Document Name: Small Business Administration
Date: 09/30/94
Owner: National Performance Review

Small Business Administration

Accompanying Report of the
National Performance Review

Office of the Vice President

Washington, DC

September 1993

This accompanying report, prepared by the staff of the National
Performance Review (NPR), laid the groundwork for the recommendations
in the NPR report "From Red Tape to Results: Creating a Government
that Works Better and Costs Less," released on September 7, 1993.
This report is based on the best information available at that time.
The specific recommendations within these reports have been and will
continue to be given priority as part of the FY95 Budget, legislative
proposals, or other administration initiatives, as appropriate.

Executive Summary 1

Recommendations and Actions

SBA01: Allow Judicial Review of the
Regulatory Flexibility Act 5

SBA02: Improve Assistance to Minority
Small Businesses 9

SBA03: Reinvent the U.S. Small Business
Administration's Credit Programs 13

SBA04: Examine Federal Guidelines for Small
Business Lending Requirements 15

SBA05: Change the Microloan Program to
IncreaseLoans for Small Business 19

SBA06: Establish User Fees for Small Business
Development Center Services 21

SBA07: Distribute SBA Staff Based on Workload
and Administrative Efficiency 23

SBA08: Improve Federal Data on Small Businesses 25

Agency Reinvention Activities 27

Summary of Fiscal Impact 31

Accompanying Reports of the
National Performance Review 35

APA Administrative Procedure Act

BLS Bureau of Labor Statistics

COC Certificate of Competency

CRA Community Reinvestment Act

DOD Department of Defense

EPA Environmental Protection Agency

E-SBA "Entrepreneurial" Small Business Administration
Reinvention Team

FDIC Federal Deposit Insurance Corporation

FEMA Federal Emergency Management Agency

GAO General Accounting Office

HHS Health and Human Services

IG Inspector General

IRS Internal Revenue Service

MBDA Minority Business Development Agency

NAPA National Academy of Public Administrators

NEPA National Environmental Policy Act

NPR National Performance Review

OCC Office of the Comptroller of the Currency

OMB Office of Management and Budget

PASS Procurement Automated Source System

RFA Regulatory Flexibility Act

SBA Small Business Administration

SBD Small Business Development Centers

SBIR Small Business Innovation Research

SCORE Senior Corps of Retired Executives

S&L Savings and Loan

Executive Summary

The Small Business Administration (SBA) was established as an
independent federal agency in 1953 to provide financial, management,
technical, procurement, and related assistance to the nation's small
businesses, giving particular attention to small minority-owned
businesses. The agency employs about 4,000 people (excluding
temporary disaster assistance personnel) with a fiscal year 1993
budget of $927.6 million.

Almost 95 percent of all business credit extended through the SBA is
provided in the form of loan guarantees. In 1992, nearly $6.4 billion
in SBA-backed, generally long-term credit was provided to small
businesses through banks, non-bank lenders, state and local
development companies, and SBA-licensed investment companies.

SBA also administers a number of small direct loan programs, with
1992 approvals totaling less than $100 million. These programs are
designed to assist businesses owned by handicapped persons, veterans,
minorities, and other disadvantaged individuals. A new "microloan
program" provides small loans of up to $25,000 (averaging
$9,700) to individuals attempting to start or expand businesses.

SBA's disaster loan program provides direct loans to homeowners,
renters, and businesses to repair damages or replace destroyed
facilities in the wake of physical disasters. This program, along
with the Individual and Family Grant program at the Federal Emergency
Management Agency (FEMA), provide the primary sources of federal
disaster relief to individuals.

In addition to physical disaster loans, a generally small number of
economic injury loans provide working capital to small businesses to
assist them through the recovery period.

Business development programs at SBA provide a combination of
managerial and technical assistance to present and prospective
business owners. Direct counseling, training, and business
information are available at any of SBA's nearly 100 field offices,
and approximately 57 Small Business Development Centers and 946
subcenters throughout the country.

The National Performance Review (NPR) recommends that the application
process for SBA's minority assistance program be streamlined to
reduce the regulatory burden on applicants, program participants, and
federal procuring agencies. To increase the amount of federal
procurement opportunities available to minority small businesses, NPR
recommends the establishment of a small disadvantaged set-aside

NPR also recommends that federal procuring agencies use their
existing authority to provide advance payments to participants in
SBA's minority assistance program. NPR also recommends that the SBA
Administrator provide the President with specific recommendations and
legislative changes required to expand and lower the costs of SBA's
credit programs. These changes would place greater emphasis on using
both public and private resources to provide credit to small

The lack of access to credit for qualified small businesses has broad
implications for the U.S. economy. To improve credit prospects for
small businesses, NPR recommends a review of the bank examination
guidelines to determine whether all small business loans made by
well-capitalized institutions should be examined solely on
performance. The NPR recommendation to establish user fees for the
management and technical assistance provided by the Small Business
Development Centers will encourage accountability to customers and
ensure that the beneficiaries of this assistance pay a share of the
program costs.

The SBA microloan program provides critically needed small loans to
start up businesses. NPR recommends that this program be changed from
a direct loan program to a guaranty program that would enable SBA to
assist many more small enterprises without increasing federal funding
for the program.

Empowering Employees To Get Results

To improve service delivery to the small business community, SBA
should establish a basic principle of staff distribution based on
administrative efficiency and program workload. The recommendations
to support this initiative include realignment of functions,
increased use of automation in loan processing and loan servicing
operations, improvement of data collection and automation efforts,
and development of objective program performance measures.

To improve the quality of data available on small business, NPR
recommends that federal surveys that collect data on the economic
activities of businesses be required to include a question on
business size. The availability of these data would have major
implications for environmental initiatives, tax-law changes,
workplace requirements, export promotion, and energy policies.

The overall savings from these recommendations is estimated at $17
million annually, not including $169 million in annual savings from
changes in the general business-loan guaranty subsidy rates in the
President's 1994 budget.

Recommendations and Actions

SBA01: Allow Judicial Review of the Regulatory
Flexibility Act


Small businesses often feel overwhelmed by well-intentioned
regulations that burden them with needless costs. Congress and the
President recognized this problem in 1980 and enacted the Regulatory
Flexibility Act (RFA). The RFA requires agencies to seek alternative
regulatory solutions when their rules have a disproportionately
severe impact on small entities, including small businesses and
nonprofit organizations and relatively small government
jurisdictions. However, most agencies have failed to perform the
required RFA analysis. Rules continue to be issued even though the
harm that resulted could have been alleviated had they been examined
according to RFA guidelines.(1)

For example, in 1986, Congress enacted the Emergency Planning and
Community Right-To-Know Act, requiring local reporting of hazardous
chemicals. The initial Environmental Protection Agency (EPA)
implementation instructions required reporting "any amount" of
hazardous chemicals. The potential impact on small business was
staggering. Even hotdog stands would have been required to report
bottles of solvent or metal polish.

The Small Business Administration's (SBA's) Office of Advocacy, which
is directed by law to monitor compliance with the RFA, coordinated
small business comments with EPA, which explored less burdensome
alternatives. As a result of this process, EPA raised the threshold
for reporting to 10,000 pounds of hazardous chemicals. This threshold
eliminated hundreds of thousands of unnecessary reports, yet still
covered more than 95 percent of the total quantity of stored
chemicals and 100 percent of those in quantities likely to produce
the sort of hazard that was the concern of the legislation.

The RFA, which works in conjunction with the fundamental agency
rulemaking law, the Administrative Procedure Act (APA), leads
rulemakers to one of two outcomes:

(1) For rules that will have a significant economic impact upon a
substantial number of small entities, the agency is required to
perform a regulatory flexibility analysis. This analysis defines the
burdens of the rule and examines alternatives that will lessen those
burdens for small entities.

(2) For rules that will not have a significant economic impact upon a
substantial number of small entities, the agency must so certify,
with a brief statement explaining the rationale behind this

While SBA's Office of Advocacy can ask agencies to follow the RFA, no
mechanism for enforcing compliance exists. As a result, federal
agency compliance is spotty at best. A few agencies, such as the EPA,
the Food Safety Inspection Service, and the Nuclear Regulatory
Commission, now consistently use the RFA to reduce the regulatory
burden imposed on small entities. Most agencies employ simplistic
analysis that barely meet even the minimal requirements of the RFA.
Others, including the Internal Revenue Service, define their
rulemaking activities in the Federal Register as "interpretative, a
category excluded from RFA responsibilities."

Several administrative efforts have been made to improve the level of
responsiveness to the RFA, but with little success. The fundamental
solution is judicial review, an approach favored by small business.
Such review is permitted for agency rulemaking under the APA.
However, the RFA itself prohibits judicial review of agency
compliance with the RFA. Courts have further restricted the use of
RFA analysis as evidence in suits brought under the APA.

For the RFA to succeed at its goal of avoiding needless government
regulatory burdens on small entities, sanctions for non-compliance
with the RFA must be created.

With judicial review, small entities could challenge an agency's
failure to perform an RFA review or a flawed RFA review. They could
sue in the appropriate federal court and, if they won, the court
could order the agency to explain its RFA determination or develop
appropriate alternatives under the RFA. A credible threat of lawsuits
would give agencies a strong motive to ensure that the RFA is

Judicial review is supported by all major small business
associations, including the American Small Business Association, the
American Trucking Association, the National Association for the Self-
Employed, the National Association of Manufacturers, the National
Federation of Independent Business, National Small Business United,
the National Society of Public Accountants, the Small Business
Legislative Council, and the U.S. Chamber of Commerce.(2)

To create better compliance with the RFA and avoid needless lawsuits,
the availability of judicial review must be accompanied by systematic
compliance guidelines for agencies concerning how to conduct RFA
reviews. For more than a decade, most agencies have failed to develop
such guidelines on their own.


1. The Regulatory Flexibility Act of 1980 should be amended to allow
for judicial review of agency determinations under the RFA.(3)

This approach would allow small entities that have been injured by an
agency action to seek judicial relief. This would be possible only
after an agency has published a final rule, not at any earlier point
in the rulemaking process.

2. An Executive Order should be issued requiring the SBA Office of
Advocacy to issue governmentwide guidance on appropriate processes
for complying with the analytical requirements of RFA.(4)

This approach would provide consistent technical guidance--the
foundation for avoiding lawsuits.


The potential for judicial review would give agencies greater
incentive to meet their present statutory obligations to consider the
impact of their rules on small entities. Agency lawyers would ensure
that the agency would properly comply with the RFA to avoid the valid
threat of litigation.

Judicial review is not expected to lead to a large number of
lawsuits.(5) No basis for suits would exist if agencies conducted an
appropriate RFA review. As a practical matter, most regulations to
which small entities have significant objections are already in
litigation; judicial review of RFA would at most add another ground
to these challenges. A few new cases based solely on RFA failure
might result, in instances in which the impact of rules on small
entities is sufficiently negative to impose greater costs than the
cost of litigation--a fairly high threshold. In these rare cases, a
challenge may be in the nation's best interests.

In the most extreme cases, judicial review of RFA could lead to an
initial flurry of lawsuits. Once the first few cases are decided,
however, the boundaries between acceptable and unacceptable agency
behavior under RFA would become well-known to agency attorneys and
the administrative law bar. After that, legal challenges could be
expected to fall off dramatically.(6)

Both the process for developing SBA guidance and the guidance itself
would help achieve compliance with the RFA. The notice, comment, and
public hearings phase would raise the level of awareness in federal
agencies about the RFA. Furthermore, the Office of Advocacy expects
that the guidance ultimately developed will provide agencies with a
map sufficiently detailed to allow them to navigate their way through
the RFA with minimal effort.

The RFA does not impose a requirement for an agency to collect
additional data except in rare instances in which data originally
collected was insufficient to understand the problem the rule was
trying to solve.(7) In such cases, the additional task of information
collection should not be attributed to the RFA but to an agency's
failure to meet its obligations for reasoned decision-making.

Fiscal Impact

Judicial review of the RFA imposes no costs outside the government.
In rare cases where there is no court challenge of regulations on
grounds other than the RFA and the cost of unnecessary or overly
burdensome regulations is greater than the cost of litigation, small
entities may choose to incur the cost of bringing suit based solely
on an RFA violation. The cost to these entities cannot be estimated
but would be seen by them as a net savings.

Procedures to implement the RFA would be limited to federal agencies.
The costs inside the federal government are difficult to estimate
because the costs of rulemaking are not a line item and are generally
not well-measured. The best estimates available suggest a maximum
average of one work day per rule when there is no substantial impact
on small entities, a total effort that should be absorbed in the
current personnel ceiling.(8) Over the years, SBA has found that only
30 to 50 rules a year have significant negative impact on small

If agencies do not comply with RFA, costs for litigation would
certainly accrue. The marginal cost of RFA suits cannot be calculated
in advance. Additional funds should not be budgeted for such costs.


1. See annual reports on the implementation of the Regulatory
Flexibility Act, U.S. Small Business Administration, Office of
Advocacy, 1981-1992.

2. U.S. Congress, House Committee on Small Business, testimony of
James Morrison, July 28, 1993. The organizations listed are the
Regulatory Flexibility Act Coalition, which supports judicial review
of RFA.

3. Judicial review can be established with the following language:
(a) Section 611 of title 5, United States Code is amended by striking
subsections (a), (b), and (c) and inserting a new subsection (a):
"For purposes of section 702 of title 5, determinations made pursuant
to this chapter shall only be reviewable upon publication or service
of a rule as required by section 553(d) of title 5."

4. Implementing instructions for complying with the analytical
requirements in sections 603, 604, and 605 of the RFA can be brought
about by the following executive order: "The Small Business
Administration Office of Advocacy shall: Issue guidance to federal
agencies for the implementation of the Regulatory Flexibility Act.
Such guidance shall be developed after consultation with affected
agencies and after such public hearings as may be appropriate. The
guidance will be designed to ensure that the analysis conducted under
the Act provide data and reasonable alternatives." This approach was
used successfully in 1977 to provide a framework for all federal
agencies in meeting the requirement to examine environmental impacts
of federal actions mandated by the National Environmental Policy Act
of 1969 (NEPA). This approach was tested in the Supreme Court, and
has been favorably commented on by that court several times. Such
guidance would help agencies defend their actions in any legal
challenges under the RFA.

5. Conflicting interpretations of NEPA requirements by various
agencies often lead to litigation; this problem will be avoided by
the systematic guidance called for in Recommendation 2.

6. This occurred with litigation under NEPA.

7. NEPA imposed a significant obligation on agencies to collect data
on environmental impacts, something they had not done prior to the
passage of NEPA. This was a source of substantial cost and concern to

8. SBA reviews about 1,500 rules per year that may be relevant to
small entities. An average RFA analysis is two paragraphs to two
pages in length, and should require less than one work day to
assemble. Based on the extreme assumption that no RFA analysis is
being done now and that each new one was done at the high end of the
range, this would generate a total governmentwide burden of about six
work-years for the routine cases. This burden is spread over the
policy staff of hundreds of agencies, so it seems unlikely that
additional positions would be required.

SBA02:Improve Assistance to Minority Small Businesses


While the efforts of the federal government and Congress have helped
to mitigate the effects of years of minority exclusion from the
marketplace, and a broad spectrum of minority businesses have
benefited from the programs available under the Small Business
Administration (SBA), the Department of Commerce, and other federal
agencies, minority businesses continue to experience significant
obstacles to success.

The most recent statistics from the U.S. Census Bureau indicate that
while minorities constitute nearly 20 percent of the population, they
own less than 9 percent of American businesses. These businesses
account for less than 4 percent of the nation's gross business
receipts and generate less than 3 percent of the employment produced
in this country annually--figures that have changed very little over
the past 20 years.

Minorities have a business participation rate only one-fourth of that
found among non-minorities. Despite actions taken to date, it is
clear that much remains to be done to bring the nation closer to the
goal of ensuring equal participation of all Americans in the free
enterprise system.

The SBA's Section 8(a) program is one of the federal government's
major programs for providing assistance to minority-owned small
businesses. The program has provided about 10,000 firms with federal
contracts worth $40 billion since 1968.

The Small Business Act of 1953 authorized SBA to enter into contracts
with federal agencies and to subcontract work to small businesses.
However, for 15 years SBA did not use its section 8(a) authority
because it believed that the effort to start and operate such a
program was not worthwhile in terms of developing small businesses.
SBA first used its section 8(a) authority in 1968, to support a pilot
program initiated as a result of the 1967 civil disturbances. SBA
offered noncompetitive contracts to small businesses agreeing to
locate in economically depressed areas and hire the unemployed and
the underemployed. During the pilot period, SBA recognized that a
better solution to unemployment involved more than job creation, and
that business ownership opportunities should be offered to minorities
and other disadvantaged individuals.

Since 1978, Congress has made three major legislative attempts to
improve the program and to emphasize the program's business
development mission. As currently structured, the Section 8(a)
program is administered by SBA for small businesses owned and
controlled by socially and economically disadvantaged U.S. citizens.
To participate, firms must apply and meet SBA eligibility criteria.
Program participation is limited to nine years. Firms may receive a
variety of business development assistance, including management and
technical assistance, direct SBA loans, surety bond waivers, transfer
of government surplus property, and federal contracts awarded under
special procedures.

SBA enters into contracts with federal agencies and subcontracts the
performance of the contracts to eligible 8(a) participant firms.
Competition is required under the 8(a) program for manufacturing
contracts with a total value, including all options, of more than $5
million, and for contracts in all other industries valued at more
than $3 million.

While the program has produced a number of successful minority-owned
small businesses, it has been subject to much criticism and scrutiny
by Congress, the General Accounting Office, SBA's Inspector General,
and the National Academy of Public Administrators.

Congress, during a 1988 revision of the program, found that access to
the program was an inordinately lengthy and burdensome process and
that the program's administration was inefficient and inequitable.
Congress also found that many federal procuring agencies have failed
to identify and offer the necessary amount of contract support to
allow for the diversification and growth of disadvantaged businesses
participating in the program. Finally, Congress determined that
insufficient attention and support had been given to the program's
business development objectives, so that few concerns were prepared
to compete successfully in the marketplace upon exiting the program.

The Section 8(a) program still has difficulty in meeting its business
development objectives. The application process remains cumbersome,
and reporting requirements are numerous. Many program participants
receive little or no contract support, and the program's data
collection and automation efforts have not yet been fully
implemented. Some federal procuring agencies have failed to give
serious consideration to the goal-setting process for 8(a) set-aside
and small business set-aside contracts. Some SBA offices are slow to
make contract awards because of their volume of activity. Even after
participating in the 8(a) program, some firms continue to experience
difficulties in competing in the private sector and obtaining major
federal procurements.

Section 8(a) application processing time has been a consistent
problem throughout the program's history, prompting Congress in 1989
to legislatively mandate a 90-day processing time for all 8(a)
applications. Prior to this, application processing times ran as long
as 340 to 560 days. However, the legislatively mandated 90-day
application processing time still has not been met; the current
process averages about 140 days. Moreover, in 1978, Congress mandated
that all program eligibility determinations would be made by one
individual, the associate administrator for Minority Small Business
and Capital Ownership Development. The substantial number of
eligibility determinations that have to be made each year
(approximately 2,000) limit this individual's ability to focus on the
entire program.

SBA's role as prime contractor in the 8(a) contracting process has
been questioned by the U.S. Commission on Minority Business. The
commission concluded that the three-party arrangement is a "process
which consumes more time than needed, but contributes nothing of real
substance to the development of the 8(a) firm." The Department
of Defense (DOD) Advisory Panel on Streamlining and Codifying
Acquisition Laws (Section 800 Panel) reached the same conclusion.

Historically, the amount of federal prime contracts awarded to
minority firms has been limited. Currently, DOD is the only federal
agency with the authority to set aside contracts for competition
among small disadvantaged businesses, which gives the agency an
additional tool to assist minority small businesses. Extending this
authority to civilian agencies would expand federal procurement
opportunities for both 8(a) program participants and other minority
small businesses.

Prior to fiscal year 1993, SBA provided "advance payments" to
8(a) program participants to help them meet financial requirements
related to the performance of a specific 8(a) sole-source
subcontract. Advance payments were considered a source of last-resort
financing and were only available to a firm if it could demonstrate
that it had been unsuccessful in obtaining financing from any other
commercial or governmental source. Advance payments and contract
proceeds were jointly controlled by SBA and the 8(a) participant
through the use of a special bank account, and SBA was repaid during
the course of contract performance.

Effective October 1, 1992, SBA's ability to provide advance payments
ended. The termination of this program resulted from SBA's
determination that the advance payment program was a loan program
under the meaning of the Credit Reform Act of 1990 and therefore
required specific appropriation. Despite SBA's request, Congress did
not appropriate funds for advance payments during fiscal year 1993.
In addition, when reprogramming of funds was sought to finance this
program, the staff of the House Small Business Committee questioned
whether SBA was authorized to provide advance payments.

In recognition of the tremendous problems facing minority small
businesses and as a part of their internal reinvention efforts, the
administrator of SBA and the Secretary of Commerce have established a
joint working group to re-examine the services and products targeted
for the minority small business community through the Minority
Business Development Agency (MBDA), SBA, and other federal programs.
This working group is in the early stages of reviewing these programs
and will develop recommendations for consideration by the SBA
Administrator and the Secretary of Commerce.

This joint review is currently focusing on making minority programs
more accessible, making it easier to monitor program compliance,
providing better business development assistance, making it easier
for procuring agencies to support minority small businesses,
expanding contract opportunities for minority small businesses, and
providing assistance to those firms that have completed the 8(a)
program. The objective is not only to increase the participation rate
of minority small businesses in the U.S. economy but also to make
these programs operate efficiently at a lower overall cost to the


1. By December 1, 1994, The Administrator of SBA and the Secretary of
Commerce, on completion of their review of federal minority business
assistance programs, should recommend improvements in federal
assistance to minority small businesses to the President.

2. The SBA Administrator should streamline the 8(a) application
process to reduce the amount of time involved.

3. The Small Business Act should be amended to allow the associate
administrator for Minority Small Business and Capital Ownership
Development to delegate authority for final determinations of Section
8(a) program eligibility.

4. The Small Business Act should be amended to allow SBA to delegate
contract award functions to federal procuring agencies, so long as
they consistently abide by federal acquisition and SBA 8(a) program
regulations, and to provide SBA with the authority to conduct reviews
to verify compliance with 8(a) program regulations.

This recommendation would not alter SBA's authority to ensure that a
contract requirement offered for the 8(a) program is appropriate for
award under the program, or that the business selected to perform the
contract is eligible for the award.

5. The Small Business Act should be amended to require federal
procuring agencies to use their existing authority to provide advance
payments on 8(a) contracts, when such funding is necessary to
contract performance.

This would not require any additional appropriation of funds, since
it would involve an advance of contract proceeds.

6. The Small Business Act should be amended to provide civilian
agencies the same authority that DOD currently has for its own "Small
Disadvantaged Business Set-Aside" program.

These amendments should be structured to ensure the continued support
of the 8(a) program by precluding agencies from reducing the number
and dollar value of 8(a) contracts.


Improved assistance to minority small businesses would contribute to
the growth of the U.S. economy. Effective programs promoting the
ability of minority business enterprises to participate in the
competitive market would be an important element in the planning and
implementation of strategies to reduce unemployment and other
problems in minority communities. Coordination of the two major
federal minority assistance programs would more effectively address
the practical problems that hinder the development of minority

Reducing the regulatory burden of 8(a) certification and program
participation should reduce the cost of participating in the program.
Streamlining the application process and allowing the delegation of
eligibility determinations would make the program more accessible,
lower application processing times, and increase the number of

Allowing SBA the authority to delegate its contracting function to
federal procuring agencies would provide them with an additional
incentive to offer contracts to the program.

Requiring federal procuring agencies to use their existing authority
to provide advance payments to 8(a) participants would create a
valuable source of financial assistance without any additional

A complete review of federal minority business assistance programs
should result in comprehensive legislation to ensure that minority
small businesses receive the necessary assistance to compete and grow
in the U.S. economy.

Allowing civilian agencies the same authority as DOD to establish a
Small Disadvantaged Business Set-Aside program would produce an
additional vehicle to meet disadvantaged goals, and give small
disadvantaged businesses greater access to the federal procurement

Fiscal Impact

All of these recommendations can be implemented within SBA's present
budget authority.

SBA03: Reinvent the U.S. Small Business
Administration's Credit Programs


The U.S. Small Business Administration's (SBA's) primary role is as a
lender of last resort for the nation's small businesses. SBA also
promotes the expansion of credit and capital available to small
businesses in the private sector. With a total loan portfolio of $20
billion, SBA's credit programs have provided some relief for
borrowers unable to obtain loans without a federal guaranty. Demand
for the agency's credit programs is at an all-time high, forcing the
agency to seek supplemental budget authority in fiscal years 1992 and

About 95 percent of all business credit extended by SBA is provided
in the form of loan guaranties. In 1992, nearly $6.4 billion of SBA-
backed, generally long-term credit was provided to small businesses
through banks, non-bank lenders, state and local development
companies, and SBA-licensed investment companies.

SBA administers a number of small direct loan programs, with 1992
approvals totaling approximately $100 million. These programs are
designed to assist small businesses owned by handicapped persons,
veterans, minorities, and other disadvantaged individuals and
participants in the section 8(a) program. A new microloan program
received a little more than $30 million in funding annually over the
last two years to provide small loans of up to $25,000 (averaging
$9,700) to individuals attempting to start or expand businesses.

The lack of access to credit for small and medium-size businesses has
been of great national concern over the past few years. The
Comptroller of the Currency, in April 29, 1993, testimony before the
U.S. House of Representatives' Committee on Small Business, reported
that total lending by national banks has fallen by $85 billion, or
6.7 percent, over the past two years. Furthermore, commercial and
industrial loans and real estate construction loans have accounted
for most of this decline.

Some of the decline in loan volume is due to weak loan demand and
structural changes in the banking industry that have tightened
lending standards. Also contributing to the problem is an ongoing
decline in the availability of credit from troubled banks that seek
to work out bad loans and rebuild capital.

To address this lack of credit, the administration has taken several
initiatives to encourage banks to increase loans to small and medium-
size businesses. While these efforts are expected to increase private
lending to small businesses, the demand for SBA loans probably will
continue to increase and to exceed the funding levels available to
support SBA credit programs.

Most of SBA's credit programs have been in place for several years,
and held to the same application and credit review processes since
the programs were first designed.

The SBA Administrator, in recognition of small businesses' credit
difficulties, and of the fact that SBA's credit programs have changed
very little since their creation, has undertaken a complete review of
SBA's credit programs. This review involves the participation of
small businesses, private lenders, and SBA employees.

The objective of this review is to make credit programs more user-
friendly and more accessible to lending partners and small business
clients. Moreover, the review is attempting to find ways to increase
small loans to firms and to become more proactive in credit programs
for industries with a potential for creating jobs, becoming involved
in international trade, and producing critical technologies. In
addition, the agency plans to work with its leading lenders to
identify ways to increase lending in areas specified under the
Community Reinvestment Act (CRA).


The SBA Administrator, upon completion of his review of SBA's credit
programs, should provide a report to the President that outlines
specific recommendations, including necessary legislative changes, to
improve, expand, and lower the costs of the SBA credit programs.

These recommendations should be made by November 1, 1994. The SBA
review should seek to accomplish its objectives without additional
funding. The review should result in reduced costs (subsidy rates)
for SBA credit programs and effective leverage of public- and
private-sector resources to expand the availability of SBA credit.


Improvements in SBA's credit programs would make more funds available
to small businesses at lower overall costs, enable the agency to
operate more effectively, become more responsive to small business
credit needs, and be more acceptable to financial institutions.

Fiscal Impact

This recommendation could be implemented within SBA's current funding

SBA04: Examine Federal Guidelines for Small
Business Lending Requirements


Economic recovery depends in part on the effectiveness with which
bank loans support small business. Unlike previous post-war
recessions, many of today's new jobs will be created by small
businesses, while large businesses continue to "downsize."

Big business has other sources of credit; private individuals can
choose between numerous institutions for savings and investment;
commercial finance companies and venture capital firms now meet some
financial needs. But banks are the primary lend

Many factors constrain a bank's decision regarding loans to small
business. The stringent review and documentation requirements imposed
on small business loans by banking regulators have helped discourage
banks from making such loans and encouraged them to shift their
resources elsewhere.

On a large loan, the cost of this burden can be amortized over a
large base. But the paperwork burden--virtually a fixed cost--is
proportionately much greater for a small loan. Banks report that
their cost for making small business loans has reached the point that
many no longer find it worth the trouble.

The President has called this difficulty in obtaining credit for
qualified small business borrowers a "credit crunch." The
administration has moved aggressively to address the problem. On
March 10, 1993, the President unveiled his Credit Availability
Program. The program is designed to be completed in two phases. The
first phase focused on several regulatory areas to be addressed
within three months of the program's announcement, including the
following five initiatives.

First, the regulators released a policy statement permitting strong
banks to make and carry some loans to small and medium-sized
businesses and farms with minimal documentation. Such loans may equal
no more than 20 percent of an institution's capital. Instead of
concentrating on the underwriting standards of such loans, the
examiners will look more to performance and the borrower's prospects
for repaying.

Second, the regulators are revising regulations to reduce the burden
of real estate appraisals, by increasing to $250,000 the threshold
level at or below which certified or licensed appraisals are not
required. The administration is concerned that, in some cases,
appraisals are so expensive that they make sound loans to small
businesses uneconomical. Another regulatory change will enable banks
to dispose of foreclosed real estate more quickly. By getting
acquired properties into the hands of homeowners and investors
sooner, banks will free up money used to carry these properties for
use in new loans.

Third, the regulators are working to eliminate duplicative
examination processes and procedures involving two or more agencies.
By coordinating their efforts, the agencies will reduce the time
bankers must spend dealing with regulators and increase their time
available for serving customers.

Fourth, the regulators are improving the fairness and effectiveness
of their appeals processes. The Office of the Comptroller of the
Currency (OCC) has created a new Ombudsman to manage its appeals
process. A better organized appeals process should greatly improve
communication among bankers and regulators and help solve problems
and confusion regarding regulatory requirements. This will enable
bankers to get back to the business of making loans rather than
wrestling with confusing examiner practices.

Fifth, the OCC has begun using new procedures to detect
discrimination in residential lending by national banks, to ensure
that credit is available more broadly and fairly. The new procedures
should clarify for bankers what types of lending are appropriate to
satisfy fair lending rules and should reduce the required paperwork.
These changes should increase banker confidence, reduce costs in
making new loans, and reduce discrimination.

Phase two of the President's program is an ongoing regulatory and
paperwork burden reduction effort to be carried out by the
regulators. The OCC is leading this effort and is addressing every
agency rule, regulation, and interpretation to reduce paperwork and
other burdens. The regulators have already identified several rules
that should be addressed, including legal lending limits, investment
securities regulation, and securities offering disclosure rules. This
effort is designed to eliminate unnecessary regulations that impede
bank lending or raise its cost through excessive paperwork. The
regulators want to modernize all their regulations to make them more
user-friendly and to promote credit availability without adversely
affecting bank safety and soundness.

Furthermore, the OCC implemented a separate study to review all
paperwork burdens associated with OCC guidance to banks and
examiners. The first phase of this study, a compilation of all
paperwork burdens, should be completed by November 1993.

Given the nature of the President's program, it will be difficult to
quantify its success. However, early indications suggest that the
program is having a positive impact on credit availability. For
example, commercial and industrial lending increased during second
quarter 1993 by 1.2 percent, or $1.7 billion. This follows a 4
percent decline for all of 1992.

Moreover, the costs of lending and of borrowing have been decreased.
From a microeconomic standpoint, this implies an expected increase in
lending. The program has already reduced costs and will continue to
do so during its second phase. Bank examiners are working to ensure
that bankers understand the program and have confidence in it. This
should ensure that the benefits of the program are widely

A major difficulty in addressing the impact of reforms is the lack of
an appropriate, objective measure of small business lending. To
provide such a measure, Congress added Section 122 to the Federal
Deposit Insurance Corporation Improvement Act of 1991, which directs
financial institutions to submit small business loan data to the
banking regulators. Current regulations do not require any
specification of the size of the business receiving a loan. Data
collected are by loan size only. The decision to collect data by loan
size alone has made the data unreliable indicators of whether small
business owners are receiving credit.


1. The Department of the Treasury, in conjunction with the bank and
thrift institutions' regulators, should examine guidelines for
depository institutions to determine whether all small business loans
made by well-capitalized institutions should be examined solely on

Legislation is not required for this recommendation, as the changes
would be in the review practices of the regulators, not in the law.
However, coordination between the various regulatory agencies would
be required.

2. The Federal Financial Institutions Examination Council should
develop an objective economic indicator of lending to small business.

This would reaffirm the collection of small business loan data as
directed by the Federal Deposit Insurance Corporation Improvement Act
of 1991, Section 122 and its ensuing regulations. Loan data collected
should include the size of the business receiving the loan as well as
the size of the loan. As already directed in the regulations, the
data should be collected by geographic region. It may be appropriate
to exempt small banks from the reporting requirement, as they rarely
loan to large businesses and their commercial loans are already


The minimal loan documentation policy would be limited to well-
capitalized banks. The definition of well-capitalized is firmly
established in regulation and regulator review practice and
universally understood within the banking industry. Limiting the
proposed examination to these banks would exclude those with risky
practices or limited resources.

The minimal loan documentation policy creates incentives to ensure
that loans are sound without emphasizing stringent documentation
requirements. If a well-capitalized institution has an abundance of
overdue loans, bank regulators would be permitted to review all of
its loans. Financial institutions realize that unnecessarily risky
loans not only jeopardize their status as a well-capitalized
institution but could also lead to higher insurance premiums.

Any changes resulting from this recommendation may lead to increased
community reinvestment, as most small loans to small businesses are
made by community banks, which tend to loan in their immediate areas.

The collection of small business loan data is already being done by
financial institutions. This recommendation would simply change the
regulations by requiring banks to report the size of the business
receiving the loan. The size of the loan is already required by an
existing regulation, so reporting mechanisms already exist.
Implementing the change would require little more than indicating
which box was checked, as SBA provides a standard breakout of firm
size. This is not a costly addition, particularly in view of the
exemption for small banks.

Fiscal Impact

There are no direct costs in these recommendations. The indirect
costs are limited to the cost of examining the issues and writing the
regulations and guidance at various agencies which regulate banks.
The proposal has no implications for insurance or risk because the
recommendations are restricted to well-capitalized institutions.

SBA05: Change the Microloan Program to Increase
Loans for Small Business


The Small Business Administration's (SBA's) Microloan Demonstration
Program, a five-year pilot program, is almost two years old. The
program provides direct loans to nonprofit intermediaries who in turn
provide loans of up to $25,000 to small businesses. At present, these
loans average about $9,700 each. Microloans are made to low-income
individuals, women, minorities, and other entrepreneurs unable to
obtain credit through traditional lending sources. The program fills
a void in the credit market; very small loans (those under $25,000)
often are not available from mainstream lenders due to the high costs
associated with offering and servicing such financing. Yet as the
current Small Business Administrator has pointed out: "Two-thirds of
the business started in America are started with less than $10,000 in
capital; one-half with less than $5,000."

In addition to lending capital, the microloan program provides grants
to intermediary lenders and other technical assistance providers.
These grants are used to strengthen the skills of small business
owners in accounting, marketing, and other basic business practices.

At the end of July 1993, SBA had selected 96 nonprofit intermediaries
nationwide to participate in the program. The program is fully
supported by the administration and Congress. In a recent White House
ceremony, President Clinton commented: "The microloan program, by
encouraging entrepreneurial instincts, can help change an
economically dependent person into a productive and financially self-
reliant citizen."(1)

Currently, SBA makes direct loans to intermediary lenders. These
loans can be as high as $1.25 million to any single intermediary (one
firm or a consortium of many). SBA charges a rate equal to that of a
five-year U.S. treasury bill. SBA then reduces the interest rate to
the intermediary by up to 2 percent based on the average loan size of
the intermediary's microloan portfolio. Grants are provided to
intermediaries in the amount of 25 percent of any SBA loan amount
disbursed to intermediaries. Further grant dollars are offered to
non-lending technical assistance providers.

For 1994, the President's budget includes $12.8 million for the
microloan program. Expansion of this program will require either an
increase in appropriations for further cash outlays or a change in
the program to lower costs and stretch the current appropriation.
Currently, SBA provides 100 percent direct loan funding to nonprofit
intermediaries under this program.

Changing this direct loan program into a guaranty program would
require banks to lend directly to nonprofit intermediaries, with SBA
guaranteeing the loans. The intermediaries would in turn make
microloans to small businesses. This proposal would reduce federal
cash outlays and lessen the administrative burdens associated with
direct lending.


Subsection (m), Section 7 of the Small Business Act, 15 U.S.C. 636,
should be amended to allow SBA to provide a 100 percent guaranty on
loans made by approved lenders to intermediaries selected by SBA.

This recommendation would change the microloan program from a direct
loan program to a loan-guaranty program, allowing the agency to make
loan capital available to intermediaries under guaranty authority.
The amendment also would give SBA the authority to sell such loans on
the secondary market, providing investors with the full faith and
credit backing of the U.S. government. SBA would still provide
technical assistance grants and interest rate buy-downs.


SBA authority to sell guaranteed loans on the secondary market would
allow private investors, such as pension funds, to participate in the
program. The proceeds from sales on the secondary market would be
returned to banks so that funds could be recycled to the
intermediaries, providing fast access to capital for continued
microlending under this program.

Changing the program would alter the SBA's current anticipated
administrative burden, allowing it to deliver a $40 million (as
opposed to $33.7 million) program with no increase in the budget.
Estimates regarding servicing and collection costs would decrease as
these functions became the responsibility of the lenders.

Private-sector involvement would increase, and future agency outlays
would be reduced.

In addition to increasing assistance to small businesses, the
guaranty program would help such businesses establish a credit
history that could ease the transition into traditional lending, when
their credit needs exceed the maximum $25,000 permitted under the
microloan program.

Fiscal Impact

The 1994 budget request provides $6.8 million in subsidy (loss
reserve) for direct loans to microloan intermediaries. It also
contains $6 million for technical assistance grants, for a total
budget request of $12.8 million.

The subsidy rate currently used in the microloan program is based on
the results of direct loans approved under the 7(a) program. The
current subsidy rate is 15.25 percent. An additional 5 percent is
provided for interest rate buy-downs, providing a total subsidy rate
(losses plus buy-downs) of 20.25 percent.

By making the program a guaranty program, the subsidy rate could be
lowered (assuming the 1993 7(a) guaranty rate), to 2.2 percent plus
the 5 percent for interest rate buy-down, making the total subsidy
rate for the Microloan Demonstration Program approximately 7.2
percent--approximately a third of the current proposed rate of 20.25

The program would be expanded using the $12.8 million budget requests
as follows:

--- $2.8 million of the $12.8 million would provide guaranties for
approximately $40 million in loans to intermediaries.

--- The remaining $10 million would provide funding for the 25
percent technical assistance grants required for a $40 million


1. Comments at the microloan announcement ceremony, the White House,
Washington, D.C., May 24, 1993.

SBA06: Establish User Fees for Small Business
Development Center Services


The Small Business Administration's (SBA's) Small Business
Development Center (SBDC) program was established in 1980 to aid
economic development by providing management and technical assistance
to small businesses.

Fifty-seven lead SBDCs are located in all 50 states, Puerto Rico, and
the Virgin Islands, with a network of approximately 946 service-
delivery locations. To receive federal funds, SBDCs must provide an
equal amount of matching funds from sources other than the federal
government. The program's fiscal year 1993 appropriation is $67

SBDCs provide a wide variety of services designed to assist the
economic development of a state or region through the cultivation of
its small business sector. Core activities of one-on-one counseling
and a variety of training events are augmented by specialized
assistance in areas such as procurement, exporting, mentoring
programs for women-owned businesses, and veterans and minority
assistance programs. By law, all counseling is provided free of
charge. SBDCs also offer counseling and other services to state and
local economic development agencies that are attempting to respond to
the loss of defense-related jobs and businesses.

In fiscal year 1992, SBDCs counseled 222,497 clients and trained
319,535 clients. From 1980 through 1992, more than 1.2 million
clients received counseling and more than 2.5 million attended

Data in the 1991 and 1992 annual reports of a sample of 10 SBDCs show
that, for a total of $11.4 million in federal funding disbursed over
a 12-month period, the SBDCs created 11,190 jobs and preserved and
stabilized 6,559 other jobs. Six of the 10 SBDCs secured a total of
$189.6 million in capital investment for clients in their states.

If these data are assumed to reflect the activity of all 57 SBDCs,
the program's current annual appropriation could provide as many as
80,000 new jobs and preserve 148,000 jobs, for a total positive
impact of 228,000 jobs in a single year. The cost to the federal
government of this activity is about $300 per job, a minimal figure
compared to the taxes and other benefits related to employment.
Moreover, this impact is in addition to the capital-investment
benefits secured for clients by SBDCs.

In 1989, the U.S. General Accounting Office evaluated the SBDC
program. The evaluation found that: "Overall, 69 percent of clients
were satisfied with the counseling they received. 76 percent
indicated they would contact the program for future help if needed,
and 82 percent would recommend the SBDC program to others."(1)

Given the high level of user satisfaction and perceived value of this
program, a small user fee should not dampen clients' enthusiasm. Such
a fee could be set at a level easily affordable to the average small
business owner.


Title II of the Small Business Development Center Act of 1980, Public
Law 96-302, should be amended to allow the SBA to establish user fees
for SBDC counseling services in the amount of $15 per hour.

This rate is not intended to fully recover the actual cost of
services provided by SBDCs, which is approximately $25 per hour. Such
a rate might be burdensome to the majority of SBDC customers, which
are predominantly start-up businesses. The $15 hourly rate is based
on what these customers can reasonably afford.


The implementation of the user fee charge would generate significant
revenues for the SBDC program. SBA would make appropriate
arrangements with local SBDCs to implement the user-fee
recommendation. The $15 fee is well under the rates usually charged
by consulting, accounting, legal, or other professionals.

In addition, SBDCs offer the small business owner comprehensive
services without the need to engage multiple consultants in different
locations. SBDCs would continue to offer "one-stop" services at
a reasonable price. Since SBDCs are widely dispersed geographically,
they are accessible to most small businesses without significant
travel time.

Fiscal Impact

The proposed user fee is based on the number of hours used for
counseling purposes. The fee would yield an estimated $17 million per
year to be used toward current and future program costs. In fiscal
year 1993, SBA received $67 million to support the SBDCs. With user
fees, this amount could be reduced by $17 million.


1. U.S. General Accounting Office, Small Business Development Centers
Meet Counseling Needs of Most Clients (Washington, D.C.: GAO,
November 1989), p. 2.

Budget Authority (BA) Outlays, and Revenues (Dollars in Millions)
Fiscal Year
1994 1995 1996 1997 1998 1999 Total
BA 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Outlays 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Revenues* 17.0 17.0 17.0 17.0 17.0 17.0 102.0

in FTEs 0 0 0 0 0 0 0

*It is assumed that these revenues would be used to reduce current
appropriations to SBA for the SBDC program.

SBA07: Distribute SBA Staff Based on Workload
and Administrative Efficiency


The average tenure of nine of the last 12 Small Business
Administration (SBA) Administrators has been approximately 16 months.
This high turnover rate has allowed numerous management difficulties
to go unresolved, including problems concerning efficient staff

In recent years, the number of SBA employees has fallen, while the
number of programs the agency manages has risen. Substantial
improvements in computer capability have been made but not yet fully
implemented. There has been an increase in administrative positions
relative to front-line employees, and population and economic shifts
around the country have not yet been matched by changes in SBA
staffing patterns.

As a result, the distribution of SBA staff has diverged from the
agency's workload distribution. For example, the largely rural Region
VII (Kansas City) has one SBA employee per 54,000 people, while
largely urban Region V (Chicago), has one agency employee per 131,000
people. This staff distribution problem is widely recognized within
SBA, and numerous studies have been undertaken to solve it, most of
them with broad staff participation.

For example, in 1991, the Resource Allocation Task Force, consisting
of both headquarters and field staff, made a detailed review. While
there was some disagreement about the precise index that should be
used for comparisons (total population, business population, or other
factors), the task force agreed that SBA staffing was
disproportionate both by region and program. The task force made
specific recommendations to remedy the situation, but none of these
have been implemented, again largely because no SBA Administrator has
been in place long enough to follow through with them.

Currently, each of the SBA's 67 district offices has a small cadre of
loan officers that service its loans. SBA has conducted a successful
pilot program in Fresno, California, that provides routine loan
servicing for several district offices. The program demonstrated that
an automated loan-servicing center could substantially reduce the
number of loan officers required in district offices.

Another problem concerns redundant support systems. By legislative
mandate, SBA has several different direct loan and loan-guaranty
programs, each targeted at a different population. These programs use
the same application forms and credit analysis but maintain
duplicative regulations, training, staff and administrative support.

A third problem concerns the agency's current headquarters structure.
About 75 percent of the agency's personnel resources fall under one
division--Finance, Investment, and Procurement Assistance. However,
the finance and investment portions of its duties demand so much
attention that procurement assistance and minority business
development receive little attention from division management. In
addition, procurement programs are distinctly different from either
finance or investment programs. If procurement assistance and
minority small business programs were administratively separated from
the division and placed under an experienced and committed manager,
it seems likely that they would receive greater attention.

The general solution to each of these problems is to establish a
basic principle of staff distribution based on administrative
efficiency and program workload. The mechanics of accomplishing this
should be left to SBA.

The new Administrator has indicated that he wishes to address these
issues from the ground up, and has called for a series of proposals
from various levels of SBA to streamline administration and allocate
more employees to direct client services. The Administrator intends
to combine these proposals with previous studies not yet acted upon
to develop an efficient and effective management structure.

Analysis conducted over the years suggests that major actions such as
these could and should be initiated immediately and simultaneously,
to minimize disruption. The agency's turnover rate may permit many
changes to be accomplished over time through attrition.


The SBA Administrator should reallocate SBA staff in line with basic
principles of administrative efficiency and program workload.

The Administrator should be instructed to review existing studies in
conjunction with his own studies and develop a comprehensive plan for
speedy implementation to improve service delivery. The Administrator
should take whatever personnel actions are needed to achieve highly
automated administrative efficiency, establish objective workload
measures, allocate program staff based on objective and uniform
workload indicators, and thereafter fill vacancies only if workload
studies support such moves.


Reallocating staff based on these principles would substantially
improve the service provided to small businesses. The exact level of
improvement cannot be known until the Administrator develops a plan,
but previous studies suggest that as many as 600 positions could be
shifted to direct client support.

Fiscal Impact

Studies to date suggest that these moves can be accomplished with
current resources. No net changes are anticipated in the agency's
total number of positions, as affected positions would be shifted to
district offices to improve service. This increase in the district
offices will lead to better service while the concentration and
automation of administrative support functions would lead to faster
response times and better data. Both of these in turn should produce
stronger small businesses.

SBA08: Improve Federal Data on Small Businesses


The Census Bureau, the Bureau of Labor Statistics (BLS), and the
Internal Revenue Service (IRS) all collect a great deal of hard data
on U.S. businesses. However, none of this wealth of information is
organized by firm size or other indices that would allow users to
focus on businesses with less than $10 million in assets or receipts-
-in other words, small businesses. This means that even the most
basic small business indicators, such as capital flow, job creation,
or business dynamics, cannot be extracted from the data currently

As a result, the federal government lacks the data needed to support
its policymaking, target economic recovery programs to meet small
business needs, evaluate the value of existing programs, or meet
congressional mandates.

Even in the rare instances in which agencies have attempted to obtain
data by firm size, the usefulness of the data is limited. Census's
Enterprise Statistics is five years out of date. IRS's limited data
on sole proprietorships are three years out of date and ignore most
significant parts of the small business sector, such as partnerships,
sub-chapter S corporations, and regular "C" corporations.
Although BLS collects data on business "establishments" and
"reporting units," neither of these categories are related to
firm size, making comparisons between large and small firms

Significant amounts of money are spent on the collection of business
data; BLS alone has a statistical research budget of $190 million.
Adding a simple question on firm size to existing data collection
conducted by federal agencies would greatly increase the usefulness
of these data and eliminate any need for a substantial increase in
the SBA research budget to acquire the information independently.


1. The SBA Administrator should work with OMB and the relevant
statistical agencies to include a size-of-firm question in all future
federal household and employer surveys that collect data on

A single demographic item would be sufficient, such as: "About how
many people are employed by this employer in total, counting ALL

- less than 10 - 100-249

- 10-19 - 250-499

- 20-49 - 500 or more

- 50-99 - Don't know

These are standard size breakdowns used by SBA.


These recommendations do not affect current studies and do not
propose new studies.

These recommendations would affect only a narrow segment of future
federal studies. A survey of recent federal economic questionnaires
identified only 10 documents that could provide useful information on
small businesses. These were issued by the Department of Health and
Human Services, the Treasury Department (including the IRS and
Customs), and the Department of Commerce (including BLS and Census).
It is unlikely that many studies other than these would be affected.

This small change, however, would make a very large improvement in
the quality of information available to shape federal legislative and
regulatory actions with a differential effect on small and large
businesses. Such actions have implications for environmental
initiatives, tax-law changes, changes in workplace requirements, and
trade and energy policies. Public actions, in turn, affect private-
sector decisions regarding hiring and firing, opening and closing
locations, introducing new products, investing in new plant and
equipment, human resource expenditures, and the magnitude, timing,
and choice of financing.

Agencies may have two concerns about this additional demographic
item: they might feel that they would have to drop an important item
to make room for it, and could wonder whether it opens the door for
other additions. However, as a practical matter, the addition of one
item is not a great burden, particularly since the requirement would
be known during the survey design stage. And if other items that
could be added would have a significant impact on economic recovery,
perhaps this door should be opened.

Fiscal Impact
This proposal would create only negligible additional costs.

Agency Reinvention Activities


Reinventing the Small Business Administration (SBA) has been a
priority for current Administrator Erskine Bowles since the beginning
of his tenure. His first official act as Administrator was to
introduce Vice President Gore to a group of state small business
owners at a meeting to discuss reinventing government. Bowles
commitment continues with the establishment of an internal SBA team
that will operate during his tenure.

At a presentation before National Small Business United and the
National Association of Women Business Owners in May 1993, Bowles
stated, "If a reinvented government is operating more efficiently,
small companies will be able to work more productively with that
government." He went on to say, "There is no more important
reason to move ahead with this than to provide a better environment
in which America's entrepreneurs can continue to be the nation's job
creators and innovators."

SBA's reinvention effort has been organized around the
Administrator's philosophy that the best way to serve customers is to
listen to their concerns. SBA has three types of customers: the small
business owner, the lender, and the "internal" customer--the
employee. The information-gathering component of SBA's reinvention
effort cannot be overemphasized. In addition to using traditional
methods for soliciting input, such as asking customers to submit
their ideas in writing, the Administrator is going directly to the

Eight cities across the country have been selected to host a three-
part town hall meeting over a two-day period. In each session, a
meeting is held with small business owners on the first evening.
These meetings are held in a "talk-show" format that allows the
Administrator to answer questions and hear suggestions and ideas. On
the second day, the Administrator meets with local lenders to discuss
their experiences with SBA programs. A third meeting focuses on input
from SBA employees.

The first town hall meeting, held in Hartford, Connecticut, on July
15-16, 1993, generated several ideas. Similar meetings in Los
Angeles, California; Des Moines, Iowa; Atlanta, Georgia; Portland,
Oregon; Cleveland, Ohio; Houston, Texas; and Denver, Colorado will be
held through November 1993.

The Administrator also used his first national meeting with SBA
district directors as a reinvention vehicle. With an agenda titled
"Reinventing SBA," the three-day meeting provided numerous
opportunities for SBA's top managers to provide ideas and suggestions
to improve SBA's program delivery. Hundreds of suggestions submitted
at that meeting have been compiled into a report that is being used
in the agency's reorganization plan currently under way.

In addition, a 17-member group has been established in SBA's Central
Office to organize a permanent internal SBA reinvention team. Called
the "Entrepreneurial SBA Team" (E-SBA), this group is composed
of employees representing all grade levels and program divisions. The
employees were selected, in part, for their substantial experience in
SBA's field offices.

The E-SBA team has two important functions and has been divided into
two sub-groups. First, an outreach team has been established to
develop ways to continue involving all of SBA's customers in the
reinvention process. Second, an issue team has been created to
categorize suggestions from employees, lenders, and small business
owners. Its goal is to ensure that each idea receives a fair and
impartial review. Both teams meet regularly; the full E-SBA team
meets weekly.

Specific Reinvention Projects

Five themes have emerged among the ideas and suggestions SBA has
received through the reinvention process. Although a final evaluation
process for individual ideas has not been officially adopted, it
appears that SBA's reinvention projects will fall into five areas:

(1) Reallocation of Resources--The Administrator has told all SBA
employees to expect fewer resources in Washington and at the regional
office level, and more resources in some district offices. Using
limited resources effectively at the local level is the guiding
principle behind SBA's reorganization plan.

(2) Customer Service--All of SBA's customers have submitted ideas on
how to make SBA more user-friendly and efficient. These suggestions
range from how best to handle initial inquiries to the design of new
lending mechanisms.

(3) New Way of Measuring Performance--As with many federal agencies,
SBA has measured its program success by the number of people that
have used its services. Small business owners, lenders, and employees
alike have suggested that a more meaningful way to measure SBA's
effectiveness is to link its performance to job creation and other
small business indicators. This type of measurement holds SBA
accountable in ensuring that the agency's programs actually assist

(4) Personnel Procedures--About 40 percent of the reinvention
suggestions from employees deal with personnel matters or procedures.

(5) Lines of Communication--As with all large organizations, good
communication continues to challenge even the most earnest manager.
Many suggestions have revolved around improving lines of
communication within and outside of the agency.

Lessons Learned

Because the Administrator envisions the reinvention effort as an
ongoing process at SBA, a substantial amount of effort continues to
be devoted to creating the best possible mechanism for submitting and
evaluating ideas. SBA is relatively decentralized (10 regional
offices and 66 district and branch offices); the most challenging
component of the reinvention effort has been the development of an
infrastructure that encourages field staff not only to participate by
submitting ideas, but to become involved in the evaluation process as

Currently under testing as a pilot project is an evaluation process
designed to incorporate field input. The procedure is as follows: An
issue would be sent to the person at headquarters with the most
hands-on working knowledge of the program in question. This process
intentionally bypasses one or more levels of management who may or
may not have reviewed this idea previously.

The designated staff person will be asked to respond with a brief
"good-idea" or "bad-idea" assessment and reasons for this
decision. He or she would also select two appropriate field
employees--one from a regional office and another from a district
office--to provide additional evaluations. The evaluations are
returned to the E-SBA Issue Team for a final determination as to
whether or not the recommendation should be forwarded to the
Administrator for consideration.


SBA's reinvention effort has both short and long-term goals. Many of
the initial ideas and suggestions offered through this process will
be incorporated into the reorganization plan that should be unveiled
by the end of this fiscal year. The major long-term benefit is the
creation of a permanent reinvention vehicle to ensure that helpful
ideas and suggestions always have a forum.

The administrator has made it clear that reinventing SBA is not
merely a management exercise. A more efficient and effective SBA will
provide better assistance to small businesses who, in turn, will
create jobs and help their communities. An invigorated small business
community will help to create and maintain a healthier national

Summary of Fiscal Impact

Change in Budget Authority by Fiscal Year (Dollars in Millions)

1994 1995 1996 1997 1998 1999 Total Change
in FTEs
SBA01: cbe cbe cbe cbe cbe cbe cbe cbe

SBA02: n/a n/a n/a n/a n/a n/a n/a n/a

SBA03: n/a n/a n/a n/a n/a n/a n/a n/a

SBA04: n/a n/a n/a n/a n/a n/a n/a n/a

SBA05: n/a n/a n/a n/a n/a n/a n/a n/a

SBA06: n/a n/a n/a n/a n/a n/a n/a n/a

SBA07: n/a n/a n/a n/a n/a n/a n/a n/a

SBA08: n/a n/a n/a n/a n/a n/a n/a n/a
Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0

cbe = Cannot be estimated (due to data limitations or uncertainties
about implementation timelines).

n/a = Not applicable (recommendation improves efficiency or redirects
resources but does not directly reduce budget authority).

Change in Outlays by Fiscal Year (Dollars in Millions)
1994 1995 1996 1997 1998 1999 Total
SBA01: cbe cbe cbe cbe cbe cbe cbe

SBA02: n/a n/a n/a n/a n/a n/a n/a

SBA03: n/a n/a n/a n/a n/a n/a n/a

SBA04: n/a n/a n/a n/a n/a n/a n/a

SBA05: n/a n/a n/a n/a n/a n/a n/a

SBA06: n/a n/a n/a n/a n/a n/a n/a

SBA07: n/a n/a n/a n/a n/a n/a n/a

SBA08: n/a n/a n/a n/a n/a n/a n/a
Total SBA 0.0 0.0 0.0 0.0 0.0 0.0 0.0

cbe = Cannot be estimated (due to data limitations or uncertainties
about implementation timelines).

n/a = Not applicable (recommendation improves efficiency or redirects
resources but does not directly reduce outlays).

Change in Revenues by Fiscal Year (Dollars in Millions)
1994 1995 1996 1997 1998 1999 Total
SBA01: cbe cbe cbe cbe cbe cbe cbe

SBA02: n/a n/a n/a n/a n/a n/a n/a

SBA03: n/a n/a n/a n/a n/a n/a n/a

SBA04: n/a n/a n/a n/a n/a n/a n/a

SBA05: n/a n/a n/a n/a n/a n/a n/a

SBA06: 17.0 17.0 17.0 17.0 17.0 17.0 102.0

SBA07: n/a n/a n/a n/a n/a n/a n/a

SBA08: n/a n/a n/a n/a n/a n/a n/a
Total SBA 17.0 17.0 17.0 17.0 17.0 17.0 102.0

cbe = Cannot be estimated (due to data limitations or uncertainties
about implementation timelines).

n/a = Not applicable (recommendation improves efficiency or redirects
resources but does not directly increase revenues).


Accompanying Reports of the National Performance Review

Governmental Systems

Changing Internal Culture Abbr.
************************* ****

Creating Quality Leadership and Management QUAL

Streamlining Management Control SMC

Transforming Organizational Structures ORG

Improving Customer Service ICS

Reinventing Processes and Systems Abbr
********************************* ****

Mission-Driven, Results-Oriented Budgeting BGT

Improving Financial Management FM

Reinventing Human Resource Management HRM

Reinventing Federal Procurement PROC

Reinventing Support Services SUP

Reengineering Through Information Technology IT

Rethinking Program Design DES

Restructuring the Federal Role Abbr
****************************** ****

Strengthening the Partnership in
Intergovernmental Service Delivery FSL

Reinventing Environmental Management ENV

Improving Regulatory Systems REG

Agencies and Departments Abbr.
************************ *****

Agency for International Development AID

Department of Agriculture USDA

Department of Commerce DOC

Department of Defense DOD

Department of Education ED

Department of Energy DOE

Environmental Protection Agency EPA

Executive Office of the President EOP

Federal Emergency Management Agency FEMA

General Services Administration GSA

Department of Health and Human Services HHS

Department of Housing and Urban Development HUD

Intelligence Community INTEL

Department of the Interior DOI

Department of Justice DOJ

Department of Labor DOL

National Aeronautics and Space Administration NASA

National Science Foundation/Office
of Science and Technology Policy NSF

Office of Personnel Management OPM

Small Business Administration SBA

Department of State/ U.S. Information Agency DOS

Department of Transportation DOT

Department of the Treasury/
Resolution Trust Corporation TRE

Department of Veterans Affairs DVA
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