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What's New with the SBA?

          This past year, the Small Business Administration (SBA) has been under grave political attack; some voices had even called for the abolition of this service. Indeed, the agency was "out of business" during a three-week Federal budget shutdown the first of the year resulting in a staggering backlog of loan guaranty applications. Many people are concerned to know what is now happening at the SBA.

          The SBA is certainly on the job. Its 7(a) General Business Loan Guaranty, §504 Certified Development Company Loan, and Surety Bond Guaranty programs have all been funded by the Congress to operate through FY-1996. In fact, the funding level for §7(a) loan guaranties is $10.9 billion, substantially higher than the $7.8 billion volume written in FY-1995 and even the record level of $8.2 billion achieved in FY-1994. The 504 loans have been authorized up to $2.65 billion, and surety bond guarantees have been authorized up to $1.7 billion.

          In response to the Clinton-Gore Administration's initiative of "Reinventing Government," the SBA has taken the lead in streamilining its operations by cutting its own regulations by more than 50 percent. SBA Administrator Philip Lader announced on February 22, "[t]he SBA is the first federal agency to complete that task, and we have set an example for other agencies to follow as they continue their own reinvention efforts. ... SBA's remaining regulations are easy to understand ... They are written in plain English; they are coherent and user-friendly. Small businesses won't need lawyers in order to understand or use them." All of the SBA's business loan regulations are now consolidated into one concise section.

          The SBA is immediately accessible to smaller businesses through its Internet presence, "SBAOnline," []; all of the revised regulations are available on this Web site. The agency has also established an online service offering the smaller business "one-stop access" to Federal government information, services, and transactions on the Internet, "U.S. Business Advisor" []. Of course, both of these SBA resources are also directly accessible through The Business Forum: Useful Web Links for the Smaller Business and Entrepreneur [].

          With the understandable concern almost all citizens have about the burgeoning costs of government and the Draconian efforts now being made to reduce these costs, the SBA was pleased to announce on the 13th of February having received for the first time a profit-sharing distribution from an SBA-licensed Small Business Investment Company (SBIC). Under regulations established in April of 1994, the agency can furnish funds in the form of participating securities to SBICs. These new securities permit the SBICs to suspend repayment of their debt to the SBA until their investments in these ventures become profitable. Of course, these new securities enable the SBA to then participate in the earnings of these successful ven-tures.

          This first-time payment of $35,000 to the agency was made by Piper Jaffray Healthcare Capital, LP of Minneapolis (an SBIC), and represents the taxpayers' share of the profits generated from investments made with funds backed by the SBA. Piper Jaffray Healthcare's aggregate distribution to the agency totaled almost $1.16 million. This total represented a $792,000 redemption of a portion of Piper Jaffray’s outstanding participating securities, a $330,000 reimbursement for interest the SBA had paid on Piper Jaffray's behalf, and the agency's profit participation of $35,000. Philip Lader observed, "This is a mile-stone for the SBA, for capital-starved small businesses and for taxpayers. It is the first success story in the relatively short life of this SBIC program; we are looking forward to similar successes in the future."

          Another breakthrough this year is the raising of $73.32 million of private investment capital for entrepreneurs to fund part of this SBIC program. These funds are designated for 9 SBICs licensed by the agency to supplement the venture capital investment funds they have already raised privately; these SBICs have combined private capital totaling almost $180 million. Lader believes this "... SBIC program is an outstanding example of the way SBA's partnership with the private sector is generating new capital to finance tomorrow's economic growth."

          Intel, Apple Computer and Federal Express were unknown startups not long ago that each benefited during their early stages through SBICs funded with SBA-backed investments. Today, responding to what had appeared to be political adversity, the agency is demonstrating vigor and imagination in meeting the diverse needs of the smaller business. The nation's public/private venture capital pool is being expanded for small emerging growth companies, and the established loan guaranty programs have been fully funded by the Congress.

Your comments and suggestions for these pages are most welcome!

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Thomas A. Faulhaber, Editor

Telephone: 617.232.6596 -- FAX: 617.232.6674

Brookline, Massachusetts 02446.2822    USA

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Revised: March 1, 1999 TAF

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