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Tuesday, June 4, 2013

SBA Assistance to Small Business Startups: Client Experiences and Program Impact

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including loan guaranty and venture capital programs to enhance small business access to capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion.

Congressional interest in these programs, and the SBA’s assistance provided to small business startups in particular (defined as new businesses that meet the SBA’s criteria as small), has increased in recent years, primarily because these programs are viewed by many as a means to stimulate economic activity, create jobs, and assist in the national economic recovery.

Economists generally do not view job creation as a justification for providing federal assistance to small businesses. They argue that in the long term such assistance will likely reallocate jobs within the economy, not increase them. In their view, jobs arise primarily from the size of the labor force, which depends largely on population, demographics, and factors that affect the choice of home versus market production (e.g., the entry of women in the workforce). However, economic theory does suggest that increased federal spending on small business assistance programs may result in additional jobs in the short term.

Congressional interest in assistance to business startups is derived primarily from economic research suggesting that startups play a very important role in job creation. That research suggests that business startups create many new jobs, but have a more limited effect on net job creation over time because fewer than half of all startups remain in business after five years. However, that research also suggests that the influence of small business startups on net job creation varies by firm size. Startups with fewer than 20 employees tend to have a negligible effect on net job creation over time whereas startups with 20-499 employees tend to have a positive employment effect, as do surviving younger businesses of all sizes (in operation for one year to five years).

This report examines small business startups’ experiences with the SBA’s management and technical assistance training programs, focusing on Small Business Development Centers (SBDCs), Women Business Centers (WBCs), and SCORE (Service Corps of Retired Executives); the 7(a), 504/CDC, and Microloan lending programs; and the Small Business Investment Company (SBIC) venture capital program. Although data collected by the SBA concerning these programs’ impact on economic activity and job creation are somewhat limited and subject to methodological challenges concerning their validity as reliable performance measures, most small business owners who have participated in these programs report in surveys sponsored by the SBA that the programs were useful. Given the data limitations, however, it is difficult to determine the cost effectiveness of these programs.

Two recent SBA initiatives designed to assist small business startups are also discussed: the SBA’s growth accelerators initiative, which targets entrepreneurs looking to “start and scale their business” helping them access “seed capital, mentors, and networking opportunities for customers and partners,” and the SBA’s $1 billion early stage debenture SBIC initiative.

Date of Report: May 22, 2013
Number of Pages: 25
Order Number: R43083
Price: $29.95

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