Since taking the helm of the Small Business Administration last April, businesswoman Karen Mills has drawn praise for aggressive moves to try to boost lending to small firms amid a deep economic downturn.
Chief among these efforts was a push to have the government guarantee 90 percent of a loan to a firm that otherwise wouldn't be getting a loan from a bank.
Mills told McClatchy Newspapers that she's trying to rebrand the agency to shed its image of a slow-moving, paper-intensive bureaucracy. She's also pushing Congress to help her help small businesses.
Here's some of what she had to say, edited into a question-and-answer format.
QUESTION: Why is there a credit crunch for small firms?
ANSWER: When we went out and asked banks why they weren't lending, we actually found there were two reasons. The first reason was they didn't have enough capital. And the second reason was they didn't want to take the risk. They might have the capital, but they didn't want to take the risk.
Q: How do you address that?
A: For the first issue ... we have proposed a $30 billion fund from the Treasury ... that would be available for community banks to borrow. And if they increase their small business lending, they can get this money as low as 1 percent. So that's very profitable business for them. It speaks to the issue ... which is: How do you make it profitable and solve the capital problem for some of these banks who are under scrutiny from regulators?
Q: This isn't $30 billion of new spending, since most of it will be repaid?
A: When you put $30 billion of capital into community banks, you actually get much more money out in lending, some multiple of that, because they leverage it up. So you get $90 billion, let's say, out for a few billion (dollars) in investment. That would be pretty good bang for the taxpayer buck, and banks would be making good money on it.
Q: Congress appears set to allow you to continue through the end of 2010 the increase in your loan guarantees to 90 percent of the loan's value. How has this helped?
A: Our first program is just to continue what has worked in the past. It's pretty good bang for the taxpayer buck. It cost about $500 million to put $21 billion out there (to small businesses).
Q: You're also asking Congress to allow SBA loan money normally used to help firms expand to be used instead to help companies renew or rework commercial real estate loans?
A: This is the dentist that owns his dentist office. This is the manufacturer that owns the warehouse. About five years ago ... there were very popular five-year bullet mortgages (loans) available, and many people took them ... and now these businesses are trying to refinance. The bank is saying, "I don't know. I know you own your business, and I know you've never missed a payment, but I've got too much of this on my books." ... For right now, we think it's a good thing in this economy to keep these small businesses in their office or their warehouse.
Q: Bank regulators have urged lenders to make prudent loans but be flexible with customers. Seems almost contradictory?
A: What we're doing is encouraging the regulators to push that guidance all the way down to the field level. Because you will get very positive guidance about collateral, for instance from the FDIC (Federal Deposit Insurance Corp.) or the Fed (Federal Reserve), but when it comes down to a bank that is looking at a loan, they might be afraid that their examiner has given them a different signal. That needs to get cleared up.
Q: What are you telling them?
A: We know that there are bankers who are still anxious ... and they're erring on the side of being more conservative. So we want them to use our products, and we want them to take the guarantees to take away the risk. We want them to avail themselves of new capital at advantageous rates, and we want to make sure that the bank examiners at the field level are sending a message that's consistent with the guidance that they're getting from the top now, which is to get ... that money moving into the hands of small business.
Source: McClatchy-Tribune Information Services.