Rural Development Administration

Congress, concerned about the economic gap between rural and urban America and the steady migration to the cities, established a program to boost the rural economy by creating jobs, attracting businesses, and providing better services. The result was the Business and Industry Loan Guarantee Program, run by the Farmers Home Administration, which guarantees loans by private lenders to businesses in small towns; priority is given to firms in communities with fewer than 25,000 people. This report examines (1) the extent to which states and territories are taking advantage of the program and why some are not using it, (2) the kinds of industries that have received loan guarantees, and (3) the program's impact on rural development.

GAO found that: (1) of the 50 states and 3 territories included in the B&I program, 26 states and territories did not use any of the funds allocated to guarantee B&I loans in fiscal year (FY) 1991; (2) FmHA staff in state offices active in the B&I program attributed the differences in how FmHA state offices use the program to the different attitudes and philosophies of the state directors; (3) FmHA state office staff in 13 states that did not use the program cited such reasons as competition from other federal and state rural development programs, application costs that may be prohibitive to potential borrowers, and restrictive program regulations; (4) during FY 1989 through FY 1991, 45 percent of the loan funds guaranteed were used by the manufacturing sector, while other industries receiving guaranteed loan funds included retail and wholesale businesses and service industries; (5) 78 percent of the funds backed by B&I guarantees went to established businesses that primarily emphasized retaining existing employment in rural areas; (6) the impact of the B&I program is difficult to measure, because the data that FmHA maintains for monitoring and evaluating the B&I program are sometimes inaccurate and unsuitable for program evaluation; and (7) B&I loan guarantees may not be going to areas where unemployment is most widespread, since in FY 1989 through FY 1991, 61 percent of the loan guarantees went to communities whose unemployment rate was below that of the state's nonmetropolitan rate.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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