Toward A 21st Century Small Business Administration

Readers of a certain age may recall the 1990s sketch, “In the Year 2000,” on Late Night with Conan O’Brien. In it, Conan and his sidekick, Andy Richter, would make silly and often crude predictions about what might happen in that fantastical future year. Here is one, neither silly nor crude, they could have made with stunning accuracy:

In the Year 2000, the U.S. Congress will reauthorize the Small Business Administration—and won’t do so again for another quarter-century.

[crickets]

OK, not exactly the stuff of comedy lore; a sound engineer definitely wouldn’t even put that to a laugh track. But in terms of predictive precision? Spot on.

Toward the very end of December 2000—over 8,000 days ago—President Clinton signed a bill that included, among other things, SBA reauthorization.

And that was it. Congress hasn’t reauthorized SBA again since then. They came close—so close—in 2019 but couldn’t get across the finish line. Today, a new report out from the Bipartisan Policy Center (BPC), in collaboration with Goldman Sachs 10,000 Small Businesses Voices, makes the case that it is high time Congress got this done.

What On Earth Does SBA Reauthorization Mean?

First things first. It’s obvious to anyone that absence of reauthorization has not meant that the Small Business Administration has stopped operating. If anything, the agency’s profile has only increased, especially in the last few years. During the Covid-19 pandemic, SBA was responsible for disbursing over $1 trillion in emergency aid to small businesses through Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP). That amounted to about one-sixth of the federal government’s entire relief effort. For an agency that annually accounts for around one percent of the federal budget, it was quite a responsibility.

Were there challenges? Of course. Investigations uncovered billions of dollars in fraud; media stories highlighted patently ridiculous examples of PPP loan recipients. (Such as … the Los Angeles Lakers? They returned it, but still.) Were those challenges inevitable? Probably. You try getting a trillion dollars out the door, using outdated government technology systems, in 14 months and see how many problems you can avoid. SBA was in the headlines constantly in 2020 and 2021.

Beyond pandemic relief, SBA’s profile has risen dramatically for many small business owners who didn’t previously interact with the agency. Application rates for SBA-guaranteed loans (such as through the 7(a) program) have more than doubled, even excluding emergency loans. SBA’s “resource partners,” such as Small Business Development Centers (SBDCs), which help deliver technical assistance, report that they still have client loads that are twice as large as before Covid.

So it’s clear, no matter what Congress has or hasn’t done on reauthorization, that an intervening period of over 22 years has not kept SBA from operating effectively. But, just what exactly is “reauthorization”? Permit a slight digression into legislative wonkery.

As part of practicing good governance and exercising its oversight responsibility, Congress must periodically reauthorize certain agencies and programs. For example, the so-called Farm Bill is up for reauthorization this year, with billions of dollars at stake for things like crop income support for farmers and food assistance for low-income families. Reauthorization of the Federal Aviation Administration (FAA) is also due this Congress—kind of an important one.

SBA—the sole agency with the exclusive charge of helping support millions of American small businesses—will turn 70 in July. Between 1980 and 2000, Congress reauthorized SBA seven times. That’s a lot! On average, about every three years. Congress may have felt that it overachieved so needed to let the agency be for a while. The upshot has been that, now, for about one-third of its entire life, SBA has lacked reauthorization.

Why Reauthorization Now?

As with so many things these days, the proximate answer is: Covid. We already know that during the first months of the pandemic, small businesses were reeling. In April 2020, according to Robert Fairlie, there were 3.3 million fewer “active business owners” in the United States than in February 2020. That was a 22% decline. It recovered in subsequent months, but small businesses continued to suffer for much longer. All the while, as noted above, SBA was hustling to get emergency money to them. Small businesses and their Washington agency were put through the wringer.

For any agency, in any part of the economy, that experience alone would be enough to prompt policymakers to say, “Hey, we haven’t reauthorized this agency in 20-plus years and they just went through this searing crucible, maybe we should revisit that?”

Yet the pandemic also had another major effect for SBA: it highlighted, in unremittingly stark terms, some longstanding challenges that have confronted policymakers (and not just SBA) for years.

Take, for example, access to capital. There’s been no shortage of media stories and academic research finding that access to PPP loans was very uneven along demographic and geographic lines. This was not a new phenomenon. Financing needs for many small businesses go unmet each year because of various barriers. Research has found that business owners of color have much lower approval rates on loan applications than white business owners even when their credit profiles are the same. Part of the rationale for SBA’s existence is to help facilitate credit provision for those businesses that cannot otherwise obtain it. That’s not an easy task, of course. But in the wake of the pandemic, and when these gaps in access to capital have persisted for so long, the time to address them has come.

Reauthorization provides a good vehicle for Congress and SBA to closely examine such foundational issues and determine the best way to approach them.

What Would Reauthorization Entail?

Fortunately, Republicans and Democrats are not so far apart when it comes to small business policy. Support for small businesses is, unsurprisingly, very bipartisan. And anyone looking for bipartisan bills as a starting point is in luck: in the 117th Congress (2021-22) alone, there were at least 68 bipartisan bills introduced that dealt with the core functions of SBA: lending, procurement, and technical assistance. Only a handful became law.

Some of those bills are fairly minor affairs: requiring formation of an advisory committee on this or that topic, for example. Others were more substantial, sometimes strikingly so: a bill sponsored by Sens. Joni Ernst (R-IA, now ranking member on the Senate Small Business Committee) and Gary Peters (D-MI) would allow small businesses to use government-guaranteed loans to “provide child care services to their employees.” That’s no small matter.

The BPC report contains more than two dozen recommendations. It doesn’t touch every area of SBA but offers a place to start for Congress and the agency to work together on addressing areas of improvement and doubling down on SBA strengths.

In the year 2023 …