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Overhaul in the Offing at SBA

Small-biz supporters say it's time to make the agency part of the solution, not part of the problem.

Having positioned himself as a small-business ally on the campaign trail, it didn't take long for President Barack Obama to take aim at the embattled SBA. As far as small-business advocates inside and outside the Washington Beltway are concerned, any initiatives undertaken by the Obama administration to make the SBA more small-business friendly couldn't come soon enough, given the condition of the agency and the U.S. economy.

The American Recovery and Reinvestment Act, aka the economic stimulus package, the first major piece of legislation offered by the Obama administration, includes various provisions to aid small businesses as a means of reinvigorating the sagging U.S. economy. Count lawmakers such as Sen. Mary Landrieu (D-La.), incoming chairwoman of the Senate Committee on Small Business and Entrepreneurship, among those who are welcoming such provisions, as well as Obama's nomination of Karen G. Mills to lead the SBA, as harbingers of major--and, they say, much needed--change at the agency.

"The small-business provisions in the stimulus package are certainly steps in the right direction, but there is still much work left to be done," says Landrieu, whose wish list for the SBA includes increasing the agency's operating budget, elevating its administrator to cabinet-level status and making its lending programs friendlier for small businesses. As currently configured, the stimulus package circulating on Capitol Hill includes proposals to temporarily eliminate fees associated with loans guaranteed by the SBA through the popular 7(a) and 504 loan programs, proposals designed to reverse a trend that has seen 7(a) lending decrease more than 56 percent, and 504 lending by 42 percent, in the current fiscal year, according to Landrieu. It would also infuse the SBA's microloan program with additional funding.

The first order of business for Landrieu's committee is confirming Mills. Beyond that, she says, "it's too early to tell what further steps President Obama will take, but I have high hopes that we will be able to restore funding to the SBA, improve effectiveness of SBA's services to small businesses and stimulate interest in small-business issues nationally."

To help right an agency that, she claims, has suffered "years of neglect," Landrieu's committee is expected to push to make permanent some of the relief measures in the stimulus plan, including scaling back or eliminating fees associated with the key 7(a) and 504 loan programs. The SBA's 7(a) program is the agency's most basic and most popular lending initiative; the 504 program is a longer-term financing vehicle. Cutting fees associated with those programs, Landrieu says, is a first step "to alleviate the credit crunch that's strangling our small businesses."

It's programs like these, she says, that make the SBA indispensable to American small business. Given the vital support role the SBA plays, Landrieu and other small-business advocates are calling on the Obama administration to restore the cabinet-level status the agency had during the Clinton administration. Doing so "makes a lot of sense," says Keith Ashmus, president of the National Small Business Association, because it could ensure small business a larger role in the economic recovery. With a seat on the cabinet, adds Landrieu, the SBA administrator "could be a more effective champion for our small businesses, especially in the areas of tax policy, health care, innovation, international trade and economic development."

The administrator post likely will go to Mills, 54, whose background includes a mix of corporate, venture capital and entrepreneurial credentials. "Small business will be an important focus of this administration," she said in accepting President Obama's nomination in December, "as we work our way through these difficult economic times and as we grow the economy in the future."

A member of the Obama transition team, Mills, who resides in Brunswick, Maine, is a founding partner of the equity firm Solera Capital. She has served as president of MMP Group, another private equity firm, while also holding director seats with Scotts Miracle-Gro, Arrow Electronics Inc., and the Maine Technology Institute. On the public policy front, Mills chaired Maine's Council on Competitiveness and the Economy and as Maine Technology Institute President Betsy Biemann notes, Mills co-authored a 2008 paper for the Brookings Institute outlining a plan to make the federal government a catalyst to development of small-business technology "clusters" as a means of stimulating regional economic growth.

Mills "understands the challenges facing small companies in a rural state like Maine, but also knows the world of venture capital in more urban settings," Biemann says. "She is familiar with the landscape of federal and state resources available to small businesses. She is smart and results-oriented. I think she will make a terrific SBA administrator."

One of the most pressing tasks for the incoming SBA administrator, small-business advocates agree, will be to restore agency infrastructure they feel was dismantled by the Bush administration. The SBA operating budget, according to Landrieu, stood at about $500 million in 2008, down 26 percent from 2001 levels. It should be closer to $10 billion, according to Lloyd Chapman, president of the American Small Business League and a long-time critic of the SBA and Bush administration policies. Chapman and Ashmus agree that a funding infusion is needed to reopen and restaff SBA field offices. According to Landrieu, women's business centers, small-business development centers, microloan programs, veteran business outreach centers and the SCORE program--which offers counseling for small businesses--also lack adequate funding.

But there's more lacking at the SBA than just funding, small-business advocates say. Chapman suggests the Obama administration's top priority should be to put a halt to SBA practices that he alleges have led to wrongful diversion of billions of dollars in government contracts from small business to large corporations. Ashmus wants a stronger, independent Office of Small Business Advocacy within the SBA. Landrieu says the agency's much-maligned disaster relief program also may require additional reforms.

Soon they could be lining up to bend Mills' ear on those very subjects.

David Port is a freelancer based in Denver who writes on small business, and financial and energy issues.

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