The S40 is only a few inches longer than the Yamaha XT 250.  The bike is pretty short already.  If I was messing around making a cafe racer I would change the rake on the forks first.  Bring it in a bit.

Clearance in cornering is what you want if you actually want to rat race.

The proportions of the RYCA are not out of character for a Cafe' bike.  If you do a "Google Search" for Cafe Motorcycle Image...you will find that about half of the bikes have the end of the seat forward of the top of the rear tire.  The ones that don't have longer tanks, longer seats, or those two items are shifted farther back on the frame.  The Savage tank is pretty short when compared to most multi-cylinder bikes.

Shortening a swing arm 3" would be nearly impossible, and moving the rear wheel forward 3" won't do anything to improve the handling.  Trying to just shorten the swing arm would eliminate the cross piece that holds the swing arm sides together and provides stiffness.  A few of us have cut 1/4 or 1/2" out of the cross brace to get tire clearance - but the axle location actually stays the same and the wheel is not moved forward.  To move the rear wheel forward 3" you would have to reconstruct the frame behind the engine and move the pivot point forward....while you are doing that you might as well move the pivot point down so you can get the swing arm more parallel with the ground - the swing arm pivot point would be just about where your rear set pegs are located.  This is not uncommon....and a lot of rear set pegs are mounted with plates that attach elsewhere on the frame and then extend down along side the swing arm pivot point.  Sport bikes often have the pivot point far forward of the pegs.  Are you up to the task of cutting the frame, modifying it, and making new peg mounts and linkage?  

Plenty else to do,, that'd mess with the ride, safety, hafta get a chain, no telling what the handling would be..

And it's a small bike now..