A business plan for reform of the Small Business Administration

The Small Business Administration might be a small agency, but it has outsized influence over the economy. The pandemic highlighted shortcomings in the SBA, including constituents, access to credit, customer service and entrepreneurial development. That’s according to a task force convened by the Bipartisan Policy Center, and it has a list of recommendations for reform. Federal Drive Host Tom Temin guests are the task force co-chairs, former SBA Associate Administrator in the Office of Capital Access, Ann Marie Mehlum, and former  Chief of Staff and Chief Operating Officer of SBA,  Paradeep Belur

Interview Transcript:

Tom Temin And tell us what it is you were looking at here. SBA had a huge burden during the pandemic, which showed a lot of administrative and oversight and controls weakness. But what were you really looking at here?

Pradeep Belur The Bipartisan Policy Center, Tom, as you mentioned, convened this task force about 18 months ago to understand how best to increase the efficiency and effectiveness of SBA. And the timing was perfect. As you know, SBA was just coming off this massive pandemic assistance there, and they distributed more than a trillion dollars in loans to small businesses, which serve as a lifeline to many of these businesses during the pandemic. So we want to understand what went right and what went wrong. On top of that, we spoke to dozens of former administration officials and subject matter experts to understand how can we make SBA better. That was the crux of our project.

Tom Temin And is it fair to say one of the things you did not focus on as much was the spending accountability? Because there’s a lots of people looking at that already. You were looking at programs themselves, fair to say.

Pradeep Belur We looked at it from the perspective of, you know, what exactly needs to be done to increase outreach while managing downside risk. So in terms of the accountability, we looked at it from the perspective of how do you manage risk from that context?

Tom Temin All right. What were your top line findings? Some of the things mentioned in the highlights include access to capital. Anne-Marie, tell us more about that one.

Ann Marie Mehlum Well, through the years, not just in the recent pandemic years, through the years, SBA has, like many governmental agencies, has become harder to deal with, more complicated procedurally. Fewer and fewer lenders are participating. Bottom line, small dollar loans are decreasing annually to the point of practically nonexistence. And it’s very obvious that the SBA really needs to deploy technology and simplify the procedures. Some of the offshoots of the change over the years is that now there are a handful of highly concentrated SBA lenders, and the SBA has really not significantly looked at those separately. And recently they made some rules that really opens the door to lenders. Instead of figuring out how to work with the 5000 lenders in the program that have done such an amazing job through the last 50 years. They have now opened the doors to bring in other lenders. I expect will expose the agency to severe risk. So those issues we addressed and there are really several very, very good recommendations. I think the task force absolutely covered the arena for the SBA, and I really hope that the necessary people will take a look at this report and we’re hoping to get it out.

Tom Temin That’s the 7(a) program, which has been central to SBA for really decades. Fair to say.

Ann Marie Mehlum Yes, that is the central loan program. It was the beginning. The beauty of that program is Congress, in its wisdom back in the Eisenhower years, set it up as a program not to compete with private enterprise, but instead to partner with banks. The SBA, as you know, guarantees loans that banks just can’t quite make to small businesses that don’t have enough collateral, don’t have a wealthy uncle to guarantee the loan. So this partnership has worked so well. Really, I mean, our country has been built with small businesses through the years, and yet it’s eroded recently because it’s just gotten so complicated and difficult and they haven’t figured out how to really deploy technology. It’s got to be deployed.

Tom Temin Interesting. And there’s also the issue of whether enough people even know about SBA programs 7(a) or otherwise. That gets to the issue of marketing, outreach and that kind of thing.

Pradeep Belur That’s right, Tom, In spite of the fact that SBA received massive publicity during the pandemic, most small businesses are not aware of the full breadth of SBA’s offerings. So some of our recommendations were more along the lines of how can we make sure that the district offices step out and create an outreach, especially to some of these underserved communities? Also, make sure that district offices work in conjunction with other federal agencies so as to increase awareness. And lastly, as you know, SBA has a lot of these resource partners, such as small business development centers, women business centers and so forth. The question was, how can we make sure that these centers provide holistic services so that in addition to some of the things, training and counseling that they do, they can also help some of these small businesses understand how to apply and gain access to credit and so forth.

Tom Temin We’re speaking with Pradeep Belur. He’s former Chief of Staff and Chief Operating Officer of the Small Business Administration. And with Ann Marie Mehlum. She’s former Associate Administrator in SBA’s Office of Capital Access. They are co-chairs of the Bipartisan Policy Center Study of the SBA. And I wanted to ask about the third general area that you spoke about in the report, and that’s entrepreneurial development. That word is sort of more in vogue than it was maybe in the Eisenhower era. But certainly I think Republicans and Democrats alike understand the importance of entrepreneurialism to the United States economy and general vibrancy.

Pradeep Belur And let me simplify that down for you, Tom. It’s essentially counseling and training services. One of the things we looked at was how do we improve the effectiveness and efficiency of these counseling and training services. As you know, SBA provides counseling and training services to hundreds of thousands of entrepreneurs each year to all of these brick and mortar training partners, such as the small business development centers, women’s business centers and so forth. One of the things that we suggested was we need to improve the coordination and standardization across these centers so that they have a standard curriculum, they have a standard way of delivering the curriculum, as well as measuring the outcomes of the training programs. We also provide a recommendation whereby we said, SBA has built a very good e-learning platform called Ascent, it’s focused on women entrepreneurs. And right now about 150,000 women entrepreneurs come and avail of training and counseling services through the brick and mortar centers. But there are more than 10 million women entrepreneurs. Now with this e-learning platform, they can avail of these services 24 by 7 via online means. So our recommendation was the SBA to expand this Ascent platform to the other demographics so that the e-learning platform can work in conjunction with the brick and mortar centers, so that SBC can increase its outreach while improving the standardization across all these different centers.

Tom Temin And that gets to the question when you speak of women entrepreneurs, of the idea that whether SBA programs, whether for credit or for entrepreneurial training, whatever it might be, are equally accessible by and utilized across all of the different demographics, and what they commonly call historically underutilized groups. What did you find there? And do they have work to do there?

Ann Marie Mehlum One of the things about that time that I’d like to add is one of the things that was clear in the pandemic when the SBA worked more closely with a handful of fintech firms was that the PPP loans when fintechs were involved, did reach the underserved markets better. The percentages were just higher. Also, we know that in the very smallest of loans, the percentages are higher of loans that go to African American owned companies, women owned companies, veterans, rural companies. And that’s another reason to really put the focus and try to figure out how to deploy technology without increasing credit risk to the point of being detrimental to the whole program.

Tom Temin Got it. So there’s a lot of issues. Then there’s administrative burden, which is something the SBA sounds like it needs to reduce and then greater adoption of technology. What’s the reaction been so far on Capitol Hill to this report and from the SBA itself, if they’ve reacted at all.

Pradeep Belur From the Capitol Hill perspective Tom, I think both sides of the aisle are in agreement. By the way,SBA is the only place, I think, where we see bipartisanship on the Hill.

Tom Temin Well, veterans.

Pradeep Belur And veterans, that’s right. And both sides are in agreement, as Ann Marie was alluding to. One of the things that worked well during the pandemic was leveraging digital tools through the fintechs to reach to these underserved populations, such as minorities, women, rural customers and so forth. But it was a double edged sword because it increased the risk significantly. So both sides of the aisle in Congress want to leverage the digital tools while managing the downside risk. And we can take numerous lessons from how it was handled during the pandemic.

Tom Temin Ann Marie, final comment?

Ann Marie Mehlum Well, I think one thing I’d like to say is one of the reasons why it was very encouraging and I felt this work of this committee was so important is because the SBA has been so successful, an extremely bipartisan effort through the years, and has clearly supported American small businesses in a way that everybody has agreed has been beneficial to our entire economy. So it’s worthwhile for us to spend the time to try to help the SBA go forward in the years to come. And the group that was involved with this and all the many people we spoke to, it was an effort worth undertaking. And certainly the recommendations are well worth anybody’s time to take a look at.

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