Questioning the SBA
Armed with questions from our Board of Directors, we recently sat down with Karen Mills, administrator of the Small Business Administration, for a wide-ranging conversation about the agency and its work on behalf of entrepreneurs.
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So, in an effort to facilitate this conversation, we sat down with Mills during National Small Business Week in Washington, D.C. -- primarily to deliver questions on behalf of our Board of Directors, a vocal small-business constituency if ever there was one. Our Board hails from a wide range of industries and brings an equally wide range of perspectives, politically and otherwise. Here's what they had to say.
Before we bring in members of our Board of Directors, I want to open with a few questions of our own. To start, what would you say is the lead story for the SBA right now? What do you most want business owners to know?
We have been able to really help small businesses over the last two years. In October 2008, when the credit crunch hit, small businesses were really crushed by the lack of capital. We've put $42 billion into their hands in the Recovery Act and the Small Business Jobs Act, funding at a really critical time, and we did it at a cost to taxpayers of only about $1.2 billion. So it was really a good bang for the buck for taxpayers. And small businesses, very often in something like this, come up to me and say, "You saved my business. I would not have survived the downturn."
Now, we are at another stage. We have weathered this storm, but we are now coming back and trying to make sure small businesses can hire that next person, can buy that next piece of equipment, can take that next order, and we're doing that by helping them with loans, but also by helping them have access to $100 billion of federal contracts. This is a win-win -- it's good for the small businesses and it's good for the government, because they get access to the most innovative entrepreneurs and the most innovative ideas and goods that are made right here in America.
You said during a recent speech that "the SBA brand is too much paperwork, too much time." Do you think there is a disconnect between small-business owners' perception of the SBA brand, especially the SBA loan brand, and what it really is? What do you think are some of the major misconceptions? And for people perhaps wanting to start the loan process, what kind of turnaround time can they actually expect?
Well, this was the issue for the SBA brand, and we have been very effective in solving the problem of the turnaround. We are very much engaged across the government, very much engaged in streamlining and simplifying our activities with borrowers and lenders, because that saves time and saves costs and we believe we can do that while maintaining the same or increased levels of oversight and risk management.
So, we are focused on delivering what small businesses need in multiple areas, and the change that I think that has happened is that people around the country have realized what I think we always knew -- that small businesses are the engine of growth, that they need, particularly those who are in underserved areas, access and opportunity. And if they get this kind of help, then they can do what they do best, which is grow and create jobs. We have focused on taking our resources, our taxpayer money, and getting the most bang for the buck, so that means, once again, eliminating duplications, streamlining processes, making it easier to access, [improving] our website, with an absolutely fabulous re-do of the website so that you can get a more customized experience. You can go in, you can put in what it is that you are looking for, whether it's help with exports, help with counseling, help with capital and those things will come to you. So that's the kind of new SBA brand that we are delivering and we need more people to know about it because these resources are generally free.
You mentioned taxpayer money, let's talk a little bit about that. This question comes from a colleague of mine at The Huffington Post. "You've mentioned that SBA loans were up in Q1 of 2011, but this month, Treasury reported that less than a third or $9.5 billion of the $30 billion small business fund has been tapped so far. Some cite the stigma of banks taking government funds post-TARP, others say banks have no reason to take the money because they're well-capitalized and there's low loan demand. How is the SBA working to help Treasury get the remaining $20.5 billion in the hands of small-business owners?"
Well, I think you might want to think about this slightly differently. We have now seen that there's almost $10 billion worth of demand for capital, from community banks, that this small business lending fund is enabling.
So the glass is a third full?
Now, you have to remember that this program does not cost $30 billion. Actually, it does not have a cost to taxpayers. It actually is revenue neutral or positive. So, that the authorization limit was set as robustly as possible -- but not as a goal, as an authorization limit -- the goal is to meet the demand that's out there. And if the demand is $10 billion, and we're meeting it, then that is extremely positive for small businesses. What we want to do with this program -- remember, it is not cost -- is deliver what the market needs in terms of banks who would like to make more loans to small businesses but don't have the ability to do it because they don't have the capital. The reason people are not making loans, there's two reasons -- banks don't have the capital or they don't want to take the risk. If they don't have the capital, we're providing the Small Business Lending Fund. If they don't want to take the risk, but they still think it's a great business, we can help them by providing a 75 or 85 percent SBA guarantee.
Let's bring in our Board of Directors now. The first question comes from Tate Chalk, the founder and CEO of Nfinity, an Atlanta-based maker of women's athletic footwear. And it relates to the $30 billion fund we've been discussing. "$30 billion is a lot of money. Wouldn't it make more sense to give small business owners a 'real' tax break for hiring a new employee? I think the current exemption is just a few thousand dollars, so the math just doesn't work on hiring a $50,000-a-year employee for that little bit. I mean, it's nice, but it doesn't encourage me to hire anyone any faster than I would."
In fact, as you said, we did give incentive for hiring in the HIRE Act. We did give an incentive for hiring people who had been unemployed. We have, in addition, given 17 specific tax breaks for small businesses and they have been extremely well-received. Most importantly, when I'm on the road, I hear about accelerated depreciation. So, if you are in a business where you are thinking about buying that next piece of equipment, so that you can hire those people, so that you can fill those orders, and you can write off that piece of equipment 100 percent this year, that's a lot of cash back on your taxes and back in your pocket. In addition, for those, it's very important to look at the tax laws carrybacks that where in those tax breaks -- very powerful, very helpful to small business and numerous others that you can find actually on our website.... You should ask your tax provider to make sure you're getting that. I want to make sure that all the small businesses that qualify for these tax breaks know about them, because it's money that they can use to put back in their business and create more jobs.
This next question comes from Elizabeth Busch, the co-founder of The Event Studio, a New York-based event-planning firm. "As an owner of a small and growing business, I want to take full advantage of all the ways you want to help me grow my business. What's the best first step -- and I'm hoping you won't just say contact the SBA -- for time-strapped entrepreneurs to get in, get out, add value and grow our business and the economy at the same time?"
The best first step is to get a relationship with a counselor, which will be a routine meeting over a long term so that you can develop a plan. We have data that shows that small businesses that have a long-term counseling relationship have better sales, they have better profits, they have more longevity, they hire more people. And the best news is that it's free. And once again, if you go on our website and you put in your zip code, you will find the names, phone numbers and e-mail addresses that you can contact to get in touch with one of these counselors. We have SCORE counselors also around the country who will do this kind of counseling online. If you're busy, if you want to do it late at night, if you want somebody who is in exactly your industry and has those contacts and expertise, that is also available. So this is the best first step because then, once you have a plan, we can help introduce you to a bank that would be lending in exactly you area, we can help introduce you to export opportunities, we can help introduce you to government contracting opportunities and those can increase the revenues. But the first step is to reach out.
This question comes from Jennifer Hill, an attorney and chairwoman of the Astia NYC Advisory Board. "Why hasn't the SBA pursued a venture-lending strategy? Is that part of the administration's future plans?"
The SBA runs a program called the Small Business Investment Companies and we actually have over 300 what effectively are venture-capital and private-equity investors partnered with us that we help fund through the SBIC program. We have just announced two additional funds. The first is an early-stage equity fund, a billion dollars over the next several years, through the SBIC program, and the second is what we call an impact fund, seeking to create more of these early stage and mezzanine venture funding activities in places that need more investment. So, where we can -- maybe a geography that has been hard hit, it could be a socioeconomic group that is underserved, it could also be a sector like clean energy that needs more investment. We are accelerating those efforts because we know there's a gap in those capital markets.
Sort of a political question here that comes from Rob Adams, a serial entrepreneur, investor, and director of the Texas Venture Labs at the University of Texas. "It's widely acknowledged that small companies are the engine of employment in the United States. At the same time, large Fortune-class companies have the best representation by lobbyists -- but don't do much job creation. How can small companies adequately represent their interests to the federal government?"
Well, he's right. Small businesses do create two out of every three jobs, and half the people who work in this country own or work for a small business. Across the administration, and really across Congress, there is bipartisan support for small business. When people go home to their districts, they visit their small businesses and they hear from their small businesses and when I visit with them, there is tremendous support for the activities that would benefit small businesses. What you see in this report that we just did is work that is being done across agencies in the administration, so there is activity every place, from the State Department to Commerce, Treasury, Health and Human Services, that understands that entrepreneurship is one of America's greatest assets and that if we can support and grow America's small businesses, we can help create jobs. The president believes in America's small businesses... and really understands that when small business succeeds, America succeeds. So there is a deep commitment to American small business.
I just want to ask a follow-up to that. In my role, my job is to serve small businesses as well. We provide advice and how-to and all that, and I think you're right, on both sides of the aisle, you do see support for small business. But I often think, especially in a political season, that small-business owners are almost the business equivalent of kissing babies -- that everyone loves the cute small-business owner. What I hear a lot from small-business owners is that they see the shark-suited lobbyists in Washington and say, "Who is representing me?" Is that the SBA, is that part of your role, to fight for the so-called little guy on Capitol Hill when you've got all this lobbyist money pouring in and all these slick lobbyists? Because when we see giant tax breaks, it does go to the bigger corporations.
It is the role of the SBA to be the voice of small business, across the administration and also on Capitol Hill. We have been very engaged in helping small businesses with tax breaks, which of course are a Treasury- and administration-wide activity, health care, access to these exchanges, and of course the things that are under our purview. So, we take that role very seriously, we have many good partners in that role, including the president, but we feel very much a sense of support for this engagement. I think the other interesting thing that has happened is we have private sector support in our public-private partnerships that is ever-increasing -- for instance, Startup America, started with Steve Case, is a terrific example of how an entrepreneur is giving back by leading this public-private partnership and other companies have come in and partnered with us to devote resources to improving entrepreneurship as well.
This comes from Rieva Lesonsky, the longtime former editorial director of Entrepreneur and the founder and CEO of GrowBiz Media, a Lakewood, Calif.-based small-business content and consulting firm. "There seems to be a lot of emphasis on 'fast-growth' businesses. What about small startups, the ones who will add employees, albeit at a slower pace? What are we doing to help these folks?"
Well, Startup America is actually focused on America's startups and what we call speed-ups -- small companies that have started, that are successful, but do have high-growth potential. And we have a number of programs, as I said, we are looking at $1 billion of early-stage funds through our SBIC program and a mentoring program where successful entrepreneurs go back and mentor other young entrepreneurs in those startup phases. We see startups also in our microloan operation, it is very geared to smaller businesses, underserved communities, folks who may see entrepreneurship as a way to build some economic viability and we do quite a bit successful startup activity in the microlending.
This one is from someone you know well -- JJ Ramberg, the host of MSNBC's Your Business...
And one of the interesting, successful entrepreneurs!
Absolutely -- she talks the talk and walks the walk. And this again speaks to your background, prior to SBA. "As someone who was formerly in the venture-capital world, do you think we're in the beginning, or middle, of another tech bubble?"
There is really an extraordinary cross section of businesses that we see growing right now. In fact, manufacturing businesses are growing very robustly, as well as innovators in everything from medical devices to software. So, in the array of businesses that we have seen and that we have here at Small Business Week, we are not seeing an overweighting in a particular sector. It is very much across the board, and built on sort of new foundations, things that we know we can do here in the United States better perhaps than elsewhere and that have competitive advantage.
This question comes from Phil Town, an investor and bestselling author of Rule #1. "The federal government been handing out billions like candy on Halloween -- but it's all been going to the banks. Why haven't you done a grants program for small business? Why haven't you loaded up the SBA with $100 billion for loans? Why haven't you insisted those banks you gave the money to actually LEND it to businesses? Why is small business being treated like it's insignificant, as if this critical job-creation machine that makes America competitive in the world just doesn't matter?"
Well, small business clearly does matter. The administration actually has put billions in the hands of small business. We put $42 billion in loan guarantees in the hands of small business in the Recovery Act and Small Business Jobs Act, the Small Business Lending Fund is right now putting $10 billion into community banks with the requirement that if they want the carrot, the lower interest rate, they increase their small-business lending. So we are, in effect, doing the activities that we need to do to get small businesses going and there is, as you might, see in the actual summary 17 tax cuts and tremendous activities.
And finally, kind of a fun one from Lawrence Gelburd, a veteran entrepreneur and professor in entrepreneurship at The Wharton School at the University of Pennsylvania. "First of all, I'd love to have you speak to my class sometime. Would you be interested? Secondly, as an educator, and just as a citizen, what's the most important action I can take to help small business?"
Small business really is the foundation and it sounds like he is playing a really important role, because one of the most important things that we are looking at is educating youth entrepreneurs. Our deputy administrator, Marie Johns, just did a fabulous opening event with Kal Penn because we know that reaching down and empowering America's young entrepreneurs and teaching them as he is doing -- how you actually go about thinking about a business plan, how you actually go about making sure you that you've got a robust strategy, and then funding and then activity going forward -- is going to help continue this great tradition that we have in America, which is we're the country of entrepreneurs. And that is something that other nations look to us and aspire to have that same strength.