MESBICs, Loan Programs Face The Budget Axe

 

Federal aid to minority businesses will suffer substantial reductions once budget cutters in both the Administration and Congress complete their review of loan and procurement programs. The key areas to watch are:

* The White House's proposal for a 25% reduction in Small Business Administration loans (direct and guaranteed). Included in this category is direct loan funding for Minority Enterprise Small Business Investment Companies (MESBICs). Although the Senate has not yet decided whether to fund MESBICs even on a limited basis, insiders note a strong interest among some congressmen in keeping the MESBIC industry alive.

* SBA chief Michael Cardenas's proposed restrictions on the SBA's 8(a) procurement program, which sets aside noncompetitive federal contracts for minority and other disadvantaged firms. Despite strong objections from House Small Business Committee chairman Parren Mitchell (D-Md.), Cardenas says he proposes to limit a company's participation in the program to three to five years and to phase out firms that have been enrolled in 8(a) for up to a decade. Cardenas, however, wants an extensive review of the program before he makes any changes. "I don't think Cardenas is opposed to 8(a)," says Tom Powers, general counsel for the House Small Business Committee. "He just needs time to see how it works."

* A Senate proposal to establish a sliding scale for SBA guaranteed loans to small businesses. The bill would set SBA guarantees at 90% on financing of $100,000 or less, and from 70% to 90% on financing exceeding $100,000. These new limits, more stringent than those in the past, could mean a reduction in the number of banks willing to lend money to small businesses.

* Plans to consolidate special business loan programs into one general lending program. Some fear the consolidation will mean that minority programs, including Equal Opportunity Loans, will end up with less money. The Administration has called for the elimination of Small Business Development Centers, which many minority entrepreneurs in states such as New Jersey and Florida use for technical advice.

* A proposal to eliminate the Economic Development Administration, which last year spent $1 billion in urban and rural development. Insiders now say some existing EDA projects may be retained on a limited basis.

* Plans to continue the Commerce Department's Minority Business Development Agency. The Administration cut $3.4 million of the MBDA's $59-million annual budget and wants to use the agency both as a conduit to the private sector and as a source of data on mergers and acquisitions for minority entrepreneurs.

* Subcontracting guidelines. The Department of Transportation has already altered a Carter Administration rule that denied contracts to bidders without adequate minority business participation. The new and more lenient rule of thumb being considered by other federal agencies asks bidders only to show "good faith" efforts to find minority contractors.


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