The Big Hurdles of Small Business

The Small Business Administration’s new chief has some big problems to tackle.

Revamping the SBA’s outmoded accounting procedures and redeeming its reputation in Congress are the biggest issues facing Aida Alvarez, who took over the agency last week.

“I can make a difference in this job,� said Alvarez, a 47-year-old former investment banker and former head of an agency that oversees federal mortgage loan guarantees. “I want the SBA to be on the leading edge in financial management.�

Alvarez aims to keep better track of the SBA’s $36-billion loan guarantee portfolio by rolling in sophisticated computers, software programs and consultants.

The upgrades will help deflect criticisms of financial mismanagement that kept her predecessor, Phil Lader, fighting to clear the agency’s reputation on Capitol Hill, and will help keep loan funds flowing to small businesses, activists say.

Alvarez brings to the job a firsthand understanding of small-business victories and frustrations, having worked in her mother’s small restaurant in New York City.

“My mother’s story could be told about millions of Americans over the years,� Alvarez said. “I’ve been there with all the rest of us in this country who ran small businesses.�

After graduating from Harvard University and working as a television reporter, Alvarez spent seven years in investment banking and over the last three years helped build the Office of Federal Housing Enterprise Oversight from the ground up.

The agency was set up to evaluate financial risks in $1.4 trillion worth of federal mortgage loan guarantees given under the Federal National Mortgage Assn. and the Federal Home Loan Mortgage Corp. The privately held, federally chartered companies buy mortgages in the secondary market.

Alvarez helped design a risk-management system and a computer model to predict how the loans would be affected by changing financial conditions. She wants to create similar systems in the SBA.

The small business agency took a political drubbing last year over accounting procedures used in its loan-guarantee programs. During his 26 months as SBA administrator, Lader, who left to pursue other opportunities and to spend more time with his family, was called before Congress to testify an unprecedented 66 times.

The biggest issue prompting congressional scrutiny was the discovery that SBA loans from the 1980s suffered greater losses than originally believed. An additional $219 million was requested to keep the loan programs running at the same levels.

Meanwhile, several congressmen sought to shut down the SBA Office of Advocacy, which oversees research and legislation affecting small business. Last-minute lobbying by national small business associations saved it.

When Republicans in the House of Representatives threatened to kill the SBA entirely, Lader reduced expenses by $1.2 billion over five years, offering buyouts to more than 500 employees and closing nearly 20 SBA branch offices nationwide.

Alvarez plans to continue to streamline the SBA by relying more on the private sector.

Public-private partnerships should be expanded and new programs offered, Alvarez said. Such ventures include the LowDoc and FA$TRAK loan programs, which offer simplified and speedier loan approvals, as well as new small business banking and training centers run in partnership with private banks.

“They are models for the rest of government,� Alvarez said.

She also wants lending institutions--which currently do about 70% of the agency’s loan servicing and liquidations--to take over 100% of those tasks. The money saved could go to provide more services to small business owners, she said.

To complicate matters, Alvarez must find a way to work with small business groups whose agendas range from conservative to liberal.

The biggest small business group in the nation, the National Federation of Independent Business, for example, wants the agency to concentrate on loan programs and avoid what President Jack Faris calls “social agendas.� That includes technical assistance and loan programs that benefit women and minorities, programs that are strongly supported by scores of business associations.

And while the NFIB views the Small Business Development Centers as competing unfairly with private sector consultants, other small business leaders say the SBA could take a lesson from the nearly 1,000 low-cost training centers. The centers are visible in nearly every congressional district, receive funding from local colleges and government agencies and enjoy a level of congressional support the SBA has often lacked.

Despite all the concern about the future of the SBA, Faris noted that the agency simply does not directly affect that many small businesses.

“The 22 million small businesses in the country may not all be affected by the SBA,� Alvarez agreed. “But I venture to say that those that are helped, like Federal Express and Intel, found value in the SBA at the start-up level.�