By Albert B. Crenshaw

Many owners of small businesses were able to take a grim satisfaction in the recent federal budget surplus, knowing that their taxes played a part in building it.

A lot less satisfying, though, has been the realization that businesses that borrow through the Small Business Administration's 7(a) program have been making their own unwitting contribution.

It turns out that through most of the 1990s, the default rates on 7(a) loans were so low that fees collected from borrowers and lenders to offset the risk of default resulted in what the General Accounting Office dryly calls a "negative appropriation" for the program -- meaning that it made money for the government.

Since 1992, the GAO figures, the SBA has overestimated the cost of the program by $ 958 million, primarily because defaults were $ 2 billion less than the agency projected.

Small-business groups and lenders alike are thoroughly frosted.

At a round table put on by the Senate Small Business and Entrepreneurship Committee last week, small-business leaders heaped polite but unmistakable scorn on the SBA and the Office of Management and Budget for not coming up with a more accurate forecasting model.

"If OMB were funding a loan loss reserve, that would be justifiable," said Deryl K. Schuster of Wichita, Kan., whose firm is "one of the few non-bank lenders" still in the program. Instead, he said, the money vanishes into the Treasury, and if the default rate does rise in the future, "we will not get any credit" for past overpayments.

"Small business is paying what can properly be deemed a tax," said the Senate committee's chairman, John F. Kerry (D-Mass.).

The 7(a) program guarantees loans made by private lenders to small businesses unable to get financing through normal lending channels. It is one of the agency's primary lending programs. It charges fees of up to 4 percent of the government-guaranteed portion of the loan, depending on the size of the loan, designed to, as the agency puts it, "offset the costs of the SBA's loan programs to the taxpayer."

In the past, the 7(a) program has been troubled by high default rates, but underwriting standards were toughened in the early 1990s and default rates have declined. However, the predictive model used by the SBA includes data from as far back as 1986, which the GAO concluded has led to overestimates of future defaults.

The OMB and SBA are working on new approaches but worry that, just as the late '80s were unusually bad years for the program, the 1990s, with the hot economy of the time, may turn out to be unusually good ones, and they don't want to overcorrect.

The OMB's Lloyd Blanchard agreed that over time the program should break even and should not be a "cash cow" for the government.

Small businesses argued that waiting years for a new model is not a good idea when the economy may be sliding into recession, and charging fees for loans will make much-needed capital more expensive.

The federal government spends around $ 200 billion a year buying stuff and, since the late 1980s, federal law has required that agencies make sure small businesses get a piece of this action.

The official goal now is that not less than 23 percent of prime contract dollars go to small businesses. Specified portions are supposed to go to disadvantaged, minority and women-owned businesses.

This sounds good, and overall the government came within a fraction of a point of making the goal last year.

But a study released last week by Nydia M. Velazquez (D-N.Y.), ranking minority member on the House Small Business Committee, concludes that disadvantaged businesses are not getting their share and suggests that there are some funny numbers being put out about small-business participation generally.

Velazquez's "report card" on federal agencies found none worthy of an A grade for contracting with small business and only three -- Interior, Labor and the Office of Personnel Management -- performing at B or B- levels.

Five agencies got D grades: Defense, Energy, Education, Health and Human Services, and the Agency for International Development.

Minority businesses "are being shut out in record numbers," she said.

The main obstacle in selling to the government, Velazquez said, is the practice of "bundling" many small contracts into one "mega-contract" that small firms have trouble bidding on. And small businesses reported that when they are taken on as partners by big firms in bidding for these deals, they are often used as "window dressing" and actually get little of the money that flows through the contract.

The economic slowdown is starting to seep into the consciousness of workers at small and mid-size companies, a survey sponsored by the Principal Financial Group finds, increasing workers' focus on job security and retirement benefits.

Some employees with retirement savings reported they have shifted to more stable investments. Other respondents, nearly one-third, plan to increase contributions to their retirement accounts, based on the new legislation raising annual contribution limits.

Overall, the survey found much concern among small-business employees regarding their long-term financial future, with a third of respondents admitting that they have not yet planned for retirement. Not surprisingly, a majority said a good benefits plan would encourage them to stay at their current companies, as well as to work harder and perform better.

Respondents generally said they were satisfied with their benefits. However, those with old-fashioned defined-benefit retirement plans -- pensions managed by employers and not related to investment performance -- registered the highest satisfaction level. Indeed, the benefits workers most requested their companies to improve continue to be health insurance and defined-benefit pension plans, the survey found. Health insurance remains the most common benefit offered, with defined contribution plans, such as 401(k) plans, and free parking the next most common.

Albert B. Crenshaw writes about small-business issues every other Monday in Washington Business.