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What the SBA's Future Holds: Romney vs. Obama

September 24, 2012
URL: http://www.entrepreneur.com/article/224499

Editor's Note: This 10-part series looks at issues critical to entrepreneurs this election season. Read installments on the economy, taxeshealthcarecapitalcontracting and net neutrality

What will the Small Business Administration be like, come January?

It's not hard to imagine that the SBA -- the government agency charged with supporting the nation's small-business interests -- would continue to operate much the same if President Barack Obama is re-elected. In his first term, the president boosted the agency's budget and profile, restoring what some say was years of neglect under President George W. Bush.

See Where the Candidates Stand on Small-Business IssuesThe larger question is what the SBA would look like if Massachusetts Gov. Mitt Romney is elected. The Republican nominee is running on a platform of smaller government, promoting the interests of business and shrinking the size of federal programs. He hasn't spoken publicly about his plans for the SBA but has made clear that cuts, in general, would be part of a Romney administration.

The SBA was founded in 1953, and one of its chief purposes is to support access to capital for small businesses. The agency guarantees SBA loans that banks award to entrepreneurs and growing companies, while also providing professional development, such as low-cost training and educational counseling. The SBA also serves as the Congressional advocate for small business.

Related: The Sleeper Campaign Issue: Net Neutrality

Headquartered in Washington, the SBA has a network of local and regional offices throughout the country. The agency is charged with running emergency assistance programs to businesses and other borrowers in disaster-hit areas.

Some of the agency's programs over the years have been criticized for ineffectiveness and a susceptibility to fraud or abuse. Among other things, the SBA coordinates with other agencies to make sure they distribute 23 percent of their federal contracts to small businesses -- a goal that critics point out is seldom actually met.

At the same time, the agency's popular loan programs have been credited with helping many businesses get off the ground. “When people ask me what the SBA does I like to say: We’re the agency that works with the businesses who create two out of every three net new jobs in the U.S.,” said SBA Administrator Karen Mills in May at National Small Business Week.

Each year, the SBA is awarded a certain amount of money to run its programs by Congress and the President. Here is a look at what might happen to the SBA under Republican nominee Romney and President Obama.

Former Massachusetts Gov. Mitt Romney
Romney has said that he would cut discretionary spending by 5 percent on his first day in office for everything other than military spending. Further, Romney would pass the Republican budget proposal, putting a cap on non-security discretionary spending below 2008 levels.

According to an analysis by the New York Times, a 5 percent hit in the size of the government subsidy for the SBA's programs would equal a roughly similarly sized decrease in SBA-backed lending. In its most recent fiscal year, the SBA supported more than $30 billion in loans to more than 60,000 small businesses. 

But for Romney and his campaign, the way to help small businesses is with a smaller government. "That means reducing taxes on business, not raising them," said Romney in his acceptance speech at the Republican National Convention in Tampa, Fla., last month. "It means simplifying and modernizing the regulations that hurt small business the most. And it means that we must rein in the skyrocketing cost of healthcare by repealing and replacing Obamacare.”

Related: Where the Candidates Stand on 'Obamacare'

President Barack Obama 
Under President Obama, the budget for the SBA has nearly doubled, from $569 million at the end of fiscal 2008 to $919 million for fiscal 2012, which ends Sept. 30. For the coming fiscal year, the SBA has asked for even more -- $948 million.

Obama has viewed the SBA as a pivotal player in extending credit to small businesses at a time when big banks still aren't lending at pre-recession levels. (That said, SBA loans represent only a small portion of all loans made to small business). During the height of the crisis, the Obama Administration and Congress allowed the government agency to guarantee billions of dollars more in small-business loans. Since then, the SBA has requested additional funds as the weak lending environment has continued. The agency has also needed more money to cover “low-performing loans” made in the mid-2000s

Although it was largely a symbolic gesture, President Obama elevated Mills, the SBA's chief, to a member of his cabinet earlier this year, a nod to the level of importance small business plays in economic recovery. The President also proposed merging the SBA with several commerce-related federal agencies, in a bid to make government more efficient. Congress has not granted him the authority to do so, and it's unclear if the proposal would be raised again in a second term.

Obama has said the SBA is an under-appreciated agency. During the height of the recession, "a lot of companies kept their doors open because of what we did with the SBA,” the president said earlier this month to Florida radio station Power 95.3. “There are too many small businesses out there that don’t know what they can get through the SBA.”

What has your experience been with the SBA? Leave a comment below and let us know.