Small Business Recovery Tips from Former SBA Chief Karen Mills

As part of our ongoing coverage to help small businesses like yours get through the coronavirus outbreak, we wanted to bring in leading experts on finance, small business, and economic recovery to guide you on the best ways to respond. 

In this interview, our CEO, Eric Groves, sat down with Karen Mills, former chief of the SBA amidst the 2008 recession, small business owner, Harvard professor, and author, to hear her advice on how you can adapt, where to turn for financial help, and what to expect going forward.

For more help, resources, and tools, visit our Coronavirus Resource and Recovery Center for Small Businesses.

Webinar Transcript

Eric Groves:

Hello, my name is Eric Groves and I'm the co-founder of Alignable, and I wanted to welcome you to our remote Fireside Chat with Karen Mills. Karen is one of the leading experts on small business financing as well as government recoveries. And throughout her career, she's not only run numerous small businesses, but she also led the Small Business Administration through the economic recovery post 2008. And she recently wrote a book about fintech, and in her spare time is teaching entrepreneurship at Harvard Business School. 

Welcome, Karen. Great to have you here.

Karen Mills:

Thank you so much and thank you for all you're doing for small businesses with Alignable. It is great to see small businesses have a place where they can come together, particularly in this crisis, in these difficult times.

Eric Groves:

Thank you so much. It is an enormously challenging time for small businesses and there's a lot of confusion out there. So having the opportunity to hear from you as someone who's been in the government and understands how the wheels turn is just a phenomenal opportunity for our members.

What Should Small Businesses Expect In the Near Future?

Eric Groves:

I think it'd be great if you could sort of share your thoughts around the current state of the economy and how it compares to where we were in 2008 the positives, the opportunities that you've seen now that weren't there and really paint the picture of what do you think people should expect over the next couple of months?

Karen Mills:

Well, to all small business owners, I know that there is a lot of trouble in the economy right now for you, and I think the good news is that Washington has recognized this. Half of the people who work in this country own or work for a small business, so that's half the jobs. But a lot of times, macroeconomists ignore small businesses in the solution. They worry about consumers or big businesses. 

And I was very happy to see and work with Congress on a bill that puts small businesses as the number one item, number one article and put a number like $349 billion behind the effort. Because we are really going to need it.

Karen Mills:

This crisis strikes at the heart of main street, small business owners and individual sole proprietorships. And I know all of you are doing whatever you need to do to keep yourselves and your family and your clients and your customers safe. 

But it really is at a cost of the revenue, the cash, the livestream of your business. One of the questions is, I'm sure on your minds, how can you get through this?

Eric Groves:

Absolutely. And as we think about back in your book, you pointed out this. The average small business owner having 30 days of cash on hand and in some industries shorter than that.

Karen Mills:

Yeah, there's a statistic out there from JPMorgan Chase Institute, 27 days of cash buffer is the average for small business owners. But many on main street restaurants, it's 16 days. I know a lot of you, when the spigot gets turned off, have had to reduce expenses and let employees off and go on unemployment. 

And I know that you all want to keep your employees because they're like part of your family. 

One of the things that I am hoping we will be able to accomplish as the new bill comes out is people will be able to get forgivable loans in order to keep their employees on the payroll. And that's good for the employees too because they need the money.

What Funding Options Should Small Businesses Know About?

Eric Groves:

Absolutely. And from what you've seen in terms of your interactions with the folks in Washington, what do you think is sort of a realistic timeframe? 

I'm not holding you to it, but in terms of what should they expect to happen in April and what will linger on into May in terms of this $350 billion funding bill getting pushed into the market?

Karen Mills:

Well, there's two sources right now of money for small business owners that I want to make sure everybody's aware of. The first is SBA Economic Injury Loans and we use these to great effect in the BP oil spill. And they are not given out through banks. They're given out directly from the SBA, and actually they're used if your roof blows off in a hurricane. 

But there's a special kind of disaster loan, which is for economic injury and that loan is actually perfect for this moment. It's a very long-term loan. It's not forgivable, but it's about 4% interest for 30 years. It's available today through the SBA as long as your governor has declared a disaster. I know that they are gearing up to get those loans out.

Karen Mills:

When we did them in the BP oil spill, we got them out very quickly, but that was only one region. Now this is happening across America. Seven billion dollars is authorized. It was authorized more than two weeks ago, so that money should get flowing. 

The SBA is a little bit like an aircraft carrier. It doesn't turn too fast. But once it gets going, it is a powerful source of liquidity for small business owners. I would look there. A place to go is the SBA website. Those are direct loans.

Karen Mills:

The $349 billion that was approved last week in Congress's bill that goes out through banks. The first place to look is for your existing relationship with an existing bank or a bank in your area that might be advertising that they are going to provide these loans. 

And the good thing about these loans is that there's a provision that they are forgivable. They turn into grants if you use them to pay payroll and to pay certain other expenses like your rent and your utility bills. That could be very, very useful and it's eight weeks worth of money that could be forgiven.

Related Content: How to Take Action on the CARES Act Funding Options Now

When Might The CARES Act Funding Options Be Available for Small Business Owners?

Karen Mills:

The problem with these is that deployment is going to be very bumpy. When I ran the SBA, we did quite an intensive effort and had a record year of getting SBA loans out and we did $30 billion in one year. This is $349 billion in a couple months, so I worry that it's going to be glitchy. 

I'm working with a lot of folks. Eric, you mentioned that I've worked with fintechs like Square and PayPal, Stripe, others and they know a lot of small business owners, and they are working very hard in order to figure out how to lay some pipe out that they can get the money out and then connect to this fire hose in Washington of funds.

Karen Mills:

It's not done yet, but I have been told that a lot of the met with Treasury Secretary Mnuchin yesterday, and I'm doing everything I can to make sure that they are also a possible pipeline. 

I say, let's let a thousand flowers bloom and get all the sources out there. And then, Eric, on Alignable you can let small business owners tell each other what the best source is.

Can Small Businesses Apply For More Than One Loan?

Eric Groves:

Fantastic. That's great insight. And is there any sort of issues in terms of if you get one type of loan, you're not eligible for the other or are they both independent paths and you should go after them both?

Karen Mills:

What the legislation says right now and the guidance says is that you can actually get both, but you have to attest that you have not applied for two loans to use for the same purpose. Because that would be double-dipping, that would be wrong and you would be taking away money that some other small business needs to pay their employees. 

You can get multiple sources of financing if you use them, maybe one to pay your rent, one to pay your employees.

How Can Small Businesses Be Sure They're Working With Valid Lenders?

Eric Groves:

Because in situations like this, it's often you've got so many people trying to do so much good, but then you also have unscrupulous people that are that are doing things and running scams. 

What's the best way to actually know that when you're talking to a financial institution or a lender that they are really certified to be part of this program?

Karen Mills:

I would make sure that you are talking to a bank or someone with whom you have a financial relationship. This is not the time to go through a broker or some other conduit. 

It really is the time to make sure that you have a direct access into these pipelines that are going to be made through credible financial institutions.

Is It Difficult to Apply For The CARES Act Loans? 

Karen Mills:

You shouldn't need a lot of help filling out the forms. One of the things that Congress has done well and we push them to be as simple as possible, and so the application is one page. You have to provide some attestation about that you are a real business, that you have some documentation about your payroll. 

But you should be able to do this, we hope, yourself directly with a bank and then get in the queue as soon as possible. And you can work with multiple institutions as long as you only take one loan.

+ Paycheck Protection Program Loan Application

Eric Groves:

Great advice, and I will attest to the fact that I also went online at thesba.gov website, downloaded the sample form to see how simple it was. And coming out of Washington, it's probably the simplest thing I've ever seen come out of Washington. It's fantastic.

Karen Mills:

Well, that's what we need. We need really as simple and focused as possible, and as quick as possible.

How Will This Make Small Businesses Stronger in the Future?

Eric Groves:

Karen, let's close on sort of looking forward into the future, and so the optimistic outlook of recovery. Because that's what we're focusing on with our members is really how do we bring community together in terms of setting themselves up to recover quickly from this. 

Because unlike other disasters, I mean this isn't a physical infrastructure that's been blown apart. This is something completely different. That all of the infrastructure is still there and we should be ready to recover.

What do you see that's going to come out of this sort of challenge that we're going through today that's really going to make small businesses stronger in the future?

Karen Mills:

Well, one of the things that I hope is that small business owners will take advantage and get access to this funding. Because if we lose a lot of small businesses, it's very hard for the economy to recover; and particularly when small businesses lose their valued and treasured employees, and then they have to kind of restart. We saw this in '08, '09.

Karen Mills:

I think we need to be prepared for the fact that this may not be over as quickly as we all hope. That we have to put public safety and the safety of our family and ourselves and our employees first. 

But staying prepared to reopen is important, and keeping the mindset that this will pass and that there will be economic opportunity on the other side. 

Don't give up. Don't get too afraid. Small businesses are resilient. 

Take advantage of every access and ask your customers for forbearance. Ask your landlord for forbearance. Your landlord wants you to be there in the recovery. Ask your bank and your debt holders for forbearance and tell them that you will be there to recover with them if they can give you a little bit of time.

Karen Mills:

And I think if we all sort of join hands and work together on this, I know many people are buying gift cards. I went down to Main Street in New Brunswick here and bought a bunch of gift cards so that I can kind of pay it forward a little bit. 

And I'm telling all big businesses, pay your small businesses in your supply chain early. Don't stretch those payables. Pay them now, make sure they have the money and then they will be there for you to be the supply chain of the future.

Eric Groves:

Well, what fantastic advice. I can't thank you enough. On behalf of almost five million small business owners, thank you. We hope you'll come back and join us again in the future when you tell us more about what's happening. 

And everybody else out there, just stay small business strong and we'll get through this together. Thanks so much, Karen.

Karen Mills:

Absolutely. Thank you, Eric.