Before this past year, in which the coronavirus took more than 374,000 lives and permanently shuttered around four million small businesses, few people appreciated the crucial role of the U.S. Small Business Administration as well as Karen Mills.
Today, the former SBA administrator has plenty of company. More than 7.1 million businesses received some form of aid from the agency in 2020. Over 5.2 million small businesses received a Paycheck Protection Program loan during the first and second tranches of the aid program, 1.8 million businesses received debt relief from the agency, and more than 42,300 businesses received a loan through the SBA's flagship 7(a) loan program in 2020.
While Mills--now a senior fellow at Harvard Business School--is duly impressed with the agency she shepherded from 2009 to 2013, she's not surprised. "What most people don't know is that this is actually quite an important and powerful agency in terms of programming dollars and influence. Because although people would say, 'Well, how big is the budget?' it turns out that the real question to ask is: 'What's the portfolio of programs and impact?' "
In 2020, the agency backed more than $547 billion in small-business loans. What's more, 2021 is likely to be significant too. The latest stimulus bill allots $284 billion for PPP loans, which include a second-draw for borrowers who have already received a first PPP loan, as well as additional funding for the SBA's core lending programs.
President-elect Joe Biden wants to make small business a centerpiece of his economic policy plans, says Mills, who has been in touch with Biden's transition team. Here, she offers her assessment of the challenges facing the SBA, which will soon get a new chief in Isabel Guzman, a longtime small-business advocate, and what may come down the pike for America's small businesses under a Biden administration.
1. Women and minorities will receive special attention.
The SBA does far more than provide loan guarantees. It's only one of four pillars of things that they do, notes Mills. It has some 900 small-business development centers, counseling centers, and about 120 women's and veterans' networks.
"All of these are going to be the center of an enormous effort to make sure we get small businesses, particularly underserved women-owned businesses, minority-owned businesses back on their feet," Mill says. They require financial assistance, as well as counseling, she adds. The pandemic "is tough for the shoe repair guy and the café owner."
2. The SBA will play a key role in Biden's agenda.
Biden is giving Guzman and the SBA a big seat at the table--and that should be a net positive for small businesses, says Mills. Under Obama, the SBA chief was elevated to a cabinet level role, and Mills served on Obama's economic team. Still, ensuring smaller companies' voices were heard was difficult, she acknowledges. "I had to jump up and down in the West Wing a lot," she says.
3. Fintechs could get a bigger seat at the table.
For the first time, fintech companies like PayPal, Intuit, and Square were given permission to make SBA-backed loans through the PPP. While these companies still don't have preferred-lender status--that is, they can't necessarily make traditional SBA-backed loans--this could change, says Mills, who notes that the prospect could be a boon for underserved communities like businesses with fewer than 10 employees and those led by people of color.
"The problem with the bank network, which has become even more prominent over the past 10 years, is it doesn't reach the very smallest businesses. That space has been taken over by the Squares and the PayPals and the Intuits," Mills says. Community development financial institutions, which typically operate in lower-income communities, have been great, she adds, "but they're too slow and too few to have moved the needle."
4. The PPP will change banking forever.
Before becoming the SBA chief, Mills worked for 25 years in venture capital. In 2018, she wrote the book Fintech, Small Business & the American Dream: How Technology Is Transforming Lending and Shaping a New Era of Small Business Opportunity (Springer, 2018), which describes the ways technology is changing the banking world. The PPP, she says, is accelerating those changes. It's highlighting the frictions and the barriers in banking, which are making it more difficult for Black-owned businesses and women-owned businesses to get loans, she says. An example of that friction is "information opacity," which she adds "just means it's really hard to look inside a small business and see what it's really doing." The data that lenders are now collecting, she says, could help simplify how they assess the creditworthiness of a given business.
5. The focus will be on recovery and opportunity.
Beyond pandemic relief, Mills says, Biden will be interested in recovery and opportunity--particularly after the vaccine rollout happens en masse. As far as recovery goes, the latest small-business relief law offered to reinstate the credit crisis-era SBA loan guarantees and reduce or eliminate fees.
"We were able to put in an ability to raise the loan guarantees like we did in 2009 that were so effective," says Mills. As for opportunity, she adds, there are many. One is health care, she says, adding: You could see a returned emphasis on the Small Business Health Options Program, or SHOP, an insurance exchange designed to help small businesses compare health plans and enroll in coverage, which were originally offered under the Affordable Care Act. "They never really got fully rolled out because Obamacare got dragged down by processing difficulties," she says. With Biden in the White House and a Democratically controlled Congress, that could change.