AGENCY FINANCIAL REPORT - Small Business Administration

ME SSAG E F RO M TH E A DM I NI S TRATORThanks to the SBA’s efforts, federal agencies collectively exceeded the federal small business contracting goal by awardingmore than 25 percent of federal contracts to small businesses totaling 120.8 billion – a significant increase of nearly 15billion from the previous fiscal year. This achievement marks the sixth consecutive year in a row that the Federal Governmenthas exceeded this goal.When disaster strikes, the SBA joins with our federal partners to respond by helping businesses, nonprofits, homeowners,and renters prepare for, and recover from declared disaster events. Hurricane Florence in North Carolina and South Carolinaand Hurricane Michael in Florida occurred near the end of FY 2018; however, loan approval activity continued throughthe beginning of FY 2019. The SBA approved nearly 459 million in disaster loan assistance for Hurricane Florence andnearly 698 million for Hurricane Michael. In response to the 2018 wildfires in California, the SBA also approved over 427million in disaster loan assistance. Low-interest loans from the SBA have enabled borrowers to replace or repair uninsuredlosses, whether through physical damage or economic injury. The SBA is working with federal, state, and local partners tocontinually improve the disaster response and ensure we are assisting the economic recovery as expediently as possible. DuringFY 2019, the SBA approved more than 42,300 disaster loans for over 2.2 billion.American entrepreneurs are the best in the world, and it is my privilege to serve as their advocate across the nation and as amember of President Trump’s Cabinet. The SBA remains committed to being a responsible steward of taxpayer dollars andthe public’s trust.The SBA is working to ensure that we are functioning as efficiently and effectively as possible for America’s entrepreneurswhile using modern technology and streamlined operations to eliminate waste and redundancy. As we look toward FY 2020and a new decade of possibilities, the SBA is devoted to delivering results and the best possible service to America’s smallbusinesses.Sincerely,Christopher M. PilkertonActing Administrator2AGENCY FINANCIAL REPORT FY 2019

MANAGEMENT’SDISCUSSIONAND ANALYSIS

SUCCESS STORYSTARTAND GROW:Family-owned BusinessUses SBA Support toSucceedReynolds Welding and FabricationWindsor, CTReynolds Welding and Fabrication, LLC is a family-owned and operatedbusiness in Connecticut started by Jerado Reynolds in 2005 and laterjoined by his wife, Joyce, in 2015. The business specializes in structuralsteel cutting and welding work. A master welder, Jerado learned thetrade from his uncle and earned certification from the American WeldingSociety. Tragedy struck when the Reynolds’ eldest son, Dwayne, diedin a car accident. He played an integral role in the family business, andrecovering from the loss proved difficult for both the family and theirbusiness operations. Nevertheless, they continued to persevere.When business operations reached full capacity in 2017, an SBA 504 loanhelped them purchase a new building to meet growing demand and planfor future growth. Additionally, Joyce Reynolds continued to receive smallbusiness training and counseling from the SBA’s Women’s BusinessCenter. The business began with 3 employees and now employs morethan 15 people who work on constructing stairs, rails, structural beams,and columns throughout New England.

MAN AGEMEN T’S DISC USSIO N & ANA LYSI STHE SBA’S HISTORY, GOALS, AND ORGANIZATIONIn 1953, Congress created the SBA to aid, counsel, assist, and protect the interests of small business. As the nation’s onlygo-to resource and voice for small businesses, the SBA provides programs and services that help small businesses confidentlystart, grow, expand, or recover. The SBA is backed by the strength of the federal government and is the only cabinet-levelfederal agency fully dedicated to small business. The SBA’s headquarters is located in Washington, D.C., while its businessproducts and services are delivered through field personnel and a network of private sector and nonprofit partners in everyU.S. state and territory. Major SBA offices fall under one of four Agency-wide strategic goals as outlined in SBA’s FY 20182022 Strategic Plan:MISSION STATEMENTMaintain and strengthen the nation's economy by enabling the establishment and vitality of smallbusinesses and by assisting in the economic recovery of communities after disasters.GOAL 1GOAL 2GOAL 3GOAL 4Support small business revenueand job growthBuild healthy entrepreneurialecosystems and create businessfriendly environmentsRestore small businesses andcommunities after disastersStrengthen SBA’s ability to servesmall businesses1.1 Expand access to capital1.2 Help small businessexporters succeed inglobal markets2.1 Develop small businessesthrough technicalassistance1.3 Ensure federal contractand innovation set-asidegoals are met and/orexceeded2.2 Build healthyentrepreneurialecosystems3.1 Deploy disaster assistanceeffectively and efficiently4.2 Build a high-performingworkforce4.3 Implement enterprise-wideinformation systemmodernization andcost-effective technology2.3 Create a small businessfriendly environmentSTRATEGIC GOAL ONE — Support smallbusiness revenue and job growthStrategic Goal One focuses on business formation,job growth, and economic expansion through capital,contracting, exporting, and innovation.The Office of Capital Access assists small businesses withobtaining capital via the 7(a), 504, and Microloan programs,and bonds through the Surety Bond Guarantee program.The Office of Investments and Innovation assists smallbusinesses through initiatives such as the Small BusinessInvestment Company, Small Business Innovation Research,Small Business Technology Transfer, and other tailoredprograms that drive innovation and competitiveness.4.1 Ensure effective andefficient management ofAgency resourcesThe Office of International Trade enhances the abilityof small businesses to export and compete in the globalmarketplace by facilitating access to capital, providingtechnical assistance, ensuring the consideration of smallbusiness interests in trade negotiations, and contributingto the U.S. government’s international commercial andeconomic agenda.The Office of Government Contracting and BusinessDevelopment assists small businesses in competing for federalcontracting opportunities through the government-wideprime and subcontracting programs. The office also sets sizestandards for small businesses, which determine the size abusiness must be to be considered a small business.AGENCY FINANCIAL REPORT FY 20195

MANAG E ME NT ’ S DI S CU SSI ON & A NA LYSI SSTRATEGIC GOAL TWO — Build healthySTRATEGIC GOAL THREE — Restore smallentrepreneurial ecosystems and create businessfriendly environmentsbusinesses and communities after disastersStrategic Goal Two focuses on business startups, growth,and expansion through technical assistance, SBA resourcepartners, and creating a business-friendly environment toreduce regulatory burdens.The Office of Government Contracting and BusinessDevelopment provides business development assistance tosmall businesses seeking federal contracts. This assistanceincludes the HUBZone, 8(a) business development,7(j) management and technical assistance, and All SmallMentor-Protégé programs.The Office of Entrepreneurial Development provides businessadvising, mentoring, and training assistance through itsresource partner network composed of Small BusinessDevelopment Centers, Women’s Business Centers, andSCORE, and through Entrepreneurship Educationprograms.The Office of Veterans Business Development ensures theapplicability and usability of all the Agency’s small businessprograms for veterans, service-disabled veterans, reservecomponent members, and their dependents or survivorsthrough Veterans’ Business Outreach Centers, Boots toBusiness, and other grant programs.The Office of the National Ombudsman works with allfederal agencies that regulate small businesses to provide ameans for businesses to comment on federal governmentenforcement activity. The SBA also maintains a 5-memberRegulatory Fairness Board in each of the 10 regions to holdpublic hearings on small business concerns.Strategic Goal Three focuses on helping restore communitiesand return businesses to normal operations through directloans to repair, rebuild, and recover from physical damageand economic losses.The Office of Disaster Assistance provides affordable, timely,and accessible financial assistance to homeowners, renters,and businesses following a disaster. The Disaster Loanprogram is the only form of SBA assistance that is notlimited to small businesses.STRATEGIC GOAL FOUR — Strengthen SBA’sability to serve small businessesStrategic Goal Four focuses on streamlining businessprocesses and decision-making at all levels to ensureefficiency and effectiveness.The Office of Performance Management and the ChiefFinancial Officer leads the Agency’s performancemanagement, program evaluation, financial management,and acquisition management functions.The Office of Executive Management, Installations andSupport Services supports resource and core administrativefunctions, including grant management, facilities, recordsmanagement, and personnel security.The Office of Human Resources Solutions provides strategichuman capital solutions to workforce issues and strivesto create a work environment that attracts and retains atalented and high-performing workforce.The Office of the Chief Information Officer providesinformation technology leadership, product services, andoperational support for the SBA in order to maximizeinternal efficiency and responsiveness to small businesses.Other offices that support the strategic goals and objectivesinclude the Office of Field Operations; Office of Diversity,Inclusion, and Civil Rights; Office of Communications andPublic Liaison; Office of Congressional and Legislative Affairs;Office of General Counsel; and Office of Hearings and Appeals.6AGENCY FINANCIAL REPORT FY 2019

MAN AGEMEN T’S DISC USSIO N & ANA LYSI SEXECUTIVE SUMMARYAmerica’s 30 million small businesses play a critical role injob creation and retention. During the last two decades,small businesses have been responsible for creating two outof every three net new jobs. In turn, the U.S. Small BusinessAdministration’s assistance to those firms and entrepreneurshelps drive a healthy economy.The SBA employs a variety of methods to support America’ssmall businesses. These methods include promoting accessto capital, federal contracting, counseling, and disasterassistance.Throughout FY 2019, four goals from the SBA’s FY 20182022 Strategic Plan guided the Agency’s actions:1. Supporting small business revenue and job growth2. Building healthy entrepreneurial ecosystems and creatingbusiness friendly environments3. Restoring small businesses and communities afterdisasters4. Strengthening SBA’s ability to serve small businessesThe following sections highlight financial and performanceresults for the Agency, including the four Agency PriorityGoals. An in-depth analysis can be found in the Analysisof Financial Results and Analysis of Performance Resultssections. The complete set of performance results will bereported in the Annual Performance Report, released inFebruary 2020.Financial ResultsFor FY 2019, the SBA’s total budgetary resources usedfor staffing, operations, and loan subsidy costs were 1.7billion. Total nonbudgetary resources for loan financingused to make direct loans and purchase guarantied loansin default were 4.8 billion. The SBA’s guarantied portionof the outstanding loan principal rose 0.2 percent inFY 2019 to 105.8 billion. During FY 2019, new guarantiesdisbursed by SBA participating lenders were 21.2 billion,an 8 percent decrease from last year, which resulted in a net0.2 percent increase in outstanding guaranties. In FY 2019,purchases of defaulted guarantied loans increased from 0.9billion last year to 1.5 billion. The loans receivable portionof the SBA credit program portfolio increased in FY 2019from 8.7 billion to 9.5 billion.Performance ResultsCapital: In FY 2019, the SBA approved 28.2 billion inloans and more than 63,500 loans to small businesses. TheSBA supported nearly 5 billion in 504 loans, an increaseof nearly 205 million from FY 2018. Nearly 5.9 billionwas invested in 1,191 small businesses through the SmallBusiness Investment Company program.Contracting: The SBA continued to partner with agenciesacross the Federal Government to expand small businesscontracting opportunities. From FY 2014 through FY 2018,small businesses were awarded nearly 510 billion in federalcontracts (FY 2019 contracting numbers continue to becollected and certified). The Federal Government continuesto exceed its small disadvantaged and service-disabled,veteran-owned small business goals but faces challenges withHUBZone and women-owned small business goals.Counseling: The SBA provided mentoring, business advice,and training assistance to nearly half a million entrepreneursand small businesses this year, which helped them start andgrow their businesses, and create or retain jobs. The Agencyfurther strengthened the alignment of performance metricswith its resource partners that will be implemented in futuregrant agreements.Disaster Assistance: Disaster loan applications and approvalsdecreased significantly compared to FY 2018, given thesignificant disaster response last year due to Hurricanes Harvey,Irma, and Maria. In FY 2019, the Agency worked on 280active disaster assistance declarations and approved disasterloans totaling over 2.2 billion.Agency Priority GoalsThe Government Performance and Results ActModernization Act of 2010 requires federal agencies toestablish a set of two-year Agency Priority Goals thatreflect the highest priorities of agency leadership. The SBAhas established four APGs. The goals and outcomes fromFY 2019 were as follows: Expand capital to small businesses in socially andeconomically disadvantaged urban communities andrural areas.Goal: By September 30, 2019, increase the number of loansby 5 percent from the FY 2017 baseline to small businesses inAGENCY FINANCIAL REPORT FY 20197

MANAG E ME NT ’ S DI S CU SSI ON & A NA LYSI Ssocially and economically disadvantaged urban communitiesand rural areas (FY 2017 baseline of 25,475 for 7(a) loans,504 loans, and microloans).Outcome: The SBA supported small business accessto capital by providing 20,650 loans (7(a), 504, andmicroloans), to rural and urban HUBZone smallbusinesses totaling nearly 9.4 billion. Through a strategyto train lender relation specialists in the district officesand develop new marketing materials, the SBA reachedlenders with access to disadvantaged small businesses andis working to increase credit union participation. Maximize small business participation in governmentcontracting.Goal: By September 30, 2019, maximize the percent offederal contracts by awarding at least 23 percent to smallbusinesses.Outcome: The SBA will continue to collect and certifyFY 2019 contracting numbers through the third quarterof FY 2020. The Federal Government exceeded itsFY 2018 target making 25.05 percent of contractingdollars, worth 121 billion, available to small businesses.The SBA provided continuous outreach to other federalagencies to ensure that the goal was exceeded. Increase federal contracts to more disadvantagedsmall businesses.Goal: By September 30, 2019, increase by 10 percent fromthe FY 2017 baseline the number of 8(a)-certified firmsawarded federal contracts (FY 2017 baseline of 3,421small businesses).Outcome: The SBA instituted several processimprovements for the 8(a) Business Developmentprogram and leveraged new online tools likeCertify.sba.gov to decrease processing time of 8(a)applications. Through additional training of BusinessOpportunity Specialists in the district offices, the SBA hasshifted to higher-value work, and 450 active 8(a)-certifiedfirms received their first federal contract, exceeding theFY 2019 goal. Deploy disaster assistance effectively and efficiently.Goal: By September 30, 2019, increase the averagenumber of disaster loan applications processed from three tosix applications per loan specialist per day.Outcome: The SBA modernized its disaster creditmanagement system, which went live in May 2018. The8AGENCY FINANCIAL REPORTnew system and staff training has led to the doubling ofthe number of applications processed by a loan specialisteach day during periods of high loan application volume.The lower number of disaster loan applications inFY 2019 will prevent the SBA from meeting its goal;however, the SBA lowered the average number of days toprocess disaster loan applications by approximately halfthe time in a two-year period.Cross-Agency Priority GoalsThe SBA also supports the government-wide federal CrossAgency Priority Goals. The CAP goals are Presidentialpriorities and are complemented by other cross-agencycoordination and goal-setting efforts. The SBA serves as theco-lead for the Data, Accountability, and Transparency CAPgoal.Per the GPRA Modernization Act requirement to addressCross-Agency Priority Goals in the Agency strategic plan,the annual performance plan, and the annual performancereport, please also ref

Inspector General s Audit Report, Page 37. Independent Auditors Report on FY 2019 Financial Statements, Page 39. CFO Response to Audit Report on FY 2019 Financial Statements, Page 51. Financial Statements and Notes, Page 53. OTHER INFORMATION \(UNAUDITED\), Page 91. OIG Report on the Most Serious Management and Performance Challenges, Page 93.