Name: Patrick K. McGowan
Position: Small Business Administration New England Administrator
Backround: Appointed administrator in 1993; 10-year legislator in Maine State House of Representatives; owned a small business in central Maine
Residence: Maine
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PBN: What are the major small business issues in Rhode Island and the New England region that you’re working on?
McGowan: We’re the only agency in the federal government set up to help small business. You go back to where we started, which is with President Eisenhower. He warned us not to become too dependent on a military industrial complex. Obviously, Newport is an area of the country that has become very dependent on military dollars, (as has) much of this regional economy. We haven’t jumped into a lot of the international effort that other parts of the country have; we have a lot more work to do in the transition of our economy to a free-market, world focus. We just saw the federal reserve bump up (the) prime lending rate, and these good times in the economy will not go on forever. So we need to make sure that we’re ready to help the small businesses when things get a little tough. We can help them into our venture capital program and we can help them into a program that I think is way underutilized – in Rhode Island it’s underutilized – it’s called the 504 Loan Program. Basically it’s a fixed-rate commercial loan for 20 years for real estate equipment. Small businesses haven’t seen fixed rates like this ever. In the last 50 years. It’s a great deal.
How will the proposed merger of Fleet Bank and BankBoston affect small businesses and the SBA?
It is a big question for us. Fleet independently is a very good small business lender, they’re one of the top small business lenders in the country. BankBoston has continually been one of our number one small business lenders in New England, and has a group of individuals and professionals that are committed to small business. Now, if I looked at this in the positive sense, I would say that we will add the BankBoston loans to small business and the Fleet loans to small business and then (have) an infrastructure that is poised to do much more. And that’s where my hopes are. But then there’s another side of me that says: ‘In the last round of bank failures and bank mergers, small businesses did not fare that well.’ And in all fairness to the banks, they’re all focused inward on making the merger – people are worried about their jobs, where they’re going to end up. So, I can’t fault them. But at the same time, small businesses could suffer in a merger of this size.
In a recent speech, Federal Reserve Chairman Alan Greenspan said minorities still have more difficulty obtaining capital than whites. The SBA already has programs to assist minority entrepreneurs. Is there anything more that it can do?
Much more. If you look at the U.S. economy you’ll see those factors that are giving our economy that extra boost are the factors of women business ownership and minority business ownership, and a lot of the efforts that are happening with veterans and in rural areas. That’s a big plus. I was in Italy, I had to represent the government in Italy on what we do for small business. They don’t treat their small business people the same way we do. There’s sort of a class distinction. They don’t promote the spirit and drive the way we do here in America. We’re the envy of the world in that way. And we can do a better job. Greenspan’s point was, if you’re not looking at where the numbers are in America, that in 20 years we will no longer have a white majority in the country. To leave those people behind is a major mistake. We need to serve the marketplace, and the marketplace tells us that these folks are starting businesses at a record rate.
How would you rate the level of Congressional support that the SBA now receives?
We have great Congressional support in Rhode Island. Reed, Chafee, Weygand, Kennedy all support us, which is not always the case. We have some Congressmen that are trying to devastate our budget. The support that we get in this region is very good. But there’s a House and Senate version of our budget floating around that would basically shut down our operation budget, so even if they compromise we’ll have to lay off a great number of people, which to me is very odd. We’ve had 19 million new jobs created in the last six years and 85 percent of those jobs have come from small business. I don’t understand it. I can see why you might scale back some other agencies whose mission might have changed. Now we have a U.S. economy that’s had its greatest growth spurt in the past six years that it’s had in the past 50 years, continuous growth, and we’re going to cut the only agency in government that’s set in motion to help the (small businesses).
The Rhode Island SBA office seems to be particularly active among district offices. Why, would you say, is that the case?
I’m very proud of what we do in Rhode Island. They’re the first office in the country to meet all of its lending goals. And that’s a story in and of itself. There are 69 district offices with much more staff, with many more resources. We meet up as a region a couple times a year, put everybody in the same room. And that way we acknowledge that none of us are islands. We’re only here to benefit from each other’s work. The SBDCs (Small Business Development Center) the SCORE people (Service Corps of Retired Executives), the women’s business centers, the banks, and they’re here to partnership with us. I think that Rhode Island has one of the best partnering efforts in the country. It’s good (the state is) small. You can spread the magic, so to speak. You can spread the product very easily in Rhode Island, which is a problem in some of the larger western states. I’m from the state of Maine, and we have problems up there in the delivery of our services in rural areas.
People in the Rhode Island district office are committed to the mission of helping small businesses. And that hasn’t always been that way in Rhode Island, in a lot of district offices. The people that are here now are committed to the mission, and they get up every morning, not with a bureaucratic, government employee mindset, but, ‘How can I make a difference in small businesses, today?’
The SBA is starting to sell some of its assets. What impact will that have on its operations?
There’s a lot of debate on that. Number one, it was mandated by the Congress that we sell our assets, and not to hold so much internally. There’s good and bad in that. An example: Ben & Jerry’s Ice Cream. If we had sold their note, on the secondary market, they wouldn’t be in business today. Because they received seven loan deferments during the course of their business from us, and I know the loan officer who gave them the deferments, so basically it was a cash flow issue. They sold a lot of ice cream in the summer, it was a great business. They got to those winter months when ice cream was slow, and they couldn’t make their payments. So we gave them a deferment on their payment, working with the bank. Now, whether or not the people that buy these assets up would do that, it’s another thing.
But in the positive side of selling assets, it gives the SBA people that were normally handling portfolio management, a chance to get out and do our mission. It’s a different office than it was a few years ago. We don’t look at all the loans. I had an office in Boston when I arrived that was 55 people. It’s four people now. Many have retired, many have taken outs with the government, but some of them went to the district offices where our real mission is, on the streets of Rhode Island, and America. But there are ups and downs to asset sales.
The SBA made about $90 million in the first round of asset sales. Does that help re-capitalize the administration?
No, it doesn’t. There’s no direct provision that allows us to use that as an offset. And it’s the way our subsidy model is set up. I’ve always wondered why we have such a tough time with our budget, getting it through Congress, when just one company, Intel, pays more in federal taxes than our whole entire budget, and they received help from the SBA when they got going. So they wouldn’t be there without SBA, and now SBA is helping generate all the revenues to the taxes Intel pays. We have a good portfolio, we have a performance package in our loans. The sale of assets is going to happen. I’m not totally sold on the sale of assets, but we had to do it, and we did it.
Does the SBA help companies take advantage of Brownfields?
We do. It’s been an area that we’ve treaded very lightly in historically, but we are available to help those companies. We know that’s another issue in Rhode Island. Environmental Impact Statements are very expensive for small businesses. And the SBA can help offset those costs with its loan guar antee. But there are other funds for Brownfields. EPA has a fund, but we have helped many companies.
When a company that uses old-line processes comes to the SBA for a loan guarantee, do you tell the company that it should invest in technology?
We don’t give them that advice. And it’s probably just as well, because, who are we to tell them how to run their business? We look at their plan, if it’s well thought out. We don’t tell people what to buy, how to manage it. Sometimes we might suggest something, or SCORE might suggest something, or the Small Business Development Center. That’s one of the things Greenspan said as well, that technology has saved thousands and thousands of man hours, millions of man hours in the U.S. economy, which has allowed us to be that much more productive, allowing us to be the best economy in the world, the best economy in half a century. So, for us to give a guarantee to a business without that factor would be a little (bit) blind of us, but we don’t tell them they have to do it.
How do you see the SBA’s role expanding in Rhode Island and New England-wide?
In New England we base our service on how many loans we give to the number of businesses that are there. In Vermont we have one out of every eight businesses with a loan guarantee. In New Hampshire, one out of 12. But we’re working to get those numbers the lowest that we can so we’re impacting a great deal of the New England economy. I would like to see our loans to women and minorities grow. Women, especially, in the last 30 days of the fiscal year. We know that there are women out there today that are financing their businesses with credit cards and paying exorbitantly high rates, and we want them to come to SBA to get a women’s pre-(qualification) program, we would pre-qualify them for a loan, or a micro-loan, or something to get them out of that high interest rate. I’ve always thought, in the small businesses that I’ve owned, where my dollars were going, and I didn’t mind paying for labor, I didn’t mind paying for insurance, interest was a very bothersome payment for me.
