Tag Archive | "SBA"

Striving to Stay Relevant, Small Business Administration Evolves Under New Leader

The setting was rather standard for a Washington event — a large room inside a government building, complete with a stage and an ornate podium along one wall. However, no one stepped on stage. No one spoke at the podium, reported The Washington Post.

Instead of the semi-scripted panel discussions and question-and-answer sessions you might expect here, a dozen business leaders sat facing one another at three long tables, often interrupting one another with new ideas, tangents and critiques. Instead of a powerpoint presentation on drop-down monitors, a pair of oversized notepads stood on easels in the center of the room, each bearing sheet upon sheet of Sharpie-scribbled notes.

The conversation didn’t stick to a schedule, and there wasn’t a social media hashtag tied to the discussion. In other words, it wasn’t very Washington. It looked and felt more like a brainstorming session you might see at an innovative company, not at a federal agency.

And that’s exactly what the Small Business Administration had in mind.

“We like to say this is the new SBA,” said Miguel Ayala, an agency staffer and one of the attendees at the event last week at the agency’s headquarters in the District. The gathering brought together leaders from start-up incubators and economic development groups across the country to discuss ways to build better “accelerator” programs for growing companies.

At a time when the 60-year-old agency faces skepticism about its ability to stay relevant in the rapidly evolving, highly innovative world of entrepreneurship, one meeting hardly represents a seismic strategic or cultural shift, and it certainly won’t eliminate concerns about the agency’s future. Still, under SBA Administrator Maria Contreras-Sweet, who took office this spring, the agency seems keenly aware of its rather “old-fashioned” reputation, and it’s working with a sense of urgency to modernize its operations and rethink its role.

“I think every day about our relevance going forward,” Contreras-Sweet said during an unexpected stop into the meeting, in which rather than delivering a speech she simply answered questions from the group. “We have to understand what we are good at and where have opportunities to improve.”

Chief among the agency’s challenges will be staying relevant in the commercial lending space, as backing small-business loans has long been the centerpiece of the department’s support services. However, with the introduction of newer and faster lending platforms, coupled with the introduction of online crowdfunding platforms, cash-strapped small businesses that may have once been limited to SBA-backed loans now have a plethora of alternatives at their fingertips.

In many cases, Contreras-Sweet acknowledged during her drop-by, the answer for SBA isn’t to build tools that keep pace with those new-age, tech-heavy platforms (a likely futile ambition). Instead, rather than trying to be the solution, “we just need to know about the solutions so we can point entrepreneurs to them,” she said.

While the agency continues to try to streamline and bring online its loan application processes, it will in part be that expertise, she said, and the ability to steer business owners to the right resources, even if they aren’t SBA resources, that will help the department maintain its reputation as a go-to source for entrepreneurs in need of financing.

In addition, Contreras-Sweet said the agency has started leaning more heavily on the advice of private-sector business leaders and entrepreneurs — including those at the event this week, who represented organizations that received funding through the department’s new Scale Up America program. Under the initiative, private- and public-sector organizations can apply for grants to finance assistance programs specifically for companies ready to grow beyond the start-up stage.

In building the program, SBA officials broke from the mold a bit. Instead of writing all the rules and guidelines for the initiative in advance, they sketched out a rough outline and some overall objectives, selected eight first-year recipients, and invited the recipients in to help craft the program from the ground up.

During their brainstorming session, the participants — who hailed from Tucson, Ariz. Portland, Ore., Jacksonville, Fla. and points in between — discussed various ways to solicit help from investors and business mentors in their communities. Later, they shared their tips for luring entrepreneurs, attracting media attention and roping in government leaders.

“This is the day where we’re bouncing ideas around, breaking into groups, looking at the best way to do this and the best way to do that,” Greg Teesdale, one of the participants from the Startup Tucson organization, said during a break, noting that not all events work this way. “I’m actually writing things down here, saying ‘Okay, that’s something we haven’t done, and there’s something we should change.’”

Teesdale and others also shared with Contreras-Sweet some policy suggestions that they said could grease the wheels for fast-growing companies. For example, Teesdale urged her to advocate for tax reforms that reward individual start-up (or angel) investing.

“We’re here to learn,” Contreras-Sweet said. “We have brilliant people inside the SBA, but we learn the most when we talk to outside people, in conversations like this.”

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Build Your Business Credit: 5 Key Reasons to Get Started

Building business credit is just as important as building and taking good care of one’s personal credit. In the business world, a company does not have a consumer FICO Score. Instead, it has business credit scores, ratings maintained and calculated by business credit reporting agencies, reported the SBA.

“Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers,” says Marc Kirshbaum, president of Experian’s Business Information Solutions group.

Unfortunately, many small business owners don’t even know there is such a thing as a credit score for a business and therefore lose opportunities to improve their own, says Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp.

Many times, small business owners make the mistake of assuming that positive personal credit scores will be enough to obtain good business credit ratings. While lenders and suppliers may initially consider personal credit history, once a business pays its first invoice, it will begin building its own credit history.

Did you know that there is such a thing called a business credit report?

Similar to consumer credit reporting agencies, there are a few major business credit reporting agencies collecting information about businesses. Most notably: Dun & Bradstreet, Experian Business, and Equifax Small Business. Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp. says, “Today, it takes a very proactive approach to building a strong credit score for your business.”

Here are five reasons small business owners should start building business credit today:

Business Financing: Lenders and suppliers use business credit reports to assess the creditworthiness of a business. According to Creditera, in the first 6 months of 2013, Dun & Bradstreet had 45 million business credit report requests and Equifax Commercial had 35 million. If a company’s business credit ratings are high, lenders and suppliers will give favorable terms to purchase on credit. If a business does not have a business credit rating or report, a supplier may require you to pay cash on delivery or ask you to personally guarantee the business purchases.

Supplier Contracts: If a company wants to do business with government agencies or Fortune 500 companies, chances are they will review your business credit reports. For example, one of the steps required in order to register as a Federal Contractor is to obtain a Dun & Bradstreet D-U-N-S® Number. Government and large corporations review business credit scores and reports to make sure their suppliers are reliable and pay their invoices in a timely manner.

Business Separation: Business owners have the unique opportunity to build, maintain and obtain credit both individually and as a business owner. As a business applies for and receives credit, a business credit report will be established. This enables a complete separation between the personal credit reports of the business owner to the reports established by the company itself. In addition, having separate lines of business credit makes it easier to keep business expenses separate from your personal expenses.

Credit Protection: With favorable business credit ratings, a business can obtain financing from companies willing to grant credit without a personal credit check or guarantor. This allows a business to acquire products and services it needs on credit without putting the business owner’s personal credit at risk.

Business Partners: Business credit reports are frequently being pulled by potential business partners so they can find out about a company’s credit history and decide if the business is capable of being a sound business partner. Unlike personal credit reports, business credit reports are available to the public, and anyone – including potential lenders and suppliers – can view your company’s reports. This makes it imperative to also monitor your files on a regular basis.

According to the 2012 NSBA Small Business Access to Capital Study, 20% of small business loans are denied due to business credit. As a small business owner it is extremely beneficial to start the business credit building process so you can maximize your company’s funding potential.

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SBA Loans Are Shrinking — And That Might Be Good News

The Obama administration has for the third consecutive year approved a smaller volume of government-backed small-business loans. But that’s not necessarily bad news, reported The Washington Post.

Small Business Administration officials this past year approved federal guarantees supporting $28.6 billion in small-business loans, according to SBA figures. That’s about $1 billion short of last year’s total and down from a peak of $30.5 billion in fiscal 2011.

Under its lending programs, the agency agrees to pay back banks, credit unions and other private lenders if a borrower defaults. Generally considered the agency’s top priority, the loan programs are meant to encourage banks to provide capital to small businesses that might otherwise struggle to secure credit.

On the surface, then, the steady decline seems alarming. It’s not.

While the total dollar figure has dropped in each of the past three years, the number of loans approved for guarantees has increased in each of those years. In 2014, nearly 58,000 loan applications were approved, up from 54,106 last year and 53,848 in 2012. So, more small firms are receiving capital even though the amount they’re receiving may have shrunk.

Moreover, small-dollar loans are exactly what many small businesses have been saying they can’t get their hands on, especially in the wake of the financial crisis. Data from the Federal Deposit Insurance Corp. echoes that, showing that small commercial loans are down about 20 percent since the years preceding the recession, even as banks’ total commercial loan balances have expanded.

“For most banks, lending to small businesses, especially in the lower dollar range, is costly and risky,” Karen Mills, former SBA administrator, wrote in a recent article published by the Harvard Business School.

The crunch has led the agency to shift its focus to smaller loans — often called microloans. Starting in 2014, the agency waived all fees on loans of less than $150,000. Consequently, the number of loans approved below that threshold rose by 23 percent this year, with the volume of loans under $150,000 climbing 29 percent to $1.86 billion.

Also, a closer look at the loan numbers reveals that the agency’s recent drop in volume can be attributed to a decrease in lending through the smaller of its two signature loan programs, known as the 504 program, under which companies can finance large investments such as buildings or machinery. Meanwhile, the agency’s much larger initiative, the 7(a) program, under which funds can be used for a broad range of expenditures such as starting or expanding a company, posted record highs in terms of number of loans (52,044) and volume ($19.19 billion) this past year.

The 504 program’s lending volume, it appears, was inflated in 2011 and 2012 when Congress approved legislation permitting small businesses to temporarily refinance certain assets through the 504 initiative, which provides attractive, typically below-market rates to borrowers.

The 504 refinance program, which expired in late 2012, appeared in President Obama’s most recent budget proposal, while a bill to reinstate it has garnered support on both sides of the aisle in Congress. If approved, a rebound in 504 could push the agency’s loan volume back into record territory.

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Small Business Administration’s Lending Programs Hurt The Economy, Study Finds

Over the past three years, the Small Business Administration has approved a record number of loan guarantees, supporting nearly $100 billion in small-business loans since 2011, reported The Washington Post. It’s an accomplishment the agency officials have touted as evidence of their continued support for small companies and their contribution to the nation’s economic recovery.

But are they actually doing more harm than good?

A new study published by the National Bureau of Economic Research suggests that the SBA’s lending programs have a detrimental effect on the economy.

Under the agency’s primary lending programs, the department provides what’s known as a loan guarantee, usually equaling between 50 percent and 90 percent of the loan, that insures banks against losses in the event a borrower defaults. In large part, the decades-old programs are meant to encourage banks to approve small-business loans they might otherwise consider too risky.

But comparing three decades of the department’s lending data to income growth in more than 3,000 counties over the same period, researchers found that “an increase in SBA loans per capita in a county is associated with negative effects on its own rate of income,” as well as a negative impact on income levels in neighboring counties.

Specifically, they found that a 10 percent increase in SBA loans in a county was associated with a 2 percent slowdown in that county’s income growth.

How can programs so long considered an economic boon instead be deflating the economy? Researchers argue that the agency’s programs, because they entice bankers to consider riskier loans, appear to “come at the cost of loans that would have otherwise been made to more profitable and/or innovative firms.”

Considering the popularity of pro-small-business policies, they argue the findings should prompt policymakers and constituents to rethink their economic priorities.

SBA officials did not respond to questions about the study.

This isn’t the first study that casts doubt on the long-held notion that small firms fuel the economy and should thus receive special treatment from policymakers.

In 2011, for instance, a study by researchers at the University of Maryland and the Census Bureau found that no meaningful relationship exists between a company’s size and it’s rate of growth. Instead, it’s simply young firms, not necessarily small ones, that generate most of the country’s new jobs, researchers concluded.

A similar analysis published last year by the National Bureau of Economic Research arrived at a similar conclusion, leading researchers to question the economic impact of subsidizing financial support for small businesses. Others have found that the jobs small businesses do create are less desirable, as they often exist for a shorter amount of time, pay lower wages and generally include less generous benefits.

“The job creating prowess of small businesses is often used by policymakers to motivate and justify specific policies,” the Maryland and Census researchers wrote in their concluding report, adding that their “findings suggest the policy debate about encouraging private sector job creation should be refocused.”

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SBA Changes Definition of Small Business: What Does It Mean?

Fox Business answers: what is a small business?

It is getting harder and harder to tell. Last week, the SBA adjusted its size standards that determine if a company is a small business. The definition varies by industry and is derived by annual revenue or by number of employees.

Because of the SBA’s changes, on Sunday, July 13, thousands of companies currently considered “large” will be classified as “small” businesses.

According to the new guidelines, a drywall and painting companies that generate up to $14 million annually are considered small businesses, as are children’s clothing stores with $30 million in annual sales, convenience stores with $27 million in annual revenue, and liquor stores with $7 million in annual sales. Meanwhile, wind electric power generation companies can have 250 employees, while soybean oil processing plants can have up to 1,000 workers. There are now numerous industries in which having 500 to 1,000 workers would still classify them as small businesses.

Being considered “small” makes companies eligible for federal government contracts. The government now has a larger number of small business contractors from which they can make purchases.

What makes this very important is that it opens up SBA financing options to companies that previously were not eligible. SBA loans offer favorable terms, including lower interest rates than other types of funding.

Critics of the SBA and of small business finance today believe that lenders are not focusing on giving loans to startups and smaller mom-and-pop shops. Despite a recent uptick in approval rates of small business loans by big banks, a primary worry has been that the largest lenders are granting requests from “small” businesses that are larger — and generating millions of dollars of revenue. Meanwhile, aspiring entrepreneurs and growing companies with perhaps a handful of employees struggle in securing capital from big lenders. The new SBA standards could reinforce this trend.

However, the growth of innovation and of new businesses continues to be a harbinger for the overall economy. Further, small banks are filling the gaps for small, growing companies. They are approving more than half of the loan applications they receive, whereas big banks OK only about one-in-five requests.

Fortunately, small business owners have learned to shop around. They can use the Internet to search for lending options and to obtain financing from lenders that are beyond their immediate geographic areas.

My concern is that young, growing businesses need better access to capital. Fortunately, even the smallest companies are able to get funding at reasonable terms from micro lenders, such as Accion East, which has a mission of providing small loans to entrepreneurs including immigrants and people who are setting up companies in depressed areas.

Recently, I attended a panel at which Senator Cory Booker (D-NJ), called access to capital a great source of democratization. I could not agree more. The SBA continues to have a commitment to promoting the growth of small businesses. This is a good thing since small, private sector firms account for the lion’s share of new jobs created in the American economy.

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SBA Initiative to Speed Up Loan-Application Process

The SBA loan-approval process is getting a technological makeover, reported Fox Business.

On Tuesday, SBA Administrator Maria Contreras-Sweet discussed a new lending initiative while speaking at the Center for American Progress. The in-development platform, called SBA One, is intended to streamline the loan-application process for small-business owners.

Many of the changes will be technological in nature. Contreras-Sweet said SBA One will bring documents and forms online, and business owners will be able to provide electronic signatures.

“Say goodbye to fax machines and mountains of paperwork,” said Contreras-Sweet.

Contreras-Sweet said the makeover will help save banks hours of time and thousands of dollars processing 7A loan applications. 7A loans, which Contreras-Sweet referred to as the SBA’s core product, can be used to pay operational expenses or accounts payable, or purchase inventory, equipment and real estate.

In combination with SBA credit scoring, Contreras-Sweet said that SBA One will hopefully lead more banks to partner with the administration.

“By making the process quicker, cheaper and more intuitive, these reforms will help existing lenders do more small-dollar lending,” she said.

While National Small Business Association spokesperson Molly Day applauded the intent to streamline the loan-application process, she raised concerns regarding the use of credit scoring.

“On the one hand, [SBA One] is a positive move, but the area where it raises questions for us is that moving everything to a credit-scoring model … it [could] create a more homogenized population and cut out some of the small-business owners from getting loans, who would have been able to if there were more qualifiers in the underwriting process,” said Day.

Day said this might particularly affect newer business owners or startup entrepreneurs who haven’t established a longer credit history.

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