programs used administrative data collected by the SBA. Two types of analysis to measure possible duplication were conducted. The first analysis looked at whether 7(a) funds were used for real estate

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purposes. The SBA does not systematically collect information on use of proceeds, but the agency treats maturity term length as a substitute measure for use. Loans with terms of less than 7 years are considered working capital loans, those with terms of 7 to 15 years are considered heavy equipment loans, and those with terms of greater than 15 years are considered real estate loans. Because 7(a) loans with a term of more than 15 years are considered to be for real estate purposes, they are potentially duplicative of the 504 program. The 504-7(a) comparison also includes an analysis of the business characteristics of firms receiving only 7(a) loans, those receiving only 504 loans, and those receiving both loan types. Even if the program proceeds were being used for the same purpose, the programs might not be duplicative if they were serving different types of businesses. However, duplication might exist if the programs serve similar populations and are used for the same purpose (i.e., fixed assets). The analysis proceeded in the following sequence:

• Assembled an inventory of all federal, state, and local programs available to small businesses through internet searches and conversations with program officials in selected federal agencies, states, and localities, including regional and district SBA officials.

• Constructed a matrix of program policies and activities, to be filled in with information on target businesses, terms and conditions of assistance, types of assistance available, program resources, and other aspects of programs.

• Conducted data analysis for comparison of SBA’s 504 and 7(a) programs using SBA administrative data.

• Obtained descriptive information on SBA programs, other federal programs, and state and local programs from government agency and nonprofit lender websites and from discussions with SBA district staff and Small Business Development Center state directors. The program comparisons consider eight program characteristics. They examine type of aid (e.g., does the program take the form of a loan, loan guarantee, microloan, grant, or other form of assistance), eligible businesses, eligible uses, industry sector, geographic market, growth state, amount, and term. The comparisons do not systematically address interest rates because they vary considerably within programs, and making generalizations about them proved difficult. Programs were considered as duplicative if there was overlap in type of aid, eligible businesses, eligible uses, industry, geographic market, growth stage, loan or loan guarantee amount, and maturity term.

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FINDINGS This research found that there is some overlap between the SBA’s 7(a) and 504 programs. It also found that of the four SBA’s programs studied here, the 7(a) program has the greatest amount of potential duplication at federal, state, and local levels. At all levels of government, there is less duplication of the SBIC program and even less of the MicroLoan and 504 programs. These findings are discussed in detail below. The “Duplication Overview,” we identifies the range of programs, from federal to local, available in certain states or cities. This analysis is useful in understanding the variety of options available to businesses in a given location. The “Duplication Analysis by Program and Sector” examines the four SBA programs and presents evidence of potential duplication at the three levels of government. This section also includes the comparison of the SBA’s 7(a) and 504 programs.

Duplication Overview This research suggests a small degree of potential duplication exists between SBA programs and similar programs run by other federal agencies, with most of the potential duplication occurring within SBA’s 7(a) and 504 programs. Some overlap also exists with the programs offered through the USDA. Several federal agencies have grant programs that provide funds to states, local government, nonprofit organizations, and other groups that may use the assistance to offer loans or loan guarantees to small businesses. Because these programs are not explicitly designed to aid small businesses and because the grantees may not in fact use the funds to provide loans to small businesses, they are not included in the numbers in Table 4, but are detailed in Appendix C. A greater degree of potential duplication exists at the state and local level.

Table 4: Public Sector Financial Assistance Programs for Small Businesses General-Purpose Loans/Loan Micro- Venture Total Source Loans/Loan Guarantees for Loans Capital Guarantees Fixed Assets Only

Federal government 7 1 1 3 12

State government 27 4 1 30 62

Local government 12 2 3 0 17

Total 46 7 5 33 91

Note: These numbers include programs from all federal agencies (including the SBA), the 12 study states, and 12 study cities. The number for federal programs does not include 12 programs that provide grants to state or local governments or nonprofits that may use the funds to provide loans small businesses. The microloan program count does not include 20 programs run by nonprofit organizations that can be considered “public,” organizations with 50 percent or more of their total revenues from government grants

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or contracts, as reported on the most recent (2004 or 2005) 990 IRS form available on guidestar.org. These programs are discussed in the section on state and local duplication of the MicroLoan Program.

Most of the 12 study states and 12 study cities offer programs that have characteristics similar to SBA’s 7(a) and SBIC programs; fewer states and cities have programs similar to 504 and MicroLoan programs. As shown in Table 4, these states and localities had a total of 79 programs potentially duplicating SBA’s 7(a), 504, MicroLoan, and SBIC programs. See Appendix A for an analysis of the numbers in Table 4 by federal agency, state, and city. The SBA is the most significant source of federal financing for small businesses, although some financing is also available through other federal agencies, particularly for businesses in rural areas. Table 5 lists the federal assistance available to small businesses. It also includes programs providing assistance to businesses of all sizes because small businesses may benefit from a portion of these funds. These programs provide assistance in the form of loans, loan guarantees, microloans, and venture capital. The table distinguishes between general-purpose loans and loan guarantees (i.e., programs similar to the 7(a) program) and loans or loan guarantees that can be used only for real estate purposes (i.e., programs similar to the 504 program). The list below does not include programs that provide technical and planning assistance, but no financial assistance, such as the USDA’s Rural Business Opportunity Grants. It also does not include the U.S. Department of Housing and Urban Development’s (HUD) Community Development Block Grant or the U.S. Department of Health and Human Services’ (HHS) Community Services Block Grant. Some of these funds may go toward small business assistance, but because the decision is left to the recipients, these programs are discussed under state duplication. Table 4 also does not include federal grant programs--including programs through the Appalachian Regional Commission, Environmental Protection Agency, and U.S. Departments of Commerce, Transportation, and HHS--that provide funds to public bodies or nonprofits that may choose to lend the funds to small businesses. These programs are not included in the inventory because re-lending may be one of a dozen or more potential uses for the funds and therefore not a reliable source of federal funding for small business loans or investment. Furthermore, most of these grant programs are targeted at specific industries for specific purposes, setting them apart from SBA’s programs. Our research found that states and localities provide a wide range of financial aid programs for small businesses. Some of the programs have conditions similar to SBA programs, and therefore could be considered duplicative, while others differ considerably in their terms and conditions. The greatest amount of potential duplication exists for the 7(a) program. In fact, many of the state programs were modeled on SBA’s 7(a) program. As shown in Table 4,

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the study states and cities are host to a total of 45 general-purpose loan or loan guarantee programs, compared to 5 real-estate specific loan or loan guarantee programs, 4 microloan programs, and 30 publicly funded venture capital programs. As shown in Table 6, all the study states and cities, except Florida, Houston, and Detroit, have some type of general-purpose loan or loan guarantee program. Table 5: Federal Financial Assistance Available to Small Businesses

Federal Agency/ General-Purpose General-Purpose Loans/Loan Micro- Publicly Grants to Program Loans/Loan Loans/Loan Guarantees loans Funded Firms/ Len- Guarantees to Firms Guarantees to Firms for Fixed Venture ders/ Public Unable to Access Able to Access Assets Capital bodies/ Private Credit Private Credit Only Nonprofits

Small Business Administration

7(a) Loan Guarantee X Program

504 Program X

SBIC Program X

MicroLoan Program X

Agriculture Department

Business and Industry X Loans

Empowerment Zones X

Farm Loan Program X

Intermediary Re-lending X Program

Rural Business Enterprise X Grants

Rural Business X Investment Program

Rural Economic X Development Loans and Grants

Appalachian Regional Commission

Area Development X Program

Commerce Department

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Economic Adjustment X Assistance

Environmental Protection Agency

Capitalization Grants for X Clean Water State Revolving Funds

Federal Agency/ General-Purpose General-Purpose Loans/Loan Micro- Publicly Grants to Program Loans/Loan Loans/Loan Guarantees loans Funded Firms/ Guarantees to Firms Guarantees to Firms for Fixed Venture Lenders/ Unable to Access Able to Access Assets Capital Governments Private Credit Private Credit Only / Nonprofits

Capitalization Grants for X Drinking Water State Revolving Funds

Health and Human Services Department

Community Services X Block Grant

Native American X Programs

Indian Loans, Economic X Development

Transportation Department

Airport Improvement X Program

Disadvantaged Business X Enterprises—Short Term Lending Program

Federal Transit / Capital X Investment Grants

Formula Grants for Other X Than Urbanized Areas

Treasury Department

Bank Enterprise Award X Program

Community Development X Financial Institutions Programs

Public Sector Duplication of SBA Loan and Investment Programs 15

Public sector microloan programs are less prevalent than loans and loan guarantees. States and localities may be more risk averse because they face strict fiscal restraints. These programs can also be costly to administer. Furthermore, the government programs face competition from microloan programs run by nonprofit organizations. One state, Florida, and three cities—Miami, Boston, and Chicago—offer microloan programs. All but three study states have nonprofit microlending organizations that receive a majority of their funding from government sources and could be considered “public.” As for programs similar to the SBIC program, all of the 12 study states have public venture capital funds, as shown in Table 6. As is discussed below, and detailed in Appendix E, some of these programs are publicly funded and publicly managed, while some are publicly funded and privately managed, the latter being more akin to SBICs. As Table 6 and Appendix D show, the availability of state and local financial aid to small businesses varies greatly across states and cities. No state has all types of assistance available directly to small businesses. Ohio is typical of the states with a wider array of programs. It has state-run general-purpose loan guarantee programs for both bankable and near bankable small businesses, in addition to a state program providing loan guarantees to very small businesses. Cleveland businesses also have access to a local microloan program, although only businesses able to meet conventional lending standards are eligible. The terms of Ohio’s programs are comparable to SBA’s. Ohio’s Capital Access Program resembles the 7(a) program by targeting businesses unable to obtain private credit and prohibiting use for real estate investment. Size standards vary somewhat between SBA programs and the Capital Access program. The greatest difference between the two programs is the maximum amount allowable: Ohio’s program guarantees loans up to $250,000 for working capital and up to $500,000 for fixed assets, compared to a $1.5 million maximum guaranteed by the 7(a) program. Small businesses with good credit seeking large, reduced-rate loans also have access to the Ohio State Treasury Department’s Linked Deposit Program. Very small Ohio businesses—with fewer than 25 employees—that are unable to obtain private credit are eligible for the Ohio Mini-Loan Guarantee Program, which provides loan guarantees up to $45,000. Of the study states, Florida has the least amount of general aid available through state- run programs. It has no state-run loan or loan guarantee programs, and its economic development agency directs small businesses to SBA programs (Enterprise Florida 2006). However, it is one of the few states with a microloan program for small businesses: As shown in Appendix D, Florida’s Front Porch Microcredit Loan Program provides loans up to $15,000 to start-up businesses unable to obtain private loans. The state also has a publicly funded and managed venture capital fund for technology businesses and a publicly funded, privately

Public Sector Duplication of SBA Loan and Investment Programs 16

managed venture capital fund. Presumably, a significant amount of the investment by these funds reaches small Florida businesses. Small businesses in Miami—both those able and those unable to obtain private credit—have access to city-run revolving loan programs. Rather than targeting small businesses per se, Florida’s major state-run business finance programs target minority-run businesses, many of which may be small businesses. For example, the state runs the Florida Minority Business Mobilization Program, which provides payments to be used as collateral to businesses awarded state contracts. Minority-run businesses also have access to loans and venture capital through the quasi-public Florida Black Business Investment Board. Table 6: State and Local Financial Assistance Programs for Small Businesses General-Purpose General-Purpose Loans/Loan Micro- Publicly Loans/Loan Guarantees Loans/Loan Guarantees Guarantees for loans Funded State/City to Firms Unable to to Firms Able to Access Fixed Assets Venture Access Private Loans Private Loans Only Capital

California X X

Los Angeles X X

San Diego X X

Texas X X X

Houston

Dallas X

New York X X

New York City X

Florida X X

Miami X X

Pennsylvania X X X X

Philadelphia X* X

Ohio X X X X

Cleveland X X

Massachusetts X* X X

Boston X X

New Jersey X X

Jersey City

Public Sector Duplication of SBA Loan and Investment Programs 17

Illinois X X X

Chicago X X X

Michigan X X

Detroit

Maine X X X X

North Dakota X X

Note: States are ordered by loan activity. *The city of Philadelphia offers loan assistance through two private corporations. The loans are funded by federal, state, and local government sources and are usually leveraged with private debt and equity. The Massachusetts loan fund for businesses unable to access private credit, the Economic Stabilization Trust, is quasi-public. Houston is another interesting case, where little overlap with SBA programs appears to exist. The city runs no loan, loan guarantee, or microloan programs. This research found only four state or local program dedicated to fixed asset financing, and two of them are located in Maine.

State and Local Programs Benefiting Businesses of All Sizes Most of the study states have public financial assistance programs that do not explicitly target, but that almost certainly have a substantial proportion of, small businesses among their beneficiaries. These include programs that target women and minorities, and those that are available to businesses of all sizes. Given that a large proportion of small businesses are women- or minority-owned, it is safe to assume that many of the loan and loan guarantee programs targeted at women and minorities are serving small businesses. Among the study states and cities, Florida, Ohio, Pennsylvania, and Philadelphia have bonding and loan discount programs for minorities. As discussed above, numerous state and local programs target distressed areas. Some state and local programs target special zones—empowerment, empire, and enterprise zones—or other distressed areas. Some programs are limited to small businesses, whereas others do not have such restrictions. Most states have public financing programs available to businesses of all sizes. Some small businesses may benefit from these, although small businesses that are unable to access private credit may face difficulty qualifying for these programs. Some states (e.g., New York, Florida, and Ohio) have programs that are generally used to fund large industrial projects. New Jersey and Illinois have several loan and loan guarantee programs that are open to all businesses. Other states—including California and Pennsylvania—have loan programs for specific uses, such as the replacement or improvement of underground storage tanks. Los

Public Sector Duplication of SBA Loan and Investment Programs 18

Angeles has two programs open to all businesses to finance machinery and equipment. Ohio uses some of its Community Development Block Grant money to issue Section 108 loans to businesses to fund machinery and equipment or real estate, but it does not specifically target small businesses. Pennsylvania and California also have loan programs for equipment or machinery and working capital. Chicago has several programs (including a microloan program with very broad eligibility standards) that do not explicitly target small businesses, but appear as if they would serve them. Because states and cities may be more risk averse than the Federal government, the financial assistance programs open to all businesses are more likely to serve larger businesses or ones with strong credit histories, i.e., those businesses that are able to access private credit. For example, Detroit has a revolving loan program that is open to all businesses. Among other things, proposed borrowers are evaluated on their impact on the local economy. Small businesses would be at a disadvantage because by their nature they are likely to have a smaller impact on the economy than large businesses. Lastly, quasi-public agencies are another potential source of financial assistance to small businesses. Programs run by these agencies (e.g., the Massachusetts’s Citizens’ Job Bank, the Florida Black Business Investment Board, and the Philadelphia Commercial Development Corporation) are open to businesses of all sizes. Again, the assistance offered through these programs may be difficult to obtain for start-ups or other businesses that do not have strong credit histories.

Duplication Analysis by Program and Sector Of the four SBA programs of interest, the 7(a) program has the greatest amount of potential duplication; there are a total of 6 programs at the federal level, 27 at the state level, and 12 at the local level that provide general-purpose loans or loan guarantees. Programs providing real- estate-specific loans or loan guarantees (i.e., programs resembling the 504 program) or microloans are less prevalent. All of the study states have publicly funded venture capital programs resembling the SBIC program, as does the USDA.

Section 7(a) Loan Guarantee Program Potential duplication exists at all levels of government for the 7(a) program, a general-purpose loan guarantee program. At the federal level, overlap exists between the SBA’s 7(a) and 504 loan programs. Regulatory overlap is found within programs administered by the USDA, although SBA administrative data indicate that a small number and proportion of loans go toward the agriculture sector. At the state and local levels, the 51 general-purpose loan and loan

Public Sector Duplication of SBA Loan and Investment Programs 19

guarantee programs vary in their program characteristics, although they all serve the purpose of a making capital available to small businesses.

Federal Duplication: Overlap Between SBA’s 7(a) and 504 Programs The 7(a) and 504 programs were established to serve similar clientele, businesses unable to obtain private financing on reasonable terms, but with different purposes. The 504 program is intended to provide long-term financing for fixed assets only, particularly real estate, while the 7(a) program is intended to be used for purposes other than real estate, such as working capital, although fixed assets are an eligible use of proceeds under the 7(a) program. The two programs have similar eligibility requirements and size standards. The programs differ significantly in their and fee structure, maturity term, loan structure, maximum allowable amount, and type of lender. According to SBA district officials and state directors of Small Business Development Centers, the 504 program represents “the best deal” for long-term real estate loans because, as is discussed below, the interest rates are lower, the term is longer, and the equity requirement is lower than for 7(a) loans. As is also shown below, however, businesses use 7(a) loans for real estate purposes. The SBA and SBDC officials suggest that businesses are directed toward the 7(a) program not because it necessarily fits the businesses’ needs, but because the lender may have a greater level of comfort with one program or the other. Personal preference, relationships, and geographic location appear to play a large role in which loan program a bank or loan officer might recommend for a particular business. As shown in Table 8, the 7(a) program was originally authorized under Section 7(a) of the Small Business Act of 1958, 15 U.S.C., Chapter 14A, Section 636(a). This section was repealed August 13, 1981, and amended that year by Title XIX of Public Law 97-35. The 504 program was authorized by Title V of Small Business Investment Act of 1958, 15 U.S.C., Chapter 14B, Sections 695 to 697. Both programs have a “credit elsewhere” criteria, which is defined under the SBA’s Standard Operating Procedure (SOP) 50-10(4)(E) Subpart A.120 (U.S. Small Business Administration 2006b). This section reads: “SBA provides assistance only to applicants for whom the desired credit is not otherwise available on reasonable terms from non-Federal sources. SBA requires the Lender or CDC to certify or otherwise show that the desired credit is unavailable to the applicant on reasonable terms and conditions from non- Federal sources without SBA assistance, taking into consideration the prevailing rates and terms in the community in or near where the applicant conducts business, for similar purposes and periods of time.”

Public Sector Duplication of SBA Loan and Investment Programs 20

Both programs are available to the same business sectors and have very similar size and sales restrictions. In general, the criteria in Table 7 are used by SBA to determine if a concern qualifies as a small business and is eligible for SBA loan assistance. As shown below, these size standards vary depending on the industry sector of the business. The 504 program has a set of further size restrictions. To be eligible, a small business may not, together with its affiliates, have a tangible net worth in excess of $7.5 million or an average net income in excess of $2.5 million after taxes for the preceding two years. The two programs overlap in their restrictions on eligible use of proceeds. Proceeds from 504 and 7(a) loans can be used for the following: ƒ Acquire land (by purchase or lease); ƒ Improve a site (e.g., grading, streets, parking lots, landscaping), including up to five percent for community improvements such as curbs and sidewalks; ƒ Purchase one or more existing buildings; ƒ Convert, expand, or renovate one or more existing buildings; ƒ Construct one or more new buildings; ƒ Acquire (by purchase or lease) and install fixed assets (for a 504 loan, these assets must have a useful life of at least 10 years and be at a fixed location, although short- term financing for equipment, furniture, and furnishings may be permitted where essential to and a minor portion of the 504 project).

Table 7: Size Standards for 504 and 7(a) Loans Industry Group Size Standard

Manufacturing 500 employees

Wholesale trade 100 employees

Agriculture $750,000 in average annual receipts

Retail trade $6.5 million in average annual receipts

General and heavy construction (except dredging) $31 million in average annual receipts

Dredging $18.5 million in average annual receipts

Special trade contractors $13 million in average annual receipts

Travel agencies $3.5 million in commissions and other income

Business and personal services $6.5 million in average annual receipts

Public Sector Duplication of SBA Loan and Investment Programs 21

Except architectural, engineering, surveying, and $4.5 million in average annual receipts mapping services Dry cleaning and carpet cleaning services $4.5 million in average annual receipts

Source: U.S. Small Business Administration (2006a)

In addition, 7(a) proceeds can be used for inventory, supplies, raw materials, working capital, and refinancing certain outstanding . Allowable refinancing includes private or institutional debt, including credit card debt related to the business. However, a borrower may not use 7(a) loan proceeds to pay a creditor in a position to sustain a certain loss that would be shifted to the SBA. Under the 504 program, proceeds cannot be used for general refinancing, but can be used to term out debt obtained in anticipation of the 504 project that would have been eligible for initial 504 financing (U.S. Small Business Administration 2006b). The programs differ in the size: from 1997 to 2005, the SBA guaranteed $86.8 billion under the 7(a) program, compared to $18.0 billion in loans under the 504 program (SBA administrative data). As shown in Table 8, the two programs differ by the percent of guarantee offered, target processing time, interest rates, maturity terms, fees, and penalties.

Table 8: Comparison of 7(a) and 504 Loan Program Attributes Standard 7(a) Loan Standard 504 Loan Geographic Nationwide Certified Development Companies (CDCs) are SBA-regulated entities area that process, close, and service 504 loans. Each CDC has a specific geographic area – the minimum area is the state in which the CDC is located. The program is available nationwide. CDCs may expand into contiguous states as a Multi-State Expansion (for the entire state) or as a Local Economic Area (LEA) expansion (limited to contiguous counties in the contiguous state). Program Loan guarantee of private loan for Long-term, fixed-asset financing. The typical 504 project includes a loan description working capital, heavy equipment, and secured with a senior lien from a private-sector lender, covering up to fixed assets. 50 percent of the project cost; a loan secured with a junior lien from a CDC, covering 40 percent of the project cost (backed by a 100 percent SBA-guaranteed debenture); and a contribution of at least 10 percent equity from the small business. Size See Table 7 For-profit businesses that do not exceed $7M in tangible net worth and Standard do not have an average net income over $2.5M for the past 2 years. May also use the 7(a) size standard as an alternative. Percent of 85 percent for loans of $150,000 or less. 100 percent of CDC lien. Zero percent of private lender lien. guarantee 75 percent for loans of more than $150,000.

Public Sector Duplication of SBA Loan and Investment Programs 22

Standard 7(a) Loan Standard 504 Loan Statutes Originally authorized by Section 7(a) of Small Business Investment Act and 13 CFR, part 120 governs the and the Small Business Act, 15 U.S.C. program. regulations Chapter 14A, Section 636(a). This section was repealed Aug. 13, 1981, and amended by Title XIX of Public Law 97- 35. Target 13 business days 6 days processing time Maximum General rule is gross loan limited to $2.0 If job creation, maximum debenture is $1.5 M. If project meets a public loan amount M per loan. SBA guarantee amount policy goal, maximum debenture is $2.0 M. If project is for a small limited to $1.5 M to one borrower and its manufacturer, maximum debenture is $4.0M. Therefore, the maximum affiliates. project size for small manufacturer is $10.0M (Borrower =$1.0M; Lender = $5.0M; & CDC = $4.0M). Maturity Depends on use of proceeds. Maximum 10 or 20 years. Depends on use of proceeds. Machinery and equipment 25 years reserved for fixed assets is generally 10 years. Real estate is 20 years. including real estate.

Public Sector Duplication of SBA Loan and Investment Programs 23

Standard 7(a) Loan Standard 504 Loan Interest Prime plus 2.25 percent for maturities The 504 debenture that funds the 504 loan is sold to the private sector rates under 7 years. Prime plus 2.75 percent as part of a pool. There are monthly sales. The debenture’s interest rate for maturities of 7 years or more. Rates is determined at the time of the sale and is fixed. The 504 loan’s can be higher by 2 percent for loans of interest rate is the debenture rate plus monthly fees. $25,000 or less, and 1 percent for loans between $25,000 and $50,000. Collateral Available collateral (liquidation value) up Project assets. policy to loan amount. Fees paid to Upfront fees (percentage of guaranteed, Upfront fees: First mortgage/third party lender pays 0.5 percent on first SBA not gross, amount). For maturities of 12 mortgage amount. Borrower pays 0.5 percent on 504 net debenture months or less = 0.25 percent. For amount. Annual fees: CDC pays 0.125 percent of the principal amount maturities over 12 months: gross loan and borrower pays 0.018 percent. $150,000 or less = 2 percent, gross loan $150,001 to $700,000 = 3 percent, over $700,000 = 3.5 percent. For guaranteed amounts over $1 M = 3.75 percent. Annual fee is 0.545 percent. Prepayment If term of loan is for 15 years or more For 20 year debentures: Declining amount over 10 years. 100 percent penalty and loan is prepaid in first three. of the interest rate x the principal balance the first year down to 10 percent of the interest rate x the principal balance in the 10th year. For 10 year debentures: Declining amount over 5 years. 100 percent of the interest rate x the principal balance the first year down to 20 percent of the interest rate x the principal balance in the 5th year. This penalty is paid to the investor, not to SBA. Source: U.S. Small Business Administration (2006c and 2006d)

An analysis of SBA administrative data suggests that there is some duplication between the 7(a) and 504 programs. As shown in Table 9, 17 percent of firms receiving only 7(a) loans from 1997 to 2005 used those loans for real estate purposes. The volume of those loans amounted to nearly half, or 44 percent, of the total volume borrowed by firms receiving only 7(a) loans.5 The 7(a) loans used for real estate purposes had an interest rate, 8.88 percent, considerably higher than the rates paid by firms receiving only 504 loans. As shown in Table 8, firms receiving only 504 loans had a median interest rate of 5.95 percent. The real estate loans borrowed through the 7(a) program had a longer median term than 504 loans, 277 months for 7(a) loans compared to 240 months for 504 loans. Conversations with SBA district directors and with state directors of Small Business Development Centers suggest that although the 504 program usually represents a “better deal” for real estate loans, lenders often direct small

5 The SBA does not systematically collect use of proceeds data for its loans. However, the agency uses maturity term length as an indicator of use of proceeds; loans with a term of less than 7 years are generally used for working capital, from 7 to 15 years for heavy equipment, and greater than 15 years for real estate.

Public Sector Duplication of SBA Loan and Investment Programs 24

businesses needing real estate loans to the 7(a) program based on personal preference or lack of information. Table 9: Use of Proceeds by Firms Receiving 7(a) Loans Only, 1997-2005 Use of Proceeds N Volume (in $) Share of Share of Median Median Investments Volume Interest Maturity (%) (%) Rate Term Working Capital 119,060 12,757,641,561 29 15 8.88 48 mos. Heavy Equipment 220,449 34,875,185,413 54 41 8.88 84 mos. Real Estate 69,151 37,373,170,323 17 44 9 277 mos. Source: SBA administrative data

Note: Median interest rates were computed using an average of the portion of the loans with variable and fixed interest rates. For working capital, the fixed rate was 9 percent and variable rate 8.75 percent; for heavy equipment, the fixed rate was 8.75 percent and variable rate 9 percent; and for real estate, both rates were 9 percent. An analysis of the types of firms receiving only 504 loans, only 7(a) loans, and both types of loans was conducted to examine whether the types of firms receiving one type of loan, or both, differed by business characteristics, geographic region, or industry sector. If variation exists across loan types then duplication would be unlikely even if firms were using 7(a) loans for real estate purpose; that is, if the firms receiving 7(a) loans are fundamentally different than the firms receiving 504 loans, then the loan programs are not duplicative. However, if similar firms are receiving each loan type, then it is possible that 504 loans and 7(a) real estate loans are duplicative. The research suggests that there are minor differences across the firms receiving only 7(a) loans, those receiving only 504 loans, and those receiving both. Of the 455,859 firms receiving a total of $105 billion from 1997 to 2005 in 504 or 7(a) loans, 81 percent of the total loan volume went to firms receiving only 7(a) loans, 15 percent went to firms receiving only 504 loans, and 3 percent went to firms receiving both types of loans, as shown in Table 10. The median loan amount for 504-only firms was $330,000 compared to $100,000 for firms receiving only 7(a) loans and $293,000 for firms receiving both.

Table 10: Average Loan Amount for Firms Receiving 504 and/or 7(a) Loans, 1997-2005 Loan Type N Volume ($) Share of Share of Median ($) Firms (%) Volume (%) Both 504 & 7(a) 9,255 3,639,828,677 2 3 293,000 Only 7(a) 408,660 85,005,997,297 90 81 100,000 Only 504 37,944 16,105,972,000 8 15 330,000 Total 455,859 104,751,797,974 100 100 N/A Source: SBA administrative data

Public Sector Duplication of SBA Loan and Investment Programs 25

As shown in Table 11, 7(a)-only firms paid higher interest rates than 504-only firms and had shorter terms than 504-only firms. The median interest rate for 504-only firms was 5.95; for 7(a) only firms, the median rate for the fixed-rate portion of the loan was 8.75 percent and for the variable-rate portion was 9 percent. Firms receiving only 504 loans had considerably longer terms for their loans, with a median of 240 months. This compares to 92 months for the fixed- rate portion and 118 months for the variable-rate portion of loans that went to 7(a)-only firms. Appendix G presents interest rates and term by year and shows that interest rates dropped for both types of loans after 2001. For 7(a) loans between 1997 and 2001, the median interest rate ranged from 10 percent to 10.25; between 2002 and 2005, it ranged from 6.75 percent to 7.25 percent. Not surprisingly, the number of 7(a) loans increased dramatically with the rate decrease, rising steadily from 29,442 loans in 2001 to 66,696 in 2005. From 1997 to 2001, the median interest rate for the 504 program ranged from 6.3 percent to 7.46 percent; from 2002 to 2005, it ranged from 4.76 to 5.78 percent. The number of 504 loans rose with the decrease, from 3,413 in 2001 to 7,043 in 2004, dropping to 4,860 in 2005. These numbers indicate that even with fluctuation, 7(a) interest rates remained consistently higher than 504 interest rates. An analysis of the business characteristics indicates that there are minor differences among the firms that received only 7(a) loan guarantees, those that received only 504 loans, and those that received both. As shown in Table 12, 7(a)-only firms were slightly more likely to be start-ups than 504-only firms, tended to be smaller than 504-only firms, and were more likely to be minority- or female-owned than 504-only firms. Among 7(a)-only firms, 29 percent were start-ups, compared to 18 percent for 504-only firms and 21 percent for firms receiving both loan types. Among 7(a)-only firms, 93 percent had fewer than 25 employees, compared to 74 percent of 504-only firms and of firms receiving both types of loans. As for minority ownership, 27 percent of firms receiving only 7(a) loans were at least 50 percent minority-owned, compared to 19 percent of 504-only firms, and 22 percent of firms receiving both loan types. Among 7(a)- only firms, 36 percent of firms were at least 50 percent female-owned, compared to 31 percent of 504-only firms and 33 percent of firms receiving both loan types. As for veteran-ownership, 11 percent of 7(a)-only firms owned by veterans, compared to 8 percent for 504-only firms, and 10 percent for firms receiving both types of loans.

Table 11: Average Maturity Term (in months) and Interest Rate, 1997-2005 Loan Type Term/Rate Both 504 and 7(a) Only 7(a) Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Rate Portion 5,498 219 240 52,180 92 84 37,944 236 240 Term, Variable Rate Portion 5,085 115 84 360,591 118 84 N/A N/A N/A Interest Rate, Fixed Portion 5,498 5.06 5.11 52,180 8.49 8.75 37,944 5.87 5.95

Public Sector Duplication of SBA Loan and Investment Programs 26

Interest Rate, Variable Portion 5,085 8.45 8.75 360,591 8.77 9 N/A N/A N/A Source: SBA administrative data

The three types of firms showed even smaller differences across industry categories. As shown in Table13, the share of investments and of volume differed by three or fewer percentage points for the three types of firms across all industry types except for: 1) manufacturing; 2) the NAICS category covering information, finance real estate, professional, scientific, management, and administrative; and 3) “other services,” which includes businesses engaged in activities equipment and machinery repairing, promoting or administering religious activities, grant- making, advocacy, and providing dry-cleaning and laundry services, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services. Firms receiving only 7(a)-loans were slightly more likely to be in information, finance or a related industry, with 18 percent of 7(a)-only firms falling in the category, compared to 15 percent of 504-only firms and 12 percent of firms receiving both. More firms receiving both loan types were in manufacturing than firms receiving only 504 or 7(a) loans, with 21 percent of firms receiving both loans in manufacturing, compared to 15 percent of 504-only firms and 10 percent of 7(a)-only firms. As for “other services,” 7 percent of the investment volume among firms receiving both loan types was borrowed by firms falling within this category, compared to 11 percent for firms receiving only 7(a) loans and 7 percent for firms receiving only 504 loans. Geographic differences among the firms receiving only 7(a) or 504 loans or both were also small. In the Northeast, a greater proportion of firms received only 7(a) loans compared to those firms that received only 504 loans or both loan types. As shown in Table 14, 23 percent of 7(a) only firms were located in the Northeast, compared to 12 percent of 504-only firms and 14 percent of firms receiving both. A greater proportion of firms in the West was found among the firms receiving both loan types and among 504-only firms than among 7(a)-only firms: 39 percent of firms receiving both loan types are located in the West, 41 percent of firms receiving only 504 loans are in the West, whereas just 28 percent of firms receiving only 7(a) loans are in the West. Other than these minor differences, the geographic composition of the three types of firms does not vary significantly. Other than these minor differences, the geographic composition of the three types of firms did not vary significantly.

Public Sector Duplication of SBA Loan and Investment Programs 27

Table 12: Comparison of Ownership and Firm Characteristics for Recipients of 7(a) and/or 504 Loans, 1997-2005

Firms Receiving Both 504 and 7a Firms Receiving Only 7a Loan Guarantees Firms Receiving Only 504 Loans Loans Ownership and N Volume ($) Share of Share of N Volume ($) Share of Share of N Volume ($) Share of Share of Firm Firms Volume Firms Volume Firms Volume Characteristics (%) (%) (%) (%) (%) (%) Female Ownership Less than 50% 6,214 2,505,087,579 67 69 261,035 57,174,273,940 64 67 26,352 11,631,112,000 69 72 female-owned At least 50% 3,041 1,134,741,098 33 31 147,625 27,831,723,357 36 33 11,592 4,474,860,000 31 28 female-owned Minority Ownership 33,704,195 Less than 50% 7,106 2,657,045,421 77 73 296,020 59,904,932,048 72 70 30,625 12,437,498,000 81 77 minority-owned At least 50% 2,067 949,079,061 22 26 109,504 24,610,565,442 27 29 7,114 3,568,635,000 19 22 minority-owned Veteran Ownership Not veteran- 8,365 3,305,916,330 90 91 364,545 75,553,318,849 89 89 34,953 14,844,742,000 92 92 owned Veteran-owned 886 333,343,347 10 9 44,107 9,451,055,448 11 11 2,991 1,261,230,000 8 8 Firm Tenure Existing business 7,332 2,882,872,196 79 79 290,269 63,560,477,165 71 75 31,112 12,963,283,000 82 80 Start-up 1,923 756,956,481 21 21 117,962 21,303,198,964 29 25 6,683 3,075,293,000 18 19 Firm Size Fewer than 25 6,886 2,403,865,087 74 66 26,331 12,225,413,812 93 83 27,921 10,074,202,000 74 63 employees 25 to 75 2,048 1,039,377,587 22 29 3,826 2,308,144,126 6 14 8,143 4,775,524,000 21 30 Employees More than 75 321 196,586,003 3 5 429 142,321,168 1 3 1,880 1,256,246,000 5 8 employees Source: SBA administrative data

Public Sector Duplication of SBA Loan and Investment Programs 28

Table 13: Comparison of Industry for Recipients of 7(a) and/or 504 Loans, 1997-2005

Firms Receiving Both 504 and 7(a) Firms Receiving Only 7(a) Loan Firms Receiving Only 504 Loans Loans Guarantees Industry N Volume ($) Share of Share of N Volume ($) Share of Share of N Volume ($) Share of Share of Firms Volume Firms Volume Firms Volume (%) (%) (%) (%) (%) (%) Agriculture, 47 20,133,306 1 1 3,892 1,221,712,422 1 1 373 199,214,000 1 1 forestry, fishing Mining, utilities, and 521 188,542,616 6 5 28,785 4,816,421,415 7 6 2,200 742,880,000 6 5 construction Manufacturing 1,907 815,129,596 21 22 39,856 10,978,330,629 10 13 5,701 2,692,980,000 15 17 Wholesale trade, 2,557 1,025,715,979 28 28 116,415 23,655,577,071 28 28 9,494 4,153,983,000 25 26 retail trade, transportation, and warehousing Information, 1,095 358,757,225 12 10 71,894 10,832,910,852 18 13 5,732 2,135,711,000 15 13 finance, real estate, professional, scientific, management, administrative Educational, health 834 288,474,220 8 8 33,905 7,393,779,800 8 9 4,033 1,486,457,000 11 9 care, and social assistance Arts, entertainment, 1,478 686,030,889 16 19 64,864 17,083,996,550 16 20 6,607 3,508,331,000 17 22 recreation, accommodations, and food services Other services 813 255,802,846 8 7 48,561 8,935,799,798 12 11 3,761 1,172,780,000 10 7 Public 1 562,00 0 0 212 27,807,633 0 0 17 3,715,000 0 0 administration

Source: SBA administrative data.

Public Sector Duplication of SBA Loan and Investment Programs 29

Table 14: Comparison of Business Location for Recipients of 7(a) and/or 504 Loans, FY 1997-2005

Firms Receiving Both 504 and 7(a) Loans Firms Receiving Only 7(a) Loan Guarantees Firms Receiving Only 504 Loans Geographic N Volume ($) Share of Share of N Volume ($) Share of Share of N Volume ($) Share of Share of Region Firms Volume Firms Volume Firms Volume (%) (%) (%) (%) %) (%) Northeast 1,333 424,372,766 14 12 93,255 14,824,799,928 23 17 4,386 1,705,460,000 12 11 Midwest 2,132 794,998,119 23 22 78,068 14,744,286,989 19 17 9,239 3,666,499,000 24 23 South 2,096 820,056,921 23 23 115,128 26,075,695,076 28 31 8,507 3,587,768,000 22 22 West 3,610 1,575,093,496 39 43 115,545 28,501,498,089 28 34 15,561 7,049,102,000 41 44 Source: SBA administrative data

Public Sector Duplication of SBA Loan and Investment Programs 30

Federal Duplication: Overlap with Other Federal Programs The greatest degree of regulatory overlap between SBA programs and other federal financial assistance programs exists with the USDA, particularly its Farm Service Loan program. The USDA has several other programs providing financing to small businesses and to businesses of all sizes, although SBA administrative data indicate that a small fraction of 7(a) and 504 loans go toward rural businesses.6 Nevertheless, rural businesses can avail themselves of both SBA’s loan programs and several offered by the USDA. The U.S. Department of Interior also has a loan guarantee program, and several other federal agencies run grant programs that permit recipients to re-lend funds to small businesses. As shown in Appendix C, the Farm Service Agency (FSA) makes direct and guaranteed loans to family-size farmers and ranchers who cannot obtain commercial credit from private lenders. Although financial aid to farmers is usually made through USDA, and not the SBA, SBA rules allow for assistance to farms or farm-related businesses. 7 FSA loans and loan guarantees come in the form of ownership loans and operating loans. Direct ownership and operating loans have a $200,000 maximum and can be used for purchasing land, livestock, or equipment; financing construction or other physical improvements; and refinancing debt under limited conditions. Guaranteed ownership and operating loans have a maximum amount of $850,000 and can be used for the same purposes as direct loans, in addition to less restricted debt refinancing. The 7(a) program differs somewhat from the FSA loan programs. The SBA program has considerably higher maximum amounts and more limited restrictions on using proceeds for debt refinancing. Under the 7(a) program, the SBA guarantees a portion of a loan up to $1.5 million, and businesses cannot use proceeds to refinance existing debt if the lender is in a position to sustain a loss and the SBA would take over that loss as a result of the refinancing (U.S. Small Business Administration, 2006). Despite these differences, some duplication may exist for small farmers seeking amounts less than $850,000 for purposes other than debt refinancing.

6 SBA administrative data indicate that 14 percent of businesses receiving 7(a) or 504 loans are in rural areas. Because data on this indicator are missing for 26 percent of all cases, this proportion could be higher.

7 SBA SOP 50-104(E), Subpart “A”, Section 5.120.103 (page 24), found on the SBA’s website, is titled “Eligibility of Farm Enterprises.” It indicates that SBA aid is available for “farm-related businesses” and in some cases for “agricultural enterprises.” The section states that aid to agricultural businesses “is generally made by the [USDA], but may be made by SBA under the terms of a Memorandum of Understanding between SBA and USDA. Farm- related businesses which are not agricultural enterprises are eligible businesses under SBA’s program.” This suggests that there is some overlap for aid in agricultural enterprises. It also suggests that there may be overlap for farm-related businesses.

Public Sector Duplication of SBA Loan and Investment Programs 31

A borrower or lender might choose one program over the other based on more favorable interest rates or fees. It is difficult to make generalizations about how the programs’ rates compare because of the variation of rates even within programs. Under the FSA programs, interest rates vary because they are negotiated between the borrower and lender. Rates for direct operating loans are set by the Secretary of Agriculture. Under the 7(a) program, interest rates are negotiated between the borrower and the lender, but are subject to SBA maximums, which are pegged to the prime rate. According to SBA district officials and SBDC state directors, businesses may end up using SBA programs instead of USDA programs, or vice versa, based on the established relationships loan officers have with the different agencies. The USDA has five other financial assistance programs that do not explicitly target small businesses, but likely benefit them. The Intermediary Relending Program lends money to nonprofits, state or local governments, and Indian tribes in order for them to re-lend the funds to private businesses, nonprofit organizations, or individuals for business development or community development in rural areas. Both the intermediaries and the ultimate recipients must have been unable to obtain a loan at reasonable rates from a bank or other government program, and the ultimate recipients have to be located in a city with a population smaller than 25,000. As shown in Appendix C, the loans can range from $150,000 to $1 million. Because emerging or small enterprises may have difficulty obtaining private credit—and because the enterprises located in rural areas are likely to be small, this program may overlap with the 7(a) program to a small extent. The Business and Industry Loans program is a loan guarantee program that is also available to rural businesses of all sizes, although it gives no preference to small businesses or to businesses with difficulty obtaining private credit. It provides large loans, up to $25 million, that can be used for working capital, equipment and machinery, acquisition or development of land, and working capital. The Rural Business Enterprise Grants program provides grants of $2,000 to $500,000 to public entities and nonprofits organizations serving rural areas with the goal of improving development of small and emerging businesses and industries. The program defines eligible businesses as those with 50 or fewer employees and less than $1 million in project gross revenue. One of the several uses permitted under the program is the establishment of revolving loan funds. Although a different vehicle than the loan guarantee of the 7(a) program, this program could potentially duplicate the SBA’s program by providing publicly funded financial assistance to small businesses. Likewise, the Rural Economic Development Loans and Grants program provides loans and grants to rural electric and telephone utilities, both public and private, that use the funds to establish revolving loan funds for projects that promote rural economic development and job creation. Recipients can include small rural businesses, and projects can include start-up costs, construction, and other physical improvements. In fiscal year 2007, the grants were capped at $300,000 (U.S. Department of Agriculture, 2007a). Lastly, the

Public Sector Duplication of SBA Loan and Investment Programs 32

Empowerment Zone and Enterprise Community Program provides ten-year grants to high- poverty rural communities that may be used to provide assistance to small businesses. The first round of grants was phased out in 2005, so assistance is only available to businesses in the 27 areas that received grants in the last two rounds (U.S. Department of Agriculture, 2007b, and Catalog of Federal Domestic Assistance, 2007). Another federal source of loan guarantees for individuals and entities based on or near Indian Reservations is the Department of Interior’s Indian Loans-Economic Development Program, under which the agency guarantees loans from $2,500 to $500,000 for commercial, industrial, agricultural, and other businesses. For small businesses involved in construction or other transportation-related industries the U.S. Department of Transportation’s Disadvantaged Business Enterprises—Short Term Lending Program represents an opportunity for financial assistance. This program provides loans up to $750,000 to certified disadvantaged business enterprises, which are defined as small businesses owned and controlled by socially and economically disadvantaged individuals, and to minority- and women-owned businesses for transportation-related contracts. The program is meant to provide these businesses with working capital at lower interest rates than they might otherwise be able to obtain. Several federal agencies fund grant programs that go to states, counties, other public entities, and nonprofits. One of the many uses of these programs is the establishment of revolving loan programs that may benefit small businesses. These programs include the Appalachian Regional Commission’s Area Development Program, the Department of Commerce’s Economic Adjustment Assistance program, the Environmental Protection Agency’s Capitalization for Clean Water State Revolving Funds and Capitalization for Drinking Water State Revolving Funds programs, the HHS’s Native American Programs, and the Department of Transportation’s Airport Improvement Program, Federal Transit/Capital Investments Grants, and Formula Grants for Other Than Urbanized Areas Program. As their names suggest, most of these grants programs are targeted at specific industries. If funds reach small businesses in the form of revolving loans, the number and type of businesses are very limited compared to the businesses served by SBA’s 7(a) program. An exception is Commerce’s Economic Adjustment Assistance program, which provides grants to states, cities, and counties, among other entities, that may establish loan funds that benefit small businesses in distressed communities experiencing negative economic changes.

State Duplication A considerable amount of potential duplication exists between the SBA’s 7(a) program and state-run loan and loan guarantee programs. State programs are not exact replicas of their SBA

Public Sector Duplication of SBA Loan and Investment Programs 33 counterparts, and similarities between federal and state programs differ by state and program. In general, SBA programs have higher loan and loan guarantee amounts and longer terms than local programs. Eligibility requirements also vary: some programs are only available to businesses unable to access private capital; some are available to all small businesses; and some are available to businesses in certain market segments (e.g., minority-owned businesses, businesses in distressed areas, or those serving underserved populations). Size standards are similar for SBA and state programs, although a few states have size standards considerably smaller than SBA standards. Standards for industry sector, geographic market, and growth stage are similar for SBA programs and state programs. Some SBA and SBDC officials believe that state and local-run programs create unnecessary duplication—that is, they increase administrative costs and make the application process more burdensome on businesses than if there were fewer programs. Other officials believe that state and local programs can be more user-friendly and are valuable because they can provide capital more quickly than SBA programs. Other SBA and SBDC officials argue that any duplication of loan programs is of benefit to businesses because more programs results in more capital available. In some states, lending and investment programs differ significantly from SBA programs in their job creation requirements. Many states have stringent requirements. For example, Ohio’s Section 166 program limits its loans to $35,000 per job created, and the Massachusetts Trust limits its loans to $10,000 per job created. On the other hand, the 7(a) program does not have a job creation requirement, and the 504 program has a less rigorous one. Under the 504 program, businesses other than small manufacturers must create or retain one job per $50,000 borrowed. Small manufacturers have a $100,000 job creation requirement except when they “improve the economy of the locality or achieve one or more public policy goals,” in which case the job creation requirement is waived (U.S. Small Business Administration, 2006). Another significant difference between SBA and local programs is that the latter often have a prevailing wage requirement, whereas SBA loan programs do not. Both of these requirements would serve to make SBA programs more attractive to businesses than local programs in some cases.

Loan Amount and Term The 7(a) program on the whole provides larger amounts of debt and longer repayment terms than state programs. Under the 7(a) program, the SBA guarantees a portion of a loan up to $1.5 million. As shown in Appendix D, only one state, California, guarantees loans for an amount anywhere approaching this size. The California Capital Access Program guarantees loans up to $2.5 million. Several other state and local loan programs have maximum amounts similar to the 7(a) program. The New York Linked Deposit Program has a cap of $1 million. However, most of the state programs have maximum amounts lower than SBA limits—with the maximum allowable amount falling between $200,000 and $750,000.

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Loan terms vary greatly among state programs, and these terms tend to be shorter than the maturities offered under SBA programs. Given that the SBA loan guarantees are often larger than state loans or loan guarantees, this is not surprising. The 7(a) program has a maximum term of up to 20 years. In many cases, state loans and loan guarantee programs do not specify a term; rather they let the lender set the terms. Among states that do set limits, rather than relying on lenders to do so, terms often vary depending on their use. For example, under the Pennsylvania’s Small Business First program, working capital loans have a term up to 3 years, machinery and equipment loans up to 10 years, and real estate loans up to 15 years. More often than not, however, terms set by states do not exceed ten years. As is the case with the 7(a) program, some state programs do not cover the full cost of a given project or loan. The 7(a) program offers a guarantee of 50 to 85 percent of a loan. Under the 504 program, a private lender provides a senior lien covering up to 50 percent of the loan, while the SBA guarantees another 40 percent of the loan. The small business must make a ten percent equity contribution. State programs have variants on these requirements. The Pennsylvania Small Business First program covers up to 40 percent of a project’s costs (although businesses can apply for more than one loan under the program at any one time). In Illinois, loans cannot exceed 25 to 50 percent of the project costs, depending on the type of business applying. Many of the state programs do not require an equity contribution; this may be because the amounts borrowed through programs are lower than under SBA programs.

Eligible Businesses and Uses Some state programs are open only to small businesses that are unable to access private credit, while others are open to all small businesses. As shown in Table 6, eight states have loan or loan guarantee programs for small businesses that are able to meet the requirements of private lenders, and eight states have programs targeting businesses unable to obtain private credit. One study state—California—has a loan guarantee programs for small businesses unable to access private credit but no similar programs for businesses that meet conventional lender standards. Seven states— Illinois, Maine, Massachusetts, North Dakota, Ohio, Pennsylvania, and Texas—have loan or loan guarantee programs for both small businesses able to meet private lending requirements and those that cannot. Three states—New York, New Jersey, and Michigan—offer loan or loan guarantees only to small businesses that meet the requirements of conventional lenders. That states are somewhat less likely to offer programs for less creditworthy businesses may be explained by the financial restraints they face; they may have limited budgets or be under legislative mandate to balance their budgets.

Public Sector Duplication of SBA Loan and Investment Programs 35

Some state programs use SBA size standards to define what can be considered a small business.8 Other states and localities have stricter size standards. To be eligible for many of Pennsylvania’s loan programs—such as the Small Business First and the Community Economic Development Loan Program—a business must have 100 or fewer employees. In Ohio, only businesses with annual sales of $10 million of less (and which are unable to qualify for private loans) are eligible for the Capital Access Programs. Ohio’s Mini-Loan Guarantee Program is available only to businesses with fewer than 25 employees. Most state programs have eligibility requirements for the use of proceeds similar to the 7(a) program, under which proceeds can be used for most legitimate business activities involved in establishing new businesses and assisting in the operation, acquisition, or expansion of existing businesses. Like the 7(a) program, state programs generally prohibit the use of funds for real estate investment. One difference between the 7(a) program and similar state programs is that a few state programs allow businesses to use proceeds for debt refinancing. Under 7(a), refinancing is only permitted in limited cases: Businesses cannot use proceeds to refinance existing debt if the lender is in a position to sustain a loss and the SBA would take over that loss as a result of the refinancing (U.S. Small Business Administration, 2006). As shown in Appendix D, the Ohio Capital Access program allows refinancing, and the California Capital Access Program allows limited refinancing.

Industry Sector, Growth Stage, and Geographic Market The 7(a) program is open to most types of businesses, as is the case with state programs. The SBA program prohibits real estate investment firms and other speculative businesses; it also explicitly excludes dealers of rare coins, lending agencies, pyramid sales plans, and businesses involved in gambling or illegal activities. A few state programs have tighter industry restrictions. Some programs are targeted at technology while others exclude certain types of businesses. In New York, the Linked Deposit program excludes personal and professional services and includes only those retail businesses located in distressed areas. Some mercantile, commercial, and retail businesses are ineligible for Pennsylvania’s Small Business First program. Likewise, in Massachusetts, the Economic Stabilization Trust excludes real estate firms, as well as retailers, service firms, and restaurants. Texas’s Linked Deposit Program is open only to historically underutilized businesses, childcare providers, nonprofits, and businesses in state enterprise zones. Some states have restrictions on businesses engaged in activities considered

8 Under SBA standards, manufacturers must have 500 or fewer employees; wholesale trade businesses fewer than 100 employees; agricultural enterprises less than $750,000 in annual receipts; retail trade less than $6.5 million; constructions firms less than $31 million; travel agencies less than $3.5 million; and business and personal services less than $6.5 million, and, in some cases, $4.5 million.

Public Sector Duplication of SBA Loan and Investment Programs 36 socially undesirable. For example, the Pennsylvania Capital Access Program is not available to some businesses involved in alcohol sales or pregnancy termination or to private clubs, racetracks, or massage parlors. The Illinois Capital Access Program excludes manufacturers, retailers, and wholesalers of firearms, tobacco products, liquor, or sexually explicit materials. Like the 7(a) program, most state loan and loan guarantee programs are available to businesses at all growth stages. A handful of state programs bar start-up businesses from applying. These include New York’s Linked Deposit Programs, Pennsylvania’s Export Finance Programs, Ohio’s Capital Access and Mini-Loan Guarantee Programs, Massachusetts’ Economic Stabilization Trust, and Illinois’ Capital Access Program. For the most part, the state loan and loan guarantee programs are open to businesses throughout the state. There are a few exceptions, where the programs are targeted at businesses in distressed areas or designated areas, such as enterprise or empowerment zones. For example, New York’s Linked Deposit program targets businesses in empire zones and other distressed areas. Texas’s Linked Deposit Program is available to businesses in state enterprise zones (as well as to childcare providers and historically underutilized businesses). Pennsylvania’s Community Economic Development Loan Programs are designated for underserved or un-served areas. Two other potential sources of state funding for small businesses are Community Services Block Grant (CSBS) funds from HHS and Community Development Block Grant (CDBG) funds from HUD. Under HHS’s CSBS program, states distribute funds through a network of community action agencies and other neighborhood organizations (Catalog of Federal Domestic Assistance, 2007); it is likely some of these funds reach small businesses in the form of business loans, grants, or other investments. According to recent HUD data (U.S. Department of Housing and Urban Development 2006), some states allocate large portions of CDBG funds to direct economic aid to businesses, while other states allot a considerably smaller portion.9 In fact, in a study of the use of HUD funds during the second half of the 1990s, Walker et al. (2003) found that state and local governments spent approximately $2.2 billion on economic development loans, a substantial proportion of which went to small businesses. Among the ten study states, Pennsylvania and New Jersey spent the least of their CDBG funds on assistance to businesses of any size for the program year starting July 1, 2004,

9 The HUD data does not indicate how much of this assistance reaches small businesses, but it is safe to assume that a large proportion does, given that the goal of the assistance is community development. Aid to businesses with five or fewer employees is categorized as micro-enterprises assistance. Aid to all other businesses is categorized as direct financial assistance to for-profit businesses. Both types of assistance can take the form of loans, loan guarantees, or grants.

Public Sector Duplication of SBA Loan and Investment Programs 37 and ending June 30, 2005 (U.S. Department of Housing and Urban Development 2006). Pennsylvania spent none of its CDBG funds on direct financial assistance for businesses and practically none on microenterprise assistance. Allotting less than 0.1 percent of its CDBG funds, or $6,800 on direct financial aid to businesses, New Jersey spent the second smallest proportion of its CDBG funds on that purpose. It apportioned none of its funds to microenterprise assistance. This contrasts to New York, which spent 15 percent of its funds, or $6.4 million, on direct financial assistance to businesses and seven percent on microenterprise assistance. California spent 12 percent of its fund, or $7.7 million, on aid to businesses and four percent on aid to microenterprises. The remaining six study states spent between three and five percent of their funds on direct assistance to businesses. Of these, four allotted none of their funds specifically to microenterprises.

Local Duplication As with state programs, some potential duplication exists between the SBA’s 7(a) program and local loan and loan guarantee programs. Not surprisingly, SBA programs have higher loan and loan guarantee amounts and longer terms than local programs. Eligibility requirements also vary. Some programs are only available to businesses unable to access private capital, some are available to all small businesses, and some are available to businesses in certain market segments (e.g., minority-owned businesses, businesses in distressed areas, or those serving underserved populations). Size standards are similar for SBA and state programs, although a few cities have size standards considerably smaller than SBA standards. Standards for industry sector, geographic market, and growth stage are similar for SBA programs and local programs.

Loan Amount and Term The 7(a) program on the whole provides larger amounts of debt and longer repayment terms than local programs. Under the 7(a) program, the SBA guarantees a portion of a loan up to $1.5 million. Three local loan programs have maximum amounts similar to that maximum: the Grow Miami Fund has a $2 million limit, and both the New York City Capital Access Program and the Los Angeles County Business Loan Program have caps of $1 million. The remaining local programs have limits lower than SBA’s, with the maximum allowable amounts ranging from $100,000 to $750,000. Loan terms vary greatly among local programs, and these terms tend to be shorter than the maturities offered under SBA programs. Given that the SBA loan guarantees are often larger than local loans or loan guarantees, this is not surprising. The 7(a) program has a maximum term of up to 20 years. In many cases, local loan and loan guarantee programs do not specify a term; rather they let the lender set the terms. A few local programs have terms of

Public Sector Duplication of SBA Loan and Investment Programs 38 length comparable to SBA terms. For example, Cleveland’s Small Business Revolving Loan Program has a term up to 20 years for loans financing the renovation of existing facilities or new construction. More often than not, however, terms set by localities do not exceed ten years.

Eligible Businesses and Uses Some city programs are open only to small businesses that are unable to access private credit, while others are open to all small businesses. As shown in Table 6, seven cities have loan or loan guarantee programs for small businesses that are able to meet the requirements of private lenders, and four cities have programs targeting businesses unable to obtain private credit. Two study cities, New York and Miami, have loan or loan guarantee programs only for small businesses unable to access private credit, but have no similar programs for businesses that meet conventional lender standards. Two cities—Los Angeles and San Diego—have loan or loan guarantee programs for both small businesses able to meet private lending requirements and those that cannot. Four cities—Philadelphia, Cleveland, Boston, and Chicago—offer loan or loan guarantees only to small businesses that meet the requirements of conventional lenders. That cities are somewhat less likely to offer programs for less creditworthy businesses may be explained by the financial restraints they face; they may have limited budgets or be under legislative mandate to balance their budgets. Most local programs use SBA size standards to define what can be considered a small business. Some state and local programs have other eligibility criteria. For example, in Philadelphia, the Public Housing Authority MicroLoan Fund provides loans only to small businesses run by public housing residents. Most local programs have eligibility requirements for the use of proceeds similar to the 7(a) program, under which proceeds can be used for most legitimate business activities involved in establishing new businesses and assisting in the operation, acquisition, or expansion of an existing business. Like the 7(a), local programs generally prohibit the use of funds for real estate investment. As discussed above, the 7(a) program only allows for limited refinancing. Most local programs also have such restrictions, if they allow refinancing at all. One exception is the Southern Dallas Development Fund, which permit proceeds to be used for refinancing.

Industry Sector, Growth Stage, and Geographic Market The 7(a) program is open to most types of businesses, as is the case with local programs. The SBA programs prohibit real estate investment firms and other speculative businesses. The 7(a) program also explicitly excludes dealers of rare coins, lending agencies, pyramid sales plans, and businesses involved in gambling or illegal activities. Only one local program, the Los

Public Sector Duplication of SBA Loan and Investment Programs 39

Angeles Technology Loan Fund (which targets technology firms), has restrictions on the types of businesses eligible. Like the 7(a) program, most local loan and loan guarantee programs are available to businesses at all growth stages. A few local programs specifically target start-ups or early stage businesses. As shown in Appendix D, these include two San Diego programs, the Metro Revolving Loan Fund and the San Diego Technology Fund. Some local programs bar start-up businesses from applying. These include Cleveland’s Small Business Revolving Loan Program, Boston’s Back Streets Backup Loan Program, and two Dallas programs, the Community Development Business Loan program and the Southern Dallas Development Fund. For the most part, the local programs are available to all small businesses in a city. There are a few exceptions, where the programs are targeted at businesses in distressed areas or designated areas, such as enterprise or empowerment zones. For example, San Diego’s Revolving Loan Program is available only for businesses in certain census tracts. Two Dallas programs restrict eligible businesses to Southern Dallas and city enterprise zones, and two Miami programs exclude all businesses except those in community redevelopment districts or empowerment zones.

504/CDC Loan Program As discussed above, some overlap exists between the SBA’s 7(a) and 504 programs. Beyond this, relatively little explicit duplication exists for the 504 program. Only five programs at the federal, state, and local levels provide loans or loan guarantees for real estate purposes were identified. These include three state program, one in Ohio and two in Maine, and two local programs, in Cleveland and Chicago. As discussed above, most of the general-purpose loan and loan guarantees programs include real estate as a legitimate use. Therefore, some overlap exists among the 504 program and federal, state, and local programs that provide real estate loans and loan guarantees in addition to aid for other purposes.

Federal Duplication: Duplication between SBA’s 7(a) and 504 Programs As is discussed extensively above in the section on federal duplication of the 7(a) program, SBA administrative data suggests that there is some overlap between the 7(a) and 504 programs. As shown in Table 7, 17 percent of firms receiving only 7(a) loans from 1997 to 2005 used those loans for real estate purposes. The volume of those loans amounted to nearly half, or 44 percent, of the total volume borrowed by firms receiving only 7(a) loans. In addition, an analysis of the business characteristics of firms receiving only 504 loans, only 7(a) loans, and both indicates that there are not great differences among the firms receiving the different loan types.

Public Sector Duplication of SBA Loan and Investment Programs 40

Federal Duplication: Duplication with Other Federal Programs As with the 7(a) program, the federal agency with the greatest amount of overlap with the SBA’s four major programs is the USDA. As mentioned above in the section on 7(a) federal duplication, a relatively small proportion of 504 and 7(a) loans appear to go to rural businesses, so overlap may be limited. Nevertheless, rural businesses can avail themselves of both SBA’s loan programs and several offered by the USDA. Its FSA loans and loan guarantees are available for real estate purposes (in addition to other purposes). Loan maximums are lower under the FSA program. Loan guarantees for land and equipment are capped at $850,000 under the FSA program, compared to $1.5 million for businesses other than small manufacturers and $4 million for small manufacturers under the 504 program. Direct loans under the FSA program for land and equipment are capped at $200,000. Interest rates for FSA loans are variable; whereas under the 504 program, rates are fixed. They are pegged to an increment above the current market rate for five- and ten-year U.S. Treasury issues. Program fees are approximately three percent, and can be financed with the loan (U.S. Small Business Administration 2006). The USDA has several other financial assistance programs that do not explicitly target small businesses, but likely benefit them significantly. As discussed above, these programs may potentially duplicate the 7(a) program, and because one of the uses of these programs is real estate purposes, they may also duplicate the 504 program. The Intermediary Relending Program lends money to nonprofits, state or local governments, and Indian tribes in order for them to relend the funds to private businesses, nonprofit organizations, or individuals for business development or community development in rural areas. Both the intermediaries and the ultimate recipients must have been unable to obtain a loan at reasonable rates from a bank or other government program, and the ultimate recipients have to be located in a city with a population smaller than 25,000. As shown in Appendix C, the loans can range from $150,000 to $1 million. Because emerging or small enterprises may have difficulty obtaining private credit— and because the enterprises located in rural areas are likely to be small, this program may duplicate the 504 program to some extent. The Business and Industry Loans program is a loan guarantee program that is also available to rural businesses of all sizes, although it gives no preference to small businesses or to businesses with difficulty obtaining private credit. It provides large loans, up to $25 million, that can be used, among other purposes, for fixed assets including equipment and machinery and for the acquisition or development of land. The Rural Business Enterprise Grants program provides grants of $2,000 to $500,000 to public entities and nonprofits organizations serving rural areas with the goal of improving development of small and emerging businesses and industries. The program defines eligible businesses as those with 50 or fewer employees and

Public Sector Duplication of SBA Loan and Investment Programs 41 less than $1 million in project gross revenue. One of the several uses permitted under the program is the establishment of revolving loan funds. Although a different vehicle than the loan guarantee of the 504 program, this program could potentially duplicate SBA’s program by providing aid that is used for real estate. The Rural Economic Development Loans and Grants program provides loans and grants to rural electric and telephone utilities, both public and private, that use the funds to establish revolving loan funds for projects that promote rural economic development and job creation. Recipients can include small rural businesses, and projects can include fixed asset projects such as construction and other physical improvements. In fiscal year 2007, the grants were capped at $300,000 (U.S. Department of Agriculture 2007a). Lastly, the Empowerment Zone and Enterprise Community Program provides ten-year grants to high-poverty rural communities that may be used to fund fixed asset projects for small businesses. The first round of grants was phased out in 2005, so assistance is only available to businesses in the 27 areas that received grants in the last two rounds (U.S. Department of Agriculture 2007b; Catalog of Federal Domestic Assistance 2007). Several federal agencies fund grant programs that go to states, counties, other public entities, and nonprofits. One of the many uses of these programs is the establishment of revolving loan programs that may benefit small businesses—and that may be used for fixed asset projects. These programs include the Appalachian Regional Commission’s Area Development Program, the Department of Commerce’s Economic Adjustment Assistance program, the Environmental Protection Agency’s Capitalization for Clean Water State Revolving Funds and Capitalization for Drinking Water State Revolving Funds programs, and HHS’s Native American Programs. These programs also include three programs run by the Department of Transportation: the Airport Improvement Program, which specifies as one of its purposes the construction and rehabilitation of public-use airports; the Federal Transit/Capital Investments Grants program, which finances the construction and improvement of public transportation facilities and equipment; and the Formula Grants for Other Than Urbanized Areas Program. As the program names suggest, most of these federal grants programs are targeted at specific industries. If funds reach small businesses in the form of revolving loans, the number and type of businesses are very limited compared to the businesses served by SBA’s 504 program. An exception is the Department of Commerce’s Economic Adjustment Assistance program, which provides grants to states, cities, and counties, among other entities, that may establish loan funds that benefit small businesses in distressed communities experiencing negative economic changes.

Public Sector Duplication of SBA Loan and Investment Programs 42

State Duplication Little potential duplication of the 504 program appears to exist at the state level. Three states have programs that only allow for investment in fixed assets: Ohio’s MiniLoan Guarantee Program, Pennsylvania’s Pollution Prevention Assistance Account, and two Maine programs. Ohio’s program provides much smaller amounts of real estate capital than the 504 program, and is only available to businesses with fewer than 25 employees that have been unable to obtain private loans. Under Ohio’s program, businesses can use proceeds for fixed asset expansion costing less than $100,000. Loan amounts do not exceed $45,000, and loan terms are up to 10 years. Pennsylvania’s program is even more restrictive than the 504 program, providing loans to businesses with fewer than 100 employees to help fund the installation of pollution-control or energy-efficient equipment. In Maine, one fixed-asset loan program provides funding for site improvements for licensed day care centers of up to $100,000, while the other provides up to $250,000 to farmers, food processors, and aquaculture operations. However, most of the state programs resembling the 7(a) program, discussed in the preceding section, include as legitimate uses the financing of fixed assets, real estate, and real estate improvements. There are a few exceptions: California’s CalCAP loan guarantee program has some restrictions on real estate loans, Pennsylvania’s Export Finance Program can only be used for working capital or accounts receivable, and Massachusetts’ Economic Stabilization Fund is only for working capital. All other general-purpose loan or loan guarantee programs can be used for fixed asset financing. Therefore, although these general-purpose loan and loan guarantee programs do not exactly duplicate the 504 program—and more closely resemble the 7(a) program—they do overlap with the 504 program.

Local Duplication Two cities, Cleveland and Chicago, have programs that exclusively finance fixed assets. Cleveland’s Small Business Revolving Loan Fund provides loans of up to $500,000 to small businesses for the acquisition of fixed assets, new construction, or the renovation of existing buildings. The terms of the loans are 7 to 10 years for machinery or equipment and 20 years for real estate. Though the terms are similar to those under the 504 program, the maximum amount allowable is considerably smaller. Chicago’s MicroLoan Program also provides smaller amounts for fixed assets to small businesses, specifically those with projects supporting community or neighborhood development or providing job opportunities. As is the case with the state programs resembling the 7(a) program, most of the city-run, general-purpose loan and loan guarantee programs discussed in the preceding section overlap with the 504 program. Almost all of these city programs include as legitimate uses the financing of fixed assets, real estate, and real estate improvements. There are a few exceptions: San

Public Sector Duplication of SBA Loan and Investment Programs 43

Diego Technology Fund can only be used for working capital, and Miami’s Empowerment Zone Revolving Loan Program can be used for most general business purposes except real estate. All other general-purpose loan or loan guarantee programs can be used for fixed asset financing. Therefore, although these general-purpose loan and loan guarantee programs do not exactly duplicate the 504 program—and more closely resemble the 7(a) program—they may overlap with the 504 program.

MicroLoan Program There appear to be few federal, state, or local government agencies that directly run microloan programs. Only a few of the study states and cities have government programs that provide small businesses with small loans. However, almost all of the 12 states have microloan programs run by nonprofit organizations that receive a majority of their funding from government contributions. It appears that many states rely on local and national nonprofit organizations—in addition to the SBA—to provide businesses with small loans. New York City’s Economic Development Fund directs women-owned businesses to the Women’s Venture Fund, a nonprofit group that provides microloans to women who do not qualify for credit with conventional lenders. Like most nonprofit lenders, this organization receives some funding from government sources, but this funding does not constitute a majority of its revenue. ACCION USA, an arm of the international microlending organization ACCION International, also may be meeting the need for small loans in certain markets. It is active in New England, Texas, New Mexico, New York City, Chicago, Miami, Atlanta, and San Diego. The apparent dearth of public microloan programs may also be explained in part by the fact that businesses seeking smaller loans can apply to the state and local loan and loan guarantee programs described above.

Federal Duplication The Rural Business Enterprise Grants program provides grants of $2,000 to $500,000 to public entities and nonprofits organizations serving rural areas with the goal of improving development of small and emerging businesses and industries. The program defines eligible businesses as those with 50 or fewer employees and less than $1 million in project gross revenue. One of the several uses permitted under the program is the establishment of revolving loan funds. The funds may provide large loans or microloans, making this the one federal program that potentially duplicates the SBA’s MicroLoan Program.

Public Sector Duplication of SBA Loan and Investment Programs 44

State and Local Duplication There is less duplication at the state and local levels of the SBA’s microloan programs than of its 7(a) or 504 programs. This research found only four state or local government program in the 12 study states and 12 study cities. The research also analyzed microloan programs offered through nonprofit organizations receiving 50 percent or more of their annual revenue from government sources—i.e., programs that might be considered “public”—but found only 16 such programs in the 12 study states. The absence of state microloan programs may also be explained in part by the fact that businesses seeking smaller loans can apply to the state loan and loan guarantee programs. Among the 12 study states, only Florida runs a microloan program. As shown in Appendix D, Florida’s program lends small businesses unable to access private loans up to $15,000. This compares to the $35,000 limit under SBA’s MicroLoan Program. Three of the study cities—Philadelphia, Boston, and Chicago—have microloan programs. Philadelphia’s program, offered through the Public Housing Authority, is only available to businesses run by public housing residents. These businesses can borrow between $5,000 and $25,000. Chicago’s program is open to small businesses with projects supporting community or neighborhood development or providing job opportunities. Boston businesses can obtain microloans through the Back Streets programs, although they can also receive larger loans, up to $250,000. The loan term under the SBA loan program is up to six years, although loan terms vary according to the size of the loan, planned use of the funds, requirements of the intermediary lender, and needs of the business. The state and local programs also have variable loan terms and, like the SBA, variable interest rates. Another source of “public” microloans is microenterprise programs run by nonprofit organizations that receive most of their funding from government contributions. According to the Aspen Institute’s 2005 Online Directory of Microenterprise Programs, there were over 500 microenterprise programs in the U.S. in 2005. Some of these provide loans and technical assistance, while others provide only technical assistance. A review of the 252 microenterprise programs in the12 study states found that 20 offer loans and can be considered “public.” These 20 microloan programs received 50 percent or more of their total revenue from government grants or contracts, as reported in the most recent 990 IRS tax form published on GuideStar, an on-line service that gathers data on nonprofit organizations with income of greater than $25,000. Illinois, North Dakota, and Texas had no nonprofit microenterprise programs that fall under this description. As shown in Appendix F, all but one of the programs—Maine’s Coastal Enterprises—are not available to small businesses statewide but rather are targeted to businesses in certain cities or counties.

Public Sector Duplication of SBA Loan and Investment Programs 45

Table 15: Nonprofit Microenterprise Programs State Total Number of Nonprofit Number of “Public” Microenterprise Programs Programs Providing Loans California 59 3 Florida 12 2 Illinois 13 0 Maine 16 2 Massachusetts 25 1 Michigan 16 2 New Jersey 14 2 New York 48 4 North Dakota 2 0 Ohio 14 1 Pennsylvania 19 3 Texas 15 0 Total 252 20 Source: Aspen Institute (2006) and Philanthropic Research, Inc. (2006) Note: Programs are considered “public” if 50 percent or more of their total revenues came from government grants or contracts, as reported on the most recent (2004 or 2005) 990 IRS form available on guidestar.org. Organizations that serve as SBA MicroLoan intermediaries were not included.

SBIC Program SBICs and community development venture funds recognize that small and disadvantaged businesses in low- and moderate-income areas are often underserved by private venture capital. States also have recognized the need for investment in such businesses and have established public programs to improve the availability of venture capital to businesses in underserved geographic areas or industries. These public efforts vary in their degree of state involvement; they range from publicly funded and publicly run venture capital funds to state- sponsored venture capital fairs meant to facilitate interaction between investors and local entrepreneurs or businesses (Barkely et al. 1999). There appears to be more duplication of the SBIC program than of the 504 and MicroLoan programs and somewhat less than of the 7(a) programs. Only one federal program provides funding to small business investment firms, while 29 programs in all 12 of the study states have such programs. Like private market venture capital loan funds, state venture capital programs focus heavily on technology, science, and healthcare, overlooking traditional “low-

Public Sector Duplication of SBA Loan and Investment Programs 46 tech” firms. By contrast, SBIC investments are more diverse. None of the study cities appears to have city-run or city-funded programs similar to the SBIC program.

Federal Duplication The SBIC program appears to have little duplication among federal programs. One source of potential overlap is the Treasury Department’s Community Development Financial Institutions (CDFI) Program. The program is designed to build the capacity of CDFIs, nonprofit organizations or for profit entities that serve low-income people and communities lacking adequate access to affordable financial products and services. Under the program, the Treasury Department provides financial assistance to the CDFIs in the form of equity investments, loans, deposits, or grants for the purpose of economic revitalization and community development (U.S. Treasury Department, 2006). CDFIs can use this financial assistance for job creation, business development, commercial real estate development, affordable housing, and community development financial services (provision of basic banking services to underserved communities and financial literacy training). The program requires a dollar-for-dollar match by the CDFI with funds of the same kind from a non-federal source. Another source of federal venture capital is the USDA’s Rural Business Investment Program, a program that has been developed with SBA’s aid. The USDA licenses Rural Business Investment Companies (RBICs) and provides them with debenture guarantees to make equity capital investments in business enterprises. At least half of the investments— measured both in volume and dollars—must be in “smaller enterprises,” those with a maximum net worth of $6 million and net income of $2 million in the two years preceding the RBIC investment (U.S. Department of Agriculture 2007c). At least 75 percent of an RBIC’s investments must be in enterprises whose principal office is located in a rural area. Potential overlap exists with the SBIC program in cases where the RBIC program funds small businesses in either rural or urban areas.

State and Local Duplication States have also recognized the need for investment in such businesses and have established public programs to improve the availability of venture capital to businesses in underserved geographic areas or industries. These public efforts vary in their degree of state involvement; they range from publicly funded and publicly run venture capital funds to state-sponsored venture capital fairs meant to facilitate interaction between investors and local entrepreneurs or businesses (Barkely et al. 1999). All 12 study states had venture capital funds funded with public dollars in 2005 (National Association of Seed and Venture Funds 2006). Among the 30 programs in these 12 states, 15

Public Sector Duplication of SBA Loan and Investment Programs 47 were publicly managed and 15 were privately managed. Both types of funds potentially duplicate SBIC investment, although the structure of the latter type is more similar to the SBIC program. The greatest difference between the state venture capital funds and SBIC funds appears to be that state funds are directed largely to the technology sector. Of the 29 state programs detailed in the NASVF survey (one of the 30 programs was not listed in the survey), 21 programs, or 72 percent, exclusively targeted the technology, science, or healthcare sectors. The remaining 9 programs targeted technology in addition to other sections. Compared to programs targeting the tech and healthcare sector, the state venture capital programs with diverse investments had a relatively low investment volume. A total of approximately $254 million was under management for the firms with diverse investments, compared to roughly $1.7 billion for funds targeting the hi-tech and healthcare sectors. In contrast, the debenture SBIC program’s investments are more diverse. Among SBIC investments between 1997 and 2005, approximately 26 percent of total investment volume and 17 percent of investment numbers went toward information, science, and other high-tech areas and 5 percent of investment volume and 3 percent of investment numbers went toward the educational, health care, and social assistance sector (see Competitive and Special Competitive Opportunity Gap Analysis of the Debenture Small Business Investment Company Program, Final Report).

CONCLUSION Our research suggests that some overlap exists between SBA’s 504 and 7(a) programs and that a small degree of duplication exists between SBA programs and similar programs run by other federal agencies. The USDA’s Farm Loan Program appears to be the greatest potential source of overlap, although SBA administrative data suggests that a relatively small portion of SBA loans go to agricultural businesses and other rural businesses. Other USDA programs provide services similar to SBA loan programs, as do the Treasury, Interior, and Transportation Departments. These programs do not exactly replicate the SBA programs, but they provide similar types of assistance to small businesses (although they may also provide these services to larger businesses as well). Several federal economic development grant programs are available to states and cities, which may choose to use the funds to establish revolving loan funds for small businesses. The USDA’s Rural Business Investment Program potentially overlaps to some extent with SBA’s SBIC program for small businesses both in rural and urban areas. A greater degree of potential duplication exists at the state and local levels. This duplication exists for the most part among federal, state, and local general-purpose loan and loan guarantee programs that resemble the SBA’s 7(a) program. There are fewer state and local loan and loan guarantee programs that resemble the 504 program, which provides loans exclusively for fixed assets. Few states and localities run microloan programs. Most of the

Public Sector Duplication of SBA Loan and Investment Programs 48 states in this study have publicly funded venture capital funds, although these programs may differ from SBA’s program by the types of businesses they target or the amounts of money they offer. The extent of similarities among federal, state, and local loan programs varies by state and program. SBA programs have higher maximum loan and loan guarantee amounts and longer terms than local programs. This means that there is less duplication among businesses seeking bigger loans. For example, the Pennsylvania Capital Access Program provides loan guarantees up to $500,000 to small businesses unable to obtain private loans. The state program appears to duplicate the SBA’s 7(a) program for businesses seeking a guarantee up to $500,000. Beyond that, SBA is providing a service that the state program is not. Size standards are similar for SBA and state and local programs, although a few states and localities have size standards considerably smaller than SBA standards. In these states, duplication exists for very small businesses more than for larger small businesses. Standards for industry sector are also on the whole similar across the board—most programs are open to most types of industry. There are a few exceptions: some states exclude retail or mercantile businesses from their major loan or loan guarantee programs, such as Capital Access or Linked Deposit programs, while others exclude certain industries engaged in activities considered socially undesirable. Geographic market and growth stage are similar for SBA programs and state and local programs. Again, there are a few exceptions. Some state and city programs target distressed areas or designated areas like empowerment zones, and many prohibit start- up businesses from participating. There are few microloan programs provided by federal agencies other than the SBA or by the study states or cities. The growing private microenterprise industry, including established organizations like ACCION USA, may complement SBA’s MicroLoan program. The duplication that does exist among loan and loan guarantee programs may reduce efficiency. Less duplication might simplify the process for applicant businesses and for lenders helping businesses determine which programs they are eligible for. The overall cost of administration might be reduced if similar programs were offered through fewer levels of government. However, some duplication is inevitable, and multiple access points might reach a broader range of businesses. Finally, for political reasons, states and localities may want their own financial assistance programs so that they are seen as supporting small business.

Public Sector Duplication of SBA Loan and Investment Programs 49

REFERENCES Barkley, David L, Deborah M. Markley, Julia Sass Rubin. 1999. “Public Involvement in Venture Capital Funds: Lessons from Three Program Alternatives.” Columbia, MO: Rural Policy Research Institute. California State Treasurer’s Office. 2006. “California Pollution Control Financing Authority: California Capital Access Program.” Accessed on-line at www.treasurer.ca.gov/cpfa/calcap.htm on April 18, 2006. Catalog of Federal Domestic Assistance. 2006. “70.002 Foreign Investment Financing.” Accessed on-line at http://12.46.245.173/pls/portal30/CATALOG.FIND_ASSISTANCE_ PROGRAM_DYN.show on April 4, 2006. Chicago-Cook Business Assistance Center. 2006. Business Assistance DataBank. Accessed on-line at www.chicago-cook.org/badhome.asp on May 15, 2006. City of Boston. 2006. “Back Streets Toolbox: Loan Programs.” Accessed on-line at www.cityofboston.gov/bra/backstreets/toolbox/loan_programs.asp on May 15, 2006. City of Cleveland. 2006. “Economic Development: Small Business Revolving Loan Program.” Accessed on-line at www.city.cleveland.oh.us/government/departments/econdev/edsbrlprog. html on May 11, 2006. City of Dallas. 2006. “Financing Resources.” Accessed on-line at www.dallascityhall. Com/html/loan-financing.html on May 11, 2006. City of Houston. 2006. Getting Started Packet. Accessed on-line at www.houstontx.gov /onestop/index.html on May 11, 2006. City of Miami. 2006a. “Community Redevelopment Agency: Grow Miami Fund.” Accessed on- line at ci.Miami.fl.us/cra/gmf.htm on May 11, 2006. City of Miami. 2006b. “Department of Economic Development: Business Incentives, Empowerment Zones.” Accessed on-line at www.ci.miami.fl.us/economicdevelopment/ pages/BusinessIncentives/EmpowermentZone.asp on May 11, 2006. City of San Diego. 2006. Business Finance Program Guide. Accessed on-line at www.sandiego.gov/economic-development/business-assistance/finance on May 11, 2006. Commonwealth Corporation. 2006. “Economic Stabilization Trust.” Accessed on-line at www.commcorp.org/trust/index.html on April 27, 2006.

Public Sector Duplication of SBA Loan and Investment Programs 50

Empire State Development. 2006. “Small and Growing Businesses.” Accessed on-line at www. http://www.nylovesbiz.com/Small_and_Growing_Businesses/default.asp on April 17, 2006. Enterprise Florida, Inc. 2006a. “Small and Minority Business Programs.” Accessed on-line at www.elforida.com/smallbusiness/assistance.asp?level1=4&level2=32 on April 18, 2006. Enterprise Florida, Inc. 2006b. “Loan Programs.” Accessed on-line at www.eflorida.com/smallbusiness/assistance.asp?level1=4&level2=29 on April 18, 2006. Illinois Department of Commerce and Economic Opportunity. 2006. “Loan Programs.” Accessed at www.commerce.state.il.us/dceo/Bureaus/Business_Development/ Loan+Programs/ on May 1, 2006. Illinois State Treasurer's Office. 2006. “State Treasurer’s Economic Program (STEP) Small Business: Investing in Illinois’ Future.” Accessed on-line at www.state.il.us/treas/Programs/step_SB.htm on May 1, 2006. Jersey City Economic Development Corporation. 2006. “Business Loan Programs.” Accessed on-line at www.jcedc.org/new/businessloanprograms.html on May 15, 2006. Key, Peter. 2004. “VC Fund Closes on $86M,” Philadelphia Business Journal, November 8. Los Angeles County. 2006. “Economic Development: Business Loan Programs.” Accessed on- line at www.lacdc.org/economic/business/index.shtm on May 19, 2006. Michigan Economic Development Agency. 2006. The Capital Access Program. Accessed on- line at http://www.michigan.org/medc/cm/attach/0003005A-7A12-42C3-BE1C- 044EF1E000EA/CAP.pdf on June 8, 2006. Michigan 21st Century Investment 2006. “About the 21st Century Fund.” Accessed on-line at Fundhttp://www.michigan21stcenturyinvestmentfund.com/faq.htm on January 3, 2007. National Association of Seed and Venture Funds 2006. State Venture Capital Program Directory. Accessed on-line at http://www.nasvf.org/web/nasvfinf.nsf/pages/svcp.html New Jersey Economic Development Agency. 2006. “Entrepreneurial Services.” Accessed on- line at www.njeda.com/entrepreneurialservices.asp on May 1, 2006. New Jersey Economic Development Agency. 2004. Annual Report 2004. Trenton: New Jersey Economic Development Agency. New York City Economic Development Corporation. 2006. “New York City Capital Access.” Accessed on-line at www.newyorkbiz.com/Business_Incentives/Financing/ index.html on April 18, 2006.

Public Sector Duplication of SBA Loan and Investment Programs 51

Office of Management and Budget. 2005. Small Business Administration PART Assessments. Washington, D.C. Executive Office of the President, Office of Management and Budget. Ohio Department of Development. 2006a. “Ohio Capital Access Program.” Accessed on-line at www.odod.state.oh.us/cap/ on April 20, 2006. Ohio Department of Development. 2006b. “Ohio Mini Loan Guarantee Program.” Accessed on- line at www.odod.state.oh.us/DMBA/MiniLoan.htm on April 20, 2006. Ohio State Treasurer’s Office. 2006. “Small Business Linked Deposit.” Accessed on-line at www.treasurer.state.oh.us/the_ohio_treasury/treasury_program s/linked_deposit_programs/small_business/index.htm on May 22, 2006. Pennsylvania Department of Community and Economic Development. 2005. Business Financing Programs. Accessed on-line at www.newpa.com/default.aspx?id=24 on April 17, 2006. Philadelphia Commercial Development Corporation. 2006. “Small Business Lending Programs.” Accessed on-line at www.philadelphiacommercial.org//pcdc/home.htm on May 16, 2006. Rural Policy Research Institute. 2000. State-Assisted Venture Capital Programs, 2000. Accessed on-line at www.rupri.org/publications on April 3, 2006. State of California. 2006. “Financial Assistance: Small Business.” Accessed on-line at www.commerce.ca.gov/state/ttca/ttca_navigation.jsp?path=Financial+Assistance on April 17, 2006. State of New York. 1999. Empire State Development: New York State Science and Technology Foundation Program Oversight and Governance. Accessed on-line at www.nysosc3.osc.state.ny.us/audits/allaudits/093000/99s3.pdf on May 9, 2006. State of Texas. 2006. “Economic Development Bank.” Accessed on-line at http://www.governor.state.tx.us/divisions/ecodev/ed_bank/ on April 18, 2006. U.S. Department of Agriculture. 2007a. “Rural Economic Development Loans and Grants.” Accessed on-line at http://www.rurdev.usda.gov/rbs/busp/redlg.htm on May 10, 2007. U.S. Department of Agriculture. 2007b. “Information About Rural EZ/EC Communties.” Accessed on-line at http://www.ezec.gov/communit/index.html on May 10, 2007. U.S. Department of Agriculture. 2007c. “Fact Sheet: Rural Business Investment Program.” Accessed on-line at http://www.rurdev.usda.gov/rd/farmbill/2002/RBIPFactSheet.pdf on April 27, 2007. U.S. Department of Agriculture. 2006. “Farm Loan Programs.” Accessed on-line at www.fsa.usda.gov/dafl/default.htm on April 3, 2006.

Public Sector Duplication of SBA Loan and Investment Programs 52

U.S. Department of Housing and Urban Development. 2006. “Grantee Use of CDBG Funds by Matrix Code.” Accessed on-line at http://www.hud.gov/offices/cpd/ communitydevelopment/budget/disbursementreports/ on May 11, 2006. U.S. Environmental Protection Agency. 2007. “The Drinking Water State Revolving Fund: Protecting the Public Through Drinking Water Infrastructure Improvements. Accessed on-line on at www.epa.gov/safewater/dwsrf/index.html on April 23, 2007. U.S. Small Business Administration. 2006a. “Financing: the Basics.” Accessed on-line at www.sba.gov/financing/index.html on March 23, 2006. U.S. Small Business Administration. 2006b. U.S. Small Business Administration Standard Operating Procedure. Accessed on-line in June 2006. U.S. Small Business Administration. 2006c. “7(a) Loans: Standard, PLP, Community Express and Low Doc.” Washington, D.C.: U.S. Small Business Administration. U.S. Small Business Administration. 2006d. “7(a) Loans: Standard, PLP, Community Express and Low Doc.” Washington, D.C.: U.S. Small Business Administration. U.S. Small Business Administration. 2004. FY2005 Congressional Budget Request. Accessed on-line at www.wipp.org/Press/20040307_budget.doc. U.S. Treasury Department. 2006. “Community Development Financial Institutions Funds.” Accessed on-line at www.cdfifund.gov/what_we_do/programs_id.asp?programID=7 on April 4, 2006. Walker, Christopher, Martin Abravanel, Patrick Boxall, Roger Kormendi, Kenneth Temkin, and Marsha Tonkovich. 2003. Public Sector Loans to Private-Sector Businesses: An Assessment of HUD-Supported Local Economic Development Lending Activities. Washington, DC: US Department of Housing and Urban Development.

APPENDIX A:

NUMBER OF PROGRAMS POTENTIALLY DUPLICATING SBA's 7(a), 504, MICROLOAN, OR DEBENTURE SBIC PROGRAMS

Appendix A Number of Programs Potentially Duplicating SBA's 7(a), 504, MicroLoan, or SBIC Programs

Loan/Loan Micro- Venture Guarantee Loan Capital Total Federal Agency Agriculture Department 4 0 0 4 Interior Department 1 0 0 1 Small Business Administration 2 114 Transportation Department 1 0 0 1 Treasury Department 0 0 1 1 State or City California 2 013 Los Angeles 20 2 San Diego 30 3 Texas 2 013 Houston 00 0 Dallas 20 2 New York 1 023 New York City 10 1 Florida 0 134 Miami 20 2 Pennsylvania 50611 Philadelphia 11 2 Ohio 3 036 Cleveland 10 1 Massachusetts 1 012 Boston 11 2 New Jersey 2 024 Jersey City 00 0 Illinois 70411 Chicago 11 2 Michigan 1 023 Detroit 00 0 Maine 6 039 North Dakota 1 023 Total 53 5 32 90

APPENDIX B:

SBA PROGRAMS

Appendix B SBA Programs

Program Type of Eligible Eligible Uses Industry Sector Geographic Growth Amount Term Source Aid Businesses Market Stage Section 7(a) Loan Small Establishing new Most. Not eligible: real All All Up to $1 million Up to 20 U.S. Small Loan guarantee businesses businesses. estate investment years Business Guarantee unable to Assisting in the firms, other Administration Program obtain funding operation, speculative (2006a) elsewhere acquisition, or businesses, dealers expansition of an of rare coins and existing stamps, lending business. agencies, pyramid sales plans, illegal activities, gambling activities.

504 Loan Loan Small Improving major Most All Existing Up to $1.5 10 or 20 U.S. Small Program businesses fixed assets (e.g. million when years Business land and goal is job Administration buildings). Not creation or (2006a) for working community capital or development, up inventory, to $2 million for consolidating, public policy repaying or goals, up to $4 refinancing debt million for small manufacturers

MicroLoan Micro-loan Small Establishing new Most All All Up to $35,000 Up to 6 U.S. Small businesses businesses. years Business Assisting in the Administration operation, (2006a) acquisition, or expansition of an existing business. Program Type of Eligible Eligible Uses Industry Sector Geographic Growth Amount Term Source Aid Businesses Market Stage Small Venture Small business Investing in small Not new markets All SBICs Up to three N/A U.S. Small Business capital investment businesses investing in times equity Business Investment companies later stage raised by SBIC Administration Company providing later small busi- (2006a) (SBIC) stage capital to nesses Debenture cash-flow Program positive or nearly cash- flow positive companies

APPENDIX C:

FEDERAL FINANCIAL AID PROGRAMS

Appendix C Federal Financial Aid Programs

Agency Program Type of Aid Eligible Businesses Eligible Uses Industry Geographic Growth Amount Term Source Sector Market Stage Agriculture Farm Loan Loan Family-size farmers Purchasing land, Farming, Rural All Up to Up to 40 years U.S. Program: Farm and ranchers livestock, and ranching $200,000 for ownership Department of Ownership and equipment; loans, 1 to 7 Agriculture Farm Operating construction and years for (2006a) Loans other physical operating loans improvements; limited refinancing

Farm Loan Loan Family-size farmers Purchasing land, Farming, Rural All Up to Up to 40 years Catalog of Program: Farm guarantee and ranchers livestock, and ranching $852,000 for ownership Federal Ownership and equipment; loans, 1 to 7 Domestic Farm Operating construction and years for Assistance Loans other physical operating loans (2006) improvements; debt refinancing

Intermediary Loan Intermediaries Intermediary Rural Ultimate No Up to $2 Up to 30 years Catalog of Relending relending proceeds to relending. No businesses recipients restrictions million to Federal Program businesses or restrictions stated for outside of city stated intermedia- Domestic community ultimate recipients. with population ries, up to Assistance development entities. of 25,000 or $250,000 to (2006) Intermediaries and more ultimate ultimate recipients must recipients be unable to obtain loans at reasonable rates through commercial credit or other government programs. Agency Program Type of Aid Eligible Businesses Eligible Uses Industry Geographic Growth Amount Term Source Sector Market Stage

Agriculture, Business and Loan Rural businesses Modernization, Rural Rural All Up to $25 Up to 30 years Catalog of cont.'d Industry Loans guarantee development costs, businesses million for land and Federal purchasing and buildings, up to Domestic developing land, 15 years for Assistance purchasing equipment and (2006) equipment and machinery, up machinery, and to 7 years for agricultural working capital production

Rural Business Grant Public bodies and One of many uses is Rural Rural area All $2,000 to N/A Catalog of Enterprise nonprofit corporations establishment of businesses defined as $500,000 Federal Grants serving rural areas. revolving loan fund city, town, or Domestic Grants are meant to unincorparated Assistance facilitate development area with (2006) of small and emerging population of business, industry. 50,000 or less

Treasury Community Grant CDFIs able to Provision of loans or No restrictions No restrictions No $50,000 to N/A Catalog of Development demonstrate they have development stated stated restrictions $2 million Federal Financial capacity to provide investment in private stated Domestic Institutions financial products that businesses and Assistance Fund positively impact their nonprofit (2006) communities, use and organizations leverage CDFI funds effectively Agency Program Type of Aid Eligible Businesses Eligible Uses Industry Geographic Growth Amount Term Source Sector Market Stage Treasury, Bank Enterprise Grant Depository institutions No restrictions stated Banking No restrictions N/A $1,100 to N/A Catalog of cont.'d Award that invest in CDFIs or stated $1.5 million Federal over an observation Domestic period increase lending Assistance and investment (2006) activities in distressed communities or increase provision of services and technical assistance

Interior Indian Loans-- Loan Indian tribal Commercial, No restrictions Indian No For Varies Catalog of Economic guarantee governments, Native industrial, stated reservations restrictions individuals Federal Development American agricultural, or stated and tribal Domestic organizations, business activities. enterprises, Assistance individual American Loan guarantees to $2,500 to (2006) Indians private lenders only $500,000. permitted if funds would otherwise be unavailable to borrower. Speculation ineligible.

Overseas Foreign Loan, loan Loans to small Projects in No restrictions No restrictions No $100,000 to Varies Catalog of Investment Investment guarantee businesses, loan developing country stated stated restrictions $29.5 million Federal Corporation Financing guarantees to that contribute to the stated for small Domestic businesses of all sizes economic and social business Assistance development of host loans. (2006) countries and that have positive impact on U.S. economy Agency Program Type of Aid Eligible Businesses Eligible Uses Industry Geographic Growth Amount Term Source Sector Market Stage Transpor- Disadvantaged Loan Minority- or women- Transportation- Construction No restrictions No Up to Up to five years Catalog of tation Business owned business, related contract: and other stated restrictions $750,000. Federal Enterprises-- disadvantaged maintenance, transpor-tation stated No Domestic Short Term business enteprise rehabiliation, related minimum. Assistance Lending restructuring, or industries (2006) Program revitalization of any mode of transportation with public or commercial transportation provider or any federal, state, or local transportation agency

APPENDIX D:

STATE AND LOCAL SMALL BUSINESS LOAN, LOAN GUARANTEE, AND MICRO-LOAN PROGRAMS

Appendix D State and Local Small Business Loan, Loan Guarantee, and Microloan Programs

State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage California Small Loan Small Any purpose All California All Guaranteed Up to 7 years State of Business Loan guarantee businesses as beneficial to portion cannot California Guarantee defined by SBA applicant's business exceed (2006) Program unable to obtain $500,000 private loans

California California Loan Small Most (including All California All $2.5 million. Set by lender California State Capital Access guarantee businesses as working capital). Max. premium Treasurer's Program defined by SBA Limitations on real CAPCFA Office (2006) (CalCAP) unable to obtain estate loans and pays is and State of private loans loan refinancing. No $100,000 California luxury uses, or (2006) facilities selling alcohol consumed off site

California California Matching Small and Commercialization Life science, California Existing Up to Not specified State of Technology in grant medium-sized of technology-based homeland $250,000 in California Partnership businesses with innovations defense, matching (2006) (CalTIP) federal research telecommunic funds and ations, development information grants processing

Page 1 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Businesses Sector Market Stage Los Angeles Los Angeles Loan Small- and mid- Working capital, No stated Los Angeles Existing $25,000 to $1 Working Los Angeles County sized businesses fixed assets, real restrictions County million capital 5 to 7 County (2006) Business Loan unable to access estate, real estate years; Program private credit improvements equipment/m with good credit achinery 7 to and 10 years; real demonstration of estate 15 to repayment ability 20 years

Los Angeles Los Angeles Loan Small technology Working capital, Technology Los Angeles Start-up and $10,000 to Working Los Angeles County firms in business purchase of County early-stage $100,000 capital 5 to 7 County (2006) Technology incubators part equipment or years; Loan Program of Los Angeles machinery. No debt equipment/m County Incubator refinancing achinery 7 to Network 10 years

San Diego San Diego Loan Small- and mid- Working capital, No stated Eligible census All $150,000 to Working City of San Revolving sized businesses fixed assets, real restrictions tracts in San $750,000 capital 7 Diego (2006) Loan Program located in estate, real estate Diego, National years; distressed areas improvement, and City, Imperial equipment/m other uses Beach, and achinery 10 Chula Vista years; real estate 15 years

San Diego Metro Loan Small Working capital, No stated San Diego Early stage $25,000- Working City of San Revolving businesses in fixed assets, real restrictions $150,000 capital 3 to 5 Diego (2006) Loan Fund distressed areas, estate, real estate years; small businesses improvement, and equipment/m unable to access other uses achinery 5 private loans years; real estate 5 years

Page 2 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage San Diego San Diego Participating Small Working capital No stated San Diego Early stage $50,000- Up to 5 years City of San Technology debt businesses in restrictions $250,000 Diego (2006) Fund financing distressed areas, small businesses unable to access private loans

Texas Capital Access Loan Businesses with Working capital; No stated Texas No stated Set by lender Set by lender State of Texas Program guarantee <499 employees, purchase, restrictions restric-tions (2006) nonprofits, construction, or businesses with leasing of buildings 51 percent of and equipment. more of its Proceeds cannot be employees living used for in Texas. construction or Businesses purchase of facing difficulty residential housing accessing capital or simple real estate or obtaining investments. private loans

Texas Linked Deposit Loan Small and Working capital; No stated Enterprise zones All $10,000 to Set by lender State of Texas Program guarantee medium-sized purchase, restrictions $250,000 (2006) businesses in construction, or state enterprise leasing of capital zones, assets. historically underutilized businesses, child- care providers, nonprofits.

Page 3 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage

Dallas Community Loan Small and Working capital, No stated Southern Dallas, At least 18 Not stated Not specified City of Dallas Development minority-owned equipment, real restrictions enterprise zones months of (2006) Business Loan businesses in estate acquisition success-ful southern Dallas and rehabilitation operation or state enterprise zones

Dallas Southern Loan, loan Small and Loans: working No stated Southern Dallas, At least 18 Not stated Not specified City of Dallas Dallas guarantee minority-owned capital and restrictions enterprise zones months of (2006) Development businesses in equipment. Loan success-ful Fund southern Dallas guarantee: real operation or state estate and debt enterprise zones refinancing

Page 4 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Businesses Sector Market Stage New York Linked Deposit Loan Manufacturers Working capital, No personal or Empire Zones, No start-ups Up to $1 Up to 4 years Empire State Program discount with >500 machinery/equipme professional distressed areas million Development employees, nt, new product services. Only (2006) service development, retail businesses with buyouts of businesses in >100 employees companies by Empire Zone employees or in highly distressed area

New York Small Publicly Small No restrictions High-tech, New York Start-up Typical N/A Empire State Business funded, businesses with stated areas under- investments Development Technology publicly well-protected served by $50,000- (2006) Investment managed intellectual private venture $500,00 Fund venture property capitalists capital New York New York Publicly Small- and mid- Entrepreneurship, Science and New York Start-up and Unknown N/A State of New State funded, sized businesses technology technology existing York (1999) Foundation for privately commercialization, Science, managed product Technology venture development, and Innovation capital business incubator facility management, technology transfer services

New York City New York City Term loan, Small- and Working capital, No restrictions New York City No stated $1,500 to $1 Varies New York City Capital Access line of credit medium-sized real estate stated restric-tions million Economic (NYCCA) businesses acquisition, Development unable to access machinery, Corporation private loans equipment, physical (2006) improvements to real estate

Page 5 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Florida Front Porch Loan Start-ups unable No restrictions Cottage Florida Start-up Up to $15,000 Not specified Enterprise Micocredit to access private stated industries Florida, Inc. Loan Program loans (2006)

Miami Grow Miami Revolving Small All legitimate All Community Start-up and $50,000 to $2 Working City of Miami Fund loan businesses in business purposes. redevelop-ment expanding million capital 3 to 10 (2006a) community Cannot be used for districts years; redevelopment research and equipment 5 districts development. to 10 years; real estate, construction up to 25 years

Miami Empower- Revolving Small- and General business All Empower-ment All $10,000 to Not specified City of Miami ment Zone loan minority-owned purposes, excluding Zones $250,000 (2006b) Revolving businesses in real estate Loan Program Empowerment Zones unable to obtain private loans

Page 6 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Pennsylvania Small Loans Local businesses Land, buildings, All but some Pennsylvania Some rest- Working Working Pennsylvania Business First with <100 machinery, mercantile, rictions on capital up to capital up to 3 Department of employees equipment, working commercial, hospitality $100,000; years; real Community worldwide capital retail projects, land, estate up to and Economic unable to fully restaurant or machinery/ 15 years; Development finance project food service equipment up machinery/ (2005) with private or operators to $200,000 equipment up public sources to 10 years

Pennsylvania Pennsylvania Loan Small firms Land, buildings, All but some Pennsylvania All stages, Max. Set by lender Pennsylvania Capital Access guarantee unable to obtain machinery, businesses including start- $500,000 Department of Program (term loan or private loans equipment, working involved ups Community line of credit) capital alcohol sales, and Economic pregnancy Development termination (2005) services, private clubs, racetracks, massage parlors.

Pennsylvania Community Loan Businesses with Most legitimate Retail, Underserved, All Up to Flexible Pennsylvania Economic <100 employees business costs mercantile, unserved areas $100,000 Department of Development providing commercial Community Loan products and and Economic Programs services to Development (CED) unserved or (2005) underserved areas

Page 7 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage

Pennsylvania Export Finance Loan Businesses with Working capital or Manu-facturing Pennsylvania Operating at Up to 1 year, Pennsylvania Program <250 employees accounts receivable least 12 $350,000 renewable Department of with difficulty months annually for 2 Community accessing additional and Economic private credit years Development (2005)

Pennsylvania Pollution Loan Businesses with Purchase and All except Pennsylvania Existing Up to Up to 10 Pennsylvania Prevention <100 employees installation of mercantile and $100,000 years Department of Assistance pollution control or service Community Account energy efficient and Economic (PPAA) equipment Development (2005)

Philadelphia Public Housing Micro loan Small Working capital, No restrictions Philadelphia Start-up, $5,000 to Up to 5 years Philadelphia Authority businesses equipment, stated existing $25,000 Commercial (PHA) Micro owned by leasehold Development Loan Fund residents improvements, Corporation sponsored by startup costs (2006) PHA

Philadelphia Small Loan Small Projects benefitting No restrictions Philadelphia Start-up, $25,000 to Not specified Philadelphia Business businesses low-to-moderate stated existing $200,000 Commercial Revolving income persons Development Loan Fund through job creation Corporation or service provision (2006)

Page 8 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Ohio Ohio Capital Loan Businesses with Working capital, No restrictions Ohio Existing Up to Set by lender Ohio Access guarantee annual sales purchase or stated $250,000 for Department of <$10 million construction of fixed working Development unable to qualify assets, refinancing. capital; up to (2006a) for private loans Cannot be used for $500,000 for passive real estate fixed assets acquisition or development, residential housing development

Ohio Ohio Mini- Loan Businesses with Fixed asset No restrictions Ohio Existing Up to $45,000 Up to 10 Ohio Loan guarantee < 25 employees expansion of less stated years Department of Guarantee unable to obtain than $100,000 Development Program private loan (2006b)

Ohio Small Loan Businesses with No restrictions No restrictions Ohio Existing Not stated Not specified Ohio State Business discount < 150 employees stated stated Treasurer's Linked Deposit Office (2006) Program

Cleveland Small Loan Small Acquisition of fixed No restrictions Cleveland Existing Up to 7 to 10 years City of Business businesses assets, renovation stated $500,000 for machinery Cleveland Revolving of existing facility, or equipment, (2006) Loan Fund new construction 20 years for real estate

Page 9 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Massachusetts Economic Term loans, Small- and Working capital Retailers, Massachu-setts Existing $100,000 to Up to 5 years Common- Stabilization lines of medium-sized service firms, $750,000 for for term loan; wealth Trust credit, loan "value-added" restaurants, term loans; up to 2 years Corporation guarantees businesses and real estate $100,000 to for guarantee; (2006) unable to access businesses not 500,000 for 12-month private loans eligible credit; credit line $100,000 to may be 500,000 for renewed for loan an additional guarantee 12 months

Boston Back Streets Loan Small- and No restrictions No restrictions Boston Existing Up to Varies based City of Boston Backup Loan medium-sized stated stated $250,000 on loan size (2006) Program businesses and strength within the City of of company's Boston finances

Page 10 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage New Jersey New Jersey Loans and Small Working capital, No restrictions New Jersey No restric- Up to Loans: up to New Jersey Development loan businesses and real estate and stated tions stated $200,000 15 years for Economic Authority for guarantee minority- and other fixed assets real estate, Development Small women-owned 10 years for Authority Businesses, enterprises other fixed (2006) Minorities' and assets, 5 Women's years for Enterprises working Small capital. Business Guarantees: Loans up to 10 years for fixed assets and working capital.

New Jersey NJDA Child Loan Nonprofit and for- Start-up and Childcare New Jersey All $15,000 to Varies New Jersey Care Loans profit child care operational costs $75,000 Economic providers Development Authority (2006)

Page 11 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Illinois Illinois Capital Loan portfolio Businesses with Cannot be used for Manufacturer/r Illinois Existing Set by lender Set by lender Illinois Access insurance <500 employees debt refinancing or etailers/wholes Department of Program and unable to passive real estate alers of Commerce and access private ownership firearms, Economic loans tobacco Opportunity products, (2006) liquor, or sexually explicit materials ineligible

Illinois State Low-interest Small Working capital, No restrictions Illinois All $2,500 to 2 years, with Illinois State Treasurer's loan businessess with machinery/equipme stated $750,000 possible three-Treasurer's Economic annual gross nt, inventory, real (cannot year renewal Office (2006) Program Small sales/revenue of estate acquisition, exceed 25 Business < $2 million remodeling, percent of Program construction project costs)

Illinois Participation Subordin- Businesses with Working capital, No restrictions Illinois Existing $10,000 to Set by lender Illinois Loan Program ated loan <500 employees machinery/equip- stated $750,000 Department of ment, inventory, (cannot Commerce and real estate exceed 25 Economic acquisition, percent of Opportunity remodeling, project costs) (2006) construction. Debt refinancing or contingency funding ineligible.

Page 12 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Illinois Enterprise Subordin- Businesses in Working capital, No restrictions Enterprise Zones Existing $10,000 to Set by lender, Illinois Zone ated loan Enterprise Zones machinery/equip- stated $750,000 lower than Department of Participation with <500 ment, inventory, (cannot Participation Commerce and Loan Program employees real estate exceed 25 Loan Economic acquisition, percent of Program Opportunity remodeling, project costs) (2006) construction. Debt refinancing or contingency funding ineligible.

Illinois Minority, Subordin- Businesses with Working capital, No stated Illinois All Up to $50,000 Set by lender, Illinois Women, and ated loan <500 employees machinery/equip- restrictions (cannot lower than Department of Disabled and that are ment, inventory, exceed 50 Participation Commerce and Participation owned by real estate percent of Loan Economic Loan Program women, acquisition, project costs) Program Opportunity (MWD/PLP) minoritites, or remodeling, (2006) disabled construction. Debt refinancing or contingency funding ineligible.

Page 13 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Illinois Revolving Line Subordin- Businesses with Working capital No stated Illinois Existing $10,000 to Up to 3 years Illinois of Credit ated line of <500 employees restrictions $750,000 Department of Program credit and with Commerce and seasonal or Economic variable working Opportunity capital demands (2006)

Illinois Rural Micro- Subordin- Rural businesses Debt refinancing or Agriculture, Rural Existing Up to $25,000 Varies Illinois Business ated loan with <5 contingency funding forest (cannot Department of Participation employees ineligible. products, exceed 50 Commerce and Loan cottage and percent of Economic craft products, project costs) Opportunity tourism (2006)

Chicago Linked Loan, line of Emerging No restrictions No restrictions Chicago Existing Not stated Set by lender Chicago-Cook Deposits credit businesses stated stated Business Program unable to access Assistance private loans, Center (2006) small businesses, minority- or women-owned businesses

Chicago Micro Loan Micro loan Small Purchase of No restrictions Chicago Existing Not stated 1 to 5 years, Chicago-Cook Program businesses with machinery or stated depending on Business projects equipment, project Assistance supporting rehabilitation of real Center (2006) community or property neighborhood development or providing job opportunities

Page 14 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Michigan Capital Access Loan Small No restrictions No real estate Illinois No restric- No restrictions No Michigan guarantee businesses stated businesses tions stated stated restrictions Economic satisfying Development credit Agency (2006) requirements Maine Finance Loan Maine Prudent business No agricultural, Maine No restric- Up to Up to 25 Finance Authority of businesses activities hospitality, or tions stated $250,000 years for real Authority of Maine (FAME) tourism estate, up to Maine (FAME) Intermediary businesses 10 years for (2007) Relending machinery Program and equipment, up to 7 years for other purposes Maine FAME Loan Licensed day Physical site Day care Maine No restric- Up to Up to 20 FAME (2007) Regional care providers improvements tions stated $100,000 years Economic Development Revolving Loan Program for Day Care

Maine FAME Loan Businesses No restrictions No restrictions Maine No restric- Up to Up to 5 years FAME (2007) Economic unable to obtain stated stated tions stated $200,00. Up Recovery capital from to $1 million Loan Program other sources for projects but with demonstrating substantial reasonable public benefit ability to repay Maine Commercial Loan Maine All prudent business No restrictions Maine No restric- No Useful life of FAME (2007) Loan guarantee businesses activities stated tions stated relationship assets Insurance can exceed financed or Program $4.25 million provided as exposure collateral Maine Linked Loan Businesses with No restrictions Manufacturing Maine No restric- Maximum 2 years FAME (2007) Investment discount up to 20 stated or other tions stated exposure of Program for employees or sectors if 70 $200,000 Commercial sales of less percent of Enterprises than $2.5 million sales are out of state

Page 15 of 16 State/City Program Type of Aid Eligible Eligible Uses Industry Geographic Growth Amount Term Source Businesses Sector Market Stage Maine Agricultural Loan Farmers, food Fixed asset Agriculture, Maine No restric- Up to Up to 25 FAME (2007) Marketing processors, and expansion, food tions stated $250,000 years Loan Fund aquaculture construction, processing, operations (the purchase aquaculture last are not considered agricultural enterprises)

North Dakota North Dakota Loan North Dakota Working capital, Manufac-turing North Dakota No restric- $10,000 to Up to 25 year Entrepreneur Development businesses machinery and and retail tions stated $150,000 for for fixed Centers of Fund equipment, real retail, $15,000 assets, up to North Dakota estate to $500,000 10 years for (2006) for manufac- equipment, turing up to 5 years for inventroy, up to 2 years for working capital

Page 16 of 16

APPENDIX E:

STATE-ASSISTED PUBLIC VENTURE CAPITAL FUNDS

Appendix E State-Assisted Public Venture Capital Funds

State Fund Publicly Publicly Total capital Source funded and funded and under publicly privately management managed managed California Public Interest Energy X $488 million California Energy Research Commission (2006) Florida Florida Black Business X $4 million National Association of Investment Board, Inc. Seed and Venture Funds (NASVF) (2006) Florida Technology Research Fund X Unknown Rural Policy Research Institute (RUPRI) (2000) Florida Cypress Capital Network X Unknown RUPRI (2000) Illinois Illinois Equity Fund X $3 million NASVF (2006) Illinois Ilinois State Treasurer's Office- X $50 million NASVF (2006) -Technology Development Fund Illinois Technology Venture X Unknown Chicago-Cook Business Invesment Fund Assistance Center (2006) Illinois Illinois Development Finance X $8 million NASVF (2006) Authority--Technology Development Bridge Seed Stage Venture Fund

Maine Maine Economic Development X $3 million NASVF (2006) Venture Capital Revolving Investment Program

Maine Maine Technology Institute X $30 million NASVF (2006) Maine Small Enterprise Growth Fund X $8 million NASVF (2006)

Massachusetts Massachusetts Technology X $35 million NASVF(2006) Development Corporation Michigan Mighican 21st Century X $109 million Mighican 21st Century Invesment Fund Invesment Fund (2006) Michigan VC Investments X $150 million NASVF(2006) New Jersey Techniuum X $233 million NASVF (2006) New Jersey Garden State Life Sciences X Unknown New Jersey Economic Venture Fund Development Authority (2004) New York Small Business Technology X $40 million NASVF (2006) Investment Fund New York New York State Foundation X NASVF (2006) for Science, Technology and Innovation Appendix E (continued) State-Assisted Public Venture Capital Funds

State Fund Publicly Publicly Total capital Source funded and funded and under publicly privately management managed managed North Dakota North Dakota Development X $18.5 million NASVF (2006) Fund (included debt and equity investments) North Dakota Seed Capital Tax Credit X $5.5 million NASVF (2006)

Ohio Fuel Cell Program X $25.4 million NASVF (2006) Ohio Innovation Ohio Loan Fund X $14 million NASVF (2006)

Ohio Third Frontier Pre-Seed and X $160 million NASVF (2006) Seed Fund Initiatives Pennsylvania Ben Franklin Technology X $27 million NASVF (2006) Partners Pennsylvania Innovation Works X $26 million NASVF (2006)

Pennsylvania New PA Venture Capital X $60 million NASVF (2006) Investment Program Pennsylvania Technology X $18 million NASVF (2006) Commercialization Initiatve Pennsylvania Tobacco Settlement Board X $200 million NASVF (2006) Pennsylvania PA Early Stage Partners X Unknown RUPRI (2000), Key (2004)

Texas Texas Emerging Technology X $200 million NASVF (2006) Fund

APPENDIX F: “PUBLIC” NONPROFIT MICROENTERPRISE ORGANIZATIONS WITH MICRO-LOAN PROGRAMS

Appendix F "Public" Nonprofit Microenterprise Organizations With Micro-Loan Programs

State Organization Program Target Area California Oakland Business Development Corporation City of Oakland and Bay Area

California Sierra Economic Development District CA's Nevada, Plascer, El Dorado, Sierra, Modock, and Plymouth Counties California State Assistance Fund for Enterprise Business Microloan program is available to businesses in and Industrial Development Corporation (SAFE- Northern California Florida Micro-Business, USA Dade, Broward, and Pinellas Counties Florida Mount Olive Housing and Community Tallahassee and rest of Leon County Development Corporation Maine Coastal Enterprises, Inc. State of Maine Maine Eastern Maine Development Corporation Eastern Maine Massachusetts Lower Cape Cod Community Development Lower Cape Cod area of Barnstable, MA Corporation Michigan Community Capital Development Corporation Not specified

Michigan Detroit Entrepreneurship Institute City of Detriot and surrounding communities, including Wayne, Oakland, Macomb, and Washtenaw Counties New Jersey Hudson County Economic Development Hudson County Corporation New Jersey Jersey City Economic Development Jersey City Corporation New York Business Outreach Center Network Inc. and New York City BOC Capital Corporation New York Chautauqua Opportunities for Development, Chautauqua County, NY Inc. New York Structured Employment Economic Target areas in New York Development Corporation New York New York Association for New Americans, Inc. New York City

Ohio Kent Regional Business Alliance Northeast Ohio Pennsylvania MetroAction, Inc. Lackawanna, Luzerne, and Monroe Counties Pennsylvania North Central PA Regional Planning and Cameron, Clearfield, Elk, Jefferson, McKean, and Development Commission Potter Counties Pennsylvania Rural Enterprises Development Corporation Columbia, Luzerne, Lycoming, Montour, Northumberland, Schuylkill, and Sullivan Counties

APPENDIX G: AVERAGE MATURITY TERM AND INTEREST RATE BY LOAN TYPE AND YEAR,

1997-2005

Appendix G Average Maturity Term and Interest Rate By Loan Type and Year, 1997-2005

1997 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 375 213 240 5,079 92 84 4,332 233 240 Term, Variable Portion 558 131 89 32,916 129 88 0 N/A N/A Interest Rate, Fixed Portion 375 5.93 6.95 5,079 10.29 10.5 4,332 7.05 7.1 Interest Rate, Variable Portion 558 10.24 10.25 32,916 10.48 10.5 0 N/A N/A

1998 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 387 209 240 5,043 93 84 3,793 234 240 Term, Variable Portion 491 131 96 30,471 129 87 0 N/A N/A Interest Rate, Fixed Portion 387 5.37 6.15 5,043 10.16 10.25 3,793 6.26 6.15 Interest Rate, Variable Portion 491 10.22 10.5 30,471 10.49 10.5 0 N/A N/A

1999 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 446 208 240 6,449 100 84 3,846 235 240 Term, Variable Portion 481 129 84 30,226 132 95 0 N/A N/A Interest Rate, Fixed Portion 446 5.13 5.95 6,449 9.61 9.75 3,846 6.36 6.3 Interest Rate, Variable Portion 481 9.63 9.75 30,226 9.94 10 0 N/A N/A

2000 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 501 210 240 6,196 102 84 3,466 236 240 Term, Variable Portion 515 128 85 31,230 129 90 0 N/A N/A Interest Rate, Fixed Portion 501 6.08 7.33 6,196 10.1 10 3,466 7.46 7.46 Interest Rate, Variable Portion 515 10.08 10.25 31,230 10.38 10.5 0 N/A N/A

2001 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 533 208 240 5,701 91 84 3,418 236 240 Term, Variable Portion 462 114 84 29,442 124 84 0 N/A N/A Interest Rate, Fixed Portion 533 5.54 6.34 5,701 9.85 10 3,418 6.52 6.35 Interest Rate, Variable Portion 462 9.73 10 29,442 10.01 10.25 0 N/A N/A

2002 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 610 222 240 5,241 86 84 3,860 236 240 Term, Variable Portion 567 115 84 34,735 125 84 0 N/A N/A Interest Rate, Fixed Portion 610 5.21 5.78 5,241 7.5 7.5 3,860 5.73 5.78 Interest Rate, Variable Portion 567 7.19 7 34,735 7.4 7.25 0 N/A N/A

2003 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 673 224 240 6,568 86 84 4,255 236 240 Term, Variable Portion 614 106 84 46,608 113 84 0 N/A N/A Interest Rate, Fixed Portion 673 4.34 4.75 6,568 6.55 6.75 4,255 4.74 4.76 Interest Rate, Variable Portion 614 6.69 6.5 46,608 7.29 7 0 N/A N/A Appendix G (continued) Average Maturity Term and Interest Rate By Loan Type and Year, 1997-2005

2004 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 871 225 240 7,043 86 84 5,191 236 240 Term, Variable Portion 724 100 84 58,267 107 84 0 N/A N/A Interest Rate, Fixed Portion 871 4.62 4.93 7,043 6.13 6.5 5,191 4.95 4.98 Interest Rate, Variable Portion 724 6.46 6.25 58,267 7.28 6.75 0 N/A N/A

2005 Both 504 and 7a Only 7a Only 504 N Mean Median N Mean Median N Mean Median Term, Fixed Portion 1,102 230 240 4,860 89 84 5,783 237 240 Term, Variable Portion 673 94 84 66,696 101 84 0 N/A N/A Interest Rate, Fixed Portion 1,102 4.62 4.86 4,860 6.9 7 5,783 4.84 4.86 Interest Rate, Variable Portion 673 7.5 7.25 66,696 8.37 8 0 N/A N/A