New York Times

June 12, 2008

WASHINGTON — Steven C. Preston’s signature accomplishment as head of the Small Business Administration was overhauling the agency’s disaster loan assistance program, a program that was foundering under the crush of Hurricane Katrina claims when he took over nearly two years ago.

Mr. Preston has now moved on. He started this week as secretary of Housing and Urban Development. While he streamlined the way the S.B.A. worked, he left behind various problems that critics and small-business groups say are particularly troublesome in a weakened economy. They cite the need for greater availability of loans in particular.

And because his departure comes in the waning months of the Bush administration, it is unlikely that a permanent leader for the S.B.A., with a mandate to make major changes, will arrive before next year.

“While they focused on disaster assistance, there has been criticism that the agency has ignored small-business concerns,” said Karen A. Kerrigan, president and chief executive of the Small Business and Entrepreneurship Council, which represents 70,000 small businesses.

The agency’s difficulties in getting hurricane assistance to small businesses and homeowners showed how years of cuts by the Bush administration had taken a toll. The S.B.A.’s budget this year, $482 million, was less than half its budget in 2001.

Critics say the S.B.A. needs to broaden access to federally guaranteed loans, which carry lower interest rates and lower fees than their commercial counterparts, so that they are more attainable for entrepreneurs and small-enterprise owners.

Minority business owners also complain the agency is not doing enough to help them find financing and contracts. Female entrepreneurs are angry that the S.B.A. has not done more to help deliver a higher percentage of contracts, even though the agency was ordered to do so by Congress eight years ago.

While Mr. Preston faced no opposition at his confirmation hearing for the job at HUD, Representative Nydia M. Velázquez, Democrat of New York and head of the House Small Business Committee, gave his stewardship of the S.B.A. an incomplete. “Unfortunately, he was not at the agency long enough to have a lasting effect,” she said.

Jovita Carranza, now the acting administrator and a former executive of United Parcel Service, is likely to run the agency until a new administration arrives.

Even with Mr. Preston’s efforts to speed up disaster assistance, Congress recently pushed ahead with provisions, part of the farm bill, that amounted to its own overhaul of the S.B.A. disaster loan program.

The legislation’s provisions, said Senator John F. Kerry, Democrat of Massachusetts and chairman of the Senate Committee on Small Business and Entrepreneurship, would “cut through red tape, increase resources, bring private lenders into the response and help bridge that gap while disaster victims begin the process of building their lives.”

And last week, the Senate voted to add $101 million to the agency’s budget. The move was also supported by Senator Kerry’s Republican counterpart on the committee, Olympia J. Snowe of Maine. Both senators argue that the agency needs to step up its efforts since less capital is available elsewhere in the current sluggish economy.

“There is a contraction in the lending program, which I think is antithetical to what the S.B.A. is supposed to be doing,” Mr. Kerry said. “This is a moment where the credit crunch requires the S.B.A. to fill the gap.”

The number and amount of federal loans under the main loan guarantee program, called 7 (a), has fallen to 50,546 through the end of May this year, from 63,945 loan approvals through the end of May 2007. The loan amounts dropped as a well, to $8.24 billion from almost $9 billion.

“Our overall lending volume is down 8 percent,” Mr. Preston said in an interview last week. “And the dollar volume from the riskiest lenders is down 34 percent because they have pulled back the most.”

The agency, he said, has adopted procedures for greater automation, which should streamline lending and make it more attractive for banks to handle S.B.A. loans.

But small-business owners like Frances Richards, who heads Arlean & Company, a construction program management firm in Las Vegas, say they do not see any relief. Her efforts to tap into the area’s commercial expansion have been thwarted by difficulties in getting a $25,000 loan to hire the employees necessary to qualify for a subcontract.

“I’m in a Catch-22 because I’m not going to get a contract unless I have the capacity to handle it,” Ms. Richards said. “But that requires more money than I can get from my credit cards.”

The S.B.A. loan program is also contentious because of accusations of inadequate oversight of lending institutions. The agency’s inspector general found recently that flawed oversight had resulted in a $329 million loss in recent years. Mr. Kerry and Ms. Snowe this month asked the Government Accountability Office to investigate the S.B.A.’s system for monitoring lender portfolios and identifying risky lenders.

“The whole process of overseeing lenders is under review,” Mr. Preston said. “We’ll be putting clear rules in place to determine what we should do for lenders,” although he said he would not be around to see it through.

The most vociferous criticism has been about the S.B.A.’s handling of government contracts, about $400 billion yearly — 23 percent of that is supposed to be for small businesses. The American Small Business League, which sued and won release of S.B.A. data, maintains that large corporations are receiving contracts meant for small business.

Last year, the agency changed its rule to require businesses to certify their size every five years to prevent large corporations from winning contracts.

Female business owners are pursuing legal action to force agency compliance with Congress’s directive, passed in 2000, that they receive 5 percent of federal contracts. This year, the agency issued a regulation that included only four industries, infuriating female business groups.

If anything, minority small businesses are even more irate at the S.B.A., though the agency this year started an initiative aimed at helping inner-city enterprises. For minority businesses, “the S.B.A. isn’t even in the picture,” complained Harry C. Alford, president and chief executive of the National Black Chamber of Commerce. “We are not looking for giveaways, but in contracts and loans we are looking for them to loosen rules and make them more accessible.

“So right now, we’re not counting on the S.B.A.”

Source:  http://www.nytimes.com