SBA Chief Maria Contreras-Sweet On Micro-Lending And The Minimum Wage

By Tiffany Hsu
Los Angeles Times.

Maria Contreras-Sweet, who assumed the reins as head of the U.S. Small Business Administration five months ago, stopped in downtown Los Angeles this week during a West Coast tour to discuss micro-lending, immigrant entrepreneurship and access to capital.

Addressing a packed luncheon crowd at City Club Los Angeles, part of the Town Hall Los Angeles speaker series, she expounded on her efforts to streamline the lending process and promote job creation.

Contreras-Sweet immigrated to L.A. from Guadalajara, Mexico, with her mother and five siblings when she was 5 years old.

She became a member of President Obama’s cabinet after helping found commercial bank ProAmerica, venture capital firm Fortius Holdings, the California Endowment health foundation and other organizations.

She was the first Latina in California to hold a state cabinet position, overseeing Caltrans, the California Highway Patrol and the Department of Motor Vehicles as the secretary of business, transportation and housing.

During her visit, she also sat down to chat with The Times. Here is an edited version of that conversation:

Question:Los Angeles Mayor Eric Garcetti recently announced an ambitious proposal to raise the minimum wage in the city to $13.25 by 2017. How will that play out for small businesses here?

A: The small-business community employs half of the private workforce and creates 2 out of every 3 net new jobs. So small businesses are critical to our comeback. I’m pleased to report that we’ve recovered all of the pre-recessionary jobs that were lost, and again, I believe that has largely been the small-business community.

So many small businesses employ family members. Or, if they’re not family, they treat them like family in small businesses. And we know that we all want our family to have a livable wage. And Henry Ford used to say, we have to have a strong wage for our employees so they can afford to buy the products that we’re producing.

Question: In a state like California, where the cost of living is high and rising, could a minimum wage hike compel companies to move elsewhere?

A: The small businesses that I’m talking to, they say, we want you to eliminate the regulatory constraints; we want more prompt permitting; we want good customer service from government. You and I sometimes both shop at a certain store, and we know that we’re paying more, but we do it because we want customer service.

Many entrepreneurs are looking for small loans of less than $100,000 or $50,000. Is it the SBA’s goal to dominate the so-called micro-lending space or to partner with smaller organizations that have emerged to offer that kind of financing?

I marvel at those companies, Kiva Zip, PayPal, Square, Lendio, Kabbage. They’re all important alternative financing channels. And I like the way they’re thinking about collateral.

In an SBA loan, we need recourse, because we’re the federal government and we don’t want to lose taxpayers’ investment. So we ask for collateral so that if for some reason you default on that loan, we can then provide for some kind of recovery.

But the way some of these other alternative channels do it, they post it [online] so the entire universe knows. That pressure, that everyone would know if you defaulted on a loan, can sometimes be even more effective than collateral.

And so I’m studying to see how we can help our constituency, the small-business community, particularly with the smaller dollar loans, learn about those alternative channels and how we can promote them in a way that isn’t fully an endorsement until we’re more familiar with them.

But I think that we can be side by side. It would be important for us to be complementary to that work.

Question: Gov. Jerry Brown and Mexico President Enrique Pena Nieto were here recently talking about how immigrants play into the California economy. What is the SBA’s policy toward immigrant business owners?

A: Small businesses want to be able to access employees and not be penalized for it. I know that they want certainty that they’re doing legal things, but that they also want to be able to partake of this target market that has particular skill sets.

If you’re from Asia, and you speak the business language, how can we bring you into the small-business space so you can help us understand how to do more exports to that part of the world? If you’re Spanish-speaking, also likewise. So we’re asking Congress to act, we need them to act, to provide some level of certainty so small businesses can partake of the full labor force that’s available to them.

Question: If an undocumented immigrant were to apply for an SBA loan, what would be that process?

A:We don’t qualify them. They don’t qualify for SBA loans by and large, is my understanding.
California is phasing out its enterprise zone incentive program, which many small businesses have credited with providing a crucial financial boost.

Question: How does the SBA fill in when a major tax credit goes away?

A: That’s important, that we incubate the incubators, so that they can be there to provide technical assistance to start up, grow and scale up small businesses. I met with the former Federal [Reserve] chair [Alan] Greenspan and I said, “What would be the most important advice that you could provide the SBA administrator?” He said, “Your job is to make sure that every small business grows to become a large business so that they don’t need you anymore.”

Question: What are some of the major hurdles that small businesses in Los Angeles face and what are the remedies?

A: Remember that the geopositioning of Los Angeles gives you unbridled access to the Pacific Rim. And with the NAFTA corridor strategy, you can really create enormous opportunity. Mexico presents an enormous opportunity.

In terms of exports, Mexico is the most important trade partner for California. Los Angeles is right at the epicenter of that.
What I find is that you have innovation here — Silicon Valley up north and Silicon Beach here. Los Angeles is a world city — you have entertainment, you have technology, you have the ports, you have diversity. You have different skill sets here that you can employ that will help you break into new markets internationally.

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