It's difficult to keep tabs on what's going on in Sacramento, much less in our nation's capital. Just 24 hours before a U.S. Senate hearing on "The Effectiveness of the Small Business Administration," we heard that testimony was scheduled which could bring about the demise of the SBA. The network was buzzing and some of our key leaders were even able to make it to D.C. for the hearing, previously thought to be a well-kept secret. Why wasn't anyone alerted about this? Fortunately, a few people were, and the word got out. Was this an intentional lack of action or just an oversight?

The hearing was conducted by Senator Tom Coburn, a Republican from Oklahoma and chair of the Senate Subcommittee on Federal Financial Management Government Information and International Security. The Senator has charged that his oversight hearing on the SBA was mischaracterized by the American Small Business League (ASBL) as a "hearing to abolish small business programs." In a letter to MBE magazine (March/April 2005, page 5) Lloyd Chapman of the ASBL alerted us to the threat. In his opinion, the hearing would be another step in that direction.

I listened (via the Internet) to Senator Coburn's opening statement, noting that he said, "I believe that it is Congress' duty to do more oversight, not less, and this certainly includes the Small Business Administration. There is a perception out there that to be for the SBA is to be for small business, and to be against the SBA is to be against small business." He continued, "While the SBA is supposed to help small business, the interests of small business and the interests of SBA are only synonymous if and when the SBA is achieving its mission effectively and efficiently."

During the hearing, SBA Administrator Hector V. Barreto, who has since resigned (see In Brief, page 4), recounted the achievements of the organization during his tenure. He further explained that the SBA was able to achieve record-level lending numbers because of the zero subsidy policy that was adopted at the beginning of FY 2005 for the 7(a) loan guarantee program. Previously, in order to compensate for anticipated defaults on 7(a) loans, funds were set aside to cover expected losses. These are now sustained by fees paid by lenders and borrowers and are not subsidized by appropriation (in other words, taxpayers' money).

Key testimony was given by Veronique de Rugy, a research fellow at the American Enterprise Institute, who holds a Ph.D. from the University of Paris-Sorbonne. She recently wrote an article for Forbes titled, "Small-Firm Idolatry," in which she stated, "It's time to abolish the SBA and get rid of subsidies aimed at small business." In her remarks before the Senate, she contended that the 7(a) program is not having a significant positive effect on the market, but that "…you would never know this from the SBA's evaluations of its programs. In fact, the SBA's only measure of success amounts to stating how many loans have been guaranteed in a given year and how much it has spent on small businesses, rather than measuring the return on its efforts." She stated that measuring the performance of SBA loans should include their effect on economic growth.

We couldn't agree more, and we think we're in a position to tell the stories of those of you who have benefited from the services of the Small Business Administration and just how its assistance enabled you to grow your business.

What we don't agree with is her conclusion that there has been no failure in the private sector to allocate loans efficiently, thus discrediting the economic justification for any government-sponsored small business lending or loan guarantee program. She says, "Absent such a clearly identified problem, the SBA's activities are simply a wasteful, politically motivated subsidy to this sector [small business]. Entrepreneurship is definitely one thing that Americans know how to do without government help. The SBA loan guarantee program should be terminated."

And we don't agree with Senator Coburn who thinks the 7(a) program was "designed to guarantee loans for businesses with such bad credit that no private lender will give them a loan." We can certainly document the difficulty of accessing capital from traditional sources, regardless of credit standing.

This is not the first time the SBA has come under attack. In the mid-1980s, I wrote about the efforts to eliminate the SBA, and then to move it to the Department of Commerce. Both failed, primarily due to the outcry of the small business community. Once again, we need to make your representatives aware of just how much the SBA means to us.