SMALL BUSINESS ADMINISTRATION

U.S. Small Business Administration Role during the Economic

Turmoil

[Hajimurad Gulahmadov]

[Small Business Administration]

[The City University of New York/ Brooklyn College]

[January 18, 2008]

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TABLE OF CONTENTS:

Introduction........................................................................3Overview of U.S. Small Business Administration (SBA).......4Overview of the current economy.......................................6How did Small Businesses help U.S. economy in the past?.........................................................................................12What has to be done together with SBA during current recession to help the economy?.......................................15SBA’s current taken actions to help the economy............20What can Barack Obama do as a next president of the United States?...................................................................22Conclusion........................................................................23References:.......................................................................25

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Introduction

There is a very close relationship between small businesses and the economy in the United

States as well as in the world because much of economic growth depends on startup businesses. By

hiring few employees each small business/firm make a significant contribution to the economy. In

today’s economic crisis Small Business Administration needs to step in, and help economy to

recover by providing its services to individuals through the country. By investing in their

businesses, the small firm owners make a major contribution to the local, regional, and national

economy. The small business sector in the United States plays critical role, U.S. government needs

to put all efforts in order to help small businesses to have an easy access to the capital. Government

created $700 billion rescue plan but there is no section in this plan which contribute help small

businesses to recover and have an easy capital access. Therefore, the best way to do that is through

expedient, targeted and effective lending through the SBA. The rescue plan is designed to make

credit flow freely again but if this money will be used for wrong purposes, then it can create even

more problems. The credit crunch has caused many small business owners to struggle for financing

for their day-to-day operations and growth plans. If the rescue plan works, it will fix this problem

but there have to be some additions to the rescue plan which includes a plan to help small

businesses. Because of their size and closeness to their customers, new businesses are more flexible

and quick to respond than many established and big businesses, thus they can affectively react and

help economy to recover during this economic meltdown.

In this paper I will discuss SBA’s mission and how it has been affected by the current

economic meltdown. Also, I will discuss SBA’s role during past difficult times in U.S. economy.

In addition, I will provide necessary information to compare the economic and small business

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financial climate now and previous years, what actions the U.S. government are taking to help

small businesses to survive. I will examine, despite current plans to help small businesses what

further actions have to be taken.

Overview of U.S. Small Business Administration (SBA)

“The U.S. Small Business Administration (SBA) was established in 1953 as an independent

agency of the federal government, the main initiatives of this agency are: to aid, counsel, help and

protect the interests of small business concerns, to protect free competitive enterprise and

strengthen the overall economy of United States of America” (SBA). We recognize that small

businesses are playing a critical role in any economic recovery and strength. In the U.S.A to build

future, and to help compete in globalization, Small Business Administration (SBA) has a vital role.

Although SBA has grown and met many challenges since it has been established, but it still keeps

the mission to give assistance to individuals and small businesses by providing information and

guidance through training and consulting through easily accessible branch locations. The SBA

helps Americans start, build and grow businesses and realize their “American dream”. Everybody

who lives in the United States, Puerto Rico, the U. S. Virgin Islands and Guam can benefit from

SBA delivered services in these locations.

If we look into the history of SBA, even before creating of SBA we can see that small businesses

had played a great role in the past, largely as a response to the pressures of the Great Depression,

World War II and Korean War.

First in the history, “The Reconstruction Finance Corporation (RFC), created by President Herbert

Hoover in 1932 to alleviate the financial crisis of the Great Depression, was SBA's grandparent.  

The RFC was basically a federal lending program for all businesses hurt by the Depression, large

and small.” (SBA)

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The mission of RFC was to help businesses to get money and recover from the consequences of the

Depression during the time when capital access was almost impossible.

The next step in history was when the U.S. congress created another organization to

confront small businesses’ concerns during the Korean War, at that time this organization was

called the Small Defense Plants Administration (SDPA).  “The SDPA certified small businesses to

the RFC when it had determined the businesses to be competent to perform the work of

government contracts.

By 1952, a move was on to abolish the RFC.  To continue the important functions of the

earlier agencies, President Dwight Eisenhower proposed creation of a new small business agency --

the Small Business Administration (SBA)” (www. sba.gov)1

By the creation of the Small Business Administration, the main idea was to "aid, counsel, assist and

protect, insofar as is possible, the interests of small business concerns." (Small Business Act of July

30, 1953) The agreement also required that the SBA would ensure small businesses a "fair

proportion" of government contracts and sales of surplus properties.

Over the past 55 years, SBA has grown in terms of total assistance provided to its costumers and it

developed many programs which encourages and helps individuals to open their small businesses

in all areas. For instance, there are such programs as financial and federal contract procurement

assistance, management assistance, and specialized outreach to women, minorities and military

veterans. In addition, the SBA also offers loans to victims of natural disasters and specialized

advice and assistance in international trade.

In opposition, there are some people who argue that big businesses, profiting from

"economies of scale," are more efficient in production and can contribute more than small

businesses.  But they forgot that small businesses are the key to innovation. If we look to our daily

life, we can see how small businesses contribute to our economy, because they are adoptable, more

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flexible and often more bold than big businesses. Most of the items we use everyday, the items that

line the shelves of America's museums, shops are products of small firms.  They save the heritage

of creativity and enterprise and they help keep the "American Dream" within the reach of millions

of Americans. We do not have to forget that people who first immigrated to this country created

this country’s powerful economy by opening small businesses and by the time shifting into big

companies. Today, the SBA is here to help everybody who wants to do business and be successful. 

If we look, in near years “the SBA backed more than $12.3 billion in loans to small businesses. 

More than $1 billion was made available for disaster loans and more than $40 billion in federal

contracts were secured by small businesses with SBA's help.” (2006 Master guide)2 This numbers

are huge and it has been increased over time which once again proves the importance of the SBA.

Overview of the current economy

Today, the United States is living its next challenge in the history. As everybody knows, the US

economy is in crisis and the downturn in U.S. economy causes the global crisis all over the world.

During this difficult period federal government has called on the private sectors to help to confront

many of existing challenges. Big businesses stepped in and have provided help but this help did not

change too much, and less traditional group, small businesses, which are playing a larger role in

creating jobs and developing new innovative products have been excluded. There are many reasons

for meltdown in U.S. economy. For instance, the effects of the housing downturn, credit market

disruptions, and higher energy prices were major reasons for downturn. Even though recent

economic data have been mixed, and many experts and international financial institutions were

expecting an elevated risk of an economic downturn, there has not been taken specific actions to

prevent this downturn. Although consumer spending continued to grow in late 2007, declines in

housing prices and stock market are cause for concern. All these problems, specifically credit

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difficulties had a negative impact on businesses and households, lending standards for a variety of

consumer and business loans were tightened in 2007, and the availability of some mortgage

products has been sharply reduced. During the first three quarters of 2007, house prices started to

slow down in many regions of the country, and home sales continued the contraction that began in

the second half of 2005. (See graph 1) 3

Graph 1

(The Global Economy and Financial Crisis, International Monetary Fund, 2008)

Although core inflation remains contained and inflation expectations remain well anchored, high

energy prices are a drag on household finances, with consumer energy prices up 17.4 percent in the

twelve months through December 2007 regarding Executive office of the president council of

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economic advisers 2008 statistics4. But during 2008 wee see the inflation rate is going up. (see

graph 2)5

Graph 2

. (The Global Economy and Financial Crisis, International Monetary Fund, 2008)

Job losses in the U.S.A over the last 3 months totaled 651,000. In October, the

unemployment rate rose from 6.1 to 6.5 percent, and the number of unemployed persons increased

to 10.1 million. (BLS)6 (See graph 3).

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Graph 3

_

(U.S. Department of Labor: Bureau of Labor Statistics)

The labor market also continues to contract. However, we have not yet reached the cyclical lows

recorded during the past four recessions.

During the past years, household concerns have not been dependent on inflation rate, but

with rising energy prices in couple of years, customers and business owners have felt the impact of

higher prices. How did the prices increase? Firstly, the Federal Reserve in order to fight against the

inflation raised the interest rates—in a response that increases the overall cost of borrowing for

both individuals and businesses. Secondly, to the extent that higher prices have a negative impact

one’s overall budget, they can also affect the psyche, people start to panicking. If we measure the

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rate of confidence in the nation by examining the NFIB optimism index (see Graph 5) and the

University of Michigan’s consumer confidence survey, we see relationship between confidence and

the price of oil, lately.

Graph 57

87.0

92.0

97.0

102.0

107.0

112.0

-

0 .2

0 .4

0 .6

0 .8

1 .0

1 .2

1 .4

1 .6

1 .8

2 .0

NBER Declared RecessionsOPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986 = 100)3 per. Mov. Avg. (OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986 = 100))

From the graph 5 we see the confidence indicator varies as when the cost of filling up the gas tank

is higher, the public tends to be more pessimistic, and vice versa.

Overall, we see financial crisis is having negative impact on SBA as well as overall the U.S.

economy. If we look at graph 4 and 5, we can see how U.S. financial market created problems to

SBA.

Graph 48

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Graph 4 shows financial market’s ability to raise funds from non-depository sources. It illustrates

how the U.S. asset backed commercial paper market (the Yellow line) took a big fall during the

second quarter of 2007, and 2008 has seen a continuation of that decline. Indeed, as of mid

November 2008, this market stood at about the same level as the second quarter of 2005, basically

erasing all of the gains recorded during the following two years (i.e. during the second quarter 2005

to the second quarter 2007 period).

Interestingly enough, up to the third quarter of 2008, many investors were still purchasing

commercial paper issued by financial institutions (the red line). However, after the Lehman

Brothers failure, investors stayed away from this market as well.

Hence, it’s no surprise that during the past month the spread between the federal fund rate and CD

rates experienced an unusual increase, as banks rushed to replenish their sources of funds from

ordinary depositors.

Graph 59: Effective Federal Fund Rate and Six Month Certificate of Deposit

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The international inter-bank funding markets have also been challenging for U.S. financial

institutions, as the spread between some prominent domestic rates (Fed Funds Rate, and Prime

Rate) has declined, but the LIBOR rose during the third quarter 2008. However, as of November

14, 2008 the three month LIBOR had dropped to 2.24%, creating a 1.8% spread with the U.S.

Prime Rate. While this spread is not close to the recent normal 2.9% spread, it certainly is a huge

improvement over the near zero spread experienced during a few days of September 2008.

Discussions with SBA banking partners indicate that all the above mentioned factors are having a

negative impact on their ability to issue SBA guaranteed loans. Specifically, their inability to raise

funds in the commercial paper markets is reducing their lending capacity, and the relatively higher

CD and LIBOR rates are cutting into their profit margins.

While much of the focus on the financial crisis has been the impact on banks and major financial

institutions, the problem of a “credit crunch” has also hit small firms. Small businesses are having

difficulties to lend money and they rarely issue equity or debt securities. Their only capital source

Unusual spread

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is lending. When lending is not available, it causes big problems such as closing the businesses or

laying off workers. This financing is necessary to purchase, to execute expansion plans, and hire

new employees. Consequently, the availability of reasonable financing is an important factor in

fueling the small business economy. But today’s situation shows that it has become more difficult

to secure capital for small businesses; the terms of loans are higher than in previous cycles.

How did Small Businesses help U.S. economy in the past?

If we look through the history of the SBA we can see that small businesses helped U.S.

economy in the past. For instance, take the last major recession as an example. During the 1990’s

when the U.S. economy was living one of its challenging times when employment declines were

more widespread across the major professional and industry groups. Administrative workers in

general and workers in the finance, insurance, and real estate industry were at greater risk of losing

their jobs in the early 1990's than at any time in the past. Besides, the rate of employment decrease

in both wholesale and retail trade was nearly twice that of the averages of prior contractions. 10 And

today we see many similarities between current and 1990’s recession but at that time small

businesses did a great move and helped economy to recover from the recession. As Honorable

Nydia M. Velazquez, Chairwoman United States House of Representatives, Committee on Small

Business stated: “During the early 1990’s, self-employment—a core piece of the country’s small

business sector—was at an all-time high of 7.7 percent. Moreover, some 25 percent of downsized

managers over the age of 40 chose to start their own companies during this time.  Most of their

firms endure as successful, modern enterprises.  Others fared even better, and have given birth to

[today’s big] companies”11

In addition to 1990’s recession, in 2001 when Americans were struck by terrorist attacks

and the Wall Street was having difficult time, stock market was down but small businesses

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demonstrated resilience and strength. Moreover, small firms as a group held their ground: the

levels of employer firms and the self-employed were relatively stable compared with the previous

years because of the actions taken by SBA. During that time all Small Business Development

Centers (SBDC) of SBA from other states gave their left over money from previous year to New

York Small Business Development Center in order to help individuals suffered from the attack to

rebuild their businesses. SBDC immediately began delivering disaster recovery assistance to

small- and medium-sized businesses physically and economically affected by the disaster.  Small

business owners were filling out applications for SBA Disaster Assistance Loans with the help of

SBDC Business Advisors through its 15 lead centers and additional temporary emergency

assistance centers. In addition, the SBA took very serious action by partnering with the New York

State Business Development Corporation to promote the World Trade Center Small Business

Recovery Fund (WTCSBRF), which served as a nonprofit corporation to help to get capital loans

to impacted small businesses to facilitate economic recovery.12 As Thomas M. Sulliva, Chief

Counsel for Advocacy stated: “2001 was a tough and tragic year for America… Recession and

terrorism pummeled our economy, and small business took the brunt of the blows. Yet, like the rest

of America, small business owners refused to let events drag them down. We knew this was true

from anecdotal evidence, but now the data support this as well.” 13 This once again shows that the

ability of SBA to handle and help economy during the tough times.

There are several facts why Small Businesses are so important to the economy. If we

analyze we see small businesses:

Represent 99.7 percent of all employer firms.

Employ half of all private sector employees.

Pay 45 percent of total U.S. private payroll.

Have generated 60 to 80 percent of net new jobs annually over the last decade.

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Create more than 50 percent of nonfarm private gross domestic product (GDP).

Supplied more than 23 percent of the total value of federal prime contracts in FY 2004.

Produce 13 to 14 times more patents per employee than large patenting firms. These

patents are twice as likely as large firm patents to be among the one percent most cited.

Are employers of 41 percent of high tech workers (such as scientists, engineers, and

computer workers).

Are 53 percent home-based and 3 percent franchises.

Made up 97 percent of all identified exporters and produced 26 percent of the known

export value in FY 200214

Small businesses are lifeblood of the United States economy. In sum, Office of Advocacy

of the U.S. Small Business Administration states that the 26.8 million small businesses in the

United States play a vital role in the economic safety of the nation. The SBA can be very critical

during this economic meltdown because new business creation is a key to the ability to increase

gross national product, personal income, and total employment while unemployment rate rose to

6.1 percent the highest point

What has to be done together with SBA during current recession to help the economy?

In today’s economic crisis Small Business Administration need to step in, and help to

economy to recover by providing its services to individuals through the country. By investing in

their businesses, the small firm owner makes a major contribution to the local, regional, and

national economy but if there is no enough financing, then small firms are in a danger to run out of

business. "The small business sector in this country is the engine of economic growth, and we need

to keep the engine running during this financial crisis. The best way to do that is through expedient,

targeted and effective lending through the SBA,"15 said Senator of New York State Chuck

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Schumer. It is true that small businesses have to step in but how can they do if there is no support

from government. In recent $700 billion rescue package The Federal Reserve did not include

SBA’s name and there is no specific plan to help small businesses through this package. Even

though G.W. Bush stated in his speech: “As a matter of fact, one of the things that's going to

happen with this pro-growth package is that not only is it going to affect small businesses but 130

million families are going to get some money, their own money. And of course, the purpose of that

is to help boost consumption.”16

By these words President Bush meant “Stimulus package” which suppose to help small businesses.

Yes, it is true that this stimulus package will help but there are more serious steps have to be taken

towards small businesses, if we need quick reaction against the economic recession. President Bush

said:

I want to describe this package to you, and to remind our fellow citizens that

soon a significant amount of money will be coming in their mailboxes,

which is going to help the small business sector. It's going to help families

and it's going to help the small business sector, which helps the American

economy. After all, you create 70 percent of the new jobs in America. And

so the first thing that's going to happen is, is that the consumers will get a

boost in that tax rebates will be sent out to about 130 million American

households. Now, these rebates will return up to $600 for individuals, $1,200

for married couples, and $300 per child.17

But the time is passing and small businesses do not see any benefit from this package, yet. The

things are getting worse day by day. The House Small Business Committee examined the recent

actions taken by the U.S. Department of Treasury and the Federal Reserve to assist small firms and

to consider what additional measures are necessary. The Committee largely found that the $1.6

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trillion in federal bailout expenses have provided little assistance to small businesses, many of

which still continue to struggle.18

When we see small businesses are still facing difficulties to get a capital, then such question come

out that where the $1.6 trillion has been spent. As we examined before small businesses have

historically led the United States out of difficult times, but now they are unable to secure capital to

startup or expand, resulting in lower job creation and growth during a time when everybody needs

it. Graph 6 once again proves money that was spent was not effective and the rate of difficultness

is rising very quickly. If this diagram will continue to rise and small businesses will start to run out

of business because of credit availability it will make current situation worse than it was during the

Great Depression.

Graph 619: Credit availability for Small Businesses

(Source: the National Federation of Independent Business Small Business Economic Trends)

From Graph 6, we see that credit even though credit availability was good in April, 2008 it

start to become more difficult starting July, 2008. Because from June, 2008 credit default swaps

start to rise from 45 USD and it had very negative impact on Lehman Brothers as it was below than

30 USD and other banks and it made worse the housing problem. The oil prices went up during

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very short time which had a negative impact on SUV sales and the U.S. Auto Industry’s sales start

to significantly decreasing. There are many problems occurred during this time and all these

changes affected credit availability which now puts small businesses which contributes to the

economy more than “Big Companies” under very challenging situation. As a consequences the

volume of the SBA guaranteed Loans 7 (a) and 504 declined. (see graph 7)

Graph 7

(Source: Small Business Administration [SBA], www.sba.gov/advo )

As we see from the graph 7, the 7(a) loans declined tremendously compare previous year, and

according to Small Business Administration Advocacy’s report, it was 11% decline in 7 (a) by

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making $1.64 billion less loans than in the previous year and 16% decline in 504 loan program

were recorded during this year.

The U.S. Congress passed the Emergency Economic Stabilization Act of 2008 (EESA) to

help financial market to recover and to improve credit condition. After this Act Secretary of

Treasure gain an authority to purchase troubled-assets. Unfortunately, both the Treasury and the

Federal Reserve's wide-ranging actions have not dealt with the financing needs of small businesses.

As Chairwoman Velázquez stated that "The Treasury and the Federal Reserve have created so

many new programs, you would think that at least one would directly benefit small firms - but

unfortunately this is not the case…The Treasury and Fed must stop giving small business lip

service and actually provide them with the resources they need to survive in this very challenging

time." Taking these words into consideration the U.S. government has to take serious actions with

the SBA to make easy capital access to small businesses.

The Committee proposes that the Treasury has to purchase troubled small business loans,

by doing so the businesses which are having danger to close can continue their operations. As the

next the Federal Reserve has to make available liquidity to the small business financing market,

because lenders are having difficulty to lend the money. In addition, even the Committee on Small

Businesses demands that both the Treasury and the Federal Reserve has to work with the Small

Business Administration, because by putting all efforts together many challenges can be alleviated,

specially now when economy is in turmoil.

During this economic recession the credit that is available to small business comes now

with stricter terms that for some owners are becoming harder to meet because of the nation's

housing despairs. As SBA Acting Administrator Sandy K. Baruah claimed: “The challenge small

businesses face today is not the cost of capital, it is access to capital,” said. “Interest rates are at

historically low levels meaning money is inexpensive, yet lenders aren’t lending and borrowers

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aren’t borrowing. This interim final rule is an important step to reenergize the lenders to make

SBA-backed loans and will help open the gateway of capital for entrepreneurs.”20

On the other hand, the United States Senates John F. Kerry and Charles E. Schumer claim

that the SBA is in a position to help small businesses to survive during current economic recession.

They show that if the government is delaying to help small businesses, there is an alternative

solution to the problem which has been discussed by many experts. As indicated in the letter

addressed to Mr. Sandy K. Baruah, the alternative solution is that the SBA can use its authority to

make loans to small businesses through its disaster loan program and temporarily modify the 7(a)

and 504 loan guaranty programs so that the private sector starts making these loans again and the

secondary market for SBA loans will be active again. Additionally, by creating bridge loans

available through the SBA's disaster loans, the same as the Administration did after 9/11.

Moreover, the SBA can make these loans directly to small businesses, because there is no time to

wait until private banks have liquidity freed up when the rescue package [$700 billion] will work.

As it has been indicated in the letter the Congress increased the SBA’s disaster loan almost $500

million in additional funding in October. They claim that the SBA has to use its authority and make

changes about its loan programs because $6 billion in the disaster loans and $25 billion in 7(a) and

504 loan guaranty programs are still accessible in the SBA.21 By showing these facts Sen. Kerry

and Schumer shows that the SBA does not need a part from $700 billion rescue plan when it is in a

position to solve and help economy with its existing capital.

SBA’s current taken actions to help the economy

Even though Sen. Kerry and Schumer insisted that there is an enough funding in the SBA to

help small businesses, in a reality during this recession the SBA needs more government

intervention by increasing their access to the capital and the Senate Committee on Small Business

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by understanding that started to push the Department of Treasury for immediate actions. One of

their actions was a letter to Treasury Secretary Henry Paulson, in which D-Mass.; Sen. Olympia

Snowe, R-Maine; D-N.Y. with Sen. John Kerry and Sen. Charles Schumer as well urged using

TARP money to purchase government-backed small business loans. They realized that if U.S.

government wants small businesses to run and help economy to get over from this existing

economic turmoil, they need to take this necessary action. As they stated: "Purchasing pooled

government loans would jumpstart SBA lending and free up liquidity for the hundreds of thousands

of American small businesses that need loans to stock their shelves, pay their employees and keep

their businesses running."

Besides, the Senate Committee on Small Business concerns, the SBA also took serious actions in

response to the credit crunch. Soon after various discussions, the SBA’s Acting Administrator

Sandy K. Baruah announced important loan program changes to help the agency’s lending partners

increase access to capital for small businesses. There were several changes made by the SBA,

which includes SBA loans to be made with an alternative base interest rate, the one month LIBOR

rate (London Interbank Offered Rate), in addition to the PRIME rate. But still, the disparity

between LIBOR and PRIME rates creates some problems for SBA lenders because their rates now

based on LIBOR rate. But this change has more positive sides than negative because by using both

rates now the SBA opened more opportunities to small businesses to gain more funding or access

to capital. As Baruah mentioned, “This change will help more small businesses obtain capital to

grow their businesses and create new jobs,” which is very needed during this current market

condition. In addition to the changes, the SBA created a new arrangement for collecting SBA

loans, which later will be sold in the secondary market. This change will increase profitability and

liquidity of SBA’s guaranteed loans, because it will encourage more investors to bid on these loans.

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Furthermore, Steve Preston, Administrator of the U.S. Small Business Administration

recently signed HR 5140, the Recovery Rebates and Economic Stimulus for the American People

Act of 2008. The main purpose of this bill are to stimulate short term consumer spending by tax

rebates, a 50 percent bonus deduction on new equipment that; and to increases the limit on

expenses that small businesses can deduct from annual income as Mr. Preston mentioned in his

statement on signing of Stimulus Bill. “HR 5140 will give them a much-needed boost which will

enable them [small businesses] to expand their companies and create new jobs. On behalf of small

business, I applaud the President for his leadership and Congress for moving with such swiftness

and bipartisanship”22

In addition to taken actions, the SBA is looking for other available solutions/changes in

order to help small business owners to have easier access to capital because by this way Small

Business Administration can aid Main Street businesses.

What can Barack Obama do as a next president of the United States?

The next administration of the United States have to deal with so many problems such as

economic recession, auto industry which is going to bankruptcy, energy dependence, health care,

immigration issue, health care, the war on terrorism and so on… To be realistic, to fix all these

problems will take many years, maybe several administrations but first of all current financial crisis

has to be fixed because this problem drives to other serious problems. Americans do not want to

live the next Great Depression or similar situation. By helping economy to recover from the current

downturn Obama has to consider as a key thing to increase the SBA funding and guaranteeing

besides raising the commercial banks’ lending to small businesses. From Obama’s pre-election

platform, we can assume that he has a very positive sense towards small businesses. Only one thing

has to be concerned in Obama’s plans that by raising taxes no matter the size of businesses will

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worse the existing economic situation rather next administration has to more focus on economic

growth. Now, all Americans are waiting for specific actions from the next administrations.

If we analyze Clinton administration, we can see that it was very effective and successful

combining the SBA resources with the federal government's clout. Because, it gave more

motivation to banks in lending to small businesses and banks were able to participate in

government transactions which also helped economy to develop.

Conclusion

We do not notice if small businesses such as convenience stores or restaurants lay off tens

of people, small-scale manufacturing filing for bankruptcy but we have to understand that those

small businesses employ 50% of the American workforce, represent 99.7 percent of all employer

firms, pay nearly 45 percent of total U.S. private payroll etc. We concern more about the “Big

companies” which because of their wrong management system cutting thousands of workers, but

the reality is decreasing profits and frozen credit at the small firms that we do not care too much

have more impact on our economy.

According to Reuters, “Wall Street's pain is rippling through U.S. small businesses, as

bankers who once pulled in million-dollar bonuses lose their jobs and cut back spending on

everything from parties to home improvements.”23

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After all these happenings, we can claim that the U.S. government is going to spend $700

billions on “Big financial firms” and other large private sectors that failed to manage themselves.

But as a solution the SBA has to step in by getting funding from $700 billion rescue plan, and then

this capital has to be given to qualified companies through its different loan programs which will

create free credit flow and promote innovation, provide capital for those who have new ideas, it

also will reduce unemployment rate (6.5 % highest point since 2003, 760,000 lost jobs). It will also

increase consumer spending when financial market is restored.

The economy has proven resilient in the face of several challenges in the past, experiencing

more than six years of uninterrupted growth, and it retains inherent strengths as exemplified by

flexible and deep labor and capital markets. These strengths are likely to keep the economy on a

path toward continued growth, although near-term growth is likely to be slower than that witnessed

in recent quarters, and several headwinds have elevated the risks of a broader economic downturn.

Evidence suggests that effectively-timed fiscal policy would provide a near-term boost to economic

growth and help insulate the economy from downside risks. Policy actions should be well-timed,

temporary, direct, neutral, and substantial enough to promote investment, work, and consumption.

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References:

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1 Small Business Administration. “Overview & History”. About SBA. http://www.sba.gov/aboutsba/history/index.html

2 Small Business Administration. 2006 Master Guide to the SBA - Indispensable Encyclopedia of Small Business Administration Programs and Data. Progressive Management publishing 2006

3 International Monetary Fund [IMF]. The Global Economy and Financial Crisis 2008. U.S. House Prices/Economic Data 2008. http://www.imf.org/external/np/speeches/2008/images/092408_5.jpg

4 The White House. Executive Office of The President Council of Economic Advisers. Economic Report of the President 2008. Chapter 2: Credit and Housing Markets. http://www.whitehouse.gov/cea/2008_erp_ch2.pdf

5 International Monetary Fund [IMF]. The Global Economy and Financial Crisis 2008. Inflation rate 2008. http://www.imf.org/external/np/speeches/2008/images/092408_2.jpg

6 U.S. Department of Labor. Bureau of Labor Statistics. THE EMPLOYMENT SITUATION: OCTOBER 2008. http://www.bls.gov/CPS/

7 The National Federation of Independent Business [NFIB]. Small Business Economic Trends - November 2008,  http://www.nfib.com/page/sbet

8 Board of Governors of the Federal Reserve [The Fed]. Commercial Paper Rates and Outstanding, Data as of November, 2008. http://www.federalreserve.gov13 Nov. 2008

9 Board of Governors of the Federal Reserve. Economic Research Federal Reserve Bank of St, Louis. Effective Federal Fund Rate and Six Month Certificate of Deposit. http://research.stlouisfed.org/fred2/categories/47?ob=os&od=asc&filter%5B0%5D=&filter%5B1%5D=&sf=02 Dec. 2008.

10 For a detailed explanation, see Geoffrey H. Moore, Business Cycles, Inflation, and Forecasting (Cambridge, MA, Ballinger Publishing Co., 1983), pp. 3-10.

11 The House Committee on Small Business. The Role of Small Businesses in Stimulating the Economy. 2008 Statements & Speeches. 24 Apr. 2008 http://www.house.gov/smbiz/PressReleases/2008/pr-04-24-08-small-biz-econ.htm

12 New York State Small Business Development Center [NYS SBDC]. Disaster Recovery for Small Business. http://www.nyssbdc.org/services/DisasterRecovery/disasterrecovery.html

13 SBA. Office of Advocacy. Small Business Economic Indicators, 2001 Analyzes Data Trends. February 5, 2003. New Report Details Growth and Recession. http://www.sba.gov/advo/press/03-06.html

14 SBA. Office of Advocacy. The Small Business Economy. A Report to the President. December 2007. http://www.sba.gov/advo/research/sb_econ2007.pdf

15 iStockAnalyst. SBA (WASHINGTON, Nov. 3 /PRNewswire-USNewswire/). Letter from Sen. John Kerry, Chairman of the Senate Committee on Small Business and Entrepreneurship, & Sen. Chuck Schumer Small Businesses Can't Wait for the Rescue Package to Reach Them. Kerry, Schumer Urge SBA to Help Small Firms. http://www.istockanalyst.com/article/viewiStockNews+articleid_2762046.html

16 The White House. Office of the Press Secretary. “President Bush Meets with Small and Mid-Size Business Owners to Discuss Economic Stimulus Package” April 7, 2008. Roosvelt Room. Washington D.C. http://www.whitehouse.gov/news/releases/2008/04/20080407-6.html

17 The White House. Office of the Press Secretary. “President Bush Attends America's Small Business Summit 2008” April 18, 2008. Renaissance Washington, D.C. http://www.whitehouse.gov/news/releases/2008/04/20080418-10.html

18 The United States House of Representatives. Nydia M. Velázquez, Chairwoman of The Small Business Committee “$1.6 Trillion in Bailout Funds Fail to Find Their Way to Small Businesses” November 20, 2008. Washington D.C. http://www.house.gov/smbiz/PressReleases/2008/pr-11-20-08-fed%20and%20treasury%20hearing.html

19 The United States House of Representatives. The Small Business Committee 110th Congress. Small Business Economic Outlook: Assessing Current Conditions and Challenges to Growth. October 28, 2008. Washington D.C.

http://www.house.gov/smbiz/Reports/Small%20Business%20Economic%20Outlook%20-%20Report%20by%20House%20Small%20Business%20Committee.pdf

20 SBA Press Office/ Los Angeles. “SBA Announces New Ways to ImproveSmall Businesses Access to Capital” November 13, 2008. Washington D.C. http://www.sba.gov/idc/groups/public/documents/ca_los_angeles/ca_la_pr_nov_08_alt_base_int.pdf

21 The United State Senates. Letter from Sen. John F. Kerry and Sen.Charles E. Schumer to Sandy K. Baruah, Acting Administrator of SBA. “ Re: Emergency Changes to SBA Credit Programs” November 3, 2008. http://sbc.senate.gov/oversight/lettersout/081103-toSBA-EmergencyChangestoSBACreditPrograms2.pdf

22 SBA Press Office. Statement by SBA Administrator on Signing of Stimulus Bill. February 13, 2008.Washington D.C. http://www.newsletterarchive.org/2008/02/13/310071-SBA+08-12+Economic+Stimulus+Signing+a+Boon+for+Small+Businesses

23 Jim Finkle and Scott Malone. “Small businesses feel Wall Street's pain” November 20, 2008. Boston (Reuters) http://www.reuters.com/article/newsOne/idUSTRE4AJ0Q720081120