Thank you for joining
us for Managing
Through the Crisis, where we've
been bringing you conversations
with Harvard Business
School faculty
on what business leaders and
organizations can do to manage
through this crisis that
we find ourselves in,
truly unprecedented times.
Today, we're going
to be focusing
in on small business,
which really seems
to be bearing the brunt
of the impact so far,
the economic impact
of the crisis.
And we're really fortunate to
have with us today Karen Mills.
Before joining the
faculty here, Karen
was the chief administrator
of the Small Business
Administration under
President Obama.
And she knows this
subject inside and out.
And she's been really busy
at work trying to make things
better for small businesses.
Karen, thanks for joining me.
Thanks very much for having me.
You know, we've got
some questions for you
today, some that
we're going to do just
to sort of set the landscape.
But we've got questions
that some of our viewers
sent in that really get to
the heart of their concerns
about small businesses.
And I know you'll be able to
give them some good counsel
and advice.
I just want to start by
asking you, how are you doing?
You've been working
pretty hard on this.
I would have to say I
am flat-out, right now,
trying to get this last part
of the bill through Congress
because small business
is really under duress.
And it looks like some
of the things that
are going to happen in this
bill are going to help.
So whatever I can do,
I've been trying to do.
That's great.
You know, we hear a lot
about small business.
People know that it's
an important part
of the economy of the country.
But can you just paint
a picture for us, like,
how important is
small business overall
in the American
economic landscape?
Well, small business
is a critical part
of the US economy.
And in fact, at
this moment, I think
people are realizing
how important it is.
Half the people who
work in this country
own or work for
a small business.
So that's half the jobs.
There's 30 million
small businesses.
24 million of these people
actually are self-employed.
They are the gig
economy workers.
So they're a critical part
of the small business land.
And right now, as you know,
this part of the economy
is under extreme duress
because of the virus.
Yeah.
I've read that most
businesses probably
weren't as well-prepared
as they might have
been for something like this.
I think most American
households probably
weren't as well-prepared as
they would like to have been.
But can you give a
little more detail
into how well-prepared most
of the small businesses
might have been
coming into this?
Small businesses have
very low cash buffers.
We know this is true
of some individuals,
as well, that they don't
have $400 to weather a storm.
Small businesses have, on
average, 27 days of cash
buffer.
And we know this for sure
because JP Morgan Institute,
which is the not-for-profit
research arm of JP Morgan,
has at its disposal
all of the data of all
of the bank accounts of 3
million small businesses
anonymized.
And a few years ago, they
looked at the cash balances,
and they found that
America's small businesses
have a month's worth of cash.
And people like
restaurant owners,
they have only about
17 day's worth of cash.
So even if you are
prepared, if suddenly you
have to shut your doors and
your revenue stream goes
to zero, or maybe just a
fraction, 10% or 20% of what
it used to be, then if you
continue to pay your workers
and pay your rent, you
will be out of money
in somewhere between two
weeks and four weeks.
And when you run out of cash as
a small business, you're dead.
So we have a real
crisis on our hands.
And small business owners have
already shuttered their doors.
We just saw 3.3 million
people file for unemployment.
And I would bet over
half of those people
are small business employees.
Karen, you were seeing the 2008
recession sort of up close,
more so than most people.
Can we learn anything
from what happened there?
Are there similarities?
Or is this just
fundamentally different,
what's happening today?
Well, the first quarter that
I was in office in 2009,
we lost 1.8 million
small business jobs.
And we were able to do some
things with the SBA loan
guarantee program.
And we got 1,000 banks back to
lending, and we did $30 billion
of SBA lending that
year, record number.
So that was a pretty
traumatic time.
This is 10-fold the problem.
We did $30 billion.
The number in the bill to go to
small business is $349 billion.
And we wonder, is that
going to be enough?
And the problem is different.
Last time, we had the
banks not in a good place.
We had the banks full
of bad mortgages,
and they couldn't make loans.
Here we have small businesses
who can't open their doors.
And it's a completely
different problem,
so we need a different solution.
Luckily, we've got a
couple of solutions,
some in the bill and
some that were enacted
last week through SBA disaster
loans that actually, I believe,
are tailor-made
for this situation.
We just have to get
them executed now.
Yeah.
Let's talk about the
bill a little bit.
It's really fresh, just
out, just approved.
What are the things
that are in there
that will give small business
owners encouragement?
Well, I do say that
I never thought
I would see the day where
the number $349 billion
was in the same
paragraph as SBA.
One of the bright spots of
my day that small business
is a priority in this bill.
It's the first thing that
comes up in the 900 pages.
And there was clearly
somebody in the room who
understood small
business problems
and also understood regulation
of banks and SBA lending,
because one of the things
they've done is try to address
how do you get liquidity,
cash, into the hands
of small business owners?
And how do you make it as
least burdensome as possible?
In other words, can you
turn these loans into grants
if they spend the money
on their employees?
That's what's in there,
And the bill does
cover these gig economy
workers, which I mentioned,
who are so important.
So that was another plus.
And I'm hopeful
that if we can get
this bill implemented
quickly that it
could provide some relief.
We've talked a little bit
about the gig economy workers,
as you mentioned.
We know that the services
businesses have been hit hard
by this because we've closed
down restaurants, and hair
salons, and places where people
go for those kinds of services,
and so many of them
are small businesses.
What would you
suggest for people
who own those businesses?
Are there things that
they can and should
be doing to both
weather the storm,
but also to think about
how do they bounce back?
And how do they come back online
after something like this?
Well, the number one priority
right now for everybody,
small business owners
included, is safety first.
You have to make
sure you're safe,
your family is safe, that
your employees are safe.
So that often means
shutting down,
and that's the
right thing to do.
And we'll worry
about the economy
after we worry about our people.
If a small business
can stay open,
can provide some
services safely,
they are choosing to do so, then
they can go ahead and do that.
But one of the things
we want to make sure
is that they've
got a cash lifeline
to bridge them to the time
when things can open up again.
In the bill, it looks
like that number
that treasury and Congress
have settled on is eight weeks.
And what the bill
says is we want you
to keep paying your employees.
We want you to keep paying your
employees for two reasons, one,
so that they get the money.
And some of the most
vulnerable workers
work for small businesses.
And there's a lot of them,
as I mentioned earlier.
And secondly, we want them
to keep on your payroll
because that makes it easier for
the business to start up again.
There's a lot of friction
when businesses close down,
they go out of business.
When they let
their employees go,
then they have to
rehire new employees.
And one of the problems
we saw in 2009,
2010 is once the small
business economy shut down,
it was a pretty slow ramp
to get it started up again.
So we want to make sure that
these businesses don't fail,
that they don't lose
their employees.
Employees are like family
in small businesses.
And they really need to be taken
care of by the small business
owner.
That's what the small
business owner wants to do.
And one of the things
we hope is that Congress
has passed a bill that is
going to let them get the money
to do that.
So if I'm a small
business owner and I'm
listening to this
conversation, is there
any advice you would
have to offer me about,
like, I know that we don't
want to be tone deaf,
but can we still market?
Can we still talk
about what we do?
Can we still be
out there and have
a presence in the marketplace?
Or should we just go dark?
Well, different
small businesses are
going to have a different
response in this.
Some actually have
a big opportunity.
But for the large
majority, it's time
to conserve cash to reassess
and to set some priorities.
The bill says a very
interesting thing.
It says that the permitted
use of these loans that
are going to go
out through banks,
but with very
little restriction--
not the usual SBA
hoops to jump through--
first, pay your employees.
Second, pay your rent and
pay other debt obligations
that you have, and try to
keep your business in a shape
where it can come back and
be part of the economy.
And I think that's
exactly the right message.
Take care of yourself.
Take care of your people.
If you have to take a
pause, let's just make sure
you get the liquidity.
So now the question is, where
are you going to get the money?
And the answer to that
is there's two places.
First, call your bank,
because your bank where
you have a relationship is going
to be the first place to go.
If you don't have a
bank, call a bank.
And eventually, the
small business community
is going to start telling each
other which bank has got this
up and running.
I'm talking to all kinds of
banks like JP Morgan, and Bank
of America, and Wells
Fargo that are big lenders.
Eastern Bank in
Massachusetts already
has a small business
COVID loan up and running.
And as soon as this
other bill passes,
they'll start funding it with
the funds that they have.
And look on places--
there's a company
called Alignable
that I'm involved with.
And they're a community of
4 million small businesses.
They're passing
information back and forth
about what's available.
The SBA website is probably
pretty well-frequented right
at this moment, as
are the SBA offices,
but there's money in the bill
for them to hire more people
and get the word out.
Yeah.
And a lot of small
business owners
probably have relationships
with their local banks
too, so another good source and
an opportunity for local banks
to kind of support these
businesses as well.
Well, we want them to be
the first port of call,
but that requires that the banks
get a system up and running
right now.
I've been also talking to
PayPal, and Square, and some
of the fintechs.
And as you know, I've
been working very much
in the fintech community
and wrote a book on fintech,
so I know these folks.
They have a huge network.
PayPal, that I talked
to this morning,
has 10 million small businesses
that they have relationships
with for transactions.
So they already
have the information
on those small businesses.
They know they're a
valid small business.
They can authenticate them.
And one of the questions
is they're not a bank,
so how do they get access
to the fire hydrant of money
and become a pipe to push money
out into the small businesses
that they have contact with?
We had one of our listeners
send in a question
that I thought was
pretty interesting.
This must be an entrepreneur
because the question was,
is this a good time to be
thinking about starting
a small business?
In other words, are
there opportunities here
that you might be able to
take advantage of at a time
when other people are running
in the opposite direction?
Well, there certainly is an
optimistic view out there
among entrepreneurs,
and I love that.
And there's many tales
about the businesses that
were started in 2008 and 2009.
So I don't want to say never.
But I would say right
now, next eight weeks,
I would assess the situation.
I think this is pretty dire.
And I wouldn't throw away
any plans that you've got,
but I would be
moderate at the moment.
Keep your family safe.
Keep social distancing.
And think hard about your
business and your business
problem that you want
to attack, but maybe
assess the situation
in eight weeks
and figure out the game plan.
Yeah.
Time for one more.
This is a question from another
listener about supporting
local business.
We've heard a lot of people
encouraging takeout or buy
gift cards to your
favorite restaurants.
Are there things
that-- other things
maybe that people can
do by way of supporting
their small businesses
in their community?
Well, to all the big
businesses out there,
I have a message, which
is pay your bills.
Big businesses tend, at this
moment, to stretch the payables
and hoard their cash.
And this could be a real problem
for supply chain businesses.
One of the things that
we did to great effect
in the 2009, 2010
time frame is we
did something called
Quick Pay, which
is we paid our government bills
to small business contractors
in 15 days.
In one of the early
drafts of this bill,
I saw that was in there, that
the government would pay again
in 15 days.
And Ramana Nanda, one
of our HBS professors
actually did an economic study,
he wrote a paper on this,
and proved that it was effective
at helping these businesses
recover and gain more cash.
So I would say if you owe
a small business money,
you pay your bill right
now and put that money
into their hands.
That's great advice.
Karen, thank you so
much for joining us,
and thank you for all
the work that you're
doing to help small businesses.
I'm sure it goes a
long way for them.
Well, thanks to you, and
thanks to all the students
and faculty at HBS.
Everybody has come
together in this community,
and I think they are
supporting each other and small
businesses.
And I think we'll get
through this together.
Great.
Thank you.
Thank you.
