SBA chief working to reform agency
Steven C. Preston took the reins of the Small Business Administration in July with a promise to overhaul the agency’s operations.
The former ServiceMaster Co. executive last week unveiled his first budget proposal, which includes a revamp of the disaster-loan process and some tinkering with the agency’s popular small-business loan programs. Preston also plans more focus on ensuring that federal contracts get to small businesses, and he wants to automate the loan process for more of the SBA’s lending partners.
Preston is asking Congress for $464 million for the 2008 fiscal year that begins Oct. 1. That’s 5% higher than the approved budget for fiscal 2006 but about 30% lower than the 2001 budget.
“This budget gives us very important funding we need to provide the right kind of oversight for our lending program, to reach out to help small businesses get more government contract work and to do some other things that are important to us,” he said.
Borrowers’ upfront fees on the popular 504 real estate lending program, for example, are set to be eliminated as of Oct. 1. That would save $2,910 on an average loan, the SBA said.
But critics charge that the agency isn’t doing enough to lower borrower costs, expand services and ensure fairness for small businesses working with the federal government.
In an interview last week, Preston defended the changing SBA. Excerpts are below.
What are the key operational reforms you are working on?
First of all, we are well into a massive operation reform, which is our disaster business.
We approved 150,000 loans to victims of [hurricanes] Katrina, Rita and Wilma in 2005 and, frankly, like many other federal and state organizations, the workload was overwhelming. So we have spent a lot of time in recent months fully revamping that entire program. Importantly, we are also taking the redesign we’ve done there and institutionalizing those reforms to make us much better prepared for disasters in the future.
How have disaster operations changed?
It’s simple in concept but extremely complex to implement. That is, we fully redesigned our work flow and how we handle the work. In a nutshell, we moved from a production line, where loans went through different processes along the line, to teams of 15 to 18 people that work every aspect of the loan. On every team we have case managers. Every borrower has a case manager who helps see it through. There are fewer errors, much less rework. We can get the right loan package early on.
We did some very deep operation process reviews and looked at matrixes to see where backlogs were. We called over 90,000 customers and built a database on their issues.
Do you plan to expand that operation model?
We are applying that model to future disasters, and we are seeing terrific results. In new disasters, 98% of applications are getting an answer in two weeks. And then we are taking the same kind of methodologies and applying them to improving our small-business loan program and applying them to improving our government-contracting program, and asking, how can we provide better solutions to our customers? How can we be easier to do business with?
One of the things I often say is, we may have the greatest products in the world to help people, but if it’s not easy to use them, then people won’t use them.
How does the proposed budget accomplish those goals?
It gives us funding for process-re-engineering work, to streamline and see if there is kind of a stress point in the process for our customers. It also gives us some funding to automate our interactions with our customers in a number of places, specifically on the lending side as well as on the government contracting side. We would hope to come out of 2008 with operationally streamlined processes as well as technology that simplify our interaction with customers.
The proposed budget looks like it is 25% smaller than last year’s $624-million request. Why?
Last year we had a specific request for disaster funds. And this year we still had a carry-over from the funds that were allocated for the Gulf Coast hurricanes. So rather than appropriate new money in the ’08 budget, we are asking them to make that money available for us in ‘08, which requires congressional action. When looking at running the agency, it’s important to look at numbers excluding disaster funds.
Do the lower loan fees proposed in the budget benefit only lenders?
It depends. The 504 program, which is primarily real estate lending, is dropping the [borrower’s] upfront fee from 50 basis points down to zero. In the 7a [small-business loan] program, upfront fees are staying flat and the annual fees are going down. Those are charged to the lender, but obviously if the lender cost goes down some of that benefit gets passed to the borrower.
Will interest rates go up and user fees be imposed to allow you to continue the micro-loan program?
We are going to charge the micro-lenders what it costs the federal government for those funds. So we are proposing that we lend money to micro-borrower intermediaries at the five-year Treasury rate plus 1%. Our own cost we’d just pass through. Today those funds are being lent to them at a loss.
The other thing is, we provide funding to micro-lenders right now that covers their other costs, for instance, technical assistance. That technical assistance is $13 million, on a base of 2,500 loans a year, which is a significant dollar amount per loan. We are proposing that those 2,500 borrowers get their technical assistance from the vast network we already fund. It’s much more efficiently funded.
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(BEGIN TEXT OF INFOBOX)
Small Business Administration
Founded: 1953, under President Eisenhower
Employees: 2,037
Top executive: Steven C. Preston.
Budget: $814 million requested for fiscal 2008, including $329 million in previously authorized disaster assistance funds and $21 million in other funds
Loans: The agency has a $78-billion portfolio of direct and guaranteed loans to help small companies expand, buy equipment and real estate, export or recover from a disaster, among other things.
Assistance: The SBA provides funding to nonprofits that operate programs such as Women’s Business Centers, Small Business Development Centers, Veteran Business Outreach Centers and the Service Corps of Retired Executives, or SCORE. They offer counseling, training and technical aid to small-business owners and those who want to start a business. The agency also helps small businesses procure federal contracts.
Source: Times research
