Rohit Arora, Contributor
Small Business Strategy
I write about small business lending and growth.
Jovita Carranza became the 36th head of the Small Business Administration (SBA) this week when the Senate confirmed her in a 88-5 vote to take over for acting administrator Chris Pilkerton, who was appointed after the departure of Linda McMahon.
Jovita Carranza is the new head of the Small Business Administration (SBA). (credit: AP Photo/Susan Walsh)
Jovita Carranza is the new head of the Small[+]
The position of SBA administrator was elevated a cabinet level position by President Obama in 2012 when Karen Mills led the agency. Carranza, age 70, is now the highest-ranking Latina in President Trump’s Cabinet. She comes to the agency after having served as United States Treasurer, the principal advisor to Treasury Secretary Mnuchin overseeing that federal department’s Office of Consumer Policy.
Carranza previously served as Deputy Administrator of SBA under President George W. Bush from 2006-2009. During that time, she oversaw more than 80 field offices across the country and managed a portfolio of venture capital investments, business loans, and disaster loans totaling approximately $80 billion.
Early in her career, Carranza worked at UPS, where she started as a part-time, night-shift box handler and worked her way up to become the company’s President of Latin America and Caribbean operations. The Chicago native later founded the supply-chain management company JCR Group. She earned her MBA from the University of Miami at Coral Gables and also received executive, management, and financial training at Michigan State and the University of Chicago, and the INSEAD Business School in Paris.
During her confirmation hearing last month, Carranza indicated that among her goals is helping female entrepreneurs and small business owners in underserved communities, including military families and veterans. She certainly has the background to do so.
America is a country with an entrepreneurial spirit, and women and minority business ownership is booming. In fact, Biz2Credit’s most recent Latino Entrepreneurship study found that earnings of Latino-owned businesses jumped 46% during 2019. The average revenue of Latino-owned firms improved jumped to $479,413 from $327,189 in 2018, according to Biz2Credit’s annual study. Meanwhile, the number of credit applications from Latino-owned businesses increased by 23%. However, they trail non-Latino companies in average revenue and credit scores.
Revenues and earnings both rose for women-owned businesses last year, which means women entrepreneurs are succeeding, according to Biz2Credit’s annual Women’s Lending study. The average revenues of women-owned businesses still trail those companies owned by men. Indeed, much more can be done to help women entrepreneurs, and Jovita Carranza is in a position to help.
The Small Business Administration (SBA) came into existence in July 1953, during the Eisenhower Administration to “aid, counsel, assist and protect the interests of small business concerns.” There is perhaps no more effective agency in Washington than the SBA, which provides loan guarantees that help entrepreneurs receive startup capital and expansion funding from banks and other lenders that might not otherwise provide it without the government backing. The agency also offers counseling, mentorship, and assistance in establishing government contracts.
The SBA guaranteed more than $28 billion in small business loans during fiscal year 2019. The loans can be used for a range of purposes, including business start-ups or acquisitions, working capital, owner-occupied real estate, franchise financing, inventory, debt refinancing, equipment, and even improvements and renovations.
Among the agency’s most important lending programs are:
SBA 7(a) Loans: Loans that go up to $150,000 available to startups or expanding companies. The government backs 75% of the loan, which makes it an attractive option for banks to offer. 7(a) financing is used to finance long and short-term assets used in normal business operations. Acquisitions and refinances are eligible and may include real estate and business goodwill. Working lines of credit up to $100,000 are also eligible. The 7(a) program also has special funding options for businesses that export to foreign countries or that operate in rural areas.
Loans can go up to $5,000,000 and usually require submission of the last three years of business tax returns, real estate schedule (if applicable) and two years of personal tax returns on all principals having more than a 20% stake. The total amount of SBA-backed 7(a) lending in FY19 was just over $23 billion.
SBA Express Loans: Funding available to active duty military personnel, veterans, and borrowers from distressed communities. SBA Express funding, which comes in loan amounts from $10,000 – $350,000, offers a 50% guarantee on loans, which can help mitigate credit issues such as insufficient collateral or low credit ratings. Typically, these loans are used for financing working capital needs or for buying equipment.
Loans of less than $100,000 do not require any proof of income. Loans above $100,000 require the last two years of business and personal tax returns on all principals having more than a 20% stake.
SBA CDC/504 Lending Program: a long-term financing option designed to encourage economic development in a community. It provides funding up to $5 million when meeting job creation criteria or a community development goal.
CDC/504 funding can be used for fixed asset projects, such as purchasing land and/or buildings, making capital improvements, modernizing or constructing new facilities, or buying long-term machinery and equipment. A 504 loan is an excellent long-term fixed rate product. The total amount of SBA-backed 504 lending in FY19 was slightly under $5 billion.
SBA Microloans: short-term loans of less than $50,000 to startups, growing small businesses, and some not-for-profit organizations.
SBA Disaster Loans: low-interest, long-term loans for physical and economic damage caused by a declared disaster.
One cannot underestimate the importance of the estimated 30.7 million small businesses in America. It is a powerful engine for job growth and economic development, and the SBA plays a vital role in the success of small companies.
As SBA Administrator, Jovita Carranza committed to helping Americans start, build and grow businesses. She follows in the footsteps of other strong women leaders of the agency, including Linda McMahon, Maria Contreras-Sweet, Karen Mills, and Aida Alvarez. She appears to have the background and the experience needed to carry out the SBA’s mission to advocate for small businesses, empower the spirit of entrepreneurship within every community, and deliver the results necessary to help America’s small businesses succeed.
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In 2007, I co-founded Biz2Credit, an online small business financing platform that uses technology to streamline the funding process. Previously, I worked for Deloitte Consulting and Goldman Sachs, and hold a Master’s Degree in International Finance from Columbia University. Biz2Credit has arranged $1.6 billion in funding and has over 200,000 small and mid-sized company registrants. Our platform handles more than 5,000 new loan applications each month and was named one of Crain’s “Fast 50” New York companies in 2014. Our widely reported Biz2Credit Small Business Lending Index provides a monthly pulse on loan approval rates. We also produce a Top 25 Small Business Cities in America ranking, the Biz2Credit Latino Lending Report, and an annual Women in Small Business Study often cited by national media.
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