USHCC Supports Barreto at SBA
Small businesses are an important engine of job creation. So what happens when there are cutbacks to the small business administration, an important source of funding?
By Steven Saint

For the sixth year running, the Small Business Administration is finding its budget cut and its staff whittled.

During the Bush presidency, the SBA has been trimmed by about 31 percent, from a $900 million budget in 2001 to $624 million for fiscal year 2007. Staffing has followed at the same rate of decrease.

Libertarian-leaning conservatives have been questioning the wisdom of government subsidies to small business since at least 1984, when the Heritage Foundation recommended shutting down the Small Business Administration and President Reagan proposed the phase out to his Cabinet.

In December, American Enterprise Institute economist Veronique du Rugy raised the call again with a report disputing the widely held idea that small business creates 75 percent of all new jobs. Du Rugy reasons that the SBA simply shifts resources from creditworthy companies to firms that probably won’t survive.

UNDER FIRE

Lloyd Chapman thinks Congress will have to work pretty hard to save the SBA from extinction. The issue may even have to go to court.

“It’s not a matter of whether the Bush Administration is going to close the SBA— they’re closing it as we speak,” says Chapman, founder of the SBA watchdog group, the American Small Business League (ASBL). Chapman’s been watching the SBA—and even suing it—since 2002 in an attempt to stop large companies from getting money and contracts intended for small businesses.

He’s been sparring with SBA Administrator Hector Barreto over what he believes are anti-business policies.

Chapman believes the Bush agenda—buttressed by think tanks like the American Enterprise Institute and Heritage Foundation—is to eliminate mandates that give government contracts to small businesses and minorities.

The debate comes at a time when a new Census Bureau report shows explosive growth for Hispanic-owned businesses, the majority of which are sole proprietorships.

The 2002 Survey of Business Owners, released March 21, shows a 31 percent increase in Hispanic business ownership since 1997, a rate triple the national average for all businesses.

One of the top challenges for those small businesses is the access to capital. And one of the budget cuts proposed by President Bush was the SBA micro loan program, which provides up to $35,000 in capital to those businesses that are just starting up. “I’m absolutely shocked that business groups claiming to be advocates for small business aren’t doing anything about this,” Chapman says.

FIGHTING BACK

Chad Moutray, chief economist for the SBA Office of Advocacy, stands by the idea that small business is the nation’s top job generator.

He disputes the contention by Du Rugy and others that the SBA is wasting billions of dollars on short-lived small businesses.

“Large firms have actually been shrinking on net, where small businesses are gaining,” Moutray says. “Between 60 and 80 percent of the net new jobs are at firms with less than 500 employees.”

While the SBA defines a small business as having fewer than 500 employees, Moutray says the majority of new jobs are at firms with fewer than 20.

Small start-ups are typically at the forefront of technology, he says, noting that Apple Computer was once a solo business seeking an SBA loan. He and Du Rugy agree that “gazelles”—small startups that grow into large corporations—are critical to the economy.

That’s why the U.S. Hispanic Chamber of Commerce defends the continued existence of the SBA. Ninety-eight percent of the chamber’s members nationwide are companies with fewer than 10 employees.

“Big businesses aren’t born big, they’re born as small businesses,” says Michael Barrera, president and CEO of the U.S. Hispanic Chamber of Commerce. “The SBA is a great agency.”

Barrera says the SBA is backing more loans than ever despite the annual budget cuts. And while staffing has been trimmed, the SBA still maintains 78 district offices around the country. He credits the SBA’s Barreto with giving the agency a customer-service orientation.

Besides being a former board member for the Hispanic chamber, Barreto founded his own employee benefits firms as well as a securities brokerage.

He has also been criticized recently for bungling disaster-related loans in the Gulf Coast; Rep. Nydia Velazquez (D-NY), the ranking member of the House Small Business Committee, even called for his resignation.

The chamber would like to see the SBA get a budget boost.

“The American Dream is owning your own home and owning your own business,” Barrera says. “The SBA is there to assist.”