Small Business Act (1953) (Major Acts of Congress)
Ross Rosenfeld and Seth Rosenfeld
Passed in 1953, the Small Business Act (SBA) established the Small Business Administration to "encourage" and "develop" small business growth, and to aid minorities and other disadvantaged peoples in securing loans and learning management techniques. "The essence of the American economic system of private enterprise is free competition," the act reads, "Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to economic well-being but to the security of this Nation."
Congress adopted the act during the Eisenhower Administration, a time of economic expansion. Millions of G.I.'s returning from the army in 1945 and 1946 injected a renewed workforce into the economy, and factory jobs filled up quickly. Factories were no longer producing for the war effort, and many of the returning G.I.'s, either unable or unwilling to find work in large industrial firms, sought out their own business ventures. With the help of families and personal loans, businesses such as camera stores, food services, and car dealerships sprang up across the country. Still, large firms had tremendous advantages over smaller start-ups, and Congress adopted the SBA to help even the playing field.
The act, a massive, verbose document, is at times very specific, and at other times is extremely vague. Currently, 99.7 percent of all employers could be considered small businesses under the SBA. The act sets the following guidelines for determining whether a business falls within its jurisdiction: manufacturing firms with more than 500 employees are small businesses, over 1,500 is not; retail firms with less than $3.5 million in annual sales are considered small businesses, more than $13.5 million are not; wholesale firms with under 500 employees or less are small businesses, over 500 employees are not; Service industries with less than $3.5 million earned are small businesses, more than $14.5 million are not; passenger transportation firms are small businesses with less than 1,500 employees and receipts total less than $3.5 million (except air travel). If a company's numbers fall within any of these prescribed ranges, the SBA can determine whether it merits assistance based on factors of competition and the disadvantages the company faces.
The act favors the disadvantaged, though it does not limit its assistance to members on the basis of race. By SBA standards, any individual unable to compete freely within the open market could be considered disadvantaged. The law views women, low-income individuals, and veterans to be disadvantaged and offers financial assistance for their business entities.
The law does not mention allotment standards. For the purposes of getting financial aid, the act suggests the SBA weigh the disadvantaged status of the applicant, along with the ability to find capital. How the SBA judges "need" can vary from person to person; if one lives in an economically disadvantaged urban area (a "hubzone"), chances of gaining an SBA-approved loan increase. Revitalizing downtrodden areas is one of the extended purposes of the Small Business Act.
The SBA does not make loans to individuals. Instead the SBA guarantees as much as 80 percent of the loan amount to an intermediary institution. With the significant risk reduction, the financial institution is more likely to grant the loan, typically running for six to ten years at about 2 percent below the market interest rate.
SBA guaranteed loans come in various forms. The "7a Loan Guaranty Program" insures 75 percent of loans up to $1 million. The one-page "Low-Doc Loan" can guarantee 80 percent of a loan up to $100,000. The "MicroLoan program" is for very small business owners, guaranteeing loans from under $100 to $25,000. The SBA can also guarantee performance contracts, enabling small business to competitively bid on larger projects. Lines of credit are available through the SBA as well.
Financing education is a big part of the SBA. Most small businesses do not have access to the same type of market research and strategists that are available to big business, and the SBA tries to counter this disadvantage by offering management counseling programs to small business owners. These programs teach buying, producing, and successful administrative methods. The Small Business Institute, founded in 1972, works with the small business community, the SBA, and about 500 colleges to offer training to small business owners and developers.
Many small business owners cannot afford to keep lawyers on their staff. Therefore the SBA works as a legal and political advocate as well. The SBA acts as a spokesperson for small business, representing the small business owner's interest to Congress and other organizations. In February 2003 the advocacy department of the SBA claimed to have saved small business owners $21 billion by working with federal agencies to offer alternatives to "overly burdensome federal regulations."
At the time of the Small Business Act, almost all major government contracts went to large industrial and agricultural firms. The act charged the SBA with procuring top government contracts for small businesses, contracts ranging from food to paper to defense equipment. Currently, about 20 percent of government spending is transacted through small businesses.
When disaster strikes, the SBA is empowered to come to the rescue of small businesses with recovery loans. Since the SBA falls under the executive branch, the president wields control over when these funds are applied, and when the president offers disaster relief, the SBA is authorized to secure the necessary financial resources. By doing so, the SBA helps rebuild towns and cities and ensure overall economic tranquility. For example, within a month after the September 11, 2001, terrorist attacks, the SBA approved over $100 million to help restore businesses in downtown New York City.
The president appoints, with the consent of the Senate, an SBA administrator to run the agency. This administrator has general authority over every aspect of the SBA, from approving assistance loans to sanctioning employees who misappropriate funds. The administrator also chairs the loan policy board, on which the secretary of the treasury and the secretary of commerce sit upon as well. The board, however, is only advisory, and the administrator is not obligated to follow its recommendations.
The creation of the Small Business Administration increased the president's command over the economy. Presidents have used the SBA for various purposes. When U.S. Steel threatened to raise its prices after the negotiated end of a strike, President Kennedy threatened to go to small businesses and the existence of the SBA made the threat real. In the election year of 1972, Richard Nixon used the SBA to help shed his ultra-conservative image by expanding loans, especially to colleges and minorities.
There are over twenty-two million small businesses in the United States. The SBA estimates that more than half of all employees in the U.S. work for a small firm, and that small business employers provide approximately 44.5 percent of payroll in the private sector. Ninety-seven percent of all exporters are small business owners, comprising 29 percent of total exports. The most powerful statistic, however, is that 60 to 80 percent of all new jobs come from small businesses. This number fluctuates when some small businesses grow enough to become classified as large businesses, and when new small businesses are created. From 1999 to 2000, small businesses accounted for 75 percent of all new jobs created.
Immigrants, who make up a large portion of the small business workforce, are not excluded from the opportunities offered by the SBA. Many immigrants are unaware of these opportunities, and some have trouble getting through the legal forms. Still, the SBA views immigrants as vital to small business, and representation and support is available to them.
Altogether the SBA exercises control over a total of more than $45 billion. This includes loan guarantees, disaster relief loans, and business loans. It is the largest small business investment backer in the U.S., and the most powerful advocacy group for small business owners. Since its creation, the SBA has become an integral part of the U.S. economy, guaranteeing approximately $2.8 billion in loans each year.
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