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Small Business Administration's new leader faces

By Robert Manor
South Coast Today
September 5, 2006

CHICAGO - The new head of the Small Business Administration, a former Chicago-area executive at a decidedly big business, says his agency must do a better job of helping minority, rural and inner-city small companies grow.

"That's a huge social opportunity for us," said Steven Preston, a Hinsdale resident preparing to move to his new job in Washington. He became the SBA's administrator in June.

Preston is taking on a small agency with vocal critics, who claim that too many federal contracts are going to giant businesses when they should be allocated to small companies. Meanwhile, some minorities believe they are shortchanged when it comes to winning government work.

The SBA, best known as the financier of last resort, guarantees loans to small businesses that could otherwise not obtain credit. Last year, for example, the SBA backed about 100,000 loans worth $19 billion. The default rate on loans ranges up to 7 percent in any given year. Because of fees it charges, the agency breaks even.

People familiar with the SBA say its more important role is advocating the interests of small businesses to other federal agencies in everything from regulation to making contracts available.

Harry C. Alford, president of the National Black Chamber of Commerce, said the SBA needs to be more aggressive in pushing other government agencies to offer business to small companies, especially those that are minority-owned.

"African-Americans account for 2 or 3 percent of SBA loans and we are 13 percent of the population," Alford said.

"We are looking at his numbers now," Preston said. He said SBA data show that blacks account for about 7 percent of loans, a figure still substantially lower than their percentage of the population.

"They make up 13 percent of the population," Preston said. "They do not make up 13 percent of businesses."

Preston has been meeting with black and other minority organizations to see what the SBA can do to better serve small businesses in depressed neighborhoods. He said he is also working to ensure that rural small businesses are served.

Preston said he plans to work on a chronic SBA problem. A federally maintained database of contracts awarded to small businesses, notorious for its inaccuracy, keeps turning up the names of transnational companies that are decidedly not small.

Lloyd Chapman, president of The American Small Business League, said, "Democrats and Republicans alike need to realize that when the president allows billions of dollars in small-business awards to be diverted to large corporations, it hurts every American no matter what their political affiliation." A Korean War-era law says 23 percent of government contract expenditures should go to small businesses.

Preston said the problem is more with the way contract data are recorded than it is big companies getting work meant for small businesses.

He said that a small business that wins a contract and then grows big remains listed as a small business until the contract expires. In other instances, he said, a small company with a government contract is acquired by a large one but the acquiring company is listed as a small business in federal records as long as the contract runs.

Some people question whether the SBA should even exist.

"The SBA is kind of a ridiculous agency," said Chris Edwards, director of tax policy for the libertarian Cato Institute. "Its basic mission is incoherent.

"If they make loans to healthy businesses that are prosperous, that makes no sense because they could go to banks to get money."

On the other hand, if the SBA funds marginal businesses that no other lender would touch, Edwards said, it is apt to misallocate money that could be put to better use elsewhere.

Preston said that argument is weak. There are some viable businesses that cannot get conventional bank loans, but do need money to expand.

Nor is the government wasting the public's money, he said.

"The government does not lose money on these loans," he said. "We break even."

Preston, 46, would appear to be in for the long run. A triathlete, he spent time last summer bicycling through the French Pyrenees.

That endurance may serve him well, because he cannot count on his own experience as a small businessman. He doesn't have any.

He was formerly executive vice president of ServiceMaster Co., which earned $198.9 million on sales of $3.24 billion last year. Before that, he was an investment banker with Lehman Brothers.

Preston said his personal lack of experience in small business is no barrier to doing a good job.

"When I was a banker I took a lot of small businesses public," Preston said. "I have never been a small-business owner, but I've been around small-business owners all my life."



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