Critics Tee Off On Small Business Preferences Two strong critics of federal small business programs aired their views at a Senate hearing, saying the programs help a few companies at the expense of many others. Sen. Tom Coburn (R-OK) said he convened the April 6 hearing before his Subcommittee on Federal Financial Management to assess the effectiveness of the Small Business Administration. “While the SBA is supposed to help small business, the interests of small business and the interests of the SBA are synonymous if and when the SBA is achieving its mission effectively and efficiently,” he said. Announcement of the hearing touched off a storm among some small business advocates because two of the witnesses had urged that federal preferences for small firms should be abolished. Women Impacting Public Policy called the hearing “an insult to small businesses.” Southern Illinois University historian Jonathan Bean described SBA as an affirmative action agency whose support comes from bankers and members of Congress, not entrepreneurs. “In short, if the SBA fell dead in the economic forest, few people not on its dole would hear it crash,” he declared. Veronique de Rugy, a research fellow at the American Enterprise Institute, called for abolition of SBA-guaranteed loans. She said there is no demonstrated need for the subsidized loans and only about 1% of small businesses use them. “For the most part, the SBA helps a very small fraction of small businesses that are not creditworthy compete with unsubsidized firms in naturally competitive healthy markets,” she said in prepared testimony. “Hence the SBA is hurting a large portion of small businesses in the name of helping very few others.” But the chairman of the National Association of Government Guaranteed Lenders, David Bartram, said SBA loans fill “a critical need for small companies to bridge the credit gap, especially for start-up or early stage companies.” He said most banks lend money to small firms for no more than three years, while the average SBA-backed loan carries a 12-year term. Bartram said SBA loans account for about 40% of all long-term small business loans. SBA Administrator Hector Barreto testified that the number of businesses receiving loans topped 98,000 last year, compared to 42,000 in 2000. De Rugy said SBA has never measured the effectiveness of its loans in helping businesses grow, but trumpets a handful of well-known success stories such as FedEx and Apple Computer. She described the agency’s flagship 7(a) loan program as “simply a wasteful, politically-motivated subsidy.” In her previous writing, de Rugy has urged Congress to abolish small business preferences and adopt policies that would help all businesses, such as “low tax rates, low levels of regulation and a stable legal structure that protects property rights” Bean, the author of a book titled Big Government and Affirmative Action: The Scandalous History of the Small Business Administration, criticized SBA’s “arbitrary” size standards: “The SBA’s definition of ‘small’ encompasses nearly 99% of the business population, from sole proprietors to corporations with thousands of employees.” Of the 8(a) contracting program, he said, “[A] few well-connected firms received the bulk of the set-asides while others received nothing. Obsessed with quotas, the SBA provided little practical assistance.”