Nonprofits Should Be Dubious Of The 'Small Business' Moniker

By Rick Cohen

The top policy priority at last month’s National Congress was the Nonprofit Capacity Building Initiative, described as a “Small Business Administration (SBA) for nonprofits.” As a compelling policy metaphor, the SBA just doesn’t work -- unless the allusion is to something other than nonprofits.

This idea has been circulating for years. The National Council of Nonprofit Associations and Independent Sector both broached the idea around Sen. Charles Grassley’s Senate Finance Committee hearings during 2004 and 2005. IS’s Diana Aviv proposed a “small nonprofits administration” in her testimony before the House Ways and Means Committee in 2007.

The metaphor is, don’t nonprofits deserve their own Small Business Administration? That might get a guffaw from small business owners across the political spectrum who routinely revile the performance of the SBA in both lending and technical assistance.

The SBA delivers technical assistance through 1,100 small business development centers (SBDCs) supplemented by 10,500 members of the Service Corps of Retired Executives (SCORE) in 374 chapters nationwide. Federal budget performance reviews of SBA training and technical assistance show slippage over the years, but the Bush Administration has conveniently lowered the agency’s performance targets to minimize the telling gap in actual performance. Reportedly, SBA technical assistance is not a huge hit among small businesses.

Some have suggested that the value of the SBA metaphor comes from SBA’s advocacy for small businesses within the federal bureaucracy. That has been fodder for the Senate and House committees that oversee SBA activities, where critics have routinely assailed the agency’s lackluster performance in protecting and promoting small business set-asides in federal procurement.

Despite the SBA’s definition of “small” (generally set below 500 employees for manufacturing firms), loopholes have allowed much larger firms to access SBA financing at times. Charged with monitoring small business set-asides in federal procurement, the agency has allowed some large, larger, and mammoth firms to sneak in masquerading as small businesses, to the vocal displeasure of the agency’s small business constituency.

Critics of the SBA are numerous from across the political spectrum. From his position at the National Black Chamber of Commerce, Harry Alford said that: “Everyone has given up out there on the SBA for developing small and minority businesses.” Presidential candidate Barack Obama has similarly bemoaned the significant decline in SBA’s investment commitments to minority-owned and women-owned businesses. A spokesperson for the National Federation of Independent Business recently intoned, “If the SBA were to go away tomorrow, would anybody really notice?” As Mark Zandi, chief economist of Economy.com puts it, “I question whether there is a need for the SBA, and who really benefits.”

This is a compelling public policy metaphor?

The Nonprofit Congress can’t be using the SBA as a metaphor for success, since much of its primary constituency views the agency as outmoded and irrelevant. Rather, the focus is less on “small” than on “business” in the SBA name, reflecting the current vogue in the sector of focusing on social entrepreneurs, charitable businesses, “L3Cs”, and other hybrids -- especially since the SBA hardly sparks thoughts of entrepreneurialism and creativity.

Promoters of a nonprofit SBA oddly bypass the several federal programs that actually do provide training and TA to nonprofits -- generally delivered by nonprofit TA providers -- with great results. There is much to bemoan in federal government policies emanating from HUD, Agriculture, Health and Human Services, and other agencies depending on where one stands on the partisan or ideological spectrum. But there are some proven federally funded, nonprofit-targeted capacity-building programs that offer more robust accomplishments for nonprofits than the creaky SBA metaphor.

One widely valued technical assistance program has been the CHDO (community housing development organizations) technical assistance program operated by the Department of Housing and Urban Development, combining training and assistance in housing development with organizational capacity-building for new and growing community development corporations. Recent CHDO technical allocations have amounted to $26.8 million between FY2004 and FY2007 with another $8.5 million to be awarded for FY2008 later this summer.

Well recognized organizational capacity building providers of CHDO training and technical assistance have included the Enterprise Community Partners, the Local Initiatives Support Corporation, the Housing Assistance Council (for rural groups), the Puerto Rico Community Foundation, and SEEDCO. The Department of Agriculture offers similar intermediary-provided nonprofit capacity-building through the Rural Community Development Initiative.

The Corporation for National and Community Service provides funding to national organizations for organizational capacity-building in a number of areas, including performance measurement and evaluation, fundraising and resource development, volunteer management (with the Hands on Network in Atlanta), volunteer “leveraging” (through the former Points of Light Foundation and the Volunteer Center National Network), faith-based and community initiatives (Public/Private Ventures), and financial and grants management (Walker and Company).

Despite widespread suspicion of the partisan political motivations of the White House in this program, many smaller nonprofits, faith-based and otherwise, have taken advantage of the capacity-building services of intermediary technical assistance providers in the Compassion Capital Fund lodged in the Department of Health and Human Services. Between FY2002 and FY2007, the Fund awarded approximately $155.8 million to intermediary organizations, many well known and credible inside and outside of faith-based circles: United Ways in Massachusetts and Tucson, the Volunteers of America, several major universities, and even the NCNA-affiliated Louisiana Association of Nonprofit Organizations.

These federal capacity-building programs for nonprofits all link their organizational technical assistance to the recipient organizations’ real work in affordable housing, rural economic development, and human service delivery. In terms of capacity-building, their track records compare more than favorably with the SBA’s. Wouldn’t the best model or metaphor for bulking up federal capacity-building TA for nonprofits capitalize on the successful nonprofit TA already being delivered by nonprofit intermediaries?

At a cost of $25 million, the Nonprofit Capacity Building Initiative is feasible and fundable. The next president might well have the opportunity of signing it into law. But instead of imagining the SBA’s sometimes dubious assistance to for-profit small businesses as a metaphor, the Nonprofit Congress and its allies could tout the examples of federally-funded nonprofit TA programs whose successes are visible in capable, professional nonprofits with housing, job, and service delivery programs and outcomes.