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US SBA Jeopardized by Congress

Legislative Alert
Congressional Action Against The US Small Business Administration

Proposed Spending Bills Would Cripple America’s Small Businesses

Various actions recently undertaken by the US House of Representatives and the US Senate seriously jeopardize the existence of the US Small Business Administration (US SBA).

The US SBA has been the target of numerous budgetary reduction actions during the past decade. We have heard time and time again that "small business is the backbone of the American economy", but Congress continues to target this agency with unrealistic budget reductions. Recent actions to reduce the budget of the US SBA will most certainly prove to be the "death knell" of the only US Government agency dedicated towards ensuring the maintenance and enhancement of small business development in this nation.

The Commerce, Justice, State (CJS) appropriations bills approved by the House and Senate will have a drastic effect on the US SBA and America’s 24 million small businesses.

House Bill HR 2670 slashes funding for the SBA’s salaries and expenses by $87 million from the amount SBA requested. If enacted, this level of funding would result in a Reduction-In-Force (RIF of more than 2,400 Federal employees, or, 75% of SBA’s workforce. This is in addition to a 20% reduction of SBA employees which has already occurred during the past decade.
  • If enacted, HR 2670 would effectively shut down the SBA! SBA would no longer be able to provide capital and credit, education and training, contracting assistance, and advocacy on behalf of small business.

  • Without these employees, SBA would be unable to prudently monitor its $50 billion loan portfolio and its resource partners, who are responsible for delivering over $18 million in credit annually.

  • This bill also under-funds the SBA’s premier 7(a) guaranteed loan program, cutting the program level $900 million from the level needed to support America’s small business community.

  • The bill would cripple the disaster loan program by prohibiting SBA from using any of its disaster loan appropriations to cover the program’s indirect costs. The Credit Reform Act of 1992 requires that federal loan programs include both their direct and indirect costs in calculating the funds necessary to support the programs.

Senate Bill S 1217 cuts funding for SBA’s salaries and expenses by $38 million. If enacted, this level of funding would result in RIF’s of more than 1,000 employees, 38% of SBA’s workforce.

  • Neither bill provides funding for the New Market Initiative, which is designed to fill a critical gap in the marketplace through increased equity investment in America’s historically under-served areas.

  • To avoid these results, under the House bill, $87 million must be restored to SBA’s salaries and expense accounts, and the prohibition against using disaster appropriations for the program’s indirect costs must be removed. Under the the Senate bill, $38 million must be restored for salaries and expenses.

Current Budget, Requested Budget and Senate & House
proposed Budgets for the SBA

FY 1999

FY 2000

FY 2000
S 1217


FY 2000
HR 2670



Neither the proposed House or Senate budgets for the SBA maintain existing levels of funding for the SBA, or, allow for increased growth of SBA programs.

Since 1990, Congress has mandated the creation of 33 new programs to be established and administered by the SBA. Proposed budget cuts do not allow the SBA to do what Congress has told them to do!

The US Small Business Administration
A Flexible and Cost-Effective Tool for Economic Development

The US Small Business Administration is one of the federal government’s most innovative and cost-effective tools for fostering economic development, job creation and individual opportunity. SBA’s programs build communities one small business at a time.

SBA’s mission is to facilitate conventional lending to promising, creditworthy entrepreneurs who cannot obtain it from conventional lenders without SBA assistance. SBA is the leading provider of long-term financing in the small business credit market.

  • With a total agency appropriation of only $716 million in FY 1998, SBA leveraged more than $18 billion in private sector financing through its primary lending and venture capital programs.

  • The SBA effectively "pays for itself" many times over. Because it provides government guarantees of private capital, the costs of running the agency are far less than the taxes paid by companies that have been assisted by the programs of the SBA. Intel is just one company which received assistance from the SBA. Intel alone pays more than twice as much each year in federal taxes than SBA’s entire budget.

  • Every tax dollar in the 7(a) program leverages nearly $72 dollars in loans.

  • In FY 1998 the SBA leveraged $182.4 million in tax dollars into $10.8 billion worth of small business loans.

  • SBA’s secondary market program made an additional $4.5 billion in capital available for small business loans in FY 1998.

  • At a level of $3 billion in loans per year, the 504 Development Company Program is fully self-funded through loan fees.

  • Small Business Investment Companies leveraged $24.3 million in tax dollars into $3.2 billion in venture capital investments in small businesses.

  • The SBA’s total loan portfolio now exceeds $45 billion!

  • The SBA is very cost-efficient. By one important measure, the ratio of SBA operating expenses to average loans and guarantees is slightly over 1%, while the same ration for its bank lending partners runs in the 3% - 5% range. This reflects SBA’s ability to have a greater impact on small businesses even as it has reduced total agency employment by more than 24% since 1990.

SBA Programs Support Small Business

SBA was created to open doors of economic opportunity by filling the gaps inherent in the private marketplace. SBA-backed lending and equity investments have a solid record of creating opportunities and jobs in communities all of America.

7(a) Program (General Business Loans)
  • The SBA’s loan guarantee program is the primary source of long-term financing for small businesses. The SBA backed more than $9 billion in loans extended by private lenders in FY 1998 - another record year.

  • By guaranteeing loans from private lenders, 7(a) uses only $1 of appropriations to support $72 of credit.

  • To meet the changing needs of borrowers, the SBA has created new lending programs, such as the LowDoc program, the SBAExpress program, the Y2K Action Loan program, the Pre-Qualification Loan program, the Export Working capital Loan program and the Defense Loan & Technical Assistance (DELTA) Loan program.

Certified Development Company Loans (504 Program)

  • The 504 program is designed to promote economic development and create new jobs by supporting long-term fixed asset small business investments.

  • In FY 1998, the SBA share of 504 Loan program financing to small businesses was almost $1.8 billion.

  • The program is fully self-funded through borrower-paid fees, which have been reduced for two consecutive years.

Small Business Investment Companies

  • SBIC’s fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. Because these amounts are small relative to the investment strategies of most private venture capital firms, SBICs are necessary to provide financing to small businesses.

  • The SBIC program has grown substantially both in the number of licensees and the available pool of investment funds since its reorganization in 1994. Currently, 336 licensed SBICs manage an investment pool of $11 billion.

  • SBICs invested $3.2 billion in debt and equity in American small businesses last year, a third more than in the previous year and triple the average for the previous three years.

  • SBIC success stories include Apple, America Online, Compaq, Federal Express, Outback Steakhouse, Sports Authority, Staples and Intel. Intel alone pays more than twice as much each year in federal taxes than SBA’s entire budget.

  • Since a program revision in 1994, the SBA has been permitted to receive a share of the profits from successful equity investments by SBICs. Since 1996, SBA has collected $22.5 million - which is returned to the US Treasury.

International Trade Loans

  • Exports are critical to maintaining the strength of the nation’s growing economy, accounting for 70% of economic growth since 1989. Small firms conduct a large portion of US exporting business, but most small firms still do not export, primarily because of a lack of capital.

  • The SBA encourages private lending to small exporters by providing loan guarantees and export counseling. The SBA has revamped its export loan programs over the last few years to make them more attractive and useful to borrowers and lenders.

  • The SBA provided more than $313 million in international trade loans in FY 1998.

Surety Bonds

  • The Surety Bond Guarantee program provides access to bonding (required under the Miller Act for federal construction projects) for many small business contractors who otherwise could not qualify for private bonds.

  • In FY 1998, the SBA guaranteed 10,445 bid bonds, providing contractors the opportunity to bid on contracts with an estimated value of $2.3 billion, and guaranteed 2,860 final bonds with a contract value of $531 million.

  • The Surety Bond Guarantee program is fully financed through a revolving fund that is funded by participant fees and a $3 million appropriation in FY 1998.

Women-Owned Businesses

  • The SBA’s Office of Women’s Business Ownership is the only federal program addressing the specific needs of women in starting and expanding their businesses.

  • Women own roughly 40% of all businesses and are starting new businesses at twice the rate of men, but they have been chronically starved for capital. Their businesses are smaller and they get less than 2% of federal contracts.

  • The WBO program is aggressively promoting capital access for women and providing technical assistance and training to women business owners.

  • SBA has a network of 80 Women’s Business Centers around the country, with a goal of having at least one in every state. SBA’s award-winning On-Line Women’s Business Center received more than 2 million hits in 1998.

Business Initiatives

  • The 12,400 volunteers of the service Corps of Retired executives provided free and confidential counseling to more than 350,000 American in FY 1998, and held more than 5,000 separate specialty workshops.

  • SBA’s Business Information Centers provided almost 120,000 small business clients with access to computer technology.

Small Business Development Centers

  • SBDCs, funded half by the SBA and half by the states, provide a wide range of business management and training services at more than 950 locations around the country.

  • SBA’s Small Business Development centers provided counseling and training to nearly 550,000 clients in FY 1998. With the help of the SBDCs, these small businesses created 56,000 jobs and generated $5.5 billion in sales, which in turn generated more than $340 million in tax revenues.

Disaster Assistance

  • The SBA’s Disaster program makes low interest, long-term loans available for the recovery from disasters such as floods, hurricanes, tornadoes, earthquakes and fires.

  • In FY 1998, the program provided $728 million worth of disaster loans to help American families and businesses recover from natural disasters.

Government Contracting

  • The SBA’s Government Contracting Program increases small business opportunities in the federal acquisition marketplace through comprehensive goals for small business and 8(a) contracting, identification of potential small business contractors and subcontractors and other services.

  • In FY 1998, the program had a part in helping small business obtain an estimated 442.5 billion in federal prime contracts and subcontracts.

  • The SBA has launched the HUBZones program, and completed certification on the program’s first 120 participants. Thus far, $10 million in contracts have been awarded.

8(a) Program (Minority Enterprise Development)

  • The SBA’s Minority Enterprise Development program fosters participation by minority and economically and socially disadvantaged persons in the federal contracting market, develops their ability to compete successfully in the private marketplace, and promotes economic growth and employment in their communities.

  • In FY 1998, 6,000 small businesses participated in the 8(a) program, and won $5.9 billion in contracts.

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Mark S.Deion

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