If the qualifying institution had  assets of more than $1 billion but less than $10 billion, it was eligible for  funding that equaled up to 3 percent of its risk-weighted assets. Total  qualified small business lending for SBLF participants—banks and  CDLFs—increased by almost $10.4 billion over their aggregate baseline  of about $36.5 billion. Several Factors Help Explain Variation in Small Business Lending Growth

Factors that help to explain the variation in qualified small business  lending across SBLF banks include the condition of banks’ loan portfolios,  amount of net capital received from SBLF, and demand for credit, among  others. As  shown in figure 2, SBLF banks in the first quartile increased qualified  small business lending 114.1 percent over their baseline, compared to  47.6 percent for banks in the second quartile, 25 percent for banks in the  third quartile, and 9.1 percent for banks in the fourth quartile, as of June  30, 2013. By conducting an impact evaluation,  Treasury could more effectively inform the public and Congress on how  SBLF has affected the participants’ lending compared to other factors,  such as economic conditions, and could better assist Congress in making  future decisions about similar capital investment programs or alternatives  to such programs that support small businesses’ access to capital. Treasury Has Taken Steps to Assess SBLF Participants’ Lending

Treasury has taken steps to assess SBLF program performance  (participants’ lending patterns) by including a peer-group analysis in the  Lending Growth Reports and collecting additional performance  information through annual surveys of program participants. For example, they have included information on increases  in lending following investment, increases in lending by financial  condition, and additional loans based on annual survey results. Treasury Is Exploring Evaluation Methods but Has Not Yet Provided a Plan to Evaluate and Isolate the Program’s Impact

Although Treasury has taken actions to improve its reporting and analysis  of SBLF program performance, Treasury officials told us they recently  started to review additional methods for evaluating the effectiveness of  the program and its impact on participants’ small business lending, but  have not yet provided us with a plan to evaluate the program’s impact or  selected an approach for conducting the evaluation. According to GAO guidance on program evaluation, when a program is  influenced by outside factors, as is the SBLF program, impact evaluations  are usually required to assess the net effect of a program (or its actual  effectiveness) by comparing the observed outcomes to an estimate of  what would have happened in the program’s absence. Conclusions

Treasury has continued to develop and refine its approach to assessing  the performance of SBLF and measuring the extent to which SBLF  participants have increased small business lending. Treasury officials have told us that they are exploring various  approaches to evaluating the program and have a firm under contract that  is helping to identify different statistical analyses that could be used. Nevertheless, Treasury has not yet developed a written  evaluation plan committed to a specific approach that would show that  their evaluation assesses the net impact of SBLF apart from other factors. In such an evaluation,  Treasury should ensure that the analytical approaches identified by its  contractor will isolate the role of SBLF from other factors that could affect  small business lending to show the net impact of the program. FDIC, Federal Reserve, and OCC did  not provide written comments on the draft report. Reasons for Variation in Small Business Lending

To determine reasons for variation in growth of qualified small business  lending at SBLF banks, we used the most current level of qualified small  business lending as of June 30, 2013, reported in Treasury’s October  2013 Lending Growth Report, to divide 265 banks into four quartiles  based on their level of qualified small business lending and compared the  four quartiles to one another using financial and regulatory data. We also relied on the results report of Treasury’s first  SBLF annual survey.
Why GAO Did This Study

The Small Business Jobs Act of 2010 aimed to stimulate job growth by, among other things, establishing the SBLF program within Treasury. SBLF was authorized to make up to $30 billion in capital investments to encourage banks and community development loan funds with assets of less than $10 billion to increase their small business lending. The act generally defined "small business lending" as loans not more than $10 million originally. Under the act, GAO is mandated to conduct an audit of SBLF annually. GAO's first and second reports were on the program's implementation and performance reporting and made recommendations on management oversight, program evaluation, and performance reporting. This third report examines (1) the growth in qualified small business lending and reasons for variations in the growth at SBLF banks and (2) actions Treasury has taken to evaluate participant lending patterns. GAO analyzed the most recent available performance and financial information on SBLF participants; reviewed government and private sector surveys on small business credit conditions; and interviewed officials from Treasury and representatives from SBLF participants.

What GAO Found

According to the U.S. Department of the Treasury (Treasury), as of June 30, 2013, Small Business Lending Fund (SBLF) participants had increased their qualified small business lending by $10.4 billion over their aggregate 2010 baseline of $36.5 billion. However, SBLF participants varied greatly in the extent to which they had increased small business lending. GAO analysis for the quarter ending June 30, 2013, showed that the median SBLF bank in the top (first) quartile had over a 100 percent increase over the baseline, compared to a 9.1 percent increase for the median SBLF bank in the bottom (fourth) quartile. Several factors GAO analyzed could help explain this variation. For example, the median bank in the bottom quartile had more troubled loans than banks in the top quartile, which could affect a bank's lending capacity. Also, a majority of banks in the bottom lending quartile used much of their SBLF funds to repay investments received from Treasury's Capital Purchase Program, leaving them with a much smaller net increase in available capital. Several banks GAO interviewed said that they have seen increased demand for credit as the economy improved. In addition, publicly reported surveys indicate that credit conditions have improved, but some small businesses continue to face challenges securing credit.
Treasury has taken steps to assess SBLF participants' lending patterns, including conducting a peer-group analysis and collecting performance data through an annual survey of SBLF participants. However, these steps are not sufficient to isolate the net impact of SBLF on participants' lending. Treasury officials said that they are exploring evaluation approaches and have a firm under contract to help identify statistical analyses that could be used, but have not provided documentation of its evaluation plan committing to an approach. GAO guidance on program evaluation suggests that impact evaluations are usually required to assess the net impact of a program by comparing the observed outcomes to an estimate of what would have happened in the program's absence. By conducting an evaluation that includes methods to assess the net impact of SBLF, Treasury could more effectively inform the public and Congress on how SBLF has affected the participants' lending compared to other factors, such as economic conditions, and could better assist Congress in making future decisions about similar capital investment programs or alternative programs that support small business access to capital.

What GAO Recommends

Treasury should follow through in conducting an impact evaluation that includes methods to isolate the effect of SBLF from other factors on participants' small business lending. In written comments on a draft of this report, Treasury agreed to implement the recommendation.