Project 2025: Small Business Administration (SBA)
/As always, let’s begin with an introduction to the author. Karen Kerrigan has served as president and CEO of the Small Business & Entrepreneurship (SBE) Council since 1994, and is a founder of Women Entrepreneurs, Inc. She regularly testifies before Congress on key issues impacting small business and the economy. Per the Center for International Private Enterprise (CIPE), Kerrigan has been appointed to numerous federal advisory boards, has presented at several Presidential economic summits, and written hundreds of Op-Eds and newspaper columns. (The CIPE vision is “a world where democracy delivers the freedom and opportunity for all to prosper.” They value local ownership, inclusion, learning and innovation, and accountability.) The CIPE website says she has been called America’s “entrepreneurial envoy” for her extensive work overseas, and she provides counsel to governments and business associations across the globe regarding entrepreneurial development, capacity building and policy formation.
Mission and Overview
The SBA “...supports U.S. entrepreneurship and small business growth by strengthening free enterprise through policy advocacy and facilitating programs that help entrepreneurs ...launch and grow their businesses and compete effectively in the global marketplace.” Kerrigan tells us the SBA “helps Americans start, grow, and build resilient businesses,” and it preserves “free competitive enterprise” and “maintains and strengthens the overall economy of our nation.” Having evolved over time in response to economic challenges and natural disasters, the SBA is “the default agency for providing disaster loans to small businesses, homeowners, renters, and organizations.”
Kerrigan admits: “Some SBA programs are effective; others are not.” She says the Paycheck Protection Program “saved millions of jobs” during the pandemic. “However,” she adds, “various SBA programs have generated waste, fraud, and mismanagement.” She mentions a trillion dollars in Covid-19 relief through EIDL (Economic Injury Disaster Loan) and explains that the “Inspector General ‘identified $78.1 billion in potentially fraudulent EIDL loans and grants paid to ineligible entities.’” That is, she points out, “more than half of all funds spent through the program.” She says that at least 70,000 PPP loans were also fraudulent.
Origin, History and Core Functions
Beginning in 1954, the SBA ensured “that small businesses earn a fair proportion of government contracts and sales of surplus property.” It also provided business owners with management and business training. The role of the SBA to provide “representation of the interests of small business concerns before departments and agencies of the United States Government” began with Nixon in 1970, with additional duties and responsibilities added by amendment throughout the 1970s. The Regulatory and Flexibility Act of 1980 helped “to ensure that small businesses had a voice in the regulatory process.” In 2016 the SBA’s Office of Advocacy was also tasked with facilitating “greater consideration of small business economic issues during international trade negotiations,” which, Kerrigan says, has been “relatively effective over the years,” especially when it has aggressively provided a check on regulatory overreach. Currently the SBA has four core functions:
Provides access to financing and lending programs to small businesses
Provides free or low-cost training at 18,000 sites and online
Ensures that small businesses win 23% of government contracts
Advocates to ensure small businesses’ concerns are considered in rule making
And, she adds: “The office also conducts small-business research.”
Budgetary Fluctuation
Here the author walks us through the ups and downs of the SBA’s status through the administrations of Reagan, Bush and Obama, explaining that “budget fluctuations have been driven by...efforts by Administrations either to cut or to greatly expand programs, the need to boost disaster assistance because of economic or weather-related events, business loan credit subsidy costs, and miscellaneous program ‘enhancements’ to support small businesses through economic challenges or circumstances.” She quotes the Congressional Research Service (CRS), which explains that the SBA budget does, indeed, fluctuate significantly due to natural disaster responses and recessions – not to mention pandemics. CRS concedes that SBA’s programs “have increased at a pace that exceeds inflation.”
History of Mismanagement
Kerrigan states that SBA programs and practices have historically “generated negative... headlines and scathing ... Inspector General (IG) reports...centered on mismanagement, lack of competent personnel and/or systems, and waste, fraud and abuse.” She says Congress has pressured the SBA to clean up its fraud-related Covid-19 programs, and “Republicans...have gone farther, specifying [it] needs to improve transparency and accountability and deal with mission creep, the expansion of unauthorized programs, and structural and reporting deficiencies.” The author explains that “entrepreneurs and small businesses require limited-government policies that do not impede their risk-taking and growth,” and, she says, it’s important to “advocate across the federal government to ensure that extreme regulatory policies—or anticompetitive rules and actions that may favor big businesses over small businesses or international competitors over American small businesses—are dismantled or do not progress.”
Mission Creep and Enlargement
While some Republicans want the agency to be “more focused and operationally sound,” Kerrigan asserts that it has developed a “hyperfocus on disproportionately impacted, politically favored, or geographically situated small businesses and entrepreneurs. Initiatives aimed at ‘inclusivity,’” she explains, are “creating exclusivity and selectivity.” Trump, she says, proposed “to remove all of the unconstitutional religious exclusions from its regulations to conform with Supreme Court decisions,” but “the SBA has not acted ...and still uses religious exclusions in determining eligibility for business loans.” Kerrigan then mentions a few other specific concerns: SBA has requested to become a “designated voter agency”; its business training programs duplicate efforts of state and local governments; there is a push “to expand direct government lending.”
The SBA in a Conservative Administration
Ms. Kerrigan pretty much sums up everything said above, asking for an SBA that “would meet the needs of America’s small-business owners and entrepreneurs, not special interests in Washington, D.C.” She asks for an end to the “long-term deficiencies, practices, and problems that have prolonged the decades-long cycle of waste, fraud, and mismanagement,” hoping to foster “an agencywide culture that values all small-business owners and does not exclude certain groups.” She then lists a number of positive results one might expect from a reformed, restructured SBA: More qualified leadership; focus on “congressionally authorized programs”; a responsive, accountable staff who report regularly and implement the IG’s recommendations; no more waste, fraud, and abuse related to Covid and payback of PPP and EIDL loans to ineligible recipients; “an end to SBA direct lending”; support for “a resilient small-business supply chain”; effective outreach to small businesses and nonduplicative support; a streamlined agency using current technology to engage small businesses; and a strengthened Office of Advocacy for better research and an end to overregulation.
The author also describes an improved accountability and managerial practice, including “performance metrics and internal procedures to safeguard taxpayer dollars and program integrity.” She also advises to “review all internal government watchdog recommendations” and to see that they are implemented. Then she tells how to strengthen the Office of Advocacy which, she says, is independent and accounts for a miniscule fraction of SBA personnel and spending. It “could be a powerful weapon against the administrative state’s regulatory extremism,” Kerrigan says. She suggests three specific changes, including: Amend the Regulatory Flexibility Act (RFA) to require a 60-day window for any proposed rule changes by any agency; “Increase the Office of Advocacy budget by at least 50%”; and direct federal agencies to comply with the RFA.
Now Kerrigan zeroes in on the Covid-19 lending program and accountability cleanup for which she has been advocating. She says the greatest challenge is the “final accounting and accelerated cleanup of fraudulent COVID-19 loan and grant activity,” and she makes these suggestions:
Consider...private-sector support and expertise to close out these programs.[While Kerrigan offers no further details regarding how this would work, she explains at length the need to recover loans made to Planned Parenthood and Trump’s previous efforts to accomplish that.]
Cooperate with...oversight efforts and determine whether SBA has authority to reverse the forgiveness decisions. Investigate each case and refer appropriate parties to the Department of Justice.
Disaster Loan Program and Direct Lending, which responds to federally declared disasters, “suffers from problems of coordination” with FEMA. Apparently some qualified parties avoid SBA approval for disaster relief so they can get more from FEMA. “Moreover, the availability of disaster loans reduces individuals’ incentives to purchase disaster-related insurance.” The author recommends: assessment of other options and exploration of “private-sector channels for administering the loans”; and “Specify clearly that no new direct lending programs will be developed at the SBA.”
Eligibility of religious entities for SBA loans is the next issue discussed. “Current SBA regulations...make certain religious entities ineligible to participate.” Kerrigan says this is clearly unconstitutional, and “Trump...proposed [to] remove the provisions on the ground that they violate the First Amendment.” She advises the next conservative administration to notify Congress it will not enforce unconstitutional regulations; then stop using SBA Form 1971 religious eligibility worksheet, and propose a rule that removes unconstitutional regulations.
Further Recommendations...
Kerrigan further recommends that SBA continue its support of small businesses by maintaining the Small Business Innovation Research and Small Business Technology Transfer programs, as they help “the next wave of technological innovation to compete with Big Tech.” Other agencies should be required to set aside even more funds for SBIR, she says, but ensure those SBIR funds are used for capital investments in the US. Regarding domestic manufacturing and small business, the author says they “face shortfalls in access to capital,” as “manufacturing employment, domestic business investment, and non–information technology output have declined.” This has been a problem particularly for transportation and energy, yet they “have been the backbone of American manufacturing employment” and “sources of self-sufficiency and resilience.” She explains that, when basic science and research finally yield actionable manufacturing data, much “necessary productive capacity is offshore.” With America lacking the ability to scale up innovations, “foreign companies and foreign productive sites buy and implement taxpayer-funded American technologies.” Kerrigan urges expansion in small-manufacturer capital: make available much more than the $5 million currently available for construction and upgrading; reform the Small Business Investment Company to focus more broadly than just technology startups.
The way SBA currently defines small business (which becomes the standard used by many) is a one-size-fits-all approach that no longer works, we are told. “The SBA is an outlier among competing economies in not considering medium-sized enterprises along with small businesses,” yet medium-sized and regional businesses are increasingly critical to maintaining competition.” Kerrigan recommends a “’medium-sized business’ classification.”
SBA Policy Priorities for 2025 and Beyond
Legislation recommended: The author now recommends five “legislative initiatives that would help SBA to focus on its core statutory activities such as capital access, federal contracting opportunities, and regulatory advocacy.” Very briefly, this is what they are meant to accomplish:
strengthen accountability, transparency, oversight, and RFA economic analysis
waive fines for first-time paperwork violations
allow small businesses greater input on rulemaking and greater “procedural rights”
“disallow the use of project labor agreements (PLAs) in federal contracting as required in...Biden’s Executive...which puts small businesses at a competitive disadvantage and works against the SBA’s governmentwide contracting goal for small businesses.”
modernize various SEC rules to “enhance capital formation and access”
Organizational Issues and Budget
The administrator is not a symbolic executive, Kerrigan tells us, and so should be qualified and experienced, as should his/her staff, with “experience in small-business finance and investment and/or administrative law.” She adds that the “team must share the President’s mission and vision and execute the Administration’s policies effectively.”
The author recommends a comprehensive review of the agency’s budget, with a report to Congress within six months. Hold the $1 billion budget constant, she says, as ineffective programs are identified and terminated; then reallocate resources and/or consider reducing the budget. In terms of personnel, Kerrigan notes that the “IG reports have noted that the lack of skilled employees within the SBA has fueled fraud and mismanagement.” Apparently the IG also charged that the agency or some part of it is “devastated by fraud and underperforming.” Her final advice to the next conservative administration is to “rein in these idealistic and impractical efforts, get current programs under control and properly staffed with people who can manage and perform competently, and outsource efforts where private-sector expertise is appropriate and more efficient.”