Virginia is a lot of territory to cover, more than one might expect--Richmond is closer to New York City than to the southwestern point of the state. When staffers go out, they often leave before dawn and return long after dark because the office can't afford very many overnight stays. This is especially problematic because the district's biggest marketing challenges lie outside Richmond, as a map of the state hanging in the office makes clear. It's dotted with pushpins to indicate loan production, with the pins concentrated most densely around Richmond, the exurban D.C. counties, and Hampton Roads. A thinner trail follows the Blue Ridge mountains up the spine of the state. Elsewhere, evidence of the SBA is scarce. "The rural areas are harder to market to," Bew concedes. "It's costly, and there's a smaller population."
One day last August, lender relations specialist Ford Scott and business development specialist Bob McLoone signed out an agency car and made the long drive toward the Tennessee border and Abingdon, an old mercantile town in the far southwest part of the state with red-brick buildings and red-brick sidewalks. The next morning, Scott stood before eight local bankers in Abingdon to introduce them to the 7(a), which extends credit to businesses that can't find it on similar terms elsewhere, offering a break not in the interest rate but in the maturity. A 7(a) for working capital normally runs up to seven years, compared with under three for a typical unsecured commercial loan, which can work out to a 40 percent discount on the monthly payment. The loans particularly favor franchisees and restaurants and small retailers.
Scott, though, didn't so much market the 7(a) as explain it--an exegesis on its terms, rules, and procedures, all of which can seem onerous. The bankers listened quietly--maybe too quietly. At one point Scott solicited questions. Someone coughed. Then Scott resumed talking. Lately, the SBA has been offering an alternative version of the flagship 7(a), pushing smaller loans to more businesses under its easy-to-use SBAExpress program. While the traditional 7(a) backs general-purpose credit up to 85 percent, banks that use the Express program get only a 50 percent guaranty--but can follow their own procedures instead of the time-consuming 7(a) rules and approve the loans themselves. It's a tradeoff many banks are happy to make.
I wanted to know what lenders here made of the SBA--Abingdon's county delivered just one 7(a) loan in 2006; the five surrounding counties just four more. So a few months later, I rounded up four lending officers, including two who had sat in on Scott's talk and one who had heard it in 2005, and took them to lunch. Two had little or no SBA experience but together they mustered several objections. SBA lending is cumbersome. They were looking for solid collateral, and if a borrower had it, the SBA's guaranty was superfluous. And though they were careful not to put it too bluntly, they had bigger fish to fry than the storefront start-ups often attracted by the 7(a). "I'm trying to call on businesses that are more established," said Joe Waters II, of National Bank in Abingdon. "I have somebody I report to, and if I send him too many ice cream shop deals, they're going to think I'm retarded."
The definition of small
Alutiiq is another model of SBA success, but its story is a bit more complicated than Port Equipment Service's. Alutiiq occupies space in several buildings of Volvo Park, a low-slung office complex hidden behind a medical center in Chesapeake. Working from this nondescript campus and seven others around the country, Alutiiq raked in $533 million in revenue in 2006, virtually all of it from the government, won under contracts set aside for small disadvantaged businesses.
Prying the government wallet open to small suppliers has been central to the SBA's mission from the beginning. For small enterprises trolling the federal marketplace, the agency is supposed to be both guide and advocate, riding other government offices so they meet an annual goal--not a requirement--that 23 percent of total prime contract dollars from across the government be delivered to small businesses. The SBA boasts that with its help, Washington has come close to, or even exceeded, the target in each of the past five years. In 2005, the agency claims, $80 billion, or more than a quarter of prime contract payouts, went to small companies.
But disbursing taxpayer money is messy, and a quick scan of the companies that received the most small-business dollars in Virginia reveals an anomaly: No. 4 on the list, according to procurement consultant Eagle Eye, is the $24 billion behemoth General Dynamics (NYSE:GD). Over the years, audits that demonstrate how a substantial share of contracts credited to small businesses are diverted to large companies have generated headlines but little action. The problem is that government procurement officers are simultaneously overworked and under pressure to cut acquisition costs, which discourages due diligence, if not dealing with small vendors altogether. The regulatory environment seems to accommodate this: Procurement rules are vague and easily misconstrued. Perforated with loopholes, they allow the SBA and the buying agency to pin oversight responsibility on each other. No doubt, too, some large contractors take advantage of the pervasive ambiguity and willfully identify themselves as small. While nobody has measured the prevalence of fraud, Lloyd Chapman, who heads the American Small Business League, notes that firms are unlikely to be deterred by the government's record of enforcement--not one firm has been prosecuted for falsely representing itself as small. (SBA officials say willful misrepresentation is hard to prove.)
