Does the Small Business Administration Need an Overhaul?

A Home Business Article Contributed by Elizabeth Fox-Wise

The Us Small Business Administration Has Been around for over Fifty Years

The Small Business Administration was officially established in 1953. They celebrated their fiftieth anniversary last year.

Yet as they celebrated their fiftieth anniversary, doubts about the agency's effectiveness, and how its more than 3, 300 employees spend the $797 million budget, were discussed.

Is the Small Business Administration Effective in Its Goal?

The common belief amount economists is that the Small Business Administration looses a lot of money and does not really get a lot accomplished for small business. Some economists question if there is a need for the Small Business Administration and who really benefits from it.

Such skepticism is not difficult to understand. After all, the U.S. economy has undergone quite a change. Most of the US' innovation now comes from high-growth, idea-centric companies led by sophisticated entrepreneurs.

Yet the Small Business Administration seems stuck in the past. As is evident by who is getting the majority of the available small business loans.

Loan statistics tell us that in 2002, small retailers and small restaurateurs represented about 20% of participants in the SBA's two largest loan programs. In comparison, information technology entrepreneurs? They represented less than 2%. Clearly, an entire class of companies is not being properly served.

This is a concern because small business contributes seventy five percent of new jobs and account for more than fifty percent of the gross domestic product. In years past it has been innovative, growing small business that has led the economy out of a recession. But this time that is not happening. As a matter of fact, small business actually has cut jobs during this most recent recession and many small businesses have gone out of business during this economic down turn.

So What Can the Small Business Administration do to Get in the 2000s?

Since the founding of the Small Business Administration, five decades ago, the SBA has developed a variety of strategies and programs to help small business. This includes helping them write business plans, offering loan guaranties to banks, providing matching funds to venture capitalists, and helping and training small businesses to compete for government contracts. However, this list of services is a reflection of the way we did business during the period when these programs were created - in the 1950s and 1960s.

One thing the Small Business Administration could do is create a government supported angel investment fund.

Angel investors are typically wealthy individuals, often successful entrepreneurs themselves, who make small (typically less than $500, 000) investments in small start up businesses. Angel Investors are the best source of funding for small business, because few venture capitalists are interested in such small deals and most banks do not like to lend money to start up small business even when that small business has a partial Small Business Administration guaranty.

Amazon.com, the Body Shop, and Bell Telephone all got their start thanks to angels. But these days, such funding is among the hardest to find.

The SBA should be able to help small business with this because it has the resources to create an angel fund, modeled on its Small Business Investment Company (SBIC) program.