In pursuing its mission of aiding small businesses, SBA provides small businesses with access to credit, primarily by guaranteeing loans through its 7(a) and other loan programs, and provides entrepreneurial assistance through partnerships with private entities that offer small business counseling and technical assistance. SBA also administers various small business procurement programs, which are designed to assist small and small disadvantaged businesses in obtaining federal contracts and subcontracts. In addition, SBA makes loans to businesses and individuals trying to recover from a disaster. As figure 1 shows, SBA has experienced many organizational changes over the past 20 years partly due to changing the way it delivers its services and partly due to budget cuts. Perhaps the largest change to SBA’s service delivery has occurred in its lending programs, where the agency went from making loans directly to guaranteeing loans made by commercial lenders. SBA provides small businesses with access to credit, primarily by guaranteeing loans through its 7(a) and 504 programs. For the 7(a) program, SBA can guarantee up to 85 percent of the loan amount made by private lenders to small businesses. Within the 7(a) program, for smaller loans, SBA offers SBA Express as an option to lenders who will use their own applications and underwriting procedures by agreeing to a lower guaranty of 50 percent. Within the 7(a) program, there are three classifications of lenders—regular, certified, and preferred lenders—that illustrate the various range of responsibilities handed over to lenders. SBA continues to provide final approval of loans made by its regular lenders through the district offices. Certified lenders have the authority to process, close, service, and may liquidate SBA guaranteed loans, and SBA provides expedited loan processing and servicing. Preferred lenders are given full authority to make loans without prior SBA approval. However, these lender-approved preferred loans are submitted to SBA’s Sacramento Processing Center, which, among other things, verifies that the lender has documented eligibility requirements, issues a loan number, and processes the loan guaranty. Under the 504 program, SBA provides its guaranty through certified development companies—private nonprofit corporations—that sell debentures that are fully guaranteed by SBA to private investors and lend the proceeds to qualified small businesses for acquiring real estate, machinery, and equipment, and for building or improving facilities. When a 7(a) or 504 loan defaults, SBA reviews the lender’s request for SBA to purchase the guaranty, and if the lender met SBA’s program requirements, SBA pays the claim. SBA usually relies on the lender to recover as much as it can by liquidating collateral or SBA takes over the loan servicing and liquidation. SBA’s loan programs have also been the focus of a major organizational change with the creation of centers to process and service the majority of SBA’s loans—work once handled largely by district office staff. (See fig. 1.) About 92 percent of the processing and servicing of SBA-guaranteed loans are handled in centers instead of district offices. Among other things, these centers process the loan guaranty and review servicing requests submitted by lenders and borrowers. In response to budget reductions, SBA streamlined its field structure during the 1990s, downsizing the 10 regional offices, moving the workload to either district offices or headquarters offices, and eliminating most of the regions’ role as an intermediate management layer between headquarters and the field. SBA created the Office of Field Operations to take over the role of intermediary. SBA’s overall workforce has decreased by over 20 percent since 1992 and as of 2002 includes about 4,075 employees, including 956 for the Office of Disaster Assistance and 102 employees for the Office of the Inspector General. When SBA embarked on this current transformation effort, it planned its implementation in three phases. The key pilot initiatives SBA undertook in phase 1 that began on March 10, 2003, focuses on (1) transforming the role of the district office to focus on outreach to small businesses about SBA’s products and services and linking these businesses to the appropriate resources, including lenders and (2) centralizing its loan functions to improve efficiency and consistency of its loan approval, servicing, and liquidation processes. Later phases will include expanding these pilots to the remaining district offices. As SBA proceeds in transforming the district offices and centralizing many of its processes, it will analyze its business processes to identify opportunities for improvement and reduce its office space to achieve some cost savings. Finally, SBA’s plan included initiatives to apply technology and use the Internet to reach out to more small businesses. As part of the first phase of SBA’s transformation, the agency began implementing pilot initiatives to test a new marketing focus for its district offices and centralizing some of its loan functions. As the first phase nears completion, SBA has made some progress in implementing the pilot initiatives at three district offices and two centers. While SBA’s implementation efforts have been and could continue to be impeded by budget constraints, we found that the agency did not always clearly communicate its budget requirements. SBA’s centralization efforts could also be impeded by the challenge of realigning staff from multiple field offices so that it can operate its central locations with experienced employees. SBA’s purpose for transformation is to realign its organization, operations, and workforce to better serve its small business customers. Based on SBA transformation documents and agency officials, the agency planned to approach its transformation in phases to allow it to test a number of initiatives and to make refinements before implementing the initiatives agencywide. In our July 2002 testimony on SBA’s workforce transformation plan, we noted that SBA had started to develop a sound implementation plan for its transformation. As part of phase one, SBA intended to test a new marketing and outreach initiative for its district offices that would refocus their efforts on becoming more responsible and accountable for promoting small business growth and development as well as on providing better oversight and management of its lenders and resource partners. Additionally, SBA planned to centralize a number of the offices’ loan functions to (1) free up district office staff to reach and respond to the needs of local businesses and to do more lender and partner management and oversight and (2) improve the efficiency and consistency of its loan processing, servicing, and liquidation functions. To accomplish these initiatives, in March 2003, SBA began its initial pilot initiative at three district offices and two centers and based on its initial transformation plan, it expected to run the pilots for 6 months before moving to the second phase of its transformation. As of our report date, SBA is nearing the completion of phase one of its district office and centralization pilots and plans to expand the results of phase one to all of its other district offices. Based on our site visits to the pilot offices and discussions with SBA headquarters officials, we identified a number of transformation-related activities that SBA has made progress in since implementing its initial pilot initiative. Specifically, for its district office initiative to prepare staff in carrying out their new marketing and outreach roles, during March through June 2003, SBA provided training at the three district office pilots on topics such as marketing and outreach, presentation skills, and customer/partner relationships; develop the competencies necessary for staff to carry out their new roles and to evaluate gaps in the existing skill sets of its staff, SBA has hired a contractor to conduct a skills analysis. In July 2003, the contractor completed the analysis for the three pilot district offices and according to SBA officials, district office management will use the results to identify its employees’ developmental needs in the marketing and outreach areas; update and clarify the specific duties that SBA expects its district office staff to perform in their new marketing roles, the agency developed new job descriptions for its marketing and outreach specialist positions at the district office level; and allow staff at the three pilot district offices more time to conduct marketing and outreach functions, in March 2003, these offices had stopped processing any new 7(a) liquidations and guaranty purchase cases and 504 loan origination applications. In addition, the offices had also transferred most of their outstanding 7(a) liquidation cases to SBA’s liquidation center in Santa Ana, California. Additionally, a key component of SBA’s transformation is to make fundamental changes over the next 5 years at its district office level to reflect the change in the agency’s vision for its district offices from making and servicing loans to primarily reaching out to new markets and overseeing its private-sector partners. Based on our site visits to the three pilot district offices, we found that the offices have begun to move toward SBA’s new vision for its district offices. Specifically, SBA’s Phoenix, Arizona, office has officially changed its organization structure to allow its staff to focus mainly on marketing and outreach-related activities. As shown in figure 2, the office has replaced its portfolio management division with divisions for lender development and marketing and outreach, and it also moved some staff formerly in portfolio management to its business development division. The Miami and Charlotte district pilots have also started to expand their marketing and outreach efforts. For example, a Charlotte official told us that it plans to use “SBA Days” as a way to reach out to small businesses in its district. SBA Days are events conducted at local chambers of commerce around the district’s state where SBA staff along with chamber members and other firms in the area conduct one-on- one counseling sessions with business owners and potential entrepreneurs. To reach small businesses in the Miami area, officials told us that the office is using one of its resource partners to work with a national chain of office supply stores to provide on-site counseling to small business customers when they are in the stores.