Picking Winners and Losers in the S.B.A. Budget

I recently received a communication from the ASBDC, the Association of Small Business Development Centers highlighting this post on the NY Times blog.  As you will see when you read it the discussion references a potential reduction in the federal allocation to the Small Business Development Center program.  While many people think of the SBA as a capital access source for small businesses it also funds the SBDC program to provide counseling and technical assistance to small business owners in any stage of business from start-up to existing.  My experience as an SBDC Regional Director is that this is a critical function for the success of small businesses.  The more knowledge and support a small business entrepreneur has the higher the chances of success.  With government programs available to small businesses disappearing all there really is to help is the SBA, SBDC and SCORE.  Reductions to these programs at the federal level will lead to state and local reductions that will have a larger impact on those needing the services than originally intended.

I wanted to share this and get your thoughts on the article.  Feel free to leave comments here or at boss.blogs.nytimes.com.

Best,

Mike

Picking Winners and Losers in the S.B.A. Budget - NYTimes.com

Small Business Administration officials often describe their mission as providing access to the “three Cs” — credit, counseling and contracts with the federal government. In The Agenda’s first report on the Obama administration’s proposed 2012 budget for the S.B.A., which seeks $818 million for small-business efforts, we noted that the agency planned to either limit its ability to make loans or to make fewer loans, depending on the program. Today, we turn to counseling.

The Obama administration, which combed its portfolio to find cuts wherever it could, would reduce funding for its biggest counseling program, the nation’s network of small-business development centers, by nearly 10 percent, from $113 million in 2010 to $103 million. But the $7 million grant for Score, a smaller but better-known S.B.A.-financed counseling program that serves the same broad constituency, will not be cut.

And that raises an interesting question: since the S.B.A. is determined to trim $1 million here, or $8 million there, why is Score spared while small-business development centers sacrifice? The Agenda went looking for an answer, and found itself waist-high in a swamp of bureaucratic opacity. Here’s what we learned:

Small-business development centers, jointly financed by state or local governments and the S.B.A, run training programs and seminars and keep advisers on hand to counsel business owners (and would-be business owners). The counselors are ex-business owners or company managers, or have provided such professional services to businesses as human resources consultants, accountants, bankers and the like. They also help businesses find capital, both by preparing them for the loan application (or the venture presentation) and by introducing them to financiers. There has been no credit crunch for S.B.D.C. clients in the last few years, at least according to statistics provided by the S.B.D.C.’s to the S.B.A.: “capital infusion” was actually higher from 2008 through 2010 than it was in 2007, before the recession. (This could reflect the caliber of the advice clients receive from the centers, or the fact that they were smart enough to seek advice in the first place.)

In many ways, Score is a similar program. It, too, gets about half its budget from the federal government (the other half is raised privately). The organization is still legally known as the Service Corps of Retired Executives, but in practice has dropped the full name for the acronym because, according to its chief executive, Ken Yancy, many of the volunteer counselors “are entrepreneurs, rather than executives, and many are not retired.” (Mr. Yancy said that almost 70 percent of new recruits claim some small-business experience.) With around 13,000 occasional volunteers in 360 chapters around the United States, Score can sometimes refer a client to an adviser with expertise in his or her industry. Often, Score counselors end up serving as mentors to novice charges, although You’re The Boss readers report mixed experiences.

Jonathan Swain, an S.B.A. spokesman, insisted that the decision to cut S.B.D.C. financing while sparing Score was not an instance of playing favorites. Instead, he said, “this is about having to make tough choices. We were asked to identify programs within the agency where we could find efficiencies and save taxpayer dollars.” Score’s investment in Internet tools for training small-business owners is one way the agency would deliver “more bang for the taxpayer’s buck,” Mr. Swain added. “When we negotiate with Score, we set a goal for them to reach a certain number of clients, and they exceeded that goal. Further investment in their online capabilities will allow them to reach even more.”

Yet a close reading of the S.B.A.’s justification for its budget reveals something curious: the agency spends a lot of money to administer the funding for Score. For 2012, the agency estimates it will cost $6 million to operate the program — on top of the $7 million the organization itself will get. Before 2009, operating costs exceeded, or were nearly as much, as the funding itself. In fact, in the middle of the last decade, the administrative costs were two-and-a-half times the size of the grant.

By contrast, the S.B.A. proposes to spend about $16 million to manage the S.B.D.C. relationship. It maintains an office dedicated to the program at agency headquarters. In addition, local S.B.A. program officers and district directors oversee and work with their local centers, according to C. E. Rowe, president and chief executive of the Association of Small Business Development Centers. But the direct grant to the S.B.D.C. network is 14 times as big as the Score grant, while the operating costs are less than three times as high.

No similar infrastructure exists for the Score program. Within the S.B.A. headquarters “there is an individual who is a Score program manager, and we report to her on a quarterly basis,” said Mr. Yancy. He added that while he wasn’t privy to the S.B.A. cost calculations, he suspected they had more to do with accounting methods than actual expenses. “I do not think that people are spending more or less time on Score as the numbers change,” he said. Some of the expense is rent — unlike the S.B.D.C.’s, Score uses office space at 133 S.B.A. locations, said Mr. Swain, which costs the agency about $2 million.

But Mr. Swain largely deflected questions about the agency’s operating budget for the counseling programs (projections that he said were based on employee time-keeping surveys), arguing that the agency’s costs for running the counseling programs didn’t really speak to their overall efficiency. “Since they are two very different organization and service delivery models, it’s not necessarily an apples-to-apples comparison,” he said.

In fact, it is almost impossible to compare the efficiency, or the efficacy, of the two programs, and not just because of the distinct approaches. The S.B.A. also measures the programs against different yardsticks. And both Score and the S.B.D.C.’s lack crucial information about who their clients are, and sometimes what they do know conflicts with what the S.B.A. claims. For instance, Score claims that in 2009, it helped create 68,000 businesses; the S.B.A., in its budget submission, puts the number at 931.

In the end, though, perhaps the S.B.A. is simply protecting a valuable brand — Score is certainly better known than the S.B.D.C. network. “It’s something we’ve discussed regularly with our membership,” said Mr. Rowe, of the S.B.D.C. association. “Being a best-kept secret is a poor marketing strategy.”

Last May, my colleague Jay Goltz, recalling his own vintage encounter with Score, called for readers to share theirs. Today, we’d like to hear about your experiences with S.B.D.C.’s. Were they productive?  Click here to post your comments on the NY Times Blog page.

via boss.blogs.nytimes.com