Why Treasury Was Slow to Expand a Key Small Business Program

Faced with having to drastically ramp up a program to help small businesses get loans during the pandemic, the Treasury Department repeatedly delayed delivering billions of dollars in assistance to states, the Government Accountability Office said in a new report. 

As companies struggled amid the depths of the Covid-19 crisis and more people who lost jobs started small businesses, Congress and the Biden administration raised funding in the 2021 American Rescue Plan Act to $10 billion for the State Small Business Credit Initiative. Funding for the program, which goes to states, territories and tribes to assist small businesses, had previously been just $1.5 billion.

Government assistance for small businesses was key at a time when the number of people starting them was exploding. In 2021, according to a White House report, Americans applied to start 5.4 million new businesses, 20% more than any other year on record. The number of Hispanic Americans starting businesses was nearly a quarter more than before the pandemic.

According to a Brookings Institution study, the rise in small businesses was driven in part by the fact that, unlike previous recessions, more people have tools like broadband enabling them to be entrepreneurs. But also, the report said, “soaring unemployment rates in the early months of the pandemic forced millions to look for new income streams.” 

The Treasury Department initially said it planned to start getting the $10 billion to states in the first quarter of 2022. However, the GAO report said it did not begin disbursing the funds until May 26 of last year.

While all 50 states, five territories, and the District of Columbia applied for the money, Treasury had only released a little more than a tenth of it, or $1.3 billion, to 31 applicants as of last Sept. 30—a year and a half after Biden signed the $1.9 trillion pandemic stimulus package.

The department has made progress since then. After approving funding for seven states in December, Treasury has passed $6.3 billion to 43 states, department spokeswoman Jenna Valle-Riestra said in an email.

Still, seven states have not received the money. And, according to the report, officials in eight of 12 states GAO interviewed said the delays hindered efforts to design or put programs in place to help businesses. The report did not identify these eight states.

The program aims to provide capital to small businesses. Florida, for instance, is giving $250 million of $488.4 million it was awarded in December to financial institutions to allow businesses without adequate collateral to access business loans, according to a Treasury press release.

Illinois plans to prioritize its $354.6 million for loan programs to help underserved businesses, including those owned by low- and moderate-income individuals, people of color, and people in communities in rural areas affected by the transition away from traditional fossil fuels to generate power, the Treasury Department said. 

The GAO report describes how the complexity involved in rapidly expanding the program from $1.5 billion to $10 billion was a challenge for Treasury and how the department began disbursing funds later than it planned, partly because it required more time and resources than expected to support first-time participants and establish new comprehensive guidelines.

The department repeatedly pushed back the timeline to get money out the door, the watchdog agency said. The department, for instance, released its guidelines for the initiative’s capital program on Nov. 10, 2021, which the GAO report said was later than expected.

Treasury officials told investigators that they wanted to make sure the guidelines were properly crafted and would not have to be revised later, the GAO report said. Because the guidelines were delayed, the department moved the deadline for states and territories to apply for capital program funds from Dec. 11, 2021, to Feb. 11, 2022.

Treasury had said in November 2021 that it would issue guidance for applying for technical assistance in the following weeks, but didn’t release it until April 2022, the report said. 

Among other things, Treasury officials told GAO that technical assistance was delayed “because they did not fully anticipate the resources needed to develop and issue extensive reporting guidance, compliance standards, and [frequently asked questions documents].” 

“They also did not fully anticipate the time and effort needed to review capital program applications,” the report added.

Pushing back the deadlines to apply for funds held up the disbursement of the money, the report said. In addition, reviewing the applications took longer than expected.

GAO found fault in other aspects of Treasury’s approach as well, such as how it went about sequencing planned work and estimating how long it would take.

“Without a planning process that incorporates best practices for project scheduling, Treasury may experience additional delays as it executes the remaining key implementation steps for SSBCI,” the GAO warned. “This may impede efforts to disburse the remaining funds and conduct oversight of jurisdictions’ use of funds in a timely manner.” 

The Treasury Department told GAO it would consider the watchdog agency’s recommendations, but also emphasized that the department’s “approach to work planning was influenced by a variety of factors, including the program office’s limited staff resources.”