These are challenging times for the Small Business Administration. Budget cuts and allegations of lending fraud have taken their toll. The agency's administrator, Steven Preston, talked recently with Inc.'s Robb Mandelbaum about Preston's efforts to improve the SBA's processes--and its image.

What are you doing to improve customer service?

We're trying to automate the front end, to demystify our processes. And we are rewriting our standard operating procedure for the loan program. This sounds boring, but it's been one of the biggest sources of frustration for our lenders because it's hard to understand, and it's outdated. A big part of all this is getting the employee base to work effectively. We're a service organization; employees are the most important component of delivering that service.

How has the loan business been?

Loan numbers are good. At the end of '07, we saw an uptick in outstanding dollar volume. We had almost $67 billion in loans outstanding in the portfolio. Ultimately, though, we don't make any of those loans--the banks do, and with increasing confusion in the credit markets, it's a little hard to call 2008. But if the banks are moving up higher in the credit tier and saying no to a lot more small-business borrowers, there's a good chance we can pick up some of those loans.

Investigators have uncovered fraudulent loans--so far totaling $76 million--at a leading SBA Express lender. Does this call into question the Express program, in which lenders can approve loans instantly?

There has been an enormous amount of misinformation about that. Most of this fraudulent activity occurred a number of years ago, and the oversight that this agency provides has been significantly enhanced since then. We're increasing the amount of on-site reviews we do for delegated lenders. This is a terrible situation, but for an agency that has almost $70 billion in loans out there, it's also exceedingly unusual. And in any case, when a lender has been negligent in issuing loans, we don't honor those guarantees. The bank gets stuck with them.