Advertisement

'I'm afraid we're going to lose 20-30% of our small businesses': Fmr. SBA Administrator Karen Mills

Karen Mills, former SBA Administrator, joins The Final Round to discuss the state of small businesses as stimulus talks remain at a standstill and why stock market and economic data don't show the impact on small business.

Video Transcript

SEANA SMITH: Talks remain stalled on a new stimulus package down in Washington, essentially halting potential changes and additions to the Paycheck Protection Program. Now to talk more about what Congress got right with PPP and what it should do next for small businesses, we have Karen Mills. She's the former head of the Small Business Administration.

And, Karen, small businesses, they are hurting tremendously right now. I was just reading a note from Bank of America this morning that they were saying that small-business employment might be reversing some of its gains. So my question to you is, what does the small-business community need from Congress right now?

ADVERTISEMENT

KAREN MILLS: Well, the small-business community is really hurt. This is a terrible time, and fall is going to be even worse. You know, I was really glad to hear some optimism in the last segment about how things were up in the stock market and, you know, you have this positive notion of a bubble.

I mean, I have to tell you the reality on the ground is dismal. It is so difficult for small-business owners who have had their revenues go away. We've seen massive job losses. We are seeing closures. I've said, really, on your show, I'm afraid we're going to lose 20% to 30% of our small businesses. And don't forget, that's half of employment.

So when you look at the stock market or you look at a macroeconomic model, you are missing the impact on small business. And I think it's just deplorable that Congress and Mitch McConnell cannot get a compromise for small businesses with another tranche of money. Right now, we cannot solve their problem while the virus is still so difficult.

And let's also look at this storm. Hurricane Laura is about to make landfall. Right in its path are millions of small businesses. So I think we've got some really, really tough things going on that just aren't reflected in some of these other markets.

SEANA SMITH: Karen, when we take a look at the Paycheck Protection Program, the PPP, and we talk about maybe some of the changes that need to be made or when we take a look at the first two rounds, what worked and what did, from your view, what worked? What do we need to continue to do? And then what needs to change the next time around?

KAREN MILLS: Well, despite the fact that we had bad actors who took money that they shouldn't have, there are a lot of things that actually worked well. And I'm working with a lot of economists now, and what we're seeing is that the good things were the program was big.

I was joking. I said if I ever saw $350 billion and the SBA in the same legislative package, I wouldn't believe it because it's, you know, 10x the amount of money that SBA ever put out in a year. But still as we know, that money disappeared in 2 and 1/2 weeks, and then we had another $300 billion, which, you know, still is not enough.

Now, the problem with the program is, of course, that it was difficult to access. And thank goodness we had some of these new fintechs like PayPal and Square and Intuit who put out portals so that the smallest businesses who got shut out in the beginning actually were able to access the program.

The other thing that was wrong with it is we all thought the virus would go away in two months and we just needed a short bridge. Well, we know that's not the case. So the next program has to take into account that small businesses still have cash shortfalls. They just don't have money. And by the way, when you run out of cash in a small business, you're dead.

So we need to bridge small businesses. They are being creative. They are scrambling. They are doing so many creative things, but they're going to need some help. So I think forgivable loans, long-term low-interest loans like the disaster loans, we should reup those.

And we should continue-- we shouldn't invent whole new packages because then we'll just have to teach small businesses and banks how to put those programs in place. So we should use the infrastructure we built and do another tranche.

AKIKO FUJITA: And, Karen, to that point, we've spoken to a number of small businesses that did get the paycheck-- loans through the Paycheck Protection Program but are still this month considering closing permanently. I'm curious if you've got a sense of how many of these small businesses that received the loans from this program are still going to close? What kind of permanent closures are we looking at, even with that loan in place?

KAREN MILLS: Well, I think August 1 and now coming up September 1 are going to be very difficult moments. And what I'm seeing is that a very large percentage of small businesses who are on the edge are thinking about whether they should even pay their rent payment at that moment.

And 20% or 30% would be a significant chunk of employment, probably double or triple the average rate of business failures. And I think that is well within the possibilities, especially as they see no hope on the horizon. If they thought if they just hung on another month they might get some benefits, you might see them struggle. But I think small businesses are really at risk.

And for the economy, this is a problem because if you want to get another business back on Main Street, that's a 6 to 12 month proposition. The new entrepreneur has to get some money. They have to do renovations. They have to get the lease. They have to open the doors. So what we saw in 2008-2009 is once you lose these businesses, it's a real drag on the recovery.

RICK NEWMAN: Hey, Karen, it's Rick Newman. You know, the big businesses represented in the S&P 500 and the other stock indexes, they are not completely isolated from small businesses. Those small businesses are customers, suppliers. The workers generate demand for the things the big companies make and offer. So when will-- what will be the transmission mechanism when the financial markets do start to feel the pain of what's happening among small businesses? How is that going to happen?

KAREN MILLS: Well, I always wonder why everybody is not understanding your point, which is that small businesses are completely connected to big businesses, and they're connected to consumption. You know, these are the people who are going to go out and buy something and go to the grocery store. And if their income is down and they're in trouble, it puts a damper on the whole economy.

Remember, half the jobs are people who work or own a small business. So we are going to see all kinds of detrimental effects, but there are two places that we really see the disconnect. Unless you have a lot of small-business customers, you don't hear big companies like the airlines, for instance, advocating for small-business relief. They're saying, you know, let's fix manufacturing. Let's fix airlines and hotels when, really, the small-business owner, you know, is an even more important part of that economy.

So one of the things that I knew from my seat in the cabinet is that unless you really jump up and down and scream, the voice of small business, you know, doesn't get the attention it deserves. And we had it in the beginning of the crisis, but I'm afraid we're losing the focus.

ANDY SERWER: Hey, Karen. I know that you've kind of become enamored of fintech, and you've been exploring that a lot lately. And I wonder if-- you mentioned a little bit some of the ways that those guys were helping out. But I'm wondering if you're seeing any innovation, maybe connected to fintech or maybe not, and any positive developments already beginning to come out of this crisis, people offering up solutions or figuring out innovative ways to sort of point their businesses forward as perhaps would come out of this at some point soon?

KAREN MILLS: Well, I think the banks are really in trouble because somebody said we have, in three to five months, seen changes that would have taken three to five years. And everybody is demanding some kind of contactless payment. They want a technology-driven solution. You know, we're sitting here using you know, remote conversation that we never did before.

This is absolutely true in the land of small business where people were reluctant to maybe take on automation or technology into their business and now have jumped in. So what we will see is that banks will need to increase their adoption rate, and fintechs will get more opportunities, whether it's in partnership with banks or as their own, you know, challenger banks.

I'm a believer in banks, but I was disappointed at how slowly they're moving. And right now, they're picking up the pace because they see that change is coming faster than they might have anticipated.

SEANA SMITH: All right, Karen Mills, the former head of the Small Business Administration, always great to speak with you and to get your thoughts. We hope to have you back soon. Thanks so much for taking the time to join us.

KAREN MILLS: Thank you.