Time to Fix the SBA

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Unfortunately, Cognetix is not alone. According to the National Venture Capital Association, scores of biotech start-ups are having their SBIR grants yanked simply because they have turned over larger shares of their companies to venture investors -- something, incidentally, they are increasingly forced to do in the current, difficult marketplace. "This regulation is excluding a lot of companies," said Nancy Saucier, who manages the association's medical industry group. "If it continues, it will snowball."

Make the SBA administrator a permanent Cabinet position

This one is certainly more symbolic than the steps discussed above. But perceptions count. Former President Bill Clinton elevated the SBA administrator position to Cabinet-level rank during his administration. That meant Erskine Bowles or Aida Alvarez would meet regularly with the heads of Treasury, Defense, Agriculture, and the other departments in the President's inner circle. It also meant that small business was given the same clout as big business, which is represented in the Cabinet by the Secretary of Commerce. President Bush, by contrast, has chosen not to include SBA Administrator Barreto in his Cabinet.

Entrepreneurs need a cop on the beat to protect against policies and regulations that have a disproportionate impact on small companies.

Barreto, for his part, claims to have the President's ear, and the two men certainly seem to have a strong rapport. (Colleagues joke that Barreto has a reserved seat on Air Force One.) But formally adding the SBA administrator to the Cabinet sends an important message: a formal acknowledgement that entrepreneurs are a potent source of economic growth and new jobs. And it can yield real results, says Hochberg, who was Clinton's deputy SBA administrator. While SBA Administrator Alvarez was a member of the Cabinet, Hochberg sat on the President's Management Council, where the deputies of all of the Cabinet agencies met monthly. "It was not simply titular; it helped enormously," Hochberg says. The SBA is charged with helping small businesses get 23% of federal contracts, but agencies shirk those rules and have been bundling small contracts into large ones. In addition to advocating for entrepreneurs in the federal procurement process, Hochberg says, Cabinet-level negotiations led to the development of an initiative to bring venture capital and small-business assistance to rural and inner-city areas. "I had a relationship with every agency, including the Department of Defense, which has the largest budget," Hochberg says. "I could be more forceful and personal and argue and cajole."

Provide hands-on guidance

When commercial banks make large loans, bankers usually help ensure the long-term success of the business by providing ongoing advice and counseling. It's simply good business. Indeed, the SBA's own research shows borrowers that receive some type of technical assistance are three times more likely to succeed than those that don't. The SBA needs to use its clout to make banks offer more help to loan recipients who would clearly benefit, such as start-ups or companies with inexperienced management. One way to do this would be for the SBA to give banks higher guaranties on their loans if they offered such assistance. They wouldn't even need to do it in-house. The SBA already has a variety of resources for providing technical and managerial assistance: the Service Corps of Retired Executives,or SCORE, a group of 11,500 volunteers who provide free advice; more than 1,000 Small Business Development Centers nationwide; as well as Business Information Centers and U.S. Export Assistance Centers. The infrastructure is in place. Now, the agency needs to ensure that it is being properly utilized.

Give the watchdog teeth

Small business needs a cop on the beat, inside the federal government, to protect against policies and regulations that have a disproportionate impact on small business and government agencies that bundle contracts and don't give small business a statutorily required piece of the pie. The watchdog already exists: The SBA's Office of Advocacy was created by Congress in 1976 in recognition of the fact that small businesses simply don't have the resources that big businesses do in Washington -- whether it's the 20,000 lobbyists, the corporate government affairs offices lining K Street, the Department of Commerce, the U.S. Trade Representative, the Export-Import Bank, etc.

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Elizabeth Wasserman

Elizabeth Wasserman is editor of Inc.'s technology website, IncTechnology.com. Based in the Washington, D.C. area, she has more than 15 years experience writing about business, technology, and politics for newspapers, magazines and websites. Her work has appeared in such publications as Congressional Quarterly, Business Week, Portfolio and Slate.