Does the SBA Still Matter?

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Early on, Preston spent much of his time righting the ship of disaster aid, but now he's focusing more on the small business in the SBA. He'd like to shine a brighter light on federal contracting and reach more borrowers who've missed the SBAExpress juggernaut. He promises a new partnership with rural community banks and is mulling a loan targeted to disabled veterans. "We're trying to understand markets that we need to be in more," he says, "and figure out why we're not getting there."

Sustaining America

On the day I met her, Blanca Castillo sat smiling in a counselor's office at New Visions New Ventures, a Women's Business Center in Richmond. A Honduran immigrant who runs a waste-hauling business with her husband, Joel, Castillo was readying to close her first SBA-backed loan, for $30,000. She may not have known it, but she was participating in a pilot project called CommunityExpress, a program that the SBA originally positioned to supplant microlending. Businesses in designated distressed neighborhoods can borrow up to $250,000 at regular 7(a) interest rates and get technical assistance to prepare for the loan. Banks get to use Express's simplified rules but still get the full 7(a) guaranty. At 11.75 percent interest, the monthly payment worked out to $525; the fees were $775. Had the SBA directed her to REDC to apply for one of those microloans it no longer favored, she could have paid just $100 up front and saved more than $4,000 over the life of the loan. No trifle for a family with six kids.

On my last night in Virginia I saw Castillo again, this time at her house in a pleasant new subdivision of Henrico County, just outside the Richmond city limits. Nearly seven months had passed; she had used her loan to buy a truck. Castillo has been in the country for six years; her husband, Joel, also Honduran, came here 10 years ago. (They are both legal residents.) For much of the year, the Castillos work 16-hour days hauling trash from D.C. to landfills in central Virginia; her mother minds the kids in the afternoon. Now as we spoke, one of them wandered in and out of the living room, in his PJs and ready for bed. The Castillos are essentially subcontractors for a waste broker, but they now own a fleet of four trucks and employ a crew of three drivers and two of her kids.

At nearly 12 percent interest, the Castillos' loan struck me as expensive. But it turned out they had financed two other used trucks from local dealers at far more onerous terms: 19 percent interest. Blanca also has a personal loan to repair the trucks--at 29 percent interest. She marvels at the difference the SBA has made. "For $30,000, we're paying $260 interest a month," she said, "and we have a personal loan for only $7,000, and I am paying $190 interest a month!"

The Castillos' panoply of loans and interest rates certainly brings De Rugy's "many ways to acquire credit" into focus. Her credit market is an abstraction, a supernormal force that is always fair, always rational. In Virginia, at least, the credit market is atomized; its decisions are subject to the biases and whims that rule the lives of real men and women, to ambitions and institutional prerogatives that set the agenda at the office. But even if one grants De Rugy her twin contentions that the SBA financing has reached just 1 percent of small businesses and that no more than 6 percent of small businesses have been unreasonably shut off from conventional credit, the SBA still has many potential customers. Blanca Castillo, Port Equipment Service, all those folks Tanner Collins is keeping tabs on--in them the SBA has nurtured a new class of entrepreneurs where it might not otherwise exist, sustaining America in a way raw numbers don't illuminate. These are the businesses that through the generations have lifted millions of entrepreneurs out of poverty. They are central to our national character and our politics.

When I met Collins last May, the Richmond Economic Development Corporation was just finishing up an application to become a Certified Development Company. Collins seemed to think that half his microloan clients, among them the Corner and Derron Carmichael's salon, could soon invest in their own buildings--with the help of a 504. "That's why we're so excited," he said. "Because there's so doggone much low-hanging fruit." When I spoke to Collins again earlier this year, he had tempered his enthusiasm, but only a bit. By the middle of the year, he hoped, a couple of his clients might be ready to make the leap up from a microloan to the 504. "The first thing I have to do is slow them down," he said. Collins wanted to make sure they understood that with bigger dollars came bigger stakes--some were getting ahead of themselves. "But," he added, "that's what entrepreneurs do."

Robb Mandelbaum wrote about a father's attempt to raise an entrepreneurial son for the December 2005 issue of Inc.

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