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WASHINGTON— Last week Wednesday President Obama nominated small business banker Maria Contreras-Sweet to head the Small Business Administration. Contrera-Sweet, 58, started ProAmérica Bank in 2006, a California bank that focuses on small business loans in Latino neighborhoods. Born in Mexico, Contreras-Sweet immigrated to the United States at the age of five. She has served as California's Cabinet Secretary of California Business, Transportation and Housing Agency from 1999 to 2003.
President Obama stressed that he cut taxes for small business owners, "not once or twice, but 18 times in my first term." The President added, "Small business owners had a real tough time in the financial crisis. When lending froze, they were the ones who were getting hit the hardest. So my administration supported record amounts of lending to small businesses through the SBA — more than $130 billion to more than 225,000 small businesses during the course of five years."
The U.S. President also said that small businesses "are part of the pact that America makes. The idea that if you work hard, if you take responsibility, then you can build something new. You can make something of yourself. You can leave something behind for your children. And that's the dream that brought generations of hardworking immigrants to our shores."
Franchisees have difficulty leaving their businesses to posterity
Misty Chally, executive director of the Washington-based Coalition of Franchisee Associations, thinks that America's 850,000 franchise owners, unlike independent small business owners, have considerable problems when it comes to leaving their businesses to posterity. "Franchisees, like many small business owners, work for years, if not decades, to build a business they can pass onto their children," said Chally, who leads an organization of independent franchisee associations from some of the country's largest franchise brands. "Despite their significant investment, however, the current franchise model presents considerable hurdles to franchisees when passing on their businesses. We are working to make the process a little easier," she says.
The franchisee trade group points out franchisors can turn down an owner's children, spouse or any potential buyer for that matter who want to take over a business-format franchise without uttering a single reason. Franchisors can make considerable money by having new buyers purchase successful franchises when the old contracts to the franchise rights expire or the owner dies. In their defense, franchisors may think the owner's children are inferior to a new prospect's qualifications for flying their brand's flag over the business. The CFA is pushing state franchise relationship bills from California to Maine, such as California's Assembly Bill 1141, to make it easier for franchisees to transfer their businesses to posterity.
The new Administrator comes during proposed change to the SBA
Some lawmakers have wanted to get rid of the agency altogether. Last month Senator Richard Burr (R-N.C.) introduced a bill to have the Small Business Administration's responsibilities merge into the U.S. Commerce and Labor Department and have that department take over, eliminating the cabinet-level SBA. In 2012 the President himself suggested that Congress grant him the authority to shrink the federal government by combining agencies with similar responsibilities, such as the Commerce Department, the SBA, the U.S. Trade Representative, and others.
Ms. Contrera-Sweet comes at a time in which the Government Accountability Office, which works as an independent agency for Congress, has criticized loose SBA-backed lending that has resulted in a multi-billion dollar franchise loan problem for the SBA. The GAO is not alone. The SBA's own Office of Inspector General has also criticized SBA lenders buying into the false belief that franchises are proven business models or inherently more successful than other independent businesses. It has chided the SBA for not enforcing its policy of having lenders track and verify the historical earnings of a franchise concept before they lend to would-be franchise owners. The SBA loan application requires a first, second and third year franchise-level cash flow projection. Insiders say that creates a huge opportunity for more accurate information by having lenders ask franchisors to publish historical franchise-level first year earnings in the Franchise Disclosure Document, leading to borrower (franchisee), franchisor and lender reading from the same financial page.
The permanent SBA Administrator nomination evoked sighs of relief.
Washington-based International Franchise Association CEO Steve Caldeira praises the nominee. "Her impressive background in the public and private sector will ensure the administration fills the vacancy left by former Administrator Mills, who was a strong champion for small business and franchising on a multitude of issues," says Caldeira.
More small business loans is something both franchisors and franchise owners can typically agree on. Franchisors are pleased that they can sell more because of the increase in the supply of credit through the federal government's SBA-backed loan program (7a and 504 loans) to those who want to buy a franchise. The IFA hopes that more credit and other incentives will spur more military veterans to buy franchises. It has pushed franchise fee discounts for veterans and federal laws that give the vets tax credits if they buy a franchised business. Caldeira adds, "Former Administrator Mills helped spur credit access in the SBA's 7a and 504 loan programs that were critical to helping franchises grow during the economic recovery, navigating the challenges posed to small businesses in the Affordable Care Act, and supporting programs that help veterans pursue small business ownership opportunities in franchising."
The Portland Press Herald reported Thursday that Acting SBA Administrator Jeanne Hulit, who has been at the helm for five months, announced that she would return to Maine to take a job as president of Northeast Bancorp's Northeast Community Banking Division. Hulit filled in when Administrator Karen Mills stepped down for a position at Harvard University after four years in the Administration.