The Small Business Administration (SBA) is an independent federal agency that helps small businesses in the United States. SBA provides aid, usually in the form of loans, and counseling to assist and protect the interests of small business concerns. SBA helps Americans start, build and grow businesses all across the country and in US territories, such as Puerto Rico, the Virgin Islands and Guam. But the agency hasn’t always accomplished its mission. SBA has been repeatedly criticized for responding slowly to the needs of small business owners, especially in the wake of disasters.
Before there was the Small Business Administration (SBA), there was the Reconstruction Finance Corporation (RFC), created by President Herbert Hoover in 1932 to help mitigate the financial crisis of the Great Depression. The RFC was a federal lending program for all businesses hurt by the Depression.
Concern for small business intensified during World War II, when large industries beefed up production to accommodate wartime defense contracts and smaller businesses were left unable to compete. To help small business participate in war production and stay afloat, Congress created the Smaller War Plants Corporation (SWPC) in 1942. SWPC provided direct loans to private entrepreneurs, encouraged large financial institutions to make credit available to small enterprises, and advocated small business interests to federal procurement agencies and big businesses.
SWPC was dissolved after the war, and its lending and contract powers were handed over to the RFC. Also, the Office of Small Business (OSB) in the Department of Commerce assumed some responsibilities that would later become characteristic duties of the SBA. Its services were primarily educational. Believing that a lack of information and expertise was the main cause of small business failure, the OSB produced brochures and conducted management counseling for individual entrepreneurs.
During the Korean War (1950-53), Congress created another wartime organization to handle small business concerns - the Small Defense Plants Administration (SDPA). Its functions were similar to those of the SWPC, except that ultimate lending authority was retained by the RFC. The SDPA certified small businesses to the RFC when it had determined the businesses to be competent to perform the work of government contracts.
By 1952, a move was on to abolish the RFC. To continue the important functions of the earlier agencies, President Dwight Eisenhower proposed creation of a new small business agency: the Small Business Administration (SBA), established by the Small Business Act of July 30, 1953. SBA’s function was to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns.” The charter also stipulated that the SBA would ensure small businesses a “fair proportion” of government contracts and sales of surplus property.
By 1954, SBA already was making direct business loans and guaranteeing bank loans to small businesses, as well as making loans to victims of natural disasters, working to get government procurement contracts for small businesses and helping business owners with management and technical assistance and business training.
The Investment Company Act of 1958 established the Small Business Investment Company (SBIC) Program, under which SBA licensed, regulated and helped provide funds for privately owned and operated venture capital investment firms. SBIC specialized in providing long-term debt and equity investments to high-risk small businesses. Its creation was the result of a Federal Reserve study that discovered small businesses could not get the credit needed to keep pace with technological advancement.
During the Lyndon Johnson administration, SBA began to attack poverty through the Equal Opportunity Loan (EOL) Program. The EOL Program relaxed the credit and collateral requirements for applicants living below the poverty level in an effort to encourage new businesses that had been unable to attract financial backing.
Nearly 20 million small businesses have received direct or indirect help from SBA programs since 1953. SBA’s current business loan portfolio of roughly 219,000 loans worth more than $45 billion makes it the largest single financial backer of American businesses in the nation.
The Small Business Administration (SBA) provides loans and other assistance to owners of small businesses. SBA seeks to help both existing small businesses and new ones trying to get started. Help is available to all small business owners, including minorities and women. Programs run by the SBA include:
Technical Assistance (Training & Counseling)
- Small Business Training Network is a virtual campus providing targeted online training for prospective and existing small business owners. It provides a wide variety of courses.
- Business & Community Initiatives provides entrepreneurial information and education, resources and tools to help small businesses succeed.
- Small Business Development Centers SBDCs provide management assistance to current and prospective small business owners. The centers offer one-stop assistance to individuals and small businesses by providing a wide variety of information and guidance in central branch locations. The program is a cooperative effort of the private sector, the educational community and federal, state and local.
- SCORE is a nonprofit association that educates entrepreneurs and encourages the formation, growth and success of small business nationwide. SCORE is a resource partner with SBA.
- Women’s Business Ownership assists women with starting and running successful businesses, regardless of social or financial disadvantage, race, ethnicity or business background.
- Native American Affairs ensures that American Indians, Native Alaskans and Native Hawaiians seeking to create, develop and expand small businesses have full access to the necessary business development and expansion tools available through SBA’s entrepreneurial development, lending and procurement programs.
- Entrepreneurial Development helps small businesses start, grow, and compete in global markets by providing quality training, counseling, and access to resources
- International Trade enhances the ability of small businesses to compete in the global marketplace; facilitates access to capital to support international trade; ensures that the interests of small business are considered and reflected in trade negotiations; and supports and contributes to the “federal government’s international agenda.”
Financial Assistance
- Loan Programs are designed to provide expeditious service on loan applications received from lenders who have a successful SBA lending track record and a thorough understanding of SBA policies and procedures. The Preferred Lenders Program (PLP) is another step in SBA's process of "streamlining" the procedures necessary to provide financial assistance to the small business community.
- Specialty Loan Programs assist business owners meet demand internationally, soften impacts caused by NAFTA, implement employee ownership plans and help implement pollution control mechanisms, in addition to other special programs.
- Investment Division helps business owners better understand equity capital or financing, in which money is raised by a business in exchange for a share of ownership in the company. Ownership is represented by owning shares of stock outright or having the right to convert other financial instruments into stock of that private company. Two key sources of equity capital for new and emerging businesses are angel investors and venture capital firms.
- Surety Guarantees administers the Surety Bond Guarantee (SBG) Program as a public-private partnership between the federal government and the surety industry. The SBG program consists of the Prior Approval (Plan A) and the Preferred Surety Bond Program (PSB or Plan B) program.
- International Trade helps business owners sell their goods around the world. With three specialized loan guaranty programs, the SBA helps provide export financing, credit to close a sale and funds for working capital.
Contracting Assistance
- Government Contracting (GC) works to create an environment for maximum participation by small, disadvantaged and woman-owned businesses in federal government contract awards and large prime subcontract awards. GC advocates on behalf of small business in the federal procurement world.
- Government Contracting/BD helps enhance the effectiveness of small business programs by working with Government Contracting and Business Development (GC/BD) program offices and others to develop policies, regulations, and statutory changes.
- Small Disadvantaged Business administers two particular business assistance programs for small disadvantaged businesses (SDBs). These programs are the 8(a) Business Development Program and the Small Disadvantaged Business Certification Program. While the 8(a) Program offers a broad scope of assistance to socially and economically disadvantaged firms, SDB certification strictly pertains to benefits in federal procurement. 8(a) firms automatically qualify for SDB certification.
- Technology (SBIR/STTR) administers the Small Business Innovation Research (SBIR) Program and the Small Business Technology Transfer (STTR) Program. Through these two competitive programs, SBA ensures that the nation's small, high-tech, innovative businesses are a significant part of the federal government's research and development efforts. Eleven federal departments participate in the SBIR program; five departments participate in the STTR program awarding $2 billion to small high-tech businesses.
- Size Standards deals with the fundamental question of what the numerical definition should be to define small businesses, industry by industry, to determine what businesses are eligible for SBA’s programs. Over the years SBA has established and revised numerical definitions for all for-profit industries, and this numerical definition is called a “size standard.” It is almost always stated either as the number of employees or average annual receipts of a business concern.
- Surety Guarantees provides and manages surety bond guarantees for qualified small and emerging businesses in direct partnership with surety companies and their agents, utilizing the most efficient and effective operational policies and procedures
Disaster Assistance Recovery
Disaster Assistance
provides low interest disaster loans to homeowners, renters, businesses of all sizes and private, non-profit organizations to repair or replace real estate, personal property, machinery & equipment, inventory and business assets that have been damaged or destroyed in a declared disaster.
The Small Business Administration spent nearly $460.8 million on 1,674 contractors this decade. According to USASpending.gov, SBA paid for a variety of services, from automatic data processing and telecommunications services to professional, administrative and management support services.
The top 10 contractors were:
Uniys Corporation $45,466,084
Base Technologies, Inc. $29,122,929
Deva & Associates, P.C. $28,864,000
Washington Products and Services, Inc. $16,757,568
International Business Machines Corporation, Inc. $12,731,185
Qinetiq North America Operations, LLC $12,609,783
Bay State Computers, Inc. $12,193,392
Northern Taiga Ventures, Inc. $9,993,648
Nana Regional Corporation, Inc. $8,804,244
Lockheed Martin Corporation $7,675,000
Unisys Corporation, the SBA’s largest contractor, is a company specializing in data storage and protection. In recent years, their work has expanded to include communication technologies, financial services and transportation. Base Technologies, Inc., the SBA’s second largest contractor, provides IT solutions to federal, commercial and healthcare organizations.
American Small Business League
Large Corporations Receiving Federal Contracts Meant for Small Businesses
In 2004, the Washington Business Journal reported that the SBA had been urged to define “small” a bit more clearly, in order to more fairly award loans and contracts. Thousands of companies had complained to the SBA about a proposed rule that would use only a firm’s number of employees to determine whether it is eligible for SBA’s contracts or other programs. Traditionally, the number of employees and annual revenue were used to make this determination. In 2005, Inc magazine reported that large corporations like general Dynamics, Lockheed Martin and L-3 Communications received small business contracts from SBA. Almost $80 billion, or 25.4% of total federal contracting, went to small business. But the Center for Public Integrity released a report saying that at least 20% of all SBA contracts go to the nation’s largest defense contractors. On July 30, 2008, the Bush administration modified policy to make it easier for large firms to qualify as “small businesses” by dropping the requirement that government contractors publicly state either their number of employees or their annual revenue.
SBA Ruling Questioned in Blackwater Investigation
In November of 2007, Rep. Henry Waxman (D-CA) raised questions about whether Blackwater, a controversial private security firm, was evading US taxes by classifying its armed guards as independent contractors instead of employees. Although the IRS had ruled that Blackwater’s classification of security guards as independent contractors was “without merit,” Blackwater cited an SBA “official finding” that “Blackwater security contractors are not employees.” Blackwater avoided paying $31.8 million in payroll taxes.
Low Morale and Incompetence
In July of 2006, Fortune magazine reported that during Hector Barreto’s six-year run as chairman of the SBA, the agency came under repeated attack for its slow and bungling response to Hurricane Katrina and for managing a team of employees with the lowest morale in the federal government. Some have begun to call for ending the agency altogether, since it helps less than 1% of all small business in the country.
Hurricane Katrina Controversy
In the wake of 2005’s Hurricane Katrina, the SBA was responsible for helping small businesspeople get back on their feet with loans and other services. But 18 months after the hurricane devastated New Orleans, few local small businesses had been helped either with loans or federal contracts. Mountains of paperwork, non-transparent application processes and unhelpful staff were just a few of the complaints lodged against the agency. Only about 7% of the available contracts went to local companies. Minority-owned business fared worse, winning only 4% of government contracts.
The Katrina Controversy
(by Renuka Rayasam, U.S. News & World Report)
Keep It, or Kill It?
In June 2007 Business Week magazine devoted its Debate Room feature to the issue of whether the Small Business Administration has outlived its usefulness. The feature remarked, “The Small Business Administration is of little value. It gives loans to non-creditworthy businesses, shifting funds away from larger enterprises deserving of credit. Pro or con?”
Pro: Gratuitous Crutch
According to Veronique de Rugy of George Mason University’s Mercatus Cnter, Congress created the Small Business Administration in 1953 to fix an ostensible problem: Lenders passed over large numbers of small businesses that, if given access to a loan, would generate untapped economic growth. In fiscal year 2008, the SBA will guarantee $28 billion in loans, mainly through its flagship 7(a) loan program. Plenty of evidence indicates, however, that the time has come for Congress to abolish the SBA loan programs. Here are three reasons.
First, academic literature shows that private capital markets already efficiently allocate loans to small businesses. Banks give credit at the right price to companies that deserve it at that price, including small businesses.
Empirical studies prove that point, too. In 2002, the Federal Reserve Board reported that the demand for small-business financing closely tracked the pattern of debt growth from 1997 to 2002, suggesting a correlation between the demand and supply of financing. Although conditions deteriorated substantially in 2001 and the beginning of 2002, small businesses didn’t find financing conditions onerous and weren’t suddenly having more difficulty obtaining credit during that period.
Second, shutting down the SBA would hardly stop small businesses from getting loans. Only 1% of small businesses receiving loans (long- or short-term) in a given year receive them from the SBA. And while 29% of 7(a) loans go to minority business owners, SBA distributes loans to roughly only 3% of all minority-owned firms. The same trend is true for women-owned firms. In other words, the SBA is largely irrelevant in the capital market. Even the National Federation of Independent Business, the chief small-business lobbying group, agrees. “Our members tend not to rely on SBA loan programs,” Says Andrew Langer, the NFIB’S manager of regulatory policy.
Finally, even though SBA loans tend to flow to riskier borrowers - as its mission intended - it’s unlikely that these businesses promote economic growth. SBA loans go to businesses that conventional providers of financing have rejected. This means these loans go to the enterprises least likely to create stable employment, improve technology, or enhance national productivity. Default rates on SBA loans are roughly 17% as opposed to 1.5% for FDIC-insured bank loans and 4.3% for credit card loans.
It is time to abolish the SBA loan programs.
Con: A Crucial Helping Hand
According to Kristie Darien of the National Association for the Self-Employed, abolishing the SBA would not only hurt small business by shutting down key programming that aids in business development and growth, but would also ultimately strike at the foundation of our nation’s economy. Programs offered by the SBA have a proven track record of effectively aiding very small businesses and our nation’s self-employed.
Owners of small businesses continue to face considerable challenges in starting and enhancing their enterprises. One key obstacle is their ability to attain funding. According to a recent online survey by the National Association for the Self-Employed (NASE), nearly 60% of self-employed individuals say they have been forced to rely on personal finances as their primary source of funding when starting their business. That habit continues after the business is established, with 36% continuing to use personal savings as an ongoing means of finance. Big business, on the other hand, is rife with players who could afford to invest their private stashes - but rarely do. Why must the entrepreneur bear the heavier burden?
Historically, traditional lending sources such as banks and other financial institutions have not met the funding needs of micro-business owners. The self-employed and micro-business communities generally need small infusions of capital over their lifetimes. The small scale of the loans needed by micro-businesses as well as lending institutions’ perceptions that startups and small enterprises are risky investments have led to a lack of capital resources.
SBA loans, such as those available from the Micro-Loan Program, fill this funding gap. Access to SBA Micro-Loans is an important avenue to help businesses grow and boost the local economies.
In addition to financing, SBA offers training programs, such as those provided by Small Business Development Centers, which give essential, one-on-one assistance to current and prospective entrepreneurs. The centers support entrepreneurs throughout every stage of their business’s creation and growth. And the SBA Office of Advocacy has long served as a strong voice within government to ensure that small business gets a fair shake in the regulatory process.
Axe the SBA
(debate, Business Week)
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Founded: 1953
Annual Budget: $819 million
Employees: 2,100
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Small Business Administration
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Mills, Karen Gordon
Administrator
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Karen Gordon Mills, Barack Obama’s choice to head the Small Business Administration, is an established venture capitalist and future heir to one of America’s favorite candy companies.
Born in 1953, Mills is the daughter of Melvin, 89, and Ellen Gordon, 77, controllers of Tootsie Roll Industries, a $420 million revenue company that includes other brands like Mason Dots, Junior Mints, Sugar Babies, Charleston Chew and Double Bubble chewing gum. Ellen Gordon told Crain’s Chicago Business in 2005 that they planned to pass the business down to their four daughters.
Mills grew up in Boston, even though her parents relocated the business to Chicago in 1968. She attended high school at Winsor School in Boston, then went to Harvard, where served as president of the Dramatic Club while earning her AB in economics magna cum laude (1975). She was a Baker Scholar at the Harvard Business School, receiving her MBA in 1977.
Mills first worked as a product manager for General Foods, then as a consultant for McKinsey & Company. From 1983 to 1993, she served as chief executive officer and managing director of E.S. Jacobs & Company, a private investment firm. In 1993, she became president of the MMP Group, Inc., a New York-based management consulting and investment banking services company.From 1999 to 2007 she was founding partner and managing director of Solera Capital, a New York-based venture capital firm that is largely run by women.
Solera has $250 million under management and specializes in later-stage investments in new companies. “Our operating philosophy is to invest about $15–20 million in each deal and take a controlling interest,” Mills told the Harvard Business School Bulletin. “We like to be the capital that comes in to grow the business to the next level — build the next plant, make an acquisition, or expand the brand.”
Among the businesses Solera has helped is The Little Clinic, which provides neighborhood-based physician assistants and advanced registered nurse practitioners, Annie’s, an organic food store, and Latina Media Ventures, publisher of Latina magazine.
Mills sits on the board of several companies, including Scotts Miracle-Gro, Armor All, Telex Communications, Arrow Electronics, and Triangle Pacific Corp. A member of the Council on Foreign Relations, she is a member of the Harvard Business School Visiting Committee and is a Harvard Overseer. She is also well connected in the state of Maine.
Mills is a close economic adviser to Maine Gov. John E. Baldacci (D), chairs Maine’s Council on Competitiveness and the Economy, sits on the Council for the Redevelopment of the Brunswick Naval Air Station, and serves on the boards of the Maine Technology Institute, the Maine chapter of the Nature Conservancy, and the George Mitchell Scholarship Fund. Furthermore, her husband, Barry, a prominent New York lawyer who was a partner at Debevoise & Plimpton, became president of Bowdoin College in Maine after heading up the search committee for a new president.
Mills was serving on Obama’s Small Business Administration transition team when she was announced as the next administrator of the agency. She was confirmed by the Senate on April 1, 2009.
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Baruah, Santanu “Sandy”
Previous Administrator
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Santanu “Sandy” Baruah earned a Bachelor of Science degree in political science from the University of Oregon and an M.B.A from Willamette University. Baruah then started a career as a business consultant in Portland, Oregon, working for seven years at the consulting firm, Performance Consulting Group. He also worked with U.S Senator Bob Packwood and for President George H.W Bush in the office of the Secretary of Labor and the Secretary of Interior. Baruah was also an Oregon field director for the Bush-Quayle ticket in 1988 and he contributed to the Bush-Cheney campaign in 2004.
Baruah served as the Deputy Assistant Secretary for Program Operations and Chief of Staff at the Economic Development Administration (EDA), before being appointed Assistant Secretary of Commerce for Economic Development. He took charge in December 2005. On June 25, 2008, President Bush nominated Baruah to head the Small Business Administration. He served as acting administrator until President Barack Obama took office.
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