“How could a small business loan (or any loan) that regulated banks won’t approve, that new online marketplace lenders won’t approve, and that no other private lender will approve, on the same terms and conditions, without a government credit guarantee from the SBA, possibly be a responsible loan?…
…As many other economists and financial experts have noted, a big part of the financial crisis can be explained by well-intended government distortions (mortgage guarantees, government mandates for LMI borrowers, deposit insurance, Fed-distorted rates, tax free capital gains on homes, etc.) of free and fair private markets. P.S. And by the way, my vague understanding is that Ms. Contreras-Sweet’s career, involves little to no previous experience with any significant lending decisions, yet she is managing a government-guaranteed lending program that risks tens of billions of taxpayer dollars every year.”, Mike Perry, former Chairman and CEO, IndyMac Bank
May 18, 2016, Ruth Simon, The Wall Street Journal
Head of SBA Focuses on Access to Capital
Q&A with Maria Contreras-Sweet about challenges for small-business owners
By Ruth Simon
As the head of the U.S. Small Business Administration, Maria Contreras-Sweet has moved to modernize the agency and boost access to capital for underserved communities. The 62-year-old agency, which supports small businesses and entrepreneurs, provided backing for more than 69,000 loans to small businesses totaling nearly $28 billion in the last fiscal year.
Maria Contreras-Sweet, head of the Small Business Administration PHOTO: JORDAN STRAUSS/ASSOCIATED PRESS
Ms. Contreras-Sweet, who previously served as executive chairwoman of a Los Angeles-based community bank for seven years, sat down with The Wall Street Journal to discuss access to capital and other challenges for small-business owners. Edited excerpts:
WSJ: When you took office, you promised to modernize the SBA. What would you say are some of your major accomplishments?
Ms. Contreras-Sweet: We were able to create SBA One, a new process for making loans that will become mandatory on Oct. 1 for all loans where the SBA makes the credit decision. The system has the potential to be transformational. Everything is online. The goal is they should be able to process these loans in a matter of a couple of weeks. That’s a really big deal.
Last year, we launched SBA LINC, which is the Match.com version of SBA. You answer about 20 questions. Instead of going to bank after bank with a really slow “maybe,” you might now get five or six, or maybe one or no, bank that comes back and says we are interested in your loan or we are not interested.
We are now testing ways to take the SBA One concept to contracting. It can take six to eight months to get approved for SBA certification as a contractor. How do we streamline that process?
WSJ: M&T Bancorp Chairman Robert Wilmers recently said that too much of the SBA’s lending authority goes to support larger loans. Is the SBA reaching the kinds of customers you want to be serving?
Ms. Contreras-Sweet: I absolutely disagree. We wanted to make sure that people who had been disenfranchised and had not had access to the SBA now could. It is showing up. Community Advantage loans under $150,000 are up.
WSJ: Microloans backed by the SBA fell in the last fiscal year by 7%. Is getting a loan still a challenge for small businesses?
Ms. Contreras-Sweet: Access to capital is a challenge all around. It is equally important to make certain that small businesses are getting counseling because, even when we get them capital, sometimes they don’t deploy it correctly.
I ask for more money every year [for microloans] from Congress and it has not been easy to get that number up. Microloans are a priority for us.
WSJ: What about the high rates charged by some online small-business lenders?
Ms. Contreras-Sweet: Online lenders are creating dynamic activity that is causing the conventional lenders to be a little more creative and a little more aggressive. You see new partnerships taking place that we might not have seen heretofore, for example, On Deck Capital with J.P. Morgan Chase. I think that holds promise.
We are also seeing more entrants in the space. For me, the question is: What is the SBA’s proper role in that activity? We are not a direct regulator, but how do we protect consumers?
If you look at the way we operate with LINC, we don’t say that we think you should go to this bank, but instead here are your options. We might be able to do something like that with alternative lenders. We have also been working with [SEC Chairman] Mary Jo White because she is starting to put some boundaries around this space.
I believe in transparency and that by providing information to the consumer, you can drive behavior.
WSJ: What do you think will be the key challenges for your successor?
Ms. Contreras-Sweet: The future of financing will take hold in so many different shapes. It is a major responsibility of the SBA to make certain we are helping our nascent and mature businesses navigate through this development.
The second challenge is that entrepreneurs are going to be global in nature. We need to follow the trade agreements where they set the rules of engagement. Our loans on exports are 90% guaranteed. How do we help people partake of those?
We need to have a strong partnership with cities. When I was with Westinghouse and we wanted to locate a facility, municipalities would say that we can give you market credits, tax credits, accelerated permitting. You have got to do that for the small business community.