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Keynote Address for the National Association of Guaranteed Government Lenders Annual Meeting
The SBA Administrator
Keynote Address for the National Association of Guaranteed Government Lenders Annual Meeting
Thank you, Tony, for that generous introduction. And thank you to Lynn Ozer, the Board of Directors, and the hard-working NAGGL staff for planning this conference. I especially want to thank whoever had the idea to meet here in sunny Florida. As Tony mentioned, before I came to SBA, I was a business banker in Los Angeles. There were a lot of April showers in my first month in Washington, so it’s nice to be back in the sunshine talking to my fellow bankers. It feels a little like home – only, less traffic.
Today is my one-month anniversary at SBA, and it has been an exhilarating first few weeks. On my second full day on the job, I testified before the Senate on our FY15 budget. Later, I visited Washington State to get disaster aid to those businesses and families impacted by the mudslide. I’ve been to the Pentagon to meet with transitioning service members taking an SBA course on how to apply their military skills to entrepreneurship. I testified at a field hearing on the success we’ve had in creating jobs through small business innovation grants. I talked to your colleagues at NADCO last week about reforms to the 504 program to make it easier to do real estate loans. And I’ve spent a lot of time with women and minority entrepreneurs to hear about their challenges in getting access to capital.
I’ve had the opportunity to experience this economy as both an entrepreneur who started three businesses and as an SBA lender. In California, I was responsible for overseeing our state’s financial institutions, and I saw the pivotal role that capital markets play in spurring job growth. When I left state government, I started the first Hispanic-owned business bank in California in 35 years. Partnering with the SBA was not a difficult business decision for us. You and I both know that the guarantees that SBA provides help you manage risk and make more good loans.
Getting capital to the people who create nearly two out of three new jobs in our economy is an act of economic patriotism. I truly believe that.
Last week we saw our economy add 288,000 jobs. Private sector payrolls have now grown for 50 straight months and counting. We’ve added back 2.4 million private sectors jobs in the last year alone. So we have some wind at our back as our recovery continues to gain momentum. And there’s no doubt in my mind that NAGGL members helped us get to this point. You were there for small businesses during the recession. You made loans when others wouldn’t. Working together, we were the safety net for small businesses at the most difficult time. This industry has proven itself. You are indispensable.
One of my top priorities at the SBA is to make it easier for you to work with us. I believe we’re on the right track. We simplified the process for loans under $350,000. As a result, we tripled lender participation under the Small Loan Advantage Program. We re-engineered CapLines to help small business owners meet their short-term and cyclical working-capital needs. As a result, we tripled our lending under this program. And the SBA has eliminated more than 100 pages of time-consuming paperwork on our lending applications. But this is the 21st century, and I believe the time has come to do more than reduce paperwork. It’s time to get rid of paper. And that’s exactly what we plan to do for the 7a program. The truth of the matter is, the SBA can’t offer truly best-in-class service until we automate our lending process.
Here’s how I see it: Right now, the Mars Rover Curiosity is exploring the surface of another
planet in our solar system designed, in part, by five small businesses that received SBA funding. We’re helping small businesses go to outer space, so I believe it’s time for the SBA to be as innovative as the companies we serve – to make it easier for borrowers to borrow and lenders to lend.
Technology can transform SBA lending, so more banks see our products as the profitable tools they are. Innovation can help ensure that you, our most active lenders, feel the benefits always outweigh the costs when making 7a lending decisions.
Early next year, we will roll out SBA One. I describe it as a lot like Turbo Tax for business lending. It will enable the agency to provide one set of forms, services, and data management to thousands of SBA lending partners. We will use industry-leading electronic signature software to help facilitate loan closings. If you’ve filed your taxes electronically, you’ve used this software. We are preparing to bring this advance to commercial small business lending.
We’ll create a single portal that’s a one-stop shop for eligibility, underwriting, closing, loan modification, servicing, and purchase. It will automate the upload of documents. It will automate the generation of forms. It will automate credit scoring. And it will automate electronic signatures. SBA One will streamline and simplify our lending process. It will save you hours of processing time and thousands of dollars in processing costs on every 7a loan. Needless to say, we’re excited about SBA One, and we hope you are, too.
We also continue to make regulatory changes to make your work more efficient. In March, we eliminated a regulation that was hurting more than it was helping. The SBA has thrown out the wealth test. No borrower should be denied a loan for enlisting 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 of every investor before we’ll approve a loan.
This will not only cut down on time-consuming paperwork, it will also increase the number of small businesses eligible for SBA products. Automating our lending process and eliminating unnecessary regulations are part of our commitment to make it easier for us to work together.
Today, I have a call to action for you: I’m asking you to work with us to get capital into the communities that need it the most. The truth is, we still have work to do in this area. The Department of Commerce looked at loan denial rates for firms with gross receipts of $500,000 or less. They found minority-owned firms were three times more likely to get turned down for a bank loan. For high-sales firms, loan denial rates were twice as high for minority-owned businesses.
We know that SBA lending to African-Americans, Asian-Americans, Native Americans, Hispanic Americans – and women-owned businesses – can lift up entire communities. I’m determined to do more to get loans into those underserved communities hit hardest by the recession.
In the last five years, SBA has broken its records for lending volume. With your help, we expect to have another record year coming up – even with the horrible winter. But not everyone is finding us, and there are credit-worthy businesses that have stopped asking because of previous loan denials. So we have to get the word out about the products we’re offering together.
I’m passionate about underserved lending. I saw in Los Angeles how it can revitalize neighborhoods and turn healthy profits for bankers. As SBA Administrator, my goal is to make it easier and cheaper for you to approve smaller loans under the 7a program. In big cities and small towns in all 50 states these loans are game-changers.
The Urban Institute did a study and found that women and minorities are 3 to 5 times more likely to be approved for an SBA-backed loan than a traditional loan because of the guarantee the government provides. Four out of every five loan applications we receive from Hispanic and African-American business owners are for $150,000 or less. These smaller loans are a vital part of our promise of equal opportunity in America. I want to provide a ladder to those entrepreneurs who have viable businesses, despite having taken a hit on personal debt during the recession.
Before the downturn, we saw the largest increase in homeownership in American history. Then, the bubble burst and we saw the largest rise in foreclosures and bankruptcies. As a result, the FICO scores and personal credit profiles of many business owners were adversely affected. So I charged my team on Day 1 with the goal of using the SBA guarantee to extend the credit box.
How do we reach those borrowers who may have impaired personal credit scores, but who still have strong business credit and growth potential? We zeroed out fees on loans of less than $150,000. We don’t want SBA fees to be an impediment to getting capital out to communities where it can make a game-changing difference. 7a lending is about putting people to work and seeding small businesses that pump new economic activity into struggling neighborhoods.
I know Cap Access has been working with NAGGL to stress smaller loans for some time now.
Since we zeroed out fees last October, we’ve seen a 15 percent increase in loans of 150 thousand or less. We’ve approved 2,000 more small loans today than we did at this same point last year. So we’ve made some real progress. But to quote Will Rogers, “Even if you’re on the right track, you’ll get run over if you just sit there.”
So here’s my vision: I want to work toward a day when SBA lending is in the DNA of every business bank in America. I want to make it simpler and cheaper to work with us. I want to create a climate in which no loan application is turned down until it is first screened by your risk managers and loan officers as a possible 7a candidate.
Of course, I know every bank has its own business model. But speaking from experience, I also know that the entrepreneur who needs a small loan today will often come back for a bigger loan tomorrow. There’s no more powerful way to build customer loyalty than to be the bank that was there for a small business when your competitors weren’t.
So today, I’d like to leave you with a story that speaks to the power of the 7a program to be both transformative and profitable. It’s a story about coffee, love and the power of SBA lending – three very important topics, I think you’ll agree
Joel and Leticia Pollock are entrepreneurs who live two hours south of here in Miami. Leticia grew up in Brazil. She met Joel at a coffee conference in Minnesota, they fell in love, and she moved to America. They dreamed of opening a business serving the finest blends from South America, Central America and Africa.
So they met with their local SCORE chapter in Miami to get their business plan in shape as a 51 percent minority-owned business. They opened Panther Coffee in Miami. It was one of the first new businesses to put down roots in Wynwood during the transformation of this underserved neighborhood into a popular art district.
Last year, Joel and Leticia received three small equipment loans from their local SBA lender on favorable terms. Since then, Panther has won national coffee competitions. This is some really good coffee. Business is booming, so much so that Joel and Leticia have hired 45 people and opened a second retail location in Miami Beach. Today, Panther Coffee is being sold in Whole Foods, in fine restaurants, and in stores along the east coast.
Joel and Leticia are about to break ground on a new company headquarters. Their new building will house a two-ton coffee roaster, a training center, corporate offices and a receiving center. Just last week, they closed on a $400,000 real estate loan, and they did not shop around for a bank. They went right back to that same local SBA lender who was there for them when others were not. Panther Coffee is building its new headquarters in Little Haiti. They plan to add another 20 jobs in yet another underserved neighborhood in Miami.
Joel and Leticia are here today. Will you please stand and be recognized? Thank you for working so hard to put Miami back to work and grow your local economy. I know many of you here today have stories like this to share, and I’m truly looking forward to working with you in the months and years ahead to celebrate even more of these successes.
America’s economic comeback story is still being written. When it is, I know there will be a long chapter about the lenders who choose to make an extra effort to get capital to underserved communities. Your country needs you. Thank you for your work to help our smallest small businesses grow. God bless you, and God bless the United States of America.