A Conversation With the Head of the SBA

The Small Business Administration is charged with aiding, advising and protecting small businesses throughout the nation. Last month, I sat down with its administrator, Steven Preston, to discuss the agency's initiatives and goals. Preston, a former executive with ServiceMaster and an investment banker, took the helm in July 2006.


Steven Preston, has been head of the Small Business Administration for a year. (Courtesy SBA)

Following are highlights of the interview:

Q: The small business environment has changed during the last four to five years, partly due to the Iraq War and Hurricane Katrina. What are some initiatives the SBA has undertaken to address this changing environment?

Preston: The environment for small business is still very healthy. Look at the last three-and-a-half years. There have been about 8 million new jobs generated in the country, and we estimate that about two-thirds of those roughly are created by small businesses. But we also like to continue to remind people that it's important to keep the environment good for small businesses because they are the underpinning of job creation and economic activity in our country.

What has made the environment good for small businesses is a much more favorable tax regime in the last several years and a relatively favorable regulatory environment. We also haven't seen a lot of increasing sweep regulations hit small businesses. That's really important because for them to comply with new regulations is a very big burden.

Capital also has been readily available, and interest rates have been relatively low, so we've continued to see a robust lending market. But even more importantly, we want to see the broader private market grow. That is what's going to drive the capital for small businesses.

Q: What are some of the most pressing issues for small businesses right now?

Preston: Some of the big things that concern people right now are energy prices and health care. There's so much potential activity on the Hill and within the administration that could be good for small businesses but so much of it is not getting across the line.

Q: Are there particular pieces of legislation or concepts that you are referring to?

Preston: Like [a bill addressing] association health plans has not gotten passed. They didn't cost any tax payers any money, they just allowed businesses to band together and leverage their buying power. We strongly support those ... although they don't seem to have nearly as much traction this year as they did last year. Also, the president has a tax proposal out there to make health insurance deductible on your own. Right now it's only deductible if you get it through your employer. That's very important because there are a lot of small businesses that don't provide health care.

Q: The House Small Business Committee recently passed a package of four bills addressing a variety of issues like business development centers, women's business centers, veterans and Native Americans. The panel described the bills as "modernizing" the SBA. Do you think the SBA needs modernizing?

Preston: I absolutely think the SBA needs modernizing. If you really want to sum up the focus of what I've tried to do here, modernization wouldn't be a bad moniker to use, and underneath that moniker comes a lot of different concepts.

It begins with truly understanding the outcomes you're trying to drive in an organization. What's your endgame? The SBA was started in 1953 and our programs have emerged over the last 54 years. But some of those programs have policies and practices in place that are relatively outdated.

A perfect example is the disaster loan program. We had very low interest, very long-term loans that are available for homeowners and businesses. Because of our favorable terms, the payments on those loans might be a quarter or a third of what they would be on a convention loan. However, if it takes you six or seven months to get a loan, those favorable terms are irrelevant with respect to getting the money. That's an exaggeration. [Hurricane] Katrina was an exaggeration. You have to look at the totality. And if you're going to the loan process and you have to send your documents three or four times becomes they were incomplete and you're constantly dealing with people in a processing center or in the mail, it's very stressful.

We introduced some basic concepts. If someone is going through a lending program -- how do we get the lending process as fast as we possibly can? How do you simplify that whole process so people are jumping through fewer hoops? Now when you're filling out a documents and how that works, you are assigned a case manager once they're approved.

Going down the road, you'll see a lot more automation on how we make decisions, you'll see a lot more front-end tools on the Web to be able to apply for our programs, and balanced with a greater ability to talk to human beings about our programs.

Q: Are you using the disaster loan program modernization as a model for other parts of the SBA? And where are you going next, if you feel that loan program doesn't need as much attention from you now.

Preston: Yes. The thing about disaster is we took the largest, most complex and visible issue the agency had and attacked it aggressively and showed the agency -- its employees -- and the people we serve that we can fix it. We fixed it very quickly and addressed an enormous volume of backlog issues. Simultaneously to that reform, I was going around the country extensively meeting with our employees, small businesses, trade associations, legislators and our partners like banks. In my first nine months on the job, the actual number of formal meetings that I had with those groups was 160, that doesn't include the informal meetings. ... Historically, the agency had been very silo-ed, we've broken down barriers and put in place accountability plans.

One of the things that I feel best about in my year on the job is that we've gone through all of our program areas and in most cases we've had action teams working on them, breaking down the walls at the agency and measuring outcomes and progresses.

Later this summer we're rolling out massive training programs to train our people.

To make this stuff move forward, it's not just a new policy, a new law; you've got to get deep into an organization. Organizational change is very tough.

Q: You've had staff cuts and your budget has been cut. You also had to deal with the massive loan backlog and other problems stemming from Hurricane Katrina. How did you do that?

Preston: One budget that wasn't cut was the disaster budget, that's based on need. For fiscal '07 we've already gotten an operating increase to run the agency. From '06 to '08, the increase is about 5 percent, which basically keeps up with inflation. The agency underwent a significant change in the model of how the agency offered services. The agency used to focus more on the field offices. Today, it's more of a central processing center.

I believe that in this agency there has been not enough clarity around what everyone's job is and how it supports the ultimate mission. The SBA almost has been three separate hubs of activity -- Washington headquarters, processing centers that deal with high volumes of transaction and phone calls, and individual offices that deal with local issues throughout the country. Even though we've lost people, if we get a lot clearer about what people's jobs are, I think we'll get a lot more focus and energy.

Q: Do these three hubs of activity have equal weight within the agency?

Preston: They didn't before, but they do now.

Q: Do you ever wish that the SBA would become a Cabinet-level agency again?

Preston: That was briefly under the Clinton administration. It's not something that I focus on. I work with a number of initiatives with various cabinet heads. I don't feel like there's a lack of ability to get things done or to reach people and I don't ever feel that I have any challenge getting in front of people in the White House. I think our interagency relationships have gotten significantly better in the last nine months or so.

Q: Is that due to more outreach here?

Preston: I try to get over to meet people in the White House to work with them on issues and to spend time with members of the cabinet as well as with people on the Hill. And I feel we have great relationships on both sides of the aisle.

Q: Do you feel that SBA's relationship with Congress is good?

Preston: There's no doubt about the fact that there's differences of opinion on what our programs should look like and how they should be funded, but I don't feel that I would have any difficulty getting in front of any member or a committee. That's good because I'm a newcomer to Washington. We sent our disaster plan to congress last week and Mary Landrieu [a Democratic senator from Louisiana] came out with a nice press release. It's been a pleasant outcome.

Q: What types of minority outreach programs will you be focusing on in the future?

Preston: There's two concepts -- there's outreach programs that go to a particular minority group, but there's also outreach that target a particular geographic area where a lot of minorities live. We've focusing heavily on the place-based outreach. I don't think we've had enough focus on the geographic so we're doing that now. We want to make sure we're creating jobs, investments that are mostly going to be in inner cities and certain rural areas. We've rolled out goals for every one of our district offices on lending to underserved markets, and they get extra credit on their lending goals if those loans go to minorities and women.

We're also trying to make sure that our products are attractive to people at certain stages in their careers. For early stage business for many that are in inner cities, we're improving a project called Community Express, which simplifies the lending process for banks and requires the borrower get some technical and training along the way. I've put a task force in place right now, called the Underserved Markets Taskforce, to work with me on additional product design and outreach opportunities. An example is a partnership between the Kaufman Foundation, Urban League and Business Roundtable called the Urban Entrepreneur Partnership. These are hubs in inner cities to assist people. The other thing is trying to understand in each locality what opportunities we have to partner with local groups, non-governmental organizations and others.

Q: The small businesses seem to have a lot of difficulty with the paperwork and understanding how to do it. Small business owners tend not to have an MBA, but are inventors, artists or practitioners for example, and aren't necessarily business-minded. What are you doing to help them?

Preston: The first thing I did when I came here was that I said I wanted to see the documents that everyone has to fill out for various programs. [Preston pulls out a 5-inch thick 3-ring binder of forms.] One of the things we're doing right now is overhauling the 8(a) program. [That program, named for a section of the Small Business Act, is a business development program created to help small disadvantaged businesses, including encouraging access the federal procurement market.]

We have a team right now working on every single statutory requirement and justifying whether or not the process needs to be as complicated and burdensome as it is today. The goal of the team is to simplify it. We're working on making a better electronic submission. It doesn't sound terribly exciting that we're going to simplify the paperwork, but it really requires deep work and detailed work.

By Sharon McLoone |  July 13, 2007; 6:00 AM ET Policymakers
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