Why a Republican Sweep Means More Tough Love for the SBA

The Small Business Administration could be forgiven for feeling unloved by Republicans.

After all, various Republican presidents have sought to shut the agency down (Ronald Reagan) or cut its funding drastically (George W. Bush). Now that the midterm elections are here and a Republican sweep of the Senate and further gains in the House appear imminent, the question of what will happen to the SBA inevitably becomes an important one to consider. And the prospects don’t look all that good.

Where We Are Now

Under President Obama, the SBA has enjoyed six years of strong support. That includes elevating the SBA chief to a cabinet position, increasing funding for its flagship 7(a) loan program, and expansion of financing programs meant to help fast-growth companies.

“President Obama’s administration has placed a high priority on the value of the SBA,” says John Arensmeyer, executive director of the Small Business Majority, a left-leaning small business lobbying group.

On the Senate side, where the Democratic majority leads the Senate Committee on Small Business and Entrepreneurship by way of Maria Cantwell (D., Wash.), entrepreneurs have had a strong advocate. Along with Mary Landrieu (D., La.), who formerly chaired the committee, Cantwell played a key role in getting the Small Business Jobs Act through the Senate in 2010. She also helped establish the Small Business Lending Fund, which capitalized community banks so they could lend more effectively to small business owners. Cantwell has also been an important supporter of women entrepreneurs, introducing legislation to ensure their access to federal contracting opportunities.

A Look Ahead

For a sense of what may befall the SBA should the GOP take the Senate in Tuesday’s elections, one need look no further than the House Small Business Committee, which has acted as a counterweight to the Senate in recent years. 

Sam Graves (R., Mo.), the chairman of the committee, has taken numerous opportunities to disable or shut down programs that he and his caucus see as cost centers–even when they’re important to small businesses and the SBA. He voted in 2010 against the Small Business Lending fund, which passed with a large majority in the House. He’s also introduced legislation to eliminate programs, such a SBA-backed financing to help small manufacturers retrofit older machinery so it pollutes less, which was struck down in the Senate. He’s also made it a mission to shut down SBA programs he feels are unnecessary or redundant, including programs that provide aid to historically underprivileged communities.

Using the SBA as a political football is likely to become a favored pastime on Capitol Hill, should Republicans take Congress, policy analysts say. 

Tack on the budgetary constraints arising from the sequester, and the SBA could become hard pressed to apply the same level of influence within the small business community. (The agency asked for $710 million for fiscal year 2015, about $60 million less than its request for funding for fiscal year 2010. By contrast, for Fiscal year 2011, its budget was nearly $1 billion.)

This pairing of the cheese rind is likely to continue under Republican control, small business advocates say. That may include setting aside less money for the SBA’s flagship 7(a) loan program, which has supported a record $100 billion in loans between 2011 and 2013. It could also mean the reintroduction of fees, which were eliminated on loans up to $150,000 during the recession, and reduced for larger loans.

The Upshot

“This will probably mean less money for small businesses, and this will mean fewer jobs, to the extent those small businesses are hiring people with [SBA loan] money,” says Peter Cohan, a visiting strategy lecturer who focuses on high tech businesses at Babson College, and an Inc. columnist.

Nevertheless, Cohan adds that the fast growth, high tech companies capable of creating the most jobs, tend to benefit the least from SBA funding, despite programs such as the SBIR and SBTT meant to assist them and engage venture capital firms. 

In that regard, his sentiments echo those of observers like Raymond J. Keating, the chief economist of the right-leaning Small Business & Entrepreneurship Council. Keating is an ardent supporter of less government spending, and more private investment in small business. In a recent blog post, he had this to say:

To achieve the sustainable, strong growth that has avoided the U.S. for many years now, we certainly should not rely on government spending and investment, which actually raises serious questions about the quality of GDP growth, as it is not market driven growth.

Still, less investment could trigger slower growth among main street businesses. That could throw the breaks on the economic recovery. After all, small businesses–as Republicans and Democrats alike never stop reminding us during the election cycle–are a mainstay of job growth in the U.S. For those businesses, the SBA still has an important role to play.

“Small business is often touted as everyone’s favorite constituency,” Arensmeyer says, adding the same does not hold true for the SBA. “Some of this comes from an ideological aversion to government and bureaucracy and the feeling that this is one more agency we don’t need.”

Corrections and amplifications: The original version of this story misstated the SBA’s budget request amounts.