President Donald Trump has announced that U.S. Treasurer Jovita Carranza is his pick to replace Linda McMahon as Small Business Administration chief. McMahon, who spent more than two years at the helm of the agency, reportedly plans to join the pro-Trump super PAC America First Action in support of the president’s re-election campaign.
As far as experience goes, Carranza has an impeccable resume. She’s the U.S. Treasurer, an adviser to the treasury secretary, Steven Mnuchin, and previously served as deputy administrator at the SBA. Prior to her public sector life, she was a vice-president at United Parcel Services (UPS).
The rumors on Capitol Hill begin anew with the changing of the guard at the SBA. Many will tell you the agency is not needed and is a waste of tax payer’s money. The SBA, which has close to 70 offices and 3,000 employees, costs Americans about $834 million in taxpayer money a year. That’s almost one billion dollars, so discourse on its nature is prudent.
A middle-of-the-road scenario would be to merge the SBA into the Department of Commerce. If this happens, you will never hear about small business again. While Carranza will take a chair in Trump’s cabinet, she ostensibly has no power to exert. Linda McMahon had the SBA running on all cylinders, which doesn’t leave a lot of upside for the new chief since it is a near certainty that no additional funding will come her way.
The mission of the SBA is massive if it intends to help all American small businesses. There are some 30 million small businesses in this country, but only roughly a third of them employ people, meaning the rest are solopreneurs. The SBA can’t serve them all. Perhaps the SBA would be best served in working within a more parochial range of small business, like minority-owned or start-ups. The problem is there is no way to discern who disserves to be on that list. You would financially want to give the taxpayers the biggest bang for their buck, by financing those companies that will offer the greatest return on investment.
If you ask just about any small business owner what they need from the SBA they will say its money. Sure, the organization offers help through its SCORE program of retired executives, but these services are not utilized in any meaningful way. After all, you think that you know more about your business than some retired railroad executive.
Politics may be let off the hook by changing financial demographics. Banks need to be better incentivized to provide SBA-backed loans. Even though the SBA backed $30 billion in loans last year, the businesses getting these loans are the types of businesses that banks normally lend to anyway with financial history and collateral. That’s why, according to the most recent Pepperdine Private Capital Index, only 31% of small businesses were able to get bank financing last quarter.
My guess is that the new wave of alternative funding will quickly diminish, and eventually limit the need for traditional banking. The SBA would be wise to think outside the box, and work with this new breed of online lender, like LendingTree, E-loan and others to back their loans as well. Look, we know that small businesses are dire for capital, so why not expand the federally backed funding game to get more money into circulation to the most critical segment of our economy, small businesses.