The SBA Chief Comes Out Swinging

Stung by charges that his agency is hampering U.S. entrepreneurs, Administrator Hector Barreto tackles the criticism point-by-point

Administrator Hector Barreto says his organization and the Bush Administration have increased loans, guarantees, and training for small businesses

Following BusinessWeek Online's interview with Lloyd Chapman, founder and president of small-business policy watchdog group the American Small Business League (ASBL), in which he discussed a number of criticisms against the Small Business Administration (SBA), we heard from the SBA (see BW Online, 1/27/06, "Is the SBA Hurting Small Business?").Not surprisingly, the group disagreed with Chapman and took issue with his assertion that the Bush Administration has helped create an anti-small business atmosphere.

Hence, BusinessWeek Online gave SBA Administrator Hector Barreto the opportunity to respond. BusinessWeek Online staff writer Stacy Perman asked Barreto many of the same questions she asked Chapman. Edited excerpts of their conversation follow:

In your estimation, what role does small business play in the U.S. economy?

I like to say there is nothing small about small business. There are 25 million of them. Look at some of the key metrics: The [SBA's] Office of Advocacy estimates that small business produces 52% of the gross output of the economy, so 52% of all products and services come from small business. The number of jobs created is nothing short of incredible.

My boss [President Bush] likes to say that small business is the engine that fuels the economy. We believe that will continue to be true and the SBA's mission is more critical than ever.

Chapman said that one of the main challenges facing small business today is what he termed an anti-small business environment propelled by the Bush Administration. Do you agree?

First of all, I like to say that the numbers don't lie, and since the [beginning] of the Bush Administration the things that the SBA is doing are at historic levels.

When this Administration started, the SBA was doing $9.5 billion in loan guarantees, and we did 50,000 loans. Last year, the SBA did over 100,000 loans and over $20 billion in loan guarantees. And the best part is that they went to every community. One-third went to the fastest-growing areas of women and minorities.

When we started four and a half years ago, the SBA was training 1.4 million businesses; last year 2.6 million got access to technology and educational assistance. Lastly, four and a half years ago the federal government bought $50 billion worth of goods and services from small businesses; last year they bought $69 billion. That is almost a 40% increase.

All of these numbers given to you are all-time highs. And we plan on breaking all of those numbers this year. Facts are a stubborn thing. The bottom line is that with this President we've helped [the most] small businesses in more tangible ways in the 53-year history of the SBA.

However, Chapman says that Bush has done more to harm small business, for instance cutting its budget and cutting back or cutting out programs altogether. How do you respond?

I've been in small business my whole life. What we like to talk about is the bottom line.... And the bottom line is that the SBA is doing more loans, loan guarantees, and training to small businesses over the past four and a half years.

What is happening is that the SBA is operating more efficiently than before. We have made major changes in the way our budget operates [and] in the way we develop loan programs. We have saved the taxpayer $100 million a we are a much stronger program.

One of the issues that Chapman brought up is that many of the SBA's policies are hostile -- particularly when it comes to women and minorities -- rather than helpful. How do respond?

A third of SBA loans go to minority businesses, and minority businesses represent 15% of all businesses. The trend we see happening is [that] last year 30% of African and Hispanic and Asian community businesses were up, and women-owned businesses were [also] up 30%.

One thing we did was that we created a business-matchmaking program.

One complaint we got, especially from minority and women, was that they had the know-how but not the "know-who." So we introduced them to buyers from every federal agency and Fortune 500 companies.

In the last two and a half years we have set up 40,000 appointments that have generated millions of dollars in new contracts, and fully 50% of those appointments were women and minority owned businesses. We are definitely reaching out and we still think there is more to do.

Chapman has frequently criticized the SBA for creating policies that allow money set up for small businesses to go to large companies, going so far as to sue the SBA. How do you respond?

[Again] we are giving $69 billion -- more loans than the $50 billion that we did four years ago. The contention is made because many times a small business gets a contract as a small business -- and then outgrows the size standard. That is a good thing -- we want them to grow.

Another thing that happens is that a Big Business buys a small business and when they are taking it over some of those contracts were for a small business and they are not eligible for them. When a small business gets a contract they get it for the life of the contract.

[However], there is no wholesale process of setting aside procurements to big businesses. Those that continue to assert that don't understand or don't want to understand the reality on the ground -- $69 million went to small businesses as classified by [SBA] size standards.

The SBA's handling of loans following 9/11 and Hurricane Katrina has been a point of contention. How do you answer the critics who say that money was not necessarily given to those adversely and directly affected?

We do two types of loans: working capital, that is done through banks directly, and during times of disaster.

After 9/11, Congress approved a supplemental terrorist activity or Star loan as an economic stimulus. We did exactly [what] they asked us to do: to make loans to small businesses in the U.S. that could justify that their business was [affected].... The definition was very general -- any small business affected by the downturn in the economy following 9/11. There was a lot of confusion and misreporting about the inaccuracies and misconceptions.

[In regard to Katrina loans], we did $1 billion worth of loans to small businesses affected in the Gulf areas and we've done over $3 billion to victims throughout the area. We will surpass $4 billion in loans.

We're still not satisfied. We are producing $70 million in loans a day. We are working seven days a week in two shifts. The bottom line is that this is the biggest response that the U.S. has ever [undertaken].

Finally, Chapman contends that ultimately the Bush Administration intends to shut down the SBA and is cutting its budget to the bone. Is that the plan?

I have been here for five years and I have never heard a U.S. President talk as much about small business as Bush has.

[In terms of the budget], nothing is further from the truth. We have the 2006 budget in place, and I am already working on the 2007 budget and after that the 2008 budget. The President has been a champion for small business. I don't remember a President with as aggressive a small business agenda. For someone to say otherwise they either don't care about small business or do not have knowledge about the facts on the ground.

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