The SBA and Economic Turnaround

What Role Will the SBA Play in Economic Recovery?

Small business experts are lobbying for an elevated role for SBIC in jumpstarting entrepreneurship and small business investment under the Obama Administration. Charles Morton, an attorney at Venable LLP, weighs in on the subject.

As the Obama team focuses on ways to jump-start the nation's economy, prime attention has been on infrastructure projects, homeowner relief and attempts to free-up locked credit markets.

One major source of stimulus largely overlooked is the Small Business Administration, the government agency that since 1953 has served to provide loans, equity capital, training, disaster assistance and other support for U.S. small businesses.

The SBA has come under fire lately for failing to provide capital to small business owners. Indeed, SBA-backed loans fell sharply in 2008; the fourth quarter was especially rough, with the SBA's biggest lending program down 40% from the prior year.

Congress has also come down hard on the agency for poor oversight of federal procurement as well as for problems stemming from relief following Hurricane Katrina.

We were recently contact by Charles Morton, a finance attorney at Venable LLP, one of The American Lawyer's top 100 law firms. In 2008, Mr. Morton was appointed to the board of directors of the Maryland Technology Development Corporation (TEDCO), the most active early stage investor in America for each of the past 5 years according to Entrepreneur magazine. Mr. Morton also teaches an undergraduate entrepreneurial course focused on tech transfer at Johns Hopkins University.

Mr. Morton says that despite its recent slips, the SBA is critical for reviving Main Street businesses that drive so much of America's economy.

Like many involved in advising small and mid-sized businesses, he is strongly in favor of a more prominent role for the SBA under the Obama administration.

"The SBA has historically been the most important source of entrepreneurship financing in the U.S.," said Mr. Morton, who advises many small businesses on how to obtain mezzanine funding and other forms of financings. In addition to working with business owners, he also works with investors in those companies.

He notes, and we agree wholeheartedly with him, that President Obama has an historic opportunity to help America's small business sector by revitalizing the SBA and giving its new director Karen Mills a prominent role in implementing economic policy. Ms. Mills is a Maine-based venture capitalist and investor nominated by Mr. Obama to lead the SBA.

Mr. Morton applauded initiatives lately floated by members of Obama's transition team, including a proposed rebuilding of SBA staff, adding to its budget, retooling its primary loan program, and strengthening guidelines for small businesses that contract with federal agencies.

He indicates that more support for the SBIC, investment firms expressly licensed to provide financing for entrepreneurial companies, is necessary. The public-private partnership between the SBA and SBIC firms provides powerful sustenance for the small business economy.

"SBIC funding is a vital bridge between 7(a) loans available through the SBA and the larger private equity deals," Mr. Morton explains. "The funding is essentially a form of mezzanine financing to help companies get to the next level." He notes the presence of approximately 350 SBIC companies nationally that provide financing in amounts between $3 million and $20 million.

"The successful revamping of the SBA and increased use of SBIC financing will both be hugely instrumental in getting the American economy to the other side of the river," he concludes.

There is a growing chorus of small business experts who are advocating that the SBA play a large role in stimulating the down economy.

We hope that the Obama Administration will take note and will take the appropriate actions to stimulate the small business economy.

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Do you agree that the SBA will play a big role in turning around the down economy? Do you agree that more SBIC support is necessary? Please weigh in on the discussion with your comments, opinions, suggestions and advice. Thanks.

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