FDIC Small Business Lending Forum

FDIC Small Business Lending Forum

Speech Date: 
Thursday, January 13, 2011
Speech Location: 
Arlington, Virginia
As Prepared For: 
Karen G. Mills

Thank you, Sheila. Thanks to everyone at FDIC for organizing this. It’s been critical that SBA, FDIC, Treasury, the Fed, and bank examiners work more closely together than ever to make sure good loans are going to creditworthy small businesses. As I’m sure you’ve heard today, we still have work to do, but we couldn’t have come this far without collaboration.

I also want to recognize SBA’s new associate administrator for capital access, Steve Smits, who just spoke. It’s great to have an experienced small-business lender on our leadership team at the SBA.

Everyone here today knows the facts. Small businesses create 2 of every 3 new jobs each year. More than half of working Americans own or work for a small business. And small business drives American innovation and global competitiveness.

At the SBA we give them 3 main tools. We call them the three Cs…

Counseling – through our 14,000 counselors. They’ve been busier than ever these past two years, serving well over a million clients each year.

Contracts – We work with agencies throughout the government to put at least 23% of federal contracts in the hands small business. We got closer to that goal for FY09 – with nearly 100 billion dollars that are helping small businesses scale up and hire.

The third “C” is capital – which has been the top concern of small business over the past 2 years. Too many good, creditworthy firms simply couldn’t get loans.

In October 2008, markets froze. Credit lines were cut. And a gap was created in the market. Even SBA-guaranteed loans, that help reduce risk for lenders, were stalled. So we did exactly what good government is supposed to do: We put temporary measures in place to help fill the gaps. The Recovery Act and the Small Business Jobs Act included 2 key provisions for SBA’s top 2 programs. We raised our government guarantee to 90%... and we waived our fees.

In short, it worked. We engineered a turnaround in SBA lending even though conventional credit was – and still is to some extent – very tight.

In fact, about 1,300 lenders came back to SBA who hadn’t participated since 2007. Many of our lending partners are here today. Thank you for playing such a critical role in getting these loans out the door.

Taxpayers got a big bang for the buck. With just over a billion dollars in total subsidy, we supported about $42 billion in lending. In fact, SBA had its highest-ever weekly loan volume the week before Christmas when we supported nearly 2 billion dollars in lending – 10 billion total last quarter. And here’s the headline: Overall, that’s nearly 90,000 small businesses who are not only surviving this recession, but growing and creating jobs.

I know it’s made a difference in people’s lives, because I’ve met them and they’ve said, “The SBA saved by business” or “The SBA saved my job” – from a pet food store in Seattle… to a logging company in Arkansas… to a restaurant in downtown Philadelphia.

And I want to share a new piece of data that my team just pulled.

I was raised in a family of manufacturers. One of the best feelings in the world is to walk a factory floor and talk with a small business owner about what they make and how they make it. We track the percentage of our loans that our borrowers say they’re using to support equipment purchases. In the 2 years before the Recovery Act, it hovered around 4% each month. In the 2 years since, it has doubled to between 7 and 10 percent. That’s a great sign that small businesses are using these loans to gear up, innovate, and compete.

And they’re often getting a double benefit, because they can take advantage of the 17 tax cuts for small business that the President has signed into law over the past 2 years. That includes the Recovery Act, the Small Business Jobs Act, the small-business tax credits in the Affordable Care Act, and the 100% depreciation provision in the new Tax Cut Package that could help up to 2 million businesses.

As we enter 2011, it’s good to see that conventional small business lending looks like it has stopped tightening. It’s even better to see – in some cases – lenders making a proactive push to market more small business loans.

So our work at SBA is done, right? We can just sit back, relax and hope lending gets back to normal?

No. There are still gaps. And we still must address them. The Small Business Jobs Act did much more than just extend our loan enhancements. It’s the most significant piece of small business legislation in over a decade.

I want to mention a few changes it made that the President himself called for.

First, many small businesses need SBA loans above2 million dollars. These are the small exporters who just got a big order from abroad, the contractors who just landed a contract and need to scale up, the franchisees who want to add a new location, the manufacturers who need new equipment. That’s why the Jobs Act more than doubled our maximum loan size to 5 million dollars.

What else did the Jobs Act do? We permanently increased the size of our microloans from $35,000 to $50,000. This is important because data shows that microloans often benefit entrepreneurs in underserved communities who find it harder to get start-up funding.

These permanent changes were implemented just 10 days after the bill was signed – and many small business owners are already getting these larger loans.

In addition, there are some temporary changes to our lending programs that are targeted to address specific market gaps that still exist.

For example, we increased the maximum amount of Express loans from $350,000 to $1 million. These loans take just a few days to turn around. They’ll put more working capital in the hands of small business so they can take that next order, buy inventory, and hire new workers –critical ways to get our economy moving.

Also, we’ll soon allow some small businesses to refinance their owner-occupied commercial real estate mortgages into an SBA loan. I know there has been a lot of interest in this.

Many of their mortgages are maturing and they’re facing balloon payments. With commercial real estate values still low, many will have trouble getting a bank to refinance them. 504 refinancing is a win-win. The business owner gets stable financing and the lender is be able to make more loans.

And the Administration will continue to be highly focused on the goal of getting small business lending back to the levels it needs to be.

For example, Treasury (and our new NEC director Gene Sperling) played the lead role in designing the new Small Business Lending Fund. This fund will provide up to $30 billion in capital for smaller community banks in coming months and years. I’ve worked with a lot of small businesses over the years. They like the relationship they have with community banks. Those lenders know what’s happening on Main Street often better than anyone else. The SBLF provides those lenders with low-cost capital – as low as 1% - if they go above and beyond their 2009 small business lending levels. That’s good news for small community banks… and good news for small businesses.

And there are even more great ideas that came out of today’s discussion.

All of us in the Administration are going to take some of these ideas and see how we might apply them to the work we do.

My personal commitment at SBA is that we’ll continue to use hard data and facts to drive our decisions. We’ll use metrics to identify gaps in the market and remove barriers. And our end goal is clear: to put more capital and more tools in the hands of small business owners so that they, in turn, can do what they do best: build their business and create jobs.

Thank you all for being here today, and for your contributions to this dialogue.