Reform SBA So It Really Aids Small Business

By Risener, Randy | St Louis Post-Dispatch (MO), July 13, 1995 | Go to article overview

Reform SBA So It Really Aids Small Business


Risener, Randy, St Louis Post-Dispatch (MO)


The Small Business Administration has once again found itself on the political hit list of those bent on destroying government activities whose benefits are not concentrated on those least needing help.

Unfortunately, the SBA provides its enemies ammunition by serving too few and, often, the wrong people while suffering loan default rates that upset everyone.

The agency is mainly a loan company running various lender protection programs and a handful of direct loans. It can "guarantee" a portion of a loan made to businesses by private lenders on the theory that such security will induce lenders to fund businesses not having the normally required collateral (usually real estate).

In the last fiscal year, the agency handled 39,000 cases, which works out to less than 1 percent of American enterprises employing fewer than 20 people each and about 0.78 percent of all existing businesses. The SBA no longer is actively soliciting start-up enterprises, and it has been tightening credit and collateral requirements to reduce its default rate. Under legislation sponsored by Sen. Christopher S. Bond, the percentage of a loan that will be "guaranteed" would be reduced, thus lessening participation because lenders will not want to take increased risks.

These are futile attempts to save a system that does not and will not work by basically reducing levels of service instead of getting down to the "core" of the problem and fixing it.

As a consultant who works both with start-up businesses and turnarounds of distressed enterprises, I can state that if you dissect a small business failure, more often than not you will find the root causes lie in poor planning and poor management. In other words, too many people jump into business who simply don't know what they are doing and don't want to take the time to learn.

But business loans generally depend on the borrower's collateral. The difference between SBA and non-SBA loans is the matter of how much collateral. Contrary to what many people believe, SBA does require collateral and usually cash equity.

The problem is that "due diligence" by SBA and private banks is largely one of collateral, credit and so-called management experience but not necessarily small business "know-how." And lenders are frequently not experienced enough in small-business strategy and management to separate business plans and proposals into two piles - dreams and con jobs in one and realistic, well-thought-out concepts and strategies in the other.

There is a possible solution (at least regarding SBA assistance) to these problems of not enough people being helped and high business failures: Trade collateral requirements for business know-how. …

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