[Senate Hearing 109-47]
[From the U.S. Government Publishing Office]
S. Hrg. 109-47
THE PRESIDENT'S FY 2006 BUDGET REQUEST FOR THE SMALL BUSINESS
ADMINISTRATION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
FEBRUARY 17, 2005
__________
Printed for the use of the Committee on Small Business and
Entrepreneurship
Available via the World Wide Web: http://www.access.gpo/gov/congress/
senate
U.S. GOVERNMENT PRINTING OFFICE
21-350 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
OLYMPIA J. SNOWE, Maine, Chair
JOHN F. KERRY, Massachusetts, Ranking Member
CHRISTOPHER S. BOND, Missouri CARL LEVIN, Michigan
CONRAD BURNS, Montana TOM HARKIN, Iowa
GEORGE ALLEN, Virginia JOSEPH I. LIEBERMAN, Connecticut
NORMAN COLEMAN, Minnesota MARY LANDRIEU, Louisiana
JOHN THUNE, South Dakota MARIA CANTWELL, Washington
JOHNNY ISAKSON, Georgia EVAN BAYH, Indiana
DAVIE VITTER, Louisiana MARK PRYOR, Arkansas
MICHAEL ENZI, Wyoming
JOHN CORNYN, Texas
Weston J. Coulam, Staff Director
Patricia R. Forbes, Democratic Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Opening Statements
Snowe, The Honorable Olympia J., Chair, Committee on Small
Business and Entrepreneurship, and a United States Senator from
Maine.......................................................... 1
Kerry, The Honorable John F., a United States Senator from
Massachusetts.................................................. 4
Pryor, The Honorable Mark, a United States Senator from Arkansas. 8
Talent, The Honorable James M., a United States Senator from
Missouri....................................................... 15
Coleman, The Honorable Norman, a United States Senator from
Minnesota...................................................... 16
Thune, The Honorable John, a United States Senator from South
Dakota......................................................... 31
Testimony
Barreto, The Honorable Hector V., Administrator, U.S. Small
Business
Administration, Washington, DC................................. 8
Coit, David, Managing Director, North Atlantic Capital, on behalf
of the National Association of Small Business Investment
Companies, Portland, ME........................................ 36
Betancourt, Daniel, Member, Board of Directors for the
Association for
Enterprise Opportunity; President and CEO, Community First
Fund,
Lancaster PA................................................... 48
Massaua, John R., State Director, Maine Small Business
Development
Center; Member of the Board of Directors, Association of the
Small
Business Centers, Portland, ME................................. 52
Tuvin, Edward ``Eddie,'' First Vice President, Community South
bank on behalf of the National Association of Government
Guaranteed Lenders, Inc., Bethesda, MD......................... 66
Sands, Patricia, Owner, Spill-Guard, LLC, Arlington, VA.......... 75
Alphabetical Listing and Appendix Material Submitted
Barreto, The Honorable Hector V:
Testimony.................................................... 8
Prepared Statement........................................... 11
Fiscal Year 2006 Budget Request for the U.S. SBA............. 90
SBA's FY2006 Legislative Package............................. 93
SBA's Responses to Post Hearing Questions from Chair Snowe... 110
SBA Responses to Post Hearing Questions from Ranking Member
Kerry...................................................... 148
Betancourt, Daniel:
Testimony.................................................... 48
Prepared Statement........................................... 50
Microloan Borrowers Attending Hearing........................ 109
Coit, David:
Testimony.................................................... 36
Prepared Statement........................................... 38
Kerry, The Honorable John F.:
Opening Statement............................................ 4
Prepared Statement........................................... 222
Post Hearing Questions for The Honorable Hector V. Barreto... 148
Page
----continued.
Massaua, John R.:
Testimony.................................................... 52
Prepared Statement........................................... 53
Pryor, The Honorable Mark:
Opening Statement............................................ 8
Sands, Patricia:
Testimony.................................................... 75
Prepared Statement........................................... 78
Snowe, The Honorable Olympia J.:
Opening Statement............................................ 1
Post Hearing Questions for The Honorable Hector V. Barreto... 110
Talent, The Honorable Jim:
Opening Statement............................................ 15
Tuvin, Edward ``Eddie'':
Testimony.................................................... 66
Prepared Statement........................................... 68
Comments for the Record
Crawford, Christopher L., NADCO, Prepared Statement.............. 200
Jahn, Chris, Contract Services Administration:
Prepared Statement........................................... 206
Strategic Alliance Memorandum with the U.S. Small Business
Administration and CSA..................................... 209
Golden, Ellen, Association of Women's Business Centers, Prepared
Statement...................................................... 213
Kerry, The Honorable John F.:
Letter from Senator Kerry to Senate Committee on
Appropriations,
Subcommittee on Commerce, Justice, State and the Judiciary. 229
Letter to Senator Kerry from The Women's Economic Self-
Sufficiency Team........................................... 240
Letter to Senator Kerry from The Wesst Corp.................. 236
Letter to Senator Kerry from The Pennsylvania Women's Center. 238
Letter to Senator Kerry from the Kansas Women's Center....... 241
Letter to Senator Kerry from The National Women's Business
Council.................................................... 242
Letter to Senator Kerry from The Minority Business Summit
Committee.................................................. 245
Letter and Prepared Statement from The Association for Small
Business in Technology..................................... 247
Mazza, Pamela, Piero, Mazza and Pargament, PLLC, Comments for the
Record......................................................... 250
Neese, Terry, Women Impacting Public Policy, Prepared Statement.. 255
Newlan, Ronald S., HUBZone Contractors National Council, Letter
with
Comments for the Record........................................ 261
Snowe, The Honorable Olympia:
Letter to Senator Snowe from The Southern Good Faith Fund.... 239
Varney, Simon, Maine Institute of Technology, Letter with
Comments for the Record........................................ 263
Weeks, Julie R., National Women's Business Council, Letter with
Comments for the Record........................................ 265
Yancey, W. Kenneth, SCORE, Prepared Statement.................... 271
THE PRESIDENT'S FISCAL YEAR 2006
BUDGET REQUEST FOR THE
SMALL BUSINESS ADMINISTRATION
----------
THURSDAY, FEBRUARY 17, 2005,
United States Senate,
Committee on Small Business and Entrepreneurship,
Washington, DC.
The committee met, pursuant to notice, at 10:01 a.m., in
room SR-428A, Russell Senate Office Building, the Honorable
Olympia J. Snowe, Chair of the Committee, presiding.
Present: Senators Snowe, Coleman, Thune, Kerry, and Pryor.
OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, CHAIR, SENATE
COMMITTEE ON SMALL BUSINESS AND
ENTREPRENEURSHIP, AND A UNITED STATES SENATOR FROM MAINE
Chair Snowe. The hearing will come to order.
Good morning, and I want to welcome everybody to today's
hearing on SBA's budget proposal for fiscal year 2006.
I am very pleased to join the Ranking Member, Senator
Kerry, in being here today to hear from Administrator Barreto.
We want to welcome you, Administrator Barreto. We thank you for
your advocacy and leadership on behalf of small businesses
throughout America, and we appreciate your willingness to
testify here today on SBA's proposed priorities for the coming
year.
We will also be hearing from representatives of the small
business community, as well, in the second panel.
In his State of the Union speech, President Bush said we
live in a country where dreams are born. Nowhere is that more
evident than in America's 25 million small businesses,
entrepreneurs who have certainly taken risks and persevered
through difficult times to fuel the engines of America's
economy. Small business has propelled our Nation's economic
growth, producing over 50 percent of the GDP and creating
three-quarters of all new jobs in America.
The Small Business Administration has long been a critical
partner in that success, with lending and technical assistance
programs that have helped to create or retain nearly 4.5
million jobs since 1999. That number continues to grow each
year. I think that is an illustration of the success of many of
the small business programs that I am sure you are all familiar
with. But I think that that does underscore the value of the
Small Business Administration programs.
Against that backdrop of achievement, the SBA's budget
regrettably has been drastically reduced by 36 percent over the
past 5 years, which is illustrated again in this second chart,
just to show you the magnitude of the decline over the last 5
years with respect to appropriations.
When you consider that SBA's budget represents less 3/
100ths of a percent of the total Federal budget, there should
be no doubt the time has come to end these unwarranted cuts and
instead invest in a strong future of economic vitality.
As Chair of this Committee for the second consecutive year,
I am deeply concerned about the SBA's budget. The
Administration's proposed $592 million represents a 13 percent
decrease from the Agency's 2005 request and a 26 percent
decrease from the 2004 request.
The SBA has a clear record of success, and yet inexplicably
it is juxtaposed with endless budget cuts. This morning I will
be listening very carefully and intently in analyzing the SBA's
request by both the Administrator and the subsequent witnesses
on the second panel. We will have an obligation to not only
maintain, but to strengthen the SBA's proven core loan and
assistance program, again illustrated in the third chart--we
are into charts this morning and the SBA's lending program. But
again, it demonstrates the value of these programs and the
success with the number of loans that have been issued in the
last several years.
The SBA's financing program, which is a crucial source of
financing for small businesses, has never been more in demand
with both the 7(a) and the 504 programs delivering measurable
results. The numbers from fiscal year 2004 spell out that
indisputable success of the 7(a) program, providing over $13.5
billion in loans to help small businesses to help create
132,603 new jobs, overall retaining 538,658 jobs. As you can
see over here on this chart in the different programs with 504,
7(a), the SBIC, the Microloan surety, the comparisons. But I
think it illustrates the point.
The 504 program, I hope everybody can see it, $4 billion to
support the creation of 86,847 jobs all combined, to retain
jobs as well as those created, and you see 152,287 jobs.
So again I think it is an example of the extent of these
programs and why we ought to be building on and strengthening
these programs, rather than undercutting them.
In addition, the SBIC program invested more than $2.8
billion in small businesses in 2004, creating over 78,000 new
jobs. I am hopeful that we can successfully restructure the
SBIC program this year to ensure a strong track record
continues well into the future.
For the next generation of small businesses, it is also
critical that the SBA's financing reaches out to aspiring
entrepreneurs. And that is why, in addition to helping
established small businesses, Congress wisely determined that
the SBA should aid new and fledgling small businesses with the
Microloan program. When this program was zeroed out last year
I, and several of my colleagues, worked hard and successfully
to restore $17 million in the appropriations for this program
in the 2005 budget. Once again, I strongly disagree with the
Administration's ill-considered request to eliminate the
Microloan program.
What we are talking about is a small and efficient, cost-
effective program that stacks up very well on a jobs per dollar
comparison to larger SBA programs. Consider, for example, that
in 2004, according to the SBA, the 7(a) program created and
retained one job for every $23,600 in loans. The 504 program
created and retained one job for every $26,043 in loans. And
the Microloan program created or retained one job for every
$3,608 in loans.
In my own State of Maine, Microloans actually created and
retained one job for every $3,700 in loans, according to SBA's
numbers. The point is a little seed money goes a long way when
the hunger for economic opportunity is high.
So I believe it is clear that we should be supporting
programs that foster job growth, especially in States like
Maine, rural States that have been hard hit by manufacturing
job losses and require that additional economic stimulus.
Moving to contracting, I commend President Bush and the SBA
for proposing an increase in the Government contracting and
business development budget by over $4 million. But with regard
to the new PCR proposals, I am concerned that with the proposed
hiring of only six new procurement center representatives the
Agency's ePCR initiative will not adequately police contract
bundling services.
This is especially significant because the PCRs are the
SBA's competition Ambassadors, the sole watchdogs for the
interest of small contractors.
Moreover, many SBA procurement initiatives such as the 8(a)
and the 7(j) programs appear to suffer from performance and
management deficiencies. We have seen a consistent failure to
achieve HUBZone statutory goals and the SBA's proposal to fold
the HUBZone budget into the SBA's general budget only make
matters worse.
In addition, the SBA is proposing for a second year to zero
out two technology grant programs, Rural Outreach and the
Federal and State Partnership. These programs leverage the
infrastructure of State technology agencies and non-profit
research incubators to increase the geographic diversity and
competitiveness of small hi-tech firms for States such as
Maine, which have comparatively lower participation in Federal
R&D efforts.
At a time when business magazines are reporting that China,
our key competitor, is aggressively expanding its technological
base, ending this private/public partnership seems exactly like
a move in the wrong direction.
I am similarly dismayed with the proposed funding freeze
for SBA's resource partners, despite the fact that these
programs surpass the SBA's goals, assisting almost 1.5 million
startup and existing small businesses. In fact, the Small
Business Development Center program alone served over 725,000
clients and helped create or retain over 168,000 jobs in fiscal
year 2003. Similarly, the SBA's Women Business Center programs,
with its unique training and counseling, helped to create and
retain over 6,500 jobs in fiscal year 2003.
So clearly, results from these funding freezes are lost
opportunities for entrepreneurs and would-be employees.
The SBA freezes also extend to the veterans business
program. I believe that decision is not only unwise, but also
uniquely ill-timed, as over 193,000 Guard and Reservists have
been deployed since September 2001. An estimated 37 percent of
those servicemembers work for small businesses or are self-
employed, and many of them are accepting risk and financial
hardships in order to answer the call to duty.
So I think it is essential that the veterans business
program is adequately funded with the necessary resources to
offer targeted assistance to veteran-owned small businesses.
With that, Mr. Administrator, I look forward to hearing
your testimony, and from those who will be participating in the
second panel to offer their views and perspectives, because
clearly we have to do everything that we can to strengthen and
maintain these very successful programs.
The point of my opening statement here this morning is to
demonstrate and reinforce the fact that these programs have
worked exceptionally well and we need to do more to strengthen
and buildupon the resiliency and the outcomes that they have
been able to achieve for so little money, that would help so
many parts of America that are not experiencing the kind of
economic growth that some parts of the country are enjoying.
And certainly that is true of rural America.
So with that, I turn to the Ranking Member, Senator Kerry.
STATEMENT OF HON. JOHN F. KERRY,
A UNITED STATES SENATOR FROM MASSACHUSETTS
Senator Kerry. Thank you very much, Madame Chair.
First of all, let me say that I think that is a very
important statement that you just made. I think it is a very
fair, even gentle, assessment of where we find ourselves. And I
welcome the non-partisan and I think thoughtful assessments on
what the small business interests are and where we ought to be
going. I think the Chair has accurately put her finger on a
number of different concerns and I share many of those concerns
and I will talk about them in a minute.
First, if I may as a point of personal privilege, I would
like to just take a moment to say to all of the Members of the
Committee that we are losing for retirement one of the really
superb staff members in the U.S. Senate.
Patty Forbes has worked at this Committee for a long period
of time. She has worked in the SBA. I cannot think of many
people who have contributed as selflessly, as competently and
in as wonderfully a bipartisan fashion as she has.
I think Senators on both sides of the aisle have grown to
respect her expertise, her commitment to small business, her
unfailing devotion to duty, if you will, the way in which she
has always welcomed people from every walk of life on every
issue and tried to find the compromise, tried to find the
middle ground to make things work.
I think this Committee has been blessed to have her. And I
just want to say, for my own part, how grateful I am for her
service. I think we all thank her.
[Applause.]
Senator Kerry. Madame Chair, I would like to submit letters
and my full testimony for the record, as well as some testimony
from other folks.
Chair Snowe. Without objection, so ordered.
Senator Kerry. Thank you very much.
It is hard to know where exactly to begin. I know that an
Administrator is put in a position of carrying out the will of
an administration. There are budget chiefs and the President
himself and others who will dictate what will happen. So I am
going to try to recognize that as I direct comments at you, Mr.
Administrator, and at the Administration. I do not want to slay
the messenger, so to speak.
But I have to say that this budget is just really
disturbing. Just look at the fundamentals that the Chair has
put up there. I have spent 22 years here now. I spent a lot of
those years on this Committee. Our job is to try to help small
business. Our job is to try to create jobs in America. This is
not a partisan Committee. This is probably one of the least--
this and the Intelligence Committee--are the two least partisan
committees in the Senate. We exist for the purpose of helping
98 percent of the businesses in America to be able to create
jobs and to grow America. There are some time-honored, proven
ways in which we do that.
The success stories of lending programs by the SBA, those
companies that have been successful, have themselves repaid the
Nation in taxes and salaries paid many times more than the
budget of the SBA. There is no debit here that has to be made
up somehow.
And yet you are cutting. You are undoing and destroying
programs that work. You are destroying them, the morale of the
Agency as well. You may assert otherwise, but we know
otherwise.
The fact is, in the small business community, people are
really struggling to be able to make things work.
The Administration, in 4 years and a bit now, has yet to
create one new net job in America. One new net job. And it is
small business that creates those jobs.
I would think you guys would be trying to find ways to grab
whatever you can and go out there and excite innovation and
incubation in small business.
I know you come in here and you are going to say to us, as
you did in the House and elsewhere, that you have this rosy
scenario. You are doing more with less. You are saving taxpayer
money, zero funding for loans and so forth. But the fact is you
have shifted costs to borrowers and lenders through higher
fees. And those higher fees put loans out of reach for the
neediest small business borrowers in America. A lot of us in
this room understand that the SBA is now taking credit for
things that Congress did, that rescued the SBA, like the 7(a)
running out of money and bringing people together. There is a
long story here of biting off your nose to spite your face.
The SBA's plan to save money by zero funding its largest
loan programs, you have admitted two key facts about the plan.
No. 1, it only works because you have shifted cost to the
borrowers and lenders through the higher fees. And second, we
are going to have people who testify and you can talk to small
business people, and they will tell you how much harder it is
to get that kind of lending, which is what this is for.
I do not believe the proposed program levels are adequate
to meet the likely demand for these loans. And that demand, in
my judgment, is essential to responding to America's need to
create jobs here in this country and to incubate.
In addition, I disagree with the proposals to eliminate the
Microloan program and the SBA participating securities program.
Each of them serve a financing gap in the marketplace and that
is why we are here. I know there are some who ideologically
resist the notion that the Government ought to do anything with
respect to marketplace. But history has proven over 220-plus
years that intervention is often necessary. We have the Federal
Reserve. We have the various lending programs. We have a
commerce clause. We have certain rules that we have to play by
and there are certain regulations and interventions that are
necessary to leverage behavior.
Those particular financing mechanisms provide for a gap in
the marketplace, which is why this Committee, in bipartisan,
non-ideological fashion, helped put them there in the first
place. We all know that traditional lending institutions and
venture capitalists often look for the fastest return on
investment or the safest return on investment or a combination
of the two and that does not always work for some kind of
options.
When I was Lieutenant Governor, I sat on the board of
something called the Massachusetts Technology Development
Corporation. We actually funded the companies that fell through
the gaps. The minute they began to take off and turn
successful, we got the heck out of it because we did not want
the Government involved. But we put big companies on the big
board in New York that otherwise would not have gotten there.
Jobs were created and people became successful and it more than
paid for itself. Why we turn away from these obvious success
stories is absolutely beyond me. And I think the
Administration's budget is shortsighted with respect to the
economy.
In the Microloan program, in all the years since its
inception in 1992, there have been only one or two defaults. It
creates jobs at a bargain rate, less than $4,000 a job versus
the $33,000 of the SBA's other programs. And it meets the SBA's
goals of more startups. Why are we not building it instead of
reducing it?
The 7(a) Community Express program, while a good program
for more established small businesses, is not a substitute for
the Microloan program. Your budget for this year, just like
last year, continues your assault on entrepreneurial
development programs that help low-income, minority, home-
based, rural and women entrepreneurs.
I oppose the cuts to these programs. I am particularly
concerned about what you are doing to the Women's Business
Center and PRIME programs. The PRIME program has no substitute.
You have praised it, Mr. Administrator. You have talked about
how important it is. I could quote you here. ``It has no
substitute and it helps a sector of our economy that needs it
the most.''
With regard to the Women's Business Center program, you
have repeatedly said that you are not going to support
sustainability grants which allow the most experienced and
productive centers to continue receiving matching funding. That
program has enjoyed strong bipartisan and bicameral support,
including Chairwoman Snowe, Senator Talent when he chaired the
House Small Business Committee, and most of the Members of this
Committee. But you are going in the opposite direction.
Repeated requests from the women's business community and
strong support from many of us in Congress have kept this
program going. But last year's extension, which passed as part
of the Appropriations Bill, only funded the program through
fiscal year 2005. And without a new authorization about 60
percent of the Women's Business Centers are going to be forced
to close. Is that a good idea?
Madame Chairwoman, I am deeply concerned with the
Administration's ongoing strategy that limits transparency and
reduces the oversight authority of this Committee by removing
program funding from line items in the budget and incorporating
them into the operating budgets of managing offices, which
given the experience we have been through, is a way of saying
we are in for trouble down the road.
I am especially concerned with the elimination of the line
item for advocacy research and the lack of independence that
would result from such a transfer of budget authority.
So I thank you, Madame Chairwoman, for having this hearing.
I might add, on the association health plans, here we come
again. No bigger issue did I run into across the country than
health care. That is America's crisis, not Social Security.
Social Security is a problem. It is a problem that we can deal
with, and we will deal with it, just as we have the past.
The crisis is health care. And the President and the Small
Business Administration ought to be leading on it. Of all of
the people in the world to be leading on something, small
business. It is small business people who cannot provide their
care. They are the ones being crushed under the costs of health
care.
And the Congressional Budget Office has said that the
association health plans will raise the cost of doing business
for four out of five of the premiums that are paid. That is the
CBO. It is non-partisan. It is just an assessment of what is
going to happen. Four out of five small business workers and
their families' premiums are likely to go up under that plan.
We have a plan where premiums could go down. With a
reinsurance plan, you could actually stopgap costs for all
businesses in America. You could lower the premiums for
everyone in America and begin to get a breathing spell and
reduce costs in the country. But you have to make a different
set of choices than this Administration is willing to make.
So I am disappointed by the budget. I know that is not
going to come as a surprise to you, but it is not a partisan
disappointment. It is not prompted by anything to do with
ideology. It is practical. It is based on sound experience of
this Committee. It is based on what we know works. It is based
on good business practices. And most importantly, it is based
on the pleas and needs of small business people all across this
country, whether they are Republicans, Independents or
Democrats.
I think your budget is out of touch with them and with the
needs of the country, and I regret that.
So I look forward to the hearing and we will see what we
can do to try to cobble something together that makes sense.
Chair Snowe. I thank you, Senator Kerry.
Senator Pryor.
STATEMENT OF HON. MARK PRYOR,
A UNITED STATES SENATOR FROM ARKANSAS
Senator Pryor. Thank you, Madame Chair, and thanks for
having this hearing today. You and Senator Kerry both have
shown great leadership on this issue in the past and continue
to do so. I look forward to hearing from our witnesses. Thank
you.
Chair Snowe. You have heard us for 20 minutes. Begin.
STATEMENT OF HON. HECTOR V. BARRETO, ADMINISTRATOR,
U.S. SMALL BUSINESS ADMINISTRATION
Administrator Barreto. Thank you, Chair Snowe and Senator
Kerry and Members of the Committee. Thank you for inviting me
here today to discuss the President's budget request for the
SBA for fiscal year 2006.
The past year was not without its challenges for SBA. We
faced several critical issues and we worked together to reach
agreements that benefited both America's small businesses and
America's taxpayers. When 7(a) loan demand exceeded its budget
authority, SBA and this Committee were able to come together
with our lending industry partners to provide an additional $3
billion in lending authority for the 7(a) program. This allowed
the Agency to lift the loan caps and guarantee a record $12.7
billion in small business loans in fiscal year 2004.
At the beginning of fiscal year 2005, SBA began operating
the 7(a) program at a zero subsidy rate. This trial period
showed that a zero subsidy would not hinder access or delivery
of the 7(a) program. As a result, again the SBA and the
Committee and the lending industry came together to craft
legislation that ensured long-term stability in the program.
Since October the 1st, SBA has guaranteed $4.7 billion in
loans and our lending partners have showed renewed support for
the program. In addition, we are making more loans than ever to
minorities, women and veterans.
Last, SBA's programs under the Small Business Act had not
been reauthorized in over 4 years and the Agency and this
Committee seemed to be deadlocked in the negotiating process.
However, persistence and diligence in pursuit to this goal
produced a compromise 2-year SBA reauthorization, which the
108th Congress approved. This compromise was part of the fiscal
year 2005 Omnibus Appropriations Act and I thank you for your
support of SBA's efforts to become more efficient. This
legislation allows the Agency to better serve small businesses
at less cost.
Our fiscal year 2006 budget submission reflects a continued
commitment to that goal. Last year I stressed to you that SBA's
goal was to do more with less. I know that in Washington, DC.
it is difficult to imagine supporting a program without
continually increasing its budget, but SBA has proven it can be
done. Since I became SBA Administrator in 2001, the Agency's
annual appropriation has decreased, yet SBA's programs have
reached more and more American entrepreneurs year after year.
Last year was a great example of this kind of success at
the SBA. The Agency provided $21.3 billion in loan guarantees
and related financing to nearly 88,000 small businesses. SBA's
core infrastructure of technical assistance programs, our
SBDCs, our SCORE, our Women Business Centers and district
offices provided their services to record numbers of small
businesses in fiscal year 2004.
SBA's Entrepreneurial Development Programs provide
expertise and guidance to entrepreneurs who have the drive and
the idea, but need a little help putting all of that together
in a working business plan. SBA's continued support of the
Federal Government's statutory commitment to provide a fair
share of contracting dollars to small businesses. Small
businesses received a record number of Federal contracts in
fiscal year 2003, $65.5 billion, and exceeded the 23 percent
Government-wide goal.
SBA has also been innovative in creating contracting
opportunities for small businesses. For example, the Business
Matchmaking Program has given small businesses around the
Nation a better opportunity to obtain Government and private
contracts by introducing them to procurement officials who
otherwise would be very difficult to meet. This allows small
firms to learn about and bid on procurement opportunities in
their areas of expertise. As a result, $29 million in Federal
and private contracts have been awarded so far.
SBA has been active in other areas of contracting, as well.
I am proud of the hard work done to implement the provisions of
PL 108-183 in record time, providing contracting officers with
a powerful tool to award contracts to those who have given so
much to our country, service disabled veterans. In December,
the Agency implemented a new policy to more accurately monitor
contract awards when a small business is purchased or merged
with a larger business. The new policy requires a business to
recertify itself as small when Federal contracts are
transferred to it, in order to be continued to be counted as a
small business contract.
For years to come, victims of the worst hurricane season on
record will remember how SBA helped them get back on their
feet. During fiscal year 2004, the SBA's Disaster Program
provided more than $884 million in low-interest loans to over
28,000 homeowners and businesses. The supplemental
appropriations allowed SBA to increase these numbers to over
100,000 loans for up to $4 billion. This will enable the local
economies to recover as quickly as possible.
President Bush understands the vital role that America's
small business play in creating opportunities. He also
recognizes that small business generate two-thirds of all of
the new private-sector jobs. The President's plan for economic
growth and job creation, along with his small business agenda,
has been successful in creating an environment in which
entrepreneurship can flourish.
Health care continues to be one of the largest burdens our
small businesses must bear. Time and again, as I meet with the
entrepreneurs around the Nation, they talk to me about the cost
of health insurance. And it is only getting worse. We will
continue to support the use of health savings accounts and urge
Congress to pass association health plans.
We also plan to make the President's tax proposals
permanent, which will help small businesses and their employees
keep more of what they earn and reinvest that money in their
families and their businesses. Recognizing these successes, we
look forward to the future with renewed dedication to serving
America's small businesses in a financially responsible manner.
Now I would like to lay out the specifics of fiscal year
2006 budget request. SBA's total request is for $592.9 million.
This request provides for a strong active SBA that can
effectively and efficiently meet the demands of its customers,
America's entrepreneurs, while minimizing the cost to the
taxpayers. Through improved management and program reforms, SBA
will better serve small businesses.
SBA requests $16.5 billion in lending authority for its
7(a) loan program. This record amount of lending authority will
provide the loans small businesses need in a timely manner and
without disruption due to the stability of the zero subsidy
rate policy. This request will also give SBA the authority to
provide $5.5 billion in loans through the 504 Certified
Development Company Program, also at no cost to the taxpayers.
SBA continues to support venture capital for small
businesses. SBA requests $3 billion in authority for the SBIC
Debenture Program. For 50 years this program has provided
venture capital for success stories such as Nike, Intel,
Calloway Golf, and many others. However, we are not proposing
to reinstate the Participating Securities Program at this time.
In 10 years of operations, this program has resulted in
reestimated losses of $2.7 billion to taxpayers. And that kind
of result is unacceptable.
Through more flexible budget structure, SBA is seeking
increased efficiency and quality of services. The request
proposes that the Agency work through its Nationwide
infrastructure of Women Business Centers, veterans outreach
centers, SCORE chapters, Small Business Development Centers and
district offices.
This budget also includes continued funding for the
Agency's Disaster Program. As you are aware, the SBA is a major
part of the Government's mechanism to help disaster victims get
back on their feet.
Some of the heaviest burdens borne by small businesses in
America are the result of unnecessary Federal regulation and
red tape. That is why I am pleased that the SBA's budget
includes $9.1 million for the Office of Advocacy. This funding
will allow advocacy to fulfill its mission.
In his February 2 State of the Union address, the President
underscored the need to restrain spending in order to sustain
our economic prosperity. As part of this restraint, it is
important that total discretionary and non-security spending be
held to levels proposed in the fiscal year 2006 budget.
The budget savings and reforms in the budget are important
components of achieving the President's goal of cutting the
budget deficit in half by 2009 and we urge the Congress to
support these reforms. The fiscal year 2006 budget includes
more than 150 reductions, reforms and terminations in non-
defense discretionary programs of which two affect SBA. These
are the Microloan and SBIC Participating Securities Programs.
SBA must be forward thinking. We must anticipate changes in
the marketplace and adjust our programs based on the realities
of today's small business environment. SBA's fiscal year 2006
request is good for America's small businesses and taxpayers
and I ask for your support for our fiscal year 2006 budget
request.
Thank you again for the opportunity to appear here today. I
am happy to answer any of your questions.
[The prepared statement of Administrator Barreto follows:]
Prepared Statement of Hector V. Barreto, Administrator,
U.S. Small Business Administration
Madam Chair, Ranking Member Kerry and Members of the Committee,
thank you for inviting me here today to discuss the President's Budget
Request for the U.S. Small Business Administration (SBA) for Fiscal
Year (FY) 2006.
As the Committee is aware, the past year was not without its share
of challenges for the SBA. However, I am proud to say that last year
was also one of great success for both the Administration and the
Senate Small Business and Entrepreneurship Committee. We were faced
with several critical issues, but we were never able to work together
and reach agreement in ways that proved beneficial to both America's
small businesses and America's taxpayers.
In FY 2004, when the 7(a) loan program's demand exceeded its budget
authority, the SRA and the Committee were able to come together, and
with the assistance of our partners in the lending industry, to provide
an additional $3 billion in lending for the 7(a) program, at no
additional expense to the taxpayers. This allowed the Agency to lift
the loan caps and operate the program at full capacity for the
remainder of FY 2004. As a result, the Agency guaranteed a record $12.7
billion in small business loans in FY 2004.
At the beginning of Fiscal Year 2005, under the continuing
resolution, the SBA began operating the 7(a) program at a zero subsidy
rate. This ``trial period'' showed that a zero subsidy rate would
hinder access to and delivery of the 7(a) program, As a result, the
SBA, the Committee, and the lending industry came together to craft
legislation that allowed the program to operate without appropriations
from Congress and ensure long-term stability in the program.
This change significantly reduced the potential for future progam
disruptions and uncertainties, and allowed the Agency to reduce its
budgetary needs while continuing to service America's small businesses.
I know some have expressed concern that the resumption of the 2002
fee levels would harm small businesses. However, since October 1, SBA
has guaranteed over $4.4 billion in loans, an increase of over 11
percent over last year, and our leading partners have shown renewed
support for the program. In addition, we are making more loans than
ever to minorities, women and veterans.
At this time last year, the SBA's programs under the Small Business
Act hadn't been reauthorized in over 4 years, and the Agency and the
Committee seemed to be deadlocked in the negotiating process. However,
persistence and deligence in pursuit of this goal of reauthorization
finally produced a compromise in the form of a two-year SBA
reauthorization that passed at the end of the 108th Congress.
Chair Snowe, I would like to compliment you and your staff on
ensuring that this legislative compromise was included as part of the
FY 2005 Omnibus Appropriations Act and for your support of SBA's
efforts to become more efficient. This legislation allows the Agency to
better serve more small businesses at less cost. Our FY 2006 budget
submission reflects a continued commitment to that goal. Small business
customeers are taxpayers and understand the need to cut unnecessary
costs and keep up with an ever-changing marketplace.
Last year, I stressed to you that SBA's goal was to do more with
less. I know that in Washington, DC, it is difficult to imagine
strongly supporting a program without continually increasing its
budget, but SBA has proven that it can be done.
Since I became SBA Administrator in 2001, the Agency's annual
appropriation has continued to decrease, yet SBA's programs have
reached more and more American entrepreneuers year after year.
Last year was a great example of this kind of success at the SBA.
The Agency provided $21.3 billion in loan guarantees and related
financing for approximately 87,800 small businesses in FY 2004; these
being record levels.
Out of that $21.3 billion, nearly one-third went to women-owned and
minority-owned businesses, which is more than any prior year; over $500
million went to African Americans; approximately $2.8 billion went to
women; over $1.2 billion went to Hispanics; and over $115 million went
to the Native American community. These figures represent the
Administration's continued commitment to ensuring that the SBA's loan
programs truly serve those small businesses that would otherwise have a
difficult time accessing capital from the lending world. I am proud of
the successes documents by these efforts.
Our administrative transformation efforts have also produced
similar results. As this Committee knows, the Agency has been going
through a transformation process designed to realign some of its dated
infrastructure to meet the changing face of the 21st century business
world. The needs of the SBA's customers remain paramount, and
modernizing and realigning the Agency's human capital resources,
operations, and organizational structure to match those needs is
crucial to the Agency's continued relevance. Last year, the SBA began
consolidating administrative servicing functions, allowing field office
staff to work more closely with their clients in the small business
community. The Agency's field offices are using technology, outreach,
marketing, and customer relationship management to better meet small
business needs. Through these modernization efforts, more SBA employees
will be in more locations, providing direct assistance to the small
business community at a lower cost.
The SBA has also been effective in streamlining processes on the
loan finance management side of the organization. Currently, over half
of SBA's 7(a) loans are made through SBAExpress, which is processed
electronically in a 36-hour timeframe. Centralization has reduced the
7(a) program guarantee and purchase liquidations timeline to an average
of less than 45 days. The 504 program reduced loan application
processing time to just two days, five times faster than the prior
national average of ten business days. These dramatic improvements
directly affect the SBA's partner lenders, and ultimately, the Agency's
customers, America's small business owners.
SBA's core infracture of technical assistance programs--SBCDs,
SCORE, WBCs, and district offices--provided their services to record
numbers of small businesses in FY 2004. SBA's Entrepreneurial
Development programs provide much-needed expertise and guidance to
those entrepreneurs who have the drive and the idea, but may need a
little help putting all of that into a working business plan.
The SBA also continued its mission to support the Administration in
meeting its statutory commitment to provide a fair share of contracting
dollars to small businesses. Small businesses received a record number
of Federal contract dollars in FY 2003--$65.5 billion--and exceeded the
23 percent government-wide goal. I am also proud to say the Federal
contracting dollars increased for women-owned businesses, 8(a), SDB,
HUBZone and Service-disabled veteran-owned firms. In FY 2004, the SBA
provided procurement assistance to over 37,000 small businesses.
The SBA has also been innovative in creating additional contracting
opportunities for small businesses. For example, the Business
Matchmaking program has given small businesses around the Nation a
better opportunity to obtain government and private contracts by
introducing them to procurement officials who otherwise would be very
difficult to meet. The program's goal is stimulate jobs and growth for
small businesses by taking advantage of opportunities that are normally
confined to distinct geographical areas such as the Washington, DC area
or a city where a major corporation is located. Since the program
started 2 years ago, 23,000 one-on-one appointments between small
business owners the Federal and corporate procurement officials have
been conducted. The program has allowed small firms to learn about and
bid on procurement opportunities in their areas of expertise. As a
result, $29 million in Federal and private contracts have been awarded.
More than 50 percent of the small businesses that have received
contracts through this initiative are women-owned or minority-owned
businesses.
SBA has been proactive in other areas of contracting as well. I am
proud of the hard work done by my staff last year to implement the
provisions of P.L. 108-183 in record time, providing contracting
officers with a powerful tool to award contracts to those who have
given so much to our country; service-disabled veterans.
Additionally, the Agency recently published a rule clarifying the
responsibilities of prime contractors and giving contracting officers a
tool to ensure that small business subcontractors are treated fairly
when doing work on Federal contracts--an issue plaguing many small
businesses. In December, the Agency also implemented a new policy that
enables the Federal Government to more accurately monitor contract
dollars awarded to small business concerns that are subsequently
purchased by large business concerns. The new policy requires a
business to recertify itself as small when a change-of-name or novation
agreement has been executed if the contract is to continue being
counted as a small business contract.
In the past year, the SBA has moved to a completely automated
electronic application process for both the 8(a) and Small
Disadvantaged Business (SDB) Programs. As a result, the average time to
process an 8(a) application has fallen from over 100 days to 45 days,
and for SDB, the drop is from 110 days to 40 days. Consequently, time
and government resources are being used more efficiently, and at the
same time, better customer service is being given to small businesses.
While I am always more than pleased to talk about the active role
that the Agency plays in the small business world, I really couldn't be
more proud of the humanitarian assistance provided by SBA's Office of
Disaster Assistance.
For years to come, people will remember the tremendous work the SBA
did in 2004 to help disaster victims recover from the worst hurricane
season on record. During FY 2004, the SBA Disaster Assistance program
approved low-interest loans to over 28,500 homeowners and businesses
grossing over $884 million. The supplemental appropriations allow the
Agency to increase these numbers to over 100,000 loans for up to $4
billion. The direct public benefit of these SBA loans is that the
businesses and local economies in disaster areas will be able to
recover much more quickly than would have otherwise.
While we can enjoy the successes of the last year, we must continue
to look towards the future with renewed dedication to serving America's
small businesses in a financially responsible manner. In fact, the
disaster Assistance program has begun its transformation to electronic
processing, simplifying the process for disaster victims and providing
them with faster responses while reducing costs to administer the
program.
President Bush understands the vital role that America's small
businesses play in creating opportunities. He also recognizes that
following times of economic downturn, small businesses play a leading
role in economic recovery, and that it is small businesses that
generate approximately two-thirds of all new private sector jobs. The
President's plan for economic growth and job creation, along with his
Small Business Agenda, has been successful in creating an environment
in which entrepreneurship can flourish.
Health care continues to be one of the largest burdens our small
businesses must bear. Time and again, as I meet with entrepreneurs
around the Nation, they talk to me about the cost of health insurance,
and it is only getting worse. We also plan to make the President's tax
proposals permanent to help small businesses and their employees keep
more of what they earn to re-invest that money in their families and
their businesses.
Finally, we want to help the President repair the Social Security
system. Some people have claimed that the system is not in need of
repair, that the crisis is fifty years away, but I believe it is our
responsibility to those in their teens and twenties now to fix the
program for their future rather than waiting until the problem becomes
acute and unmanageable. I also believe that acting now is the best and
fairest way to craft a solution that will not result in unfair costs on
small business employers and employees or benefits cuts to those who
have paid into the system in good faith. It is time for us to take the
800-pound gorilla out of the picture and remove its unwelcome presence
from the plans and futures of small business owners and their employees
who are paying the taxes that feed it.
Now, I'd like to lay out the specifics of our FY 2006 budget
request. The SBA's total budget request is $592.9 million. This budget
request provides for a strong, active SBA that can effectively and
efficiently meet the demands of its customers, America's small business
entrepreneurs, while minimizing the cost to the American taxpayer.
Through improved management and program reforms, the SBA will better
serve America's small businesses.
The SBA requests $16.5 billion in lending authority for its 7(a)
loan program--a $500 million increase over the enacted level for FY
2005 and almost a 25 percent increase over FY 2004 levels. The 7(a)
subsidy rate for FY 2006 remains at zero, meaning the 7(a) program can
guarantee $16.5 billion in small business loans without requiring a
taxpayer subsidy.
This Budget Request will give SBA the authority to provide $5.5
billion in loans--also a $500 million increase over the FY 2005 enacted
level--through its 504 Certified Development Company (CDC) program with
no cost to the taxpayers. The 504 program, which was established to
increase small businesses' access to real estate and other long-term
fixed asset financing, continues to have job creation as an important
program goal. The SBA is continuing to take steps to increase small
businesses' access to 504 loans by increasing competition among CDCs
and streamlining the application process.
SBA is asking for $3 billion in debenture authority for the Small
Business Investment Company (SBIC) program. This program has continued
to operate with expectations, providing benefits to recipient firms and
with financial projections. The Administration's budget does not
propose reinstating the SBIC Participating Securities program in 2006.
In ten years of operations this program has resulted in re-estimated
losses of $2.7 billion, $1.7 billion of which are realized cash losses.
I am continuing my advocacy for greated efficiency and more and
better quality of services to small businesses by consolidating
delivery of services to small businesses through the Agency's core non-
credit programs. As we discussed last year, SBA does not need
restrictive line-items placed in its budget in order for the Agency to
reach more small businesses.
The HUBZone program is an excellent example of this. In FY 2004 and
FY 2005, Congress mandated that the SBA spend $2 million on the HUBZone
program. Congress expanded access to this program in the recent SBA
reauthorization bill. While SBA is not asking for a special line item,
the SBA fully intends to support this program from within our Salaries
and Expenses account. As you can see from the Agency's FY 2006 budget,
SBA plans to provide $7.3 million in support for the HUBZone program,
providing resources that keep the program strong without hampering our
ability to meet challenges and serve all of our customers' needs.
Further, SBA is working to enhance the HUBZone program and its
other government contracting programs through monitoring and assessing
the effectiveness in reaching their target audience. Results of this
analysis will help SBA better use its resources in reaching these
businesses. Through the Business Matchmaking Initiative, SBA will put
more small businesses in touch with procurement officers at all levels
of government and those at-large businesses. The one-on-one meetings
facilitated through these events provide small business owners with an
opportunity to speak directly with the decisionmakers.
SBA will also be working more closely with other Federal agencies,
ensuring that their contracting practices maximize opportunities for
small businesses while still providing a good deal for the taxpayer.
Through EPCR and the ESRS systems, the SBA will have more tools to
monitor prime and subcontracts to ensure small businesses are given
adequate opportunities to contract with the Federal Government.
The SBA also believes it can provide a full range of technical
assistance more effectively by using its core national delivery
programs. The Budget Request proposes that the Agency work through its
primary infrastructure of 104 Women's Business Centers, 4 Veterans
Outreach Centers, 389 SCORE chapters, 1163 SBDCs, and 68 district
offices. They can reach more customers and offer higher levels of
service to targeted constituencies and, by eliminating the duplication
and bureaucracy that is inevitably created by a large number of smaller
programs, they can do it far more effectively.
The Budget Request also includes continues funding for the Agency's
Disaster Loan Program. The SBA works very closely with the Federal
Emergency Management Agency to assist those small businesses and
individuals directly affected by disasters such as tornadoes, floods
and hurricanes. As you are aware, the SBA is a major part of the
government's mechanism to help disaster victims get back on their feet.
As the Committee is well aware, some of the heaviest burdens borne
by small businesses in America are the result of unnecessary Federal
regulation and red tape. That is why I am pleased that SBA's budget
includes $9.1 million for the Office of Advocacy. This funding will
allow Advocacy to fully staff its regional operations; to continue
training Federal agencies on how to comply with the Regulatory
Flexibility Act; and to research, document, and report to Congress on
small business matters.
In FY 2006, the Office of Advocacy expects to same small business
$5.6 billion in potential regulatory costs. Madam Chair, that is a
substantial amount of savings for America's entrepreneurs.
Another crucial area where the SBA continues to make progress is in
lender oversight. Since the Loan and Lender Monitoring Systems (L/LMS)
became operational in 2003, it has provided the SBA and the Federal
Government with an exceptional level of oversight of SBA's guaranteed-
loan program operations. L/LMS is a risk-based approach to oversight
that provides the Agency with greater insight into SBA's lenders. It is
more streamlined and efficient, allowing us to better deploy our
resources to those areas where the SBA has the greatest exposure while
being less intrusive to the lenders.
Specifically, L/LMS has improved SBA's lender oversight by directly
increasing our loan portfolio and lender monitoring capability. The
result is SBA's first database confining future credit risk analysis
with past performance. L/LMS also enables the SBA to use historical
business loan level data when assessing risk levels.
The impact of L/LMS has been profound. For example, in previous
years, the Kansas City Review Branch and District Offices reviewed most
of the SBA's lenders. Preferred 7(a) lenders were reviewed onsite every
year and other lenders were reviewed once every three years. L/LMS now
provides non-disruptive off-site monitoring capabilities that consider
both the performance and credit risk of every loan the lender makes and
funds.
The SBA is committed to continuously reassessing and improving the
potential impact of L/LMS for the Agency and its customers. We are
constantly evaluating new ways in which we can improve our own
operations to meet the full potential of L/LMS.
All of us at the SBA are quite proud of the Agency's legacy of
achievement. Many of today's most successful businesses received SBA
assistance in their formative stages. Who knows which of tomorrow's
industry leaders are today receiving their 7(a) or 504 loans, their
Government contracting opportunities, or their counseling through the
SBA's programs and services?
However, we at the SBA cannot rest on our laurels. We must be
forward-thinking, anticipate changes in the marketplace, and adjust our
programs based on the realities of today's small business environment.
The SBA's FY 2006 request is good for America's small businesses
and American taxpayers. If offers an opportunity for us to work
together with our Congressional partners to ensure that the SBA
continues to assist small businesses. We ask for your support for our
Budget Request. Thank you for the opportunity to appear today. I am
happy to answer your questions.
Chair Snowe. Thank you, Administrator Barreto.
Before we turn to questions, I am going to recognize
Senator Talent from Missouri. He is not a member of this
Committee, but he has been a longtime advocate for small
business and previously served in the House as Chair of the
Small Business Committee.
So I certainly welcome his presence here today and, most
importantly, his testimony and his input.
Senator Talent.
STATEMENT OF HON. JAMES M. TALENT,
A UNITED STATES SENATOR FROM MISSOURI
Senator Talent. I appreciate that very much. I want to
thank the Chair and the Ranking Member, first of all, for
letting me testify and then sandwiching me in after the
Administrator. I appreciate the Administrator's indulgence
before he takes questions.
I wanted to testify just very briefly, Madame Chair,
because I feel so strongly about the importance of sustaining
the SBA's Participating Security SBIC Program. It is, as the
Chair knows and the Ranking Member knows, it is the only equity
investment program the Government sponsors in the SBA. The
other programs are all loan programs, good programs, but now
ones that directly provide capital.
Anybody who talks to small business a lot knows that the
shortage of investment capital, either to get started or to
grow, is one of the big problems that they confront.
We know about this program in Missouri. Of $8.9 billion in
participating security investments since the program began in
1994, approximately $135 million have been invested in
Missouri. Those investments netted an estimated 3,750 jobs and
over $641 million in portfolio company revenue.
The example I always use because it has relevance to my
family is the Build-A-Bear Company. Between 1998 and 2001, two
SBICs invested $13.2 million in Build-A-Bear Workshop. It is a
retail and Internet business. For those who do not have
daughters or granddaughters and therefore may not know about
this, Build-A-Bear Workshop is a retail and Internet business
that provides a place for people of all ages to make and name
their unique bear or other stuffed creation. The first store
opened in St. Louis in 1997. Now the company operates 170
stores in 40 States and Canada. It is opening a store in
Sheffield, England. It has gone from 30 employees to 4,000
employees. Madame Chair, it would not have happened if not for
the SBIC Participating Investment Program.
I know there are problems and the Government is incurring
losses. We are coming out of a recession and whenever we do, as
the Chair and the Ranking Member knows, we have to look and
refine these equity investments as well as the loan programs.
And we certainly need to do that. I also agree that we need to
get to a zero subsidy rate for the program. I think we can do
that.
But what I would ask the Committee to consider and the
Administrator to consider and to do is to work with the SBICs
in restructuring the program to come up with a zero subsidy
rate, but in a way that allows the program to continue. I think
we can do that. I hope that the Administrator will consider
that. And I hope those at OMB will consider that, as well. I
know they have never really had confidence in this program, but
I can tell you it works.
Again, thank you. I am not going to interrupt the hearing
any longer, but I thank you, Madame Chair, for permitting me to
testify.
Chair Snowe. Thank you, Senator Talent.
Your points are well taken and we appreciate the expertise
you have brought to this matter, because this is a crucial area
for venture capital for small businesses. You are absolutely
right. We have to find a way to address this problem.
STATEMENT OF HON. NORMAN COLEMAN,
A UNITED STATES SENATOR FROM MINNESOTA
Senator Coleman. Madame Chair, before Senator Talent
leaves, I want to associate myself with his comments. We face
the same situation in Minnesota. We understand some of the
difficulties.
But we are really faced with what I call a ``perfect
storm.'' We went into recession. These are the companies that
were hit by that. But I think we can look back at what some of
the challenges are. We can get to the zero subsidy rate.
So I commend my colleague from Missouri and let him know
that I stand in full support of what he has to say and look
forward to working with Administrator Barreto.
By the way, thank you for your leadership. Thank you for
doing an outstanding job. I have always enjoyed the
relationship. I think this is an opportunity where we can build
something that is worthwhile for all of us.
Chair Snowe. Thank you, Senator Coleman. Thank you, Senator
Talent.
Administrator Barreto, let me begin. Obviously you have
heard bipartisan disappointment expressed on the direction of
some of these programs. We understand the economic vise that
you are certainly in, in trying to develop as part of the
overall Federal budget. It is obviously multiple challenges.
But I also think in that process, as I have always had in
advocating a balanced budget, you have to be discerning about
what ultimately are the priorities for the Federal Government.
I happen to think, whether I were Chair of this Committee
or not, that we ought to be investing in small business
programs because they give you the biggest bang for the buck.
It is where job creation is happening in America. If it were
not for small business, it would not be happening. Those are
the clear and discernible facts.
I think that is the challenge here today, what we can do to
reverse that direction. It may well be that under your
leadership, that in spite all of those cuts that you have had
to endure within these programs, you have managed to make sure
that they are moving in the right direction in terms of job
creation.
The question is how low can you go before you do harm? That
is the problem, when you see a 36 percent decline over the last
5 years and yet we have managed to create, as I showed in the
chart, 4.5 million jobs since 2001, 3.2 million with these
appropriations and these types of decreases. But when you are
talking about eliminating programs like the Microloan program
for example, or the PRIME program, folding in HUBZone, another
program that I think should meet its statutory goal, we have to
figure that one out, as well, level fund the non-credit
programs like SCORE and Women's Business Centers, veterans
outreach centers, for four consecutive years ultimately it does
harm.
In an economy that is disparate, depending on where you
live in America, and I can cite that chapter and verse
representing the State of Maine. It has a disparate economy. It
is a rural economy. We are here to figure out how we are going
to fuse America to be one, rural and urban, so that everybody
has the ability to enjoy the economic opportunities this
country can afford.
And so while we have had all this great growth in certain
parts of the country, it is not happening all over. The one
unifier, in my estimation, happens to be small business. That
is the unifying factor. I do not want to see rural economies
withering up. Even in my State, when we see what is happening,
turning back their governments because they cannot afford to
run them in small towns. That is happening in many parts of
America. Small business can be the key to all of that.
That is my concern. We ought to be looking at well, you
know, in the overall Federal Government, the macro budget, what
are some key programs? It is amazing what these programs do and
what they generate for job growth. I am not so sure all of our
colleagues know that in the United States Senate, as much as we
have tried to give that message. We should be doing more of
this. We should not be moving in the direction of cut, cut, cut
because ultimately it is going to have a multiplying effect in
the wrong direction. We are charting a different course than we
should be charting for these programs.
Second, we are demanding on high fees, which gets me to my
next point. It is on the 7(a) program. You are going to see a
118 percent increase in the last 3 years in the 7(a) program.
Now, I understand that it is being reestimated. The subsidy
rate, was reestimated. Now it is a third lower, so it was
calculated so much higher last year. We need to find out
exactly why that happened, frankly, because ultimately the
lenders and small businesses are paying that fee. If it was
disproportionately high and it was erroneously calculated, then
we better find out why.
But that is the problem. That is what we are depending upon
now. Getting the zero subsidies, getting higher fees. I know
you have asked for a fee for the secondary market, to have that
authority in case you wanted to use it. That is another issue.
But that is what we are dealing with here. So I do not see
how that moves us in the right direction to help all of
America, because I think we need to help all of America. I
think small business is the key to rejuvenating a lot of
economies. We have got mom and pop operations that can develop
and nurture that otherwise would not get the money from the
conventional lender.
So I would like to have you start with how we can move in a
different direction, understanding our concerns so that
terminating these programs that are job creators or reducing
them is moving exactly in the wrong direction.
We should be doing more. And if it is doing so great, we
ought to be building upon that. I do not know of any other
programs that get this kind of return on investment.
Administrator Barreto. Thank you, Senator. I agree with
what you said.
But I want to put it in a little bit of perspective. We are
doing more every single year. Over the last 3 years we have
literally doubled the number of loans that we do and the dollar
amount. And we have done it in every single community. Our
loans to minorities were up again for the fourth straight year.
Loans to minorities were a third of all of our loans. We are
doing more loans to women-owned businesses, veteran-owned
businesses.
And it is happening for a variety of reasons. It is
happening because of some of the structural changes that we
have made to the way that we run our programs and how we
interface with our partners. It has also happened because the
economy has gotten better and more small businesses are
optimistic of their future. And it has happened because we have
become better partners to our lenders.
I would like to read you something, very briefly. This was
a quote from Anthony Wilkinson, the Chief Executive of NAGGL,
the National Association of Guaranteed Lenders. He said that
the bankers have concerns about the higher fees, but they are
not nearly as bad as a cap or a shut-down. He said the
overriding priority for lenders is guaranteeing a smoothly run
program. He said the 2006 budget does that. He says the good
news is that we have a program that is open and is not capped.
He is a leader of the National trade association.
Also, today we got some great news. It was U.S. Bank, and I
will read you a quote from their executive. They have agreed to
pay all of the fees for the small business lenders. They have
made a business decision. They are going to pay all of these
fees and I think this is going to make them very competitive.
He said: ``To the best of our knowledge, a fees-paid loan
initiative has never been attempted before, but we have already
received a great response from both of our U.S. Bank partners
as well as our external referral sources.''
The point is that these loans and the way that they are
structured is good business for our lenders. That is why more
lenders are joining the program. That is why we are making more
loans. That is why every community is benefiting.
I brought some charts with me, as well, Senator. And as you
see here, this will give you an idea of the stair step growth
that we have seen in every community. Minority loans,
represented by the yellow bar, is what we did last year. This
is what we are tracking so far this year. And I have broken it
down into every community, African-American, Hispanic, women,
veteran. We have never reached so many as we are today.
Chair Snowe. I do not doubt it, but we could do more. And
that is what is puzzling about this request. Because, for
example, Women's Business Center, we have the sustainability
centers. We have 49. We have made great strides with that
program, great investments. And now there is no funding for the
sustainability centers. I think that that is unfortunate that
this budget does not reflect that. That is one example.
Getting back to the 7(a) program increase, it may well be
that there are lenders who can absorb those costs and do it
that way. But again, it is going to be done on an ad hoc basis.
We now rely on all programs in terms of being zero subsidy,
high rates, high fees. At what point is that going to be
discriminating against those businesses who simply cannot do
it, our entrepreneurs?
Because we are changing it in a way that is going to
exclude many from participating in these programs. I think that
is a problem. I understand the budgetary constraints and the
challenges here. But I think that these fees are going to have
varying effects, depending on where you are in America and who
you are and what the options are. That is my concern.
When you calculated this by a third less over the last few
months and the 7(a) fee ultimately, and now it is going higher
next year, and then proposing a fee for the secondary market, I
mean that is all cumulative. That is not going to invite
participation and growth in these programs that have been
working so well.
Administrator Barreto. One of the things I know there was
a concern was about the fees late last year when we were
dealing with this. And some of the folks were saying to us it
is going to draw people out of the program and they are going
to do less loans. Last year was the best year in our history.
This year we are up in our 7(a) loan portfolio, up 28 percent.
We are up 16 percent in our 504 loan portfolio. We are up 57
percent in loans to African-Americans, 16 percent to Hispanics.
We are up 51 percent in loans to women. The fastest growing
segment of our small business loans are those loans under
$35,000 that are reaching those emerging markets.
So we have not seen the drop off. And primarily I believe a
lot of it has to do with the fact that our lenders have told us
many times before they need consistency. They need a higher
lending level.
When we first started, Senator, we were doing about $9.5
billion in the 7(a) loan program. This year we may do $16
billion. In a short 3 years that budget authority is expanded.
And that is really the bottom line for a lot of these small
businesses. They want to know that they can access the program.
They want to know that there is not going to be any caps on the
program. And they want to know that there will be enough budget
authority to meet that demand. And that is what we are
accomplishing right now.
Chair Snowe. I well remember the 7(a). In fact, we
indicated at the time that it was underestimated by the
Administration on that particular question. And the cap and
shut down occurred because there was an underestimation of the
demand for that program by far.
Administrator Barreto. And also because of the continuing
resolution, the fact that every year for the last 3 years at
the beginning of our fiscal year we are on a continuing
resolution. That put tremendous pressure on us. That is why we
ran out of money. We will not have that problem anymore because
we are a zero subsidy rate program. So we will not have those
kinds of situations every time our fiscal year starts.
Chair Snowe. A couple of points. First of all, the Senate
did do its reauthorization. It was the House who failed to do
that last year, which was regrettable, frankly, because it put
us in the situation it did with the continuing resolution and
having to include all that language in there. And frankly,
especially with the decisions that were being made by the
Appropriations Committee in the 7(a) program, that put small
business at a disadvantage. We passed it unanimously early-on
in the process last year. So regrettably, we were not able to
accomplish that overall.
Finally, I think we need to analyze exactly what the effect
is across this country regionally, in terms of who is
participating and who is benefiting. Because I do believe that
that is an issue. I think small business and these programs can
do so much to expand the economic growth in parts of the
country that otherwise are not benefiting. I think that is
truly--what we ought to be doing is maximizing our investments
in this program.
If this is working so well, then why are we moving in the
opposite direction in terms of the level of appropriations?
That is the issue here. Frankly, it is mystifying. We ought to
be discerning enough to figure it out. And this is one where it
is pretty apparent.
Administrator Barreto. I agree with you, Senator. One of
the key things, I think, to remember--and I think you mentioned
it before in your comments--in our key programs we have really
maintained level funding. The differentiation, from these large
budgets in the past, is that we needed an appropriation to fund
our 7(a) program. We saved almost $100 million right there.
This year we are also not asking for as much in our
disaster program because we received funding through a
supplemental. Obviously, our budget submission is not going to
include Congressional initiatives.
So there are some differences, but none of those
differences are going to impact our ability to accomplish our
mission this year. This year, we will have the best year in our
history. And next year we will have a better year than we will
have this year because of what this budget represents.
Chair Snowe. I appreciate that.
Senator Kerry.
Senator Kerry. Madame Chair, thank you.
I apologize ahead of time because I am going to have to
step out after these questions. But I want to--let me start by
making the point, Mr. Administrator, that there is some
revisionism going on here and there is a certain amount of
credit taking on your behalf that belies the record of what you
sought and what you wanted to do.
The fact is that you requested $12.5 billion. That was the
Administration request. We put it up to $16 million. You are
sitting here taking credit for a whole bunch of loans that you
did not want to make. That is number one.
Number two, the funding mechanism that you put in place
with these higher fees was opposed by the U.S. Chamber of
Commerce. It was opposed by the ABA, by Women Impacting Public
Policy, by most of the groups involved in this lending or whose
members need the loans. The only reason they accepted it
finally was not because they thought it was going to do a
better job for lending and growing the program the way the
Chairwoman has said, but because they thought there would be no
program at all.
If you think that is great management and leadership, that
is your choice. I do not, and I do not think the Chairwoman
does either.
The issue here is why we are not taking success and
building on it. Dell is the last computer manufacturer left in
this company. They used to do TVs and radios. We are struggling
as to where the job base is going to be in America.
I come back to my opening comment, which is, you ought to
be exciting that entrepreneurship. You say we are making more
loans. It is somewhat over your resistance that you are making
more loans and we are glad you are making more loans, but you
are not making as many loans as you could be, and they are more
expensive than they ought to be. And you are not reaching some
of the targeted audience that you should be.
Those are the standards here, not are you doing more. But
are we doing what we ought to be doing, and are we reaching the
people that we are seeking to reach.
I will give you an example. The Office of Advocacy recently
reported that 44 firms received over $2 billion in Federal
contracts in fiscal year 2002, but were misreported as small.
These were not small firms. My question is: Does your $65
billion reported to have gone to small firms in 2003 stand up
to the same test for accuracy that was applied to the 2002
achievement? Are they small?
Administrator Barreto. You are referring to the----
Senator Kerry. Are you sure the $65 billion went to small
firms as it did not, as we saw in 2002 contracting?
Administrator Barreto. First of all, let me take one step
back. I do not wish to take credit for all of the great things
that are happening in the small business community. I think
that credit belongs to our partners, our lenders, our resource
providers and the small businesses themselves. Our job is to be
able----
Senator Kerry. But you are. You are sitting here and saying
we are making more loans. You did not want to make more loans.
Congress gave you the power to make more loans.
Administrator Barreto. I am saying the SBA, through our
programs and our resource partners, is making more loans. Those
are just the facts. That is what we are doing right now.
I would also say that what we have tried to do when we
analyze what to ask for, is see what we have done in the past.
Last year we did $12.7 billion. This year we think we can do
closer to $16 billion. Next year we are raising it to $16.5
billion.
With regards to these businesses that you reference,
sometimes what is happening with these small businesses is they
get a contract and then over time they grow and they go outside
of the size standard. That is a good thing. We want those small
businesses to be successful. Sometimes they are so successful
that they merge with another enterprise and now obviously that
would not be considered a small business.
Before the Advocacy study came out----
Senator Kerry. That is not what I am talking about.
Administrator Barreto. Those are the cases that when we
have gone back and reviewed them, most of the cases fall into
those categories. This is not a wholesale practice of large
businesses taking contracts from small businesses. I do believe
that most of that $65.5 billion went to small businesses. We do
not have a large amount of data representing that these
contracts are going to large businesses.
By the way, that is why we put out a regulation last year
that is novation rule. When these small business contracts are
being transferred to larger enterprises, it is their
responsibility to recertify again. So that will take care of a
lot of the issues that were dealt with in the advocacy study.
One of the best ways to police this are the small
businesses themselves. When they are going after a contract and
they are a small business and they realize somebody else got
that contract, believe me, they are going to let us know and
they are going to petition that contract be overturned.
So we do not see this as something that is happening on a
wide basis.
Senator Kerry. I hope not, obviously. When you see such
problems, such as the accounting for the 7(a) loan program's
subsidy rate, which was 70 percent out of whack, where you
overcharged some $42 million to small businesses just on that,
would you consider that efficient?
Administrator Barreto. You are referring to the subsidy
rate calculation?
Senator Kerry. Yes, the subsidy rate calculation.
Administrator Barreto. One of the things that obviously we
have been tasked with, that this Committee asked us to look at,
was the subsidy rate this problem has been something that has
been dogging this program for years. We have steadily made
progress in reducing that subsidy rate down to zero. Obviously,
the subsidy rate is not static. It depends on what is happening
in the portfolio. As new information comes, sometimes we are
able to lower that. Sometimes it is going to raise a little
bit.
Senator Kerry. We went through this model. We have had this
discussion over the years about the modeling and how you set
it. I think a lot of people have made constructive suggestions.
Administrator Barreto. GAO has verified it, Ernst & Young
has verified. A number of different entities have reviewed this
modeling and said that it is appropriate for what it is that we
are trying to accomplish.
Senator Kerry. So you think a 70 percent error rate is
acceptable?
Administrator Barreto. I am not sure it is a 70 percent
error rate. But one of the things that happens with these
programs is that if they are not operating efficiently, the
people who participate in them vote with their feet. The
lenders will not make these loans. Small businesses will not
seek these loans. And we have not seen that to be the case.
Senator Kerry. You get the gist of my point. I do not want
to go back and forth with you and I know you are going to
defend it. But I do not think 70 percent is acceptable. And I
think we ought to try to find a way to narrow that down. It
ought to be the error to your side, not to theirs. That is
number one.
Administrator Barreto. I agree.
Senator Kerry. Let me get back to something else. This is
the second year in a row that you want to try to eliminate the
Microlending program. Now, some of the justifications that you
give for that actually make sense. When you say you want to
serve more women and minorities compared to other programs and
so forth. The problem is it is filled with contradictions.
Compared to other programs, proportionately you say they do
already get more than any other program. You say you want to
reach the underserved areas. But currently 40 percent of
Microloans go to rural business. You say you want to reach more
startups. Currently 40 percent of all Microloans go to startups
and they exceed the SBA's goal.
So your goals are contradicted by the realities of what is
already happening, number one.
Number two, you say that the SBA Microloan program can be
substituted for by the Community Express program. But that
program does not loan to startups, only established businesses.
So you have eliminated a whole category right up front. You say
you want jobs created and the SBA's Microloan program creates
jobs for $3,500, as I mentioned, versus a much larger amount.
The program is so well designed with its loan loss reserve and
technical assistance program that a spokesperson from the SBA
said in a recent article in the Wall Street Journal that the
Mircroloan program has a ``minuscule'' default rate,
``miniscule.'' And I mentioned the one or two defaults earlier.
So how, given these problems, do you justify moving off
into this arena, where you cannot do the things that it does
today and does successfully? I do not understand that.
Administrator Barreto. And obviously we talked about this
last year, as well, and nothing that has changed over the last
year has really changed from our perspective. Last year we did
2,425 Microloans, those under $35,000 in the United States.
At the same time, we did 24,000 loans under $35,000 in the
SBA Express program. Many of those were in the Community
Express program, which also provides training to them. In
addition, there are 600 lenders, non-Government microlenders in
the United States, that do a much better job at this than we
do, reach many more people.
In fact, I would agree with you that the Microloan program
has created a market for many other private sector entities to
be making these same types of loans to these same types of
communities.
Senator Kerry. That does not address the startup issue and
it does not address the rural issue.
Administrator Barreto. Again, a third of those loans that
are made inside of the SBA Express program are going to
emerging markets, are going to minority communities, are being
made out in the rural communities.
Senator Kerry. Established businesses.
Administrator Barreto. And many of those are new
businesses, very new businesses in the minority communities,
for example. The thing for us is it costs us a lot of money to
make a Microloan. It costs us a dollar for every dollar that we
put out. Last year we put out $33 million in the Microloan
program and at the same time we put out $375 million of these
smaller loans in the 7(a) program.
Three years ago we were not making many small loans. The
average loan size at the SBA in 2001 was almost a $250,000. And
a lot of those small businesses came to us and said look, I
need to be able to get these small loans. We need to do it
across the board, not just in the Microloan program. That is
where we made a lot of those changes to the SBA Express
program.
Senator Kerry. This committee, I think, began the whole
effort to try to reach those lower level years ago, long before
you came here. So the Committee has been long pushing for
Microlending and smaller lending and so forth. What is
happening is I think you are going to shut out a very important
market for these kinds of startups, which runs contrary,
incidentally, to the whole value system about work and work
ethic which we are trying to instill in certain communities.
Administrator Barreto. The Community Express program does
do the startups. That is part of the 7(a) portfolio. The SBA
Express will be dealing with a little bit more established
companies, but Community Express will do startup loans.
Senator Kerry. I am just being shown, this is apparently
from a 7(a) Community Express Lender questionnaire on small
business lending which says: Can I use this loan to buy a
business or start a new business? And the answer the Community
Express Lender put out is: No, at this time all of our business
loans are meant for existing businesses.
So I would just ask that this be put in the record.
Chair Snowe. Without objection.
Senator Kerry. We can figure it out as we go forward.
Madame Chair, I have gone on longer than I should, but I
would like to ask permission to have the record extended and to
submit some questions in writing.
Chair Snowe. It will be extended, without objection.
Senator Pryor.
Senator Pryor. Thank you, Madame Chair.
Let me, if I may, follow up on a couple of points that the
Chair made a few moments ago. The first thing that she talked
about is how small business is really where the action is in
our economy. That is particularly true in my State. When you
look at Arkansas, basically the backbone of my State's economy
is agriculture and small business. When we look at job creation
and job growth, even though we have a lot of great Fortune 500
companies in Arkansas, small business really is where the
action is. So small business is something that I think we are
all concerned about for our own reasons and our own
perspectives.
The other thing that she mentioned is the Women's Business
Centers program, and I would like to ask you about that. During
the last 10 years, the centers generated an estimated economic
impact of $500 million. Do you agree with that figure, $500
million?
Administrator Barreto. I have seen some figures that
relate to that. I am not sure what the methodology they use or
how they track that, but I have seen some numbers showing that.
Senator Pryor. Somewhere around $500 million?
Administrator Barreto. I believe so.
Senator Pryor. You ought to know what that is because you
are changing the program. With an investment of only $37
million over a 10-year time period there was a $500 million
return on that investment. In other words, a $500 million
economic impact. That seems to be a pretty good return on
investment. Would did you agree with that?
Administrator Barreto. We totally agree with that.
Senator Pryor. Again, not to dwell too much on my State of
Arkansas, but just recently this week there was an announcement
that once again a small plant in a small town is going to lay
off its entire workforce and close the plant. About 200 jobs
will be going away.
But when you look at the Women's Business Centers and the
activity that they have been able to generate in a small State
like mine; I think that about 3,400 people have participated in
the program, 300 businesses have been started or expanded and
500 jobs have been created; there has been a large impact. All
this activity may have been in small communities, small
businesses, but overall it has had a large impact on my State
and I am sure it has had a similar impact around the Nation, as
well.
My question to you is how you justify cutting funding for
this program when it has created such sustainable jobs and
sustainable businesses?
Administrator Barreto. Thank you for that question,
Senator.
Let me first say that we agree with you, Women Business
Centers are critically important. The purpose of Women Business
Center Program is to provide these grants to non-profit
organizations for them to start these Women Business Centers
and help the women businesses in their area. And they have done
a good job to do that.
But the way that the program was envisioned is this was
supposed to happen for 5 years. After 5 years these
organizations would be self-sufficient. The problem that we
have had is there are many areas around the country, in rural
States like Arkansas and many urban centers that do not have
Women Business Centers because they cannot get them because
there is not enough money.
The intention of Women's Business Centers was to provide
these groups and these communities a hand up, not a handout, a
hand up. This was not supposed to be a static entitlement
program.
The centers that are doing very well are centers that have
been around for a few years. They are associated with a Chamber
of Commerce or another business association and are also
raising monies from other areas. These centers are not SBA
centers. These centers belong to those communities. They belong
to those organizations. We want to help them be successful.
So what we are basically suggesting is that we go back to
what the original purpose of the program is. Los Angeles just
got their first Women's Business Center, a city that has
probably the most small businesses, the most women small
businesses of any place in the United States, until recently
could not even have a Women's Business Center. So those are the
kind of opportunities that we want to address.
We think Women Business Centers are very important. We want
to grow new Women Business Centers around the country.
Senator Pryor. But there again, let us get back to what you
said a few moments ago. They have worked well.
Administrator Barreto. Yes, they do, they work very well.
Senator Pryor. So why change it?
Administrator Barreto. Because the original purpose of the
program was to be a 5-year grant. That is the original purpose
of the program. So what we want to do is help those Women's
Business Centers be successful over that 5 years so they can
become independent. The most successful ones are.
Please remember that the Women Business Centers do not
receive all of their funding from the SBA. They leverage that.
Our most successful examples of technical assistant providers,
the SBDCs, the SCORE, the Women Business Centers, leverage
those investments. And that is how they become successful. That
is what we want Women's Business Centers to do.
Senator Pryor. Let me go back to another one of Senator
Snowe's questions to you that you did not answer, and that is
if the programs are working so well why cut their funding?
With her you gave a lot of background and you end up losing
everybody. Again, why are you cutting funding for programs that
are working so well?
Administrator Barreto. What we are doing is we are
investing our resources in programs that are working well and
that is shown by the numbers. Numbers are a stubborn thing. We
are training more people than ever before. We are doing more
loans to women. We are doing more contracting. We have doubled
the number of loans that we have done over the last few years.
We are reaching every community in the United States.
That is the bottom line for a business, you look at those
success statistics. For us, we are doing more in every area.
Again, what the SBA does is we facilitate these programs and
these opportunities. We work with many other resource partners.
We are not the only ones that do these programs.
But what we do is very unique and not just anybody can do
that. That is why I think that we have been successful over the
last couple of years.
Senator Pryor. Answer her question and mine. Why are you
cutting funding for programs that work?
Administrator Barreto. Senator, with all due respect, you
would have to be specific as to which program you are referring
to, and then I would be able to answer that question.
Senator Pryor. There is a long list of programs. Just pick
one.
Administrator Barreto. I will answer any question you
would like me to answer, Senator.
Senator Pryor. Let us look at the Women's Business Centers.
Why are you cutting funding for this program?
Administrator Barreto. The original purpose of the program
was for it to be a 5-year program. We want those Women's
Business Centers to be successful and we want to create new
Women's Business Centers in areas that are not served right
now.
There are many, many women's groups and women centers that
come to us all the time, saying we would like a Women Business
Center in our area. And oftentimes we have to say no, we cannot
fund a Women Business Center because we do not have the
resources to do that.
These changes that we are making to Women's Business
Centers will allow us to do that, to start identifying new
opportunities and make those Women Business Centers successful.
We want to work with them in the early years so that they do
not get to year five and then come back and say we are not
going to make it without your funding.
Again, remember, these are not our Women Business Centers.
These centers belong to those communities.
Senator Pryor. I think we are plowing the same ground over
and over, and I guess I am not satisfied with your answer. But
I have been handed a long list of programs that have been
zeroed out. Just zeroed out. Not changed, but zeroed out.
Administrator Barreto. Again, it would depend on what
program you are referring to. One of the things that we did,
and it was referenced in the earlier testimony, is that we have
asked for resources, for example, in our Office of advocacy, in
the Office of the Ombudsman, in the 7(j) Technical Assistance
program, in the HUBZone programs, in the USEAC programs, in the
Native American outreach.
But is not represented by a line item. In fact, we, as has
been customary over the years, spend much more on those
programs than is actually reflected in a specific line item.
Senator Pryor. For example, the PRIME program. You have
taken that funding from $5 million to zero. Why are you doing
that? Has PRIME not worked well?
Administrator Barreto. One of the things that has happened
is that----
Senator Pryor. Has PRIME worked well?
Administrator Barreto. The program is duplicative of what
we are doing, the technical assistance that we can provide to
those communities.
I have a chart here I would like to show you. One of the
strengths of the SBA is the fact that we have one of the widest
networks of any agency or any Government department. This map
right here reflects all of the resource providers that we have
in the United States. They are in every State, in every major
metropolitan area. We believe that we can continue doing the
job with the current network that we have.
So on programs that we feel are duplicative, yes, we are
not going to ask for funding and we are going to continue to
fulfill that mission inside of the network that we currently
have. We spend hundreds of millions of dollars on this network.
We want to make sure that it is being fully utilized.
The good news is that it is being fully utilized. Three
years ago, the SBA counseled and trained through all of its
resource providers about 1.5 million small businesses in the
United States. Last year we did 2.5 million, and it has been
level funding in those programs.
In other words, those programs are more productive now than
ever before. And we believe they are going to continue being
more productive.
Senator Pryor. Madame Chair, I think I am overstaying my
welcome. Thank you so much.
Chair Snowe. Thank you, Senator Pryor, I appreciate it.
Senator Coleman.
Senator Coleman. Thank you, Madame Chair, and thank you,
Administrator Barreto.
I presume we could get into debates about specific
programs. But I hope, and I am confident we have common vision
in the fundamental importance of small business and growing it
in this country. I have a much more optimistic view of the
nature of the American economy than some of our colleagues. But
we have seen a lot of job growth in the last year, close to 3
million new jobs since March of 2003. But is about small
business.
A Republican Congress did not build the economy, and Alan
Greenspan did not build the economy, big Government did not
build the economy. It is American entrepreneurs. And so the
things that we can do to support their efforts are important.
As we have this discussion, I do hope and I want to put in
the record, that we do not forget that it is things like bonus
depreciation and increased expensing and cutting regulation and
a whole range of other things that are shackles around small
business. And as we release those shackles, as we make capital
more available, it is a lot better than loan programs. The
programs are important, and I am going to talk about some. But
I hope we do not forget the fundamental importance of those
kind of structural things, tax rates, opportunities to reinvest
capital, regulation, et cetera, that have an impact on what we
talk about.
I do share, and I have listened to your explanation about
Microlending. I do not care what you call it, but I do think it
is important, particularly the startup issue. I think it is
actually a world model. I have traveled around in Africa and
they do Microlending programs today. And so I just hope that we
reflect upon the importance of this concept. What you have to
deal with is the efficiencies of the operation. You can do 10
times the number of loans in SBA Express, but there is
something very important about Microlending, very important
about startups, the folks who cannot get it.
So we need to continue this conversation. I actually think
it sends the wrong signal, the wrong message when we talk about
getting rid of the Microlending program, even though you can
come back justify certain things with numbers.
But I think that message out there is also important and
perception is important. And so I hope that we kind of keep
that in mind.
Let me just turn to another issue. We have a lot of small
businessmen and women who are in the National Guard and the
Reserve. And they are increasingly being stressed today for
longer periods of deployment. I just got back from Iraq a
couple of weeks ago and I talked to folks. How are you taking
care of your family?
Are we doing anything within the SBA to deal with the
changing circumstances of so many American men and women who
find themselves through the Guard, through the Reserve on these
extended periods of deployment?
Administrator Barreto. Yes, sir, Senator and thank you
very much for that question.
We have done a lot over the last couple of years. One of
the things that we started a couple of years ago you might
remember is the Military Reservist Economic Injury Disaster
Loan. It was so long of a title that we shortened it to Mr.
EIDL. That was easier for us to remember.
These were low interest loans to folks that had been
deployed and owned a business. They could actually even go to
individuals who did not own the business, but maybe had a key
employee in that company deployed.
What we also have done is made sure that as all of the
military personnel are coming back, that they get a package of
information from the SBA on all of the different things that we
can do. Not just these Economic Injury Disaster Loans, but
where Veteran Small Business Development Centers are that we
fund.
There are a number of different other programs of which
they can take advantage. Obviously, something very important
happened last year, and that was the signing of legislation
that created a 3 percent Federal contracting goal for service-
disabled veterans. So we are going to work very hard to make
sure that those folks that have paid the highest price to this
country also have assistance from the SBA at their time of need
when they come back.
We are doing a number of different things from the
procurement side like business matchmaking to actually plug
them into real opportunities. So this is a very important issue
for us. I have a National Advisory Committee of Veterans that
report to me on a regular basis. I meet with them. We work very
closely with the Veterans Department also looking for
opportunities to get the word out there.
Veterans are no different than other small businesses. A
lot of times they do not know what they do not know and it is
not their fault. It is our responsibility to reach out to them
and make sure that we inform them, so they can take advantage
of all the opportunities that we can bring to bear on their
behalf.
Senator Coleman. I appreciate that because the world has
changed for certainly the Guard and Reserve folks in the last
couple of years. So what we did 4 years ago is an entirely
different circumstance.
So I appreciate the focus and I would urge you to keep that
attention and make sure that we are doing what needs be done
for those folks who are putting themselves on the line and
sacrificing for us.
One last question. In one of the exchanges you talked about
the HUBZone program. Can you give me--that is an area of
concern for me, particularly effectiveness in rural areas. Can
you help me understand a little bit what changes you are making
and how that is going to make the program easier to use and
effective, particularly in rural areas?
Administrator Barreto. Sure. As you are probably aware,
there are some changes that are coming to fruition. We are
going to be able to allow more small businesses, especially in
those rural areas and Native American communities to apply for
the HUBZone. We are doing a mapping process right now to get
that information out. That should be done by the end of April.
But we are trying to make it easier for small business to
participate in the HUBZone program, as well. We have seen a
large growth of HUBZone firms over the last couple of years, as
more information goes out, as we continue to simplify the
process of people registering so that they do not have to
submit a phone book of forms to us, all of those things are
helping.
We are going to be doing a lot of information sharing with
communities. We work very closely with the HUBZone
organization, for example, and participate in their events.
They participate in all of our events. So we think that this is
another tool that small businesses can use to access Federal
procurement.
In fact, a lot of times we find that small businesses are
participating in several different programs. They may be a
small disadvantaged business, and 8(a) firm, a HUBZone firm,
and participating in our procurement activities as well. That
is really, we think is a very good situation. It just gives
them more bites at the apple, if you will, and surrounds them
with more tools.
Senator Coleman. I appreciate it.
A last comment then, just to reiterate what by colleague
from Missouri, Senator Talent, raised on the Participating
Security Program. I hope that the Administration will work with
the Committee and work with small business to see what we can
do to find a solution to help continue this program. I think it
is important. Thank you.
Thank you, Madame Chair.
Chair Snowe. Thank you, Senator Coleman. Senator Coleman
makes an important point on Microloans because under USAID, we
provide, at least in 2002, $170 million for foreign
microenterprises. So it is true, it is a worldwide tool to
develop small businesses in underdeveloped countries.
So clearly, it is very difficult to send a message of
somehow eliminating this program for $15 million when we are
doing it worldwide in foreign countries at $170 million.
Senator Thune, welcome to the Committee. It is nice to have
you as a Member of the Committee.
STATEMENT OF HON. JOHN THUNE,
A UNITED STATES SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Madame Chair and other Members of
the Small Business Committee. I want to take a moment and thank
you for the opportunity to serve on this important committee.
Small businesses are the backbone of our economy in South
Dakota, as well as the Nation. And whether it is a farming
operation in a small town like Oneida, South Dakota, or a
machine shop in Sioux Falls, small businesses do create the
majority of jobs in my home State of South Dakota.
In fact, 97 percent of employer firms in South Dakota are
small firms. South Dakota has also seen the number of women-
owned businesses grow at a rapid rate. Between 1997 and 2004 it
is estimated the number of women-owned firms in South Dakota
increased by 26 percent. Employment grew by 109 percent, and
sales increased by 211 percent.
So we have got a great story to tell there. And I think
what is important is that here in Washington we need to do
those things to ensure that these small businesses have an
environment in which they can thrive and prosper. I believe
that includes reducing the burden of taxation, regulation,
litigation facing small businesses today. It is clear that
these burdens raise the cost of doing business substantially
and, in turn, make it harder for small businesses to grow and
create new jobs.
Serving on this Committee is a unique honor for me since I
have previously worked at the Small Business Administration
during the Reagan Administration. And so I look forward very
much to being involved with the issues that affect the Agency.
I would like to thank Administrator Barreto for his
willingness to come down here and to present the President's
budget proposal today. The SBA is guaranteeing a record number
of loans and helping more small businesses than ever. So I want
to say thank you and give credit where credit is due in that
regard.
The President's budget proposal is, as I like to say, the
starting point and not the ending point. And we are going to
have a lot to say before this process is concluded.
I am not going to get down into the weeds of the individual
programs, but I look forward to working with you, Madame Chair,
as well as with our colleagues on the Committee and in the
Senate, to ensure that we have a budget that although will be
tight and tough, addresses the important priorities of small
businesses around this country and allows the Agency to
continue to perform its duties and its services at a high
level.
Just by way of a question, if nothing else, I am curious to
know in your experience, Administrator Barreto, having been
there for some time now and obviously traveled the country and
visited with a lot of small businesses--I do that on a fairly
regular basis in my State as well, tour businesses, ask them
what their issues are, what things can we in Washington do
either for you or what things can we not do to you, I guess may
be a better way to phrase it sometimes with some of the small
businesses.
But what do you see today as the biggest barrier to small
businesses? What is it that you hear out there that, in terms
of allowing these businesses to grow and create jobs and expand
the economy in this country. What is that barrier?
And then perhaps maybe just to expand upon that a little
bit with respect to what the Agency is doing and realizing that
you are somewhat limited in the tools that you have at your
disposal to address those barriers.
Administrator Barreto. Thank you, Senator.
There are a number of different issues. I have spent a lot
of time as SBA Administrator working with small businesses
directly. I learned a long time ago that you learn a lot more
when you listen to your customers than when you talk at them.
They will tell you everything that they need to be successful.
So we have done a lot of that. I have traveled every part of
this country, met with countless small business groups.
You have hit a couple of areas that are critically
important. Small businesses will say to us a lot of times look,
the programs are great, we like the programs, they are great.
But if I am not in business it does not matter.
So the things that this Committee has worked on in the past
with us I think have been very, very instrumental. Sometimes I
do not think that we give enough credit to what this Committee
and the Administration working together have already
accomplished.
The tax relief policy was huge. A lot of people did not
understand that 80 percent of the benefit of the tax package
went to small businesses. It saved them $75 billion. A lot of
small businesses told us they could tell exactly when their
business turned around. It was exactly when that tax package
went into effect.
Now what they are asking us to do is make it permanent.
They are saying that now that business is starting to turn
around, please do not make these things go away. Do not take
away our deductibility, that $100,000 that afforded them the
opportunity to buy equipment and inventory and technology that
they were not buying before. So tax relief is hugely important.
We referenced regulatory relief. Since this Administration
has been in place we have saved small business something on the
order of $80 billion simply by allowing them to comply with
Federal regulation in a more streamlined manner or eliminating
redundancies. Those are huge, especially for a small business.
Senator Kerry mentioned earlier the importance of health
care. And we totally agree. That is their No. 1 problem, their
No. 1 criticism, because they get double-digit increases every
year. They cannot pass those costs onto their customers. They
are the only group, and they know it, that does not have access
to health care. If you work for a corporation, if you are a
member of your union, if you are a Government employee like me,
you have got health care. If you are a small business, good
luck. Most Americans that do not have health insurance either
work for a small business or have a spouse that works for a
small business.
We started dealing with this last year with health savings
accounts. That is a tool that they can use to lower their
health insurance premiums. It does not solve the health
insurance crisis in America. We need to expand health savings
accounts, provide more incentives, more tax credits.
We are very hopeful, and I know that we have all spoken
about this many times, that we can deal with association health
plans for the first time. It has not been dealt with in the
Senate, and many of you know--and you dealt with this Senator
Thune when you were a Congressman. The House has voted on
association health plans twice, but the Senate has not taken it
up yet.
Small businesses are desperate for any kind of relief that
they can get in this area. Their attitude is let us try this.
If it does not work, we can always go back to what we had
before, which was nothing. We believe that could lower their
health insurance premiums 25 percent. 25 percent to their
bottom line. It is like giving a small business a 25 percent
raise just by helping them deal with health care. So that is a
critical issue.
We need to do something about tort reform, eliminate
frivolous lawsuits. A lot of small businesses are put out of
business because they are having to fight lawsuits that should
not been brought in the first place. It is not saying eliminate
all lawsuits, but those that are frivolous, those that get
shopped around and really affect small businesses.
We need to open up new markets for small businesses. That
is why the things that we are doing with regards to
international trade are so important. We talk a lot about 97
percent or 98 percent of all businesses in the United States
are small businesses. Well, 98 percent of all exporters are
small businesses, too, but they only represent 30 percent of
all the trade that is going on.
All of those issues we have worked very closely with this
Committee and SBA has taken a leadership position on this, too,
advocating these issues on behalf of small businesses.
Small businesses said to us in the beginning look, we
appreciate everything that you do for us, but we need a voice
at the table. We do not feel like sometimes folks in Washington
understand what we are dealing with here. And now, working with
the Senate and the work that we have been able to accomplish in
the Administration, I think that they are starting to
understand that they do have a voice at this table. This is a
very important voice and we are going to continue listening to
it and doing something about these issues that critically
impact small businesses everywhere in the United States.
Senator Thune. Thank you. Madame Chair, I am sure my time
has expired. Thank you.
Chair Snowe. Thank you, Senator Thune. I appreciate your
comments and your presence here on the Committee.
Speaking of the health care issue, that will be the next
hearing and focus of this Committee. In fact, I introduced
association health plans yesterday with nine other cosponsors.
It is a bipartisan bill. And hopefully we can pave the way for
enactment of this legislation this year.
You are right, the House has passed it on two or three
occasions previously, but we have been unable to do so in the
Senate. So I think we really have to take away a lot of the
myths about that legislation and what it actually does and deal
with the facts. Hopefully, we can encompass that in the final
analysis.
I will release you very shortly here. I just want to make a
couple of points on some of these issues.
Let me just say I hope that we are able to have a
conversation and discussion on some of these issues that I know
have been proposed in the budget, but obviously are concerns to
Members of this Committee. I know the Microloan program has
worked very well throughout this country. I really do think it
needs to be preserved as an independent entity within the Small
Business Administration budget.
I am just concerned that they will not be served by the
7(a) Community Express program. In fact, I do not know if you
happened to see a Wall Street Journal article that appeared
last week about a man who used unusual collateral for the
program, which was his prosthetic leg, which was an amazing
story. Under the Microloan program you can end up using unusual
collateral. Fortunately, they did not take it and they just
obviously issued him the loan.
But the point is here it is for those who are not able to
qualify for traditional lending programs because of their
history or whatever the case is, but certainly have something
to offer in the small business arena. So I hope that we can
work through that.
Also, under the 7(a) lending program, you have to have a
prior history of about one to 3 years. That is another part of
the problem, as well, in merging those programs. Hopefully
these other programs would take care of it. I really would like
to preserve it at least for the 2,400 who have applied for the
program.
Finally, on the SBICs, we can discuss this whole issue. I
will hear from the subsequent panel regarding the Participating
Securities. There is no leverage budget projections in the 2006
budget. Again, last year the Administration requested $4
billion for this program. This year it is zero. There is a big
disparity between $4 billion and zero. What would account for
that change?
Administrator Barreto. $2.7 billion in estimated losses.
Chair Snowe. I know, but I do believe there is a way of
working through some of those issues because as Senator Talent
was indicating, it is one of the very few venture capital--it
is the only one for small business in the final analysis. I
understand your concerns. We do not want it to be a money
loser.
Administrator Barreto. Senator, I want to assure you we
made $4 billion in commitments last year. We still have an
existing SBIC program. There are 400 firms that currently
participate in that program. We have asked for money for the
debenture side of it, so we believe that we are going to be
able to continue putting venture capital through that side of
the program. And obviously we will continue working closely
with this Committee and the industry to find any solutions that
may be out there for us on this program.
Chair Snowe. Also, what Senator Coleman referred to in the
veterans business programs, as well. 37 percent of the Guard is
now either employed or are small business owners who are
participating, who have been activated. This is the largest
activation since World War II. I think we have to move in the
direction of helping them.
This program has been level-funded for 4 years now at
$750,000. I think we need to work on that, as well.
And Senator Bond would not be happy if I did not raise
HUBZones. So again, is there not a way of accomplishing the
statutory goal? We have done that for the 8(a) program and you
have spent three times as much on the 8(a) program and met and
exceeded those expectations.
Administrator Barreto. We are working very hard on it.
Obviously, the percentage of procurement in the HUBZone program
has gone up. We are dedicating a significant amount of
resources to the HUBZone program this year, through our GCBD
budget that will be part of the salaries and expense budget.
And will continue exploring every way that we can grow that
program. It is an important program. We are committed to it. As
I said before, it is another tool in the tool chest for small
businesses to access Federal procurement.
Chair Snowe. It certainly is. In fact, in the moratorium
and redesignations again, I know for Worcester County in
Northern Maine, which has been hard hit with base closings and
so on and is still recovering, it is so important because some
of those business entering that program have yet to utilize the
benefits of that program. So I do think that that moratorium is
essential as well.
In any event there are a number of issues that it is clear
we have to work through. Senate Thune said it well, this is the
beginning of the process, and not the end. So I appreciate it
and I appreciate your willingness to be here today and for your
cooperation. We will be discussing health care, without
question, indisputably. We need to get that done for the small
business community.
Administrator Barreto. Thank you very much.
Chair Snowe. Thank you, Administrator Barreto.
Administrator Barreto. Chair Snowe, Senator Coleman,
Senator Thune, and all Members of the Committee, I appreciate
the opportunity be here and I look forward to working closely
with you this year.
Chair Snowe. Absolutely. Thank you.
Let us proceed with the second panel.
Our second panel this morning represents the small business
community on several key issues that are reflected in the SBA's
2006 budget and legislative proposals.
First, we will hear from David Coit, former Chairman of the
National Association of Small Business Investment Companies,
and Managing Director of a highly successful SBIC firm North
Atlantic Capital, who happens to be based in Portland, Maine.
Also testifying is Daniel Betancourt, who is representing
the Association for Enterprise Opportunities. He is a member of
the Board of Directors and is also President and CEO of the
Community First Fund of Lancaster, Pennsylvania.
Next on the panel is John Massaua, who will testify in his
capacity as member of the Board of Directors, the Association
of Small Business Development Centers. John is also a State
Director of Maine's Small Business Development Centers. It is
great to have you all here.
Patricia Sands is here representing the Association for
Women's Business Center. Patricia is the owner of Spill-Guard,
LLC and has participated in the SBA's Women's Business Center
program.
Finally, testifying on the SBA 7(a) Guaranteed Lending
program is Edward Tuvin, who is First Vice President of the
Community South Bank based in Tennessee.
I thank all of you for being here today, for traveling
great distances from North and South. We are delighted to have
your input. And now that you have heard from the Administrator,
you might want to respond to some of those issues that will
help to be clarifying or otherwise. But I do appreciate it.
If each of you would summarize your testimony within 5
minutes and then we can have questions and answers.
Mr. Coit, thank you for being here.
STATEMENT OF DAVID COIT, MANAGING DIRECTOR OF NORTH ATLANTIC
CAPITAL ON BEHALF OF THE NATIONAL ASSOCIATION OF SMALL BUSINESS
INVESTMENT
COMPANIES
Mr. Coit. Thank you, Madame Chair and Committee Members.
I am here representing the National Association of Small
Business Investment Companies. I am the immediate past Chair of
NASBIC. I am still on the Executive Committee. As you know,
Senator, I spent a lot of time here in Washington last year
working on the Participating Securities program.
My other job, as you said, is running North Atlantic
Capital Corporation. It is in Portland, Maine. We invest $2
million to $5 million. We are a Participating Securities SBIC.
We invest in companies from Maine to Virginia to Western New
York State, and very much feel that we do serve an underserved
sector of the venture capital industry. We serve underserved
geographic markets that you noted like in Maine, Western
Massachusetts, Western New York State. We invest in
manufacturing companies, which is the sector that is often not
invested in or actively invested in by the broader venture
capital community. We invest in amounts which are typically
well below the average of the National industry.
One of the points I want to make and leave you with today
is that the SBIC industry, particularly the Participating
Securities industry which is at risk, is filling a need that is
not otherwise met by the broader industry. We know the program
has some problems and we worked very hard last year to try to
solve some of those problems. I think if we continue the effort
this year, we might be able to have some success.
We were actually pleased to see that the Administration
supported the SBIC Debenture Program, at the $3 billion level.
As Administrator Barreto said, that program has been around for
a long time and is quite successful and has been successful
over the years. I think it is important to note, though, that
in its 46-year history that program itself has had problems so
the fact that the Participating Securities program may be
having some issues today does not mean it is time to scrap it.
The debenture program, which I think everybody recognizes is
extremely successful, has gone through its own bumps in the
road and corrective measures have been taken. Today it is an
extremely successful program. So we were very pleased to see
that the Administration continued to support that program.
We were equally unhappy and concerned that there was no
support for the Participating Securities program going forward.
This program does represent half of the investing that is done
by the SBIC industry. It was designed specifically to address
the equity gap that exists. I do take very strong exception to
Administrator Barreto characterizing the Debenture Program as
filling that need. In fact, the Participating Securities
Program was created 10 years ago because the Debenture Program
specifically did not meet the equity needs of small business.
It is designed to support subordinated loans for mature
companies which have positive cash-flow.
So I want to be on the record that the debenture program
does not meet the needs that we are talking about and it is
something that we all need to work on.
Senator Snowe, you have visited a couple of our companies,
even in your home town, Diamond Phoenix Corporation and Elmet
Corporation. I do not really have time today to go into the
long and wonderful stories of these two companies.
But just as an overview, these were two companies that
North Atlantic invested in--actually, in the case of Elmet,
four SBICs invested in it--which probably would not exist today
in Lewiston, Maine, which had a great history back in the days
of shoemaking and textiles and is still suffering to some
degree to come into the modern economy. Here are two
manufacturing companies which have transformed themselves with
SBIC funding from old world economies to now addressing some
very current world marketplaces. Both of them are growing and
very successful. So they are two very strong examples. We are
on record at SBA, the histories of those companies are on the
SBA Website. It is very good examples of underserved markets
both geographically and in terms of size and in terms of
industry. They have been supported by the Participating
Securities Program.
Finally, I would be remiss in saying that having spent so
much time here last year I was not very disappointed in the
process. I think the industry worked well with your staff and
the staff of the House Committee on Small Business. We crafted
legislation that we thought made great sense. We worked with
the private sector, both people who invest SBIC money and
people who invest in SBICs. And I think we came up with a very
elegant solution last year. Unfortunately, it did not pass the
Credit Reform Act standards. The problem that the CRA issue was
brought forth to us by OMB very late in the process.
I hope this year that with the help of your staff and the
industry we can get the Administration engaged in a more active
dialog so that we do not waste a lot of time because your staff
spent a lot of great time. Unfortunately last year was wasted,
but hopefully we can complete the job this year.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Coit follows:]
[GRAPHIC] [TIFF OMITTED] T1350.001
[GRAPHIC] [TIFF OMITTED] T1350.002
[GRAPHIC] [TIFF OMITTED] T1350.003
[GRAPHIC] [TIFF OMITTED] T1350.004
[GRAPHIC] [TIFF OMITTED] T1350.005
[GRAPHIC] [TIFF OMITTED] T1350.006
[GRAPHIC] [TIFF OMITTED] T1350.007
[GRAPHIC] [TIFF OMITTED] T1350.008
[GRAPHIC] [TIFF OMITTED] T1350.009
[GRAPHIC] [TIFF OMITTED] T1350.010
Chair Snowe. Thank you, very much.
Mr. Betancourt.
STATEMENT OF DANIEL BETANCOURT, MEMBER OF THE BOARD OF
DIRECTORS FOR THE ASSOCIATION FOR
ENTERPRISE OPPORTUNITY AND PRESIDENT AND CEO OF THE COMMUNITY
FIRST FUND
Mr. Betancourt. Thank you, Senator Snowe.
Thank you for the opportunity to speak about the 2006
budget. I am Dan Betancourt, as you mentioned, and I work for
Community First Fund and we are a microlender. We cover a 10-
county area in Central Pennsylvania. We also have a Women's
Business Center.
I also am a member of AEO, the Association for Enterprise
Opportunity, and we have over 500 microenterprise organizations
across the U.S., so I am wearing that hat today.
Obviously, we are not in agreement with the cuts in the
Microlending program, the TA program, and the PRIME program.
I think that the Administrator, when he talked about the
Community Express and other programs that were to reach the
markets that we are talking about, obviously I strongly
disagree with that and I am going to talk about that.
Just briefly, the areas of credit, the geography that that
program covers, the market that it serves, the lack of
startups, and those areas I am going to talk about briefly
here.
In terms of the individuals that are not served, the
private sector, the banks that is, the 7(a), and the Community
Express are really unable to reach the borrowers that we talk
about or that we try to reach. Specifically, 40 percent of the
microlending loans, as you mentioned, come from rural areas;
less than 6 percent are being serviced by the Community
Express. These are facts.
In terms of the geography, the top Community Express
lenders represent 72 percent of all Community Express loans.
That it is obviously not reaching a lot of the areas of the
country.
Senator, in your State alone, zero loans were done for
Community Express in the last 5 years and about 260 Microloans
were done in your State in the last 5 years, just for the
record.
Chair Snowe. Do you have those figures Nationally? Those
are interesting figures to have state-by-state because that is
very important.
Mr. Betancourt. About 21,000 loans were done, but we know
that many of those loans, Community Express, were done on the
East Coast and West Coast. There are a lot of areas of the
country that are just not covered because the majority of those
Community Express loans were done by 72 percent--72 percent of
the Community Express loans were done by just a few lenders.
That is a fact.
Credit is another issue that the Microloan program really
does a nice job at. Many of our clients have credit scores of
less than 550. You will not even get a mortgage, in many cases,
a conventional mortgage, if you have less than 600. So I think
the Community Express Program states itself, in its literature,
if you have bad credit you do not qualify for the loan. It is
just very difficult.
And the reason for that, and I think if you look at the
Microloan program, is the technical assistance portion. We
spend a lot of time, a lot of hands-on. We do have some folks
that have bankruptcy and some difficulty, but we help them get
back on track.
The other thing is the default rate is less than 1 percent.
How does that work? It is all the time that we spend with them.
As already mentioned, our startups in terms of Microloans,
over 40 percent of our clients are startups whereas less than
25 percent from the Community Express are startups. In fact, it
is commonly known that you need at least 1 year in terms of
Community Express. At least about 40 percent of our borrowers
do not even have a year. Again, helping them with their
business plan and doing all those extra things to get on track.
Demographically, 50 percent of our clients are people of
color, 60 percent are women. In urban areas, over 90 percent,
at least in Community First Fund's case, are people of color.
I do want to introduce two entrepreneurs here today. The
first one is Terry Wade. Terry runs a personal care business.
Very briefly about Terry, she actually did apply for Community
Express recently after receiving at least one Microloan and was
turned down. I do have a letter indicating that; and this is
not uncommon. We have many micro borrowers coming back. We are
the minor leagues. We are preparing these borrowers. Eventually
we think they will get there, but they are just not there yet.
Terry is doing a nice job in her business. Thank you, Terry.
Also, I do want to introduce Kekelwa Dall. She runs a
health care business and is also a Microloan borrower. Thank
you, Kekelwa.
These are just two examples of the many, many, many
borrowers.
Chair Snowe. I noticed they are women-owned, too.
Mr. Betancourt. I just want to say finally, that we hope
that you will help us preserve the Microloan program, the $20
million, the $17 million for the TA--which is very important--
and the $5 million for PRIME. I just want to note that the
PRIME, we are only able to use that program in 16 States. It
was eliminated in many of the States, just so you know.
Thank you.
[The prepared statement of Mr. Betancourt follows:]
[GRAPHIC] [TIFF OMITTED] T1350.011
[GRAPHIC] [TIFF OMITTED] T1350.012
Chair Snowe. Thank you.
John Massaua, welcome.
STATEMENT OF JOHN R. MASSAUA, STATE DIRECTOR OF THE MAINE SMALL
BUSINESS DEVELOPMENT CENTER AND A MEMBER OF THE BOARD OF
DIRECTORS FOR THE
ASSOCIATION OF SMALL BUSINESS DEVELOPMENT
CENTERS
Mr. Massaua. Thank you.
I speak today on behalf of not only the Maine Small
Business Development Centers, but also the 63 State, regional
and territorial SBDCs.
With me here today is Don Wilson, President of the ASBDC
and Jody Keenan, the State Director for the Virginia SBDC.
Madame Chair, I provided to the Committee 22 pages of
written testimony, but frankly it boils down to this. Let me
get right to the point. The SBDC program is in severe financial
stress, especially in the big flat States like Maine. Unless an
appropriation of $109 million can be achieved, which
essentially brings the program to 1998 level dollars, more
downsizing will take place and SBDCs capacity will continue to
diminish.
For example, in Maine, we will need to lay off two
counselors, 18 percent of our capacity. And in Massachusetts,
three counselors will be laid off and a center director's
position, currently open, will remain vacant.
For the first time last fiscal year, SBDC counseling hours
Nationally declined by some 94,000 hours or 6 percent. This is
a trend that is beginning to show within reasonable expectancy
that the SBA goal has for us is impossible to meet.
We must act upon this if we are to continue helping small
businesses in Maine and across the country. $109 million lets
us get even with 1998 in Maine. It will increase our funding
only by $100,000, not even enough to maintain the two
counselors. We will probably lose one even if we do get the
$109 million unless we are able to find some other sources.
In the States that lost a percentage of population because
of the census, they will get back only to 2001 dollars with a
$109-million appropriation.
Demand for SBDC services continue to rise. The SBDCs,
despite reduced capacity, serviced 6 percent more clients in
2004 than in 2003, but with less hours per client, which if you
ask any counselor in Maine suggest less of a chance for the
client to succeed. It takes seven to 15 hours to service a
client to have a chance for success. And if it is a tech-based
company, it takes 30 to 50 hours to service that client.
We cannot be the revolving door for the SBA. We need to be
able to serve all of our clients properly, like the 40 percent
who are women-owned nationally--47 percent in Maine--the 31
percent who are African-American, Hispanic and Asian-American
and the over 9 percent who are veterans nationally--12 percent
in Maine.
The principles of reasonable expectancy dictate the law of
diminishing returns. We are at the fulcrum point. We cannot get
blood from a stone. If we are to succeed we must add more funds
into the SBDC program.
Madame Chair, this SBA budget is essentially abandoning
rural America. And for that matter, the inner cities of
America. The budget proposed and many of the programs it seeks
to eliminate are going to cause that. As Mark Lapping from
USM's Muskie Schools would put it, they--the Government--are
making rural and inner city America peripheral to the
mainstream.
In Maine we have the fastest growing rate of poverty, along
with Arkansas and Mississippi. Our per capita income is 9
percent below that of the United States and 25 percent below
New England as a region. We are faced with the prospects of two
base closings and the potential downsizing of Bath Ironworks.
Who is going to help these folks if that happens? Who will
provide the leadership, the advocacy and the service to Maine
to build entrepreneurship's business that enabled five out of
100 to be significant in size to replace the job loss that
continues in Maine and across America, especially
manufacturing?
The fact is that despite the supposedly positive economic
numbers, we still are short 700,000 jobs in the private sector.
Madame Chair, there is so much I want to say, but I am
constrained by the time. We need the Microloan program to help
those who find access to capital the most difficult. Do not be
fooled by SBA's characterization that it can be replaced by
Community Express. Community Express is merely a credit card
program and we know how bad credit cards are for small
businesses, as counselors.
We need to fund the FAST program again so we can engage
small business in the future with meaningful tech
commercialization. We need to put a stop to the SBA's attempts
to break a program that is not broke by their desire to
recompete SBDCs and take them away from university-based
programming.
We need to work on creative ways to help the Women's
Business Center program in order to be able to assist them in
growing that program, not downsize it in the method that they
want to do it.
And we need the $109 million, and I know it is a tough
budget year and tough decisions have to be faced. But I suggest
the first place to look is to get part of the $109 million out
of the SBA's budget because they use almost $16 million to
manage the current $88 million program. As a professional
manager, if I had to use 18 percent to manage my program, I
would probably get my head cut off.
Finally, I would like to remind Madame Chair that an
independent study has verified for the last studied year, 2002,
SBDC returned to the Federal Treasury $211 million for the
investment Congress made in the SBDC program. That is about 2.5
times return on investment, a number Bill Gates or Warren
Buffet, or even the Office of Management and Budget, could only
wish for in their dreams.
Thank you, Madame Chair.
[The prepared statement of Mr. Massaua follows:]
Statement of John R. Massaua, State Director, Maine Small Business
Development Centers and Board Member, Association of Small Business
Development Centers
Chairperson Snowe, Ranking Member Kerry, and Members of the Senate
Committee on Small Business and Entrepreneurship; I am John Massaua,
State Director for the Maine Small Business Development Centers, an SBA
partnership program with the State of Maine and other stakeholders,
contractors and allies, administered by and at the--University of
Southern Maine. I also serve on the Board of Directors of the
Association of Small Business Development Centers (ASBDC). The Maine
SBDC has 11 Service Centers and 25 Outreach Offices throughout the
State of Maine. ASBDC's members are the sixty-three State, Regional and
Territorial Small Business Development Center programs comprising
America's Small Business Development Center Network. SBDC programs are
located in all fifty-states, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam and American Samoa. The SBDC network is the
Federal Government's largest small business management and technical-
assistance program with over 1,000 service centers nationwide serving
more clients than all other Federal management and technical assistance
programs combined.
Madame Chair, I would like to thank you and the Senate Small
Business Committee on behalf of ASBDC, and the nearly 6,000 dedicated
men and women who are a part of America's Small Business Development
Center Network, for inviting me to testify at this important hearing on
the Administration's fiscal year 2006 budget for the U.S. Small
Business Administration. With me today is Donald Wilson, President of
the Association of Small Business Development Centers. We commend the
committee, Madame Chair, for holding a formal public hearing on the
Administrations budget request for the SBA for fiscal year 2006. It is
important to look at the Administrations budget figures for the SBA in
light of the current economy and the needs of the small business
sector. We should also look at those numbers in light of historical
trends in budget support for the small business sector of the nations
economy.
I would also like to take a moment Madame Chair to thank you,
Ranking Member Kerry and the members of this committee for all of your
efforts on behalf of small business throughout the 108th Congress. In
particular Madame Chair, we would like to thank you and Ranking Member
Kerry for your efforts along with your counterparts in the House for
the role you all played in securing passage of the SBA reauthorization
bill in the last days of the 108th Congress. We are deeply grateful for
including in that important legislation the long needed confidentiality
protections for SBDC clients nationwide.
We would also like to thank you Madame Chair for your and Senator
Kerry's efforts to try and stabilize the SBA's 7(a) loan program. The
agreement worked out will apparently avoid a repeat of the catastrophe
that occurred in December 2003 when SBA effectively shut down the 7(a)
program.
On a personal note, I want to thank you Madame Chair for your
participation at home, in Maine, in understanding and advocating for
small business, especially at the recent opening pf the joint Eastern
Maine Community College--Maine SBDC Business Resource Center in Bangor.
We were particularly delighted with your public comments about the
importance and impact of the Maine SBDC in the context of the same for
the entire national network. Thank you.
I would like at this time to direct the Committee's attention to
the state of the nations and in particular Maine's economy, the
Administrations proposed SBA budget for fiscal year 2006, and the
contribution of the nations small business sector to our overall
economy. I will then focus my remaining remarks on the Administrations
proposed funding for the SBDC national program and proposed 2005
legislation by the SBA.
The Bureau of Economic Analysis at the Department of Commerce
reported late last month that the nations Real Gross Domestic Product
increased by 4.4 percent in 2004. This compared to a 3 percent increase
in 2003. It was also the best increase since 1999. However, the fourth
quarter increase was at an annualized rate of 3.1 percent. This was the
smallest quarterly increase all year and the lowest since the first
quarter of 2003. We are grateful that the economy has continued to
expand for the third year in a row. Congress needs to allocate Federal
resources in such a way as to maximize the chances of keeping the
current expansion going.
The Federal Government must allocate resources in a way that will
help insure that we increase the number of job opportunities for those
being laid off as many large corporations continue to downsize and as
corporate mergers increase. December 2004 was the busiest December in
history for mergers and acquisitions, according to Thomson Financial.
We need look no further than the merger of SBC and AT&T or Gillette and
Procter and Gamble to see the impact that corporate mergers have on
jobs as already evidenced in Maine by the creation through merger of
Unum/Provident. The P & G/Gillette merger is expected to result in a
loss of 6,000 jobs. The merger of SBC and AT&T is expected to result in
the loss of 13,000 jobs. And we are not expected to know for a while
what the job losses will be from the merger of Sears and Kmart or
Citicorp and J. P. Morgan. We can be relatively confident that the
layoffs will be substantial. And it is not just mergers that are
resulting in substantial job loss. In mid-December, Delphi, the nations
largest auto parts maker announced it was cutting 3,000 U.S. jobs. Who
will create the new jobs to compensate for the job losses I have just
described? We will look to small businesses for new job creation just
as we have for the last decade or more. The question is, will there be
enough new small businesses being formed and existing small businesses
expanding to generate the nearly 160,000 new jobs we need every month
simply to provide jobs for new workers seeking to enter the workforce?
That will depend in part on whether the government modifies the
discouraging and counterproductive downward trend in the real level of
resources as well as the downward trend in the percentage of Federal
resources allocated to assist small businesses.
Correspondingly in Maine, economic conditions continue to be
stressed as the legacy pulp and paper, timber, textile and shoe
industries continue to decline rapidly. The threat of downsizing of
Bath Iron Works and the possible closure of navy bases in Brunswick and
Portsmouth loom large for the future of Maine's economy. 4.7 percent of
Maine's workforce remains unemployed, a seasonally adjusted near
constant statistic for all of calendar 2004. This relatively flat
employment level overall masks a well-known trend that over the past 4
years, Maine has lost over 17,000 manufacturing jobs. In two of our
State's poorest counties, Piscataquis and Washington, employment
declined by 1 percent, scary when one considers their 2004 average
unemployment rates equaled 6.5 percent and 8.6 percent, respectively.
Additionally, Maine's Per Capita Income varies widely from
approximately $24,000 in Piscataquis County to approximately $35,000 in
Cumberland County, well below regional levels by 25 percent and 8 to 9
percent below the U.S. across all states.
Notwithstanding a relatively flat unemployment rate, Maine is an
impoverished state, no stranger to poverty, especially in sparsely
populated counties. For generations, families have survived by working
the land, fishing and lobstering, and laboring in factories and mills.
According to the Portland Press Herald, steady job losses, persistent
population drops and factory closings have made it tougher for families
in many Maine towns to survive. Maine leads the country with the
fastest growing poverty rate, tied with Arkansas and Mississippi;
poverty-related enrollment in Medicaid rose from 24,100 to 48,400 from
1997 to 2002, with the biggest jump from 2000 to 2001, when enrollment
doubled, according to the Kaiser Family Foundation; Federal dollars for
rural rental assistance have declined as need rises: in 1993, Maine
received $22.7 million and in 2002, $17.9 million. Federal dollars for
rural home construction fell during the same time period, as did
Federal spending on Section 8 vouchers, another source for rental
assistance, and many of the state's Section 8 housing vouchers--a
primary source of rental assistance for poor people--were frozen for
most of 2003, because of overwhelming demand, according to housing
officials; the Maine State Housing Authority turned away hundreds of
families needing help to pay rent; communities in sparsely populated
counties are as well struggling to keep their professionals, dentists,
and doctors: for example, 4,000 people remain on a waiting list at
Penobscot Community Health Center to see a dentist. Since 1993, credit
outstanding as a percent of disposable income has risen sharply from 15
percent to well over 21 percent. Not surprisingly, bankruptcy filings
have also surged. Growth in installment credit has outpaced income
growth in 8 of 10 years. And in addition to bankruptcy filings, another
indicator of the number of people in Maine who are living on the edge
is the number of people on food stamps; this figure has been growing
since 2000 and is now near 1993's (last recession) peak.
The need for Maine to look to a vision of small business and
entrepreneurship has never been greater. As well for our nation, the
troubles in Maine--rising poverty and persistent job loss--mirror a
national trend spreading across the Great Plains, Appalachia, Wyoming
and other states with sprawling tracts of undeveloped land far from
metropolitan areas. ``It's important to understand what Maine is
witnessing, clearly other places are experiencing,'' according to Mark
Lapping, a professor of planning and community development at our
University of Southern Maine's Muskie School of Public Service. Maine,
along with other rural states, suffers from neglect. ``The economy and
much of society has made rural America peripheral to the mainstream,''
Lapping asserts. ``Government and the business world are increasingly
discounting families and businesses'' in rural areas, ``considering
them not necessary.''
However, notwithstanding Lapping's observation, increasingly small
business and entrepreneurship are being seen as solutions to Maine and
others' economic difficulties. There is growing understanding that
economic development strategies founded primarily on business
recruitment are not in rural America's best interests and that there
needs to be a greater emphasis on homegrown development, according to a
2004 jointly published report from the W. K. Kellogg Foundation and the
Corporation for Enterprise Development. The report points out that many
observers see entrepreneurship as being a critical, if not major piece
of rural economic development and that there is a compelling argument
that creating an entrepreneurial climate where all kinds -of
entrepreneurs can succeed, lays the groundwork for the five out of 100
small businesses that evolve into the fast-growing drivers of the
national economy. The report goes on to say that entrepreneur-focused:
systems thinking is required to align the plethora of training,
technical assistance, and financing programs to meet the variety of
needs of entrepreneurs and their different levels of education, skills,
and maturity. Thinking, as Madame Chair and the Committee knows, that
has been led by America's Small Business Development Center Network for
the past twenty-five years.
It seems it's just not rural entrepreneurship that is important,
fostering the creation of entry-level businesses . . . is crucial to
the revitalization of poor, urban neighborhoods, according to a study
issued by the Center for Urban Entrepreneurship (CUE) at the Pioneer
Institute for Public Policy Research. The Institute points out that
businesses started by inner-city residents tend to have a more lasting
commitment to their communities. Moreover, as these businesses grow,
they are more likely to hire local residents and spur further local
business development. CUE asserts business ownership can also be a path
to wealth creation for low-income individuals and their families; it
can enable residents of distressed urban areas to share in the benefits
of revitalization, rather than become victims of gentrification: Who
will help these rural and inner-city businesses grow but for a proven
network of technical assistance service providers, America's Small
Business Development Center Network, given the proper resources?
Now, taking a serious look at the nations overall jobs picture,
2004 was the first year since 1999 that saw job growth in every single
month, and it was also the first year since 2000 that the jobless rate
declined. The nations unemployment rate in January of 2004 was 5.6
percent. The jobless rate last month fell to 5.2 percent. On the
surface, that would be very encouraging news. However, it would appear
that the decline in the unemployment rate was primarily due to a fall
in the Labor Force Participation Rate (LFPR) from 66.0 percent to 65.8
percent. This represents the lowest Labor Force Participation Rate
since May 1988. The LFPR is currently 1.5 percentage points below its
most recent peak of 67.3 percent achieved in April 2000. In other
words, the unemployment rate declined last month because hundreds of
thousands of Americans, gave up looking for work in January.
Specifically, unemployment fell because the labor force fell by
224,000, while employment grew by only 85,000.
The number of jobs created since the last recession ended in
November 2001 has been the lowest of any economic recovery in the
United States since World War II. The total number of jobs in the
economy last month was only 62,000 more than existed in March of 2001.
Currently private sector employment remains approximately 700,000 jobs
below what it was in March 2001. Government entities may be creating
new jobs but the private sector is not. Private sector employment in
January was 0.6 percent below what it was 46 months ago. This is a
particularly disturbing statistic. Overall, we have fewer people
employed today than the President's Council of Economic Advisors
predicted in January of 2002 that the Nation would have in January of
2003.
Clearly, this has been an unusual recovery. Virtually every
prediction in recent years relating to job growth has been missed. When
the President's tax package was approved, the Council of Economic
Advisors (CEA) projected 5.5 million new jobs would be created from
July 2003 through the end of 2004. As of December 31 of 2004, it became
apparent that those projections would fall short by nearly 3 million
jobs. Fortunately, 2.2 million jobs were added during this past year,
thereby bringing the year-end employment levels to 132.3 million
employed.
In January, manufacturing employment, (which we know is of
particular concern to you Madame Chair in your capacity as Co-Chair of
the Senate Manufacturing Taskforce) declined by 25,000 jobs. That is
the fifth consecutive monthly decline in factory jobs. From March 1
through August of 2004 the economy created 85,000 new manufacturing,
jobs. From September 1,2004 to February 1, 2005 the manufacturing
sector has lost 61,000 jobs.
This loss of manufacturing jobs is taking its toll on the Maine's
economy. Like the U.S., Global markets have battered Maine, but even
more so. By the early 1990's, Maine's decline in manufacturing
employment started accelerating. While the U.S. has lost 25-30 percent
of its manufacturing jobs from peak to trough, Maine has lost closer to
50 percent. This is of particular concern because it hits Maine's rural
areas the hardest as these rural places have the highest concentration
and dependence on industrial jobs. York and Sagadahoc are also
vulnerable, particularly with the BRAC process restarting. As Maine
loses manufacturing jobs, they are being replaced by lower paying jobs
with fewer benefits. The percent of jobs in Maine that pay a livable
wage has been stuck at approximately 66 percent for 8 years; far below
Maine's desired benchmark of 85 percent.
The national economic data which we have seen coming from the
Department of Commerce and the Department of Labor continue to give
mixed signals about the future of the economy, as well those from the
Maine State Planning Office. We are relatively confident that the
overall economy will continue to expand throughout fiscal year 2005 but
at a slower pace than in fiscal year 2004. The real economic issue that
faces us all is job creation. Can this economy produce the number of
jobs necessary to provide older Americans caught by downsizing and
young Americans graduating from high school and college with the
employment opportunities they must have to provide for themselves and
their families? Can we create enough jobs to ensure that consumer
spending will continue to drive economic growth? What will be the
impact of higher interest rates on housing starts, consumer spending
and in turn job creation?
The robust growth of 2004 is not likely to be repeated. Consumer
spending will likely be unable to continue to fuel growth if inflation
increases, wages remain relatively stagnant, and energy prices
increase. Private sector job creation will be uncertain if we do not
pay more attention to the well-being of our nations small businesses.
One measure of whether we are paying attention is resource allocation.
Resources for SBA have declined roughly 40 percent since 2000. This
budget continues that downward spiral. ASBDC believes the economy has
paid a price over the last 4 years as resources for management and
technical assistance to small business owners and aspiring
entrepreneurs has declined, certainly in real dollar terms.
Administrator Barreto has done what he could with what he has.
Nevertheless, his field staff is strained, his resource partners are
strained and small business owners are not getting the depth of service
and adequate access to services that they need and deserve in light of
the fact that over 40 percent of Treasury receipts come from small
businesses.
Neither the SBDC national network nor I is unmindful of what is
occurring in the world and the responsibilities throughout the world
that our Nation is trying to meet. We recognize that we are fighting a
worldwide war against terrorism and that we are engaged in Nation
building in Iraq, and Afghanistan. We fully appreciate that Nation
building does not come cheap and that we must provide for our troops
abroad.
We understand that to meet these new worldwide obligations requires
resources. That is why we have voiced concern about the lag time of
this recovery in comparison to earlier post recession recoveries, the
slow growth in business startups and the slow growth in employment.
These factors have contributed to a decline in Treasury receipts in 3
of the last 4 years. If there is not robust activity in the
entrepreneurial sector, job creation will suffer, consumers will have
less to spend, government will spend more on public assistance programs
and we will have to borrow more to meet our obligations as we have for
the past 4 years.
We are concerned that continued erosion of overall SBA resources is
having an adverse impact on the small business sector of the economy.
The key to lowering the deficit is economic growth stimulated by
entrepreneurial activity and job formation. We cannot expect to
stimulate job growth if we do not assist small businesses that are
struggling to survive or grow. And I hope we will always be mindful
that small businesses create roughly 70 percent of the new jobs in our
economy and 53 percent of our nations Gross Domestic Product.
As to the specific recommended funding for the SBDC program, I am
sure there was a collective sigh of relief at every SBDC nationwide
when it was learned that the President's budget recommended $88 million
for the SBDC program for fiscal year 2006. We would appear ungrateful
if we did not acknowledge that, in actual dollar terms, the SBDC
program has been recommended for the same level of funding that the
White House proposed last year. And that recommendation comes at a time
when hundreds of programs are being eliminated or are being cut. And we
are, indeed, grateful.
However, this committee and your colleagues in the Senate and House
should understand that years of level funding are gnawing at the very
marrow of the SBDC national program, seriously impacting its ability to
help the 23 million small businesses in this country, whether they are
manufacturing concerns with 500 employees or a mother operating a home-
based business to help her family get by.
And our government's obligations abroad in terms of Nation building
and in terms of the war on terror are creating major problems for
thousands of small businesses here at home. When our Nation sends
National Guard and Reserve Units abroad, as it understandably must do,
it is sending abroad many owners and key employees of small businesses.
What do we say to the men and women who return after serving in uniform
in Iraq and Afghanistan to find the business they owned or the business
that employed them no longer open for business? Additional resources
are desperately needed to enable SBDCs to assist small businesses
impacted by the call up of owners and key employees to active duty
service in the Guard and Reserve.
And where are the SBDC resources to assist the tens of thousands of
new immigrants particularly in the Hispanic community who are seeking
to start a new business so that they too can enjoy the American dream?
I mentioned earlier the growing number of jobs lost to downsizing
and mergers. These realities in the economy have resulted in an ever-
increasing number of Americans over 50 in the unemployment lines. A
recent article in USA Today focused on new research that shows 5.6
million workers age 50 and older are now self-employed, a 23 percent
jump from 1990. As a result of corporate downsizing and mergers, tens
of thousands of workers over 50 have faced loss of employment in recent
years. Many of these workers, after months of unsuccessfully searching
for new employment, turn to self-employment. And where are they to find
the necessary training to develop the wide range of skills required to
run a small business successfully? Many of them are turning to their
local SBDC. Where are the resources to enable SBDCs to serve what the
Rand Corporations research for the AARP says will be an ever-increasing
number of baby boomers turning to self-employment to sustain their
families in 2005, 2006 and beyond?
Dr. Graham at the Office of Information and Regulatory Affairs at
the White House and Small Business Advocate Tom Sullivan are doing a
remarkable job in their efforts to slow the ever-growing regulatory
burden on America's small businesses. Their efforts have resulted in
billions in regulatory compliance cost savings. But the number of new
regulations grew substantially in 2003 and 2004. Where are the
resources needed to enable SBDCs to assist millions of small
businesses, your constituents, who are struggling to understand and
comply with the ever-growing regulatory burden on small businesses?
Recognizing your concerns Madame Chair with the State of
manufacturing in the U.S., ASBDC commissioned Dr. James Chrisman of
Mississippi State University last summer to analyze the impact of SBDC
services on SBDC long-term counseling clients who were manufacturers.
Dr. Chrisman completed that study in September of 2004. Dr. Chrisman
estimates that SBDC long-term counseling clients who received services
in 2002 generated 9,251 new jobs during 2002 and 2003. Based on client
assessments, Dr. Chrisman estimates that as a result of SBDCS
counseling, 185,321 manufacturing jobs were saved in 2002 and 2003. Dr.
Chrisman further estimates that SBDC 2002 long-term counseling clients
who were manufacturers generated an increase in tax revenues of $58
million of which $34.8 million went into the Federal Treasury. And
those manufacturing firms who received long-term counseling represented
a little less than 12 per cent of SBDC long-term counseling clients in
2002. With the continued difficulties facing American manufacturing,
where are the additional resources that SBDCS will need to address the
growing needs of our nation's small manufacturers?
The more comprehensive 2004 economic impact study of all SBDC long-
term counseling clients conducted by Dr. Chrisman, reported that SBDC
long-term counseling clients generated 56,258 new jobs in 2003 as
compared to 46,688 new jobs created by SBDC long-term counseling
clients in 2001. The 2004 Chrisman Study also reported that an
additional 59,489 jobs were saved in 2003 as a result of SBDC long-term
counseling compared to 34,215 jobs saved in 2001. The 2004 Chrisman
Study reveals that the average change of employment rate for SBDC
established business clients was a positive 10.2 percent--over twenty-
five times the rate of the average U.S. business. The average change in
sales for an SBDC long-term counseling client was 17 percent compared
to 2 percent for the average U.S. firm. Nearly 53 percent of SBDC pre-
venture clients who received long-term counseling (five hours or more)
during 2002, actually started new businesses during 2002 and 2003.
The same Chrisman Study points out in Maine:
A job is created or saved by Maine SBDC business assisted
clients every . . . 9 hours.
$10,000 in new sales are generated by Maine SBDC business
assisted clients every . . . 64 minutes.
$25,000 in financing is obtained by Maine SBDC business
assisted clients every . . . 17 hours.
Existing business owners score Maine SBDC Counselors 4.3 out of 5
on knowledge and expertise.
92.1 percent of existing business owners would recommend
Maine SBDC services to other business owners.
Despite the positive numbers reported by Chrisman, there is one
very disturbing piece of data in the most recent SBDC productivity
numbers. For the first time in recent years the average hours per
counseling client declined as overall counseling hours declined. This
decline in the overall number of counseling hours occurred in the face
of an increase in the overall number of counseling clients. We believe
this is primarily due to the fact that the SBDC national network has
experienced a reduction in the number of counselors available
nationwide to serve an expanding number of clients seeking counseling
services. The reduction in available counselors is clearly due to a
decline in available Federal financial resources in actual and real
dollar terms in recent years.
For example, SBDC programs in low population states such as Madame
Chair's State of Maine, Senator Enzi's State of Wyoming, Senator Burns'
State of Montana, or Senator Thune's State of South Dakota (which get
base grants of $500,000) have had no increase in Federal funding since
1998. Inflation alone has eroded their ability to serve their state's
small businesses. To have the purchasing power that they had in fiscal
year 1998, low population states would each need grants of $603,000 in
fiscal year 2006.
SBDCs in many larger population states experienced severe cuts as a
result of the 2000 census. Many of these states now have some of the
highest unemployment levels in the nation. Madame Chair, the SBDC
program in Senator Bond's State of Missouri under the President's
recently proposed fiscal year 2006 budget would receive $61,000 less in
actual dollars in fiscal year 2006 than it did in fiscal year 2001. The
SBDC program in Senator Kerry's State of Massachusetts would receive
$132,000 less in fiscal year 2006 than it did in fiscal year 2001. The
SBDC program in Senator Bayh's State of Indiana would receive $60,000
less in fiscal year 2006 than it did in fiscal year 2001. The SBDC
program in Senator Levin's State of Michigan would receive nearly
$130,000 less in fiscal year 2006 than it did in fiscal year 2001,
Senator Vitter and Senator Landrieu's State of Louisiana would receive
$91,000 less in fiscal year 2006 than it did in fiscal year 2001,
Senator Coleman's State of Minnesota would receive $13,000 less in
fiscal year 2006 than it did in fiscal year 2001 and Senator
Lieberman's State of Connecticut would receive $100,000 less in fiscal
year 2006 than it did in fiscal year 2001 and Senator Pryor's State of
Arkansas would receive $42,000 less in fiscal year 2006 than it did in
fiscal year 2001. And these numbers reflect actual dollars with no
adjustment for inflation.
To provide SBDCs in low population states with sufficient funds to
restore their purchasing power to fiscal year 1998 levels and to
restore states impacted by the census to the actual funding levels of
fiscal year 2001 would require an appropriation for SBDCs in fiscal
year 2006 of $109 million, still well below the programs authorized
level of $135 million. Madame Chair, Senator Kerry, Honorable Members
of the Committee, on behalf of America's small businesses, we
respectfully ask for an appropriation of $109 million for the SBDC
program.
If that level of appropriation cannot be accommodated, then no one
on this committee should be surprised when SBDC counselors in their
State are laid off or service centers are closed. And no one should be
surprised when counseling hours per client decline again in fiscal year
2006. Reduced hours per client results in reduced economic impact. And
many of our counselors believe that maximum economic impact is attained
when clients receive between 5 and 12 hours of counseling. It is
impossible for the SBDC program to give an increasing number of clients
the attention they need and deserve with the level of decline in
resources that has occurred since 1998 as I have outlined above.
Think of this decline in hours of consulting per client in terms of
your own health care. What if you were experiencing a variety of
concerning health symptoms and went to your family practitioner or
internist seeking medical attention? Suppose the doctor came into the
examining room, looked at you briefly without a meaningful discussion
with you of your symptoms, without ascertaining whether you were
running a fever, without checking your blood pressure, without a
urinalysis or blood test and then prescribed a treatment regimen. I
seriously question whether you would make a return visit to that
particular physician or have any confidence that his or her prescribed
regimen would do much to improve your health. That is the type of
reduced service and response that many SBDC clients may have to expect
in the future if demand for SBDC services continues to increase and
resources continue to decline. And when the quality of services
declines, the beneficial economic impact of our consulting services,
that is increased client sales, increased job creation and increased
revenues to State and Federal treasuries will likely decline.
Madame Chair, in Maine this year, we would have had to reduce staff
if it were not for a State assisted CDBG allocation of some 200K that
enabled our SBDC to maintain level staffing. The prospect of a CDBG
grant for next year is slim to none and we are staring in the face of
an 18 percent reduction of counseling staff, come next January, should
we not get the resources needed.
The latest SBA figures for the SBDC national program show that SBDC
counseling cases and training attendees combined increased from 685,000
in fiscal year 2003 to nearly 726,000 in fiscal year 2004. Training
attendees increased from 408,000 in 2003 to nearly 446,000 in 2004.
These figures clearly demonstrate that America's small business owners
and aspiring entrepreneurs are aware that they need management and
technical assistance to enhance their likelihood of business success.
They are increasingly seeking that assistance from the experienced,
capable, and dedicated men and women who are consultants and trainers
in America's Small Business Development Center Network. In Maine,
nearly 3000 nascent entrepreneurs and existing business owners sought
one-on-one business, assistance in Calendar 2004 with a similar number
in attendance at 180 Maine SBDC sponsored workshops, notwithstanding
yet another similar amount served with SBA termed information
transfers. Clearly, in Maine and nationally demand is enormous.
Looking even closer at the SBDC client base, SBA's latest figures
show that in 2004, 40 percent of SBDC counseling clients nationwide
were women (in Maine: 47 percent). SBDCs serve more women than all
other Federal management and technical assistance programs combined.
And the increase in entrepreneurial activity among women is dramatic.
Entrepreneurial activity is also rapidly increasing among minorities.
Seventeen percent of SBDC clients are African American, over 10 percent
are Hispanic and 4 percent are Asian-Americans. Over 9 percent of SBDC
counseling clients are self-identified veterans (in Maine: 12 percent).
Sixteen percent of our counseling clients were engaged in retail.
Thirty-eight percent were engaged in service, 8 percent were engaged in
manufacturing (in Maine 12.4 percent), 3 percent were engaged in
wholesale, and 4 percent were engaged in construction. Forty-four
percent of our training seminar attendees were women, twenty-four
percent were minorities and 7 percent were self-identified veterans.
And these SBDC clients and firms are not simply statistics. They
are our neighbors, our relatives and our fellow church congregants, who
have children in our children's schools and businesses in our
communities. They are individuals like Mark Awalt of JSI Store Fixtures
in Milo, Maine, Susan Giguire of Care & Comfort in Waterville, Maine
(recognized by the SBA as 1 of 15 nationally acclaimed Women
Entrepreneurs), and Martin Grohman of the tech-savvy company Correct
Building Products in Biddeford, Maine, makers of CorrectDeck; and
Christine Henriques with her partners, Gabe Linden and Jason Mark, of
Gravity Switch, a multimedia development firm in Northampton,
Massachusetts; and Mark Hanudel of R & H Quality Refractory Service,
Inc who was the 2004 SBA Small Business person of the year from
Sulphur, Louisiana; Merrie and Tom Ellsberry and their mobile document
shredding business in Cheyenne, Wyoming; Dawn and Rod Nimtz and their
Cracked Egg Omelette Shoppe in Bay City, Michigan; and thousands and
thousands of others. These men and women from all types of communities,
educational backgrounds, ethnicity, etc., are building and growing
companies. And the companies they are building and growing are
providing work for others in their communities. Those workers and the
companies that employ them are paying local, State and Federal taxes.
And the tax revenues resulting from the increased economic activity of
SBDC clients exceeds the Federal outlays for the SBDC program. The 2004
Chrisman Study of SBDC long-term clients who received assistance in
2002 found that the incremental performance improvements of these
clients resulted in $210. 3 million in additional tax revenues from
established businesses and $264.8 million from pre-venture clients who
started new businesses. This amounted to a total of approximately
$475.1 million in additional tax revenues of which $211.6 million went
to the Federal Government and $263.5 million went to the states. In
Maine the report shows that $2.00 is returned to Maine the very next
year through State tax revenues for each State dollar invested in the
Maine SBDC every year, and $2.60 is returned through Federal tax
revenues to the U.S. for each Federal dollar invested.
Madame Chair, very shortly now, you will be submitting a letter to
the Senate Budget Committee regarding the needs of programs under this
committees jurisdiction. In his inaugural address last month, the
President told the Nation he wanted to enhance opportunities for
business ownership. We share his vision of an opportunity society. But
just as opportunities are foreclosed for millions of young people who
drop out of school or do not attain education past high school, so are
opportunities lost to millions of small business owners or aspiring
entrepreneurs if they cannot access resources that will enable them to
manage their businesses effectively and profitably or start a new
business.
We believe that if the SBDC program is to meet the growing needs of
women, minorities, baby boomers, and small manufacturers, or businesses
impacted by National Guard and Reserve call-ups; the SBDC program must
have additional resources. To restore states like Missouri,
Massachusetts, Michigan, Indiana, Minnesota, Louisiana, etc., to the
actual dollar funding they had in fiscal year 2000 and to restore low
population states like Maine, Montana, Wyoming and South Dakota to the
real dollar funding they had in 1998 will require an appropriation of
$109 million. We trust, Madame Chair, that when you write to the
Chairman of the Senate Budget Committee on which you serve, that your
recommendation will take into account the real needs of this nation's
small business sector for management and technical assistance. We hope
you will consider asking the Budget Committee to include in the budget
a level of funding for the program that will begin to restore the real
loss of resources that this program has experienced over the last 8
years. We hope you will encourage the Budget Committee to take into
account that the job creation and increased sales that the SBDC program
helps to generate for its small business clients, in turn generates
tens of millions more in revenues for the Treasury than the program
receives from the Treasury. We hope that when you write your letter,
you will recall the President telling the Congress in his State of the
Union address that ``small business is the path of advancement,
especially for women and minorities.'' We hope that you will ask for a
$109 million for the SBDC program.
Additionally Madame Chair, we are concerned with the elimination of
SBA's FAST program, which a number of SBDC's directly or indirectly
participate in as to assist new technology related business with the
process of commercialization of products. In Maine, the Maine SBDC
through its tech-focus program, the Maine Small Business & Technology
Development Centers (Maine SBTDC), works in partnership with the Maine
Technology Institute (MTI) to drive the vitality, competitiveness and
clustering of tech-based small businesses across Maine. Funding through
FAST enables MTI along with its partners, such as the Maine SBTDC, to
create a statewide entrepreneurship network, facilitating access to
business expertise, markets and capital. Maine currently has a strong
commercialization-assistance program with funding accessed from fiscal
year 2004. The FAST award accounts for $95,000, with $157,000 in
matching State funds. An ROP award worth $49,000, with $25,000 in
matching State funds, adds to the overall budget. The integration of
these awards helps MTI and the Maine SBDTC achieve management
efficiencies in the development, promotion, execution and performance-
measurement of high-quality commercialization services. Similarly,
other states are able to mobilize resources for tech-commercialization
using FAST dollars as a basis for composition of meaningful results-
oriented activities such as the following currently in Maine, which
include:
Improving the quantity and quality of SBIR proposals to
Federal agencies.--Since the inception of Maine's SBIR technical-
assistance program in 1997, SBIR investment in the State has increased
steadily, growing from $1.5 million in 1997 to more than $4 million
last year. Similarly, the number of SBIR projects awarded to Maine
firms has grown from five in 1997 to 23 in 2004. For 2005, Maine will
commit more than 2,700 hours of outreach and consulting time to
businesses submitting SBIR proposals. The organization anticipates that
this assistance will return approximately 30 awards and an investment
in Maine of $6 million.
Producing an intensive 10-week series of commercialization
workshops.--The workshop series cultivates the marketing and sales of
tech-based products and services developed by Maine entrepreneurs.
Designed to promote interaction within a small group, the workshops
provide hands-on and practical knowledge to support go-to-market
activities. The series challenges firms to think strategically and
analytically while facilitating exploitation of the business
opportunity. Since inception of the series in 2002, 40 firms have
completed the coursework. This year's series, starting in the spring,
will feature increased use of the Internet. Live ``web streaming'' will
encourage participation by firms in rural areas, and on-line
``threaded'' discussions will enable a continuing exchange of ideas
outside the physical workshop.
Growing small businesses with the Maine Tech Trackers.--
Maine Tech Trackers are Maine's volunteer technology business advisors.
Motivated by an interest in playing a role in Maine's economic
development, Tech Trackers provide short-term and targeted assistance
to MTI/SBTDC portfolio companies. Recruited statewide, Trackers are
entrepreneurs, senior managers in large firms, and venture capitalists.
They volunteer a small portion of their time to help technology
business clients overcome specific business challenges, including
accounting, engineering tests for patent applications, and business
valuation for the purposes of a sale. In their role as mentors, they
support small businesses by providing encouragement, critique and
advice.
We believe the elimination of the FAST appropriation to be
imprudent in the face of lost manufacturing jobs discussed earlier.
According to the Council for Competitiveness, ``Innovation fosters the
new ideas, technologies, and processes that lead to better jobs, higher
wages and a higher standard of living. For advanced industrial nations
no longer able to compete on cost, the capacity to innovate is the most
critical element in sustaining competitiveness. The United States
stands apart from the rest of the world in its record of sustained
innovation over decades, across industries, and through economic
cycles. But the United States now finds itself at a potential
inflection point--facing new realities that pose significant challenges
to our global innovation leadership. How the United States responds to
these realities is critically important and is the goal of the National
Innovation Initiative.'' Elimination of FAST funding appears to fly
directly in the face of this initiative, as outlined in a very recent
report, entitled Innovate America, published by the Council.
The Administrations budget also seeks to eliminate the SBA Micro-
loan program--30 percent of micro-loan borrowers are African American,
11 percent are Hispanic, 37 percent are women, and 30 to 40 percent are
rural. Needless-to-say, our concern is that access to capital will be
severely limited to our Nation's underprivileged, and even though the
SBA claims it is being replaced by the Community Express program, that
method of business capital access is little more than ``credit card''
debt, fraught with all the dangers of that type of business or, for
that matter, personal financing. I know it is of particular import to
Maine.
We ask that the Committee consider working toward restoration of
FAST and the SBA Micro-loan Program.
Finally Madame Chair, we want to call your attention to proposed
fiscal year 2006 legislation by the SBA, Title II: Entrepreneurial
Development--Sec. 201: Small Business Development Center Competition,
which proposes authorization of outside competition based on
performance (FY 2005) as allegedly to improve performance results and
provide a more cost effective and responsive SBDC program. We ask you,
Senator Kerry and the Committee to vehemently oppose this needless
change.
With all due respect, to our partner, the, SBA, we believe such a
legislative change would far from improve performance overall, or in
any way, improve results, or possibly suggest a more cost-effective
methodology for the SBDC program, quite the contrary. Frankly, the
Agency has numerous tools at its disposal to manage the SBDC program
including program reviews, financial audits, diversity audits, DC-based
program managers, locally-based project officers and district
directors, client surveys, annual work plan negotiation, statistical
measurement, generally additional state oversight because of matching
requirements, most importantly ASBDC peer review accreditation, and, if
necessary, protocol to re-bid an individual program when all fails. We
suggest if that is not enough to assure outstanding performance results
than perhaps Congress has been placing false trust in the Agency's
ability to manage. We certainly hope not.
This year, the ASBDC celebrate twenty-five years of serving
America's small business community: twenty-five years of continuous
improvement, twenty-five years of helping small businesses succeed, and
twenty-five years of proven results. As the members of this Committee
know, the SBDC program is a program that works exceptionally well in
Maine and in states throughout the country. It is a program with a
proven track record of creating new businesses, jobs, sales and
economic development by leveraging Federal, State, university, regional
and private resources. It makes no sense for the SBA to propose changes
to the SBDC program that will weaken its ability to fulfill its
mission.
We believe hidden in this SBA suggested legislation, the SBA is
again proposing to repeal the law's requirement that applicants to host
SBDC networks must be institutions of higher learning. SBA would make
any non-profit organization eligible to apply for an SBDC grant,
regardless of whether it had any expertise in entrepreneurship or the
delivery of management and technical assistance to small businesses. We
believe such would severely damage the SBDC program.
Institutions of higher learning bring academic pedigree and
stability to State SBDC networks, because such institutions are built
on solid financial and community foundations. In addition, institutions
of higher learning help to ensure the quality and educational mission
of a state's SBDC services to small business owners and aspiring
entrepreneurs. The University of Southern Maine (USM) was an original
pilot project participant in the creation of the forerunner to today's
SBDC program and since has an over twenty-five year history of
successfully assisting Maine's small businesses. Throughout those
years, the University in collaboration with Maine's SBA District Office
and Maine Department of Economic and Community Development has nurtured
and leveraged the Maine SBDC program to be a statewide motivating force
in developing the entrepreneurial spirit of Maine people.
USM is proud of its more than 25-year role as the administrative
unit for the Maine SBDC. Moreover, hosting SBDC provides opportunities
for an ongoing, mutually beneficial relationship with the USM School of
Business, its Center for Entrepreneurship and business research
centers, and other campus entities that can create real-world solutions
to business issues while complementing the University's mission of
cultivating partnerships in support of the region's economic and social
development.
The SBA's proposed legislative changes come at a time when
Institutions of Higher Education's importance in economic development
strategies are at an all time high. Witness:
``In Cleveland's heyday, . . . proximity to water or rail
mattered a lot. Today, proximity to a university campus matters a
lot.'' (Tim Ferguson, Forbes)
In his new book, ``The Rise of the Creative Class'',
Richard Florida refers to colleges and universities as ``. . . a huge
potential source of competitive advantage.'' And he says that colleges
and universities are today ``. . . a basic infrastructure component . .
. and far more important than traditional infrastructures such as ``. .
. the canals, railroads and freeway systems of past epochs . . .''
States such as Georgia have recognized the fundamental
role of higher education so clearly that its former Governor, now U.S.
Senator Zell Miller, publicly declared that higher education was the
infrastructure of Georgia's new economy.
``Much of the burden of transforming Mississippi's economy
will fall squarely upon the capable shoulders of the state's economic
developers and our higher education system.'' (Economic Development
through Higher Education, a report from the Mc Coy Working Group).
``A strong partnership with government, business, and
higher education is critical to overcome the challenges of the
transition to the new global, knowledge-based economy. There are
increasing expectations from legislative and executive leadership in
the State that the University of North Carolina assume a more direct,
active role in economic development. . . . In its growing role in
economic development, UNC is building on a strong record of service and
support for communities and entrepreneurs, including those in rural
areas . . . Seventeen Small Business and Technology Development Centers
play a key role in entrepreneurial development, offering services to
existing businesses and industries and supporting strategic economic
development initiatives.'' (The Role of the University in Economic
Development, The University of North Carolina Board of Governors Long
Range Plan 2004-2009)
An SBDC program that is supported by an institution of higher
learning like the USM or UNC or UMass or Wharton for that matter,
benefits from both the resources and the high standards of that
institution typical to standards set by accreditation bodies, actively
engaged trustees and in the case of public institutions, the rigors of
legislative scrutiny. Most institutions of higher learning have
business schools that contribute the expertise of faculty, business
student interns, academic crossover, MBA students, Centers for Family
Business and/or Entrepreneurship and other resources. SBDC programs
are, as a matter of course and design, educational programs; as such,
it is only logical that institutions of higher learning should host
them. It makes no sense, as the SBA seems to be proposing, to solicit
SBDC grant applications from non-profit organizations that have no
background or expertise in providing entrepreneurship, management and
technical assistance to small businesses. And even if some non-profits
do have some limited experience in these areas, their focus is usually
limited; they cannot possibly bring the broad prospective that
institutions like the University of Southern Maine bring to the
responsibilities associated with facilitating economic progress through
small business creation, growth and development.
In Maine, we do use some community and/or community development
corporations as sub-hosts, but it is well documented in the SBA that
such requires very keen oversight, can only operate effectively on a
regional basis within the State, and need the overarching
infrastructure of State support and University contractual oversight to
be effective. And it is only since this State director has taken charge
that there is consistency of program. To expect that any one of them
could operate on a statewide basis is wishful thinking. In fact, the
Women's Business Center, now administered by a CDC, has entered into a
strategic alliance with the SBDC, as to garner systems, efficiencies,
professional development and statewide outreach.
SBDC business management assistance counselors are qualified small
business professionals who have diverse educational and business
experience. Many hold MBA's and have owned and operated their own
businesses. Often they bring diverse corporate experience to bear on
seeking solutions for small business, especially in the areas of
marketing, management and operations. Each counselor is required to
participate in a professional development program, which administers
core competency standards, personal professional development plans and
counselor certification for SBDC personnel. Additionally ASBDC
professional development is mandatory for many SBDC programs.
Three years ago, Maine Small Business Development Centers received
the Margaret Chase Smith Maine State Quality Award. This award
recognizes organizations for performance excellence, based on criteria
corresponding to the Malcolm Baldrige National Quality Award. The
criteria for the award examine a wide range of qualities, from
leadership to business results, and evaluate how well an organization's
systems support its goals and objectives. Last year, the Maine SBDC
underwent its peer accreditation review--perhaps the toughest
management review, I have undergone as a professional manager. It too
is based on Baldrige criteria and it takes seriously the idea of pass
or fail in its process of review with the opportunity for non-
accreditation and loss of SBA funding to occur.
This track record of quality within staff and the organization as
outlined in the preceding two paragraphs has been honed with time and
in the context of a University with a 125-year-old tradition of public
service. Not to seek ways to build on such consistency and context in
my opinion is risible on the part of the SBA.
Additionally, the SBA's request to require SBDC grants to be re-
competed every 5 years would discourage institutions such as the
University of Southern Maine from participating in the SBDC program,
because such institutions would not want to invest significant matching
resources in a program that might be available to them for only a short
period of time. For example, in the past 5 years, the University of
Southern Maine has invested nearly $550,000 in the Maine SBDC and over.
1 million dollars in cost share for the privilege of administering the
Maine SBDC. In all likelihood, such an investment would not have been
made if the potential to lose the program because of what possibly
could be construed as politics, even marginally existed.
Moreover, requiring host institutions to re-compete for SBDC grants
every 5 years would not add to the accountability or quality of SBDC
programs. Under current law, the SBA can already revoke an SBDC grant
if the grant recipient is under-performing, and under current law the
SBDC program is already required to have an accreditation program, that
ensures quality among grant recipients. Accreditation, more than any
SBA scrutiny, is a most productive mechanism for continuous improvement
of the SBDC program because it is done in the context of constructive
criticism and is absent any political influence, but rather reflects
the goals of the ASBDC, the SBA and the states to assure the Congress
it is getting what it is paying for.
In addition, SBDC hosts in every State undergo reviews by SBA
auditors every 2 years; and as well, they receive regular program,
audits from SBA project directors, and also must supply titanic amounts
of information, often duplicative, to the SBA. It is inherently unfair,
absent a showing of mismanagement or wrongdoing, to pull a grant from a
host institution that has made a significant contribution of resources
to a program in the form of matching funds, in-kind contributions,
training and development and other resources. There simply is no way
the momentum it takes in organizational development, resource
development, and relationship management, etc. should be broken for the
sake of supposed competition. If there is improvement to be made, let a
progressive system take care to define objectives and have the SBA and
SBDC hosting organizations and other important stakeholders work
together to get it done. When and where and if there is a failure in
the system, let the accreditation process handily solve the problem
through methods already available for assuring consistency and success
of individual SBDC programs.
Notwithstanding all of the above, the SBA by way of its yearly
program announcement insists the SBDCs through a negotiated process
develop, annually the extent to which SBDC statutory and program duties
are to be delivered to address the needs of states' small business
communities. In doing so, SBDCs and their partnering organizations must
ensure that statutory and regulatory duties are met. SBDCs then
annually operate under an annual plan, approved by the SBA, to provide
ongoing small business assistance, and thereby must employ their best
efforts to ensure that economic development and technical assistance
services are available, as defined by statue, to all small business
populations where critical success factors apply, including but not
limited to SBA's special emphasis groups: Minority-, Veteran-, Women-
owned (ex: Native Americans, Hispanic Americans, Black American,
Reservists, Women, etc.). It seems to me the SBA has ample opportunity
to reasonably define their wants and needs for any SBDC program within
such a vehicle and that within one which already exists.
Members of the Committee, the Maine SBDC is a partnership program
that combines the resources of the Federal Government, the Maine
Department of Economic and Community Development, the University of
Southern Maine, and leading economic and community development
organizations. For 27 years the Maine SBDC has provided comprehensive
business management assistance, training and information services to
Maine's micro-, small-, and now technology-based business communities.
The effectiveness of this partnership, and the delivery of services to
Maine's small businesses, depends on good faith, stability and
cooperation among the partners. This partnership, and the resources
that each of these partners brings to the SBDC program, more than
likely State participation, could be destroyed by the SBA's proposal to
recompete SBDC grants every 5 years. It simply makes no sense. It takes
from 6 to 8 years for a counselor in New England to progress from
rookie to seasoned even with the rigorous hiring requirements we place
on the position. The SBDC network values longevity as do the people who
are part of it, many with over 10 years experience who simply wouldn't
stay around if they knew their benefits and or retirement could be
jeopardized every 5 years; they simply are too good and generally too
entrepreneurial to deal with the kind of bureaucracy re-competing could
bring. Ernesto Sirolli, the renowned author and principal of enterprise
facilitation, suggests good business counselors to be somewhat gray
haired and having been there and done it. If you subscribe to his
theory (and I see myself as a living example, having over thirty years
of business experience including that of a Founding Officer of
Staples), these folks want to concentrate on the person of the client
and not the pottage. Please let them.
Let's not forget our State partners either. In Maine, the State
puts in nearly 500,000 dollars additional cash over and above the
250,000 dollars cash required by the SBA; the in-kind is well provided
for as well; and additional cash and leverage come from a myriad of
partners. These partners including the SBA and the State all are
working together in a coordinated fashion with an understanding that
both State and Federal needs have to be met in coordination with one
another. One-sided control is yesterday's theory. A statewide newspaper
article excerpted below demonstrates collaborative realities in Maine:
Maine Small Business Development Centers serve thousands of
small business owners each year through. one-on-one business
counseling and comprehensive training programs. Most Maine SBDC
services are offered at no cost to clients and delivered by a
team of highly qualified professionals who bring
entrepreneurial experience, advanced business education, and
corporate know-how to their role in advising small businesses.
Maine SBDC is frequently asked how it is able to provide the
level of service it does at little or no cost to its clients,
who have often invested every financial resource they have into
their businesses. The answer is collaboration.
By working in partnership with business assistance service
providers throughout the State, the Maine SBDC can give clients
access to the best talent and resources available. In addition
to funding from SBA, the State of Maine, and the University of
Southern Maine, the Maine SBDC is fortunate to have many
longstanding partnerships. Maine SBDC services to small
businesses get a boost from collaborative relationships such as
those with Maine Technology Institute, Market Development
Center, Maine Women Work & Community, and others whom support
customized services for specific industries and/or communities.
Through effective collaboration with many organizations that
serve small business, and coordinated missions including those
of other SBA funded partners, the Maine SBDC fosters the
entrepreneurial spirit upon which the future of the State's
economy depends. (MaineBiz)
As the members of the Committee know, all is not always rosy with
the small business sector. The small business sector's need for
management and technical assistance is greater than ever as America
looks to it to fuel job growth. And so, it is more important than ever
that the Committee reject SBA's proposed legislative changes to the
SBDC program--such that they would weaken the SBDC network's ability to
serve America's small business owners and aspiring entrepreneurs.
As Madame Chair knows, Maine's economy is based on small business.
More than 98 of Maine businesses employ fewer than 100 employees and
more than 92 percent employ fewer than 20 employees. The services that
the Maine SBDC provides to aspiring and current business owners are
clearly critical to the success of Maine's economy. These services
should not be put in jeopardy to serve the interests of the bureaucracy
that administers the SBDC grants in Washington, DC.
The national SBDC network, including the Maine SBDC, has a proven
record of creating jobs and generating growth for America's small
businesses as outlined in previous testimony. With such a record of
accomplishment, both in Maine and across the nation, there is no
justification for the SBA's proposal to radically restructure and put
at risk the effectiveness of America's Small Business Development
Center Network.
Chair Snowe, we sincerely appreciate your strong support for the
Maine SBDC and America's Small Business Development Network; I urge
you, Senator Kerry and the members of this Committee to reject the
SBA's SBDC legislative proposal. Rather, I ask that the Committee focus
on ways to enhance entrepreneurial development in our great country by
building on the success of the SBDC program and by developing
improvement activities through increased funding, collaboration and
quality-related legislative activities to help get and keep America's
economy moving forward with small business at the core as it has been
and continues to be!
Thank you again for allowing me to appear before the committee
today. It has been an honor and a privilege. At this time, I will be
glad to respond to any questions that you, Madame Chair, or other
members of the committee may have.
Chair Snowe. Thank you, John.
Well, you give us a good idea--not about the head. That is
an interesting point, in terms of administrative costs. That is
something we certainly should look at.
I appreciate your views and the startling numbers regarding
Maine. That is something we have known, how difficult the
economic environment is, but compounded with all the other
challenges as well. So I thank you.
Mr. Tuvin.
STATEMENT OF EDWARD ``EDDIE'' TUVIN, FIRST VICE
PRESIDENT OF COMMUNITY SOUTH BANK ON BEHALF OF THE NATIONAL
ASSOCIATION OF GOVERNMENT
GUARANTEED LENDERS
Mr. Tuvin. Thank you, Madame Chairwoman.
I am Eddie Tuvin, First Vice President with Community South
SBA lending. We are an active SBA lender with lending
operations all along the Eastern seaboard and a member of the
National Association of Government Guaranteed Lenders, a trade
association for lenders and other participants who make about
80 percent of the Small Business Administration Section 7(a)
loans.
Commonly called the SBA's flagship program, the 7(a)
program has proven to be an excellent public-private sector
partnership, in my opinion probably the best in the world. Over
the last decade, the SBA has approved roughly 500,000 loans for
approximately $100 billion. We thank the Committee for the
opportunity to provide NAGGL's written testimony on the SBA
fiscal year 2006 budget request and other current issues facing
the SBA 7(a) program.
And Madame Chair, I would like to submit my testimony for
the record.
Chair Snowe. Without objection, so ordered. And we will do
that for all the other panelists, as well.
Mr. Tuvin. Madame Chair, we concur with your thinking and
your perception and views of how the SBA 7(a) actually operates
and what the fiscal year 2006 budget might do and recognize
this in connection with Ranking Member Kerry's comments
earlier.
With that, I would like to present five points that we are
focusing on and then I will move into the comments that we
would like to make relative to these five points.
First of all, we support at least a $17 billion program for
fiscal year 2006.
Second, we feel that a thorough review of the 7(a) credit
subsidy model and the changes in fiscal year 2006 program
estimates should be made.
Third, we support the reinstatement of piggyback or
combination loans through legislation, if necessary.
Fourth, we support the establishment of what is known as a
National PLP Lender Approval to eliminate these lenders going
back and forth from State to State trying to get PLP, which we
thought was a great program at the SBA when they delegated more
authority outside of their offices and became more efficient.
We think there is another level for that.
And finally, fifth, we oppose granting SBA the authority to
levy an unneeded secondary market fee.
Last year at this time representatives testified about the
many challenges facing the 7(a) program and many of us here
today met with staff to work through the issues. Thanks to the
efforts of the Small Business Committees and the SBA officials,
the problem was resolved and fiscal year 2004 lending set
records for both numbers of loans originated and dollars
loaned.
Fiscal year 2005 is also off to a record start, with almost
$3.6 billion lent in the first fiscal quarter alone. As part of
the compromise worked out at the end of the 108th Congress, the
7(a) program received $16 billion in lending authority for
fiscal year 2005, which should be sufficient to meet the
lending needs.
The Administration has requested a $16.5 billion program
level in fiscal year 2006. Fiscal year 2004 usage was about
$13.5 billion and some forecast that all $16 billion of
available lending authority will be used this fiscal year.
Given the growth rate in the program, we would request that the
Committee support at least a $17 billion program. This would
match the authorization level passed in the Omnibus
Appropriations Bill that was in December 2004 and will probably
lessen the risk of future program caps or restrictions.
About the fees. From the start of fiscal year 2004 to
fiscal year 2006 we heard testimony earlier that the increases
were 118 percent, if the increase proposed is put into effect.
The latest increase would be within the compromise worked out
in the 108th Congress. The trend of higher and higher feeds
needs really to be reversed. It is disturbing that months after
a compromise deal was established that we are back talking
about the issue again.
In addition, the Administration reports in table 8 of the
Federal Credit Supplement to the fiscal year 2006 budget, page
54, that the subsidy rate established for fiscal year 2004 was
excessive. The original rate for fiscal year 2004 was 0.78. It
has now been reestimated and reduced, as we discussed, to 0.24.
Now the Administration is recognizing the fee increases,
which they demanded in the start of fiscal year 2005 be imposed
upon the lenders and borrowers to lower the subsidy rate to
zero, should actually lower the rate to a substantially
negative number. We believe that given the downward subsidy
reestimate for fiscal year 2004, the subsidy rate should have
actually declined in fiscal year 2006, resulting in a lower
lender fee.
We encourage the Committee to ask the Administration, as we
heard the the Committee request earlier, for a thorough
explanation of the changes made in the subsidy and reestimate
models.
The Administration also is requesting authority to charge
lenders a fee for loans sold in the secondary market. The
fiscal year 2006 budget, in table 6, does not provide any
income from a proposed fee. So thus, the proposed fee must be
zero and is unnecessary.
With that, I rest my comments, I thank you, and would be
willing to answer any questions that you have.
[The prepared statement of Mr. Tuvin follows:]
Statement of the National Association of Government
Guaranteed Lenders, Inc.
The National Association of Government Guaranteed Lenders, Inc.
(NAGGL) is a trade association for lenders and other participants who
make approximately 80 percent of the Small Business Administration
(SBA) section 7(a) loans. Commonly called SBA's ``flagship'' program,
the 7(a) program has proven to be an excellent public/private sector
partnership. Over the last decade, the SBA has approved roughly 500,000
loans for approximately $100 billion. We thank the Committee for the
opportunity to provide written testimony on the SBA fiscal year 2006
budget request and other current issues facing the SBA 7(a) program
community.
ONE YEAR LATER
Last year at this time, the 7(a) lending program was in the middle
of a crisis. Lack of adequate funding at the start of fiscal year 2004
led to a variety of problems, including an unprecedented ``lending
holiday'' and subsequent program caps and limitations. Thanks to the
efforts of the Small Business Committees and SBA Officials, that
problem was resolved and fiscal year 2004 lending set records for both
numbers and dollars loaned. Fiscal year 2005 is also off to a record
pace, with almost $3.6 billion lent in the first fiscal quarter. As
part of the compromise worked out at the end of the 108th Congress, the
7(a) program received $16 billion in lending authority for fiscal year
2005, which should be sufficient to meet the net lending demands of
small businesses.
STATISTICS
The SBA loan programs are the largest source of long-term capital
for small business in this country. Based upon bank ``call'' reports,
the SBA Office of Advocacy reports there are $485 billion in
outstanding small business loans. From FDIC data, only about 20 percent
of those loans (approximately $95 billion) have an original maturity
over 3 years. The average original maturity of an SBA 7(a) loan is
about 14 years, and the SBA 504 average is even longer. The balance of
the outstanding 7(a) portfolio is approximately $40 billion or a
significant percentage of all outstanding long-term small business
loans. Small businesses rely upon the SBA 7(a) program to be a major
source of long-term debt capital.
FY 2006 Budget
FY 2006 LOAN DEMAND
The Administration has requested a $16.5 billion program level in
fiscal year 2006. Fiscal year 2004 usage was approximately $13.5
billion, and some forecast that all $16 billion of available lending
authority will be used this fiscal year. Given the growth rate in the
program, NAGGL requests that this Committee support at least a $17
billion program for fiscal year 2006. A $17 billion program would match
the authorization level passed in the Omnibus Appropriation bill in
December 2004, and would lessen the risk of future program caps or
restrictions.
MORE FEES
From the start of fiscal year 2004 to the start of fiscal year
2006, lender fees will have increased 116 percent if the increase
proposed in the fiscal year 2006 budget is put into effect. Although
the latest increase would be within the compromise worked out in the
108th Congress, the trend of higher and higher fees must be reversed.
It is disturbing that the 7(a) program faces further fee increases
considering that the compromise deal establishing fee levels was signed
into law just 2 short months ago. In addition, the Administration
reports, in table 8 of the Federal Credit Supplement to the fiscal year
2006 Budget (on page 54), that the subsidy rate established for fiscal
year 2004 was excessive. The original subsidy rate for fiscal year 2004
was 0.78 percent, but this has now been reestimated and reduced to 0.24
percent. Thus the Administration is now recognizing that the fee
increases which they demanded be imposed upon lenders and borrowers to
lower the subsidy rate to zero should have actually lowered the rate to
a substantially negative number. We believe that given the downward
subsidy re-estimate for fiscal year 2004, the subsidy rate should have
actually declined in fiscal year 2006, resulting in a lowering of the
lender fee.
NAGGL encourages this Committee to ask the Administration for a
thorough explanation of the changes made in the subsidy and re-estimate
models.
SECONDARY MARKET FEE
The Administration also is requesting authority to charge lenders a
fee for loans sold in the secondary market. In the fiscal year 2006
budget, in Table 6 on page 23, the Administration does not provide any
income from a proposed fee. Thus the proposed fee must be zero and is
unnecessary.
NAGGL is opposed to granting the authority to impose secondary
market fee for several reasons. First, the SBA has not documented a
need for such a fee. The secondary market and the master reserve fund
have operated smoothly and efficiently for some 20 years. What
variables has the Administration used to calculate a subsidy rate for
this program? The Administration took some administrative actions last
year. What impact did those changes have on the subsidy rate? What
other administrative changes could be made so that charging an
additional fee could be avoided? Until these and other questions have
been answered and there has been a full disclosure of the subsidy rate
calculation, NAGGL opposes granting SBA the authority to charge this
additional fee.
NATIONAL PLP AUTHORITY
As part of the compromise reached in December, a national Preferred
Lenders Program or PLP should have been included in the legislation.
Today, lenders who lend in multiple districts spend an inordinate
amount of resources dealing with the multitude of district offices in
establishing or renewing their PLP status. The new program would have
established guidelines for the SBA to grant national PLP status to
those lenders meeting the benchmarks. Unfortunately, due to a clerical
error, the provisions were not included in the final legislative
package, which was enacted as Division K of the Omnibus Appropriations
Act (P.L. 108-447). NAGGL requests that this provision be included in
the near future in any appropriate legislative package, particularly in
any technical corrections bill, which SBA has said it will submit.
PIGGYBACK RESTRICTION STILL IN PLACE
A lender generally utilizes the 7(a) program because an applicant
has a credit deficiency or needs a longer term loan than could be
provided without the 7(a) program. In other instances an applicant has
a need that is larger than the maximum loan size allowed under the 7(a)
program. To accommodate this higher financing need, a lender
historically has utilized a piggyback structure or a combination loan
to meet the borrowers' financing needs.
For example, assume an applicant needs to borrow $2.5 million, or
$500,000 more than the 7(a) limit. A lender could have provided a
$500,000 conventional loan in a first lien position, and a $2,000,000
SBA 7(a) loan in second lien position. Unfortunately, however, SBA
administratively prohibits the use of piggyback financing and the
statutory provisions permitting combination loans expired at the end of
fiscal year 2004. Thus the financing needs in excess of the 7(a)
program limit cannot be met.
Ironically, this piggyback or combination loan structure is similar
to the loan structure provided in the SBA 504 program, with two key
differences. With a 504 loan the SBA has 100 percent of the credit risk
on the second mortgage loan. With a 7(a) loan, under the piggyback
structure, the originating private sector 7(a) lender has at least a 25
percent pro-rata share of the second lien loan, and thus the lender is
sharing in the credit risk. The second difference is that the
government collects substantially more fees on a 7(a) loan than it does
a 504 loan.
NAGGL has met with Administration officials, and subsequently
submitted a proposal to them to reinstate piggyback lending. We are
awaiting a response.
With the piggyback prohibition, many applicants have no solution to
their need to find larger loan packages. We request that this Committee
work with the Administration to reinstate the use of piggyback loans so
that lenders again would have a vehicle to serve those small businesses
that need larger loan packages.
CONCLUSION
In conclusion, NAGGL requests that this Committee:
1. Support at least a $17 billion program for fiscal year 2006;
2. Conduct a thorough review of the 7(a) credit subsidy model
changes in the fiscal year 2006 program estimate;
3. Support the reinstatement of piggyback or combination loans,
through legislation if necessary;
4. Support the establishment of a National PLP Lender approval and
renewal process through legislation; and
5. Oppose granting SBA the authority to levy an unneeded secondary
market fee.
Thank you for the opportunity to submit our written testimony.
[GRAPHIC] [TIFF OMITTED] T1350.014
[GRAPHIC] [TIFF OMITTED] T1350.015
[GRAPHIC] [TIFF OMITTED] T1350.016
[GRAPHIC] [TIFF OMITTED] T1350.017
Chair Snowe. Thank you, Mr. Tuvin. Thank you.
I know, Mr. Betancourt, you have to leave at noon, so I
will quickly get to you in a couple of questions. You have a
plane to catch.
Ms. Sands.
STATEMENT OF PATRICIA SANDS, OWNER OF SPILL-GUARD AND
PARTICIPANT OF THE SBA'S WOMEN'S BUSINESS
CENTER PROGRAM
Ms. Sands. Good morning, Madame Chairwoman Snowe.
Chair Snowe. Who by the way is the only small business
owner here; right? Welcome. Now you can tell us the practical
applications of all of this.
Ms. Sands. Thank you for inviting me to speak about my
business in regard to the Women's Business Center of Northern
Virginia.
I am Patricia Sands, the CEO of Spill-Guard. Spill-Guard is
a one-member, women-owned, home-based LLC that is located in
Arlington, Virginia. My product is Spill-Guard male urinal and
my storefront is the Internet. It is the only hands-free male
urinal on the market that tests 500 percent improved over
typical products. I am proud to say that Spill-Guard is
American-made and produced in Leominster, Massachusetts.
I am sure you are wondering why a person would design a
urinal and no doubt it was an unusual endeavor for a low-income
mother of three.
My product and business idea came from seeing a need in my
life. In the years past, I cared for severely ill family
members. As a military war widow, I cared not only for my
husband, but also for my father that had a 10-year stroke
recovery. I did not know it at the time, but I was gathering
great market research in the field of incontinence. I know the
patient, the problems, the cost and the exhaustion of
caregivers.
From this bank of experience as a caregiver and my training
in design, I put my mind to the task of exploring a more stable
urinal. With several paper mache prototypes and revisions, the
design came together quite quickly.
However, the patent, the engineering, the manufacturing and
the distribution has taken 5 years to be at the startup. It has
taken all of my efforts and funds. I believe in it for I know
it will help others.
My family knows that this seemingly insignificant product
has the ability to enhance the health of the patient by
drastically reducing the incidence of urine spills and bed
sores. Right now that product choices for severely ill patients
are limited to typical urinals, adult diapers and internal and
external catheters. There is no product like mine on the market
for price and performance.
Spill-Guard will lower the labor and material costs for
facilities. And yes, this product will benefit Medicare with
the baby boomer generation entering their golden years. For
example, incontinence is the No. 1 reason for admission into a
nursing home. The fact is, this one simple product can
positively impact an $11 billion a year industry in the U.S.
and $175 billion worldwide, according to the S&P.
But it is not enough to have a good idea. I am a middle-
aged woman with a low-income and an art degree and that is
strike three in the business world. That is why I am here
before you today. I took classes with the Women's Business
Center of Northern Virginia and with sustained advice and
services, I wrote a business plan and learned the basic skills
on how to structure the future of my business.
I have had to readjust my plan almost on a monthly basis.
What I thought would unfold did not, characteristic of most
entrepreneurial adventures. With the Women Business Center of
Northern Virginia, I have had magnificent professionals that
have helped me make wise choices and new plans.
For example, last year I had a series of crushing events
that could have ended my business. The largest event was I was
not notified of my factory in New Hampshire closing without
honoring my purchase orders. I lost all of my customers. Yet,
with encouragement planning, I kept going.
Right after the move to the new molder, it was apparent
that my mold needed a modification. This modification was both
costly in time and money and I was wondering about the
feasibility of my business and the endless string of delays and
costs.
Once again I turned to the Women's Business Center of
Northern Virginia and discussed options. Within a short time
period we came up with a workable strategy to recover from this
upset and unexpected cost. And the Women's Business Center did
not stop there as a source of report. I received a do not give
up, you are almost there from the entire staff. As you can
tell, I value their expertise, but their friendship as well.
The caliber of their classes and expertise brought
credibility to my venture. Spill-Guard has won many awards.
Spill-Guard was awarded the Business Plan of the Year Award,
the Rising Star Award, and the Most Valuable Player for
Microenterprise. My business and my association with the
Women's Business Center has been documented in such
distinguished publications as the Chronicle of Philanthropy.
The reason I am here today is because of their continued
support. They are committed to my success. And when you are
associated with so many people that want you to succeed, you
are already a winner.
Where is my business now? It is shipping. After a year of
delays and setbacks, my product started shipping in July. I
have had 100 percent outstanding customer satisfaction. Yet I
had a problem. I lacked the marketing budget due to the cost of
modifications and several kids that required food. I knew I
needed to find another way to get the sales moving.
To view my competition, I went to MedTrade. MedTrade is a
National products convention in Orlando. At first I was
overwhelmed by the size and cash-flow of my competitors. But
after I caught my breath, I visited each of them and realized I
had no competition. I clearly had the better product. What I
needed was to attach an engine to my business and associate
with a distributor.
I then approached McKesson Surgical and Medical in
Richmond, Virginia. Without hesitation, I was offered a
distribution agreement. The product managers knew instantly the
benefit of my design. Can you imagine the feeling of taking an
idea from a paper mache model to the board room of a Fortune 16
company for health care and they say yes? It is the American
dream all over again.
And it does not end there. McKesson has indicated they want
to deepen our association with the dialog of a private label
for this and other products that will follow.
You can be assured I will stay in touch with the Women's
Business Center of Northern Virginia, as well as my lawyer, for
each step that is unfolding. I am excited about the future and
still watching my step. Truly, I am at a critical point and no
one is more aware of the fact than I am.
I plan on moving ahead and am expecting this product to
bring in steady revenue with my association with McKesson. I am
in their catalog and I am stocking their warehouses at this
time. But it is a leap of faith.
For example, in working with a small business, an industry
giant like McKesson needs to be sensitive and pay on the agreed
30-day net in order for my company to build. I have no doubt
that they will honor their word, as I pick my associations
carefully. But as the owner, I will bare my soul here and tell
you what I am facing. The shipping alone for this small order
could be close to $10,000. And there are no deep pockets behind
me ready to save the day.
Another concern is keeping my design safe from other
businesses that would attempt to prey on my small business
status and infringe on my patent as I gain in the marketplace.
Again, it is a critical time to manage the risk and plan the
growth.
In fact, I am utilizing the Women's Business Center again
to plan for this growth and have started a dialog for a
potential second short-term loan. You see, the Women's Business
Center is not only able to give invaluable information and
support for startup, but their expertise lends itself to the
second stage of development and planning.
As recently as last week I met with an expert there that is
counseling me through the steps of 8(a) small disadvantaged
business certification. Is a daunting and detailed task that we
are breaking into sections. She is troubleshooting my data and
advising me on how to proceed for I fully understand the
benefit in leveling the playing field to sell products to the
Federal Government.
As you can imagine, as a military widow, my preferred
customer will be the Veterans Administration. I want Spill-
Guard available and affordable to those who truly needed. I
would say to any listening, I would be grateful to any
connections, introductions or suggestions you might have to
make this happen with haste.
I am an example of the positive impact of the Women's
Business Center program. It is imperative that this service,
support and program be available to others. The American people
need affordable training to be able to learn new skills. I did
not have the luxury of time and money to pursue an MBA. But I
needed the skills to go to the next level and pursue my idea.
Why is this important? Historically, ideas and innovation
come from small businesses. The strength and backbone of
America is with its small business. Jobs are created through
small business. It is worth investing in.
Worried about the deficit? No. Worry about the drain of
untrained and unemployed workforce in the future. The cost in
so many directions will be high if we do not pull our center
and get our grass roots economy growing again. Our presence is
being felt around the world, but will our children have the
freedom and opportunity to thrive here?
Think about it. Only in America could a low-income widow
with three kids have the nerve and the opportunity to find a
place in the billion-dollar medical field. The decisions you
make in the Senate and the Government at large impact those
opportunities.
True, I am not there yet. I have many turns to make and
pitfalls to avoid. But I made it to the marketplace. I have no
doubt that I will move from a low-income status to paying a
whole lot of taxes because I am wealthy.
This can happen with other potential businesses as well, if
we continue to support the Women's Business Center. Over and
over again we have heard concerns about the economy, concerns
about our labor force not having skills, concerns about the
takeover of big business and concerns about jobs leaving our
country. They are valid concerns. How can we build a solid
business structure here with our foundation in another country?
We cannot. It will fall. We have to invest in growing our
businesses and strength here.
In conclusion, it is exciting to hear a good story about
your next-door neighbor trying to forge ahead. It is the
American dream unfolding again. Right now, I am being watched
and lifted up as an example to thousands of kids and low-income
people. They see it can still be done. I hope to be in a
position to help others in the future and give back what has
been so generously given to me. It is a ripple effect.
Funding the Small Business Administration programs like the
Women's Business Center of Northern Virginia is like planting
seeds for the future growth of our country. It is a small
investment in comparison to the whole of our budget that reaps
great and positive returns. With the funding being cut, I am
afraid you will hear fewer success stories in the future. Maybe
it is time for America to revise its business plan. It is not
too late.
Thank you for inviting me here. I am honored to be in your
presence and have the opportunity to express my thoughts. I
know I speak for all the American people in thank you for your
fine service and powerful decisions that keep America strong.
[The prepared statement for Ms. Sands follows:]
Statement of Patricia Sands, Owner of Spill-Guard, Arlington, Virginia
Good Morning, Madame Chairwoman Snowe, Ranking Member Kerry, and
distinguished Members of this Committee. Thank you for inviting me to
speak about my business in regard to my association with the Women's
Business Center of Northern Virginia. I am Patricia Sands, the CEO of
Spill-Guard. Spill-Guard is a one member, woman-owned, home-based LLC
that is located in Arlington, Virginia. My product is Spill-Guard Male
Urinal and my storefront is the Internet. It is the only hands-free
male urinal on the market that tests 500 percent improved over typical
products. I am proud to say Spill-Guard is American made and produced
in Leominster, Massachusetts.
No doubt, it was an unusual endeavor for a low-income mother of 3.
My product and business idea came about from seeing a need in my life.
In the years past, I cared for my severely ill family members. As a
military war widow I cared not only for my husband, but also for my
Father that had a 10-year recovery from a stroke. I did not know it at
the time, but in caring for them; I also was gathering great market
research in the field of incontinence. I know the patient, the
problems, the cost and the exhaustion of the caregivers.
From this bank of experience as a caregiver and my training in
design, I put my mind to the task of exploring how to create a more
stable male urinal. With several paper mache prototypes and revisions .
. . the design came together quite quickly. However, the patent, the
engineering, the manufacturing and the distribution has taken almost 5
years to be just at the startup phase! It has taken all my efforts and
funds. I believe in it, I know it will help others. My family knows
that this seemingly insignificant product has the ability to enhance
the health of the patient by drastically reducing the incidence of
urine spills and bedsores. Right now, the product choices for a
severely ill patient are limited to typical urinals, adult diapers and
internal and external catheters. There is no product like mine on the
market for price and performance. Spill-Guard will lower the labor and
material costs to the facilities. Yes, this product will benefit
Medicare with the growing baby boomer generation entering their golden
years. For example, incontinence is the No. 1 reason for admission into
a nursing home. Spill-Guard can assist in keeping a patient in his own
home longer by effectively managing his care with dignity. The fact is,
this one simple product can positively impact an $11 billion a year
industry in the U.S. . . . $175 billion worldwide according to S & P.
But it is not enough to have a great idea. I am a middle-aged woman
with a low income and an art degree . . . that is strike three in the
business world! I needed a plan and I needed business skills. That is
why I am here before you today. I took classes with the Women's
Business Center of Northern Virginia. With the sustained advice and
services of the Women Business Center of Northern Virginia, I wrote a
business plan and learned the basic skills on how to structure the
future of my business. I have had to readjust and change my plan almost
on a monthly basis. What I thought would unfold . . . did not;
characteristic of all entrepreneurial ventures. With the Women's
Business Center of Northern Virginia, I had magnificent professionals
that helped me make wise choices and new plans.
For example, last year I had a series of crushing events that could
have ended my business. The largest event was that I was not notified
of my factory in New Hampshire closing without honoring my purchase
orders. I lost all my customers at that time. Yet, with encouragement
and planning I kept going. Right after the move to the new molder, it
was apparent that my mold needed a modification. This modification was
both costly both in time and money.
Truly, I was wondering about the feasibility of my business and
whether the seemingly endless string of delays and costs would ever
end. Once again I turned to the Women's Business Center of Northern
Virginia and we discussed options. Within a short period of time, we
came up with a workable strategy to recover from this upset and address
any unexpected costs. And, the WBC didn't stop there, as another source
of support, I received a ``Don't give up . . . you are almost there,''
from the entire staff of the Women's Business Center. As you can tell,
I value not only their expertise, but their friendship as well.
The caliber of their classes and expertise bring credibility to the
venture. Spill-Guard has won many awards. Spill-Guard was awarded the
Business Plan of the Year Award, the Rising Star Award and the Most
Valuable Player for Micro Enterprise Award. My business and association
with the Women's Business Center has been documented in such
distinguished publications such as the Chronicle of Philanthropy. The
reason I am here today is because of the continued support of the
Women's Business Center. They are committed to my success. When you are
associated with so many people that want you to succeed . . . you are
already a winner.
Where is my business now? Shipping! After a year of delays and
setbacks, my product started shipping last July. I have had 100 percent
outstanding customer satisfaction. Yet, I had a problem. I lacked the
marketing budget due to the cost of the modifications and several kids
that required shoes and food etc. I knew I needed to find another way
to get the sales moving. To view my competition, I went to MedTrade. It
is the national medical products convention in Orlando. At first I was
overwhelmed by the size and cash-flow of my competitors. After I caught
my breath . . . I visited each of my competitors and realized I have NO
competition. I clearly had the better product. What I needed was to
attach an engine to my business and associate with a distributor. I
then approached McKesson Medical Surgical in Richmond, Virginia.
Without hesitation, I was offered a distribution agreement. The product
managers knew instantly the benefit of my design. Can you imagine the
feeling of taking an idea from a paper mache model to the boardroom of
a Fortune 500 Company and they say . . . YES! It is the American dream
all over again. It doesn't end there. McKesson has indicated they want
to deepen our association and begin a dialog about the creation of a
private label for this and my other products that will follow. You can
be assured that I stay in touch with The Women's Business Center of
Northern Virginia as well as my lawyer for each step that is unfolding.
I am excited about the future and am still closely watching my step . .
. so l don't fall. I have come too far. Truly, I am at a critical point
and no one is more aware of that fact than I am.
I plan on moving ahead and expecting this product to bring steady
revenue with my association with McKesson. I am in their catalog and
will be stocking their warehouses at this time. It is a leap of faith
of sorts. For example, in working with a small business, an industry
giant like McKesson needs to be sensitive and pay on the agreed 30-day
net in order for my company to build. I have no doubt that they will
honor their word. But as the owner, I will bare my soul here as an
example of what I am facing in the near future . . . the shipping ALONE
for this order could be close to 10K. There are no deep pockets behind
me ready to save the day. Again, this is a critical time to manage the
risk and plan the growth for my business.
In fact, I am utilizing the Women's Business Center again to plan
for this growth and start a dialog for a potential second short-term
loan. You see the Women Business Center is not only able to give
invaluable information and support to a startup business, but their
expertise lends itself to the second stage of development and planning.
As recently as last week, I met with an expert there that is counseling
me thorough the steps of applying for 8a and Small Disadvantaged
Business certification. It is a daunting detailed task that we are
breaking into sections. She is troubleshooting my data and advising me
on how to proceed. I fully understand the benefit in leveling the
playing field to sell products to the Federal Government. As you can
imagine, as a military widow, my preferred customer will be the
Veterans Administration. I want Spill-Guard available and affordable to
those that truly need it. I would say to those listening, that I would
be grateful to any connections, introductions or suggestions you might
have to make this process happen with haste. I am very grateful that so
much of our government works to serve the public good.
I am an example of the positive impact of the funding of the
Women's Business Center program. It is imperative that this service,
support and program be available to others. The American people need
affordable training to be able to learn new skills. I did not have the
luxury of time and money to pursue an MBA. But I needed the skills to
go to the next level and pursue my idea. Ideas and innovation comes
from small business. The strength and backbone of America is with its
small businesses. Jobs are created through small business. It is worth
investing in. Worried about the deficit? No--worry about the drain of
an untrained and unemployed work force in the future. The cost in so
many directions will be high if we don't pull center and get our grass
roots economy growing strong again. Our presence is being felt around
the world, but will our children have freedom and opportunity to thrive
HERE?
Think about it . . . only in American could a low-income widow with
3 kids have the nerve and the opportunity to find a place in the
billion-dollar medical products field. The decisions you make in the
Senate and government at large impact the opportunities given to its
tax paying citizens. True, I am not there yet--I have many turns to
make and pitfalls to avoid . . . but I made it to the marketplace and I
am being taken darn seriously. I have no doubt that I will move from
low-income status to paying a whole lot of taxes because I am wealthy!
This can happen with other potential businesses as well if we continue
to support the Women Business Center program. Over and over again we
have heard concerns voiced over the economy, concerns about our labor
force not having skills, concerns about the takeover of big businesses
and concerns about jobs leaving our country. These are valid concerns.
How can we build a solid business structure here with our foundation in
another country? We can't. It will fall. We have to invest in growing
our own businesses and strengths here.
In conclusion, it is exciting to hear a good story about your next-
door neighbor trying to forge ahead . . . isn't it? It is the American
dream unfolding again. Right now, I am being watched and lifted up as
an example to thousands of kids and low-income people. They see it can
STILL be done. I hope to be in a position to help others in the future
myself and give back what has been so generously given to me. It is a
ripple effect. Funding the Small Business Administration programs like
the Women's Business Center of Northern Virginia is like planting seeds
for future growth of our country. It is a small investment in
comparison to the whole of our budget that will reap great and positive
returns. With the funding being cut I am afraid you will hear fewer
success stories in the future. Maybe it is time for America to revise
ITS business plan? It is not too late.
Thank you for inviting me here today. I am honored to be in your
presence and to have the opportunity to express my thoughts. I know I
speak for all the American people in thanking you for your fine service
and your powerful decisions that will keep America strong.
I am happy to answer any questions you may have.
Chair Snowe. Thank you, Ms. Sands. That is certainly a
powerful statement and a powerful example.
[Applause.]
Chair Snowe. American ingenuity and courage, as well.
Ms. Sands. Thank you.
Chair Snowe. No, thank you for a fine example. I wish the
Administrator had the opportunity to hear your testimony. We
will send it over to him and we will make connections for you.
It is the least we can do.
Mr. Betancourt, I know you have to leave.
Mr. Betancourt. I would be happy to stay until 1:00, just
so you know. There is no rush.
Chair Snowe. I will start with you, in case you have to
leave.
On the Microloan program, I think it is important to
clarify some of the issues that were raised here. We know the
7(a) Community Express program will not serve to fill that
vacuum without the Microloan program. Do we agree on that?
Based on the statistics that you have given, what did you say,
how many States does it operate in? There are very few lenders.
There are zero in Maine, for example, a small business State.
Mr. Betancourt. Rural is one big issue. It is obvious it is
not achieving its objective in the rural areas. Less than 6
percent are reaching rural areas.
Chair Snowe. There is less than 6 percent rural areas at a
time when rural areas desperately need support.
Mr. Massaua. Senator, if I may, he is looking for the
number, one of the problems with Community Express as it is
supposed to provide some technical assistance. However, most of
the banks want the technical assistance providers, like the
SBDC or the Women's Business Center, to indemnify them of
anything. That is an impossibility.
Mr. Betancourt. It is 5.7 percent in rural areas for
Community Express.
Chair Snowe. It is clear that the 2,400-plus participants
in the Microloan program are not going to be able to be served,
for example, by the 7(a) Community Express program. Obviously,
I gather there are different criteria too, as well. These are
people who are probably not going to be able to be eligible
with conventional lenders are they? It is more difficult to
qualify for borrowing.
Mr. Betancourt. It is more difficult to qualify for 7(a).
The credit is an issue. If you look at the application process,
there is no technical assistance other than helping you with
the application. If you are a business owner, like she
mentioned over here, if you need help with a business plan,
that is not going to happen. You just will not get the
application. We are talking about two different borrowers.
Chair Snowe. I gather that. If you are saying only 5.7
percent serves rural areas and 40 percent of Microloans go to
rural areas, then obviously it is a totally different goal.
Mr. Betancourt. I think where the statistics do not show it
for Community Express is that they will tell you that they do X
amount of loans under $35,000 in the thousands. And it is true.
But they are still not reaching Microloan borrowers. You can do
loans under $35,000, but these are not startups. These are not
rural areas. These are not folks with credit. These are not
people of color. It is a totally different borrower. It is
pretty clear.
Chair Snowe. I know he mentioned that it is duplicative
with the Microloan program, but they are both going to be
eliminated in that budget.
[Laughter.]
Chair Snowe. There will not be any duplication there.
Mr. Betancourt. Let us talk about PRIME for the moment. One
of the issues that we are talking about in Microloan is access
to capital. PRIME is providing access to training. Especially,
very low-income borrowers.
It is great to have--in-lending, because we are a
microlender, but there are a lot of folks that may not need
lending, because lending is not the end goal necessary; the end
goal is helping them have a stronger business through technical
assistance. And that is what PRIME does. The fact that they
restricted it last year just to 16 States, and our
organization, AEO, opposed. They crippled that program and now
they want to eliminate it.
Chair Snowe. Mr. Coit, tell me about the SBIC. You
mentioned the Participating Securities and it is obvious from
the budget recommending--as you said in your testimony, closing
the negotiations on this issue, at least that has been the
proposal--not to move forward because they have not provided
any leverage within the budget for Participating Securities.
What would be the impact of all of that for small
businesses? Where will the disparity and the equity gap that
you referred to occur, do you think? Would it be more
pronounced in rural America or anywhere as a result of not
having access to this venture capital?
Mr. Coit. Yes. The simple answer is probably rural America,
the smaller size investments, the gap between angel investors,
and the rest of the institutional venture capital industry.
There really is a gap in there in terms of the size of
investments. And by industry. There are just some industries
that the venture capital industry does not finance. I think the
statistics are particularly strong for manufacturing and
consumer and retailing. So those gaps would exist.
Chair Snowe. You were mentioning in your testimony that you
thought, at least estimated, that it would require about $80
million on the part of SBA between 2006 and 2010?
Mr. Coit. No.
Chair Snowe. For leverage? For leverage in the
Participating Securities? You did not give an estimate?
Mr. Coit. Oh, for the existing licensees, yes.
Chair Snowe. For the existing licensees.
Mr. Coit. That is a separate problem that the existing
licensees who really built their business plans around having
access to leverage, that has not been authorized either. So
that is a problem for existing licensees.
Chair Snowe. I understand, there are two issues there.
Mr. Coit. Just to get back to your earlier question, we are
concerned to have a more specific answer for your question
about this equity gap. And we have hired the Tuck Center for
Private Equity and Entrepreneurship and they are working,
actually in part with SBA, to try to come up with some more
statistical data that actually defines the gap. As part of my
written testimony I submitted a letter from NVCA--this is the
National Venture Capital Association--making a very strong case
for the SBIC program. This is a letter to the President of the
United States saying that this gap exists.
So there is no argument from the rest of the industry about
the gap. There is the need for some specificity and we are
going to try to be more specific and more quantitative in our
analysis and hope to have that report to you by March.
Chair Snowe. That would be great. We will be looking
forward to it. I think it is important to illustrate. I think
so often talking in numbers, there is no question that many of
these programs have worked well, as the Administrator has
indicated. But we are sort of moving in the wrong direction in
terms of the trend.
But more than that is that we have not looked at how many
more can be served. We are looking at how many we are serving,
but what is the need, especially in rural America. And I get
back to that.
I know I represent a rural State, but so much of America is
rural. And even, as you mentioned, the urban areas. We need to
do something more than just sort of have a benign approach to
this. So many rural economies, so many economies, are suffering
in America. We are going to have to serve as a catalyst.
So it seems to me that we ought to be infusing those
programs that work well. It does not make sense to me. These
numbers sound large. They are great. They are wonderful. I
would like to be able to compare it to what would be the
capacity to do more and want we could do more to serve a lot
more of America than we are doing now because we are moving in
a contrary direction.
It is counterintuitive in my view. If it is working well,
why are we cutting it? Especially with the need. There is a
great need in America. Everybody loves those macroeconomic
numbers, but my eyes glaze over because it does not tell the
story for all of the individual areas of America. That is true
overall, but there is so many parts of America, and I know that
is true in Maine, as John was just describing, is the fact that
many areas are suffering and they need help.
These are the programs that help. Look at the HUBZone. They
want to fold that into something else. And that helps an
economically distressed area in my State in Northern Maine that
did suffer from base closings. This is not the time to be
pulling the rug out from underneath them.
So in any event, that is what this is all about. I do not
know why we are putting the reins on a program rather than not
allowing it to foster more growth. That is the issue here.
So that would be very useful if we could show regionally
how many areas are being underserved.
I think to see it on a map, to see what areas are not being
served that otherwise would be served, the SBIC, for example,
how it is has been able to help those areas that otherwise
would be overlooked and there is nothing available for them.
I think is crucial to this debate, it is central, because
it is so easy to get into all these big numbers and
percentages. It gets lost about, well, who is not being served?
I think we will see the enormity of the problem. Especially in
so many parts of the country that are not participating in this
economic growth.
Mr. Coit. We will certainly make sure that the Tuck study
addresses that issue.
Chair Snowe. I think it would be very important. If there
is any way of doing it and calculating it, it would be very
helpful.
Ms. Sands, you certainly are an eloquent example of the
value of the Women's Business Center. You are referring to the
Northern Virginia Women's Business Center which is in the
sustainability mode, which is to say that, according to the
budget that we just were presented from the Administration,
that that would essentially be zeroed out. They would have to
find alternative funding.
That is one of the issues because as you heard the
Administrator, he wanted to talk about creating new centers.
And I think that that is important, to create new centers
across America.
By the same token, for the last 9 years we have made
enormous investments in these 49 centers that we would like to
continue and ensure they can.
Obviously, just listening to your story, you depended on
that center at various points during your trial and error
process of being a women business owner. So they could have
been there 1 year, but gone another time, and you might not
have had the opportunity to have the benefit of their help and
support at a key moment in time.
Ms. Sands. That is correct. That is correct.
I understand he was saying the model was 5 years, but I
think that needs to be revised because the program is working
and there are people like me that are depending on centers just
like that. And to eliminate it and create it in another area
would take so much effort that it would just completely leave a
huge community of business owners in Northern Virginia without
services and programs.
I agree new centers need to open, but I definitely would
keep the existing ones where they are.
Chair Snowe. What was your time period from the time you
started until now? How long have you been a business owner? You
started Spill-Guard, for example.
Ms. Sands. I started the provisional patent in 2000. I
incorporated in 2003, LLC. So it is been a 5-year almost
process, four-and-a-half year process. And it has been a long
one.
The Women's Business Center made me look credible to large
companies. I was not just a widow with three kids. I definitely
had a good firm plan and it was just enough to get me in the
door.
Chair Snowe. It is amazing with what you had to deal with
personally, and also having your children, to muster the
wherewithal to also start your own business. That is a lot of
perseverance.
I congratulate you. Just the enormity of your personal
challenges, your family challenges, the loss of your husband.
That is remarkable. I certainly applaud you. I am very
impressed by your story. Thank you for your contribution here
today. We want to help you and we will continue to do that and
have you work with my staff.
Ms. Sands. Wonderful. Thank you. I appreciate it.
Chair Snowe. Mr. Tuvin, in the 7(a) program, you heard the
Administrator this morning. I think one of the surprises
recently was about the fact they recalculated the subsidy rate
for the fee that now we find is just a third of what it was
originally. You are absolutely right, now we are calculating a
higher fee for the future, based on the miscalculation?
Mr. Tuvin. We are waiting for SBA to provide for us sort of
a cross-walk that they promised us, just to tell us what it is
all about, so that we can compare what 2005 is going to look in
comparison to 2006 and why they seem to feel this is necessary.
Chair Snowe. You saw the chart that I had up there on the
118 percent over the last 3 years. It seems to me that is the
trend they are embracing, more fees, zero subsidy rates. I
think it really does point to the fact that it is going to
create the haves and have-nots in the business community, in
the small business community because there are a lot of
businesses that may not be able to do it or be eligible because
of paying for these high rates and the lenders and so on.
It could have, I think, a counter-impact. That seems to be
the trend among all of these programs as we have seen with the
zero subsidy rate and the higher fees. Obviously it is a
greater dependency.
Mr. Tuvin. I concur, that there does not seem to be common
sense associated with the decision process of how they are
thinking and the direction that they are moving with the
program. It is a unique program. It is not filled by other
private lending needs in the marketplace. And the demand is
obvious. Just basic economics tells us that there is a supply
and demand. There is a huge demand for it and it is way more
than what we are providing in the first place.
Chair Snowe. They underestimated the demand last year,
which I and others told them as well, that they were
underestimating the demand of the 7(a). And they did, by 33
percent, last year.
Mr. Tuvin. I was here. I heard you try to give them more
money. They did not want it.
Chair Snowe. They did not want it. That is right. They did
not want it. I asked them that question, very directly, that
they were just underestimating the demand. And they did not. We
went through all of those travails, regrettably, and the small
business community and the lenders really felt the brunt of
that.
So, with all the suspensions and everything for the whole
appropriations process, it was just really regrettable because
it clearly could have been avoided. So I think that now we have
to be concerned about the accuracy of these fees and how they
are calculated and what they are calculating for the future.
Mr. Tuvin. Please. We are looking forward to seeing what
they have to say and hoping that we can regain the trust of the
marketplace and some of the credibility that was lost from the
whipsaw motions of the programs opening and closing and
changing and so on. That would really help us in the
marketplace.
Chair Snowe. That is a good point, too, in terms of
confidence and credibility in the community. That is a very
good point.
Mr. Tuvin. I would be good and interested in this report,
not only from a geographic context of where these loans are
benefiting or where there are gaps, but also by industry as
well. Because, as you know, the programs that are provided
through the SBA do not only provide reasonable access to
capital on reasonable terms, but in fact, long-term capital
that would not otherwise be available. And to the extent that a
person starting a business does not see conventional debt
offerings, which--you know, conventional lenders and banks take
money in on short-term deposits so they tend to loan out on
short-term loans and bullets and these sorts of structures,
which we consider to be ineligible and unreasonable under SBA
provisions. So that what we are really concerned about is where
the gaps are filled. And there are a lot of places where the
SBA loan programs fill gaps. These people come to me. They have
been turned down before. I am the one in the field. They did
not come to me because they had five other options. They came
down because they have been all over the country, in some
cases, looking for loans they could not get elsewhere.
Chair Snowe. Good point. That is exactly right and that is
the purpose. That is a very good point. That is exactly right.
Otherwise, you were mentioning about China--that is the other
thing. We are in a competitive world, I guess John was
mentioning that, when you are talking about these research
programs, the technology research programs that we have, the
STTR and the innovation research in the competitive world that
we live in, we have to be trying to nurture that base, as well.
You are right, it fills a need that otherwise would not be
filled. That is the interest of Government. that is why we have
the Small Business Administration. It fills that need a way
that cannot be done solely in the private sector. So you have
this public-private partnership to make it work.
It is undeniable. The need is there and the demand. The
question is to what extent we can get them to fulfill that
because I think it would help the entire Nation's economy. It
would, no doubt, especially manufacturing jobs.
I mentioned Maine. We have lost 18,000 jobs almost in the
last 4 years. It is been devastating. China is a giant in the
marketplace and it has dwarfed a lot of our manufacturing
industries, as we know with the trade deficit. So it clearly is
ever more important. It does not take a lot to make these
programs work, and work well.
Mr. Tuvin. It is a lot of common sense.
Chair Snowe. That is the problem, too much common sense on
Capitol Hill. It does not compute.
John, just some final questions. You made very good points
and it is really critical for the SBDC program where you are
saying level funding of $88 million simply is not going to work
because inflation has eroded your ability to do the work.
Mr. Massaua. It will not work. We have been able to
maintain our clients increasingly. I suspect when we do our
research this year, we are probably not going to see the
corresponding economic development because the push on SBA is
to get people in, get people in, see more numbers. Where our
push is to get economic impact, create jobs, get capital
formation.
With a decline in hours across the country, which is the
beginning of the trend which will continue to happen if we
cannot get enough dollars. Centers are closing, and we are
going to see an adverse effect very readily in the economic
numbers.
Chair Snowe. You were saying that generally you would serve
clients 7 to 15 hours?
Mr. Massaua. For the clients that we typically see economic
success with, it takes 7 to 15 hours of intensive counseling
with them.
Chair Snowe. What is that reduced to now, or at least what
do you anticipate?
Mr. Massaua. What it would be reduced to, if we are trying
to keep the same client numbers in, we are down below 5 hours
on average, 3 hours. That is not enough time. In many cases, it
is just an hour. ``Here it is, thank you very much.'' We just
cannot do that.
And where we are working with technology companies, where
there is patent and intellectual property, it typically takes
30 to 50 hours of intensive counseling.
We just need to be able to reach a common sense of
funding--if you will--which is why we are only asking to put us
back where we were in 1998.
Chair Snowe. To have that purchasing power, as I understand
it, in 1998 you essentially need grants of $603,000?
Mr. Massaua. We would need $603,000 to have 1998 purchasing
power.
Chair Snowe. So $109 million is what you are calculating
now?
Mr. Massaua. It is what we need for the SBDC program
Nationwide to get the big flat States to the $600,000, which is
1998. Otherwise, we will have to cut the program.
Chair Snowe. So that is going to reduce the number of
hours, reduce the number of people you are going to serve and
counsel, which is important to the success?
Mr. Massaua. It is extremely important in Maine because
where do you cut? The size of the State is huge.
Chair Snowe. I know. Exactly. It gets back to this whole
dichotomy in America or in any event, and all the stories that
have been written about rural America in general and the
outlying or urban areas. What the case is, there is a huge
need. What better way to serve it?
Also, in helping even with the income gap in America. That
is the other part of it is helping people to have better paying
jobs or income. Many people are self-employed. They have gone
that route when they have lost their jobs with companies, which
many people have had to do in Maine. We know that. People take
their own--as you have, Ms. Sands--take your destiny in your
own hands and said I have an idea and I am going to go with it.
So it is important to all of us to make sure that can happen.
Does anybody else have anything to say? I have heard your
comments and I think they are well taken. We will continue this
discussion, obviously.
I truly appreciate all of your input and insights. I thank
you for your time in traveling here today. I truly appreciate
it. I thank you all for joining us.
The Committee is going to continue to work with SBA with
all of you who represent the small business community to make
sure that we rightfully apply the appropriate amount of money
to these programs that have served our Nation's small
businesses so well.
I thank you for all the great work that you do. It is
extraordinary.
The record for this hearing will remain open for an
additional 2 weeks, until noon on March 3. In addition, any
written questions for Administrator Barreto must be submitted
to the Committee by noon on February 24 and we will forward
them to Mr. Barreto for written responses.
Again, thank you all for joining us here this morning.
This hearing is adjourned.
[Whereupon, at 12:35 p.m., the hearing was adjourned.]
[GRAPHIC] [TIFF OMITTED] T1350.018
[GRAPHIC] [TIFF OMITTED] T1350.019
[GRAPHIC] [TIFF OMITTED] T1350.020
[GRAPHIC] [TIFF OMITTED] T1350.021
[GRAPHIC] [TIFF OMITTED] T1350.022
[GRAPHIC] [TIFF OMITTED] T1350.023
[GRAPHIC] [TIFF OMITTED] T1350.024
[GRAPHIC] [TIFF OMITTED] T1350.025
[GRAPHIC] [TIFF OMITTED] T1350.026
[GRAPHIC] [TIFF OMITTED] T1350.027
[GRAPHIC] [TIFF OMITTED] T1350.028
[GRAPHIC] [TIFF OMITTED] T1350.029
[GRAPHIC] [TIFF OMITTED] T1350.030
[GRAPHIC] [TIFF OMITTED] T1350.031
[GRAPHIC] [TIFF OMITTED] T1350.032
[GRAPHIC] [TIFF OMITTED] T1350.033
[GRAPHIC] [TIFF OMITTED] T1350.034
[GRAPHIC] [TIFF OMITTED] T1350.035
[GRAPHIC] [TIFF OMITTED] T1350.036
[GRAPHIC] [TIFF OMITTED] T1350.037
[GRAPHIC] [TIFF OMITTED] T1350.038
[GRAPHIC] [TIFF OMITTED] T1350.039
[GRAPHIC] [TIFF OMITTED] T1350.040
[GRAPHIC] [TIFF OMITTED] T1350.041
[GRAPHIC] [TIFF OMITTED] T1350.042
[GRAPHIC] [TIFF OMITTED] T1350.043
[GRAPHIC] [TIFF OMITTED] T1350.044
[GRAPHIC] [TIFF OMITTED] T1350.045
[GRAPHIC] [TIFF OMITTED] T1350.046
[GRAPHIC] [TIFF OMITTED] T1350.047
[GRAPHIC] [TIFF OMITTED] T1350.048
[GRAPHIC] [TIFF OMITTED] T1350.049
[GRAPHIC] [TIFF OMITTED] T1350.050
[GRAPHIC] [TIFF OMITTED] T1350.051
[GRAPHIC] [TIFF OMITTED] T1350.052
[GRAPHIC] [TIFF OMITTED] T1350.053
[GRAPHIC] [TIFF OMITTED] T1350.054
[GRAPHIC] [TIFF OMITTED] T1350.055
[GRAPHIC] [TIFF OMITTED] T1350.056
[GRAPHIC] [TIFF OMITTED] T1350.057
[GRAPHIC] [TIFF OMITTED] T1350.058
[GRAPHIC] [TIFF OMITTED] T1350.059
[GRAPHIC] [TIFF OMITTED] T1350.060
[GRAPHIC] [TIFF OMITTED] T1350.061
[GRAPHIC] [TIFF OMITTED] T1350.062
[GRAPHIC] [TIFF OMITTED] T1350.063
[GRAPHIC] [TIFF OMITTED] T1350.064
[GRAPHIC] [TIFF OMITTED] T1350.065
[GRAPHIC] [TIFF OMITTED] T1350.066
[GRAPHIC] [TIFF OMITTED] T1350.067
[GRAPHIC] [TIFF OMITTED] T1350.068
[GRAPHIC] [TIFF OMITTED] T1350.069
[GRAPHIC] [TIFF OMITTED] T1350.070
[GRAPHIC] [TIFF OMITTED] T1350.071
[GRAPHIC] [TIFF OMITTED] T1350.072
[GRAPHIC] [TIFF OMITTED] T1350.073
[GRAPHIC] [TIFF OMITTED] T1350.074
[GRAPHIC] [TIFF OMITTED] T1350.075
[GRAPHIC] [TIFF OMITTED] T1350.076
[GRAPHIC] [TIFF OMITTED] T1350.077
[GRAPHIC] [TIFF OMITTED] T1350.078
[GRAPHIC] [TIFF OMITTED] T1350.079
[GRAPHIC] [TIFF OMITTED] T1350.080
[GRAPHIC] [TIFF OMITTED] T1350.081
[GRAPHIC] [TIFF OMITTED] T1350.082
[GRAPHIC] [TIFF OMITTED] T1350.083
[GRAPHIC] [TIFF OMITTED] T1350.084
[GRAPHIC] [TIFF OMITTED] T1350.085
[GRAPHIC] [TIFF OMITTED] T1350.086
[GRAPHIC] [TIFF OMITTED] T1350.087
[GRAPHIC] [TIFF OMITTED] T1350.088
[GRAPHIC] [TIFF OMITTED] T1350.089
[GRAPHIC] [TIFF OMITTED] T1350.090
[GRAPHIC] [TIFF OMITTED] T1350.091
[GRAPHIC] [TIFF OMITTED] T1350.092
[GRAPHIC] [TIFF OMITTED] T1350.093
[GRAPHIC] [TIFF OMITTED] T1350.094
[GRAPHIC] [TIFF OMITTED] T1350.095
[GRAPHIC] [TIFF OMITTED] T1350.096
[GRAPHIC] [TIFF OMITTED] T1350.097
[GRAPHIC] [TIFF OMITTED] T1350.098
[GRAPHIC] [TIFF OMITTED] T1350.099
[GRAPHIC] [TIFF OMITTED] T1350.100
[GRAPHIC] [TIFF OMITTED] T1350.101
[GRAPHIC] [TIFF OMITTED] T1350.102
[GRAPHIC] [TIFF OMITTED] T1350.103
[GRAPHIC] [TIFF OMITTED] T1350.104
[GRAPHIC] [TIFF OMITTED] T1350.105
[GRAPHIC] [TIFF OMITTED] T1350.106
[GRAPHIC] [TIFF OMITTED] T1350.107
[GRAPHIC] [TIFF OMITTED] T1350.108
[GRAPHIC] [TIFF OMITTED] T1350.109
[GRAPHIC] [TIFF OMITTED] T1350.110
[GRAPHIC] [TIFF OMITTED] T1350.111
[GRAPHIC] [TIFF OMITTED] T1350.112
[GRAPHIC] [TIFF OMITTED] T1350.113
[GRAPHIC] [TIFF OMITTED] T1350.114
[GRAPHIC] [TIFF OMITTED] T1350.115
[GRAPHIC] [TIFF OMITTED] T1350.116
[GRAPHIC] [TIFF OMITTED] T1350.117
[GRAPHIC] [TIFF OMITTED] T1350.118
[GRAPHIC] [TIFF OMITTED] T1350.119
[GRAPHIC] [TIFF OMITTED] T1350.120
[GRAPHIC] [TIFF OMITTED] T1350.121
[GRAPHIC] [TIFF OMITTED] T1350.122
[GRAPHIC] [TIFF OMITTED] T1350.123
[GRAPHIC] [TIFF OMITTED] T1350.124
[GRAPHIC] [TIFF OMITTED] T1350.125
[GRAPHIC] [TIFF OMITTED] T1350.126
[GRAPHIC] [TIFF OMITTED] T1350.127
[GRAPHIC] [TIFF OMITTED] T1350.128
[GRAPHIC] [TIFF OMITTED] T1350.129
[GRAPHIC] [TIFF OMITTED] T1350.130
[GRAPHIC] [TIFF OMITTED] T1350.131
[GRAPHIC] [TIFF OMITTED] T1350.132
[GRAPHIC] [TIFF OMITTED] T1350.133
[GRAPHIC] [TIFF OMITTED] T1350.134
[GRAPHIC] [TIFF OMITTED] T1350.135
[GRAPHIC] [TIFF OMITTED] T1350.136
[GRAPHIC] [TIFF OMITTED] T1350.137
[GRAPHIC] [TIFF OMITTED] T1350.138
[GRAPHIC] [TIFF OMITTED] T1350.139
[GRAPHIC] [TIFF OMITTED] T1350.140
[GRAPHIC] [TIFF OMITTED] T1350.141
[GRAPHIC] [TIFF OMITTED] T1350.142
[GRAPHIC] [TIFF OMITTED] T1350.143
[GRAPHIC] [TIFF OMITTED] T1350.144
[GRAPHIC] [TIFF OMITTED] T1350.145
[GRAPHIC] [TIFF OMITTED] T1350.146
[GRAPHIC] [TIFF OMITTED] T1350.147
[GRAPHIC] [TIFF OMITTED] T1350.148
[GRAPHIC] [TIFF OMITTED] T1350.149
[GRAPHIC] [TIFF OMITTED] T1350.150
[GRAPHIC] [TIFF OMITTED] T1350.151
[GRAPHIC] [TIFF OMITTED] T1350.152
[GRAPHIC] [TIFF OMITTED] T1350.153
[GRAPHIC] [TIFF OMITTED] T1350.154
[GRAPHIC] [TIFF OMITTED] T1350.155
[GRAPHIC] [TIFF OMITTED] T1350.156
[GRAPHIC] [TIFF OMITTED] T1350.157
[GRAPHIC] [TIFF OMITTED] T1350.158
[GRAPHIC] [TIFF OMITTED] T1350.159
[GRAPHIC] [TIFF OMITTED] T1350.160
[GRAPHIC] [TIFF OMITTED] T1350.161
[GRAPHIC] [TIFF OMITTED] T1350.162
[GRAPHIC] [TIFF OMITTED] T1350.163
[GRAPHIC] [TIFF OMITTED] T1350.164
[GRAPHIC] [TIFF OMITTED] T1350.165
[GRAPHIC] [TIFF OMITTED] T1350.166
[GRAPHIC] [TIFF OMITTED] T1350.167
[GRAPHIC] [TIFF OMITTED] T1350.168
[GRAPHIC] [TIFF OMITTED] T1350.169
[GRAPHIC] [TIFF OMITTED] T1350.170
[GRAPHIC] [TIFF OMITTED] T1350.171
[GRAPHIC] [TIFF OMITTED] T1350.172
[GRAPHIC] [TIFF OMITTED] T1350.173
[GRAPHIC] [TIFF OMITTED] T1350.174
[GRAPHIC] [TIFF OMITTED] T1350.175
[GRAPHIC] [TIFF OMITTED] T1350.176
[GRAPHIC] [TIFF OMITTED] T1350.177
[GRAPHIC] [TIFF OMITTED] T1350.178
[GRAPHIC] [TIFF OMITTED] T1350.179
[GRAPHIC] [TIFF OMITTED] T1350.180
[GRAPHIC] [TIFF OMITTED] T1350.181
[GRAPHIC] [TIFF OMITTED] T1350.182
[GRAPHIC] [TIFF OMITTED] T1350.183
[GRAPHIC] [TIFF OMITTED] T1350.184
[GRAPHIC] [TIFF OMITTED] T1350.185
[GRAPHIC] [TIFF OMITTED] T1350.186
[GRAPHIC] [TIFF OMITTED] T1350.187
[GRAPHIC] [TIFF OMITTED] T1350.188
[GRAPHIC] [TIFF OMITTED] T1350.189
[GRAPHIC] [TIFF OMITTED] T1350.190
[GRAPHIC] [TIFF OMITTED] T1350.191
[GRAPHIC] [TIFF OMITTED] T1350.192
[GRAPHIC] [TIFF OMITTED] T1350.193
[GRAPHIC] [TIFF OMITTED] T1350.194
[GRAPHIC] [TIFF OMITTED] T1350.195
[GRAPHIC] [TIFF OMITTED] T1350.196
[GRAPHIC] [TIFF OMITTED] T1350.197
[GRAPHIC] [TIFF OMITTED] T1350.198
[GRAPHIC] [TIFF OMITTED] T1350.199
[GRAPHIC] [TIFF OMITTED] T1350.200
[GRAPHIC] [TIFF OMITTED] T1350.201
[GRAPHIC] [TIFF OMITTED] T1350.202
[GRAPHIC] [TIFF OMITTED] T1350.203