Small Business

Is the SBA Hurting Small Business?


Long a champion of small business, Lloyd Chapman, the founder and president of the American Small Business League (ASBL), a federal small-business policy watchdog group based in Petaluma, Calif., is also an arch critic of the Small Business Administration.

The ASBL was originally set up to stop fraud, abuse, and loopholes that allow money and contracts intended for small businesses to be diverted to large companies. Since its founding, the group claims to have helped remove hundreds of large companies from the Small Business Administration's (SBA) database. It also provoked a General Accounting Office investigation that resulted in the federal government confirming that many government contracts were actually going to big businesses.

Chapman's work continues apace. Indeed, last year he filed two lawsuits against the SBA for information pertaining to contracting fraud, and he says he's gearing up to file two more. He recently spoke with BusinessWeek Online Staff Writer Stacy Perman about the importance of small business to the American economy and what he views as the current hostile environment toward small businesses that has been fueled by the Bush Administration. Edited excerpts of their conversation follow:

In your estimation, what role does small business play in the U.S. economy?

It is the heart and soul of the U.S. economy. Ninety-eight percent of all companies have less than 100 employees, 89% have less than 20, and the average American business has 10 to 12 employees. That is why Congress passed the Small Business Act after the Korean War, to direct government contracts to where Americans work.

What, in your estimation, are the main priorities facing small businesses today?

I would say this anti-small-business policy. It is a major challenge to small businesses, both those doing business with government and [those doing business] with the general public. I think that's a big problem. I'd say I'm a bipartisan person, but I think the Bush Administration has done more damage to small business than any President in my lifetime.

How so?

President Bush said after [Hurricane] Katrina that small business would lead the way out of the disaster. But last week he said that the SBA was overwhelmed. But he didn't mention that he's cut the budget in half, and cut staffing in the agency by half, and cut either the budget or altogether, I believe, 17 different programs to help small businesses.

What do you base this assessment on?

I am going by federal investigation and studies [conducted by the SBA Office of the Inspector General, the General Accounting Office, and the Office of Management and Budget]. This is not just my opinion.

You have characterized the environment for small business as particularly hostile in recent years. How?

Well, for one, the U.S. Women's Chamber of Commerce was forced to sue the Bush Administration because it refused to implement the law mandating a 5% goal for women-owned businesses to receive government contractor and subcontractors, and [the Chamber] won in federal court about a year ago. [The SBA filed a motion to dismiss, which was thrown out in December, 2005.]

The Bush Administration has tried to enact policies that force small businesses to compete head to head with Fortune 500 companies. There is a [potential] exemption being made for venture capital companies being considered small businesses. If that passes, Chase Manhattan bank will be considered a small business.

What, then, in your opinion do you see as the main role for the Small Business Administration?

I think the SBA is the worst enemy that small business has had. Its role is to ensure [that] a fair portion of prime [government] contracts and subcontracts go to small businesses, but it has done just the opposite. They've created policies that allow most contracting money will go to large companies.

The SBA has been publicly under fire of late for its handling of emergency relief loans post-9/11 and more recently with Hurricane Katrina. Critics say the association has been giving money to businesses that were not "adversely affected" or outside the range of affected areas. As a longtime SBA critic, what do you see as the problem?

Only 10% of the [9/11 relief] loans went to [small] businesses [affected]. The problem is that the SBA has a real mission that's totally inconsistent with its [activities]. Its mission is supposed [to be] to help small business, but it appears focused on helping federal agencies.

I think it's a PR machine for the government to make it look like the government is doing good for small businesses. But an SBA Office of the Inspector General reported that "one of biggest problems facing the SBA and the entire federal government is that large companies are allowed to receive small business contracts."

You have already filed several lawsuits against the SBA. What are your chief complaints?

Small business money is being diverted to Fortune 1000 companies and big business. The SBA has known about it for quite some time, and they have passed policies allowing it to happen.

Last year when I sued them they released a report that Oracle (ORCL) got $30 million to $40 million in small business contracts.

How do the current SBA guidelines that define small business contribute to this situation?

They are allowing some of the largest companies in the world to be classified as small businesses. Under current SBA guidelines Oracle, Hewlett-Packard (HPAQ), and Northrop Grumman (NOC) can all be considered small businesses. It is the complete antithesis of what the SBA is supposed to do.

What do you see happening with the SBA in the near term?

I believe [President] Bush will attempt to close the SBA in 2006. Everything that I've seen leads me to that [conclusion]. They are trying to starve the SBA by cutting its budget to the bone. You will see this unfolding in 2006.

And if the SBA is shut down?

I am not going to allow that to happen, and I am confident that I can stop them in federal court.... I think a judge would rule that the SBA is conducting itself in a way that is inconsistent with the Congressional Act on Small Business.


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