Rural Economic Development
Collaboration between SBA and USDA Could Be Improved Gao ID: GAO-08-1123 September 18, 2008The Small Business Administration (SBA) and the Rural Development offices of the U.S. Department of Agriculture both work in rural areas to foster economic development by promoting entrepreneurship and community development. This report discusses (1) the complementary nature of some SBA and Rural Development programs and the extent to which it provides a rationale for the agencies to collaborate, (2) past and current efforts by SBA and Rural Development to work together and with other agencies, and (3) opportunities for the agencies to improve their collaborative efforts. In completing its work, GAO analyzed agency documentation and prior reports on collaboration, conducted site visits at locations where SBA and Rural Development were working together, and interviewed agency and selected economic development officials.
The complementary nature of some SBA loan programs and Rural Development business programs provides a rationale for the agencies to collaborate. SBA and Rural Development have similar economic development missions, and their programs provide financing for similar purposes, including start-up and expansion projects, equipment purchases, and working capital for small businesses. According to SBA and Rural Development officials currently involved in collaborative working relationships, working together allows the agencies to leverage the unique strengths of each other's programs, increase the number of financing options available to borrowers in rural areas, and ultimately better promote economic development in these areas. However, collaboration between SBA and Rural Development to date has been sporadic and mostly self-initiated by officials in field offices. GAO found that the extent of the collaborative efforts and use of formal agreements such as memorandums of understanding (MOU) varied across locations. The two agencies worked together frequently in a few locations, infrequently in others, and not at all in many locations. The SBA and Rural Development offices in North Dakota that GAO visited collaborated frequently and had formal agreements in place. Officials there established an MOU with other community development organizations to provide "one-stop" shopping assistance to borrowers at a single location. The SBA and Rural Development offices in Nebraska and New Mexico that GAO visited worked with each other less frequently and more informally, conducting community outreach sessions and holding periodic meetings and joint training sessions. But many other locations--about half of SBA and Rural Development's field offices--did not appear to be collaborating at all or to have an established framework to facilitate collaboration. Opportunities exist for SBA and Rural Development to improve their collaborative efforts. In an October 2005 report, GAO identified key practices that could help federal agencies enhance and sustain their collaborative efforts. In comparing SBA and Rural Development's efforts with these criteria, GAO found that the agencies could take steps to improve their efforts by implementing a more formal approach to encourage collaboration. This approach would provide the agencies with a mechanism that reflected several of GAO's key practices--to define and articulate a common outcome, agree on roles and responsibilities, monitor key progress and results, and reinforce accountability for collaborative efforts. With such an approach, SBA and Rural Development could more effectively leverage each other's unique strengths and help to improve small business opportunities in rural communities.
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Director: Team: Phone:GAO-08-1123, Rural Economic Development: Collaboration between SBA and USDA Could Be Improved
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
September 2008:
Rural Economic Development:
Collaboration between SBA and USDA Could Be Improved:
GAO-08-1123:
GAO Highlights:
Highlights of GAO-08-1123, a report to congressional requesters.
Why GAO Did This Study:
The Small Business Administration (SBA) and the Rural Development
offices of the U.S. Department of Agriculture both work in rural areas
to foster economic development by promoting entrepreneurship and
community development. This report discusses (1) the complementary
nature of some SBA and Rural Development programs and the extent to
which it provides a rationale for the agencies to collaborate, (2) past
and current efforts by SBA and Rural Development to work together and
with other agencies, and (3) opportunities for the agencies to improve
their collaborative efforts. In completing its work, GAO analyzed
agency documentation and prior reports on collaboration, conducted site
visits at locations where SBA and Rural Development were working
together, and interviewed agency and selected economic development
officials.
What GAO Found:
The complementary nature of some SBA loan programs and Rural
Development business programs provides a rationale for the agencies to
collaborate. SBA and Rural Development have similar economic
development missions, and their programs provide financing for similar
purposes, including start-up and expansion projects, equipment
purchases, and working capital for small businesses. According to SBA
and Rural Development officials currently involved in collaborative
working relationships, working together allows the agencies to leverage
the unique strengths of each other‘s programs, increase the number of
financing options available to borrowers in rural areas, and ultimately
better promote economic development in these areas.
However, collaboration between SBA and Rural Development to date has
been sporadic and mostly self-initiated by officials in field offices.
GAO found that the extent of the collaborative efforts and use of
formal agreements such as memorandums of understanding (MOU) varied
across locations. The two agencies worked together frequently in a few
locations, infrequently in others, and not at all in many locations.
The SBA and Rural Development offices in North Dakota that GAO visited
collaborated frequently and had formal agreements in place. Officials
there established an MOU with other community development organizations
to provide ’one-stop“ shopping assistance to borrowers at a single
location. The SBA and Rural Development offices in Nebraska and New
Mexico that GAO visited worked with each other less frequently and more
informally, conducting community outreach sessions and holding periodic
meetings and joint training sessions. But many other locations”about
half of SBA and Rural Development‘s field offices”did not appear to be
collaborating at all or to have an established framework to facilitate
collaboration.
Opportunities exist for SBA and Rural Development to improve their
collaborative efforts. In an October 2005 report, GAO identified key
practices that could help federal agencies enhance and sustain their
collaborative efforts. In comparing SBA and Rural Development‘s efforts
with these criteria, GAO found that the agencies could take steps to
improve their efforts by implementing a more formal approach to
encourage collaboration. This approach would provide the agencies with
a mechanism that reflected several of GAO‘s key practices”to define and
articulate a common outcome, agree on roles and responsibilities,
monitor key progress and results, and reinforce accountability for
collaborative efforts. With such an approach, SBA and Rural Development
could more effectively leverage each other‘s unique strengths and help
to improve small business opportunities in rural communities.
What GAO Recommends:
To improve SBA and Rural Development‘s efforts to work together, GAO
recommends that the agencies establish a formal approach to encourage
further collaboration. Both agencies provided technical comments on a
draft of this report, which have been incorporated into GAO‘s final
report where appropriate.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1123]. For more
information, contact William B. Shear at (202) 512-8678 or
shearw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
The Complementary Nature of Some SBA and Rural Development Programs
Provides a Rationale for Collaboration:
SBA and Rural Development's Collaborative Efforts Have Been Sporadic:
SBA and Rural Development Could Take Steps to Establish a Formal
Approach to Collaboration:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Description of SBA's and USDA Rural Developments' Primary
Loan and Business Programs:
Appendix III: Comparison of SBA and Rural Development Primary Business
Loan and Grant Programs:
Appendix IV: Recent Congressional Proposals That May Require
Collaboration between Rural Development and Other Federal Agencies:
Appendix V: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: SBA's Primary Loan Programs:
Figure 2: Rural Development's Business Programs:
Figure 3: SBA District Offices and Rural Development State Offices, by
Location:
Figure 4: Summary of Programs Included in Our Scope:
Abbreviations:
B&I: Business and Industry:
CDC: certified development company:
ECND: Entrepreneur Centers of North Dakota:
FCA: Farm Credit Administration:
HUD: Department of Housing and Urban Development:
IRP: Intermediary Relending Program:
MOU: memorandum of understanding:
NMVC: New Markets Venture Capital:
RBEG: Rural Business Enterprise Grant:
RBIP: Rural Business Investment Program:
RBOG: Rural Business Opportunity Grant:
RBS: Rural Business and Cooperative Service:
REDLG Rural Economic Development Loan and Grant Program:
RHS: Rural Housing Service:
RUS: Rural Utilities Service:
SBA: Small Business Administration:
SBDC: Small Business Development Center:
SBIC: Small Business Investment Company:
SBLC: small business lending company:
USDA: U.S. Department of Agriculture:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 18, 2008:
Congressional Requesters:
More than 80 programs administered by several different federal
agencies target rural economic development.[Footnote 1] Of these
agencies, the Small Business Administration (SBA) and the Rural
Development offices of the U.S. Department of Agriculture (USDA) share
a mission of attending to underserved markets, fostering economic
development, and improving the quality of life in America through the
promotion of entrepreneurship and community development. Both agencies
offer business loans and grant programs for rural development and play
vital roles in spurring economic growth in rural areas.[Footnote 2] In
the past, these agencies have developed collaborative working
relationships to help manage their loan and grant programs. They have
also entered into a joint agreement under the Rural Business Investment
Program (RBIP) to create investment companies that would provide equity
for rural small businesses.[Footnote 3]
Congress has long expressed interest in increasing collaboration among
federal agencies. Collaboration that cuts across more than one federal
agency is one way for the federal government to deliver results more
efficiently--that is, in a way that utilizes limited resources to
better address multiple demands. Congress has been enacting laws for
more than a decade mandating that federal agencies coordinate their
rural policies and programs. These laws have authorized the
establishment of interagency agreements, cooperative agreements, and
interagency working groups for specific collaborative purposes. For
example, a provision of the Federal Agriculture Improvement and Reform
Act of 1996 required the Secretary of Agriculture to establish and
chair a rural development interagency working group to establish rural
policy, coordinate assistance, and evaluate the performance of federal
rural assistance programs.[Footnote 4] Additionally, the Farm Security
and Rural Investment Act of 2002 formally established the National
Rural Development Partnership so that USDA, other federal agencies
including SBA, state and local entities, and businesses could better
collaborate in delivering services to rural communities.[Footnote 5]
Increasingly, Congress has also focused attention on businesses and
entrepreneurs in rural areas and small communities with underserved
financial needs that could benefit from joint efforts between SBA and
Rural Development offices. In an effort to ensure that SBA and Rural
Development programs provide maximum benefit to rural communities, on
November 14, 2007, the House Small Business Subcommittee on Rural and
Urban Entrepreneurship held a hearing on interagency collaboration and
on SBA's and Rural Development's ability to work together to better
serve small businesses in rural areas. We testified at that hearing and
provided preliminary views on collaborative efforts between these
agencies. We also were requested to review the agencies' programs to
determine whether coordination among them could be improved.
As agreed, this report examines SBA and Rural Development's efforts to
work collaboratively and the degree to which their efforts could be
improved. Specifically, the report discusses (1) the complementary
nature of some SBA and Rural Development loan and business programs and
the extent to which it provides a rationale for collaboration, (2) past
and current efforts at collaboration between SBA and Rural Development
and between SBA and Rural Development and other agencies, and (3)
opportunities to facilitate more effective collaboration between SBA
and Rural Development.
Although there is no commonly accepted definition for collaboration, in
this report we define collaboration as any joint activity that is
intended to produce more public value than can be produced when the
agencies act alone, including activities that others have previously
defined as cooperation, coordination, integration, or networking. To
determine the extent to which SBA and Rural Development's primary loan
and business programs are complementary and to identify the rationale
for the agencies to work together, we examined laws, regulations, and
policies on each agency's loans, grants, and other business products
and services, and interviewed officials from both agencies. We reviewed
prior reports that defined collaboration and identified key practices
that could help enhance and sustain collaboration.[Footnote 6] We also
sought input from SBA resource partners, lenders, and select nonprofit
organizations involved in the rural economic development process. To
determine the types of collaborative efforts that are currently taking
place between SBA and Rural Development, we requested that both SBA and
Rural Development conduct a query of their respective district office
Directors and state office Directors regarding all formal or informal
efforts to work collaboratively with the other agency. We received
responses from about half of the SBA district offices and all of the
Rural Development state offices. We conducted site visits at three
locations where SBA and Rural Development were working together:
Lincoln, Nebraska; Albuquerque, New Mexico; and Bismarck, North Dakota.
We also reviewed internal agency documents, interagency agreements, and
training documentation and obtained detailed information from both
agencies' district and state field offices regarding formal and
informal efforts to work together. To identify past collaborative
efforts, we reviewed documentation and examined the mechanisms (e.g.,
contractual work agreements, memorandums of understanding, statutory
provisions, etc.) the agencies used to collaborate. Finally, to
determine opportunities to improve collaboration between SBA and Rural
Development, we reviewed our prior work in this area and conducted
interviews with agency officials, select SBA resource partners, and
nonprofit organizations. Appendix I contains a more detailed
description of our scope and methodology.
We conducted this performance audit from October 2007 to September
2008, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Results in Brief:
The complementary nature of some SBA loan programs and Rural
Development business programs provides a rationale for the agencies to
collaborate. SBA and Rural Development have similar economic
development missions and programs that provide financing for start-up
or expansion projects, equipment purchases, and working capital for
rural small businesses. The programs also have different strengths--for
example, some SBA loan products have shorter loan processing times
while, in some cases, Rural Development offers higher levels of
financial assistance. According to SBA and Rural Development officials
involved in ongoing collaborative relationships, working together has
allowed each agency to leverage the other agency's unique strengths,
which has increased the number of financing options available to
borrowers in rural areas, improved service, and enhanced efforts to
promote economic development in rural areas. A Rural Development
official in New Mexico said that collaboration with SBA allowed Rural
Development to tap into SBA's preexisting constituency of banks,
increasing the number of banks that might consider making Rural
Development loans in the future. Similarly, SBA officials in New Mexico
said that collaboration with Rural Development allowed SBA to provide
additional assistance to small businesses after Rural Development
provided initial financing for a community's infrastructure. Officials
in North Dakota said some SBA and Rural Development loan products were
complementary and had been bundled together in loan packages used to
finance individual projects. Where such collaboration has occurred, it
appears that SBA and Rural Development have been able to better meet
the needs of borrowers who were not able to obtain financing elsewhere
on reasonable terms and through normal lending channels.
SBA and Rural Development's collaborative efforts have been sporadic.
They have been initiated mostly by officials at the local level and
have often depended on established working relationships among the
officials involved. A query by SBA and USDA officials asking their
offices whether collaborative efforts were under way also suggested
that such efforts were sporadic. We found that the extent of the
collaboration and the use of formal mechanisms such as memorandums of
understanding (MOU) to facilitate collaboration varied across
locations. The two agencies collaborated frequently in some locations
and infrequently or not at all in others. For example, the SBA and
Rural Development offices in North Dakota that we visited collaborated
frequently and had formal agreements in place. Officials there
communicated at least weekly, conducted joint quarterly meetings,
sponsored at least eight joint lender training sessions yearly, and
participated in each other's annual meetings. SBA and Rural Development
officials in North Dakota had established an MOU with other state and
local entities to establish "one-stop" shopping to deliver financing,
business management, counseling, and other technical assistance at one
location. The SBA and Rural Development offices in Nebraska and New
Mexico that we visited worked with each other less frequently and more
informally, conducting a few community outreach sessions to build
support for their programs and holding periodic joint meetings and
training sessions. In other locations, such as Arizona, Colorado, and
Georgia, SBA and Rural Development offices did not collaborate at all.
We also identified instances in which SBA and Rural Development
collaborated with each other and with other agencies in the past. For
example, the agencies collaborated with each other under the Rural
Business Investment Program, allowing SBA to share its expertise on
venture capital programs that could provide equity investments to rural
small businesses. Similarly, both SBA and Rural Development have
partnered with the Farm Credit Administration (FCA), allowing each
agency to take advantage of FCA's expertise in conducting safety and
soundness examinations of specialized financial institutions.
Additionally, Rural Development and the Department of Housing and Urban
Development (HUD) worked together to create a voucher program modeled
after HUD's Housing Choice Voucher program that provides rental
assistance to families in rural areas. Generally, these efforts have
enabled all agencies to achieve greater results than they could have
achieved by acting alone.
Opportunities exist to better facilitate the agencies' collaborative
efforts. In our October 2005 report, we identified key practices that
could help enhance and sustain collaboration among federal agencies and
identified other factors such as leadership, trust, and organizational
culture that are necessary elements of an effective working
relationship.[Footnote 7] In comparing the agencies' efforts against
these criteria, we found that SBA and Rural Development could take
steps to facilitate more effective collaboration. First, they could
make more extensive use of cooperative agreements such as MOUs that
help establish a framework for and demonstrate leadership commitment to
collaboration. In December 2000, for example, SBA and Rural Development
entered into an MOU that incorporated three of the key practices we
identified in our October 2005 report. The MOU defined and articulated
a common outcome; specified roles and responsibilities; and provided a
mechanism to monitor, evaluate, and report on the results of
collaboration. The MOU expired in 2003, but SBA and Rural Development
did not appear to have implemented it when it was active. Second, SBA
and Rural Development do not have formal incentives to encourage
collaboration and do not track the results, or impact, of collaborative
efforts. As a result, the agencies are unable to share information on
the benefits of working together and encourage additional efforts to do
so in the future. Without a formal approach to encourage further
collaboration, the likelihood that the agencies will be able to fully
leverage each other's unique strengths to help improve small business
opportunities and promote economic development in rural communities is
reduced.
To improve SBA and Rural Development's collaborative efforts, we
recommend that the Administrator of SBA and Secretary of Agriculture
take steps to adopt a formal approach to encourage further
collaboration in support of common economic development goals in rural
areas.
We provided a draft of this report to SBA and USDA for review and
comment. Both agencies provided technical comments, which we
incorporated into the final report where appropriate.
Background:
SBA is charged with providing support to the nation's small businesses,
including those in urban and rural areas. Its support takes several
forms. First, it ensures access to credit, primarily by guaranteeing
loans through various loan guarantee programs. Second, it provides
entrepreneurial assistance through partnerships with private entities
that offer small business counseling and technical assistance. Third,
SBA administers various small business development and procurement
programs that are designed to assist small and disadvantaged businesses
in obtaining federal contracts. Finally, SBA makes loans to businesses
as well as individuals trying to recover from major disasters. Although
most SBA disaster loans are processed at the SBA loan processing center
in Sacramento, California, SBA has a network of 68 field offices
nationwide.
SBA administers several business loan programs, including the Basic
7(a) Loan Guaranty Program, 504/CDC Loan Program , 7(m) Micro Loan
Program, and the Small Business Investment Company (SBIC) Program.
Recently, it added the Small/Rural Lender Advantage Pilot Program,
under its 7(a) Program, specifically for small businesses in rural
areas (see fig. 1). Appendix II provides a more detailed description of
each program.
Figure 1: SBA's Primary Loan Programs:
[See PDF for image]
SBA's Primary Loan Programs, as follows:
SBA:
U.S. Small Business Administration Programs:
Basic 7(a) Loan Guaranty Program:
Basic 7(a) Loan Guaranty Program allows SBA to guarantee up to 85
percent of the loan amount made by private lenders to small businesses
for a variety of general business purposes including, working capital,
machinery, equipment, land and buildings, and certain debt refinancing.
The 7(a) is SBA's largest loan program. In fiscal year 2007, the
program provided more than 99,000 loans totaling nearly $14 billion.
504/CDC Loan Program:
504/CDC Loan Program provides long-term, fixed-rate financing to small
businesses to acquire real estate, machinery, or equipment for
expansion or modernization. It typically includes a loan secured by a
certified development company of up to 40 percent of the total loan
amount. In fiscal year 2007, the 504 program provided about 11,000
loans, totaling approximately $6 billion.
7(m) Micro Loan Program:
7(m) Micro Loan Program provides short-term loans of up to $35,000 to
small businesses. SBA makes funds available to an intermediary lender,
who in turn, makes the microloan to the applicant. The program provided
about $19 million in microloans during fiscal year 2007.
Small Business Investment Company (SBIC) Program:
Small Business Investment Company (SBIC) Program provides equity
capital, long-term loans, and management assistance to small businesses
that are either starting up or growing. SBICs, licensed by SBA, are
privately owned and managed investment firms that partner with the
federal government to make capital available to small businesses
through investments or loans. SBICs use their own funds as well as
funds obtained with SBA guarantees. In fiscal year 2007, the SBIC
program provided over $2.5 billion in venture capital funding to more
than 2,000 small businesses.
Rural Lender Advantage Pilot Program:
Rural Lender Advantage Pilot Program, announced in September 2007, is a
new loan initiative designed to stimulate economic growth in rural
areas. It is aimed at encouraging rural lenders to finance small
businesses by offering a simplified application form for loans of
$350,000 or less, and a streamlined loan approval process. It also
offers lenders the ability to apply online with limited documentation
requirements. SBA guarantees 85 percent of loan amounts up to $150,000,
and 75 percent of loan amounts above $150,000. It is part of a broader
initiative to boost economies in areas that face unique challenges due
to factors such as declining population or high unemployment.
Source: SBA.
[End of figure]
In addition to its loan programs, SBA offers grant programs that
support nonprofit organizations. These grant programs are generally
designed to expand and enhance nonprofit organizations that provide
small businesses with management, technical, or financial assistance.
For example, SBA's Women's Business Development Center Program is an
SBA grant program available to private, nonprofit organizations to run
women's business centers. The program was established by the Women's
Business Ownership Act of 1988 after Congress found that existing
assistance programs for small business owners were not addressing
women's needs. The program, which specifically targets economically and
socially disadvantaged women, provides long-term training, counseling,
networking, and mentoring to women who own businesses or are potential
entrepreneurs. The program's ultimate goal is to add more well-trained
women entrepreneurs to the U.S. business community.
Additionally, SBA's Small Business Development Center (SBDC) Program,
which was created by Congress in 1980, provides management and
technical assistance to individuals and small businesses. SBDC services
include, but are not limited to, assisting prospective and existing
small businesses with financial, marketing, production, organization,
engineering, and technical problems and feasibility studies. Each state
and U.S. territory has a lead organization that sponsors and manages
the SBDC program there. The lead organization coordinates program
services offered to small businesses through a network of centers and
satellite locations at colleges, universities, vocational schools,
chambers of commerce, and economic development corporations.
Nationwide, 63 lead SBDCs and more than 1,000 satellite locations have
contracted to conduct SBDC services.[Footnote 8]
USDA's Rural Development is responsible for leading and coordinating
federal rural development assistance. Rural Development administers
over 40 development programs for rural communities, most of which
provide assistance in the form of loans, loan guarantees, and grants,
through a network of 47 state offices and about 500 area or local field
offices.[Footnote 9] Rural Development has three agencies: Rural
Housing Service (RHS), Rural Utilities Service (RUS), and Rural
Business and Cooperative Service (RBS). RHS helps rural communities and
individuals by providing loans, grants, and technical assistance for
housing and community facilities. It provides funding for single-family
homes; apartments for low-income persons, the elderly, and farm
laborers; and various community facilities such as fire and police
stations, hospitals, libraries, and schools. RUS is responsible for
administering electric, telecommunications, and water programs that
help finance the infrastructure necessary to improve the quality of
life and promote economic development in rural areas.
RBS administers programs that provide business planning and financial
and technical assistance to rural businesses and cooperatives.[Footnote
10] Specifically, RBS' guaranteed loans and other loan and grant
programs work in partnership with private sector and community-based
organizations to meet the business and credit needs of rural
businesses. Recipients of RBS' services include individuals, farmers,
producers, corporations, partnerships, public bodies, nonprofits,
American Indian tribes, and private companies. The primary business
programs include the Business and Industry (B&I) Guaranteed Loan
Program, Intermediary Relending Program (IRP), Rural Business
Enterprise Grant Program (RBEG), Rural Business Opportunity Grant
Program (RBOG), Rural Economic Development Loan and Grant Program
(REDLG), and the Renewable Energy Systems and Energy Efficiency
Improvements Guaranteed Loan and Grant Program (see fig. 2)[Footnote
11]. Appendix II provides a more detailed description of each program.
Figure 2: Rural Development's Business Programs:
[See PDF for image]
This figure is an illustration of USDA's Rural Development's Business
Programs, as follows:
USDA Programs:
Business and Industry (B&I) Guaranteed Loan Program:
Business and Industry (B&I) Guaranteed Loan Program provides financial
assistance to rural businesses in the form of a loan guaranty. The B&I
Guaranteed Loan Program, which provided over $836 million in loan
guarantees during fiscal year 2007, is Rural Development‘s largest
business program.
Intermediary Relending Program (IRP):
Intermediary Relending Program (IRP) finances business facilities and
community development projects in rural areas. Under the IRP program,
loans are provided to local organizations such as state agencies and
authorities, and private nonprofit corporations (intermediaries) for
the establishment of revolving loan funds. IRP spending in fiscal year
2007 totaled about $34 million.
Rural Business Enterprise Grant Program (RBEG):
Rural Business Enterprise Grant Program (RBEG) provides grants for
rural projects that finance and facilitate development of small and
emerging rural businesses, and help fund employment related adult
education programs. Approximately $43 million in grants were provided
in fiscal year 2007.
Rural Business Opportunity Grant Program (RBOG):
Rural Business Opportunity Grant Program (RBOG) provides grants for
technical assistance, business development, and planning to improve
economic conditions in rural areas. Under this program, about $7
million in funding was provided during fiscal year 2007.
Rural Economic Development Loan and Grant Program (REDLG):
Rural Economic Development Loan and Grant Program (REDLG) provides
loans and grants, which can be used for business start-up or expansion
projects that create rural jobs. The loans and grants are made to local
utility groups (i.e., phone and electric borrowers), and the maximum
loan and grant amount is established on an annual basis. In fiscal year
2007, about $26 million in loans and about $10 million in grants were
provided to eligible recipients.
Renewable Energy Systems & Energy Efficiency Improvements Guaranteed
Loan and Grant Program:
Renewable Energy Systems & Energy Efficiency Improvements Guaranteed
Loan and Grant Program (also referred to as the Section 9006 program)
provides grants, loans, and loan guarantees to rural small businesses
for assistance in developing renewable energy systems and making energy
efficiency improvements. Approximately $48 million in energy loans and
$11 million in energy grants were provided during fiscal year 2007.
Additionally, recipients received over $18 million in joint funding
from the program during the same period.
Source: USDA.
[End of figure]
Rural Development business programs are available in areas that meet
the program's definition of rural--for example, for the B&I program,
any area other than a city or town with a population of 50,000 or less
and the area contiguous and adjacent to such a city or town. As a
result, in general, only individuals and businesses in identified areas
with 50,000 or fewer people are eligible for most of these programs.
One exception is the Intermediary Relending Program, which is available
only to businesses in rural areas with 25,000 or fewer people.[Footnote
12]
The Complementary Nature of Some SBA and Rural Development Programs
Provides a Rationale for Collaboration:
Some SBA loan programs and Rural Development business programs are
complementary, providing a rationale for the agencies to collaborate.
Both types of programs can fund start-up and expansion projects,
equipment purchases, and working capital to rural borrowers and, in
some cases, the eligibility requirements for the programs are
comparable. However, the various programs have different and sometimes
unique strengths--for example, larger loan amounts, shorter processing
times, or targeting of different market segments. According to SBA and
Rural Development officials, collaborative efforts could allow each
agency to leverage the strengths of the other. For example, Rural
Development can finance larger projects than SBA and lend to nonprofit
organizations, something SBA cannot do. However, SBA can offer
entrepreneurs a faster turnaround time in loan processing. Similarly,
officials noted that certain SBA and Rural Development loan products
complemented one another and were used jointly to finance individual
projects. To the extent that SBA's resource partners are considered
part of SBA's rural presence, both agencies have a strong rural
presence that provides another rationale for the agencies to
collaborate.
Some SBA and Rural Development Programs Serve the Same Areas and
Groups, Offer Comparable Products, and Have Similar Eligibility
Requirements:
SBA and Rural Development, which share a similar mission of increasing
economic opportunity and improving the quality of life for people in
underserved markets, including rural America, serve the same rural
geographic areas and communities and have some programs that offer
similar products to borrowers for comparable purposes. For example,
SBA's 504 Loan Program and Rural Development's Intermediary Relending
Program both offer economic development loans that can support the
growth of rural small businesses and help enhance rural communities
through business expansion and job creation. The 504 and Intermediary
Relending programs both also provide financing for the acquisition and
improvement of land, buildings and equipment, particularly when such
funding will help create or retain jobs.
Both agencies' loan and business programs are designed to help local
entrepreneurs start up or expand their businesses. For instance, SBA's
7(a) Loan Guaranty Program and Rural Development's Business and
Industry Guaranteed Loan Programs both provide financing that can be
used to establish a new business or to assist in the operation,
acquisition, or expansion of an existing business. Specifically, the
7(a) program provides funding for business start-ups, expansion,
equipment, working capital, and real estate acquisition. Similarly, the
Business and Industry Guaranteed Loan Program provides funding for
start-ups and expansion purposes, including acquisition, inventory,
real estate, working capital, equipment, construction, and enlargement
or modernization of rural businesses. These programs are provided
through loan guarantees that limit the risk to lenders. Private lenders
underwrite and service the loans and make the decisions to approve or
not approve loan requests, and SBA and Rural Development decide whether
to guarantee a portion of the outstanding loan balance if the borrower
defaults.
Further, both agencies offer programs that provide technical assistance
to eligible borrowers and, while SBA does not offer grants to start or
grow a business, it has resource partners, such as its SBDCs and
Women's Business Centers, which provide management and technical
assistance to prospective small business owners. Rural Development
offers grant programs that provide management and technical assistance
to rural borrowers. The Rural Business Enterprise Grant and Rural
Business Opportunity Grant programs provide technical assistance for
business development and to conduct economic planning in rural areas.
In addition, some of the loan and business programs have similar
eligibility requirements. For example, in administering its Renewable
Energy Systems and Energy Efficiency Improvements Guaranteed Loan and
Grant Program, Rural Development relies on SBA's definition of eligible
small businesses, including sole proprietorships, partnerships,
corporations, and cooperatives. Borrowers must also meet SBA's small
business standards for the type of industry, number of employees, or
annual revenue. Moreover, some of SBA's and Rural Development's
programs have established comparable credit criteria for the borrower.
SBA's 7(a) Loan Guaranty, 504, and Micro Loan programs and Rural
Development's Business and Industry Guaranteed Loan Program all use
similar criteria that are based on the type of project being funded and
the borrower's ability to meet normal commercial lending standards and
provide a personal guaranty, if necessary.
Examples of Assistance SBA and USDA Rural Development Provide to
Businesses:
According to SBA, the agency provided a 504 loan to the owners of a
health care business to purchase a new $7.2 million headquarters
building. Two Native American sisters from Lumberton, North Carolina,
launched the business in 2000 and were named the 2007 National Small
Business Persons of the Year. When it first opened, the health care
business had only one cell phone, two patients, and a certified nursing
assistant. Today, according to SBA, the business provides a broad range
of services, employing 301 professionals and serving 760 patients
daily, with annual sales over $9 million. According to USDA, the
Southeast Iowa Regional Planning Commission sought financing for a
revolving loan fund to serve Des Moines, Henry, Lee, and Louisa
counties in Southeast Iowa. In response to this request, Rural
Development, through its Intermediary Relending Program, awarded the
commission $600,000 to provide low-interest loans to public and
nonprofit organizations that, in turn, would relend those funds to
support business and community development. As a result of the project,
according to USDA, 7 businesses were assisted, 200 jobs were created,
and 259 jobs were saved.
SBA and Rural Development Programs Have Several Key Differences:
SBA and Rural Development officials we spoke to stated there was little
overlap or duplication between the two agencies' loan and business
programs, in part because of several key differences. First, Rural
Development can finance larger projects than SBA. The maximum loan
amount for SBA's 7(a) loan is $2 million, compared with a maximum loan
amount for Rural Development's Business and Industry loan of $25
million.[Footnote 13] Second, the 7(a) and Business and Industry
programs also offer different loan guaranties. The maximum guaranty for
7(a) loans is 85 percent for loans up to $150,000 and 75 percent for
loans over $150,000. The maximum guaranty percentage for Business and
Industry loans is 80 percent for loans up to $5 million, 70 percent for
loans between $5 million and $10 million, and 60 percent for loans of
more than $10 million. Third, the costs, fees, and loan terms differ
for the two types of loans. For example, SBA charges a guaranty fee of
2 percent for loans up to $150,000, 3 percent for loans between
$150,000 and $700,000, and 3.5 percent for loans up to $1 million. SBA
also charges an additional quarter of a percent of the guaranteed
portion over $1 million. Rural Development charges an initial guaranty
fee not to exceed 2 percent of the guaranteed portion of the loan.
[Footnote 14] The maximum loan terms for SBA 7(a) loans are determined
by the following: (1) the shortest appropriate term, depending on the
borrower's ability to repay; (2) 10 years or less, unless it finances
or refinances real estate or equipment with a useful life exceeding 10
years; and (3) a maximum of 25 years, including extensions.[Footnote
15] However, the maximum loan terms for Rural Development's Business
and Industry loans are 7 years for working capital, 15 years for
equipment, and 30 years for real estate loans.
Each program also offers some unique strengths. While Rural
Development's fees tend to be lower than SBA's, SBA usually processes
its loans faster. In general, the average processing time by SBA for
SBA loans is 5 to 7 business days and for Rural Development business
programs 10 to 60 days, depending on the scope of the project and
completeness of the application. SBA can offer shorter turnaround in
loan processing, particularly for its 7(a) program (which sometimes
takes as little as 2 business days), because of its various express
loan options, preapproved lenders, and consolidated loan processing
center. Rural Development makes credit and underwriting decisions
itself rather than relying on preapproved lenders, and its loans can
take as long as 60 days to process. Moreover, Rural Development has
certain restrictions on the maximum dollar amount of loans that can be
approved by field offices--typically varying by state based on the loan
approval authority. Therefore, Business and Industry loans above a
state's loan approval limit must be approved by Rural Development
headquarters officials, resulting in additional loan processing times.
While both agencies serve rural areas, their programs differ in the
types of entities they serve. SBA's loan programs only serve the for-
profit sector, focusing on individual entrepreneurs and small
businesses. However, Rural Development's business programs focus on
individual entrepreneurs and small and mid-size businesses, as well as
nonprofits. Appendix III further illustrates some of the similarities
and differences between SBA's and Rural Development's loan and business
programs.
Collaboration Allows SBA and Rural Development to Leverage Each
Agency's Strengths and Increase Financing Options in Rural Areas:
According to SBA and Rural Development officials who are engaged in
collaborative relationships, collaboration allows the agencies to
leverage the unique strengths of each agency's programs and increase
the number of financing options to better promote economic development.
For instance, SBA and USDA officials in North Dakota said that SBA's
504 program and Rural Development's Intermediary Relending programs
were frequently coupled in loan packages. In those cases, the 504
program provided funding for land and buildings, and the Intermediary
Relending program provided funding for machinery, equipment, working
capital, and other uses. The officials estimated that about one of
every four 504 loans in rural communities in North Dakota with
populations of less than 25,000 residents had been used jointly with
Intermediary Relending loans to finance individual projects. Examples
of businesses in North Dakota that have received joint financing from
SBA and Rural Development include an agricultural retail service that
sells chemicals and fertilizer and employs 7 workers and a manufacturer
of electric thermal storage heating equipment that employs 140 workers.
In each of these examples, the businesses used SBA's 504 program to
acquire a building and used the IRP program to acquire machinery and
equipment.
Other officials with whom we spoke cited further rationale for the
agencies to collaborate. In one instance, a Rural Development official
in New Mexico noted that collaboration with SBA allowed him to tap into
SBA's preexisting constituency of banks, expanding the number of
lenders that could help provide Rural Development loans to potential
borrowers. Similarly, SBA officials in New Mexico said that
collaboration with Rural Development allowed SBA to provide additional
assistance to small businesses after Rural Development provided initial
financing for a community's infrastructure.[Footnote 16]
The officials involved in the limited instances of collaboration that
we identified acknowledged that working together allowed both agencies
to coordinate the delivery of their loan and business programs to solve
specific credit needs. SBA and Rural Development officials in North
Dakota also told us that by collaborating they were able to provide
borrowers with more financing options than they could by acting alone,
thereby improving service to borrowers. Moreover, according to
officials in North Dakota and New Mexico, collaboration also created a
synergistic effect to better promote economic development in rural
areas.
Finally, while some consolidation has occurred over time, both agencies
have a strong presence in rural areas. Prior to its 1994
reorganization, USDA had field staff in almost every rural county.
Consistent with its reorganization, and as we reported in September
2000, USDA closed or consolidated about 1,500 county offices into USDA
service centers and transferred more than 600 Rural Development field
positions to the St. Louis Centralized Servicing Center. The number of
Rural Development offices across the nation is now closer to the number
of SBA offices--47 Rural Development state offices and 68 SBA district
offices (see fig.3).
Figure 3: SBA District Offices and Rural Development State Offices, by
Location:
[See PDF for image]
This figure is a map of the United States indicating the locations of
the following:
* USDA Rural Development State Office;
* SBA District Office;
* Cities with both types of offices.
Source: SBA and USDA (data); Art Explosion (map).
[End of figure]
In addition to its state offices, Rural Development also has about 500
field offices, including area, subarea, and other local offices in
rural areas. SBA officials we spoke to in headquarters believe that SBA
has a similar presence in rural communities because of its more than
950 SBDC locations in the 50 states, U.S. territories, and the District
of Columbia. In contrast to SBA's view, Rural Development officials
believe that the presence of its 500 field offices in rural areas is
unique because each office is staffed by USDA employees. Although SBA's
SBDCs may provide services that differ from services provided by Rural
Development field offices, to the extent that SBDCs are considered part
of SBA's rural presence, both agencies have a strong rural presence
that provides another rationale for the agencies to collaborate.
SBA and Rural Development's Collaborative Efforts Have Been Sporadic:
Overall, in the areas where SBA and Rural Development were
collaborating, the efforts were sporadic, were initiated and
administered at local levels, and appeared to be dependent on
established working relationships among those involved. The results of
a query by Rural Development and SBA officials asking their offices
whether collaborative efforts were under way also indicated that such
efforts were sporadic. We found that the extent of the collaboration
that was taking place and the level of formality--that is, the use of
cooperative agreements, such as MOUs and other mechanisms to
collaborate--varied across the agencies' field offices. For example, in
North Dakota, SBA and Rural Development collaborated frequently and on
a relatively formal basis by communicating at least weekly, hosting
several joint lender training sessions yearly, and establishing an MOU
to deliver financing and technical assistance at one location. In other
states we visited, such as Nebraska and New Mexico, SBA and Rural
Development worked with each other less frequently and on a more
informal basis. In a number of other states, such as Arizona, Colorado,
and Georgia, no collaborative efforts appeared to be under way.
Most of the Current Collaborative Efforts between SBA and Rural
Development Have Been Initiated at the Local Level:
Federal agencies that are involved in collaborative efforts are
generally required by statute to collaborate, but no such specific
requirement exists for SBA and Rural Development. As a result, we found
that most ongoing collaborative efforts between the agencies had been
initiated at the local level and were based on established working
relationships among the involved individuals. For example, some SBA and
Rural Development field office officials at the three sites we visited
told us that they frequently collaborated with each other because they
had held the same job positions, within their respective agencies, and
worked together for many years and thus had established a rapport.
Other officials told us that they were involved in collaborative
efforts because they had initiated the efforts on their own or had
prior experience in partnering with other agencies and had chosen to
continue similar efforts.
SBA and Rural Development headquarters officials conducted a query of
their respective field office staff to determine the extent to which
these offices were involved in any formal or informal collaborative
efforts. In addition to information we obtained from the three
locations we visited, the query results showed that collaborative
efforts developed sporadically among a limited number of offices. For
example, of SBA's 68 district offices, only about half reported having
ongoing collaborative efforts with Rural Development. Similarly, only
about half of Rural Development's 47 state offices reported having
ongoing collaborative efforts. Of those Rural Development offices that
reported not having any ongoing efforts, a few indicated that they had
partnered with SBA in the past. Each agency's query also showed that
some SBA and Rural Development field offices seemed to have good
working relationships that had been established over the years by the
specific individuals involved.
A Few SBA and Rural Development Field Offices Have Established Formal
Collaborative Efforts:
Our site visits and the results of the query of field offices
identified a few SBA and Rural Development offices, such as those in
North Dakota, Ohio, and Washington state that appeared to be
collaborating frequently. These offices used formal mechanisms such as
MOUs to establish a framework for their efforts. In North Dakota, for
example, SBA and Rural Development offices offered at least eight joint
lender trainings each year and held quarterly meetings. In addition, in
North Dakota the agencies had established an MOU that created the
Entrepreneur Centers of North Dakota (ECND), a single entity involving
SBA, Rural Development, and other state and local stakeholders.
[Footnote 17] According to officials at the center, the ECND provides
"one-stop" access to a variety of products and services, a concept that
has been widely used by USDA in its service centers for over 10 years
and that was a cornerstone of the agency's reorganization efforts.
[Footnote 18]
Through the ECND, a prospective small business borrower in North Dakota
can work with the five ECND partners to obtain financing and technical
assistance from any of the more than 15 programs that are offered. ECND
partners work with the borrower from the initial point of contact and
continue their assistance through the process of securing the
appropriate financing and may stay involved until a project is
completed. Borrowers can also work with "resource partners," including
SBA's SBDC and the North Dakota Women's Business Center (i.e., Center
for Women and Technology) to obtain technical assistance in areas such
as business management, marketing, production, and the development of
feasibility studies. According to SBA and Rural Development officials
in North Dakota, the ECND is one of the best examples of teamwork and
has proven to be beneficial in helping to provide a high level of
customer service to rural borrowers.
The SBA and Rural Development offices in Ohio also reported ongoing
collaborative efforts. The officials reported having an MOU, which was
established in the late 1990s, to guide various joint activities and to
promote the use of each other's programs in marketing and outreach
efforts. Under the MOU, which is still used today, the offices provide
referrals, conduct periodic meetings to update program information, and
engage in forums and joint lender training sessions to educate lenders
on their programs. The SBA and Rural Development offices in Washington
reported having annual forums to share updated program information.
They also said that they had sponsored three joint lender training
sessions and a regional lender conference to educate lenders on the
various aspects of their loan and business programs. The SBA and Rural
Development offices plan to conduct a series of joint lender workshops
in 2008 and to establish an MOU that will guide their efforts and cover
advertising for the workshops.
SBA and Rural Development Collaborated Less Frequently, Informally, or
Not At All in Many Locations:
The two agencies reported several other instances of collaboration, but
these were less extensive and formal than those in North Dakota, Ohio,
and Washington state. For example, Nebraska SBA and Rural Development
officials reported conducting joint lender training sessions to educate
loan officers on the agencies' various loan and business programs and
provide information on the technical resources that are available to
small businesses throughout the state. In New Mexico, SBA and Rural
Development officials reported conducting joint monthly meetings and
community outreach sessions, or "Access to Capital" forums. The forums
are 1-day events during which Rural Development, SBA, and SBDC
officials and other local economic development professionals make
presentations on the various types of loan programs that are available
to small businesses. The forums' goal is to involve local economic and
political leaders in assisting small businesses in rural areas of the
state and to obtain their buy-in and support for SBA and Rural
Development programs.
SBA and Rural Development officials in other locations reported that
they were involved in informal collaborative efforts. In Arkansas,
Missouri, and Virginia, these activities were based on referrals.
According to officials in these areas, SBA and Rural Development field
personnel often refer applicants in need of financing to each other's
agency if the other agency's programs seem better suited to the
applicants' needs. SBA and Rural Development offices in Massachusetts
also reported that they had recently sponsored a joint educational
event on renewable energy and energy efficiency grants and loans and
had held meetings to exchange program information. Additionally, in New
Hampshire, Rhode Island, and Vermont, the offices reported that they
had informal relationships and generally kept each other up to date on
their respective programs.
In many states, however, SBA and Rural Development do not appear to be
collaborating at all or to have formal or informal mechanisms to
facilitate collaboration. These states include, among others, Arizona,
Colorado, Georgia, Maine, North Carolina, Utah, and West Virginia.
Because of this lack of collaboration, SBA and Rural Development
offices in these states may be missing out on opportunities to work
together to better serve entrepreneurs and small businesses in their
local communities.
SBA and Rural Development have Collaborated with Each Other and Other
Agencies in the Past:
SBA and Rural Development have collaborated in the past with each other
and with other agencies. Generally speaking, these efforts enabled the
agencies to achieve results that they could not have achieved acting
alone. For example, SBA and Rural Development collaborated with each
other under the RBIP. Section 6029 of the Farm Security and Rural
Investment Act of 2002 required USDA to establish the RBIP.[Footnote
19] The purpose of the program was twofold: first, to promote economic
development and create jobs in rural areas by encouraging investments
of venture capital to help develop small rural businesses; and second,
to establish a developmental venture capital program to address the
unmet equity investment needs of small rural businesses.
RBIP was modeled after SBA's Small Business Investment Company program
and its New Markets Venture Capital program, and Rural Development was
expected to draw upon the experience that SBA had gained in
administering these programs.[Footnote 20] Under an interagency
agreement required by the act, Rural Development had oversight
responsibility for RBIP, and SBA had the day-to-day responsibility for
managing and operating the program using its own staff, procedures, and
forms. According to both SBA and Rural Development officials, the
success of RBIP was limited due to a lack of funding, in part because
the Deficit Reduction Act of 2005 rescinded fiscal year 2007 and
subsequent funding for the program. Both agencies also encountered
challenges during planning and implementation. For instance, it took
about 2 years from the time that the law was enacted in 2002 to
finalize and sign the operating agreements, establish interim final
rules, and announce funding availability in 2004. Prior to the loss of
funding in 2006, only one company was able to raise the necessary
capital (i.e., private equity matching dollars) for full approval to
become licensed as a rural business investment company under RBIP.
[Footnote 21]
According to SBA and Rural Development officials, the agencies have
also collaborated with other agencies, and the results have reportedly
been beneficial for both SBA and USDA. For instance, both SBA and Rural
Development each collaborated with FCA to examine specialized lending
institutions. Specifically, SBA oversees small business lending
companies (SBLC), which are nondepository lending institutions licensed
by SBA that play a significant role in SBA's 7(a) Loan Guaranty
Program. However, SBLCs are not generally regulated or examined by
financial institution regulators. SBA entered into a contractual
agreement with FCA in 1999 that tasked FCA with conducting safety and
soundness examinations of the SBLCs. Under the agreement, FCA would
conduct examinations of SBLCs on a full cost-recovery basis, and the
agencies would have the option to terminate or extend the agreement
after 1 year.[Footnote 22] Rural Development also collaborated with FCA
under an Economy Act agreement to conduct examinations of its
nontraditional lenders (i.e., lenders that provide loans to borrowers
that do not meet the traditional credit criteria) that participate in
Rural Development's B&I, Renewable Energy Systems and Energy Efficiency
Improvements, and Community Facilities Guaranteed Loan Programs.
[Footnote 23] Under the agreement, FCA conducts, on a full cost-
recovery basis, examinations of the lending institutions' safety and
soundness, lending practices, and regulatory compliance. These
agreements have allowed both SBA and Rural Development to take
advantage of FCA's expertise in examining specialized financial
institutions and offered FCA the opportunity to broaden its experience
through exposure to different lending environments.
Additionally, Rural Development and FEMA collaborated in providing
disaster assistance to Hurricane Katrina victims. Through this
collaborative effort, Rural Development assisted victims of Katrina by
(1) making multifamily rental units available nationwide; (2) providing
grants and loans for home repair and replacement; and (3) providing
mortgage relief through a foreclosure moratorium and mortgage payment
forbearance. Over the years, Rural Development's Housing and Community
Facilities Program and HUD have routinely collaborated with each other
to provide affordable housing assistance in rural communities, and the
working relationship still exists today. Rural Development and HUD have
together created a voucher program, modeled after HUD's Housing Choice
Voucher program that provides rental assistance to families in rural
areas. They have also developed cooperative agreements for their
multifamily housing assistance programs that allow tenants to use HUD
vouchers in USDA subsidized multifamily housing units. We were told
that each of the collaborative efforts allowed the agencies to
establish common approaches to working together, clarify priorities as
well as roles and responsibilities, and align their resources to
accomplish common outcomes.
SBA and Rural Development Could Take Steps to Establish a Formal
Approach to Collaboration:
SBA and Rural Development have not had a lasting approach to guide them
in collaborating with one another more effectively. Our October 2005
report on key practices that can help enhance and sustain collaboration
among federal agencies identified a number of practices critical to
successful collaboration and identified other factors such as
leadership, trust, and organizational culture that are necessary
elements of an effective working relationship.[Footnote 24] In December
2000, SBA and Rural Development entered into an MOU that provided an
approach to collaboration. The MOU incorporated three of the key
practices we have identified. The MOU expired in 2003 and SBA and Rural
Development do not appear to have implemented the MOU when it was
active. The ineffective implementation of the MOU has likely
contributed to the sporadic and limited amount of collaboration that is
taking place between the two agencies. SBA and Rural Development also
do not have formal incentives focused on collaboration and do not track
the results or impact of collaborative efforts. As a result, the
agencies are unable to share information on the benefits of working
together and encourage additional efforts to do so. Without a formal
approach to encourage further collaboration, the agencies will be less
likely to fully leverage each other's unique strengths to help improve
small business opportunities and encourage economic development in
rural communities.
SBA and Rural Development Do Not Have A Current Cooperative Agreement
to Facilitate Collaboration:
In our October 2005 report, we identified eight key practices federal
agencies could undertake to enhance and sustain their collaborative
efforts.[Footnote 25] These practices included the following:
* Define and articulate a common outcome--to overcome significant
differences in agency cultures and established ways of doing business,
collaborating agencies must have a clear and compelling rationale to
work together.
* Establish mutually reinforcing or joint strategies--to achieve a
common outcome, collaborating agencies need to establish strategies
that work in concert with those of their partners or are joint in
nature.
* Identify and address needs by leveraging resources--collaborating
agencies should identify the human, information technology, physical,
and financial resources needed to initiate or sustain their
collaborative effort. By assessing their relative strengths and
limitations, agencies can look for opportunities to address resource
needs by leveraging each others' resources.
* Agree on agency roles and responsibilities--collaborating agencies
should work together to define and agree on their respective roles and
responsibilities, including how the collaborative effort will be led.
* Establish compatible policies, procedures, and other means to operate
across agency boundaries--to facilitate collaboration, agencies need to
address the compatibility of standards, policies, procedures, and data
systems that will be used in the collaborative effort.
* Develop mechanisms to monitor, evaluate, and report on results--
agencies involved in collaborative efforts need to create the means to
monitor and evaluate their efforts to enable them to identify areas for
improvement.
* Reinforce agency accountability for collaborative efforts through
agency plans ands reports--collaborating agencies should ensure that
goals are consistent and, as appropriate, program efforts are mutually
reinforced through tools such as strategic and annual performance
plans; and:
* Reinforce individual accountability for collaborative efforts through
performance management systems--collaborating agencies should use their
performance management systems to strengthen accountability for
results, specifically by placing greater emphasis on fostering the
necessary collaboration both within and across organizational
boundaries to achieve results.
In comparing SBA and Rural Development's efforts to these key
practices, we found that the agencies have taken steps in the past that
were consistent with three of the key practices. In particular, the
agencies entered into a cooperative agreement--an MOU--in December 2000
that (1) defined and articulated a common outcome; (2) reached
agreement on roles and responsibilities; and (3) established a
mechanism to monitor, evaluate, and report on results.[Footnote 26]
Specifically, the MOU defined and articulated a common purpose,
including to better serve rural areas by coordinating the delivery of
programs; increase the number of small business loans guaranteed by
both agencies; and develop relationships with federal, state, county,
and local agencies, private organizations, and commercial and financial
institutions to facilitate and support the development of strong rural
businesses. In addition, the MOU described the respective roles and
responsibilities each agency would maintain in providing training on
their programs, credit analysis techniques, and processing and
servicing policies. Finally, the MOU stated that, at least annually,
SBA's Associate Administrator for Field Operations, SBA's Associate
Administrator for Financial Assistance, and Rural Development's Deputy
Administrator for Business Programs, or their designees, would monitor
and evaluate the previous year's joint activities and plan any future
work.
The MOU, signed in December 2000, was to become active on the date of
execution and remain in effect for 3 calendar years at which time the
two agencies had the option to extend it for an additional 2 years by
written agreement. SBA's Deputy Administrator and USDA's Undersecretary
for Rural Development signed the MOU and it expired in 2003. Both SBA
and Rural Development officials recently confirmed that the MOU was not
renewed.
SBA and Rural Development Do Not Appear to Have Implemented the
December 2000 MOU When it Was Active:
Although SBA and Rural Development's December 2000 MOU contained
provisions that are consistent with some of our key practices as
described above, the agencies do not appear to have implemented the MOU
when it was active. Based on our analysis, there are two potential
reasons for this lack of implementation.
First, SBA and Rural Development may not have implemented the 2000 MOU
when it was active because of a lack of direction and focus from high
levels of each agency emphasizing the need for and importance of
collaboration. Rural Development officials confirmed that a change in
USDA administration occurred after the 2000 MOU was signed, and the
officials who signed the MOU were no longer in the positions they
occupied at the time of the signing. This explanation is consistent
with what others told us about barriers to more effective collaboration
between federal agencies. For example, a representative of a rural
community development organization with whom we spoke stated that the
initial momentum for some collaborative efforts may come from officials
in management level positions of a federal agency, but after the
responsible officials leave the agency, or a change in administration
occurs, the momentum for a collaborative effort may drop off and not be
resumed by the officials' successors.
Second, the 2000 MOU may not have been fully implemented because
neither agency appeared to be actively monitoring the extent to which
collaboration was ongoing. For instance, when we began our work for
this review, we asked SBA and Rural Development officials in
headquarters to provide examples of formal or informal efforts the
agencies have undertaken to work together. The officials were not able
to provide any descriptions of such efforts and told us that ongoing
collaborative efforts were likely to be sporadic and occurred only as
needed in the agencies' field offices. Because we could not obtain
information on the extent and nature of SBA and Rural Development's
collaborative efforts, we asked each agency to query its field offices
to provide us with this information. As discussed previously, based on
the results of each agency's query, we found a few locations where SBA
and Rural Development are involved in frequent and formal collaborative
efforts, some locations where the agencies are involved in informal
efforts, and many locations where the agencies appear not to be working
together at all.
SBA and Rural Development officials did not cite the December 2000 MOU
when we began work for this review and, for a period of months, the
agencies did not appear to be in agreement as to whether the MOU was
active. In March 2008, Rural Development officials informed us that
they were operating as though the MOU was active, even though it had
expired. However, when we asked about the December 2000 MOU during some
of our visits to locations where SBA and Rural Development were
collaborating, some officials in the locations were unfamiliar with it.
During the course of our review, neither SBA nor Rural Development
officials cited actions taken, past or present, in response to the
provisions contained in the MOU. Had SBA and Rural Development
implemented the MOU, the agencies would have had a framework to guide
them and improve upon their collaborative efforts.
SBA and Rural Development Lack Incentives for Collaboration and Do Not
Track the Results of Collaborative Efforts:
Based on our analysis, we found that SBA and Rural Development field
offices do not have formal incentives to encourage collaboration and do
not track the results of their efforts. As mentioned, as we reported in
our 2005 report, one of the key practices that can help agencies to
enhance and sustain their collaborative efforts involved ensuring that
the agencies' goals are consistent and that their program efforts are
mutually reinforced through strategic and annual performance plans.
[Footnote 27] Specifically, federal programs contributing to the same
or similar results should collaborate and use their strategic and
annual performance plans as tools to drive their efforts to work
together. Such plans can reinforce accountability for the collaboration
by establishing complementary goals and measures for achieving results
and aligning them with the goals and measures of the collaborative
efforts. SBA and Rural Development's performance goals and measures do
not focus on their efforts to work together collaboratively.
Specifically, in describing their performance goals for district
offices, SBA officials stated that each office has goals for technical
assistance, including activities such as training, marketing, and
outreach. The officials noted that each SBA district office also has
goals and measures for the number of loans to be made in underserved
markets, which may include rural areas. While these goals and measures
focus on participation in SBA's programs and may encourage offices to
partner with others, they do not focus specifically on collaboration
with Rural Development. Similarly, Rural Development's program
performance measures, particularly for the B&I program, do not focus on
collaboration with another agency. Rural Development's goals and
measures focus on employment opportunities (i.e., jobs created or
saved) and community economic benefits (i.e., value added to a
community as a result of the economic impact of Rural Development's
programs). Both SBA and Rural Development officials stated that
performance goals and measures focused on collaboration could provide
an incentive to collaborate. Once established, such goals and measures
could provide both agencies a mechanism to encourage interagency
working relationships and reward those efforts already occurring.
Additionally, SBA and Rural Development officials at the three
locations we visited said that they are not currently tracking the
results of some collaborative efforts, such as the joint training of
lenders and community outreach sessions. The officials did view these
collaborative efforts as beneficial in increasing awareness of each
agency's respective programs. According to Rural Development officials
in New Mexico, while they are satisfied with the attendance at their
"Access to Capital" forums targeted at local economic and political
leaders and lenders, they have not been able to document a loan
resulting from the forums. Rural Development officials in Nebraska said
that they have received phone calls from some lenders after the lenders
have attended a joint training session. In these cases, according to
the officials, Rural Development has been active in meeting with
lenders one-on-one to provide assistance. However, the officials said
that they could do a better job of proactively contacting the lenders
after the training to solicit feedback and determine if the lender has
initiated any new loans as a result of having attended the training
session.
SBA and Rural Development officials stated that one way to document the
benefits of collaboration would be to prepare "success stories" of
ventures that SBA and Rural Development had jointly undertaken. The
officials further stated that because each agency already prepared
success stories that are based upon participation in their individual
programs, this practice could be used to document positive benefits
stemming from collaborative efforts between the two agencies. Moreover,
the officials said that those locations where SBA and Rural Development
were not currently working together were more likely to begin doing so
if they were made aware of specific, tangible benefits that could be
realized through collaboration.
Conclusions:
The complementary nature of some SBA loan programs and Rural
Development business programs provides a rationale for the agencies to
collaborate. SBA and Rural Development officials engaged in
collaborative working relationships said that they have been able to
work together to offer rural borrowers more financing options and
better services, as well as to improve efforts to promote economic
development in rural areas when collaboration has occurred. However,
SBA and Rural Development's collaborative efforts to date have been
sporadic and mostly self-initiated by specific officials in each
agency's field offices. Officials of each agency worked together
frequently in some locations and infrequently in others. In many areas,
SBA and Rural Development neither appear to be collaborating at all nor
have formal or informal mechanisms to guide their collaboration.
For SBA and Rural Development, working together to encourage economic
development in rural areas is not a new or novel concept. Both agencies
entered into earlier cooperative agreements to work collaboratively.
However, when comparing these past efforts with our criteria for
effective interagency collaboration, we found that the agencies could
take further steps to facilitate collaboration by establishing and
implementing a formal approach. Such an approach could help SBA and
Rural Development establish the guidance, direction, and incentive
structure needed to bring about a productive working relationship on a
more systematic basis. Our previous work in this area shows that
adopting key practices--such as defining and articulating a common
outcome; specifying roles and responsibilities; establishing a
mechanism to monitor, evaluate, and report on results; and reinforcing
agency accountability for collaborative efforts--can help federal
agencies enhance and sustain their collaborative efforts. One way SBA
and Rural Development can adopt these key practices is to enter into a
written cooperative agreement and, just as important, implement that
agreement and take appropriate steps to monitor and report on results.
Moreover, by creating formal incentives, such as performance goals and
measures specifically focused on collaboration or, similarly, preparing
success stories to document the benefits of their collaborative
efforts, SBA and Rural Development can share and publicize information
that would help encourage the two agencies to work together. Such an
approach can help SBA and Rural Development to effectively leverage
each other's unique strengths to help improve small business
opportunities and promote economic development in rural communities.
Recommendations for Executive Action:
To improve SBA and Rural Development's collaborative efforts, we
recommend that the Administrator of SBA and Secretary of Agriculture:
take steps to adopt a formal approach to encourage further
collaboration in support of common economic development goals in rural
areas. Such steps could include establishing and implementing a written
agreement; defining and articulating a common outcome for rural
economic development; specifying roles and responsibilities to ensure
proper coordination; establishing mechanisms to monitor, evaluate, and
report on results; and reinforcing accountability for collaborative
efforts.
Agency Comments:
We provided a copy of our draft report to the Acting Administrator of
the Small Business Administration and the Secretary of Agriculture for
review and comment. Both agencies provided technical comments, which we
incorporated into the final report where appropriate.
We are sending copies of this report to other interested congressional
committees as well as the Administrator of the Small Business
Administration and the Secretary of Agriculture. We also will make
copies of this report available to others upon request. In addition,
this report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
Please contact me at (202) 512-8678 or ShearW@gao.gov if you or your
staff have any questions about this report. Contact points for our
Office of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix V.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
List of Congressional Requesters:
The Honorable John F. Kerry:
Chairman, Committee on Small Business and Entrepreneurship:
United States Senate:
The Honorable Steve Chabot:
Ranking Member:
Committee on Small Business:
House of Representatives:
The Honorable Heath Shuler:
Chairman, Subcommittee on Rural and Urban Entrepreneurship:
Committee on Small Business:
House of Representatives:
The Honorable Jeff Fortenberry:
Ranking Member:
Subcommittee on Rural and Urban Entrepreneurship:
Committee on Small Business:
House of Representatives:
The Honorable Vern Buchanan:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
The Small Business Administration (SBA) programs in our scope (see fig.
4) include the major business loan programs--Basic 7(a) Loan Guaranty,
504/Community Development Corporation Loan and the 7(m) Micro Loan, as
well as the Small Business Investment Company (SBIC) and the Rural
Lender Advantage Pilot programs. The Department of Agriculture (USDA)
Rural Development programs in our scope include the primary business
programs including the Business and Industry Guaranteed Loan,
Intermediary Relending, Rural Business Enterprise Grant, Rural Business
Opportunity Grant, Rural Economic Development Loans and Grants, and the
Renewable Energy Systems and Energy Efficiency Improvements Guaranteed
Loan and Grant programs.
Figure 4: Summary of Programs Included in Our Scope:
[See PDF for image]
This figure is an illustration of the following information:
Summary of Programs Included in Our Scope:
Small Business Administration (SBA) (5 programs):
* Basic 7(a) Loan Guaranty Program[A];
* 504/CDC Loan Program[A];
* 8(m) Micro Loan Program[A];
* Small Business Investment Company (SBIC) Program[A];
* Rural Lender Advantage Pilot Program[A].
United States Department of Agriculture Rural Development (USDA) (6
programs):
* Rural Business-Cooperative Service;
- Business and Industry (B&I) Guaranteed Loan Program[A];
- Intermediary Relending Program (IRP)[A];
- Rural Business Enterprise Grant Program (RBEG)[A];
- Rural Business Opportunity Grant Program (RBOG)[A];
- Rural Economic Development Loan and Grant Program (REDLG)[A];
- renewable Energy Systems and Energy Efficiency Improvements
Guaranteed Loan and Grant Program[A];
* Rural Housing Service;
* Rural Utilities Service.
[A] Programs covered by GAO.
Source: SBA; USDA.
[End of figure]
In this report, we define collaboration as any joint activity that is
intended to produce more public value than can be produced when the
agencies act alone. It can include interagency activities that others
have previously defined as cooperation, coordination, integration, or
networking.
To determine the extent to which SBA and Rural Development's primary
loan and business programs are complementary and to identify the
rationale for SBA and Rural Development to collaborate, we reviewed the
mission and structure of SBA and Rural Development offices. We reviewed
relevant agency documents and examined laws, regulations and policies
on each agency's loans, grants, and other business programs. We
reviewed eligibility requirements and the type of assistance (i.e.,
direct loan, loan guaranty, grant, etc.), funding levels, and eligible
use of program funds, as well as information about each agency's loan
processes and procedures, participation requirements, number of awarded
loans and grants, and loan process times. We also interviewed agency
officials on the similarities and differences between the two agencies'
primary loan and business programs, and whether the similarities may
have an effect on collaboration. We reviewed our prior work on
interagency collaboration and key practices that can help enhance and
sustain collaborative efforts. We obtained input from SBA and USDA
agency officials, SBA resource partners, lenders, and nonprofit
organizations involved in the rural economic development process on the
goals and common outcomes they envision from increased collaboration
between the SBA and Rural Development. Also, using information
collected on the mission and structure of SBA and Rural Development
offices, and the purpose, eligible use, and terms/conditions of their
primary business programs, we assessed whether factors such as
complementary mission or task, compatible geographic location and
organizational structure, common client base, program overlap and
duplication, or similarities and differences in statutory authority,
provide a rationale for the two agencies to work together. As
collaboration between SBA and USDA Rural Development is not
specifically required by law or regulation, we relied on established
practices and agency officials' and stakeholder views in examining the
rationale for why SBA and USDA should collaborate.
To determine the types of collaborative efforts currently taking place
and that have taken place in the past between SBA and Rural
Development, we reviewed internal documents, such as memorandums of
understanding (MOU) and training documentation, showing ongoing and
past collaborative efforts between SBA and Rural Development. We
requested that both SBA and Rural Development conduct a query of their
respective district offices and state offices regarding all formal or
informal efforts to work collaboratively with the other agency. We
received responses from about half the SBA district offices and all of
the Rural Development state offices that either described the extent of
their collaborative efforts with the other agency, or reported that
there were no collaborative efforts ongoing. Of those SBA and Rural
Development district and state offices that reported they were working
together, we selected three locations and conducted site visits and
interviews with knowledgeable staff at each location to obtain a
thorough understanding of ongoing collaborative efforts. We selected
the sites to visit based on the reported amount of collaboration and
degree of formality of the effort. We defined formality by the presence
of a written document, such as an MOU, that served as a guide for
collaborative efforts. The goal of our selection approach was to obtain
information on a range of collaborative efforts, from frequent and
formal to infrequent and informal. The locations that we selected and
visited were Lincoln, Nebraska; Bismarck, North Dakota; and
Albuquerque, New Mexico. For two of these locations, we also spoke with
lenders that have participated in both SBA and Rural Development
programs.
To determine the types of collaborative efforts that have taken place
between SBA and other agencies, and Rural Development and other
agencies, we reviewed documentation describing the collaborative
effort. We examined the mechanisms (e.g., contractual work agreement,
MOU or other cooperative agreement, statutory provision, etc.) the
agencies used to collaborate. Additionally, we interviewed agency
officials on their knowledge of any past collaborative effort.
To determine the opportunities to facilitate and remove barriers to
more effective collaboration between SBA and Rural Development, we
reviewed our prior work on key practices that can help enhance and
sustain collaboration and address barriers to more effective
collaboration. We also obtained the views and experience of agency
officials, SBA resource partners, lenders, and select nonprofit
organizations, regarding rural economic issues, and opportunities and
barriers to more effective collaboration. We used certain
characteristics, such as personnel at both agencies, budget, training,
and management, to evaluate opportunities or barriers to collaboration.
We also assessed the potential that may be present for Rural
Development offices to help market SBA programs and services by making
information available through their field offices and whether SBA can
play a similar role for Rural Development programs. Finally, we
compared SBA and Rural Development's policies, practices, and
performance goals with key practices that can help federal agencies
enhance and sustain their collaborative efforts.
We conducted this performance audit from October 2007 to September
2008, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Description of SBA's and USDA Rural Developments' Primary
Loan and Business Programs:
Both SBA and USDA Rural Development have several loan and business
programs that provide funds to start or expand businesses in rural
areas. Through these programs, the two agencies work with individual
entrepreneurs, existing or start-up small businesses, state, local, and
tribal governments, as well as cooperatives and nonprofit agencies to
increase economic opportunity and improve the quality of life for
people in rural communities across the country.
The following sections describe the primary SBA loan programs and Rural
Development business programs.
SBA Loan Programs:
Basic 7(a) Loan Guaranty Program: serves as the primary business loan
program to help qualified small businesses obtain financing. It can be
used for a variety of general business purposes including, working
capital, machinery and equipment, land and building (including
purchase, renovation, and new construction), leasehold improvements,
and certain debt refinancing. SBA sets the guidelines for the loans and
backs the loan with a guaranty, while lenders make the loans to the
small businesses. SBA offers multiple variations of the Basic 7(a) Loan
Program to accommodate targeted needs. For example, the Patriot Express
Loan Program, which is specifically geared toward veterans, members of
the military community and their spouses, and the Community Express
Loan Program, which is aimed at women, minorities, and veterans in
underserved communities who want to start or expand a small business,
are both expedited versions of the Basic 7(a) Loan Program.
504/Certified Development Company (CDC) Loan Program: provides long-
term, fixed-rate financing to small businesses to acquire real estate,
machinery, or equipment for expansion or modernization. The 504/CDC
Loan Program cannot be used for working capital or inventory,
consolidating or repaying debt, or refinancing. Typically a 504/CDC
project includes a loan secured by a lien from a private-sector lender,
a loan secured by an additional lien from a certified development
company (CDC) (covering up to 40 percent of the total cost) and a
contribution of at least 10 percent equity from the borrower. CDCs are
private, nonprofit corporations set up to contribute to the economic
development of their communities or regions. The program is designed to
enable small businesses to create and retain jobs--the CDC's portfolio
must create or retain one job for every $35,000 provided by the SBA.
7(m) Micro Loan Program: provides short-term loans of up to $35,000 to
small businesses and not-for-profit child-care centers for working
capital or the purchase of inventory, supplies, furniture, fixtures,
machinery, or equipment. The average loan size is about $13,000, and
proceeds can be used for typical business purposes such as working
capital, machinery and equipment, inventory, and leasehold
improvements. The proceeds cannot be used to pay existing debts or to
purchase real estate. Under this program, SBA makes funds available to
intermediaries (nonprofit community-based organizations with experience
in lending) that, in turn, make the loan directly to the entrepreneur.
The intermediary lenders also provide entrepreneurs with management and
technical assistance.
SBIC Program: provides venture capital to small independent businesses,
both new and already established. The structure of the program is
unique in that SBICs are privately owned and managed investment funds,
licensed and regulated by SBA, that use their own capital plus funds
borrowed with an SBA guarantee to make equity capital and long-term
loans to qualifying small businesses. In addition to investments and
loans, SBICs also provide management assistance to small businesses.
Small/Rural Lender Advantage Pilot Program: a part of SBA's 7 (a) loan
program, is aimed at encouraging rural lenders to finance small
businesses by streamlining the application and approval processes.
Specifically, the Small/Rural Lender Advantage offers a simplified
application form for loans of $350,000 or less, the ability to apply
online, expedited loan processing, and limited documentation
requirements. SBA will guarantee 85 percent of the loan amount for
loans of $150,000 and less, and 75 percent of loans above $150,000. It
is part of a broader initiative to boost economies in areas that face
unique challenges due to factors such as declining population or high
unemployment. The pilot program was initiated and tested in SBA's
Region VIII (North Dakota, South Dakota, Colorado, Wyoming, Utah, and
Montana) in January 2008. Following enhancements to further streamline
it, SBA is now extending the initiative to Region V, which covers
Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin. SBA also
plans to expand the initiative nationwide by the end of fiscal year
2008.
Rural Development Loan and Grant Programs:
Business and Industry (B&I) Guarantee Loan Program: (often referred to
as the B&I program) provides financial assistance to rural businesses
in the form of a loan guarantee for up to 80 percent of the loan
amount. Borrowers work with a local lending agency (e.g., bank or
credit union), which in turn seeks a guarantee from Rural Development.
A borrower may be an individual; a cooperative organization,
corporation, partnership, or other legal entity organized on a profit
or nonprofit basis; an American Indian tribe or other federally
recognized tribal group; or a public body (i.e., town, community, state
agency, and authority). Loan purposes must be consistent with the
purpose of the program, which is to improve, develop, or finance
business, industry, and employment and improve the economic climate in
rural communities. They include, but are not limited to, the following:
* business and industrial acquisitions under certain conditions;
* business conversion, enlargement, repair, modernization, or
development;
* purchase and development of land, easements, buildings, or
facilities; and:
* purchase of equipment, leasehold improvements, machinery, supplies,
or inventory or working capital.
The total loan amount available to any one borrower under this program
is limited to $25 million. An exception to the limit for loans up to
$40 million may be granted for rural cooperative organizations that
process value-added agricultural commodities. B&I loans are available
to borrowers in rural areas, which include all areas other than cities
or towns of more than 50,000 people and the contiguous and adjacent
urbanized area of such cities or towns. The B&I Guaranteed Loan
Program, with a fiscal year 2007 funding level of $953 million, is
Rural Development's largest business program.
Intermediary Relending Program (IRP): finances business and economic
development activities that seek to create or retain jobs in
disadvantaged and remote communities. Under the IRP program, loans are
provided to local organizations (intermediary lenders) for the
establishment of revolving loan funds that provide loans to ultimate
recipient borrowers. The revolving loan funds are used to assist the
borrower with financing business facilities and community development
projects. Projects must be located in a rural area, which for this
program excludes cities with a population of 25,000 or more. Some
examples of eligible projects are as follows:
* business and industrial acquisitions under certain conditions;
* business construction, conversion, enlargement, and repair;
* purchase and development of land, easements, rights-of-way,
buildings, or facilities;
* purchase of equipment, leasehold improvements, machinery, and
supplies;
* start-up operating costs and working capital;
* transportation services, and;
* debt refinancing.
Intermediary lenders may first borrow up to $2 million and then up to
$1 million each time thereafter, not to exceed the total aggregate loan
amount of $15 million. An ultimate recipient borrower may borrow the
lesser of $250,000 or 75 percent of the total cost of the ultimate
recipient's project for which the loan is being made. Private nonprofit
corporations, public entities (i.e., towns, communities, state
agencies, and authorities), American Indian tribes or other federally
recognized tribal groups, and some cooperatives are eligible to
intermediaries. Borrowers that are generally eligible to apply for
loans from intermediary lenders include individuals, corporations or
partnerships, trusts or other profit-oriented or nonprofit
organizations, and public entities.
Rural Business Enterprise Grant Program (RBEG): provides grants to
public bodies, including American Indian tribes and other federally
recognized tribal groups, and private nonprofit corporations, to
finance and facilitate the development of small and emerging private
businesses in rural areas (i.e., any area other than a city or town
that has a population of greater than 50,000 and the urbanized area
contiguous and adjacent to such a city or town. Small and emerging
private businesses are those that will employ 50 or fewer new employees
and have less than $1 million in projected gross revenues. Grants may
be used for:
* easements, and rights of way;
* construction, conversion, or modernization of buildings, facilities,
machinery, roads, parking areas, utilities, and pollution control and
abatement;
* loans for start-up operating costs and working capital;
* technical assistance for private business enterprises;
* training, when necessary, in connection with technical assistance;
and:
* production of television programs to provide information on issues of
importance to farmers and rural residents.
There is no maximum level of grant funding under RBEG. However, smaller
projects are given higher priority.
Rural Business Opportunity Grant Program: provides grants to public
entities, nonprofit corporations, cooperatives, and American Indian
tribes and other federally recognized tribal groups for training,
technical assistance, and planning activities in rural areas (i.e., any
area other than a city or town that has a population of greater than
50,000, and the urbanized area contiguous and adjacent to such a city
or town). Grants may be used to:
* identify and analyze business opportunities that will use local rural
materials or human resources;
* identify, train, and provide technical assistance to existing or
prospective rural entrepreneurs and managers;
* establish business support centers;
* conduct local community or multicounty economic development planning;
* establish centers for training, technology, and trade; and:
* conduct leadership development training.
The maximum grant for a project serving a single state is $50,000. The
maximum grant for a project serving two or more states is $150,000.
Rural Economic Development Loan and Grant Program (REDLG): provides
funding to rural projects through local utility organizations. Under
the loan program, Rural Development provides zero interest loans to
lending utility organizations that, in turn, pass make loans to for-
profit or nonprofit businesses and public entities (i.e., ultimate
recipient borrowers), for projects that will create and retain
employment in rural areas. The ultimate recipient borrower must repay
the lending utility directly, and the lending utility is responsible
for repayment to Rural Development. Under the grant program, Rural
Development provides grant funds to local utility organizations, which
may only use the funding to establish revolving loan funds. Loans are
made from the revolving loan fund to projects that will create or
retain jobs in rural areas. When the revolving loan fund is terminated,
the grant is then repaid to Rural Development. Eligible project costs
include:
* start-up venture costs, including working capital;
* business expansion;
* business incubators;
* technical assistance;
* project feasibility studies and;
* advanced telecommunications services and computer networks for
medical, educational, and job training services.
The maximum loan and grant to any eligible recipient under the Rural
Economic Development Loan and Grant Program is established on an annual
basis.
Renewable Energy Systems and Energy Efficiency Improvements Guaranteed
Loan and Grant Program: (renamed Rural Energy for America Program)
provides loan guarantees and grants to eligible small businesses,
farmers, and ranchers to assist in developing renewable energy systems
and to make energy efficiency improvements. The types of energy
projects include biofuel, wind, solar, geothermal, and hydrogen-based
projects. They must be located in a rural area (i.e., any area other
than cities or towns of greater than 50,000 population and the
immediate and adjacent urbanized areas of the cities or towns). Under
the loan program, borrowers work with local lenders in applying for a
loan guaranty up to 85 percent of the loan, depending on the amount of
the loan. The loan cannot exceed 50 percent of the project cost, and
the project must use commercially proven technology. The maximum loan
amount is $10 million per project, and the minimum is $5,000. Grants
are limited to a maximum of $500,000 and a minimum of $2,500 for
renewable energy systems, and a maximum of $250,000 and a minimum of
$1,500 for energy efficiency improvements. Eligible applicants are
agricultural producers or rural small businesses. Small businesses must
meet SBA's small business size standards.
[End of section]
Appendix III: Comparison of SBA and Rural Development Primary Business
Loan and Grant Programs:
Program title: Borrower;
SBA loan programs: Basic 7(a) Loan Guaranty Program: Any creditworthy
start-up or existing business that cannot obtain financing on
reasonable terms through normal lending channels;
SBA loan programs: 504/CDC Loan Program: Small business, for profit
corporation, partnership, or proprietorship that will create and/or
retain jobs through long-term financing;
SBA loan programs: 7(m) Micro Loan Program: Start-up and existing micro
business that can meet basic lending requirement. Borrowers may be
required to attend meetings/classes with technical assistance
providers;
Rural development loan and grant programs: Business and Industry Loan
Guaranteed Program: Any legal entity including individual, cooperative,
corporation, partnership, tribal group, government entity, and agency;
Rural development loan and grant programs: Intermediary Relending
Program: Any legal entity including individual, public, and private
organization, government entity, and agency;
Rural development loan and grant programs: Rural Economic Development
Loan and Grant Program: Rural electric cooperatives and rural telephone
cooperatives;
Rural development loan and grant programs: Renewable Energy Systems &
Energy Efficiency Improvements Guaranteed Loan and Grant Program: Rural
small business, individual, agricultural producer, or group of
agriculture producers. Must meet SBA's small business size standards;
Program title: Funding limit;
SBA loan programs: Basic 7(a) Loan Guaranty Program: SBA can guaranty a
maximum of $1,500,000. The maximum guaranty is 85% for loans up to
$150,000, and 75% for loans over $150,000;
SBA loan programs: 504/CDC Loan Program: Through CDCs, SBA can fund up
to 40% of the total project costs, from $50,000 to $1,500,000, or in
certain cases up to $2,000,000;
SBA loan programs: 7(m) Micro Loan Program: Maximum loan amount is
$35,000;
Rural development loan and grant programs: Business and Industry Loan
Guaranteed Program: Rural Development can guarantee up to $25 million;
80%-to $5 million; 70%-$5 to $10 million; 60%-over $10 million; No
minimum loan;
Rural development loan and grant programs: Intermediary Relending
Program: Intermediaries can make loans to qualified applicants for up
to 75% of eligible project. Maximum loan is $250,000;
Rural development loan and grant programs: Rural Economic Development
Loan and Grant Program: Maximum loan amount is $740,000; Maximum grant
amount is $300,000; Subject to change annually;
Rural development loan and grant programs: Renewable Energy Systems &
Energy Efficiency Improvements Guaranteed Loan and Grant Program:
Maximum renewable energy grant is $500,000; Maximum energy efficiency
grant is $250,000; Minimum for both grants is $10,000; Maximum loan is
$10,000,000.
Program title: Use of proceeds;
SBA loan programs: Basic 7(a) Loan Guaranty Program: Business start-
ups, expansion, equipment, working capital, inventory of real estate
acquisition;
SBA loan programs: 504/CDC Loan Program: Long-term financing of real
estate and equipment;
SBA loan programs: 7(m) Micro Loan Program: Working capital, inventory,
and small equipment;
Rural development loan and grant programs: Business and Industry Loan
Guaranteed Program: Permanent working capital, hard asset acquisition,
real estate, equipment and limited refinancing. Up to 50% of loan;
Rural development loan and grant programs: Intermediary Relending
Program: New and existing business, equipment purchase, or lease and
working capital;
Rural development loan and grant programs: Rural Economic Development
Loan and Grant Program: Business start-up or expansion projects that
create rural jobs. Grants may only establish a revolving loan fund;
Rural development loan and grant programs: Renewable Energy Systems &
Energy Efficiency Improvements Guaranteed Loan and Grant Program:
Purchase equipment, construction energy audits, feasibility studies,
business plans, and permit/professional service fees.
Program title: Average processing time;
SBA loan programs: Basic 7(a) Loan Guaranty Program: 5-7 business days
for loans processed by SBA;
SBA loan programs: 504/CDC Loan Program: 10-45 business days;
SBA loan programs: 7(m) Micro Loan Program: 10-45 business days;
Rural development loan and grant programs: Business and Industry Loan
Guaranteed Program: 10-60 business days depending on scope of project.
Subject to in-state loan approval limit;
Rural development loan and grant programs: Intermediary Relending
Program: 10-45 business days;
Rural development loan and grant programs: Rural Economic Development
Loan and Grant Program: 3 months to 1 year. Subject to national funding
competition;
Rural development loan and grant programs: Renewable Energy Systems &
Energy Efficiency Improvements Guaranteed Loan and Grant Program:
Subject to national funding competition.
Program title: Cost & fees; SBA loan programs: Basic 7(a) Loan Guaranty
Program: Guaranty fee of 2% for loans up to $150,000; 3% between
$150,000 and $700,000; 3.5% up to $1 million; and additional .25% of
guaranteed portion over $1 million;
SBA loan programs: 504/CDC Loan Program: CDC origination fee of 2.25%
portion and .5% on bank portion;
SBA loan programs: 7(m) Micro Loan Program: Nominal fees to cover costs
of loan closing;
Rural development loan and grant programs: Business and Industry Loan
Guaranteed Program: Typically, initial guaranty fee not to exceed 2% of
guaranteed portion of the loan and .25% annual renewal fee;
Rural development loan and grant programs: Intermediary Relending
Program: 1% origination fee of intermediary loan amount plus closing
costs;
Rural development loan and grant programs: Rural Economic Development
Loan and Grant Program: Varies and is negotiated with cooperatives;
Rural development loan and grant programs: Renewable Energy Systems &
Energy Efficiency Improvements Guaranteed Loan and Grant Program:
Typically, 1% of guaranteed portion of the loan and .125% annual
servicing fee.
Program title: Participation requirements; SBA loan programs: Basic
7(a) Loan Guaranty Program: Available anywhere. An SBA-approved lender
(commercial lending institution) is required;
SBA loan programs: 504/CDC Loan Program: Available anywhere. An SBA
program administered by a CDC. Commercial lender required;
SBA loan programs: 7(m) Micro Loan Program: Available anywhere. A
direct loan from an SBA intermediary;
Rural development loan and grant programs: Business and Industry Loan
Guaranteed Program: Available only in rural areas with a population of
less than 50,000. Generally negotiated between the commercial lending
institution and the borrower;
Rural development loan and grant programs: Intermediary Relending
Program: Available only in rural areas with a population of less than
25,000;
Rural development loan and grant programs: Rural Economic Development
Loan and Grant Program: Rural areas with populations of 2,500 or less
are given priority. The rural utility cooperatives provide loans to
small businesses;
Rural development loan and grant programs: Renewable Energy Systems &
Energy Efficiency Improvements Guaranteed Loan and Grant Program:
Available only in rural areas with a population of less than 50,000.
Requires 75% minimum applicant match for grants, and 50% maximum
project level for guaranteed loans.
Sources: GAO analysis of SBA and USDA Rural Development data.
[End of table]
[End of section]
Appendix IV: Recent Congressional Proposals That May Require
Collaboration between Rural Development and Other Federal Agencies:
H.R. 6124, the Food, Conservation, and Energy Act of 2008, (the 2008
Farm Bill) became law on June 18, 2008[Footnote 28]. The 2008 Farm Bill
contains 15 titles covering, among other things, support for commodity
crops, horticulture and livestock production, conservation, nutrition,
trade and food aid, agricultural research, farm credit, rural
development, energy, forestry, and other related programs. The 2008
Farm Bill guides most federal farm and food policies through fiscal
year 2012.
Section 6028 of the 2008 Farm Bill requires the Secretary of
Agriculture to establish a new Rural Collaborative Investment Program
to support comprehensive regional investment strategies for achieving
rural competitiveness. The purpose of the program is to:
* provide rural areas with a flexible investment vehicle, allowing for
local control with federal oversight, assistance, and accountability;
* provide rural areas with incentives and resources to develop and
implement comprehensive strategies for achieving regional
competitiveness, innovation, and prosperity;
* foster multisector collaborations that will optimize the asset-based
competitive advantages of rural regions, with particular emphasis on
innovation, entrepreneurship, and the creation of quality jobs;
* foster collaborations necessary to provide the professional technical
expertise, institutional capacity, and economies of scale that are
essential for the long-term competitiveness of rural regions; and:
* better use USDA and other federal, state, and local governmental
resources, and to leverage those resources with private, nonprofit, and
philanthropic investments, in order to achieve measurable community and
economic prosperity, growth, and sustainability.
The Act also directed the Secretary to establish within USDA the
National Rural Investment Board. The Board's duties are to provide
advice to regional boards on issues, best practices, and emerging
trends relating to rural development; to provide advice to the
Secretary and the National Institute on Regional Rural Competitiveness
and Entrepreneurship, also created by the Act, on the development and
execution of the program; and to provide advice to the Secretary and
subsequently review the design, development, and execution of the
National Rural Investment Plan. The National Rural Investment Plan is
expected to, among other things, create a framework to encourage and
support a more collaborative and targeted rural investment portfolio in
the United States; and cooperate with state and local governments,
organizations, and entities to create and enhance the pool of resources
committed to rural community and economic development.
Section 6028 of the 2008 Farm Bill is one of many actions taken by
Congress over the years to encourage the coordination of rural policies
and programs. It also further demonstrates Congress' commitment to
promoting rural entrepreneurship and community development through
collaboration across federal, state, and local agencies. A total of
$135 million in funding has been authorized for the new program.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear (202) 512-8678 or shearw@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Paul Schmidt, Assistant
Director; Charles Adams; Michelle Bowsky; Tania Calhoun; Emily
Chalmers; Elizabeth Curda; Ronald Ito; Marc Molino; and Carl Ramirez
made key contributions to this report.
[End of section]
Footnotes:
[1] See GAO, Rural Economic Development: More Assurance Is Needed That
Grant Funding Information Is Accurately Reported, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-06-294] (Washington, D.C.: Feb.
24, 2006).
[2] SBA does not offer grants to start or expand small businesses but
offers grant programs that generally support nonprofit organizations in
providing management, technical, or financial assistance to small
businesses.
[3] Section 6029 of the Farm Security and Rural Investment Act of 2002,
Pub. L. No. 107-171, 116 Stat. 134, 387 (2002), codified at 7 U.S.C. §§
2009cc et seq., amended the Consolidated Farm and Rural Development Act
by requiring the Secretary of USDA to establish RBIP.
[4] Pub. L. No. 104-127, § 761, 110 Stat. 888, 1139, 1146 (1996).
[5] Pub. L. No. 107-171, § 6021, 116 Stat. 134, 363 (2002).
[6] GAO, Results-Oriented Government: Practices That Can Help Enhance
and Sustain Collaboration among Federal Agencies, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-06-15] (Washington, D.C.: Oct.
21, 2005). GAO, Financial Market Regulation: Agencies Engaged in
Consolidated Supervision Can Strengthen Performance Measurement and
Collaboration, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-
154] (Washington, D.C.: Mar. 15, 2007). GAO, Electronic Government:
Potential Exists for Enhancing Collaboration on Four Initiatives,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-6] (Washington,
D.C.: Oct. 10, 2003). See E. Bardach, Getting Agencies to Work
Together: The Practice and Theory of Managerial Craftsmanship
(Washington, D.C.: Brookings Institution, 1998).
[7] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-15].
[8] The 63 lead SBDCs include one in every state (Texas has 4 and
California 6), the District of Columbia, Guam, Puerto Rico, Samoa and
the U.S. Virgin Islands.
[9] The 47 state offices include one in every state except Connecticut
and Rhode Island (which are combined with the Massachusetts state
office), New Hampshire (which is combined with the Vermont state
office), and Maryland (which is combined with the Delaware state
office).
[10] For purposes of this report, we are focusing on the business
programs administered by Rural Development's Business and Cooperative
Programs area. We have excluded cooperative programs, including the
Value-Added Producer Grants, Rural Cooperative Development Grants,
Cooperative Stock Purchase Program, and the Biomass Research and
Development Grant Program.
[11] Under the 2008 Farm Bill, the Renewable Energy Systems and Energy
Efficiency Improvements Guaranteed Loan and Grant Program has been
renamed the Rural Energy for America Program.
[12] Section 6018 (a) of the Food, Conservation and Energy Act of 2008,
Pub. L. No. 110-246, 122 Stat. 923 (2008), enacted in June 2008,
generally revises the definition of rural and rural area, but allows
for consideration of population density in some situations and adds
some definitions that are specific to certain programs. Section 6018(b)
directs the Secretary to assess the various definitions of the terms
"rural" and "rural area" that are used with respect to USDA programs;
describe the effects that the variations in those definitions have on
those programs; make recommendations for ways to better target funds
provided through rural development programs; and determine the effect
of changing the definitions, as directed by section 6018(a), on the
level of rural development funding and participation in those programs
in each state.
[13] Subject to additional credit criteria, Rural Development may
approve guaranteed loans in excess of $25 million, up to $40 million,
for rural cooperative organizations that process value-added
agricultural commodities.
[14] See 7 C.F.R. § 4279.107(a). Rural Development's guaranty fees are
subject to change annually. Rural Development operates the B&I Loan
Guaranty Program at an estimated subsidy rate of about 4 percent. SBA's
7(a) Loan Guaranty is a zero-subsidy program, which requires no
appropriated funding to operate, but tends to carry higher costs and
fees associated with the program.
[15] See 13 C.F.R. § 120.212.
[16] While collaborative efforts can benefit borrowers in rural areas,
such actions can also lead to a higher concentration of federal loan
guarantees in individual projects. As a result, when choosing to
jointly fund projects, SBA and Rural Development need to work together
to appropriately manage the financial risks associated with jointly
funding a project.
[17] These entities include the Dakota Certified Development
Corporation, the state Department of Commerce, and the Bank of North
Dakota. The ECND, which is located in Bismarck, delivers financing,
business management, counseling, and other technical assistance at one
location as part of these groups' ongoing activities to enhance
economic development and increase services to rural communities and
small businesses.
[18] The Department of Agriculture Reorganization Act of 1994 gave the
Secretary of Agriculture authority to reorganize USDA headquarters and
field structures. USDA consolidated many field offices into service
centers that were collocated with its other farm service agencies,
including Rural Development, the Natural Resources Conservation
Service, and the Farm Services Agency. USDA service centers, which
provide one-stop shopping for services such as farming, business, and
housing loans, have streamlined service delivery and helped field
offices establish partnerships with other federal agencies, state and
local governments, and community organizations.
[19] Pub. L. No. 107-171, § 6029, 116 Stat. 134, 387 (2002).
[20] In December 2000, to address the unmet equity needs of low-income
communities, Congress passed new legislation creating the New Markets
Venture Capital (NMVC) Program. The NMVC program was designed to
promote economic development and create wealth and job opportunities in
low-income areas by making equity-type investments in smaller
enterprises located in those areas, and by providing operating
assistance (in the form of grants) to such enterprises.
[21] Rural Development officials told us that in March 2007 they began
exploring ways to continue RBIP. Recently, as part of its 2008 Farm
Bill, Congress acted to restore the program. The Food, Conservation and
Energy Act of 2008 reauthorized the appropriation of $50 million in
funding for RBIP through fiscal year 2012. Pub. L. No. 110-246, § 6027,
122 Stat. 1944, 1651 (2008).
[22] As of July 2008, FCA had conducted 14 examinations of SBLCs on
SBA's behalf.
[23] The Economy Act is a general statutory provision that permits
federal agencies to enter into mutual agreements with other agencies to
purchase goods or services and take advantage of specialized experience
or expertise.
[24] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-15].
[25] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-15].
[26] SBA and Rural Development had entered into agencywide MOUs before:
once in 1977 and again in 1988.
[27] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-15].
[28] Pub. L. No. 110-246, 122 Stat. 923 (2008).
[End of section]
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