No one talks more often and more earnestly about the need to promote small business than Bill Clinton. So it came as no surprise when the President tapped savvy North Carolinian Erskine B. Bowles, 47, to head the Small Business Administration. An investment banking whiz who founded a leading small-business financing boutique, Bowles actually knows something about entrepreneurial economics. It's a refreshing change from the out-of-work political hacks who usually run the $835 million SBA.
Bowles, who was sworn in on May 12, vows to make the SBA "efficient and effective," two things the agency has not been as long as anyone can remember. But the tide of history is against him. Clinton should have saved Bowles the trip to Washington and turned out the lights.
For decades, the SBA has been racked by scandals over everything from phony minority contracts to Wedtech-style influence peddling. Politics has pervaded its grants. And poor management has been an SBA hallmark. The result has been an agency "headed in the wrong direction," contends David K. Voight, a U.S. Chamber of Commerce official. The agency's role has been further marginalized by a new trend: The increasing willingness of private financial sources to provide small business with capital.
PORK AND PATRONAGE. When the SBA opened its doors in 1953, its mission seemed clear: make loans to small enterprises and represent the interests of small business on Capitol Hill. There have been successes. Among them: helping finance such future winners as Federal Express Corp. and Apple Computer Inc.
But the SBA hasn't lived up to its promise, partly since it has been too busy dispensing patronage and pork. Presidents often put failed politicos at the agency's helm. Bowles's three immediate predecessors were all unsuccessful GOP Senate contenders. And consider the SBA's tree-planting program: The agency wants to abandon it, but Congress resists. Of the $16 million spent last year to plant trees, $1 million ended up in the congressional district of House Small Business Committee Chairman John J. LaFalce (D-N.Y.) to replace timber lost to an ice storm. Says a LaFalce aide: "The program was there, and he sought to utilize it."
Worse, SBA programs themselves aren't much help to the small-business community. Look at the agency's best-known form of assistance, the 7(a) loan-guarantee program, generally meant for companies with annual revenues of $3.5 million or less. It guarantees 85% of eligible loans, which totaled $17 billion in 1992. But it reached only 22,000 companies, about 0.1% of all small businesses. The number won't rise anytime soon. On Apr. 28, the program ran out of money, and an attempt to restore funding was shot down with the rest of the Administration's stimulus package.
Maybe that's just as well, since the SBA has a bad problem-loan predicament. While banks on average write off 1.4% of their loans, the SBA's 1992 losses came to 2.1% of its guaranteed loans, or $322 million. In the SBA's defense, its borrowers are riskier than most other bank customers, so a higher percentage of its loans are bound to go south. Yet section 7(a) isn't the only SBA initiative with a dismal record. Take the Small Business Investment Corp. program, which offered loans to 1,622 venture-capital firms from 1959 to 1992. Nearly a third of the companies have been liquidated, at a cost to taxpayers of $500 million. The SBA moved to overhaul the program in 1990.
MARKET FORCES. Fortunately for small business, the market is starting to provide solutions that could make the SBA unnecessary. The new SBA chief's own firm, Bowles Hollowell Conner & Co. in Charlotte, N.C., is one of scores of investment banking boutiques that target the small-business market. And after several years of tightfistedness, banks are responding to the federal pressure to help small corporate borrowers. Bank of Boston Corp. is moving into this niche, with $6 billion to lend. The SBA's credit budget amounts to only $403 million this year.
Market forces may have made President Clinton's choice of an enterprising financier to head the SBA a bit academic. Bowles hopes to make the SBA a critical force in the small-business economy--and realizes the enormity of the job. But he remains optimistic. "This is a new day at the SBA," he promises. The question is, should there be a tomorrow?