Time to Fix the SBA

Sidebar: Mr. Small Biz

Former entrepreneur Hector Barreto has his own plans to transform the SBA.

With Inc. advocating an overhaul of the U.S. Small Business Administration, it seemed only fair to bounce some of our ideas off the agency's current leader, Hector Barreto Jr. Tapped by President Bush in 2001, Barreto is no stranger to entrepreneurship. Growing up in Kansas City, Mo., his family ran a restaurant, an import-export business, and a construction company. After graduating from college, Barreto moved to Los Angeles to strike out on his own, starting an employee benefits outfit and later, a securities brokerage specializing in retirement plans. He also served as vice chairman of the U.S. Hispanic Chamber of Commerce. Barreto recently discussed his plans for the SBA with Inc. executive editor Ed Sussman and contributor Elizabeth Wasserman.

This year, we'll do more small-business loans than we ever have in our history. We'll reach the fastest-growing segments of small business: women-owned businesses, African American businesses.

Question: You've been at the SBA two years now. What are you most proud of?

Answer: This year, because of changes we made in our SBAExpress program, we'll do more small-business loans than we ever have in our history. We'll reach the fastest-growing segments of small business -- women-owned businesses, African American businesses, Hispanic businesses, Asian businesses. When we first got here, the average-size loan was $225,000. Now, that has gone down to $165,000. Most small businesses are capitalized with a lot less than that, maybe $50,000.

Q: Why is that a good thing?

A: It has enabled us to touch more small businesses. We're up 45% on Hispanic loans, 75% on African American loans, 35% to women and veterans. One of the big pushes of our administration is jobs and growth. And we know who creates those jobs. It's the small businesses.

Q: There's a perception that the SBA mostly gives loans to mom-and-pop shops.

A: Thirteen percent of our borrowers last year got loans of $500,000 or more. That's not mom-and-pop stores. We put out $2.5 billion in venture capital last year. It wasn't going to mom-and-pop stores. What's so interesting about SBA is that its programs are evolutionary. Some people come to us for help putting together a business plan. Maybe their first loan is a micro-loan. But then it can go up to a working capital loan of as much as $2 million. Later on, if they're ready to go public or go national, they could get venture capital. All of those opportunities are available at SBA.

Q: Surveys show that very few small companies are hiring. How can the SBA act as a better stimulus in this economy?

A: I've been out seven times this year with the President, specifically to do small-business events all around the country. The President said, "I want to give you back more of your money because I know what you'll do with it. You'll put it back into your business." That's what the jobs and growth package did. It lowered that top marginal tax rate, put $2,209 in 23 million small-business owners' hands. It quadrupled the expense [deduction] from $25,000 to $100,000. And that is going to have a great impact.

Q: Are you concerned that SBA guaranties make banks lazy? That they just say, "Well, I've got the guaranty; I don't have to look as carefully at the business. I'm covered either way"?

A: I think the guaranty allows a lot of small businesses that wouldn't get the loan any other way to be able to get loans. Sometimes the banks want to do the loan, but because of their internal requirements they're not able to do it. But with the SBA guaranty, they are able to do it.

Q: But instead of being a lender of last resort, shouldn't the SBA serve as an engine of growth for small companies?

A: That "lender of last resort" is not the only thing that SBA does. There's no doubt that we need to change the way we operate. And that's what we're doing right now. We've got an incredible network. We have 70 major program offices throughout the United States. One of the things we need to do is make sure that our folks out in the field aren't burdened down with a lot of bureaucracy. So we're taking a lot of that away from them to free them up, and they're saying, "Hallelujah! Thank you."

Q: In the Clinton administration, the SBA administrator was a member of the Cabinet. That's not the case with you. What do you think of permanently elevating your job to a Cabinet-level position?

A: I feel that I've gotten tremendous access to this President. The SBA has never been one of the agencies that has been part of the Cabinet. Different administrators have attended Cabinet meetings, but that is at the discretion of each administration. This administration wanted to have a smaller, more effective Cabinet.

Elizabeth Wasserman is a freelance writer based in Washington, D.C.

Elizabeth Wasserman

Elizabeth Wasserman is editor of Inc.'s technology website, IncTechnology.com. Based in the Washington, D.C. area, she has more than 15 years experience writing about business, technology, and politics for newspapers, magazines and websites. Her work has appeared in such publications as Congressional Quarterly, Business Week, Portfolio and Slate.