SBA, Fintech Small Business, Banks discussed on The Small Business Radio Show
I've always thought that one of my dream jobs would be the head administrator at the SBA because they can have incredible impact on small business owners here joining us for look inside is Karen Mills. She's the former head administrator at the. US Small Business Administration. She's also the author of a great new book. It's called Syntech small businesses and the American Dream Karen so glad you could join us here. Bead Embi Global Conference I am delighted to join you hear Barry and and I will say you're right to want to have that job because it is absolutely the best job in the world so tell us what you love about that job. Well I loved that job. Bob was that I was the person in President Obama's cabinet who was responsible for all of America's small businesses and entrepreneurs what could be better and and flying on Air Force One. That was good to best seems like a huge responsibility. Saying I'm responsible for like twenty seven million small businesses and basically the economy. Well let's thirty million thirty million businesses and half the people who work in this country owner work for small business. So it really is half half of America's jobs I would say you know I went to sleep at night worrying about all these small business owners but in some ways the most important the thing was to have a seat at the table because everybody loves small business but not everybody does they think about it and it was my responsibility ability to pound the table in the White House and make sure that people paid attention to this critical part of the economy. It seems to me reading the news that there's a lot of politicians that talk about. They do have sports small business. When it comes down to brass tacks nothing really happens? So what what. What were some of your biggest accomplishments when you were at the SBA well? I went into a my job running the SBA. In the first quarter of two thousand nine. And I don't know if quarter that was a bad time my my first few months on the job lost one point eight million small business jobs and I could see that this was a disaster because small all businesses depend on banks for their loans. Banks had gotten overextended with all those bad mortgages and they just cut off small business lending and and even good businesses were getting their credit lines. Poll I came to the job. Actually venture capitalists so. I was a risk taker and I didn't know any better. I decided we should should solve this problem. That was my job so I went to the White House and I was able to convince Larry Summers. Who is the head of the National Economic Council and President Obama to let me do something really bold and that was to raise the SBA guarantee rate now the SBA doesn't make loans guaranteed bank loans? And they it allowed me to raise that SBA loan rate to ninety percent so we would guarantee ninety percent of any loan that a bank would make and it worked and we were able to get a thousand banks back to SBA lending. In six months. I would go around the country after that and talked to small businesses. It was the the most amazing thing. 'cause they would say you know you save my business. We were running out of money. We couldn't get anybody to pay attention and when we did that we turn the spigot back on for lending that taught me small. Businesses important to the economy and access to capital from banks is important to small businesses. And what kind of risk is that to the government. I know the banks are glad to do that. If the government is taking the risk do a lot of small business do they not recover the money from a lot of small business owners. What's the rate of non recovery but the SBA even though we're taking on more risk ninety five percent of those small businesses paid back? Wow so it was a pretty great deal for the government. Got One hundred billion dollars more capital out the economy and the net cost to the taxpayer was Ciro because we would charge iffy fifty and that paid for all the losses. So I think it's just a critical jewel that the US government has taxpayers. Taxpayers Really. Aren't out any money for it and we do a lot for small businesses. Now there's been a lot of small business owners I think by in general don't like banks right. They say bank is a four letter word because it's kind of like they give you an umbrella where it's not raining than take it away when it is raining. Banks are not really in the business of taking that much risk. Give them what they charge the industry. The industry has changed a lot since that time. Tell us about what the current state of small business owners getting capital. What the best way to do what is now? I wrote this book which has Fintech Small Business in the American dream. Because I believe that we are about to see a transformation in small business lending as you point out small business lending has been a painful process for maybe fifteen hundred years. This hasn't changed. Xerox a whole pile of paperwork right sock down down to the bank. You wait three months for an answer. Then they say well I you know what I can't really tell if your business is making any money just give me a personal guarantee today. We're about to see a change. In the reason is small business lending is hard because of these two problems. The first this one is it's hard to tell what's going on inside a small business we call in Economists call that information opacity. You know you just don't even even know if the small businesses making money. The second problem is that all small businesses are different. One day you're lending to a funeral home the next day day to a dry cleaner next to a parts company and it's not transferable knowledge now technology and big data. An artificial intelligence has the power to take away those frictions and barriers. That have been making small business lending so difficult. I see that we could have a transformative moment. Things could change. And that's what some of these lenders like cabbage. That's actually what they do right. They don't they get ah the feeds from the small business analyzed the data before they make the loan exactly and cabbage is a great example. They were an early innovator here and they kind woke up the banks because they suck all the data out of your quickbooks account in your bank account and they can look inside and see in your cash flow really. Looks like well what happened is they started to get a lot of customers because you could get your loan in a minute and sandbank was taking weeks months but then the banks woke up and it turned out. They have a big advantage actually to one they have customers reported. Trust them and to have low costs money from your deposits so they can make the loan cheaper. So now it's my prediction. Shen that banks will come back in this game figure out how to give better technology. Intestinal spirits us all of this new each day. And then you're much more affordable because they're gonNA see it was credit worthy and who's not it could be a virtual virtuous cycle because maybe they'd have fewer losses and give you your home even more cheaply. I hope so because while I think that folks like fun box and cabbage they really provide immediate. Answer it's easy to get that capital of course pay pal. All these people are doing this. It is quite expensive money and I think for for small business owners don't have good cash flow. It almost becomes a vicious cycle for them and they can't get out of these loans. I worry a lot about how expensive loans and that's why. I really hope that the playing field will open up now and banks will come back in because imagined the community nitty banker. Who knows you really well? Now they could have a small business dashboard. which has all of your cash flow projections uh-huh and oh by the way you could have the same dashboard yourself? And he would say to you you know or she would say to you. You are preapproved for seven thousand dollars. Absolutely because I can see you could pay but look how the discussion about whether you should take fourteen thousand and maybe open up next door and now you're having a conversation but the relationship banker and it's almost back to the olden days when you really got advice as well as money so maybe I'm an optimist but that would be my vision of what I call small business. Utopia you'd have a dashboard with pre-approved button in a relationship with your banker that allows you to manage.