The Small Business Administration plans to shift some funding away from basic counseling programs for new and small businesses to help finance advanced training for slightly larger companies, part of the agency’s efforts to nurture the economic recovery even as the government reins in spending.
In its latest budget proposal, the agency announced plans for a new $40 million entrepreneurship education program designed for owners of mid-size, well-established firms — those that have the potential but not necessarily the expertise necessary to accelerate hiring and add new revenue streams. It would consist of an intensive nine-month course that SBA Administrator Karen Mills likened to a “mini MBA.”
Mid-size firms have become a point of emphasis lately for Mills, who plans to step down from her post soon. The new educational program, she contends, would fill a gap in the market for affordable, advanced financial training for mid-size and expanding firms, complementing some of the more basic counseling services the agency already supports for very small and new businesses.
The new course would be modeled after similar training programs already offered by the SBA, Goldman Sachs and the Kauffman Foundation.
“The existing programs, such as the Small Business Development Centers and SCORE, provide absolutely fantastic services, but they’re different,” Mills recently told the House Small Business Committee, referring to the agency’s network of SBDCs and the Service Corps of Retired Executives program, both of which provide inexpensive and often free business services. “We want to make sure we reach more entrepreneurs in more places who don’t have access to an intensive entrepreneurship experience.”
At a time when federal spending is being held in check, the SBA proposes to finance the new training course by pulling back on funding for some existing programs. The budget request, for instance, would reduce funding for SBDCs by more than $9.8 million next year and by nearly $500,000 for the SCORE program, both of which tend to target start-ups and very small businesses.
Compared with last year, the plan would cut SBDC funding by 8.6 percent and SCORE by 6.8 percent, raising concerns from business leaders and federal lawmakers that the agency is undercutting proven programs at a time when small-business owners need them the most.
“You have been focused a lot on the medium-sized small businesses, if you will, and we have had previous testimony that there are a lot of jobs created there,” Rep. Kurt Schrader (D-Ore.) said to Mills during the hearing. “But there are many of us who are really worried, with the recession, about a lot of new people starting their own very small business, so the reductions to SBDCs are probably unacceptable.”
Mills suggested that the proposal does not necessarily constitute an “either-or” proposition for those hoping to support the existing and the new programs. Ideally, she said, a large share of the money for the new initiative will flow through the Small Business Development Centers, which she expects to apply for some of the grant funding to help implement the entrepreneurship education courses.
Maybe so, says Jody Keenan, director of the Virginia SBDC network — but that will barely begin to compensate for the money she expects to drain out of her operating budget if lawmakers approve the budget.
“I have heard that explanation from the SBA, that we would be eligible to compete for these new grants,” Keenan said in an interview, noting that development centers in her network apply for federal grants on a “case-by-case” basis. “But they are cutting into the core delivery of our services by removing that $10 million, which to me defeats the purpose of what they are trying to accomplish.”
Keenan oversees more than two dozen SBDCs across the state, which will receive up to $2.3 million in federal funding this year, matched dollar-for-dollar by host colleges and economic development centers. In 2012, counselors at those facilities worked one-on-one with more than 4,000 entrepreneurs and hosted twice that many for classroom-style training seminars — resulting in more than $62 million in loans, investments, government contracts and other capital secured by companies that worked with SBDCs in Virginia.
If the proposed cuts were passed down evenly across all the development centers in the country, Keenan’s group would lose about $200,000 in federal funding next year, which would reduce by another $200,000 the investment required by the host institutions — and those centers simply cannot afford that right now, she says.
“We are already stretched very thin, there are no reserves,” Keenan said. “There’s no way we can absorb these funding changes over the long term without making structural changes in our network.”
The cuts are likely to heighten concerns in the District, too, where in the past two years, two of the network’s five SBDC centers have been forced to close due to what Director Darrell Brown described as “financial reasons.” The amount of funding to the remaining three centers has fallen steadily over that same period, down to about $500,000 last year, but the programs still helped more than 800 business owners secure about $4.1 million in capital in 2012.
Reallocating $10 million may be too big a shift, according to Rep. Nydia Velázquez (D-N.Y.) and Rep. Judy Chu (D-Calif.). Both questioned the decision to cut back on tried-and-true programs in order to finance new initiatives with no such track record.
Rep. Mick Mulvaney (R-S.C.) went a step further during the hearing, challenging whether the agency should even have the authority to branch into “the business school business” by launching a mini MBA.
Mills defended the move, insisting that the pace of the economic recovery depends on how many small-business owners expand their firms and create new jobs. In order to lure more entrepreneurs onto that path, she said the government must invest more resources into helping “that medium-sized business within the small category that needs to grow 20 or so employees and take its sales to the next level.”
Virginia’s Keenan does not dispute the need, but she says the new program should not come at the expense of SBDCs and SCORE.
“Recently, we have had an increase in regulations, complicated tax changes an economy that hasn’t fully rebounded, and yet we’re going to cut back on a resource that is providing expertise and guidance to small businesses,” she said. “It just doesn’t connect, it doesn’t make sense.”
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