Full text
COVID-19 Stimulus Assistance to Small
Businesses: Issues and Policy Options
Robert Jay Dilger
Senior Specialist in American National Government
Bruce R. Lindsay
Analyst in American National Government
Sean Lowry
Analyst in Public Finance
March 25, 2020
Congressional Research Service
7-....
www.crs.gov
R46284
SUMMARY
R46284
COVID-19 Stimulus Assistance to Small
March 25, 2020
Businesses: Issues and Policy Options Robert Jay Dilger
The U.S. Small Business Administration (SBA) administers several types of programs to support Senior Specialist in
small businesses, including direct disaster loan programs for businesses, homeowners, and American National
renters to assist their recovery from natural disasters; loan guaranty and venture capital programs Government
to enhance small business access to capital; small business management and technical assistance -redacted-@crs.loc.gov
training programs to assist business formation and expansion; and contracting programs to Bruce R. Lindsay
increase small business opportunities in federal contracting. Analyst in American
National Government
Congressional interest in these programs has always been high, primarily because small -redacted-@crs.loc.gov
businesses are viewed as a means to stimulate economic activity and create jobs, but it has
become especially acute in the wake of the coronavirus (COVID-19) pandemic’s widespread Sean Lowry
adverse economic impact on the national economy, including productivity losses, supply chain Analyst in Public Finance
-redacted-@crs.loc.gov
disruptions, major labor dislocation, and significant financial pressure on both businesses and
households.
For a copy of the full report,
please call 7-.... or visit
This report provides a brief description of the SBA’s programs, examines congressional action to www.crs.gov.
assist small businesses during and immediately following the Great Recession (2007-2009), and
discusses recent legislation to assist small businesses adversely affected by the COVID-19 pandemic. This legislation
includes
P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which
provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and
deemed the coronavirus to be a disaster under the SBA’s Economic Injury Disaster Loan (EIDL) program.
This change made economic injury from the coronavirus an eligible EIDL expense.
S. 3519, the Small Business Debt Relief Act, as introduced, which would authorize to be appropriated
$16.8 billion to pay the principal, interest, and any associated fees that are owed on a 7(a) loan, 504/CDC
loan, or Microloan for six-months.
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, which would make
numerous changes to the SBA’s programs.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as introduced and
amended, which would make numerous changes to the SBA’s programs.
Many of the proposals being considered to address the needs of small businesses adversely affected by the
COVID-19 pandemic were used to address the severe economic slowdown during and immediately following the
Great Recession. The main difference today is that given the unique nature of the COVID-19 pandemic’s impact
on households, especially physical distancing and the resulting decrease in consumer spending, there is an added
emphasis today on SBA loan deferrals and loan forgiveness.
One lesson learned from the actions taken during the 111th Congress to assist small businesses during and
immediately following the Great Recession is the potential benefits that can be derived from providing additional
funding for the SBA’s Office of Inspector General (OIG) and the Government Accountability Office (GAO).
GAO and the SBA’s OIG can provide Congress information that could prove useful as Congress engages in
congressional oversight of the SBA’s administration of the stimulus package. It could also provide an early
warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a
deterrent to fraud. Also, requiring the SBA to report regularly on its implementation of the stimulus package could
promote transparency and assist Congress in performing its oversight responsibilities. Requiring both output and
outcome performance measures and requiring the SBA to report this information to Congress and the public by
posting that information on the SBA’s website could enhance congressional oversight and public confidence in
the SBA’s efforts to assist small businesses.
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COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
Contents
Introduction ..................................................................................................................................... 1
Disaster Loans ................................................................................................................................. 2
Overview ................................................................................................................................... 2
Types of Disaster Loans ............................................................................................................ 2
Economic Injury Disaster Loans ............................................................................................... 3
Initial EIDL Response to COVID-19 ........................................................................................ 4
EIDL Funding ........................................................................................................................... 4
Surge Issues and Loan Processing Times .................................................................................. 5
SBA EIDL Repayment and Forgiveness ................................................................................... 7
Disaster Grants .......................................................................................................................... 7
SBA EIDL Interest Rates .......................................................................................................... 9
SBA Capital Access Programs....................................................................................................... 10
Overview ................................................................................................................................. 10
What Is a “Small Business”?................................................................................................... 10
What Is “Small”?...................................................................................................................... 11
SBA Loan Guarantee Programs ............................................................................................... 11
Overview .................................................................................................................................. 11
7(a) Loan Guaranty Program................................................................................................... 12
The 504/CDC Loan Guaranty Program .................................................................................. 14
504/CDC Refinancing Program .............................................................................................. 15
The Microloan Program .......................................................................................................... 16
SBA Loan Enhancements to Address the Great Recession ..................................................... 17
Current Issues, Debates, and Lessons Learned ....................................................................... 19
SBA Entrepreneurial Development Programs ............................................................................... 21
Overview ................................................................................................................................. 21
Small Business Development Centers..................................................................................... 21
Microloan Technical Assistance .............................................................................................. 22
Women’s Business Centers ..................................................................................................... 23
SCORE (formerly the Service Corps of Retired Executives) ................................................. 24
Current Issues, Debates and Lessons Learned ........................................................................ 24
SBA Contracting Programs ........................................................................................................... 25
Overview ................................................................................................................................. 25
8(a) Program............................................................................................................................ 25
Historically Underutilized Business Zone Program ................................................................ 26
Service-Disabled Veteran-Owned Small Business Program ................................................... 27
Women-Owned Small Business Program ............................................................................... 27
SBA Surety Bond Program ..................................................................................................... 28
Current Issues, Debates and Lessons Learned ........................................................................ 28
Concluding Observations .............................................................................................................. 29
Appendixes
Appendix. Summary of Legislative Provisions ............................................................................. 30
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COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
Contacts
Author Contact Information .......................................................................................................... 36
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COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
Introduction
The Small Business Administration (SBA) administers several types of programs to support small
businesses, including
direct disaster loan programs for businesses, homeowners, and renters to assist
their recovery from natural disasters;
loan guaranty and venture capital programs to enhance small business access to
capital;
small business management and technical assistance training programs to assist
business formation and expansion; and
contracting programs to increase small business opportunities in federal
contracting.
Congressional interest in the SBA’s programs has increased in recent years, primarily because
small businesses are viewed as a means to stimulate economic activity and create jobs.
Congressional interest, however, has become especially acute in the wake of the coronavirus
(COVID-19) pandemic’s widespread adverse economic impact on the national economy,
including productivity losses, supply chain disruptions, major labor dislocation, and significant
financial pressure on both businesses and households.
Congress has already taken action to address COVID-19’s impact on small businesses by passing
P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act,
2020. The act provided the SBA an additional $20 million for SBA disaster assistance
administrative expenses and deemed the coronavirus to be a disaster under the SBA’s Economic
Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus
an eligible EIDL expense.
Congress is also considering further action. For example,
S. 3519, the Small Business Debt Relief Act, as introduced, which would
authorize to be appropriated $16.8 billion to pay the principal, interest, and any
associated fees that are owed on a 7(a) loan, 504/CDC loan, or Microloan for six-
months.
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as
introduced, would make numerous changes to SBA programs, including
authorize to be appropriated $5 billion for fee reductions, increasing loan
guarantee amounts, and 7(a) program levels, $177 million for disaster loan
administrative expenses, $1.04 billion for disaster loan credit subsidies, and $200
million for the SBA’s salaries and expenses account.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),
as amended, would make numerous changes to SBA programs, including
appropriate $299.4 billion for loan guarantees and subsidies, $700 million for the
SBA’s salaries and expenses account, $25 million for the SBA’s Office of
Inspector General (OIG), $240 million for entrepreneurial development programs
($192 million for Small Business Development Centers and $48 million for
Women Business Centers), and $25 million for SBA resource partners to provide
online information and training. H.R. 748 is the bill’s expected legislative vehicle
for Senate action.
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A summary of the provisions in S. 3518 and S. 3548, as introduced and as amended, is presented
in the Appendix.
This report begins with an overview of SBA disaster loans and discusses various issues related to
providing disaster assistance to small businesses adversely affected by the coronavirus. It presents
an overview and discussion of SBA access to capital programs (including the 7(a) loan guarantee,
504/CDC loan guarantee, and Microloan program), SBA management and technical training
programs (SBDCs, WBCs, SCORE, and Microloan technical assistance), and SBA contracting
programs.
Disaster Loans
Overview
SBA disaster assistance is provided in the form of loans, not grants, which must be repaid to the
federal government. The SBA’s disaster loans are unique in two respects: (1) they go directly to
the ultimate borrower, and (2) they are not limited to small businesses.1
SBA disaster loans for physical damage are available to individuals, businesses of all sizes, and
nonprofit organizations in declared disaster areas.2 SBA disaster loans for economic injury
(EIDL) are available to eligible small businesses, small agricultural cooperatives, small
businesses engaged in aquaculture, and most private, nonprofit organizations in declared disaster
areas. The SBA issues about 80% of its direct disaster loans to individuals and households
(renters and property owners) to repair and replace homes and personal property. The SBA
disbursed $401 million in disaster loans in FY2016, $889 million in FY2017, $3.59 billion in
FY2018, and $1.5 billion in FY2019.3
Types of Disaster Loans
The SBA Disaster Loan Program includes home disaster loans, business physical disaster loans,
and EIDLs.4 This report focuses on the EIDL program because it is currently being used to
address the adverse economic impact of the coronavirus (COVID-19) on small businesses and
other EIDL-eligible organizations.
P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act,
2020, deemed the coronavirus to be a disaster under the EIDL program. This change made
economic injury from the coronavirus an eligible EIDL expense. The act also provided the SBA
an additional $20 million for disaster loan administrative expenses.
For a discussion of all SBA disaster loans, see CRS Report R41309, The SBA Disaster Loan
Program: Overview and Possible Issues for Congress, by Bruce R. Lindsay.
1 13 C.F.R. §123.200.
2 13 C.F.R. §123.105 and 13 C.F.R. §123.203.
3 U.S. Small Business Administration (SBA), Office of Legislative and Congressional Affairs, “WDS Report Amount
Fiscal Year 2019, Table 1.4 Disbursements by Program,” October 18, 2019.
4 The SBA also offers military reservist economic injury disaster loans. These loans are available when economic
injury is incurred as a direct result of a business owner or an essential employee being called to active duty. These loans
are generally not associated with disasters. See CRS Report R42695, SBA Veterans Assistance Programs: An Analysis
of Contemporary Issues, by Robert Jay Dilger and Sean Lowry.
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Economic Injury Disaster Loans
EIDLs provide up to $2 million for working capital (including fixed debts, payroll, accounts
payable and other bills that cannot be paid because of the disaster’s impact) to help small
businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most
private, nonprofit organizations meet their financial obligations and operating expenses that
cannot be met as a direct result of the disaster.5
Public nonprofit organizations and several specific business types are not eligible for EIDL
assistance. Ineligible businesses include, but are not limited to, the following:
businesses that do not meet the SBA’s small business eligibility criteria,
including the SBA’s size standards;
businesses that derive more than one-third of their annual gross revenue from
legal gambling activities;
casinos and racetracks;
religious organizations;
political and lobbying concerns;
government-owned concerns (expect for businesses owned or controlled by a
Native American tribe); and
businesses determined by the SBA to have credit available elsewhere.6
EIDL loan amounts are based on actual economic injury and financial needs, regardless of
whether the business or eligible nonprofit suffered any property damage. If an applicant is a
major source of employment, the SBA may waive the $2 million statutory limit.7 In addition,
EIDL loan proceeds cannot be used to refinance long-term debt, expand facilities, pay dividends
or bonuses, or for relocation.8
Applicants must have a credit history acceptable to the SBA, the ability to repay the loan, and
present collateral for all EIDL loans over $25,000 if available. The SBA collateralizes real estate
or other assets when available, but it will not deny a loan for lack of collateral.9
EIDL interest rates are determined by formulas established in law (discussed later) and are fixed
for the life of the loan. EIDL interest rate ceilings are statutorily set at no more than 4% per
annum. EIDL applicants are not eligible if the SBA determines that the applicant has credit
available elsewhere.
EIDL loans can have maturities up to 30 years. The SBA determines an appropriate installment
payment based on each borrower’s financial condition, which, in turn, determines the loan term.10
There are no prepayment penalties.
5 SBA, “Fact Sheet – Economic Injury Disaster Loans, California Declaration #16332,” March 19, 2020,
https://disasterloan.sba.gov/ela/Declarations/ViewDisasterDocument/3485 (hereinafter cited as SBA, “Fact Sheet”).
6 SBA, “Disaster Assistance Program, SOP 50 30 9, pp. 70, 71, https://www.sba.gov/document/sop-50-30-9-disaster-
assistance-program-posted-05-31 (hereinafter cited as SBA, “Disaster Assistance Program SOP”)
7 SBA, “Fact Sheet.”
8 For the full list of ineligible uses of EIDL loan proceeds, see SBA, “Disaster Assistance Program SOP,” pp. 75-76.
9 SBA, “Fact Sheet.”
10 SBA, “Fact Sheet.”
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SBA EIDL assistance is not automatically available. It must be requested in one of two ways: (1)
a state or territory governor can submit a request to the President for a major disaster declaration
under the Robert T. Stafford Disaster Relief and Emergency Assistance Act11 or (2) a state or
governor can submit a request for SBA EIDL from the SBA Administrator under the Small
Business Act.
There was some initial concern that COVID-19 would not be a declarable disaster under the
Small Business Act because it did not meet the legal definition for a disaster. As mentioned, to
prevent any potential ambiguity, Title II of P.L. 116-123 deemed the coronavirus a disaster under
Section 7(b)(2)(D) of the Small Business Act, making economic injury from the coronavirus an
eligible expense under the SBA’s Economic Injury Disaster Loan program.
Initial EIDL Response to COVID-19
On March 16, 2020, the SBA Administrator began issuing declarations for SBA EIDLs in
response to states seeking SBA disaster assistance for small businesses.12 The SBA changed its
requirement that a state or territory “provide documentation certifying that at least five small
businesses have suffered substantial economic injury as a result of the disaster, with at least one
business located in each declared county/parish.”13 Under new criteria, states and territories now
“are only required to certify that at least five small businesses within the state/territory have
suffered substantial economic injury, regardless of where the businesses are located.”14 The SBA
announced that under the new criteria EIDL assistance may be available statewide instead of just
within specific identified counties in declarations related to COVID-19.
EIDL Funding
The SBA currently has about $1.1 billion in disaster loan credit subsidy available to support about
$7 billion to $8 billion in disaster loans. Loan credit subsidy is the amount provided to cover the
government’s cost of extending or guaranteeing credit.15 The loan credit subsidy amount is about
one-seventh of the cost of each disaster loan.16 The credit subsidy amount is used to protect the
11 P.L. 93-288, as amended. Tribal nations are also authorized to request and receive major disaster assistance.
12 A similar definitional issue may exist under the Stafford Act which does not specify an infectious disease as an
incident in its definition of a major disaster. There are, however, indications that the President considers COVID-19 a
major disaster. See the White House, Letter from President Donald J. Trump on Emergency Determination Under the
Stafford Act, March 13, 2020, https://www.whitehouse.gov/briefings-statements/letter-president-donald-j-trump-
emergency-determination-stafford-act/.
13 SBA, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small Businesses Impacted by
Coronavirus (COVID-19), March 17, 2020, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-
advisories/sba-updates-criteria-states-requesting-disaster-assistance-loans-small-businesses-impacted (hereinafter cited
as SBA, SBA Updates Criteria on States for Requesting Disaster Assistance).
14 SBA, SBA Updates Criteria on States for Requesting Disaster Assistance.
15 “The Federal Credit Reform Act of 1990 (FCRA) requires agencies to estimate the cost to the government of
extending or guaranteeing credit. This cost, referred to as subsidy cost, equals the net present value of estimated cash
flows from the government (e.g., loan disbursements and claim payments to lenders) minus estimated cash flows to the
government (e.g., loan repayments, interest payments, fees, and recoveries on defaulted loans) over the life of the loan,
excluding administrative costs.” See U.S. Government Accountability Office, Current Method to Estimate Credit
Subsidy Costs Is More Appropriate for Budget Estimates Than a Fair Value Approach, GAO-16-41, January 29, 2016,
p. i, https://www.gao.gov/products/GAO-16-41.
16 SBA, FY2021 Congressional Budget Justification FY2019 Annual Performance Report,” p. 13, https://www.sba.gov/
document/report—congressional-budget-justification-annual-performance-report (hereinafter cited as SBA, FY2021
Congressional Budget Justification FY2019 Annual Performance Report.”)
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government against the risk of estimated shortfalls in loan repayments. It remains to be seen if the
SBA’s current funding for disaster loan credit subsidies will meet the demand for disaster loans
now that EIDL eligibility has been extended to economic injuries related to the coronavirus.
The CARES Act, as amended, would provide temporary EIDL program enhancements and an
additional $10 billion to support the program.
Surge Issues and Loan Processing Times
Historically, the majority (80%) of SBA disaster loans have been for individuals and households.
The significant number of businesses that will likely apply for EIDL assistance because of the
economic damage the coronavirus caused may require the SBA to enhance its disaster business
loan portfolio and increase staff to meet demand. As mentioned, in anticipation of increased EIDL
demand, Title II of P.L. 116-123 provided the SBA with an additional $20 million, to remain
available until expended, for SBA Disaster Loan Program administrative expenses.
A Government Accountability Office (GAO) report found that the SBA provided disaster loans in
roughly 18 days or less in response to Hurricanes Harvey, Irma, and Maria in 2017.17 Although
the 2017 hurricanes created a high demand at that time for SBA disaster loans, it is unclear if
GAO’s findings can be extrapolated to the current COVID-19 pandemic. The sheer volume of
EIDL applications in response to COVID-19 could be significantly higher because COVID-19
affects a much larger number of small businesses and organizations. In addition, the time needed
for the SBA to expand the disaster loan portfolio and hire and train new and existing staff could
compromise loan processing times.
Loan processing times may be of significant concern to Congress and business owners alike. If
loans are not processed quickly enough, businesses nationwide may suffer economic damage and,
potentially, collapse. Consequently, Congress may examine options that could expedite loan
processing, such as increased staffing and surge capabilities, waiving application requirements,
and the use of expedited loans or bridge loans.
Expedited Disaster Loans and Bridge Loans
In response to criticism of SBA’s disaster loan processing following the Gulf Coast hurricanes of
2005 and 2008, Congress passed P.L. 110-234, the Small Business Disaster Response and Loan
Improvements Act of 2008.18 The act created several programs to improve the disaster loan
processing.19 Among them were the following:
Expedited Disaster Assistance Loan Program (EDALP) to provide eligible EIDL
applicants with expedited access to short-term guaranteed loans of up to
$150,000.20
17 U.S. Government Accountability Office, Disaster Loan Processing Was Timelier, but Planning Improvements and
Pilot Program Evaluation Needed, GAO-20-369, March 9, 2020, https://www.gao.gov/products/GAO-20-168.
18 P.L. 110-234, the Small Business Disaster Response and Loan Improvements Act of 2008 (Title XII, subtitle B of the
Food, Conservation, and Energy Act of 2008), as amended by P.L. 110-246, the Food, Conservation, and Energy Act of
2008 (Title XII, subtitle B of the Food, Conservation, and Energy Act of 2008)(hereinafter cited as P.L. 110-234).
19 SBA, “Immediate, Expedited, and Private Disaster Assistance Loan Programs,” 80 Federal Register 63715-63717,
October 21, 2015.
20 P.L. 110-234, Sec. 12085.
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Immediate Disaster Assistance Program (IDAP) to provide eligible EIDL
applicants with guaranteed bridge loans of up to $25,000 from private-sector
lenders, with an SBA decision within 36 hours of a lender’s application on behalf
of a borrower.21
Private Disaster Assistance Program (PDAP) to make guaranteed loans available
to homeowners and eligible EIDL applicants in an amount up to $2 million.22
The SBA, however, had difficulty implementing these programs. In his statement before
the House Committee on Small Business, then-acting (and now the current) SBA
Inspector General, Hannibal “Mike” Ware, stated,
In the wake of disasters like Hurricane Sandy, congressional representatives expressed
concern that SBA did not effectively develop and utilize programmatic innovations
intended to assist in disbursing funds quickly and effectively. For instance, SBA did not
implement statutory provisions of the Immediate Disaster Assistance Program (IDAP),
Economic Injury Disaster Assistance Program (EDAP), and the Private Disaster Assistance
Programs (PDAP), collectively known as the “Guaranteed Disaster Assistance Programs”
mandated by Congress in 2008. These provisions were enacted with the expectation that
they would allow SBA to provide expedited disaster loans in partnership with private sector
lenders. These provisions remain unimplemented. 23
He added that the SBA had difficulty implementing the programs because private lenders were
reluctant to participate in the program. He mentioned the following impediments:
[the] cost of program participation under the current pricing structure and the lender’s lack
of infrastructure to deliver loans that meet SBA standards (such as evaluating eligibility
and duplication of benefits); loan terms that include longer maturities than conventional
lending practices; the high cost of providing these loans; inadequate collateral security; and
their lack of expertise in the home loan sector. Lenders were also concerned that loan
guarantees would be denied due to improper eligibility determinations.
Because these programs had limited use, Congress included a provision in P.L. 115-141, the
Consolidated Appropriations Act, 2018, which permanently cancelled $2.6 million in unobligated
balances available for the IDAP and the EDALP.
Rather than relying on outside lenders, Congress could make express loans and bridge loans
available directly from the SBA. Congress could also implement measures to expedite loan
processing, such as waiving collateral requirements, instituting measures that would streamline
the application process (such as waiving certain document requirements), and requiring SBA to
adhere to certain timelines with respect to loan evaluations and disbursals.
The CARES Act, as amended, would authorize several changes that could expedite the EIDL
approval process. For example, the bill, as amended, would authorize the SBA Administrator, in
response to economic injuries caused by COVID-19, to waive the “no credit available elsewhere”
requirement, approve an applicant based solely on their credit score, not require applicants to
submit a tax return or tax return transcript for approval, waive any rules related to the personal
guarantee on advances and loans of not more than $200,000, and waive the requirement that the
applicant be in business for the one-year period before the disaster declaration.
21 P.L. 110-234, Sec. 12084.
22 P.L. 110-234, Sec. 12083.
23 Testimony of Hannibal “Mike” Ware, Acting Inspector General, United States Small Business Administration, U.S.
Congress, House Committee on Small Business, Storm Watch: Making Sure SBA’s Disaster Loan Program Is
Prepared, 115th Cong., 1st sess., April 26, 2017, p. 33.
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The SBA Administrator would also be authorized to provide up to $10,000 as an advance
payment in the amount requested within three days after receiving an EIDL application from an
eligible entity. Applicants are not required to repay the advance payment, even if subsequently
denied an EIDL loan.
SBA EIDL Repayment and Forgiveness
Under present law and regulations, the first SBA EIDL payment is normally due five months after
disbursement. However, the SBA has announced that it is changing the terms of new EIDL
assistance to allow for deferment through December 31, 2020 “to help borrowers during this
unprecedented time.”24 However, according to SBA’s standard operating procedures manual
(SOP) “the interest accrual during these deferment periods can be significant, and may result in
substantially higher installment payments to amortize the loan within the term.”
The CARES Act, as amended, would require lenders to provide “impacted borrowers” adversely
affected by COVID-19 complete payment deferment relief on a covered loan for not more than
one year if the borrower was in operation on February 15, 2020, and has an application for a
covered loan approved or pending approval on or after the date of enactment. The bill, as
amended, presumes that each eligible recipient that applies for a covered loan is an impacted
borrower and authorizes the SBA Administrator to purchase covered loans sold on the secondary
market so that impacted borrowers may receive a deferral for not more than one year.
The CARES Act, as amended, also provides for loan forgiveness under specified conditions. Loan
forgiveness is rare, but has been used in the past to help businesses that were having difficulty
repaying their loans. For example, loan forgiveness was granted after Hurricane Betsy, when
President Lyndon B. Johnson signed the Southeast Hurricane Disaster Relief Act of 1965.25
Section 3 of the act authorized the SBA Administrator to grant disaster loan forgiveness or issue
waivers for property lost or damaged in Florida, Louisiana, and Mississippi as a result of the
hurricane. The act stated that,
to the extent such loss or damage is not compensated for by insurance or otherwise, (1)
shall at the borrower’s option on that part of any loan in excess of $500, (A) cancel up to
$1,800 of the loan, or (B) waive interest due on the loan in a total amount of not more than
$1,800 over a period not to exceed three years; and (2) may lend to a privately owned
school, college, or university without regard to whether the required financial assistance is
otherwise available from private sources, and may waive interest payments and defer
principal payments on such a loan for the first three years of the term of the loan. 26
Disaster Grants
Historically, businesses that suffer uninsured loss as a result of a major disaster declaration are
not eligible for Federal Emergency Management Agency (FEMA) grant assistance, and grant
assistance from other federal sources is limited. On some occasions, Congress has provided
disaster assistance to businesses through the Department of Housing and Urban Development’s
(HUD’s) Community Development Block Grant (CDBG) program. The CDBG program provides
24 SBA, “Carranza Implements Automatic Deferment on Existing SBA Disaster Loans Through End of 2020,” March
23, 2020, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/carranza-implements-
automatic-deferment-existing-sba-disaster-loans-through-end-2020.
25 P.L. 89-339, 79 Stat. 1301.
26 P.L. 89-339, 79 Stat. 1301.
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loans and grants to eligible businesses to help them recover from disasters as well as grants
intended to attract new businesses to the disaster-stricken area. In a few cases, CDBG has also
been used to compensate businesses and workers for lost wages or revenues.
Although the President issued the first major disaster declaration to New York for COVID-19,27
CDBG disaster assistance is not available for all major disasters. States can use CDBG funding to
respond to emergencies or other “urgent needs” through the conventional CDBG entitlement and
states program,28 but existing (or future) CDBG monies generally must be reprogrammed in
consultation with HUD to respond to the emergency.29 For these reasons, CDBG is generally used
for long-term recovery needs rather than providing immediate, direct disaster assistance.
Thus, Congress could consider providing business grants through FEMA or the SBA. Enlisting
FEMA to administer the program may offer several benefits. First, FEMA already has grant
processing operations in place. It might be relatively easier to expand the operations to include
small businesses disaster grants rather than establishing new grant-making operations within
SBA. Second, having FEMA administer the small business disaster grant program may limit
duplication of administrative functions between FEMA and SBA. Third, it would provide access
to FEMA’s Disaster Relief Fund (DRF) which at the time of this writing has roughly $41 billion
for disaster assistance activities.30
In contrast, Congress could decide to have SBA administer the program because it already has a
framework in place to evaluate business disaster needs and disaster loan eligibility. Congress may
need to make statutory changes to SBA’s disaster loan account or authorize a new account to
receive appropriations for disaster grants.
Another concern about providing grants to businesses is whether businesses provided SBA EIDL
will be eligible for grant assistance. For example, in some cases homeowners and businesses that
accepted disaster loans were deemed ineligible for disaster grants. This may make some
businesses reluctant to apply for SBA EIDL and instead hold out for the possibility of a grant.
Congress may therefore allow businesses to use grant money to pay down their SBA EIDL.
Another potential concern is waste, fraud, and abuse. For example, Section 1210 of the Disaster
Recovery Reform Act of 2018 (DRRA, Division D of P.L. 115-254) prohibits the President from
determining loans as duplicative assistance provided all federal assistance is used toward loss
resulting from an emergency or major disaster under the Stafford Act. Consequently, businesses
that obtain SBA EIDL and a grant for the same purposes would conceivably not be required to
pay back the duplicative award.
Congress could consider limiting grants to relatively small businesses as compared to what is
considered a small business according to SBA size standards.31 For example, business grants
could be limited to businesses with 10 or fewer employees.
27 Federal Emergency Management Agency, New York Covid-19 Pandemic (DR-4480), March 3, 2020,
https://www.fema.gov/disaster/4480.
28 For example, the City of Seattle is currently administering $10,000 grants to small businesses using CDBG funds to
respond to COVID-19.
29 For eligible Community Development Block Grant activities related to COVID-19, see U.S. Department of Housing
and Urban Development, “Quick Guide to CDBG Eligible Activities to Support Infectious Disease Response,” March
19, 2020, https://files.hudexchange.info/resources/documents/Quick-Guide-CDBG-Infectious-Disease-Response.pdf.
30 Federal Emergency Management Agency, Disaster Relief Fund: Monthly Report, March 6, 2020,
https://www.fema.gov/media-library/assets/documents/31789. For more information on the DRF see CRS Report
R45484, The Disaster Relief Fund: Overview and Issues, by William L. Painter.
31 For more information and analysis concerning SBA size standards, see CRS Report R40860, Small Business Size
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The CARES Act, as amended, would authorize the SBA Administrator to provide up to $10,000
as an advance payment in the amount requested within three days after receiving an EIDL
application from an eligible entity. Applicants are not required to repay the advance payment,
even if subsequently denied an EIDL loan. The bill, as amended, addresses waste, fraud, and
abuse by providing the SBA’s OIG $25 million for oversight of the SBA’s administration of its
lending programs and for investigations to serve as a general deterrent to fraud, waste, and abuse.
SBA EIDL Interest Rates
According to the SBA’s March 17, 2020, press release, SBA EIDL interest rates for COVD-19
are 3.75% for businesses and 2.75% for nonprofit organizations.32
SBA disaster loan interest rates have been a long-standing congressional concern. First, there is
concern about the ability of disaster victims to pay off their loans. Second, there is concern about
how interest rates are determined given the complexity of the statutory language about disaster
loan interest rates. 15 U.S.C. §636(d)(5)(C)) states that interest rates are “in the case of a
business, private nonprofit organization, or other concern, including agricultural cooperatives,
unable to obtain credit elsewhere, not to exceed 4 per centum per annum.”33 To determine EIDL
interest rates, SBA uses a formula under 15 U.S.C. §636(d)(4)(A):
Notwithstanding the provisions of the constitution of any State or the laws of any State
limiting the rate or amount of interest which may be charged, taken, received, or reserved,
the maximum legal rate of interest on any financing made on a deferred basis pursuant to
this subsection shall not exceed a rate prescribed by the Administration, and the rate of
interest for the Administration’s share of any direct or immediate participation loan shall
not exceed the current average market yield on outstanding marketable obligations of the
United States with remaining periods to maturity comparable to the average maturities of
such loans and adjusted to the nearest one-eighth of 1 per centum, and an additional amount
as determined by the Administration, but not to exceed 1 per centum per annum: Provided,
That for those loans to assist any public or private organization for the handicapped or to
assist any handicapped individual as provided in paragraph (10) of this subsection, the
interest rate shall be 3 per centum per annum.
Congress could request SBA to reevaluate its interpretation of 15 U.S.C. §636(d)(4)(A) and
provide detailed information explaining how the formula provides nonprofit organizations with
lower interest rates than small businesses. Alternatively, Congress could change the formula
under the Small Business Act if it considered the language ambiguous, or it could designate an
interest rate (including a zero interest rate) for all SBA EIDL for the duration of COVID-19.
Standards: A Historical Analysis of Contemporary Issues, by Robert Jay Dilger.
32 Small Business Administration, SBA Updates Criteria on States for Requesting Disaster Assistance Loans for Small
Businesses Impacted by Coronavirus (COVID-19), March 17, 2020, https://www.sba.gov/about-sba/sba-newsroom/
press-releases-media-advisories/sba-updates-criteria-states-requesting-disaster-assistance-loans-small-businesses-
impacted.
33 Only businesses and nonprofit organizations that cannot get credit elsewhere are eligible for SBA EIDL.
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SBA Capital Access Programs
Overview
The SBA has authority to make direct loans but, with the exception of disaster loans and loans to
Microloan program intermediaries, has not exercised that authority since 1998.34 The SBA
indicated that it stopped issuing direct business loans primarily because the subsidy rate was “10
to 15 times higher” than the subsidy rate for its loan guaranty programs.35 Instead of making
direct loans, the SBA guarantees loans issued by approved lenders to encourage those lenders to
provide loans to small businesses “that might not otherwise obtain financing on reasonable terms
and conditions.”36 With few exceptions, to qualify for SBA assistance, an organization must be
both a for-profit business and small.37
What Is a “Small Business”?
To participate in any of the SBA loan guaranty programs, a business must meet the Small
Business Act’s definition of small business. This is a business that
is organized for profit;
has a place of business in the United States;
operates primarily within the United States or makes a significant contribution to
the U.S. economy through payment of taxes or use of American products,
materials, or labor;
is independently owned and operated;
is not dominant in its field on a national basis;38 and
does not exceed size standards established, and updated periodically, by the
SBA.39
34 Prior to October 1, 1985, the SBA provided direct business loans to qualified small businesses. From October 1,
1985, to September 30, 1994, SBA direct business loan eligibility was limited to qualified small businesses owned by
individuals with low incomes or located in areas of high unemployment, owned by Vietnam-era or disabled veterans,
owned by the handicapped or certain organizations employing them, and certified under the minority small business
capital ownership development program. Microloan program intermediaries were also eligible. On October 1, 1994,
SBA direct loan eligibility was limited to Microloan program intermediaries and small businesses owned by the
handicapped. Funding to support direct loans to the handicapped through the Handicapped Assistance (renamed the
Disabled Assistance) Loan program ended in 1996. The last loan under the Disabled Assistance Loan program was
issued in FY1998. See U.S. Congress, House Committee on Small Business, Summary of Activities, 105rd Cong., 2nd
sess., January 2, 1999, H.Rept. 105-849 (Washington: GPO, 1999), p. 8.
35 U.S. Congress, Senate Committee on Small Business, Hearing on the Proposed Fiscal Year 1995 Budget for the
Small Business Administration, 103rd Cong., 2nd sess., February 22, 1994, S.Hrg. 103-583 (Washington: GPO, 1994), p.
20.
36 SBA, Fiscal Year 2010 Congressional Budget Justification, p. 30, https://www.sba.gov/sites/default/files/
Congressional_Budget_Justification_2010.pdf.
37 The SBA provides financial assistance to nonprofit organizations to provide training to small business owners and to
provide loans to small businesses through the SBA Microloan program. Also, nonprofit child care centers are eligible
to participate in SBA’s Microloan program.
38 13 C.F.R. §121.105.
39 P.L. 111-240, the Small Business Jobs Act of 2010, requires the SBA to conduct a detailed review of not less than
one-third of the SBA’s industry size standards every 18 months beginning on the new law’s date of enactment
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The business may be a sole proprietorship, partnership, corporation, or any other legal form.
What Is “Small”?40
The SBA uses two measures to determine if a business is small: SBA-derived industry specific
size standards or a combination of the business’s net worth and net income. For example,
businesses participating in the SBA’s 7(a) loan guaranty program are deemed small if they either
meet the SBA’s industry-specific size standards for firms in 1,047 industrial classifications in 18
subindustry activities described in the North American Industry Classification System (NAICS)
or do not have more than $15 million in tangible net worth and not more than $5 million in
average net income after federal taxes (excluding any carryover losses) for the two full fiscal
years before the date of the application. All of the company’s subsidiaries, parent companies, and
affiliates are considered in determining if it meets the size standard.41
The SBA’s industry size standards vary by industry, and they are based on one of the following
four measures: the firm’s (1) average annual receipts in the previous three (or five) years, (2)
number of employees, (3) asset size, or (4) for refineries, a combination of number of employees
and barrel per day refining capacity. Historically, the SBA has used the number of employees to
determine if manufacturing and mining companies are small and average annual receipts for most
other industries.
The SBA’s size standards are designed to encourage competition within each industry. They are
derived through an assessment of the following four economic factors: “average firm size,
average assets size as a proxy of start-up costs and entry barriers, the 4-firm concentration ratio as
a measure of industry competition, and size distribution of firms.”42 The SBA also considers the
ability of small businesses to compete for federal contracting opportunities and, when necessary,
several secondary factors “as they are relevant to the industries and the interests of small
businesses, including technological change, competition among industries, industry growth
trends, and impacts of size standard revisions on small businesses.”43
SBA Loan Guarantee Programs
Overview
The SBA provides loan guarantees for small businesses that cannot obtain credit elsewhere. Its
largest loan guaranty programs are the 7(a) loan guaranty program, the 504/CDC loan guaranty
program, and the Microloan program.
The SBA’s loan guaranty programs require personal guarantees from borrowers and share the risk
of default with lenders by making the guaranty less than 100%. In the event of a default, the
borrower owes the amount contracted less the value of any collateral liquidated. The SBA can
(September 27, 2010) and ensure that each size standard is reviewed at least once every five years.
40 For additional information and analysis, see CRS Report R40860, Small Business Size Standards: A Historical
Analysis of Contemporary Issues, by Robert Jay Dilger.
41 13 C.F.R. §121.201 and P.L. 111-240, the Small Business Act of 2010, §1116. Alternative Size Standards.
42 SBA, Office of Government Contracting and Business Development, “SBA Size Standards Methodology,” April
2019, p. 29, https://www.sba.gov/document/support—size-standards-methodology-white-paper (hereinafter cited as
SBA, “SBA Size Standards Methodology”).
43 SBA, “SBA Size Standards Methodology,” p. 1.
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attempt to recover the unpaid debt through administrative offset, salary offset, or IRS tax refund
offset. Most types of businesses are eligible for loan guarantees. A list of ineligible businesses
(such as insurance companies, real estate investment firms, firms involved in financial
speculation or pyramid sales, and businesses involved in illegal activities) is contained in 13
C.F.R. §120.110.44 With one exception, nonprofit and charitable organizations are also
ineligible.45
Most of these programs charge fees to help offset program costs, including costs related to loan
defaults. In most instances, the fees are set in statute. For example, for 7(a) loans with a maturity
exceeding 12 months, the SBA is authorized to charge lenders an up-front guaranty fee of up to
2% for the SBA guaranteed portion of loans of $150,000 or less, up to 3% for the SBA guaranteed
portion of loans exceeding $150,000 but not more than $700,000, and up to 3.5% for the SBA
guaranteed portion of loans exceeding $700,000. Lenders who have a 7(a) loan that has a SBA
guaranteed portion in excess of $1 million can be charged an additional fee not to exceed 0.25%
of the guaranteed amount in excess of $1 million.
7(a) loans are also subject to an ongoing servicing fee not to exceed 0.55% of the outstanding
balance of the guaranteed portion of the loan.46 In addition, lenders are authorized to collect fees
from borrowers to offset their administrative expenses.
In an effort to assist small business owners, the SBA has, from time-to-time, reduced its fees. For
example, in FY2019, the SBA waived the annual service fee for 7(a) loans of $150,000 or less
made to small businesses located in a rural area or a HUBZone and reduced the up-front one-time
guaranty fee for these loans from 2.0% to 0.6667% of the guaranteed portion of the loan.47
In addition, pursuant to P.L. 114-38, the Veterans Entrepreneurship Act of 2015, the SBA
is required to waive the up-front, one-time guaranty fee on all veteran loans under the
7(a) SBAExpress program (up to and including $350,000) “except during any upcoming
fiscal year for which the President’s budget, submitted to Congress, includes a cost for
the 7(a) program, in its entirety, that is above zero.”48
The SBA’s goal is to achieve a zero subsidy rate, meaning that the appropriation of budget
authority for new loan guaranties is not required.
7(a) Loan Guaranty Program49
The 7(a) loan guaranty program is named after the section of the Small Business Act that
authorizes it. The loans are made by SBA lending partners (mostly banks but also some other
44 Title 13 of the Code of Federal Regulations can be viewed at https://www.gpo.gov/fdsys/browse/
collectionCfr.action?selectedYearFrom=2016&go=Go.
45 P.L. 105-135, the Small Business Reauthorization Act of 1997, expanded the SBA’s Microloan program’s eligibility
to include borrowers establishing a nonprofit child care business.
46 15 U.S.C. §636(a)(23)(a).
47 SBA, “SBA Information Notice: 7(a) Fees Effective on October 1, 2018,” https://www.sba.gov/document/
information-notice-5000-180010-7a-fees-effective-october-1-2018.
48 The SBA had waived the up-front, one-time guaranty fee on all veteran loans under the 7(a) SBAExpress program
from January 1, 2014, through the end of FY2015. P.L. 114-38 made the SBAExpress program’s veteran fee waiver
permanent, except during any upcoming fiscal year for which the President’s budget, submitted to Congress, includes a
cost for the 7(a) program, in its entirety, that is above zero. The SBA waived the fee, pursuant to P.L. 114-38, in
FY2016, FY2017, FY2018, and FY2019.
49 For further information and analysis, see CRS Report R41146, Small Business Administration 7(a) Loan Guaranty
Program, by Robert Jay Dilger.
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financial institutions) and partially guaranteed by the SBA. Borrowers may use 7(a) loan proceeds
to establish a new business or to assist in the operation, acquisition, or expansion of an existing
business. 7(a) loan proceeds may be used to
acquire land (by purchase or lease);
improve a site (e.g., grading, streets, parking lots, landscaping), including up to
5% for community improvements such as curbs and sidewalks;
purchase one or more existing buildings;
convert, expand, or renovate one or more existing buildings;
construct one or more new buildings;
acquire (by purchase or lease) and install fixed assets;
purchase inventory, supplies, and raw materials;
finance working capital; and
refinance certain outstanding debts.50
In FY2019, the SBA approved 51,907 7(a) loans to 46,111 small businesses totaling $23.2 billion.
In FY2019, there were 1,708 active lending partners providing 7(a) loans.
The 7(a) program’s current guaranty rate is 85% for loans of $150,000 or less and 75% for loans
greater than $150,000 (up to a maximum guaranty of $3.75 million, or 75% of $5 million).51
Although the SBA’s offer to guarantee a loan provides an incentive for lenders to make the loan,
lenders are not required to do so.
A 7(a) loan is required to have the shortest appropriate term, depending upon the borrower’s
ability to repay. The maximum term is 10 years, unless the loan finances or refinances real estate
or equipment with a useful life exceeding 10 years. In that case, the loan term can be up to 25
years, including extensions.52
Lenders are permitted to charge borrowers fees to recoup specified expenses and are allowed to
charge borrowers “a reasonable fixed interest rate” or, with the SBA’s approval, a variable
interest rate. The SBA uses a multistep formula to determine the maximum allowable fixed
interest rate for all 7(a) loans (with the exception of the Export Working Capital Program and
Community Advantage loans) and periodically publishes that rate and the maximum allowable
variable interest rate in the Federal Register.53
50 13 C.F.R. §120.120.
51 Exceptions to this general schedule of guaranty rates include loans made under the International Trade, Export
Working Capital Program, or Export Express (90% guaranty); and the SBAExpress program (50% guaranty).
52 13 C.F.R. §120.212. A portion of a 7(a) loan used to acquire or improve real property may have a term of 25 years
plus an additional period needed to complete the construction or improvements.
53 For fixed interest rates, the SBA, effective November 6, 2018, uses the prime rate (see 13 C.F.R. §120.214(c)) in
effect on the first business day of the month as the base rate and increases the maximum allowable interest rate spread
as follows: for fixed rate loans of $25,000 or less, prime plus 600 basis points, plus the 200 basis points permitted by 13
C.F.R. §120.215; for fixed rate loans over $25,000 but not exceeding $50,000, prime plus 600 basis points, plus the 100
basis points permitted by 13 C.F.R. §120.215; for fixed rate loans greater than $50,000 but not exceeding $250,000,
prime plus 600 basis points; and for fixed rate loans over $250,000, prime plus 500 basis points. SBA, “Maximum
Allowable 7(a) Fixed Interest Rates,” 83 Federal Register 55478, November 6, 2018. For the previously used fixed
interest rates formula, see SBA, “Business Loan Program Maximum Allowable Fixed Rate,” 74 Federal Register
50263-50264, September 30, 2009.
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In March 2020, the maximum allowable fixed interest rates are 12.75% for 7(a) loans of $25,000
or less; 11.75% for loans over $25,000 but not exceeding $50,000; 10.75% for loans over $50,000
up to and including $250,000; and 9.75% for loans greater than $250,000.54
Maximum interest rates allowed on variable-rate 7(a) loans are pegged to either the prime rate,
the 30-day London Interbank Offered Rate (LIBOR) plus 3%, or the SBA optional peg rate,
which is a weighted average of rates that the federal government pays for loans with maturities
similar to the guaranteed loan. The allowed spread over the prime rate, LIBOR base rate, or SBA
optional peg rate depends on the loan amount and the loan’s maturity (under seven years or seven
years or more). 55 The adjustment period can be no more than monthly and cannot change over
the life of the loan.
The 504/CDC Loan Guaranty Program56
The 504/CDC loan guaranty program uses Certified Development Companies (CDCs), which are
private, nonprofit corporations established to contribute to economic development within their
communities. Each CDC has its own geographic territory. The program provides long-term,
fixed-rate loans for major fixed assets, such as land, structures, machinery, and equipment.
Program loans cannot be used for working capital, inventory, or repaying debt. A commercial
lender provides up to 50% of the financing package, which is secured by a senior lien. The
CDC’s loan of up to 40% is secured by a junior lien. The SBA backs the CDC with a guaranteed
debenture.57 The small business must contribute at least 10% as equity.
To participate in the program, small businesses cannot exceed $15 million in tangible net worth
and cannot have average net income of more than $5 million for two full fiscal years before the
date of application. Also, CDCs must intend to create or retain one job for every $75,000 of the
debenture ($120,000 for small manufacturers) or meet an alternative job creation standard if they
meet any one of 15 community or public policy goals.
Maximum 504/CDC participation in a single project is $5 million and $5.5 million for
manufacturers and specified energy-related projects; the minimum is $25,000. There is no limit
on the project size. Loan maturity is 10 years for equipment and 20 or 25 years for real estate.
Unguaranteed financing may have a shorter term. The maximum fixed interest rate allowed is
established when the debenture backing the loan is sold and is pegged to an increment above the
current market rate for 5-year and 10-year U.S. Treasury issues.
The SBA is authorized to charge CDCs
a one-time, up-front guaranty fee of up to 0.5% of the debenture (0.5% in
FY2020),
54 Colson Services Corp., “SBA Base Rates,” New York, https://colsonservices.bnymellon.com/news/sba-base-
rates.jsp.
55 The maximum variable interest rates allowed for 7(a) loans with a maturity less than seven years are the base rate
plus 4.25% for loans less than $25,000; the base rate plus 3.25% for loans of $25,000-$50,000; and the base rate plus
2.25% for loans over $50,000. The maximum variable interest rates allowed for 7(a) loans with a maturity of seven
years or longer are the base rate plus 4.75% for loans less than $25,000; the base rate plus 3.75% for loans of $25,000-
$50,000; and the base rate plus 2.75% for loans over $50,000. See 13 C.F.R. §120.214 and 13 C.F.R. §120.215.
56 For further information and analysis, see CRS Report R41184, Small Business Administration 504/CDC Loan
Guaranty Program, by Robert Jay Dilger.
57 A debenture is a bond that is not secured by a lien on specific collateral.
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an annual servicing fee of up to 0.9375% of the unpaid principal balance
(0.3205% for regular 504/CDC loans and 0.322% for 504/CDC debt refinance
loans in FY2020),
a funding fee (not to exceed 0.25% of the debenture), an annual development
company fee (0.125% of the debenture’s outstanding principal balance), and
a one-time participation fee (0.5% of the senior mortgage loan if in a senior lien
position to the SBA and the loan was approved after September 30, 1996).
In addition, CDCs are allowed to charge borrowers a processing (or packaging) fee of up to 1.5%
of the net debenture proceeds and a closing fee, servicing fee, late fee, assumption fee, Central
Servicing Agent (CSA) fee, other agent fees, and an underwriters’ fee.
In FY2019, the SBA approved 6,099 504/CDC loans to 6,008 small businesses totaling nearly
$5.0 billion.58 In FY2019, 212 CDCs provided at least one 504/CDC loan.59
504/CDC Refinancing Program
During the Great Recession (2007-2009), Congress authorized the SBA to temporarily allow,
under specified circumstances, the use of 504/CDC program funds to refinance existing
commercial debt (e.g., not from SBA-guaranteed loans) for business expansion under the
504/CDC program.60 In 2010, Congress authorized, for two years, the expansion of the types of
projects eligible for refinancing of existing debt under the 504/CDC program to include projects
not involving business expansion, provided the projects met specific criteria.61 In the 114th
Congress, Congress reinstated the expansion of the types of projects eligible for refinancing under
the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the
504/CDC program as a whole do not have credit subsidy costs.62 Specifically, each CDC is
required to limit its refinancing so that, during any fiscal year, the new refinancing does not
exceed 50% of the dollars it loaned under the 504/CDC program during the previous fiscal year.
58 SBA, “SBA Lending Statistics for Major Programs (as of 9/30/2019),” https://www.sba.gov/sites/default/files/2019-
10/WebsiteReport_asof_20190930.pdf; and SBA, FY2021 Congressional Budget Justification FY2019 Annual
Performance Report.” pp. 31, 164.
59 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, pp. 41, 166.
60 P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA). The specified circumstances include the
following: the amount of existing indebtedness does not exceed 50% of the project cost of the expansion; the proceeds
of the indebtedness were used to acquire land, including the building situated thereon, to construct a building thereon,
or to purchase equipment; the existing indebtedness is collateralized by fixed assets; the existing indebtedness was
incurred for the benefit of a small business; the financing is used only for refinancing existing indebtedness or costs
related to the project being financed; the refinancing provides a substantial benefit to the borrower; the borrower has
been current on all payments due on the existing debt for not less than one year preceding the date of refinancing; and
the financing provided will have better terms or rate of interest than the existing indebtedness.
61 P.L. 111-240, the Small Business Jobs Act of 2010. A project that does not involve the expansion of a small business
concern may include the refinancing of qualified debt if (I) the amount of the financing is not be more than 90% of the
value of the collateral for the financing, except that, if the appraised value of the eligible fixed assets serving as
collateral for the financing is less than the amount equal to 125% of the amount of the financing, the borrower may
provide additional cash or other collateral to eliminate any deficiency; (II) the borrower has been in operation for all of
the 2-year period ending on the date of the loan; and (III) for a financing for which the Administrator determines there
will be an additional cost attributable to the refinancing of the qualified debt, the borrower agrees to pay a fee in an
amount equal to the anticipated additional cost.
62 P.L. 114-113, the Consolidated Appropriations Act, 2016. For additional information and analysis, see CRS Report
R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.
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This limitation may be waived if the SBA determines that the refinance loan is needed for good
cause.
Commercial loans eligible for the 504/CDC Refinancing program being used to finance long-term
fixed asset debt cannot have a loan-to-value (LTV) ratio of more than 90% of the fair market
value of the eligible fixed asset(s) serving as collateral. Loans that are used to partly refinance
eligible business operating expenses (e.g., salaries, rent, utilities) cannot exceed an LTV ratio of
more than 85% of the fair market value of the collateral. The fees associated with the 504/CDC
Refinancing program are the same as the 504/CDC Loan Guaranty program except the ongoing
guaranty servicing fee may vary. In FY2020, the annual guaranty servicing fee is 0.3205% for
regular 504/CDC loans and 0.322% for 504/CDC debt refinance loans.
In FY2019, the SBA approved 166 refinancing loans totaling $154.8 million.63
The Microloan Program64
The Microloan program provides direct loans to qualified nonprofit intermediary Microloan
lenders that, in turn, provide “microloans” of up to $50,000 to small businesses and nonprofit
child care centers. Microloan lenders also provide marketing, management, and technical
assistance to Microloan borrowers and potential borrowers.
The program was authorized in 1991 as a five-year demonstration project and became operational
in 1992. It was made permanent, subject to reauthorization, by P.L. 105-135, the Small Business
Reauthorization Act of 1997. Although the program is open to all small businesses, it targets new
and early stage businesses in underserved markets, including borrowers with little to no credit
history, low-income borrowers, and women and minority entrepreneurs in both rural and urban
areas who generally do not qualify for conventional loans or other, larger SBA guaranteed loans.
Microloans can be used for working capital and acquisition of materials, supplies, furniture,
fixtures, and equipment. Loans cannot be made to acquire land or property. Loan terms are up to
seven years.
The SBA charges intermediaries an interest rate that is based on the five-year Treasury rate,
adjusted to the nearest one-eighth percent (called the Base Rate), less 1.25% if the intermediary
maintains a historic portfolio of Microloans averaging more than $10,000 and less 2.0% if the
intermediary maintains a historic portfolio of Microloans averaging $10,000 or less. The Base
Rate, after adjustment, is called the Intermediary’s Cost of Funds. The Intermediary’s Cost of
Funds is initially calculated one year from the date of the note and is reviewed annually and
adjusted as necessary (called recasting). The interest rate cannot be less than zero.
On loans of more than $10,000, the maximum interest rate that can be charged to the borrower is
the interest rate charged by the SBA on the loan to the intermediary, plus 7.75%. On loans of
$10,000 or less, the maximum interest rate that can be charged to the borrower is the interest
charged by the SBA on the loan to the intermediary, plus 8.5%. Rates are negotiated between the
borrower and the intermediary and typically range from 7% to 9%.
63 SBA, Office of Congressional and Legislative Affairs, “WDS Report Amount and Count Summary, September 30,
2019: DRAFT Table 2.7. Approvals by Program and Cohort,” October 18, 2018. For historical data, see Table 3 in
CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by Robert Jay Dilger.
64 For further information and analysis, see CRS Report R41057, Small Business Administration Microloan Program,
by Robert Jay Dilger.
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The SBA does not charge intermediaries up-front or ongoing service fees under the Microloan
program.
In FY2019, 5,533 small businesses received a Microloan, totaling $81.5 million.65 The average
Microloan was $14,735 and the average interest rate was 7.5%.66
SBA Loan Enhancements to Address the Great Recession
Many of the proposals under consideration to address the capital needs of small businesses
adversely affected by the COVID-19 pandemic were used to address the severe economic
slowdown during and immediately following the Great Recession (2007-2009). The main
difference today is that given the unique nature of the COVID-19 pandemic’s impact on
households, especially physical distancing and the resulting decrease in consumer spending, there
is an added emphasis today on SBA loan deferrals and loan forgiveness.
During the 111th Congress, P.L. 111-5, the American Recovery and Reinvestment Act of 2009
(ARRA), provided the SBA an additional $730 million, including $375 million to temporarily
subsidize the 7(a) and 504/CDC loan guaranty programs’ fees ($299 million) and to temporarily
increase the 7(a) program’s maximum loan guaranty percentage to 90% ($76 million).67 ARRA
also included provisions designed to increase the amount of leverage issued under the SBA’s
Small Business Investment Company (SBIC venture capital) program.68 SBICs provide loans and
equity investments in small businesses.
ARRA’s funding for the fee subsidies and 90% maximum loan guaranty percentage was about to
be exhausted in November 2009, when Congress passed the first of six laws to provide additional
funding to extend the loan subsidies and 90% maximum loan guaranty percentage.
P.L. 111-118, the Department of Defense Appropriations Act, 2010, provided the
SBA $125 million to continue the fee subsidies and 90% maximum loan guaranty
percentage through February 28, 2010.
P.L. 111-144, the Temporary Extension Act of 2010, provided the SBA $60
million to continue the fee subsidies and 90% maximum loan guaranty
percentage through March 28, 2010.
P.L. 111-150, an act to extend the Small Business Loan Guarantee Program, and
for other purposes, provided the SBA authority to reprogram $40 million in
previously appropriated funds to continue the fee subsidies and 90% maximum
loan guaranty percentage through April 30, 2010.
P.L. 111-157, the Continuing Extension Act of 2010, provided the SBA $80
million to continue the SBA’s fee subsidies and 90% maximum loan guaranty
percentage through May 31, 2010.
P.L. 111-240, the Small Business Jobs Act of 2010, provided $505 million (plus
an additional $5 million for administrative expenses) to continue the SBA’s fee
subsidies and 90% maximum loan guaranty percentage from the act’s date of
enactment (September 27, 2010) through December 31, 2010.
65 SBA, “Nationwide Microloan Report, October 1, 2018 through September 30, 2019,” October 10, 2019.
66 SBA, “Nationwide Microloan Report, October 1, 2018 through September 30, 2019,” October 10, 2019.
67 SBA, “Recovery Act Agency Plan,” May 15, 2009, https://www.sba.gov/sites/default/files/recovery_act_reports/
sba_recovery_act_plan.pdf.
68 For additional information and analysis, see CRS Report R41456, SBA Small Business Investment Company
Program, by Robert Jay Dilger.
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P.L. 111-322, the Continuing Appropriations and Surface Transportation
Extensions Act, 2011, authorized the SBA to use funds provided under the Small
Business Jobs Act of 2010 to continue the SBA’s fee subsidies and 90%
maximum loan guaranty percentage through March 4, 2011, or until available
funding is exhausted.
On January 3, 2011, the SBA announced that the fee subsidies and 90% maximum guarantee
percentage ended because funding for these enhancements had been exhausted.69
In addition to providing additional funding for fee subsidies, P.L. 111-240, among other
provisions
increased the 7(a) program’s gross loan limit from $2 million to $5 million;
increased the 504/CDC Program’s loan limits from $1.5 million to $5 million for
“regular” borrowers, from $2 million to $5 million if the loan proceeds are
directed toward one or more specified public policy goals, and from $4 million to
$5.5 million for manufacturers;
temporarily expanded for two years the eligibility for low-interest refinancing
under the SBA’s 504/CDC program for qualified debt;
temporarily increased for one year the SBAExpress Program’s loan limit from
$350,000 to $1 million (expired on September 26, 2011);
increased the Microloan Program’s loan limit for borrowers from $35,000 to
$50,000; and increased the loan limits for Microloan intermediaries after their
first year in the program from $3.5 million to $5 million;
authorized the U.S. Treasury to make up to $30 billion of capital investments for
a Small Business Lending Fund ($4 billion was issued);70
authorized to be appropriated $1.5 billion for the State Small Business Credit
Initiative Program;71
authorized a three-year Intermediary Lending Pilot Program to allow the SBA to
make direct loans to not more than 20 eligible nonprofit lending intermediaries
each year totaling not more than $20 million. The intermediaries, in turn, would
be allowed to make loans to new or growing small businesses, not to exceed
$200,000 per business;
established an alternative size standard for the 7(a) and 504/CDC loan programs
to enable more small businesses to qualify for assistance;72 and
provided small businesses with about $12 billion in tax relief.73
69 SBA, “Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months,”
January 3, 2011, https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-
three-months.
70 For additional information and analysis, see CRS Report R42045, The Small Business Lending Fund, by Robert Jay
Dilger.
71 For additional information and analysis, see CRS Report R42581, State Small Business Credit Initiative:
Implementation and Funding Issues, by Robert Jay Dilger.
72 P.L. 111-240, the Small Business Jobs Act of 2010, established the following interim alternative size standard for
both the 7(a) and 504/CDC programs: the business qualifies as small if it does not have a tangible net worth in excess
of $15 million and does not have an average net income after federal taxes (excluding any carry-over losses) in excess
of $5 million for two full fiscal years before the date of application.
73 P.L. 111-240 raised the exclusion of gains on the sale or exchange of qualified small business stock from the federal
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There were also efforts during the 111th and 112th Congresses to require the SBA to reinstate
direct lending to small businesses.
During the 111th Congress
H.R. 3854, the Small Business Financing and Investment Act of 2009, was
passed by the House on October 29, 2009, by a vote of 389-32. It would have
authorized a temporary SBA direct lending program.74
During the 112th Congress
H.R. 3007, the Give Credit to Main Street Act of 2011, introduced on September
21, 2011, and referred to the House Committee on Small Business, would have
authorized the SBA to provide direct loans to small businesses that have been in
operation as a small business for at least two years prior to its application for a
direct loan. The maximum loan amount would have been the lesser of 10% of the
firm’s annual revenues or $500,000.
H.R. 5835, the Veterans Access to Capital Act of 2012, introduced on May 18,
2012, and referred to the House Committee on Small Business, would have
authorized the SBA to provide up to 20% of the annual amount available for
guaranteed loans under the 7(a) and 504/CDC loan guaranty programs,
respectively, in direct loans to veteran-owned and -controlled small businesses.
Current Issues, Debates, and Lessons Learned
During the 111th Congress (2009-2010), there was a consensus in Congress that the federal
government had to take decisive action to address the capital needs of small businesses, primarily
as a means to promote job retention and creation. Similar sentiments are being expressed today as
Congress considers proposals to assist small businesses adversely affected by the COVID-19
pandemic.
Many Members of Congress argued during the 111th Congress that the SBA should be provided
additional resources to assist small businesses in acquiring capital necessary to start, continue, or
expand operations with the expectation that in so doing small businesses will create jobs. Others
worried about the long-term adverse economic effects of spending programs that increase the
federal deficit. They advocated business tax reduction, reform of financial credit market
regulation, and federal fiscal restraint as the best means to help small businesses further economic
growth and job creation.
Given the coronavirus’s widespread adverse economic impact, including productivity losses,
supply chain disruptions, labor dislocation, and financial pressure on businesses and households,
income tax to 100%, with the full exclusion applying only to stock acquired the day after the date of enactment through
the end of 2010; increased the deduction for qualified start-up expenditures from $5,000 to $10,000 in 2010, and raised
the phaseout threshold from $50,000 to $60,000 for 2010; placed limitations on the penalty for failure to disclose
reportable transactions based on resulting tax benefits; allowed general business credits of eligible small businesses for
2010 to be carried back five years; exempted general business credits of eligible small businesses in 2010 from the
alternative minimum tax; allowed a temporary reduction in the recognition period for built-in gains tax; increased
expensing limitations for 2010 and 2011 and allowed certain real property to be treated as Section 179 property;
allowed additional first-year depreciation for 50% of the basis of certain qualified property; and removed cellular
telephones and similar telecommunications equipment from listed property so their cost can be deducted or depreciated
like other business property.
74 H.R. 3854, the Small Business Financing and Investment Act of 2009 (111th Congress), §111. Capital Backstop
Program.
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there has been relatively little concern expressed about federal fiscal restraint during the current
pandemic. The debate has been primarily over which specific policies would have the greatest
impact and which types of small businesses and small business owners should be helped the most.
As mentioned, many of the enhancements to the SBA’s capital access programs that were made
during the 111th Congress, such as increasing loan limits, providing fee subsidies, increasing loan
guaranty percentages, and expanding eligibility criteria are being considered again. These
changes had a demonstrated impact on small business lending during and immediately following
the Great Recession. SBA lending increased. For example, the SBA’s OIG found that SBA 7(a)
loan approvals increased 39% and 504/CDC loan approval increased 73% from March to July
2009, largely due to ARRA’s fee reductions and increased loan guarantee percentages. Lending
volume remained below pre-recession levels, but was much higher than before the fee reductions
and increase in the loan guarantee percentage were implemented.
The OIG also noted that the increased loan volume “may be impacting Agency staffing
requirements and program risk.... Without adequate training and supervision, the increased
demands on loan center staff could impact the quality of Agency loan reviews.” 75
Also, in 2012, the SBA issued a press release lauding P.L. 111-240’s impact on SBA loan volume:
With loan volume steadily increasing for the past six quarters, the U.S. Small Business
Administration’s loan programs posted the second largest dollar volume ever in FY 2012,
supporting $30.25 billion in loans to small businesses. That amount was surpassed only by
FY 2011, which was heavily boosted by the loan incentives under the Small Business Jobs
Act of 2010.76
The data demonstrate that ARRA and the Small Business Jobs Act of 2010 helped small
businesses access capital. However, because the SBA primarily gathers data on program output
(e.g., loan volume, number of small businesses served, default rates) as opposed to program
outcomes (e.g., small business solvency, job creation, wealth generation) it is difficult to know
how effective these programs were in assisting small businesses or if other approaches might
have produced better (or different) results.
Among the lessons learned from earlier small business stimulus packages is that additional
funding for the SBA OIG to conduct oversight of the SBA’s implementation of stimulus changes
could help Congress in its oversight responsibilities. Additional funding for the SBA OIG to
conduct investigations of potentially fraudulent behaviors by borrowers and lenders could also
prove useful in deterring fraud, waste, and abuse. In addition, requiring the SBA to periodically
report to Congress and on its website both output and outcome performance data could help
Congress in its oversight responsibilities and assure the public that the taxpayer’s dollars are
being spent both efficiently and effectively.
75 SBA, Office of Inspector General (OIG), Review of the Recovery Act’s Impact on SBA Lending, ROM 10-02,
November 25, 2009, p. 4, https://www.sba.gov/document/report-rom-10-02-rom-10-02-review-recovery-acts-impact-
sba-lending.
76 SBA, “SBA Loan Dollars in FY 2012 Reach Second Largest Total Ever; $30.25 Billion Second Only to FY 2011,”
October 9, 2012, https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-loan-dollars-fy-
2012-reach-second-largest-total-ever-3025-billion-second-only-fy-2011.
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SBA Entrepreneurial Development Programs77
Overview
The SBA has provided technical and managerial assistance to small businesses since it began
operations in 1953. Initially, the SBA provided its own small business management and technical
assistance training programs. Over time, the SBA has relied increasingly on third parties to
provide that training.
Congressional interest in the SBA’s management and technical assistance training programs
($239 million in FY2020) has increased in recent years, primarily because these programs are
viewed as a means to assist small businesses create and retain jobs. These programs fund about
14,000 resource partners, including 63 lead small business development centers (SBDCs) and
nearly 900 SBDC local outreach locations, 125 women’s business centers (WBCs), and 350
chapters of the mentoring program, SCORE.78
The SBA reports that nearly a million aspiring entrepreneurs and small business owners receive
mentoring and training from an SBA-supported resource partner each year. Most of this training
is free, and some is offered at low cost.79
The Department of Commerce also provides management and technical assistance training for
small businesses. For example, its Minority Business Development Agency provides training to
minority business owners to assist them in obtaining contracts and financial awards.
Small Business Development Centers
SBDCs provide free or low-cost assistance to small businesses using programs customized to
local conditions. SBDCs support small businesses in marketing and business strategy, finance,
technology transfer, government contracting, management, manufacturing, engineering, sales,
accounting, exporting, and other topics. SBDCs are funded by grants from the SBA and matching
funds equal to the grant amount.
SBDC funding is allocated on a pro rata basis among the states (defined to include the District of
Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, and American
Samoa) by a statutory formula “based on the percentage of the population of each State, as
compared to the population of the United States.”80 If, as is currently the case, SBDC funding
exceeds $90 million, the minimum funding level is “the sum of $500,000, plus a percentage of
77
For additional information and analysis, see CRS Report R41352, Small Business Management and Technical
Assistance Training Programs, by Robert Jay Dilger.
78 Other SBA entrepreneurial development programs include the following: the Microloan Technical Assistance
Program; the Program for Investment in Microentrepreneurs (PRIME), Veterans Programs (including Veterans
Business Outreach Centers, Boots to Business, Veteran Women Igniting the Spirit of Entrepreneurship [VWISE],
Entrepreneurship Bootcamp for Veterans with Disabilities, and Boots to Business: Reboot), the Native American
Outreach Program, the Entrepreneurial Development Initiative (Regional Innovation Clusters), the Entrepreneurship
Education Initiative, the Growth Accelerators Initiative, and the 7(j) Technical Assistance Program.
79 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 18.
80 15 U.S.C. §648(a)(4)(C).
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$500,000 equal to the percentage amount by which the amount made available exceeds $90
million.”81
There are 63 lead SBDC service centers, one located in each state (four in Texas and six in
California), the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American
Samoa. These lead SBDC service centers manage more than 900 SBDC outreach locations. The
SBA was provided $135 million for SBDC grants in FY2020.
In FY2019, SBDCs provided technical assistance training and counseling services to 254,821
unique SBDC clients, and 17,810 new businesses were started largely as a result of SBDC
training and counseling.82
Microloan Technical Assistance
Congress authorized the SBA’s Microloan lending program in 1991 (P.L. 102-140, the
Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations
Act, 1992) to address the perceived disadvantages faced by women, low-income, veteran, and
minority entrepreneurs and business owners gaining access to capital for starting or expanding
their business. The program became operational in 1992. Initially, the SBA’s Microloan program
was authorized as a five-year demonstration project. It was made permanent, subject to
reauthorization, by P.L. 105-135, the Small Business Reauthorization Act of 1997.
The SBA’s Microloan Technical Assistance Program is affiliated with the SBA’s Microloan
lending program but receives a separate appropriation. This program provides grants to
Microloan intermediaries to provide management and technical training assistance to Microloan
program borrowers and prospective borrowers.83 There are currently 144 active Microloan
intermediaries serving 49 states, the District of Columbia, and Puerto Rico.84
Intermediaries are eligible to receive a Microloan technical assistance grant “of not more than
25% of the total outstanding balance of loans made to it” under the Microloan program.85 Grant
funds may be used only to provide marketing, management, and technical assistance to Microloan
borrowers, except that no more than 50% of the funds may be used to provide such assistance to
prospective Microloan borrowers and no more than 50% of the funds may be awarded to third
parties to provide that technical assistance. Grant funds also may be used to attend required
training.86
In most instances, intermediaries must contribute, solely from nonfederal sources, an amount
equal to 25% of the grant amount.87 In addition to cash or other direct funding, the contribution
may include indirect costs or in-kind contributions paid for under nonfederal programs.88
81 15 U.S.C. §648(a)(4)(C) and P.L. 106-554, the Consolidated Appropriations Act, 2001.
82 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 85.
83 For further analysis of the SBA’s Microloan program, see CRS Report R41057, Small Business Administration
Microloan Program, by Robert Jay Dilger.
84 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 36. For a list of
Microloan intermediaries by state, see SBA, “List of Lenders,” https://www.sba.gov/partners/lenders/microloan-
program/list-lenders.
85 15 U.S.C. §636(m)(4)(A).
86 13 C.F.R. §120.712.
87 13 C.F.R. §120.712.
88 13 C.F.R. §120.712. Intermediaries may not borrow their contribution.
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The SBA does not require Microloan borrowers to participate in the Microloan Technical
Assistance Program. However, intermediaries typically require Microloan borrowers to
participate in the training program as a condition of the receipt of a microloan. Combining loan
and intensive management and technical assistance training is one of the Microloan program’s
distinguishing features.89
The SBA was provided $34.5 million for Microloan Technical Assistance grants in FY2020.
Women’s Business Centers
The WBC Renewable Grant Program was initially established by P.L. 100-533, the Women’s
Business Ownership Act of 1988, as the Women’s Business Demonstration Pilot Program. The
act directed the SBA to provide financial assistance to private, nonprofit organizations to conduct
demonstration projects giving financial, management, and marketing assistance to small
businesses, including start-up businesses, owned and controlled by women. Since its inception,
the program has targeted the needs of socially and economically disadvantaged women. The
WBC program was expanded and provided permanent legislative status by P.L. 109-108, the
Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006.
Since the program’s inception, the SBA has awarded WBCs a grant of up to $150,000 per year.
WBC initial grants are currently awarded for up to five years, consisting of a base period of 12
months from the date of the award and four 12-month option periods.90 The SBA determines if
the option periods are exercised and makes that determination subject to the continuation of
program authority, the availability of funds, and the recipient organization’s compliance with
federal law, SBA regulations, and the terms and conditions specified in a cooperative agreement.
WBCs that successfully complete the initial five-year grant period may apply for an unlimited
number of three-year funding intervals.91
During their initial five-year grant period, WBCs are required to provide a nonfederal match of
one nonfederal dollar for each two federal dollars in years one and two (1:2), and one nonfederal
dollar for each federal dollar in years three, four and five (1:1). After the initial five-year grant
period, the matching requirement in subsequent three-year funding intervals is not more than 50%
89 Intermediaries that make at least 25% of their loans to small businesses located in or owned by residents of an
Economically Distressed Area (defined as having 40% or more of its residents with an annual income that is at or
below the poverty level), or have a portfolio of loans made under the program that averages not more than $10,000
during the period of the intermediary’s participation in the program are eligible to receive an additional training grant
equal to 5% of the total outstanding balance of loans made to the intermediary. Intermediaries are not required to make
a matching contribution as a condition of receiving these additional grant funds. See 13 C.F.R. §120.712; and 15 U.S.C.
§636(m)(4)(C)(i).
90 P.L. 105-135, the Small Business Reauthorization Act of 1997, authorized the SBA to award grants to WBCs for up
to five years—one base year and four option years. P.L. 106-165, the Women’s Business Centers Sustainability Act of
1999, provided WBCs that had completed the initial five-year grant an opportunity to apply for an additional five-year
sustainability grant. Thus, the act allowed successful WBCs to receive SBA funding for a total of 10 years. Because the
program has permitted permanent three-year funding intervals since 2007, the sustainability grants would be phased out
by FY2012, leaving the initial five-year grants with the continuous three-year option. See SBA, FY2012 Congressional
Budget Justification and FY2010 Annual Performance Report, p. 49, https://www.sba.gov/sites/default/files/
aboutsbaarticle/FINAL%20FY%202012%20CBJ%20FY%202010%20APR_0.pdf.
91 P.L. 110-28, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations
Act, 2007, allowed WBCs that successfully completed the initial five-year grant to apply for an unlimited number of
three-year funding renewals.
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of federal funding (1:1).92 The nonfederal match may consist of cash, in-kind, and program
income.93
Today, there are 125 WBCs located throughout most of the United States and the territories.94 In
FY2019, WBCs provided technical assistance training and counseling services to 64,527 unique
WBC clients, and 2,087 new businesses were started largely as a result of WBC training and
counseling.95
The SBA was provided $22.5 million for WBC grants in FY2020.
SCORE (formerly the Service Corps of Retired Executives)
SCORE was established on October 5, 1964, by then-SBA Administrator Eugene P. Foley as a
national, volunteer organization, uniting more than 50 independent nonprofit organizations into a
single, national nonprofit organization.
The SBA currently provides grants to SCORE to provide in-person mentoring, online training,
and “nearly 9,000 local training workshops annually” to small businesses.96 SCORE’s 350
chapters and more than 800 branch offices are located throughout the United States and partner
with more than 10,000 volunteer counselors, who are working or retired business owners,
executives and corporate leaders, to provide management and training assistance to small
businesses “at no charge or at very low cost.”97
In FY2019, SCORE provided technical assistance training and counseling services to 195,242
unique SCORE clients, and 480 new businesses were started largely as a result of SCORE
training and counseling.98
The SBA was provided $11.7 million for SCORE grants in FY2020.
Current Issues, Debates and Lessons Learned
Congress provided additional funding for SBA entrepreneurial development programs during and
immediately following the Great Recession. For example, ARRA provided an additional $24
million for Microloan Technical Assistance grants. The Small Business Jobs Act of 2010 provided
SBDCs an additional $50 million and temporarily waived SBDC, Microloan Technical
Assistance, and WBC matching requirements.
Similar proposals have been made to address the COVID-19 pandemic. For example, S. 3518, the
COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, would provide an
additional $150 million for SBA’s entrepreneurial development programs, including $40 million
for SBDCs, $18.75 for WBCs, $1 million to SCORE, and $50 million for Microloan Technical
92 P.L. 110-28 reduced the federal share to not more than 50% for all grant years (1:1) following the initial five-year
grant.
93
P.L. 105-135 specified that not more than one-half of the nonfederal sector matching assistance may be in the form
of in-kind contributions that are budget line items only, including office equipment and office space.
94 SBA, “Women’s Business Centers Directory,” https://www.sba.gov/tools/local-assistance/wbc.
95 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 87.
96 SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, p. 45,
https://www.sba.gov/sites/default/files/files/1-
508%20Compliant%20FY%202013%20CBJ%20FY%202011%20APR(1).pdf.
97 SCORE (Service Corps of Retired Executives), “About SCORE,” Washington, DC, https://www.score.org/about-
score.
98 SBA, FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 89.
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Assistance grants. The bill also would waive SBDC, Microloan Technical Assistance, and WBC
grant matching requirements. The CARES Act, as amended, would appropriate $240 million for
entrepreneurial development programs ($192 million for SBDCs and $48 million for WBCs), and
$25 million for SBA resource partners to provide online information and training. The bill would
also waive SBDC and WBC matching requirements.
Congress could require the SBA’s resource partners to report to the SBA both output and
outcome performance data for these grants and to require the SBA to report that information to
Congress and make that information available to the public on the SBA website.
SBA Contracting Programs99
Overview
Federal agencies are required to facilitate the maximum participation of small businesses as prime
contractors, subcontractors, and suppliers. For example, federal agencies are generally required to
reserve contracts that have an anticipated value greater than the micro-purchase threshold
(currently $10,000), but not greater than the simplified acquisition threshold (currently $250,000)
exclusively for small businesses unless the contracting officer is unable to obtain offers from two
or more small businesses that are competitive with market prices and the quality and delivery of
the goods or services being purchased.100
Several SBA programs assist small businesses in obtaining and performing federal contracts and
subcontracts. These include various prime contracting programs; subcontracting programs; and
other assistance (e.g., contracting technical training assistance and oversight of the federal small
business goaling program and the Surety Bond Guarantee program101).
8(a) Program102
The SBA’s 8(a) Minority Small Business and Capital Ownership Development Program provides
business development assistance to businesses owned and controlled by persons who are socially
and economically disadvantaged, have good character, and demonstrate a potential for success.103
Although the 8(a) Program was originally established in the 1980s for the benefit of
disadvantaged individuals, Congress expanded the program to include small businesses owned by
four disadvantaged groups. Small businesses owned by Alaska Native Corporations (ANCs),
Community Development Corporations (CDCs), Indian tribes, and Native Hawaiian
99 For additional information and analysis concerning SBA contracting programs, see CRS Report R45576, An
Overview of Small Business Contracting, by Robert Jay Dilger.
100 15 U.S.C. §644(j)(1). Certain regulations implementing this provision of the Small Business Act effectively narrows
its scope. For example, certain small business contracts awarded or performed overseas are not necessarily required to
be set aside for small businesses, and the small business provisions contained in Part 19 of the Federal Acquisition
Regulation (FAR) generally do not apply to blanket purchase agreements and orders placed against Federal Supply
Schedule contracts.
101 For additional information and analysis concerning the SBA’s Surety Bond Program, see CRS Report R42037, SBA
Surety Bond Guarantee Program, by Robert Jay Dilger.
102 For additional information and analysis concerning the 8(a) Program, see CRS Report R44844, SBA’s “8(a)
Program”: Overview, History, and Current Issues, by Robert Jay Dilger.
103 Section 8(a) of the Small Business Act, P.L. 85-536, as amended, can be found at 15 U.S.C. §637(a). Regulations
are in 13 C.F.R. §124.
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Organizations (NHOs) are also eligible to participate in the 8(a) Program under somewhat
different requirements.
Federal agencies are authorized to award contracts for goods or services, or to perform
construction work, to the SBA for subcontracting to 8(a) firms. The SBA is authorized to delegate
the function of executing contracts to the procuring agencies and often does so. Once the SBA has
accepted a contract for the 8(a) Program, the contract is awarded through either a restricted
competition limited to just 8(a) participants (a set aside) or on a sole source basis, with the
contract amount generally determining the acquisition method used.
For individually owned small businesses, when the contract’s anticipated total value, including
any options, is less than $4 million ($7 million for manufacturing contracts), the contract is
normally awarded without competition (as a sole source award). In contrast, when the contract’s
anticipated value exceeds these thresholds, the contract generally must be awarded via a set aside
with competition limited to 8(a) firms so long as there is a reasonable expectation that at least two
eligible and responsible 8(a) firms will submit offers and the award can be made at fair market
price.104
Similar to other participants, firms owned by ANCs, CDCs, NHOs, and Indian tribes are eligible
for 8(a) set asides and may receive sole source awards valued at less than $4 million ($7 million
for manufacturing contracts). However, firms owned by ANCs and Indian tribes can also receive
sole source awards in excess of $4 million ($7 million for manufacturing contracts) even when
contracting officers reasonably expect that at least two eligible and responsible 8(a) firms will
submit offers and the award can be made at fair market price.105 NHO-owned firms may receive
sole source awards from the Department of Defense under the same conditions.106
The 8(a) program is designed to help federal agencies achieve their statutory goal of awarding at
least 5% of their federal contracting dollars to small disadvantaged businesses.
In FY2018, the federal government awarded $29.5 billion to 8(a) firms.
Historically Underutilized Business Zone Program107
The SBA oversees the Historically Underutilized Business Zones (HUBZones) program. The
program assists small businesses located in HUBZone-designated areas through set asides, sole
source awards (so long as the award can be made at a fair and reasonable price, and the
anticipated total value of the contract, including any options, is below $4 million, or $7 million
for manufacturing contracts) and price evaluation preferences (of up to 10%) in full and open
competitions.108 The HUBZone program targets assistance to small businesses located in areas
104 15 U.S.C. §637(a)(1)(D)(ii); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small
Business Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018.
105 P.L. 100-656, §602(a), 102 Stat. 3887-88 (November 15, 1988) (codified at 15 U.S.C. §637 note); and 48 C.F.R.
§19.805-1(b)(2).
106 DOD’s authority to make sole source awards to NHO-owned firms of contracts valued at more than $4 million ($7
million for manufacturing contracts) even if contracting officers reasonably expect that offers will be received from at
least two responsible small businesses existed on a temporary basis in 2004-2006 and became permanent in 2006. See
P.L. 109-148, Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of
Mexico, and Pandemic Influenza Act of 2006, §8020, 119 Stat. 2702-03 (December 30, 2005); 48 C.F.R. §219.805-
1(b)(2)(A)-(B).
107 For additional information and analysis, see CRS Report R41268, Small Business Administration HUBZone
Program, by Robert Jay Dilger.
108 15 U.S.C. §657a(b)(2-3); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small
Congressional Research Service 26
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
with low income, high poverty, or high unemployment.109 To be certified as a HUBZone small
business, at least 35% of the small business’s employees must generally reside in a HUBZone.
The HUBZone contracting program is designed to help federal agencies achieve their statutory
goal of awarding at least 3% of their federal contracting dollars to HUBZone small businesses.
In FY2018, the federal government awarded $9.8 billion to HUBZone-certified small businesses.
Service-Disabled Veteran-Owned Small Business Program
The SBA oversees the Service-Disabled Veteran-Owned Small Business (SDVOSB) program.
The program allows agencies to set aside contracts for SDVOSBs. Also, federal agencies may
award sole source contracts to SDVOSBs so long as the award can be made at a fair and
reasonable price, and the anticipated total value of the contract, including any options, is below
$4 million ($6.5 million for manufacturing contracts).110 For purposes of this program, veterans
and service-related disabilities are defined as they are under the statutes governing veterans
affairs.111
The SDVOSB contracting program is designed to help federal agencies achieve their statutory
goal of awarding at least 3% of their federal contracting dollars to SDVOSBs.
In FY2018, the federal government awarded $22.5 billion to SDVOSBs.
Women-Owned Small Business Program
The SBA oversees the Women-Owned Small Businesses (WOSB) program. Under this program,
federal contracting officers may set aside federal contracts (or orders) for WOSBs and
Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) in industries in
which the SBA determines WOSBs are substantially underrepresented in federal procurement.
Federal contracting officers can also set aside federal contracts for EDWOSBs exclusively in
industries in which the SBA determines WOSBs are underrepresented in federal procurement.
The WOSB Program is designed to help federal agencies achieve their statutory goal of awarding
at least 5% of their federal contracting dollars to WOSBs.
Federal agencies may award sole source contracts to WOSBs so long as the award can be made at
a fair and reasonable price, and the anticipated total value of the contract, including any options,
is below $4 million ($6.5 million for manufacturing contracts).112
In FY2018, the federal government awarded $23.4 billion to WOSBs.
Business Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018.
109 For specific criteria, see 15 U.S.C. §632(p)(4); and 13 C.F.R. §126.103.
110 15 U.S.C. §657f(a-b); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small Business
Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018.
111 38 U.S.C §8127(f). Veteran-owned small businesses and service-disabled veteran-owned small businesses are
eligible for separate preferences in procurements conducted by the Department of Veterans Affairs under the authority
of P.L. 109-461, the Veterans Benefits, Health Care, and Information Technology Act of 2006, as amended by P.L.
110-389, the Veterans’ Benefits Improvements Act of 2008.
112 15 U.S.C. §637(m); and SBA, “Conforming Statutory Amendments and Technical Corrections to Small Business
Government Contracting Regulations,” 83 Federal Register 12849, March 26, 2018.
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COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
SBA Surety Bond Program113
The SBA’s Surety Bond Guarantee Program has been operational since April 1971.114 It is
designed to increase small business’ access to federal, state, and local government contracting, as
well as private sector contracting, by guaranteeing bid, performance, payment, and specified
ancillary bonds “on contracts … for small and emerging contractors who cannot obtain bonding
through regular commercial channels.”115 The program guarantees individual contracts of up to
$6.5 million, and up to $10 million for federal contracts if a federal contracting officer certifies
that such a guarantee is necessary. The $6.5 million limit is periodically adjusted for inflation.116
The SBA’s guarantee currently ranges from 80% to 90% of the surety’s loss if a default occurs.
In FY2019, the SBA guaranteed 9,905 bid and final surety bonds (a payment bond, performance
bond, or both a payment and performance bond) with a total contract value of nearly $6.5
billion.117
A surety bond is a three-party instrument between a surety (who agrees to be responsible for the
debt or obligation of another), a contractor, and a project owner. The agreement binds the
contractor to comply with the contract’s terms and conditions. If the contractor is unable to
successfully perform the contract, the surety assumes the contractor’s responsibilities and ensures
that the project is completed. Surety bonds encourage project owners to contract with small
businesses that may not have the credit history or prior experience of larger businesses and may
be at greater risk of failing to comply with the contract’s terms and conditions.
Surety bonds are important to small businesses interested in competing for federal contracts
because the federal government requires prime contractors—prior to the award of a federal
contract exceeding $150,000 for the construction, alteration, or repair of any building or public
work of the United States—to furnish a performance bond issued by a surety satisfactory to the
contracting officer in an amount that the officer considers adequate to protect the government.
Current Issues, Debates and Lessons Learned
Congress included enhancements for small business contracting in both ARRA (increased funding
and higher maximum bond amounts for the SBA Surety Bond programs) and the Small Business
Jobs Act of 2010 (new restrictions on the consolidation or bundling of contracts that make it more
difficult for small businesses to be awarded the contract). Several proposals for enhancing small
113 For additional information and analysis concerning the SBA’s Surety Bond Program, see CRS Report R42037, SBA
Surety Bond Guarantee Program, by Robert Jay Dilger.
114 P.L. 91-609, the Housing and Urban Development Act of 1970; and U.S. Congress, Senate Committee on Banking,
Housing, and Urban Affairs, Small Business Legislation - 1974, hearing on S. 3137 and S. 3138, 93rd Cong., 2nd sess.,
March 13, 1974 (Washington: GPO, 1974), p. 19.
115 SBA, “FY2016 Congressional Budget Justification and FY2014 Annual Performance Report,” p. 44,
https://www.sba.gov/sites/default/files/1-FY%202016%20CBJ%20FY%202014%20APR.PDF. An ancillary bond,
which ensures that requirements integral to the contract, but not directly performance related, are performed, is eligible
if it is incidental and essential to a contract for which SBA has guaranteed a final bond. A reclamation bond is eligible
if it is issued to reclaim an abandoned mine site and for a project undertaken for a specific period of time.
116 P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, increased the program’s guarantee limit
from $2.0 million to $6.5 million, and up to $10 million for a federal contract if certified. The act also includes a
provision to increase the $6.5 million limit periodically for inflation “by striking ‘does not exceed’ and all that follows
through the period at the end, and inserting ‘does not exceed $6,500,000,’ as adjusted for inflation in accordance with
section 1908 of title 41, United States Code.” That section of the U.S. Code provides for an inflation adjustment on
October 1 of each year evenly divisible by five.
117 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, January 14, 2020.
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COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
business contracting have also been offered to address the adverse economic impact of COVID-
19 on small businesses.
For example, S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced,
would temporarily (ending on September 30, 2021) increase the caps and provide parity for sole
source contract awards to SDBs, WOSBs, HUBZone small businesses, and SDVOSBs. The caps
would be increased from less than $4 million ($7 million for manufacturing contracts) for SDBs
and HUBZone small businesses and from less than $4 million ($6.5 million for manufacturing
contracts) for WOSBs and SDVOSBs to less than $8 million ($10 million for manufacturing
contracts) for all four types of small businesses.
The bill would also require the federal government to continue to pay small business contractors
and revise delivery schedules, holding small contractors harmless for being unable to perform a
contract due to COVID-19 caused interruptions until September 2021. Also, (i) federal agencies
would be required to promptly pay small business prime contractors and (ii) prime contractors
would be required to promptly pay small business subcontractors within 15 days, notwithstanding
any other provision of law or regulation, for the duration of the President invoking the Defense
Production Act in response to COVID-19.
The CARES Act, as amended, has similar provisions concerning paying small business
contractors. The bill would not increase and provide parity for sole source contract awards to
SDBs, WOSBs, HUBZone small businesses, and SDVOSBs.
Concluding Observations
In response to the Great Recession, Congress took a number of actions to enhance small
businesses’ access to capital, management and training programs, and contracting opportunities.
The goal then, as it is now, was to provide small businesses with the resources necessary to
survive the economic downturn and retain or create jobs. Many of the actions taken then are
under consideration now as Congress considers proposals to assist small businesses adversely
affected by the COVID-19 pandemic. The current consideration of proposals providing for loan
deferral and forgiveness is, at least partly, due to the unique economic dislocations resulting from
individuals and households engaging in physical distancing to avoid COVID-19 infection.
As mentioned, because the coronavirus’s adverse economic impact is so widespread, including
productivity losses, supply chain disruptions, labor dislocation, and financial pressure on
businesses and households, there has been relatively little concern expressed about federal fiscal
restraint during the current pandemic. The debate has been primarily over which specific policies
would have the greatest impact and which types of small businesses and small business owners
should be helped the most.
One lesson learned from the 111th Congress is the potential benefits that can be derived from
providing additional funding for the SBA’s Office of Inspector General and the Government
Accountability Office. GAO and the SBA’s OIG can provide Congress information that could
prove useful as Congress engages in congressional oversight of the SBA’s administration of the
stimulus package, provide an early warning if unforeseen administrative problems should arise,
and, through investigations and audits, serve as a deterrent to fraud. Also, requiring the SBA to
report regularly on its implementation of the stimulus package could promote transparency and
assist Congress in performing its oversight responsibilities. In addition, requiring both output and
outcome performance measures and requiring the SBA to report this information both directly to
Congress and to the public by posting that information on the SBA’s website could enhance both
congressional oversight and public confidence in the SBA’s efforts to assist small businesses.
Congressional Research Service 29
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
Appendix. Summary of Legislative Provisions
S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020
As introduced S. 3518 would, among other provisions,
authorize to be appropriated $16.8 billion to pay the principal, interest, and any
associated fees that are owed on a 7(a), 504/CDC, or Microloan for six-months
(see S. 3518);
create a grant program (typically up to $50,000, or up to $100,000 if the SBA
finds that the recipient is vital to their local economy) for small businesses,
private nonprofit organizations, and small agricultural cooperatives with not less
than 2 and not more than 50 employees that are adversely affected by COVID-
19. Applicants must lack access to credit through the existing SBA disaster loan
program;
create a no-interest, fee-free, direct lending program for borrowers otherwise
eligible for a 7(a) loan (with a loan term of up to 10 years and without obligation
to repay the loan during the first 12 months beginning on the date of loan
disbursement) to be used to pay for a specified list of eligible expenses, including
employee wages and related payroll taxes, rent or utilities, refinancing of up to
50% of existing debt, employee benefits, and past-due payroll, sales, or similar
taxes. The direct lending program would no longer issue new loans after
September 30, 2022, although the SBA Administrator could request an additional
6 months by notifying Congress (the bill also includes a loan forgiveness
provision of up to 50% of the outstanding principal balance for borrowers that
retain or create additional jobs as of December 31, 2021, compared to December
31, 2019);
permanently eliminate the zero subsidy requirement to waive SBAExpress loan
fees for veterans;
provide statutory authorization and program requirements for the 7(a)
Community Advantage Pilot program (to be called the Community Advantage
Loan Program); and
increase the 7(a) program’s authorization level from $30 billion to $80 billion for
both FY2020 and FY2021.
Through September 30, 2021, the act would
authorize to be appropriated $150 million for SBA’s entrepreneurial development
programs, including $40 million in additional funding to Small Business
Development Centers (SBDCs), $18.75 million to Women Business Centers
(WBCs), $1 million to SCORE, and $50 million for Microloan Technical
Assistance grants;
waive SBDC, Microloan Technical Assistance, and WBC grant matching
requirements;
increase the caps and provide parity for sole source contract awards to small
disadvantaged businesses (SDBs), women-owned small businesses (WOSBs),
HUBZone small businesses, and service-disabled veteran owned small
businesses (SDVOSBs). The caps would be increased from less than $4 million
($7 million for manufacturing contracts) for SDBs and HUBZone small
Congressional Research Service 30
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
businesses and from less than $4 million ($6.5 million for manufacturing
contracts) for WOSBs and SDVOSBs to less than $8 million ($10 million for
manufacturing contracts) for all four types of small businesses;
waive, to the maximum extent possible, both the 7(a) one-time up-front loan
guarantee fee and the annual servicing fee (the bill would also waive fees for
504/CDC loans);
increase the 7(a) loan guarantee percentage from not more than 75% or 85% to
not more than 90%;
increase the SBAExpress loan guarantee percentage from not more than 50% to
not more than 90% for loans less than or equal to $350,000 and not more than
75% for loans greater than $350,000;
increase the SBAExpress loan limit from $350,000 to $1 million (on September
30, 2021, the guarantee percentage would revert to 50% and the loan limit would
be set at $500,000);
increase the maximum loan amounts for 7(a) and 504/CDC loans from $5 million
to $10 million (including a permanent increase to $10 million for 504/CDC loans
to small manufacturers); and
authorize to be appropriated $5 billion for fee reductions, increase loan guarantee
amounts, and 7(a) program levels, $177 million for disaster loan administrative
expenses, $1.04 billion for disaster loan credit subsidies, and $200 million for the
SBA’s salaries and expenses account.
S. 3548, the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), as introduced
As introduced, the CARES Act would have, among other provisions, temporarily (during the
“covered period” of March 1, 2020 through December 31, 2020):
require lenders to provide “impacted borrowers” adversely affected by COVID-
19 complete payment deferment relief for not more than one year if the borrower
was in operation on March 1, 2020, and has an application for a 7(a) loan
approved or pending approval on or after the date of enactment.118 The bill
presumes that all aforementioned 7(a) borrowers are an impacted borrower. The
bill also provides for the forgiveness of certain amounts of 7(a) loans made
during the covered period that are needed to maintain payroll continuity through
the covered period;
expand 7(a) eligibility to include any business or nonprofit organization not
currently eligible that has 500 or fewer employees (except for nonprofits eligible
to receive payments for items or services under Medicaid);
increase the maximum 7(a) loan amount to the lesser of (1) four times the
average total monthly payments by the applicant for payroll, mortgage payments,
rent payments, and payments on any other debt obligations incurred during the
one-year period before the date on which the loan is made, or (2) $10 million;
118 The bill does not define what “complete payment deferment relief” entails, and delegates authority to the SBA
Administrator to promulgate guidance to carry out this section. Typically, deferral, in a loan context, delays an
obligation to pay, but does not reduce or eliminate that future obligation.
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COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
increase the SBAExpress loan limit from $350,000 to $1 million (reverts to
$350,000 on January 1, 2021);
allow 7(a) loan proceeds to be used for payroll support, including paid sick,
medical, or family leave, and costs related to the continuation of group health
care benefits during those periods of leave, employee salaries, mortgage
payments, rent, utilities, and any other debt obligations that were incurred before
the covered period;
expand lender delegated loan approval authority to all 7(a) lenders;
relax 7(a) loan underwriting requirements, notably the credit elsewhere
requirement, so lenders consider only whether the borrower was in operation on
March 1, 2020, and had employees for whom the borrower paid salaries and
payroll taxes;
waive, to the maximum extent possible, both the 7(a) one-time up-front loan
guarantee fee and the annual servicing fee;
increase the 7(a) loan guarantee percentage from not more than 75% or 85% to
100% through December 31, 2020;
require lenders to provide “impacted borrowers” adversely affected by COVID-
19 complete payment deferment relief for not more than one year if the borrower
was in operation on March 1, 2020, and has an application for a 7(a) loan
approved or pending approval on or after the date of enactment;
presume that all aforementioned 7(a) borrowers are an impacted borrower and
authorizes the SBA Administrator to purchase 7(a) loans sold on the secondary
market so that impacted borrowers may receive a deferral for not more than one
year;
waive the 7(a) loan program’s $30 billion authorization limit;
appropriate $299.4 billion for loan guarantees and subsidies, $300 million for the
SBA’s salaries and expenses account, $25 million for the SBA’s Office of
Inspector General (OIG), $240 million for entrepreneurial development programs
($192 million for SBDCs and $48 million for WBCs), $25 million for SBA
resource partners to provide online information and training, and $10 million for
the Department of Commerce’s Minority Business Development Agency;
waive SBDC and WBC matching requirements for funding provided by the bill
and waive for three months from the date of enactment matching requirements
for all WBCs, and
provide for the forgiveness of certain amounts of 7(a) loans made during the
covered period that are needed to maintain payroll continuity through the covered
period.
The CARES Act (as amended to include Title I, Keeping American
Workers Employed and Paid Act)
As amended, the CARES Act would, among other provisions,
establish a Paycheck Protection Program through December 31, 2020, under
section 7(a) of the Small Business Act to provide “covered loans” with a 100%
SBA loan guarantee to assist small businesses and other organizations that have
been adversely affected by COVID-19.
Congressional Research Service 32
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
waive both the one-time up front loan guarantee fee and annual servicing fee, the
no credit elsewhere requirement, and the requirements for collateral and a
personal guarantee for a covered loan;
expand eligibility for a covered loan to include businesses currently eligible for a
7(a) loan and any business, 501(c)(3) nonprofit organization, 501(c)(19)
veteran’s organization, or Tribal business not currently eligible that has not more
than 500 employees or, if applicable, the size standard in number of employees
established by the Administration for the industry in which the business,
nonprofit organization, veterans organization, or Tribal business operates.
Individuals who operate under a sole proprietorship or as an independent
contractor and eligible self-employed individuals are also eligible to receive a
covered loan;119
increase the maximum loan amount for a covered loan to the lesser of (1) 2.5
times the average total monthly payments by the applicant for payroll costs
incurred during the one-year period before the date on which the loan is made
plus the outstanding balance of any 7(a) loan (made on or after January 31, 2020)
that is refinanced as part of a covered loan, or (2) $10 million;
allow borrowers to refinance 7(a) loans (made on or after January 31, 2020) as
part of a covered loan;
specify that covered loans are nonrecourse (meaning that the SBA cannot pursue
collections actions against the recipient(s) in the case of nonpayment) except to
the extent that the covered loan proceeds are used for nonauthorized purposes;
allow the covered loan to be used for payroll costs, costs related to the
continuation of group health care benefits during periods of paid sick, medical, or
family leave, and insurance premiums, employee salaries, commissions, or
similar compensations, mortgage payments, rent, utilities, and interest on any
other debt obligations that were incurred before the covered period;
expand lender delegated loan approval authority for making covered loans to all
7(a) lenders;
require lenders, when evaluating borrower eligibility for a covered loan, to
consider whether the borrower was in operation on February 15, 2020, had
employees for whom the borrower paid salaries and payroll taxes, and paid
independent contractors;
require borrowers to, among other acknowledgements,
make a good faith certification that the covered loan is needed because of the
uncertainty of current economic conditions and to support ongoing
operations, and
119 For purposes of determining not more than 500 employees, the term employee includes individuals employed on a
full-time, part-time, or other basis. Also, special eligibility considerations are provided for certain businesses and
organizations. For example, businesses operating in NAICS Sector 72 (Accommodation and Food Services industry)
that employ not more than 500 employees per physical location are also eligible for a covered loan. Affiliation rules are
also waived for: (1) NAICS Sector 72 businesses, (2) franchises, and (3) SBIC-owned businesses. In other words, these
businesses would not be denied a covered loan solely because they employ more than 500 employees across multiple
businesses under common ownership. Also eligible are businesses with more than one physical location that employ
not more than 500 employees per physical location in certain industries.
Congressional Research Service 33
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
acknowledge that the funds will be used to retain workers, maintain payroll,
or make mortgage payments, lease payments, and utility payments;
require lenders to provide “impacted borrowers” adversely affected by COVID-
19 “complete payment deferment relief”120 on a covered loan for not less than six
months and not more than one year if the borrower was in operation on February
15, 2020, and has an application for a covered loan approved or pending approval
on or after the date of enactment;
presume that each eligible recipient that applies for a covered loan is an impacted
borrower and authorizes the SBA Administrator to purchase covered loans sold
on the secondary market so that affected borrowers may receive a deferral for not
more than one year;
require federal banking agencies or the National Credit Union Administration
Board applying capital requirements under their respective risk-based capital
requirements to provide a covered loan with a 0%-risk weight;
provide for the forgiveness of covered loan amounts equal to the amount the
borrower spent during an 8-week period after the origination date of the loan on
payroll costs, interest payment on any mortgage incurred prior to February 15,
2020, payment of rent on any lease in force prior to February 15, 2020, and
payment on any utility for which service began before February 15, 2020. The
amount of loan forgiveness cannot exceed the covered loan’s principal amount.
The forgiveness is to be reduced proportionally by formulas related to the
borrower’s retention of full-time equivalent employees compared to the prior
year and by the amount of any reduction in pay of any employee beyond 25% of
their prior year salary or wages.121 Borrowers that re-hire workers previously laid
off will not be penalized for having a reduced payroll at the beginning of the
period. Cancelled debt resulting from loan forgiveness would not be included in
the borrower’s taxable federal income.
increase the SBA’s lending authorization under Section 7(a) of the Small
Business Act from $30 billion to $349 billion during the covered period;
increase the SBAExpress loan limit from $350,000 to $1 million (reverts to
$350,000 on January 1, 2021);
permanently eliminate the zero subsidy requirement to waive SBAExpress loan
fees for veterans;
appropriate $349 billion for loan guarantees and subsidies, $675 million for the
SBA’s salaries and expenses account, $25 million for the SBA’s Office of
Inspector General (OIG), $265 million for entrepreneurial development programs
($192 million for SBDCs, $48 million for WBCs, and $25 million for SBA
resource partners to provide online information and training), $17 billion for
subsidies for certain loan payments, and $10 million for the Department of
Commerce’s Minority Business Development Agency;
allows the period of use of FY2018 and FY2019 grant awards made under the
State Trade Expansion Program (STEP) through FY2021;
120 According to the bill text, “complete deferment relief” includes payment of principal, interest, and fees.
121 For the purposes of the reduction formula, reductions in employees with wages or salary at an annualized rate of pay
more than $100,000 are not taken into account. Businesses may also receive forgiveness amounts for additional wages
paid to tipped employees.
Congressional Research Service 34
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
reimburses (up to the grant amount received) STEP award recipients for financial
losses relating to a foreign trade mission or a trade show exhibition that was
cancelled solely due to a public health emergency declared due to COVID-19;
waive SBDC and WBC matching requirements, and
require federal agencies to continue to pay small business contractors and revise
delivery schedules, holding small contractors harmless for being unable to
perform a contract due to COVID-19 caused interruptions until September 2021;
require federal agencies to promptly pay small business prime contractors and
requires prime contractors to promptly pay small business subcontractors within
15 days, notwithstanding any other provision of law or regulation, for the
duration of the President invoking the Defense Production Act in response to
COVID-19;
provide SBA Emergency Injury Disaster Loan (EIDL) enhancements during the
covered period of January 31, 2020, through December 31, 2020, including
expanding eligibility beyond currently eligible small businesses, private
nonprofit organizations, and small agricultural cooperatives, to include
startups, cooperatives, and eligible ESOPs (employee stock ownership plans)
with less than 500 employees, sole proprietors, and independent contractors;
authorizing the SBA Administrator, in response to economic injuries caused
by COVID-19, to
waive the no credit available elsewhere requirement,
approve an applicant based solely on their credit score,
not require applicants to submit a tax return or tax return transcript for
approval,
waive any rules related to the personal guarantee on advances and loans
of not more than $200,000, and
waive the requirement that the applicant needs to be in business for the
one-year period before the disaster declaration, except that no waiver
may be made for a business that was not in operation on January 31,
2020.
authorizing the SBA Administrator, through December 31, 2020, to provide
up to $10,000 as an advance payment in the amount requested within three
days after receiving an EIDL application from an eligible entity. Applicants
are not required to repay the advance payment, even if subsequently denied
an EIDL loan. The funds may be used for any eligible EIDL expense,
including, among other expenses, providing paid sick leave to employees
unable to work due to COVID-19, maintaining payroll to retain employees,
and meeting increased costs to obtain materials due to supply chain
disruptions; and
appropriating an additional $10 billion for EIDL assistance.
Congressional Research Service 35
COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options
Author Contact Information
Robert Jay Dilger Sean Lowry
Senior Specialist in American National Government Analyst in Public Finance
[redacted]@crs.loc.gov
, 7-.... [redacted]@crs.loc.gov
, 7-....
Bruce R. Lindsay
Analyst in American National Government
[redacted]@crs.loc.gov
, 7-....
Congressional Research Service R46284 · VERSION 1 · NEW 36
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