Karen Mills, senior fellow at Harvard University and former administrator of the U.S. Small Business Administration from 2009 until August 2013, is well-versed in issues that face small business owners, particularly related to lending and regulation. Mills recently appeared on theCUBE, from the SiliconANGLE Media team, with co-hosts Jeff Frick (@JeffFrick) and John Walls (@JohnWalls21) during Intuit Inc.’s QuickBooks Connect event, held in San Jose, CA.

Mills spoke about the SBA’s mission, how best to help small businesses overcome their cash-flow problems, and the balancing act that happens between lending and regulation.

This week, theCUBE spotlights Karen Mills in our Women in Tech feature.

Half of all U.S. employees work for a small business

The conversation kicked off with Walls asking about small businesses in general, in terms of their impact on the U.S. and global economies.

“Small business is key to the economy, and everyone says, ‘It’s the backbone of the American economy;’ it happens to be true. When I went to Washington, during the [2008-2009] economic crisis, I took a look. It turns out that half the people who work in this country own or work for a small business. I went to sleep at night worrying about half the jobs,” said Mills.

She added, “And two out of every three net new jobs come from small businesses. [When] we’re talking about where the jobs will come from, we have to make sure small businesses are healthy and that they’ve got what they need. One of the things that’s going on [at this conference] with Intuit, we’ve got small business owners figuring out how to grow their business. That’s what’s going to make America prosper again; that’s what’s going to create this growth that we’ve been worrying about and lacking.”

SBA’s mission for businesses

Walls asked Mills to clarify what the SBA does and what is its overall mission.

“I had the best job in all of the Obama administration. The President thought so much about small business, he made me a member of the Cabinet, so I got a seat at the table. The SBA, if you look ‘under the hood,’ is a really powerful agency. It has about $100 billion in loan guarantees; it turned out this was really important in the financial crisis. Because in the financial crisis, what happened? The banks shut down, small businesses could not get a loan, and we were really the only game in town,” explained Mills.

“We raised our guarantee rates — we did something really bold and aggressive at the time; I came from venture capital, I didn’t know any better — we raised our guarantee to 90 percent, and immediately we got a thousand banks back to SBA lending. I mean, why wouldn’t you risk it if SBA is taking 90 percent of the risk? And our credit scores actually went up because nobody was lending to these small businesses. So it really was a pivotal moment in their recovery for small business, and then things began to move a little better,” Mills continued.

The good news: You got a big order from Walmart. The bad news: You got a big order from Walmart!

Frick pointed out that for small businesses, growth can be the biggest cash flow problem that you can run int; it can really cause a lot of angst. He asked Mills about successes she’s had in this area.

“At the Harvard Business School, I tell them, ‘The important thing is, don’t run out of cash.’ And it turns out that growing [a business], it can make you run out of cash because it uses working capital. One of the [reasons why I’m at this conference], I came on behalf of American Express. [In conjunction with Intuit], they have a new product that helps you even out your cash flow. So if you’re trying to grow your business, and you need a lot more inventory, and you put in your order and the bill comes due, how do you pay that bill if you don’t have the cash from the sales yet? You have a cash flow gap,” said Mills.

She went on to say, “I think [it’s] one of the missing pieces in small business land, this ability to manage this very bumpy cash flow, it can go up or down in [large] amounts. It’s like, ‘The good news is, you got a big order from Walmart. The bad news is, you got a big order from Walmart!’”

The balancing act between easy lending and too much regulation

Regarding small business borrowing, Frick pointed out that the common model is to go the bank and apply for an SBA loan, which can be time-consuming, or the other time-honored classic for entrepreneurs, borrow against your home’s mortgage. So many entrepreneurs have had to use personal guarantees to get the working capital to grow their business.

“This is exactly it. And things that create more financial options for small business owners have not been part of the financial system, up until now. We wrote a white paper two years ago, when I left the SBA, and asked this question: ‘Is there a gap in small business lending?’ And the banks were saying, ‘There’s no gap; I’m lending to everybody who walks in who’s creditworthy,’ and the small business owners are going, ‘I’m going from bank to bank to bank, and I can’t get a loan,’” said Mills.

She continued, “This was in 2014 … and we found that there was a gap in small dollar loans, anything … under $150,000. The reason is, it’s not economical for a bank to make a $50,000 to $70,000 loan, [and] have a personal underwriting conversation. How are they going to make any money? So enter these new innovators, these online lenders; you go online and fill out this application, in minutes, and somewhere between hours or a day, the money can be in your account. This is pretty exciting, so this the lay of the land for small business owners.”

Walls asked if there is any danger in making lending too easy. Is there a way for small businesses to stay focused, to give them accessibility, but in a responsible manner?

“You have to be careful, lending to small business, on a number of fronts. But the really interesting thing is, this area of small business lending, it slipped through the gaps for the regulators,” Mills said. “Nobody is regulating it the same way they’re regulating banks, because they’re not banks.”

She continued: “So one of the things I’m working on is, how do you get a regulatory framework which prevents bad actors from coming in: brokers charging big fees, predatory lend[ers] [charging] really high rates. How do you prevent that happening without stifling the innovators and entrepreneurs who now fill this gap that small business really needed filled? So it’s a fine line; there should be some regulation, but you have be really thoughtful about how to make sure you don’t overburden the system.”

Watch the complete video interview below, and be sure to check out more of SiliconANGLE and theCUBE’s coverage of QuickBooks Connect.

Photo by SiliconANGLE