The Small Business Administration Model

MANILA, Philippines - We are always on the lookout for the best approach towards building the infrastructure, processes and systems that will support the developmental growth of Philippine small and medium enterprises.

While copying a system that works elsewhere should never be done blindly, it is worthwhile to see what does the job well and adopt it to our circumstance. One such model that has been around for over 60 years is the Small Business Administration or SBA of the Unites States.

In 1953, the SBA was created through the enactment of the Small Business Act in the US, as amended, to promote free competition among enterprises. This was done in recognition of the critical role that small businesses play in building and strengthening the US economy in order to compete in the global market. Various services are offered to help the Americans start, build, and grow their business.

With strong regular government funding (almost $1 billion in 2012, for example), SBA has been able to reach out to a huge number of small businesses since its inception, providing loans and loan guarantees, contracts, counselling sessions, and many other forms of assistance to small businesses. SBA's goal of successfully supporting small business owners are captured in its statement of strategic goals: 1) growing business and creating jobs; 2) building an SBA that meets the needs of today's and tomorrow's small businesses; and 3) serving as the voice for small businesses.

Consistent with these objectives, the agency performs four major functions: Access to Capital, Entrepreneurial Development, Government Contracting, and Advocacy.

Access to capital is carried out through an array of financing schemes. Among the loan programs are the micro-loan program which provides small, short-term loans to small business concerns made available through specially designated intermediary lenders. The mainstream loan program help start-up and existing small businesses obtain financing where the SBA guarantees a portion of loans made and administered by commercial lending institutions. There is also a disaster assistance loan program and a venture capital and equity investment program.

Entrepreneurial development involves giving access to education, information, technical assistance, and training that will aid in growing their business. There are special programs for native Americans and women's business ownership, small business development centres and counsellors to small businesses.

The third function relates to the mandate of Small Business Act requiring SBA's Office of Government Contracting to set goals with other federal offices to achieve 23% in prime contract dollars to small businesses. Further, small businesses are provided with subcontracting procurement opportunities to help create more income opportunities for them.

Finally, the SBA provides advocacy support to strengthen policies for small businesses. Over the years, SBA has been the voice for small enterprises in the legislative process. SBA undertakes research studies on small businesses and the environment with which they operate to gather relevant and meaningful inputs in enhancing the existing policies or creating new ones. In relation to this function, the SBA makes an assessment of impact of the regulatory burden on behalf of small businesses.

If one will review the Philippine system, there are apparent parallels. The Small Business Act in the US is similar to our Magna Carta for Micro, Small and Medium Enterprises. We also have a guarantee program which, unfortunately, is structured very differently through a corporate setup that is subject to a profit objective and government dividends, and a regulatory structure that compromises its developmental mandate. We also have a procurement policy for small businesses that has not received any regulatory monitoring reports. The US has a Community Reinvestment Act and we have our mandatory lending (but with a meagre penalty structure). Finally, our system does not provide the magnitude of budgetary infusion even on a scaled down relative basis.

Of course, our government cannot be totally faulted given the various demands on our limited resources. But as the economy continues to accelerate and given the reported under-spending of our budget, isn't it about time we take full stock and allocate funds for this purpose? Small businesses cannot be supported by mere exhortation, and by laws that remain unfunded. There's no such thing, as they say in finance, as a free lunch.

***

(Mr. Benel P. Lagua is the President/COO of the Small Business Corporation. He is likewise an active member of FINEX. Feedback and comments are welcome at benellagua@alumni.ksg.harvard.edu ).

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