This week President Obama sent Congress his budget for Fiscal Year 2016, which includes a request for $701 million for SBA so that we have the resources we need to help small businesses hire and grow and continue the momentum of our economic recovery.
The president’s budget includes important increases for programs serving women, veterans, Main Street businesses and high-growth entrepreneurs. The budget also seeks to expand microlending, automate more SBA services, and invest in customer-service improvements so that it’s easier for entrepreneurs to secure SBA capital and federal government contracts.
Next year, for the first time since before the recession, we project that lending under SBA’s two primary loan programs won’t cost U.S. taxpayers a dime.
Our two main lending vehicles — the 7(a) and 504 programs — delivered $29 billion in small-business loans to entrepreneurs last year. In FY16, we expect another banner year, and taxpayers won’t be on the hook to cover any potential losses, as we’re requesting and managing a zero taxpayer subsidy for our core capital programs.
How did SBA’s loan programs become so cost-effective? The answer is that the default rate on our 7(a) and 504 loans is so low that we can cover the costs with bank and participant fees (despite continuing to zero out all fees on Main Street businesses for loans under $150,000). More broadly, we achieved this milestone because of an improving economy under President Obama, rising real-estate values, and smarter investments in small businesses with capital requirements.
For two years, our 7(a) lending has not relied on taxpayer dollars to cover losses. Next year, we’ll bring our 504 program into this same category.
We’ve made some important changes to the 504 lending program for real estate. In my first month on the job, I announced key reforms that included new, best-in-class CDC board-governance reforms and regulatory easing that helped entrepreneurs collateralize loans, attract private capital, and get more time to finance real-estate projects. These reforms are beginning to show results.
Given that small businesses create two of three net new jobs, their importance, plus SBA’s record of fiscal responsibility, will help us make the case to the new congressional leadership for targeted funding increases to help the job creators of this economy.
Refinancing authority: We’re asking Congress to bring back the popular 504 Refi program. In 2011 and 2012, more than 2,300 small businesses refinanced $5.5 billion of debt using this tool, and they each saved up to $20,000 a month. So we’re asking Congress to reauthorize 504 Refi for FY16. Allowing entrepreneurs to restructure a loan under 504 Refi can help them unlock the equity in their business to get better rates on long-term debt so that they can use these savings to create jobs and grow.
SBA modernization: The president is requesting $14.6 million for FY16 to bring our agency into the 21st century. The centerpiece of our modernization plan is SBA One, the total automation of the 7(a) loan application that will dramatically cut the time and cost of applying for SBA capital. This budget request will expand automation into government contracting to make it easier for small businesses to find opportunities to do business with Uncle Sam. It also funds an SBA Idea Lab with coders and software engineers to incubate cutting-edge ideas, an SBA Digital Services Team focused on online innovations to serve small-business owners in the Internet age, an SBA Center on Efficiency to cut costs and reduce risk, a “Start Up in a Day” tool to help new businesses research and apply for municipal and state licenses in 24 hours, and an online tool that brings SBA lenders and prospective borrowers together.
Counseling: The president has requested full funding for SBA resource partners, including a $1-million funding increase for Women’s Business Centers. He has also called for additional funding for the Growth Accelerators Program to build out our incubator capacity to nurture promising startups, and for Entrepreneurship Education to help small businesses scale up and hire.
Microlending: The president has proposed expanding the SBA microloan program to increase the ability of microlenders to capitalize startups and provide technical assistance to help underserved businesses turn a profit, improve operations, and create new jobs.
Veterans: The budget seeks $11.4 million — a $950,000 increase — for programs that help veterans continue to serve their country as civilian job creators. This funding would expand SBA’s Boots to Business entrepreneurial-training program to the National Guard, Reserve component members, and 180 military installations worldwide. Additionally, all veterans would be eligible to participate in our Boots to Business Reboot program. The budget request also seeks to increase course offerings for veterans with disabilities at participating business schools.
Our future success lies in adapting to ensure that our agency deploys our resources to be as innovative as the small businesses we serve. Our budget request seeks no taxpayer support for our principal, self-sustaining lending programs. This will allow us to hone in on smart, bold and accessible initiatives that will help more small businesses expand their operations and grow their revenues and their workforce.