SBA leader says economy has turned corner

As the administrator of the U.S. Small Business Administration, Hector Barreto oversees financial and business development programs for the nation’s entrepreneurs.
The SBA has a portfolio of more than $45 billion of direct and guaranteed business loans and disaster loans. The SBA is the nation’s largest financial backer of small businesses.
Barreto is an entrepreneur himself. He founded Barreto Insurance and Financial Services in California and later started another business as a securities broker/dealer specializing in retirement plans.
Barreto, who was appointed to the top job at the SBA by President George Bush in 2001, was in Milwaukee recently to deliver the keynote address at the National Credit Union Administration’s economic empowerment summit. During his visit, he spoke with Small Business Times managing editor Andrew Weiland. The following are excerpts from that interview.
SBT: What is the state of the SBA?
Barreto: "We’re on track to have the best year in our 51-year history. We’ll do more loans this year than ever before. We’ll reach more communities, especially the fastest-growing segments of small business, which are women-owned and minority-owned small business. We’ll do more veterans loans, we’ll do more rural loans. We are also going to train more people.
"This year, we’re on track to train over 2.1 million small business persons. We’ll facilitate more contract opportunities for small businesses as well. We have a number of different initiatives that match up small business with federal agencies and a lot of Fortune 500 companies. We never used to do that before, and we set up about 20,000 of those appointments over the last two years. The federal government just reported our contracting numbers for the last year. We surpassed the year before by over $13 billion. We did $65.5 billion – 24 percent of all federal contracts went to small businesses."
SBT: How would you describe the state of the U.S. economy?
Barreto: "Many small businesses are feeling much better than they were a year ago. They’re starting to hire people again. Also, they are purchasing more. A couple years ago when we would visit those small businesses, they would say, ‘I think the economy could turn around, but I’m not sure yet. I’m not going to buy that piece of equipment, I’m not going to buy that technology I need and I’m definitely not going to hire anybody.’
"Well, over the last year, that’s changed. Now a lot of these small businesses are saying, ‘You know, once that jobs and growth package got passed in Congress and incentiveized us by lowering our top marginal tax rate and by quadrupling the business deduction, that was kind of the green light for us to go out and start doing those things that we hadn’t been doing before. On top of that, what we started noticing is our customers started coming back, which made us even more bullish.’
"Now, having said that, small businesses still have challenges. They’re concerned those tax rates are going to go back up. They tell us that the fastest-growing cost is health care and that they need some relief. They’re seeing double-digit increases in their health insurance premiums, whether they use the plan or not. So, we talk to them about the things we’re doing at the federal level, for example health savings accounts, which is a great tool for them to lower their premiums.
"One of the other things small businesses are worried about is excessive regulation. The SBA has been able to document that we’ve saved small businesses over $6 billion in regulatory costs, and from the inception of the administration, over $30 billion. We need to do more of that. It’s not to say that all regulation is bad, but when there is regulation that is redundant, excessive regulation that hasn’t really been looked at for years, we can do a better job of at least streamlining those processes and eliminating redundancies.
"Another area they are concerned about is excessive lawsuits. Many small businesses are worried they are one bad lawsuit away from going out of business. They’re also interested in new opportunities, new markets. I referenced federal procurement, but also they are interested in international trade. And it’s not surprising when you consider the fact that 97 percent of all companies in the United States that do exporting and importing are small businesses – over 225,000 companies. The challenge for those companies is they only represent 30 percent of all the trade that’s going on, so there truly is an opportunity to grow that pie for them."
SBT: Some people criticized the administration a few months ago for saying that outsourcing was good for the American economy. Some small-business owners in our readership have complained that they are having trouble competing with these large, multi-national corporations that have work done overseas for extremely low labor costs. How do small businesses here in the United States compete in the global economy with low-cost labor overseas?
Barreto: "Well, I think they compete very well … We have to understand there are millions of jobs, many, many more jobs that come to the United States, good-paying jobs. The president also says the "Made in America" label means something around the world. It means quality. The president believes that the small businesses of America can compete with anybody in the world, but what he wants is a level playing field.
"That’s why we’re engaged with countries all around the world. I recently returned from a trip to China with the President’s Export Council. We talked to the Chinese government at the highest level about the necessity to have entries into that marketplace, to take some of those barriers out. The Chinese government said to us that may be one of the ways we can decrease our trade deficit. As far as small businesses and how they compete, we have an office of international trade at the SBA where we provide loans to people that want to do exporting. We can provide training, we can facilitate access into different countries and networks."
SBT: Is that the answer to competing in the global marketplace – to find those opportunities that are out there overseas?
Barreto: "Small businesses have an excellent opportunity to do international trade. And it may not be head-to-head with a company in terms of labor cost, but it may be because of technologies that small businesses create that companies in other countries do not have. Small businesses provide a number of different services and consulting that can also be utilized by emerging markets around the world. So, there are a number of different areas where small businesses can compete. I believe there is a desire and an interest. They just need some help to do that and that’s what we’re endeavoring to do."
SBT: What about small retailers trying to compete with big-box retail chains such as Wal-Mart? When these big-box stores come to town, some small retailers complain they can’t compete.
Barreto: "I know there’s concern about that, and I know it definitely does affect some small businesses. But in our travels around the country, we have seen small businesses that are competing with the big businesses. And that might not even be the right way to describe it, competing head-to-head. Let me say it another way. Small businesses that are in that situation, what the successful ones do, is they find their distinct competitive advantage. They identify how they are different than the big box.
"It may be service, it may be different hours, it may be they carry products that the big house doesn’t carry, it may be something they do that really specializes them, and that’s what I think engenders the loyalty of their consumer base. Now, if they were trying to compete head-to-head with a Wal-Mart on price, they’re not going to be able to. Wal-Mart has the economies of scale, the purchasing power and the leverage. But if a small business identifies these other areas to compete, I think they can. Again, that’s an area where SBA can be very helpful. Help them to transition their business plan, help them to identify new models for them, new opportunities."
SBT: Has the SBT budget under the Bush Administration gone up, gone down or remained the same?
Barreto: "The president has given us good budgets to allow us to accomplish the mission of the SBA. For us, our bottom line is, can we do more loans? The answer to that question is, yes. Are we training and counseling more small businesses? The answer to that questions is, yes. Are we helping small businesses get more contract opportunities? The answer to that question is, yes. That’s our bottom line, and in business, that’s what you care about. What is the bottom line? Are you able to produce more? And in that situation we are. I will also tell you that this year the president signed some legislation that gave us $3 billion more budget authority in our flagship loan program, the 7(a) loan program. It took it from $9.5 billion to $12.7 billion this year. Not only is it a 30 percent increase in budget authority on our flagship loan program, but it also is going to equate to about 30,000 more jobs in the economy. So, this president has been committed to making sure the SBA has the tools that it needs to do its job."
SBT: So would it be correct to say the budget for the SBA has gone up?
Barreto: "Well, I would say to you that our budget authority has gone up, but in terms of total dollars, no, I wouldn’t say the total dollars have gone up. See, what we have learned is what the SBA needed to do was operate much more efficiently than we had in the past, we needed to be more effective. That’s what our customers wanted."
SBT: How often do you meet with the president, and what is he like to work with?
Barreto: "Well, I am very fortunate, I have traveled extensively with the president of the United States. And the reason for that is because small businesses have been top-of-mind for him since the beginning of the administration. I believe that I am one of the only SBA administrators who was ever a small businessperson. What a novel concept, put somebody that has actually been in small business as the head of the SBA, and that’s what our president did. I’m honored to work for him … I love working for him, he’s a great boss and he’s a great leader."
Biobox:
Hector V. Barreto
Title: Administrator, U.S. Small Business Administration
Education: Bachelor’s degree in business administration from Rockhurst University, Kansas City, Mo.
Past professional experience: South Texas area manager for Miller Brewing Co., founder of Barreto Insurance and Financial Services, launched a business as a securities broker/dealer specializing in retirement plans.
Past business group service: Chairman of the Latin Business Association in Los Angeles; and vice chairman of the board for the U.S. Hispanic Chamber of Commerce
Family: Barreto and his wife, Robin, have a son and two daughters. His father, Hector Barreto Sr., founded the U.S. Hispanic Chamber of Commerce.
August 6, 2004, Small Business Times, Milwaukee, WI