By Karen Mills
Dec. 15, 2016
Half of the people who work in this country own or work for small businesses, which historically create nearly two-thirds of new jobs. It is a positive step that President-elect Donald Trump signaled this month that the administrator of the U.S. Small Business Administration (SBA) will continue to have a seat at the cabinet table. Also important, as I know from my tenure as the head of the SBA, is membership on the National Economic Council and as part of the White House economic team.
I was sworn in as SBA administrator at the height of the economic crisis in early 2009. Lending markets were frozen, while small businesses were losing jobs at a frightening rate of 1.8 million in the first quarter of 2009.
There was much to do to tackle this enormous hit to America’s small businesses. In the recovery and throughout my tenure, it was clear that the presidential administration I was a part of knew that small businesses played a critical role in our economy—one that had not been as recognized in the previous years, as big businesses dominated White House economic thinking.
That understanding of small businesses’ importance to our economy must continue. Today, we have to acknowledge that the American economy has changed. Small businesses—from innovative entrepreneurs to hard-working American suppliers—need to have their voices heard or decisions will be made based on old thinking and past priorities.
I know small businesses will have an important perspective on every large economic policy issue on the agendas of the president and Congress in 2017. There will likely be a tax bill where small business interests will need to be weighed, including the treatment of pass-through entities. Many small construction companies, along with other businesses that make up our communities, are no doubt eager to hear the desire for infrastructure investment. They should have the chance to benefit if new programs come to pass.
As National Federation of Independent Business surveys have shown, access to affordable health care has been a top priority for small business owners since 1987. This is in large part because workers are often viewed like family for small business owners. If someone falls ill, it is hard for the employee and has costs for the business.
If policymakers are intent for another overhaul, or even a tweaking, of our nation’s healthcare laws, they must not forget the parts that small businesses wanted. These include the ability to get a quote on an exchange rather than beg for one from a broker and the chance to get lower rates by pooling their risk with other small businesses, both of which were proposed and supported by Congressional Republicans.
On financial services reform, some changes to the Dodd-Frank Act can help small businesses, particularly those that roll back burdens on community banks. There is bipartisan agreement that small banks have been laden with excessive costs and confusion from overlapping regulations, which are getting in the way of their ability to make small business loans.
But just getting rid of regulation isn’t enough. A recently released Harvard Business School white paper documents the credit gap in small dollar loans and the entrance of new financial technology players ready to make these small business loans online, in days or even in hours. The majority of small businesses say they need small dollar loans, which are under $250,000, the most. But while the much needed increase in new sources of loans has been welcomed by small businesses, these innovative online lenders have sparked concerns around transparency and the high costs charged to borrowers.
Despite the potential these new entrants offer to help close the lending gap, there is the reality that the current “spaghetti soup” of overlapping federal regulators means borrower protections slip through the cracks. Unlike consumers, small businesses don’t have the transparency of disclosure boxes which clearly show pricing and terms on their loans.
To address this, the paper outlines a six-point regulatory action plan that recognizes the importance of small business borrowers and protects them, while catalyzing the growth of financial technology lending and other efforts that fill the gaps in small dollar loans. On this financing front, the question is not about more regulation or less regulation, but regulation that works for small business.
Ultimately, for small businesses to continue to add momentum to our economy, they must have a government that treats them as the customer. It means using technology to collect data on loan originations and other important information seamlessly and routinely, rather than in long, inflexible reports. It means a presidential administration understanding how small businesses operate and leveraging government technology and regulatory technology innovation in every effort where small businesses are going to interact with the federal government.
In the world we live in, small businesses are a critical part of the economy. Small businesses are inexorably linked to the economic and workforce decisions the government will make over the next several years. Even if the wish is for those linkages to be simpler and less costly, what is even more important is that the economic policies determined by the president and Congress reflect the intricacies of the worlds in which small business owners operate. To do this effectively will ensure the economy continues to grow, innovate and create jobs.
Karen Mills is a senior fellow with Harvard Business School. She served as administrator of the U.S. Small Business Administration under President Obama from 2009 to 2013.