Greta Johansson is having a bad day, which is good news for the rest of us.
Johansson is deputy district director of the U.S. Small Business Administration, responsible for the agency’s lending programs in Connecticut. Her office is judged by SBA’s national directors based – not surprisingly – on the number of loans taken out under its programs. And since the federal fiscal year began in Ocotober, Connecticut’s loan volume is down considerably.
This, at a time when almost all other regions in the country are even with last year’s numbers, or substantially ahead of them.
For Johansson and her colleagues, this is terrible news. For the rest of Connecticut, this is wonderful.
The SBA comes into play when borrowers need “credit enhancement” — kind of like a teenager needing a parent to cosign a car loan. The Small Business Administration is not a direct lender. What it does is guarantee loans made by traditional lenders to shaky clients.
Formative businesses frequently don’t have the capital necessary, or the assets demanded, by traditional bank lenders. Borrowers under the SBA umbrella usually have to show that they’ve been turned down by conventional lenders, sometimes more than once. That’s when the SBA reviews the business plan, and if it seems reasonable, the government guarantees up to 80 percent of the loan.
Bankers love that. It’s a no-lose proposition for them. So, for the past few years, they’ve worked very closely with the SBA. Small business-lending in Connecticut has usually meant SBA lending in Connecticut.
But that has changed. Bankers looking at the Small Business Administration numbers say they’re down, not because there’s a lack of borrowers, nor because there’s a lack of credit. They’re down because bankers and borrowers don’t need the credit enhancement as much. The banks’ are lending directly to small business customers, who are stronger financially than they’ve been in years.
When the brash 1980s turned into the depressing 1990s, the state SBA office should have been a lifeline for small companies. It wasn’t because it was being horribly mismanaged. Banks wanted nothing to do with SBA programs. The paperwork was onerous, the response horrendous. And, of course, the performance of the district office was in the trash, especially if measured by number of loans made.
But by the mid-1990s, the SBA had cleaned up its act. It worked hard at communicating regularly with lenders. It helped them understand its various programs, and understand how best to navigate its rules and regulations. It held quarterly meetings with lenders. And it was successful at making itself into what it was supposed to be: a lifeline for small business borrowers, and a beacon of hope for entrepreneurs.
So far this year, the Connecticut SBA office loan numbers are coming in at about 25 percent less than last year. Were this 10 years ago, we would be cynically looking at poor performance by SBA staffers as the reason. That’s hardly the case today.
Connecticut’s small businesses seem strong, and their banks seem confident in them. All of that is good. But still we wonder… where are the businesses bursting out of their kitchens? Where are the small retailers waiting to set up their first shop? Where are the first-time entrepreneurs with great ideas, but empty wallets?
It’s terrific to have a strong small business community. But we also need the very smallest startups, too. The shaky ones, the ones prone to fail. The ones harboring the next big idea. Connecticut has to be a nurturing place for these entrepreneurs, too. We have to be there to help them grow. Just like Greta Johansson and the Small Business Administration.
