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SBC chief takes over agency, takes on critics

Too many contracts go to big business, too few to minorities, some say

By Robert Manor
Akron Beacon-Journal
September 5, 2006

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

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

Preston, 46, 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. Some minorities also believe that 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 the 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 contracts.

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 percent or 3 percent of SBA loans and we are 13 percent of the population," Alford said.

Working on issues

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

Preston has been meeting with black and other minority organizations to see what the SBA can do to 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 that 23 percent of government contract expenditures should go to small businesses.

Preston said the problem is the way contract data are recorded.

He said that a small business that wins a contract and then grows 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, which is then listed as a small business in federal records as long as the contract runs.

Necessity questioned

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."



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