Former SBA Head under Obama on PPP loan outlook

Obama’s Former SBA Head Maria Contreras-Sweet joins Yahoo Finance’s Zack Guzman to break down the latest relief funding and what it means for small businesses.

Video Transcript

ZACK GUZMAN: For more on this, though, I want to bring on someone who has very strong experience at the Small Business Administration. For more on the way that this program is being handled and joining us now is the former Secretary of the Small Business Administration under President Barack Obama, Maria Contreras-Sweet joins us now. And Secretary Contreras-Sweet, I just want to get your take on the way that this program has been rolled out.

I mean, when we look at it, there've been a few giant corporations, the likes of Shake Shack, Ruth's Chris Steak House, today Potbelly joining them in returning PPP money. Is it a failure when we look at some of these companies basically having to be publicly shamed into returning money that they might have otherwise been able to raise on their own?

MARIA CONTRERAS-SWEET: Well, I have to tell you that overall, I've just been a little disappointed at what we've put small businesses through. I mean, you know, when we set aside something for large corporations, we set it aside. We decide what we're going to invest and we set it aside. For small businesses, we've been relying on their relationship with the bank, their ability to navigate through the system, to complete these applications, to get in touch with their CPAs.

And so I have to just question just the idea of having to have small businesses apply. They file taxes every day. We know what their-- what their payroll is year-over-year. And so we could just send them a check and make it really easy.

And then you settle up when you file taxes. You know, if you got a little more than you should have or a little bit less, you settle up when you pay taxes. So I just don't know that we had to make it this complicated.

ZACK GUZMAN: Yeah, I mean, it's kind of deceptive, I think. I stopped referring to it as a program helping small businesses, because as we learned, there are a lot of businesses out there that still qualified under the program, with some pretty large payrolls, like Shake Shack, public companies as well. But when we do look at that, it does seem like a lot of people have raised those concerns on the banking front as well, considering we've seen a few class-action lawsuits being filed against banks because some small business owners claim that they've actually filed those larger applications for some larger businesses ahead of their own smaller applications, because those would come with larger origination fees, as well as relationships with some of those companies down the line. They could sell them more services.

It does seem like an issue when you look at it. So what's your take on that front, as well as the banks kind of grapple with that?

MARIA CONTRERAS-SWEET: Well, that's right. You know, when you put a-- when you assign a 1% to a 5% processing fee on banks for processing these loans, the 5% is for the smaller loan. The 1% is for the larger loans. But even when you do the math, if you're processing a $20,000 loan versus a $10 million loan, even with the 1% on the larger loan, you're still going to come out further ahead.

And so we should have thought about the incentives that we put in place to make sure there was a little more equity in making certain that all businesses got treated equally in some fashion.

BRIAN CHEUNG: Hi, Secretary. Brian Cheung here. So I'm wondering what you think about the overall PPP design. It seems like there's a lot of concern that even with this second round of $310 billion, that assuming they can get over the technical issues, it will dry up in a day or two. Do you think the amount was sufficient?

And I know that you said this isn't even really the primary way you would have preferred to get money in the hands of those businesses. But what do you think those businesses are going to need if it does dry up in two days?

MARIA CONTRERAS-SWEET: Yeah, that's what I was saying. You know, I agree with Brian Moynihan when he said over the weekend, you know, let's just get the job done. Why should some businesses get prioritized because they filed one day over another?

In other words, this is a forced economic shutdown, right? And so I don't know why you'd want to penalize one business over another. We all had to shut down, all these businesses did. And so why are we prioritizing one over another?

I think everybody should just say, you know, let's just take care of these small businesses. We need small businesses. And Brian, I know that you understand this. We need these small businesses for a couple of reasons.

First, it is so important that we all remember that the job creators-- 2/3 of the jobs come from small businesses. We know that when we travel to any community, any town, you go because of the local culture. And the local culture comes from the small businesses.

You go because there's a restaurant that has dry rub in Memphis. You go to the small shops on the River Walk in San Antonio. We go for the small. Every town has a large department store that's similar to the one in our own town. So that draws us to it.

Another reason, of course, we all understand that most corporations rely on small businesses. They say that small business give them nimbleness when they're looking for a special expertise or a new technology. In fact, some corporations have said that they renamed their R&D department, and now call it M&A. They just acquired the technology that they're looking for. So for the supply chain, for innovation, and for local tourism, we all need these small businesses.

So let's just get over this, you know, filing, and think of a way to say, as I said through the payroll, Schedule C or whatever payroll document you want to submit, let's just say-- let's just take care of small businesses. Let's set aside an amount. And let's get this done, because there should be no penalty on a small business because their bank couldn't get their application through. They were forced to shut down.

ZACK GUZMAN: Yeah, and I mean, that's kind of the issue too, when we look at who's banking with who, and how that may have complicated the application process as well. I mean, when you look at the actual definit-- when you look at small businesses themselves, firms with smaller than 20 workers we're talking about, about 90% of all small businesses according to the Small Business and Entrepreneurship Council-- when you look at the size of those businesses, and the way that they might have not benefited from the system at all, when we think about how this has played out-- I mean, is that just to be expected?

Is this just the way the system works? Do you think that there would have been things that you could have done differently had this been under a prior administration or a future administration? What are the actual ways to go about fixing some of those issues, when we think about big corporations just getting away with these things?

MARIA CONTRERAS-SWEET: You know, I mean, just think about it-- from the very beginning, they told sole proprietors-- and remember that most women who own businesses are sole proprietors, right? And they told-- they told sole proprietors you have to wait a week before you can even file. So remember that there was a delay for small business for the sole proprietors and independent contractors.

Why? Why take it-- why allow those larger businesses to get in line first? So as I've said, I just think that we don't respect enough and provide enough equity for the small businesses, even apart from this. Let's just set this aside.

Even apart from this, when I would approach a city to say I have a small business that wants to locate in your city, they'd say, well, you know, over there is the window to go file your permit. If I said a large company wanted to-- you know, had an interest in coming to your company, they'd roll out the red carpet. They'd get tax credits. They'd get everybody's attention. They'd get free land.

And I always remind people, remember all those little businesses that started in your town? It became large. And so I think overall, now that we're going through this, I think we have to understand that we have to have a new view about how we approach the small businesses.

ZACK GUZMAN: Yeah, let me just finalize-- you know, just one last question to get in front of you, when we think about Secretary Mnuchin kind of touting the way that they-- the SBA's processed more than 14 years worth of loans in less than 14 days over this kind of process here when we've looked at it. You can make the argument that a lot of people might say, hey, sure, you got money out the door. But if it's not fair and equitable in the way that it's processed, then that's kind of an issue.

When you look at-- as Brian was reporting, when you look at the way that all this money now, even the fresh $310 billion coming into the program, likely to be expired within the week-- how much more money do you think that we might actually need to allocate to this, when you look at the size of the problem, and the way that you went through $349 billion in 13 days? And now potentially go going through another $310? How much more do you think it could take to make small businesses across the country whole?

MARIA CONTRERAS-SWEET: Well, remember that even this allocation is only for two months. And so a lot of it's going to depend on how long our social distancing is going to last. And that's why I was really enjoying your earlier conversation, because when is the test going to come through? What's going to be the expectation of the new normal?

Imagine a small owned restaurant. Imagine that all of a sudden, they're being told that they can only fill every other table. How do they cover their payroll? How do they cover their lease? How do they cover their supplies? How do they cover their own personal expenses?

And so I think we have to contemplate, what are the governmentally imposed limitations they we're placing on these small businesses, and what we expect of them? So again, even with-- with this massive allocation that seems so large, it's only accommodating eight weeks for a small business. And we're asking them to shut down for even longer.

So this is not easy. And I think we have to be really sensitive to that. But again, I say, why can't we just understand what their payroll was prior, how long we're asking them to shut down?

Make an accommodation for that. And take care of them, because they really are the economic engine of our economy. They provide the true ecosystem.

And I would just want to say a couple really quick more points that I-- in the interest of small businesses. One is that the other services that the SBA provides-- let's not forget the other two components-- and one is the network. SBA also supports a really vast network for consulting. So I would urge any small business that really needs to understand how to work their liquidity, their cash flow, to seek out these small business development centers, the women business centers, and the veteran business outreach centers to understand how to work their-- rework their business plan.

And last-- the last piece is contracting. We also provide contracting opportunities for small businesses. And so I would hope that more and more small businesses think about the SBA to make sure that the federal supply program is a part of their diversity in their portfolio.

ZACK GUZMAN: Yeah, well, we'll be chatting with a business owner-- a female business owner, the owner of 305 Fitness, Co-Founder there, later on in the show to discuss kind of how her process and her experience firsthand has been through working all of that as well. But Maria Contreras-Sweet, can't thank you enough for joining us, a champion of small business. And we didn't have time to get into it, but particularly the Hispanic community as well. I know you've done a lot of work on that front.

Appreciate you taking the time. And hopefully you can join us again soon.

MARIA CONTRERAS-SWEET: Thank you. Be safe.

ZACK GUZMAN: Thank you. You as well.