Funding is a particular impediment for small businesses, especially those  owned by socially and economically disadvantaged entrepreneurs. In 1953,  Congress created the Small Business Administration to mitigate the problem, but  fraud and inflated reporting practices have plagued the agency for years.

Instead of providing a mandated minimum 23 percent of loans to certified  small businesses, the SBA has been reporting numbers just shy of the goal –  21.65 percent in 2011 and 22.25 percent in 2012.

Audits, however, have found the figures actually are inflated slightly. In  fact, a report from the American Small Business League showed that 57 percent of  loans reserved for small businesses actually went to Fortune 100 companies such  as General Electric, Apple and Citigroup.

In 2012, nearly $500 million in loans that had been set aside for small  businesses went to those large companies instead.

Causes for the SBA’s Problems

There are several reasons the money is missing its intended target. One is  human error.

The SBA is required by Congress to reserve contracts between $3,000 and  $150,000 for small businesses that offer a product or service at a fair market  price. Employees in charge of administering the loans don’t always do the  appropriate research to find competitive loan qualifiers. Instead, larger  companies fill the void by default. In 2012, only 68 percent of these reserved  loans went to small businesses.

Another issue is deception – large companies that masquerade as small ones,  usually through shell companies or subsidiaries. Oh, it’s not always deception.  Sometimes, a large company acquires a small business while it is still receiving  SBA funding. Either way, genuine small businesses lose out on funding.

Misreporting at the SBA is another major contributing factor regularly  identified by SBA Inspector General Peg Gustafson. The agency invested in  computers used to analyze data for anomalies and flag errors in reporting. That  includes looking for missing information and names linked to Fortune 100  companies. If an application is flagged, the agency is required to review the  information and make the appropriate corrections.

What to Do Next?

The continuing problems have prompted President Obama to suggest  consolidating the SBA with the Department of Commerce, an agency devoted to  large corporations. The president says this will save $300 million annually –  mostly because it will effectively shut down the SBA.

Supporters of SBA hate that idea because, they say, small businesses would  lose the only agency dedicated to helping them get established.

Instead, the supporters say, the president should focus on finding a way to  more effectively monitor SBA loans to ensure certified small businesses are  receiving at least 23 percent of the agency’s loans.

It’s worth finding a way to make the SBA work. After all, small businesses  provide 90 percent of new, net jobs and 50 percent of private sector employment.  Small business owners deserve the nation’s support.