Is It Time to Cut the SBA?

The federal government has decided that the small-business cash crunch is over.

In his proposed 2012 budget introduced Monday, President Barack Obama proposes to cut the Small Business Administration budget by a whopping 45 percent, based on the total the agency received in 2010. In terms of core budget allotment, the SBA actually gets more for both 2011 and 2012, if Obama's proposals are approved -- $993 million and $995 million respectively. Its core funding was $824 million in 2010.

But SBA got a hefty stimulus infusion last year of $963 million, mostly in loan guarantees to help stimulate bank lending. So in all, SBA's 2010 budget was $1.79 billion.

Newly-elected Republicans are screaming for cutbacks in non-core government spending and have set their sights on SBA as a target for reductions. But is that really wise right now?

Let's review how the small-business sector is doing:

While small-business lending improved in recent months, it was mostly due to the federal stimulus money SBA used to up its guarantee level with banks, which up until then had all but stopped lending to BIZ Experiencess. Overall, small-business lending was down $43 billion last year.

And owners are still strapped for collateral with which to borrow. Revenue is still down for many. If their business owns property, the value of that real estate is still down, too.

The National Federation of Independent Business found in its most recent member survey that 52 percent of owners didn't even try to borrow last year -- a figure 7 points higher than in 2009, when the economy was generally worse off. A recent Philadelphia Inquirer story beautifully sums up the current small-business lending environment as better, but not normal.

Even that may be putting a good face on it. The NFIB's most recent report on the matter is titled Small Business Credit in a Deep Recession.

If the proposed budget figures hold, SBA will be cutting its core services back, not just the amount of loan guarantees it can offer banks. In response to the budget proposals, SBA said it would have to cut $7 million in salaries and another $5 million from its budget for managing its loan programs, plus $8 million more from its disaster-loan program.

Possibly worst of all, there'd be a $10 million cut in funding for the network of regional Small Business Development Centers that are a resource lifeline for so many BIZ Experiencess trying to start or grow their business.

These are just proposals at the moment. The 2011 budget is on month-to-month life support as it awaits approval -- a process that began five months ago. Then there's the 2012 budget battle to fight, which is likely to be contentious. We'll see what happens to SBA's budget line in the months to come.

In my view, it seems shortsighted to cut support for small business at a time when the economy so urgently needs small businesses to grow and hire more workers. Is small-business support not an essential function of our government? If encouraging economic prosperity is an important role for government, then SBA should be well-funded until the economy shows more solid signs of improvement.

Is it time to cut SBA funding? Leave a comment and let us know your opinion.