"RD107 (2021): Operations and Performance of the Department of Small Business and Supplier Diversity"
Summary
JLARC Report 537, Operations and Performance of the Department of Small Business & Supplier Diversity, a report of the Joint Legislative Audit and Review Commission to the Governor and the General Assembly of Virginia dated September 14, 2020. The summary finds SBSD processed small business certifications 49 percent faster in 2019 than in 2017, but that the Virginia Small Business Financing Authority is not meeting most criteria for effective program administration. It reports agencies purchased more than $2 billion from certified SWaM businesses in FY19 and calls the 42 percent SWaM goal not realistic for many agencies. Recommendations include allowing appeals of denied new certifications and formal loan risk policies, with policy options on the state's small business definition. The report closes with an appendix table of SBA size standards by NAICS code.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
Commonwealth of Virginia
September 14, 2020
Report to the Governor and the General Assembly of Virginia
Operations and Performance of the
Department of Small Business & Supplier Diversity
2020
JOINT LEGISLATIVE AUDIT
AND REVIEW COMMISSION
Joint Legislative Audit and Review Commission
Delegate Kenneth R. Plum, Chair
Senator Janet D. Howell, Vice Chair
Delegate Terry L. Austin
Delegate Betsy B. Carr
Delegate M. Kirkland Cox
Delegate Eileen Filler-Corn
Delegate Charniele L. Herring
Senator Mamie E. Locke
Senator Jeremy S. McPike
Senator Thomas K. Norment, Jr.
Delegate Robert D. Orrock, Sr.
Delegate Mark D. Sickles
Senator Lionell Spruill, Sr.
Delegate Luke E. Torian
Martha S. Mavredes, Auditor of Public Accounts
JLARC staff
Hal E. Greer, Director
Justin Brown, Senior Associate Director
Lauren Axselle, Project Leader
Sarah Berday-Sacks
Christine Wolfe
Information graphics: Nathan Skreslet
Managing Editor: Jessica Sabbath
JLARC Report 537
©2020 Joint Legislative Audit and Review Commission
jlarc.virginia.gov
Contents
Summary i
Recommendations & Policy Options vii
Chapters
1. Overview of the Department of Small Business and Supplier Diversity 1
2. SBSD Management and Programs 7
3. Virginia Small Business Financing Authority 23
4. SWaM Goal and Plans 37
5. Virginia’s Small Business Definition 45
Appendixes
A: Study mandate 59
B: Research activities and methods 61
C: Summary of prior external reviews of SBSD 73
D: Literature review of effectiveness of small business
support programs 76
E: VSBFA programs 78
F: Supplemental small business definition analyses 81
G: Agency response 86
Appendix – Online only
H: Impact of industry-specific small business definition
Summary: Operations and Performance of the
Department of Small Business & Supplier Diversity
WHAT WE FOUND
SBSD has addressed many of its administrative and staffing problems
SBSD has made substantial improvements since it was created in 2014 (by combining
two separate agencies and adding the Virginia Small Business Financing Authority
[VSBFA]). Creating a new organizational structure and new processes takes time, and
SBSD has made good progress. Over the last few years, SBSD has addressed financial
problems identified in previous audits by the Auditor of Public Accounts and worked
to improve its information technology systems.
SBSD has also filled vacant staff positions, and its WHY WE DID THIS STUDY
staff turnover is now similar to other state agencies. In 2018, JLARC approved a study resolution directing
Staff in most divisions reported to JLARC they are JLARC staff to review the operations and performance of
satisfied with key aspects of their job and SBSD’s the Virginia Department of Small Business and Supplier
Diversity (SBSD).
leadership and organizational culture.
ABOUT THE DEPARTMENT OF SMALL BUSINESS
AND SUPPLIER DIVERSITY
SBSD is certifying businesses faster, but SBSD was created in 2014 to promote the growth and
processes can still be improved development of small, minority-owned, and women-
owned businesses (SWaM). SBSD facilitates the state’s
Processing times have improved for all types of SWaM initiatives, which include certifying businesses
SBSD certifications, in part because of its new online and collecting annual SWaM plans and spending data
application system. For example, small business cer- from agencies to monitor their expenditures with SWaM
tifications were processed 49 percent faster in 2019 businesses. SBSD also provides loans and other financ-
ing through the Virginia Small Business Financing Au-
than in 2017. All small, micro, women-owned, or mi- thority and offers business assistance programs.
nority-owned certifications were processed faster
than the 60-day goal, a substantial improvement from
2017.
However, businesses could benefit from having more information about the applica-
tion and appeals processes. SBSD made almost 17,000 follow-up requests for 10,000
applications in 2019. Follow-up requests are often necessary because some businesses
are unclear about the information they need to submit and the reasons for submitting
it. In addition, many businesses are confused about the reasons they can appeal if
SBSD has denied their application.
SBSD’s certification processes are generally fair and have led to mostly accurate deter-
minations, but the appeals process is unnecessarily limited. The appeals process is
available only to businesses seeking recertification. Businesses seeking a new certifica-
tion for the first time cannot appeal SBSD’s decision. This limitation appears to lack
any policy basis and was put in place to limit the SWaM certification division’s work-
load.
i
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity
VSBFA’s shortcomings prevent it from fully achieving its mission
VSBFA can play a key role in helping small businesses obtain financing, which is now
VSBFA is now responsi-
critical given the COVID-19 pandemic’s impact on small business sales and operations.
ble for two new COVID
However, VSBFA has not been meeting most criteria for effectiveness (table). For ex-
relief programs that will
award more than $80 mil-
ample, VSBFA is not loaning an adequate proportion of available funds to businesses.
lion to businesses. Most In the last three years, the vast majority (92 percent to 76 percent) of available loan
funding for these pro- funds were not used across VSBFA’s six loan programs (figure). Loan applications also
grams is through the fed- declined, dropping by half from 2017 to 2018 and continuing to decrease in 2019.
eral CARES act. The Re- VSBFA’s fund utilization and loan applications have increased slightly in 2020.
build VA grant program
will provide nearly $71M
to businesses in non-es- VSBFA is not meeting most criteria for effective program administration
sential industries. VSBFA
Criteria fulfillment
VSBFA also received Adequate proportion of available funds loaned to businesses ○
$10M for a COVID loan Goals for and tracking of loan and grant program utilization ○
program.
Regular targeted outreach to businesses and banks ◒
Written policies that establish appropriate risk standards for loans ○
Standardized tool to consistently assess applicant risk ○
Regular monitoring of processing times, loan decisions, and outstanding loan health ○
Adequate board expertise to evaluate all loan applications ◒
VSBFA’s loan fund utilization and applications declined in 2018 and 2019
SOURCE: JLARC analysis of VSBFA loan disbursement data, annual financial balance sheets, and applications data.
NOTE: Years shown are state fiscal years.
VSBFA also lacks written policies on risk standards for loans and a standardized tool
for staff to assess applicants’ repayment risk. Without policies and a tool to govern
loan decisions, VSBFA has tended toward caution and generally been too conservative
ii
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity
when making loan decisions. This is inconsistent with the authority’s mission to pro-
vide gap financing to businesses who may not be eligible for private bank loans.
VSBFA’s loan default rate is much closer to private banks than federal financing pro-
grams. Four of five banks interviewed described VSBFA as too risk averse. One bank
noted that “after several unsuccessful attempts to partner, I just gave up on having the
VSBFA as an option.”
The lack of consistent leadership likely contributed to VSBFA’s operational shortcom-
ings, but a new director is now in place. VSBFA had five permanent or acting executive
directors in three years. Several staff emphasized the adverse impact of inconsistent
leadership, with one noting “this revolving door of leadership has caused the team to
continually reset priorities.” VSBFA’s current executive director was hired in October
2019. He has a lending background and is viewed positively by staff and the board.
Procurement spending with SWaM businesses is substantial, but
approach to SWaM goal and planning has limitations
Though the executive branch has not reached its goal to award at least 42 percent of
discretionary procurement spending to SWaM-certified businesses, agencies procure a
substantial amount of goods and services from SWaM-certified businesses. Agencies
purchased more than $2 billion in goods and services from certified SWaM businesses
in FY19, making up about one-third of applicable state procurement spending.
However, the 42 percent goal for procurement spending through SWaM businesses is
not realistic or achievable for many agencies. In FY19, agency spending through SWaM
businesses ranged from 4 percent to 87 percent. Sixty percent of agencies fell short
of the 42 percent goal. More than half of agencies responding to a JLARC survey
found it extremely, very, or difficult to achieve the 42 percent goal. This is primarily
because agencies’ abilities to make purchases from SWaM-certified businesses vary Meetings to discuss
SWaM spending. Staff
substantially depending on the types of goods and services they need.
from SBSD and the gov-
Furthermore, the SWaM plans agencies are required to develop are of limited value ernor’s office have begun
for many agencies. Less than half of agencies agreed that their SWaM plans helped holding group meetings
maintain or increase their SWaM expenditures. The plans include some useful infor- with agencies to empha-
size the importance of
mation but do not define specific strategies for agencies to increase spending with
achieving the SWaM goal
SWaM businesses. Historically, SBSD has given agencies little to no feedback on their
and discuss SWaM
SWaM plans. spending.
Some certified small businesses are much larger than most others,
and business size varies substantially by industry
Most certified businesses in Virginia are much smaller than the state’s current small
business definition (a maximum of 250 employees or $10 million in gross receipts).
As of April 2020, the median certified small business employed 14 people and re-
ported about $3.2 million in annual gross receipts—both well below the maximum
iii
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity
allowable thresholds to be classified as a small business. Virginia’s small business defi-
nition is important because the state’s set-aside program requires agencies to use a
micro business (a maximum of 25 employees and $3 million in gross receipts) for
purchases up to $10,000 and a small business for most purchases up to $100,000, un-
less there are no micro or small certified businesses that meet the purchase require-
ments.
Some certified businesses in Virginia are substantially larger than most. For example,
the top 5 percent of certified small businesses by size reported more than $25 million
in gross receipts (which is currently allowable because a business must only be at or
below either the employee or gross receipt maximum thresholds.) In contrast to Vir-
ginia, some states require a business to be at or below both employment and gross
receipt thresholds.
There are also considerable differences across industries that limit the usefulness of a
single definition of a “small” business. One of the largest businesses in a given indus-
try might be among the smallest in another industry. Virginia’s small business defini-
tion applies the same to all businesses regardless of industry. In contrast, the federal
government and several states use size definitions that vary by industry.
Virginia could consider changing its small business definition to narrow the size
definition generally, or develop specific size definitions by industry. These options
would have varying impacts on currently certified businesses, SBSD’s administrative
operations, and agencies’ ability to procure goods and services through small
businesses. When considering any changes, it may be prudent for the state to consider
the results of a pending study of whether there are disparities in procurement oppor-
tunities for minority- and women-owned businesses. If evidence of disparities is
found, the state could consider adjusting its preferences for the state’s set-aside pro-
curement program to include female or minority ownership.
WHAT WE RECOMMEND
Executive action
• Provide businesses with more information about the SWaM certification
application and appeals processes.
• Allow SWaM businesses who have been denied a new certification to ap-
peal SBSD’s decision.
• Set annual utilization goals for small business loan programs that consider
factors such as credit conditions and available loan funding, and track and
report how much of available funding is being used.
• Develop formal loan risk policies and implement a standardized risk as-
sessment tool to govern loan application decisions.
• Require VSBFA staff to develop an improvement plan and provide peri-
odic progress reports to the board.
iv
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity
• Institute a more meaningful SWaM plan development and review process
that focuses on agencies’ strategies to improve SWaM spending.
POLICY OPTIONS FOR CONSIDERATION Policy options for con-
• Develop agency-specific SWaM spending goals that are ambitious, but sideration. Staff typically
more realistically achievable based on each agency’s procurement needs. propose policy options
rather than make recom-
• Amend the Code of Virginia to narrow the definition of small business to mendations when (i) the
exclude larger businesses currently eligible for certification. action is a policy judg-
ment best made by
• Amend the Code of Virginia to define small business based on industry or
elected officials—espe-
industry groupings. cially the General Assem-
• Authorize an executive branch workgroup to consider whether and how to bly, (ii) evidence suggests
adjust the state’s procurement preferences and small business definition us- action could potentially
ing the results of the 2020 disparity study and JLARC study. be beneficial, or (iii) a re-
port finding could be ad-
dressed in multiple ways.
The complete list of recommendations and policy options is available on page vii.
v
Summary: Operations and Performance of the Department of Small Business & Supplier Diversity
vi
Recommendations & Policy Options: Operations and
Performance of the Department of Small
Business & Supplier Diversity
JLARC staff typically make recommendations to address findings during reviews.
Staff also sometimes propose policy options rather than recommendations. The three
most common reasons staff propose policy options rather than recommendations are:
(1) the action proposed is a policy judgment best made by the General Assembly or
other elected officials, (2) the evidence indicates that addressing a report finding is not
necessarily required but could be beneficial, or (3) there are multiple ways in which a
report finding could be addressed and there is insufficient evidence of a single best
way to address the finding.
Recommendations
RECOMMENDATION 1
The Department of Small Business and Supplier Diversity (SBSD) should post precer-
tification webinars or videos on its website that describe the application process, in-
cluding the documents required, the purpose of each document, and the specific in-
formation SBSD requires in each document. (Chapter 2)
RECOMMENDATION 2
The Department of Small Business and Supplier Diversity (SBSD) should amend its
regulations to provide a right of appeal to small, women-owned, and minority-owned
businesses who have been denied a new certification if their basis for challenging the
decision is that SBSD made a mistake in denying their application. (Chapter 2)
RECOMMENDATION 3
The Department of Small Business and Supplier Diversity should clarify its appeals
process by revising denial letters and adding information to its website to more clearly
describe the (i) circumstances and grounds to appeal a certification decision or seek a
waiver, (ii) processes a business must follow, and (iii) documentation to provide when
filing an appeal or seeking a waiver. (Chapter 2)
RECOMMENDATION 4
The Department of Small Business and Supplier Diversity should improve business
awareness of and accessibility to its business assistance events and counseling sessions
through (i) developing and implementing a coordinated written marketing plan and (ii)
providing on-demand written materials and recorded webinars on its website. (Chapter
2)
vii
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity
RECOMMENDATION 5
The General Assembly may wish to consider including language in the Appropriation
Act directing the Department of Small Business and Supplier Diversity (SBSD) to
develop and submit a detailed improvement plan for the Business One Stop. The plan
should include the following for each statutory requirement: (i) a description of the
purpose and benefit to small businesses, (ii) the cost of fully implementing and main-
taining the requirement, (iii) the resources needed beyond those currently available to
implement and maintain the requirement, and (iv) SBSD’s recommendation as to
whether the requirement should be kept. The plan should be provided to the House
Labor and Commerce and Appropriations committees and the Senate Commerce and
Labor, and Finance and Appropriations committees no later than November 1, 2021.
(Chapter 2)
RECOMMENDATION 6
The Virginia Small Business Financing Authority Board should set annual utilization
goals for loan programs that consider factors such as credit conditions and available
loan funding. (Chapter 3)
RECOMMENDATION 7
The Virginia Small Business Financing Authority Board should direct staff to regularly
track and annually report the percentage of loan and grant program funds that are
utilized or awarded. (Chapter 3)
RECOMMENDATION 8
The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement internal policies that will govern loan application decisions and estab-
lish an appropriate risk standard that adequately reflects the public mission of the
authority. (Chapter 3)
RECOMMENDATION 9
The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement a risk assessment tool to calculate the potential risk of loan applicants.
(Chapter 3)
RECOMMENDATION 10
The Virginia Small Business Financing Authority should institute a process to conduct
a risk-based review of outstanding loans at least annually and report the results to the
Virginia Small Business Financing Authority Board. (Chapter 3)
viii
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity
RECOMMENDATION 11
The Virginia Small Business Financing Authority should add a requirement to formal
loan participation agreements with banks that banks report support loans with a high
risk of default as soon as they are identified. (Chapter 3)
RECOMMENDATION 12
The Virginia Small Business Financing Authority should set a goal that establishes an
expected timeframe for processing loan applications and track and report how long it
takes to process each loan application and the proportion of applications meeting the
goal. (Chapter 3)
RECOMMENDATION 13
The General Assembly may wish to consider requiring the majority of citizen mem-
bers of the Virginia Small Business Financing Authority Board to possess small busi-
ness lending experience. (Chapter 3)
RECOMMENDATION 14
The Virginia Small Business Financing Authority (VSBFA) should develop a program
improvement plan that addresses deficiencies, including low fund utilization; lack of
loan approval policies; absence of a risk tool for loans; and lack of monitoring, track-
ing, and reporting on loans and fund utilization. The plan should be presented to the
VSBFA board and transmitted to the House Appropriations and Senate Finance and
Appropriations committees, and the secretary of commerce and trade no later than
June 30, 2021. (Chapter 3)
RECOMMENDATION 15
The governor should revise Executive Order 35 to direct the Department of Small
Business and Supplier Diversity (SBSD) to develop and implement a more meaningful
SWaM plan development and review process focusing on strategies and substantive
SBSD feedback to agency staff. (Chapter 4)
RECOMMENDATION 16
The Department of Small Business and Supplier Diversity should develop and main-
tain information about effective strategies agencies can use to increase their SWaM
expenditures and provide agencies with guidance on how to implement the strategies.
(Chapter 4)
ix
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity
Policy Options to Consider
POLICY OPTION 1
The Department of Small Business and Supplier Diversity could refer businesses seek-
ing general business assistance to larger federal programs and offer more events and
counseling sessions on Virginia-specific certification and contracting topics. (Chapter
2)
POLICY OPTION 2
The Department of Small Business and Supplier Diversity could offer the Scal-
ing4Growth program in each region of the state and to more businesses. (Chapter 2)
POLICY OPTION 3
The Virginia Small Business Financing Authority could expand microloan program
eligibility to startup businesses through a pilot program for the purpose of assessing
the demand for, and viability of, offering such loans. (Chapter 3)
POLICY OPTION 4
The governor could direct each state agency to set ambitious, but achievable, SWaM
procurement spending goals that account for (i) the availability of certified SWaM
businesses to provide the goods and services the agency procures and (ii) the agency’s
ongoing and upcoming new procurements. (Chapter 4)
POLICY OPTION 5
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition to businesses that have no more than 250 em-
ployees and gross receipts of no more than $10 million. (Chapter 5)
POLICY OPTION 6
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition by reducing the number of employees and
gross receipts that a business may have to qualify as a small business. (Chapter 5)
POLICY OPTION 7
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for each industry, with thresh-
olds for number of employees or gross receipts, or both, that are based on the size
characteristics of Virginia businesses in that industry. (Chapter 5)
POLICY OPTION 8
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed that is set at 50 percent of the
federal small business definition for each industry. (Chapter 5)
x
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity
POLICY OPTION 9
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for groupings of industries
based on size and types of goods and services state agencies purchase. (Chapter 5)
POLICY OPTION 10
The General Assembly could consider authorizing in the Appropriation Act an exec-
utive branch workgroup to consider whether and how to adjust the (i) state’s procure-
ment preferences for businesses (including women and minority ownership if the dis-
parity study concludes doing so may be permissible), and (ii) state’s definition of small
business. The workgroup could be required to submit proposed legislative changes to
the House General Laws Committee, Senate General Laws and Technology Commit-
tee, and Small Business Commission by November 1, 2021. (Chapter 5)
xi
Recommendations & Policy Options: Operations and Performance of the Department of Small
Business & Supplier Diversity
xii
1
Overview of the Department of Small
Business and Supplier Diversity
In 2018, the Joint Legislative Audit and Review Commission (JLARC) approved a
study resolution that directed JLARC staff to review the operations and performance
of the Department of Small Business and Supplier Diversity (SBSD). As part of this
review, JLARC staff were directed to evaluate the staffing, performance, spending, and
management of SBSD, including the Virginia Small Business Financing Authority
(VSBFA); assess the efficiency and effectiveness of SBSD’s business certification pro-
grams and economic development and outreach programs; and compare the state’s
definition of “small business” to federal and other state definitions. (See Appendix A
for study resolution.)
Several previous state reviews identified shortcomings in SBSD’s core functions. For
example, a 2016 JLARC review of state contracting found that SBSD had a backlog of
certification applications and did not effectively prioritize certifications. The review
also found that businesses were dissatisfied with several aspects of the certification
process. In addition, 2016 and 2017 Auditor of Public Accounts audits found that
SBSD lacked clear policies and procedures for its staff and insufficient reporting prac-
tices for its financing programs. (See Appendix C for a list of previous external reviews
of SBSD.)
To address the study resolution, JLARC staff interviewed agency staff, VSBFA board
members, staff from state and federal agencies that SBSD interacts with, and stake-
holders, including groups representing small businesses. Staff surveyed businesses that
have participated in at least one of SBSD’s certification, business assistance, or financ-
ing programs; SBSD staff; and state agency procurement staff. JLARC staff also re-
viewed and analyzed certification data, state agency procurement data, data about busi-
ness employment and revenue growth over time, and VSBFA financial data. (See
Appendix B for a detailed description of research methods.)
SBSD supports growth and competitiveness of
small, women-, and minority-owned businesses
The legislature created SBSD in 2014 by merging the Department of Business Assis-
tance and the Department of Minority Business Enterprise. The VSBFA was also
merged into SBSD. VSBFA operates as a division within SBSD but works through a
separate board to approve loan decisions.
SBSD’s mission is to enhance growth opportunities for Virginia’s small, women-, and
minority-owned (SWaM) businesses. One way SBSD fulfills its mission is by certifying
businesses seeking to sell goods and services (e.g., professional, non-professional, and
1
Chapter 1: Overview of the Department of Small Business and Supplier Diversity
construction) to the state through the state’s SWaM program (Figure 1-1). SBSD cer-
tifies several types of businesses, including SWaM businesses and economically disad-
vantaged businesses for the U.S. Department of Transportation’s Disadvantaged Busi-
ness Enterprise (DBE) program.
Certified businesses can pursue state contracts through each agency’s procurement
JLARC’s 2016 “Review of process, and those that meet the state’s “small” or “micro” business definitions are
the Development and
eligible for procurement preferences. SBSD helps implement these policies by main-
Management of State
Contracts” assessed
taining a list of certified businesses so agencies can identify businesses that sell the
state procurement prac- goods or services they need to purchase. SBSD also tracks the state’s progress toward
tices, including state the state’s SWaM goal. The governor has set a goal for executive branch agencies to
spending on purchases award at least 42 percent of discretionary procurement spending to certified small
set aside for small busi-
nesses, and the impact of
businesses, including those that are women- and minority-owned. SBSD also collects
the state’s 20 percent SWaM plans from agencies each year describing their projected spending with SWaM
small business criterion businesses and tracks how much agencies spend with SWaM businesses through an
for requests for pro- online SWaM expenditure dashboard.
posals. One of the re-
view’s unimplemented
recommendations is for FIGURE 1-1
the General Assembly to
SBSD plays a key role in the state’s SWaM initiatives
direct the Department of
General Services and
SBSD to determine
whether the 20 percent
small business criterion
requirement should be
adjusted or eliminated.
SOURCE: JLARC analysis of Executive Order 35 (2019) and § 2.2-4310 of the Code of Virginia.
NOTE: Procurement preferences include set asides where purchases up to $10,000 are set aside for SBSD-certified
micro businesses (up to 25 employees and $3 million in gross receipts), and purchases up to $80,000 for profes-
sional services and up to $100,000 for goods, nonprofessional services, and construction are set aside for SBSD-
certified small businesses (up to 250 employees or $10 million in gross receipts).
Another key part of SBSD’s responsibilities is offering programs and services directly
to businesses. SBSD provides several services to support businesses, including financ-
ing through VSBFA loans and grants. SBSD also provides business assistance services,
such as counseling and training, to help businesses become established and grow.
Moreover, SBSD administers a Business One Stop website intended to help businesses
identify relevant resources and complete state registration requirements in one place.
Providing assistance to SWaM businesses can benefit the businesses and the state
economy. SWaM businesses may not have the same access to resources as larger busi-
nesses, and supporting SWaM businesses helps them compete with other businesses.
Research literature indicates that providing assistance to small businesses generally has
a positive effect on business outcomes, such as increased employment and sales, which
2
Chapter 1: Overview of the Department of Small Business and Supplier Diversity
improve businesses’ likelihood of survival (Appendix D). Researchers have not, how-
ever, determined conclusively which type of assistance is most helpful. Supporting
small businesses can also have positive economic impacts on the state because these
small businesses are collectively responsible for a large portion of state jobs and reve-
nue.
Virginia is one of the few states to have a single agency dedicated to supporting small
businesses and improving supplier diversity in state procurement. Surrounding states,
including Maryland, North Carolina, and Tennessee, provide small business services
through separate agencies instead of one centralized agency. The District of Colum-
bia, though, has a centralized agency that provides certification, financing, and busi-
ness assistance to small businesses. In addition, the majority of states administer their
federal transportation business certification programs through their state departments
of transportation, rather than through a dedicated small business agency such as
SBSD. Some states, such as Maine, lack certification programs or procurement set-
asides altogether.
The COVID-19 pandemic’s negative economic impact increased the need for govern-
ment assistance to small businesses, including the services provided by Virginia’s
SBSD. Stay-at-home orders and closure of “non-essential” businesses halted certain
small business activities in April, May, and June 2020. During this time period, the
federal government offered loans and grants to small businesses to help them remain
viable and avoid substantial employee layoffs. In Virginia, this is resulting in increased
interest in VSBFA financing programs and the creation of a new grant program. SBSD
also has experienced additional demand for some of its other programs during the
COVID-19 pandemic.
SBSD employs 40 staff across five divisions and
receives about $7M in funding
SBSD employs 40 full-time staff to carry out its responsibilities. The agency is led by
a governor-appointed director and is organized into five divisions—four program di-
SBSD was scheduled to
visions and one administrative division (Figure 1-2). Each of the program divisions
receive a budget in-
administers multiple programs with distinct purposes and eligibility criteria. For exam- crease in FY21 and FY22
ple, the SWaM certification division is responsible for administering seven types of ($370,000 and $740,000,
business certifications. VSBFA is responsible for administering nine small business respectively). This funding
loan, bond, and grant programs. The largest portion of SBSD staff (28 percent) work would have been used to
fund seven new positions,
in certification-related positions in the SWaM and DBE divisions. Most agency staff including two SWaM cer-
work at its main office in Richmond, with the exception of several regionally based tification officers, three
staff who facilitate financing programs or provide business assistance. business assistance staff,
one marketing/public re-
SBSD received approximately $6.8 million in funding from state and federal sources lations position, and one
in FY20. Almost two-thirds of SBSD’s funding in FY20 ($4.2 million) was from gen- data analyst. These funds
eral funds and about one-fourth ($1.6 million) was from Commonwealth Transporta- were removed from the
budget in August 2020.
tion funds for the DBE certification program. The remainder was special funds for
3
Chapter 1: Overview of the Department of Small Business and Supplier Diversity
VSBFA’s small business financing programs. Only a small portion of SBSD’s activities
Most SBSD services are are funded through fee revenue because most services are provided to businesses free
provided to businesses of charge (sidebar). Over half of SBSD’s funding (54 percent) is spent on staff salaries
free of charge, with
some exceptions. If a Vir-
and benefits.
ginia business is seeking
certification in another
FIGURE 1-2
state that requires a site
visit, SBSD will conduct SBSD consists of five divisions that certify and support small businesses
the site visit for a $75 fee.
VSBFA charges a fee for
some financing programs,
like the bond conduit
program, which has a
$1,000 application fee.
SOURCE: JLARC analysis of SBSD organization chart and agency documents.
NOTE: Disadvantaged Business Enterprise is a federal program affiliated with the U.S. Department of Transportation.
Business assistance services are provided through SBSD’s Business Development and Outreach division.
Various federal, state, and local entities assist small,
women-, and minority-owned businesses in Virginia
SBSD operates programs with missions similar to many other federal, state, local, or
private programs. The federal government, in particular, has several large programs
that primarily offer financing, certification to become eligible for certain programs, or
business assistance.
Many organizations in addition to VSBFA provide financing to small businesses. For
example, the federal Small Business Administration (SBA) offers direct loans and loan
guarantees for small businesses. Similarly, the Virginia Economic Development Part-
nership offers funds (especially grants), some of which may go to businesses that hap-
pen to be small or owned by women or minorities. Some localities operate loan or
grant programs for small businesses, or issue bonds to provide long-term financing to
promote economic development by encouraging manufacturing, industrial, and gov-
ernmental and commercial enterprises to locate in the locality. There are many private
banks and non-profit organizations in Virginia that provide financing to small busi-
nesses.
The federal SBA offers certifications that businesses can obtain to receive federal pro-
curement preferences. SBA has defined employment or revenue thresholds under
which a business can receive preferences in federal procurements. SBA has used self-
4
Chapter 1: Overview of the Department of Small Business and Supplier Diversity
certification for some certifications in the past but is phasing out the self-certification
process because many ineligible businesses were being certified (sidebar). Two federal studies
found problems with
SBA also funds organizations that provide business assistance programs with goals self-certification pro-
similar to SBSD’s assistance programs. For example, SBA funds and operates 27 Small grams. A March 2019 re-
port by the Government
Business Development Centers in Virginia, which provide counseling and training to Accountability Office
help small business owners start or expand. These federal centers worked with nearly found that about 40 per-
9,000 Virginia businesses in 2019. SBA also funds six Procurement Technical Assis- cent of women-owned
tance Centers (one statewide and five regional) to help businesses compete in govern- small businesses (WOSB)
certified by SBA in its au-
ment procurements. dit sample were ineligible
There are also state agencies with which SBSD coordinates on governmental require- for the program. The
SBA’s Office of Inspector
ments or policy. For example, SBSD’s administration of the Business One Stop web- General reviewed the
site requires coordination with the State Corporation Commission and the Depart- WOSB program in June
ment of Professional and Occupational Regulation, which set licensing or other 2018, and found 50 of 56
requirements for businesses. SBSD also works with the Department of General Ser- sole-source contracts (89
percent) did not meet all
vices and Virginia Information Technologies Agency on developing and administering
of the criteria for the pro-
certain state procurement policies. gram.
5
Chapter 1: Overview of the Department of Small Business and Supplier Diversity
6
2 SBSD Management and Programs
SBSD faced significant challenges that hindered agency performance and operations
SBSD’s two predecessor
when the General Assembly merged two previous agencies to create SBSD (sidebar).
agencies were the Vir-
SBSD’s director had to establish a new agency mission, leadership team, organizational ginia Department of Busi-
structure, and policies and procedures. SBSD faced challenges common when starting ness Assistance, which
a new agency and inherited several programmatic challenges from the previous agen- housed general business
assistance and hosted the
cies (including a backlog of certification applications and inadequate IT systems). In
Small Business Financing
addition, many key staff positions were vacant, including nearly all positions in the Authority, and the De-
business assistance function. partment of Minority
Business Enterprise, which
Two of the agency’s key services are certifications to help businesses compete for handled certification de-
public procurement dollars and business assistance services. SBSD handles certifica- signed to encourage sup-
tions for the state’s procurement programs and the U.S. Department of Transporta- plier diversity in state
procurement.
tion’s Disadvantaged Business Enterprise (DBE) program. The agency also offers
counseling and events to help encourage business growth and maintains the state’s
Business One Stop website, which is intended to be a single source of government
requirements and information for businesses.
Services provided by business assistance agencies like SBSD have become increasingly
important during the COVID-19 pandemic. Many small business owners have faced
dramatic drops in revenue, which could continue because of the uncertainty surround-
ing the pandemic. As a result, more small businesses will likely seek SBSD services,
and these services need to be administered effectively and efficiently.
SBSD has made significant operational and staffing
improvements in recent years
SBSD has implemented several major operational improvements since it was created
JLARC’s survey of SBSD
in 2014. SBSD implemented an electronic certification portal in 2017 that allows busi-
staff was sent to all SBSD
nesses to submit certification applications online, which helped staff automate the employees. All employees
certification process and eliminate the previous backlog of nearly 2,000 certification responded to the survey.
applications. SBSD also streamlined the SWaM recertification process by requiring The survey asked ques-
submission of fewer documents. SBSD is currently in the process of implementing a tions about staff satisfac-
tion with various aspects
new IT system for its financing programs that will automate the application process of their workplace and
and collect additional data for reporting. As a result of recent improvements, the ma- whether SBSD senior
jority of staff reported through a JLARC survey (sidebar) that the agency’s processes, leadership effectively
practices, and technology allow them to efficiently and effectively do their jobs. In manages the office.
(See Appendix B for more
addition, the Auditor of Public Accounts reported no negative findings in its 2019 information about this
audit of SBSD’s policies and procedures, information security, risk management and survey.)
payroll function.
7
Chapter 2: SBSD Management and Programs
SBSD has also filled vacant staff positions, and its staff turnover rate is now relatively
A VSBFA loan officer left
VSBFA on August 27, low. SBSD filled vacant certification and business assistance positions (sidebar).
2020, making one of SBSD’s staff turnover rate (including retirements) was 15 percent in FY20, down from
VSBFA’s three loan officer 24 percent in FY17. SBSD’s turnover rate is comparable to the median turnover rate
positions vacant. This po-
across all agencies statewide (13 percent) and similarly sized state agencies (14 percent).
sition is essential to
VSBFA’s ability to admin- Staff are largely satisfied with key aspects of their job, their division, and the manage-
ister its loan programs. As
ment of SBSD. Over 85 percent of staff reported being satisfied with their job and
of early September,
VSBFA had not yet adver- with SBSD/VSBFA as an employer through a JLARC survey. This is similar to or
tised the position. higher than other agencies recently reviewed by JLARC. Similarly, over 75 percent of
staff provided positive feedback about the clarity of their job role, how their talents
are used, the level of collaboration across and within divisions, SBSD’s culture, and
senior leadership’s communication of agency goals and objectives to staff.
A few staff cited concerns related to their compensation and workload, but evidence
suggests these staff concerns may not require immediate attention. Nearly 40 percent
of staff disagreed that their salary is reasonable through a JLARC survey. Yet, only
one out of 17 staff who left SBSD since 2017 cited compensation as a factor contrib-
uting to their decision to leave. SBSD previously had difficulty filling finance staff
positions because the salaries for these positions were lower than comparable positions
in the private sector, but SBSD raised the starting salary for these positions. In addi-
tion, staff in several divisions reported having too much work; however, staff only
worked an average of 72 hours of overtime per person in FY19 (an additional one to
two hours per week). This additional time was heavily concentrated among four staff
(three in the certification divisions and one in the administration division worked more
than 70 percent of the total overtime hours).
Certifications are timely, fair, and accurate, but
businesses need clarity on document requirements
and increased access to appeals
One of SBSD’s primary responsibilities is certifying businesses so they can participate
in the state’s SWaM procurement program and federally funded state transportation
projects. These certifications can help businesses that may face economic disad-
vantages compete for state procurements. To evaluate SBSD’s certification function,
JLARC reviewed the timeliness and fairness of the agency’s certification process and
the accuracy of certification determinations.
SBSD administers seven types of certifications and processes an average of 10,000
applications each year. Most certifications (91 percent) are for small, women-owned,
and minority-owned (SWaM) businesses (Table 2-1). Some businesses are only certi-
fied as small and/or micro, but 55 percent of certified small/micro businesses also
have a minority-owned or women-owned certification. About 45 percent of SBSD’s
certifications are new certifications that go through the full application process, and
8
Chapter 2: SBSD Management and Programs
55 percent are recertifications that go through a streamlined process. SBSD is the pre-
dominant business certification entity for Virginia state government, though other en- Other certification
entities include the U.S.
tities also offer some certifications necessary for state contracting (sidebar). Small Business Admin-
istration (for 8a and
women-owned busi-
TABLE 2-1
nesses), WBENC (for
SBSD offers four types of SWaM certifications and several others women-owned busi-
% of nesses), and NMDSC (for
Certification # certified certified minority-owned busi-
type Certification requirements in 2019 a businesses b nesses). SBSD recognizes
businesses with these
SWaM certifications
certifications, but they
Small 250 or fewer employees or $10M or less in gross receipts c 10,486 40%
cannot participate in the
Micro 25 or fewer employees and $3M or less in gross receipts c 6,058 23% state’s procurement set-
Controlled, and at least 51% owned, by one or more aside. Federal certifica-
Minority d 3,843 15%
minority individuals tions are free like SBSD’s
Women Controlled, and at least 51% owned, by one or more women 3,616 14% certifications, but WBENC
Other certifications and NMSDC charge be-
Controlled, and at least 51% owned, by a socially and tween $350 and $1,250.
DBE 2,066 8%
economically disadvantaged individual
Disabled Owned by a service-disabled veteran certified by the
415 2%
veteran e Virginia Department of Veterans Services
Employment
Small or micro business that provides community-based
service 12 0%
employment services to individuals with disabilities
organization
TOTAL 26,496
SOURCE: JLARC staff analysis of SBSD certification data (2019).
NOTE: a Businesses that hold multiple certifications are listed in each category. b Percentages do not sum because
of rounding. C Annual gross receipts averaged over a three-year period. d Historically Black colleges and universities
(HBCUs) can also be certified by SBSD and are counted in the minority certification category. Currently, three HBCUs
are minority certified. e This is not a separate certification, but a “status” in the SWaM vendor database.
Some certifications, including “small” and “micro” certifications, make a business eli-
gible to receive preferences in the state procurement process. According to SBSD, The Virginia Public Pro-
curement Act requires
Virginia procurement law prohibits businesses with other certifications, including race and gender neutral
“women-owned” and “minority-owned” certifications, from receiving procurement procurement practices
preferences (sidebar), but agencies are encouraged to purchase from them to increase unless the governor has
the state’s SWaM spending. About 12 percent of the businesses that sold goods and authorized enhancement
or remedial measures. A
services (including construction) to the state over the last decade were SWaM certified. disparity study is cur-
SBSD’s certification process generally follows three main steps: (1) application sub- rently under way to de-
termine if race and gen-
mission, (2) application review, and (3) decision and notification (Figure 2-1). The ap- der conscious policies are
plication submission step requires businesses to complete an application and submit necessary and appropri-
documents such as tax returns, resumes, and business ownership documents through ate.
an online certification portal. Once the information is received, a SBSD certification
officer reviews the application and decides whether to approve it. SBSD has an internal
goal of 60 business days for processing SWaM applications, which is similar to other
states and external certification entities. Federal DBE regulations require applications
9
Chapter 2: SBSD Management and Programs
to be processed within 90 days of receiving the required information (unless busi-
nesses are notified of an extension).
FIGURE 2-1
SBSD’s certification process has three main steps
SOURCE: JLARC staff analysis of SBSD certification documents and interviews with SBSD staff.
NOTE: a For SWaM certifications, the SWaM director reviews all denials and a sample of approvals. The DBE division uses a process whereby
each application is reviewed by another DBE staff member.
Certification processing times have decreased, but staff often need to
follow up with businesses to request more information
SBSD is processing applications much faster than it used to and has reduced the num-
ber of applications that exceed its processing time goals. The agency has primarily
accomplished this through converting the application process to an online system and
streamlining certain processes. Since 2017, average processing times have decreased
across all certification types. For example, SBSD processed small business certifica-
tions 49 percent faster in 2019 than in 2017 (Figure 2-2). No small, micro, women-
owned, or minority-owned certifications took longer than the 60-day goal to process,
a substantial improvement from 2017 when 2,052 took longer than 60 days to process.
SBSD also processes DBE applications faster than in 2017; the average processing
time of 72 days in 2019 was quicker than the federal goal of 90 days. There are still,
though, some DBE applications (99 in 2019) that take longer than the 90-day goal.
10
Chapter 2: SBSD Management and Programs
FIGURE 2-2
SBSD is processing certification applications much faster since 2017
SOURCE: JLARC staff analysis of SBSD data (2017–2019).
NOTE: The time it takes SBSD to process applications for disadvantaged business enterprises, service disabled vet-
eran-owned businesses, and employment service organizations also decreased over time.
While applications are processed faster, certification staff often have to request more
information or documentation during the application process, which frustrates busi- JLARC’s survey of
businesses was sent to
nesses. There were almost 17,000 follow-up requests for 10,000 applications in 2019. approximately 23,000
SBSD follow-up requests are often needed because some businesses are unclear about businesses that recently
the information they need to submit and the reasons for submitting it, according to participated in SBSD pro-
staff. For example, business owners are required to submit their resume, which SBSD grams; a total of 918
businesses responded (4
uses to validate the business owner’s experience and control of the business. Business percent). The survey
owners sometimes submit resumes without adequate information or detail for SBSD asked questions about
to use. the application process,
approval decisions, effec-
Some businesses expressed confusion about the information required for their certifi- tiveness, and awareness
cation application and dissatisfaction with follow-up requests from SBSD. About one- of SWaM certifications,
fourth of businesses that responded to a JLARC survey (sidebar) disagreed that it was DBE certifications, financ-
ing programs, and busi-
easy to understand the information they needed to submit. Multiple businesses com- ness assistance programs.
mented on the lack of clarity about required information or the extent of follow up. (See Appendix B for more
One noted: “It seemed that every time I submitted what was requested I got another information about this
request to submit something else, requiring more work.” Another remarked: “More survey.)
precise instructions about the documents and information needed for submission, and
where to get them so they would be accepted, would be helpful.”
SBSD staff have used various methods to try to inform businesses about the certifi-
cation process and documentation requirements. SBSD offers SWaM certification
workshops and one-on-one sessions to answer questions about certification, but few
businesses participate in these events. SBSD’s website has a list of documents that
businesses are required to submit, but this list does not describe the purpose of each
11
Chapter 2: SBSD Management and Programs
document. SBSD previously had a precertification webinar available online that cov-
Some entities encour-
ered the certification process and documentation requirements, but it removed the
age businesses to par-
ticipate in precertifica- webinar because of a contractual issue with the webinar vendor.
tion meetings, webinars,
To reduce the follow up required with businesses, SBSD should maintain precertifica-
or other online infor-
mation sessions before tion webinars or videos on its website. These should describe the SWaM and DBE
applying. The National application processes, with a particular emphasis on the documents required, the pur-
Minority Supplier Diver- pose of each document, and the specific information each document should include.
sity Council strongly en-
Several other states and third-party certifiers offer (but do not require) businesses to
courages businesses to
attend a monthly in-per- participate in precertification webinars or videos (sidebar). SBSD could strongly en-
son precertification brief- courage businesses to view the webinar(s) or video(s) before applying (or even require
ing 30 days before they them to attest that they have viewed them as part of their application, depending on
apply to review the appli- the additional burden that would add to the application process).
cation process and docu-
ments required. Other
states (including Florida, RECOMMENDATION 1
West Virginia, Illinois, and The Department of Small Business and Supplier Diversity (SBSD) should post precer-
Washington) have videos
tification webinars or videos on its website that describe the application process, in-
on their websites to ex-
plain the certification pro-
cluding the documents required, the purpose of each document, and the specific in-
cess. formation SBSD requires in each document.
Certification process is rigorous and decisions are mostly accurate
SBSD’s certification process has several elements to ensure that SWaM and DBE cer-
tification decisions are accurate. Businesses also generally perceive determinations as
accurate, according to a JLARC survey.
The process for initial certifications is designed to help SBSD make accurate decisions.
A business must submit tax returns and business documentation (e.g., corporate by-
laws) to prove it meets the necessary ownership, revenue, and employment require-
ments. SBSD staff review SWaM applications to reach an initial certification decision.
The SWaM director then reviews all applications that were not approved and a subset
of approved applications to ensure accuracy. DBE applications are reviewed inde-
pendently by two certification staff members. When necessary, certification staff re-
quest and receive OAG assistance on unique or complex ownership situations.
SBSD’s process for recertifying SWaM businesses also is designed to ensure accurate
determinations, though it has been streamlined to ease the burden on businesses. Busi-
nesses are required to submit fewer documents to recertify because documents sub-
mitted during the initial certification process (including documents to prove the busi-
ness meets ownership requirements) are retained in the online certification portal. To
ensure the business still meets certification requirements during recertification, SBSD
requires businesses to submit updated tax documents showing they still meet the size
requirements and an affidavit verifying there have been no substantial changes to the
business since initial certification.
12
Chapter 2: SBSD Management and Programs
To test the accuracy of SBSD’s certification determinations, JLARC reviewed the re-
ported employment and revenue of approximately 10,500 currently certified busi-
nesses and found that nearly 100 percent of those approved met the requisite employee
or revenue thresholds. The review did find, though, 27 businesses (less than 1 percent)
certified as micro that were actually larger than the micro business threshold. SBSD
indicated that certification staff mistakenly applied the small business threshold—ra-
ther than the micro business threshold—to these businesses and are in the process of
correcting the errors.
Certification process is fair, but appeals process is not available to all
businesses and is not well understood
The certification process has several attributes to ensure fairness. SBSD gives busi-
nesses the opportunity to provide additional information during the application review
process and does not deny an application outright if a business provides inadequate or
incorrect information. Most certification applications are approved. The denial rate is
less than 5 percent for SWaM certifications and about 10 percent for DBE certifica-
tions. Businesses generally perceive the certification process as fair, according to a
JLARC survey.
Businesses that are denied SWaM recertification or whose certification is revoked can
The U.S. Department of
appeal on the ground that SBSD has made a mistake in reaching its decision. SBSD
Transportation handles
has held appeals hearings for seven SWaM certification denials since mid-2019, none DBE certification ap-
of which were overturned. (Appeals of DBE certifications are handled by the U.S. peals. Denied firms may
Department of Transportation, sidebar.) file an administrative ap-
peal within 90 days from
The appeals process has several positive aspects. A different SWaM certification staff the date of denial. Only
member reviews appeals than the staff person who originally reviewed the application. three DBE decisions out
of 17 appeals (and nearly
Appeals are decided by an internal staff committee, which holds an appeals hearing
3,200 applications) have
where the business can present its case. Additionally, a business has the right to be been overturned in the
represented by an attorney in the proceeding. past 10 years.
However, the appeals process is not available to businesses who are denied a new cer-
tification. This limitation appears to lack any policy basis and instead be to manage the
SWaM certification division’s workload.
SBSD should allow all businesses that have been denied SWaM certification—includ-
ing businesses that have applied for a new certification—the opportunity to appeal
SBSD’s decision. Denials for new certifications should follow the same process as de-
nials for recertifications. Businesses denied new certifications should be able to submit
an appeal to SBSD’s appeals committee and request an appeals hearing. Allowing new
certification applicants the ability to appeal should not substantially increase the vol-
ume of appeals because of SBSD’s low denial rate. Additional efforts to educate busi-
nesses about grounds on which they can make an appeal should further help to keep
the number of appeals low. To implement this change, SBSD may need to coordinate
with OAG staff and would need to amend its regulations as necessary.
13
Chapter 2: SBSD Management and Programs
RECOMMENDATION 2
The Department of Small Business and Supplier Diversity (SBSD) should amend its
regulations to provide a right of appeal to small, women-owned, and minority-owned
businesses who have been denied a new certification if their basis for challenging the
decision is that SBSD made a mistake in denying their application.
In addition to the appeals process, SBSD has a waiver process for businesses whose
applications were denied. This process is for businesses that have new information for
SBSD to consider and want to reapply earlier than the required six-month waiting
period. The SBSD director decides whether to grant a waiver.
Some businesses that are denied certification appear confused about the appeal and
waiver processes. SBSD sends a letter to denied businesses that describes them, but
the processes remain unclear to some businesses. For example, some businesses do
not understand the basis on which they can appeal a determination or the difference
between the appeal and waiver processes.
SBSD has made recent efforts to clarify the waiver and appeals processes, which seem
to have reduced some of the confusion that businesses have experienced with these
processes in the past. For example, SBSD had received no waiver requests until August
2019 when SBSD revised its denial letters to include the waiver option. As a result, at
least 31 businesses submitted waiver requests from September 2019 to January 2020.
Beginning in 2020, SBSD also clarified the reasons for which a business can appeal a
denial with the 30 businesses that had appealed. After receiving this clarification, 23
of these businesses withdrew their appeal.
Despite SBSD’s attempts to clarify these processes, some businesses remain confused
about the reasons they can apply for an appeal or waiver. Consequently, SBSD should
provide businesses with more information on the appeals and waiver processes to fur-
ther reduce confusion and improve transparency. SBSD should clearly describe the
reasons businesses can file an appeal or seek a waiver, eligible applicants, the differ-
ences between appeals and waivers, and the types of documentation businesses should
provide in each case. This information should be more clearly described in SBSD’s
denial letters and added to SBSD’s website.
RECOMMENDATION 3
The Department of Small Business and Supplier Diversity should clarify its appeals
process by revising denial letters and adding information to its website to more clearly
describe the (i) circumstances and grounds to appeal a certification decision or seek a
waiver, (ii) processes a business must follow, and (iii) documentation to provide when
filing an appeal or seeking a waiver.
14
Chapter 2: SBSD Management and Programs
Business assistance services are generally useful but
could be more accessible and targeted
SBSD’s business assistance division works directly with businesses to help them de-
velop and grow. Staff provide three types of services: group events, one-on-one coun-
seling sessions, and an intensive training program called Scaling4Growth (Table 2-2).
The Code of Virginia requires SBSD to “provide technical and management assis-
tance,” which gives SBSD discretion over the topics covered and delivery method of
services. Business assistance services are currently provided by five regionally based
staff.
TABLE 2-2
SBSD offers several types of business assistance services
Program Description Participants (2019)
Events Group training or networking events open to mul- 2,423
tiple businesses (e.g., webinars, conferences).
Counseling sessions One-on-one consulting sessions where SBSD staff 786
provide personalized assistance to businesses (e.g.,
help registering a business, pursing certification)
in-person or through a phone call.
Scaling4Growtha 6-month business development course with ~16 32
businesses, a trained course instructor, and stand-
ardized curriculum.
Total 3,241
SOURCE: JLARC interviews with SBSD and analysis of SBSD data.
NOTE: Aside from Scaling4Growth, participation counts are non-unique. For example, a single business attending
two counseling sessions and one event will be counted three times. a Scaling4Growth was created by Interise, a
national organization.
Events and counseling sessions are helpful, but use is hindered by lack
of awareness and similarity to other programs
SBSD offers state contracting and general business information through its events and
counseling sessions. The majority of SBSD events and counseling sessions cover state
government contracting topics, particularly SWaM certification and the state’s procure-
ment system. For example, in a May 2020 counseling session, SBSD staff explained
which documents a startup owner needed to submit for the SWaM certification appli-
cation and how to search the state’s procurement website to find contracts relevant to
her industry.
SBSD also offered events and counseling sessions on general business topics, rather
than Virginia-specific topics. In 2019, one-third of businesses attended events that
covered general business topics such as sales, starting a new business, business financ-
ing, or succession planning. Similarly, 21 percent of the counseling sessions that SBSD
15
Chapter 2: SBSD Management and Programs
conducted in early 2020 covered general business topics such as marketing, starting a
new business, and business funding sources.
Businesses that participate in SBSD’s events and/or counseling sessions generally con-
sider them useful. About two-thirds of the businesses responding to JLARC’s survey
question on events and counseling sessions agreed the information provided was help-
ful. Several Virginia business groups interviewed spoke favorably about SBSD’s events
and counseling sessions and reported that these services are beneficial for their mem-
bers.
Business participation in events and counseling sessions varies, but SBSD’s business
assistance services are generally under-utilized. SBSD staff report that events are rarely
filled to capacity and that they do not maintain waiting lists. Lack of awareness and
similarity to other services offered by larger organizations each contribute to low uti-
lization.
Many businesses are unaware SBSD offers events or counseling sessions. Over half
of businesses responding to a JLARC survey said they had not participated in SBSD’s
events or counseling sessions because they were unaware of or had insufficient infor-
mation about them. The president of one business group said: “I don’t think the word
is out there about SBSD’s business assistance services.” Currently, marketing efforts
are ad hoc and vary by region. For example, business assistance staff in some but not
all regions regularly email previous business participants about upcoming events. How-
ever, SBSD recently started television advertisements and sending staff to business
conferences to increase awareness.
Several federally administered or supported organizations are much larger than SBSD
and provide similar services (Figure 2-3). For example, two SBA programs—Small
Business Development Centers (SBDCs) and SCORE—provide a variety of general
business assistance through statewide networks. These entities specialize in these ser-
vices, and their staff have professional backgrounds or receive detailed training on
these topics. Moreover, they have far greater capacity; the Virginia chapter of SBDC
has 37 full-time equivalent staff, compared with SBSD’s five. SBA’s statewide SCORE
and SBDC programs served six times as many businesses as SBSD through counseling
and events in 2019.
16
Chapter 2: SBSD Management and Programs
FIGURE 2-3
SBSD and several federal providers offer general business assistance
SOURCE: JLARC analysis of federal program websites and interviews with SBSD and federal program staff.
NOTE: Checkmarks indicate the provider’s primary specialties.
SBSD could narrow focus of business assistance services and should
improve its marketing and accessibility
SBSD could improve its business assistance by narrowing its focus to Virginia-specific
content and increasing awareness and accessibility of its programs. SBSD business
assistance staff indicated they specialized in their knowledge of state government,
which was also the most common reason for receiving referrals. These staff are also
uniquely positioned to assist businesses with state contracting and certification because
SBSD also administers SWaM certifications and works with state agencies to increase
SWaM procurement.
Several other states, such as North Carolina and Kentucky, have more intentionally
North Carolina’s staff
identified roles for their business assistance staff that avoid overlap with other general only provide referrals and
business development programs (sidebar). Several national experts and Virginia busi- responses to quick turn-
ness groups identified by JLARC also noted that helping businesses navigate state con- around inquiries, while
tracting and certification is SBSD’s specialty. These groups said SBSD’s state govern- Kentucky’s staff focus on
entrepreneurs (not all
ment expertise is not commonly available elsewhere, in contrast with general business
small businesses).
development services offered by larger federal and other organizations.
SBSD could discontinue offering general business assistance that businesses can ob-
Policy options for con-
tain in many other places and instead refer businesses to larger organizations with sideration. Staff typically
more scale and expertise. Doing so would allow SBSD to build on its core competency propose policy options
and comparative “niche” offering events and counseling sessions focused on Virginia- rather than make recom-
specific topics related to certification and contracting. mendations when (i) the
action is a policy judg-
ment best made by
POLICY OPTION 1
elected officials—espe-
The Department of Small Business and Supplier Diversity could refer businesses seek-
cially the General Assem-
ing general business assistance to larger federal programs and offer more events and bly, (ii) evidence suggests
counseling sessions on Virginia-specific certification and contracting topics. action could potentially
be beneficial, or (iii) a re-
If SBSD refined its offerings, the agency can then more effectively market and im- port finding could be ad-
prove the accessibility of its programs. SBSD’s marketing and public relations efforts dressed in multiple ways.
17
Chapter 2: SBSD Management and Programs
should include the development of an integrated, written marketing plan for SBSD’s
business assistance. The plan should establish SBSD’s strategy for increasing awareness
of its programs among businesses and specify the types of businesses staff will con-
tact, the marketing methods staff will use, and which staff will conduct the outreach.
SBSD had planned to create a new marketing/public relations staff position in FY21,
but the funding for this position was removed from the budget in August 2020. Cur-
rent SBSD staff could draft a marketing plan, but additional staff may be needed to
conduct planned business outreach activities as funding becomes available. To leverage
existing state resources, the plan should cover key groups across the state that assist
small and disadvantaged businesses (e.g., local chambers of commerce and startup
support organizations). The Virginia Economic Development Partnership and North
Carolina’s economic development agency (which includes small business programs)
Other state agencies both create annual marketing plans. VEDP’s most recent plan identified industries and
serving small busi- stakeholders to target, while North Carolina’s plans specify outreach to localities with
nesses, such as the Vir-
low use of its programs the prior year.
ginia Department of Gen-
eral Services and the SBSD should also make these improved services more readily accessible to businesses.
State Corporation Com-
Experts emphasize the importance of making business assistance services available in
mission, have posted vid-
eos and explanatory doc- a variety of platforms and formats to meet businesses’ diverse preferences. Most of
uments online about SBSD’s services currently require real-time attendance to access information. For ex-
website functions (e.g., ample, SBSD only shares training documents directly with event participants; it has
registering a business not made these materials available on its website. Posting more information online as
name, submitting bids) in
addition to having cus-
other state agencies do (sidebar) would maximize the number of businesses served
tomer service staff for di- and could decrease the time staff spend answering common questions.
rect communication with
businesses.
RECOMMENDATION 4
The Department of Small Business and Supplier Diversity should improve business
awareness of and accessibility to its business assistance events and counseling sessions
through (i) developing and implementing a coordinated written marketing plan and (ii)
providing on-demand written materials and recorded webinars on its website.
Scaling4Growth seems beneficial for businesses but is not widely
available
In contrast with SBSD’s events and counseling sessions, Scaling4Growth is a longer-
term, intensive program. Scaling4Growth is managed by SBSD, but services through
the program are provided through a private company under contract to SBSD.
Participating businesses provided positive feedback about SBSD’s Scaling4Growth
program. All previous or current Scaling4Growth participants (11) who responded to
a JLARC survey viewed the program as useful and informative and expressed overall
satisfaction. One participant remarked that the Scaling4Growth “program has helped
me become better focused and goal oriented for successful outcomes. We are now in
a position to actually push our own growth.” Metrics tracked by Scaling4Growth indi-
cate preliminary evidence of benefits for businesses that participate in the program.
18
Chapter 2: SBSD Management and Programs
For example, businesses that participated in the program in 2018 reported creating
three new jobs and growing their revenue by 44 percent, on average. (No analysis has
been done to determine whether this growth was attributable to Scaling4Growth or
how Scaling4Growth participants’ growth compares to other businesses.) The national
organization overseeing Scaling4Growth programs (Interise) views SBSD as a com-
mitted and successful administrator.
Only a small number of businesses have been able to participate in Scaling4Growth
because of the program’s location and limited capacity. SBSD is currently the only
entity that administers the Scaling4Growth program in Virginia. SBSD has hosted
Scaling4Growth in three regions since it began in 2016. It was held four times in the
Richmond area, once in Hampton Roads, and once in Northern Virginia. Additionally,
each six-month cohort is capped at 16 businesses. The COVID-19 pandemic
prompted several temporary changes to the program. For example, the seventh and
eighth cohorts have been offered virtually and statewide. SBSD plans to continue this
approach with the next cohort to ensure businesses’ safety during the pandemic.
Businesses’ ability to participate in Scaling4Growth could be improved if SBSD of-
fered the program statewide on a permanent basis. SBSD could accomplish this by
rotating locations of each cohort or by continuing to offer the program virtually. If
the number of qualified businesses who apply for Scaling4Growth exceeds the num-
ber of cohort spots, SBSD could also consider operating two cohorts concurrently.
This expansion could increase the cost of Scaling4Growth by about 40 percent. Scal-
ing4Growth has a much higher cost-per-business than SBSD’s counseling and events
because each session has few participants and SBSD pays a third party to facilitate the
program.
POLICY OPTION 2
The Department of Small Business and Supplier Diversity could offer the Scal-
ing4Growth program in each region of the state and to more businesses.
Virginia’s “Business One Stop” website is not
comprehensive and lacks key functionality
Starting a business requires registrations and applications with several government en-
tities. Businesses can benefit from a “one stop” resource for all their registration re-
quirements, which can help them understand and comply with governmental require-
ments for registration, according to national experts and Virginia business groups.
Without a one-stop resource, businesses may attempt to complete actions in the wrong
order (e.g., registering for a tax ID before receiving a State Corporation Commission
ID), overlook applicable permits, or make detrimental decisions such as selecting a
costlier business structure than needed.
19
Chapter 2: SBSD Management and Programs
SBSD is responsible for overseeing the state’s Business One Stop (one stop) website,
Of Virginia’s five neigh-
which is intended to serve as a “single access point” for starting a new business. Vir-
boring states and the
District of Columbia, only
ginia is one of a few states in the region that attempts to provide a comprehensive
two states operate one website for required business registrations (sidebar). One stop websites are designed
stops for new business to simplify business startup requirements, but they are complex to develop and can be
registration that incorpo- resource-intensive to adequately maintain over time.
rate multiple agencies.
Kentucky’s One Stop in-
cludes two state agencies, Business One Stop website fulfills few of its statutory requirements
and West Virginia’s One and lacks functionality
Stop includes three state
agencies; neither are inte- SBSD is not fulfilling most statutory requirements for Virginia’s Business One Stop
grated with local or fed- (Table 2-3). The Code of Virginia outlines several required functions that the Business
eral agencies. One Stop does not offer, one of which is an in-house “comprehensive” application
for new business registration (sidebar), enabled by SBSD “exchanging” information
with other agencies. Rather than meeting the requirement as intended, the website
merely provides links to other agencies’ websites. Businesses must start over at each
agency website, requiring a business to interact separately with each website and pro-
vide similar or identical information across the various sites.
New businesses may be
required to register with Some of the site’s information sources are incomplete, absent, or are not adequately
multiple government
maintained. For example, the link to the Department of Professional and Occupa-
agencies: the federal IRS,
several state agencies tional Regulation licensing has not worked, and the local governments contact list for
(State Corporation Com- permitting was blank as of June 2020. (SBSD fixed both of these problems as of
mission, Department of September 2020, but several other links remain inaccurate.) The website currently ref-
Taxation, relevant regula-
erences some resources at agencies such as the Department of Environmental Quality
tory agency, such as the
Department of Profes- and SBA, but omits programs such as VEDP’s Virginia Jobs Investment Program, the
sional and Occupational Center for Innovative Technology’s equity funds for startups, and the Virginia Depart-
Regulation) and local ment of Housing and Community Development’s Virginia Main Street program. Re-
government (for zoning
source links are categorized by business growth stage, but many do not reference spe-
and business permit), de-
pending on the busi- cific programs. Additionally, the website contains some outdated language (e.g.,
nesses’ size, industry, and references to SBSD’s predecessor agencies).
other characteristics.
Comparatively few businesses use the website. Business groups and state agencies de-
scribed the Business One Stop as “cumbersome” and “not very intuitive,” and at least
two SBSD staff members refrain from referring businesses there. In 2019, only 2 per-
cent of businesses (2,111) began registering their businesses through the Business One
Stop out of the 93,065 businesses that registered with the state.
SBSD leadership acknowledge the lack of compliance and indicated they have chosen
to focus on improving other SBSD programs before addressing issues with the Busi-
ness One Stop. SBSD’s business assistance division is technically responsible for the
website, but no single SBSD employee has full responsibility for it. Rather, responsi-
bilities are spread across staff in several divisions. This lack of designated responsibil-
ity has likely contributed to a lack of focus on fulfilling legislative intent.
20
Chapter 2: SBSD Management and Programs
TABLE 2-3
Business One Stop is not fulfilling statutory requirements
Code of Virginia requirement SBSD fulfillment
Create a “comprehensive application” containing basic information (e.g., ad-
dress) thus “eliminating the need to repeatedly provide” this information
○
For approved applications, provide a “comprehensive permit that incorpo-
rates the endorsements for individual permits”
○
“Develop and administer a computerized system program capable of storing,
retrieving, and exchanging permit information”
○
Provide “a customized to-do agency checklist” with applicable applications
and government requirements a
○
“Allow a business owner to submit electronic payment” for application, with
an exemption for veterans
●
Serve as a source of “information and pertinent factors of interest and con-
cern” for businesses
◒
SOURCE: JLARC analysis of §§ 2.2-1617, 2.2-1605, review of SBSD website, and interviews with state agencies.
NOTE: Statutory requirements for the Business One Stop website were implemented in 2008, although the exact
language has changed over time. a House Bill 1221, which passed in 2020 and takes effect in FY21, specified the
following government requirements to be included in this list: “sales tax and unemployment tax requirements,
workers' compensation insurance requirements, and postings required by the Virginia Department of Labor and
Industry and the U.S. Department of Labor.”
SBSD is in the process of attempting to improve the Business One Stop website and
fulfill legislative intent. However, doing so likely will require substantial resources.
SBSD receives $500,000 in appropriations annually for the Business One Stop and
currently has $705,000 in additional funding from user fees that can be used for im-
provements. Additional funding may be needed, as an informal quote obtained from
a vendor that administers another state’s Business One Stop website estimated that
improvements to Virginia’s website could cost several million dollars per year.
SBSD has begun working with the website’s new host vendor and state agencies to
identify problems with the website. The agency has also drafted an improvement plan;
however, the plan does not include improvements needed to fully comply with the SB 1137 (2013) required
Code of Virginia. For example, the plan does not commit to covering all professional full integration between
and local licenses or to providing businesses with a “customized to-do” list of gov- the One Stop and State
Corporation Commis-
ernment requirements. SBSD agency staff have said they plan to integrate State Cor-
sion’s “processes and
poration Commission (SCC) registrations into the Business One Stop, but it is not forms” by June 2018.
explicitly specified in their written improvement plan. Recent legislation directed the HB 237 (2018) extended
Business One Stop and SCC to adapt their systems to exchange information electron- the previous deadline for
ically (sidebar). full integration to January
2020.
SBSD needs to work with the General Assembly to determine which of the current
legislative requirements for the One-Stop remain legislative priorities and the resources
needed to meet those requirements. The General Assembly should require SBSD to
submit an improvement plan that includes the following for each statutory One-Stop
requirement: (i) the purpose and benefit to small businesses; (ii) the cost of fully im-
21
Chapter 2: SBSD Management and Programs
plementing and maintaining the requirement; (iii) any additional resources (both fund-
ing and staff) needed to implement and continue to meet the requirement; and (iv)
SBSD’s recommendation whether the requirement should be kept. SBSD may need to
issue a Request for Information to obtain cost estimates for meeting the various re-
quirements.
RECOMMENDATION 5
The General Assembly may wish to consider including language in the Appropriation
Act directing the Department of Small Business and Supplier Diversity (SBSD) to
develop and submit a detailed improvement plan for the Business One Stop. The plan
should include the following for each statutory requirement: (i) a description of the
purpose and benefit to small businesses, (ii) the cost of fully implementing and main-
taining the requirement, (iii) the resources needed beyond those currently available to
implement and maintain the requirement, and (iv) SBSD’s recommendation as to
whether the requirement should be kept. The plan should be provided to the House
Labor and Commerce and Appropriations committees and the Senate Commerce and
Labor and Finance and Appropriations committees no later than November 1, 2021.
22
3 Virginia Small Business Financing Authority
The Virginia Small Business Financing Authority (VSBFA) is technically part of SBSD
but operates somewhat separately from the rest of the agency. VSBFA has its own
executive director (who reports to the SBSD director) and a board that makes final
decisions about the agency’s financing programs. VSBFA consists of eight staff, in-
cluding the executive director, a chief credit officer, three loan officers, and three ac-
counting and administrative personnel.
VSBFA operates several financing programs to support businesses. Three of VSBFA’s
VSBFA plays a facilitating
programs provide direct loans, which are underwritten and administered by VSBFA (Ta-
role for the conduit
ble 3-1). VSBFA also provides three support loan programs, through which VSBFA en- bond program, in which
courages banks to loan to small businesses by committing financial assistance to the private bond purchasers
banks if the loans are not repaid. VSBFA also offers grants and conduit bonds. All of provide funding to the
business or nonprofit
VSBFA’s programs serve small businesses except conduit bonds, which primarily serve
who repays them over
large businesses and large non-profits (sidebar). (For more information about VSBFA’s time. VSBFA’s primary
individual financing programs, see Appendix E.) bond responsibilities in-
clude hosting public
bond hearings during
TABLE 3-1 VSBFA board meetings
VSBFA primarily provides direct and support loans, and grants and approving the bonds.
VSBFA facilitated three
Number of Amount of
conduit bonds in 2019
businesses funding used
totaling $658 million.
Program served b (FY19) ($ Thousands )
Direct loans 15 $965
Microloan 12 198
Economic Development Loan Fund 2 742
Child Care Financing Program 1 25
Support loans 9 2,039
Loan Guaranty 5 1,698
Capital Access 4 4
Cash Collateral 0 337
Grants 41 830
Small Business Investment Grant 38 824
Small Business Jobs Grant a 3 6
SOURCE: JLARC analysis of VSBFA data (FY19).
NOTE: Programs as shown above do not distinguish by funding source. For example, the Economic Development
Loan Fund includes federal and state-funded loans. a The Small Business Jobs Grant was eliminated during the 2020
GA session through House Bill 1505. b The number of businesses served reflects the number that were approved for
funding (due to limited data), which can differ from the number that received funding.
VSBFA exists “to provide financial assistance to small and other eligible businesses in
the Commonwealth by providing loans, guarantees, insurance and other assistance to
23
Chapter 3: Virginia Small Business Financing Authority
small and other eligible businesses, thereby encouraging the investment of private cap-
VSBFA is now responsi-
ital in small and other eligible businesses in the Commonwealth.” The General Assem-
ble for two new COVID-
19 relief programs that bly created the VSBFA because small businesses often face difficulty receiving financ-
will award $80.3 million ing since they are riskier investments than larger businesses, and small loans are not as
to businesses. Most fund- profitable for banks. Financing challenges can be exacerbated for small businesses that
ing for these programs are women- or minority-owned, as these businesses may lack established connections
was provided through the
federal CARES Act.
to capital. In addition to VSBFA, the federal government, some local governments,
and nonprofit organizations administer financing programs for small businesses.
The Rebuild VA grant
program will provide VSBFA’s financing programs have become especially important to assist small busi-
$70.7M to businesses in
nesses that have been negatively affected by the COVID-19 pandemic. Many busi-
non-essential industries
that have less than $1.5 nesses are currently experiencing unprecedented operational challenges, such as in-
million in revenue and 25 creased costs or decreased consumer demand, and may need additional capital to
or fewer employees. address these challenges. Experts predict commercial banks may become more restric-
VSBFA began accepting
tive with business lending, making VSBFA a critical funding source for small busi-
applications in August
2020. nesses. In this environment, it is especially important for VSBFA to operate its financ-
ing programs efficiently and effectively, particularly as staff begin administering two
VSBFA also received
new COVID-19 relief programs (sidebar).
$10.2M for a COVID-19
loan program. VSBFA is
currently designing the Operational shortcomings have prevented VSBFA
program and is not yet
accepting applications as from fully achieving its mission
of early September.
VSBFA has not been meeting most criteria necessary to effectively administer fi-
nancing programs and meet its legislative mission (Table 3-2). VSBFA is not ensur-
ing that an adequate portion of available funds are loaned to businesses or setting
goals for utilization. VSBFA also lacks written policies that establish appropriate
risk standards for loans and a standardized tool for staff to consistently assess ap-
plicants’ repayment risk, which has impeded full achievement of VSBFA’s mission
to serve small businesses most likely to face financing challenges.
TABLE 3-2
VSBFA is not meeting most criteria for effective program administration
VSBFA
Criteria fulfillment
Adequate proportion of available funds loaned to businesses ○
Goals for and tracking of loan and grant program utilization ○
Regular targeted outreach to businesses and banks ◒
Written policies that establish appropriate risk standards for loans ○
Standardized tool to consistently assess applicant risk ○
Regular monitoring of processing times, loan decisions, and outstanding loan health ○
Adequate board expertise to evaluate all loan applications ◒
SOURCE: JLARC interviews with experts and VSBFA staff, review of literature on small business financing programs
and VSBFA policies.
24
Chapter 3: Virginia Small Business Financing Authority
The lack of consistent leadership likely contributed to VSBFA’s operational shortcom-
JLARC’s 2018 “Workforce
ings. The authority has had five permanent or acting executive directors in three years. and Small Business In-
After VSBFA’s long-time executive director departed in 2017, the agency’s chief credit centives” made seven
officer became the acting director for nine months (while also still performing the recommendations re-
lated to VSBFA. Several
chief credit officer duties). The next two executive directors served for short time
have been partially imple-
periods; a permanent executive director served from June 2018 to July 2019, while an mented or fully imple-
acting executive director served from August 2019 to September 2019. Turnover in mented, and two are not
the executive director position left VSBFA without consistent leadership and hindered yet implemented: (1) es-
tablishing a scoring sys-
any potential initiatives to increase loan utilization and develop standardized policies.
tem for the Small Busi-
Several staff emphasized the adverse impact of inconsistent leadership, with one not- ness Investment Grant,
ing “this revolving door of leadership has caused the team to continually reset priori- and (2) establishing job
ties.” VSBFA’s current executive director was hired in October 2019 and has been in creation standards for
the position for nearly one year. He has a lending background and is viewed positively certain VSBFA loans. (For
more information see Ap-
by staff and board members. pendix C.)
VSBFA programs are beneficial, but low lending
JLARC survey of
levels limit assistance provided to businesses businesses was sent to
approximately 23,000
JLARC’s 2018 review of “Workforce and Small Business Incentives” found that businesses that recently
VSBFA’s grant programs had a moderate benefit to the state economy (e.g., growth in participated in SBSD pro-
jobs and income), and its loan programs (even though they are not targeted to high grams; 918 businesses re-
sponded (4 percent). The
growth businesses) have moderate to high economic benefit when considering the rel-
survey asked questions
atively low cost to the state (sidebar). The VSBFA loan programs can play a key role about the application
helping businesses receive loans they otherwise would not have been able to obtain. process, approval deci-
The 2018 review also noted that VSBFA loan programs appeared to be warranted in sions, effectiveness, and
awareness of SWaM certi-
Virginia, particularly during and immediately following the Great Recession. The need
fications, DBE certifica-
for these programs may be greater as the economic effects of the COVID-19 pan- tions, financing programs,
demic continue to be realized. and business assistance
programs. (See Appendix
During this 2020 review, stakeholders similarly pointed to the positive impact VSBFA B for more information
programs can have. All businesses responding to a JLARC survey reported that receiv- about this survey.)
ing the funding was helpful (sidebar). Stakeholder groups and state agencies described
VSBFA staff as knowledgeable and responsive. Additionally, several banks highlighted
the ease of VSBFA’s paperwork and processes compared with financing programs Other public finance
programs have strug-
from the U.S. Small Business Administration (SBA).
gled with adequately
Public entities like VSBFA, which provide gap financing to small businesses, must bal- deploying funding. A
ance two goals: helping small businesses access capital and being prudent stewards of JLARC review in 2000
public funds. Public financing authorities may find it difficult to achieve both goals found that the Virginia
because one can jeopardize the other (sidebar). Government-sponsored small business Housing Development
Authority held overly high
loan programs typically consider higher-risk loans than those approved by commercial
fund balances because it
banks. However, avoiding unreasonably high-risk loans is necessary to protect state
was retaining funds at the
dollars and ensure that outstanding loans are repaid to fund future loans. expense of making loans
to households not served
by the private market.
25
Chapter 3: Virginia Small Business Financing Authority
VSBFA did not award most available loan funding to businesses in
recent years, and loan applications have declined
The Code of Virginia tasks VSBFA with providing financing, yet in 2018 and 2019 the
authority used only a small amount of available funding. VSBFA’s loan programs used
only 10 percent of their available funds in FY19, leaving 90 percent of available fund-
ing unused (Figure 3-1). Similarly, VSBFA used only 8 percent of its available funds in
2018. These unused loan funds—$28 million in total—represent a lost opportunity
for businesses. Usage has begun to rise in 2020 but is still comparatively low at 24
percent.
Usage varied by loan program, but three programs used less than 5 percent of available
funding in FY19. (See Appendix E for more information about funding utilization for
specific programs.) Low utilization was reported as a “weakness” by the federal U.S.
The recently eliminated Economic Development Administration (EDA) during its most recent review of
Small Business Jobs
VSBFA’s EDA program. Utilization of grant programs has been mixed (sidebar).
Grant was not heavily
used in recent years. In Over the last few years, the trend in loan applications has mirrored the trend in utili-
contrast, the Small Busi-
zation (Figure 3-1). VSBFA received 145 applications in 2017, but applications steadily
ness Investment Grant
was fully used in FY18 declined the next two years, with applications dropping by half from 2017 to 2018.
and FY19 after its eligibil- Applications rose slightly in 2020, but remain far below 2016 and 2017 levels.
ity criteria was broadened
by the General Assembly.
FIGURE 3-1
VSBFA’s utilization rate and number of applications received have declined in
recent years
SOURCE: JLARC analysis of VSBFA loan disbursement data, annual financial balance sheets, and applications data.
NOTE: Years shown are state fiscal years. Amounts reflect the amount of funding loaned out of the amount of fund-
ing available, by program. Utilized amounts do not account for funding that VSBFA has committed to providing in
the future but has not yet disbursed because commitments are subject to change. (See Appendix B for more infor-
mation on utilization and application receipt calculations and Appendix E for more information about utilization
levels for specific programs.) Favorable credit conditions may have contributed to declining number of applications.
26
Chapter 3: Virginia Small Business Financing Authority
Credit conditions, which have been favorable in recent years, can have a big impact on
The annual Federal Re-
the need for government financing programs. Fewer small businesses need govern-
serve Small Business
ment financing programs when financing is readily available through private lending Credit Survey uses a na-
markets. The number of businesses unable to obtain financing decreased 17 percent tional non-representative
between FY16 and FY19, according to the Federal Reserve’s annual small business sample of businesses with
credit survey (sidebar). However, VSBFA experienced a much larger decrease in lend- fewer than 500 employ-
ees. Businesses “unable
ing during the same time period; loan applications decreased 53 percent between FY16 to obtain financing” con-
and FY19. The magnitude of VSBFA’s decrease suggests additional factors beyond sists of those awarded
credit conditions. none of requested loans
or some of requested
Even with favorable credit conditions, though, many small businesses still need help loans, or those that did
accessing financing. The same Federal Reserve survey also found that 30 percent of not apply for a loan be-
small businesses nationwide reported needing financing in FY19. Demand for small cause they assume they
will be denied.
business financing exists even with positive credit conditions because some barriers to
obtaining financing are not dependent on the economy. For example, private banks
may not provide small business loans because loans for small amounts are unprofitable
or the businesses lack sufficient collateral. In late 2019 and early 2020 (prior to the
COVID-19 pandemic), access to capital was cited as a top challenge for small busi-
nesses by several Virginia business organizations.
Lack of cohesive outreach leads to low awareness among businesses
and banks
VSBFA staff engage in outreach efforts, but their approach is not well planned or
coordinated. VSBFA requires staff to conduct a minimum number of outreach events
annually, and staff report on their outreach weekly, such as attending business events
and reaching out to banks. However, VSBFA has not established a cohesive plan that
identifies specific business groups or banks to contact. Without a formal plan, staff
conduct outreach ad hoc and largely work with the same businesses and banks.
Effective marketing to businesses who may need loans is essential, but many busi-
nesses are unaware of VSBFA. An evaluation of federally funded loan support pro-
grams highlighted “effective, focused, and continuous marketing efforts” as “critical”
to success. Of businesses that participated in an SBSD program but never applied for
VSBFA financing, 51 percent cited lack of awareness or information about VSBFA’s
programs as the reason. Business groups interviewed by JLARC staff were often un-
aware of VSBFA’s loan programs. Moreover, a substantial portion of VSBFA’s loans
go to businesses that have already received VSBFA loans. Since FY15, at least 22 per-
cent of VSBFA’s direct loans were to businesses that had previously received VSBFA
loans.
Effective marketing to banks is also essential. Three of VSBFA’s six loan programs
depend on bank participation, and banks play a key role in referring businesses they
are unable to serve to VSBFA. Banks interviewed by JLARC staff emphasized the
27
Chapter 3: Virginia Small Business Financing Authority
need for VSBFA to regularly communicate with them so they understand and remem-
ber to use its programs. In FY19, VSBFA approved support loans through only five
of 127 (4 percent) banks in the state.
SBSD’s agency wide marketing plan (discussed in Chapter 2) should specifically ad-
dress VSBFA’s programs. The plan should specify which entities staff will contact,
covering key groups across the state that assist small and economically disadvantaged
businesses. For example, VSBFA staff should market loan programs to local economic
development entities (whose partnerships are crucial to the EDA loan program) and
community banks who are not federal SBA lenders.
Recent staffing shortages contributed to low lending levels
Staff shortages contributed to low usage of VSBFA loan programs in recent years.
Staff vacancies track closely with decreases in loan utilization over time. In 2016,
VSBFA used 46 percent of its funding. But for the next two years, staff shortages
hindered its ability to make loans because it had only one loan officer. Two of VSBFA’s
three loan officer positions were vacant for extended periods of time; one was vacant
from October 2017 to September 2019 (23 months) and the other was vacant from
September 2018 to February 2020 (18 months). All three loan officer positions were
filled for only six months, because one loan officer left in August 2020. This new va-
cancy is likely to reduce the number of loans VSBFA is able to make, unless it is quickly
filled. SBSD previously had difficulty filling loan officer positions because the salaries
were less than for comparable positions in the private sector, but SBSD raised the
starting salary for loan officers.
VSBFA management and board do not set loan and grant utilization
goals or sufficiently track lending levels
VSBFA does not set performance goals for loan and grant utilization rates. Without
goals on loan program usage, the agency cannot clearly identify the extent to which
programs are underutilized.
VSBFA does not currently track loan program utilization of available funds. While
administrative staff track disbursements for new loans and repayments of outstanding
loans, this information is used only for internal accounting purposes. VSBFA does not
track the amount of remaining funding available for new loans, a metric that is essential
to strike the appropriate balance between achieving its mission to serve small busi-
nesses and maintaining an adequate reserve.
Several board members and VSBFA staff said that utilization goals and loan usage
data would help inform their work. One explained that the amount of funding remain-
ing for a specific program could assist in deciding whether to approve or deny appli-
cations when the decision is difficult. Another stated:
28
Chapter 3: Virginia Small Business Financing Authority
“It’s very concerning to me that we have funding sitting there that is not being
utilized…If I knew how much we had to lend, our outreach activity would be
much more assertive.”
Several agencies similar to VSBFA regularly track their loan and grant usage, and some
establish goals for using a specific percentage of available funding. For example, the
Virginia Resources Authority annually calculates the percentage of available funds it
uses for certain loan programs and aims to loan 100 percent of available funds. Simi-
larly, the Center for Innovative Technology (a state-funded nonprofit) sets annual goals
for the amount of funds awarded by its startup equity programs, and its board reviews
progress against these goals and remaining funds quarterly. The board should set uti-
lization goals and staff should track and report utilization and awards. In addition,
VSBFA should regularly monitor economic conditions that could affect demand for
VSBFA’s loan programs, as recommended by JLARC’s 2018 review of economic de-
velopment incentives. This monitoring of credit conditions should be used to adjust
utilization goals as necessary.
RECOMMENDATION 6
The Virginia Small Business Financing Authority Board should set annual utilization
goals for loan programs that consider factors such as credit conditions and available
loan funding.
RECOMMENDATION 7
The Virginia Small Business Financing Authority Board should direct staff to regularly
track and annually report the percentage of loan and grant program funds that are
utilized or awarded.
VSBFA could increase use of microloan by allowing startup businesses
to participate
VSBFA is the only state agency that offers loans specifically to startup businesses, but
businesses less than two years old are not eligible for its microloan program. (The
Center for Innovative Technology makes equity investments in new businesses but
only in certain industries.) VSBFA’s other programs served 76 startups (27 percent of
businesses receiving financing) in the last five years, but these programs tend to pro-
vide higher loan amounts than the microloan. Other similar loan programs, such as
SBA’s microloan program and the only neighboring state with a direct microloan, are
available to startups. Eligibility does not mean automatic approval, as startups need to
demonstrate sufficient repayment likelihood in the same manner as other applicant
businesses.
Startup businesses find it particularly challenging to obtain financing from the private
sector, according to national experts and Virginia business groups, such as the Virginia
Chamber of Commerce. Startups lack the years of tax and financial records that banks
use to assess businesses and are more likely to fail than long-established businesses.
29
Chapter 3: Virginia Small Business Financing Authority
VSBFA could broaden the eligibility criteria for its microloan program to allow
startups to participate. Including startups would help VSBFA increase the support it
provides to businesses in need and may also enable staff to fully use microloan funds.
To avoid overly high risk exposure, VSBFA could review additional information to
assess startups’ likelihood of repayment. For example, Center for Innovative Technol-
ogy staff research the startup’s industry and the owners’ backgrounds. To further re-
duce risk, VSBFA could first extend microloans to a small number of startups through
a pilot program and report the results of the pilot, including any delinquencies or
defaults, to the VSBFA board after all the pilot loans end (maximum of four years).
Policy options for con-
sideration. Staff typically
propose policy options POLICY OPTION 3
rather than make recom- The Virginia Small Business Financing Authority could expand microloan program
mendations when (i) the eligibility to startup businesses through a pilot program for the purpose of assessing
action is a policy judg- the demand for, and viability of, offering such loans.
ment best made by
elected officials—espe-
cially the General Assem- VSBFA lacks lending policies that set appropriate
bly, (ii) evidence suggests
action could potentially
risk standards and adequate loan oversight
be beneficial, or (iii) a re- An effective loan program requires sound and clearly defined risk management poli-
port finding could be ad- cies, an effective risk assessment tool to evaluate loan applications, and reliable loan
dressed in multiple ways. oversight. For public loan programs like those administered by VSBFA, risk manage-
ment policies should give programs the flexibility to extend loans to higher risk appli-
cants who are not able to qualify for loans in the private market. A program also needs
to be able to systematically assess the risk of each loan application. To mitigate the
risk of loan defaults, outstanding loans should be monitored to ensure that proactive
steps can be taken to prevent or minimize repayment losses.
Lack of formal loan risk policies and risk assessment tool has
contributed to confusion and overly conservative loan decisions
The VSBFA board, leadership, and staff share a general understanding of the agency’s
mission and the factors that should be considered in assessing risk. However, VSBFA
lacks clear written policies or a defined risk tool for systematically assessing and ap-
proving loan applications.
Without standard definitions of acceptable risk to govern loan decisions, VSBFA has
tended toward caution, with a loan default rate closer to private banks than federal
financing programs. Nearly all of the businesses that received loans repaid their loan
in full between 2015 and 2020, and VSBFA lost only $619,000 through loan defaults
across all loans. In FY19, the loan programs lost 1 percent of the amount of active
loans. This rate is substantially below one federal benchmark and close to that of pri-
vate banks. The federal EDA sets a maximum loss threshold of 10 percent for the
loan program it funds with VSBFA and with other lenders. The average private bank
reports losses of 0.25 percent.
30
Chapter 3: Virginia Small Business Financing Authority
VSBFA’s comparatively few loan defaults or losses suggests that the authority could be
making loans to businesses with a higher default risk. Because of its mission to provide
gap financing to businesses who may not be eligible for commercial loans, VSBFA
should be more risk tolerant than private banks. Four of five banks interviewed by
JLARC described VSBFA as too risk averse, which undermines the value of partnering
with VSBFA on higher risk loans. VSBFA staff cited several instances when they
deemed a loan sufficiently creditworthy, only to have the loans ultimately disapproved
by management for being too risky.
In addition to contributing to an overly risk averse approach, the lack of standard risk
policies also contributes to confusion by banks. One bank noted that “after several
unsuccessful attempts to partner, I just gave up on having the VSBFA as an option.”
Another wrote to VSBFA that:
"In the last couple of years I have referred three borrowers to your group, all of
which were declined due to poor credit quality … The last deal we referred, you
declined because the credit quality was too good … I am very confused about
your goals in helping small business.”
VSBFA also lacks a standardized risk assessment tool to collect information and assess
the potential risk of loan applicants. Staff analyze loan applications and sometimes
conduct additional research, but loan decisions are left to the subjective judgment of
the loan officers. According to one expert, “that is a problem...There are all sorts of
opportunities for bias to creep in.”
Without standard risk policies and an assessment tool, loan officers cannot predict
whether their loan application decisions will be approved or denied by management.
This unpredictability has contributed to low staff morale and made it harder to main-
tain good working relationships with banks.
Other state agencies and private banks use risk assessment policies and tools to stand-
ardize financing. For example, the Virginia Economic Development Partnership has a
tool to assess the risk of businesses that apply for economic development grants. The
Virginia Resources Authority has a tool to annually assess the risk of localities with
outstanding infrastructure loans. Most commercial banks, including some small Vir-
ginia banks, also use risk assessment tools to quantify applicants’ risk level and policies
to govern their decision-making. These policies and tools add consistency to approval
decisions, while retaining the flexibility to incorporate staff expertise and extenuating
circumstances.
VSBFA should better define its risk tolerance for loan programs through written risk
policies that govern lending decisions. Policies should articulate how much risk VSBFA
is willing to take to provide gap financing to businesses and circumstances where
providing financing would not fulfill this mission. Supplemental policies should also
be developed that specify the impact of other factors on loan decisions, such as the
number of jobs created or location in an economically distressed region.
31
Chapter 3: Virginia Small Business Financing Authority
These policies should be developed in conjunction with a designated risk assessment
tool. The tool should list the categories used to assess an individual business’s repay-
ment risk (e.g., cash to debt ratio, credit score) and result in an aggregate risk rating.
The risk assessment tool would likely include many of the same assessment categories
across VSBFA’s loan programs, but this tool should also contain additional categories
as needed for specific programs (such as adding an assessment of the business plan
for microloan startup applicants).
Given the VSBFA board’s role in the approval of loan applications, it needs to play an
active role in the development and approval of the risk policies and an assessment
tool. VSBFA could consider seeking outside expert assistance to select or develop its
risk assessment policies and tool.
RECOMMENDATION 8
The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement internal policies that will govern loan application decisions and estab-
lish an appropriate risk standard that adequately reflects the public mission of the
authority.
RECOMMENDATION 9
The Virginia Small Business Financing Authority should develop, submit to the Vir-
ginia Small Business Financing Authority Board for consideration and approval, and
then implement a risk assessment tool to calculate the potential risk of loan applicants.
Monitoring outstanding loans would help VSBFA prevent and prepare
for losses
As VSBFA sets lending standards and potentially provides riskier loans, the authority
needs to better monitor outstanding loans. VSBFA is not regularly monitoring out-
standing loans, which can help loan programs reduce the risk of financial loss, accord-
ing to the FDIC and a national association for economic development financing. Mon-
itoring consists of reviewing businesses’ repayment history and information about
their financial strength, such as financial statements, to identify and proactively help
struggling businesses. Loan administrators can take proactive actions such as reducing
the interest rate, connecting businesses to technical assistance, or preparing for default
by reassessing the value of collateral. Private banks typically review outstanding loans
on a regular basis, focusing on loans above a certain size and with higher risk.
VSBFA regularly monitors businesses’ monthly repayments but does not currently
monitor the financial health of businesses with outstanding loans. Of the three direct
loan programs, VSBFA staff collect financial documents for outstanding loans in one
program, but do not use this information to identify problems that could adversely
affect businesses’ ability to make loan repayments. For the three loan support pro-
grams, VSBFA relies on banks’ monitoring of businesses but explicitly requires banks
32
Chapter 3: Virginia Small Business Financing Authority
to notify VSBFA of major adverse changes in borrowers’ conditions for only one of
these programs. Moving forward, more businesses will likely have difficulty making
loan payments because of the COVID-19 pandemic. Furthermore, the CARES Act is
funding two new programs for VSBFA to administer. Therefore, the need for proac-
tive monitoring of outstanding loans is especially important now. VSBFA staff have
expressed concern with the current lack of monitoring of outstanding loans. One
noted that “we don’t know where our landmines in our portfolio are right now. That
concerns me.”
VSBFA should implement a process to monitor and proactively identify loans with a
significantly deteriorating likelihood of repayment. For direct loans, VSBFA’s moni-
toring process could initially reflect the risk level assigned to loans at approval, and
loan officers could update risk levels based on the results of periodic reviews of busi-
ness health. For support loans, VSBFA should require banks to report loans under
specified circumstances, such as those identified by bank staff as financially deterio-
rating or repeatedly delinquent. The results should be provided to the board regularly.
Three board members said they wanted to see more loan program performance met-
rics. The Virginia Resources Authority has a monitoring process that VSBFA could
use as a model where staff annually rate outstanding loans as poor, adequate, or strong
(based on multiple subjective and quantitative factors) and report the information to
its board in summary form.
RECOMMENDATION 10
The Virginia Small Business Financing Authority should institute a process to conduct
a risk-based review of outstanding loans at least annually and report the results to the
Virginia Small Business Financing Authority Board.
RECOMMENDATION 11
The Virginia Small Business Financing Authority should add a requirement to formal
loan participation agreements with banks that banks report support loans with a high
risk of default as soon as they are identified.
VSBFA does not monitor application processing
timeliness and loan decision patterns
Timely loan approval and fund disbursement can be critical for businesses. Equipment
purchases and order fulfillment can depend on the availability of capital, and appli-
cants may need to pursue funding from an alternative source if rejected by VSBFA.
Additionally, timely communication with banks is important for productive working
relationships.
Evidence suggests VSBFA’s approvals and fund disbursements are not always timely,
but insufficient data makes it difficult to calculate average loan processing times. Staff
33
Chapter 3: Virginia Small Business Financing Authority
record loan dates inconsistently, so the timing of application processing and fund dis-
bursement cannot be calculated. Businesses generally have a positive perception about
VSBFA’s timeliness, but a few businesses that responded to a JLARC survey reported
that VSBFA’s decisions were not timely. Many loan applications wait a month for ap-
proval by VSBFA leadership, and half of loan disbursements occur at least two months
after approval, according to VSBFA staff. Delays can also be caused by the need for
larger projects to receive board approval. While three banks were satisfied with
VSBFA’s timeliness, one bank described multiple instances of not receiving responses
from staff about potential loans.
VSBFA should regularly report key metrics related to the timeliness of its processes
and application decisions. Key metrics should include the time it takes VSBFA to no-
tify applicants of a decision after receiving a complete application and the time be-
tween VSBFA’s application approval and disbursement of funds. Similar to SBSD’s
certification divisions, VSBFA should set timeliness goals and publish its performance
compared to the goals in the agency’s annual workplan document. VSBFA is currently
implementing new software that should enable regular tracking of performance, ac-
cording to management, but the software had not been implemented as of July 2020.
RECOMMENDATION 12
The Virginia Small Business Financing Authority should set a goal that establishes an
expected timeframe for processing loan applications and track and report how long it
takes to process each loan application and the proportion of applications meeting the
goal.
VSBFA board could use additional lending expertise
and should oversee loan program improvements
The VSBFA board is composed of nine members appointed by the governor and
confirmed by the General Assembly, as well as the state treasurer and SBSD director.
At each board meeting, members review staff recommendations for loan and bond
applications and make the final approval or denial decision through a vote. The board
conducts in-depth reviews of loans above $500,000 (for which its approval is required)
and abbreviated reviews of loans below that amount.
Board members were actively engaged in reviews of bond and loan applications during
board meetings observed by JLARC. The board is scheduled to meet monthly, but
almost half of its 2019 meetings (five of 12) and 2020 meetings (three of eight prior
to September) were cancelled. As COVID-19 emerged, the board switched to virtual
meetings. The board affirmed staff recommendations for all loans reviewed during
2019 meetings, but members asked detailed questions of staff and business applicants.
For example, board members asked about business challenges or projected job reten-
tion rates cited in the application materials. The board sometimes imposes conditions
34
Chapter 3: Virginia Small Business Financing Authority
on approved loans, such as requiring a business needing better financial recordkeeping The Virginia Innovation
to contract with an accountant. Partnership Authority,
the oversight board for
All board members currently possess relevant small business experience as required in the Center for Innovative
the Code of Virginia but could use additional lending expertise to help review loan Technology (CIT), re-
applications. The ability to interpret financial information, such as balance sheets and quires citizen board
tax records, is crucial for the board’s ability to assess the repayment risk of a business. members to have spe-
cialized expertise. For ex-
According to one member, most members feel uncomfortable considering the credit-
ample, two members
worthiness of applications because of lack of related expertise. Requiring the majority must be partners in ven-
(at least five) of board members to have loan expertise would be prudent and would ture capital funds, two
more closely align VSBFA’s board with another state board that supports businesses members must have ex-
perience acquiring or
(sidebar). Five out of nine board members currently have some lending experience,
commercializing intellec-
but statute does not require board members to have lending expertise. tual property, and two
members need experi-
ence in entrepreneurial
RECOMMENDATION 13
development. CIT staff
The General Assembly may wish to consider requiring the majority of citizen mem- report that this require-
bers of the Virginia Small Business Financing Authority Board to possess small busi- ment helps ensure that
ness lending experience. board members conduct
informed oversight.
Finally, making the needed improvements at VSBFA and accommodating the addi-
tional funding being allocated to help small businesses during the COVID-19 pan-
demic will be challenging. The scope and scale of improvements recommended in this
chapter represent substantial changes. These improvements are even more essential
because of VSBFA’s new role to implement the state’s COVID grant program (“Re-
build VA”) and a new COVID loan program. In August 2020, VSBFA began reviewing
applications for grants of up to $10,000 for up to 7,070 eligible businesses (for a total
of $70.7 million). Also in August 2020, the federal EDA provided $10.2 million for
VSBFA to implement a new COVID loan program. As of early September, VSBFA
was developing eligibility and loan size requirements for this new loan program.
VSBFA should develop an improvement plan to effectively address key deficiencies
outlined in this chapter. This plan should address low fund utilization, lack of loan
approval policies, lack of a risk tool, and lack of tracking, monitoring, and reporting.
The plan should identify the sequence of the needed improvements and set reasonable
timeframes in which the improvements can be made. The plan should be submitted
to the VSBFA board, the General Assembly, and the secretary of commerce and trade.
VSBFA should report quarterly to the VSBFA board on progress in meeting key mile-
stones until the improvements have been fully implemented.
35
Chapter 3: Virginia Small Business Financing Authority
RECOMMENDATION 14
The Virginia Small Business Financing Authority (VSBFA) should develop a program
improvement plan that addresses deficiencies, including low fund utilization; lack of
loan approval policies; absence of a risk tool for loans; and lack of monitoring, track-
ing, and reporting on loans and fund utilization. The plan should be presented to the
VSBFA board and transmitted to the House Appropriations and Senate Finance and
Appropriations committees and the secretary of commerce and trade no later than
June 30, 2021.
36
4 SWaM Goal and Plans
Through Executive Order 35 (2019), the governor set a goal for the state to award at
Categories of businesses
least 42 percent of discretionary procurement spending to certified small businesses,
in agency SWaM plans
including those that are women- and minority-owned. The executive order directs
include: (1) small, (2) mi-
spending to exceed the 42 percent goal. While SBSD does not set the SWaM goal, cro, (3) women-owned,
SBSD works with agencies to help them achieve the goal. Each agency is required to (4) minority-owned, (5)
submit a SWaM plan to SBSD each year describing how much it will spend with nine service-disabled veteran,
different categories of businesses (sidebar) and the types of activities the agency un- (6) employment service
dertakes to meet the goal (Figure 4-1). Agencies designate one or more staff members organization, (7) federal
to serve as “SWaM equity champions.” These individuals are responsible for the 8a, (8) federal service dis-
abled veteran, and (9)
agency’s SWaM program and are typically members of agency procurement staff.
economically disadvan-
SBSD tracks each agency’s spending toward the SWaM goal through a spending dash- taged women-owned
board. SBSD also works through each secretary and the governor’s office to meet with business.
agency heads and other staff to emphasize the importance of achieving the goal. For
example, SBSD hosts meetings with different groups of agencies each month to dis-
cuss SWaM spending. There are no penalties for agencies that do not meet the goal,
though agencies that fall short are reported to the administration and periodically dis-
cussed in cabinet meetings.
FIGURE 4-1
The governor, agencies, and SBSD play a role in state’s SWaM initiatives
SOURCE: JLARC analysis of Executive Order 35 (2019) and § 2.2-4310 of the Code of Virginia.
37
Chapter 4: SWaM Goal and Plans
The state has implemented several initiatives, such as agency SWaM plans, to try to
increase SWaM procurement and meet the 42 percent goal. In addition to this goal,
the state has procurement preferences for small and micro-certified businesses. These
set-asides require agencies to make small purchases from small and micro businesses.
(See Chapter 5 for JLARC’s analysis of the small business definition.)
SWaM program has benefits, but procurement goal
is challenging for many agencies to achieve
The Code of Virginia directs state agencies to establish programs to procure goods
and services through SWaM-certified businesses in accordance with the governor’s re-
quirements, though the code does not set specific SWaM goals or percentages. Previ-
ous governors and Governor Northam have signed executive orders that establish
specific SWaM spending goals for agencies to achieve. The state has had a SWaM
spending goal since at least 2004, when a goal of 40 percent was established. Governor
McAuliffe raised the goal to 42 percent in 2014 and Governor Northam has kept it at
42 percent.
Executive branch agencies have not met 42 percent SWaM spending
goal, which is not based on analysis of achievable spending
The 42 percent SWaM procurement goal does not appear to be based on an analysis
Setting realistic goals is
considered a best prac- of a reasonably achievable level of SWaM expenditures for each agency. In addition,
tice for supplier diver- it is above Virginia’s highest recorded level of SWaM spending (39 percent) during the
sity programs. CVM So- last decade. Not analyzing spending could lead to an unrealistic goal, which may have
lutions (a supplier
some adverse impact on agencies’ commitment to trying to meet it (sidebar). Many
diversity data, software,
and management solu- agencies expressed confusion about the basis for the 42 percent goal and how it applies
tions firm) states that specifically to their agency. Nearly 40 percent of agencies reported it was not clear why
goals should be “specific, the goal was set at 42 percent.
measurable, and achieva-
ble… if key stakeholders Despite substantial state efforts to promote procurement with SWaM businesses, the
in your program’s success executive branch has not met the governor’s SWaM spending goal in the last decade
view the goals as
(though agencies came close in FY11, FY15, and FY16). During the last 10 fiscal years,
unachievable, your pro-
gram will likely lose inter- spending with SWaM businesses fluctuated between 31 and 39 percent (Figure 4-2).
nal support.” In FY19, agencies in aggregate made 34 percent of their discretionary expenditures
with certified SWaM businesses. (Agencies’ discretionary spending with SWaM busi-
nesses decreased to 33 percent in FY20, but this decline may be at least partially at-
tributable to the COVID-19 pandemic.)
38
Chapter 4: SWaM Goal and Plans
FIGURE 4-2
Executive branch SWaM spending has varied from 31 to 39 percent (FY11–FY20)
SOURCE: JLARC analysis of data from the Commonwealth Spend Report and SWaM spending dashboard.
Agencies’ abilities to meet the state’s SWaM goal vary, and the
majority report difficulty achieving the goal
Each agency’s SWaM procurement spending varies widely. In 2019, agencies’ SWaM
expenditures varied from 4 percent to 87 percent of their discretionary expenditures.
Moreover, the majority (60 percent) of agencies fell short of the 42 percent goal in
FY19, including several of the state’s largest purchasers (e.g., Virginia Department of
Transportation, Virginia Tech, University of Virginia, Virginia Information Technol-
ogies Agency, and Department of Corrections). More than half (57 percent) of agen-
cies expressed difficulty in achieving the 42 percent goal (Figure 4-3). This includes
one-third that reported it was extremely or very difficult.
There are two primary factors why agencies’ percentages of SWaM procurement
spending vary so significantly and why some agencies have more difficulty meeting the
42 percent goal than others. First and foremost, agencies purchase a variety of goods
and services, some of which may not be offered by SWaM-certified businesses. Some
agencies primarily purchase goods or services that are readily available from SWaM-
certified businesses. Other agencies purchase a large portion of goods or services in
industries that have few certified SWaM businesses. For example, several higher edu-
cation institutions have large contracts for specialized research materials and out-
sourced dining services. Some state agencies dedicate a large portion of spending to
contracts for specific computer systems or consulting services. These procurement
needs may make it impossible for certain higher education institutions (especially larger
research institutions) and agencies to meet the 42 percent goal. Agencies can work
with large vendors to subcontract to small businesses to increase their percentage of
SWaM spending, but this is not possible for all types of purchases.
39
Chapter 4: SWaM Goal and Plans
FIGURE 4-3
SWaM purchasing varies widely across state agencies, with the majority unable
to meet the 42 percent goal (FY19)
SOURCE: JLARC analysis of data from the Commonwealth Spend Report (FY19). JLARC survey of state agency SWaM
champion (2020).
In addition, the number and size of agency procurements vary each year, which can
affect an agency’s opportunity to procure goods or services from SWaM businesses in
a given year. For example, an agency with no large procurements in a particular year
and only small ongoing purchases may be able to allocate a high percentage of its
procurement spending to SWaM businesses with a small or micro certification through
the set-aside program. In contrast, an agency with a large upcoming procurement that
cannot be fulfilled by a SWaM-certified business may only be able to direct a low per-
centage of procurement spending to these businesses.
To address the challenges that some agencies face in meeting the goal, the governor
could consider implementing SWaM spending goals for individual agencies that are
more realistic for them to achieve. Two main considerations to set more realistic SWaM
goals for each agency could be: the extent that certified SWaM businesses provide the
types of goods or services they procure and the variability in procurement needs, in-
cluding known upcoming procurements. Developing agency-specific SWaM goals that
take into account these considerations would be a substantial administrative undertak-
ing. However, it is likely the only way for many agencies currently unable to achieve
the 42 percent goal to have a realistic SWaM procurement goal.
40
Chapter 4: SWaM Goal and Plans
POLICY OPTION 4
The governor could direct each state agency to set ambitious, but achievable, SWaM Policy options for con-
sideration. Staff typically
procurement spending goals that account for (i) the availability of certified SWaM
propose policy options
businesses to provide the goods and services the agency procures and (ii) the agency’s
rather than make recom-
ongoing and upcoming new procurements.
mendations when (i) the
action is a policy judg-
Executive branch spending with SWaM-certified businesses is ment best made by
elected officials—espe-
substantial and benefits certified businesses
cially the General Assem-
While the executive branch has not met the governor’s SWaM procurement goal, state bly, (ii) evidence suggests
spending with SWaM-certified businesses is substantial and has increased in recent action could potentially
years. Agencies procured more than $2 billion in goods and services through SWaM- be beneficial, or (iii) a re-
certified businesses in FY19. This represented about one-third of applicable state pro- port finding could be ad-
dressed in multiple ways.
curement spending included in the eVA system (Virginia’s online procurement system)
and has increased by about 15 percent during the last five years.
Businesses report that SWaM certification helps them win contracts, and this was JLARC analyzed whether
confirmed by JLARC analysis (sidebar). More than 70 percent of SWaM-certified preferences have an
businesses responding to a JLARC survey said certification was helpful, with many effect on business
reporting it helped them secure state contracts or other contracts. Similarly, a growth. JLARC obtained
data about businesses
longitudinal quantitative analysis found that median sales per business were roughly 20 from SBSD, the Depart-
percent higher after SWaM certification. The positive effect is largest for businesses ment of General Services,
with lower levels of sales ($4,000 or less per quarter). and the Virginia Employ-
ment Commission. Staff
Businesses also reported nonmonetary benefits from certification. Many businesses combined this data by
reported that SWaM certification improved their image and marketing opportunities. business identifier to con-
Over two-thirds of newly SWaM-certified businesses said they would pursue duct longitudinal and
comparative analyses.
recertification.
See Appendix B for more
Outside of the state procurement process, though, JLARC found no evidence that detail on these analyses.
SWaM certification leads to business growth. JLARC analysis found no evidence that
SWaM-certified businesses had more employees after becoming SWaM certified.
There was also no evidence that these businesses paid more in total wages (a proxy for
revenue). This may be because, for many businesses, state procurement contracts
represent a comparatively small percentage of their total business. For example, state
purchases equated to only 6 percent of total wages paid by SWaM-certified businesses
that had done business with the state over the past decade.
SBSD should give agencies more assistance to
identify and implement effective SWaM strategies
Regardless of whether each agency’s SWaM procurement goal remains at 42 percent,
agencies need to identify and implement workable strategies to maintain or increase
spending with SWaM businesses. Ideally, agencies’ SWaM plans would detail these
41
Chapter 4: SWaM Goal and Plans
strategies to increase their spending with SWaM-certified businesses and make pro-
gress toward their goal. Moreover, agencies that are especially effective might be able
to raise their goals over time.
SBSD is fulfilling its minimally required role in the SWaM plan process
SBSD’s role in the SWaM plan process is relatively narrow. The Code of Virginia grants
the governor authority to set a SWaM spending goal and requires each agency to de-
velop a plan to meet the governor’s goal (but does not specify the contents or format
of the plan). The Code directs each agency to submit its plan to SBSD but gives no
further authority or direction to SBSD regarding what to do with those plans. Execu-
tive Order 35 provides more direction to agencies about their SWaM plans and directs
SBSD to provide training to agency heads and procurement staff related to “equity in
procurement.”
SBSD fulfills these responsibilities related to the SWaM plans and training. SBSD de-
veloped a template for agencies’ annual SWaM plans and collects completed plans and
spending data each year. SBSD maintains the state’s interactive SWaM Dashboard web-
site, which tracks spending with SWaM-certified businesses over time. SBSD also holds
periodic meetings with groups of agencies to share information about SWaM procure-
ment and provides training to agency SWaM representatives. For example, SBSD in-
structs agency staff on SWaM requirements and how to use the SWaM Dashboard to
track their SWaM expenditures.
SWaM planning process should focus more on effective strategies
and include a more substantive role for SBSD
As required, SBSD collects agency SWaM plans but does not regularly review or pro-
vide feedback on them. SBSD has one staff person who helps agencies submit their
SWaM expenditures and monitors agency progress toward meeting the goals. How-
ever, the agency does not have a dedicated full-time staff position to review SWaM
plans. Consequently, none of the agencies that responded to a JLARC survey reported
receiving feedback from SBSD on their SWaM plan. One agency said: “I have never
gotten comments from any administration. You just send it in and get a confirmation
it is received… I don’t know if anyone really reads them.”
Moreover, many agencies do not find their own SWaM plans helpful or influential on
their procurement activities. Less than half of state agencies that responded to a
JLARC survey (41 percent) said the SWaM plan was helpful. The majority of agencies
expressed either no opinion (42 percent) or disagreed (17 percent) that the plan helped
them maintain or increase their SWaM expenditures. This may be partially explained
by the SWaM plan template, which requires providing mostly descriptive information
and focuses on prior activities and accomplishments rather than specific strategies to
encourage SWaM procurement in upcoming years. Many agencies (59 percent) also
reported spending more time on their SWaM plans in recent years.
42
Chapter 4: SWaM Goal and Plans
A more meaningful SWaM planning process should be developed and implemented,
which focuses more on strategies agencies can use to improve SWaM spending and
has a more substantive role for SBSD. Current SWaM planning requirements are con-
tained in Executive Order 35 (2019), which would need to be revised.
To improve the written SWaM plans, the template should focus more on strategies
agencies will implement to procure goods and services from SWaM businesses and
meet their SWaM goals. For example, an agency could try to identify certified busi-
nesses they have not purchased from previously or uncertified business that provide
the goods and services they need. These businesses could then be targeted through
specific outreach and marketing activities. Strategies should reflect an agency’s ongoing
and known upcoming procurements.
The SWaM plan could be made less burdensome for agencies by removing certain
requirements or requiring the plan to be submitted less often. Descriptive information
currently collected through the plan—particularly information on past activities—
could be removed. Strategies for meeting SWaM goals may not change significantly
each year (especially if there are no new upcoming procurements); therefore, agencies
could be required to submit SWaM plans to SBSD less frequently, such as every two
or three years. California has compiled
best practices to support
SBSD could have more substantive interactions with agencies by reviewing their the inclusion of small
SWaM plans and providing specific feedback on their proposed strategies for SWaM businesses and disabled
veteran-owned busi-
spending. This feedback would include suggesting strategies that may be more effec- nesses in state procure-
tive or changing strategies that have not been effective. SBSD staff could also meet ment. The best practices
with agencies one-on-one to discuss their SWaM goals and strategies and advise them are for several categories,
on effective strategies, which several agencies said would be beneficial. including:
• Bids/contracts
To inform discussion of effective strategies, SBSD staff should research and compile
• Executive/manage-
information agencies can use to increase SWaM spending and develop guidance on ment support
how agencies can implement these strategies. California provides agencies with best
• Business outreach
practices for the implementation of its small business and disabled veteran procure-
• Training
ment program (sidebar).
RECOMMENDATION 15
The governor should revise Executive Order 35 to direct the Department of Small
Business and Supplier Diversity (SBSD) to develop and implement a more meaningful
SWaM plan development and review process focusing on strategies and substantive
SBSD feedback to agency staff.
RECOMMENDATION 16
The Department of Small Business and Supplier Diversity should develop and main-
tain information about effective strategies agencies can use to increase their SWaM
expenditures and provide agencies with guidance on how to implement the strategies.
43
Chapter 4: SWaM Goal and Plans
Current SBSD staff can begin developing effective strategies to help agencies increase
SWaM spending. SBSD may, though, need to hire additional staff to provide agencies
with one-on-one assistance and feedback on their SWaM plans as funding becomes
available. SBSD was scheduled to receive funding for three new business assistance
staff positions and one data analyst that could have helped improve the SWaM plan-
ning process. Funding for these positions was removed from the budget in August
2020.
44
5 Virginia’s Small Business Definition
As noted in Chapter 1, the state has a longstanding policy to give preference to busi-
nesses defined as small or micro when awarding state contracts. The last several gov-
ernors have issued executive orders supporting small businesses. The current Execu-
tive Order 35 (2019) requires procurements under certain amounts to be “set aside”
for small and micro businesses that are certified by the Department of Small Business
and Supplier Diversity (SBSD). Businesses are eligible for these preferences if they
meet the state’s small or micro size requirements (Figure 5-1).
FIGURE 5-1
Certified small or micro businesses can benefit from procurement “set asides”
Court cases that set
standards for race- and
gender-specific procure-
ment preferences
include: Richmond v.
Croson (1983, U.S. Su-
preme Court) and Coral
SOURCE: JLARC analysis of § 2.2-4310 and §2.2-1604 of the Code of Virginia and Executive Order 35 (2019). Construction V. King
NOTE: The state’s definition for “small business” is established in § 2.2-4310 and §2.2-1604 of the Code of Virginia.
County (1991, Ninth Cir-
The state’s definition for “micro business,” as well as the small and micro procurement preferences, are established
cuit). Croson established
in Executive Order 35 (2019). Businesses are required to submit a small business subcontracting plan for all pur-
chases above $100,000. Several other types of certified businesses sell to state agencies but are not included in that race-conscious pro-
the figure (e.g., disadvantaged business enterprises). grams need firm evidence
of past discrimination,
and Coral Construction
State procurement set-asides have included only small/micro businesses because un- set a similar standard for
der current law the state may not have race- and gender-specific procurement prefer- gender-specific pro-
ences (sidebar). The current legal standard, which has been established through court grams. (Many additional
cases have shaped the le-
opinions, requires states to have conclusive evidence that minority and women-owned
gal history of this topic.)
businesses have faced discrimination in contracting to include them in procurement
45
Chapter 5: Virginia’s Small Business Definition
preferences. Virginia previously conducted two assessments (referred to as “disparity
studies”) of women- and minority-owned business participation in state contracting
in 2002 and 2009. The assessments found that only a small portion of state contracts
are awarded to women- and minority-owned businesses, but neither study found the
necessary evidence of discrimination to create race- or gender-specific procurement
preferences.
SBSD hired a consultant to conduct a new disparity study that is scheduled to be com-
pleted in late 2020. If this study finds substantial disparities in opportunities for
women and minority-owned business, the state would have the ability to provide pref-
erences specifically for these businesses.
Many procurements are set aside for small/micro
businesses, many of which are very small
A substantial amount of the state’s procurements go to small or micro businesses.
Executive Order 35 requires agencies to use a micro business for purchases up to
$10,000 and a small business for most purchases up to $100,000, unless there are no
certified small or micro businesses that meet the purchase requirements. The vast ma-
jority of state purchases are small and fall within the set-aside parameters for micro
businesses (87 percent) or small businesses (7 percent). Because large contracts fall
outside the parameters of the set-aside program, only about 16 percent of state pro-
Vast majority of Virginia
curement spending occurs through these set-asides.
businesses would be
considered small under Much of the state’s procurement activity is with small businesses that are much smaller
Virginia’s definition.
than the maximum size allowed under Virginia’s small business definition. For exam-
Nearly all (99 percent)
Virginia businesses would ple, 50 percent of all certified small businesses employed 14 people or fewer and re-
meet the employment ported $3.2 million or less in gross receipts (Figure 5-2). Seventy-five percent employed
threshold, and 98 percent 38 people or fewer and reported $7.1 million or less in gross receipts. In fact, more
might qualify under the than half (58 percent) of the state’s certified small businesses were actually micro busi-
revenue threshold (using
total wages as a proxy for
nesses with a maximum of 25 employees and $3 million in annual gross receipts.
gross receipts because of Virginia businesses more broadly (including non-certified businesses) are also relatively
data limitations).
small, according to data collected by the Virginia Employment Commission. Conse-
See Appendix B for more
quently, the vast majority of businesses in the state would meet Virginia’s small busi-
information.
ness definition based on the employment and revenue requirements (sidebar).
46
Chapter 5: Virginia’s Small Business Definition
FIGURE 5-2
Most certified businesses are well below the maximum size thresholds in
state’s small business definition
SOURCE: JLARC analysis of SBSD data on certified small businesses (as of April 2020).
NOTE: Categories may not sum because of rounding for graphical simplicity.
State could change small business definition but
should consider potential impacts
The size at which a business is defined as “small” is ultimately a policy judgment for
the General Assembly. This is underscored by the wide variation in how other states
define small business. JLARC found that at least 25 other states have a small business
definition. Though nearly all use employment and revenue measures (as does Virginia),
other states vary substantially in the number of employees and amount of revenue
47
Chapter 5: Virginia’s Small Business Definition
they use to define a business as small. (See Appendix F for comparisons of Virginia’s
definition to other states and additional information about small business definitions.)
The remainder of this chapter presents a series of policy options for consideration if
the General Assembly wishes to change the current small business definition. Each
option includes a description of the potential impact on certified businesses, agencies’
procurement activity, and SBSD’s administration of the small business certification
program.
State could change definition to exclude comparatively larger
businesses from obtaining certification
Though many certified businesses are very small, some certified businesses generate
substantially more gross receipts than most other certified businesses. Of the nearly
10,500 SBSD-certified small businesses, 610 businesses exceeded the gross receipts
threshold but still were below the employment threshold (which is allowable because
small businesses must have 250 or fewer employees OR $10 million or less in gross
receipts).
Some of these businesses far exceed the $10 million threshold for gross receipts. The
top 5 percent of certified small businesses exceeded $25 million in annual gross re-
ceipts—two-and-a-half times the revenue threshold of $10 million. One certified
small business reported $397 million in annual gross receipts. Comparatively fewer
businesses (12 business) exceeded the employment threshold.
Smaller businesses have asserted that it is unfair to be considered in the same size
category as businesses that are much larger. Businesses in the smallest 25 percent of
certified businesses (two or fewer employees and $713,200 or less in gross receipts)
likely experience more difficulty competing for state contracts than businesses in the
largest 5 percent of certified small businesses (115 or more employees and $25 million
or more in gross receipts). One business commented to JLARC that “the small [defi-
nition] for number of employees…makes it very difficult for us to compete with the
larger companies even though they are classified small.”
If the General Assembly wants to narrow the small business definition, one approach
would be requiring businesses to meet both the employee and revenue thresholds or
lowering both thresholds. JLARC staff are presenting two policy options for state leg-
islators to consider that are more restrictive than the current small business definition.
These options would narrow the definition to different degrees and have varying im-
pacts on the state’s ability to procure services through the set-aside program. Both
options would have a relatively low administrative and fiscal impact on SBSD’s certifi-
cation operations.
48
Chapter 5: Virginia’s Small Business Definition
Requiring small businesses to be under both the employment and gross receipts
maximums would exclude comparatively large businesses
The least complex option is to require a business to be no larger than both the em-
HB 1134 (2020)
ployment AND gross receipts maximum thresholds. This approach was proposed proposed requiring small
through HB 1134 during the 2020 General Assembly session (sidebar). Several other businesses to have 250 or
states require businesses to meet both employee and revenue thresholds, including fewer employees AND
Pennsylvania and Delaware. Changing Virginia’s definition to require businesses to $10M or less in annual
gross receipts.
meet both thresholds would reduce the number of certified small businesses by 6 per-
cent, making an estimated 622 currently certified businesses ineligible for small busi-
ness certification. These are primarily businesses that exceed the gross receipts thresh-
old but still fall below the employment threshold. More than one-third of the
businesses (220 businesses) that would no longer qualify as small are in construction-
related industries. While potentially disruptive for individual businesses, the procure-
ment spending could potentially be shifted to other businesses. Agencies could likely
also (at least in the near term) end up purchasing fewer of their goods and services
from certified businesses.
Some of the businesses excluded under this option are women-owned or minority-
owned. About one-quarter of the businesses (140 businesses) excluded through this
option are businesses currently certified as women-owned and/or minority-owned.
While these businesses could still be certified as women- or minority-owned, they
would be removed from the pool of businesses that agencies could use for the set-
aside program.
This option would exclude several businesses on the margin that are just above the
definition threshold (which also occurs with the current definition). For example, one
currently certified business has 255 employees and $3.4 million in gross receipts. An-
other business has five employees and $10.1 million in gross receipts. Both of these
Policy options for con-
businesses would not be eligible for small business certification under this option.
sideration. Staff typically
SBSD could implement this approach with minimal administrative burden and no ad- propose policy options
ditional funding (Table 5-1), especially if this change would apply only to new or recer- rather than make recom-
tified businesses. Applying this change to all existing businesses as of a certain date mendations when (i) the
action is a policy judg-
would require a one-time effort by SBSD certification staff to review current certifi-
ment best made by
cations and communicate with affected businesses. SBSD would need to implement
elected officials—espe-
minor updates to the certification portal to reflect the new definition. cially the General Assem-
bly, (ii) evidence suggests
POLICY OPTION 5 action could potentially
be beneficial, or (iii) a re-
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
port finding could be ad-
to change the small business definition to businesses that have no more than 250 em-
dressed in multiple ways.
ployees and gross receipts of no more than $10 million.
49
Chapter 5: Virginia’s Small Business Definition
Lowering current employee and gross receipts thresholds for small businesses
would exclude comparatively large businesses
The General Assembly could exclude comparatively large businesses from small busi-
ness certification by reducing the current employee and gross receipts thresholds. Ul-
timately, it is difficult to objectively determine the maximum employment and revenue
thresholds that should be used to define the state’s small businesses. States’ small busi-
ness definitions vary widely (see Appendix F), and there is no broadly established
standard for what constitutes a small business or established methodology for devel-
oping a definition. Consequently, developing a new definition will inevitably involve
an element of subjectivity along with any analytical framework used.
The lower employment and revenues thresholds are set, the more currently certified
businesses would be excluded. For example, the state could adopt employee and gross
receipts thresholds that reflect 75 percent of currently certified businesses. Presently,
75 percent of certified small businesses have 38 or fewer employees and $7.1 million
or less in gross receipts. Lowering the small business definition to reflect these thresh-
olds would remove 13 percent (1,329) of currently certified businesses. Construction-
related industries would be the most heavily affected because these businesses make
up approximately 31 percent of the businesses (410 businesses) that would no longer
qualify as small. About one-third of the businesses (456 businesses) that would be
removed are currently certified as women-owned and/or minority-owned and would
no longer be part of the pool of businesses that agencies could use for the set-aside
program.
Alternatively, if the state wished to exclude fewer businesses, it could adopt employee
and gross receipts thresholds that reflect 95 percent of currently certified businesses.
Presently, 95 percent of certified small businesses have 115 or fewer employees and
$25.4 million or less in gross receipts. Lowering the small business definition to reflect
these thresholds would remove 3 percent (306) of currently certified businesses.
Ultimately, any modification to the current threshold should reflect how much the
state wishes to narrow the current definition. (See Appendix F for more information
on potential business size thresholds.) Narrowing it should put smaller businesses in a
stronger position to compete for state business. However, lower thresholds could
make it more challenging for state agencies to procure needed goods and services
through the SWaM program or to find businesses that meet set-aside requirements.
For example, at least 674 currently certified small businesses that won state procure-
ments since the beginning of 2019 would no longer be eligible for certification if def-
inition thresholds were set at 38 employees and $7.1 million in gross receipts. Some
spending could temporarily be shifted to larger businesses in the near term though
reallocation to new small businesses could potentially occur over the long term.
Regardless of the thresholds used, SBSD could implement this approach with rela-
tively minimal administrative burden and no, or relatively little, additional cost (Table
5-1). However, the effect on SBSD operations would depend on how quickly the new
50
Chapter 5: Virginia’s Small Business Definition
requirements were implemented and how many businesses are affected. Phasing in the
new thresholds over time as new businesses are certified would require comparatively
little administrative effort. If currently certified businesses were removed at the same
time, SBSD would likely need to temporarily hire additional staff to help decertify
businesses. SBSD would need to implement minor updates to the certification portal
to reflect the new definition.
POLICY OPTION 6
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to change the small business definition by reducing the number of employees and
gross receipts that a business may have to qualify as a small business.
TABLE 5-1
Impact of options to reduce “outlier” businesses based on size
Certified SBSD
businesses operations impact
removed Administrative Fiscal a
Require small businesses to meet both the -622
Low $0
employment AND gross receipts maximums (-6%)
Lower employee and gross receipts
-1,329 $0 to $50K
thresholds for small businesses Low
(-13%) (one time)
(75th percentile) b
Lower employee and gross receipts
-306 $0 to $50K
thresholds for small businesses Low
(-3%) (one time)
(95th percentile) b
SOURCE: JLARC analysis of SBSD data on certified small businesses (as of April 2020) and fiscal impact statements.
NOTE: a Table reflects potential fiscal impact to SBSD, but there may also be fiscal impacts to the Department of
General Services, Department of Accounts, and other entities depending on how changes to the definition are
structured. b Reflects reduction of current definition to the 75th and 95th percentiles for illustrative purposes, but
sizes could be reduced to different thresholds.
State could develop and adopt size thresholds based on industry
The size of Virginia businesses varies significantly based on industry, according to data
on Virginia’s businesses. Although Virginia businesses have a median of 14 employees,
there can be substantial differences in business size within and across industries (Table
5-2). For example, construction businesses report having between one and more than
8,100 employees. In contrast, florists report having between one and 135 employees.
This means that all florists would qualify as a small business, but many construction
businesses would not. Similarly, a construction business may employ hundreds of peo-
ple and still be comparatively small in its industry, while a data processing company of
the same size may be among the largest in that industry.
51
Chapter 5: Virginia’s Small Business Definition
TABLE 5-2
Number of employees can vary substantially by Virginia industry
Minimum Median Maximum
Construction (highway, street, & bridge) 1 15 8,106
Management consulting services 1 2 6,006
Data processing and hosting 1 2 1,535
Florist 1 4 135
SOURCE: JLARC analysis of Virginia Employment Commission data (2019).
NOTE: Employee data reflects fourth quarter of 2019. Data excludes part-time employees. Employee counts may
be low if businesses misclassify employees and exclude them from full-time employee counts.
To compensate for the variation in employment among industries, the federal govern-
ment and several other states vary their small business definition thresholds by indus-
try. In contrast, Virginia’s small business definition applies equally to all businesses
regardless of their industry. A one-size-fits-all approach “is inappropriate to define the
small business segment of each and every industry,” according to the U.S. Small Busi-
ness Administration (SBA). Consequently, the SBA has developed more than 1,000
individual industry-specific definitions based on employment levels or gross receipts.
Depending on the industry, allowable employment levels range from 100 to 1,500 em-
ployees, and allowable gross receipts range from $1 million to $41.5 million.
Industries vs. goods and
services procured. However, simply adopting SBA’s small business definitions may not have the desired
Adopting definitions for effect in Virginia. The vast majority of SBA’s industry-specific size definitions allow
the hundreds of indus- more employees and gross receipts than Virginia’s current definition. Under the SBA’s
tries defined by SBA
would in many cases have
definitions, 75 percent of the industries (778 industries) have employment or gross
little practical effect be- receipts maximums above Virginia’s current definition. Applying these standards to
cause the state does not Virginia businesses would allow substantially more businesses to qualify as small. SBA’s
procure any goods or ser- definitions have high thresholds because national and global businesses compete for
vices from certain indus-
tries. Understanding how
federal contracts and are included in the dataset SBA uses to set its employment and
this would play out, gross receipts thresholds.
though, is complicated by
the fact that currently
Adopting SBA’s industry-specific definitions and replacing state certifications with fed-
agencies only categorize eral small business certifications could also be challenging. Multiple federal certifica-
the goods or services tions have a small business requirement and use the SBA’s definitions (e.g., 8(a) certi-
they procure by the Na- fication, women-owned small business certification, service-disabled veteran-owned
tional Institute of Govern-
small business certification). However, federal certifications also have ownership cri-
ment Purchasing codes.
These codes do not teria, some of which are not race or gender neutral. Accepting federal certifications
cleanly align with the na- could raise the same legal issues that Virginia’s ongoing disparity study is reviewing.
tional industry codes, pri-
marily because busi- JLARC staff have identified three options that use industry-specific size standards but
nesses often sell many address these concerns. These options would replace Virginia’s one-size-fits-all defini-
types of goods and ser- tion with thresholds that vary among industries (sidebar). They would have varying
vices.
impacts on the state’s ability to procure services through the set-aside program. Each
52
Chapter 5: Virginia’s Small Business Definition
option would have a relatively high administrative and fiscal impact on SBSD’s certifi-
cation operations, depending on how they are implemented. (These options may also
have a fiscal impact on the Department of General Services, Department of Accounts,
or other state entities, depending on how changes to the definition are structured.)
Setting industry-specific size standards as a percentage of Virginia business size
would account for industry differences but be administratively burdensome
To account for variations in business size across industries, the state could adopt state-
specific small business definitions for each of the 1,037 industry codes in the North
American Industry Classification System. The state could use Virginia-specific data
collected by the Virginia Employment Commission to assess the range of employment
levels of Virginia businesses in each industry and set a definition that excludes the
largest businesses in each industry. Similar to the federal government, the state may
want to measure business size for some industries through gross receipts; however, the
state does not currently collect this information for all businesses.
Similar to the previous policy option, setting a specific target percentage for the small
Data inconsistencies and
business definition in each industry is subjective. For example, if all definitions were limitations. Because of a
set at 75 percent of Virginia business employees, 96 percent (996 out of 1,037 industries) variety of data limitations
would have employment maximums that drop below the current 250-employee thresh- and inconsistencies be-
old. Only 41 industries (e.g., department stores, poultry processing, and carpet and rug tween state and federal
datasets, counting the ex-
mills) would have employment maximums increase above 250 employees. (See Appen- act number of businesses
dix H online for more information on the potential impact of state-specific small busi- that could be affected by
ness definitions by industry.) Given the anticipated drop in employment thresholds for these options is not pos-
many industries, a portion of businesses that are currently small/micro certified would sible. To provide some in-
sight into the impact on
no longer be eligible (sidebar). businesses of certain op-
This option could allow the state to better target its small business definition (and tions, JLARC merged VEC,
SBSD, and federal data to
related procurement preference opportunities) to smaller businesses, but lowering the estimate how many dif-
definition size for most industries could make it more difficult for agencies to procure ferent industries could be
goods and services from certified businesses and achieve their SWaM goals. affected.
See Appendix H (online
There would also be a high administrative burden on SBSD to implement this option. only) for more information
SBSD (and/or another state agency) would need to establish the initial definitions for about how industries
each industry and verify that they accurately reflect Virginia businesses every few years. could be affected under
each option.
SBSD would need to program new definition categories into its certification software
and train staff on the new definitions. SBSD would also experience an increase in
questions and follow-up requests from businesses in the short term until businesses
develop an understanding of the new definitions (Table 5-3).
POLICY OPTION 7
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for each industry, with thresh-
olds for number of employees or gross receipts, or both, that are based on the size
characteristics of Virginia businesses in that industry.
53
Chapter 5: Virginia’s Small Business Definition
Setting industry-specific size standards at 50 percent of SBA size standards
would account for industry differences but increase small business size
thresholds for many industries
The state could also adopt state-specific small business definitions for each industry
by applying a standard reduction factor (e.g., 50 percent) to current SBA size standards.
A reduction factor would be necessary because many SBA size thresholds are larger
than both Virginia’s current definition and many size measures for Virginia specific
businesses. Colorado has implemented this approach.
Implementing small business definitions for each industry at 50 percent of the SBA
Analysis of adopting 50
definition would expand Virginia’s current definition in most cases. In fact, Virginia’s
percent of SBA size
standards included only employee size threshold would increase above 250 employees for 310 of the 505 in-
industries with employ- dustries in which SBA uses employment size to define small businesses (sidebar). The
ment thresholds. Some size threshold would stay the same for 112 industries and decrease for 83 industries.
SBA definitions have
gross receipts thresholds, This option would account for differences in size across industries but ultimately allow
but data on the gross re- more businesses to be certified as small, which may be inconsistent with the intent of
ceipts of Virginia busi- having a small business program. It would, though, likely make it easier for agencies
nesses was not available.
to procure goods and services from SWaM-certified businesses because more busi-
nesses would qualify (but still have to apply for certification).
There would be a high administrative burden on SBSD to implement this option.
SBSD (and/or another state agency) would need to establish the initial definitions for
each industry and verify every few years that this remains a reasonable basis for defin-
ing small business in Virginia. SBSD would need to program the new definition cate-
gories into its certification software and train staff on the new definitions. SBSD would
also experience an increase in questions and follow-up requests from businesses in the
HB 1892 (2019) & HB
short term until businesses develop an understanding of the new definitions (Table 5-
1650 (2020) 3).
proposed different small
business employee and
gross receipts maximums
POLICY OPTION 8
for six industries (whole- The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
sale, manufacturing, re- to direct that a small business definition be developed that is set at 50 percent of the
tail, service, construction, federal small business definition for each industry.
and architects/engineers).
Employee maximums
ranged from 30 to 100 Developing cross-industry size standards for groups of industries would help
employees; gross receipts account for industry differences but may not fully account for size variation
maximums ranged from
$2M to $15M. The bills The state could identify industry groups based on common size characteristics and
also proposed disqualify- types of goods and services sold to the state, and establish separate small business size
ing businesses dominant standards for each industry group. This option is consistent with legislation proposed
in their industry from
procurement preferences.
during the 2019 and 2020 General Assembly sessions (sidebar) and is less administra-
tively complex than the two previous options to address variation in each industry.
However, grouping industries can reduce the benefits of an industry-specific approach
because there can be substantial differences in size between industries within a group.
54
Chapter 5: Virginia’s Small Business Definition
Maryland uses this approach and sets different size definitions for six industry groups
(wholesale, retail, manufacturing, service, construction, and architectural/engineering).
According to staff from Maryland’s Office of Small, Minority, & Women Business
Affairs, these groups allow them to account for the different size of businesses in these
industry categories and better target their procurement preference to businesses that
need support. The size thresholds for each industry grouping were developed in part-
nership with business representatives rather than by using data reflecting the size of
Maryland businesses.
Adopting cross-industry size standards similar to Maryland’s would account, to some
extent, for difference in business size across industries and would likely reduce the
number of businesses that could be eligible for certification in Virginia. All Maryland
size thresholds are smaller than those in Virginia’s current small business definition,
except for Maryland’s revenue maximum for service industries ($10 million), which is
the same as Virginia’s. The number of currently certified businesses that would be-
come ineligible is dependent on how the industries are grouped and the thresholds are
set; therefore, the specific number is unknown. Assuming the size definitions adopted
were similar to Maryland’s, agencies would have fewer SWaM businesses from which
to purchase goods and services, at least in the near term.
This option would be less administratively complex than the two previous industry-
specific options but would still have an administrative and fiscal impact. SBSD (and/or
another state agency) would need to establish the initial definitions for each industry
grouping, potentially working in partnership with various industry groups. Depending
on how many groupings are used and how much of what the state purchases is in-
cluded, there could be considerably less effort associated with developing size defini-
tions for groupings rather than all industries. Additionally, SBSD would still need to
program new definition categories into its certification software, train staff on the new
definitions, and respond to questions from businesses about the new definitions (Table
5-3).
POLICY OPTION 9
The General Assembly could amend §2.2-4310 and §2.2-1604 of the Code of Virginia
to direct that a small business definition be developed for groupings of industries
based on size and types of goods and services state agencies purchase.
55
Chapter 5: Virginia’s Small Business Definition
TABLE 5-3
Impact of options to adopt industry-specific small business definitions
Industries with SBSD
definition operations impact
lowered or raised Administrative Fiscal a
Develop industry-specific size
-996 industries b $300K to $500K
standards set at a percentage of High
+41 industries (one-time)
Virginia business size
Develop industry-specific size
-83 industries $300K to $500K
standards set at 50% of federal High
+310 industries (one-time)
size standards c
Develop cross-industry size standards
$50K
for several industry groups based on Unknown Medium
(one-time)
what agencies purchase
SOURCE: JLARC analysis of Virginia Employment Commission data (2019) and U.S. Small Business Administration
size standards for small businesses.
NOTE: a Table reflects potential fiscal impact to SBSD, but there may also be fiscal impacts to the Department of
General Services, Department of Accounts, and other entities depending on how changes to the definition are
structured. b If the 75th percentile of Virginia business was adopted as the employment maximum for all industries,
at least 27 percent of certified small/micro businesses (2,865 businesses) would become ineligible for small/micro
certification. This percentage would likely be higher, as industry data were unavailable for 40 percent of certified
small/micro businesses (4,319 businesses). c 112 industries would have an employment threshold that remains at
250 employees.
Disparity study could inform consideration of small
business definition and procurement preferences
The disparity study could have implications for state procurement policy if the results
allow the state to consider female and minority ownership in its set-asides for state
procurement. The state could choose to change its current set-aside program to add
minority and/or female ownership to its procurement set-asides, which currently are
based only on business size.
Although Virginia cannot currently designate procurement preferences based on fe-
male and minority ownership, the state still procures a substantial amount from these
businesses. Currently, 55 percent of certified small or micro businesses are also owned
by a minority or woman. Only 6 percent of certified businesses are certified as women
or minority-owned only, potentially because the state’s procurement set-asides are
based on size instead of ownership.
To adequately consider potential changes, the General Assembly could create an exec-
utive branch workgroup after the disparity study is completed. There may be less value
in creating such a workgroup, though, if the disparity study reaches the same conclu-
sion as prior studies that the state cannot have preferences based on ownership.
The workgroup membership could consist of the:
• governor’s chief of staff or designee;
• secretary of commerce and trade or designee;
56
Chapter 5: Virginia’s Small Business Definition
• SBSD director or designee;
• Department of General Services director or designee;
• Virginia Information Technologies Agency chief information officer or de-
signee;
• attorney general or designee;
• local government representatives; and
• interested small, women-owned, or minority-owned businesses from different
industries.
The workgroup could be charged with considering the results of the disparity study
along with the information and options included in this chapter. The workgroup could
consider whether and how state procurement preferences and the state’s small business
definition should be changed. Staff from key state agencies including SBSD, the De-
partment of General Services, and the Virginia Information Technologies Agency
could identify the fiscal impact of proposed changes and draft a plan for implementing
proposed changes. The Office of the Attorney General could assess the legality of
proposed changes. The workgroup could submit proposed legislative changes to the
General Assembly for consideration prior to the 2022 legislative session.
POLICY OPTION 10
The General Assembly could consider authorizing in the Appropriation Act an exec-
utive branch workgroup to consider whether and how to adjust the (i) state’s procure-
ment preferences for businesses (including women and minority ownership if the dis-
parity study concludes doing so may be permissible), and (ii) state’s definition of small
business. The workgroup could be required to submit proposed legislative changes to
the House General Laws Committee, Senate General Laws and Technology Commit-
tee, and Small Business Commission by November 1, 2021.
57
Chapter 5: Virginia’s Small Business Definition
58
Appendixes
Appendix A: Study mandate
Review of the Department of Small Business and Supplier Diversity
Authorized by the Joint Legislative Audit and Review Commission on December 10, 2018
WHEREAS, the Virginia Department of Small Business and Supplier Diversity (SBSD) was created
in 2014 by consolidating the powers and duties of the Department of Business Assistance and the
Department of Minority Business Enterprise; and
WHEREAS, the mission of SBSD is to enhance growth opportunities for Virginia’s small businesses
to prosper through increased revenue and job creation thereby raising the standard of living for all
Virginians; and
WHEREAS, SBSD was appropriated $7.3 million in FY19 and $6.8 million in FY20, of which
approximately 60% is from general funds; and
WHEREAS, SBSD developed an agency workplan for 2018 establishing agency goals, objectives,
and performance metrics; and
WHEREAS, SBSD administers the Commonwealth’s business certification programs, including the
Small-Woman-owned and Minority-owned Businesses (SWaM) program, which is designed to
improve state procurement opportunities for SWaM businesses, and the Disadvantaged Business
Enterprise program, which is designed to increase the participation of disadvantaged business
enterprises in projects funded by the U.S. Department of Transportation; and
WHEREAS, SBSD’s Virginia Small Business Finance Authority (VSBFA) promotes economic
development by administering loan and loan assistance programs for small businesses, not-for-prof-
its, and economic development authorities that may not be able to obtain financing from conven-
tional private sources, such as commercial banks; and
WHEREAS, VSBFA administers two economic development grant programs, the Small Business
Investment Grant Program and the Small Business Jobs Grant Program, which awarded over $1
million in grants in FY17 and which recent legislation sought to transfer to the Virginia Economic
Development Partnership; and
WHEREAS, SBSD’s Business Development and Outreach Services Division provides programs
designed to assist entrepreneurs and business owners in obtaining the information and resources to
establish and grow their businesses; now, therefore be it
RESOLVED by the Joint Legislative Audit and Review Commission (JLARC) that staff be directed
to review the operations and performance of the Department of Small Business and Supplier
Diversity. In conducting its study, staff shall (i) determine whether SBSD’s operations are focused
on the topics that will most effectively support and accomplish its mission; (ii) evaluate the staffing,
performance, spending, and management of SBSD, including the VSBFA; (iii) assess whether
SBSD’s business certification programs and related processes are efficiently and effectively adminis-
59
Appendixes
tered; (iv) determine whether SBSD is the most suitable state agency to administer the state’s busi-
ness certification programs and assist businesses with the state’s procurement processes; (v) com-
pare the definition of “small business” used by SBSD to federal and other state definitions; (vi) as-
sess the effectiveness of SBSD’s economic development and outreach programs in assisting
applicable businesses; (vii) assess the need for SBSD programs and assistance to temporarily or per-
manently facilitate individual businesses; (viii) evaluate whether other state agencies could more ef-
fectively administer SBSD’s economic development and outreach programs; and (ix) review the
scope and scale of programs in other states designed to assist similar businesses. JLARC shall make
recommendations as necessary and review other issues as warranted.
All agencies of the Commonwealth, including the Department of Small Business and Supplier
Diversity, the Virginia Department of General Services, and the Virginia Economic Development
Partnership shall provide assistance, information, and data to JLARC for this study, upon request.
JLARC staff shall have access to all information in the possession of state agencies pursuant to § 30-
59 and § 30-69 of the Code of Virginia including all documents related to proceedings or actions of
the Virginia Small Business Financing Authority board of directors. No provision of the Code of
Virginia shall be interpreted as limiting or restricting the access of JLARC staff to information pur-
suant to its statutory authority.
60
Appendixes
Appendix B: Research activities and methods
Key research activities performed by JLARC staff for this study included:
• interviews with SBSD and VSBFA staff, VSBFA board members, other Virginia and fed-
eral agencies, Virginia businesses and banks, subject-matter experts, and other states;
• observations of business counseling sessions and trainings;
• surveys of businesses that have participated in SBSD programs, SBSD staff, and state
agency SWaM representatives;
• analysis of SBSD certification data, SBSD staff turnover data, VSBFA financial data, state
agency spending and procurement data, Virginia business size data, and other state small
business definitions;
• case file review of a sample of approved and denied VSBFA applications; and
• a review of documents and literature, including research literature on effective practices
for assisting small businesses; past studies of SBSD; and SBSD documents, such as agency
policies and procedures, staff position descriptions, and staff training schedules.
Structured interviews
Structured interviews were a key research method for this report. JLARC staff conducted over 100
interviews with individuals from a variety of agencies and organizations. Key interviewees included:
• SBSD/VSBFA staff and VSBFA board members;
• other Virginia state agency and federal agency staff;
• Virginia businesses, banks, and economic development organizations;
• subject-matter experts in Virginia and nationally; and
• staff from other states.
SBSD/VSBFA staff and VSBFA board members
JLARC staff conducted 37 interviews with 20 staff from SBSD and VSBFA, including the directors
of all major divisions and several staff in each division. Staff conducted multiple interviews with the
agency director and chief of staff, the VSBFA director and chief credit officer, and the directors of
the SWaM Certification, DBE Certification and Outreach, and Business Development and Outreach
divisions to understand the agency’s programs and recent and planned improvements. Interviews were
also conducted with staff in each division to understand the services provided by each division; the
work processes used to carry out each division’s primary responsibilities; and staff perspectives on
SBSD’s mission, challenges, and work culture. Interviews were also used to clarify the meaning of
SBSD data.
JLARC staff also conducted interviews with four VSBFA board members, including the board chair-
man. These interviews were used to understand board member responsibilities and engagement, per-
spectives on VSBFA staff and programs, and loan and bond approval processes.
61
Appendixes
Other Virginia state agency and federal agency staff
JLARC staff conducted 25 interviews with staff at 18 Virginia state agencies. These interviews were
conducted for a range of purposes:
• to obtain information on how other agencies work with SBSD on the certification pro-
gram, JLARC staff interviewed the Virginia Department of Transportation, Department
of Aging and Rehabilitative Services, and the State Council of Higher Education for Vir-
ginia;
• to obtain perspectives on the state’s SWaM procurement program and other procurement-
related issues, JLARC staff interviewed procurement staff at the Department of General
Services and Virginia Information Technologies Agency, and SWaM representatives at the
Board of Accountancy, Virginia Tech, and the Department of Treasury;
• to learn about the Business One Stop, JLARC staff interviewed staff at the Department
of Professional and Occupational Regulation and the State Corporation Commission;
• to understand their role in, and perspectives on, VSBFA’s loan and bond programs,
JLARC staff interviewed staff at the Department of Treasury and Department of Social
Services;
• to discuss agency data availability for potential JLARC analyses, JLARC staff interviewed
staff at the Virginia Employment Commission, Department of General Services, and De-
partment of Taxation;
• to discuss various aspects of SBSD operations, JLARC staff interviewed staff at the Audi-
tor of Public Accounts and Department of Human Resource Management; and
• to learn about effective approaches for administering financing and business advisory pro-
grams, JLARC staff conducted interviews with the Virginia Economic Development Part-
nership, Department of General Services, Department of Housing and Community De-
velopment, and Virginia Resources Authority. Staff also interviewed the Center for
Innovative Technology (a state-funded nonprofit) for the same purpose.
Staff also conducted interviews with the deputy secretary of commerce and trade to learn more about
the administration’s policy goals for assisting small businesses and perspectives on the state’s small
business definition.
JLARC staff conducted interviews with federal agency staff: three interviews with the Small Business
Administration and one interview with the Economic Development Administration, which is part of
the U.S. Department of Commerce. These interviews were conducted to learn about federal programs
for small businesses, to get their perspectives on which programs and interventions are most effective
for small and potentially disadvantaged businesses, and to understand how federal partners work with
SBSD.
Virginia businesses, banks, and economic development organizations
JLARC staff interviewed four organizations that represent small, women-, or minority-owned busi-
nesses in Virginia: Metropolitan Business League, National Association of Women Business Owners
(Richmond chapter), National Federation of Independent Business, and Virginia Chamber of Com-
merce. The purpose of these interviews was to obtain businesses’ perspectives on SBSD programs
62
Appendixes
and issues affecting small, women-, and minority-owned businesses. Staff also conducted a group
interview with three business owners from the heavy construction industry to hear their perspectives
on their interactions with SBSD and the effectiveness of SBSD programs.
Staff conducted five interviews with representatives from the financial industry, including five Virginia
banks and the Virginia Bankers Association. The purpose of these interviews was to identify typical
and best practices for small business lending programs and banks’ perspectives on the value and ad-
ministration of VSBFA’s programs.
Finally, staff conducted a group interview with staff from the Virginia Economic Developers Asso-
ciation and seven local economic development staff to discuss local programs for small businesses
and their perceptions of SBSD’s programs.
Subject-matter experts in Virginia and nationally
JLARC staff conducted interviews with 16 subject-matter experts, including individuals from the
Kauffman Foundation, Aspen Institute, Council of Development Finance Agencies, Milken Institute,
Mason Enterprise Center, National Conference of State Legislatures, and the Capital Region Minor-
ity Supplier Diversity Council. These interviews covered many different topics based on the expertise
of the individual, but most interviews addressed best practices for small business programs.
Other states
JLARC staff conducted interviews with staff from Kentucky, Maryland, North Carolina, and Tennes-
see to discuss their small business loan programs. Staff interviewed staff from Kentucky and North
Carolina to discuss their small business advisory programs, and staff from Maryland to discuss their
small business definition.
Observations of business assistance sessions and VSBFA board meetings
JLARC staff observed three one-on-one counseling sessions between SBSD staff and businesses.
These sessions were conducted over the phone, and JLARC staff listened to the sessions with the
permission of the businesses. The purpose of these observations was to learn about challenges expe-
rienced by small businesses and the types of assistance provided by BDOS staff. JLARC staff also
observed one Scaling4Growth session and three BDOS webinars on eVA, entrepreneurship, and Scal-
ing4Growth (information session).
JLARC staff also attended and observed five VSBFA board meetings to assess board members’ level
of engagement and to learn about the types of information provided by staff to the board and the
approval process for loans and bonds. Three of these board meetings were held virtually because of
the COVID-19 pandemic.
Surveys
Three surveys were conducted for this study: (1) a survey of businesses that participated in SBSD
programs, (2) a survey of SBSD staff, and (3) a survey of state agency SWaM representatives.
63
Appendixes
Survey of businesses
JLARC administered an electronic survey to businesses that have participated in SBSD programs since
2015. (Participation was defined to include businesses that applied for SBSD programs, including
those that were approved and denied.) If a business participated in the same program multiple times
(e.g., applied for a new SWaM certification and recertifications), the survey asked about the business’s
most recent experience. If a business participated in multiple different programs (e.g., applied for SWaM
certification and participated in business counseling) the survey only asked about one program to
reduce the time burden on businesses during the COVID-19 pandemic. The team originally planned
to administer the survey in March 2020 but postponed the administration to the April/May timeframe
because of the COVID-19 pandemic, which negatively affected many of the businesses the survey
was distributed to.
The survey covered the following topics:
• SWaM and DBE certification processes (including the documentation requirements, time-
liness, fairness and accuracy, and usefulness of certification);
• appeal and waiver processes for denied SWaM applications;
• effectiveness of SBSD financing programs (including the documentation requirements,
timeliness, fairness, accuracy, usefulness of financing, and use of other financing sources);
• effectiveness of SBSD business advisory programs (including satisfaction with advisory
program, convenience, and usefulness of the program); and
• reasons for not participating in other SBSD programs (such as lack of knowledge of pro-
grams).
The survey was distributed electronically to approximately 23,000 business. JLARC received 918 re-
sponses, for an overall response rate of 4 percent. JLARC could not send the survey to businesses
without email addresses in SBSD/VSBFA’s records. Nearly all programs had emails for at least 98
percent of businesses, with the exception of counseling sessions (31 percent of businesses had miss-
ing emails) and VSBFA programs (44 percent of businesses had missing emails).
Survey of current SBSD staff
JLARC staff administered an electronic survey to all 37 full-time staff at SBSD. (SBSD’s director,
VSBFA’s executive director, and SBSD’s chief of staff were given copies of the survey to review but
were not asked to complete it.) Survey topics included: staff ’s perspectives on their roles and respon-
sibilities, satisfaction levels, workload, compensation, division operations and coordination, IT systems
and security, and agency leadership and organizational structure. The survey also asked staff about the
impact that the COVID-19 pandemic has had on their work and the businesses they serve. JLARC
received responses from all SBSD staff members, for a response rate of 100 percent.
Survey of state agency SWaM representatives
An electronic survey was administered to the SWaM representatives in 132 Virginia state agencies. If
an agency had multiple representatives, the survey was sent to one representative to ensure one re-
sponse from each agency. Survey topics included: agency perspectives on their ability to meet the
state’s 42 percent SWaM procurement goal, usefulness of the agency SWaM plan, and adequacy of
64
Appendixes
assistance provided by SBSD in completing the SWaM plan and helping agencies meet the 42 percent
SWaM goal. Eighty-one agencies responded to the survey, for a response rate of 61 percent.
Data collection and analysis
Several types of data analyses were performed for this study, including analyses of:
• SBSD business certification data;
• SBSD staff turnover data;
• VSBFA financial data on loans and grants;
• the impacts of SWaM certification on state contracts and size of certified businesses;
• state agency spending and procurement data;
• Virginia business size data; and
• data on small businesses definition levels in the federal government and other states.
Certification data (Chapter 2)
SBSD provided JLARC staff with several data analyses in response to a data request submitted by the
team, including total number of certifications by type; average time to process applications, by type;
number of applications that exceeded SBSD’s processing goal; and number of appeals and waivers.
JLARC staff used this data to calculate basic statistics on SWaM and DBE certifications. JLARC staff
also analyzed detailed data on each certification application since 2015. Analyses conducted with this
data included: descriptive statistics on the number of certified businesses by size and number of ap-
plications that were approved and denied. Moreover, business-level certification data was used to as-
sess whether currently certified micro and/or small businesses meet the employment and gross re-
ceipts size requirements and how changes in the small business definition could impact the population
of currently certified micro and/or small businesses.
SBSD staff turnover data (Chapter 2)
JLARC staff calculated the rate of SBSD staff turnover between FY13 and FY20 using data from the
Department of Human Resource Management. Two types of turnover rates were calculated: (1) all
turnover and (2) voluntary turnover. The rate of all staff turnover included staff retirements, layoffs,
removals, resignations, and transfers (e.g., out-of-state service or to an exempt agency). The rate of
voluntary staff turnover included staff resignations and transfers. To benchmark SBSD’s staff turnover
rates, JLARC staff reviewed the statewide staff turnover rate across all state agencies (FY20) and
compared SBSD’s turnover rates with other similarly sized state agencies with between 15 and 100
employees.
VSBFA financial data on loans and grants (Chapter 3)
JLARC staff used VSBFA data on loans and grants to conduct several analyses. Staff analyzed the
utilization ratios of VSBFA loan and grant programs (see Appendix E for program-level data by fiscal
year); identified trends in loan application decisions; and calculated the amount of funds lost by
VSBFA when businesses fail to repay their loans.
65
Appendixes
Loan utilization
JLARC staff developed a methodology for calculating utilization ratios because VSBFA does not reg-
ularly report this information. This methodology was informed by discussions with VSBFA staff,
Auditor of Public Accounts staff, and a national expert on small business lending. JLARC’s method
focuses on the amount of new funds given to businesses each year. Each year’s utilization ratio was
calculated as follows:
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑜𝑜𝑜𝑜 𝑛𝑛𝑛𝑛𝑛𝑛 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢 𝑏𝑏𝑏𝑏 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉
𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 =
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑜𝑜𝑜𝑜 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑓𝑓𝑓𝑓𝑓𝑓 𝑛𝑛𝑛𝑛𝑛𝑛 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙
JLARC calculated loan utilization ratios for VSBFA’s three direct loan programs (microloan, Economic
Development Loan Fund, and Child Care Financing Program) and three support loan programs (Loan
Guaranty, Cash Collateral, and Capital Access) for FY16 to FY20. Three programs—the microloan,
state-funded Economic Development Loan, and Loan Guaranty—have a combined utilization ratio
because they have the same funding source. JLARC requested FY20 data before the fiscal year had
concluded, so the amount used in FY20 calculations excludes the last 18 days of the year.
The definition of the amount of new loans used varies by loan program. For VSBFA’s three direct loans,
the amount spent equals the amount of money given to businesses once the loan is finalized. For
VSBFA’s three support loans, the amount used equals the amount of money temporarily reserved by
VSBFA internally or at the banks once the loan has been approved, and not the total value of the loan
provided by the bank. Specifically, the amount used for the Loan Guaranty program is the share of
the loan that VSBFA guarantees. The amount used for the Cash Collateral and Capital Access pro-
grams is the amount of funds VSBFA deposits into banks’ reserve accounts. JLARC staff defined the
amount used as the amount of money reported “disbursed” by VSBFA, which can differ from the
amount of money approved in a given year. The amount disbursed is not applicable to the Loan
Guaranty Program; therefore, staff used the amount of loans reported as “closed” by VSBFA.
JLARC staff calculated the amount of funds available for new loans each year using two steps. First, JLARC
staff identified the preliminary amount available on the last day of the prior fiscal year. For all pro-
grams except the Loan Guaranty Program, this amount equals the “subtotal cash & investments” on
the balance sheet provided by VSBFA. For the Loan Guaranty Program, the amount available depends
on a statutorily set formula. VSBFA provided annual Loan Guaranty Program reports that contained
the net funds available for new loans each year. Second, the amount of securities lending funds (if
any) was subtracted from those preliminary amounts to calculate the final “amount available.” Securi-
ties lending funds are held by the Virginia Treasury (as part of a statewide program for agency funds
exceeding the amount protected by federal deposit insurance) and not immediately available to
VSBFA. Only the Capital Access and federal Economic Development Administration (EDA) pro-
grams had securities lending funds. JLARC’s method did not include expected repayments as available
funding. Repaid funds in one year would appear in the “cash and investments” for the next year, so
the current method already accounts for repayments that actually occur. Also, repayments occur
throughout the year so they are not available to VSBFA for the whole year.
66
Appendixes
While JLARC’s method intentionally defined the amount used as the amount of money for finalized
loans, an alternative method would be considering “committed funds” as well. Committed funds are
loans approved and legally promised by VSBFA but not yet disbursed by the end of the fiscal year.
For example, VSBFA may be waiting for mandatory closing documents from the business. JLARC’s
method excluded commitments because they sometimes reflect loans that are eventually cancelled
before any money transfers, and commitments that were disbursed in another fiscal year would be
captured in that year’s utilization data. However, when VSBFA makes the commitment it believes that
the loan will occur and reduce the amount of available funds, which is one reason to include commit-
ted funds in utilization rates for the year in which they occur.
To offer an alternative calculation, JLARC staff calculated utilization ratios in a manner that considers
committed funds to be equivalent with actually used funds. In this method, the amount used each year
is defined as the amount actually used plus the amount committed. For the amount of commitments
per program per year, JLARC used data provided by VSBFA. (An exception is FY20, for which VSBFA
only provided commitments for the federal EDA program. However, that program typically has a
much larger amount of commitments compared to other programs.) The method for calculating the
amount available per year does not change in this alternative method. This alternative method in-
creases the utilization ratios somewhat compared to JLARC’s primary method because it increases the
amount that is loaned (Table B-1). However, VSBFA’s loan utilization ratio remains below 40 percent
in the last three years, regardless of the method.
TABLE B-1
Considering commitments to be loans increases VSBFA’s loan utilization ratio
Method 2016 2017 2018 2019 2020
Primary (Ignores commitments) 46% 45% 8% 10% 24%
Alternative (Considers commitments
equivalent to used loans) 52 66 37 29 33
Percentage point difference 6 20 29 20 9
SOURCE: JLARC analysis of VSBFA data.
Grant utilization
Grant utilization rates for FY15 to FY20 were calculated with data provided from the Department of
Planning and Budget (DPB). Similar to loans, grant utilization was defined as the amount of grants
provided in a given year divided by the amount of funds available for the grant. DPB’s data for the
amount of grants provided for a given year may reflect grants that were approved in that year or prior
years, because businesses must provide documentation of meeting grant requirements before receiv-
ing the funds. The amount of funding available for each grant was calculated as the amount of funds
at the beginning of the fiscal year (because the funds are non-reverting) plus additional funding from
the annual budget plus interest accrued minus amounts given up by VSBFA because of statewide sav-
ings initiatives plus/minus transfers to or from other sources.
67
Appendixes
The amount of funds available to VSBFA can change throughout the year, depending on the timing
of events such as receiving appropriations and transferring money between grant funds. Therefore,
grant utilization rates should be considered an approximation.
Application decisions
JLARC staff calculated the number of loan applications, the frequency of application decision out-
comes, and the reasons for withdrawals and denials using VSBFA’s application data. VSBFA’s data
included 595 loan applications between July 2015 and June 2020. JLARC reviewed VSBFA’s comments
for each application to count the number of withdrawals, denials, or approvals. (JLARC was unable to
categorize the decision type of four cases because of insufficient or missing information.) Next,
JLARC staff counted the number of withdrawals and denials that contained a recorded reason for
VSBFA’s decision. This analysis was limited to FY19 and FY20 applications available in VSBFA’s data.
(It is possible that additional information about VSBFA’s decision was available in the application’s
case file.) Finally, JLARC staff counted the number of recorded reasons that cited the creditworthiness
of the applying business, such as insufficient cash flow to repay the loan or poor credit history.
VSBFA noted two reasons why analysis of its application data will not be fully accurate. First, the date
provided does not have a consistent definition. For example, it might be the date that staff first spoke
to an interested business or the date that the business submitted a loan application. Second, the spread-
sheet is not limited to actual applications received by VSBFA. Sometimes, inquiries from businesses
that don’t result in an application are included on the spreadsheet.
Loss rates
The amount of money lost by VSBFA when a business fails to repay its loans depends on several
factors. The amount lost by VSBFA depends on the time that has passed since the loan; the longer
this time period, the lower the remaining amount owed by the business. For direct loans, the amount
of money that a business does not repay equals the amount of money lost by VSBFA. For support
loans, the amount of money lost by VSBFA depends on the details of the loan program and transac-
tion. For example, in the Loan Guaranty Program, the bank and VSBFA agree on the share of the
bank’s loan amount that VSBFA will guarantee, and the maximum is 75 percent. The lower VSBFA’s
share for a particular loan, the lower the amount it will lose if the business defaults.
To calculate the amount of VSBFA losses, JLARC staff used an extract of VSBFA’s disbursed loan
database that included information on the timing and amount of losses. This extract included all loans
for which losses occurred between FY15 through FY20, regardless of when the loan was made. (Data
for FY20 is missing the last few weeks of the fiscal year, because of the timing of JLARC’s data
request.) This amount consists of charge-offs for VSBFA’s direct loans and claims by banks for
VSBFA’s support loans. It is calculated net of recoveries collected from the businesses, such as collat-
eral sales.
To calculate the share lost by VSBFA in FY19, JLARC staff followed the standard industry method-
ology of comparing the amount of losses occurring in a given time period with the amount of active
outstanding loans at the end of that time period. The 0.25 percent loss rate reported by commercial
68
Appendixes
banks derives from a survey by the Consumer Bankers Association and Small Business Financial Ex-
change about the third quarter of CY 2019.
Impacts of SWaM certification on state contracts and size of certified businesses (Chapter 4)
JLARC staff conducted analyses to estimate the effects of SWaM certification on firm sales and em-
ployment growth. Both analyses used a pre-post approach, comparing outcomes for firms before they
became SWaM certified to outcomes for the same firms after certification. Regression models were
used to control for other factors that could influence the outcomes, including time trends.
Impact of SWaM certification on sales to state agencies
Because Virginia governors have encouraged state agencies to purchase goods and services from
SWaM-certified firms through a series of executive orders, certification could increase a business’s
likelihood of selling goods and services to state agencies. To test this hypothesis, JLARC staff obtained
data from eVA, the state procurement information system used by all state agencies and maintained
by the Department of General Services. The data included all purchase orders in eVA from 2010
through the first half of 2020, and included the date of purchase, the dollar amount, the type of good
or service purchased, the agency purchasing the good or service, and a unique identifier for the selling
firm.
The analysis was restricted to 6,700 firms that were SWaM certified, had sales in eVA, and had at least
four quarters of data before certification and eight quarters of data after certification. The basic anal-
ysis compared a firm’s sales per quarter before and after certification, to look for evidence that firms
increased their sales to state agencies after they became certified. The sales data in eVA are very
skewed: although most sales per firm per quarter were less than $5,000 (and many were less than
$1,000), a small percentage of firms had sales of more than $1 million in a quarter. Further, most
firms had some quarters with zero sales in eVA. To reduce these effects in the data, quantile regression
was used to estimate impacts on median quarterly sales per firm (and on the 60th, 70th, 80th, and 90th
percentiles). As a test of the robustness of results, a separate ordinary least squares regression model
was estimated using the natural log of average quarterly sales per firm. Similar models were used to
estimate impacts on the average number of purchase orders in eVA per quarter per firm, in part
because this outcome was less skewed than sales data. The evidence consistently showed an increase
in the dollar value of sales and the number of purchase orders to state agencies after firms became
SWaM certified.
Impact of SWaM certification on firms’ total employment
Even if SWaM certification increases a firm’s sales to state agencies, it may not have a significant effect
on the firm’s total sales if state government sales make up a small proportion of the firm’s total sales
and if SWaM certification does not increase sales to purchasers other than state agencies. To estimate
the effect of certification on firms’ growth, JLARC staff obtained data from the quarterly wage record
system maintained by the Virginia Employment Commission (VEC). The data included the number
of employees per quarter from 2010 to 2019, total wages paid, and a unique firm identifier. The total
number of employees and total wages were used as a measure firm growth.
69
Appendixes
SWaM-certified firms in the VEC data were identified by matching to SBSD data. Of the 43,000 firms
that were SWaM certified in the first quarter of 2010 and the first quarter of 2020, a little over half
(about 22,000) were found in VEC quarterly data. The analysis was restricted to about 3,000 firms
that first appeared in VEC data at least four quarters before they were SWaM certified and that could
be followed in VEC data for at least eight quarters after certification. As with the eVA data, the basic
analysis compared a firm’s employment per quarter before and after certification, to look for evidence
that firms increased their number of employees after they became certified. Like the data on sales in
eVA, the number of employees in VEC data is skewed, with many firms having only one employee in
some quarters and other firms having several hundred. To account for this skewness, quantile regres-
sion models were used (for the 50th, 75th, and 90th percentiles). Similar models were used to estimate
impacts on total wages paid. As tests of the robustness of results, a number of alternative models
were estimated, including: estimates by industry; the natural log of employees; estimates by initial firm
size; and ordinary least squares regression. The results were consistent across models and outcomes:
the analysis found no evidence that SWaM certification increased either the number of employees or
total wages paid.
Taken together, the results of the analyses of sales in eVA data and the number of employees in VEC
data suggest that SWaM certification helps firms increase their sales to the state through eVA but does
not have broader impacts on firms’ employment. Other interpretations of the results are possible,
however, because the two analyses were based on different samples of firms.
State agency spending and procurement data (Chapters 4 and 5)
JLARC staff analyzed data on total expenditures with SWaM businesses between FY10 and FY20.
Data was accessed through SBSD’s SWaM Expenditure Dashboard. Data was used to determine the
portion of expenditures through SWaM and non-SWaM businesses statewide, by secretariat, and by
state agency. Data was also used to assess whether the state met the governor’s SWaM goal each fiscal
year, both statewide and by state agency.
In addition, staff analyzed procurement data reflecting all state purchases between 2010 and the first
half of 2020. Data was provided by the Department of General Services and included all purchases
conducted through the state’s electronic procurement system (eVA). JLARC staff used procurement
data to estimate the proportion of purchases conducted through the state’s small business and micro
business set-aside procurement preferences. Staff also used the data to identify the types of good and
services the state has purchased over time through SWaM and non-SWaM businesses.
Small business definitions in other states and the federal government (Chapter 5)
JLARC staff compiled a list of small business definitions in other states by reviewing the websites for
all 50 states and the District of Columbia. The goal was to find a definition in each state that was
comparable to SBSD’s definition for the small business certification program. Staff were able to find
comparable definitions for 25 states. Several states did not have a definition because they do not have
procurement or certification programs for small businesses.
JLARC staff also reviewed the small business definitions used by the U.S. Small Business Administra-
tion, which include over 1,000 definitions for individual business industries. Business industries are
represented by the North American Industry Classification System (NAICS) codes. Each industry has
70
Appendixes
a small business definition that includes a maximum level of business employment or average annual
receipts.
Case file reviews
JLARC staff reviewed the case files of 21 loans and two grants. The loan files were selected by JLARC
to represent different loan programs, time periods, outcomes (approve, deny, withdraw), and involve-
ment of VSBFA staff (Table B-2), while the grant files were selected randomly. Depending on the
program, the case files included documentation of the business’s application, bank’s application and
internal assessment, investor’s application, VSBFA staff ’s memo, and communication between
VSBFA, businesses, and banks. For approved applications, JLARC reviewed whether the business met
program eligibility criteria. For denied applications, JLARC assessed if the reason for denial was justi-
fiable. For all loan applications, JLARC reviewed VSBFA staffs’ and/or the bank’s assessment of busi-
ness repayment risk.
TABLE B-2
JLARC reviewed a diverse sample of loan case files
Program VSBFA decision Application year Staff
2017: 1
Approvals: 9
At least one file from 5 of 2018: 4 7 distinct
Denials: 5
6 loan programs a 2019: 12 individuals
Withdrawals: 7
2020: 4
SOURCE: JLARC analysis of VSBFA application data.
NOTE: a Capital Access Program applications were not included by VSBFA on the spreadsheet used by JLARC to select samples.
Document reviews
JLARC staff reviewed a wide variety of documents to inform its study of SBSD, including:
• SBSD statutes and regulations;
• internal SBSD documents, including agency policies and procedures, program applica-
tions, employee work profiles, formal agreements between SBSD/VSBFA and other enti-
ties, letters and other outreach to businesses, and examples of weekly staff productivity
reports;
• a sample of Virginia state agency SWaM plans;
• previous reviews of SBSD, including a 2016 JLARC review of state contracting and a
2018 JLARC economic analysis of small business grant and loan programs, Auditor of
Public Accounts financial and procurement audits, and a review of SWaM certification by
the Office of the State Inspector General;
• reports commissioned by SBSD, including A Disparity Study for the Commonwealth of Vir-
ginia, 2011, conducted by MGT Consulting, and SWaM and DBE Certification Programs: Im-
pacts and Policy, 2018, conducted by Virginia Commonwealth University;
71
Appendixes
• federal agency program descriptions and policies, such as the Federal Deposit Insurance
Corporation’s examination manual, Small Business Administration standard operating pro-
cedures, and Economic Development Administration requirements;
• literature on best practices for small business financing and advisory services and compila-
tions of existing programs published by organizations such as Council of Development
Finance Agencies, Center for Regional Economic Competitiveness, Milken Institute, and
RAND;
• descriptions of other states’ small business programs;
• descriptions of certification processes and procedures used by outside certification enti-
ties; and
• research and program publications on the effectiveness of various small business interven-
tion programs.
72
Appendix C: Summary of prior external reviews of SBSD
SBSD (including VSBFA) has been subject to 16 reviews by external entities since the agency was created in 2015 (Table C-1). Reviews have
assessed various functions, including SBSD’s business certification program, “small business” definition, and financing programs (incentive grants
and loans). Over half of the reviews were financial, internal control, or procurement audits of SBSD and VSBFA conducted by the APA. No
external entities have reviewed SBSD’s technical assistance programs or bond programs, or conducted a comprehensive assessment of SBSD’s
organizational management.
TABLE C-1
SBSD has been the subject of multiple external reviews since FY15
Entity that
Year(s) performed
Type of review conducted review Programs reviewed Key recommendations
73 Internal controls for significant Appendixes
Internal Controls Review SBSD activities (such as payroll,
and Audit FY19 APA HR, & information security) • No findings/recommendations were issued for SBSD
• Add minimum wage requirement to Small Business Jobs Grant
• Add scoring system for Small Business Investment Grant, collect per-
formance metrics, strengthen recapture provision
• Link program funding to regular review of market conditions
Review of small business in- • Establish job creation standards for loan programs and track employ-
centives at state agencies FY18 JLARC VSBFA loan and grant programs ment outcomes
• Provide role-based security training to appropriate personnel
• Develop a continuous monitoring program for vulnerabilities
• Develop IT security plans for each application
Sensitive Systems Audit FY18 VITA IT systems • Have users acknowledge policy adherence
• SWaM certification application processing times are out of compli-
Virginia SWaM & DBE Certifi- SWaM and DBE certification pro- ance with agency regulations
cation Programs: Impacts & grams and Virginia’s small busi- • Virginia’s small business definition may allow non-target businesses to
Policy 2018 VCU ness definition realize program benefits
• Using the SBA definition of small business for SWaM certification
would (1) increase the pool of certified businesses by 10% (in-state
would increase by 0.55%, out-of-state would increase by 99.6%), (2)
increase the estimated economic impact of SWaM spending by just
0.2%, and (3) make the certification process more cumbersome for
businesses and SBSD staff.
• Requiring SWaM businesses to meet both size and revenue require-
ments would decrease the pool of certified businesses by 18%.
VSBFA Economic Development • Create additional policies and procedures for Economic Development
VSBFA Federal Grants Audit FY18 APA Cluster federal program Federal Loan Program
• VSBFA’s program scored a “B” overall, with A being the best and C be-
ing the worst possible scores.
• Strengths included the amount of available funding compared with
the starting amount available, default rate, formal plan, portion of in-
come spent on administrative expenses, and cost per job. Weaknesses
Oct. 2017 – Federal Economic Development Loan included the financial audit findings, timely and complete reporting,
Oversight Review Mar. 2018 EDA Fund program longevity of leadership, and fund deployment.
74 Procurement Review and Procurement internal controls & Appendixes
Audit FY17 APA operations • No written management recommendations were issued for SBSD
ARMICS review to evaluate • Update and develop additional agency policies and procedures
agency-wide and transac- Third-party Agency risk management & • Address need for additional staff
tional internal controls FY17 vendor internal control standards • Establish budget tracking for the agency
• Enhance reporting of SWaM compliance
• Maintain historical SWaM vendor data
SWaM Certification • Perform a certification division compensation study
Performance Audit FY17 OSIG Certification program • Research the feasibility of instituting a fee structure
• Improve controls over terminated employees
Payroll Audit (Review Period • Update and develop additional agency policies and procedures
FY16) FY17 APA Payroll program • Perform post certification activities
• Update and develop additional agency policies and procedures
• ARMICS not in compliance for FY16
Internal Controls Audit (Re- • Monitor IT contractor performance using VITA form
view Period FY16) FY17 APA • Review user access for internal applications
Independent Assessment of
VSBFA Audits & Transfers, Third-party • Evaluate the capital requirement for SBJGF
and SBIG & SBJGF FY17 vendor • Market the SBJGF to differentiate from VJIP
• Assist with determining if weighted criterion for SWaM needs adjust-
Development and Manage- ment
ment of State Contracts in SBSD certification and • Prioritize small business certification over W/M
Virginia a 2016 JLARC procurement programs • Send notifications to businesses ahead of expiration
• No recommendations in FY16 and FY17
FY15, FY16, VSBFA financial records • Improve controls over financial reporting process (FY15)
VSBFA Financial Audit & FY17 APA & operations • Strengthen controls over off-CARS disbursements (FY15)
SOURCE: JLARC analysis studies and reports of SBSD.
NOTE: a SBSD was part of a larger review of state contracts; 4 of the 30 recommendations pertained to SBSD.
75 Appendixes
Appendixes
Appendix D: Literature review of effectiveness of small
business support programs
JLARC staff reviewed existing research literature on the effectiveness of programs that support small
businesses. The purpose of this review was to identify: (1) whether programs that support small busi-
nesses have been shown to promote positive business outcomes (e.g., employment growth, revenue
growth, and business sustainability); (2) what types of programs are most effective (e.g., business cer-
tification, financing programs, and business assistance); and (3) whether specific design elements im-
prove program effectiveness (e.g., specific eligibility criteria, program staff training, and duration).
JLARC staff established several parameters to ensure that all research reviewed was relevant. Specifi-
cally, the review was limited to studies conducted after 2000 (with a focus on studies after 2010) and
in geographic locations within or similar to the United States. The review was also limited to studies
that assessed programs supporting small businesses, though the size of businesses considered “small”
varied. Some studies focused on certain types of small businesses (e.g., small manufacturing busi-
nesses), while others assessed programs that helped various types of small businesses.
In total, JLARC staff identified and reviewed two meta-analyses and 20 academic studies on the ef-
fectiveness of programs that support small businesses. The majority of studies found evidence that
providing assistance to small businesses has a positive effect on business outcomes (e.g., business
employment, sales, survival, etc.). The citations for the studies reviewed are below.
Meta-analyses
“Evidence Review 2: Business Advice.” June 2016. What Works Centre for Local Economic
Growth.
“Small Business Assistance Programs in the U.S.: An Analysis of What They Are, How
Well They Perform, and How We Can Learn More.” September 2008. RAND Insti-
tute for Civil Justice working paper series.
Academic studies
Armstrong, Craig E., Craig, Ben R., Jackson III, William E., and Thomson, James B. 2010. “The
importance of financial market development on the relationship between loan
guarantees for SMEs and local market employment rates.” Federal Reserve Bank of
Cleveland, Working Paper No. 10-20.
Bertoni, Fabio, Martí, Jose, and Reverte, Carmelo. 2019. “The impact of government-sup-
ported participative loans on the growth of entrepreneurial ventures.” Research Pol-
icy, Volume 48, Issue 1, pp. 371-384.
Brown, J.D. and Earle, J.S. 2017. “Finance and Growth at the Firm Level - Evidence from
SBA Loans.” The Journal of Finance, 72(3): 1039-1080.
76
Appendixes
Brown, J.D. and Earle, J.S. 2012. “Do SBA loans Create Jobs? Estimates from Universal
Panel Data and Longitudinal Matching Methods.”
Chandler, Vincent. July 2012. “The economic impact of the Canada small business financ-
ing program.” Small Business Economics, Vol. 39 Issue 1, pp. 253-264.
Conroy, Tessa; Low, Sarah A.; Weiler, Stephan. Jul. 2017. “Fueling Job Engines: Impacts of
Small Business Loans on Establishment Births in Metropolitan and Nonmetro
Counties.” Contemporary Economic Policy, Vol. 35 Issue 3, pp. 578-595.
Cortes, Bienvenido S. and Yao Ooi, Zheng. 2017. “The Impact of SBA Lending Activity on
Micropolitan Statistical Areas in the US Southeast.” The International Journal of Business
and Finance Research, v. 11 (2) pp. 1-8.
Krishnan, Karthik; Nandy, Debarshi K.; and Puri, Manju. 2015. “Does Financing Spur Small
Business Productivity? Evidence from a Natural Experiment.” Review of Financial
Studies, Society for Financial Studies, vol. 28(6), pp. 1768-1809.
Lee, Yong Suk. Jan. 2018. “Government guaranteed small business loans and regional
growth.” Journal of Business Venturing, Volume 33, Issue 1, pp. 70-83.
Lewis, Grant. Dec. 2017. “Effects of federal socioeconomic contracting preferences.” Small
Business Economics, Vol. 49 Issue 4, pp. 763-783.
Lipscomb, Clifford A.; Youtie, Jan; Shapira, Phillip; Arora, Sanjay; and Krause, Andy. 2017.
“Evaluating the Impact of Manufacturing Extension Services on Establishment
Performance.”
McFarland, Christiana, and J. Katie McConnell. 2013. “Small Business Growth During a Re-
cession: Local Policy Implications.” Economic Development Quarterly 27.2: 102-113.
Mole, K. F. et al. Jan 2011. “Broader or deeper? Exploring the most effective intervention
profile for public small business support.” Environment and Planning A. volume 43, pp.
87-105.
Monnard, Alexandre; Leete, Laura; and Auer, Jennifer. 2014. “The Evaluation of the U.S.
Small Business Administration's Regional Innovation Cluster Initiative.”
Rupasingha, A., & Wang, K. 2017. “Access to capital and small business growth: evidence
from CRA loans data.” Annals of Regional Science, 59(1), 15–41.
Schwartz, Michael. December 2011. “Incubating an Illusion? Long-Term Incubator Firm
Performance after Graduation.” Growth and Change. Vol. 42 No. 4, pp. 491–516.
Simpson, Mike; Tuck, Nicki; and Bellamy, Sarah. 2004. "Small Business Success Factors: The
Role of Education and Training." Education Training 46.8/9: 481-91. Web.
Solomon, George T.; Bryant, Andrew; May, Kevin; and Perry, Vanessa. 2013. “Survival of the
fittest: Technical assistance, survival and growth of small businesses and implica-
tions for public policy.” Technovation, Volume 33, Issues 8–9, pp. 292-301.
Tingvall, Patrik Gustavsson and Videnord, Josefin. Aug. 2018. “Regional Differences in Ef-
fects of Publicly Sponsored R&D Grants on SME Performance.” Small Business Eco-
nomics, pp 1–19.
Young, Andrew T.; Higgins, Matthew J.; Lacombe, Donald J.; and Sell, Briana. Oct. 2014. "The
Direct and Indirect Effects of Small Business Administration Lending on Growth:
Evidence from U.S. County-Level Data." National Bureau of Economic Research
Working Paper No. 20543.
77
Appendixes
Appendix E: VSBFA programs
VSBFA operates several loan programs. All programs primarily serve small businesses, but each pro-
gram has a different purpose and design (Table E-1). For loans, “small business” is defined as meeting
at least one of the following criteria: (1) less than or equal to $10 million revenue for each of the last
three years, (2) less than 250 employees, or (3) less than or equal to $2 million net worth (unless
otherwise stated).
VSBFA also administers one grant program (a previous grant program was eliminated in 2020) as well
as a conduit bond program (Table E-1). The conduit bond program contains several legally distinct
types of bonds (e.g., industrial development bonds) and primarily serves large businesses and non-
profit organizations.
TABLE E-1
VSBFA has eight financing programs that primarily serve small businesses
Program Description
Direct loans For direct loans, VSBFA determines the loan terms, provides the funds to the business, and re-
ceives repayments from the business.
Microloan • Provides small loan amounts.
• Business must be small and operating at least two years.
• Maximum amount of the loan is $10,000, but rises to $25,000 if the business provides
a referral from an entity where it received business advisory services.
• Interest rates are 6%. State-funded.
Economic • Promotes economic development, particularly in economically distressed areas of the
Develop- state.
ment Loan • Recipients must be one of the following: (1) Virginia economic development entities,
(2) businesses engaged in specified industries (e.g., renewable energy, technology),
Fund
(3) businesses that previously derived 15% or more of their revenues from defense-
dependent activities and can demonstrate economic hardship related to defense
downsizing. Businesses must be small and create or save full-time jobs through the
loan.
• Minimum amount is $50,000; maximum is the lesser of $500,000 or 40% of project
cost (but higher for economically distressed localities).
• Interest rate is 75% of the prevailing prime rate (the amount that commercial banks
use for strongest business clients) when the locality is involved, but varies when the
loan is directly to a business. Applications that don’t meet federal Economic Develop-
ment Administration requirements for federal funds can be approved by VSBFA us-
ing a state funding source.
Child Care • Finances health, safety, and educational improvements by child care centers and
Financing family home providers. Administered on behalf of the Virginia Department of Social
Program Services, which funds the program through a federal grant.
• Maximum is $150,000 for child care centers and $100,000 for family home providers.
• Interest rate ranges between 0% and 4%, but temporarily reduced to 0% for all pro-
viders because of COVID.
78
Appendixes
Support loans Banks determine the loan terms (e.g., interest rates), provide the funds to the business, and re-
ceive repayments from the business. VSBFA’s role is to commit financial assistance to the banks
if the loans are not repaid. Bank and VSBFA must mutually approve loans.
Loan • Allows commercial bank to reduce lending risk to small businesses.
Guaranty • Recipient must be a nonprofit or a small business.
• Maximum amount is lesser of $750,000 or 75% of bank’s loan. VSBFA provides no
funds to bank unless business defaults. State-funded.
Cash • Supplements a business’s inadequate collateral, if business otherwise demonstrates
Collateral sufficient cash flow.
• When loan is approved, VSBFA places funding in loss reserve account at participating
bank; the funding is reserved for that particular loan.
• Initially funded by the U.S. Treasury’s State Small Business Credit Initiative.
Capital • Mitigates banks’ risk in lending to small businesses. Businesses must be small.
Access • Maximum across all loans approved for a particular bank is $500,000.
• VSBFA places funding in loss reserve account at the participating bank; the funding is
available for all Capital Access loans by the bank. Banks put matching funds into the
same account.
• Initially funded by the U.S. Treasury’s State Small Business Credit Initiative.
Direct grants
Small • Encourages private capital investment in small businesses. Businesses must be small
Business (i.e., no more than 50 employees in Virginia and $5 million annual gross revenues).
Investment • Cannot be a sole proprietorship or have obtained more than $5 million in aggregate
gross cash proceeds from the issuance of its equity or debt investments. The investor
Grant
cannot be a professional investor.
• An eligible investment is cash equity or subordinated debt.
• Grant amount is the lesser of 50% of the investment or $50,000, with a lifetime maxi-
mum per investor and annual maximum per business.
Small • Offsets some costs of hiring new employees.
Business • Eligible businesses must be small (i.e. no more than 50 employees and $3 million in
Jobs Grant average annual revenues), create at least 5 new jobs within two years of first hire, pay
minimum entry wage at least 1.25 times the federal minimum wage (with exceptions
of high unemployment areas), make a new capital investment of at least $50,000, be
in specified industries, and have 35 percent of revenues from out-of-state.
• Approved businesses can receive between $500 and $2,000 per new job.
• Eliminated by the General Assembly in 2020.
Conduit bonds • VSBFA is the “conduit” between a business or nonprofit wanting a bond to finance a
project and the tax-exempt bond market. Federal law defines projects that are eligi-
ble.
• VSBFA assists with administrative tasks such as publishing notices about the bond,
and hosts the mandatory public hearing at its regular board meetings. Bonds ap-
proved by VSBFA’s board are also reviewed by the Office of the Attorney General,
Virginia Treasury, and governor.
• Business/nonprofit is fully responsible for repaying bondholders. VSBFA’s involvement
allows bondholders to avoid federal taxes on interest payments.
• VSBFA charges a conduit bond application fee of $1,000 and an annual fee of 0.1%
of outstanding principal amount.
SOURCE: JLARC review of Code of Virginia; VSBFA policies and applications; and interviews with VSBFA staff.
NOTE: The table lists the primary eligibility requirements and program characteristics; it is not exhaustive.
79
Appendixes
VSBFA’s utilization rate has varied across programs (Tables E-2 and E-3). The program utilization
rate is the share of money used for a particular program out of the amount of money available. JLARC
calculated annual utilization rates for each loan and grant program. (See Appendix B for detailed ex-
planations of the calculation methodology and assumptions.)
TABLE E-2
Loan utilization by program and fiscal year
Program 2016 2017 2018 2019 2020 b
State-funded programs a 80% 123% 15% 23% 21%
Child Care Financing Program 4% 6% 1% 1% 3%
Federal Economic Development
Loan Fund 30% 5% 0% 2% 37%
Cash Collateral 71% 145% 83% 12% 5%
Capital Access 93% 21% 10% 4% 36%
Total 46% 45% 8% 10% 24%
SOURCE: JLARC analysis of VSBFA data.
NOTE: a State-funded programs consist of the Loan Guaranty Program, microloan, and state Economic Development Loan Fund. They
are combined because VSBFA can transfer funds between programs. b 2020 data is limited to spending through June 12, 2020.
TABLE E-3
Grant utilization by program and fiscal year
Program 2015 2016 2017 2018 2019 2020a
Small Business Investment Grant 6% 17% 58% 100% 100% 54%
Small Business Jobs Grant 19% 14% 13% 9% 1% 100%
Total 14% 15% 32% 55% 52% 56%
SOURCE: JLARC analysis of Department of Planning and Budget data.
NOTE: a $712,002 was transferred from the SBJG to the SBIG in FY20. Without that transfer, the SBIG’s deployment rate would have been
100% and the SBJG’s deployment rate would have been 8%.
80
Appendixes
Appendix F: Supplemental small business definition analyses
Virginia currently defines a small business as having up to 250 employees OR up to $10 million in
gross receipts averaged over the three previous years. Some certified small businesses are also eligible
to be certified as micro businesses, which can have up to 25 employees AND up to $3 million in gross
receipts averaged over the three previous years.
This appendix provides additional information to help inform discussions about Virginia’s small busi-
ness definition. The following topics are covered:
• Virginia’s small business definition compared to definitions used by other states and the federal
government and
• the size of Virginia businesses (including those that are currently certified as “small” or “mi-
cro” and Virginia businesses more broadly).
Compared with other states, Virginia’s small business definition allows for more
employees and does not vary by industry
JLARC identified 25 other states (including the District of Columbia) that have a small business def-
inition. (Some of these states have multiple small business definitions for different industries.) JLARC
compared Virginia’s definition to the definitions used in these 25 states to benchmark current employ-
ment and gross receipts thresholds.
The U.S. Small Business Administration’s (SBA) industry-specific small business definitions were also
reviewed and used for benchmarking. The SBA has over 1,000 definitions for different industries (or
sub-sectors), each with an employment or revenue component.
Virginia’s small business definition compared with other states’ definitions
Like Virginia, all 25 states with small business definitions used the number of employees and/or some
form of business revenue (e.g., gross receipts or gross sales) to define small businesses. States use
widely varying employment or revenue thresholds to define small businesses. Georgia, for example,
defines a small business as having 300 or fewer employees, while Wisconsin defines a small business
as having 25 or fewer employees. The District of Columbia defines a business as small (in certain
industries) if it has up to $300 million in revenue, while Louisiana defines a business as small if it has
up to $1.5 million in revenue.
Some states require that businesses do not exceed both employment and revenue thresholds to be
considered small, while others require that businesses do not exceed only one threshold. For example,
Pennsylvania, Delaware, and Florida use “and” in their definitions and require a business to meet both
employment and revenue thresholds. Other states including Maryland, West Virginia, Georgia, Ala-
bama, Wisconsin, and Arizona, use “or” in their definition and require businesses to meet only one
of the thresholds.
81
Appendixes
Virginia’s small business definition has a higher employee threshold than many other states, but its
revenue threshold is similar (Figure F-1). The median of other states with definitions is 100 employees;
Virginia’s definition allows 2.5 times as many employees. Virginia’s revenue threshold of $10 million
is more in line with the median revenue allowed by other states, which is $9 million.
In contrast with Virginia, several other states have small business definitions that differ by several
industry groups. For example, Maryland, the District of Columbia, New Jersey, Indiana, Oregon, and
Nevada have varying definitions for several broad types of industries (e.g. retail, manufacturing, con-
struction). Oregon, New Jersey, and Nevada have separate definitions only for the construction in-
dustry. Most of these states do not have as many industry definitions as the federal government, except
Colorado, which defines small business at 50 percent of the federal SBA definitions for over 1,000
industries.
FIGURE F-1
Virginia’s small business definition allows more employees than other states,
but Virginia’s revenue threshold is comparable
300 Max
$35M
250 30
Virginia
200 25
20
150
15
100 Median
10
50
5
Minimum
0 0
Employment Revenue or
proxy
SOURCE: JLARC staff analysis of information collected from other state websites and documentation about small business programs and
definitions.
NOTE: Includes the District of Columbia and 25 states, including Virginia. The District of Columbia allows up to $300 million in revenue for
certain industries. This outlier data point is not shown for scaling purposes.
Virginia’s small business definition compared to the federal SBA’s industry-specific definitions
Virginia’s small business definition does not differ by industry like the federal government’s definition.
Across industries, the Small Business Administration’s allowable employment ranges from 100 em-
ployees to 1,500 employees, while allowable revenue ranges from $1 million to $41.5 million. Most of
SBA’s industry definitions exceed Virginia’s current small business definition thresholds. Specifically,
75 percent of the SBA industry definitions (778 industries) have employment thresholds above 250
employees or gross receipts thresholds above $10 million.
82
Appendixes
Vast majority of Virginia businesses are substantially smaller than definition’s
maximum thresholds
JLARC staff compiled many data points about the size of Virginia businesses. Summary statistics
were generated to show the size distribution of businesses that are currently certified as small by the
Department of Small Business and Supplier Diversity (SBSD). As of April 2020, SBSD had about
10,500 certified small businesses, more than half (58 percent) of which were also certified as micro
businesses.
Additionally, summary statistics were generated to show the size distribution of Virginia businesses
more broadly (including certified and non-certified businesses). According to data collected by the
Virginia Employment Commission, there were about 187,000 active businesses in the state at the end
of 2019. (This excludes some businesses, including small sole proprietorships and other businesses
that are outside the purview of the Virginia Employment Commission.)
These data points about certified small businesses and Virginia businesses more broadly can be used
to determine the proportion of businesses that fall under certain size thresholds, as well as the pro-
portion of businesses that significantly exceed size thresholds. This information can inform discus-
sions about potential changes to the small business definition.
Size of certified small businesses in Virginia
Data shows that many certified small businesses in Virginia are fairly small in terms of employment
and gross receipts (Table F-1). Fifty percent (the median) of certified small businesses had no more
than 14 employees and $3.2 million in gross receipts. Seventy-five percent of certified small businesses
had no more than 38 employees and $7.1 million in gross receipts.
TABLE F-1
Most certified small businesses have low employment and gross receipts
Percentiles, by size
5th 10th 25th 50th 75th 90th 95th
Small certification
Employees 0 1 2 14 38 77 115
Gross receipts ($) 31,383 110,744 713,207 3,236,540 7,140,396 16,341,692 25,453,499
Micro certification
Employees 0 0 1 2 5 11 16
Gross receipts ($) 4,680 13,474 63,220 286,273 843,224 1,672,591 2,179,480
SOURCE: JLARC analysis of SBSD business certification data (as of April 2020).
The vast majority of certified small businesses (94 percent) are below Virginia’s small business defini-
tion thresholds for both employment and revenue. The remaining 6 percent of businesses qualify as
“small” because they are below the maximum threshold for employment or revenue—but not both.
Of these businesses, the vast majority are below the employment threshold but considerably above
the revenue threshold (Figure F-2).
83
Appendixes
Although most certified small businesses are very small, because businesses must be below only one
threshold, a small subset of businesses are certified but have substantially more revenue or employees
than most other certified businesses. For example, one certified small business has fewer than 250
employees but $397 million in annual gross receipts. Similarly, a certified small business has less than
$10 million in revenue but 1,900 employees.
FIGURE F-2
Some certified small businesses exceed the revenue threshold but still qualify under the
employment threshold
Revenue
$20M
18
16
Employment
14 threshold
12
10
Revenue
threshold
8
6
4
2
0
0 50 100 150 200 250 300
SOURCE: JLARC analysis of SBSD certification data (as of April 2020).
NOTE: Out of 10,488 certified small businesses, 12 businesses exceeded the employment threshold, and 610
businesses exceeded the revenue threshold. For scaling purposes, extreme outliers have not been shown in
this graph. There are 247 businesses with more than $20M in revenue and 9 businesses with
more than 300 employees not shown in the graph.
Size of all Virginia businesses
Most Virginia businesses are small when measured by employment and total wages (Table F-2). Fifty
percent (the median) of Virginia businesses had no more than three employees and $100,422 in total
wages (a proxy for gross receipts, due to data limitations). Seventy-five percent of Virginia businesses
had no more than nine employees and $336,605 in total wages.
Most businesses in Virginia would likely meet the size parameters of Virginia’s current definition of
small business if they sought certification. Nearly all (99 percent) Virginia businesses would meet the
employment threshold of Virginia’s current small business definition (250 employees), and 98 percent
84
Appendixes
might qualify under Virginia current gross receipts threshold ($10 million) using total wages as a proxy
for gross receipts.
According to businesses that responded to JLARC surveys in 2016 and 2020, many businesses that
are eligible do not pursue small and/or micro certification because of lack of awareness, the admin-
istrative burden of applying, and uncertainty that it will help them compete for contracts.
TABLE F-2
Most Virginia businesses have low employment and total wages
Percentiles, by size
5th 10th 25th 50th 75th 90th 95th
Virginia businesses
Employees 1 1 1 3 9 28 59
Total wages ($) 7,200 12,997 30,000 100,422 336,605 1,162,303 2,742,321
SOURCE: JLARC analysis of Virginia Employment Commission data on Virginia businesses (as of 2019).
85
Appendixes
Appendix G: Agency response
As part of an extensive validation process, the state agencies and other entities that are subject to a
JLARC assessment are given the opportunity to comment on an exposure draft of the report. JLARC
staff sent an exposure draft of the full report to the Department of Small Business and Supplier
Diversity and the Secretary of Commerce and Trade. JLARC staff also sent relevant sections of the
report to the Department of General Services.
Appropriate corrections resulting from technical and substantive comments are incorporated in this
version of the report. This appendix includes a response letter from the Department of Small Busi-
ness and Supplier Diversity.
86
Appendixes
Appendix H: Impact of industry-specific small business
definition [Online Only]
Implementing an industry-specific small business definition will impact the number of businesses that
are eligible for small business certification. The number of businesses affected, and which industries
they are in, will depend on how industry-specific definitions are designed.
Two policy options for implementing industry-specific small businesses definitions include:
• setting industry-specific size standards as a percentage of Virginia business size (policy option
7, Chapter 5); and
• setting industry-specific size standards at 50 percent of SBA size standards (policy option 8,
Chapter 5).
Setting industry-specific size standards as a percentage of Virginia business size
The specific percentage selected for setting industry-specific size standards is a policy decision and
should reflect the size of businesses that the state wishes to assist through procurement preferences.
However, if all definitions were set at 75 percent of Virginia business employees, 996 out of 1,037
industries would have employment maximums that drop below Virginia’s current 250 employee
threshold (Table H -1). Only 41 industries (e.g., department stores, poultry processing, and carpet and
rug mills) would have employment maximums increase above 250 employees.
TABLE H-1
Impact of setting industry-specific size standards at 75 percent of Virginia business size
Amount above (red)/
Industry # VA Max # employees of 75% below (green) current
(NAICS code) businesses VA businesses VA definition
2311 8 3,144 2,894
452210 29 1,710 1,460
311615 14 1,108 858
314110 3 839 589
326130 3 816 566
326211 2 757 507
325920 4 753 503
485111 4 743 493
311514 1 715 465
90
Appendixes
923120 8 708 458
212313 4 648 398
926140 2 556 306
622110 126 523 273
336330 4 505 255
326113 6 473 223
325220 14 465 215
923130 12 434 184
928110 2 429 179
611210 39 423 173
311919 8 411 161
922110 3 409 159
922130 5 408 158
332991 3 398 148
326111 7 366 116
622210 28 360 110
926120 11 328 78
336415 1 324 74
921130 10 323 73
561613 6 317 67
922120 8 315 65
336360 3 309 59
922140 29 305 55
311511 11 305 55
926150 10 295 45
336214 3 280 30
921190 311 271 21
322291 3 270 20
332112 4 269 19
325613 2 264 14
923140 2 257 7
611110 493 253 3
327213 4 244 (6)
923110 7 242 (8)
921120 4 239 (11)
313210 6 226 (24)
336340 3 217 (34)
488310 6 215 (35)
326160 6 210 (41)
91
Appendixes
322130 9 209 (41)
322212 7 207 (43)
331420 3 206 (44)
337121 13 201 (49)
336510 9 197 (53)
333612 4 196 (55)
313230 6 195 (55)
623311 128 195 (56)
321911 17 188 (62)
312111 11 186 (64)
333912 4 179 (71)
331511 6 177 (73)
327211 3 175 (76)
922190 7 171 (79)
332410 10 168 (82)
332431 6 167 (84)
515210 11 167 (84)
321219 7 164 (86)
335210 3 164 (86)
325991 4 164 (87)
713920 3 163 (88)
485113 18 162 (88)
331315 3 160 (90)
331318 9 160 (90)
313110 5 155 (96)
326291 2 153 (98)
623110 189 149 (102)
322230 8 147 (103)
323117 9 143 (107)
212325 2 141 (109)
335129 4 141 (109)
522110 146 138 (112)
812331 23 138 (112)
331492 2 136 (114)
325620 7 136 (114)
322121 15 134 (116)
561330 251 133 (117)
562213 4 127 (123)
333995 3 126 (125)
92
Appendixes
335932 3 125 (125)
327310 4 123 (128)
336611 48 122 (128)
311824 4 121 (129)
336390 20 119 (131)
335311 18 115 (136)
221112 11 114 (136)
322299 7 114 (136)
316210 3 113 (137)
221122 25 111 (139)
441110 409 111 (140)
311423 3 110 (140)
812332 18 107 (143)
333132 3 105 (145)
486210 7 104 (146)
622310 39 103 (147)
332311 11 102 (148)
335312 14 102 (148)
621492 28 102 (149)
311813 6 100 (150)
322122 2 100 (150)
337910 10 100 (150)
212319 6 99 (151)
324191 2 99 (151)
331523 5 98 (152)
311942 8 96 (154)
313220 5 95 (155)
313320 5 94 (156)
327410 1 93 (158)
621991 18 93 (158)
326150 12 90 (160)
512131 53 89 (162)
336212 6 88 (162)
624310 116 87 (163)
926130 4 87 (163)
515120 63 87 (164)
336112 2 86 (164)
326121 3 85 (165)
326191 6 84 (166)
93
Appendixes
326122 7 84 (166)
611310 221 84 (166)
522210 10 83 (167)
221210 18 82 (168)
485410 6 80 (170)
333993 14 78 (172)
335313 16 78 (173)
327993 3 76 (174)
335921 5 76 (174)
337920 4 75 (175)
333414 6 74 (176)
336992 6 73 (177)
321991 7 72 (178)
713910 188 72 (178)
336350 12 71 (179)
336120 8 71 (180)
331110 11 70 (180)
212312 19 70 (180)
324121 9 70 (180)
623312 249 70 (180)
525920 19 70 (181)
327320 40 69 (181)
483113 3 69 (181)
336413 11 69 (182)
921110 6 67 (183)
331491 3 66 (185)
212113 1 65 (185)
333112 2 64 (186)
315190 3 63 (187)
332996 13 63 (187)
334412 7 62 (188)
712120 31 62 (188)
522294 10 61 (189)
325199 15 60 (190)
424810 51 60 (191)
488390 24 58 (192)
517311 142 58 (192)
924110 19 58 (192)
925110 26 58 (193)
94
Appendixes
488119 62 57 (193)
212111 18 57 (193)
326140 7 57 (194)
333924 8 56 (194)
493120 22 56 (195)
311710 31 55 (195)
314994 4 55 (195)
339994 4 55 (196)
339991 12 53 (197)
311421 11 53 (198)
321114 19 52 (198)
711212 19 52 (198)
722310 146 52 (198)
561320 1079 51 (199)
332313 20 50 (200)
337124 4 50 (200)
561422 110 50 (200)
561612 236 50 (200)
333413 8 49 (201)
532283 21 49 (202)
519120 37 48 (202)
522130 142 48 (202)
562211 7 48 (202)
334418 18 48 (202)
212112 19 48 (203)
332119 6 48 (203)
485510 30 47 (203)
562212 30 47 (203)
327910 6 47 (204)
336991 1 46 (204)
337215 23 46 (204)
493130 9 46 (204)
532111 35 46 (204)
322211 22 46 (204)
481111 48 46 (204)
623220 77 46 (205)
212322 3 45 (205)
562920 11 45 (205)
321214 18 45 (206)
95
Appendixes
324122 4 44 (206)
115111 3 44 (206)
621493 69 44 (207)
333244 8 43 (207)
623210 204 43 (208)
493110 148 42 (208)
238122 71 42 (208)
327390 45 42 (208)
321211 10 42 (208)
327992 2 42 (208)
332312 68 42 (208)
712130 16 42 (208)
237310 299 41 (209)
221121 7 41 (209)
321113 120 41 (209)
333922 22 41 (209)
713110 27 41 (209)
311612 19 41 (210)
311314 1 40 (210)
327120 13 40 (210)
624221 68 39 (211)
237120 62 39 (212)
333514 10 38 (212)
337127 9 38 (212)
321920 53 38 (212)
922150 5 38 (212)
212299 2 38 (213)
332613 2 38 (213)
448140 198 37 (213)
621491 6 37 (213)
335122 12 37 (213)
321912 28 37 (213)
311211 5 37 (214)
333131 15 36 (214)
721110 1212 36 (214)
311340 12 36 (214)
313310 14 36 (214)
327215 23 36 (215)
221320 23 35 (215)
96
Appendixes
488320 11 34 (216)
326199 74 34 (216)
621910 85 34 (216)
221310 61 34 (216)
312130 115 34 (217)
486910 4 33 (217)
325212 6 33 (217)
333242 3 33 (217)
713950 41 33 (218)
722511 5353 33 (218)
623990 142 32 (218)
423730 61 32 (218)
711110 46 32 (218)
333249 45 32 (219)
336211 19 32 (219)
488330 22 32 (219)
812930 73 32 (219)
332216 11 31 (219)
485210 5 31 (219)
335314 12 31 (219)
321212 3 31 (220)
325910 13 31 (220)
221117 6 30 (220)
311991 17 30 (220)
322219 6 30 (220)
311821 7 30 (221)
332321 6 29 (221)
334517 7 29 (221)
712190 17 29 (221)
236210 105 29 (221)
311613 1 29 (221)
325120 6 29 (221)
326212 4 28 (222)
424440 7 28 (222)
238112 147 28 (222)
311225 5 28 (222)
312230 11 28 (222)
322220 18 28 (222)
335121 3 28 (222)
97
Appendixes
711211 75 28 (222)
238162 142 28 (223)
339920 25 27 (223)
424480 45 27 (223)
488190 73 27 (223)
325180 8 27 (223)
111334 3 27 (224)
312120 154 27 (224)
524114 65 27 (224)
721214 42 27 (224)
444110 78 26 (224)
331221 3 26 (224)
332813 23 26 (224)
813219 66 26 (224)
238292 162 26 (225)
522120 13 26 (225)
926110 12 26 (225)
332322 80 25 (225)
213115 5 25 (225)
326112 8 25 (225)
541860 90 25 (225)
722514 123 25 (225)
333914 14 25 (225)
336320 15 25 (225)
424520 23 25 (225)
624410 1035 25 (225)
712110 88 25 (225)
325211 16 25 (225)
238222 647 25 (225)
311812 61 25 (225)
333243 9 25 (225)
445110 508 25 (225)
484210 218 25 (225)
722513 3754 25 (225)
321918 52 25 (226)
337211 3 25 (226)
238152 69 24 (226)
325992 8 24 (226)
238142 135 24 (226)
98
Appendixes
423420 61 24 (226)
424720 70 24 (226)
492210 101 24 (226)
621610 1519 24 (226)
624110 188 24 (226)
238121 14 24 (226)
312112 9 24 (226)
312113 10 24 (226)
335931 12 24 (226)
481211 33 24 (226)
713940 880 24 (226)
111211 3 24 (227)
111331 29 24 (227)
337122 47 24 (227)
337212 31 24 (227)
624210 33 24 (227)
722320 224 24 (227)
812921 9 24 (227)
314120 35 23 (227)
324110 4 23 (227)
238912 374 23 (227)
325413 5 23 (227)
327331 8 23 (227)
423110 120 23 (227)
325998 32 23 (227)
334416 7 23 (227)
311512 1 23 (227)
333515 7 23 (227)
423320 59 23 (227)
423330 39 23 (227)
491110 18 23 (227)
561491 9 23 (227)
321213 8 23 (228)
722410 46 23 (228)
611512 20 22 (228)
311920 24 22 (228)
532310 59 22 (228)
541214 202 22 (228)
541720 142 22 (228)
99
Appendixes
517312 70 22 (228)
524126 176 22 (228)
111421 91 22 (228)
115114 18 22 (228)
311811 89 22 (228)
332721 7 22 (229)
492110 159 22 (229)
334417 9 21 (229)
611630 43 21 (229)
483212 4 21 (229)
561210 156 21 (229)
238212 829 21 (229)
238342 31 21 (229)
512132 2 21 (229)
541940 764 21 (229)
811192 268 21 (229)
448210 113 21 (229)
813212 55 21 (229)
561440 76 21 (229)
423510 64 21 (230)
722515 613 21 (230)
532420 20 20 (230)
621420 208 20 (230)
445310 84 20 (230)
454310 96 20 (230)
237110 324 20 (230)
237130 199 20 (230)
311352 13 20 (230)
481112 11 20 (230)
925120 29 20 (230)
334513 24 20 (230)
424130 55 20 (231)
813312 150 20 (231)
212399 4 19 (231)
321992 19 19 (231)
562910 136 19 (231)
311119 26 19 (231)
311520 8 19 (231)
333511 7 19 (231)
100
Appendixes
562111 145 19 (231)
621512 60 19 (231)
624190 583 19 (231)
721211 81 19 (231)
423310 136 19 (231)
325510 19 19 (231)
611691 216 19 (231)
624229 37 19 (231)
423810 89 19 (232)
532210 13 19 (232)
311930 3 18 (232)
441228 138 18 (232)
483114 1 18 (232)
522292 190 18 (232)
562998 35 18 (232)
444130 163 18 (232)
928120 3 18 (232)
444220 192 18 (232)
621498 143 18 (232)
111332 32 18 (233)
111422 33 18 (233)
541380 161 18 (233)
713990 501 18 (233)
213114 2 17 (233)
332215 2 17 (233)
332710 242 17 (233)
493190 47 17 (233)
811191 71 17 (233)
213113 24 17 (233)
561450 20 17 (233)
112340 15 17 (233)
322110 2 17 (233)
423930 101 17 (233)
487110 8 17 (233)
562112 10 17 (233)
212324 1 17 (233)
517911 91 17 (233)
312140 27 17 (234)
327999 10 17 (234)
101
Appendixes
424710 28 17 (234)
713120 47 17 (234)
423430 248 16 (234)
212311 7 16 (234)
321999 46 16 (234)
333241 15 16 (234)
441210 37 16 (234)
812210 275 16 (234)
238312 185 16 (234)
488111 4 16 (234)
813410 460 16 (234)
336310 17 16 (234)
511110 109 16 (234)
515112 77 16 (234)
532284 30 16 (234)
561720 1602 16 (234)
332439 4 16 (234)
445292 60 16 (234)
485991 104 16 (234)
445291 101 16 (235)
532289 68 16 (235)
561421 41 16 (235)
532412 48 15 (235)
332323 41 15 (235)
333923 9 15 (235)
424930 44 15 (235)
483111 17 15 (235)
813311 115 15 (235)
221118 7 15 (235)
236220 1207 15 (235)
311611 19 15 (235)
423820 91 15 (235)
453910 111 15 (235)
238322 201 15 (235)
423830 365 15 (235)
424410 131 15 (235)
424450 33 15 (235)
445230 57 15 (235)
446110 322 15 (235)
102
Appendixes
447110 1705 15 (235)
611620 461 15 (235)
621111 3058 15 (235)
237990 228 15 (235)
238111 202 15 (236)
325612 11 15 (236)
611513 18 15 (236)
813920 486 15 (236)
327991 52 14 (236)
813211 127 14 (236)
112310 10 14 (236)
327332 5 14 (236)
331529 3 14 (236)
339115 17 14 (236)
551114 851 14 (236)
621340 556 14 (236)
423720 84 14 (236)
221113 1 14 (236)
238992 677 14 (236)
445299 278 14 (236)
624230 43 14 (236)
315210 16 14 (236)
424940 36 14 (236)
311911 5 14 (236)
424470 37 14 (236)
711190 18 14 (236)
812910 530 14 (236)
334111 19 14 (237)
448130 44 13 (237)
326299 15 13 (237)
423120 179 13 (237)
423130 27 13 (237)
442110 316 13 (237)
451120 107 13 (237)
561311 304 13 (237)
111419 16 13 (237)
238192 76 13 (237)
325320 7 13 (237)
339940 7 13 (237)
103
Appendixes
339950 129 13 (237)
484230 123 13 (237)
522291 87 13 (237)
541713 477 13 (237)
444190 320 13 (237)
311941 10 13 (237)
441222 74 13 (237)
488991 30 13 (237)
621410 19 13 (237)
811213 42 13 (237)
212321 20 13 (238)
213112 29 13 (238)
238352 106 13 (238)
315220 13 13 (238)
325130 4 13 (238)
334118 14 13 (238)
523991 43 13 (238)
524113 69 13 (238)
532120 37 13 (238)
561710 286 13 (238)
922160 6 13 (238)
325314 12 12 (238)
112210 8 12 (238)
327110 15 12 (238)
424920 41 12 (238)
448120 244 12 (238)
487210 19 12 (238)
541330 1926 12 (238)
611610 286 12 (238)
323111 371 12 (238)
423140 57 12 (238)
423850 90 12 (238)
441310 352 12 (238)
444210 105 12 (238)
531311 757 12 (238)
813910 625 12 (238)
813930 211 12 (238)
484121 500 12 (238)
112120 120 12 (238)
104
Appendixes
333120 12 12 (238)
333314 10 12 (238)
334419 23 12 (238)
485320 99 12 (238)
561910 29 12 (238)
812922 5 12 (238)
114119 2 12 (239)
333318 34 12 (239)
424460 60 12 (239)
451110 366 12 (239)
532490 96 12 (239)
561990 217 12 (239)
611519 118 12 (239)
611699 253 12 (239)
713930 89 12 (239)
811121 633 12 (239)
812191 51 12 (239)
333517 28 11 (239)
488490 73 11 (239)
315240 12 11 (239)
323113 92 11 (239)
423840 124 11 (239)
111219 49 11 (239)
115112 34 11 (239)
238392 116 11 (239)
332812 31 11 (239)
424340 20 11 (239)
445120 953 11 (239)
445210 52 11 (239)
561621 165 11 (239)
453220 300 11 (239)
331210 8 11 (239)
337110 192 11 (239)
423610 179 11 (239)
443142 395 11 (239)
448320 18 11 (239)
519110 17 11 (239)
561439 55 11 (239)
561790 298 11 (239)
105
Appendixes
621511 131 11 (239)
813319 299 11 (239)
327420 6 11 (240)
441320 255 11 (240)
561730 2273 11 (240)
621210 2794 11 (240)
711120 51 11 (240)
711310 54 11 (240)
211130 4 10 (240)
332618 6 10 (240)
332912 3 10 (240)
511140 22 10 (240)
621320 421 10 (240)
112511 6 10 (240)
332811 6 10 (240)
333316 5 10 (240)
423710 85 10 (240)
424910 109 10 (240)
448190 173 10 (240)
451130 77 10 (240)
453210 106 10 (240)
453310 325 10 (240)
524292 113 10 (240)
562219 15 10 (240)
561599 52 10 (240)
112990 42 10 (240)
325193 1 10 (240)
325611 8 10 (240)
333991 5 10 (240)
336612 10 10 (240)
339113 51 10 (240)
451211 81 10 (240)
488510 250 10 (240)
517919 99 10 (240)
522390 63 10 (240)
562991 79 10 (240)
722330 126 10 (240)
112330 10 10 (241)
238221 1764 10 (241)
106
Appendixes
334614 13 10 (241)
446191 154 10 (241)
488410 241 10 (241)
511191 3 10 (241)
531110 743 10 (241)
532281 7 10 (241)
236116 96 9 (241)
314910 32 9 (241)
334515 16 9 (241)
424430 20 9 (241)
541614 264 9 (241)
238332 97 9 (241)
331222 4 9 (241)
423440 87 9 (241)
423690 165 9 (241)
442210 235 9 (241)
447190 230 9 (241)
483211 8 9 (241)
484122 159 9 (241)
521110 9 9 (241)
541830 30 9 (241)
711320 76 9 (241)
332420 11 9 (241)
334220 42 9 (241)
423390 68 9 (241)
424320 29 9 (241)
425110 75 9 (241)
443141 97 9 (241)
446199 159 9 (241)
448110 73 9 (241)
453998 533 9 (241)
484220 634 9 (241)
485310 70 9 (241)
541513 166 9 (241)
561520 57 9 (241)
813990 364 9 (241)
238291 32 9 (241)
336414 5 9 (241)
339992 12 9 (241)
107
Appendixes
423910 103 9 (241)
423920 37 9 (241)
424510 12 9 (241)
541620 303 9 (241)
561622 85 9 (241)
721191 86 9 (241)
113310 306 9 (242)
114210 7 9 (242)
333611 5 9 (242)
515111 25 9 (242)
811310 578 9 (242)
611511 28 8 (242)
111998 50 8 (242)
238311 213 8 (242)
316992 3 8 (242)
334512 10 8 (242)
424590 19 8 (242)
453110 269 8 (242)
533110 54 8 (242)
541310 487 8 (242)
561740 171 8 (242)
611420 82 8 (242)
621999 137 8 (242)
112512 24 8 (242)
621391 132 8 (242)
238132 33 8 (242)
238911 461 8 (242)
323120 25 8 (242)
335929 6 8 (242)
423450 314 8 (242)
424490 178 8 (242)
442299 217 8 (242)
452319 284 8 (242)
522220 91 8 (242)
541370 242 8 (242)
812220 60 8 (242)
111992 6 8 (242)
333415 27 8 (242)
423220 83 8 (242)
108
Appendixes
488999 38 8 (242)
511120 131 8 (242)
541850 54 8 (242)
561110 809 8 (242)
812199 618 8 (242)
812320 512 8 (242)
485999 75 8 (242)
112519 5 8 (243)
237210 157 8 (243)
448310 347 8 (243)
451140 75 8 (243)
484110 701 8 (243)
488210 24 8 (243)
517410 20 8 (243)
541512 5382 8 (243)
611710 535 8 (243)
811219 127 8 (243)
812112 1743 8 (243)
813110 192 8 (243)
111110 16 7 (243)
424210 192 7 (243)
446120 216 7 (243)
332999 58 7 (243)
111920 13 7 (243)
238161 325 7 (243)
334519 27 7 (243)
423460 25 7 (243)
423740 16 7 (243)
423860 62 7 (243)
424690 130 7 (243)
424820 92 7 (243)
522310 175 7 (243)
326220 8 7 (243)
236117 167 7 (243)
238141 381 7 (243)
238341 150 7 (243)
238391 125 7 (243)
337125 7 7 (243)
423410 9 7 (243)
109
Appendixes
531312 401 7 (243)
541211 1086 7 (243)
811111 1874 7 (243)
561431 84 7 (243)
115115 9 7 (243)
213111 18 7 (243)
238211 891 7 (243)
331410 3 7 (243)
333519 6 7 (243)
512290 12 7 (243)
518210 582 7 (243)
522298 145 7 (243)
541910 162 7 (243)
811212 161 7 (243)
812111 171 7 (243)
523920 364 7 (243)
111191 34 7 (244)
112112 6 7 (244)
238172 20 7 (244)
314999 65 7 (244)
423490 80 7 (244)
424120 64 7 (244)
512110 170 7 (244)
541890 207 7 (244)
562119 23 7 (244)
811113 94 7 (244)
811122 105 7 (244)
924120 34 7 (244)
523140 7 6 (244)
111940 23 6 (244)
334112 9 6 (244)
339116 129 6 (244)
424950 18 6 (244)
448150 146 6 (244)
453930 24 6 (244)
541320 129 6 (244)
561499 215 6 (244)
811112 52 6 (244)
811118 112 6 (244)
110
Appendixes
811211 61 6 (244)
339930 4 6 (244)
111336 3 6 (244)
112920 56 6 (244)
221330 6 6 (244)
238151 53 6 (244)
238991 1131 6 (244)
315280 10 6 (244)
315990 21 6 (244)
332117 1 6 (244)
333290 2 6 (244)
336412 10 6 (244)
423210 96 6 (244)
424610 29 6 (244)
441120 763 6 (244)
442291 49 6 (244)
446130 104 6 (244)
454110 404 6 (244)
511130 77 6 (244)
522320 92 6 (244)
541110 3377 6 (244)
541360 34 6 (244)
551112 193 6 (244)
561611 101 6 (244)
561920 139 6 (244)
621310 661 6 (244)
711130 67 6 (244)
711219 57 6 (244)
812113 620 6 (244)
921140 3 6 (244)
111199 24 6 (244)
611430 256 6 (244)
111150 16 6 (244)
236115 1684 6 (244)
238351 454 6 (244)
327212 3 6 (244)
333921 1 6 (244)
333992 5 6 (244)
333999 26 6 (244)
111
Appendixes
423620 40 6 (244)
423990 281 6 (244)
424330 38 6 (244)
453991 205 6 (244)
523120 150 6 (244)
541810 334 6 (244)
551111 9 6 (244)
561591 23 6 (244)
721120 1 6 (244)
812310 137 6 (244)
512250 5 6 (244)
444120 36 6 (244)
111140 4 6 (245)
112111 142 6 (245)
238171 213 6 (245)
238191 67 6 (245)
316998 9 6 (245)
334613 3 6 (245)
339999 137 6 (245)
423520 8 6 (245)
424990 157 6 (245)
523130 19 6 (245)
541191 290 6 (245)
611692 70 6 (245)
325312 1 5 (245)
423940 51 5 (245)
454210 43 5 (245)
524128 31 5 (245)
541213 406 5 (245)
541611 3430 5 (245)
721199 49 5 (245)
115113 8 5 (245)
238131 220 5 (245)
336111 4 5 (245)
541930 120 5 (245)
111910 41 5 (245)
114111 14 5 (245)
236118 2753 5 (245)
238321 659 5 (245)
112
Appendixes
311351 5 5 (245)
311513 7 5 (245)
332510 10 5 (245)
332911 5 5 (245)
334516 23 5 (245)
424110 16 5 (245)
424310 25 5 (245)
424420 21 5 (245)
524127 241 5 (245)
524210 2468 5 (245)
524291 103 5 (245)
532112 10 5 (245)
621112 296 5 (245)
811198 248 5 (245)
325412 64 5 (245)
531130 192 5 (245)
115210 159 5 (245)
115310 63 5 (245)
335110 3 5 (245)
532282 12 5 (245)
561312 132 5 (245)
811490 409 5 (245)
221114 12 5 (245)
511199 28 5 (245)
112410 3 5 (246)
238331 305 5 (246)
339910 16 5 (246)
523210 6 5 (246)
525110 8 5 (246)
531120 417 5 (246)
621399 419 5 (246)
811110 1 5 (246)
811411 71 5 (246)
451212 8 4 (246)
445220 62 4 (246)
999999 13752 4 (246)
454390 312 4 (246)
113110 26 4 (246)
325411 16 4 (246)
113
Appendixes
425120 2781 4 (246)
512240 20 4 (246)
524130 11 4 (246)
541199 234 4 (246)
541490 72 4 (246)
541840 58 4 (246)
561510 214 4 (246)
621330 570 4 (246)
811420 110 4 (246)
453920 64 4 (246)
113210 17 4 (246)
114112 21 4 (246)
211120 9 4 (246)
221111 7 4 (246)
333613 2 4 (246)
481212 8 4 (246)
511210 689 4 (246)
519130 303 4 (246)
523930 796 4 (246)
532411 15 4 (246)
541219 1087 4 (246)
541511 4329 4 (246)
541612 285 4 (246)
541690 1198 4 (246)
541820 317 4 (246)
541870 33 4 (246)
812990 1097 4 (246)
337214 10 4 (246)
481219 21 4 (246)
512120 5 4 (246)
524298 219 4 (246)
541410 258 4 (246)
541519 1354 4 (246)
541990 2206 4 (246)
561410 118 4 (246)
711410 54 4 (246)
811412 154 4 (246)
921150 2 4 (246)
333618 4 4 (246)
114
Appendixes
115116 29 4 (247)
325311 2 4 (247)
334511 26 4 (247)
335911 3 4 (247)
522190 6 4 (247)
523110 75 4 (247)
525910 4 4 (247)
541613 930 4 (247)
512191 28 3 (247)
334210 13 3 (247)
334290 22 3 (247)
339112 59 3 (247)
531190 186 3 (247)
541618 863 3 (247)
541921 163 3 (247)
112320 8 3 (247)
334310 16 3 (247)
111333 1 3 (247)
311830 1 3 (247)
325520 5 3 (247)
332111 1 3 (247)
332722 6 3 (247)
334413 21 3 (247)
335999 31 3 (247)
339114 17 3 (247)
443130 2 3 (247)
512199 10 3 (247)
523910 60 3 (247)
525120 6 3 (247)
541350 146 3 (247)
541430 322 3 (247)
541922 74 3 (247)
561492 61 3 (247)
713290 13 3 (247)
721310 39 3 (247)
813940 111 3 (247)
311999 40 3 (247)
112910 7 3 (247)
311412 7 3 (247)
115
Appendixes
522293 5 3 (247)
541715 67 3 (247)
519190 376 3 (247)
525190 4 3 (247)
333111 12 3 (248)
525990 41 3 (248)
531210 2611 3 (248)
531320 371 3 (248)
531390 658 3 (248)
541420 22 3 (248)
111339 2 2 (248)
334510 18 2 (248)
335220 1 2 (248)
523999 125 2 (248)
112390 2 2 (248)
112420 2 2 (248)
311411 3 2 (248)
324199 1 2 (248)
325414 15 2 (248)
332994 9 2 (248)
336411 9 2 (248)
336999 9 2 (248)
483112 3 2 (248)
541340 57 2 (248)
611410 6 2 (248)
624120 13465 2 (248)
711510 318 2 (248)
811430 28 2 (248)
482111 1 2 (248)
111130 1 2 (249)
311111 5 2 (249)
334514 5 2 (249)
541714 62 2 (249)
814110 16905 2 (249)
487990 2 1 (249)
112130 2 1 (249)
311213 1 1 (249)
111411 2 1 (249)
212221 1 1 (249)
116
Appendixes
221115 5 1 (249)
311212 1 1 (249)
311224 1 1 (249)
331313 1 1 (249)
331513 2 1 (249)
332913 7 1 (249)
332919 2 1 (249)
332993 1 1 (249)
333994 2 1 (249)
333997 1 1 (249)
335912 1 1 (249)
335991 2 1 (249)
339995 1 1 (249)
512230 5 1 (249)
SOURCE: JLARC analysis of Virginia Employment Commission data on size of Virginia businesses (as of 2019).
NOTE: Industries are represented by North American Industry Classification System (NAICS) codes. Industries were included in analysis if
the U.S. Small Business Administration used employment for the small business definition for that industry.
117
Appendixes
Setting industry-specific size standards at 50 percent of SBA size standards
Implementing small business definitions for each industry at 50 percent of the SBA definition would
actually expand Virginia’s current definition in most cases (Table H-2). Virginia’s current employee
size threshold (250 employees) would increase for 310 of the 505 industries in which SBA uses em-
ployment size to define small businesses. The size threshold would stay the same for 112 industries
and decrease for 83 industries.
TABLE H-2
Impact of setting industry-specific size standards at 50 percent of SBA size standards
Amount above (red)/
Industry # VA Max # employees, below (green) current
(NAICS Code) businesses 50% SBA definition VA definition
212112 62 750 500
212221 4 750 500
312230 44 750 500
314110 12 750 500
322291 9 750 500
324110 14 750 500
325992 31 750 500
326211 8 750 500
327420 24 750 500
327993 12 750 500
331110 41 750 500
332431 24 750 500
332993 4 750 500
333112 8 750 500
333242 12 750 500
333611 19 750 500
333618 15 750 500
335210 10 750 500
335220 4 750 500
336111 11 750 500
336112 7 750 500
336120 29 750 500
336350 48 750 500
336360 12 750 500
336411 26 750 500
336412 29 750 500
336510 35 750 500
336992 23 750 500
481111 185 750 500
481112 42 750 500
118
Appendixes
481211 122 750 500
481212 31 750 500
482111 4 750 500
482112 0 750 500
483112 12 750 500
486110 0 750 500
486910 18 750 500
492110 565 750 500
511191 9 750 500
517311 551 750 500
517312 256 750 500
517911 331 750 500
524126 672 750 500
211120 33 625 375
211130 13 625 375
212111 64 625 375
311221 0 625 375
311351 17 625 375
311412 22 625 375
311422 0 625 375
311513 25 625 375
311615 55 625 375
311821 24 625 375
311830 4 625 375
311919 26 625 375
312111 43 625 375
312120 589 625 375
313110 20 625 375
321212 12 625 375
321991 20 625 375
322121 53 625 375
322130 36 625 375
322211 85 625 375
323117 32 625 375
325194 0 625 375
325199 57 625 375
325211 59 625 375
325412 232 625 375
325413 20 625 375
325414 57 625 375
325620 26 625 375
326160 24 625 375
327212 12 625 375
327213 16 625 375
331315 12 625 375
119
Appendixes
332991 12 625 375
332992 0 625 375
333111 38 625 375
333120 44 625 375
333132 12 625 375
333415 99 625 375
333923 33 625 375
333992 18 625 375
333996 0 625 375
334111 72 625 375
334112 33 625 375
334210 44 625 375
334220 150 625 375
334413 72 625 375
334510 58 625 375
334511 89 625 375
334614 48 625 375
335110 12 625 375
335312 56 625 375
335313 62 625 375
335911 12 625 375
336213 0 625 375
336340 12 625 375
336413 38 625 375
336414 18 625 375
336415 4 625 375
336611 174 625 375
511140 88 625 375
212392 0 500 250
213111 68 500 250
221122 98 500 250
221210 72 500 250
311111 18 500 250
311211 20 500 250
311224 1 500 250
311225 20 500 250
311230 0 500 250
311314 4 500 250
311340 43 500 250
311352 50 500 250
311411 12 500 250
311421 42 500 250
311511 38 500 250
311520 31 500 250
311611 69 500 250
120
Appendixes
311612 76 500 250
311812 226 500 250
311930 9 500 250
312112 33 500 250
312130 444 500 250
312140 97 500 250
313210 23 500 250
313310 52 500 250
313320 20 500 250
314994 14 500 250
316210 12 500 250
321911 62 500 250
322219 24 500 250
325110 0 500 250
325120 21 500 250
325130 13 500 250
325180 28 500 250
325193 4 500 250
325212 24 500 250
325220 53 500 250
325311 6 500 250
325320 25 500 250
325411 54 500 250
325510 72 500 250
325611 30 500 250
326112 27 500 250
326140 25 500 250
327110 57 500 250
327211 12 500 250
327215 91 500 250
327310 13 500 250
331210 27 500 250
331221 12 500 250
331222 14 500 250
331313 3 500 250
331410 10 500 250
331420 12 500 250
331511 24 500 250
331512 0 500 250
332912 12 500 250
332913 25 500 250
332994 33 500 250
333316 20 500 250
333318 130 500 250
333912 10 500 250
121
Appendixes
333921 4 500 250
334118 49 500 250
334417 31 500 250
334516 85 500 250
334517 23 500 250
334613 6 500 250
335912 4 500 250
335921 17 500 250
335929 21 500 250
335932 12 500 250
336211 73 500 250
336212 23 500 250
336214 11 500 250
336310 66 500 250
336320 58 500 250
336330 14 500 250
336370 0 500 250
336390 76 500 250
336419 0 500 250
336612 33 500 250
336991 4 500 250
336999 28 500 250
337121 52 500 250
337211 12 500 250
337214 35 500 250
337910 37 500 250
337920 13 500 250
339112 194 500 250
339115 68 500 250
339992 45 500 250
339995 4 500 250
511110 411 500 250
511120 467 500 250
511130 287 500 250
519130 1044 500 250
541713 1766 500 250
541714 192 500 250
541715 201 500 250
212210 0 375 125
212230 0 375 125
212299 8 375 125
212312 76 375 125
212313 14 375 125
212324 4 375 125
212391 0 375 125
122
Appendixes
221112 43 375 125
221113 1 375 125
311313 0 375 125
311423 10 375 125
311512 4 375 125
311514 4 375 125
311613 4 375 125
311710 118 375 125
311813 23 375 125
311824 16 375 125
311911 20 375 125
311920 85 375 125
311941 40 375 125
312113 40 375 125
313230 24 375 125
314120 129 375 125
315110 0 375 125
315190 12 375 125
315210 63 375 125
315220 48 375 125
315240 46 375 125
315280 38 375 125
316992 9 375 125
321213 30 375 125
321219 28 375 125
322110 8 375 125
322122 7 375 125
322212 28 375 125
322220 63 375 125
322230 32 375 125
324122 16 375 125
324191 7 375 125
325312 4 375 125
325612 39 375 125
325613 8 375 125
325920 13 375 125
326111 28 375 125
326113 22 375 125
326122 27 375 125
326150 46 375 125
326191 24 375 125
326199 281 375 125
326220 32 375 125
326291 8 375 125
327120 52 375 125
123
Appendixes
327332 20 375 125
327410 4 375 125
327910 22 375 125
331314 0 375 125
331318 33 375 125
331491 12 375 125
331492 8 375 125
332111 4 375 125
332112 16 375 125
332215 8 375 125
332216 44 375 125
332311 43 375 125
332313 79 375 125
332321 22 375 125
332410 38 375 125
332420 35 375 125
332510 34 375 125
332811 24 375 125
332911 18 375 125
332919 7 375 125
332999 207 375 125
333244 27 375 125
333612 16 375 125
333613 8 375 125
333914 54 375 125
333924 30 375 125
333995 10 375 125
334290 73 375 125
334310 53 375 125
334412 25 375 125
334418 70 375 125
334419 91 375 125
334513 90 375 125
334514 17 375 125
334515 61 375 125
335121 9 375 125
335311 67 375 125
335314 45 375 125
335991 2 375 125
337110 746 375 125
337122 184 375 125
337124 16 375 125
337125 23 375 125
339113 191 375 125
339114 65 375 125
124
Appendixes
339920 89 375 125
339940 27 375 125
339993 0 375 125
483113 12 375 125
483211 29 375 125
512230 17 375 125
113310 1147 250 0
212311 27 250 0
212319 15 250 0
212321 73 250 0
212322 9 250 0
212325 8 250 0
212393 0 250 0
212399 13 250 0
221111 25 250 0
221121 24 250 0
311119 103 250 0
311212 2 250 0
311213 4 250 0
311811 342 250 0
311942 29 250 0
311991 63 250 0
311999 138 250 0
313220 18 250 0
313240 250 0
314910 117 250 0
314999 224 250 0
315990 77 250 0
316110 0 250 0
316998 34 250 0
321113 463 250 0
321114 76 250 0
321211 39 250 0
321214 68 250 0
321912 111 250 0
321918 194 250 0
321920 197 250 0
321992 64 250 0
321999 175 250 0
322299 26 250 0
323111 1411 250 0
323113 357 250 0
323120 96 250 0
324121 33 250 0
324199 4 250 0
125
Appendixes
325314 48 250 0
325520 15 250 0
325910 49 250 0
325991 13 250 0
325998 119 250 0
326121 10 250 0
326130 12 250 0
326212 16 250 0
326299 57 250 0
327320 157 250 0
327331 32 250 0
327390 174 250 0
327991 189 250 0
327992 8 250 0
327999 36 250 0
331513 6 250 0
331523 20 250 0
331524 0 250 0
331529 12 250 0
332114 0 250 0
332117 4 250 0
332119 24 250 0
332312 258 250 0
332322 306 250 0
332323 158 250 0
332439 14 250 0
332613 5 250 0
332618 22 250 0
332710 929 250 0
332721 26 250 0
332722 21 250 0
332812 117 250 0
332813 90 250 0
332996 49 250 0
333131 57 250 0
333241 58 250 0
333243 36 250 0
333249 164 250 0
333314 36 250 0
333413 32 250 0
333414 23 250 0
333511 28 250 0
333514 40 250 0
333515 24 250 0
333517 106 250 0
126
Appendixes
333519 24 250 0
333922 75 250 0
333991 20 250 0
333993 51 250 0
333994 8 250 0
333997 4 250 0
333999 91 250 0
334416 26 250 0
334512 39 250 0
334519 89 250 0
335122 40 250 0
335129 16 250 0
335931 46 250 0
335999 109 250 0
337127 35 250 0
337212 120 250 0
337215 86 250 0
339116 486 250 0
339910 64 250 0
339930 15 250 0
339950 478 250 0
339991 44 250 0
339994 13 250 0
339999 497 250 0
483111 60 250 0
483114 4 250 0
483212 14 250 0
511199 96 250 0
212113 4 125 (125)
212222 0 125 (125)
212291 0 125 (125)
221114 40 125 (125)
221115 15 125 (125)
221116 0 125 (125)
221117 21 125 (125)
221118 21 125 (125)
423110 450 125 (125)
423430 940 125 (125)
423690 616 125 (125)
423810 345 125 (125)
424210 701 125 (125)
424410 491 125 (125)
424490 636 125 (125)
424820 353 125 (125)
424940 134 125 (125)
127
Appendixes
512250 17 125 (125)
423120 695 100 (150)
423130 101 100 (150)
423330 153 100 (150)
423410 33 100 (150)
423420 232 100 (150)
423450 1148 100 (150)
423510 240 100 (150)
423610 667 100 (150)
423620 144 100 (150)
423720 323 100 (150)
424110 61 100 (150)
424340 76 100 (150)
424420 76 100 (150)
424430 70 100 (150)
424450 124 100 (150)
424510 45 100 (150)
424710 106 100 (150)
424720 267 100 (150)
424810 199 100 (150)
424910 416 100 (150)
424920 149 100 (150)
441110 1600 100 (150)
423310 521 75 (175)
423320 223 75 (175)
423460 92 75 (175)
423490 295 75 (175)
423710 327 75 (175)
423730 237 75 (175)
423860 229 75 (175)
423920 138 75 (175)
424120 241 75 (175)
424130 213 75 (175)
424320 102 75 (175)
424440 23 75 (175)
424470 143 75 (175)
424610 111 75 (175)
424690 484 75 (175)
424950 71 75 (175)
423140 224 50 (200)
423210 342 50 (200)
423220 287 50 (200)
423390 258 50 (200)
423440 332 50 (200)
423520 29 50 (200)
128
Appendixes
423740 62 50 (200)
423820 352 50 (200)
423830 1388 50 (200)
423840 461 50 (200)
423850 341 50 (200)
423910 365 50 (200)
423930 381 50 (200)
423940 195 50 (200)
423990 1016 50 (200)
424310 96 50 (200)
424330 135 50 (200)
424460 225 50 (200)
424480 167 50 (200)
424520 86 50 (200)
424590 69 50 (200)
424930 167 50 (200)
424990 564 50 (200)
425110 268 50 (200)
425120 10451 50 (200)
454310 364 50 (200)
SOURCE: JLARC analysis of U.S. Small Business Administration’s small business definition.
NOTE: Industries are represented by North American Industry Classification System (NAICS) codes. Industries were included in analysis if
the U.S. Small Business Administration used employment for the small business definition for that industry.
129
JLARC.VIRGINIA.GOV
919 East Main Street Suite 2101 Richmond, VA 23219
File and source
- File
- 2021-RD107.pdf
- Size
- 4,073,187 bytes
- SHA-256
- a4dabb51c309b648c3824c5b9745e216eaeecba0118f230d252ac60aa62d231b
- Our copy
- 2021-RD107.pdf
- Original
- No public link identified.