(Transcript of Rob Hassett’s interview of Terri Denison, District Director of The Small Business Administration for Atlanta area for btobmagazine.com)
ROB: This is Rob Hassett for btobmagzine.com. Today I’m going to be interviewing Terri Denison who is the District Director of the SBA (Small Business Administration) for Atlanta. Terri is a graduate of Cornell and also has a graduate degree from a small school in Texas, and has been the District Director for the SBA in Atlanta for about seven years, right?
ROB: Terri, I really appreciate you’re being on the program today.
TERI: Glad to be here.
ROB: I also want to mention and thank, Gregory Henley, who is the Director of the International Center for Entrepreneurship at Georgia State, for helping me prepare for the interview today. Terri, what is the mission of the Small Business Administration?
TERI: Basically, we’re a federal government agency whose purpose is to help the national economy through helping small businesses to start and expand.
ROB: And you have different programs within the SBA don’t you?
TERI: Yes, we do. I would categorize them in five different ways in terms of the types of assistance that we provide. First, we provide financial assistance mainly in the form of guarantees on loans made by commercial lenders.
ROB: And that’s where most of the activity the SBA deals with comes in isn’t it?
TERI: That’s the one … I think … We do a lot in that area, and I think that’s the one that most people associate with the SBA. We also work with several organizations to provide management and technical assistance to not only startup businesses but for existing businesses as well. We partner with the Small Business Development Centers, which are hosted here by the University of Georgia.
ROB: How does that work? What is the Small Business Development Center?
TERI: Actually, it’s an entity which the SBA partly funds along with the University of Georgia to provide counseling and training to people who are thinking about starting a business, in the process of starting a business, or who are currently operating an existing business. Counseling is always free. Training is usually at minimal costs, basically to cover the cost of the training, and it covers a variety of subjects that would be of interest and of benefit to the small business community. In addition to the Small Business Development Center, SCORE is our volunteer partner organization made up of not only retired business people, but actually current business people as well that also provides a wealth of knowledge through training and through one-on-one counseling. We also have in Metro Atlanta two Women Business Centers, one at Kennesaw State and one near the West End in Atlanta proper. They provide counseling and training as well focusing on one of the fastest growing segments of the small business community, and that’s women entrepreneurs. But they will assist men as well.
ROB: Now if somebody wanted to benefit from that training, what would they do? How would they get in touch and find out when the classes, or the programs, or the counseling was available?
TERI: Probably the easiest way for them would be to go to the SBA website for the Georgia District Office, which is available here www.sba.gov/localresources/district/ga/index.html. We have an events calendar on that page that would have information on things that are going on here at the District Office as well as some of our resource partners. There are also links to some of the organizations that I’ve just mentioned so that you can go directly to their website and see what kind of training is coming up.
ROB: For the counseling, is that done over the phone or in person generally, or both?
TERI: Actually both. A lot of it, I would say the lion’s share, is probably done in person. But a lot of our organizations that we work with do e-mail counseling. For example, SCORE has been doing that for several years. They’ll also do remote counseling facilitated by a PC camera. So if you have a camera, they have one, then you could still have interface counseling but only done through the internet, done online, versus in person.
ROB: Terri, in order to obtain the counseling you get, is there a wait or is it pretty much available when people need it?
TERI: It depends. For example, the SCORE Atlanta Chapter, which is actually located here at the Georgia District Office, will take walk-ins for counseling. Generally the first appointment, they’ll start counseling at 10:00 in the morning, and then they usually take the last client around 1:00 or 1:15 to finish up by 2:00. But the Small Business Development Centers tend to provide counseling on an appointment basis, and the waits on that may vary.
ROB: Where are they located? Is there one or are they all over the state?
TERI: The Small Business Development Centers, there’s actually 17 around the state. There are several in metro Atlanta, and then in several other cities outside the metro-Atlanta area. SCORE, the Atlanta Chapter, has several satellites away from the main site here in downtown Atlanta. There are also chapters in Augusta and Columbus and Dalton. So there’s a lot of coverage … and in Savannah.
ROB: Terri, what are the requirements for a loan under the SBA’s loan program, the main one which is the 7A Program, right?
ROB: What are the requirements? What do you have to have to qualify for that loan?
TERI: Well first of all, I think we should clarify that it’s a guaranteed loan, so the first interface is going to be with the commercial lender who actually provides the funding of the loan. The lender, having looked at the application, any business plans, or financial information, decides that it needs additional security for that loan, because maybe it doesn’t quite meet all of its conventional underwriting criteria, then the lender would request a guarantee from the Small Business Administration. Or if they are a preferred lender, they’ve actually been delegated authority to provide the guarantee themselves without prior approval from the SBA.
ROB: A preferred lender is a bank that has proven that they know what the rules are, right?
TERI: Yes. They have a track record with us and they have shown, not only in terms of the level of SBA-related activities that they have expertise, but also how they handle the servicing and liquidation of those loans.
ROB: What is the interest rate on those loans?
TERI: Well it varies. Generally, there are variable rates, and they are generally pegged to the prime. The SBA does have a cap on the maximum spread above that peg rate, which is 2.75%.
ROB: Is there a cap on how much you can borrow under that program?
TERI: The maximum loan that can receive an SBA guarantee is Two Million Dollars.
ROB: And does the borrower have to pay any points?
TERI: I’ve not heard of that being associated with commercial lending.
ROB: Closing costs?
TERI: Generally, yes.
ROB: And the borrower has to guarantee the loan, but that’s typical of any bank loan isn’t it?
TERI: It’s pretty standard practices in commercial lending that the principals of the company that’s to borrow put up personal guarantees. We require that if someone has more than 20% ownership interest that they have to provide guarantees.
ROB: Now there’s another program that you have called the 504 Program, right?
TERI: That’s correct. And that program is geared towards fixed asset financing. So land, buildings, long-life machinery and equipment for production purposes. It cannot be used for working capital or purchase of inventory, whereas with the 7A Program which we just talked about, those would be eligible uses of proceeds for loans with that 7A guarantee.
ROB: Are the qualifications otherwise the same as the 7A Program except for the fixed asset?
TERI: Pretty much. The other component is that it has to meet an economic development objective. That can be achieved in a couple of ways. A certain number of jobs will be created or retained. Usually that would be one per every $65,000 of the SBA 504 loan. If a project does not meet those job creation requirements, then the loan has to meet other public policy goals or development objectives. For example, if the project is in an area that is slated for revitalization, there’s a revitalization plan for that area, that would make it an eligible project. If it is in an area that has been impacted by federal cutbacks, like probably here in the next few years, you’re going to have the closure of Fort McPherson and Fort Gillem, army installations. So the areas around those installations, projects in those areas would probably be eligible.
ROB: What is the interest rate on the 504 Program generally?
TERI: The 504 loan is pegged to the U.S. Treasury rate versus the prime. It depends on what the U.S. Treasury rate is. The five-year loan rate applies to a ten-year loan; and a ten-year loan rate applies to a twenty-year loan.
ROB: Now with what’s going on in Washington, have there been any changes in these two programs to try to help get us out of this recession?
TERI: Yes. Of course back in February, the America Recovery and Reinvestment Act, or as a lot of people know it as the Stimulus Bill, was signed into law. There were several provisions in there related to SBA programs. First of all, on the 7A Loan Program, the maximum guarantee is normally 75% of the loan for loans over $150,000. Under the Recovery Act, there is a temporary increase in the guarantee up to 90% for these loans. And that’s very significant because that means higher guarantee equals less exposure for the lender and reducing their risk. So the idea would be with the higher guarantee, lenders would be more inclined to approve loans that maybe they would not do in this current environment under their regular underwriting criteria.
ROB: Oh, definitely.
TERI: But both the 7A and 504 Loan Programs, there are fees attached to the guarantee of the loan, and the fees are a way for us to try to offset some of the costs for the program for the taxpayer by having the actual user or the beneficiary of those guarantees assume some of the costs. Under the Recovery Act, there is a temporary elimination of the fees for the borrower. Of course, that would make the transaction less costly, and then that’s money that the borrower can then put into the business to help them to continue to operate and to prepare for recovery as we move forward through this economic downturn.
ROB: How much was that fee that’s been eliminated for the time being?
TERI: In terms of?
ROB: Is it a percentage?
TERI: On the 7a Program, it is a percentage depending on the amount of the guaranteed portion of the loan. It can be anywhere from 2 – 3.75%, depending on the amount of the guaranteed portion. Generally on the 504 Loan Program, the fees are approximately 3% of the transaction.
ROB: Got you. What is the America’s Recovery Capital Program?
TERI: The America’s Recovery Capital Program, or ARC Program, is a measure to try and assist small businesses that have existing business debt, to help them be able to cover that debt during this time of economic difficulty. Basically, the loan is a 100% guaranteed loan. It’s still made by a commercial lender. However, the borrowers would not have to start repayment until 12 months after final disbursement of proceeds from that loan. There would not be interest for the borrower on that loan because the SBA would cover the cost of interest over the life of the loan. The loan could be up to $35,000, and cover up to 6 months’ worth of principal and interest payments on non-SBA related debts that the small business may have.
ROB: Is there a cap on that program on how much you can borrow?
TERI: $35,000 is the max.
ROB: Are there any special criteria that you have to meet?
TERI: Well, we’ll be getting more details actually next week.
ROB: Oh, it’s new!
TERI: Yeah. It was part of the Recovery Act. Actually our administrator will be making an announcement early next week to rollout more of the details on how the program works. But based on the statute, the business has to be viable. So in other words, it could not have been in trouble prior to the economic downturn, and that there’s a likelihood that it will be able to survive with the assistance of the loan. But at the same time, the business has to be in a position where it is having difficulties making its existing loan payments. It cannot be a matter of they can pay it but they choose not to pay it. There has to be a difficulty there for them.
ROB: Terri, who decides whether they qualify? Is that something the bank does or does what?
TERI: Well, the bank would … It would work like our guaranteed loans. They would do an evaluation, and we will be providing them criteria and guidelines on what that would be. Then they would make a recommendation to approve the loan, and then meet the requirements for a guarantee from us. And then we would, based on their analysis and our analysis, go ahead and approve the guarantee if it qualifies.
ROB: What is the Surety Bond Guarantee Program?
TERI: It works very similar to the loan guarantees, except it’s on surety bonds which, of course, businesses that are in construction or construction related industries are often required to put up a bond. Surety bonds are often required to submit bids or for payment, and also for performance. In case there’s a problem with performance, the surety would be responsible for getting that work completed. The bond covers against that. A lot of times, small businesses have difficulties acquiring surety bonding through regular conventional channels, just like small businesses have trouble a lot of times getting loans through conventional commercial channels. So the Surety Bond Guarantee Program once again tries to encourage surety companies to issue bonds to these small businesses by reducing their exposure on the bonds. The SBA would guarantee anywhere from 70-90% of the bond value.
ROB: Is there any cap on that?
TERI: Well normally the maximum contract that would be eligible for a surety bond guarantee from the SBA would be Two Million Dollars. However, as part of the Recovery Act, there is a temporary increase in the maximum contract value from Two to Five Million Dollars. Then there also are provisions that are in the works where that could go up to Ten Million Dollars in terms of a maximum contract amount, if the contract is a federal government contract and the contracting officer that’s responsible for that contract certifies that up to a Ten Million Dollar bond is necessary in order for that company to be able to receive the contract.
ROB: Is that increase in effect now, so potentially a bond guarantee could be that much?
TERI: No, the Five Million Dollar threshold is in effect. There’s a little more guidance that was needed for determining when a bond between five and ten million could be guaranteed. We’re looking forward to that being finalized here in the near future.
ROB: Terri, what is the Small Business Investment Company Program?
TERI: The Small Business Investment Company Program, or SBIC Program, is a program that focuses on equity investment as opposed to debt as a means of providing financing in a company. That could be straight equity or it could be convertible debt, an instrument where’s initially a debt, but, depending on the performance of the company with the infusion of cash, the SBIC could have the option of converting that to an ownership interest at some point. The SBIC Program is pretty much run through our headquarters office, the Office of Investments. So we don’t really work with it a whole lot here at the local level. But I know we have several licensed SBICs in Georgia who serve the state and the southeast part of the country.
ROB: Do they get their funding from the SBA, or do you know how they’re tied to the SBA?
TERI: Yes, the SBA licensed them to operate as small business investment companies. There is an application, an evaluation process, involved there, both a paper application and then an actual presentation by the management team of that perspective SBIC to our Office of Investments. They are required to raise a certain amount of capital to bring to the table if you will, and then the SBA matches that capital. There’s a formula for doing that. So the SBA’s role would be to help the SBICs leverage more capital that would be available for investments in small businesses.
ROB: Is there any program that the SBA has that we haven’t talked about that you can think of?
TERI: Well, in addition, you know, we’ve talked about our financial assistance and our management and technical assistance. We do have programs related to government contracting. Some of those, we work with in our office. Others are handled through a separate office within the SBA, the Office of Government Contracting. For instance, here in the District Office, we administer the Section 8A Program which has been around for probably about 25-30 years. It focuses on helping small businesses that are majority owned and controlled by disadvantaged individuals. That could be minorities or others who meet the criteria for social and economic disadvantage as is defined in our regulations. This helps them enter the federal procurement market as well as to receive other business development assistance from us. We also have through our Office of Government Contracting a Certificate of Competency Program that a lot of people don’t know about. If a small business is the apparent successful offerer or low bidder on a government contract, but maybe the contracting officer still doesn’t feel that the company has either the financial or technical capability to perform on that contract, the contracting officer can request the SBA to do a Certificate of Competency analysis on that company. Sometimes our office helps out with that if there’s a question as to the company’s financial capacity. Others will look at the technical aspects of the company to see if they have the technical wherewithal to perform. Based on that analysis, if the SBA determines that the capacity, both financially and technically is there to perform, then the contracting officer has to award the contract to that small business. So it’s a way for small businesses to get a little bit of additional leverage to get their foot in the door in federal procurement.
ROB: I see. Terri, if anybody wanted to find out more about your programs, what should they do? Should they go to your website or should they call?
TERI: They might want to start off with our website because that would give them a good overview of the full range of SBA products and services. They can go to our main website of the Agency, which is http://www.sba.gov/. It provides information on all of our programs, not just the ones you and I have talked about here but others that are part of the agency’s offering. We have a lot of business how-to information. We have online training courses and evaluation tools in terms of if you’re thinking about starting a business — am I really the entrepreneurial type — What types of things do I need to consider to help me decide what would be the best business to go into — or, how I might structure that business – and where to go to obtain information! Who do I see about an employer identification number, or who do I talk to about wage issues at the Department of Labor? There is a whole lot of information there [on the Agency’s website].
ROB: Now small business is a big part of the commercial activity in the United States isn’t it?
TERI: Yes, small business has a very prevalent role in the economy. I’m truly convinced that small business is the reason the American economy is so dynamic. Even though we’re struggling now, I think a lot of that dynamic will help get us out of the situation we’re in now.
ROB: Do you happen to know off the top of your head what percentage of new jobs come from small business? By that I mean I think the general definition is something like businesses that have revenue that’s maybe less than twenty million a year and starts at zero, that goes from zero to twenty million a year.
TERI: Actually, what constitutes a small business is … there’s a short answer and long answer to that. However, our working definition is a business that has fewer than 500 employees. In some of the specific programs, there are more specific criteria as to what constitutes a small business. But I think based on most people’s definition of a small business in the public sector anyhow, probably anywhere from 50-70% of new jobs are generated by small businesses.
ROB: Terri, thanks a lot for being on today. You’ve been very, very informative.