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SMALL BUSINESS ADMINISTRATION
U.S. Small Business Administration Role during the Economic
Turmoil
[Hajimurad Gulahmadov]
[Small Business Administration]
[The City University of New York/ Brooklyn College]
[January 18, 2008]

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TABLE OF CONTENTS:
Introduction...............................................................................................................................3
Overview of U.S. Small Business Administration (SBA) .............................4
Overview of the current economy..............................................................................6
How did Small Businesses help U.S. economy in the past? ...................12
What has to be done together with SBA during current recession to
help the economy? .............................................................................................................15
SBA’s current taken actions to help the economy ........................................20
What can Barack Obama do as a next president of the United
States?..........................................................................................................................................22
Conclusion...............................................................................................................................23
References:...............................................................................................................................25

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Introduction
There is a very close relationship between small businesses and the economy in the United
States as well as in the world because much of economic growth depends on startup businesses. By
hiring few employees each small business/firm make a significant contribution to the economy. In
today’s economic crisis Small Business Administration needs to step in, and help economy to recover
by providing its services to individuals through the country. By investing in their businesses, the
small firm owners make a major contribution to the local, regional, and national economy. The small
business sector in the United States plays critical role, U.S. government needs to put all efforts in
order to help small businesses to have an easy access to the capital. Government created $700 billion
rescue plan but there is no section in this plan which contribute help small businesses to recover and
have an easy capital access. Therefore, the best way to do that is through expedient, targeted and
effective lending through the SBA. The rescue plan is designed to make credit flow freely again but
if this money will be used for wrong purposes, then it can create even more problems. The credit
crunch has caused many small business owners to struggle for financing for their day-to-day
operations and growth plans. If the rescue plan works, it will fix this problem but there have to be
some additions to the rescue plan which includes a plan to help small businesses. Because of their
size and closeness to their customers, new businesses are more flexible and quick to respond than
many established and big businesses, thus they can affectively react and help economy to recover
during this economic meltdown.
In this paper I will discuss SBA’s mission and how it has been affected by the current
economic meltdown. Also, I will discuss SBA’s role during past difficult times in U.S. economy. In
addition, I will provide necessary information to compare the economic and small business financial

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climate now and previous years, what actions the U.S. government are taking to help small businesses
to survive. I will examine, despite current plans to help small businesses what further actions have
to be taken.
Overview of U.S. Small Business Administration (SBA)
“The U.S. Small Business Administration (SBA) was established in 1953 as an independent
agency of the federal government, the main initiatives of this agency are: to aid, counsel, help and
protect the interests of small business concerns, to protect free competitive enterprise and strengthen
the overall economy of United States of America” (SBA). We recognize that small businesses are
playing a critical role in any economic recovery and strength. In the U.S.A to build future, and to
help compete in globalization, Small Business Administration (SBA) has a vital role. Although SBA
has grown and met many challenges since it has been established, but it still keeps the mission to
give assistance to individuals and small businesses by providing information and guidance through
training and consulting through easily accessible branch locations. The SBA helps Americans start,
build and grow businesses and realize their “American dream”. Everybody who lives in the United
States, Puerto Rico, the U. S. Virgin Islands and Guam can benefit from SBA delivered services in
these locations.
If we look into the history of SBA, even before creating of SBA we can see that small businesses
had played a great role in the past, largely as a response to the pressures of the Great Depression,
World War II and Korean War.
First in the history, “The Reconstruction Finance Corporation (RFC), created by President Herbert
Hoover in 1932 to alleviate the financial crisis of the Great Depression, was SBA's grandparent. The
RFC was basically a federal lending program for all businesses hurt by the Depression, large and
small.” (SBA)

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The mission of RFC was to help businesses to get money and recover from the consequences of the
Depression during the time when capital access was almost impossible.
The next step in history was when the U.S. congress created another organization to confront
small businesses’ concerns during the Korean War, at that time this organization was called the Small
Defense Plants Administration (SDPA). “The SDPA certified small businesses to the RFC when it
had determined the businesses to be competent to perform the work of government contracts.
By 1952, a move was on to abolish the RFC. To continue the important functions of the
earlier agencies, President Dwight Eisenhower proposed creation of a new small business agency --
the Small Business Administration (SBA)” (www. sba.gov)1
By the creation of the Small Business Administration, the main idea was to "aid, counsel, assist and
protect, insofar as is possible, the interests of small business concerns." (Small Business Act of July
30, 1953) The agreement also required that the SBA would ensure small businesses a "fair
proportion" of government contracts and sales of surplus properties.
Over the past 55 years, SBA has grown in terms of total assistance provided to its costumers and it
developed many programs which encourages and helps individuals to open their small businesses in
all areas. For instance, there are such programs as financial and federal contract procurement
assistance, management assistance, and specialized outreach to women, minorities and military
veterans. In addition, the SBA also offers loans to victims of natural disasters and specialized advice
and assistance in international trade.
In opposition, there are some people who argue that big businesses, profiting from
"economies of scale," are more efficient in production and can contribute more than small
businesses. But they forgot that small businesses are the key to innovation. If we look to our daily
life, we can see how small businesses contribute to our economy, because they are adoptable, more
flexible and often more bold than big businesses. Most of the items we use everyday, the items that

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line the shelves of America's museums, shops are products of small firms. They save the heritage of
creativity and enterprise and they help keep the "American Dream" within the reach of millions of
Americans. We do not have to forget that people who first immigrated to this country created this
country’s powerful economy by opening small businesses and by the time shifting into big
companies. Today, the SBA is here to help everybody who wants to do business and be successful. If
we look, in near years “the SBA backed more than $12.3 billion in loans to small businesses. More
than $1 billion was made available for disaster loans and more than $40 billion in federal contracts
were secured by small businesses with SBA's help.” (2006 Master guide)2 This numbers are huge
and it has been increased over time which once again proves the importance of the SBA.
Overview of the current economy
Today, the United States is living its next challenge in the history. As everybody knows, the US
economy is in crisis and the downturn in U.S. economy causes the global crisis all over the world.
During this difficult period federal government has called on the private sectors to help to confront
many of existing challenges. Big businesses stepped in and have provided help but this help did not
change too much, and less traditional group, small businesses, which are playing a larger role in
creating jobs and developing new innovative products have been excluded. There are many reasons
for meltdown in U.S. economy. For instance, the effects of the housing downturn, credit market
disruptions, and higher energy prices were major reasons for downturn. Even though recent economic
data have been mixed, and many experts and international financial institutions were expecting an
elevated risk of an economic downturn, there has not been taken specific actions to prevent this
downturn. Although consumer spending continued to grow in late 2007, declines in housing prices
and stock market are cause for concern. All these problems, specifically credit difficulties had a
negative impact on businesses and households, lending standards for a variety of consumer and

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business loans were tightened in 2007, and the availability of some mortgage products has been
sharply reduced. During the first three quarters of 2007, house prices started to slow down in many
regions of the country, and home sales continued the contraction that began in the second half of
2005. (See graph 1) 3
Graph 1
(The Global Economy and Financial Crisis, International Monetary Fund, 2008)
Although core inflation remains contained and inflation expectations remain well anchored, high
energy prices are a drag on household finances, with consumer energy prices up 17.4 percent in the
twelve months through December 2007 regarding Executive office of the president council of
economic advisers 2008 statistics4. But during 2008 wee see the inflation rate is going up. (see graph
2)5
Graph 2

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. (The Global Economy and Financial Crisis, International Monetary Fund, 2008)
Job losses in the U.S.A over the last 3 months totaled 651,000. In October, the unemployment
rate rose from 6.1 to 6.5 percent, and the number of unemployed persons increased to 10.1 million.
(BLS)6 (See graph 3).

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Graph 3
_
(U.S. Department of Labor: Bureau of Labor Statistics)
The labor market also continues to contract. However, we have not yet reached the cyclical lows
recorded during the past four recessions.
During the past years, household concerns have not been dependent on inflation rate, but with
rising energy prices in couple of years, customers and business owners have felt the impact of higher
prices. How did the prices increase? Firstly, the Federal Reserve in order to fight against the inflation
raised the interest rates—in a response that increases the overall cost of borrowing for both
individuals and businesses. Secondly, to the extent that higher prices have a negative impact one’s
overall budget, they can also affect the psyche, people start to panicking. If we measure the rate of
confidence in the nation by examining the NFIB optimism index (see Graph 5) and the University of
Michigan’s consumer confidence survey, we see relationship between confidence and the price of
oil, lately.

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Graph 57
From the graph 5 we see the confidence indicator varies as when the cost of filling up the gas tank is
higher, the public tends to be more pessimistic, and vice versa.
Overall, we see financial crisis is having negative impact on SBA as well as overall the U.S.
economy. If we look at graph 4 and 5, we can see how U.S. financial market created problems to
SBA.
Graph 48
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NBER Declared Recessions
OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986 = 100)
3 per. Mov. Avg. (OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986 = 100))

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Graph 4 shows financial market’s ability to raise funds from non-depository sources. It illustrates
how the U.S. asset backed commercial paper market (the Yellow line) took a big fall during the
second quarter of 2007, and 2008 has seen a continuation of that decline. Indeed, as of mid November
2008, this market stood at about the same level as the second quarter of 2005, basically erasing all of
the gains recorded during the following two years (i.e. during the second quarter 2005 to the second
quarter 2007 period).
Interestingly enough, up to the third quarter of 2008, many investors were still purchasing
commercial paper issued by financial institutions (the red line). However, after the Lehman Brothers
failure, investors stayed away from this market as well.
Hence, it’s no surprise that during the past month the spread between the federal fund rate and CD
rates experienced an unusual increase, as banks rushed to replenish their sources of funds from
ordinary depositors.
Graph 59: Effective Federal Fund Rate and Six Month Certificate of Deposit
Unusual spread

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The international inter-bank funding markets have also been challenging for U.S. financial
institutions, as the spread between some prominent domestic rates (Fed Funds Rate, and Prime Rate)
has declined, but the LIBOR rose during the third quarter 2008. However, as of November 14, 2008
the three month LIBOR had dropped to 2.24%, creating a 1.8% spread with the U.S. Prime Rate.
While this spread is not close to the recent normal 2.9% spread, it certainly is a huge improvement
over the near zero spread experienced during a few days of September 2008.
Discussions with SBA banking partners indicate that all the above mentioned factors are having a
negative impact on their ability to issue SBA guaranteed loans. Specifically, their inability to raise
funds in the commercial paper markets is reducing their lending capacity, and the relatively higher
CD and LIBOR rates are cutting into their profit margins.
While much of the focus on the financial crisis has been the impact on banks and major financial
institutions, the problem of a “credit crunch” has also hit small firms. Small businesses are having
difficulties to lend money and they rarely issue equity or debt securities. Their only capital source is
lending. When lending is not available, it causes big problems such as closing the businesses or
laying off workers. This financing is necessary to purchase, to execute expansion plans, and hire new
employees. Consequently, the availability of reasonable financing is an important factor in fueling
the small business economy. But today’s situation shows that it has become more difficult to secure
capital for small businesses; the terms of loans are higher than in previous cycles.
How did Small Businesses help U.S. economy in the past?
If we look through the history of the SBA we can see that small businesses helped U.S.
economy in the past. For instance, take the last major recession as an example. During the 1990’s
when the U.S. economy was living one of its challenging times when employment declines were
more widespread across the major professional and industry groups. Administrative workers in

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general and workers in the finance, insurance, and real estate industry were at greater risk of losing
their jobs in the early 1990's than at any time in the past. Besides, the rate of employment decrease
in both wholesale and retail trade was nearly twice that of the averages of prior contractions.10 And
today we see many similarities between current and 1990’s recession but at that time small businesses
did a great move and helped economy to recover from the recession. As Honorable Nydia M.
Velazquez, Chairwoman United States House of Representatives, Committee on Small Business
stated: “During the early 1990’s, self-employment—a core piece of the country’s small business
sector—was at an all-time high of 7.7 percent. Moreover, some 25 percent of downsized managers
over the age of 40 chose to start their own companies during this time. Most of their firms endure as
successful, modern enterprises. Others fared even better, and have given birth to [today’s big]
companies”11
In addition to 1990’s recession, in 2001 when Americans were struck by terrorist attacks and
the Wall Street was having difficult time, stock market was down but small businesses demonstrated
resilience and strength. Moreover, small firms as a group held their ground: the levels of employer
firms and the self-employed were relatively stable compared with the previous years because of the
actions taken by SBA. During that time all Small Business Development Centers (SBDC) of SBA
from other states gave their left over money from previous year to New York Small Business
Development Center in order to help individuals suffered from the attack to rebuild their businesses.
SBDC immediately began delivering disaster recovery assistance to small- and medium-sized
businesses physically and economically affected by the disaster. Small business owners were filling
out applications for SBA Disaster Assistance Loans with the help of SBDC Business Advisors
through its 15 lead centers and additional temporary emergency assistance centers. In addition, the
SBA took very serious action by partnering with the New York State Business Development
Corporation to promote the World Trade Center Small Business Recovery Fund (WTCSBRF),

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which served as a nonprofit corporation to help to get capital loans to impacted small businesses to
facilitate economic recovery.12 As Thomas M. Sulliva, Chief Counsel for Advocacy stated: “2001
was a tough and tragic year for America… Recession and terrorism pummeled our economy, and
small business took the brunt of the blows. Yet, like the rest of America, small business owners
refused to let events drag them down. We knew this was true from anecdotal evidence, but now the
data support this as well.” 13 This once again shows that the ability of SBA to handle and help
economy during the tough times.
There are several facts why Small Businesses are so important to the economy. If we analyze
we see small businesses:
 Represent 99.7 percent of all employer firms.
 Employ half of all private sector employees.
 Pay 45 percent of total U.S. private payroll.
 Have generated 60 to 80 percent of net new jobs annually over the last decade.
 Create more than 50 percent of nonfarm private gross domestic product (GDP).
 Supplied more than 23 percent of the total value of federal prime contracts in FY 2004.
 Produce 13 to 14 times more patents per employee than large patenting firms. These patents
are twice as likely as large firm patents to be among the one percent most cited.
 Are employers of 41 percent of high tech workers (such as scientists, engineers, and
computer workers).
 Are 53 percent home-based and 3 percent franchises.
 Made up 97 percent of all identified exporters and produced 26 percent of the known export
value in FY 200214

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Small businesses are lifeblood of the United States economy. In sum, Office of Advocacy of
the U.S. Small Business Administration states that the 26.8 million small businesses in the United
States play a vital role in the economic safety of the nation. The SBA can be very critical during this
economic meltdown because new business creation is a key to the ability to increase gross national
product, personal income, and total employment while unemployment rate rose to 6.1 percent the
highest point
What has to be done together with SBA during current recession to help the
economy?
In today’s economic crisis Small Business Administration need to step in, and help to
economy to recover by providing its services to individuals through the country. By investing in their
businesses, the small firm owner makes a major contribution to the local, regional, and national
economy but if there is no enough financing, then small firms are in a danger to run out of business.
"The small business sector in this country is the engine of economic growth, and we need to keep the
engine running during this financial crisis. The best way to do that is through expedient, targeted and
effective lending through the SBA,"15 said Senator of New York State Chuck Schumer. It is true that
small businesses have to step in but how can they do if there is no support from government. In recent
$700 billion rescue package The Federal Reserve did not include SBA’s name and there is no specific
plan to help small businesses through this package. Even though G.W. Bush stated in his speech:
“As a matter of fact, one of the things that's going to happen with this pro-growth package is that not
only is it going to affect small businesses but 130 million families are going to get some money, their
own money. And of course, the purpose of that is to help boost consumption.”16
By these words President Bush meant “Stimulus package” which suppose to help small businesses.
Yes, it is true that this stimulus package will help but there are more serious steps have to be taken

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towards small businesses, if we need quick reaction against the economic recession. President Bush
said:
I want to describe this package to you, and to remind our fellow citizens that
soon a significant amount of money will be coming in their mailboxes, which
is going to help the small business sector. It's going to help families and it's
going to help the small business sector, which helps the American economy.
After all, you create 70 percent of the new jobs in America. And so the first
thing that's going to happen is, is that the consumers will get a boost in that
tax rebates will be sent out to about 130 million American households. Now,
these rebates will return up to $600 for individuals, $1,200 for married
couples, and $300 per child.17
But the time is passing and small businesses do not see any benefit from this package, yet. The things
are getting worse day by day. The House Small Business Committee examined the recent actions
taken by the U.S. Department of Treasury and the Federal Reserve to assist small firms and to
consider what additional measures are necessary. The Committee largely found that the $1.6 trillion
in federal bailout expenses have provided little assistance to small businesses, many of which still
continue to struggle.18
When we see small businesses are still facing difficulties to get a capital, then such question come
out that where the $1.6 trillion has been spent. As we examined before small businesses have
historically led the United States out of difficult times, but now they are unable to secure capital to
startup or expand, resulting in lower job creation and growth during a time when everybody needs it.
Graph 6 once again proves money that was spent was not effective and the rate of difficultness is
rising very quickly. If this diagram will continue to rise and small businesses will start to run out of

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business because of credit availability it will make current situation worse than it was during the
Great Depression.
Graph 619
: Credit availability for Small Businesses
(Source: the National Federation of Independent Business Small Business Economic Trends)
From Graph 6, we see that credit even though credit availability was good in April, 2008 it
start to become more difficult starting July, 2008. Because from June, 2008 credit default swaps
start to rise from 45 USD and it had very negative impact on Lehman Brothers as it was below than
30 USD and other banks and it made worse the housing problem. The oil prices went up during
very short time which had a negative impact on SUV sales and the U.S. Auto Industry’s sales start
to significantly decreasing. There are many problems occurred during this time and all these
changes affected credit availability which now puts small businesses which contributes to the
economy more than “Big Companies” under very challenging situation. As a consequences the
volume of the SBA guaranteed Loans 7 (a) and 504 declined. (see graph 7)

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Graph 7
(Source: Small Business Administration [SBA], www.sba.gov/advo )
As we see from the graph 7, the 7(a) loans declined tremendously compare previous year, and
according to Small Business Administration Advocacy’s report, it was 11% decline in 7 (a) by
making $1.64 billion less loans than in the previous year and 16% decline in 504 loan program
were recorded during this year.
The U.S. Congress passed the Emergency Economic Stabilization Act of 2008 (EESA) to
help financial market to recover and to improve credit condition. After this Act Secretary of Treasure
gain an authority to purchase troubled-assets. Unfortunately, both the Treasury and the Federal
Reserve's wide-ranging actions have not dealt with the financing needs of small businesses. As
Chairwoman Velázquez stated that "The Treasury and the Federal Reserve have created so many
new programs, you would think that at least one would directly benefit small firms - but unfortunately

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this is not the case…The Treasury and Fed must stop giving small business lip service and actually
provide them with the resources they need to survive in this very challenging time." Taking these
words into consideration the U.S. government has to take serious actions with the SBA to make easy
capital access to small businesses.
The Committee proposes that the Treasury has to purchase troubled small business loans, by
doing so the businesses which are having danger to close can continue their operations. As the next
the Federal Reserve has to make available liquidity to the small business financing market, because
lenders are having difficulty to lend the money. In addition, even the Committee on Small Businesses
demands that both the Treasury and the Federal Reserve has to work with the Small Business
Administration, because by putting all efforts together many challenges can be alleviated, specially
now when economy is in turmoil.
During this economic recession the credit that is available to small business comes now with
stricter terms that for some owners are becoming harder to meet because of the nation's housing
despairs. As SBA Acting Administrator Sandy K. Baruah claimed: “The challenge small businesses
face today is not the cost of capital, it is access to capital,” said. “Interest rates are at historically low
levels meaning money is inexpensive, yet lenders aren’t lending and borrowers aren’t borrowing.
This interim final rule is an important step to reenergize the lenders to make SBA-backed loans and
will help open the gateway of capital for entrepreneurs.”20
On the other hand, the United States Senates John F. Kerry and Charles E. Schumer claim
that the SBA is in a position to help small businesses to survive during current economic recession.
They show that if the government is delaying to help small businesses, there is an alternative solution
to the problem which has been discussed by many experts. As indicated in the letter addressed to Mr.
Sandy K. Baruah, the alternative solution is that the SBA can use its authority to make loans to small
businesses through its disaster loan program and temporarily modify the 7(a) and 504 loan guaranty

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programs so that the private sector starts making these loans again and the secondary market for SBA
loans will be active again. Additionally, by creating bridge loans available through the SBA's disaster
loans, the same as the Administration did after 9/11. Moreover, the SBA can make these loans
directly to small businesses, because there is no time to wait until private banks have liquidity freed
up when the rescue package [$700 billion] will work. As it has been indicated in the letter the
Congress increased the SBA’s disaster loan almost $500 million in additional funding in October.
They claim that the SBA has to use its authority and make changes about its loan programs because
$6 billion in the disaster loans and $25 billion in 7(a) and 504 loan guaranty programs are still
accessible in the SBA.21 By showing these facts Sen. Kerry and Schumer shows that the SBA does
not need a part from $700 billion rescue plan when it is in a position to solve and help economy with
its existing capital.
SBA’s current taken actions to help the economy
Even though Sen. Kerry and Schumer insisted that there is an enough funding in the SBA to
help small businesses, in a reality during this recession the SBA needs more government intervention
by increasing their access to the capital and the Senate Committee on Small Business by
understanding that started to push the Department of Treasury for immediate actions. One of their
actions was a letter to Treasury Secretary Henry Paulson, in which D-Mass.; Sen. Olympia Snowe,
R-Maine; D-N.Y. with Sen. John Kerry and Sen. Charles Schumer as well urged using TARP money
to purchase government-backed small business loans. They realized that if U.S. government wants
small businesses to run and help economy to get over from this existing economic turmoil, they need
to take this necessary action. As they stated: "Purchasing pooled government loans would jumpstart
SBA lending and free up liquidity for the hundreds of thousands of American small businesses that
need loans to stock their shelves, pay their employees and keep their businesses running."

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Besides, the Senate Committee on Small Business concerns, the SBA also took serious actions in
response to the credit crunch. Soon after various discussions, the SBA’s Acting Administrator Sandy
K. Baruah announced important loan program changes to help the agency’s lending partners increase
access to capital for small businesses. There were several changes made by the SBA, which includes
SBA loans to be made with an alternative base interest rate, the one month LIBOR rate (London
Interbank Offered Rate), in addition to the PRIME rate. But still, the disparity between LIBOR and
PRIME rates creates some problems for SBA lenders because their rates now based on LIBOR rate.
But this change has more positive sides than negative because by using both rates now the SBA
opened more opportunities to small businesses to gain more funding or access to capital. As Baruah
mentioned, “This change will help more small businesses obtain capital to grow their businesses and
create new jobs,” which is very needed during this current market condition. In addition to the
changes, the SBA created a new arrangement for collecting SBA loans, which later will be sold in
the secondary market. This change will increase profitability and liquidity of SBA’s guaranteed
loans, because it will encourage more investors to bid on these loans.
Furthermore, Steve Preston, Administrator of the U.S. Small Business Administration
recently signed HR 5140, the Recovery Rebates and Economic Stimulus for the American People
Act of 2008. The main purpose of this bill are to stimulate short term consumer spending by tax
rebates, a 50 percent bonus deduction on new equipment that; and to increases the limit on expenses
that small businesses can deduct from annual income as Mr. Preston mentioned in his statement on
signing of Stimulus Bill. “HR 5140 will give them a much-needed boost which will enable them
[small businesses] to expand their companies and create new jobs. On behalf of small business, I
applaud the President for his leadership and Congress for moving with such swiftness and
bipartisanship”22

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In addition to taken actions, the SBA is looking for other available solutions/changes in order
to help small business owners to have easier access to capital because by this way Small Business
Administration can aid Main Street businesses.
What can Barack Obama do as a next president of the United States?
The next administration of the United States have to deal with so many problems such as
economic recession, auto industry which is going to bankruptcy, energy dependence, health care,
immigration issue, health care, the war on terrorism and so on… To be realistic, to fix all these
problems will take many years, maybe several administrations but first of all current financial crisis
has to be fixed because this problem drives to other serious problems. Americans do not want to live
the next Great Depression or similar situation. By helping economy to recover from the current
downturn Obama has to consider as a key thing to increase the SBA funding and guaranteeing besides
raising the commercial banks’ lending to small businesses. From Obama’s pre-election platform, we
can assume that he has a very positive sense towards small businesses. Only one thing has to be
concerned in Obama’s plans that by raising taxes no matter the size of businesses will worse the
existing economic situation rather next administration has to more focus on economic growth. Now,
all Americans are waiting for specific actions from the next administrations.
If we analyze Clinton administration, we can see that it was very effective and successful
combining the SBA resources with the federal government's clout. Because, it gave more motivation
to banks in lending to small businesses and banks were able to participate in government transactions
which also helped economy to develop.

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Conclusion
We do not notice if small businesses such as convenience stores or restaurants lay off tens of
people, small-scale manufacturing filing for bankruptcy but we have to understand that those small
businesses employ 50% of the American workforce, represent 99.7 percent of all employer firms,
pay nearly 45 percent of total U.S. private payroll etc. We concern more about the “Big companies”
which because of their wrong management system cutting thousands of workers, but the reality is
decreasing profits and frozen credit at the small firms that we do not care too much have more impact
on our economy.
According to Reuters, “Wall Street's pain is rippling through U.S. small businesses, as
bankers who once pulled in million-dollar bonuses lose their jobs and cut back spending on
everything from parties to home improvements.”23
After all these happenings, we can claim that the U.S. government is going to spend $700
billions on “Big financial firms” and other large private sectors that failed to manage themselves. But
as a solution the SBA has to step in by getting funding from $700 billion rescue plan, and then this
capital has to be given to qualified companies through its different loan programs which will create
free credit flow and promote innovation, provide capital for those who have new ideas, it also will
reduce unemployment rate (6.5 % highest point since 2003, 760,000 lost jobs). It will also increase
consumer spending when financial market is restored.
The economy has proven resilient in the face of several challenges in the past, experiencing more
than six years of uninterrupted growth, and it retains inherent strengths as exemplified by flexible

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and deep labor and capital markets. These strengths are likely to keep the economy on a path toward
continued growth, although near-term growth is likely to be slower than that witnessed in recent
quarters, and several headwinds have elevated the risks of a broader economic downturn. Evidence
suggests that effectively-timed fiscal policy would provide a near-term boost to economic growth
and help insulate the economy from downside risks. Policy actions should be well-timed, temporary,
direct, neutral, and substantial enough to promote investment, work, and consumption.

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References:
1 Small Business Administration. “Overview & History”. About SBA. http://www.sba.gov/aboutsba/history/index.html
2 Small Business Administration. 2006 Master Guide to the SBA - Indispensable Encyclopedia ofSmall Business
Administration Programs and Data. Progressive Management publishing 2006
3 International Monetary Fund [IMF]. The Global Economy and Financial Crisis 2008.U.S. House Prices/Economic
Data 2008. http://www.imf.org/external/np/speeches/2008/images/092408_5.jpg
4 The White House. Executive Office of The President Council of Economic Advisers.Economic Report of the
President 2008. Chapter 2: Credit and Housing Markets. http://www.whitehouse.gov/cea/2008_erp_ch2.pdf
5 International Monetary Fund [IMF]. The Global Economy and Financial Crisis 2008.Inflation rate 2008.
http://www.imf.org/external/np/speeches/2008/images/092408_2.jpg
6 U.S. Department of Labor. Bureau of Labor Statistics. THE EMPLOYMENT SITUATION: OCTOBER 2008.
http://www.bls.gov/CPS/
7 The National Federation of Independent Business [NFIB]. Small Business Economic Trends - November
2008, http://www.nfib.com/page/sbet
8 Board of Governors of the Federal Reserve [The Fed]. Commercial Paper Rates and Outstanding, Data as of
November, 2008. http://www.federalreserve.gov
13 Nov. 2008
9 Board of Governors of the Federal Reserve. Economic Research Federal Reserve Bank of St, Louis. Effective Federal
Fund Rate and Six Month Certificate of Deposit.
http://research.stlouisfed.org/fred2/categories/47?ob=os&od=asc&filter%5B0%5D=&filter%5B1%5D=&sf=0
2 Dec. 2008.
10 For a detailed explanation, see Geoffrey H. Moore, Business Cycles, Inflation,and Forecasting (Cambridge, MA,
Ballinger Publishing Co., 1983), pp. 3-10.
11 The House Committee on Small Business.The Role of Small Businesses in Stimulating the Economy. 2008
Statements & Speeches.24 Apr. 2008 http://www.house.gov/smbiz/PressReleases/2008/pr-04-24-08-small-biz-
econ.htm
12 New York State Small Business Development Center [NYS SBDC]. Disaster Recovery for Small Business.
http://www.nyssbdc.org/services/DisasterRecovery/disasterrecovery.html
13 SBA. Office of Advocacy. Small Business Economic Indicators,2001 Analyzes Data Trends. February 5, 2003. New
Report Details Growth and Recession. http://www.sba.gov/advo/press/03-06.html
14 SBA. Office of Advocacy. The Small Business Economy. A Report to the President. December 2007.
http://www.sba.gov/advo/research/sb_econ2007.pdf

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15 iStockAnalyst. SBA (WASHINGTON, Nov. 3 /PRNewswire-USNewswire/). Letter from Sen. John Kerry,
Chairman of the Senate Committee on Small Business and Entrepreneurship, & Sen. Chuck Schumer Small
Businesses Can't Wait for the Rescue Package to Reach Them. Kerry, Schumer Urge SBA to Help Small Firms.
http://www.istockanalyst.com/article/viewiStockNews+articleid_2762046.html
16 The White House. Office of the Press Secretary. “President Bush Meets with Small and Mid-Size Business Owners
to Discuss Economic Stimulus Package” April 7, 2008. Roosvelt Room. Washington D.C.
http://www.whitehouse.gov/news/releases/2008/04/20080407-6.html
17 The White House. Office of the Press Secretary. “President Bush Attends America's Small Business Summit 2008”
April 18, 2008. Renaissance Washington,D.C. http://www.whitehouse.gov/news/releases/2008/04/20080418-10.html
18 The United States House of Representatives. Nydia M. Velázquez, Chairwoman of The Small Business Committee
“$1.6 Trillion in Bailout Funds Fail to Find Their Way to Small Businesses” November 20, 2008. Washington D.C.
http://www.house.gov/smbiz/PressReleases/2008/pr-11-20-08-fed%20and%20treasury%20hearing.html
19 The United States House of Representatives.The Small Business Committee 110th Congress. Small Business
Economic Outlook:Assessing Current Conditions and Challenges to Growth. October 28, 2008. Washington D.C.
http://www.house.gov/smbiz/Reports/Small%20Business%20Economic%20Outlook%20-
%20Report%20by%20House%20Small%20Business%20Committee.pdf
20 SBA Press Office/ Los Angeles.“SBA Announces New Ways to Improve
Small Businesses Access to Capital” November 13, 2008. Washington D.C.
http://www.sba.gov/idc/groups/public/documents/ca_los_angeles/ca_la_pr_nov_08_alt_base_int.pdf
21 The United State Senates.Letter from Sen. John F. Kerry and Sen.Charles E. Schumer to Sandy K. Baruah, Acting
Administrator of SBA. “ Re: Emergency Changes to SBA Credit Programs” November 3, 2008.
http://sbc.senate.gov/oversight/lettersout/081103-toSBA-EmergencyChangestoSBACreditPrograms2.pdf
22 SBA Press Office. Statement by SBA Administrator on Signing of Stimulus Bill. February 13, 2008.Washington
D.C. http://www.newsletterarchive.org/2008/02/13/310071-SBA+08-
12+Economic+Stimulus+Signing+a+Boon+for+Small+Businesses
23 Jim Finkle and Scott Malone. “Small businesses feel Wall Street's pain” November 20, 2008. Boston (Reuters)
http://www.reuters.com/article/newsOne/idUSTRE4AJ0Q720081120