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Feb 16

SBA cuts risk hurting small-business growth

Posted by annearf in Small Business Develpoment CentersSBAdeficitCash


Penny wise, pound really really foolish.

That could be the motto for the Obama administration's suggested budget for the Small Business Administration.

For the 2012 budget, as has been reported, SBA-backed programs receive funding of $985 million compared to $993 million for fiscal year 2011. (Congress hasn't approved that 2011 budget yet, of course.) But it's a significant decrease from 2010, when you add in a massive infusion of stimulus money aimed at helping small businesses struggling during the downturn. The 2010 funding was $824 million, while the stimulus supplement was $963 million, most of which went to programs to attract banks to provide more government-backed loans.

Some of the savings are coming from streamlining loan applications and increasing the efficiency of management and accounting systems. Funding for salaries and expenses would decrease by $7 million compared to 2010. There's also a $132 million increase for loan subsidies aimed at loans made between 2004 and 2008 when real estate collateral values were higher; default rates for these loans have skyrocketed.

Then there's the matter of Small Business Development Centers. They're getting cut by $10 million. A network of mentoring centers located mostly in universities around the country, SBDCs have provided a desperately needed lifeline for struggling entrepreneurs, especially minorities and immigrants. It's safe to say a great many small businesses wouldn't have made it over the past few years were it not for the advice and help in finding funding they got from a SBDC.

Take Anu Prestonia, a Brooklyn, NY-based owner of a hair salon I wrote about last year. She'd moved from downtown Manhattan in 2006, when her landlord doubled her rent. Just as she was getting back on her feet, the downturn hit.  She tried to get a loan to tide her over, but couldn't. Then she started working with Jose Manuel De Jesus, a business counselor at a nearby SBDC and, eventually, got a $25,000 loan from Superior Financial in Walnut Grove, Ca.

The bottom line here is that, if boosting small business growth is essential to recovery, as pretty much people on both sides of the aisle say, then we'd better be very careful about cutting a budget aimed specifically at helping those businesses. And there's also the matter of just how justified the new deficit reduction orthodoxy is-whether across the board cuts will do anything but cripple economic growth. After all, long-term interest rates on government debt are low and investors still look on the country as a place to put their money. Why the hysteria?

Better to cut places that don't help growth and help those areas that do. And funding for small businesses falls into the second category. Fact is, those stimulus programs were successful. SBA-backed lending increased to $12.6 billion for fiscal 2010 while other lending declined.

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