SBA an agency that business doesn't want to lose
How many lives can one agency have? Specifically, is the Small Business Administration (SBA) in its ninth?
According to sources at a White House meeting Friday, the President announced he would be appointing a new head to the beleaguered agency and favored keeping the SBA independent.
The President's announcement lets him avert an embarrassing confrontation with some 1,800 delegates descending on the capital this week for the annual White House Conference on Small Business. It is a victory for small business interests and, for now at least, appears to shelve pressure from conservatives in the administration to dismantle the agency. They have wanted to take away the SBA's lending ability and fold the remaining functions of the agency into the Commerce Department, where the voice of small business might be muffled by more layers of bureaucracy.
The new administrator will be announced within the next few weeks. The White House choice is rumored to be W. Eugene Johnston III, a businessman and one-term congressman from North Carolina. However, the choice of the leadership council for small business is reported to be Robert Miller, who heads up the SBA's mid-Atlantic region from Philadelphia. Either way, a new chief would displace Charles Heatherly, who has alienated much of the small business community in his four-month tenure by saying he wants to dismantle the agency.
All the debate over the SBA is rather remarkable when one considers just how small the agency is. The SBA's proposed $450 million budget for next fiscal year would barely land it on the Fortune 500. Even free-marketers and budget cutters inspired by Gramm-Rudman acknowledge that the money saved by abolishing it is small potatoes.
By the same token, the number of companies benefiting from it is equally miniscule. Last year about 21,000 companies -- less than two-tenths of 1 percent of the small businesses in the United States -- received loans or loan guarantees, which is the SBA's main function.
Rather, the Small Business Administration has become a symbol. To conservatives and to this adminstration, it represents the fight against big government. To small business persons, the SBA is their only voice in government. And for minorities and women, an SBA loan often makes the difference between owning a business or not.
``If the SBA didn't exist, there would be nowhere for minority businesses to turn,'' says George Purcell, president of Systems Support Corporation. In 1983, Mr. Purcell tried to get a loan to start his office supplies distribution company. He seemed a good credit risk: 10 years with IBM; the youngest marketing manager in the company's history; a half million dollars in real estate holdings and personal assets; and an IBM contract in hand.
He went to five banks in the Washington, D.C., area. All of them turned him down because, he suspects, he is black. Finally, he applied for a loan guarantee from the SBA; within six months, he had an agreement from to guarantee a $300,000 loan, which he finally got from a minority bank. Now his company has contracts with major companies, including Gannett and IBM. He expects sales to top $2.5 million this year, up from $93,000 in 1983.
``When I look at the numbers for where we are and where we're going, the size of the contracts and the quality of the companies that we're doing business with, boy, I can't say enough about the SBA,'' he says. ``Had it not been for them, we would not be the company we are today.''
Critics, however, say that the SBA is an inefficient way to help small business. ``The SBA reallocates credit resources from one small business to another small business,'' says Robert Rector, a policy analyst at the Heritage Foundation, a conservative think-tank.
``To get an SBA loan, by and large you have to be rejected at two banks, and then the SBA steps in and guarantees your loan,'' he says. ``What that means is you're moving loan money from good pizza parlors to less than efficient pizza parlors who probably shouldn't be getting the money in the first place.''
Moreover, he charges, the default rate on SBA loans runs at about 20 percent, well above the average bank default rate. He agrees with former Budget Director David Stockman who proposed that the government wash its hands of the SBA's $12 billion loan portfolio and sell it to private lenders for whatever the market will bear, which could be 30 to 40 cents on the dollar. The private sector, conservatives say, would be more efficient in servicing the loans, and taxpayers would no longer have to foot the bill for the SBA's inefficiency.
And tales of inefficiency abound. Some of the most stinging criticism of the SBA comes from within. ``It's a breach of taxpayer trust to give people loans who have absolutely no business acumen,'' says one employee. Sometimes applicants use the money to buy ``cars, furs, and houses.''
The situation has improved considerably under the Reagan administration, which has cut the budget by 75 percent. In the late 1970s, ``if you could walk and talk you could get a loan,'' says one former employee. Now, he says, the SBA is being much more careful about granting loans and collecting bad debt, though it is a far cry from efficient.
Unlike private bankers, who get credit for turning bad loans into performing ones, SBA loan officers get credit for simply getting bad loans off the books, which in the ``vast majority'' of cases, means charging them off, says an SBA staffer.
How long the SBA will be in business is an open question. In the short term, it seems safe. However, current Budget Director James Miller III is trying to get the Senate to take away the SBA's authority to make or guarantee $3.3 billion in loans.
The fight over the SBA is far from over.