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All Hat, No Cattle

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When it comes to pronouncements about small business, President George W. Bush stands tall, "Entrepreneurs create between 60 and 80% of the new jobs nationwide and generate more than 50% of the nation's gross domestic product," the President said last year. Without entrepreneurs, he continued, "...the American dream would go unrealized."

But when it's time to put his money where his mouth is, the President is, as they say in Texas, all hat and no cattle.

The Bush Administration's recently released federal budget is a travesty for small business. In the whopping $2.4 trillion budget, the Small Business Administration gets a measly $678.4 million -- a decrease of $119.5 million, or 15%, from last year's already low level.

Here are some ways President Bush's budget slashes small-business assistance:

  • eliminates entirely the microloan program
  • reduces government guarantees (from 75% to 50%) and increases fees on the SBA 7 (a) loan program
  • effectively reduces funding for Small Business Development Centers
  • slashes the Manufacturing Extension Partnership from $235 million to a paltry $39 million.

"This would be the first time in the 50-year history of SBA that zero appropriations would be provided the 7(a) program," according to Anthony R. Wilkinson, president of the National Association of Government Guaranteed Lenders -- a group of private-industry bankers. It will be much more difficult -- and costly -- for entrepreneurs to qualify for SBA loans.

Keep in mind these programs are highly successful and cost efficient. In fact, there's solid evidence that SBA loans and SBDC assistance result in INCREASED tax revenues.

Some small-business history: When I began writing my small-business column in 1992, the Small Business Administration was more like the Medium Business Administration. The documentation process for SBA loans was onerous, and banks administering SBA programs didn't want to deal with smaller loans. In practice, SBA loans were only available to medium-size, existing businesses.

Then the SBA got a shake-up. New programs, such as the Microloan program the President proposes eliminating, made it easier for an entrepreneur to get a loan for less than $100,000. Last year, for instance, the Microloan program provided small businesses with 2,400 loans, totaling $26 million. These loans averaged a tiny $10,500.

During the last decade, small business has become an even more important part of the American economy. Indeed, if it weren't for the jobs created by small business, the American employment picture would be far more dismal than it is. Virtually every study of new job creation shows that it's small and new companies -- not big or existing businesses -- creating jobs. A 2003 Census Department study found most job growth came from companies less than two years old.

"The small business sector of America's economy is effectively the second largest economy in the world," according to Donald Wilson, president of the Association of Small Business Development Centers. This exceeds the economies of Germany, France, and Great Britain combined. "Our nation's gross domestic product for 2002 was $10.2 trillion?the small business sector was just over $5.3 trillion."

So why, when small businesses create jobs and represent half the American economy, does the entire budget for small business assistance amount to what would be a rounding error in other federal departments' funding?

Some might say it's because of Iraq and America's wartime commitments. But Wilson counters this, "At the height of the Vietnam War, Congress allocated two-tenths of one percent (.2%) of the 1968 Federal budget to the SBA . As recently as 1980, the SBA budget represented three-tenths of one percent of the federal budget. The budget the Administration submitted to the Congress on February 3 rd, allocates only three-one hundredths of one percent (.03%) of federal resources to the SBA."

Others might say it represents this Administration's small-government philosophy. Yet, the billions of dollars to other government programs, such as agricultural and prescription drug benefits, rebuts this argument.

No, I think it's because this Administration takes small business for granted. They imagine that if they merely repeat their love for small business frequently, entrepreneurs will overlook their lack of real commitment and real dollars. It's time the small business community starts getting the respect -- and the funding -- we deserve.

Copyright, Rhonda Abrams, 2004


Rhonda Abrams is the author of The Successful Business Plan: Secrets & Strategies and the President of The Planning Shop, publisher of books and other tools for business planning. For Rhonda's free business planning newsletter, register at www.PlanningShop.com.

Last updated: Mar 1, 2004




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