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Keynote Address to the National Association of Development Companies Annual Meeting
The SBA Administrator
Keynote Address to the National Association of Development Companies Annual Meeting
Thank you, Sally, for that generous introduction. I’d also like to thank Beth Solomon; the board of directors; and the incredible NADCO staff for your hard work in planning this conference. I’m delighted to be with you here in Colorado Springs. I feel like I’m among kindred spirits.
I know you’re here because you have a passion for the kind of economic development work that can transform communities. You’re mission-based lenders, and I want to be your champion in Washington because I’m one of you.
Before I moved to Washington last month to join the SBA family, I was an entrepreneur in Los Angeles who started a business bank. You might say that I was an unlikely banker. I had come up the ranks of corporate America as an executive at Westinghouse, specializing in public affairs and marketing.
When I left Westinghouse, I served as a cabinet secretary for California overseeing Transportation, Housing and Business. I’m no stranger to the power of smart economic development. In California, I helped pass a $2.1 billion housing bond that helped lower-income and middle-class families own their own home. And I served on the Board of Rebuild L.A., which invested in underserved communities after the riots in 1992. I was also responsible for overseeing our state’s financial institutions. I saw the pivotal role that capital markets play in spurring job growth.
When I finally left state government after five years, I looked around Los Angeles and saw an enormous unmet need in the city where I grew up, especially the local Hispanic community. I saw so many hard-working, talented entrepreneurs with strong businesses, but they couldn’t access the capital they needed to grow their companies and create jobs.
So I started the first Hispanic-owned community bank in California in more than 35 years. They’re a CDFI. I started that bank to help women like Dr. Carla Thomas. It’s startling to me that only 1 in 5 dentists in this country is a woman, and only 3 percent of dentists are African-American. Carla Thomas dreamed of being a dentist since she was a school girl in Inglewood. For years, Dr. Thomas served generations of local families working out of rented space, but she needed financing to take her business to the next level. So she walked into AmPac Tri-State CDC. And that’s where she met a woman named Hilda Kennedy.
Through the 504 program, Hilda was able to package a $750,000 loan for Carla to purchase a building just three miles from the house where she grew up. Today, Dr. Thomas is working out of that new space. She now has eight separate treatment rooms, and she has made seven new hires. She named her practice, “The Smile Studio.” Dr. Thomas has a motto: “A healthy mouth is the beginning of a healthy body, and a smile can and should last a lifetime.” Hilda Kennedy, where are you? Let’s give her a round of applause for giving us all a reason to smile.
This is a story that speaks to the power of the American Dream. It’s not just about owning a home anymore. It’s also about the chance to own your own business. I’ve been blessed to have this opportunity.
I emigrated from Guadalajara, Mexico, at the age of 5 with my Mom and five siblings. We didn’t have much, but what we did have was an abundance of hope. We didn’t speak a word of English when we arrived, and we certainly didn’t speak the language of business. But my grandmother taught us to believe in the promise of America. She told me that if I worked hard, I could work in an office and maybe a secretary someday. But a secretary in the cabinet of the President of the United States? Only in America.
If there’s one word that I want to define my tenure at SBA, that word would be “inclusive.” We know that SBA lending to African-Americans, Asian-Americans, and Latino-owned businesses – and women-owned businesses – can lift up entire communities. I’m determined to get more loans into the hands of entrepreneurs who reflect the diversity of America. We can only do this by strengthening our partnerships with CDCs, community banks and micro lenders.
A Canadian philosopher once wrote that, “The wheel is an extension of the foot. The book is an extension of the eye. And clothing is an extension of the skin.” Well, CDCs are an extension of the SBA. You’re how we bridge the gap from “working poor” to “middle class.” You’re how we broaden the SBA’s reach. You’re how we empower those whom society has too often left behind.
Last year, the 504 program delivered more than $11.7 billion in financing to 7,700 small businesses. Since we started the program in 1981, NADCO members have secured fixed-rate financing for nearly 140,000 U.S. small businesses. You’ve delivered $130 billion to Main Street. That’s truly remarkable. My goal at the SBA is to partner with you to create more stories like Dr. Thomas’.
For me, that starts with a commitment to superior customer service. The SBA’s average response time on 504 applications is 2 to 3 days, when the paperwork is all in order, but I know that averages don’t always tell the whole story. Last August, the SBA asked you to email us your challenges. Some of you shared stories of delays when a 504 loan package was screened out in Sacramento due to a paperwork issue. You asked for real-time information from a living, breathing human being, so you could quickly address any issues. Well, we heard you. Today, I can announce that the SBA has opened a national call center, so you can talk to a real person immediately. I don’t believe in bureaucratic black holes. You deserve a rapid turnaround on requests for information. And I’m committed to ensuring that the SBA works at the speed of business.
I believe we must make it easier for you to fund projects that can make a game-changing impact. On my third day on the job, I went up to Capitol Hill and asked the Senate to restore your ability to make Refi Loans under the 504 program. It makes no sense to deny small businesses the ability to unlock the equity they already own. During the downturn, many small businesses faced challenges, and we know sometimes they don’t have complete collateral. Their ability to restructure a loan under 504 Refi can help them get better rates on long-term debt, and this allows them to use the equity in their businesses to create jobs and grow.
In 2011 and 2012, more than 2,300 small businesses refinanced $5 ½ billion of debt using this tool, and they each saved up to $20,000 a month. So we’re making the case to Congress to bring 504 Refi back.
I also want to take a moment to talk about regulatory changes at SBA. As a community banker, I was always wary about new rules and regulations. Your jobs are already so difficult, and I know that even well-intended regulations can end up costing you precious time and money. I started my bank in Los Angeles shortly before the banking crisis in 2009. I was full of hope and optimism. Then, overnight, the bottom fell out of the credit market. We survived that crisis, but it wasn’t easy. So I’m bringing my experiences as a community lender with me to Washington.
I’ve challenged Cap Access to be sensitive and responsive to your needs. We hope you’ll tune into one of our webinars to provide feedback and get your questions answered. We had 887 participants in our first week after the new regs were announced. Cap Access will continue to hold these webinars, so please dial in. Here’s my promise: We’ll work together to help you achieve regulatory compliance in the most efficient way possible.
In terms of corporate governance, let me be clear: We want you to serve on local economic development boards. There is no prohibition on this. To the contrary, we want you to be plugged in, and we want you to have strong, engaged leadership from the Board level on down. Most of the new regs you’ve heard about don’t go into effect until April 2015. We have a full year to dialogue, work together and get through this.
Last month, we eliminated three regs that were hurting more than they were helping. First, I’m pleased to report that the SBA has thrown out the wealth test. No borrower should be turned down for a 504 loan, because they enlisted a wealthy investor to help underwrite their project. We want your customers to attract private capital. They shouldn’t be penalized for bringing good people in. So we’re no longer scrutinizing personal liquidity before we’ll approve a 504 loan.
Second, we’ve also thrown out the nine-month rule. If you have a client who requests a permit to build a year before they apply for a 504 loan, they shouldn’t be told that they waited too long for SBA financing. We know it can take time to organize a real estate project. We know local permits and approvals can take months – or even years – to secure. So from now on: As long as the expense is related to the 504 project, the loan can cover it.
Third, we have changed our collateral rules to give borrowers more flexibility. Under the old rule, the property or equipment financed by a 504 loan had to serve as the loan collateral. Now, borrowers can put up other assets to get into this program and get a lower interest rate. I’m committed to pursuing these kinds of common-sense reforms to make it easier for borrowers to borrow and easier for lenders to lend.
These changes will dramatically increase the number of small businesses eligible for your services. It will help increase your profits, so you can reach more underserved businesses. Seven in 10 recipients of 504 loans are underserved businesses owners. Many of them are looking for more than commercial real estate loans, and we want you to be able to provide solutions. So we’ve launched a program called Community Advantage. It can be a powerful tool for you. Community Advantage will help you serve those who are further downstream and need smaller-dollar loans to complement a real estate project. It can help you restructure credit card debt. It can help you refinance microloans into larger-dollar loans. It can help you be everywhere you need to be, from urban centers to rural areas.
The truth is: It’s our CDCs who are doing the loans that the banks won’t. We know you’re in the business of making difficult credit decisions. You’ve proven, time and again, that microfinance works. If you loan $25,000 to a small business, that business owner can expand, pay off the small loan, and come back for a bigger one. Community Advantage will help you in another way: These smaller loans count toward your community reinvestment requirement.
I know you got into the lending business for the same reason I did: to help your local community. You looked around, saw a need and decided to do something about it. So I want to leave you with one last story today: The story of Sanji.
Sanji lived her entire life in public housing in the Red Hook area of Brooklyn, where 4 in 5 families live in poverty and the high school dropout rate is 60 percent. Sanji didn’t want to be another statistic. So when she was 12, she walked through the doors of the Red Hook Initiative. Sanji joined an empowerment program for girls. Four years later, she graduated from Red Hook’s Peer Health Educator program. She’s helping her classmates make healthy choices. Sanji’s a junior now … and she’s a leader. She’s making good grades and she’s on her way to achieve her goal of becoming a pediatrician.
One reason Red Hook can help girls like Sanji is because the New York Business Development Corporation gives back. They donated $100,000 as part of their community reinvestment strategy. Pat MacKrell put it best. He said, “Opportunity leads change.” Pat knows that reaching a young girl at age 12 – giving her skills and a career pathway – is how we can create a talent pipeline to transform Red Hook.
So thank you, Pat. And thank you to all of our extraordinary CDCs here today. You’re doing more than providing access to capital. You’re providing access to the American Dream. And as long as I’m leading the SBA, you will have an advocate and an ally who is here with you every step of the way. God bless you, and God bless the United States of America.