Big changes at the SBA - Small Business Administration

Home Office Computing, Oct, 1994 by Timothy Middleton

EMMANUEL WELBECK'S BANK LOAN WAS FOR $9,000--not nearly enough to buy inventory for his start-up sportswear distribution business, Leisure Sports International. So the Duluth, Georgia, entrepreneur went to local business-development officials for aid. By chance, they had just gotten funding for a Small Business Administration (SBA) program to make microloans to such struggling companies, and last December, Welbeck's $23,000 loan was the first one they approved.

The results were immediate. From $90,000 in sales in 1993, Leisure Sports expects to book $250,000 this year. "The bank didn't lend me enough to move forward," says the 45-year-old distributor whose firm sells custom-designed footwear and other apparel to college fraternities and sororities. "But our microloan made the difference."

Although the Bush Administration initiated microloans, they and other SBA programs for very small companies have been expanded and enhanced under President Clinton. The budget for microloans--which max out at $25,000--has doubled to $65 million. About 100 economic development agencies in 49 states (there's no group in Wyoming) process these vital small-business loans.

More Help, More Money Upon his appointment by Clinton, SBA administrator Erskine B. Bowles vowed sweeping reforms (see "Help for the Self-Employed," October 1993). The number of improvements pegged directly at all entrepreneurs appears remarkable.

* From 1989 to fiscal year 1995, the SBA will have tripled funding--to $9 billion--for the administration's key small-business lending program, called 7(a). The agency has also cut the time for lenders to get SBA approval to five days or less.

* The SBA slashed staffing in regional offices by 65 percent--17 percent at the Washington headquarters--while boosting it 5 percent in local offices--the ones most entrepreneurs deal with.

* Bowles promised to become more proactive in making loans to women and minorities. The SBA will aggressively market these loans to double their number from the current levels--3 percent to black businesspeople, 5 percent to Hispanics, and 14 percent to women--which are much lower than the actual percentages of small-business owners represented.

* The SBA created a pilot program that prequalifies women business owners for guaranteed loans.

* The agency has even cut the application form from as many as 40 pages to six pages for sums over $100,000. And the new LowDoc program creates one-page applications for loans of less than $100,000. Aside from making the process less intimidating and accelerating review, less paperwork cuts lenders' processing costs, making marginal deals more feasible.

"What we're trying to do is get capital into the hands of people who have been capital starved," says Jay Rouse, Bowles's associate administrator for field operations. He notes that the SBA is boosting the number of loans guaranteed for women-owned businesses to 5,400 this year, from 3,800 in 1993. Loans to minorities have swelled from 15 to 25 percent.

The SBA is also reorganizing its small-business investment company (SBIC) program, which allows private investors to issue SBA-guaranteed debt to finance small-business growth. Roughly 200 SBICs are currently in liquidation, partially due to SBA rules that sap their cash flow. Administrative changes approved by Congress could make an additional $3 billion in capital available to small firms over the next five years, the SBA estimates.

The agency's most accessible programs, its small-business development centers (SBDC) and the Service Corps of Retired Executives (SCORE), have been expanded. Currently, there are nearly 13,000 executives in the SCORE program (up from 12,000 two years ago) dispensing free advice and consultation via district offices and service centers. The number of SBDCs has also increased to 700. They act as resource hubs, often in affiliation with university business schools or chambers of commerce.

"The SBA sent a clear singal to us; they're been very active," says William L. Miller, marketing vice president of the Money Store, the nation's largest SBA lender. "They have clear expectations of how lenders such as ourselves are to perform."

Concludes Jim Harris, director of microloan services at Grasp Enterprises, a development agency in Atlanta: "There have been some big changes, and there is more effort now to address the needs, through the SBA, of the very small, micro entrepreneur."