"Let Them Make Mudpies" (July) chastised the U.S. Small Business Administration for doing the best thing it could have done to help Imre Corp., other small businesses in general, and all of us as taxpayers: The SBA rejected the company's loan application.

Look at the facts. After being repeatedly rejected for a $250,000 loan, Imre arranged $1.5 million of venture capital from a private source. There is a clear message here. Obviously, Imre needed more than the $250,000 it was requesting from the SBA; venture capitalists simply don't commit to $1.5 million of financing when $250,000 will do. The $250,000 would probably have hurt the company far more than helped it because its financial needs were far in excess of the debt financing requested from the SBA. Clearly, the company's seeking insufficient financing demonstrates what the SBA officials expressed concern with: lack of sufficient management expertise within the company.

The SBA was never intended to compete with private enterprise, including the financial industry. Rainier Bank stated, "After looking everything over, we felt confident the loan should be made." Why was the SBA even needed then? Why should the SBA participate? The SBA was designed to help those small businesses that are unable to get help through private industry.

Small businesses want to reduce government spending and government deficits. This is an excellent example of a situation in which government funds should not be utilized. In this case, thousands of taxpayer dollars were expended unnecessarily to have SBA loan officers, supervisors, and directors spend hour after hour reviewing and rereviewing something that should have been dealt with in private industry in the first place.

Those who kept demanding that the SBA reconsider this particular loan did both Imre Corp. and the taxpayers a great disservice. They wasted taxpayers' money, delayed Imre Corp. from arranging the financing it really needed, and nearly forced the company into default.

The SBA can sometimes be most helpful by saying no. The company did, in fact, get the equity financing it needed, and it can leverage that equity in the future for even more financing. Finally, the company now has a committed resource of expert, high-technology managers to fill its greatest shortcoming: good, experienced business management. Imre Corp. will probably become very successful because these SBA professionals had the foresight, when others did not, to say no.

Small business owners often complain about the SBA. Many of them see the SBA as only providing financing for competitors that are not qualified to enter their industry. Others see the SBA as a lender that will throw our tax money at any project regardless of its potential for success. Some feel that the SBA is nothing more than a government agency formed to demand far too much financial business instead of giving the business the help it needs. But they are all wrong.

The SBA is the best friend small businesses have in the federal government and despite all the complaints -- including INC.'s graphic portrayal of how this agency allegedly abused one particular company -- the SBA did in this case exactly what it was designed to do.

EDITOR-NOTE:

INC. replies: Mr. Smith's argument is based, in part, on the mistaken assumption that Imre applied for the $250,000 loan expecting that no additional capital would be required. As the article makes clear, Imre was seeking the loan to pay for "the laboratory equipment needed to start production of the [protein A] columns." The company was well aware that more capital would eventually be needed and was planning to raise it through a private stock offering. In making that offering, Imre's owners would obviously have to give up a portion of ownership and control. They would have had to give up much less, however, if the company were already in production than if it were not. Hence, the need for the loan.

So the fact that Imre eventually arranged a private placement of $1.5 million does not prove that the $250,000 loan would have been "insufficient."Indeed, the loan would have allowed the company to start production and sale of the columns on schedule. It would have also allowed Imre's owners to retain a substantial amount of the equity they ultimately had to give up.

But there is another, more important, issue here. Mr. Smith suggests that the SBA loan programs should not be used to help companies for which private "assistance" -- including venture capital -- is available. In effect, he is arguing that the SBA is not designed to foster the growth of high-technology companies, and should not be expected to do so. Yet, why should a biotech company have to give up stock when a diner can get a government-guaranteed loan? If it is in our national interest to get car washes started, what about optical computer companies? Mr. Smith's letter begs such questions.