Small Business Administration – Political Heads Up

Posted on October 26, 2008


Although we have not heard much about the SBA this political season, I am expecting to hear more about it in the coming months.  First, I am anticipating at some point a discussion about the 8(a) program, which certifies women and minority owned businesses and consequently provides preferences to certain minorities.  Second, I am anticipating a debate over the role of the SBA in solving the credit crisis.  As with anything related to government processes, predicting the outcome is futile; however, both of these issues relate to small business owners and will have important consequences for them.

First, with respect to the certified minority and women owned business program (the “8(a)” program), the use by the federal government of these programs has greatly decreased.   Politicians have viewed such programs as affirmative action.  Consequently, the number of federal agencies has dwindled, and in the most dramatic move, the SBA has ceased certifying companies.  (See "SBA Stops Accepting Applications for Certification Program").

As the Bush administration winds down, I do expect further developments and do anticipate at least an attempt to further unwind these programs.  However, many local, state and corporate minority and women owned diversity programs key off of these regulations and accordingly, I do believe that this program (in some form) will remain in existence.  However, companies who are or companies who are contemplating becoming a certified minority or women owned business need to be aware of the political winds.

Also in the forefront with the SBA is the role it will play in the credit crisis.   From my perspective, many of the SBA loans used owner occupied real estate as their collateral.  With commercial real estate in decline, these programs may dry up.  However, the SBA has other programs that could be used to assist small business and ensure collateral.   As mentioned in another blog, I believe that the SBA has in existence programs that should facilitate the lending by banks to small businesses.  However, better administration of these programs is needed.

Both the candidates have weighed in:  Barak Obama has expressly supported the use of the SBA to assist in remedying the credit crunch. (See "Obama Proposes New Small Business Rescue Plan"). Part of his proposal is to waive the guaranty fee the SBA charges when it guarantees a SBA loan.  I believe that this will be helpful as the fee often makes SBA loans unattractive.  Additionally, he has endorsed expanded national use of the disaster relief program that facilitates loans to small businesses.  While not per se against this, I would caution that this program is founded on the basis of quick, easy loans with little documentation in order to speed the recovery after natural disasters.   Quick, easy and with little documentation is how we got into the credit mess to begin with, so I am weary of the implementation of this plan should it become policy.

John McCain, for his part, has not directly addressed whether he would use, and if so how, the SBA as a means to overcome the credit market.  To his credit, McCain has pushed and continues to push low taxes and lower government spending – two ideas favored by many small business owners. (See "From McCain, Some Love for the SBA").

Mike Goodrich, Goodrich Law Firm, LLC