By S. Voyles
December 18, 2008
Sandy K. Baruah, Acting Administrator of the U.S. Small Business Administration, visited Detroit Dec. 17 to discuss the auto industry’s impact on small business, the current economy, what SBA is doing to help small businesses, and how to keep America’s entrepreneurs competitive.
Baruah was designated Acting Administrator of the SBA on August 15, 2008 and is pending Senate confirmation. He has served in the Bush Administration since 2001, where he was the Assistant Secretary for Economic Development at the Department of Commerce.
Corp! caught up with Baruah to ask him questions about small business and the economy.
Corp!: In your opinion piece in the Dec. 3, 2008 issue of the Detroit Free Press, you stated, “The liquidity crisis is not the fault of the auto industry, and failure of any of the Big Three would further damage already faltering economic confidence.” What did tell people today when you visited Detroit?
Baruah: I talked a little about credit crisis and how it’s impacting small business. Second, I talked about the relationship of Big 3 to small businesses and why it’s important.
When I wrote the op-ed, I was trying to encourage Congress that whatever assistance we provide should come from $25 billion that was already approved for the U.S. auto companies to make needed tooling and technology changes for new, more efficient vehicles. I was disappointed in Congress not acting on the president’s proposal.
Corp!: Given the current fragile state of our economy and tightness of credit, what kinds of effects have you seen so far on small business?
Baruah: The centerpiece of the credit crisis is the TARP, the $700 billion. We didn’t do the TARP so we could protect the white collar jobs or bankers on Wall Street. Our concern was we needed to stabilize and save the underpinnings of our economy - the capital markets. When they don’t work properly people can’t get home loans, student loans, car loans. We had to move aggressively -¦ the credit markets affect everybody. The TARP is showing signs of working. It is slow. We didn’t get into this situation overnight and we won’t get out of it overnight. December seems to be a less volatile month than November, we are seeing signs of more liquidity and more loans being made.
What the SBA has done is attract new banks into the small business family. I tell bankers across the country the SBA offers them reduced risk. We will government guarantee up to 85 percent of loans made through SBA channels. That has been working.
We have been reminding our banks they can suspend loan payments up to 3 months on current SBA loans.
Almost more importantly, we’ve made some moves to loosen up secondary market for SBA loans. Forty percent of SBA loans are sold in secondary market and it has been frozen. We’ve launched many initiatives that have been well received by the lending community.
Overall, small business lending, along with all lending, is down substantially due to confluence of factors in credit market such as lower credit worthiness, fear of financial institutions to lend -¦. Also we have less demand for our product. Fewer people are knocking on our door looking for a loan. A small business is not an entity, it’s a person risking their good name, their personal or family’s future to take out a loan to start a small business. When economic times are tough it’s a difficult decision to make.
Corp!: What actions can small business owners take to get through this economy?
Baruah: Every business is unique and they have to look at their situation and market. Generally what I say to folks, first of all, now is the time for small businesses to seek professional counseling. It can be a low cost or no cost service. The SBA offers free business counseling services on finding credit, business plans-¦. We offer it in person and on our Web site www.sba.gov.
Counseling is available from other entities like the chambers of commerce, universities with entrepreneurial centers.
If a small business owner thinks they will experience problems, go see your financial institution sooner than later. Go to them proactively to restructure a loan before you are behind on payments.
The business plans that were on the shelf as recently as a year ago may not be valid anymore. You have to take a look at your business and you may have to retrench or buckle down. Or it may be the perfect time to expand - look at innovative partnerships with collaborative companies or even competing companies.
Put some personal elbow grease into your business. The economic slowdown has provided small business owners with time. So conduct customer clinics, ask them what they like about your products and services. Take serious stock of what your opportunities are and be smart about spending dollars, but always look at the long-term.
Corp!: What might be some outcomes of this economy on small business?
Baruah: Small business will continue to grow. Overall, that sector is the growing sector of our economy -our world economy. Job growth will continue in small, dynamic companies despite the challenges they are facing today.
Innovation will continue to occur, no doubt about it. Successful companies small and large will continue their commitment to innovation. Cutting back on innovation research is not the best way to cut during a time like this.
Corp!: How healthy is American small business?
Baruah: Small businesses that ‘immunized’ before this credit crisis should be in good, if not great, shape and they will be well prepared for economic recovery when it comes
Companies with good business models who were prepared for slowdowns, were flexible, and were responsible with credit beforehand, they will weather the economic slowdown and will really thrive when recovery comes. They will thrive during economic challenges. A lot of incredibly successful businesses were started in recessionary times and I expect that this will be the case again.
Corp!: Any special message you would like to share with Michigan businesses?
Baruah: The message to Michigan small business is that they are going to lead the way for the economic recovery in the state of Michigan. Small business is where innovation comes from, where entrepreneurial spirit thrives. The more that Michigan can focus on an innovative and competitive strategy and creating small businesses that are focused and diversified from the auto industry, the sooner the better for the economy.
That’s not to say the auto industry will not be an incredibly important part of Michigan, the Midwest and U.S. economy. We are going to share U.S. market and world market for automobiles. It’s going to be a growing market - India, China, Brazil and former Eastern bloc - all of these countries are going to demand more and more autos as time goes on. The market for personal transportation will expand.
The auto industry is still going to matter, but small businesses will drive economic renaissance in Michigan.