Summary: Specialized small business investment companies (SSBIC) often do not comply with the Small Business Administration's (SBA) guidance for documenting the eligibility of the small businesses they finance. GAO estimates that for more than a third of the small businesses financed, SSBICs did not prepare eligibility profiles documenting that the businesses were owned by socially or economically disadvantaged persons. Even when SSBICs did prepare eligibility profiles, they often cited a single factor as the basis for eligibility--typically minority ownership--although SBA has told SSBICs to base eligibility on a composite of factors, such as owners' minority status, limited education, and low income. One possible reason for the lack of compliance with SBA guidance is that SSBICs do not believe documentation is always needed, particularly when the small business is minority owned. SBA's requirement that examiners accept eligibility determinations on the basis of minority status alone continues to be inconsistent with the agency's instructions to SSBICs to use a composite of factors as a basis for determining eligibility. Consequently, examiners would not be expected to spot cases in which SSBICs are financing businesses owned by ineligible persons.
