A PERFORMANCE ANALYSIS OF SBA’S LOAN AND INVESTMENT PROGRAMS Final Report January 2008 Prepared for: U.S. Small Business Administration Prepared by: The Urban Institute 2100 M Street, NW ● Washington, DC 20037 A Performance Analysis of SBA’s Loan and Investment Programs Final Report January 2008 Prepared By: Rachel Brash Megan Gallagher The Urban Institute Metropolitan Housing and Communities Policy Center 2100 M Street, NW Washington, DC 20037 Submitted To: U.S. Small Business Administration 409 Third Street, SW Washington, DC 20416 Contract No. GS23F8198H UI No. 07112-020-00 The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. A Performance Analysis of SBA’s Loan and Investment Programs CONTENTS INTRODUCTION .......................................................................................................................... 1 BACKGROUND............................................................................................................................ 2 Research Questions ................................................................................................................ 2 Program Overviews ................................................................................................................. 7 Section 7(a) Loan Guarantee Program................................................................................ 8 Certified Development Company (504) Loan Program........................................................ 8 Debenture Small Business Investment Company (SBIC) Program..................................... 9 METHODOLOGY ......................................................................................................................... 9 Samples from SBA Portfolios ................................................................................................ 10 Dun & Bradstreet (D&B) Data ............................................................................................... 10 D&B Data Match Rates ......................................................................................................... 11 Measures............................................................................................................................... 12 Firm Performance .............................................................................................................. 12 Other Firm Characteristics................................................................................................. 14 Financing Characteristics .................................................................................................. 15 Market Characteristics ....................................................................................................... 15 Descriptive Analyses ............................................................................................................. 16 Multivariate Analyses ............................................................................................................ 16 FINDINGS ................................................................................................................................... 17 What Happens to Sales, Employment, and Survival before and after Firms Receive Financing from the SBA? ...................................................................................................... 17 Average Sales ...................................................................................................................17 Percent Change in Sales ................................................................................................... 20 A Performance Analysis of SBA’s Loan and Investment Programs Average Employment ........................................................................................................ 21 Percent Change in Employment ........................................................................................ 23 Survival .............................................................................................................................. 24 What Explains the Changes Observed after Firms Receive Financing from the SBA? ............................................................................................................................... 26 7(a) Program: Factors that Explain Percent Change in Sales and Employment ............... 28 504 Program: Factors that Explain Percent Change in Sales and Employment ............... 30 SBIC: Factors that Explain Percent Change in Sales and Employment ............................ 32 CONCLUSIONS AND POLICY IMPLICATIONS ....................................................................... 34 REFERENCES