- Immediately following the inauguration of President Joe Biden, business owners can expect to see new priorities from the US Small Business Administration, according to the former head of the agency, Karen Mills.
- Mills served as Administrator during Obama's first term, is now a senior fellow at Harvard Business School, and is the author of the book, Fintech, Small Business & the American Dream.
- She expects the SBA will well as make several improvements to the loan programs that are the agency's bread and butter.
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If last week's selection of Isabel Guzman to head up the Small Business Administration is any indication, President-elect Joe Biden's first 100 days in office will see a flurry of new initiatives for Main Street.
For perspective on the first steps entrepreneurs can expect from the incoming head of the SBA, Insider spoke with Karen Mills, who ran the agency during Obama's first term — also a moment of economic crisis, lest we all forget.
Mills is now a senior fellow at Harvard Business School, and the author of the book, Fintech, Small Business & the American Dream.
Beyond the monumental challenge of managing billions of dollars of emergency PPP loans, here are the key priorities Mills expects to see in the early days of the Biden administration's SBA.
Partnerships with tech companies to make borrowing easier
Mills is a strong advocate for improving the technology involved in the SBA's lending operation. Fintech platforms like Kabbage and PayPal showed their value in facilitating PPP loans, making a case for greater involvement in the agency's normal operations.
Where the traditional lending process requires a borrower to understand basic accounting and finance, Mills says fintech tools make the process more accessible.
"What the new tech companies do is they meet people where they are with a user experience that allows them to safely navigate these issues with their money to know what they're doing," Mills said.
The SBA isn't in charge of authorizing or creating new financial institutions, but it can work with the Treasury to build support for better technology.
Beyond funding loans at community financial institutions, the SBA can help smaller lenders access fintech platforms that improve the borrowing experience.
"I am a big fan of CDFIs, but they are going to have to marry their high-touch with something else in technology in order to get to critical mass," Mills said.
A better loan program to save business owners money
When Mills took over the SBA during the height of the financial crisis in 2009, banks were afraid of lending to small businesses, and recent loan officer surveys show it's happening again.
"What's happening right at this moment is that credit has frozen," Mills said. "How are we going to get small businesses back on their feet and new small businesses started when nobody's going to lend to them?"
Mills successfully got authorization to allow the SBA to reduce fees and to guarantee a larger percentage of each loan it backed, which kicked off a surge of new lending.
If that wasn't enough, she added, credit scores of the new borrowers was 100 points higher, and 1,000 banks rejoined the SBA's program.
"It turns out to be a really powerful tool and costs almost nothing," she said.
Beyond guarantees and fees, the SBA's flagship loan program has several limitations — such as a "can't get credit elsewhere" test, meaning that a borrower must show they've been rejected by other lenders — that limit participation in the program.
Loosening some of those restrictions would allow more business owners to access financing on more favorable terms, so they don't have to rely on more expensive forms of credit.
"In the past, there have been more frictions and barriers for Black-owned businesses and women-owned businesses and Latinx businesses," Mills said, "and I think we can solve that problem with the tools in the toolkit."
Tripling the amount of government contracts
Another approach to support under-represented entrepreneurs is through steering a greater share of the government's massive contracting dollars to small businesses.
"Government contracting turns out to be a very powerful tool" for addressing inequality, Mills said. "We were able to have good success with that, so I'd hope that would continue."
The Biden campaign previously proposed an initiative to direct $400 billion in government contracts to small businesses, especially minority-, women-, and veteran-owned ones, more than triple the amount the SBA recorded for the prior fiscal year.
In a statement in August, outgoing administrator Jovita Carranza said, "Every contract that gets in the hands of a small business is a win-win for our nation, entrepreneurs and their employees, and the communities they support. This is especially important now, as our economy recovers from the pandemic-related setbacks."
The selection of Guzman brings that plan is another step closer to becoming reality, as she is the founder of a consultancy that helps small business win government contracts.