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SMALL BUSINESS ADMINISTRATION

Small Business Administration Hector V. Barreto, Administrator www.sba.gov     202–205–6605 Number of Employees: 3,967 2005 Discretionary Budget Authority: $678 million

Administrator Hector Barreto

OVERVIEW

    The Small Business Administration (SBA) contributes to the President’s economic agenda by helping entrepreneurs start, sustain, and grow small businesses and create jobs. SBA also helps families and businesses recover from physical disasters. The 2005 Budget for SBA supports small businesses with an increase in the availability of government-guaranteed capital, technical assistance to raise small businesses’ competitiveness, and improved contracting opportunities to sell products and services to the Federal Government. SBA is also improving customer service and administering programs more efficiently by implementing the President’s Management Agenda.

    Assistance for small businesses is not limited to SBA’s technical assistance and credit programs. Additional support is provided under the bipartisan tax relief enacted over the last three years. As a result, 23 million small business owners have benefited from lower marginal income tax rates and an increase in depreciation deductions for qualified investments.

smALL BUSINESSES lending

    The Budget expands the Section 7(a) program to enable $12.5 billion in guaranteed loan volume in 2005, a more than 25-percent increase from 2004. This will provide financing to entrepreneurs who could not obtain loans without a Government guarantee. Altogether, the 2005 Budget requests $129 million in administrative expenses to support $24 billion in guaranteed lending and equity investments for the Section 7(a) General Business Loan, Section 504 Certified Development Company Guaranteed Loan, and Small Business Investment Company (SBIC) programs.

    To continue to effectively address the financing needs of small businesses, SBA will: 1) assess the impact and effectiveness of its capital access programs; 2) administer programs more efficiently; and 3) target and expand access to credit.

    Assess Program Impact and Effectiveness. The Program Assessment Rating Tool (PART) revealed that although SBA’s technical assistance programs provide similar education, training, and information services to over four million entrepreneurs annually, standard measures to compare the effectiveness of each program are lacking. To address this finding, SBA is developing methods to measure the impact of these programs in helping entrepreneurs to start, sustain, and grow their businesses. PART findings also revealed that the structural flaws in the SBIC program are based upon a number of factors: 1) the Federal Government’s profit share is not commensurate with its investments; 2) SBICs do not have incentives to repay capital expeditiously, extending the government’s risk exposure; and 3) the methodology for calculating the program’s cost should be reexamined to more accurately capture the risk of subsidizing venture capital investments. The 2005 Budget takes necessary steps to address these issues.

    The 2005 Budget also includes a legislative proposal to improve the performance of SBA’s venture capital program, the SBIC program. The proposal would increase the government’s share of profits, increase borrower fees, encourage SBICs to repay principal faster, and minimize the Government’s risk exposure. With estimated losses to the taxpayer of about $2 billion on the Federal Government's outstanding guarantees of about $5 billion, these changes are necessary to make the program fiscally sound.

    Manage More Efficiently. As part of the President’s Management Agenda, SBA is administering its programs more efficiently to improve customer service and reduce program costs. Specifically, SBA is helping banks to issue Section 504 guaranteed loans faster by consolidating the origination process in a central location. SBA is reducing the amount of time that it takes for an entrepreneur to obtain a Section 504 loan from weeks to less than two days. SBA is also making progress in consolidating its loan liquidation function to minimize financial losses on its loan portfolio. The 2005 Budget also proposes to terminate the Microloan program, which has been excessively expensive relative to alternative programs. The 7(a) program is capable of serving the same clientele through the Lowdoc and Community Express programs for much lower cost to the Government.

    Target and Expand Access to Credit. SBA seeks to target assistance more effectively to credit-worthy borrowers who would not get loans from the commercial markets in the absence of a Government guarantee to pay off loans. SBA is actively encouraging financial institutions to increase lending to start-up firms, low-income entrepreneurs, and borrowers in search of financing below $150,000. Preliminary evidence shows that SBA’s outreach for the 7(a) program has been successful. Average loan size has decreased from $241,000 in 2000 to $167,000 in 2003, while the number of small businesses served has grown from 43,748 to 67,306 during the same time period. In addition, SBA issued new regulations for the Section 504 program that foster additional competition among intermediaries, thereby allowing borrowers greater access to loans.

DISASTER LENDING

Administrator Barreto confers with other SBA officials after a fire destroyed buildings in San Diego in November 2003.

    Through SBA’s Disaster Loan program, individuals and businesses adversely affected by physical disasters can borrow funds at low interest rates for extended periods. SBA’s disaster loans help homeowners, renters, businesses of all sizes, and nonprofit organizations finance rebuilding and recovery efforts. Working primarily with the Department of Homeland Security, SBA sets up temporary field offices in disaster areas to help the public apply for low-interest construction and economic assistance loans. The 2005 Budget requests funding to support $792 million in disaster loans.

    Automate Disaster Loan Applications. To increase responsiveness to disasters and reduce administrative burdens, SBA’s Disaster Loan program is testing a paperless loan-application processing system. By 2005, the system is expected to result in a 25 percent productivity increase. More importantly, such a system will let staff readily review files anywhere, regardless of the city, town, or region of a disaster, thereby improving service to the public. Under this new system, SBA will be able to minimize paperwork burdens on affected citizens by sharing data electronically with other SBA programs and with disaster relief agencies.

TECHNICAL ASSISTANCE

    SBA and its partners provide technical assistance programs, including training, counseling and mentoring, and information services to more than four million existing and potential small business entrepreneurs annually. The assistance is provided on-line as well as in-person and ranges from guidance on starting a business to export counseling. SBA provides grants to a network of over 1,100 Small Business Development Centers, 389 SCORE chapters, and 84 Women’s Business Centers.

    Measuring the performance of these programs has been difficult because numerous external factors, such as the general state of the economy, can significantly affect small business sustainability. In addition, SBA partners do not always provide reliable or consistent data for measuring progress. As a result of the PART assessments, SBA has been developing new annual performance measures and outcome-oriented long-term goals that will reduce reporting burdens and improve data reliability. Coupled with better oversight of the reporting process, the improved data will enable policymakers to better measure program impact and performance. SBA will work more aggressively with its technical assistance grant recipients to collect information on business longevity, increased business activity, and the number of start-up firms assisted. The Budget requests approximately $111 million for technical assistance programs in 2005.

FEDERAL PROCUREMENT

    The Federal Government buys over $200 billion in goods and services annually, and has a statutory goal of awarding at least 23 percent of its purchases to small businesses. As part of this effort, SBA assists agencies by negotiating agency-specific procurement goals, monitoring performance, and encouraging the use of small business sources.

    Agencies in the 1990s increasingly grouped separate, and often unrelated, purchasing activities under a single contract. Effectively, this limited small businesses’ participation in the bidding process. As part of the Administration’s agenda to assist small businesses, the President assembled an interagency working group tasked with developing a strategy to “unbundle” Federal contracts, which may help the Government reach its 23 percent goal.Contract bundling is the consolidation of two or more procurements previously provided under separate, smaller contracts into a single contract, which is unlikely to be suitable for awards to a small business.¹

    Consistent with the working group's recommendations, the Administration published regulations to: 1) ensure accurate reporting on contract bundling; and 2) require identification of alternative strategies for the proposed bundling (above certain agency-specific thresholds) and written justification when alternatives involving less bundling are not used.

PERFORMANCE EVALUATION OF SELECT PROGRAMS

    The Budget continues to focus on improving program performance. Six of SBA’s programs were assessed using the Program Assessment Rating Tool (PART), which evaluated the programs' design and purpose, strategic planning efforts, how well they are managed, and whether they are generating positive results for taxpayers. Below are some of the highlights and recommendations from the PART evaluations. For further details on SBA’s performance assessments, see the White House budget website at www.whitehouse.gov/omb/budget/.

UPDATE ON THE PRESIDENT’S MANAGEMENT AGENDA

    The table below provides an update on the Small Business Administration’s implementation of the President’s Management Agenda as of December 31, 2003.

	Human Capital	Competitive Sourcing	Financial Performance	E-Government	Budget and Performance Integration
Status
Progress
Arrow indicates change in status rating since evaluation on September 30, 2003. SBA has made solid progress in implementing the President’s Management Agenda. To improve service to the public, the agency has undertaken an assessment of its staff’s skills, contracted for training, increased accountability of managers, and conducted competitive sourcing competitions in 2003. As the leader of the Business Gateway, SBA has launched the website BusinessLaw.gov, which helps small business owners easily find, understand, and comply with myriad Federal regulations and is working with other agencies to reduce the paperwork burden on businesses. In the area of Budget Performance and Integration, SBA is making progress by improving its ability to measure, monitor, and mitigate risk in its loan portfolio. SBA has also made progress in developing new estimation models to improve financial management and more accurately measure the cost of providing small businesses credit subsidies.

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