Federal Budget Proposal to Cut SBA Funding

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The Federal budget has taken a very public stage as of late. With talk of a complete government shutdown, finding a compromise on the Federal budget is on the forefront of Washington’s mind. Also important is for the Obama Administration to show that government spending is tightening in order to pay the massive run up in debt, used in part to help the massive amounts of small business owners who have seen their business come under pressure due to the economic downturn.

The United States Small Business Association, the government entity largely responsible for providing education, funding, and aid to small businesses will see a sizable 45% cut to actual realized funding under the proposed budget. (The SBA received supplemental funding for a total $1.8 Billion in 2010 which will not be present in the next fiscal year which is where the majority of the 45% cut comes from)

In 2010, the SBA received $963 million in funding which was more than double the amount from the previous fiscal year. This money was largely used to further increase the program that enticed banks to loan to small businesses without the risk of losing all of the money that they lent. The SBA guaranteed a portion of these higher risk loans which allowed these banks to loan at a time when they would otherwise have been hesitant due to the economic challenges.

This program worked. Small business lending overall dropped while lending through this SBA sponsored program increased to $12.6 Billion but this program ran out on December 31, 2010. Although the number of defaults from 2008 to 2010 rose significantly, the SBA will see budget cuts in the next fiscal budget.

The SBA helps new business start-up owners through its Small Business Development Centers, educational facilities located throughout the country which provide value services that help small business owners learn the essentials of not just surviving but thriving with their new business start-up. This program will see a $10 Million budget cut as a result of the proposed Obama budget. The SBA will also cut its staff for the disaster loan program, a move that will save $8 Million.

Small business owners who routinely deal with the SBA will once again have to adjust to more traditional, tighter lending standards as funding levels decrease. “We have to tighten our belt, too, and we have to make tough choices,” SBA Administrator Karen Mills said