Like most Americans, Steven Preston watched on television as Gulf Coast residents struggled to piece together their lives in the wake of Hurricane Katrina. And like others, he wanted to help. So, when the Bush administration asked if he'd consider leading the Small Business Administration -- the federal agency that oversees disaster loans for home and business owners -- he jumped at the chance. A former executive at a national lawn-care company, Preston was sworn into office in July 2006 and immediately took over an agency whose budget had been cut by nearly 40 percent in the previous six years. Worse, its response to Katrina was being attacked on Capitol Hill and in the press as slow and inadequate. Staff morale was the lowest in the federal government. Preston recently sat down with the editorial staff from Inc. and to explain how he's trying to turn all that around. What was your biggest challenge when you took over the SBA seven months ago?

Preston: The biggest immediate task I walked into was 120,000 disaster victims backlogged in a loan process and trying to figure out how to improve this thing so that people could get their money and get on with their lives, and we can figure a better way to reengineer this operation for disasters in the future. That was the big mountain we tried to climb right away.

We've fully reengineered that entire operation. That 120,000 people is now down to 22,000. Those are people that have been approved. And most of those people are looking for contracts. Almost all are done getting money, but are looking for contractors. They're trying to decide whether or not they want to go forward with the loans. What I would say is, while the backlogs aren't gone, most of it right now is with the customer trying to decide what's best for them.

What went wrong with that process and what are you doing to fix it?

In a nutshell, it was sort of designed like an assembly line where you'd come in here and we would input your application, and we'd get your documentation, and then we'd study it for credit, and we'd go out and look at your property, and you'd go along this pathway, and at the end of the day you will have gone through a closing and a disbursal process. What you had along the way was any number of opportunities for failure or errors or mistakes. We just had fundamentally an operation that was broken.

We have now 15 to 18 person teams. On every team you have a couple of loan officers, you have lawyers, you have case managers that are now responsible for calling and heading up a relationship with the customer, you have other support people. Everything happens on that team, so that you work together and can answer each others questions.

With our new disasters, 99 percent of the people are getting their approvals within two weeks -- 12 days for homeowners, 17 days for businesses.

Does that take your focus away from the agency's other responsibilities? What are some of those areas?

The good news is that the disaster operation is really an operation unto itself, separately staffed, separately housed -- not the headquarters, but the processing centers are separate. 
Now, I will tell you disaster has taken a lot of my time and it's taken a lot of our new deputy's time. But what we have done is we've worked very hard to put teams of people in place to drive forward initiative in all the other program areas, because we don't want to lose opportunities there as well.

One of my priorities is to simplify what we do. Be a more user-friendly organization so that both our customers -- which are obviously small businesses -- and the people that deliver that service to customers, whether it be the banks or whoever, are motivated to adopt our products and services. So I think there's a lot of opportunity there.

Congress failed to pass a 2007 budget for the agency, and some lawmakers in both the House and Senate have already called the proposed budget for 2008 inadequate. Does the agency have enough money?

From a budgetary perspective, we’re pretty good right now. Congress has finally passed a continuing resolution -- the president has signed it -- and we're in good shape with that. It gives us some growth for our operating budget. And the budget that we sent up to the Hill almost a month ago now also provides us with increases in our base operating budget.

I will tell you, when you look at the criticism the agency has had over the past many years -- in terms of declining budgets, in terms of declining workforce, etc. -- we're asking for 87 more people, we're hiring more procurement center representatives, we're asking for money to invest in technology initiatives. I'm pretty excited about it. I'm pretty excited about what we can do with the budget we asked for.

How is the agency's relationship with the new Democratic-led Congress and the various committees that deal with small-business issues?

Our relationships are great. I'd be very surprised -- and actually a little concerned -- if you called either of the Democratic chairs and heard anything other than the SBA is really working with us on some of these issues.

Now they will obviously highlight differences in policy viewpoints. But, in fact, Chairwoman Velazquez, both in her opening remarks and in her closing remarks, commented on the improved information flow, and I think John Kerry was very gracious in that regard. I think we have great relationships with the committees. I've only been in the government seven months and I don’t know any other way than to call someone up and tell them, 'Hey, this is what I'm thinking.'

I think most of what we are doing here should be bipartisan.

A survey last year found staff morale at the agency was among the lowest in the federal government. Employees complained about being let go or transferred on short notice, while the agency's response to Hurricane Katrina was being hammered on the Hill and in the press. Where are things today?

The last thing you want in a service organization is bad morale. Bad morale is poison. An interesting counterbalance to that was that people felt the work they did was very important. They might have had bad morale, but they felt like they were there for a reason.

I cut a six-and-a-half-minute video that said, 'I've heard morale is terrible. I'm going to send out a survey. It's going to be very short. Please get back to me. This is very important to me. I want this to be a place that's good to work.' I got an 86 percent response rate on a survey that went out to more than 2,000 people. Now, I've never been in an organization that had that kind of response rate.

I can tell you that we have a ways to go. I think we understand the issues, and we're working very hard to change the culture. We are communicating in an entirely different way up and down the organization. People feel increasingly empowered.

To ensure federal contracts set aside for small businesses aren't going to large corporations, you've set a policy requiring contractors to recertify their size every five years. Why five years?

We were saying a year at the beginning, and the Inspector General was saying a year. We put it out to public comment and there was an overwhelming view in the small-business community and other places that a year was not the way to go for two reasons.

Number one, a lot of times when you do a government contract, you have to invest a fair amount in the contract, whether it be hiring labor, investing in equipment, or whatever it is to be able to fulfill that contract. So, a lot of people felt it was unfair to put all that investment into something if that small business by virtue of the contract, or by virtue of the fact that it was a good business, it actually grew beyond our $6.5 million ceiling or $10 million ceiling depending on the industry. You really weren't achieving the objectives of the program.

You also want to give federal contracting officers the ability to procure from emerging successful business. You didn't want to incentivize them to go with a business that was never going to get big, because they weren't very good. So it was kind of a balancing.