News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release
February 8, 2008     

CONTACT: Press Office,  (202) 225-4038

President’s Budget Fails U.S. Small Businesses
FY2009 Proposal Amounts to 33% Decline in Funding Over Past Seven Years

WASHINGTON, D.C. — Americans are facing a worsening credit crunch, millions are in peril of losing their homes, and the economy continues to show clear signs of a looming recession.  The situation calls for a sound budget that invests in small businesses, which have led previous recovery cycles and have always been at the core of economic growth.  For the seventh year in a row, however, the Bush Administration chose to ignore those facts.  Instead, the President cuts the Small Business Administration’s (SBA) funding by an additional 15% and further erodes programs that serve entrepreneurs.  Yesterday, the House Committee on Small Business examined his proposal, and heard testimony from SBA Administrator Steven Preston.

“This President is turning his back on small businesses at the very moment our economy needs them most,” said Chairwoman Nydia Velázquez. “If we are serious about restoring our economic strength, there is no better way than investing in the nation’s small firms. This budget does the opposite.”

The proposal cuts several initiatives which provide crucial technical assistance to entrepreneurs, among them the Small Business Development Centers and the Women’s Business Centers.  The president also slashes funds for the 7(a) loan program and raises lender fees to the highest allowable level.  This all comes at a time when 80% of banks are tightening lending standards and an immediate infusion of capital is needed to restore financial stability.  The budget dismisses the gravity of this situation, leaving the nation’s most vulnerable businesses with little support and even fewer financing options.

“Access to affordable capital and a lack of adequate development resources have always been huge challenges for small businesses.  This proposal should address that—especially in the current economic climate, but it only exacerbates the problem,” said Chairwoman Velázquez.

Besides eroding various SBA initiatives further, the FY2009 package terminates many of them outright.  These include Microloans—one of the SBA’s only sources of assistance for low-income entrepreneurs—as well as Business LINC and PRIME.  The budget also fails to provide funding for the New Markets Program, SBIR Fast and SBIR Rural Outreach.

“In every way, this runs counter to what our nation’s entrepreneurs need and deserve,” added Chairwoman Velazquez.  “Small businesses are working hard to restore our economy to its full strength.  They should not have to do it alone.”

Specifically the President’s budget would:

• Increase fees for the 7(a) Program: This is the SBA’s primary loan program, providing loan guarantees to eligible small businesses unable to secure affordable financing from other sources.  The budget proposes cutting 100% of funding and increasing lender fees to the highest allowable level.  The move discourages financial institutions from offering affordable capital to small firms at a time when that infusion is most needed.

• Raises interest rates for the Microloan Program: Microloans are a crucial source of capital for entrepreneurs who don’t have strong credit histories. These loans have been particularly successful in helping women and minorities build businesses in their communities. The President’s budget provides no new funding for the program or accompanying technical assistance.  He also raises the interest rate charged to participants sharply.

• Cuts Funding for the Women’s Business Centers:  Despite a demonstrated need for this resource, funding is cut nearly 10%. The centers provide crucial counseling and development support for women entrepreneurs. This inadequate level of funding will prevent any new centers from opening.  This will have a particularly harsh impact on women in disadvantaged communities.

• Cuts Funding for Small Business Development Centers: Even as he charges SBDCs with additional responsibilities, the President cuts their funding by 10%. These centers have a proven record of achievement and provide crucial technical assistance to entrepreneurs—especially with respect to weathering an economic downturn such as the one the nation is experiencing. By not giving SBDCs the needed support, the President is risking the future success of entrepreneurs in the name of penny-pinching.

• Maintains Inadequate Staffing levels:  Since President Bush came into office, the SBA has been hobbled by inadequate staffing.  That has impacted employee morale, hurt the agency’s ability to serve the nation’s entrepreneurs and led to increases in fraud. Instead of addressing this pressing issue, the President has requested a staffing level 1/3 less than when he took office in 2001.

The FY2009 budget also cuts funding for the following programs:

• Business Information Centers – Terminated
• Business LINC – Cut 100%
• New Markets Program – Cut 100%
• PRIME – Cut 100%
• SBIC Participating  Securities– Program Shut Down
• SBIR Fast – Cut 100%
• SBIR Rural Outreach – Cut 100%
• 7(j) – Cut 24%

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