Streamlining credit subsidy modeling

Client:

U.S. Small Business Administration

Challenge:
The Federal Credit Reform Act (FCRA) requires that Federal agencies estimate the costs of providing direct loans and loan guarantees based on expected long term program cash flows. These costs are known as credit subsidy requirements. When Congress required that the Small Business Administration (SBA) redevelop a model to estimate credit subsidy requirements for a multibillion dollar business loan guarantee program, SBA hired FI Consulting.

FI Solution:

SBA’s new credit subsidy model had to be developed in compliance with all legislative, regulatory, and financial reporting requirements, and be approved by the Office of Management and Budget (OMB) and SBA’s auditors. FI performed a full lifecycle of model development activities that included reviewing the program’s governing policies, interviewing SBA program managers, extracting data and assessing its quality, developing econometric loan performance models and a cash flow engine, creating documentation, and supporting the model through OMB review and SBA’s financial statement audit.

FI Impact:

The new business loan guarantee model transformed SBA’s program cost estimates and provided new insight into the drivers of portfolio performance. The model’s increased precision helps SBA to fine-tune the fees it charges to lenders and to analyze the impact on the program of various policy proposals. At the completion of this project, SBA retained us to redevelop, streamline, and enhance models for the remainder of its business loan programs.