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Your use of the machine generated PDF is subject to all use restrictions contained in The Cengage Learning Subscription and License Agreement and/or the Gale Academic OneFile Terms and Conditions and by using the machine generated PDF functionality you agree to forgo any and all claims against Cengage Learning or its licensors for your use of the machine generated PDF functionality and any output derived therefrom. The SBA woos small business Author: David A. Andelman Date: Dec. 1994 From: Management Review(Vol. 83, Issue 12) Publisher: American Management Association Document Type: Article Length: 2,458 words Abstract: Small-business owners and trade groups are very skeptical of the intentions of the Small Business Administration (SBA) and of its very close ties to Pres Bill Clinton. Hence the reluctance by small business to accept that the SBA and its new administrator, Philip Lader, are really trying to help. Lader is organizing a complete restructuring of the SBA, from reworking the loan guarantee program to reducing the hefty amount of bureaucracy associated with small-business management. However, only time will tell if small business will accept the 'new' SBA. Full Text: The Small Business Administration has led a charmed existence during the first half of the Clinton Administration. Its two directors-- Erskine Bowles and now Philip Lader, whom the President named as Bowles's successor this fall--have both been 24-carat FOBs (Friends of Bill), earning the agency a seat at the Administration's policy-making High Table. At the same time, however, the SBA has taken the leadership in trying to sell controversial Administration policies to a skeptical constituency--effectively alienating the same small business-people and their Washington representatives that the agency claims to be looking out for. As SBA administrator, Erskine Bowles saw himself as the ombudsman for America's small businesses in the Clinton Administration-- the man small businesses could turn to when they needed the ear of the President, a voice at the policy table or a helping hand of money and influence. "Small business is the engine that drives the nation's economic train," Bowles explained to Management Review in his final interview before leaving the agency for the White House and his new position as deputy chief of staff to the President. "The President convinced me to take [the SBA] job by using this analogy: 'Historically, big business has always had access to the President, whether he's Republican or Democrat. A person like [General Electric CEO] Jack Welch can always get to a President. Big labor, too. But small business owners historically have not had access. I want to change that. I want to use the SBA as my eyes and ears in the small business community.' That's why we have the impact we have." Officials close to Phil Lader insist that there will be no change in the SBA's tone or direction under Bowles's successor--that the closeness of both men to the President guarantees that the policies and initiatives undertaken by the agency spring from a single source and will not be changing for at least two more years. Indeed, Lader himself is even closer to the President in many key respects than Bowles was. A graduate of Harvard Law School and, like the President, Oxford University, he headed a major resort development firm. But what most cemented his ties to the First Family were the annual "Renaissance Weekends" he organized years ago that have become the single most important bonding retreats for America's Democratic leadership. Not surprisingly, Lader was one of the first non-Arkansans that the Clintons summoned to Washington, where he became a spearhead of the "reinventing government" movement to downsize and streamline the federal bureaucracy. However, he will bring to the SBA many of what small businesses see as the ideological shortcomings of Erskine Bowles. Small business has always looked with a jaundiced eye at the SBA. Certainly, there's always been a healthy dose of skepticism, at times bordering on hostility, between the two, which is derived more often than not from a broader skepticism of Big Government--the relative clout wielded by massive government agencies when they decide to come down on small businesses. Still, neither the patrician former investment banker Bowles nor the Oxford-educated Lader appears to be the kind of person the corner dry cleaner would think to approach for help. However, it's not their background that's kept America's small businesspeople skeptical of the SBA administrators' good intentions. Ironically, their reluctance to embrace the SBA wholeheartedly is due to the closeness of Bowles and Lader to the President, their presence on the White House's National Economic Council and their input at the highest levels of the Administration's economic policy-making. "The President has both of them at the table," says Jack Faris, president and CEO of the 600,000-member National Federation of Independent Business. "They are bright spots in this Administration. But they have a real credibility problem. Bowles was such a die- hard supporter of the President's healthcare and economic plans, which were not good for small business." Neither administrator considers these kinds of stands a conflict of interest in any sense. To this day, both they and the President himself believe that a restructuring of the national healthcare system will benefit all Americans--including small businesspeople. Bowles and Lader are also hoping a top-to-bottom restructuring of the SBA and the programs that are most critical to the vast mass of small businesses will finally win applause for them and the President, as well as the kind of support that translates into votes in 1996. "The President gave the SBA four goals, and from the beginning I have said I want to be accountable for meeting these four goals," Bowles says. "As a businessman, I'm used to having goals, timelines, achievements. And we have those now." This first goal assigned to the SBA by the President cut to the heart of the perennial problem of America's small businesses--the lack of available credit at affordable interest rates. "Small business remains starved for capital," says Bowles. "Small businesses cannot grow and create jobs without capital." According to SBA officials, the 7A General Lending Program, the agency's largest loan guarantee program, used to spend more than $200 million a year to guarantee funds that private banks pumped into small businesses at the rate of $3.5 billion to $5 billion a year. The $200 million cost reflects largely the anticipated default rate that the SBA guarantors would have to pick up. Moreover, the program regularly ran out of funds to guarantee loans halfway through every year. Bowles, using his expertise as a lender and investment banker, restructured the program, slashing expenses and charging banks extra fees to help pay for the loan guarantee program. Bowles also discovered during his first cross-country travels as SBA administrator that the loan guarantee programs were enormously difficult for most small businesses to access. "They complained of the SBA's bureaucracy, the enormous paperwork. They'd rather throw up than borrow from us. We listened to our customers," says Bowles. What he heard resulted in a redesign of the whole application package--from a stack of documents an inch-and-a-half thick to a single two-sided sheet of paper. According to Bowles, this program called LOWDOC (for low documentation) has "brought back to the SBA not just small borrowers but smaller banks, too, who had said they couldn't fool with us." The paperwork for such institutions had been simply overwhelming. LOWDOC involved not merely reducing documentation, but reducing approval time as well--from three months or more down to three days--for SBA loans that carry a maximum limit of $100,000 and maximum rate of 2.5 percent over prime. There were other customer-driven innovations to attack the credit crunch dilemma: changing the working capital line of credit program from a term loan system to a revolving credit system; and establishing an export revolving line of credit program in conjunction with the Export-Import Bank that is expected to pump $500 million to $1 billion into the marketplace in the next two years. Still, small businesses remain skeptical, for two principal reasons. First, they fear that with the dramatic expansion of the loan guarantee program, many more bad loans will be made to failing businesses. "SBA guarantees are government leverage dollars," reminds NFIB's Faris. "If smart loans are made, they don't lose money. They have to make smart loans. We don't want the SBA to become another S&L." The fear is that by expanding the loan base and throwing a broader dragnet for borrowers, inevitably a larger percentage of marginal borrowers could slip in. There's another concern. With pressure intensifying to make more guarantees yet not lose money, "they could wind up cherry-picking winners and losers," says Faris, "helping only high-tech companies, for instance.
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