President’s Proposal Cuts SBA Budget, but Funds Business Loans

The White House
The Small Business Administration would lose $109 million under President Obama’s current 2014 budget proposal, which was released yesterday.

In 2012 the SBA received $918 million dollars. The President’s budget assumes that the SBA will require a smaller budget because fewer businesses are expected to default on their business loans, due in part to an improved economy.

Loan programs for small businesses, specifically the SBA’s 7(a) Business Loan Guarantee Program, are at the forefront of the President’s proposal for the SBA. Over $27 billion in loan guarantees —$17.5 billion in 7(a) business loans, $6.3 billion in loans through the Certified Development Company program and $4 billion through the Small Business Investment Company — are supported by a $112 million subsidy for the SBA.

Additionally, the President’s proposed budget offers suggestions to simplify the business loan process for small businesses. In addition to streamlining the application for 7(a) loans, it waives fees on 7(a) loans under $150,000 and requests to bring back the 504 Loan Refinancing program.  That program, originally introduced in 2010, helps small businesses lock in favorable, long-term interest rates on commercial mortgages and related debts.

Just over one billion dollars in disaster assistance loans would be supported by $159 million in government funding. Disaster Assistance Loans have played a large roll in assisting small business owners in the eight states hit by Hurricane Sandy in late October. Since then, the SBA has approved over $2 billion in disaster assistance loans, distributed between 32,500 businesses and residents.

Other key proposals in the budget include:

  • $7 million to Boots to Business: The SBA’s Boots to Business Initiative provides training to veterans to help them transition into civilian life and start their own businesses. As part of the Department of Defense’s Transition Assistance Program, the initiative would provide veterans with a series of videos and entrepreneurial courses.
  • $20 million to the SBA Inspector General: One aspect of the President’s deficit reduction strategy has been to reduce waste within different agencies. His proposal provides an additional $3 million to the SBA Inspector General to prevent waste and fraud.
Outside of the SBA’s operating budget, the President suggested a tax credit for small businesses to encourage hiring and reiterated his desire to increase the minimum wage from $7.25 to $9 an hour.

The increase to minimum wage has drawn criticism from groups such as the right-leaning National Federation of Independent Businesses, however, the overwhelming majority of criticism for the budget has been for its cuts to Social Security. After calls from the Republican Party to cut entitlement spending, the President suggested changing the way social security benefits are calculated, which would slow the rate at which payouts rise in relation to inflation. In a poll conducted by the Washington Post, 80 percent of business owners said they were opposed to lowering the deficit by cutting social security benefits.  

The official 2014 budget is expected to be finalized by October 1, when the new fiscal year begins.