A Performance Analysis of SBA's Loan and Investment Programs

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Abstract

This report addresses two questions about outcomes for firms receiving assistance through SBA's 7(a), CDC 504, or SBIC programs between 1999 and 2001: 1) what happens to sales, employment, and survival before and after firms receive SBA financing; and 2) what explains the changes observed in sales or employment after firms receive SBA financing? Descriptive analyses found that prior to financing and each year thereafter, average sales increased over time, as did average employment. Multivariate analyses found that firm age, industry, and region of the country were significantly related to percent change in sales and employment for all three programs.

Introduction

The question this analysis set out to answer was Does assistance from the U.S. Small Business Administration (SBA) help the firms that receive it? Answering this question definitively would require an impact analysis that is beyond the scope of this project. However, it is possible to assess whether SBA loans are associated with firm performance, and what role other factors play. Using administrative data collected by the SBA, as well as data collected privately by Dun & Bradstreet (D&B), this is a rigorous, quantitative analysis of the performance over time of businesses that received assistance through the SBA’s Section 7(a) Loan Guarantee Program, Certified Development Company (504) Loan Program, or Small Business Investment Company (SBIC) Program between 1999 and 2001. The study adds to a body of research that examines the firm characteristics that influence business outcomes such as sales and employment growth. In addressing the question of whether SBA assistance helps the firms that receive it, this study asked two related questions and employed different analytical tools to answer each:

1. What happens to sales, employment, and survival before and after firms receive financing from the SBA?
2. What explains the changes observed in sales or employment after firms receive financing from the SBA?

Three commonly used business outcomes—annual sales, number of employees, and survival—were used to determine the characteristics associated with firm performance. Descriptive analyses of average sales and employment levels were employed to answer the first question. The descriptive analyses allow one to track changes in the overall average of annual sales or business size over time, but do not control for other factors that might be contributing to these changing levels. Multivariate analyses, the second analytic approach used in this study, permit one to disentangle the influence that different factors, such as firm or market characteristics, have on a firm’s size or bottom line.

The findings were similar for the 7(a), 504, and SBIC programs for both the descriptive and multivariate analyses. The descriptive analyses found that average sales, measured in 2005 dollars, increased over time for firms in all three programs, as did average employment. The multivariate analysis found that firm age, industry, and region of the country were significantly related to percent change in sales and employment for all three programs. For the 7(a) program, for both percent change in sales and percent change in employment, younger firms experienced greater growth than older firms, and firms in the mining industry experienced greater growth than firms in the manufacturing industry. Pre-financing sales growth, minority ownership, being in the wholesale industry (relative to being in the manufacturing industry), and region of the country were also significant factors for 7(a) firms, although not for both sales and employment growth. For firms in the 504 program, younger firms demonstrated more growth than older firms for both percent change in sales and percent change in employment. Additionally, being located in the West (relative to being in the Midwest or Outlying Areas), being engaged in the “other services” industry (relative to being in the manufacturing industry), and financing amount were found to be significant factors, although not for both percent change in sales and employment. For the SBIC program, younger firms demonstrated greater growth than older firms for both sales and employment outcomes, and firms in the wholesale industry saw greater growth (compared to those in manufacturing). Commercial credit score had a significant, but very small association with percent change in sales.

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