 Live from San Jose, California, in the heart of Silicon Valley, it's theCUBE, covering QuickBooks Connect 2016, sponsored by Intuit QuickBooks. Now, here are your hosts, Jeff Frick and John Walls. Welcome back here to San Jose, the convention centers. We continue our coverage here on theCUBE of QuickBooks Connect 2016. Along with Jeff Frick, I'm John Walls and nobody understands the value and the importance of small business any better than our next guest. Karen Mills, the former administrator of the United States Small Business Administration, working in President Obama's cabinet for 2009 to 2013. So thank you for joining us, currently working at the Harvard Business School and at the Harvard Kennedy School. So we appreciate your time here to be with us and sharing your expertise. Let's talk about small business, just in general. Let's talk about small business, what a good idea. I mean, in terms of the impact on the American economy but on a global basis too, how impressive is it in your perspective and how important is that impact in terms of making sure that we put the right regulations in place to let it go and do its thing? Well, small business is key to the economy and everyone says now that it's the backbone of the American economy, but it happens to be true. When I went to Washington and it was during the economic crisis, I took a look and it turns out half the people who work in this country own or work for a small business. So I would say I went to sleep at night worrying about half the jobs and two out of every three new jobs come from small business. So now, as we're talking about where the job's going to come from, we have to make sure that these small businesses are healthy and that they've got what they need. And one of the things that's going on here with this intuit is we've got small business owners here 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. But so for people who are watching now, maybe not familiar with the SBA and your mission, what it was, what you were there, tell us a little bit about in terms of your purview, you know, what you, like you said, what you thought about at night and what you tried to get done during the day in terms of the right regulatory framework in small business. Well, I had the best job in all of the Obama administration, I will say. The president thought so much about small business. He made me a member of the cabinet. So I got really a seat at the table and it's really important that small business has a seat at the table. The SBA actually, when you look under the hood, is a really powerful agency. It has about $100 billion of loan guarantees. And it turns out that 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. We raised our guarantee rates. I kind of did something a little bold and aggressive at the time, but I came from venture capital. I didn't know any better. We raised our guarantee to 90% and immediately we got 1,000 banks back to SBA lending. Because why wouldn't you lend if SBA's taking 90% of the risk? And our credit scores actually went up because nobody was lending to these small businesses. So it was really a pivotal moment in the recovery for small business and then things began to move a little better. But one of the things that's interesting about the SBA is also we have 900 small business development centers who counsel and advise small business owners. And one of the things I think you'll probably hear around the floor today is a lot of small business owners don't really know how to grow their business. They don't know where they're making their money and particularly they don't know what their cash position is. So should they borrow? How much should they borrow? What is it that they need in terms of liquidity to grow their business and how much can they afford to borrow? And that's one of the things I think is really important to work on now. And I'm spending a lot of time with these new online lenders who are helping small businesses get access to capital in places other than traditional banks so they can grow their businesses. And as we've learned and heard time and time again for small businesses growth can actually be the biggest cash flow problem that you can run into, right? It can really cause a lot of angst in your own success, especially on the cash flow side. Well at Harvard Business School I tell them the important thing is don't run out of cash. And it turns out that growing can make you run out of cash because it uses working capital. And people don't understand that although at this conference and convention there's a lot of accountants so they do. And one of the things that I'm doing here is I came on behalf of American Express who has a new product that helps you even out your cash flow. So if you are trying to grow your business and you need a lot more inventory and you put in a big order and the bill comes due how do you pay that bill if you don't have the cash from the sales yet? You've got this cash flow gap. And some of the products that are available here including the new one that American Express just announced with Intuit as a partnership is right on QuickBooks is that you can pay your bill instead of with a credit card what if the vendor doesn't take your credit card? You can pay with a loan that comes due in 30, 60 or 90 days. They'll send the check for you and then you can pay them back when you get the cash in in 90 days. And it's, I think one of the missing pieces in small business land are these abilities to manage this very bumpy cash flow and it can go up and down big amounts. There's also companies here that will help you by monetizing your invoice. The customer's not paying, they're slow paying you and you get in the cash squeeze and there's a lot of new companies that are here now accounting Bluevine that are also going to be available on the QuickBooks platform. So if you just think about a small business owner now they might go to their bank but they might also access one of these other things and the pricing might be right up there in front of them. Those are real door openers for small business owners because now they can go out, they can get the business, they can sell it and they don't have to worry about these bumpy cash moments. It's like you said, especially if it's really short term but very volatile, short amplitudes. The good news is you get a big order from Walmart. Oh, the bad news is you got a big order from Walmart, right? Right, right. Before you'd have to go to the bank, maybe try to get an SBA loan which takes a long process or the other classic is put a second on your house. I mean, so many entrepreneurs have to use personal guarantees just to get the working capital to grow. This is exactly it and things that create more financial options for small business owners have not been part of the financial system up till now. We wrote a white paper two years ago when I left the SBA and we asked this question, is there a gap in small business lending? And the banks were saying, you know, there's no gap. I'm lending to everybody who walks in who's credit worthy and the small business owners were saying, you know, I'm going from bank to bank to bank and I can't get a loan. This was 2014, you know, the recovery was along, well along, and we found that there was a gap in small dollar loans, anything under 250,000, but really anything under 150. And the reason is it's not that economical for a bank to make a 50 or $75,000 loan, have a personal underwriting conversation. How are they going to make any money? So enter these new innovators, the online lenders, and you know, you go online, you fill out this application in minutes and you know, somewhere between hours or a day the money can be in your account, this is pretty exciting. So that's the lay of the land for small business owners. Is there any danger in making it too easy? Oh yes. Isn't there not because all of a sudden it's like, whoa, the candy store's open, right? And I can go get one, I can do this and I can do that. And if a small business doesn't stay focused, all of a sudden they've maybe they're in over their head. So how do you balance that out? Given accessibility but also doing it in a responsible way. You're absolutely right, you know, you have to be careful with lending to small business on a number of fronts. But the really interesting thing is that this new area of small business lending slipped through the cracks for the regulators. Nobody is regulating it the same way that they're regulating banks because they're not banks. So one of the things that I'm working on is how do you get a regulatory framework which prevents bad actors from coming in. So brokers from, you know, charging big fees. Predatory lending really high rates. How do you prevent that happening without stifling all the innovators and the entrepreneurs who have, you know, now filled this gap that small businesses really need filled. So it's a fine line. There should be some regulation but you have to be really thoughtful about how you make sure you don't over burden the system. You're kind of in my sweet spot here. It's my big interest. I used to, I worked for a trade association for many years in the wireless space. And that was always a great tension right between government regulation, FCC regulation, hill oversight and private sector. And you always knew the truth was somewhere in the middle. You know, you needed some direction. You had some bad actors but generally got pretty good people trying to do good things. So how do you blend good, solid, responsible legislation and regulation with allowing private sector behavior to flourish and be innovative? Because it's hard to keep up with it if you're on the rulemaking and lawmaking side. So how do you do that? Well, we're putting out this regulatory plan in a new white paper and one of the principles I'll give you a little preview is do it smart. And it deals with just this question. How do you make sure you're not over burdening everyone? There's a new tech out there. Remember we have FinTech and then we had GovTech. Well, now we've got RegTech and RegTech is at the frontier. And I like to say if you have three circles FinTech, GovTech and RegTech, small business lending is right at the center because it involves all three. So we're working with all of the regulators in this space and oh by the way, there are at least six and if you count everybody there probably more. We call it spaghetti soup. To try to figure out how can you use technology to be smarter about making sure that you don't have bad actors? How do you use technology to make sure you hook into with APIs and pipes into the data streams that you use it to monitor the bad actors and that you also create some kind of unified governance between all the regulators because you could tear your hair out and different regulators all think they have purview and how do you know which one you're supposed to be regulated by? So it's a complicated area but I think sticking to some principles, keep it simple. Remember who you're trying to protect. You're trying to protect the small business owner. You're trying to protect that customer to make sure they get access and opportunity but that no one's taking advantage of them. A slight touch. Spoken like a wireless guy. Thank you for joining us and for the insights here. Certainly needed the area in which you're working and your focus right now. We wish you all the best down the road to thread that needle and get it right. Well thank you. It's a great pleasure to be around small business owners. I miss that from being out in the SBA every day because they really are the ones who are going to keep our economy growing and create our jobs. We're surrounded by them today. So thank you. Karen Hills for the USBA. Back with more here on theCUBE from Quickbook Connects 2016 right after this.