Karen Mills: The big push for small business is jobs by Anne VanderMey @FortuneMagazine November 14, 2011, 10:42 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons The SBA’s chief lays out the steps Washington is taking to create jobs on Main Street. FORTUNE — Small Business Administrator Karen Mills’ Washington D.C. office overlooks a railroad where trains whiz by hauling freight. It’s a reminder, she says, that American industry is still working. These days we could use that reminder. American manufacturing is in the tank, and small business lending — a much-cited economic driver — fell again in the second quarter, on the heels of a lackluster five years. On the upside, loans backed by the Small Business Administration are on the rise, with banks breaking records in SBA lending last year. Mills sat down recently with Fortune’s Anne VanderMey to talk about what her office is doing to give small business a leg-up and help bring American unemployment back down to earth. Edited excerpts: Q. What are the SBA’s big projects right now? A. Well, the big push is jobs. As you probably know, half of the people who work in this country work for small businesses. And it’s more than that, because two out of every three net new jobs come from small business. So we mean it when we talk about small business being the engine for the economy. We are focused, and have been from day one, on making sure that these small businesses have the tools that they need. What can the government to do drive that job creation? It’s not government that creates jobs; it’s small business. Our job is to make sure they have the access to capital, the access to contracting opportunities, and the help, advice and mentoring that they need to go out and be successful. So we’re providing capital, we’re providing mentorship, and we’re doing it in conjunction with existing infrastructure that is out there instead of reinventing the wheel. We’re working with big companies like IBM IBM and GE GE to find ways to help small business thrive as part of their supply chains. We’re also developing public-private partnerships like Startup America, which Steve Case is leading, that provide mentors for entrepreneurs. We’ve streamlined the website, boosted our venture capital-style small business investment fund, cut in half the time it takes for small businesses on a government contract to get paid, and cut the licensing time for a loan down from 18 months to less than six. We also just closed a record year in SBA lending — $30 billion. In October 2008, the credit markets just froze, and small businesses were telling me, “I need a loan to save my businesses.” We stepped in with the Recovery Act and raised our loan guarantees to 90%. That was exactly the right medicine, because our loan volume came rushing back. We were also able to bring back about 1,200 banks that hadn’t made a loan since 2007. So now you had more businesses with more local points of access. They could walk in and say, “Well, if you don’t want to just give me a loan, how about a loan with an SBA guarantee?” With the passage of the Small Business Jobs Act, we’re continuing these 90% guarantees that have led us to a record quarter. This really is the best year ever in SBA history. But loan volume for the smallest businesses, the ones asking for loans less than $150,000, actually fell 13% in the last two years. Is that a concern? Exactly right. Our loan buying has been at record levels, but there are still gaps. One of the gaps is in the smallest loans and in the underserved communities. So we saw this about a year ago and we launched two important programs, Small Loan Advantage and the other is called Community Advantage. The objectives of both are to open up points of access and streamline the paperwork, without increasing the risk. We wanted to make small loans easier for the banks, where bigger loans can be more cost-efficient. We’ve also opened up our flagship 7(a) lending program to community development financial institutions. Those lenders operate right there in the community and these are the people who know who’s the great entrepreneur — the one who we really should back, even if it doesn’t look on paper like a traditional loan. That expanded access is going to provide more opportunity for these smaller businesses in these more underserved communities. There’s a critique of the SBA, that loans to a substantial chunk of small business might unfairly disadvantage the ones that don’t get the SBA guarantee. Is there anything to that? We’re open to all these small businesses. We hope they all will take the advantage of these opportunities. This is not a zero-sum game. We know that if we provide access and education, particularly where there are gaps in the market, we will create more jobs, we will create more growth, and we will create more activity in the U.S. market, which will be good for our economy. What can congress do to help you do your job? Are there any regulations you’d like to see changed? We need the American Jobs Act passed, especially the payroll tax reduction. Small businesses have told us that having cash in their pocket is one of the primary things that they need. And that’s what the president is out there saying. We want to give you the cash in your business so that you can go out and buy more inventory, launch a marketing campaign to create more demand, and buy that additional equipment. That will give you the ability to go out and hire more people. I’m curious about what you think of Occupy Wall Street. We haven’t talked to the protestors, but we do know that small businesses do want a level playing field. Whether it’s in exporting overseas or having access to credit and they want to have as much wind at their back as possible. A shorter version of this interview appeared in the November 21, 2011 issue of Fortune.