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Abstract
This study assessed (1) whether duplication of SBA's 7(a), 504, MicroLoan, and SBIC programs exists at federal, state, and local levels; 2) if duplication occurs between SBA's two largest programs—7(a) and 504; and, 3) the nature of such overlaps. The study found some overlap exists between SBA's 7(a) and 504 programs, and a small degree of duplication exists between SBA programs and similar programs run by other federal agencies. More potential duplication exists at state and local levels, where general-purpose loan and loan guarantee programs are more likely to resemble SBA's 7(a) program, than its other programs.
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 bank decides an applicant should apply for a particular program—may be influenced by factors such as credit history, differences in fees, interest rates, amount of paperwork required, job creation requirements, or prevailing wage standards.
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