Report Questions Success of SBA Minority Program
The Small Business Administration’s main contracting program for minority entrepreneurs has had “questionable success” and is riddled with problems that “limit [its] potential for developing minority businesses,” according to a report by the office of the inspector general.
The annual report identifies the SBA’s top ten management challenges. In addition to problems with the minority contracting program--known as 8(a)--the report found a repeat of many of last year’s challenges, along with a few new ones.
Among the agencywide problems that the inspector general identified: The SBA needs to better track results to see how programs are performing; it must modernize loan monitoring and financial management systems; its information systems security needs improvement; and it must better manage and train its work force to keep up with a changing economy and lending environment.
On the loan front, the agency needs to better monitor the way its own field offices purchase loan guarantees after loans default. Some of those purchases may not be justified because the lenders made sloppy deals that didn’t conform to SBA procedures. That means the agency is forking out taxpayer money unnecessarily.
It also needs to improve oversight of lenders. In February the IG reviewed the SBA’s main loan program and found poor monitoring of many of the banks that make SBA loans (the SBA only guarantees them): In half the loans examined, the IG found that lenders didn’t follow all procedures set down by the SBA.
This year’s report specifically targeted the SBA’s 8(a) program--designed to channel contracts to small minority-owned firms--as having “questionable success in achieving results.”
Some companies that participate in the program receive few benefits while others continue to receive benefits after they no longer qualify for the program, the report concluded. While the program is geared to “socially and economically disadvantaged” firms, the agency needs to better define economic disadvantage, the report said.
Furthermore, small minority firms that are meant to receive the program’s benefits are passing contract opportunities to larger businesses. While the SBA has rules to restrict the amount of a contract that can be performed by a non-participating firm, “nevertheless, OIG audits have found that many non-8(a) companies benefit from the program,” the report found.
Finally, the IG encouraged Congress to approve legislation that would enable the SBA to do criminal background checks on loan agents and loan applicants and thereby reduce the likelihood of fraud. The proposal died in committee last year. The IG noted that the agency has made notable progress on some issues. In the area of system security, for example, it has hired new staff and is resolving problems quickly enough that Deputy Inspector General Peter McClintock said he anticipates removing the challenge from the list next year.
The SBA also has established an Office of Lender Oversight and begun monitoring lenders, but it needs to do more, the report found.
“In a positive sense, I could say that SBA is making progress on the bulk of the challenges,” McClintock said.
Problems with the 8(a) program, however, were serious enough to “limit the program’s potential for developing minority businesses,” the report found.
An SBA spokesman could not be reached for comment.
State Deposits to Boost Cathay Bank’s Assets
Cathay Bank is the latest community bank to receive an infusion of state deposits that are helping to expand small-business and home-mortgage lending across California.
In January 1999, the state had $1.9 billion in deposits in 35 California community banks. State Treasurer Phil Angelides has expanded the effort to $4.2 billion in 112 community banks. The goal is to boost the assets of banks that are most attuned to community needs, particularly in heavily immigrant areas often overlooked by larger institutions.
Angelides called the efforts “the right thing to do and the smart thing to do from both a policy and a fiduciary perspective.”
The California bank deposits offer a higher rate of return than Treasury bills, the banks offer full collateral and the transactions diversify the state’s portfolio, he said. Meanwhile, they spur economic activity in California communities.
In addition to Chinese American-owned Cathay Bank, black-owned Broadway Federal Savings and Korean American-owned Hanmi Bank have received the deposits. So has the much larger Washington Mutual Bank. Cathay has received $68 million in so-called “time deposit” funds since last year. The most recent influx of $30 million was announced Tuesday by Angelides, Assemblywoman Gloria Romero (D-Los Angeles) and Cathay Bank President and Chairman Dunson Cheng.
Romero held a meeting in September with Angelides and local bankers to promote the program, and the recent Cathay commitment grew in part from that. The Los Angeles-based bank has 18 branches in the San Gabriel Valley, the South Bay and the Bay Area.
Romero is hopeful that some of the money will go to small-business and home-mortgage lending in the 49th Assembly District, which includes El Sereno, parts of the city of Los Angeles and unincorporated East Los Angeles, Alhambra, Monterey Park, Rosemead, San Gabriel and unincorporated South San Gabriel. There are a whopping 83 banks in the district--many of them small Asian-owned banks--although East Los Angeles is underserved.
The September meeting brought many of those banks to the table with Angelides to discuss ways to boost their deposits while reaching into underserved neighborhoods to finance small businesses and home mortgages. “We talked about the need to spread deposits of the state of California a little more equitably throughout the district,” Romero said. “Is there a way to bridge the gaps that divide us? I think the best way is for our banks to work in partnership with our local residents.”
National Geographic Buys Novica.com Stake
Los Angeles-based Novica.com, which brings the hand-made works of artisans around the world to online shoppers, has found a powerful equity partner at a time of “dot-com” anxiety: the 112-year-old National Geographic.
The deal makes National Geographic a 19% shareholder in Novica.com, with the right to increase its equity stake to nearly 30%. It marks only the fourth time in the organization’s history that it has taken an equity position in an outside venture.
Novica, launched in 1998, melds for-profit goals with a humanitarian mission and a streamlined distribution strategy that cuts out multiple middlemen and their markups. The more than 1,700 artisans featured on the site set their own prices. Visitors read about the artists’ lives, and the site offers complementary content on culture and travel.
Under the deal, National Geographic will provide Novica with relevant content from its ample editorial resources, as well as marketing support and access to National Geographic’s retail, catalog and online outlets.
Novica Chairman Michael Burns, an Internet and entertainment veteran, called the alliance “extremely meaningful for Novica at this stage of its growth,” offering “powerful distribution and promotional networks as well as an affiliation with one of the most respected brands in the world.”
Novica, which is privately held, has declined to release revenue figures. But the deal comes at a time when many e-commerce ventures are flagging.
