**                           THE NEW SBA                           REINVENTING                         SERVICE TO THE                    SMALL BUSINESS COMMUNITY
                     President Bill Clinton

                     Vice President Al Gore

                          June 12, 1995

                            CONTENTSOVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . 1   A New Strategy. . . . . . . . . . . . . . . . . . . . . . . 1   A New SBA . . . . . . . . . . . . . . . . . . . . . . . . . 2   Ten Principles for Reinventing Small Business Regulation. . 5ACCOMPLISHMENTS AND NEW INITIATIVESIN SBA'S "PORTFOLIOS". . . . . . . . . . . . . . . . . . . . . 6   Access to Credit  . . . . . . . . . . . . . . . . . . . . . 6   Business Education and Training . . . . . . . . . . . . . . 9   Advocacy. . . . . . . . . . . . . . . . . . . . . . . . .  11      Regulatory Reform Successes. . . . . . . . . . . . . .  11      Continued Reform Efforts . . . . . . . . . . . . . . .  12   Disaster Loan Assistance. . . . . . . . . . . . . . . . .  13APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . .  14                            OVERVIEW
A New Strategy

     The Clinton/Gore Administration has pursued an economic strategy that promoteseconomic growth, reduces the deficit, expands trade, invests in people, and reforms theGovernment to make it cost less and perform better.  The results are clear.  The combinedrate of unemployment and inflation is at a 25-year low.  The deficit has been reduced by$600 billion.  The Federal Government is being cut down to size -- and it is on its way tobecoming the smallest it has been since President Kennedy was in office.   

     We have begun not only to shrink the size of Government, but to change the wayGovernment operates and the way it regulates the private sector.  Government must be apartner with business, and small businesses in particular, in creating jobs and expandingeconomic growth.  

     America's small business owners foster our Nation's economic growth andprosperity.  They expect and deserve a Federal Government that lends a helping hand whenit is needed and uses an even hand in applying its regulatory powers.  With these goals inmind, President Clinton asked the Small Business Administration ("SBA") to work with smallbusinesses to better understand their needs and to serve them more effectively.  This outreachis working.  SBA has expanded its loan programs, reduced its own paperwork andregulations, and championed a government-wide effort to streamline regulations.   It willaccomplish even more in the months to come. 

     This report contains a description of SBA's recent successes and proposed initiativesas it works to reinvent its own operations and to lessen small business regulatory burdens.A New SBA

     The Clinton/Gore Administration is committed to our Nation's small businesscommunity.  It has fulfilled that commitment in part by maintaining a vibrant SBA that isexpanding its assistance to small businesses and reducing taxpayer costs. 

     The number of small businesses is growing rapidly -- during the last decade, morethan 600,000 new firms have been created annually.  Just last year, more small businesseswere created than at any time in our country's history.  Throughout this period, smallbusinesses created most of the Nation's new jobs.  Today, they employ nearly 60 percent ofthe country's private work force.  To help maintain and promote this growth, SBA has takenseveral important steps during the last two years and has plans to institute many morereforms.  In doing so, the agency has worked closely with its customers to ensure that it isproviding the right products for the small business marketplace.    

     In order to promote access to credit, SBA provides loan guarantees to participatinglenders under a variety of programs.   In fiscal year 1995, nearly $11.5 billion in long-termcredit and other financial assistance will be provided to more than 67,000 small businessesthrough SBA's network of participating banks, non-bank lenders, certified developmentcompanies, and SBA-licensed companies.  

     SBA has made significant reforms to expand its loan guarantee and capital formationassistance.  For example, the new "LowDoc" program features an easy, one-page applicationand a rapid response, usually within two or three days, for Section 7(a) loan guarantees up to$100,000.  In fiscal year 1993, the year before the program was implemented, 30 percent ofSBA's guaranteed loans were under $100,000.  Thus far in fiscal year 1995, the figure is 63percent. 

     SBA has proposed legislation that would dramatically reduce the government's costof the Agency's financing programs while expanding the number of small businesses served. If these proposals are adopted, SBA will provide financing to more than 92,000 small firmsin fiscal year 1996 and reduce to zero the government's subsidy cost of providing smallbusiness loans under both the 7(a) and 504 programs.  

     SBA provides much-needed business education and training to small business owners. In 1994 the Agency provided counseling and training to more than 800,000 of its smallbusiness clients through resource partners such as Small Business Development Centers(SBDCs) and the Service Corps of Retired Executives (SCORE).  SBA is also leading effortsto create a "one-stop" electronic point of contact for all government business, economic andregulatory information that small businesses need to make informed decisions.  This "U.S.Business Advisor" will soon be available to help make small businesses more efficient,productive and competitive in the global economy.  

     SBA acts as a strong advocate throughout the government on behalf of smallbusinesses.  It does so through specific programs, including the government contractingassistance programs and the Small Business Innovative Research program.  But true advocacymust go beyond SBA's own programs to include the broad scope of federal governmentinvolvement with small businesses. 

     Accordingly, SBA has helped lead this Administration's efforts to reduce regulatoryburdens on small business.  In 1994, it co-sponsored an unprecedented interagency SmallBusiness Forum on Regulatory Reform.  Reflecting the serious work of 150 small businessrepresentatives and 80 government employees, the Forum produced a detailed list of findingsand recommendations, many of which have already been implemented by the participatingagencies.  On March 16, 1995, President Clinton announced reform measures to give effectto the most important of those recommendations:  a reduction in the paperwork burden onsmall businesses and a waiver of punitive actions against first-time violators of certainregulations.  And, as part of a general review of regulations recently completed at thePresident's direction, SBA has committed to revise all of its regulations by the end ofcalendar year 1995, reducing their length by more than 50 percent.    

     SBA's disaster loans are the primary form of Federal assistance for non-farm, privatesector disaster losses.  This program is the only SBA assistance not limited to smallbusinesses.  During the program's 41 years of existence, SBA has approved more than 1.25million disaster loans, comprising $22 billion in assistance, for victims of physical disasters.During the last two years, SBA has taken several steps to simplify and expand access to itsdisaster loan program.  Victims of disasters now find it easier than ever before to reach outto SBA for a helping hand. 

     President Clinton is determined to create a strong, efficient, cost-effective SBA thatworks with our Nation's small business community to expand access to credit and capital,provide needed training and assistance, and serve as an advocate and watchdog for smallbusiness owners.   His efforts have shown significant and tangible results -- demand for SBAprograms is up, paperwork and regulation are down; service and customer satisfaction is atan all-time high.  The new SBA knows that even more can and should be done in the future;it will not cease its efforts to do more for the small business community in the months andyears to come.    

Ten Principles for Reinvention 

SBA is committed to ten key principles:

     1. Promoting better access to capital for small business owners.

     2. Providing valuable small business education and training services. 

     3. Using government resources in an efficient and cost-effective manner.

     4. Working closely with the private sector to better support and assist the smallbusiness community.  

     5. Reducing paperwork burdens on small businesses and streamlining regulations asmuch as possible.      

     6. Serving as an advocate for reform of government regulations so that they stateclearly the rights and responsibilities of small business owners and the federal government. 

     7. Working to assure that affected small businesses are included at every importantstep in the regulatory development process.

     8. Striving to improve communications between the federal government andaffected small businesses to ensure that regulations are understood and followed.  

     9. Promoting voluntary small business compliance with regulations through flexibleenforcement procedures.  

     10.Assuring access to government business, economic and regulatory informationby using state-of-the-art information technology.   
               ACCOMPLISHMENTS AND NEW INITIATIVES                      IN SBA'S "PORTFOLIOS"
     During the past two years, SBA has made a concerted effort to serve its constituencybetter. It has eliminated requirements that no longer made sense, reduced paperwork andforms that interfered with use of its credit programs, and streamlined internal procedures.Although SBA regulations are primarily designed to implement program delivery, rather thanto regulate small business conduct, SBA's efforts have directly affected small businessowners in vital areas, such as improved access to credit and business training.  In its overallrole as an advocate for small business interests, SBA has championed a government-wideregulatory reform effort.  The accomplishments and continuing initiatives arising from theseefforts are listed below under the four "portfolios" -- access to credit, business education andtraining, advocacy, and disaster loan assistance --  that describe SBA's programs.   
Access to Credit
     SBA expands access to capital by providing credit, through thousands of financialintermediaries, to small businesses unable to obtain loans to start-up or expand. Traditionally, small firms have faced serious problems obtaining long-term loans in theprivate credit marketplace.  SBA has taken substantial steps in the last two years to ensurethat its loan guarantee programs help the maximum number of small businesses at minimumcost.  

     1. Low Documentation (LowDoc) Loan Program.  The paperwork and red tape        associated with small SBA-guaranteed loans used to be an embarrassment.        Today the LowDoc program features an easy, one-page SBA application and a	rapid response, usually within two or three days, for loans up to $100,000.  In        fiscal year 1993, the year before Low Doc was implemented, 30 percent of        SBA's guaranteed loans were under $100,000.  As of May 1995, the fiscal year        1995 figure is 63 percent.  Overall, the 7(a) program has grown from 27,000        loans ($5.9 billion) in fiscal year 1992 to 56,000 loans ($7.8 billion) projected        for fiscal year 1995.  Early reports show that loans made under the program are        performing at a better rate than those made during the same period under the        regular 7(a) program.  
     2. The FA$TRAK Program.  On February 27 of this year, SBA launched a two        year pilot program called FA$TRAK that   permits selected lenders (who share        risks with SBA on a 50/50 basis) to approve and service loans up to $100,000,        while using their own forms, documentation and procedures.
     3. Repeal of the Opinion Molder Rule.   Adopted in 1953, the media policy or        "opinion molder" rule prevented small media concerns such as booksellers, radio        stations and television production companies from receiving SBA loan        assistance.  Rather than try to patch up the rule, SBA eliminated it entirely,        thereby extending loan eligibility to approximately 75,000 media-related small        business concerns it could not previously serve.  
     4. Reinvention of the 504 Business Development Program.   SBA's 504        program, which provides asset-based financing for growing small businesses,        historically has required cumbersome, resource-intensive review procedures.         The new SBA has embarked upon a complete streamlining of the 504 process        from authorization to closing.  On April 24, SBA instituted the first phase, an        expedited closing process in which SBA will rely upon its resource partners,        Certified Development Companies, and their private counsel for document        preparation and review.  The time required for SBA counsel's involvement in        the closing process will be trimmed by 80 percent.  Furthermore, final rules        were published in the Federal Register on April 26, 1995, to establish an        Accredited Lenders Program and Premier Certified Lenders Program for        development companies.  Accredited lenders will receive expedited review of        loan applications, and premier certified lenders will be allowed to authorize,        close and service loans.  Additional procedural changes designed to streamline        overall management of the program are scheduled to be in place by August        1995.  
     5. Women's Pre-Qualification.  The Women's Pre-Qualification Loan Pilot        Program was launched in June 1994 to help increase the number of loans made        to women business owners by assisting them to pre-qualify for SBA guarantees.         The program simplifies the loan process for women business owners and makes        it more user-friendly.  Selected nonprofit loan packagers pre-screen and present        credit requests from women entrepreneurs to SBA.  If SBA finds the borrower        qualified, it issues a pre-qualification letter which the loan applicant can take to        a commercial lender.  At the time the pilot was launched, women, who own        about 38 percent of all small businesses, were receiving about 14 percent of        SBA loan guarantees.  A year later, the percentage is 24 percent, with further        progress anticipated.
     6. Export Working Capital Program.  In October 1994, the SBA reorganized its        trade loan effort as the Export Working Capital Program (EWCP) to help small        businesses obtain export financing.  Most commercial lenders consider small        trade loans too risky and time-consuming, particularly for transactions under        $1,000,000.  In conjunction with the Export-Import Bank, SBA's EWCP offers        streamlined application procedures, a simplified application, a higher guarantee        and two kinds of loans, both well-suited for export financing.
     7. Small Business Investment Companies.  The Small Business Investment        Company (SBIC) program is a unique partnership of public and private funds, in        which SBA supplements the capital of private venture capital firms.  During the        past two years, SBA has worked with the private venture capital industry to        completely revise SBIC regulations, virtually rebuilding the SBIC program,        strengthening oversight, management screening and credit review, and creating a        new class of larger, better capitalized SBICs that will provide a profit        participation to the government.  In 1994, the SBIC program attracted more        private capital ($520 million) than in the previous 10 years combined.  
     8. CAPlines.   All of SBA's short-term and revolving lines of credit operate under        the new CAPlines umbrella.  Under the various CAPlines components, the SBA        provides financing for asset-based, seasonal, contract and builders' lines of        credit.  Recently, the SBA took steps to make its asset-based lending program        more customer-friendly by introducing a new, less complicated, and less costly        program to handle asset-based revolving lines of credit in amounts up to        $200,000.
     9. Computer-Generated SBA Loan Forms.   SBA has proposed rules that would        allow lenders participating in the business and development company loan        programs to utilize computer-generated facsimile copies of SBA application and        closing forms in making SBA guaranteed loans.  With advances in technology,        SBA recognizes that its forms may be reproduced as exact copies by computers.         The use of these reproductions may in many cases help expedite the processing        of SBA guaranteed loans.
     10.Proposed Loan Program Reforms.  SBA has proposed legislative changes that        would dramatically reduce the government's cost of the Agency's financing        programs, while expanding the number of small businesses served.  Current        demand for the Agency's Section 7(a) and 504 loan programs far exceeds fund        availability.  Through the institution of adjusted guarantee percentages and        marginal fee increases, SBA can eliminate all federal subsidy costs, thereby        assisting more small businesses while decreasing taxpayer costs.  If SBA's        proposals are adopted, SBA expects to provide financing to more than 92,000        small firms in fiscal year 1996.  Business Education and Training
     SBA provides business and education training to small business owners throughresource partners such as the Small Business Development Centers (SBDCs) and the ServiceCorps of Retired Executives (SCORE).  These programs, in addition to SBA's BusinessInformation Centers, training seminars and publications, often make the difference betweensuccess and failure for small businesses. 

     SBA is at the center of the government-wide effort to create a "one-stop" electronicpoint of contact and access for all the business, economic and regulatory information thatsmall businesses need to make informed decisions.  An electronic information and servicedelivery system for businesses in the United States -- the "U.S. Business Advisor" -- willsoon offer initial solutions to make small businesses more efficient, productive andcompetitive in the global economy.  Initially, the U.S. Business Advisor will access selectedsources of important government information, including health, safety and environmentalregulations, the Unified Agenda of Federal Regulations, the National Trade Data Bank andEPA and OSHA regulatory, guidance and compliance assistance.  When fully developed inthe regulatory area, it will allow easy access to a broad range of regulatory guidance andcompliance assistance.  

     SBA's Business Information Centers (BICs) offer the latest in high-technologyhardware, software and telecommunications to assist small business.  In addition, at BICssmall business owners receive one-on-one counseling with seasoned business people throughthe Service Corps of Retired Executives (SCORE).   SBA is working to expand its networkof BICs.  With the recent openings of BICs in Fairmont, West Virginia, El Paso andCharleston, SBA now has 16 BICs in operation.  

     SBA's Cosponsorship program provides training and counseling for small businessesthrough joint activities with the private sector.  SBA's standard operating procedures (SOP)for the program were complex and inhibiting, micromanaging the process from the centraloffice and imposing considerable paperwork burdens upon cosponsors.  SBA has thoroughlystreamlined the SOP, reducing it from 76 pages to 26, increasing field office flexibility andresponsibility, removing financial and paperwork constraints from private sector partners andslashing internal paperwork requirements by more than 75 percent. 

     The Small Business Development Center program is a cooperative effort of theprivate sector, the educational community and federal, state and local governments toenhance economic development by providing management and technical assistance to smallbusinesses.  Since the enactment of the program in 1980, it has been operating under directstatutory authority, without regulations.  Responding to industry requests for the promulgation of regulations, SBA published proposed regulations on October 28, 1994. Praised by the private sector as a clear, concise and understandable codification of programprocedures, the final regulations will be published in the Federal Register this week.  Inaddition, SBA's reinvention legislative proposal would streamline the administration of theSBDCs, reduce costs, and consolidate the women's and minority training assistance programsunder the SBDC program. 
Advocacy
     SBA has championed Administration efforts to reduce regulations on small businessesas part of its government-wide advocacy role.  The President's recent regulatory reformannouncements reflected recommendations from the unprecedented interagency forum thatSBA helped launch last year.  Many other  regulatory reform recommendations identifiedthrough SBA regulatory reform efforts are now being announced and implemented by otheragencies as part of the National Performance Review's second phase.   
Regulatory Reform Successes
     The President recently directed each Federal agency to review all of its regulationsfor effectiveness and clarity of language.  He also issued two specific directives aimed atsimplifying the regulatory process.  

     1. General Regulatory Review.   On March 4, 1995, President         Clinton issued a directive to all Federal agencies to examine regulations for        effectiveness and clarity of language.  In response, SBA brought together        attorneys, program officials and front-line regulators from across the country.         They met with the regulated community -- bankers, small business owners,        government contractors -- to discuss ways to improve SBA regulations in all        program areas.  These efforts have resulted in plans to clarify and streamline        existing SBA regulations, reducing them in length by more than half.         Implementation of the suggested changes has already begun and should be        completed by the end of the year.          
     2. Waiver of Fines and Right to Cure.   On April 21, President Clinton issued a        Memorandum on Regulatory Reform directing agencies to waive up to 100        percent of any punitive fine on a small business if the small business corrects the        violations within an appropriate time period.  The government also will offer        small businesses an opportunity to avoid punitive action by applying any fine        actually levied towards correcting the violations leading to the fine.  These        policies apply to first-time violations and those that do not threaten safety and        health or involve criminal wrongdoing.  
     3. Reduced Paperwork Requirements.   In that same April 21 Memorandum,        President Clinton directed that many regularly scheduled reports to the Federal        Government now be required only half as often (quarterly reports will be semi-        annual, semi-annual reports will be annual, etc.).  This will help small business        owners significantly.   Continued Reform Efforts     SBA will continue to work with EPA, OSHA and other agencies to address smallbusiness concerns as part of the President's reinventing government initiative:
     1. Regulatory Development.   A regulating agency should attempt to identify the        affected community very early in the regulatory process.  Mechanisms and        procedures should be established for effective two-way communication and        interaction with affected small businesses at every important step in the        development process.  Such businesses are and should be encouraged to provide        comments, data and other information for use in the underlying regulatory        studies, evaluations, and analyses.  If potential adverse impacts and unintended        consequences can be identified and mitigated, future compliance problems and        litigation can be reduced.  
     2. Communications.  To help improve communications between agencies and        small businesses, SBA is working with those agencies to develop strategies for        disseminating regulatory information to affected industries on a regular basis.         The electronic "U.S. Business Advisor" should play a valuable role in this        regard.
     3. Compliance and Enforcement.  Voluntary small business compliance with        regulations is important for protecting health and safety.  SBA is working        closely with agencies to implement procedures, such as those already proposed        by President Clinton, that emphasis cooperation and teamwork,  rather than the        use of intimidation and punitive enforcement to improve regulatory compliance.         By working together, everyone benefits.     Disaster Loan Assistance     SBA's disaster loans are the primary form of Federal assistance for nonfarm, privatesector disaster losses.  SBA provides long-term, low interest loans to cover those losses notcompensated for by private insurance.  The disaster loan program is the only form of SBAassistance not limited to small businesses.  SBA's disaster loans are available to homeowners,renters, businesses of all sizes, and nonprofit organizations. Given the rising Federal costsresulting from the tremendous level of disasters experienced over the last six years, SBA isparticipating in a Government-wide effort to reform the way it responds to disasters.Duringthe last two years, SBA has taken steps to reinvent the program by simplifying the loanapplication process and increasing its loan limits.  Its recent legislative proposal to Congresswould greatly reduce the subsidy rate for disaster assistance, making more loans available ata lower cost to taxpayers.                             APPENDIX:                   BRIEF DESCRIPTIONS OF SBA'S                 ACCOMPLISHMENTS AND INITIATIVESAccess to Credit
The Low Documentation Loan Program (LowDoc) 

Action:   Introduce an easy, one-page SBA application and a rapid response, usually withintwo or three days, for loans up to $100,000.
Background:  The need for a program like LowDoc became evident at a series of town hallmeetings held around the country during the Spring of 1993.  One complaint was heard timeafter time -- small businesses were unable to find lenders able or willing to provide loans inamounts under $100,000.  

Description:   LowDoc is one of the best examples of the recent innovative changes SBA hasmade in the 7(a) lending program.   The program was designed to increase the access thatbusinesses have to smaller loans by reducing the paperwork burden imposed on lenders forthese loans.  The SBA LowDoc application is only one page.  This single sheet is both theapplicant's SBA loan application and the lender's request for an SBA guarantee.  Thisapplication is a distillation of all the information previously required from applicants on aseries of forms and required attachments.  The lender still requests whatever additionalinformation it requires to make an appropriate credit decision.  
The LowDoc program was piloted in Texas beginning in December of 1993 and wasexpanded nationally last summer.  During the expansion phase each SBA district officeselected lenders within its market area to participate in LowDoc.  Because the LowDocapplication evaluation requires a high degree of experience and judgment on the part of theparticipant lender, lender selections were based on past and/or projected levels of activity,the degree of success achieved in the lender's SBA loan portfolio, and the lender'scooperativeness and dedication to meeting the financing need of small business.  Expansionof the program nationally was accomplished over time with SBA certifying its personnel ascompetent to process LowDoc applications only after they had taken an intensive two-daytraining course.  
The program has been extremely well received by both SBA's borrowers andparticipating lenders.  During fiscal year 1994, the SBA approved nearly 6,000 LowDocloans totalling approximately $316 million.  As of April 10, 1995, the SBA had approved18,296 LowDoc loans totalling approximately $1 billion.  SBA anticipates that approximately35,000 LowDoc loans will be approved during fiscal year 1995.  
Early reports show that loans made under the program are performing at a better ratethan those made during the same period under the regular 7(a) program.  Even though thesepreliminary results on program performance are good, SBA continues to monitor theLowDoc program closely.  The results of examinations of the lenders' credit analyses arevery positive.  Future plans for the program call for on-going monitoring and sampling toassure that the same high quality performance by the lenders continues.   
To improve the procedural efficiency of the LowDoc program, on May 1, 1995, SBAannounced plans to centralize LowDoc processing at three sites:  Sacramento, California;Madison, Wisconsin; and Melville, New York.  The processing centers will enable the SBAto achieve economies of scale and to take advantage of the latest in technology.  They willalso help to assure a high degree of consistency in the loan consideration process.  Thesecenters will be operational in mid- to late July, 1995.   The FA$TRAK Program
Action:   Implement a pilot program that allows selected lenders who agree to share risks ona 50/50 basis to approve and service loans up to $100,000, while using their own forms,documentation and procedures. 
Background:   In another effort to streamline the 7(a) program, SBA worked closely lastyear with some of its lending partners to develop an exciting new pilot program calledFA$TRAK.  This pilot program is designed to increase the availability of smaller loans forSBA customers and to decrease the paperwork burden imposed on the Agency's lendingpartners.
Description:   Under the FA$TRAK pilot, which began on February 27 of this year and isscheduled to last two years, 18 selected lenders are authorized to make, service and liquidateloans in amounts up to $100,000 using their own application and disbursement documentsand processes.  Lenders participating in the pilot program are given the ability to attach anSBA guarantee to an approved loan without having to submit the loan application to an SBAfield office for a credit analysis or review.  These loans are sent to a single location forassignment of an SBA loan number and a determination of borrower eligibility.  
In exchange for the convenience of using their own forms and processes, lendersagree to limit the loan amount to $100,000, accept a maximum guarantee of 50 percent, andwaive payment on defaulted loans until after the lender has completed liquidation and SBAhas reviewed the underlying documentation supporting the loan.   As of April 28, 1995, SBAhad approved 46 FA$TRAK loans totalling $2.0 million.    Repeal of the Media Policy (Opinion Molder) Rule
Action:   Repeal the rule barring loan assistance to media-related small business concerns.
Background:   The media policy rule was adopted in 1953 and prevented small mediaconcerns such as booksellers, radio stations and television production companies fromeligibility for SBA loan assistance.   The rule remained in effect despite the fact that smallmedia concerns often have difficulty raising capital or borrowing money.  
Description:   In October, 1994, SBA repealed the media policy  rule, thereby extendingloan eligibility to approximately 75,000 small business concerns it could not previouslyserve.  This change in policy enables SBA to promote job growth and economic developmentby making financial assistance available to a larger number of small business concerns.  
Repeal of this rule has created a very broad list of newly-eligible enterprises thatincludes broadcasters, movie theaters, publishers, producers, importers, exporters ordistributors of all types of communications (such as newspapers, sheet music, posters, film,tape, theatrical productions, greeting cards, and books), plus transportation concerns limitedto the distribution of such products.  Reinvention of the 504 Business Development Loan Program 
Action:   Streamline the 504 loan process from authorization to closing; establish theAccredited Lenders Program and the Premier Certified Lender program.  
Background:   SBA provides asset-based financing to small businesses through its 504Certified Development Company program.  The program makes loans available for acquiringland, buildings, machinery and equipment, and for building, modernizing, renovating orrestoring existing facilities and sites.  
A "certified development company" (CDC) is a private, public sector non-profitcorporation that is set up to contribute to the economic development of its community orregion.  CDCs can sell 100 percent SBA-guaranteed debentures to private investors inamounts up to 40 percent of a project or $750,000, whichever is less.  The CDC programhas in the past required cumbersome, resource-intensive review procedures.  
Description:   SBA is in the process of a complete streamlining of the 504 loan process fromauthorization to closing, including regulations, internal operating procedures, forms andagreements.  On April 24, it implemented the first steps to expedite the processing of 504loan closings.  Any qualified CDC may now apply for approval to use this expeditedprocedure, which allows the CDC and its private counsel to perform document preparationand review.  Specifically, SBA attorney review time will be reduced from a current averageof four hours, to a new average of 20 minutes per loan package.  
While it moves forward in its effort to streamline the closing process, SBA has takensteps to expedite the application stage of the program.  On April 26, 1995, a final rule waspublished establishing an Accredited Lenders Program (ALP) for Certified DevelopmentCompanies that provides for expedited processing of loan applications and servicing actionsby SBA field offices.   Development companies with a proven track record in the submissionof documentation needed for making and servicing of sound loans may qualify as accreditedlenders.  Applications submitted by these lenders will be processed by SBA within threeworking days.  The ALP is intended to build upon the successful Certified Lenders Programfor SBA's General Business Loan program and the pilot Accredited Lenders Program forCDCs which has been administered by SBA since 1991.  The positive experience with thepilot led to its statutory authorization in The Small Business Administration Amendments Actof 1994, P.L. 103-403.  The final rule implements the program.

The same law established a Premier Certified Lenders Program (PCLP) to beadministered by SBA on a three-year pilot basis.  The final rule implementing the PCLP waspublished on April 26, 1995.  The program is modeled after the Preferred Lender Programfor the SBA's General Business Loan Program.  The PCLP development company will agreeto share the risk of loan making, and in return SBA will delegate authority to the companyfor the purpose of authorizing, closing and servicing loans.   The program responds to thesignificant increase in development company loan activity and recognizes the growingstrength and capability of CDCs.   

In addition, SBA is working closely with its CDC resource partners to improve itsoverall management of the 504 program.  Working groups composed of SBA personnel andCDC representatives from around the country are in the process of examining the loanapplication process, credit analysis, loan closing and loan servicing.  To streamline deliveryof the program, SBA will clearly define and centralize the responsibility for data collectionand maintenance, minimize paper flow, make maximum use of communications and databasetechnology, and assure that access to database information will be integrated for ease of use. These changes are scheduled to be in place no later than August 31, 1995.Women's Pre-Qualification Pilot Loan Program Action:   Implement a pilot program to increase the number of loans made to womenbusiness owners by assisting them to pre-qualify for SBA loan guarantees.  
Background:   Last year, SBA examined closely its record of lending to women-ownedbusinesses and found that historically only approximately 10 to 12 percent of SBA loans andloan guaranties have gone to women-owned businesses.  Statistics show that women-ownedbusinesses constitute more than one-third of all small businesses and that women are startingbusinesses at a faster rate than their male counterparts.  Therefore, SBA felt that it wasnecessary to look at new ways to improve its ability to meet the borrowing needs of womenbusiness owners.  
Description:   The Women's Pre-Qualification Pilot program allows SBA to review and pre-qualify loans for women-owned businesses prior to their submission to a participating lender. The SBA pre-qualification letter assures the lender that SBA has seen the loan applicationand has determined that, if the lender agrees to make the loan, an SBA guarantee will beavailable. 
The pilot began June 1, 1994, and there are presently 16 pilot sites across thecountry.  SBA has contracted with the Women's Business Development Center in Chicago togather data and help evaluate the effectiveness of the first six months of the pilot'soperations.  The results of this evaluation will help  SBA decide whether the program shouldcontinue as is, be changed, expanded, or discontinued.  Small Business Investment Companies (SBICs)
Action:   Revise Small Business Investment Company regulations, strengthen oversight,management screening and credit review, and create a class of larger, better capitalizedSBICs. 
Background:   Small Business Investment Companies (SBICs) represent a uniquepublic/private sector partnership for providing risk capital to small businesses.  SBICs areprivately-owned and managed investment firms (corporations or partnerships) licensed bySBA to provide equity and long-term subordinated debt financing to small businesses fortheir sound financing and to promote their growth, modernization or expansion.  SBAsupplements an SBIC's private capital by either guaranteeing their securities which arefunded in the public markets or by purchasing their securities.  
The program makes funding available to all types of manufacturing and serviceindustries.  Many investment companies seek out small businesses with new products orservices because of the strong growth potential of such firms.  Some SBICs specialize in thefield in which their management has special knowledge or competency.  Most, however,consider a wide variety of investment opportunities.    
Description:   The Small Business Equity Enhancement Act of 1992 restructured the SBICprogram, making it more effective in providing risk capital to small businesses than at anytime in its 35-year history.  In addition, over the last two years SBA has worked with theprivate venture capital industry to completely revise SBIC regulations.  Oversight has beenstrengthened, management and credit review have been enhanced, and a new class of larger,better capitalized SBICs has been created.  As a result, in 1994, the SBIC program attractedmore private capital ($520 million) than in the previous 10 years combined.
 CAPlines
Action:   Implement nationally an enhanced revolving line of credit program for smallbusinesses.  
Background:   SBA has traditionally offered a long-term loan guarantee program.  Access tolong-term financing by small businesses has historically been more difficult than for largerbusinesses, which often have other financing vehicles available to them.  Over the pastseveral years, it has become more and more common for SBA to hear small businessescomplain that short-term credit sources have also become difficult to access.    
Description:   SBA offers short-term and revolving lines of credit under the new CAPlinesumbrella.  Under the various CAPlines components, SBA provides financing for variousneeds including asset-based, seasonal, contract and builders' lines of credit.  These programshelp to finance the short-term cyclical needs of many small business borrowers.  CAPlinesare not subject to the $500,000 maximum gross loan amount limitation currently in place, butare limited to an SBA maximum share of the lesser of 75 percent of the loan amount or$750,000.  
The heart of SBA's asset-based lending program is its ability to support lenders intheir efforts to provide businesses with short-term financing, based on the business' cashcycle rather than its cash flow over an established period of time.  Based on its cash needs,the borrower may take advances from the line of credit and must repay the line from cashreceived, throughout the term of the loan.  This assures that the loan will truly revolve.  
Recently, SBA took steps to make its asset-based lending program more customer-friendly.  Responding to criticism that the monitoring requirements of the program were toostringent and too expensive for smaller asset-based revolving loans, SBA introduced a new,less complicated, and less costly program to handle asset-based revolving lines of credit inamounts up to $200,000.  Computer-Generated SBA Business Loan Forms
Action:   Propose rules to authorize SBA participating lenders and development companies touse computer-generated facsimile copies of SBA forms in submitting loan applications andclosing documents.  
Background:   SBA has required that its participating lenders and development companiesuse SBA-provided forms in the SBA business and development company loan programs. With advances in technology, SBA recognizes that such forms may be reproduced as exactcopies by computers and that use of these reproductions may in many cases help expedite theprocessing of SBA guaranteed loans.  
Description:   Under the proposed rules for the business loan and development companyprograms, lenders and development companies would be authorized to use SBA applicationand closing forms that they generate on the computer or from software prepared by thirdparties.  This is an effort by SBA to allow participating lenders and development companiesto take advantage of available technologies to expedite the processing of loans.  The copiesmust be exact; lenders and development companies that use computer-generated forms agreeto accept liability for a substantial SBA loss due to deficiencies in the forms.  
The proposed rule for business loans was published in the Federal Register onMarch 3, 1995.  The proposed rule for the 504 Development Company Loan Program waspublished in the Register on March 24, 1995.  General Loan Program Reforms
Action:   Increase customer access to SBA loan guarantee programs while reducing the costto taxpayers.  
Background:   A crucial aspect of SBA's reinvention effort has been to seek ways toenhance its existing programs and at the same time reduce costs to the Federal Government. Presently, Congress must appropriate an amount that anticipates the subsidy cost of loan
guarantees made by SBA in the upcoming fiscal year.   Often, a supplemental appropriationis required because loan demand is greater than Congress expected.  As a result, lenders andborrowers experience uncertainty about loan availability.    
Description:   The Clinton Administration has submitted legislation that will reduce to zerothe SBA's subsidy rate for the 7(a) and 504 loan programs.  These changes will allow SBAto serve more small firms and to provide loans in slightly larger amounts, while substantiallyreducing the program's cost to the taxpayers.
The zero subsidy rate will be achieved through a series of adjustments to SBA'sguarantee percentages, interest rates, and program fee structures.  These changes will allowSBA to increase its maximum guarantee amount to $1 million, thus allowing small businessborrowers with larger funding needs to receive SBA assistance.  Care was taken to assurethat the fees charged to borrowers would not make the program too expensive and that thefees charged to lenders and the reductions in guarantee percentages would not be so great as
to make use of the programs commercially impractical.   SBA believes it has struck theproper balance, and that the proposed changes would allow it to continue to do more forsmall business, with less reliance on taxpayers' funds. Business Education and Training The U.S. Business Advisor
Action:   Develop in cooperation with other federal agencies a "one-stop" electronic point ofcontact that small businesses can use to obtain business, economic and regulatoryinformation.   
Background:   Through more effective use of technology and productive public/privatepartnerships, small businesses can increase productivity and cut costs.  In the newinformation-age economy, knowledge and communication are fundamental sources of wealth. Current and emerging technology is revolutionizing the way business is done -- and isindispensable to managing change.  In future years, no successful business will be withoutaccess to the Internet, a sprawling "place" where over a billion electronic-mail messages goback and forth monthly among 35 million users.
Description: SBA is at the center of a government-wide effort to create a "one-stop"electronic point of contact and access for all business, economic and regulatory informationthat small businesses need to make informed decisions.  An electronic information andservices delivery system for businesses in the United States -- the "U.S. Business Advisor" --will soon be available to offer initial solutions to make small businesses more competitive inthe global economy.

Consisting of several divisions, the U.S. Business Advisor will be accessed throughthe Internet and offer government-wide access to financial and regulatory information andresources, all in one place.  Responding to the small business community's need for betteraccess to regulatory information and compliance assistance, the first division to open will bethe Regulatory Assistance Center (RAC).

Initially, RAC will access selected sources of important government information,including federal and state environment, safety and health statutes and regulations; theDepartment of Commerce's National Trade Data Bank, which contains information onoverseas markets, how-to guides for exporters, general information on foreign countries, andover 60,000 foreign business contacts; a global electronic commerce system forenvironmental technology; EPA and OSHA compliance guides and assistance; IRS forms;and Customs import regulations.  As it evolves, RAC will become the one-stop place to gofor everything a business might require to address its regulatory, reporting and complianceneeds.  It will allow easy access to a full range of plain-language regulatory guidance andcompliance assistance information to help businesses understand regulatory requirements,including self-assessment tools, forms, training modules, expert systems and bestmanagement practices.

Increasingly, small businesses are demanding better, faster, and more timely servicefrom the Federal Government.  Creating a customer-driven, results-oriented Government thatoffers quality service is an important goal of the Clinton Administration.  Throughtechnology and productive partnerships, SBA and other federal agencies can become moreaccessible and more responsive to small businesses.  "Opening" the U.S. Business Advisor isan important part of that process.  SBA will seek to make the U.S. Business Advisoraccessible to all small business owners, regardless of their technological capabilities.  It willbe made available via computer for those without access to the Internet.  For those smallbusiness people without a computer, various options are being explored, including makingthe U.S. Business Advisor accessible at SBA's 950 Small Business Development Centers andsub-centers and its 16 Business Information Centers.
Business Information Centers 
Action:   Expand the network of Business Information Centers (BICs) to provide betteraccess for small businesses to state-of-the-art technologies and information sources.  
Background:   During this time of rapid change, small businesses need access to the latest inhigh-technology hardware, software and telecommunications in order to compete effectivelyand grow.
Description:   SBA's Business Information Centers provide one-stop state-of-the-artassistance and advice to small business owners plus one-on-one counseling and trainingthrough the Service Corps of Retired Executives (SCORE).  BICs are now in sixteenlocations across the country:  Seattle, Atlanta, Houston, Los Angeles, St. Louis, Nashville,Chicago, Boston, Kansas City, Washington, D.C., San Diego, Baltimore, Fort Worth, ElPaso, Charleston, South Carolina and Fairmont, West Virginia.  
BICs use state-of-the-art personal computers, graphics work stations, CD-ROMtechnology and interactive videos, allowing small business owners access to market researchdatabases, use of  planning and spreadsheet software, and use of vast libraries of informationto help them start or build businesses.   The BICs offer electronic bulletin boards,computer data bases, on-line information exchange, periodicals and brochures, counseling,videotapes, reference materials, texts, start-up guides, application software, computertutorials and interactive media.  
BICs receive major private sector support from sponsors such as Apple Computer,Dell Computers, Dun & Bradstreet, Microsoft, U.S. Sprint and others.  In cooperation withits private sector co-sponsors and SCORE, SBA has expanded the network of BICs recentlyin its continuing effort to ensure that America's small business people have access to the bestavailable resources.Cosponsorships
Action:   Streamline the operating procedures for the Cosponsorship program and reduce thepaperwork burden for SBA's private sector partners.  
Background:   SBA extends and expands the limited resources it has available for smallbusiness training and counseling through the Cosponsorship program.  Cosponsorship enliststhe aid of non-profit and for-profit entities, as well as federal, state and local governmentagencies. 
Typical projects include training seminars and workshops, publications, conferences,and expos and fairs involving SBA programs.  Topics include international trade, minoritybusiness opportunities, women's business ownership procurement opportunities, financeprograms, rural initiatives, veterans and a wide variety of special endeavors such ascomputer training, workplace literacy, ethics, employee theft and drug-free workenvironments.   
Description:   SBA's standard operating procedures (SOP) for the Cosponsorship programwere complex and inhibiting, micromanaging the process from the central office andimposing considerable paperwork burdens upon private sector cosponsors.  SBA hasthoroughly streamlined its SOP, reducing it from 76 pages to 26, increasing field officeflexibility and responsibility, removing financial and paperwork constraints from privatesector partners and slashing internal paperwork requirements by more than 75 percent. Small Business Development Centers
Action:   Promulgate regulations for the Small Business Development Center (SBDC)program and propose legislation that will streamline administration of the SBDCs, reducecosts, and consolidate the women's and minority training assistance programs under theSBDC program.
Background:   The Small Business Development Center program is a cooperative effort ofthe private sector, educational institutions and federal, state and local governments to meetthe basic and specialized needs of the small business community.  The SBDCs' primaryobjective is to further economic development by providing counseling, training, research andspecialized assistance in all aspects of business management.  More than half of all SBAcounseling and two-thirds of all training efforts are provided by Small Business DevelopmentCenters.    
Description: In October of last year, SBA responded to industry requests that regulations bepromulgated to govern administration of the program.  Since creation of the program in1980, it had been operating under direct statutory authority, without regulations.  The newregulatory framework, which will be published in the Federal Register this week, codifiedand clarified the procedures under which the program had been operating.  The regulationshave been well received by the industry.  

SBA's reinvention legislative proposal would streamline the administration of theSBDCs and reduce taxpayer costs.  Under the proposal, other grant programs currentlyproviding management and technical assistance to differing segments of the small businesscommunity would be consolidated under the SBDC program. The Women's DemonstrationProject and Minority Business Training Program would be administered by the SBDCs,streamlining the delivery of services and reducing the overhead of these programs.  

In order to maximize the services provided by SBDCs to the small businesscommunity, the proposal also allows SBDCs the flexibility to use various deliverymechanisms, including, but not limited to, institutions of higher learning and local non-profiteconomic development organizations.  SBDCs would retain the authority to receive fundingfrom other Federal and state entities.  The legislative proposal would keep existing eligibilityrequirements for SBDCs and add a requirement that SBDCs work closely with stategovernments in developing relationships with state and local economic developmentorganizations to broaden the services provided.
AdvocacyGeneral Regulatory Review
Action:   Clarify and streamline SBA's regulations, revising or eliminating any duplicative,outdated, inconsistent or confusing provisions.  As a result of this process, SBA regulationswill be cut by more than 50 percent by the end of the calendar year.
Background:   SBA has championed Administration efforts to reduce regulations on smallbusinesses as part of its government-wide advocacy role.  The SBA-sponsored SmallBusiness Forum on Regulatory Reform made numerous recommendations and findings,including the need to revise or eliminate outmoded, confusing or duplicative regulations.  OnMarch 4, 1995, President Clinton directed all agencies to conduct a review of all regulationsto determine what might be revised or eliminated.  
Description:   In response to the President's directive, SBA has completed a page-by-pageand line-by-line review of each of its  regulations.  Individual regulations were analyzed todetermine if they imposed any unnecessary burden on small businesses or if they moreappropriately should be included in internal operating procedures.  SBA has sought to ensurea less cumbersome and more efficient process, with an emphasis on enhanced customerservice. 
This three month review process has yielded impressive results.  Agency teamsreviewed the 700 pages of SBA regulations in detail, identifying specific ways to streamlineand simplify.  Overall, SBA will reinvent 100 percent of its regulations, resulting in theelimination of 355 pages of regulatory text -- or 51 percent of its regulations.  Some of thesechanges are described elsewhere in this report in the descriptions of particular programreforms, but they will also include:  consolidation of all discrimination regulations;simplification of size regulations; simplification of 8(a) program regulations to expediteeligibility reviews and contracting actions; and the consolidation and redrafting of allbusiness loan regulations into one section to facilitate use and save time.

Waiver of Fines and Right to Cure.
Action:   The President has issued a Memorandum on Regulatory Reform directing agenciesto modify or waive penalties for small businesses in certain situations.  
Background:   The SBA-sponsored Small Business Forum on Regulatory Reformrecommended measures to encourage voluntary compliance with regulations and developmore flexible enforcement mechanisms. 
Description:   On April 21, 1995, President Clinton issued a Memorandum on RegulatoryReform, directing department and agency heads to implement two important policyinitiatives.  Agencies are directed to use their enforcement discretion to waive the impositionof all or a portion of a penalty when the violation is corrected within an appropriate timeperiod.  For those violations that may take longer to correct than the period set by theagency, federal agencies will waive up to 100 percent of the financial penalties if theamounts waived are used to cure the violation.   
The Memorandum directs federal agencies to implement these new policies on orbefore July 14, 1995.  As part of their implementation plan, the agencies must includeinformation on how notification of the new policies will be given to small businesses.  SBAis working with EPA and OSHA and other agencies to assist them in implementing anddisseminating information about the policies.    Reduced Paperwork Requirements
Action:   The President issued a Memorandum on Regulatory Reform that directs agencies toreduce the paperwork burden on small businesses.  
Background:   Included among the recommendations of the SBA-sponsored Small BusinessForum on Regulatory Reform was the need to reduce the paperwork burden on smallbusinesses.  
Description: On April 21, 1995, President Clinton issued a Memorandum on RegulatoryReform directing agencies to reduce by one-half the frequency of the regularly scheduledreports that the public is required, by rule or by policy, to provide to the Government (fromquarterly to semiannually, from semiannually to annually, etc.).  

Each agency is required to submit a plan by June 15, 1995 to the Office ofManagement and Budget describing the actions it is taking to implement this paperworkreduction.   Disaster Loan Assistance

Action:   Simplify the disaster loan assistance program by reducing filing requirements. Increase loan limits and propose legislation to reduce the subsidy rate for disaster loans,allowing SBA to quadruple the number of loans it makes with the same subsidy.
Background:   SBA's disaster loans are the primary form of Federal assistance for nonfarm,private sector disaster losses.  SBA provides long-term, low interest loans to cover thoselosses not compensated for by private insurance.  The disaster loan program is the only formof SBA assistance not limited to small businesses.  SBA's disaster loans are available tohomeowners, renters, businesses of all sizes, and nonprofit organizations.  Given the risingFederal costs resulting from the tremendous level of disasters experienced over the last sixyears, SBA is participating in a Government-wide effort to reform the way we respond todisasters.   
Description:   SBA has made many changes to simplify the disaster loan assistance programand make it more customer friendly.  Specifically, it has:  

(1) Simplified the home loan filing requirements.  SBA 

now requires certain information only after a loan is approved so that disaster victims

are not required to do unnecessary paperwork. 

(2) Simplified the filing process and the requirements for 

disaster business loans.  As a result of its experience in the Midwest floods, SBA has

cut the length of its disaster loan application in half.   

(3) Increased the disaster home loan limits from $100,000 to 

$200,000 for real estate damage, and from $20,000 to $40,000 for personal property

damage.

(4) Modified the major source of employment criteria to 

permit consideration of waiver of the $1.5 million business loan limit in more cases. 

(The law provides a maximum loan limit of $1.5 million for any business in any one

disaster.  It also permits SBA's Administrator to waive that limit for a "major source

of employment", as defined in our regulations.  The modification made it easier for

businesses to qualify as major sources of employment.) 

Furthermore, the reinvention legislative proposal SBA recently submitted to Congresswould reduce the subsidy rate for disaster loans in fiscal year 1996 from its current level ofover 31 percent to 8.46 percent.  This reduction would permit SBA to make $407 million indisaster loans with its requested subsidy authority of $34 million as opposed to $110 millionin loans with the current subsidy rate.   

ACKNOWLEDGMENTS

We acknowledge the contributions of Administrator Philip Lader, Deputy Administrator Cassandra Pulley, and allthe hard-working, dedicated employees at the SBA.  

Special appreciation also goes to John Spotila, Ronald Matzner, and Jeffrey Lane of SBA for their work indrafting this Report.

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