Former SBA Administrator Karen Mills on her outlook for additional stimulus

Karen Mills, Former SBA Administrator, joined Yahoo Finance Live to discuss her outlook for a second round of stimulus and how President-Elect Biden's administration will help small businesses.

Video Transcript

- Small businesses are suffering. And this comes, of course, as Congress tries to reach an agreement on more aid before the end of the year. Here for a little bit more about that, we want to bring in Karen Mills. She's a former head of the Small Business Administration. And Karen, great to have you back on the program. Tens of thousands of small businesses have closed because of the pandemic. So many continue to struggle as we see the number of COVID cases on the rise. What do small businesses need included in the next package from Congress?

KAREN MILLS: Well, small businesses need some money to tide them over and to make sure that they can make it through till the time when perhaps this vaccine will give us a respite from what is a terrible crisis for small businesses. So right now, Congress is looking at a package. And it includes both some help from increased PPP, a replenishment of the PPP.

And also, it includes something that is really important for the recovery, which is making sure that SBA loans are granted by increasing the guarantee rate that banks will pay. So this one-two punch, I'm very hopeful it will pass because it could make an enormous difference in the world of small business right now.

- But it would seem every day we wait, we lose another small business. And one of the things that's happening right now is that the banks are not lending to small business. How quickly can that money get to businesses if we get stimulus?

KAREN MILLS: Well, if we get stimulus, we know how to get it out. And one of the very interesting things I learned in the last couple of weeks-- when the SBA released all that data on the first PPP, here's what we learned. The banks did not do a good job in PPP 1. They gave all that money to the biggest businesses. And some of the most needy, minority-owned businesses, smallest businesses didn't get it.

But in PPP 2, some of the fintech like Square and PayPal and Kabbage came in. And they got a lot of money out into the hands of minority-owned businesses, as did the SBA EIDL loans, the disaster loans. And those got out quite broadly. So now we know that the distribution channel matters. And if we can get this money out and make sure that some of those bad actors don't grab up some of it and put-- put on some simplification provisions so people can use the money for more flexible things, I think it's going to make a big difference.

Then comes the problem you just described, which is regular banks have stopped making small business loans. And we saw this problem when I was the SBA administrator in 2009. The bank lending just froze. So what is in the bill, and something that I've recommended, is we go back to what worked then.

Raise the SBA guarantee rates to 90%, I'm even saying maybe 95% for community banks. And encourage them to get back out lending. Because if you have a small business, and you're going to open up, you're going to need some capital to hire those workers back and get some inventory in. That's a formula that worked in the past. We got a thousand banks back to lending in six months in the last recession. We're going to have to lean in and get that done again.

- Karen, last time we spoke, you said that there was 20% to 30% of small businesses that were at risk of closing permanently. Now that we've had a couple of months, we still don't have a stimulus deal, what do you think that number more accurately looks like at this point?

KAREN MILLS: You know, it's funny you mentioned the 20% to 30%. I was remembering that I had said that back in the spring. Sadly, I'm seeing data that indicates we might be on the higher side of that. And the problem exists in a couple areas. You know, anything that touches consumers on Main Street has really been hit hard. Restaurants and other places, bars, they're going to be hit in turnover.

But long term, the ones I really worry about are the kinds of stores that can be replaced by online buying. Everybody is very used to punching up on their cell phone and getting their goods from Amazon. And there are small businesses that are selling more online and through Amazon.

But long term, I think it's going to be really hard for that element of the small business sector to come back. Online sales were up 22% in Black Friday. And Small Business Saturday, which I wish would be every day, is having some positive impact. People are supporting their local businesses. But it's just not enough. And I think that could be a damaging long-term trend.

- Karen Mills, always great to have you on the show. Former head of the Small Business Administration. We look forward to having you back soon.

KAREN MILLS: Thanks so much.