The Small Business Administration (SBA) should be commended for their help in sustaining the small business sector with their microloans. However, a recent report by the Government Accountability Office (GAO) shows that the funds which should be distributed to businesses that need it, actually go to ineligible ones. The HUBZone certification which businesses need to qualify for a loan is a program which spans 13 years and is meant to help small business owners build companies in economically distressed areas. When investigators submitted applications which should be denied or disapproved because of obvious reasons; those applications got the federal contracts instead.
Needless to say, there is a huge negative impact to the small business community. The contracts which should have been granted to valid companies, those that really exist and in dire need of financial support, go instead to bogus companies leaving the former with little or worse, nothing to go by. The SBA gives assurance that these fraudulent companies would be penalized but the question is, would the valid businesses be able to wait until all the fraudulent activities are sorted out?
Fraudulent applications with the SBA are not the only problems small businesses face, there’s also the matter of firms who claim that they will be able to help in applying for funds in the program. In this case, there are private companies who victimize small businesses by saying that they will be able to guarantee SBA funding for a high price and there are also those who claim that if the small business owner would not be eligible for the funding if they are not going to use the firm’s services.
While steps are being taken to ensure that small businesses are covered against these scams, the time it takes for it to be sorted can prove to be too much. Think about it: small business asks funding from the SBA but instead of directly applying for it, they are tempted on “guarantees” from private firms. These firms ask for a higher price to get the ball rolling for the application. While these valid small businesses wait for the private firms to process their applications, bogus companies being applied directly with the SBA get the funding instead.
The SBA does not give out federal contracts on a whim. However, since the federal contracts can be given to counterfeit companies and with the proliferation of firms attempting to “guarantee” funding, the survival of small businesses are slim. It is imperative for businesses to constantly update their offering in the market. And in these hard times, the banks are being conservative in giving out loans and mortgages since the risk is too high especially for start ups. The one thing that keeps the hope up for small businesses is the microloans which are distributed through the SBA funding.
In order to sustain growth, funding is important. Without the banks’ help and with the constant clandestine activities surrounding the SBA, small businesses would not be able to survive for long. If the business would not get the upgrades it needs because of problems with funding, it would not be long before the unemployment rate would continue to rise, causing a sinister domino effect to the market as a whole.