SMALL BUSINESS ADMINISTRATION

    The Small Business Administration (SBA) was created in 1953 to aid, counsel, assist, and protect the interests of small businesses and help families and businesses recover from physical disasters. Critical to this mission are SBA’s efforts to foster a business-friendly environment, help clients to succeed, and serve as the federal disaster bank.

Providing Access to Capital

    Through a variety of financing programs, SBA guarantees general small business loans, equipment loans, and microloans, as well as venture capital equity investments. These programs offer a wide spectrum of assistance, from an average of $12,000 for microloans to a maximum of $1.5 million for general business loans. Guaranteed equity investments can be as high as $20 million.

    To address the lending needs of small businesses affected by the September 11^th attacks, the Congress passed and the President signed legislation that temporarily lowers fees for SBA lending programs and transfers more risk to the government. While the fee reductions may help a small number of businesses cope, it also means that SBA’s lending programs will be more expensive. Given the additional cost, the Administration intends to target the available resources to credit-worthy small businesses most likely to be underserved by the commercial capital markets including start-ups and those seeking loans of less than $150,000. These types of firms need the extra assistance because they generally entail more risk for lenders and their smaller loans are more administratively burdensome. Without SBA support, the private sector may not make these loans because they do not produce the same profit margins as larger loans.

    Historically, SBA’s lending programs served less than one-tenth of one percent of the nation’s small businesses annually and provided less than one percent of annual small business lending. The Administration will work with the Congress and the lending and small business communities to explore new approaches to ensure that a greater number of the nation’s small businesses have adequate access to capital, such as Capital Access Programs (CAPs). Under a CAP program, the bank and the borrower pay an up-front insurance premium typically between three and seven percent of the loan amount into a reserve account, which is matched by state governments. CAPs or other innovative state programs that place greater emphasis on market solutions may point the way toward modernizing SBA’s lending programs.

Disaster Assistance

    In the wake of physical disasters, SBA’s disaster loans are the primary form of federal assistance for individuals and businesses. SBA’s disaster loans help homeowners, renters, businesses of all sizes, and nonprofit organizations finance rebuilding and recovery efforts from physical damage. Working closely with other federal disaster assistance agencies, particularly the Federal Emergency Management Agency, SBA establishes temporary field offices in disaster areas where it helps the public apply for low-interest construction and economic assistance loans. In 2001, SBA responded to about 70 disasters and approved $986 million in loans. In 2002, the Administration sought and the Congress provided nearly $1.4 billion in lending, including almost $600 million to support businesses adversely impacted by the September 11^th attacks. For 2003, the budget requests funding to support SBA’s activity level consistent with its five-year average.

    Improve Disaster Response. SBA’s Disaster Loan Program plans to significantly improve response capabilities in 2003 by installing a paperless loan application processing system. The new system will allow SBA to process loan applications electronically, thereby reducing turnaround time as well as personnel and administrative costs. SBA’s goal is to increase its productivity by at least 25 percent. The new system will also enable SBA to review electronic files anywhere regardless of where a disaster occurs, and to share data more easily with other SBA programs and other disaster relief agencies.

Technical Assistance

    SBA’s technical assistance programs annually provide direct assistance to more than 1.3 million small businesses through grants that support more than 1,000 Small Business Development Centers (SBDCs). SBA and its resource partners provide training and counseling to small businesses on topics ranging from developing business plans to managing cashflows. SBA has 389 Service Corps of Retired Executives (SCORE) chapters, as well as grants provided for microloan lenders to provide business assistance.

Across the United States, small business owners struggle to understand the overwhelming number of government regulations.

    Measuring the performance of these programs has been difficult because many factors beyond SBA assistance affect small business sustainability and growth. In addition, the SBDCs have been reluctant to provide information to SBA. In fact, Congress passed legislation prohibiting SBA from collecting client-level information. SBA has pledged to work more aggressively with its technical assistance grant recipients to collect information on business longevity, increased taxable business activity, and the number of start-up firms attributable to technical assistance services. This data is necessary to monitor the impact of SBA resources and hold program managers accountable for results.

    In addition, duplication and overlap in these technical assistance programs can lead to confusion and diminish service delivery. The budget includes $161 million for these programs and saves taxpayers $31 million by eliminating or reducing poorly performing or redundant programs such as the One-Stop-Capital Shop program and the Program for Reinvestment in Microentrepreneurs (PRIME).

Federal Procurement

    The federal government annually purchases about $200 billion in goods and services and in 2003, the Administration expects to award about $44 billion in contracts to small businesses. The Administration is committed to achieving the government-wide small business procurement goal of 23 percent.

    In 2001, while the federal government met its small disadvantaged business procurement goals, it fell short elsewhere, having problems meeting statutory goals where participation of eligible small businesses remains low. For example, Historically Underutilized Business Zones (HUBZone) business goals were not met. Though it is not clear how many eligible small businesses exist, a recent study by the General Accounting Office cited poorly designed eligibility criteria and burdensome and costly application processes as major barriers to small business participation in the HUBZone program. SBA is working to correct these problems through regulatory changes.

Status Report on Select Programs

    The Administration is reviewing programs throughout the federal government to identify strong and weak performers. The budget seeks to redirect funds from lesser performing programs to higher priority or more effective ones.

Strengthening Management

    SBA is making progress on the President’s Management Agenda. For example, it is one of only four agencies whose financial systems met the Federal Financial Management Improvement Act requirements. However, the Loan Monitoring System (LMS), SBA’s largest information technology (IT) investment, which has significant impact on SBA’s ability to manage its $50 billion loan portfolio, is behind schedule, over budget and not performing to expectations.

    To advance the Administration’s management goals, SBA is administering a successful asset sales program. The program is improving the collection of outstanding debts and moving loan servicing functions to the private sector. In fact, SBA has sold more than 110,000 loans totaling over $4 billion, collecting more from its sales to private sector investors than if it held and serviced the loans to maturity. Some 135,000 loans worth $4.5 billion will be sold over the next few years. However, even more improvements can be made. For example, the asset sales program has significantly reduced SBA’s loan servicing workload yet SBA has not reduced staff for such activities.

    This year, the Administration will implement a fundamental reorganization of the SBA’s field office operations. Back office operations (servicing, liquidations, loan processing, etc.) will be centralized or contracted out. District offices will focus on reaching a much larger percentage of the small business community and improving oversight and marketing to lending institutions. Specific strategies will be tested through District Office pilot projects in three offices during 2002 with implementation for 20 Districts in 2003. The pilots include using telecommuters, video teleconferencing, and restructuring the relationship with SBA’s technical assistance grant recipients to increase accountability.