us small business administration role during the economic turmoil
TRANSCRIPT
SMALL BUSINESS ADMINISTRATION
U.S. Small Business Administration Role during the Economic
Turmoil
[Hajimurad Gulahmadov]
[Small Business Administration]
[The City University of New York/ Brooklyn College]
[January 18, 2008]
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TABLE OF CONTENTS:
Introduction........................................................................3Overview of U.S. Small Business Administration (SBA).......4Overview of the current economy.......................................6How did Small Businesses help U.S. economy in the past?.........................................................................................12What has to be done together with SBA during current recession to help the economy?.......................................15SBA’s current taken actions to help the economy............20What can Barack Obama do as a next president of the United States?...................................................................22Conclusion........................................................................23References:.......................................................................25
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Introduction
There is a very close relationship between small businesses and the economy in the United
States as well as in the world because much of economic growth depends on startup businesses. By
hiring few employees each small business/firm make a significant contribution to the economy. In
today’s economic crisis Small Business Administration needs to step in, and help economy to
recover by providing its services to individuals through the country. By investing in their
businesses, the small firm owners make a major contribution to the local, regional, and national
economy. The small business sector in the United States plays critical role, U.S. government needs
to put all efforts in order to help small businesses to have an easy access to the capital. Government
created $700 billion rescue plan but there is no section in this plan which contribute help small
businesses to recover and have an easy capital access. Therefore, the best way to do that is through
expedient, targeted and effective lending through the SBA. The rescue plan is designed to make
credit flow freely again but if this money will be used for wrong purposes, then it can create even
more problems. The credit crunch has caused many small business owners to struggle for financing
for their day-to-day operations and growth plans. If the rescue plan works, it will fix this problem
but there have to be some additions to the rescue plan which includes a plan to help small
businesses. Because of their size and closeness to their customers, new businesses are more flexible
and quick to respond than many established and big businesses, thus they can affectively react and
help economy to recover during this economic meltdown.
In this paper I will discuss SBA’s mission and how it has been affected by the current
economic meltdown. Also, I will discuss SBA’s role during past difficult times in U.S. economy.
In addition, I will provide necessary information to compare the economic and small business
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financial climate now and previous years, what actions the U.S. government are taking to help
small businesses to survive. I will examine, despite current plans to help small businesses what
further actions have to be taken.
Overview of U.S. Small Business Administration (SBA)
“The U.S. Small Business Administration (SBA) was established in 1953 as an independent
agency of the federal government, the main initiatives of this agency are: to aid, counsel, help and
protect the interests of small business concerns, to protect free competitive enterprise and
strengthen the overall economy of United States of America” (SBA). We recognize that small
businesses are playing a critical role in any economic recovery and strength. In the U.S.A to build
future, and to help compete in globalization, Small Business Administration (SBA) has a vital role.
Although SBA has grown and met many challenges since it has been established, but it still keeps
the mission to give assistance to individuals and small businesses by providing information and
guidance through training and consulting through easily accessible branch locations. The SBA
helps Americans start, build and grow businesses and realize their “American dream”. Everybody
who lives in the United States, Puerto Rico, the U. S. Virgin Islands and Guam can benefit from
SBA delivered services in these locations.
If we look into the history of SBA, even before creating of SBA we can see that small businesses
had played a great role in the past, largely as a response to the pressures of the Great Depression,
World War II and Korean War.
First in the history, “The Reconstruction Finance Corporation (RFC), created by President Herbert
Hoover in 1932 to alleviate the financial crisis of the Great Depression, was SBA's grandparent.
The RFC was basically a federal lending program for all businesses hurt by the Depression, large
and small.” (SBA)
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The mission of RFC was to help businesses to get money and recover from the consequences of the
Depression during the time when capital access was almost impossible.
The next step in history was when the U.S. congress created another organization to
confront small businesses’ concerns during the Korean War, at that time this organization was
called the Small Defense Plants Administration (SDPA). “The SDPA certified small businesses to
the RFC when it had determined the businesses to be competent to perform the work of
government contracts.
By 1952, a move was on to abolish the RFC. To continue the important functions of the
earlier agencies, President Dwight Eisenhower proposed creation of a new small business agency --
the Small Business Administration (SBA)” (www. sba.gov)1
By the creation of the Small Business Administration, the main idea was to "aid, counsel, assist and
protect, insofar as is possible, the interests of small business concerns." (Small Business Act of July
30, 1953) The agreement also required that the SBA would ensure small businesses a "fair
proportion" of government contracts and sales of surplus properties.
Over the past 55 years, SBA has grown in terms of total assistance provided to its costumers and it
developed many programs which encourages and helps individuals to open their small businesses
in all areas. For instance, there are such programs as financial and federal contract procurement
assistance, management assistance, and specialized outreach to women, minorities and military
veterans. In addition, the SBA also offers loans to victims of natural disasters and specialized
advice and assistance in international trade.
In opposition, there are some people who argue that big businesses, profiting from
"economies of scale," are more efficient in production and can contribute more than small
businesses. But they forgot that small businesses are the key to innovation. If we look to our daily
life, we can see how small businesses contribute to our economy, because they are adoptable, more
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flexible and often more bold than big businesses. Most of the items we use everyday, the items that
line the shelves of America's museums, shops are products of small firms. They save the heritage
of creativity and enterprise and they help keep the "American Dream" within the reach of millions
of Americans. We do not have to forget that people who first immigrated to this country created
this country’s powerful economy by opening small businesses and by the time shifting into big
companies. Today, the SBA is here to help everybody who wants to do business and be successful.
If we look, in near years “the SBA backed more than $12.3 billion in loans to small businesses.
More than $1 billion was made available for disaster loans and more than $40 billion in federal
contracts were secured by small businesses with SBA's help.” (2006 Master guide)2 This numbers
are huge and it has been increased over time which once again proves the importance of the SBA.
Overview of the current economy
Today, the United States is living its next challenge in the history. As everybody knows, the US
economy is in crisis and the downturn in U.S. economy causes the global crisis all over the world.
During this difficult period federal government has called on the private sectors to help to confront
many of existing challenges. Big businesses stepped in and have provided help but this help did not
change too much, and less traditional group, small businesses, which are playing a larger role in
creating jobs and developing new innovative products have been excluded. There are many reasons
for meltdown in U.S. economy. For instance, the effects of the housing downturn, credit market
disruptions, and higher energy prices were major reasons for downturn. Even though recent
economic data have been mixed, and many experts and international financial institutions were
expecting an elevated risk of an economic downturn, there has not been taken specific actions to
prevent this downturn. Although consumer spending continued to grow in late 2007, declines in
housing prices and stock market are cause for concern. All these problems, specifically credit
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difficulties had a negative impact on businesses and households, lending standards for a variety of
consumer and business loans were tightened in 2007, and the availability of some mortgage
products has been sharply reduced. During the first three quarters of 2007, house prices started to
slow down in many regions of the country, and home sales continued the contraction that began in
the second half of 2005. (See graph 1) 3
Graph 1
(The Global Economy and Financial Crisis, International Monetary Fund, 2008)
Although core inflation remains contained and inflation expectations remain well anchored, high
energy prices are a drag on household finances, with consumer energy prices up 17.4 percent in the
twelve months through December 2007 regarding Executive office of the president council of
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economic advisers 2008 statistics4. But during 2008 wee see the inflation rate is going up. (see
graph 2)5
Graph 2
. (The Global Economy and Financial Crisis, International Monetary Fund, 2008)
Job losses in the U.S.A over the last 3 months totaled 651,000. In October, the
unemployment rate rose from 6.1 to 6.5 percent, and the number of unemployed persons increased
to 10.1 million. (BLS)6 (See graph 3).
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Graph 3
_
(U.S. Department of Labor: Bureau of Labor Statistics)
The labor market also continues to contract. However, we have not yet reached the cyclical lows
recorded during the past four recessions.
During the past years, household concerns have not been dependent on inflation rate, but
with rising energy prices in couple of years, customers and business owners have felt the impact of
higher prices. How did the prices increase? Firstly, the Federal Reserve in order to fight against the
inflation raised the interest rates—in a response that increases the overall cost of borrowing for
both individuals and businesses. Secondly, to the extent that higher prices have a negative impact
one’s overall budget, they can also affect the psyche, people start to panicking. If we measure the
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rate of confidence in the nation by examining the NFIB optimism index (see Graph 5) and the
University of Michigan’s consumer confidence survey, we see relationship between confidence and
the price of oil, lately.
Graph 57
87.0
92.0
97.0
102.0
107.0
112.0
-
0 .2
0 .4
0 .6
0 .8
1 .0
1 .2
1 .4
1 .6
1 .8
2 .0
NBER Declared RecessionsOPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986 = 100)3 per. Mov. Avg. (OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986 = 100))
From the graph 5 we see the confidence indicator varies as when the cost of filling up the gas tank
is higher, the public tends to be more pessimistic, and vice versa.
Overall, we see financial crisis is having negative impact on SBA as well as overall the U.S.
economy. If we look at graph 4 and 5, we can see how U.S. financial market created problems to
SBA.
Graph 48
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Graph 4 shows financial market’s ability to raise funds from non-depository sources. It illustrates
how the U.S. asset backed commercial paper market (the Yellow line) took a big fall during the
second quarter of 2007, and 2008 has seen a continuation of that decline. Indeed, as of mid
November 2008, this market stood at about the same level as the second quarter of 2005, basically
erasing all of the gains recorded during the following two years (i.e. during the second quarter 2005
to the second quarter 2007 period).
Interestingly enough, up to the third quarter of 2008, many investors were still purchasing
commercial paper issued by financial institutions (the red line). However, after the Lehman
Brothers failure, investors stayed away from this market as well.
Hence, it’s no surprise that during the past month the spread between the federal fund rate and CD
rates experienced an unusual increase, as banks rushed to replenish their sources of funds from
ordinary depositors.
Graph 59: Effective Federal Fund Rate and Six Month Certificate of Deposit
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The international inter-bank funding markets have also been challenging for U.S. financial
institutions, as the spread between some prominent domestic rates (Fed Funds Rate, and Prime
Rate) has declined, but the LIBOR rose during the third quarter 2008. However, as of November
14, 2008 the three month LIBOR had dropped to 2.24%, creating a 1.8% spread with the U.S.
Prime Rate. While this spread is not close to the recent normal 2.9% spread, it certainly is a huge
improvement over the near zero spread experienced during a few days of September 2008.
Discussions with SBA banking partners indicate that all the above mentioned factors are having a
negative impact on their ability to issue SBA guaranteed loans. Specifically, their inability to raise
funds in the commercial paper markets is reducing their lending capacity, and the relatively higher
CD and LIBOR rates are cutting into their profit margins.
While much of the focus on the financial crisis has been the impact on banks and major financial
institutions, the problem of a “credit crunch” has also hit small firms. Small businesses are having
difficulties to lend money and they rarely issue equity or debt securities. Their only capital source
Unusual spread
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is lending. When lending is not available, it causes big problems such as closing the businesses or
laying off workers. This financing is necessary to purchase, to execute expansion plans, and hire
new employees. Consequently, the availability of reasonable financing is an important factor in
fueling the small business economy. But today’s situation shows that it has become more difficult
to secure capital for small businesses; the terms of loans are higher than in previous cycles.
How did Small Businesses help U.S. economy in the past?
If we look through the history of the SBA we can see that small businesses helped U.S.
economy in the past. For instance, take the last major recession as an example. During the 1990’s
when the U.S. economy was living one of its challenging times when employment declines were
more widespread across the major professional and industry groups. Administrative workers in
general and workers in the finance, insurance, and real estate industry were at greater risk of losing
their jobs in the early 1990's than at any time in the past. Besides, the rate of employment decrease
in both wholesale and retail trade was nearly twice that of the averages of prior contractions. 10 And
today we see many similarities between current and 1990’s recession but at that time small
businesses did a great move and helped economy to recover from the recession. As Honorable
Nydia M. Velazquez, Chairwoman United States House of Representatives, Committee on Small
Business stated: “During the early 1990’s, self-employment—a core piece of the country’s small
business sector—was at an all-time high of 7.7 percent. Moreover, some 25 percent of downsized
managers over the age of 40 chose to start their own companies during this time. Most of their
firms endure as successful, modern enterprises. Others fared even better, and have given birth to
[today’s big] companies”11
In addition to 1990’s recession, in 2001 when Americans were struck by terrorist attacks
and the Wall Street was having difficult time, stock market was down but small businesses
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demonstrated resilience and strength. Moreover, small firms as a group held their ground: the
levels of employer firms and the self-employed were relatively stable compared with the previous
years because of the actions taken by SBA. During that time all Small Business Development
Centers (SBDC) of SBA from other states gave their left over money from previous year to New
York Small Business Development Center in order to help individuals suffered from the attack to
rebuild their businesses. SBDC immediately began delivering disaster recovery assistance to
small- and medium-sized businesses physically and economically affected by the disaster. Small
business owners were filling out applications for SBA Disaster Assistance Loans with the help of
SBDC Business Advisors through its 15 lead centers and additional temporary emergency
assistance centers. In addition, the SBA took very serious action by partnering with the New York
State Business Development Corporation to promote the World Trade Center Small Business
Recovery Fund (WTCSBRF), which served as a nonprofit corporation to help to get capital loans
to impacted small businesses to facilitate economic recovery.12 As Thomas M. Sulliva, Chief
Counsel for Advocacy stated: “2001 was a tough and tragic year for America… Recession and
terrorism pummeled our economy, and small business took the brunt of the blows. Yet, like the rest
of America, small business owners refused to let events drag them down. We knew this was true
from anecdotal evidence, but now the data support this as well.” 13 This once again shows that the
ability of SBA to handle and help economy during the tough times.
There are several facts why Small Businesses are so important to the economy. If we
analyze we see small businesses:
Represent 99.7 percent of all employer firms.
Employ half of all private sector employees.
Pay 45 percent of total U.S. private payroll.
Have generated 60 to 80 percent of net new jobs annually over the last decade.
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Create more than 50 percent of nonfarm private gross domestic product (GDP).
Supplied more than 23 percent of the total value of federal prime contracts in FY 2004.
Produce 13 to 14 times more patents per employee than large patenting firms. These
patents are twice as likely as large firm patents to be among the one percent most cited.
Are employers of 41 percent of high tech workers (such as scientists, engineers, and
computer workers).
Are 53 percent home-based and 3 percent franchises.
Made up 97 percent of all identified exporters and produced 26 percent of the known
export value in FY 200214
Small businesses are lifeblood of the United States economy. In sum, Office of Advocacy
of the U.S. Small Business Administration states that the 26.8 million small businesses in the
United States play a vital role in the economic safety of the nation. The SBA can be very critical
during this economic meltdown because new business creation is a key to the ability to increase
gross national product, personal income, and total employment while unemployment rate rose to
6.1 percent the highest point
What has to be done together with SBA during current recession to help the economy?
In today’s economic crisis Small Business Administration need to step in, and help to
economy to recover by providing its services to individuals through the country. By investing in
their businesses, the small firm owner makes a major contribution to the local, regional, and
national economy but if there is no enough financing, then small firms are in a danger to run out of
business. "The small business sector in this country is the engine of economic growth, and we need
to keep the engine running during this financial crisis. The best way to do that is through expedient,
targeted and effective lending through the SBA,"15 said Senator of New York State Chuck
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Schumer. It is true that small businesses have to step in but how can they do if there is no support
from government. In recent $700 billion rescue package The Federal Reserve did not include
SBA’s name and there is no specific plan to help small businesses through this package. Even
though G.W. Bush stated in his speech: “As a matter of fact, one of the things that's going to
happen with this pro-growth package is that not only is it going to affect small businesses but 130
million families are going to get some money, their own money. And of course, the purpose of that
is to help boost consumption.”16
By these words President Bush meant “Stimulus package” which suppose to help small businesses.
Yes, it is true that this stimulus package will help but there are more serious steps have to be taken
towards small businesses, if we need quick reaction against the economic recession. President Bush
said:
I want to describe this package to you, and to remind our fellow citizens that
soon a significant amount of money will be coming in their mailboxes,
which is going to help the small business sector. It's going to help families
and it's going to help the small business sector, which helps the American
economy. After all, you create 70 percent of the new jobs in America. And
so the first thing that's going to happen is, is that the consumers will get a
boost in that tax rebates will be sent out to about 130 million American
households. Now, these rebates will return up to $600 for individuals, $1,200
for married couples, and $300 per child.17
But the time is passing and small businesses do not see any benefit from this package, yet. The
things are getting worse day by day. The House Small Business Committee examined the recent
actions taken by the U.S. Department of Treasury and the Federal Reserve to assist small firms and
to consider what additional measures are necessary. The Committee largely found that the $1.6
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trillion in federal bailout expenses have provided little assistance to small businesses, many of
which still continue to struggle.18
When we see small businesses are still facing difficulties to get a capital, then such question come
out that where the $1.6 trillion has been spent. As we examined before small businesses have
historically led the United States out of difficult times, but now they are unable to secure capital to
startup or expand, resulting in lower job creation and growth during a time when everybody needs
it. Graph 6 once again proves money that was spent was not effective and the rate of difficultness
is rising very quickly. If this diagram will continue to rise and small businesses will start to run out
of business because of credit availability it will make current situation worse than it was during the
Great Depression.
Graph 619: Credit availability for Small Businesses
(Source: the National Federation of Independent Business Small Business Economic Trends)
From Graph 6, we see that credit even though credit availability was good in April, 2008 it
start to become more difficult starting July, 2008. Because from June, 2008 credit default swaps
start to rise from 45 USD and it had very negative impact on Lehman Brothers as it was below than
30 USD and other banks and it made worse the housing problem. The oil prices went up during
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very short time which had a negative impact on SUV sales and the U.S. Auto Industry’s sales start
to significantly decreasing. There are many problems occurred during this time and all these
changes affected credit availability which now puts small businesses which contributes to the
economy more than “Big Companies” under very challenging situation. As a consequences the
volume of the SBA guaranteed Loans 7 (a) and 504 declined. (see graph 7)
Graph 7
(Source: Small Business Administration [SBA], www.sba.gov/advo )
As we see from the graph 7, the 7(a) loans declined tremendously compare previous year, and
according to Small Business Administration Advocacy’s report, it was 11% decline in 7 (a) by
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making $1.64 billion less loans than in the previous year and 16% decline in 504 loan program
were recorded during this year.
The U.S. Congress passed the Emergency Economic Stabilization Act of 2008 (EESA) to
help financial market to recover and to improve credit condition. After this Act Secretary of
Treasure gain an authority to purchase troubled-assets. Unfortunately, both the Treasury and the
Federal Reserve's wide-ranging actions have not dealt with the financing needs of small businesses.
As Chairwoman Velázquez stated that "The Treasury and the Federal Reserve have created so
many new programs, you would think that at least one would directly benefit small firms - but
unfortunately this is not the case…The Treasury and Fed must stop giving small business lip
service and actually provide them with the resources they need to survive in this very challenging
time." Taking these words into consideration the U.S. government has to take serious actions with
the SBA to make easy capital access to small businesses.
The Committee proposes that the Treasury has to purchase troubled small business loans,
by doing so the businesses which are having danger to close can continue their operations. As the
next the Federal Reserve has to make available liquidity to the small business financing market,
because lenders are having difficulty to lend the money. In addition, even the Committee on Small
Businesses demands that both the Treasury and the Federal Reserve has to work with the Small
Business Administration, because by putting all efforts together many challenges can be alleviated,
specially now when economy is in turmoil.
During this economic recession the credit that is available to small business comes now
with stricter terms that for some owners are becoming harder to meet because of the nation's
housing despairs. As SBA Acting Administrator Sandy K. Baruah claimed: “The challenge small
businesses face today is not the cost of capital, it is access to capital,” said. “Interest rates are at
historically low levels meaning money is inexpensive, yet lenders aren’t lending and borrowers
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aren’t borrowing. This interim final rule is an important step to reenergize the lenders to make
SBA-backed loans and will help open the gateway of capital for entrepreneurs.”20
On the other hand, the United States Senates John F. Kerry and Charles E. Schumer claim
that the SBA is in a position to help small businesses to survive during current economic recession.
They show that if the government is delaying to help small businesses, there is an alternative
solution to the problem which has been discussed by many experts. As indicated in the letter
addressed to Mr. Sandy K. Baruah, the alternative solution is that the SBA can use its authority to
make loans to small businesses through its disaster loan program and temporarily modify the 7(a)
and 504 loan guaranty programs so that the private sector starts making these loans again and the
secondary market for SBA loans will be active again. Additionally, by creating bridge loans
available through the SBA's disaster loans, the same as the Administration did after 9/11.
Moreover, the SBA can make these loans directly to small businesses, because there is no time to
wait until private banks have liquidity freed up when the rescue package [$700 billion] will work.
As it has been indicated in the letter the Congress increased the SBA’s disaster loan almost $500
million in additional funding in October. They claim that the SBA has to use its authority and make
changes about its loan programs because $6 billion in the disaster loans and $25 billion in 7(a) and
504 loan guaranty programs are still accessible in the SBA.21 By showing these facts Sen. Kerry
and Schumer shows that the SBA does not need a part from $700 billion rescue plan when it is in a
position to solve and help economy with its existing capital.
SBA’s current taken actions to help the economy
Even though Sen. Kerry and Schumer insisted that there is an enough funding in the SBA to
help small businesses, in a reality during this recession the SBA needs more government
intervention by increasing their access to the capital and the Senate Committee on Small Business
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by understanding that started to push the Department of Treasury for immediate actions. One of
their actions was a letter to Treasury Secretary Henry Paulson, in which D-Mass.; Sen. Olympia
Snowe, R-Maine; D-N.Y. with Sen. John Kerry and Sen. Charles Schumer as well urged using
TARP money to purchase government-backed small business loans. They realized that if U.S.
government wants small businesses to run and help economy to get over from this existing
economic turmoil, they need to take this necessary action. As they stated: "Purchasing pooled
government loans would jumpstart SBA lending and free up liquidity for the hundreds of thousands
of American small businesses that need loans to stock their shelves, pay their employees and keep
their businesses running."
Besides, the Senate Committee on Small Business concerns, the SBA also took serious actions in
response to the credit crunch. Soon after various discussions, the SBA’s Acting Administrator
Sandy K. Baruah announced important loan program changes to help the agency’s lending partners
increase access to capital for small businesses. There were several changes made by the SBA,
which includes SBA loans to be made with an alternative base interest rate, the one month LIBOR
rate (London Interbank Offered Rate), in addition to the PRIME rate. But still, the disparity
between LIBOR and PRIME rates creates some problems for SBA lenders because their rates now
based on LIBOR rate. But this change has more positive sides than negative because by using both
rates now the SBA opened more opportunities to small businesses to gain more funding or access
to capital. As Baruah mentioned, “This change will help more small businesses obtain capital to
grow their businesses and create new jobs,” which is very needed during this current market
condition. In addition to the changes, the SBA created a new arrangement for collecting SBA
loans, which later will be sold in the secondary market. This change will increase profitability and
liquidity of SBA’s guaranteed loans, because it will encourage more investors to bid on these loans.
21
Furthermore, Steve Preston, Administrator of the U.S. Small Business Administration
recently signed HR 5140, the Recovery Rebates and Economic Stimulus for the American People
Act of 2008. The main purpose of this bill are to stimulate short term consumer spending by tax
rebates, a 50 percent bonus deduction on new equipment that; and to increases the limit on
expenses that small businesses can deduct from annual income as Mr. Preston mentioned in his
statement on signing of Stimulus Bill. “HR 5140 will give them a much-needed boost which will
enable them [small businesses] to expand their companies and create new jobs. On behalf of small
business, I applaud the President for his leadership and Congress for moving with such swiftness
and bipartisanship”22
In addition to taken actions, the SBA is looking for other available solutions/changes in
order to help small business owners to have easier access to capital because by this way Small
Business Administration can aid Main Street businesses.
What can Barack Obama do as a next president of the United States?
The next administration of the United States have to deal with so many problems such as
economic recession, auto industry which is going to bankruptcy, energy dependence, health care,
immigration issue, health care, the war on terrorism and so on… To be realistic, to fix all these
problems will take many years, maybe several administrations but first of all current financial crisis
has to be fixed because this problem drives to other serious problems. Americans do not want to
live the next Great Depression or similar situation. By helping economy to recover from the current
downturn Obama has to consider as a key thing to increase the SBA funding and guaranteeing
besides raising the commercial banks’ lending to small businesses. From Obama’s pre-election
platform, we can assume that he has a very positive sense towards small businesses. Only one thing
has to be concerned in Obama’s plans that by raising taxes no matter the size of businesses will
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worse the existing economic situation rather next administration has to more focus on economic
growth. Now, all Americans are waiting for specific actions from the next administrations.
If we analyze Clinton administration, we can see that it was very effective and successful
combining the SBA resources with the federal government's clout. Because, it gave more
motivation to banks in lending to small businesses and banks were able to participate in
government transactions which also helped economy to develop.
Conclusion
We do not notice if small businesses such as convenience stores or restaurants lay off tens
of people, small-scale manufacturing filing for bankruptcy but we have to understand that those
small businesses employ 50% of the American workforce, represent 99.7 percent of all employer
firms, pay nearly 45 percent of total U.S. private payroll etc. We concern more about the “Big
companies” which because of their wrong management system cutting thousands of workers, but
the reality is decreasing profits and frozen credit at the small firms that we do not care too much
have more impact on our economy.
According to Reuters, “Wall Street's pain is rippling through U.S. small businesses, as
bankers who once pulled in million-dollar bonuses lose their jobs and cut back spending on
everything from parties to home improvements.”23
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After all these happenings, we can claim that the U.S. government is going to spend $700
billions on “Big financial firms” and other large private sectors that failed to manage themselves.
But as a solution the SBA has to step in by getting funding from $700 billion rescue plan, and then
this capital has to be given to qualified companies through its different loan programs which will
create free credit flow and promote innovation, provide capital for those who have new ideas, it
also will reduce unemployment rate (6.5 % highest point since 2003, 760,000 lost jobs). It will also
increase consumer spending when financial market is restored.
The economy has proven resilient in the face of several challenges in the past, experiencing
more than six years of uninterrupted growth, and it retains inherent strengths as exemplified by
flexible and deep labor and capital markets. These strengths are likely to keep the economy on a
path toward continued growth, although near-term growth is likely to be slower than that witnessed
in recent quarters, and several headwinds have elevated the risks of a broader economic downturn.
Evidence suggests that effectively-timed fiscal policy would provide a near-term boost to economic
growth and help insulate the economy from downside risks. Policy actions should be well-timed,
temporary, direct, neutral, and substantial enough to promote investment, work, and consumption.
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References:
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1 Small Business Administration. “Overview & History”. About SBA. http://www.sba.gov/aboutsba/history/index.html
2 Small Business Administration. 2006 Master Guide to the SBA - Indispensable Encyclopedia of Small Business Administration Programs and Data. Progressive Management publishing 2006
3 International Monetary Fund [IMF]. The Global Economy and Financial Crisis 2008. U.S. House Prices/Economic Data 2008. http://www.imf.org/external/np/speeches/2008/images/092408_5.jpg
4 The White House. Executive Office of The President Council of Economic Advisers. Economic Report of the President 2008. Chapter 2: Credit and Housing Markets. http://www.whitehouse.gov/cea/2008_erp_ch2.pdf
5 International Monetary Fund [IMF]. The Global Economy and Financial Crisis 2008. Inflation rate 2008. http://www.imf.org/external/np/speeches/2008/images/092408_2.jpg
6 U.S. Department of Labor. Bureau of Labor Statistics. THE EMPLOYMENT SITUATION: OCTOBER 2008. http://www.bls.gov/CPS/
7 The National Federation of Independent Business [NFIB]. Small Business Economic Trends - November 2008, http://www.nfib.com/page/sbet
8 Board of Governors of the Federal Reserve [The Fed]. Commercial Paper Rates and Outstanding, Data as of November, 2008. http://www.federalreserve.gov13 Nov. 2008
9 Board of Governors of the Federal Reserve. Economic Research Federal Reserve Bank of St, Louis. Effective Federal Fund Rate and Six Month Certificate of Deposit. http://research.stlouisfed.org/fred2/categories/47?ob=os&od=asc&filter%5B0%5D=&filter%5B1%5D=&sf=02 Dec. 2008.
10 For a detailed explanation, see Geoffrey H. Moore, Business Cycles, Inflation, and Forecasting (Cambridge, MA, Ballinger Publishing Co., 1983), pp. 3-10.
11 The House Committee on Small Business. The Role of Small Businesses in Stimulating the Economy. 2008 Statements & Speeches. 24 Apr. 2008 http://www.house.gov/smbiz/PressReleases/2008/pr-04-24-08-small-biz-econ.htm
12 New York State Small Business Development Center [NYS SBDC]. Disaster Recovery for Small Business. http://www.nyssbdc.org/services/DisasterRecovery/disasterrecovery.html
13 SBA. Office of Advocacy. Small Business Economic Indicators, 2001 Analyzes Data Trends. February 5, 2003. New Report Details Growth and Recession. http://www.sba.gov/advo/press/03-06.html
14 SBA. Office of Advocacy. The Small Business Economy. A Report to the President. December 2007. http://www.sba.gov/advo/research/sb_econ2007.pdf
15 iStockAnalyst. SBA (WASHINGTON, Nov. 3 /PRNewswire-USNewswire/). Letter from Sen. John Kerry, Chairman of the Senate Committee on Small Business and Entrepreneurship, & Sen. Chuck Schumer Small Businesses Can't Wait for the Rescue Package to Reach Them. Kerry, Schumer Urge SBA to Help Small Firms. http://www.istockanalyst.com/article/viewiStockNews+articleid_2762046.html
16 The White House. Office of the Press Secretary. “President Bush Meets with Small and Mid-Size Business Owners to Discuss Economic Stimulus Package” April 7, 2008. Roosvelt Room. Washington D.C. http://www.whitehouse.gov/news/releases/2008/04/20080407-6.html
17 The White House. Office of the Press Secretary. “President Bush Attends America's Small Business Summit 2008” April 18, 2008. Renaissance Washington, D.C. http://www.whitehouse.gov/news/releases/2008/04/20080418-10.html
18 The United States House of Representatives. Nydia M. Velázquez, Chairwoman of The Small Business Committee “$1.6 Trillion in Bailout Funds Fail to Find Their Way to Small Businesses” November 20, 2008. Washington D.C. http://www.house.gov/smbiz/PressReleases/2008/pr-11-20-08-fed%20and%20treasury%20hearing.html
19 The United States House of Representatives. The Small Business Committee 110th Congress. Small Business Economic Outlook: Assessing Current Conditions and Challenges to Growth. October 28, 2008. Washington D.C.
http://www.house.gov/smbiz/Reports/Small%20Business%20Economic%20Outlook%20-%20Report%20by%20House%20Small%20Business%20Committee.pdf
20 SBA Press Office/ Los Angeles. “SBA Announces New Ways to ImproveSmall Businesses Access to Capital” November 13, 2008. Washington D.C. http://www.sba.gov/idc/groups/public/documents/ca_los_angeles/ca_la_pr_nov_08_alt_base_int.pdf
21 The United State Senates. Letter from Sen. John F. Kerry and Sen.Charles E. Schumer to Sandy K. Baruah, Acting Administrator of SBA. “ Re: Emergency Changes to SBA Credit Programs” November 3, 2008. http://sbc.senate.gov/oversight/lettersout/081103-toSBA-EmergencyChangestoSBACreditPrograms2.pdf
22 SBA Press Office. Statement by SBA Administrator on Signing of Stimulus Bill. February 13, 2008.Washington D.C. http://www.newsletterarchive.org/2008/02/13/310071-SBA+08-12+Economic+Stimulus+Signing+a+Boon+for+Small+Businesses
23 Jim Finkle and Scott Malone. “Small businesses feel Wall Street's pain” November 20, 2008. Boston (Reuters) http://www.reuters.com/article/newsOne/idUSTRE4AJ0Q720081120