Is the SBA in DOGE’s Crosshairs?

The creation of the Department of Government Efficiency (DOGE), helmed by Elon Musk and Vivek Ramaswamy, has sparked widespread discussion about potential changes to federal programs, including the Small Business Administration (SBA). With a mandate to identify and publicize examples of waste, inefficiency, and fraud in government spending, DOGE's recommendations could have far-reaching consequences. While much of the focus has been on the Department of Defense (DoD), the SBA, despite its reputation for efficiency, could also face scrutiny.

This article explores what DOGE means for SBA lending, the risks to its current operations, and what small businesses and lenders should prepare for as this initiative unfolds.

What is DOGE?

DOGE, a non-governmental entity established by President-elect Donald Trump, aims to cut $2 trillion from the federal budget by identifying inefficiencies and recommending spending reductions. Although DOGE lacks statutory authority, it is expected to work closely with the Office of Management and Budget (OMB) to influence federal agencies and propose structural reforms. Its methods include "naming and shaming" wasteful spending, promoting headcount reductions, and leveraging mechanisms like “impoundment” to limit allocated funds.

The agency has made headlines for its promise to tackle underperforming programs, with the DoD and other high-budget departments as primary targets. However, smaller programs like the SBA may not be entirely shielded from its sweeping efficiency initiatives.

SBA: A Model of Efficiency in Government

The SBA is often lauded as one of the most efficient federal agencies. With a $36.4 billion budget—only 0.38% of total federal spending—it operates with minimal overhead. Just 3.63% of its budget goes to salaries and expenses, underscoring its lean structure. Unlike many federal programs, the SBA’s flagship 7(a) loan program is nearly self-sustaining, relying on fees from lenders and borrowers rather than taxpayer subsidies.

SBA loans are a cornerstone of small business financing, democratizing access to capital and fueling job creation. The agency has facilitated billions of dollars in loans annually, supporting local economies and generating tax revenue. Its bipartisan support and measurable impact make it a unique and valuable component of federal spending.

Speculative Risks from DOGE

Despite its efficiency, the SBA could face indirect risks from DOGE's initiatives. Here are some potential implications:

1. Reduced Budget or Headcount:
   DOGE's focus on reducing government spending could lead to calls for budget cuts or headcount reductions at the SBA. While major programs like 7(a) loans are unlikely to be eliminated, administrative resources could be constrained, impacting the agency's ability to process loans efficiently.
   • Lender Insight: Some lenders speculate that HQ staff reductions could exacerbate the “brain drain” caused by retirements, further straining an agency that already runs lean.
2. Shift in Responsibilities to Lenders:
   A push for efficiency might lead the SBA to delegate more responsibilities to lenders. While this could reduce administrative burdens for the agency, it might increase costs and complexity for banks, potentially discouraging participation in SBA programs.
   • Lender Impact: Banks, especially smaller lenders, could face higher operational costs if tasked with additional oversight or compliance duties.
3. Program Reevaluation:
   Although unlikely, DOGE could question the necessity or structure of SBA programs. While the SBA is bipartisan and self-sustaining, any perception of inefficiency could prompt reforms that alter loan guarantee thresholds or eligibility criteria.
   • Economic Implications: Changes to these programs could limit access to capital for small businesses, particularly in underserved communities.
4. Public Perception Challenges:
   If DOGE targets the SBA in its "naming and shaming" efforts, it could damage public confidence in the agency. This could deter entrepreneurs from seeking SBA loans, even if the programs remain intact.

Why the SBA May Be Resilient

Several factors make the SBA less vulnerable than other agencies:

• Bipartisan Support: The SBA enjoys strong bipartisan backing due to its tangible impact on job creation and economic growth. Both parties recognize its role in supporting small businesses, a key driver of the U.S. economy.
• Efficiency and Transparency: With a near-zero subsidy rate, the SBA is one of the most transparent and cost-effective federal programs, making it less of a target for criticism.
• Economic Importance: The SBA directly contributes to economic liquidity, tax revenue, and entrepreneurship. These measurable benefits make it harder to justify significant cuts or reforms.

Preparing for Change: What Lenders and Small Businesses Should Do

While DOGE’s impact on the SBA remains speculative, it’s essential to be proactive. Here’s how stakeholders can prepare:

1. Lenders:
   • Advocate for the SBA: Highlight the program’s efficiency and economic benefits to policymakers.
   • Build internal capacity: Prepare for potential shifts in responsibilities by investing in compliance and underwriting capabilities.
2. Small Businesses:
   • Secure funding early: Apply for SBA loans before any potential changes take effect.
   • Diversify financing options: Explore additional funding sources to mitigate reliance on SBA programs.
3. Policymakers and Advocates:
   • Emphasize the SBA’s track record: Showcase its efficiency and impact on job creation to counter any negative narratives.
   • Monitor developments: Stay informed about DOGE’s recommendations and engage with lawmakers to protect critical programs.

Conclusion: Balancing Efficiency with Impact

The Department of Government Efficiency may bring necessary scrutiny to bloated federal programs, but applying the same lens to the SBA risks undermining one of the most successful and efficient government initiatives. As a lifeline for America’s small businesses, the SBA plays a pivotal role in democratizing entrepreneurship and fostering economic growth. Stakeholders must remain vigilant to ensure that any changes driven by DOGE enhance, rather than hinder, the SBA’s mission.