SBA Administrator Karen Mills is stepping down at the end of August, and President Obama has yet to announce who will replace her. Mills announced her departure in February, so we've gone five months now without any word from the White House about this important post. I've read articles and talked with industry leaders about who the new Administrator should or might be, but I'd like to talk about qualities and characteristics a new SBA Administrator should possess, as well as some things he or she ought to do.
First of all, Karen Mills has left some big shoes to fill. She's done a bang-up job in the last four years, rejuvenating the SBA in the wake of the worst economic downturn since the Great Depression. Some of the most meaningful changes she made -- raising the SBA's loan caps, streamlining application processes, temporarily eliminating fees on SBA loans, and strengthening the 7(a) and 504 loan programs -- came as a result of listening to what lenders and borrowers were saying. The result? The last few years have seen the highest SBA loan volumes ever.
But I don't want to dwell on what Karen Mills did or didn't do. In a very short time, she will have left the SBA and someone new will be at the helm. We just don't know who that will be... yet. Whoever that person is, he or she will have to figure out how to continue the recovery and growth that Mills has started at the SBA. The following is a brief list of what I hope for (and expect) from the new SBA Administrator...
I understand that navigating Washington politics can be a tricky thing for a newcomer/outsider, but I'll trade Beltway-insider knowledge for real-world, hands-on experience with small businesses any day. If the SBA's loan programs are going to be improved, it can't be from a governmental perspective (I suggested as much in my Senate testimony last March). Changes, if they are to lead to actual improvements, must begin with addressing what lenders and borrowers are facing. Without understanding what real business owners and small business lenders are dealing with, very little can be done to improve the SBA.
An Understanding of Wealth Creation
The new SBA Administrator needs to understand that the SBA's loan programs aren't merely making credit available to small business owners. At its root, the SBA is helping business owners create wealth and lasting value: for themselves, their employees, their customers, and the U.S. economy as a whole. This has everything to do with the types of financing it provides that help level the playing field with big businesses and creates jobs in the process. When the SBA makes it possible for more small business owners to have access to capital and streamlines the application/lending process, our whole economy stands to benefit. Fueling innovators (entrepreneurs) fundamentally improves our quality of life.
Since its inception, the SBA 504 loan program was designed to be budget-neutral. It's supported by borrower and lender fees and can operate without a Congressional subsidy. That changed for a short time during the Great Recession, but the program is back on track as an effective public-private partnership that costs American taxpayers virtually nothing. I've read recently that the SBA 7(a) program is going to operate without a subsidy in fiscal year 2014 as well, which is a testament to Mills's leadership. The new SBA Administrator needs to continue to fight for budget-neutrality in these two flagship programs in order to continue helping America's small business owners without being a drain on public resources. The more the SBA can stand on its own without subsidies, the better it will be for U.S. taxpayers, too.
Speaking of resources, there are a few things that can be done to ensure that the SBA's finite resources are used properly. One example of this is the SBA 504 refinance program which was implemented as part of the Small Business Jobs and Credit Act of 2010. This program was given $15 billion in authorized funds to be used within the two-year window specified by Congress. After being held-up by delays, it ran for just around a year before expiring in September 2012 with only about $2.5 billion of the allocated $15 billion used. Likewise, the First Mortgage Lien Pooling (FMLP) program — included in the legislation that established the refinance provision — only used about a third of the $3 billion allocation. The FMLP program helped lenders and borrowers because it was ideal for special-use property types, such as restaurants, daycares, hotels, gas stations, and other businesses that require specialized facilities. To me, it's a no-brainer to reinstate these programs so that the remainder of the authorized funds can be used to help America's small business owners get greater control over their commercial debt and position themselves for growth, especially since these included supplemental fees in order to make them budget-neutral.
Something else I'd like to see the new SBA Administrator do is finally draw a line between the 7(a) and 504 programs. This will likely stir some controversy among my industry peers, but it's long overdue. For years, lenders have been allowed to use the 7(a) program to finance commercial real estate projects even though the 504 program was created for that express purpose. I think the 7(a) is a wonderful program for business acquisitions, start-up capital, and the other ways it's used, but when it comes to commercial real estate, the 504 is more beneficial for borrowers and makes better use of resources for this particular purpose. Perhaps an investment in further educating lenders and borrowers about the 504 program is necessary, but making this delineation between these programs once and for all would help the SBA realize the highest and best use of taxpayer dollars.
The Way Forward
I do think that Karen Mills did a great job of leading the SBA through the Great Recession, but I believe that better is still possible. One of the biggest complaints I hear regularly from small business owners is that we get only lip service from Washington. We need action, not merely rhetoric. We also need the head of the SBA stand up to those with extremist views on either end of the political spectrum: those who want to do away with the Agency because they think it's a waste of tax dollars (I could cite all sorts of figures that prove otherwise), and those irresponsibly who view it as a means of redistributing wealth (neither the purpose nor the function of this Agency). It's up to the next SBA Administrator to champion America's small businesses, keep the ball rolling, and make good decisions that will improve the SBA and do more to help small business owners succeed, grow, create jobs, and help our economy continue its recovery. Who will be the new face of the SBA? Beats me, but I hope he or she will take a few of my suggestions to heart.