SBA can improve despite the obstacles

The resignation last month of U.S. Small Business Administration head Hector Barreto and the nomination of a successor gives the agency and the Bush Administration a chance to revisit some initiatives that have cut costs but evoked grumbling among many small lenders and businesses.

The SBA offers a variety of loan and loan-support programs to small business, a loosely defined category but one that encompasses enterprises that provide half of all jobs and two-thirds of new jobs. The agency has been a particularly valuable resource in the Inland Northwest, where all but a few major employers would be considered small business. Also, access to capital has always been a challenge during the too-frequent periods when our economy lagged the nation’s.

Unfortunately, the Spokane office was among those downsized as Barreto pushed through reforms intended to cut costs without sacrificing service. Spokane, for years a district headquarters serving Eastern Washington and North Idaho, became a branch of the Seattle district. Staffing has dropped from 20 a decade ago to four. The valuable Small Business Information Center once funded by the SBA has become the responsibility of the Spokane Regional Chamber of Commerce, which secured $60,000 in annual pledges from 16 lenders to keep the doors open.

That support alone is a pretty impressive testament to the value bankers place on that resource. Meanwhile, SBA is relying more on the Internet and call centers to handle questions.

To sort out how best to use what limited financial and manpower resources are left in Spokane, SBA brought in Mike Lee from Santa Ana, Calif., as temporary branch manager.

Lee is candid about the challenges ahead.

“Our goal is still not to cut services,” he says. “We still need to keep working with the small-business public.”

Lee says that for many lenders the origination process is easier. Other loans are routed either to the SBA Seattle office, or to a central office.

For the six-month period that ended March 31, the Spokane branch guaranteed 270 loans for a total $39.7 million. The levels are down slightly from the same period last year.

SBA is moving toward centralization of all loan approvals, as it did with its loan liquidation process. In its analysis of operations for 2005, the agency reported liquidation costs had dropped to $7.2 million from $32.1 million just two years earlier.

Fiscal year 2007, the agency has requested $624 million, which would support a total $28 billion in business financing, including $17.5 billion for its flagship 7(a) program and $7.5 million for the 504 program that funds capital and real estate investments.

SBA has reduced or held the line on its budget requests under Barreto, but often by shifting costs to borrowers. That and other changes exposed Barreto to ongoing criticism from Democrats. Questions regarding SBA distribution of funds intended to ease the business impacts of the 9/11 attacks, and its plodding response to disaster loan demand in the wake of hurricanes Katrina and Rita, intensified the scrutiny.

Barreto, after a record five years as SBA administrator, was probably overdue for a job change anyway. The promotion of Josh Bolten to White House chief of staff, and the house-cleaning that has followed, made his departure that much less surprising.

President Bush immediately named Steven Preston, executive vice president and chief financial officer at The ServiceMaster Co., to succeed Barreto. His experience overseeing strategic planning for a company made up of franchised cleaning, lawn-maintenance and pest-control businesses might make him a good fit, but Democrats say they want the Senate to test his sentiments toward independent entrepreneurs.

Thursday, they also came out with their own plan for what they say is a needed revival of SBA. Among the proposals are steps that would reduce 7(a) costs to borrowers, increase the emphasis on loans to minority and women business owners, and buttress programs targeted at rural areas.

One appealing suggestion — fee waivers for loans that would allow businesses to improve energy efficiency. Also, Small Business Development Centers would receive more funding.

The Senate will hold hearings on Preston’s appointment in the next month or so. The sessions will be a good opportunity to re-examine how well a pro-business administration is meeting needs on Main Street as well as Wall Street.