Detailed Information on the
Small Business Investment Companies Debentures Assessment

The Investment Division is enhancing its data collection program to ensure appropriate, timely and comprehensive collection of relevant data. Data will be collected through integrated web-based forms with appropriate licensee and Investment Division access. Goal is to improve data for purpose of better risk identification and improved decision-making.

Improved Financial Monitoring of Active SBICs

Improved Response Time in Operations

Improved Licensing Times

Measure: Number of Companies Financed by SBICs Issuing Debentures

Explanation:This measure tracks the number of companies that received financing from all SBICs issuing Debentures. The number of companies is a long term measure of how SBICs support the sustainability and growth of existing and start-up businesses. This is a cited measure in the SBA's Strategic Plan (Long-term Objective 2.1. Increase the positive impact of SBA assistance upon the number and success of small business start-ups; and Long-term Objective 2.2. Maximize the sustainability and growth of existing small businesses assisted by SBA.) With the close-out of the Participating Securities Program in 2004, some small businesses may have thought the Debentures program was also being phased out. Therefore, it is the long term objective of the SBA to restore the number of companies financed by SBICs issuing Debentures to levels achieved prior to FY 2004 over a 5 to 7 year time period. The annual goals help measure progress towards this long term goal.

Measure: Amount of Financings by SBICs Issuing Debentures

Explanation:This measure tracks the amount of financing that companies received financing from all SBICs issuing Debentures. The amount of financing is a measure of how SBA's capital impacts the sustainability and growth of existing and start-up businesses. This supports the SBA's Strategic Plan (Long-term Objective 2.1. Increase the positive impact of SBA assistance upon the number and success of small business start-ups; and Long-term Objective 2.2. Maximize the sustainability and growth of existing small businesses assisted by SBA.).

Measure: Recovery rate as measured by total collections to average of beginning and ending leverage outstanding in the Office of Liquidations

Explanation:The Office of Liquidations is responsible for recovering leverage that has been repurchased due to SBIC defaults and regulatory concerns, including capital impairment. The faster leverage is recovered, the lower the cost to the Government. The recovery rate in FY 2006 is considered an outlier due to the total recovery of 2 SBICs in a single year under unusual circumstances. The three year average prior to FY 2006 was 8%. Targets based on implied recovery rates established during subsidy re-estimates each year. Subsidy model rates indicate an average of 9.4% over years 2007 through 2009. Targets represent 10% above this average.

Measure: Average number of exam reports issued per examiner.

Explanation:SBA must perform examinations on SBICs, per the Small Business Investment Act. Strategic Goal 4 in SBA's Strategic Plan is to ensure that all SBA programs operate at maximum efficiency and effectiveness. The examination function helps ensure regulatory compliance and that SBICs are operated so as to achieve program mission. This metric measures the average number of exams performed by SBA examiners per year, indicating the efficiency of this important and legislatively mandated function.

Measure: Number of jobs created: Using "The 1999 Arizona Venture Capital Impact Study" data

Explanation:One of the primary intents of the SBIC program is to create jobs. SBA estimates jobs created using "The 1999 Arizona Venture Capital Impact Study" (confirmed by the DRI-WEFA study of 2001) indicating that 1 job is created for every $36,000 in investment (adjusted for inflation). The number of jobs created is a measure of how the SBIC program impacts the sustainability and growth of existing and start-up businesses and is one of the core economic measures of the program. This supports SBA's Strategic Plan (Long-term Objective 2.2. Maximize the sustainability and growth of existing small businesses assisted by SBA.) The SBIC program is ambitiously targeting the creation of half a million jobs over the next ten to twelve years. The annual goals help measure progress towards this long term goal.

Measure: Geographic Dispersion: Percentage of related Debenture SBIC financing dollars that are in states & U.S. territories that received less than 25% of all related Private Equity financing dollars.

Explanation:Part of the SBIC program's mission is to provide financing which is "not in adequate supply". Private equity concentrates their financings in California and Massachusetts. This was confirmed by the Urban Institute Study. In FY 2005 and 2006, 8 states received over 75% of all similar private equity financings. The geographic dispersion metric identifies, each fiscal year, what percentage of related debenture SBIC financing dollars are in the other 42 states and territories. (This measure reflects the distribution only of equity-related SBIC Debenture financing, which contributes about 56% of total SBIC Debenture financing.)

Measure: Industry Dispersion: Percentage of financing dollars by "Debenture" SBICs that are in industries that received less than 10% of all comparable private equity companies financing dollars in a year.

Explanation:Part of the SBIC program's mission is to provide financing which is "not in adequate supply". In private equity, most venture funds concentrate on technical and health related industries. This was confirmed by the Urban Institute Study on the Debenture program, "Debenture SBIC Special Competitive Opportunity Gap Analysis." Debenture SBICs help fill this niche in the market place. The industry dispersion metric shows how effective the debenture SBIC program is in meeting needs in industries which do not typically attract comparable private equity. (This measure reflects the distribution only of equity-related SBIC Debenture financing, which contributes about 56% of total SBIC Debenture financing.)

Is the program purpose clear?

Explanation: The purpose of the Small Business Investment Company (SBIC) program is to stimulate and supplement the flow of private equity capital and long term loans to small business concerns where they are not available in adequate supply.

Evidence: The Small Business investment Act defines the purpose to be "to improve and stimulate the national economy in general and the small business segment thereof in particular by establishing a program to stimulate and supplement the flow of private equity capital and long term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply: Provided, however, that this policy shall be carried out in such manner as to insure the maximum participation of private financing sources."

Does the program address a specific and existing problem, interest, or need?

Explanation: While the SBIC Debenture program tends to perform financing across a more dispersed geographic area and across more industries than private venture capital, the extent to which it addresses market failures or significant opportunity gaps is unclear. In contrast to other SBA credit programs, the SBIC Debenture program lacks a "credit elsewhere test" to ensure that the program does not substitute for capital that is available through private markets at reasonable terms. SBA should take steps to better demonstrate the lack of adequate capital and/or the existence of a significant opportunity gap that is effectively addressed by the SBIC Debenture program.

Evidence: See current performance measures. The Urban Institute's "The Debenture Small Business Investment Company Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity" determines that SBIC Debentures are different than private equity, however, substantial need for this type of financing is not demonstrated.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: While there is some overlap with other Federal, state, local, or private venture capital efforts, other such efforts concentrate primarily in technology, science, and healthcare, similar to traditional venture capital. Debenture SBICs are more diverse in their investments. The Urban Institute's "SBA Evaluation: Duplication Study" indicated that 72 percent of the state programs exclusively targeted the technology, science, or healthcare sectors, while SBIC investments targeted to this area were approximately 26% of investment dollars and 17 percent of number of investments. Also, state supported venture funds are very local, smaller in nature, and typically provide equity funding rather than SBA guaranteed leverage. While the SBIC Debenture program tends to support different investments than other venture capital providers, SBA should evaluate the extent to which the program provides financing to activities that are eligible for other forms of credit on reasonable terms.

Evidence: The Urban Institute's "SBA Evaluation: Duplication Study" indicated that "Only one federal program provides funding to small business investment firms, while 29 programs in all 12 of the study states have such programs. Like private market venture capital loan funds, state venture capital programs focus heavily on technology, science, and healthcare, overlooking traditional "low-tech" firms. By contrast, SBIC investments are more diverse. None of the study cities appears to have city-run or city-funded programs similar to the SBIC program." The programs cited by the Urban Institute are more complementary to the SBIC program because of the different types of investments made and the type of funding provided by the program.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The debenture program continues to operate at a zero subsidy rate. There are also no outstanding GAO audits/ reviews with respect to the program. The IG has performed two audits since the last PART. Based on findings in both audits, SBA revised its standard operating procedures to the IG's statisfaction. There are no major flaws identified by the IG that limit the program's effectiveness or efficiency. However, SBA should develop measures to better evaluate and ensure the effectiveness of the program in addressing potential market failures and/or opportunity gaps.

Evidence: The budget and re-estimates indicate the financial performance of the Debenture program and support the zero subsidy calculation. The IG Audits 3-33 and 5-22 indicate the issues raised by the IG that are being resolved by the revised Standard Operating Procedures (SOPs). None of the issues remaining to be resolved constitute major program flaws. As evidence of SBA continuous improvement of the program, in FY 2006, SBA removed the prepayment penalty from the Debenture program that was 1) unattractive to SBICs and 2) limited their ability to prepay leverage which could put the SBA and the taxpayer at further risk. In addition, the demand for the program continues to hold at a steady pace, as evidenced by the number of Debenture licensees in the last 2 years.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The purpose of the SBIC program is to stimulate and supplement the flow of private equity capital and long term loans to small business concerns that are not available in adequate supply. The SBIC program reaches small businesses looking for expansion, later stage, and bridge type financing not typically provided by private equity funds. This has been confirmed by the Urban Institute's report on the SBIC Debenture Program, which indicated that the SBIC program tends to provide financing to businesses geographically different than private equity and in different industries. SBA promotes this diversity by licensing SBICs across the United States with licensees in 45 different states and territories. However, SBA should explore steps to improve targeting, as the program does not currently assess whether credit is available elsewhere on reasonable terms nor does it explicitly focus on market failures or opportunity gaps.

Evidence: The Urban Institute's report on the SBIC Debenture Program, "The Debenture Small Business Investment Company Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity," identified that SBICs reach different small businesses than traditionally served by private venture capital. As indicated in the report, private venture capital funds tend to perform larger financings, concentrate their financings in few areas (the study indicated that over 58% of comparable private equity investments dollars went to California and Massachusetts , whereas less than 15% of Debenture SBIC investment dollars went to those two states), and in specific industries (primarily technology and healthcare). The report indicated that SBICs perform financings across a more dispersed geographic area, across more industries, and to small businesses needing smaller amounts of financing.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The SBIC program seeks to expand capital availability in markets that are less well served by the private venture capital market. The program therefore routinely measures the volume of financing it supports and its distribution across industries and States. The program also uses a multiplier to estimate the effect of these financings in supporting employment. While these measures indicate the program does have a distribution of impacts different from private equity capital, they do not demonstrate that a market failure or significant opportunity gap is being addressed. SBA should develop measures to better evaluate and ensure the effectiveness of the program in addressing potential market failures or opportunity gaps.

Evidence: In addition to the long term measures shown in the PART,the Investment Division Stats Package provides this information each year and compares its performance to industry routinely. In addition, the Urban Institute performed an independent study to evaluate the SBIC Debentures program. The U.S. Small Business Administration Strategic Plan FY 2006 - FY 2011 also documents some of these initiatives.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: As indicated in the measures section, the program has long term goals to increase the amount of financings issued by the Debenture program. When the Participating Securities Program ceased to receive authority for new funds after FY 2004, there was a spillover effect to the Debenture Program, since some in industry believed the entire SBIC program was ending. Long-term goals include increasing the number of businesses helped to pre-FY 2004 Debenture levels and to slowly over ten to twelve years increase the financing amount levels. In addition, SBA will continue to work at keeping the Debenture program unique from the rest of private equity as measured by the industries it finances and geographic dispersion. The Urban Institute's study of the Debenture program confirmed that investment profiles in industry and geography were key differences between the Debenture program and private equity.

Evidence: See performance measures, SBA performance scorecard, 2008 Congressional Budget Submission, 2008 OMB Budget Submission and the 2006 PAR.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: SBA has identified targets and timeframes for its annual measures that reflect its long term goals, including measures showing that SBIC debenture financings are in small businesses that typically are not addressed by the venture capital industry. The SBIC program tracks to two of SBA's long term goals in U.S. Small Business Administration Strategic Plan FY 2006 - FY 2011. The following measures track to Long Term Goal 2, Increase small business success by bridging competitive opportunity gaps: Number of Companies Financed by SBICs Issuing Debentures; Amount of Financings by SBICs Issuing Debentures; Number of Jobs Created; Geographic Dispersion; and Industry Dispersion. The following measures track to Long Term Goal 4, Ensure maximum efficiency and effectiveness: Recovery Rate in the Office of Liquidations and Average Number of Exam Reports Issued per Examiner. The annual goals are tracked to help measure SBA's progress towards these long term goals. However, because these measures do not adequately demonstrate that a market failure or significant opportunity gap is being addressed by the program, SBA should develop measures to better assess and ensure the effectiveness of the program in addressing such potential shortfalls of private capital markets.

Evidence: See performance measures and SBA Strategic Plan.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The SBA has identified baselines and targets using historical data and the independent "Competitive and Special Opportunity Gap Analysis of the Debenture Small Business Investment Program" Report performed by the Urban Institute. These include measures regarding number of companies financed, amount of financings, efficiency measures encompassing critical aspects of SBIC operations, and outcome measures including jobs created and metrics that indicate the distribution of funding across geographic areas and industries.

Evidence: All baselines are based on historical performance and the analysis provided by the "Competitive and Special Opportunity Gap Analysis of the Debenture Small Business Investment Program" Report performed by the Urban Institute. See performance measures, SBA performance scorecard, 2008 Congressional Budget Submission, 2008 OMB Budget Submission, and the 2006 PAR.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Because private capital is also at risk, it is in the interest of the SBIC to achieve positive returns, thereby growing their portfolio value. If the SBIC's portfolio loses value, the SBA debenture leverage takes preference over the private capital. Therefore, the SBIC is motivated to grow the value of its portfolio companies. SBICs must report their financing activities and the economic status of the companies they finance each year and are closely monitored by SBA to ensure that SBICs are tracking to performance goals. In addition, program goals are included and tracked in the SBA internal scorecard and in employee personal business commitment plans.

Evidence: The SBA Internal Scorecard keeps track of financing goals; internal capital impairment reports keep track of the performance of each SBIC; and performance goals are included in all employee's personal business commitment plans.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: SBA conducts independent evaluations on its program to evaluate program improvements and effectiveness. The Inspector General (IG) regularly evaluates the program and the Investment Division is working to respond to management challenges identified. The GAO also evaluates the program on a periodic basis. In addition, the SBA hired an independent economic consultant to review the program in terms of it meeting a gap in the marketplace, duplication with the public sector, and its effectiveness. To further help identify improvements to the program, the Investment Division hired both a secondary market expert to evaluate the Investment Division's Office of Liquidation processes and a valuation expert to independently value specific companies in the SBIC portfolio as well as to provide advice regarding changes to the SBA's Valuation guidelines. However, additional research should be done to evaluate lack of adequate capital and/or the existence of significant opportunity gaps which the program seeks to address.

Evidence: The IG reports may be found at http://www.sba.gov/ig/challenges.html. The last GAO study was published September 2000. The Urban Institute's "Competitive and Special Competitive Opportunity Gap Analysis of the Debenture Small Business Investment Company Program Final Report" (December 2006) and "Public Sector duplication of Small Business Administration Loan and Investment Programs: An Analysis of Overlap Between Federal, State, and Local Programs Providing Financial Assistance to Small Businesses Final Report" (January 2007). The contract for the secondary market consultant was completed in March 2006. The valuation contract was initiated at the end of FY 2005 and to date the contractor has provided recommendations to the Valuation guidelines and valued over 100 portfolio companies.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: SBA uses a "performance scorecard" to track and evaluate performance. Budget requests must tie to performance goals and requested resources must identify objectives and how funds are needed to realize those objectives. Personnel, travel, and contracting (e.g., valuations, liquidations, etc.) requests are tied specifically to program needs.

Evidence: SBA performance scorecard, 2008 Congressional Budget Submission, 2008 OMB Budget Submission, and the 2006 PAR.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The SBA has taken several steps to improve its strategic planning including hiring the Urban Institute to assess the economic performance of the program and devising several new outcome, efficiency, and output measurements to help analyze the performance of the SBIC Debentures Program. As noted, SBA should undertake additional work to ensure the program is well targeted to address market failures and opportunity gaps in its provision of Federally supported financing.

Evidence: Urban Institute Reports and performance measures.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: SBA collects quarterly financial performance information through Form 468s from SBICs receiving leverage. The Investment Division uses this information to create Core Analytical Documents from which analysts evaluate the performance of each SBIC, analyze trends, and assess risk. In addition, this performance data is used each quarter to create capital impairment reports which allow the SBA to focus its attention and actions on the more financially impaired SBICs.

Evidence: The data received each quarter from the SBICs, the Core Analytical Document, and the capital impairment report show how the information is received and analyzed. As a result of this focus and the resulting management actions taken, the percentage of capitally impaired SBICs in Operations has steadily dropped over the last three years as shown in SBA internal capital impairment reports.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Individual performance plans are tied to program measures. Every employee within the program is held accountable as part of their Personal Business Commitment Plan. Receivership agent payment is directly tied to performance. The SBICs and SBIC managers have a financial incentive to perform.

Evidence: Individual performance plans, receivership contracts, and SBIC LP agreements.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Funding requests receive two levels of review and are certified as to use. Once approved, the program has an administrative system in place to obligate the funds in a timely fashion as a commitment. Once an SBIC receives a commitment, the SBIC may apply for draws on that commitment for 4 fiscal years after the year the commitment was approved. Using just in time funding, SBICs may apply twice a month and receive notice within 1 week after application. All requests, approvals and subsequent draws are accounted for by the SBA and have established guidance and deadlines. Each draw request requires a specific documentation to the use of funds. Uses of funds are audited annually by the program examiners.

Evidence: Documentation supporting requests and reports on file and exam reports also on file. Reports from the Agency's Loan Accounting system to reflect obligations. The most recent Improper payment report for the program indicated zero improper payments, as discussed in the 2006 PAR.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Through IT improvements, the program tracks efficiency metrics in all aspects of its execution, including Licensing, Operations, Funding, Exams, and Liquidations. The metrics are tied to individual performance plans. Receivership agent payments are directly tied to performance. In addition, SBIC management fees are lowered for SBICs in restricted operations and Liquidations. The SBIC Program's information system keeps track of both the number of exams by examiner to measure efficiency in the exam area and all recoveries in the Office of Liquidation to measure the recovery rate. These are tracked and reported in the Investment Division metrics reports and are used in individual performance ratings.

Evidence: Investment Division internal metrics report, individual performance plans, receivership contracts, and the Operations, Liquidations, and Licensing SOPs.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The program is unique in government, as it is the only program that provides guaranteed leverage to private equity funds. However, the SBA has provided extensive comments to the one federal program identified by the Urban Institute as being somewhat similar, CDFI, and other parts of Treasury. In addition, the SBA has been meeting with the National Association of Small Business Investment Companies (NASBIC) to help collaborate on program improvements and improve communication. SBA is currently working with industry to identify any other recommendations for the New Markets Tax Credit program that could help foster private equity investment into low income areas. SBA is also working with other private equity industry associations, including the Small Business Investment Alliance (SBIA) and the National Association of Investment Companies (NAIC) to help improve reach into underserved markets. Finally, SBA is coordinating very closely with the Department of Agriculture on the Rural Business Investment Company (RBIC) program, having provided its expertise in preparing the regulations, selecting and monitoring the RBIC, developing the subsidy cost model, and providing the RBIC re-estimates.

Evidence: Letter to Treasury, SBA-NASBIC Issues Tracking, RBIC regulations and cost model, and meetings with various associations.

Does the program use strong financial management practices?

Explanation: The program uses strong financial practices with regard to Licensing, Operations, Funding and Administration, and Liquidations. Applicants for the program undergo a rigorous licensing process that assesses fund manager track records and provide multiple levels of review. Once licensed, the fund is closely monitored by Operations who provide further review prior to the fund receiving commitments and draws for leverage. Operations also continually assesses fund performance using its core analytical document and takes any necessary actions to protect the taxpayer's money. The Office of Liquidations uses several methods to recover repurchased leverage, including receiverships with performance based incentives. Senior management keeps informed on all areas through several different reports.

Evidence: Licensing documentation, Core Analytical Document, Capital Impairment Reports, OL Metric Report, OL Monthly Reports, and various SOPs.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The SBA has taken steps to respond to IG Management Challenges including hiring a secondary market consultant to review its liquidations processes, forming an internal task force to also assess its liquidation processes, and drafting both Liquidation and Operational Standard Operating Procedures to incorporate appropriate recommendations by its secondary market consultant and its valuation contractor.

Evidence: The IG Management Challenge Report indicates some of the progress that the Investment Division has made in responding to the identified challenges. SBA tracks its progress for each management challenge in the SBA internal performance scorecard. The secondary market consultant's recommendations were reviewed by a Liquidation Task Force team which then performed its own analysis of the Office of Liquidations and created an action plan to implement specific recommendations. The recommendations to SBA valuation guidelines have been considered in drafting the new proposed SBA valuation guidelines which were released for comments in late April 2007.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: The program is managed at all levels to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled. SBA starts assuring the credit quality of SBICs at the licensing process and in performing appropriate due diligence. This process is documented in the Licensing Standard Operating Procedures (SOP). Once licensed, SBA again reviews the SBIC in the agency's Credit Committee before providing commitments. SBA again reviews SBIC financial status and regulatory compliance prior to approving SBIC draws on approved commitments. Both the Operations Analyst and the Office of Funding and Administration assess timely collections and disbursements. This process is documented in the Office of SBIC Operations SOP.

Evidence: SBIC Licensing SOP, Office of SBIC Operations SOP, Licensing Applications, Licensing Minutes, Credit Committee Minutes

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: The Debenture program's subsidy model provides reliable, consistent, accurate and transparent estimates of costs and the risk to the Government. Estimates are based on historical program data and are reassessed each year. The models undergo review by the Office of Management and Budget and auditors each year.

Evidence: FY 2008 Budget and Credit Supplements.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: SBA appears to be largely on track in its job creation, geographic dispersion and industry dispersion goals. Job creation numbers were increased by 7.9% between FY 2005 and 2006. Debenture SBICs provided 61% of their private equity financing to states and U.S territories that combined received less than 25% of all related private equity financing dollars. Debenture SBICs also performed financings to industries not typically financed by private industry as evidenced by 80% of Debenture private equity financing dollars going to industries that received less than 10% of private equity financing dollars. The Urban Institute's report identified that geography and industry dispersion distinguished the Debenture SBIC program from the rest of private equity. However it is not clear that the financings delivered are addressing shortfalls in private funding available from other sources.

Evidence: See performance measures, SBA performance scorecard, 2008 Congressional Budget Submission, 2008 OMB Budget Submission, 2006 PAR, and the Competitive and Special Competitive Opportunity Gap Analysis of the Debenture Small Business Investment Company Program Final Report (December 2006)

Does the program (including program partners) achieve its annual performance goals?

Explanation: As shown in the performance measures, SBA came within 1% of meeting its number of companies target, met 2 out of the 3 target years in the amount of financings identified, exceeded its target recovery rate in the last 2 fiscal years (in FY 2006 more than doubled its target recovery rate), and met or exceeded its exam measure for all three of its fiscal years.

Evidence: See performance measures, SBA performance scorecard, 2008 Congressional Budget Submission, 2008 OMB Budget Submission and the 2006 PAR.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: As shown in the performance measures, SBA met or exceeded its Exam efficiency target in fiscal years 2004 through 2006; however, the current examinations target represents a decline from actual levels in 2004 and 2005. Although SBA did not meet its recovery rate metric in fiscal year 2004, it exceeded the target recovery rate in both FY 2005 and 2006, with the actual recovery rate in fiscal year 2006 more than double the targeted recovery rate. Improved recovery rates translate directly into lower program costs. Higher overall recoveries in the Office of Liquidation offset previous leverage repurchases, thereby lowering the losses in the program. In addition, faster recoveries also lower the cost to the taxpayer through savings in the Government's cost of capital.

Evidence: See performance measures, program statisitcs and internal Office of Liquidations metrics report.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: While private equity funds and state sponsored funds exist, as independently evaluated, state sponsored funds are directed largely to the technology sector, while SBICs are more diverse in the industries served. An independent report indicated that 72 percent of the state sponsored funds were directed to the technology, science or healthcare sectors. By contrast, the debenture SBICs invested only 26 percent towards technology and science and 5 percent to educational, healthcare, and social assistance. In addition, state sponsored funds are local by nature, while SBICs span geographic areas; not all businesses may have access to state sponsored funds. However, unlike other SBA credit programs, the SBIC Debenture program does not assess whether financing assists firms that could receive credit elsewhere at reasonable terms.

Evidence: Public Sector duplication of Small Business Administration Loan and Investment Programs: An Analysis of Overlap Between Federal, State, and Local Programs Providing Financial Assistance to Small Businesses Final Report (January 2007)

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Independent evaluations indicate the program serves a niche in the private equity market, providing smaller financings in industries and geographic regions not typically served by private equity funds. The Urban Institute's "Debenture SBIC: Comparative Analysis of Investment Patterns With Private Venture Capital Equity" indicated that debenture SBIC investments are "not as heavily concentrated in companies within the technology sector and are in different types of industries" and are "less geographically concentrated than comparable private venture capital investments". The report indicated that these findings support "a key SBA goal by providing capital to entrepreneurs who are underserved by the venture capital industry." In addition, the program office tracks these two areas as geographic dispersion and industry dispersion. Metrics indicate that in FY 2005 and 2006, over 60% of Debenture SBIC equity-related financing dollars went to states and U.S. territories that combined received less than 25% of all related private equity financing dollars. Metrics also indicate that 80% of SBIC equity-related financing dollars in FY 2005 and 2006 went to industries which individually received less than 10% of private equity financing dollars.

Evidence: The Urban Institute's "Competitive and Special Competitive Opportunity Gap Analysis of the Debenture Small Business Investment Company Program Final Report" (December 2006) and "Public Sector duplication of Small Business Administration Loan and Investment Programs: An Analysis of Overlap Between Federal, State, and Local Programs Providing Financial Assistance to Small Businesses Final Report" (January 2007)