ASSESSING THE IMPACT OF THE LOSS OF FEDERAL FUNDING
ON SBI PROGRAMS
David P. Brennan
University of St. Thomas
University of Northern Colorado
University of Northern Colorado
Federal funding of the Small Business Institute program was
terminated in 1995. Schools with SBI programs and the Small
Business Institute Directors Association are assessing the impact
of the loss of Federal funding. This research analyzes the
impact of the termination of Federal funding on SBI programs and
the implications for SBIDA.
All SBI directors were surveyed by mail during the summer of
1996. A total of 186 directors responded for a 39 percent
response rate. Data were analyzed using SAS. Cross-tabs were
run to compare 1995 survey data with 1996 survey data.
Sixty-two percent of the directors said their school plans to
continue the SBI program. SBI ranked highly in terms of a
practical business education program. Budgetarily, most schools
focused on expense reduction rather than of revenue generation
this past year. School funding is the leading source of income.
Comparison of the two surveys indicates that more schools are
continuing their SBI programs than they thought they would in
Federal funding of the Small Business Institute (SBI) program was
terminated in 1995. Started in 1972, the program grew to
approximately 500 colleges and universities handling 6,000 cases
with a budget of $3 million before being a casualty of deficit
reduction efforts by the Clinton Administration and Congress.
The Small Business Institute Directors Association (SBIDA)
lobbied long and hard to win continuing funding for the SBI
program the past few years. The Clinton Administration omitted
funding for SBI in fiscal years 1995 and 1996. Congress restored
funding for fiscal year 1995, but was axed for 1996 when the
Republicans gained a majority in both houses of Congress.
1996 is the first year that SBIs have operated without Federal
funding. It marks a watershed for the SBI program as it goes
forward. It seems appropriate to evaluate the impact of the
termination of Federal funding on the Small Business Institute
There is relatively little research on the funding of SBI
programs. Three studies have dealt indirectly with SBI funding:
one on SBI budgets (Timmins & Tallent, 1992); the use and control
of SBI case funds (Rose & Wong, 1991); and a spatial analysis of
the distribution of SBIs and SBDCs (Frazier, Krumske, Leinberger
& Geiger, 1995).
The only one study has dealt directly with the impact of the loss
of Federal funding (Brennan, Hoffman & Vishwanathan, 1996). It
surveyed SBI directors in 1995 prior to the termination of
Federal funding. This study's primary objective was to determine
what impact the elimination of Federal funding would have on
Small Business Institutes and by extension on the Small Business
Institute Directors Association. It concluded that there was a
core of strong, committed SBI and SBIDA supporters, and that the
future of both will depend on this core.
The primary objective of this research was to determine the
impact of termination of Federal funding has had on Small
Business Institutes. The secondary objective was to compare the
results of a 1995 survey of SBI directors on what they would do
if they lost Federal funding (Brennan, Hoffman & Vishwanathan,
1996) with what actually occurred. This research was done to
help understand where the SBI program and SBIDA are and shed
light on planning for the future.
All SBI directors were surveyed by mail with the use of a May
1995 mailing list from the National Center for Small Business
Advancement. Directors were surveyed in the areas of director
characteristics; school participation; director rating of the
value of practical business education programs; the impact of the
termination of Federal funding on their SBI program; actions
taken when Federal funding was eliminated; difficulty of fund
raising; income sources; estimated percentage of income by
source; and a comparison of what directors said they would do
without Federal funding and what they actually did.
The survey was mailed to 476 directors as of May 1995. A limited
attempt was made to follow-up with non-respondents. Of the 476,
four were returned as undeliverable. This seems low given the
normal changes let alone the likely elimination of SBI programs.
Thus, 186 questionnaires from 472 good addresses were received.
This is a good response rate of 39 percent. It is even better
when the likelihood of former directors whose schools dropped SBI
is considered. Frequencies and means were generated for each
Survey data from the 1995 Brennan, Hoffman & Vishwanathan study
were obtained and merged with this 1996 survey. This was only
done for respondents who participated in both surveys. A cross-
tab was done for what SBI directors said the likelihood of their
school continuing the SBI program in 1995 and what they actually
did in 1996.
The results are divided into the 1996 survey and a 1995-96 survey
Most (159 of 182 or 87 percent) of the schools responding have an
SBI program. When asked whether they plan to continue the SBI
program, 62 percent said yes, 15 percent said no, and 23 percent
were unsure. For those who plan to discontinue the SBI program,
79 percent said lack of funding was the primary reason for
dropping the program. Couldn't afford the salaries accounted for
an additional 8 percent with the college losing interest in SBI
without Federal funding for another 6 percent.
Over 90 percent of the respondents were currently SBI directors.
The median years as a director and membership in SBIDA was 8.5
years. Just over 69 percent are currently SBIDA members.
Regional SBIDA membership drops to 45 percent. Median membership
in regional SBIDAs was 8.5 years. A third of the respondents
attended the 1996 SBIDA national conference with 8.5 years being
the median years of attendance. Only 20 percent of the
respondents attended their regional conference with 8.5 years
being the median years of attendance.
Practical Educational Program
Respondents rated the educational value of all types of practical
business experience highly. Only "other" business experience was
rated higher than SBI. In fact, they rate SBI 4.6 on a five
point scale with 1 low and 5 high. This reflects the 71 percent
who rated SBI a five and only two who rate it a two. The
following table compares practical courses offered and
respondent's rating of them.
Schools With Practical Business Education Programs
And The Rating Of The Value Of Those Programs
Internships 90.2% 4.4
SBI 87.4 4.6
Field Case projects 57.9 4.6
Actual business 59.6 4.6
Co-operative 33.5 4.0
National competition 23.0 3.9
(like ad campaign)
Semesters in 16.6 4.4
Other 9.9 4.8
Direct marketing 7.1 3.1
Internships and SBI are clearly the most widespread type of
practical business educational programs. Field case projects and
actual business projects are also a part of business education of
nearly 60 percent of the schools. "Other" business programs was
rated most highly followed by SBI, field case projects and actual
Impact of the Loss of Federal Funding
The average number of SBI cases completed per school is dropping.
It was stable in 1993 and 1994 (16.3 and 16.4 cases), then
dropped to 15.5 cases in 1995 and 12.1 cases in 1996. The
following table shows what actions schools took when Federal
funding was terminated.
Actions Taken When Federal Funds Were Terminated
Action Percent Taking Action
Continued SBI Program 80.9%
Reduced the number of 51.7
Eliminated student 31.4
Eliminated director/inst. 28.7
Reduced student 25.7
Sought corporate grants 21.3
Asked Clients for 17.4
Reduced other/instr. 15.3
Required client fees 8.0
Required student fees 1.1
Almost 81 percent of the schools continued the SBI program;
however, over half (52 percent) reduced the number of cases
handled. Reduction (26 percent) or elimination (31 percent) of
student reimbursements were also major actions taken.
Eliminating (29 percent) or reducing (15 percent) director and
instructor compensation and seeking corporate grants (21 percent)
were also important actions taken.
Respondents indicated that fundraising will be moderately
difficult for them and their school. Difficulty of raising funds
locally was rated the most difficult at 3.3 on a five point scale
with 1 very low difficulty and 5 very high difficulty. Personal
difficulty in fundraising and the school's experiences were rated
a 3.1 in difficulty. The school's experience in fundraising and
personal difficulty in grant writing were almost as difficult at 3.0.
Funding for SBI programs is changing drastically with the
termination of Federal funding. Schools (61 percent) have become
the primary source of funding followed by client contributions
(31 percent), private corporations (28 percent), and grants (16
percent). On an aggregate basis, SBI schools also estimate that
40 percent of their funding will come from their schools.
"Other" with 17 percent and client contributions with 10 percent
are the next most important sources of revenue. These three
sources account for two-thirds of the estimated income for SBI
SBI Program Income Sources and Estimated Percentage By Source
Source Income SBI Funding
Your school 60.8% 40.0%
Client 31.4 10.3
Private 28.1 9.8
Grants 23.5 8.0
Other 16.3 16.6
Client fees 15.7 4.7
State 12.4 1.8
Federal 9.8 4.9
Endowments 8.5 3.0
Other 5.2 0.9
1995-96 Survey Comparison
What SBI directors said the likelihood of their school continuing
the SBI program in 1995 and whether they continued the program in
1996 was analyzed using cross tabs. The table below summarizes
what respondents said they would do if Federal funding was
terminated and what they actually did. Overall, it shows that
the majority of respondents who said they were unlikely or very
unlikely to continue the program have actually continued their
SBI program. While the chi-square value was significant at the
0.029 confidence level, it is suspect because of the number of
cells with counts of less than five.
Survey Comparisons for 1995 Likelihood of Continuing SBI
and 1996 Reality
1995 Likelihood of 1996 Continuing
Continuing SBI SBI
Very Likely 93.1%
Not Sure 85.0
Very Unlikely 70.6
DISCUSSION AND IMPLICATIONS
This study confirms the research by Brennan, Hoffman and
Vishwanathan that the termination of Federal funding will not
eliminate the SBI program or SBIDA. There is a sizable, strong
core of SBI directors that are continuing their SBI programs and
continue as members of SBIDA. While it is difficult to determine
exactly how many SBI programs there will be, it seems likely that
there will be 150 to 200 next year. The recent action by SBIDA
to trademark the Small Business Institute and SBI along with the
SBI program guidelines and requiring each institution to have at
least one SBIDA member will go far to continue the SBI program
Respondents value SBI programs very highly as a practical
educational program. While there are a wide variety of other
programs, none connects teams of students with small business
clients, the opportunity to work in teams, work directly with a
client, see all aspects of a firm, and work directly with a small
business makes it a unique experience. It may even encourage
entrepreneurism and small business ownership among students.
Schools are focusing more on expense reduction than income
generation. This is not surprising since expense reduction is a
faster, more controllable, and more certain method of balancing
budgets. While this is good for the short term, schools need to
shift to income generation if they are to continue their SBI
programs. Without sufficient income, many programs may
increasingly struggle to maintain their programs or decrease the
quantity and/or quality of their program.
Funding SBI programs will be the major task for most directors
for the next several years. Most SBI programs rely heavily on
their schools for funding. Other financial support is relatively
small and fragmented. Each program needs to develop an income
mix that fits its SBI program and is relatively stable. Over
reliance on a single source may be risky, especially income from
grants, contributions, government and schools. Endowments are an
ideal foundation for an SBI program. If they are large enough,
they can provide sizable stable income that enable SBI directors
to focus less on income generation and more on the SBI program's
mission of helping students and small businesses. Former SBI
students and clients might be one way to start building an SBI
The research indicates there is much stronger support of national
SBIDA than regional SBIDA. Efforts should focus on preserving
the SBI and SBIDA nationally even if it means not having regional
SBIDA organizations for the near term. It is much more important
to devote limited human and financial resources to national
SBIDA. National SBIDA must survive if there is to be an SBI
Brennan, D.P., Hoffman, L. & Vishwanathan, V. (1996). What Would
SBIs Do Without Federal Funding? Proceedings of the National
Small Business Consulting Conference, 67-72.
Frazier, V.D., Krumske, Jr., W., Leinberger, G. & Geiger, C.J.
(1995). A National Analysis of the Small Business
Administration's Deployment of SBIs and SBDCs. Proceedings of
the National Small Business Consulting Conference, 147-153.
Rose, R.E. & Wong, C. (1991). Use and Control of SBI Funds.
Proceedings of the National Small Business Consulting Conference,
Timmins, S.A. & Tallent, D.R. (1992). An Exploration of SBI
Activities, Structures, Budgets, and Curriculum Across SBI
Schools: Opportunities for Marketing These Sources. Proceedings
of the National Small Business Consulting Conference, 194-200.