Reforming & Restructuring the SBAReforming and restructuring the SBA under a conservative Administration would meet the needs of America's small-business owners and entrepreneurs, not special interests in Washington, D.C. Entrepreneurs believe the SBA is fairly archaic in its operations and programming and must be transformed to serve small businesses in the modern economy effectively.33 Therefore, a restructured and reformed SBA would end the long-term deficiencies, practices, and problems that have prolonged the decades-long cycle of waste, fraud, and mismanagement.Moreover, the SBA Administrator and leadership can provide significant value to all small businesses by strongly advocating for their policy needs and fostering an agencywide culture that values all small-business owners and does not exclude certain groups. Under a conservative Administration, success would yield: ^^ * A highly qualified SBA Administrator and leadership team that can competently run the agency and enthusiastically advocate for the policy issues and needs of small-business owners and entrepreneurs. ^ * A tighter, more focused SBA that concentrates on congressionally authorized programs. ^ * An accountable SBA Administrator and sta! who report regularly to Congress, respond on a timely basis to requests from individual Members of Congress, and satisfactorily implement or respond to IG and GAO recommendations. ^ * A full accounting of and an end to waste, fraud, and abuse in all COVID-19 relief programs, including the PPP and EIDL programs, and action that follows the rule of law by ensuring that loan recipients who are not eligible for loan forgiveness or who falsified loan applications either pay back the funds or are referred to law enforcement. ^ * An end to SBA direct lending. ^ * An approach to small-business lending and capital programs that supports a resilient small-business supply chain (for example, by financing technological upgrades and capital expenditures). ^ * Outreach to all small businesses and those that are eligible for program support across sectors and geographic areas. Through congressionally authorized programs and collaboration with partners and business associations, the SBA could use the latest technology and platforms to implement relevant initiatives to reach small businesses. Programs would be nonduplicative and implemented on a first-come, first-served basis. ^ * A modern, revamped, and streamlined SBA that better utilizes current technology and platforms for operations, for reporting, and in its programs to reach, service, and engage small businesses. ^ * An Office of Advocacy that is strengthened by a renewed mandate and additional resources to protect against overregulation along with a research agenda that includes measuring the total cost that federal regulation imposes on small businesses.2025 Presidential Transition ProjectPTP2025_652e8848-4769-11ee-bb84-8058fe82ea00The 2025 Presidential Transition Project paves the way for an effective conservative Administration based on four pillars: a policy agenda, Presidential Personnel Database, Presidential Administration Academy, and playbook for the first 180 days of the next Administration.Karen KerriganSBA Chapter AuthorThe Heritage FoundationSmall Business AdministrationThe U.S. Small Business Administration (SBA) supports U.S. entrepreneurship and small business growth by strengthening free enterprise through policy advocacy and facilitating programs that help entrepreneurs to launch and grow their businesses and compete e!ectively in the global marketplaceSmall-Business OwnersEntrepreneursThe needs of America's small-business owners and entrepreneurs are met_652e89f6-4769-11ee-bb84-8058fe82ea00To reform and restructure the SBA_652e8b22-4769-11ee-bb84-8058fe82ea00ConservativismEntrepreneurshipFree EnterpriseAccountabilityPerformanceAccountability & PerformanceCompel a culture of accountability and performance_652e8ca8-4769-11ee-bb84-8058fe82ea001Accountability and Managerial Practice. The SBA lacks accountability and managerial practices to measure the e!ectiveness, success, and integrity of its various programs. As a future Administration evaluates agency structure and the particulars of how the SBA is spending appropriated funds, it should immediately require actions and procedures to compel a culture of accountability and performance. Specifically:Metrics & ProceduresRequire performance metrics and internal procedures to safeguard taxpayer dollars and program integrity._652e8dc0-4769-11ee-bb84-8058fe82ea001.1As noted in an October 2022 IG report, failure to adopt procedures that would reliably capture data and information for various programs, coupled with significant challenges and weaknesses regarding IT investments, systems development, and security controls, presents significant risks to program integrity and increased risk of waste, fraud, and abuse.34 Addressing these shortcomings and risks should be a priority challenge and action item for the next Administration. As underscored by the Inspector General in his introduction to the report, “Pandemic response has, in many instances, magnified the challenging systemic issues in SBA’s mission-related work.”35OIG & GAO RecommendationsReview all internal government watchdog recommendations and require that SBA management implement or address outstanding and ongoing OIG and GAO recommendations within a specified time frame (ideally within 90 days of a recommendation) and on an ongoing basis._652e8ee2-4769-11ee-bb84-8058fe82ea001.2SBA ManagementSBA OIGGAOAdvocacyStrengthen the Office of Advocacy._652e9004-4769-11ee-bb84-8058fe82ea002SBA Office of AdvocacyThe SBA Office of Advocacy (Advocacy) is "an independent office" within the SBA.36 It accounts for about one one-thousandth of SBA spending and 0.75 percent of SBA personnel. Under the Regulatory Flexibility Act, both under its current authority and with suggested reforms, the Office of Advocacy could be a powerful weapon against the administrative state’s regulatory extremism.RulesRequire agencies to provide a copy of any proposed rule along with initial regulatory flexibility analysis to the Office of Advocacy_652e911c-4769-11ee-bb84-8058fe82ea002.1Amend the RFA so that all agencies are required to provide a copy of any proposed rule (other than bona fide emergency rules) along with initial regulatory flexibility analysis to the Office of Advocacy at least 60 days before a notice of proposed rulemaking is submitted for publication in the Federal Register. The Office of Advocacy would submit comments to agencies within 30 days, and each agency would have to consider these comments, make changes in the proposed rule based on those comments, or explain in a revised regulatory flexibility analysis why it chose not to change the proposed rule. The Office of Advocacy's pre-proposing comments would be published on the agencies’ and its own websites. ^^ RFA economic analysis should be expanded to include indirect costs along with direct costs. In addition, the next Administration should require other agencies to seek Advocacy's input. Currently, other agencies deny Advocacy the ability to enforce their duty to consider the e!ect of regulations on small entities by construing their regulations as not having significant economic impact, which would otherwise serve as a trigger for Advocacy’s input. Congress should presumptively exempt small businesses from new agency rules to force agencies to seek Advocacy’s input and permit new rules to apply to small businesses only with Advocacy signo! under specified criteria.BudgetIncrease the Office of Advocacy's budget_652e923e-4769-11ee-bb84-8058fe82ea002.2Increase the Office of Advocacy's budget by at least 50 percent ($4.6 million). This would allow Advocacy to hire approximately 25 attorneys, economists, and scientists and enhance its role in the regulatory process.ComplianceDirect federal agencies to comply with the Regulatory Flexibility Act_652e9374-4769-11ee-bb84-8058fe82ea002.3Federal AgenciesExplicitly direct federal agencies to comply with the RFA. This would be similar to the approach adopted by President Trump in his January and February 2017 executive orders directing agencies to relieve the cost and burden of regulation on business.37 Advocacy should organize regional roundtables, onsite small-business visits, and an online platform to hear directly from small businesses and entities as it did from June 2017 through September 2018.38 This activity produced 26 letters to federal agencies and highlighted specific regulations that need reform and how Congress had addressed the most burdensome rules through the Congressional Review Act.39COVID-19 Loans & GrantsConduct a final accounting and accelerated cleanup of fraudulent COVID-19 loan and grant activity_652e94aa-4769-11ee-bb84-8058fe82ea003COVID-19 Lending Program Accountability and Cleanup. A major immediate priority for the next Administration should be a final accounting and accelerated cleanup of fraudulent COVID-19 loan and grant activity. As noted by the SBA IG, "managing COVID-19 stimulus lending is the greatest overall challenge facing SBA, and it may likely continue to be for many years as the agency grapples with fraud in the programs…."40 The next Administration should:Support & ExpertiseBring in private-sector support and expertise to close out these programs_652e95d6-4769-11ee-bb84-8058fe82ea003.1Consider bringing in private-sector support and expertise to close out these programs. Forgiveness and fraud must be dealt with as swiftly as possible, and law enforcement officials must pursue fraud vigorously. Entities receiving PPP loans that did not meet eligibility for forgiveness must be required to pay back the money. ^^ For example, under the CARES Act,41 PPP loan applicants generally were eligible only if, together with all their affiliates, they had no more than 500 employees. Numerous Planned Parenthood a"liates self-certified eligibility for PPP loans during the initial wave of loans that were governed by the CARES Act's size requirement. Many Senators and Representatives asserted that these Planned Parenthood organizations were ineligible because -- considered together with their affiliates -- they exceeded the maximum eligible size.42 The Trump Administration SBA notified several Planned Parenthood PPP recipients of its preliminary determination of their ineligibility and of SBA’s authority to take various actions against applicants that falsely certified their eligibility.43 ^^ To date, despite continued oversight attempts by Members of Congress,44 the SBA has taken no action on the Planned Parenthood loans other than to forgive them, and in 2021, it approved new PPP loans to Planned Parenthood affiliates.45Forgiveness & OversightCooperate with ongoing congressional oversight efforts and determine whether SBA has authority to reverse the forgiveness decisions._652e970c-4769-11ee-bb84-8058fe82ea003.2If it does have that authority, the SBA should reverse the forgiveness decisions for the subject loans, reiterate its preliminary determinations of ineligibility, investigate the matter more thoroughly, and take all appropriate action when its investigation concludes. Regardless of whether it reverses its forgiveness, if its investigation uncovers evidence that Planned Parenthood affiliates or any other loan recipients knowingly misrepresented their eligibility in their applications, the SBA should make appropriate referrals to the Department of Justice.LoansAddress challenges the SBA has experienced in its administration of its disaster loan program_652e9928-4769-11ee-bb84-8058fe82ea004Federal Emergency Management AdministrationDisaster Loan Program and Direct Lending. The SBA's disaster loan program provides low-interest loans to personal, business, and nonprofit borrowers following a federally declared disaster. The program suffers from problems of coordination with Federal Emergency Management Administration (FEMA) disaster assistance. For example, disaster relief applicants have an incentive to avoid being approved for SBA disaster loans in order to increase the amount of FEMA assistance for which they are eligible. Moreover, the availability of disaster loans reduces individuals' incentives to purchase disaster-related insurance. More than 90 percent of SBA disaster loans are loans to individuals such as homeowners, not to small businesses. ^^ In view of the challenges the SBA has experienced in its administration of this program, as well as the fraud and abuse in the EIDL COVID-19-related program and the IG's concern that the systemic problems within this lending program undermine the SBA's work, the next Administration should:Disaster LoansWork with Congress to assess the extent to which disaster loans should be offered by another agency rather than the SBA and explore private-sector channels for administering the loans._652e9a68-4769-11ee-bb84-8058fe82ea004.1Direct LendingSpecify clearly that no new direct lending programs will be developed at the SBA._652e9c52-4769-11ee-bb84-8058fe82ea004.2Religious EntitiesAddress the eligibility of religious entities for SBA loans_652e9db0-4769-11ee-bb84-8058fe82ea005Religious EntitiesEligibility of Religious Entities for SBA Loans. Current SBA regulations46 and SBA Form 197147 make certain religious entities ineligible to participate in several SBA loan programs. The Trump Administration proposed a rule that would remove the provisions on the ground that they violate the First Amendment.48 Subsequent Supreme Court decisions have made their unconstitutionality clearer.49 ^^ In an April 3, 2020, letter to Congress pursuant to 28 U.S. Code § 530D,50 the Trump Administration SBA advised that two such provisions violate the Free Exercise Clause of the First Amendment and that it therefore would not enforce them. On January 19, 2021, the Trump Administration SBA proposed a rule to remove all of the unconstitutional religious exclusions from its regulations.51 The SBA has not acted on the proposed rule. ^^ A similar religious exclusion once appeared in the regulation governing eligibility for SBA Business Loan Programs,52 but it was removed in a June 2022 final rule that noted tension with the First Amendment and Supreme Court precedent.53 That final rule announced that the SBA would nonetheless continue to make religious eligibility determinations for business loan applicants to comply with putative Establishment Clause requirements,54 but Supreme Court precedent and O"ce of Legal Counsel memoranda refute the notion that large government-backed loan programs raise any Establishment Clause concerns.55 ^^ The SBA uses the same "Religious Eligibility Worksheet," SBA Form 1971, to make eligibility determinations for all affected programs, including the Business Loan Programs. Thus, the SBA continues to act as though the unconstitutional regulation were still in place, and there is no Establishment Clause basis for doing so. The next Administration should immediately:EnforcementNotify Congress under 28 U.S. Code § 530D that it will not enforce these unconstitutional regulations._652ea026-4769-11ee-bb84-8058fe82ea005.1Form 1971Take down SBA Form 1971._652ea1a2-4769-11ee-bb84-8058fe82ea005.2RuleFinalize the Trump Administration's proposed rule or publish its own updated proposed rule to remove the unconstitutional regulations._652ea300-4769-11ee-bb84-8058fe82ea005.3SBIR & STTRSupport small business innovation research and technology transfer_652ea45e-4769-11ee-bb84-8058fe82ea006Small Business Innovation Research and Small Business Technology Transfer Programs. The SBA "coordinates and monitors the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs for all federal agencies with extramural budgets for research or research and development (R/R&D) in excess of the expenditures established in sections 9(f ) and 9(n) of the Small Business Act."56 The SBIR and STTR Extension Act of 2022 extended these programs from September 30, 2022, through September 30, 2025.57 ^^ SBIR requires that 3.2 percent of spending by agencies with extramural R&D budgets of $100 million or more must be directed to small businesses. STTR allocates 0.45 percent of federal research spending to small firms.58 Research has shown that this small portion of federal R&D spending is disproportionately e!ective.59 The SBIR program has consistently demonstrated its ability to fund advanced technologies through to private-market viability and invests more in America's heartland than venture capital invests.60 ^^ SBIR and STTR have overcome the tendency of federal contracting officers to deal only with large firms that are familiar to them and have the expertise and lobbying clout to navigate the federal procurement process. The next Administration should:ContinuityContinue the SBIR and SBTT programs as they successfully fund the next wave of technological innovation to compete with Big Tech._652ea5d0-4769-11ee-bb84-8058fe82ea006.1ExpansionUrge Congress to expand the amount that other agencies are required to set aside from their general R&D budgets for the SBIR program._652ea742-4769-11ee-bb84-8058fe82ea006.2Capital InvestmentsEnsure the enactment of stricter rules requiring that SBIR funds must be expended on capital investments in the United States._652ea8aa-4769-11ee-bb84-8058fe82ea006.3Small ManufacturersExpand the private market for capital in small-manufacturer expansion_652eaa8a-4769-11ee-bb84-8058fe82ea007Small ManufacturersDomestic Manufacturing and Small Business. Small businesses in the manufacturing sector face shortfalls in access to capital.61 As manufacturing employment, domestic business investment, and non–information technology output have declined,62 expectations for market returns and the capital available to small manufacturing enterprises have diminished. This is especially true for capital-intensive sectors like transportation and energy that require large up-front investments and relatively lower-margin sectors like plastics, textiles, furniture, and agriculture. Yet these industries and others like them traditionally have been the backbone of American manufacturing employment. They also are sources of self-sufficiency and resilience at a time when global supply chains are increasingly uncertain. ^^ The public policy problems that are caused by declining small manufacturing are especially acute when it comes to the production of advanced technologies. Other agencies and programs invest immense taxpayer resources in basic science and research. Over time, that research results in some breakthrough technologies, but when it is time to put these breakthroughs into practice by manufacturing goods and services, much of the necessary productive capacity is o!shore.63 For many technologies, the American economy lacks the capacity to "scale up" innovations that might not be immediately profitable. Instead, those technologies are put into practice abroad. In this way, foreign companies and foreign productive sites buy and implement taxpayer-funded American technologies. ^^ The SBA's existing programs should be reformed to expand the private market for capital in small-manufacturer expansion. The next Administration should:Equipment & FacilitiesMake available a category of Section 7(a) loans with a larger available principal that is used to finance manufacturing facility construction and equipment upgrading_652eabfc-4769-11ee-bb84-8058fe82ea007.1CongressAsk Congress to make available a category of Section 7(a) loans with a larger available principal that is used to finance manufacturing facility construction and equipment upgrading. The proposed SBA Reauthorization and Improvement Act of 2019, for example, would have increased the maximum loan principal to $50 million for advanced manufacturing construction and upgrading.64 The Section 7(a) loan program operates through private lenders and guarantees a portion of private-sector loans made to qualifying small businesses. The maximum principal available is $5 million, but small businesses in capital-intensive sectors require significantly larger amounts of capital to finance up-front capital costs.SBICReform the Small Business Investment Company (SBIC) program to refocus its support on small businesses rather than technology startups only. _652ead6e-4769-11ee-bb84-8058fe82ea007.2Small BusinessesThe SBIC program operates through private venture capital and private equity funds by providing eligible funds with guaranteed debt financing to support investments in small businesses. However, the program largely duplicates private-sector venture capital to the extent that the sector receiving much of its support is software and information technology, which already receive the lion’s share of venture capital investment.65 ^^ In addition, Congress should reform the SBIC program to make its financing more favorable to capital-intense investments and small manufacturers. The Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act, introduced in 2020,66 and American Innovation and Manufacturing Act, introduced in 2021,67 would allow SBIC to o!er longer-term financing to manufacturers and make the program more fiscally sustainable.Size StandardModernize the standard definition of small-business size_652eaefe-4769-11ee-bb84-8058fe82ea008Small-Business Size Standard Modernization. Many small-business programs both inside and outside the SBA use the SBA's definition of "small business." Under the Small Business Act, the SBA is tasked with defining what counts as a small business and ensuring that the definition varies from industry to industry to reflect di!erences in regular size by industry. However, the SBA's small-business size standards reflect a one-size-fits-all approach under which all businesses within its size standard are considered small businesses for all eligible purposes, from government contracting preferences to eligibility for SBA loans through private banks. At the same time, the SBA is an outlier among competing economies in not considering medium-sized enterprises along with small businesses, often referred to collectively as small and medium-sized enterprises (SMEs). Medium-sized and regional businesses are increasingly critical to maintaining competition. The next Administration should:MSBsCreate a "medium-sized business" classification_652eb07a-4769-11ee-bb84-8058fe82ea008.1CongressEncourage Congress to create a “medium-sized business” classification with its eligibility for programs confined to access to capital programs from projects for which credit elsewhere does not exist.2023-08-30https://thf_media.s3.amazonaws.com/project2025/2025_MandateForLeadership_CHAPTER-25.pdfOwenAmburOwen.Ambur@verizon.net