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SBA administrator talks Jacksonville, 7(a) expansion and what she sees on horizon (Courtesy of the Jacksonville Business Journal) — Small businesses are an important part of the First Coast economy — and throughout May, the Business Journal focused on those entrepreneurs who make up an ever-growing portion of the local business community.

To mark Small Business Week, we sat down with Isabella Casillas Guzman, the administrator of the U.S. Small Business Administration, for a conversation about SBA programs, including the expansion of the 7(a) lenders, and what else she sees on the horizon.

The interview has been edited for length and clarity.

I know the SBA has been working with the Department of Defense to help bolster the defense contracting pipeline for small businesses — and as a big military town, there’s a lot of interest in that in Jacksonville. Can you describe what the SBA is doing to help small defense contractors and what more do you think needs to be done?

So much of what our value proposition is to small businesses is that we’re an agency started 70 years ago to make sure we can get capital into the hands of small businesses so they could do those contracts for the federal government as well as making sure that they have the networks and resources. We want to make sure that we can shore up small businesses who innovate for the Department of Defense and innovate for the warfighter to ensure that our defense is strong.

We recently partnered with the Department of Defense and the Office of Strategic Capital to leverage the Small Business Investment Company Critical Technologies Initiative program to ensure that we’re investing in the future generation of startups who are going to define our national defense. We’re focused on getting that critical capital into businesses, but, in addition, making sure that they can be a part of the federal supply chain. President Biden has really leaned into ensuring that we’re using the federal purse — the incredible spend that the federal government deploys — to support our small businesses in this space.

One of the hallmarks of your tenure at the SBA is trying to increase access to capital, something entrepreneurs of color particularly struggle with. What more needs to be done to help solve that problem?

It is a critical problem and President Biden from day one has focused on this issue of equity. In the small business space in particular, we know that women and people of color are starting businesses at incredibly high rates, but are not getting the capital. When we underinvest in them, they are not able to create the jobs or produce the output that their peers can, so we need to solve for that, for the future of our economy and our globally global competitiveness as well. You know, Florida alone during the Biden-Harris administration had 1.2 million new business applications filed in the past two years and it’s been a small record small business boom. But those businesses need growth capital. What we’ve done is lean into regulatory reform so that we can replicate the success we had during PPP and COVID-EIDL — that we’re making sure that we have a simple process, that we’re cutting red tape and simplifying our lending programs.

You’re also in the process of expanding the 7(a) lending network, a decision which has gotten some pushback. Why do you believe expanding the lenders participating in that program is a good thing to do?

During PPP, we were able to get 12 million PPP loans out to small businesses because we had a wider distribution network. Typically, SBA has about 1,500 to 2,000 lenders in our network; during PPP with over 5,000. Our small businesses are going straight online to get capital — and unfortunately, two thirds of them according to the Federal Reserve last year, were not able to get all the capital that they needed or any of the capital that they needed.

There are credit worthy borrowers out there that we need to do a better job meeting. Expanding our distribution network by lifting what was a moratorium on our small business licensing companies, which has been a successful program for multiple decades, gives us the opportunity to let in alternative lenders. Those are our mission lenders — those nonprofit community development financial institutions that operate in communities to do those small dollar loans and to work with underserved communities, whether that’s more rural lending, where there’s disparity with women and people of color and veterans and low-income communities. We’re trying to fill those capital gaps, those banking deserts, by working with nondepository lenders as well.

There has been concerns that the SBA might not have enough staff to oversee an influx of new lenders. Do you have any concerns that an influx of new institutions working with the SBA might be more than the agency can handle?

What everyone should know is that our lending programs and our investment programs are at zero subsidy meaning no additional cost to the taxpayer. We are able to fund about $50 billion a year; we’re a sizable part of the small business lending environment, and we’re able to do that with strong performance. What we’ve done is internally strengthened our operations — obviously scaling to $1.2 trillion in relief with a huge feat of the SBA during the pandemic — but we are a strengthened organization that is able to meet the needs of an expanded distribution network.

What’s important to note is that we’ve been very clear in our intent in publishing these rules, that we are going to be steady and slow in terms of how we distribute this. We are going to automatically make all our nonprofit lenders permanent in this program. So that’s a huge list. We had already committed to putting an additional 30 licenses out there to those nonprofit mission lenders. And we committed to expanding initially in the first year to three additional small business licensing companies. As we strengthen and fortify our operations further, we’ll continue to do that. But we’re very confident in the strong oversight and credit risk management that we’ve been deploying for decades, across our portfolio.

You’ve been a strong proponent of the SBA doing direct lending, which is something you’re authorized to do but don’t have the funding to do. How optimistic are you that that’s something that will come to be at some point?

We’re trying to use all the tools in our toolbox, and clearly I’m very hopeful that this simplification and cutting the red tape within our programs will increase competition and increase access to capital. But as the gap filler, as the lender of last resort, we want to continue to commit to finding all pathways, and so I do believe direct lending is a critical component of that. But I’m committed to working with my lending network to ensure that these recent rules give us an opportunity to expand capital with the current tools that we’re leveraging. As we continue to identify gaps in the future, I’m hopeful that the SBA will be able to display fully its authority to help businesses get capital. 

As we wrap up, one forward-looking question. Small business made it through Covid, are going through inflationary times — it’s a hard time out there for some businesses, but the small business sector in the US has proven itself resilient. What do you see on the horizon?

Those incredible number of small business starts are actually what is giving me hope. I think it takes great courage to start a business and to jump in, and we saw so many new entrepreneurs take that leap of faith and start their businesses and they’re having success. I think that the president’s economic agenda values hardworking families and values Main Street and small businesses. We’re trying to level the playing field so that the economy can work for everyone. And that’s centered in our small businesses who are scrappy and have to start from the smallest micro business level and grow. So we’re leaning in with the investments in America to make sure they have opportunities.