June 12, 1995
A New Strategy
A New SBA
Ten Principles for Reinventing Small Business Regulation
ACCOMPLISHMENTS AND NEW INITIATIVES IN SBA'S "PORTFOLIOS"
Access to Credit
Business Education and Training
Regulatory Reform Successes
Continued Reform Efforts
Disaster Loan Assistance
The Clinton/Gore Administration has pursued an economic strategy that promotes economic growth, reduces the deficit, expands trade, invests in people, and reforms the Government to make it cost less and perform better. The results are clear. The combined rate of unemployment and inflation is at a 25-year low. The deficit has been reduced by $600 billion. The Federal Government is being cut down to size -- and it is on its way to becoming the smallest it has been since President Kennedy was in office.
We have begun not only to shrink the size of Government, but to change the way Government operates and the way it regulates the private sector. Government must be a partner with business, and small businesses in particular, in creating jobs and expanding economic growth.
America's small business owners foster our Nation's economic growth and prosperity. They expect and deserve a Federal Government that lends a helping hand when it is needed and uses an even hand in applying its regulatory powers. With these goals in mind, President Clinton asked the Small Business Administration ("SBA") to work with small businesses to better understand their needs and to serve them more effectively. This outreach is working. SBA has expanded its loan programs, reduced its own paperwork and regulations, and championed a government-wide effort to streamline regulations. It will accomplish even more in the months to come.
This report contains a description of SBA's recent successes and proposed initiatives as it works to reinvent its own operations and to lessen small business regulatory burdens.
The Clinton/Gore Administration is committed to our Nation's small business community. It has fulfilled that commitment in part by maintaining a vibrant SBA that is expanding its assistance to small businesses and reducing taxpayer costs.
The number of small businesses is growing rapidly -- during the last decade, more than 600,000 new firms have been created annually. Just last year, more small businesses were created than at any time in our country's history. Throughout this period, small businesses created most of the Nation's new jobs. Today, they employ nearly 60 percent of the country's private work force. To help maintain and promote this growth, SBA has taken several important steps during the last two years and has plans to institute many more reforms. In doing so, the agency has worked closely with its customers to ensure that it is providing the right products for the small business marketplace.
In order to promote access to credit, SBA provides loan guarantees to participating lenders under a variety of programs. In fiscal year 1995, nearly $11.5 billion in long-term credit and other financial assistance will be provided to more than 67,000 small businesses through SBA's network of participating banks, non-bank lenders, certified development companies, and SBA-licensed companies.
SBA has made significant reforms to expand its loan guarantee and capital formation assistance. For example, the new "LowDoc" program features an easy, one-page application and a rapid response, usually within two or three days, for Section 7(a) loan guarantees up to $100,000. In fiscal year 1993, the year before the program was implemented, 30 percent of SBA's guaranteed loans were under $100,000. Thus far in fiscal year 1995, the figure is 63 percent.
SBA has proposed legislation that would dramatically reduce the government's cost of the Agency's financing programs while expanding the number of small businesses served. If these proposals are adopted, SBA will provide financing to more than 92,000 small firms in fiscal year 1996 and reduce to zero the government's subsidy cost of providing small business loans under both the 7(a) and 504 programs.
SBA provides much-needed business education and training to small business owners. In 1994 the Agency provided counseling and training to more than 800,000 of its small business clients through resource partners such as Small Business Development Centers (SBDCs) and the Service Corps of Retired Executives (SCORE). SBA is also leading efforts to create a "one-stop" electronic point of contact for all government business, economic and regulatory information that small businesses need to make informed decisions. This "U.S. Business Advisor" will soon be available to help make small businesses more efficient, productive and competitive in the global economy.
SBA acts as a strong advocate throughout the government on behalf of small businesses. It does so through specific programs, including the government contracting assistance programs and the Small Business Innovative Research program. But true advocacy must go beyond SBA's own programs to include the broad scope of federal government involvement with small businesses.
Accordingly, SBA has helped lead this Administration's efforts to reduce regulatory burdens on small business. In 1994, it co-sponsored an unprecedented interagency Small Business Forum on Regulatory Reform. Reflecting the serious work of 150 small business representatives and 80 government employees, the Forum produced a detailed list of findings and recommendations, many of which have already been implemented by the participating agencies. On March 16, 1995, President Clinton announced reform measures to give effect to the most important of those recommendations: a reduction in the paperwork burden on small businesses and a waiver of punitive actions against first-time violators of certain regulations. And, as part of a general review of regulations recently completed at the President's direction, SBA has committed to revise all of its regulations by the end of calendar year 1995, reducing their length by more than 50 percent.
SBA's disaster loans are the primary form of Federal assistance for non-farm, private sector disaster losses. This program is the only SBA assistance not limited to small businesses. During the program's 41 years of existence, SBA has approved more than 1.25 million disaster loans, comprising $22 billion in assistance, for victims of physical disasters. During the last two years, SBA has taken several steps to simplify and expand access to its disaster loan program. Victims of disasters now find it easier than ever before to reach out to SBA for a helping hand.
President Clinton is determined to create a strong, efficient, cost-effective SBA that works with our Nation's small business community to expand access to credit and capital, provide needed training and assistance, and serve as an advocate and watchdog for small business owners. His efforts have shown significant and tangible results -- demand for SBA programs is up, paperwork and regulation are down; service and customer satisfaction is at an all-time high. The new SBA knows that even more can and should be done in the future; it will not cease its efforts to do more for the small business community in the months and years to come.
SBA expands access to capital by providing credit, through thousands of financial intermediaries, to small businesses unable to obtain loans to start-up or expand. Traditionally, small firms have faced serious problems obtaining long-term loans in the private credit marketplace. SBA has taken substantial steps in the last two years to ensure that its loan guarantee programs help the maximum number of small businesses at minimum cost.
SBA is at the center of the government-wide effort to create a "one-stop" electronic point of contact and access for all the business, economic and regulatory information that small businesses need to make informed decisions. An electronic information and service delivery system for businesses in the United States -- the "U.S. Business Advisor" -- will soon offer initial solutions to make small businesses more efficient, productive and competitive in the global economy. Initially, the U.S. Business Advisor will access selected sources of important government information, including health, safety and environmental regulations, the Unified Agenda of Federal Regulations, the National Trade Data Bank and EPA and OSHA regulatory, guidance and compliance assistance. When fully developed in the regulatory area, it will allow easy access to a broad range of regulatory guidance and compliance assistance.
SBA's Business Information Centers (BICs) offer the latest in high-technology hardware, software and telecommunications to assist small business. In addition, at BICs small business owners receive one-on-one counseling with seasoned business people through the Service Corps of Retired Executives (SCORE). SBA is working to expand its network of BICs. With the recent openings of BICs in Fairmont, West Virginia, El Paso and Charleston, SBA now has 16 BICs in operation.
SBA's Cosponsorship program provides training and counseling for small businesses through joint activities with the private sector. SBA's standard operating procedures (SOP) for the program were complex and inhibiting, micromanaging the process from the central office and imposing considerable paperwork burdens upon cosponsors. SBA has thoroughly streamlined the SOP, reducing it from 76 pages to 26, increasing field office flexibility and responsibility, removing financial and paperwork constraints from private sector partners and slashing internal paperwork requirements by more than 75 percent.
The Small Business Development Center program is a cooperative effort of the private sector, the educational community and federal, state and local governments to enhance economic development by providing management and technical assistance to small businesses. Since the enactment of the program in 1980, it has been operating under direct statutory authority, without regulations. Responding to industry requests for the promulgation of regulations, SBA published proposed regulations on October 28, 1994. Praised by the private sector as a clear, concise and understandable codification of program procedures, the final regulations will be published in the Federal Register this week. In addition, SBA's reinvention legislative proposal would streamline the administration of the SBDCs, reduce costs, and consolidate the women's and minority training assistance programs under the SBDC program.
SBA has championed Administration efforts to reduce regulations on small businesses as part of its government-wide advocacy role. The President's recent regulatory reform announcements reflected recommendations from the unprecedented interagency forum that SBA helped launch last year. Many other regulatory reform recommendations identified through SBA regulatory reform efforts are now being announced and implemented by other agencies as part of the National Performance Review's second phase.
The President recently directed each Federal agency to review all of its regulations for effectiveness and clarity of language. He also issued two specific directives aimed at simplifying the regulatory process.
SBA will continue to work with EPA, OSHA and other agencies to address small business concerns as part of the President's reinventing government initiative:
SBA's disaster loans are the primary form of Federal assistance for nonfarm, private sector disaster losses. SBA provides long-term, low interest loans to cover those losses not compensated for by private insurance. The disaster loan program is the only form of SBA assistance not limited to small businesses. SBA's disaster loans are available to homeowners, renters, businesses of all sizes, and nonprofit organizations. Given the rising Federal costs resulting from the tremendous level of disasters experienced over the last six years, SBA is participating in a Government-wide effort to reform the way it responds to disasters. During the last two years, SBA has taken steps to reinvent the program by simplifying the loan application process and increasing its loan limits. Its recent legislative proposal to Congress would greatly reduce the subsidy rate for disaster assistance, making more loans available at a lower cost to taxpayers.
Action: Introduce an easy, one-page SBA application and a rapid response, usually within two or three days, for loans up to $100,000.
Background: The need for a program like LowDoc became evident at a series of town hall meetings held around the country during the Spring of 1993. One complaint was heard time after time -- small businesses were unable to find lenders able or willing to provide loans in amounts under $100,000.
Description: LowDoc is one of the best examples of the recent innovative changes SBA has made in the 7(a) lending program. The program was designed to increase the access that businesses have to smaller loans by reducing the paperwork burden imposed on lenders for these loans. The SBA LowDoc application is only one page. This single sheet is both the applicant's SBA loan application and the lender's request for an SBA guarantee. This application is a distillation of all the information previously required from applicants on a series of forms and required attachments. The lender still requests whatever additional information it requires to make an appropriate credit decision.
The LowDoc program was piloted in Texas beginning in December of 1993 and was expanded nationally last summer. During the expansion phase each SBA district office selected lenders within its market area to participate in LowDoc. Because the LowDoc application evaluation requires a high degree of experience and judgment on the part of the participant lender, lender selections were based on past and/or projected levels of activity, the degree of success achieved in the lender's SBA loan portfolio, and the lender's cooperativeness and dedication to meeting the financing need of small business. Expansion of the program nationally was accomplished over time with SBA certifying its personnel as competent to process LowDoc applications only after they had taken an intensive two-day training course.
The program has been extremely well received by both SBA's borrowers and participating lenders. During fiscal year 1994, the SBA approved nearly 6,000 LowDoc loans totalling approximately $316 million. As of April 10, 1995, the SBA had approved 18,296 LowDoc loans totalling approximately $1 billion. SBA anticipates that approximately 35,000 LowDoc loans will be approved during fiscal year 1995.
Early reports show that loans made under the program are performing at a better rate than those made during the same period under the regular 7(a) program. Even though these preliminary results on program performance are good, SBA continues to monitor the LowDoc program closely. The results of examinations of the lenders' credit analyses are very positive. Future plans for the program call for on-going monitoring and sampling to assure that the same high quality performance by the lenders continues.
To improve the procedural efficiency of the LowDoc program, on May 1, 1995, SBA announced plans to centralize LowDoc processing at three sites: Sacramento, California; Madison, Wisconsin; and Melville, New York. The processing centers will enable the SBA to achieve economies of scale and to take advantage of the latest in technology.
They will also help to assure a high degree of consistency in the loan consideration process. These centers will be operational in mid- to late July, 1995.
Action: Implement a pilot program that allows selected lenders who agree to share risks on a 50/50 basis to approve and service loans up to $100,000, while using their own forms, documentation and procedures.
Background: In another effort to streamline the 7(a) program, SBA worked closely last year with some of its lending partners to develop an exciting new pilot program called FA$TRAK. This pilot program is designed to increase the availability of smaller loans for SBA customers and to decrease the paperwork burden imposed on the Agency's lending partners.
Description: Under the FA$TRAK pilot, which began on February 27 of this year and is scheduled to last two years, 18 selected lenders are authorized to make, service and liquidate loans in amounts up to $100,000 using their own application and disbursement documents and processes. Lenders participating in the pilot program are given the ability to attach an SBA guarantee to an approved loan without having to submit the loan application to an SBA field office for a credit analysis or review. These loans are sent to a single location for assignment of an SBA loan number and a determination of borrower eligibility.
In exchange for the convenience of using their own forms and processes, lenders agree to limit the loan amount to $100,000, accept a maximum guarantee of 50 percent, and waive payment on defaulted loans until after the lender has completed liquidation and SBA has reviewed the underlying documentation supporting the loan. As of April 28, 1995, SBA had approved 46 FA$TRAK loans totalling $2.0 million.
Action: Repeal the rule barring loan assistance to media-related small business concerns.
Background: The media policy rule was adopted in 1953 and prevented small media concerns such as booksellers, radio stations and television production companies from eligibility for SBA loan assistance. The rule remained in effect despite the fact that small media concerns often have difficulty raising capital or borrowing money.
Description: In October, 1994, SBA repealed the media policy rule, thereby extending loan eligibility to approximately 75,000 small business concerns it could not previously serve. This change in policy enables SBA to promote job growth and economic development by making financial assistance available to a larger number of small business concerns.
Repeal of this rule has created a very broad list of newly-eligible enterprises that includes broadcasters, movie theaters, publishers, producers, importers, exporters or distributors of all types of communications (such as newspapers, sheet music, posters, film, tape, theatrical productions, greeting cards, and books), plus transportation concerns limited to the distribution of such products.
Action: Streamline the 504 loan process from authorization to closing; establish the Accredited Lenders Program and the Premier Certified Lender program.
Background: SBA provides asset-based financing to small businesses through its 504 Certified Development Company program. The program makes loans available for acquiring land, buildings, machinery and equipment, and for building, modernizing, renovating or restoring existing facilities and sites.
A "certified development company" (CDC) is a private, public sector non-profit corporation that is set up to contribute to the economic development of its community or region. CDCs can sell 100 percent SBA-guaranteed debentures to private investors in amounts up to 40 percent of a project or $750,000, whichever is less. The CDC program has in the past required cumbersome, resource-intensive review procedures.
Description: SBA is in the process of a complete streamlining of the 504 loan process from authorization to closing, including regulations, internal operating procedures, forms and agreements. On April 24, it implemented the first steps to expedite the processing of 504 loan closings. Any qualified CDC may now apply for approval to use this expedited procedure, which allows the CDC and its private counsel to perform document preparation and review. Specifically, SBA attorney review time will be reduced from a current average of four hours, to a new average of 20 minutes per loan package.
While it moves forward in its effort to streamline the closing process, SBA has taken steps to expedite the application stage of the program. On April 26, 1995, a final rule was published establishing an Accredited Lenders Program (ALP) for Certified Development Companies that provides for expedited processing of loan applications and servicing actions by SBA field offices. Development companies with a proven track record in the submission of documentation needed for making and servicing of sound loans may qualify as accredited lenders. Applications submitted by these lenders will be processed by SBA within three working days. The ALP is intended to build upon the successful Certified Lenders Program for SBA's General Business Loan program and the pilot Accredited Lenders Program for CDCs which has been administered by SBA since 1991. The positive experience with the pilot led to its statutory authorization in The Small Business Administration Amendments Act of 1994, P.L. 103-403. The final rule implements the program.
The same law established a Premier Certified Lenders Program (PCLP) to be administered by SBA on a three-year pilot basis. The final rule implementing the PCLP was published on April 26, 1995. The program is modeled after the Preferred Lender Program for the SBA's General Business Loan Program. The PCLP development company will agree to share the risk of loan making, and in return SBA will delegate authority to the company for the purpose of authorizing, closing and servicing loans. The program responds to the significant increase in development company loan activity and recognizes the growing strength and capability of CDCs.
In addition, SBA is working closely with its CDC resource partners to improve its overall management of the 504 program. Working groups composed of SBA personnel and CDC representatives from around the country are in the process of examining the loan application process, credit analysis, loan closing and loan servicing. To streamline delivery of the program, SBA will clearly define and centralize the responsibility for data collection and maintenance, minimize paper flow, make maximum use of communications and database technology, and assure that access to database information will be integrated for ease of use. These changes are scheduled to be in place no later than August 31, 1995.
Action: Implement a pilot program to increase the number of loans made to women business owners by assisting them to pre-qualify for SBA loan guarantees.
Background: Last year, SBA examined closely its record of lending to women-owned businesses and found that historically only approximately 10 to 12 percent of SBA loans and loan guaranties have gone to women-owned businesses. Statistics show that women-owned businesses constitute more than one-third of all small businesses and that women are starting businesses at a faster rate than their male counterparts. Therefore, SBA felt that it was necessary to look at new ways to improve its ability to meet the borrowing needs of women business owners.
Description: The Women's Pre-Qualification Pilot program allows SBA to review and pre-qualify loans for women-owned businesses prior to their submission to a participating lender. The SBA pre-qualification letter assures the lender that SBA has seen the loan application and has determined that, if the lender agrees to make the loan, an SBA guarantee will be available.
The pilot began June 1, 1994, and there are presently 16 pilot sites across the country. SBA has contracted with the Women's Business Development Center in Chicago to gather data and help evaluate the effectiveness of the first six months of the pilot's operations. The results of this evaluation will help SBA decide whether the program should continue as is, be changed, expanded, or discontinued.
Action: Help small businesses obtain financing for export purposes by working with the Export/Import Bank on a one-year pilot program that streamlines procedures and offers a higher guarantee percentage. Background: Trade loans are loans to exporters which cover specific transactions, or export deals. They are short term in nature (6 to 12 months in duration), and, unlike most regular business loans, collateral is generally the goods involved in the export deal.
Many private sector lenders have little or no experience with trade loans under $1 million. Because they are not familiar with these loans, lenders believe that they are too risky and time-consuming to be commercially reasonable. Yet it is precisely these smaller loans that many small exporters need.
Description: SBA has refined its 7(a) program to meet this gap in private sector lending for export purposes. SBA has carefully designed a program to provide small business with the working capital necessary to support their export transactions. On October 1, 1994, SBA kicked off the Export Working Capital Program, which is operating on a one-year pilot basis.
In order to make this program operate most effectively, the Administration requested, and Congress approved, a harmonization, or blending, of the SBA export working capital program with the finance program of the U.S. Export-Import Bank (Eximbank). As part of this harmonization, SBA adopted Eximbank's practice of providing preliminary commitments to exporters with SBA, not the lender, reviewing the loan application first, in a manner similar to the Women's pre-qualification program.
SBA also revised its fee and interest rate policies to allow participating lenders a more reasonable return on their investment by assessing their risk and charging the appropriate market rate, usually 2 to 3 percentage points over prime. It recently authorized 16 participating lenders to process EWCP loans under the expedited Preferred Lenders Program. SBA worked with Eximbank to develop a simplified, user friendly, joint application form which now lets the exporter apply either to SBA or Eximbank depending on the loan amount requested with the larger loans going to Eximbank and smaller loans going to SBA. It developed joint lenders' guides and instructions and, with the support of the Congress, obtained the legislative changes necessary to allow SBA to guarantee 90 percent of the EWCP loan and the authority to guarantee standby letters of credit, an increasingly common feature of many international sales contracts.
SBA is committed to making this program a success. It is carefully monitoring the program during the pilot period and will refine it wherever necessary to assure that it delivers a product that meets the needs of the small business exporting community. SBA has set a national goal for fiscal year 1995 of approximately 1,600 international trade-related loans under the 7(a) business loan program. Within that goal, SBA has a sub-target of 300 loans under the EWCP.
Action: Revise Small Business Investment Company regulations, strengthen oversight, management screening and credit review, and create a class of larger, better capitalized SBICs.
Background: Small Business Investment Companies (SBICs) represent a unique public/private sector partnership for providing risk capital to small businesses. SBICs are privately-owned and managed investment firms (corporations or partnerships) licensed by SBA to provide equity and long-term subordinated debt financing to small businesses for their sound financing and to promote their growth, modernization or expansion. SBA supplements an SBIC's private capital by either guaranteeing their securities which are funded in the public markets or by purchasing their securities.
The program makes funding available to all types of manufacturing and service industries. Many investment companies seek out small businesses with new products or services because of the strong growth potential of such firms. Some SBICs specialize in the field in which their management has special knowledge or competency. Most, however, consider a wide variety of investment opportunities. Description: The Small Business Equity Enhancement Act of 1992 restructured the SBIC program, making it more effective in providing risk capital to small businesses than at any time in its 35-year history. In addition, over the last two years SBA has worked with the private venture capital industry to completely revise SBIC regulations. Oversight has been strengthened, management and credit review have been enhanced, and a new class of larger, better capitalized SBICs has been created. As a result, in 1994, the SBIC program attracted more private capital ($520 million) than in the previous 10 years combined.
Action: Implement nationally an enhanced revolving line of credit program for small businesses.
Background: SBA has traditionally offered a long-term loan guarantee program. Access to long-term financing by small businesses has historically been more difficult than for larger businesses, which often have other financing vehicles available to them. Over the past several years, it has become more and more common for SBA to hear small businesses complain that short-term credit sources have also become difficult to access. Description: SBA offers short-term and revolving lines of credit under the new CAPlines umbrella. Under the various CAPlines components, SBA provides financing for various needs including asset-based, seasonal, contract and builders' lines of credit. These programs help to finance the short-term cyclical needs of many small business borrowers. CAPlines are not subject to the $500,000 maximum gross loan amount limitation currently in place, but are limited to an SBA maximum share of the lesser of 75 percent of the loan amount or $750,000.
The heart of SBA's asset-based lending program is its ability to support lenders in their efforts to provide businesses with short-term financing, based on the business' cash cycle rather than its cash flow over an established period of time. Based on its cash needs, the borrower may take advances from the line of credit and must repay the line from cash received, throughout the term of the loan. This assures that the loan will truly revolve.
Recently, SBA took steps to make its asset-based lending program more customer-friendly. Responding to criticism that the monitoring requirements of the program were too stringent and too expensive for smaller asset-based revolving loans, SBA introduced a new, less complicated, and less costly program to handle asset-based revolving lines of credit in amounts up to $200,000.
Action: Propose rules to authorize SBA participating lenders and development companies to use computer-generated facsimile copies of SBA forms in submitting loan applications and closing documents.
Background: SBA has required that its participating lenders and development companies use SBA-provided forms in the SBA business and development company loan programs. With advances in technology, SBA recognizes that such forms may be reproduced as exact copies by computers and that use of these reproductions may in many cases help expedite the processing of SBA guaranteed loans.
Description: Under the proposed rules for the business loan and development company programs, lenders and development companies would be authorized to use SBA application and closing forms that they generate on the computer or from software prepared by third parties. This is an effort by SBA to allow participating lenders and development companies to take advantage of available technologies to expedite the processing of loans. The copies must be exact; lenders and development companies that use computer-generated forms agree to accept liability for a substantial SBA loss due to deficiencies in the forms.
The proposed rule for business loans was published in the Federal Register on March 3, 1995. The proposed rule for the 504 Development Company Loan Program was published in the Register on March 24, 1995.
Action: Increase customer access to SBA loan guarantee programs while reducing the cost to taxpayers.
Background: A crucial aspect of SBA's reinvention effort has been to seek ways to enhance its existing programs and at the same time reduce costs to the Federal Government. Presently, Congress must appropriate an amount that anticipates the subsidy cost of loan guarantees made by SBA in the upcoming fiscal year. Often, a supplemental appropriation is required because loan demand is greater than Congress expected. As a result, lenders and borrowers experience uncertainty about loan availability.
Description: The Clinton Administration has submitted legislation that will reduce to zero the SBA's subsidy rate for the 7(a) and 504 loan programs. These changes will allow SBA to serve more small firms and to provide loans in slightly larger amounts, while substantially reducing the program's cost to the taxpayers.
The zero subsidy rate will be achieved through a series of adjustments to SBA's guarantee percentages, interest rates, and program fee structures. These changes will allow SBA to increase its maximum guarantee amount to $1 million, thus allowing small business borrowers with larger funding needs to receive SBA assistance. Care was taken to assure that the fees charged to borrowers would not make the program too expensive and that the fees charged to lenders and the reductions in guarantee percentages would not be so great as to make use of the programs commercially impractical. SBA believes it has struck the proper balance, and that the proposed changes would allow it to continue to do more for small business, with less reliance on taxpayers' funds.
Action: Develop in cooperation with other federal agencies a "one-stop" electronic point of contact that small businesses can use to obtain business, economic and regulatory information. Background: Through more effective use of technology and productive public/private partnerships, small businesses can increase productivity and cut costs. In the new information-age economy, knowledge and communication are fundamental sources of wealth. Current and emerging technology is revolutionizing the way business is done -- and is indispensable to managing change. In future years, no successful business will be without access to the Internet, a sprawling "place" where over a billion electronic-mail messages go back and forth monthly among 35 million users.
Description: SBA is at the center of a government-wide effort to create a "one-stop" electronic point of contact and access for all business, economic and regulatory information that small businesses need to make informed decisions. An electronic information and services delivery system for businesses in the United States -- the "U.S. Business Advisor" -- will soon be available to offer initial solutions to make small businesses more competitive in the global economy.
Consisting of several divisions, the U.S. Business Advisor will be accessed through the Internet and offer government-wide access to financial and regulatory information and resources, all in one place. Responding to the small business community's need for better access to regulatory information and compliance assistance, the first division to open will be the Regulatory Assistance Center (RAC). Initially, RAC will access selected sources of important government information, including federal and state environment, safety and health statutes and regulations; the Department of Commerce's National Trade Data Bank, which contains information on overseas markets, how-to guides for exporters, general information on foreign countries, and over 60,000 foreign business contacts; a global electronic commerce system for environmental technology; EPA and OSHA compliance guides and assistance; IRS forms; and Customs import regulations. As it evolves, RAC will become the one-stop place to go for everything a business might require to address its regulatory, reporting and compliance needs. It will allow easy access to a full range of plain-language regulatory guidance and compliance assistance information to help businesses understand regulatory requirements, including self-assessment tools, forms, training modules, expert systems and best management practices. Increasingly, small businesses are demanding better, faster, and more timely service from the Federal Government. Creating a customer-driven, results-oriented Government that offers quality service is an important goal of the Clinton Administration. Through technology and productive partnerships, SBA and other federal agencies can become more accessible and more responsive to small businesses. "Opening" the U.S. Business Advisor is an important part of that process. SBA will seek to make the U.S. Business Advisor accessible to all small business owners, regardless of their technological capabilities. It will be made available via computer for those without access to the Internet. For those small business people without a computer, various options are being explored, including making the U.S. Business Advisor accessible at SBA's 950 Small Business Development Centers and sub-centers and its 16 Business Information Centers.
Action: Expand the network of Business Information Centers (BICs) to provide better access for small businesses to state-of-the-art technologies and information sources.
Background: During this time of rapid change, small businesses need access to the latest in high-technology hardware, software and telecommunications in order to compete effectively and grow.
Description: SBA's Business Information Centers provide one-stop state-of-the-art assistance and advice to small business owners plus one-on-one counseling and training through the Service Corps of Retired Executives (SCORE). BICs are now in sixteen locations across the country: Seattle, Atlanta, Houston, Los Angeles, St. Louis, Nashville, Chicago, Boston, Kansas City, Washington, D.C., San Diego, Baltimore, Fort Worth, El Paso, Charleston, South Carolina and Fairmont, West Virginia. BICs use state-of-the-art personal computers, graphics work stations, CD-ROM technology and interactive videos, allowing small business owners access to market research databases, use of planning and spreadsheet software, and use of vast libraries of information to help them start or build businesses. The BICs offer electronic bulletin boards, computer data bases, on-line information exchange, periodicals and brochures, counseling, videotapes, reference materials, texts, start-up guides, application software, computer tutorials and interactive media.
BICs receive major private sector support from sponsors such as Apple Computer, Dell Computers, Dun & Bradstreet, Microsoft, U.S. Sprint and others. In cooperation with its private sector co-sponsors and SCORE, SBA has expanded the network of BICs recently in its continuing effort to ensure that America's small business people have access to the best available resources.
Action: Streamline the operating procedures for the Cosponsorship program and reduce the paperwork burden for SBA's private sector partners.
Background: SBA extends and expands the limited resources it has available for small business training and counseling through the Cosponsorship program. Cosponsorship enlists the aid of non-profit and for-profit entities, as well as federal, state and local government agencies.
Typical projects include training seminars and workshops, publications, conferences, and expos and fairs involving SBA programs. Topics include international trade, minority business opportunities, women's business ownership procurement opportunities, finance programs, rural initiatives, veterans and a wide variety of special endeavors such as computer training, workplace literacy, ethics, employee theft and drug-free work environments.
Description: SBA's standard operating procedures (SOP) for the Cosponsorship program were complex and inhibiting, micromanaging the process from the central office and imposing considerable paperwork burdens upon private sector cosponsors. SBA has thoroughly streamlined its SOP, reducing it from 76 pages to 26, increasing field office flexibility and responsibility, removing financial and paperwork constraints from private sector partners and slashing internal paperwork requirements by more than 75 percent.
Action: Promulgate regulations for the Small Business Development Center (SBDC) program and propose legislation that will streamline administration of the SBDCs, reduce costs, and consolidate the women's and minority training assistance programs under the SBDC program.
Background: The Small Business Development Center program is a cooperative effort of the private sector, educational institutions and federal, state and local governments to meet the basic and specialized needs of the small business community. The SBDCs' primary objective is to further economic development by providing counseling, training, research and specialized assistance in all aspects of business management. More than half of all SBA counseling and two-thirds of all training efforts are provided by Small Business Development Centers.
Description: In October of last year, SBA responded to industry requests that regulations be promulgated to govern administration of the program. Since creation of the program in 1980, it had been operating under direct statutory authority, without regulations. The new regulatory framework, which will be published in the Federal Register this week, codified and clarified the procedures under which the program had been operating. The regulations have been well received by the industry.
SBA's reinvention legislative proposal would streamline the administration of the SBDCs and reduce taxpayer costs. Under the proposal, other grant programs currently providing management and technical assistance to differing segments of the small business community would be consolidated under the SBDC program. The Women's Demonstration Project and Minority Business Training Program would be administered by the SBDCs, streamlining the delivery of services and reducing the overhead of these programs.
In order to maximize the services provided by SBDCs to the small business community, the proposal also allows SBDCs the flexibility to use various delivery mechanisms, including, but not limited to, institutions of higher learning and local non-profit economic development organizations. SBDCs would retain the authority to receive funding from other Federal and state entities. The legislative proposal would keep existing eligibility requirements for SBDCs and add a requirement that SBDCs work closely with state governments in developing relationships with state and local economic development organizations to broaden the services provided.
Action: Clarify and streamline SBA's regulations, revising or eliminating any duplicative, outdated, inconsistent or confusing provisions. As a result of this process, SBA regulations will be cut by more than 50 percent by the end of the calendar year.
Background: SBA has championed Administration efforts to reduce regulations on small businesses as part of its government-wide advocacy role. The SBA-sponsored Small Business Forum on Regulatory Reform made numerous recommendations and findings, including the need to revise or eliminate outmoded, confusing or duplicative regulations. On March 4, 1995, President Clinton directed all agencies to conduct a review of all regulations to determine what might be revised or eliminated.
Description: In response to the President's directive, SBA has completed a page-by-page and line-by-line review of each of its regulations. Individual regulations were analyzed to determine if they imposed any unnecessary burden on small businesses or if they more appropriately should be included in internal operating procedures. SBA has sought to ensure a less cumbersome and more efficient process, with an emphasis on enhanced customer service.
This three month review process has yielded impressive results. Agency teams reviewed the 700 pages of SBA regulations in detail, identifying specific ways to streamline and simplify. Overall, SBA will reinvent 100 percent of its regulations, resulting in the elimination of 355 pages of regulatory text -- or 51 percent of its regulations. Some of these changes are described elsewhere in this report in the descriptions of particular program reforms, but they will also include: consolidation of all discrimination regulations; simplification of size regulations; simplification of 8(a) program regulations to expedite eligibility reviews and contracting actions; and the consolidation and redrafting of all business loan regulations into one section to facilitate use and save time.
Action: The President has issued a Memorandum on Regulatory Reform directing agencies to modify or waive penalties for small businesses in certain situations.
Background: The SBA-sponsored Small Business Forum on Regulatory Reform recommended measures to encourage voluntary compliance with regulations and develop more flexible enforcement mechanisms.
Description: On April 21, 1995, President Clinton issued a Memorandum on Regulatory Reform, directing department and agency heads to implement two important policy initiatives. Agencies are directed to use their enforcement discretion to waive the imposition of all or a portion of a penalty when the violation is corrected within an appropriate time period. For those violations that may take longer to correct than the period set by the agency, federal agencies will waive up to 100 percent of the financial penalties if the amounts waived are used to cure the violation.
The Memorandum directs federal agencies to implement these new policies on or before July 14, 1995. As part of their implementation plan, the agencies must include information on how notification of the new policies will be given to small businesses. SBA is working with EPA and OSHA and other agencies to assist them in implementing and disseminating information about the policies.
Action: The President issued a Memorandum on Regulatory Reform that directs agencies to reduce the paperwork burden on small businesses.
Background: Included among the recommendations of the SBA-sponsored Small Business Forum on Regulatory Reform was the need to reduce the paperwork burden on small businesses.
Description: On April 21, 1995, President Clinton issued a Memorandum on Regulatory Reform directing agencies to reduce by one-half the frequency of the regularly scheduled reports that the public is required, by rule or by policy, to provide to the Government (from quarterly to semiannually, from semiannually to annually, etc.). Each agency is required to submit a plan by June 15, 1995 to the Office of Management and Budget describing the actions it is taking to implement this paperwork reduction.
Action: Simplify the disaster loan assistance program by reducing filing requirements. Increase loan limits and propose legislation to reduce the subsidy rate for disaster loans, allowing SBA to quadruple the number of loans it makes with the same subsidy.
Background: SBA's disaster loans are the primary form of Federal assistance for nonfarm, private sector disaster losses. SBA provides long-term, low interest loans to cover those losses not compensated for by private insurance. The disaster loan program is the only form of SBA assistance not limited to small businesses. SBA's disaster loans are available to homeowners, renters, businesses of all sizes, and nonprofit organizations. Given the rising Federal costs resulting from the tremendous level of disasters experienced over the last six years, SBA is participating in a Government-wide effort to reform the way we respond to disasters.
Description: SBA has made many changes to simplify the disaster loan assistance program and make it more customer friendly. Specifically, it has:
(1) Simplified the home loan filing requirements. SBA now requires certain information only after a loan is approved so that disaster victims are not required to do unnecessary paperwork.
(2) Simplified the filing process and the requirements for disaster business loans. As a result of its experience in the Midwest floods, SBA has cut the length of its disaster loan application in half.
(3) Increased the disaster home loan limits from $100,000 to $200,000 for real estate damage, and from $20,000 to $40,000 for personal property damage.
(4) Modified the major source of employment criteria to permit consideration of waiver of the $1.5 million business loan limit in more cases. (The law provides a maximum loan limit of $1.5 million for any business in any one disaster. It also permits SBA's Administrator to waive that limit for a "major source of employment", as defined in our regulations. The modification made it easier for businesses to qualify as major sources of employment.)
Furthermore, the reinvention legislative proposal SBA recently submitted to Congress would reduce the subsidy rate for disaster loans in fiscal year 1996 from its current level of over 31 percent to 8.46 percent. This reduction would permit SBA to make $407 million in disaster loans with its requested subsidy authority of $34 million as opposed to $110 million in loans with the current subsidy rate.
We acknowledge the contributions of Administrator Philip Lader, Deputy Administrator Cassandra Pulley, and all the hard-working, dedicated employees at the SBA.
Special appreciation also goes to John Spotila, Ronald Matzner, and Jeffrey Lane of SBA for their work in drafting this Report.