Small Business

The Small Business Administration's (SBA) General Business Loan Program--known as the "7(a)" program--is the agency's primary vehicle for providing small businesses with access to credit. With few exceptions, SBA does not lend money directly under the program, but rather guarantees up to 80 percent of each loan made by private lenders to small firms. This report discusses the role that the 7(a) program plays in small business financing. GAO provides information on (1) how the characteristics--sizes, interest rates, and maturities--of 7(a) loans compare with those of small businesses that did not involve a guarantee from SBA and (2) how the characteristics of 7(a) borrowers compare with small business borrowers that did not obtain 7(a) loans. GAO also examines the reasons underlying private lenders' decisions on whether to participate in the 7(a) program.

GAO found that: (1) as of June 1995, about 60 percent of SBA outstanding 7(a) loans were for amounts exceeding $100,000, compared to 18 percent of small business loans in general; (2) 7(a) loans had longer maturities and higher interest rates than non-7(a) loans; (3) 7(a) and non-7(a) businesses tended to be organized as corporations, have the same average number of employees, and focus on the services and retail trade; (4) the majority of both 7(a) and non-7(a) borrowers tended to be nonminority males; (5) the number of female-owned 7(a) businesses increased from about 13.2 percent in fiscal year (FY) 1991 to 24.3 percent in FY 1995; (6) 13.5 percent of 7(a) businesses were owned by minorities, compared to 8.2 percent of non-7(a) businesses; (7) lenders who participated in the 7(a) program believed that the program enabled them to offer loans to new businesses, make longer-maturity loans, and offer loans to businesses with less equity; and (8) the reasons cited by lenders who did not participate in the 7(a) program included their company's limited focus on small businesses, SBA time-consuming loan requirements, and the lack of demand for 7(a) loans.