Is SBA S.O.L.?

With a general lack of respect from lawmakers and entrepreneurs alike, some say the agency has outlived its usefulness. Can the SBA be saved?

People usually complain, loud and long, when a popular government agency is faced with dramatic budget cuts. So what explains the deafening silence after the Bush administration's initial budget slashed funding for the SBA by 40 percent, to $540 million? Small-business-minded senators rode to the rescue, restoring $264 million to a budget resolution in hopes of protecting the 7(a) Loan Guaranty Program and a venture capital program for businesses in economically depressed areas.

Still, some of the dramatic changes survived: Small businesses will pay twice as much-$2,800-in fees for their guaranteed loans, and for the first time, Small Business Development Centers (SBDCs) will start charging entrepreneurs for counseling.

Is much of this news to you? If so, that's because few small-business advocacy groups have been raising much of a stink about the SBA's precarious position. That Bush's budget even targeted the SBA-which, after all, is supposed to represent one of the sacred cows of the U.S. economy and the new American dream-underscores the agency's weak political position.

The new SBA administrator, Hector Barreto Jr., will probably have to defend the agency's very existence. Barreto, a financial planner and vice chairman of the U.S. Hispanic Chamber of Commerce (of which his father was a founder), will be faced with a double whammy: a presidential administration that considers the SBA expendable and a small-business public that doesn't seem to care whether the agency exists or not.

"That there's no outcry when there's talk about cutting the funds is a clear signal to the administration and Congress to change things. It may be time to fold [the SBA] into something else," says William A. Ward, the Warehime Professor of Business Administration at Susquehanna University in Selinsgrove, Pennsylvania. "You could make a case that the SBA has been a victim of its own success. It has been successful in getting a lot of interest and activities started at local and state levels, too." He believes that those activities would carry on even if the SBA ceased to exist.

Public interest in small businesses saw a boom in the go-go 1990s, partly because of the seemingly endless opportunities the Internet opened up and partly because small businesses began to understand and use their clout. Scores of small-business advocacy and membership groups sprang up to advance the interests of various minority groups, regional groups, small-business-within-major-industry groups and so on. Ward contends most of these groups are more committed to promoting their own members' interests than they are to presenting a united front on issues that are pertinent to all small businesses. That's why few of them protested the SBA budget cuts, he says. As entrepreneurship grows, membership in most of these groups also expands, which boosts their clout and undermining any loyalty they have to the SBA.

Meanwhile, the SBA continues to add to its long buffet of programs and services, fueling confusion about its core mission. Ward and others charge the agency has reacted to current business and societal trends by developing a wider spectrum of ever more narrowly focused programs, instead of strategically concentrating on efforts that could lead to long-term gain for small businesses as a whole, such as providing IT assistance and training, and creating new channels for small businesses to trade overseas.

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This article was originally published in the October 2001 print edition of Entrepreneur with the headline: Is SBA S.O.L.?.

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