The sequester that went into effect on Friday will impose a nearly $60 million cut on the Small Business Administration, that, taken together with innovation-hindering cuts to education, science, and health budgets, will create an increasingly austere climate for small businesses, according to Congresswoman Nydia Velazquez, a New York representative and ranking Democrat on the House Committee on Small Business.
Velazquez and fellow Democrats on the committee issued a report today describing the “Impact of the Sequester on the SBA and Small Business.” SBA budget cuts will result in “reductions to small business services, loss of lending authority, reduced oversight of private-sector lending partners, and many other areas that help our nation’s small firms succeed,” according to their report.
Among specific cuts they report:
- $1.5 billion in SBA-guaranteed lending will be cut from the SBA’s $29.3 billion business lending program;
- More than $17 million of a $335 million business lending subsidy budget will be cut;
- Five percent of administration and business lending, disaster lending and servicing, and inspector general personnel will be cut;
- Nearly 6,000 fewer veterans will be assisted by Veterans Business Development, which previously served 112,000 veterans.
“Taken together, these reductions will make it more difficult for would-be entrepreneurs to start a business and for existing businesses to obtain the resources they need to expand,” according to the report. “Cash-strapped businesses will have to cut jobs or postpone adding new employees.”
The Democrats also predict that more than 20,000 jobs will be lost due to reductions in 7(a) Term Loans, 504/CDC loans, and microloans from the SBA:
“Under current loan demand, the SBA will exhaust its reduced lending capacity by late summer. As a result, more than 2,7659 small businesses may be denied an SBA loan. These businesses would have created or retained 20,685 jobs.”
The Democrats also project the impact on small businesses that hold federal contracts:
“The sequester will reduce every agency’s discretionary budget, where contracts are most often funded, resulting in small businesses losing a significant amount of contracting dollars. These businesses will be particularly affected as sequestration will impact them more in the last two quarters of the fiscal year.”
Small Disadvantaged Businesses, Service-Disabled Veteran-Owned Small Businesses, and Women-Owned Small Businesses who contract for the Department of Defense will be hit hardest, the report suggests. As a result of cuts to the DOD budget, “small businesses stand to lose more than 79,000 contracts or $5.3 billion.”
But cuts to non-defense civilian agencies will also be significant: “Small businesses will lose out on nearly 44,000 contracts or $2.2 billion,” according to the report.
In Velazquez’s hometown, New York City, last year the SBA provided nearly 1,000 loans for almost $500 million dollars. The sequester will result in a loss of $25 million in lending to the city’s small businesses, and $31 million in lost U.S. Government contracts, she reports.
Velazquez also reports that nationally, “the over $7 billion loss in contracting dollars could mean a forfeiture of more than 100,000 employees. This could multiply as the loss of contracts trickles down to the thousands of subcontractors and suppliers who would no longer have orders to fill.”
“These outcomes, when combined with the closure of nearly 80 entrepreneurial training and counseling centers, will undermine our nation’s historical commitment to small businesses,” the report concludes.