Entrepreneurial Equality

New Tools for a More Inclusive SBA

On June 10, 2014, the SBA Administrator Contreras-Sweet outlined her priorities and goals for the SBA during a speech at the Center for American Progress in Washington, DC. And for the past few days, more details about specific programs have been issued by the SBA.

She outlined three priorities: be modern, be inclusive, and make new markets. That translates into modernizing the capital access programs with technology; creating a more inclusive SBA by tailoring programs that embrace our nation’s dynamic demographics; and serve as a “market maker” for small companies by opening new business channels within the federal government, corporate supply chains, and international commerce.

For more details, read her full comments.

Thank you, Neera, for that kind introduction and to the entire team at the Center for American Progress for hosting us today.

I recently received a call that would change my life and move my husband and me across the country. Two months ago, President Obama tasked me with three objectives: run an effective SBA, be a strong voice for America’s small businesses, and take the agency to the next level. I embraced this exciting and worthy mission, knowing small businesses are the backbone of our economy.

Small firms make up 99.7 percent of American employers. They generate two out of three net, new private sector jobs and account for half of all private sector employment. The future of our country is truly in the hands of the American entrepreneur.

SBA programs are infusing dollars into local markets to improve the domestic economy. Entrepreneurs inject capital into the economy more quickly as they cover payroll, buy equipment, and acquire real estate. Not only is SBA-backed capital more likely to be spent at home than abroad, but it’s also circulated faster in local communities, spurring more economic activity. With this in mind, I am eager for this opportunity to be leading the SBA.

You see I immigrated to this country from Guadalajara at the age of five, not speaking a word of English. My mother worked at a poultry processing plant so her six children could have opportunities she never had. My life’s journey has been one of seizing opportunities to help my family and build my community.

From grade-school hall monitor, to corporate executive, to California Cabinet Secretary, to bank founder, to now, a member of the President’s Cabinet, I was taught it’s not the titles we have that matters, it’s what we do with the titles we have. I’m living my American Dream. Now, I want every entrepreneur to live theirs.

I joined this Administration because President Obama is committed to providing equal opportunity and creating new pathways to the middle class. I know how committed he is to creating opportunities for small business owners. He has demonstrated this by cutting their taxes 18 times. He has created billions of dollars in tax credits, write-offs and deductions for those who start businesses, buy equipment and machinery, and invest in start-ups. He has made quality, affordable health insurance available to small business owners and their employees. Under this administration, SBA eliminated pages of regulations that were clogging the capital pipeline and causing more problems than they were solving. And we zeroed out fees on loans under $150,000, which has led to a 15 percent increase in our small dollar lending.

In my first two months on the job I have met with our field offices, our program leaders and with stakeholders – in Congress, the business community, our resource partners – all to strengthen our relationships and enhance our programs. Their insights and contributions have been invaluable, and we’ve already begun to act on their suggestions. In my first month, we removed regulatory obstacles to our real estate and equipment financing, and we launched a new national call center for Certified Development Companies to expedite 504 real estate loans.

Today, all of the jobs lost in the Great Recession have been recovered, yet our nation still faces a profound challenge: capital is not reaching small business owners equitably. The face of entrepreneurship is changing in America. More of those faces today belong to women, Latinos, African-Americans, Asian Americans, Native Americans, veterans, seniors, and business owners who are socially and economically disadvantaged. Too many in these groups cannot access the requisite expansion capital. Your gender, your race, your age, or your neighborhood should never impact whether you can get a small business loan. Only your creditworthiness should.

At the SBA, we will assure a continuum of support, especially for our underserved businesses.We’ll expand access to our core programs, we refer to as the “three Cs” – capital, consultation and contracting. And it goes without saying we’ll remain focused on our disaster assistance programs, so homeowners and business owners can access our help when they need us the most.

To advance our work on behalf of America’s entrepreneurs, I’m focusing my initial efforts in three areas. First, we will modernize and implement smart systems, so the SBA keeps pace with technological advances that are changing how we do banking and conduct business. To encourage our lending partners to provide more capital to Main Street, we will automate our credit analysis using predictive systems. Second, we will create a more inclusive SBA by tailoring programs that embrace our nation’s dynamic demographics. Third, we will serve as a “market maker” for small companies by opening new business channels within the federal government, corporate supply chains, and international commerce. We will be modern. We will be inclusive. And we will make new markets. This is how we’ll move the dial for entrepreneurs from all walks of American life.

Let’s explore these points more fully. First, we’re going to modernize our capital access programs to the new ways Americans are accessing financial services, and technology is the key. The prevailing challenge we face has been that our loan documentation is too complex and labor-intensive, forcing banks to hire specialized staff or contract it out – or walk away from the loan. We cannot afford to lose these partners and turn job creators away.

The time has come to reach out to all of our lending partners on small loans and bring new lenders into the SBA fold. To augment loan volume and multiply points of sale, I’m pleased to announce that we’re transforming into a smart system guarantee process to serve businesses better. Our Office of Capital Access has been testing and refining a predictive business credit scoring model for more than a decade, combining an entrepreneur’s personal and business credit scores. SBA’s total credit score will make it easier and less time-intensive for banks to do business with the SBA. This model is cost-reducing and credit-based. It ensures that risk characteristics – not socio-economic factors – determine who is deemed creditworthy.

We’re now so confident of our model’s predictive value on small loans that we’re eliminating cumbersome and impeding analyses of a company’s cash flow, a step that can delay loan decisions. Effective next month, I’m directing that SBA’s total credit scoring model be made available to all our lending partners for loans of $350,000 or less. We’re making these changes knowing it will simplify and streamline the lending process and get more small loans into the hands of entrepreneurs, especially the underserved.

We have another transformative initiative in the works: We call it “SBA One.” It’s a new, interactive, user-friendly SBA lending platform. Say goodbye to fax machines and mountains of paperwork. We will automate the uploading of documents and the generation of forms, and we will allow electronic signatures.
On each 7A loan, our core product, SBA One will save banks hours of processing time and thousands of dollars. The combination of SBA credit scoring and SBA One will incent more banks to partner with us, generating more loans and igniting economic activity. By making the process quicker, cheaper and more intuitive, these reforms will help existing lenders do more small-dollar lending.

These capital access improvements lead into my second priority area: tailoring our programs, so the SBA’s efforts are responsive to the diversity of this great nation. On an encouraging note, our lending to African Americans is up 29 percent over the last year. That’s important, because the Urban Institute found that women and minorities are three to five times more likely to be approved for an SBA-backed loan than a traditional loan.

Four out of five loan applications we receive from Hispanic-American and African-American business owners are for $150,000 or less. These smaller loans, then, are a vital part of our promise of equal opportunity in America. If a bank can’t quite say “yes” to a borrower, we’re asking them to partner with a microlender or a Community Advantage lender that can.

Microlenders and CDFIs specialize in providing technical assistance to underserved borrowers. They can spend time with small business owners to make their credit applications stronger. By facilitating partnerships within the lending space, the SBA can build an expanded capital pipeline. A successful microloan can be refinanced into a community advantage loan, which can be refinanced into a low-interest bank loan, helping borrowers build credit. This is one way to provide a pathway to the middle class.

We also have a special obligation to serve those who served us so well: our veterans. They fought for our freedoms, and now many are ready to fight for their dream of starting a business. Our armed forces have a track record of producing outstanding leaders. Veterans own two and a half million businesses that generate more than $1 trillion in sales a year.

This year, the SBA will counsel and train 15,000 transitioning service members through our Boots to Business Program. We’re helping them apply their military discipline and training to their dream of starting a business. America spends an average of $31,000 per service member to get them battle-ready while this program costs an average of $411 per veteran to get them business-ready.

This program has been so popular with our troops and so cost-effective that today I’m announcing its expansion. We’re calling it Boots to Business: Reboot. Starting this summer, in 12 cities across America, we will be opening this program to the 23 million veterans who’ve already made the transition to civilian life. Our first class will kick off at the White House on July 11th.

While our veterans represent an important group for the SBA, the fact is, we offer counseling for all entrepreneurs at every stage of the small business life cycle. We help small businesses start up and scale up, and we provide access to new markets so they can really take off.

Last month at Twitter headquarters in San Francisco, I announced a competition to fund 50 local entities that specialize in helping to launch new start-ups. We’re exporting the Silicon Valley model to Middle America to fund business incubators and growth accelerators in underserved communities. But we’re equally committed to helping small businesses that are already turning a profit but haven’t yet made it to the next level.

Ninety-two percent of new jobs come from the expansion of existing businesses. So today, I’m announcing Scale-Up America. We are bringing our successful entrepreneurship education program to up to 14 underserved communities across the country that will benefit from intensive SBA support. We’ll help firms gain market intelligence.

We’ll provide business consulting, and we’ll offer matchmaking with corporate and government buyers. The list of Scale Up communities that we’ll select will be announced later this year. Also, as part of our continuum of capital, the SBA is working to disperse investment capital more equitably.

Last year, about one-quarter of the companies capitalized by our Small Business Investment Companies were owned by minorities, women, or veterans – or those who conduct their business in rural or distressed urban areas. We’re focused on increasing these numbers through sustained outreach and through our Impact Investing Initiative.

But promoting inclusion is not just about gender, race, and socio-economics. One of the biggest demographic shifts affecting small businesses has to do with the fact that we’re living longer. The global population of those 65 and over is expected to triple by mid-century. More and more of our retiring Baby Boomers are starting a second act and finding fulfillment in entrepreneurship. Americans age 55 to 64 are creating nearly a quarter of our new businesses.
With their life’s experiences in their tool box, they are actually building businesses in larger numbers than their youthful counterparts. While there is evidence that our Encore counseling program for the 50+ group continues to be well received, considering the magnitude of its potential impact, a thoughtful examination is warranted about the program’s expansion potential, so that we might enrich their golden years.

Finally, the SBA will be a market maker by opening up new areas of business opportunity for small companies. We will be adaptive to signals in the domestic and global markets, and we will create the conditions for entrepreneurs to secure government contacts, enter corporate supply chains, and export their products globally.

The United States government is the largest procurer of goods and services in the world. The SBA works to level the playing field so the federal government meets its 23 percent small business contracting goal. Federal contracts are the oxygen that helps smaller firms hire and grow, supporting 450,000 jobs a year. And increasingly, these businesses are owned by women.

Women-owned businesses have grown by a remarkable 20 percent in just five years. More than a quarter of our small businesses are now owned or led by women. Currently, women entrepreneurs are considered under-represented in only 83 of the 260 industry categories, limiting their ability to receive federal set-asides. We believe the explosive growth of women-owned businesses will show that many additional industries should be added. So I’ve instructed my staff to conduct a formal study required for the SBA to re-visit the contracting landscape to ensure women have optimal access to the federal supply chain. Another important tool for federal agencies is sole-source authority. I’m encouraging Congress to give federal agencies this tool to level the playing field for women-owned businesses.

I know small firms – including women-owned businesses – can do more than supply the government. They’re ready to be suppliers to large corporations and international markets. Small businesses that secure corporate contracts increase their revenue by an average of 250 percent and increase their hiring by an average of 150 percent.

We know that large companies, utilizing just-in-time inventory replenishment, often struggle to identify a wider array of capable and nimble small suppliers. The American Supplier Initiative links small businesses with private sector, supply-chain opportunities. I’ll work to bring more CEOs into the SBA family and to secure commitments from them to make purchases through small business suppliers, thereby increasing demand for the corporations’ products and establishing symbiotic relationships.

And we will also expand this private-sector initiative to international commerce to help our firms compete globally. The SBA has learned from 30 roundtables and hearings, where we’ve collected small business feedback for use in trade negotiations with Europe and Asia.

Last year, the SBA shattered our record for export finance, supporting $2.8 billion in export sales. I believe we can do even more to help our firms reach the 95 percent of global consumers who live outside of our borders. We’ll continue to support the President’s robust trade agenda, including the Transatlantic Trade and Investment Partnership and the Trans Pacific Partnership. And we’ll ensure small businesses have the financing they need to engage internationally.

As you might expect, the banker in me inquires as to the stimulative effect our programs are having and their ROI – return on investment. The ROI on our loan programs is exceptional. Keep in mind: We allow lenders to make loans they otherwise would not. We fill market gaps. Our loans go to entrepreneurs who don’t quite yet meet conventional underwriting standards. SBA has a $100 billion portfolio that’s highly stimulative. Every dollar we inject into the economy is capital that would otherwise stay on the sidelines.

Moreover, every program I’ve outlined today is fully paid for with our existing appropriations from Congress. I know these are difficult budget times. We will measure our success by tracking the revenue gains and job gains that result from these initiatives. Programs that do not deliver on these metrics will be reformed or eliminated. Our largest lending program, 7a, has been operating at zero subsidy for two years. These loans are not costing the American taxpayers a single dime. We know small businesses must do more with less. The SBA should lead by example. An adaptive SBA must be modern, inclusive, and market-sensitive, all the while delivering a strong return on investment to the taxpayer.

The initiatives I announced today are not the end of our conversation but are a good start. We must adapt to smart technologies. We must be responsive to changing cultures, new lifestyles and evolving demographics and psychographics. Finally, we must continue to anticipate and seize what portends for tomorrow’s markets. To repeat, the SBA will be modern, inclusive, and be a market maker for small businesses.

My arrival in this country has brought me untold opportunities. My gratitude is matched only by my motivation to open more opportunities to every American who shares the entrepreneurial spirit. I never imagined that I would be here today. But now that I am the head of the Small Business Administration, I am dedicating myself to making small businesses big businesses. The hallmark of my work will be to foster entrepreneurial equality, preserving our nation’s preeminent role as the world’s leading economy. Let’s make small business a big deal. The SBA’s work has never been more vital. For me, SBA stands for Smart, Bold and Accessible, in every corner of the nation. God bless you, and God bless the United States of America.