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Small Businesses

Small businesses contribute to the nation’s economic growth, and federal agencies could better administer programs to support them.

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Small businesses are an important driver of the nation’s economic growth. The Small Business Administration oversees programs that provide small businesses and entrepreneurs with counseling and training, access to capital and federal contracts, and disaster assistance. The CARES Act also appropriated $670 billion in loan guarantees to small businesses affected by COVID-19. However, there are a number of opportunities (as well as priority recommendations) to improve how the SBA implements and oversees these programs. 

For example:

  • SBA’s State Trade Expansion Program seeks to help small businesses export their products to other countries. The program requires states to provide matching funds. However, SBA needs to develop a process to ensure that states are complying with this requirement. It also needs to evaluate the challenges some states face in using all their grant funds.
  • SBA’s Disaster Loan Program helps small businesses rebuild or replace damaged property or continue business operations during disasters. For example, after Hurricanes Harvey, Irma, and Maria in 2017, SBA accepted 340,000 disaster loan applications and approved 141,000—making over $7 billion in loans to help business owners, homeowners, renters, and nonprofits recover. Loan processing averaged 18 days or less. However, SBA’s disaster plans lack an in-depth discussion of how to deal with risks (such as extended power outages) that could affect its ability to respond in a timely manner during disasters.
  • SBA's 7(a) program helps small business borrowers who cannot obtain credit through a conventional lender at reasonable terms (“credit elsewhere”). However, SBA could do more to ensure that all borrowers meet the credit elsewhere requirement.
  • Businesses in Historically Underutilized Business Zones may qualify for federal contracting benefits, including limited competition for contracts. But SBA could do a better job of addressing the risk of fraud when vetting firms seeking to participate or remain in this program.

  • SBA's Microloan Program provides small businesses—including those owned by women, low-income, veteran, and minority entrepreneurs—with loans of up to $50,000 and technical assistance. While SBA collects data and assesses this program, it does not clearly define what qualifies an entrepreneur as low-income. As a result, SBA may not be able to determine whether the program really helps low-income borrowers.
  • In addition, SBA works with Historically Black Colleges and Universities to foster entrepreneurship, primarily through its Small Business Development Center program (which provides counseling and training), strategic alliance memorandums, and co-sponsorship agreements. However, opportunities may exist for SBA to improve its engagement with these institutions.

Additionally, the Small Business Act seeks to improve small businesses’ access to federal procurement contracts. The act provides for small-business set-asides (including for businesses owned by service-disabled veterans or women) and requires large contractors to set goals for using small business subcontractors. However, small business contracting programs at many federal agencies can be improved in a number of ways.
For instance:

  • The SBA uses procurement center representatives to advocate for small businesses when agencies are procuring goods and services. However, SBA does not maintain complete records on these representatives’ activities—which could be used to assess how well they’ve carried out their jobs.
  • Certain federal contracts that go to large businesses must have small business subcontracting plans. Under these plans, contractors have to make a good-faith effort to offer subcontracting opportunities to small businesses. Agencies are supposed to notify SBA representatives about proposed contracts with these plans for possible review. However, agencies can’t always show whether that happened. Agencies also didn’t ensure that contractors submitted subcontracting reports, or that the reports were accurate.
  • Federal agencies with procurement powers are required to establish an Office of Small and Disadvantaged Business Utilization (OSDBU) to advocate for small businesses and fulfill a number of related requirements. However, agencies varied in how they complied with these requirements.  
  • The federal government is required to allocate at least 23% of its direct contract spending to small businesses. The SBA’s annual scorecards track progress toward that goal. SBA changed how it calculates scores for FY 2017 but didn't have a plan to evaluate the effect of the revised scoring methodology.

Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.

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    • William B. Shear
    • Director, Financial Markets and Community Investment
    • (202) 512-8678