We’ve often said in this blog that more federal small-business contracts should go to actual small businesses. That’s the law. Of course, the U.S. government (and every other government on the planet) can always find ways around the law and that’s why $65 billion worth of federal small-business contracts have gone to large corporations. But President Obama has seen the light. "It is essential that we provide our nation’s small businesses with maximum practicable opportunity to participate in federal government contracting," he said a couple days ago. Setting a goal of 23 percent of contracts going to small businesses, he directed Tootsie Roll heiress (and SBA chief) Karen Mills to hop to it. And Mills did, announcing an SBA "outreach" campaign of 200 events in the next three months to share information on government contracting opportunities with small businesses. (Random rant: how do you get to be a Tootsie Roll heiress anyway? Does anybody actually eat those things? Even trick-or-treaters leave them in the bottom of the bag. End of rant.)

ASBL says not so fast. You’re right to be skeptical of any government program with the word "outreach" attached to it. Lloyd Chapman is. Chapman heads the American Small Business League [https://www.asbl.com/] and is a frequent, fiery critic of government’s longtime practice of fraudulently diverting small-business contracts to big companies. He calls the Obama announcement "just another public relations ploy." He says that, of all the money allocated under the Recovery Act, only 1 percent has gone to small businesses. Chapman argues there won’t be real reform till Congress passes the Fairness and Transparency in Contracting Act, which he says will "boost the economy and root out liars, con men, shams and crooked politicians." (Tall order there, Lloyd. We suspect this would require something more than an act of Congress -- like maybe an invasion of ethical, beneficent and all-powerful space geniuses -- but we wish you luck.)

Source:  http://www.allbusiness.com/company-activities-management/contracts-bids/12693981-1.html

The Small Business Administration and the Commerce Department plan to offer more federal contracts to small businesses, but a small business advocacy group is skeptical.

Federal officials from the two agencies intend to participate in more than 200 procurement events across the country over the next 90 days. The aim is to increase contracting opportunities to minority-owned and small businesses, including women- and veteran-owned businesses. Officials will be offering information on government contracting opportunities at the events, including contracts available under the American Recovery and Reinvestment Act.

“Small and minority-owned businesses must play a significant role in our efforts to restore economic growth,” said President Barack Obama in a statement. “Small businesses employ half of the nation’s private sector workforce, create a large share of the nation’s new jobs, and introduce many groundbreaking ideas into the marketplace. It is essential that we provide our nation’s small businesses with maximum practicable opportunity to participate in federal government contracting.”

In order for the federal government to meet or exceed the goal of 23 percent of prime contracts going to small businesses, Obama said that he and Vice President Joe Biden have tasked Small Business Administration chief Karen Mills and Commerce Secretary Gary Locke with leading a federal government-wide initiative to increase outreach.

The SBA and the Commerce Department will expand their outreach to fellow contracting officials across the federal government, passing along best practices for outreach and education to every agency to ensure they have the tools they need to meet their annual contracting goals.

Locke and Mills will promote small business contracting opportunities in remarks, events and discussions with small business groups across the country, including minority, women and veteran groups. Beyond the next 90 days, Commerce and the SBA will support, monitor and track the impact of these efforts going forward to help ensure the administration is maximizing opportunities for small businesses.

However, Lloyd Chapman, president of the American Small Business League, which has advocated against the diversion of federal contracts from small businesses to large companies, has his doubts about the plans.  His group estimates that during the first six months of the Obama administration, over $50 billion in federal small business contracts were awarded to clearly large businesses. Of the funds allocated as part of the Recovery Act, the ASBL estimates that approximately 1 percent has actually gone to America's 27 million small businesses.

"It is reprehensible that President Obama would make these statements about his support for small businesses when he has done nothing to stop the daily diversion of up to $400 million in federal small business contracts to corporate giants around the world," said Chapman. "The administration's press release appears to be just another public relations ploy. If President Obama really wants to do something for small businesses, he'll make good on his campaign promise to stop the diversion of federal small business contracts to corporate giants by publicly supporting legislation such as H.R. 2568, the Fairness and Transparency in Contracting Act of 2009.”

Source:  http://www.webcpa.com/news/Stimulus-Contracts-Small-Businesses-51449-1.html

Five of the top 10 small-business federal contractors this year are really big companies, according to a report for Petaluma-based American Small Business League.

The federal government still hasn’t released its list of small businesses that received federal contracts in the 2008

Lloyd Chapman

fiscal year, so the league got a list from Fedmine, a database that aggregates data from different federal sources. Among the top money recipients, according to Fedmine and ASBL:

• Nuclear Fuel Services, annual revenues of $67 million and subsidiary of McDermott International Inc., a public company with 28,000 employees and annual revenues of $5.6 billion; has received $87 million in federal contracts
• Security Consultants Group Inc., 1,155 employees and $53 million in annual revenue; received $82.2 million in contracts
• SGT Incorporated, $112 million in annual revenues; received $75.4 million in contracts
• Paragon Systems Inc., publicly traded company with 2,500 employees and $75 million in annual revenues; received $60.5 million in contracts
• Chenega Technology Services Corp., 700 employees and $150 million in annual revenues; received $56.7 million in contracts

“The government used to release this data in February (four months after the end of the fiscal year) but they’ve moved it to October,” Chapman said. “There’s no reason to delay; it’s a real-time database. And they moved the data from a government agency to a private contractor so it’s harder to get.”

There’s no legal requirement to give contracts to small businesses, but since 1953, the federal government has encouraged its biggest agencies to spend  some money with the little guys that account for half the nation’s gross domestic product, more than half the jobs and more than half the net NEW jobs.

The stated goal is 23% of procurement spending, and agencies report annually their contracts to “small businesses.”

The league’s founder Lloyd Chapman has been noisily insisting for years that these reports are at best mistaken and at worst fraudulent and involve “$100 billion a year.”

He’s in town this week to attend the Department of Energy contracting conference.

He created the league to call public attention to the issue. Over the years he has pointed out that such major corporations as Raytheon and General Dynamics are in the federal small-business procurement database.

He’s not alone in pointing out the issue. The Center for Public Integrity said that 30% of defense contracts reportedly given to small- or minority0owned companies from 1998 to 2003 ended up at the lagest defense contractors. In a separate report the Office of Advocacy within the U.S. Small Business Administration estimated $2 billion in contracts when to large companies.

In the past, the SBA has attributed the issue to data-entry mistakes, to companies winning contracts while they were small but then outgrowing the limit and to multi-year contracts automatically renewed for as long a s 20 years if a business did a good job.

It’s not that the definition of a small business is so restrictive. In some industry categories, a company can have 1,500 employees or $35.5 million in annual revenues. Click here for a summary. Some 27 million U.S. businesses are classified as small.

The league has written a bill introduced this year by Rep. Hank Johnson, D-Georgia, to halt all contracts to companies once they outgrow the small-business definition, are acquired by a big company or go public. The company could keep the contract but it and its federal client could no longer claim it as a “small business contract.”

Source:  http://jan.freedomblogging.com/2009/08/13/report-federal-small-firm-money-goes-to-big-companies/19733/

Small-business owners hoping for some assistance of the sort given to the nation’s biggest banks applauded when the Small Business Administration unveiled a lending program in May.

Washington officials and some lenders predicted that the program, providing emergency bridge loans as part of the economic stimulus package, would save jobs and provide a lifeline for vulnerable businesses. Many in the banking industry expected it to be fully subscribed in months.

But the program is off to a slow start, and many banks, including some of the largest, appear reluctant to take part.

With $255 million, the program is prepared to make about 10,000 loans of up to $35,000 each. As of Monday, the agency reported that only 1,127 loans, totaling $36.8 million, had been extended.

While the agency maintains that the program is on track, some in the banking industry say the banks are moving slowly because they have little incentive. “There’s not a lot of profit motive in a $35,000 loan stretched over six years,” said Paul Merski, chief economist for the Independent Community Bankers of America, a trade association.

Bob Seiwert, of the Center for Commercial Lending and Business Banking at the American Bankers Association, says “stringent underwriting standards” will require as much work as larger loans, making these even less economical.

Alex Cooper, a counselor at the Pima Community College Small Business Development Center in Tucson, says he has helped nearly 30 clients apply for the loans. None has received one.

“It’s a disappointment,” said Mr. Cooper. “I thought the banks would be more interested in the community and try to help small businesses.”

Under the program, known as America’s Recovery Capital, a business owner applies to a bank for a loan and, if approved, can use the proceeds to retire existing debt. The borrower pays no interest on the new loan.

Instead, the Small Business Administration pays the bank two percentage points over the prime rate. After a one-year deferral, the borrower repays the loan over five years. The agency will repay the lender in case of default.

At the current rate, the program could have loans available through September 2010, when it is set to expire. “We like the fact, actually, that they will be spread out over time,” said Karen G. Mills, head of the Small Business Administration. “We have no doubt that we will make 10,000 loans.”

Not surprisingly, small-business owners are less pleased with the slow pace. Among the frustrated applicants is Mark Rusin, a client of Mr. Cooper’s whose restaurant business has fallen precipitously in the last year.

Mr. Rusin bought a franchise location of Uno Chicago Grill north of Tucson in April 2007 for $3.2 million. He dropped the franchise agreement because of fees and restyled the restaurant as the Loop Taste of Chicago.

Then came the recession. As the snowbirds left for points north this spring, sales tumbled. June revenue was $72,000, down 28 percent from a year earlier. “I’m bleeding out to the tune of 10 grand a month right now,” Mr. Rusin said. One of the new loans, he said, would see him through the next couple of months.

Part of the problem for borrowers like Mr. Rusin may be that Congress restricted loan eligibility to companies that are simultaneously struggling yet viable. That means the business must face an “immediate financial hardship,” meaning a 20 percent reduction in a critical operating number, such as revenue.

But the company, which has to have been in business at least two years, also has to have shown positive cash flow, if not an actual profit, in one of the last two years. It also must do a two-year cash-flow projection to show it can repay all its obligations.

The effort required to verify all of this probably explains why those banks that are participating in the program are lending primarily to existing clients. “From a financial perspective, it really is a loan that makes sense for an existing customer,” Mr. Merski said. “You’re not going to have to put out a lot of resources to do a very costly underwriting. You know the business.”

Mr. Rusin was fortunate in that the lender holding a first position on his commercial mortgage, M & I Bank of Milwaukee, is participating in the program. He hoped to use the loan to pay his vendors. But soon after he submitted his application, Mr. Rusin said, the bank told him he could use the loan only to pay down the earlier debt owed to the bank.

M & I ultimately denied Mr. Rusin’s application. The bank, he says, told him that was because his business had failed to show a profit in either of the previous two years, despite the more forgiving guidelines of the program.

M & I Bank declined to comment on this, citing privacy laws and its corporate policy.

“The guidelines are just that, a guideline,” said Mike Stamler of the Small Business Administration. The agency and the banks, he says, have the flexibility to deny an applicant that meets the guidelines — or approve one that does not, as long as the loan is deemed “reasonable.”

It would appear that banks like M & I are using that flexibility more to deny than to approve loans. For example, Wells Fargo, one of the largest Small Business Administration lenders, has received 700 to 800 completed applications, said Tom Burke, the senior vice president overseeing small-business loans at Wells Fargo, but has approved only “several dozen.” (As of Monday, the agency said it had in turn blessed only three of them.)

“What we’re seeing,” Mr. Burke said, “is a lot of people who are incredibly leveraged, and it’s very difficult for them to pay back their existing debt, much less take a new one.”

Mr. Seiwert of the American Bankers Association and Mr. Merski of the independent bankers group say banks are lending conservatively because they fear the agency will renege on its guarantee.

“While the loan is 100 percent guaranteed, it’s only 100 percent guaranteed if you follow all of the underwriting guidelines, and some of those guidelines are very fuzzy,” Mr. Seiwert said. “If you miss one, you put your whole loan at risk.”

Ms. Mills of the small-business agency acknowledged that there had been tension over guarantees but said that issue had largely been resolved. The agency, she added, honors its guarantee in “95 percent of the cases, and we’re fairly quick about our turnaround as well.”

The leaders of the small-business committees in Congress do not criticize the banks. Mary L. Landrieu, Democrat of Louisiana and chairwoman of the Senate committee, said through a spokeswoman that she understood their reluctance to lend to struggling firms.

Nydia M. Velázquez, Democrat of New York and chairwoman of the House committee, accused the small-business agency of failing to establish the program within the 15 days that Congress demanded and of failing to reach out to banks. But Ms. Velázquez, who has claimed some credit for inserting the lending provision into the stimulus bill, said through a spokesman that she expected additional lenders to participate “as they learn more about the program’s incentives.”

Ms. Mills of the agency agrees that more banks will sign up. But she defends the time spent establishing the program. The new loans “have a much higher risk profile than what the S.B.A. usually does,” she said. “So we have taken great care to be good stewards of the taxpayers’ money.”

Mr. Rusin, for his part, remains optimistic. He persuaded one of his lenders to defer payments on a loan, saving himself more than $50,000 in the short term. Even before getting the deferral, Mr. Rusin insisted that once construction near his restaurant was out of the way and the recession was over, “I should be in pretty good shape here.”

As if on cue, a couple finishing an early dinner headed toward the door. “You’ve done a wonderful job here,” the man said. “It was the taste of Chicago.”

Source: http://www.nytimes.com/2009/08/13/business/smallbusiness/13small.html?_r=1&ref=smallbusiness