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PrintSBA Urged To Provide More Capital for Small Manufacturers
By Catherine Hubbard, CCH Washington Staff Writer
Is the Small Business Administration (SBA) effectively meeting the needs of all small business sectors in the United States? Some critics say no and believe changes are necessary.
The SBA's guaranteed loan and finance programs should be modified to make it easier for small manufacturers to obtain loans, according to the head of the Small Business Committee in the House of Representatives. The statutory loan limits on many of the programs are too low to meet the needs of manufacturers and, as a result, most SBA loans go to small service-oriented businesses, Chairman Don Manzullo (R-Ill.) said at a March 20, 2003, committee hearing.
"A manufacturer's expansion costs are much greater because industrial construction is more expensive and costly manufacturing equipment is often involved," Manzullo explained. He said Congress must take steps to restore manufacturing in America. "We have lost 2 million manufacturing jobs the past year in America, and more cuts are on the horizon."
In response, Ronald Bew, SBA's associate administrator for capital access, said that all of SBA's programs "are available to small manufacturers and will continue to be." In fiscal 2002, SBA provided financing of more than $2.7 billion to small businesses in the manufacturing sector, he said. However, Bew said the SBA wants to work with Congress "to come up with some creative solutions to assist small manufacturers."
Bew said SBA is putting forward a package of legislative proposals to improve existing capital access programs that would:
- Improve oversight of Small Business Lending Companies (SBLCs).
- Change the eligibility requirement for participation in the Microloan program and allow intermediaries more flexibility in determining how to best serve their customers with technical assistance.
- Change the loan loss reserve applicable to the 504 Preferred Certified Lending Program (PCLP) to make the formula a less strict, more flexible, graduated system to protect against program losses. The proposal would allow the PCLPs to establish a loss reserve commensurate with their individual portfolio, using a loan grading procedure similar to those found in the banking industry, Bew said.
- Allow the Small Business Investment Corporation (SBIC) program to remain at a zero subsidy.
Robert Finkel, president of Prism Capital, said SBICs already provide significant support to manufacturing companies. In fiscal 2002, SBICs invested $737 million in 434 small manufacturing firms located in 41 states. That was 28 percent of all SBIC dollars invested in fiscal 2002 and 22 percent of all companies that received SBIC financing that year, he said. SBA reports that 21,050 jobs were created and, using average employment numbers for SBIC-financed companies, over 68,000 manufacturing employees were supported by those investments.
To make even more funds available to invest in manufacturing companies, Finkel suggested SBA allow SBICs investing in small U.S. manufacturing companies to exceed current maximum leverage amounts set by the SBIA (currently $113.4 million).
Credit Crunch
David Bartram, president of U.S. Bank's SBA division, said the Administration's budget request for SBA loans is inadequate and "could cut off the borrowing capabilities of many businesses." Now is the "wrong time to limit small business financing," he said in written testimony. In order to preserve jobs and avoid loan caps next fiscal year, $12.5 billion in the SBA 7(a) program will be needed, he said, adding that the Administration's requested fiscal 2004 program level would be more than 25 percent below the projected level of demand. "A $9.3 billion program would most likely result in the SBA rationing credit," he said.
"Many manufacturing firms are unable to obtain new capital at any cost, having been shut out of their traditional banking sources," said Colorado Enterprise Fund Executive Director Ceyl Prinster. The group recommends $5 billion in 504 program funding for fiscal 2004. In contrast, SBA has proposed $4.5 billion in program funding for fiscal 2004 -- $.5 billion above fiscal 2003 funding. "Without expansion of outreach by SBA's programs, we may find it nearly impossible to provide the capital to help American industry regain it world leadership role in manufacturing," she warned.
