For some time now, the Small Business Administration has found itself under fire. Frequently referred to as the "embattled SBA, " the agency has received criticism and censures for its management of a raft of situations–in particular, its response to the Gulf Coast hurricanes last year and its handling of economic disaster-recovery loans to small businesses following the September 11 terrorist attacks (see BusinessWeek.com, 5/11/06, "The SBA's Iffy Future").

This represents a critical juncture for the SBA. In April, SBA administrator Hector Barreto announced he was stepping down after five years, to head up the Washington (D.C.)-based Hispanic business-advocacy group, the Latino Coalition. The White House's nominee to replace Barreto, Steven Preston, an executive vice-president for Downers Grove (Ill.)-based ServiceMaster (SVM), faces a host of challenges, should his confirmation go forward. Questions have arisen regarding the Bush Administration's commitment to the SBA, particularly in light of proposed budget cuts. While Democrats have called for a complete overhaul of the SBA, some critics have asked for its dissolution altogether.

As Preston, whose nomination has received a mixed reaction, prepares to go before the Senate this week, BusinessWeek.com spoke to industry watchers, policy makers, and entrepreneurs to hear their responses to the nomination of the man who would head up the SBA.

Spokeswoman for Nydia Velázquez (D-N.Y.), ranking Democrat on the Congressional Committee on Small Business
"There's been some concern about [Preston's] lack of experience in working with small businesses. However, he apparently has a lot of experience working in financial management operations, and this could be [an] asset in addressing the multitude of problems facing the agency, from contracting fraud to its inadequate response to Hurricane Katrina, and a lot of mismanagement issues that have prevented them from reaching its full potential in helping small businesses."

Harry Alford, president and CEO, National Black Chamber of Commerce
"I find nothing in this guy's background that says he's a small-business advocate…We need a strong SBA and a stronger focus on small business contracting. "

Representative Marilyn Musgrave (R-Colo.), member of the Congressional Small Business Committee
"I think very highly of chairman Manzullo, and he recommends our new guy, Steven Preston. He's from Illinois, and he has a good background in finance. From what I've heard, Mr. Preston specifically is going to focus on disaster assistance. After the scrutiny that Mr. Barreto got, Steven Preston will be very conscientious in that area. I'm not saying Barreto wasn't. I'm just saying that you get a lot of scrutiny when people are in desperate straits. I think Mr. Barreto has served us well, and I look forward to this administrator. "

Lloyd Chapman, president, American Small Business League
"In my way of thinking, Steven Preston couldn't be more unqualified to head the SBA. He's a Fortune 500 exec–that's the opposite of small business. Appointing a Fortune 500 executive to head the SBA is like appointing the head of Exxon (XOM) to head the Sierra Club. I think that Bush has selected Preston to continue to close the agency with the goal of ending all federal programs for small, women-owned, minority-owned, and disabled-veteran-owned firms. And if he does, he will find, just as Barreto did, that I will be one of his biggest opponents. "

Margot Dorfman, president, U.S. Women's Chamber of Commerce
"With regard to the nomination of Steven Preston, we have one primary question: Will his tenure at the SBA be marked by this same disregard for the will of Congress–and the same mistreatment of women business owners–we have seen over the last five years? Or will he step up to the challenge of true small-business leadership–and finally return the SBA to its intended role of support and advancement for America's small businesses? "

Mike Little, owner of the 90-employee B&W Solutions, a company that provides federal human resources management support
"Historically, the SBA has made a huge difference for small business, and that's what we would like it to continue to do, but funding and leadership are what make every organization go…I didn't know [Preston], and that gives me some concern, as small-business advocacy has been a major part of my adult life. A candidate's history and track record certainly say a lot about interest, commitment, and qualifications."

Véronique de Rugy, American Enterprise Institute Fellow
"The real test to me of his tenure is whether [the SBA] actually responds to my paper ["Why the Small Business Administration's Loan Programs Should be Abolished"] about how inefficient they are–and if he takes the time to engage in that debate. The SBA has been asked to respond. If [he doesn't] engage in debate about how taxpayer dollars [are spent in regard to loan guarantees at the SBA], he is no better than any of his predecessors."

Michael Barrera, president & CEO, U.S. Hispanic Chamber of Commerce
"I applauded the Administration when they got Hector, because he came from a small-business background. His father was an entrepreneur, he was an entrepreneur, and there is a certain sense you have to have lived it to know it. To a certain extent, that's what concerns me about Steven Preston, although I do applaud the fact that ServiceMaster does deal with a lot of small businesses.

A rule change in the Small Business Administration reauthorization bill that would allow franchises of the nation's largest corporations to qualify for government contracts is being criticized by industry representatives, who claim it will "divert money from legitimate small businesses."

Lloyd Chapman, president of the American Small Business League, is waging a campaign against the provision, which he says would make "every McDonald's considered a small business." The change in the reauthorization bill, sponsored by House Small Business Chairman Donald Manzullo, R-Ill., would create size standards that franchises would have to meet to qualify for government small-business contracts, which amount to $119 billion annually.

Existing law prevents franchises from being considered for small business awards, which must make up 23 percent of government contracts. Chapman said the provision would encourage Fortune 1000 companies to buy up smaller businesses that meet the size standards to be created under the new rule.

According to the new language in the bill, a franchisee would have to maintain at least 51 percent of its previous profits and make up for its financial losses, have its own paid staff separate from the larger corporation and control day-to-day business operations, in order to qualify.

Chapman speculated that large corporations would egregiously pass off the franchises they control as small businesses to obtain more revenue. "The government has a history of helping large companies get small business contracts," he said.

SBA's Office of the Inspector General stated in a report last year that "one of the most important challenges facing the [SBA] and the entire federal government today is that large businesses are receiving small-business procurement awards and agencies are receiving credit for these awards."

The SBA, which would be reauthorized another four years under Manzullo's legislation, was criticized for its handling of reconstruction efforts in the Gulf Coast; in April, the Government Accountability Office released a report highlighting the agency's mishandling of small business contracts with Alaska native companies.

Giovanni Coratolo, executive director of the U.S. Chamber of Commerce Small Business Council, said the plan, with its size standards, would serve as an "important vehicle by which business owners could pursue" additional contracts through the government.

Coratolo said the size clarification would not give franchises an unfair advantage in contract bidding. "Franchises have to have flexible opportunities," he said, adding that the size guidelines detailed in the provision were adequate.

But Chapman also noted that the Manzullo provision surfaced only days after President Bush nominated the new SBA chairman, who most recently was a vice president at ServiceMaster, a Chicago-based company with over 5,500 locations and franchised licenses, according to its Web site.

Chapman, who noted that SBA nominee Steven Preston received the endorsement of the International Associations of Franchisers, said the pending provision would stand to "greatly benefit ServiceMaster."

Manzullo put off a markup last month after receiving 50 amendment proposals the night before the committee was scheduled to consider the bill. The delay allowed him to meet with members and to smooth out a manager's amendment, a spokesman for the lawmaker said.

Washington D.C. - The U.S. Small Business Administration has taken it upside the head lately.

The beleaguered agency, which guarantees loans and runs educational programs on behalf of some 25 million small businesses, has seen its budget shrink by a third, to $624 million, since 2001. And buffeted by attacks over the glacial administration of disaster loans in the wake of Hurricane Katrina, head SBA administrator Hector Barreto stepped down in April.

Making matters worse, this year's Small Business Reauthorization Act--which would keep the agency afloat for the next four years--is mired in Congress thanks to some 50 amendments proposed by House Democrats. Republicans rejoined last week with a last-minute proposal to repeal a policy that prevents big firms from using franchises as fronts to obtain small-business contracts.

Into the breach steps Steven C. Preston, former head of strategic acquisitions at lawn-care giant ServiceMaster (nyse: SVM - news - people ). Supporters say that ServiceMaster's franchising model gives Preston a feel for financing small businesses, while critics find it unlikely that a corporate executive would have much empathy for entrepreneurs. Preston's confirmation hearing is scheduled for tomorrow.

"If Preston is approved, he will likely foster policies that will act as barriers to small firms doing business with the federal government and continue to allow awards to Fortune 1000 companies to be reported as small-business contracts," says watchdog Lloyd Chapman, president of the American Small Business League.

Todd Stottlemyer, president of the conservative National Federation of Independent Business, counters that Preston "has had invaluable experience in the credit and financing arenas as he worked to meet the needs of his small-business customers."

Whatever the case, Preston has one tough balancing act. Here are just some of the issues that need immediate attention:

-- Disaster Relief. Traditionally a guarantor of small-business loans, the SBA also acts as a direct lender in times of disaster. In the summer of 1994, it made $2.1 billion in loans to 64,500 applicants after four hurricanes hammered Florida within two months.

The issue here is speed. In the first three months after Katrina, the SBA rejected some 80% of small-business loans, according to The New York Times (using figures provided by the SBA). The agency says it eventually approved 90% of all loan applications, for a total of $8.5 billion in loans.

Preston's job will be to find a way to get that money to devastated entrepreneurs more efficiently. (For a primer on securing SBA disaster loans this hurricane season, check out "An Entrepreneur's Disaster Loan Guide.")

-- Government Contracting. Democrats, led by Sen. John Kerry, D-Mass., and other left-leaning watchdogs want to increase the mandated quota for federal contracts to small businesses. Expect Preston to get grilled on this issue.

-- Loan Guarantees. Last year, the SBA did away with subsidies for its flagship 7(a) loan program, which guarantees the repayment (up to 85%) of $28 billion in loans to small businesses. Those subsidies helped to cover the program's loan losses, now supported by fees paid by borrowers. Not surprisingly, the SBA ended up raising the fees to make up for the potential shortfall--a strategy that doesn't sit well with Democrats, even as the agency is now guaranteeing ever-larger loan amounts.

-- Regulation Oversight. Given his corporate background, Preston will have to prove--to both parties--that he can work with other government agencies to shield small fries from disproportionately burdensome environmental and safety regulations.