How the Administrator says her agency is helping get banks to lend to small business again

Mills: The SBA is helping to thaw credit markets, which froze in October Stephen Voss

Mills: The SBA is helping to thaw credit markets, which froze in October Stephen Voss

Getting credit to small business owners is Job One for former venture capitalist Karen G. Mills, who was confirmed as Administrator of the Small Business Administration in April.

BusinessWeek SmallBiz Staff Writer Jeremy Quittner spoke with Mills recently about her agency’s efforts to help small companies during the recession, how the federal stimulus package is affecting entrepreneurs, and ways to boost innovative small businesses.

Since March the SBA has eliminated the fees and increased the caps and guarantees on its bread-and-butter 7(a) loans. It also has agreed to provide 100% guarantees on emergency bridge loans. Yet small business owners say banks still won’t lend. How can the SBA get banks lending again?

In October…the credit markets really froze. SBA-backed lending was down at least 50%. The purpose of the $730 million received from the American Recovery & Reinvestment Act was to get capital flowing back into the hands of small businesses. We reduced the fees, and the banks wanted to make the loans. [And] when we put the guarantee up to 90% they said: “Now we can feel comfortable putting these on our balance sheet.” Since the passage of the Recovery Act, our loan volume is up 40%, and [we] have put $6.2 billion in the hands of small business. We now have 600 banks lending that had not made a [SBA] loan since October 2008.

Some banks say businesses that are coming to them now are less creditworthy, so they can’t make loans.

Many small businesses are under duress and looking for liquidity. But we are not taking more risk, and banks are not sending us loans that are riskier. We are not using taxpayer money to go down the risk curve.

How many businesses have received loans under America’s Recovery Capital Loan Program, which provides 0% interest bridge loans to distressed companies?

We just rolled it out in the past couple of weeks, and there have been 300 loans from 151 different lending institutions. Banks are signing up, and we have people offering these loans in almost every state now.

You have to give these banks time. This program has a different level of risk than we usually take, and we had to be very clear about what a viable small business was. They must have been profitable within the past two years and show how [they] will transition back to profitability and pay back the loan.

The SBA recently announced a plan to offer inventory loans for dealerships, which seems focused on the auto industry. Does the SBA have other plans to help specific industries?

Actually the dealer floor plan is for [all] auto, RV, boat, and other dealerships. This is not really for the Chrysler and General Motors (GM) dealers. Banks, which usually provided liquidity to these companies, are not providing as much support. And that is our role.

There is debate over whether venture-capital-backed companies should receive government grants under the Small Business Innovation Research program.

If we want to create jobs, we have to have commercialization [of small firm innovation]. We have two principles: First, this is a program for small businesses, not big businesses masquerading as small businesses. Second, we don’t want to turn away the most promising businesses…[just] because they have a certain structure.