Struggle Continues to Reform the Small Business Administration
By David Kiger
Business 2 Community
October 12, 2013
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.