Posted by: Jeremy Quittner on December 2, 2008
The Small Business Administration, with its loan programs, coaching, and educational curriculum is vital to the nation’s small businesses. That’s particularly true now, with the U.S. economy in full recession. But under the Bush administration, the agency has languished, and both its budget and staffing have been gutted. It’s flag-ship 7(a) lending to small businesses has also fallen off a cliff. I recently had this email exchange with Senator Olympia Snowe (R-Maine), Ranking Member of the U.S. Senate Committee on Small Business & Entrepreneurship, about what needs to change:
BusinessWeek: What are the things that need to change at the SBA under the new administration?
Senator Snowe: First, I hope that one of the incoming Administration’s initial actions is to elevate the SBA Administrator to Cabinet-level status. This action would send a tremendously positive signal to our nation’s small businesses, which represent 99.7 of all employer firms and will play a leading role in stimulating our economic recovery. I was pleased that President-elect Obama so prominently mentioned in his platform the vital role that small businesses play. The SBA is the only Agency within the Federal government with the responsibility of assisting small businesses. Designating the SBA Administrator with Cabinet-level status — as was the case during previous Administrations — will help to ensure that the voice of small business is heard loud and clear within our Federal government.
I also hope that the Obama Administration will fully fund the SBA. As former Chair and now Ranking Member of the Senate Committee on Small Business and Entrepreneurship, I have been particularly alarmed at the shortchanging of the SBA’s budget over the past eight years. In fact, since Fiscal Year 2001, the SBA has seen its budget fall 27 percent, the largest decrease of any federal agency during that timeframe. When you consider that the SBA budget represents only about 2/100ths of a percent of the total federal budget — yet at the same time small businesses are creating about three-fourths of all new jobs — there is no question that adequately funding the Agency’s small business programs is an investment in America’s economic future.
BusinessWeek: How can the SBA ensure it’s doing its part to include minority and, in particular, women-owned businesses in the federal procurement process?
Senator Snowe: I am hopeful that the incoming Administration, as one of its top small business priorities, will implement a meaningful women's contracting program that will actually help women-owned small businesses. In 2000, Congress established the Women’s Procurement Program to address the underrepresentation of women entrepreneurs in the government marketplace. I find it inexcusable that after wasting nearly eight years, the current Administration has failed to effectively implement this congressionally mandated program, by promulgating a highly deficient final rule that would impose unworkable requirements. For example, the SBA's rule would require each Federal agency to admit to discriminating against women-owned firms before an agency can utilize the program. The rule might also ultimately only apply to a handful of business industries.
Under current law, there is a statutory goal for 5 percent of government-wide contracts to flow to women-owned small businesses. Unfortunately, in Fiscal Year 2007, women-owned businesses were only awarded 3.4 percent of Federal contracting dollars. As Ranking Member of the Senate Small Business Committee, I stand ready and willing to help to do anything I can to assist the new Administration in implementing a meaningful final rule and helping the Federal government to satisfy -- and exceed -- its goaling requirement for women-owned small businesses. For example, in the 110th Congress, I introduced legislation that would help to fix the deficiencies in the SBA’s women's contracting program.
BusinessWeek: How could the 7(a) lending process be streamlined to encourage more bank lending and more small business borrowing?
Senator Snowe: Our current economic downturn is drastically more dangerous than any threat to our financial system in decades. Banks are tightening their lending standards without a similar increase in the volume of SBA guaranteed loans to small businesses, creating a domino effect on the job creation ability of small businesses. According to Federal Reserve data, in the last quarter, 75 percent of banks reported that they have tightened their lending standards for small firms. At the same time, lending in the SBA’s 7(a) and 504 programs have declined dramatically. Over the last year, lending in the 7(a) program has decreased by 55 percent, and loan volume in the 504 program is down 36 percent.
While banks are tightening credit to respond to market conditions, it is noteworthy that lenders consistently tell me that making SBA loans is overly complex, cumbersome, and expensive. This is especially true for smaller and community banks that may only make a few small business loans a year. Many of these banks want to make more SBA loans but lack the resources to train a loan officer in SBA lending procedures if that loan officer may only make four to five small business loans a year. So, I believe that as Congress has tried to restart credit markets, it is just as imperative that we take action to streamline the SBA’s lending programs.
In order to remove barriers to lending, I am planning to introduce legislation that contains ten steps to directly address the credit crunch small firms are currently facing and help them get the capital necessary to finance business growth. My bill includes a number of provisions designed to get credit moving again to small firms. For example, it would stimulate small business access to capital by reducing lending fees by over $500 million -- for both lenders and borrowers. It would also help to train new SBA lenders, as well rural lenders, on how to better use the SBA’s programs, including its flagship 7(a) loan program.
BusinessWeek: Besides lending, how else could the SBA become relevant to small businesses again?
Senator Snowe: While the SBA can obviously do more to assist small businesses, I have no doubt that its current programs are both helpful and relevant to small businesses. For instance, take the Small Business Development Center (SBDC) program, which provided entrepreneurial training to more than 400,000 clients in fiscal year 2007, a tremendous value to the American taxpayer. Although the SBA already offers a tremendous number of valuable resources, the new Administration must work to ensure that the Agency’s programs are properly funded and that small businesses are made aware of what SBA and its resource partners have to offer. If given a funding increase, the Agency will be able to grow successful initiatives, such as the SBDC, SCORE, and Women’s Business Center programs, thereby, ensuring that it reaches out to small businesses that we rely upon to improve our economy. Additionally, I will continue to work to ensure that SBA leadership is more relevant when the Administration is formulating their economy policy. When it comes to international trade, energy independence, manufacturing, and many other industries, small businesses, and their government representatives in the SBA, often have solutions that fall on deaf ears.
Finally, I look forward to working with the new Administration to improve the SBA’s International Trade programs. At this point, I do not believe that the SBA puts sufficient emphasis on aiding small exporters to identify foreign markets. As we head to the next Congress, I plan on working closely with the incoming Administration -- specifically, the SBA and the Department of Commerce -- to promote overseas exporting opportunities for small businesses.
Credit: Getty Images