[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
HOW DOES THE PRESIDENT'S FY 2005 BUDGET REQUEST AFFECT SMALL BUSINESS?
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, FEBRUARY 11, 2004
__________
Serial No. 108-52
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
______
U.S. GOVERNMENT PRINTING OFFICE
93-891 WASHINGTON : DC
____________________________________________________________________________
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
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina ENI FALEOMAVAEGA, American Samoa
SAM GRAVES, Missouri DONNA CHRISTENSEN, Virgin Islands
EDWARD SCHROCK, Virginia DANNY DAVIS, Illinois
TODD AKIN, Missouri GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana BRAD MILLER, North Carolina
STEVE KING, Iowa [VACANCY]
THADDEUS McCOTTER, Michigan
J. Matthew Szymanski, Chief of Staff and Chief Counsel
Phil Eskeland, Policy Director
Michael Day, Minority Staff Director
(ii)
C O N T E N T S
----------
Witnesses
Page
Barreto, Hon. Hector V., U.S. Small Business Administration...... 4
Mercer, Mr. Lee, National Association of Small Business
Investment Companies........................................... 18
Pilcher, Mr. David, Ted R. Sanders Moving & Storage.............. 20
Wilson, Mr. Donald, Association of Small Business Development
Centers........................................................ 21
Crawford, Mr. Chris, National Association of Development
Companies...................................................... 23
Wilkinson, Mr. Anthony, National Association of Government
Guaranteed Lenders............................................. 24
Pegg, Mr. Phill, Jr., 4D Solutions............................... 25
Sprague, Mr. John, Everglades Adventures......................... 27
Moses, Mr. Elliot, Daco Enterprises, Inc......................... 29
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 43
Velazquez, Hon. Nydia........................................ 46
Bordallo, Hon. Madeleine Z................................... 48
Prepared statements:
Barreto, Hon. Hector V., U.S. Small Business Administration.. 50
Mercer, Mr. Lee, National Association of Small Business
Investment Companies....................................... 56
Pilcher, Mr. David, Ted R. Sanders Moving & Storage.......... 69
Wilson, Mr. Donald, Association of Small Business Development
Centers.................................................... 70
Crawford, Mr. Chris, National Association of Development
Companies.................................................. 80
Wilkinson, Mr. Anthony, National Association of Government
Guaranteed Lenders......................................... 87
Pegg, Mr. Phill, Jr., 4D Solutions........................... 92
Sprague, Mr. John, Everglades Adventures..................... 95
Moses, Mr. Elliot, Daco Enterprises, Inc..................... 97
Follow-up letter requested at hearing by Committee:
Bedell, Mr. Anthony R., U.S. Small Business Administration... 104
(iii)
HOW DOES THE PRESIDENT'S FISCAL YEAR 2005 BUDGET REQUEST AFFECT SMALL
BUSINESS?
----------
WEDNESDAY, FEBRUARY 11, 2004
House of Representatives,
Committee on Small Business
Washington, D.C.
The Committee met, pursuant to call, at 2:20 p.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo,
[chairman of the Committee] presiding.
Present: Representatives Manzullo, Bartlett, Kelly, Akin,
Franks, Bradley, McCotter, Vel zquez, Udall, Ballance and
Majette.
Chairman Manzullo. Good afternoon. The Committee will come
to order.
I will ask unanimous consent that my full statement be made
part of the record. At this time, I will just summarize the
high points.
Today, we examine the President's fiscal year 2005 budget
request as it affects small business. Generally, the
President's proposed budget is helpful to small business
owners. Given the budgetary constraints, with a few exceptions,
small businesses should be pleased.
I am especially heartened at the President's request to
make permanent the tax relief Congress has already passed,
including phasing out the punitive estate or death tax and the
lowered rates on capital gains, stock dividends and small
businesses so as to create incentives for job creation.
It is important to remember that 85 percent of small
businesses pay taxes on an individual basis, so the rate cuts
Congress passed into law in 2001 and accelerated in 2003, in
addition to increased expensing and bonus deprecation, have
provided critical assistance to our small businesses.
With increased confidence in the economy, it was only
natural that small businesses seeking access to credit would
use the guaranteed lending and venture capital investment
programs of the SBA more than in past years. In addition, the
number of self-employed are growing dramatically. These newly
self-employed need the SBA guaranteed lending and venture
capital programs now more than ever.
However, as the Committee and industry predicted, the 7(a)
program experienced a cash flow crunch last month and is
currently hobbling along. We need to fix this program now. That
is why I was so pleased in the effort of Administrator Barreto
to find another way to solve the 7(a) problem that does not
involve raising borrower fees or requiring more appropriations
or reprogramming accounts within the SBA.
My goodness. We have a full house here today. That is nice.
It is good to have all of you here. Hector, why do you not come
every day? Maybe that is why we have a full house.
Mr. Barreto. I would be happy to, Mr. Chairman.
Chairman Manzullo. Thank you.
This plan centers around raising the loan level from the
SBA Express program so we will achieve the same goal--a zero
subsidy rate--without having to raise fees. If we make this
change apply now, it will also allow the SBA to restore the
7(a) program to its full statutory level.
The rest of the President's budget request for the SBA
remains sound and reasonable, given the budgetary constraints,
with a few exceptions. I have concern about the particulars of
the President's proposal as it affects the SBIC issue.
I am also concerned about zeroing out SBA's contribution to
the USEAC network. Each $1 appropriated to the SBA's export
finance specialists in the USEAC since 1999 has supported loans
generating over $200 in export sales, a sound return on any
investment. We encourage the Administration to revisit its
position on withdrawing support from the SBA for the USEAC
system.
Thank you, and I now yield for an opening statement from
the Ranking Minority Member, Representative Nydia Vel zquez of
New York.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman.
With the fiscal year 2005 Bush budget for the Small
Business Administration, we have a proposal before us that
represents the deconstruction of the only agency with the sole
purpose of assisting our economy's most important sector--small
business.
At a time when the economy continues to struggle and job
creation lags, we should be investing in these programs, not
turning our back on them. Not since the days of Reagan budget
director David Stockton when elimination of the agency was
proposed have we seen such a destructive plan.
At least in the early 1980s, the Administration was honest
about its intentions. The current one, which is looking for the
same outcome, is not being forthcoming; instead, hiding behind
fake budget numbers and proposals that will never work.
Clearly, the worst is how this budget will deprive
entrepreneurs of the capital they need to start their
businesses. It is unbelievable that in this budget not a single
dollar goes to the SBA loan programs. Not a single dollar. Not
a single dollar for the general loan program. Not a single
dollar for the micro loan program. Not a single dollar for the
venture capital.
Adding insult to injury, the plan here is to pay for all
these programs by hiking up the fees for borrowers. Even after
we listened to this Administration harp on the need for the
agency to make more small loans, it then turns around and
eliminates the micro loan program, which does exactly that. It
makes no sense.
The proposal now on the table to fix the 7(a) loan program
is too little too late. It proposes to lower the guarantee fee
to 50 percent of loans of $250,000 and below, eventually
extending that up to $1 million. This would harm the very small
businesses the program was created to help by blocking avenues
of credit and will also deprive lenders out of the program
altogether. This fix was either poorly thought out or it is an
intentional way to destroy the program once and for all.
Another area where this budget falls short is in helping
businesses access the federal marketplace. President Bush put
this at the top of his small business agenda in 2002, but we
have been told time and time again that the resources just are
not there to back it up. This budget is no exception.
There are no enforcement dollars to hold agencies
accountable for missing their small business goals. There is no
funding for the women's procurement program that was made law
four years ago. There is no money to ensure small businesses
get their fair share of federal contracting dollars.
This budget has an unprecedented number of cuts to SBA
programs. The rationale behind these cuts is to channel
remaining funds to the agency's core programs, discarding those
that are deemed duplicative. The problem is that the SBA's core
program have been flat funded for three years now. When you
account for inflation, this amounts to a more than $10 million
cut. It is one thing to expect an agency to do more with less.
It is another thing to expect it to make something out of
nothing.
It is a shame because these programs help small business to
stay afloat, expand and create jobs. They help to save
taxpayers money and then even generate tax revenue. The failure
to invest in them is completely shortsighted. It puts our
nation's small businesses and our economy as a whole in
jeopardy.
I believe in these programs. My Democratic colleagues
believe in these program. It appears that the Administration
does not. Even though President Bush spends a lot of time
talking about the important role small businesses play in our
economy, he went to Missouri. He went to New Hampshire. He
visited a manufacturing plant in New Hampshire and Missouri.
That is all it is. Talk. Let me tell you. Talk is cheap.
If this Administration really wanted to assist small
businesses, it would have made the SBA budget whole. Without
putting so much needed resources into small businesses, we
simply cannot have a vibrant economy. We cannot put Americans
back to work by creating jobs. We cannot spur economic
development in our local community.
I would like to ask the Bush Administration where are its
priorities? Where is its commitment? It is certainly not with
small businesses.
Thank you, Mr. Chairman.
[Ranking Member Velazquez's statement may be found in the
appendix.]
Chairman Manzullo. Thank you.
Mr. Barreto, who has been one of the longest serving SBA
administrators, now into his third year, and a person who was
raised in small business and whose father started the Hispanic
Chamber of Commerce appears again before us.
Based on your background and your experience, I have every
confidence that SBA is in good hands. I look forward to your
testimony.
STATEMENT OF THE HONORABLE HECTOR V. BARRETO, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Barreto. Thank you very much, Mr. Chairman, Ranking
Member Vel zquez, Members of the Committee. Thank you for
inviting me here today to talk with you about the Small
Business Administration's 2005 budget and our strong commitment
to continue to offer the very highest quality services to
America's small business owners.
A lot has happened over the last few years both in
America's small business community and at the SBA. When I
became the SBA administrator almost three years ago, I wanted
to change the culture of the SBA. I wanted to create a new
environment at the agency and a new environment for America's
entrepreneurs.
That meant not sticking to the status quo. That meant not
doing things the way that we have always done them. That is
what I would like to talk to you about today. The SBA is ready
to send legislation to Congress that could add as much as $3
billion to our 7(a) lending program this year, while
simplifying the application process and moving the program
toward a permanent zero subsidy rate.
The President and I believe that this proposal provides a
clear, long-term vision for a better, more successful 7(a)
program, a bold, new 7(a) that addresses the real issues of the
new economic times.
The plan calls for the expansion of the successful SBA
Express program, which accounted for a remarkable 33,000 SBA
loans in 2003 and has proven effective in reaching underserved
and rural markets. Our proposals will move the 7(a) to a lower
guarantee rate, allowing the agency to increase lending
authority by 34 percent and remove the cap on 7(a) loans.
It will also allow lenders to use their own forms and
procedures to apply for 7(a) loans, reducing the burden of
excessive paperwork and making 7(a) more accessible for rural
and community banks and their customers. This plan also helps
move the 7(a) program towards our goal of a zero subsidy rate.
There is also a long-term potential for reducing fees on
lenders and borrowers.
But there is more. I am proud to say that the budget we are
submitting also increases the 7(a) lending authority for fiscal
2005 by 30 percent. Thirty percent. That will allow us to reach
thousands--perhaps tens of thousands--more entrepreneurs than
we ever have before. There is an added benefit to these
proposals because we are moving toward a zero subsidy rate for
7(a).
These tremendous increases in loan authority come hand in
hand with tremendous savings for America's taxpayers. What is
more, zero subsidy for 7(a) also translates into long-term
stability for the 7(a) program, something our partner lenders
will appreciate.
But that is not all we are doing. I am also extremely proud
that this budget strengthens the SBA core service delivery
system. We are investing in the successful delivery systems
that we know get results for our customers--$88 million for
small business development centers, $5 million for the Service
Corps of Retired Executives, $12 million for women's business
centers, $750,000 for National Women's Business Council,
$750,000 for veterans outreach, $1.5 million for 7(j) technical
assistance.
These proposals are part of our commitment to a new SBA
with new ideas and new ways of serving our customers, new ways
of reaching out like our Spanish language web portal,
negocios.gov, and our business matchmaking events, new ways of
fighting for things that small business owners need like less
burdensome regulations and association health plans, new ways
to help create an environment of success for small business.
That is the culture I want at the new SBA, and I am proud
of the progress we have made. In 2003, the SBA approved 74,169
loans in our two major loan programs, more than ever before in
our 50-year history, and almost a third of those loans went to
minority business owners. In 2003, 2.1 million entrepreneurs
received business counseling and technical assistance through
SBA's counseling and training programs.
In 2003, the SBA's Office of Advocacy saved small
businesses $6.3 billion in regulatory costs. In 2003, the SBA
website recorded more than 54 million visits. In that same
year, the SBA's disaster assistance loan program made almost
26,000 loans.
Now, those are real results, and that is what matters the
most. Let me tell you why. At a business matchmaking event in
Houston a few months ago, a businesswoman came up to me with
tears on her cheeks. She said to me Mr. Administrator, I am not
a statistic. I am a real, living, breathing business owner, and
I want to thank you. After 9-11, it was an SBA disaster loan
that keep my business open, and now I am here learning and make
connections to make my business grow.
That is what is important. That reminds us of what our job
really is. This is about real people and real lives. Our
responsibility is great. I am proud of these proposals because
I believe that they live up to that responsibility. I believe
that they reflect an SBA that understands what is at stake. It
is not about programs and statistics. It is about results
measured by the success of our clients. I hope we can work
together to get those results and help usher in more of that
success for even more American entrepreneurs.
I want to thank you again for having me here. I would be
glad to answer any questions you may have. Thank you.
[Administrator Barreto's statement may be found in the
appendix.]
Chairman Manzullo. Thank you, Administrator. The
President's agenda for small business affects more than just
the SBA, does it not? Could you explain what other parts of the
President's budget request help small businesses?
Mr. Barreto. Absolutely, Mr. Chairman, and I thank you for
that question.
You know, we have had a wonderful opportunity this year to
go around the country. In fact, I just came off of a trip where
we did a regional event in Reno, Nevada. We did a business
matchmaking event in Anaheim, and I flew in last night.
I want to tell you some of the things that we have been
hearing all around the country. First of all, the small
businesses are thanking us, this Administration, for creating
the right environment for them to succeed. One of the things
that they mention to us often is the appreciation for the Jobs
and Growth package.
You know, a lot of people still do not understand that that
Jobs and Growth package returned $10 billion into the hands of
small businesses. Eighty percent of that benefit accrued to
small business simply by lowering the top marginal tax rate.
We also quadrupled business deductions for those small
businesses, and that helped a lot in getting that confidence
going back up again and really started creating those jobs that
we have been needing in our economy and those purchases that
were not being made by small businesses.
I have to tell you that the top issue that we hear out
there all across the country is association health plans. They
still want access to affordable health care. They still feel
that they have too many cumbersome regulations. They want us to
do something about tort reform. They want us to do something
about opening up new markets and new opportunities, unbundling
contracts. There is a lot that is on small businesses' minds.
This budget helps us to advocate on behalf of those small
businesses. We understand that they appreciate our programs and
services, but they also expect us to be a champion for them.
They want us to get it. They want us to understand what they go
through every single day.
That is what we are hearing, and that is one of the reasons
I am proud to present this budget to you because I really
believe that it is going to help us to continue the momentum
that we have built over the last year.
Chairman Manzullo. Okay. Thank you.
We will keep the questions to five minutes, but, Mrs. Vel
zquez, I am going to give you 10 minutes. I will double the
clock on that for you.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Barreto, can you please list for the Committee the
names of the programs that you asked for an increase in funding
over last year's budget?
Mr. Barreto. Well, the first program that we are looking at
making a significant increase in, as you know, is the 7(a) loan
program.
Ms. Velazquez. That is not an increase. You zeroed out. You
did not ask for any money.
Mr. Barreto. As you know, Congresswoman, we have several
very important programs--the 504 program, the SBIC program--
that also have zero subsidy.
Ms. Velazquez. Why did you mention 7(a)? You know quite
well that that is not the case. Tell me about the women's
business centers, the BDCs, venture capital, micro loan.
Mr. Barreto. Sure. I would be happy to.
Ms. Velazquez. Let me go to the next question.
Mr. Barreto. Absolutely.
Ms. Velazquez. In your January 8 response to the Senate,
you wrote, and I quote, ``Once SBA is able to reopen the
program, we will take steps to ensure that every application is
treated equally and fairly.'' You also stated that you look
forward to working with us to rapidly resolve this issue.
Well, Mr. Barreto, many of those loans--over 750,000--were
submitted on time before the cap was implemented, and yet they
were returned by your agency. Three small businesses that are
in this very situation will testify here today.
What can you tell these people, these small businesses that
have traveled here to Washington in hopes of finding relief to
assure them that the SBA will resolve their situation quickly
and fairly?
Mr. Barreto. I am very excited to tell them that we brought
today a very important proposal that will help us greatly
achieve many of the objectives that you just mentioned. This
proposal that we are submitting today to expand the SBA Express
program will mitigate a lot of the problems that you reference.
Ms. Velazquez. Mr. Barreto, please answer my question.
Mr. Barreto. Yes, ma'am.
Ms. Velazquez. My question is based on a response that you
provided to the Senate where you said that you will deal with
those applications that were submitted on time before the cap
restriction was invoked,----
Mr. Barreto. Yes.
Ms. Velazquez [continuing]These people made plans to expand
their businesses, and they have been put on hold. So what are
you going to tell them, that they have to wait until you submit
a proposal? What do you know about the outcome of that
legislative proposal here in Congress?
Mr. Barreto. First of all, I am sorry. I want to make sure
that I am very, very clear on your question.
First of all, we did have to return back applications that
we received simply because we ran out of money. As you know, we
were on continued resolution for the second year in a row. In
other words, we did not have our budget approved, which would
have helped us to be able to make some of those loans. We
basically ran out of money.
The good news is that most of those loan applications have
already come back to us. Most of those loan applications have
already been approved.
I want to mention one other thing, Mrs. Vel zquez,
Congressman Vel zquez. This is very, very important. Ninety-
five percent of the loans that the SBA does are under $750,000.
Only five percent of those loans are over the $750,000 cap.
Unfortunately, those larger loans, which often times are for
real estate and fixed assets, eat up a third of the money.
I am happy to tell you that now that we have a budget, we
are not going to have a problem serving 95 percent of the small
businesses that apply for loans at the SBA.
Ms. Velazquez. What are you going to do with those
applications over $750,000 that were submitted before the
restriction? I have an answer for you. I have a solution.
Mr. Barreto. First of all, we have already processed most
of those applications. They have already come back to us.
One of the things I want you to know is that as soon as we
opened up the program, our lenders contacted us and said look,
those applications that got sent back, can we send those back
to you? We said absolutely, yes.
Many of those have already come in and have been processed.
We work on that every single day to make sure that that backlog
has already been dealt with, and it has been dealt with.
Ms. Velazquez. Okay. There are three business people that
are here today. You are telling me that their situation will be
resolved?
Mr. Barreto. Congresswoman Vel zquez, I am not sure of the
specific cases that you reference, but in every case we will do
everything that we can to make the loan.
You know, one of the good things about the SBA is that it
not only has a 7(a) loan program. We also have other loan
programs as well that can accommodate those larger real estate
loans.
Ms. Velazquez. It is quite simple. Their applications are
for loans above $750,000.
Mr. Barreto. We have a cap right now of $750,000.
Ms. Velazquez. But they were submitted on time. What are
you going to do with those?
Mr. Barreto. You know, one of the things is I think we have
a chart here that I would like to show you. You know, one of
the things that nobody could have anticipated is the spike in
demand that we received during the holidays.
You see, for us usually we will see $25 million in a normal
day. You can see from this chart here the incredible swings
that we saw there at the break. We had some days where we were
over $80 million, $100 million.
Ms. Velazquez. Excuse me. Excuse me. He gave me 10 minutes,
and I have a lot of questions.
Mr. Barreto. Okay.
Ms. Velazquez. For these three people, why can you not
reprogram funding into the 7(a) program?
Mr. Barreto. Well, one of the things that we did,
Congresswoman Vel zquez, is we looked at the possibility of
reprogramming some dollars, but, unfortunately, what we found
out is because of the rules and the limitations we were not
able to reprogram enough to get us to the level that we needed
to be at to be able to absorb a lot of those larger loans.
It is one of the reasons why we still have a cap on the
loans right now, and it is one of the reasons why we feel so
strongly about the proposal that we have submitted today. You
see, if Congress acts on that proposal we will be able to take
that cap off immediately and be able to help those small
businesses.
Ms. Velazquez. So, Mr. Barreto, your solution to this SBA
created problem is to make this small business start the
process all over again, go to the back of the line and repay
application fees?
Mr. Barreto. Absolutely not.
Ms. Velazquez. Lenders have already stated that under your
new proposal they would not be able to make this type of loan,
so a small business owner would be left to search for a new
bank that is willing to provide them a loan. How is this fair?
This is a non-starter, Mr. Barreto. This proposal is a non-
starter. I can tell you that.
Mr. Barreto. Well, I would like to explain because I think
there may be some misunderstandings about the proposal.
You see, if this proposal is able to be enacted, we will be
able to do some of those large loans because we are going to
get about another $3 billion in budget authority, so I think
there may be some confusion, especially in the short term, of
our ability to do some of those larger loans.
Ms. Velazquez. Well, you have a lot of work to do because a
lot of the banks are saying that they will not agree with it.
Mr. Chairman, this proposal would be submitted to us. We
will have to conduct hearings, and we will have to mark it up.
Mr. Barreto. I would be happy to continue to provide any
information around this. We spent a lot of time thinking about
this.
By the way, one of the reasons that we came up with this
proposal is because of the things that the industry was telling
us. They were telling us look, we need to do something to
remove that cap. We need to do something that is going to make
this program consistent and will be immune to these spikes in
volume. We need to do something so that this program can grow
this year; not only next year, but this year. This proposal
allows us to do all those things.
Ms. Velazquez. This is a problem that was created by SBA.
Quite clear, the Members of this Committee told you in your
last budget that the funding that you were requesting was
inadequate--you said no, it is fine--that you would be running
out of money, and this happened. Now we are punishing small
business for that.
Mr. Barreto. One of the things I did was I brought a chart
with me as well--I wanted to be prepared for these questions--
that really shows you what the level of lending has been over
the last five years.
You see, over the last five years, we have never had the
kinds of volumes that we have had this last year. In a way, we
are kind of a victim of our own success, but the reason that we
had the problem is not because we decided to close down the
program. The reason that we had the problem is we were on a
continuing resolution because we did not have a budget approved
for the second year in a row.
The reason that we had the problem is because five percent
of the loans eat up a third of the budget authority, and that
is why this proposal------.
Ms. Velazquez. Do you not have a budget now? Do you not
have a budget now?
Mr. Barreto. We do have a budget now.
Ms. Velazquez. But you still have a problem.
Mr. Barreto. We are open for business now, and 95 percent
of the loans are being made.
Ms. Velazquez. Let me go to the next question. Prior to the
release of the budget, Mr. Barreto, could you explain to us at
what point during your testimony before the Committee, during
our negotiations with the SBA over the reauthorization or in
any communication, either formal or informal, have either you
or the Administration advocated allowing the claimed fee
structure for the 7(a) loan program to lapse?
Mr. Barreto. First of all, I want to be very clear on that
point as well, Congresswoman Vel zquez. We are not increasing
the fees. What is happening is the legislation that Congress
put in is expiring at the end of this fiscal year. All we are
doing is going back to the original fee structure.
My understanding is the reason that legislation was put
forward was to be able to incentivize these kinds of loans and
to be able------.
Ms. Velazquez. What about the 504? Did it not expire too?
Mr. Barreto. The fee structure on the 504?
Chairman Manzullo. Talking about expiring, the time has
expired.
Ms. Velazquez. Are you going to do the same with that?
Mr. Barreto. I am sorry. With regards to the 504 program?
Ms. Velazquez. Yes.
Mr. Barreto. We have actually a tremendous opportunity with
the 504 program because we have $2 billion of additional budget
authority that we never spent in the 504 program.
In fact, what is happening now is more of those larger real
estate loans that were in that 7(a) portfolio are moving over
to the 504 loan program, so we think that is a very important
opportunity to help small businesses with the real estate and
fixed asset loans.
Chairman Manzullo. Mr. Bradley?
Mr. Bradley. Thank you very much, Mr. Chairman. It is
certainly a pleasure to be here and certainly a pleasure to see
you, Mr. Barreto.
I would like to just start out, first of all, by thanking
you personally for intervening during this crisis time several
weeks ago and making sure that a constituent of mine was given
prompt treatment. It was an emergency closing and a lot of
money at stake for him as it was a small business and a lot of
personal savings.
Without your help and the help of your staff, it would have
been a very real problem, so thank you. I know that given the
budget situation and how we are waiting for the omnibus to
pass, it was a very difficult situation. I just wanted to thank
you.
As we look at difficult budget decisions and as certainly I
have traveled around New Hampshire and there has been a lot of
attention to New Hampshire recently, the small business owners
I have been talking to have emphatically indicated to me that
the bonus depreciation, the greater expensing limits, the
reduction of the top individual rate which the small business
owner pays, are critically important to their economic health.
Perhaps you would like to comment on that and how, you
know, these incentives, these tax incentives for businesses
that are hiring, that are trying to keep employees, are
critically important, as well as the loan program and that we
have to have a balance of both and that scarce resources cannot
just be focused in one area.
Mr. Barreto. Absolutely, Congressman Bradley. It is an
honor to be able to help your constituent.
By the way, I would be happy to help those other
constituents that are in this room to personally discuss their
situation with regards to the 7(a) loan. If I could have their
names and numbers, I will personally make sure that we follow
up with them.
I appreciate your question and your comment, congressman,
because you are absolutely right. A lot of people do not
understand that small businesses shoulder some of the highest
tax burdens. You know, sometimes when you hear people talk
about this tax relief it is like they do not understand that 23
million small businesses in the United States will get a tax
relief of about $2,209.
Now, for some that may not seem like a lot, but for that
small business who is trying to keep pace with the health
insurance premiums or give an employee a raise or buy a
software program, it is huge. You throw on top of that when you
quadruple that business deduction, those kinds of purchases
that were not being made before are being made now.
It is not an accident that the economy is starting to
increase. You know, the President says all the time that small
business is the engine that is fueling that because they are
buying equipment. They are buying vehicles. They are buying
technology. They are creating jobs. That did not happen by
accident. It happened because this Congress, this President,
worked together to create the environment for those small
businesses to succeed.
If we really believe in small business, then we will give
them back more of their hard-earned money because we know what
they will do with it. They will put it back to work, and that
is what we should be doing. That is what small businesses tell
us, and that is what they tell the President of the United
States.
You know, when the President of the United States goes
around the country and meets with small businesses, he is not
the one who is doing all the talking. He is talking to these
small businesses and asking them the questions, and these are
the kinds of things they are telling him.
I could not agree more with you. I think that we need to
make the tax relief permanent for the small businesses so they
can continue to fuel the economy forward.
Mr. Bradley. Thank you very much.
Chairman Manzullo. Thank you, Congressman.
From the land of enchantment, Congressman Udall.
Mr. Udall. Thank you. Thank you very much, Chairman
Manzullo.
Chairman Manzullo. From the Prairie State.
Mr. Udall. From the land of enchantment. That is right.
Administrator Barreto, let me just begin by saying, and I
think this in a way echoes what our Chairman and our Ranking
Member just said, that we are very disappointed, I think, in
certain respects with this SBA budget. I mean, you are talking
about $120 million below what was requested last year, a 10
percent decline in program funding, zeroing out micro loan,
7(a), prime, business link, SBIR, rural outreach. I mean, these
are significant changes in programs that I think many of us
believe up here are good ones that help businesses.
Let me, first of all, just focus on one of those. In May of
last year, a hearing was held on SBIR FAST, that program and
the MEP program. In testifying about the FAST program, the SBA
said, and I am quoting here. This is in the testimony. ``The
result is a strong knowledge base backed up by a network of
professionals who support small businesses to become expert
researchers and innovators and commercialize their
innovations.''
This testimony from your agency, this testimony certainly
implies that SBIR FAST program is successful. What happened in
the intervening months that led you to believe that the SBA
should not request funding for this program?
Mr. Barreto. Thank you for the question, Congressman. It is
not really what happened in the last few months. It is really
what has been happening over the last couple of years.
You see, we do believe in these programs, but one of the
things that has been so difficult for us is that sometimes we
will request funding for these programs and they will get
zeroed out, and yet we still have the responsibility and there
is an expectation that we are going to run these programs with
no funding.
As you know, the SBIR program is an important program, and
all agencies of government participate. This is a set aside
program for research and development grants. Our part of it is
really to help facilitate those opportunities, to really inform
and educate small businesses how these programs work, and we
are going to continue to do that through our incredible network
that we have.
So, our commitment to the program is not necessarily going
to end, but one of the things that we had to do is just face
the reality that often times the appropriations for some of
these programs are not there, and yet we need to continue to do
the job for the small businesses that they expect us to do.
Mr. Udall. The reality, Administrator Barreto, is that the
appropriations were there. You did not ask for the money, and
that is the fact of it.
A recent report of your Inspector General highlighted that
the SBA had not provided sufficient measurable outcomes for
FAST grant recipients. Further, the IG pointed out that the SBA
had yet to receive performance reports from several grant
recipients.
How do you respond to my concern that any failure of the
FAST program has more to do with the failure of the SBA to
implement the program adequately rather than any failure of the
program itself?
Mr. Barreto. You know, we work very closely with the IG.
They obviously put out a lot of reports that we can be doing
better. You know, a lot of times what we realize is that they
are not aware of some of the things we are doing, so we have to
sit down with them and make sure that we educate them on the
deliverables and the results that we have accomplished on these
programs.
Again, it is not to say that we are not committed and do
not believe that there is benefit. You know, small businesses
can play a very important role in the research and development
that the government needs, remembering that 97 percent of all
research and development that the government does is not part
of the SBIR program and can still go to small businesses.
Mr. Udall. The other part of this that you mentioned in
your earlier testimony is the issue of continuing resolution.
You have said several times here we have had no budget approved
for the second year in a row, and we were on a continuing
resolution and how it hurt your agency. Basically I think what
you would probably tell me is a continuing resolution is a hard
freeze. It hurts our ability to plan. We cannot move out and do
things.
I think there are many of us on this Committee that are
very disenchanted with our budgeting process, the fact that we
are going into the fiscal years and not giving you a budget and
then having that kind of thing happen.
You should know that that disenchantment is out there by
many of us I think on this Committee, and I think we would be
wise if we believed in SBA programs to fund these at the start
of the fiscal year and give you the ability to plan.
Mr. Chairman, I just want to ask you to put my opening
statement in the record and with that yield back and thank you
very much.
Chairman Manzullo. Without objection. I appreciate that.
Dr. Bartlett?
Mr. Bartlett. Thank you.
Mr. Secretary, I would like you to know that your
stewardship of the programs is recognized and appreciated.
Thank you very much for your hard work and great successes. I
have a couple of questions that deal with some of the detail of
the budget and your program.
As you know, I, along with most of my colleagues on this
Committee, are very supportive of the HUB Zone program. As
America transitions through the so-called jobless economic
recovery, far too many Americans are without work. The HUB Zone
program targets the poorest areas of every state and brings
good jobs and economic develop where we need it most.
That is particularly true in my district where in a very
economically depressed area we have brought some jobs of very
high calibre where they are being paid three and four times the
average wage in that community, so it is a very successful
program.
In my district, 36 HUB Zone certified firms produce more
than $60 million in goods and services each year. These firms
represent the job engines that create jobs where we need them
most. Unfortunately, your 2005 budget submission cuts HUB Zone
funding by nearly seven percent from 2004 levels, while
increasing 8(a) funding by eight percent and increasing small
disadvantaged business program funding by more than six
percent.
Even more significant are the absolute numbers in these
programs. The 8(a) program will receive $37 million in 2005,
while the HUB Zone will receive less than $7 million, and that
is in spite of the fact that there are 8,800 certified HUB Zone
firms and only 7,300 8(a) firms.
For the past five years, the federal agencies have only
achieved a small fraction of the statutory required minimum
level of contracts for HUB Zones. Why will the Administration
not adequately fund the HUB Zone program, which is an
enormously successful program?
Mr. Barreto. Thank you very much for that question,
Congressman Bartlett.
First of all, let me say that we agree with you that the
HUB Zone program is a very important program. What this budget
does is it incorporates the funding that we would have for HUB
Zone and puts it where we believe that it should have been all
along--inside the government contracting and business
development line item.
We are very proud of the increases that we are seeing in
HUB Zones. We work very closely with HUB Zone firms and the HUB
Zone association. One of the things that we were concerned
about is that sometimes that funding was going to be zeroed out
altogether, and so to prevent that, to mitigate that, we have
included the funding that we will put in HUB Zone inside of our
GCBD area. That is included in there.
We think it is fantastic that there is more HUB Zone firms
that are being signed up all the time. We think it is great
that there are 8(a) firms that are being signed up all the
time. As you know, we consider both of those programs at
parody, not one more important than the other, even though 8(a)
has been around a lot longer, the contracting is much larger
there, even though there are less firms. One of the reasons
there are less firms is the process of being certified for 8(a)
takes a lot longer and is a little bit more cumbersome.
We are seeing some very good signs, Dr. Bartlett. Last
year, the most recent figures available, we did an extra $1
billion to HUB Zone firms than the year before, and we see that
trend continuing.
We work very closely with the industry. Yesterday I was in
Anaheim at a business matchmaking event, and the HUB Zone
organization was represented. HUB Zone firms were there meeting
with buyers at the federal level and corporate level to get
access to those contracts.
I want you to know that we are committed to this program.
It is an important program for small business.
Mr. Bartlett. Are you saying that you really have not cut
the funding; you have simply moved some of it to another
category?
Mr. Barreto. That is right.
Mr. Bartlett. Okay. You need to do two things. One is tell
the world, the HUB Zone world, how much total money is
available; that you really have not cut their budget if it is
true that you have not cut their budget.
Mr. Barreto. Right.
Mr. Bartlett. The money is really there, and the program is
being even better supported now than it was before. Will you
provide us with the documentation for that, because our HUB
Zone people are very concerned?
Mr. Barreto. Yes, sir.
Mr. Bartlett. Second question. If time runs out, you may
submit this for the record.
Why was Mr. Maurice Swinton, who had strong support from
small business technology companies, transferred from the
Office of Technology where he managed the federal SBIR program
to the Office of Management and Technical Assistance?
Is the transfer temporary and voluntary? If not, why not?
Why is Mr. Swinton being transferred to a program that he may
have little or no experience with?
Mr. Barreto. First of all, Maurice Swinton has done a very
good job for us in that program. One of the things that we have
been doing over the last couple of years is moving people
around. This is part of our transformation effort, our new SBA.
You know, the SBA is very fortunate to have some very
talented individuals that can do a number of different things.
One of the things that we have been very focused on is
succession planning. We cannot always expect the people to
always have to carry the load. We need to be able also to train
people and make sure they can do a variety of different things.
The bottom line is we really needed Maurice in another
program, and we were fortunate enough to have two individuals
that could trade roles, if you will, to help us out. We
appreciate the service that Maurice has given us. He has done a
fine job. His replacement will do a fine job as well.
Please understand that this is no reflection on our
commitment to that program.
Chairman Manzullo. Mr. Akin?
Mr. Akin. Thank you. Thank you, Mr. Chairman.
I think what I am picking up is that part of what we are
seeing here in your proposal is an attempt to streamline the
operation and to be able to deliver services more efficiently
without the red tape and the hassle to the people that we are
really serving with this sector of the budget.
Is that, first of all, an accurate summary of what you are
trying to accomplish?
Mr. Barreto. That is absolutely correct, Congressman Akin,
and I appreciate the comment.
This is what SBA has been doing now for a long, long time.
It is incredible, and I do not think that part of the story
gets out. SBA has been doing incredible things, and yet it has
been streamlining now for over a decade.
We break records every single year because we have good
people, we have good programs, and we just do it better than we
have ever done it before. We believe that we have not hit
capacity yet. We can still do a lot more with this budget.
Mr. Akin. With your track record of number of loans, in
that way you are doing a better job. You are taking a look with
this proposal at being able to do not only more loans, but more
loans with less hassle and less paperwork.
To some degree, just because of the legislative process we
create these stovepipe special programs. What you are saying is
we can service those markets. We can do a good job for those
people, but we are just not going to put it all into these
stovepipe programs. We are going to put it all together and
manage it more efficiently. I think that is what I hear you
saying.
Mr. Barreto. That is absolutely correct, Congressman. You
know, with the small businesses, and we talk to thousands of
them every year. They do not pay attention to the stovepipe.
They do not care about the stovepipe. They just want to know is
it going to be easier for me to get a loan, and, by the way, I
may not need $1 billion. I may need $50,000 or $100,000. They
want to know if they can get technical assistance when they
want it, not when we want them to have it.
Last year we trained 2.1 million people. They want to know
if we are bringing more opportunities to them, not something
that is in a stovepipe, but maybe a new initiative like
business matchmaking or some of the things that we are doing on
line.
Mr. Akin. In the case of these loans, are they pretty well
distributed across the country in terms of geographically so it
is not all just loans to Washington, D.C. business, but it is
kind of a spread?
Is there good mix also in terms of the larger and smaller,
the range, so that we are not just doing everything right at
the max because it is easier from an administrative point of
view to just do maximum loans?
Do we have good variety both geographically and in size of
the scale of the loans?
Mr. Barreto. That was one of the things I was the most
proud of last year, Congressman Akin. We did more everywhere.
We did 30 percent more loans to all American small businesses,
but we did 38 percent more to minority small businesses.
There is a chart right here that I would like to share with
you. Across the board, we did more to minorities and the
African-American community last year. We did something in
excess of 75 percent more loans. Yellow is the last year that
we did. You can see how that spikes up over the previous two
years. Hispanics, we did about 45 percent more loans. Asians,
30 percent more loans than the year before. We did more Native
American. Women, 30 percent. Veterans, 20 percent.
We did more everywhere, and we got our average loan size
down. When I first came on board, the average loan size at the
SBA was a quarter of a million dollars. The average that a
small business needs for working capital is $50,000 if you
believe Inc. Magazine and their studies of it. That does not
mean that we cannot do large loans. By the way, we did 20
percent more in our 504 loan program last year than ever
before.
These changes that we have made are working, not because we
say they are working, but because the outcomes we are getting
for small business are so great, and the customers are telling
us that.
Mr. Akin. I really appreciate what you are saying, and I
appreciate your taking an aggressive, and it may be that it is
somewhat misunderstood because everybody has their little pet
thing, but if the bottom line is you are able to do this kind
of performance, you are getting more loans and it is for a
diversity of different kinds of markets, a diversity of sizes
of loan requirements, I think that is what we are all about. I
really appreciate your good management.
Ms. Velazquez. Would the gentleman yield?
Mr. Akin. No. You can go ahead and have your next 10
minutes if you would like, but I think my five are done.
Ms. Velazquez. It is still yellow. I just want the record
to reflect that----
Chairman Manzullo. There are 30 seconds left. Go ahead.
Ms. Velazquez [continuing]The 7(a) loan program did $200
million less.
Mr. Barreto. That is misunderstood, Congresswoman. Did you
know what happened to those $200 million? A lot of the
minorities that were getting those $200 million, they wanted
larger loans. They wanted real estate loans. They wanted fixed
asset loans. The $200 million went to the 504 loan program. We
did $200 million more to minorities in the 504 loan program, so
that is a little bit of a misnomer.
That $200 million did not disappear. The good news is we
helped more minorities than ever before. We are very proud of
that.
Chairman Manzullo. Mrs. Kelly?
Mrs. Kelly. Thanks. Nice to see you here. Thank you very
much for being here.
Mr. Barreto. Thank you, Congresswoman.
Mrs. Kelly. I have really just one question, and that is in
your budget I want to know if you have done anything that can
help our returning service people.
When you are in the National Guard, if you are the owner of
a small business and maybe you employ two or three people, when
you go your business is gone. Is there something in there that
is going to help those people reenter the business market as an
entity?
Mr. Barreto. Thank you very much for that question,
Congressman Kelly.
You are absolutely right. I mean, we know this more than
ever before. The people that are sacrificing the most for us
right now are serving us in the armed forces. We have taken a
very proactive, aggressive approach to making sure that they
understand what their benefits are, what the opportunities are.
I will give you a couple of examples. We put a program
together that we call MREIDL, military reservists economic
injury disaster loans. It is a mouthful, but those are loans,
low-interest loans for those businesses where an owner of a
company is serving in the armed forces or maybe one of the
employees are.
We did a tremendous amount of marketing and outreach. We
did a lot of interviews on TV, radio. We are doing more than
that. We are working very closely with the Department of
Defense, with the Veterans Affairs. We have put in the hands of
all returning veterans--not just the ones that we think are in
business; all returning veterans--an SBA kit with all of the
information on all of our programs and a couple of little
mementos that we put in there. We have distributed 250,000 of
those kits.
We are working right now with the Department of Defense to
put kits together for 500,000 more service personnel, so this
is very, very important to us. Last year we reversed a trend, a
seven year trend of declining veterans loans. Last year we had
an increase in veterans loans, and we are going to have an
increase this year as well. It is one of the most important
things that we can do.
If we are asking so much of these people right now in
serving our country, protecting us, protecting our homeland
security and fighting international terrorism, then we have to
be there for them when they come back. I pledge to you the SBA
will be there for them.
Mrs. Kelly. Thank you. I really want to applaud you on the
business matchmaking program because I have found in my
district and in other places where I have been small businesses
get themselves certified, and then they do not know how to get
in on the bid contracts. It is one of the reasons I have real
problems with bundling.
I would applaud your efforts on that, and I hope that what
you have done here is extend more toward educating the small
businesses of America how they, too, can get in on the federal
contract bids and win those bids. I think that is very
important.
Mr. Barreto. Thank you very much, Congresswoman.
Mrs. Kelly. Thank you.
Chairman Manzullo. Thank you. We will take about a five
minute break and then have the second panel.
Mr. Barreto. Thank you.
[Recess.]
Chairman Manzullo. The Committee is called to order.
The first witness will be Lee Mercer, president, National
Association of Small Business Investment Companies. The red
light, you know how it works. When it gets to yellow, you have
one minute. When it gets to red, you are done.
Lee, I look forward to your testimony. There you are, right
in the middle.
Mr. Mercer. In the middle of the group.
Chairman Manzullo. If you could talk very closely to the
mike, that would help.
Mr. Mercer. How is that? Am I being picked up now?
STATEMENT OF LEE MERCER, NATIONAL ASSOCIATION OF SMALL BUSINESS
INVESTMENT COMPANIES.
Mr. Mercer. Mr. Chairman, Ranking Member Vel zquez, Members
of the Committee, the point I want to stress today is that the
Participating Security SBIC program, by far the most active
part of the SBIC program as a whole, will end effective October
1, 2004, if the Administration's proposal is adopted by
Congress. We agree legislation must be passed. A restructuring
must occur, but not the proposal of the Administration.
Today's hearing is the beginning of a critical path for the
Participating Security program. My goal is to help the
Committee understand why SBA's proposal will not work and why
the proposal we have filed with the Committee will work for all
stakeholders.
The Participating Security program is critical to the
success of the SBIC program as a whole. Over $7.4 billion in
Participating Security investments have been made since the
start of the program in 1994. During the past 17 months, a
critical period as U.S. business fought to recover from the
recession, Participating Security funds invested $2.8 billion,
a full 47 percent of the $6 billion invested by SBICs during
the period.
Through January 23 of this fiscal year, Participating
Security SBICs have accounted for 55 percent of all SBIC
investments. Twenty-six of the 36 new SBICs licensed by SBA in
fiscal year 2003, a full 72 percent, were Participating
Security funds.
Clearly, the program is providing the equity capital
Congress intended when it created the program in 1992 and
increasingly so. NASBIC supports the $4 billion in
Participating Security leverage authority for fiscal year 2005
that is proposed by SBA. However, NASBIC strongly opposes the
program restructuring proposed by the Administration. That
proposal simply will not work for talented management teams and
knowledgeable investors. I cannot say it more plainly.
The current structure has worked for the private sector
because there is a potential, and it is only a potential, for
substantially enhanced returns to private investors investing
in Participating Security funds versus non-SBIC funds if, and
it can be a big if, the SBIC performs above an annual 12
percent level of profitability.
That potential for significant enhancement in the current
structure is required to offset the many negatives associated
with the program. Not the least of these are substantial up
front fees paid to SBA, substantial risk posed by capital
impairment and restricted operations regulations, SBA's
preference in any liquidation event and the very real fact that
private investors fare substantially worse than they would in a
non-SBIC if the level of profitability falls below 12 percent.
S.B.A.'s proposal would destroy the balance of the current
program in the following ways: First, SBA's proposal would
require a current pay interest charge that is unheard of in
funds making 100 percent equity investments, investments that
provide the fund with no cash flow to pay current interest. The
resulting mismatched cash flows is what got the SBIC program in
trouble in the 1980s, leading to the creation of the current
program.
S.B.A.'s proposal would result in UBTI, unrelated business
taxable income, for tax exempt institutional investors, driving
away the very investors SBA should want in the program. SBA's
proposal would substantially increase the up front fees and
preferred payments made to SBA before any payments to private
investors. It would raise the level of profitability required
for private investors to break even to at least 18.3 percent
per year. The hurdle rate is a non-starter.
S.B.A.'s proposal would substantially reduce the percentage
of remaining profits that went to private investors. Thus,
SBA's proposal would increase all negative elements in the
program while substantially reducing benefits for private
investors.
N.A.S.B.I.C. proposed a restructuring that is simplicity in
itself, prorata sharing of all profits and losses by all
economic interests in the fund, including SBA. Based on 20-year
venture capital industry returns and Treasury rates, this would
work for all parties.
Structured as we propose, the new Participating Security
program would stimulate investment in small businesses to the
greatest extent possible during times of scarce capital
availability. It would accomplish the mission at no cost,
likely a gain to the government, attract the largest possible
percentage of knowledgeable private investors and high-quality
fund management professionals and create no distortion in
private capital markets.
Chairman Manzullo. With that, we are out of time.
Mr. Mercer. I am done.
Chairman Manzullo. Thank you.
Mr. Mercer. I just did not get to read my thank you
paragraph.
Chairman Manzullo. That is okay. That is okay. I will note
that for the record.
[Mr. Mercer's statement may be found in the appendix.]
Chairman Manzullo. I am going to recognize Congressman Jim
Cooper, who will introduce his constituent, David Pilcher from
Nashville. Mr. Pilcher will then be the next witness.
Mr. Cooper. Thank you so much, Mr. Chairman. I appreciate
this opportunity. I think that this Committee and this Congress
can benefit from the testimony that you are about to hear.
David Pilcher is a fine man and a fine small businessman
who has been seriously mistreated by the recent changes in the
SBA 7(a) program. Mr. Pilcher is CFO of a 109-year-old, family-
owned small business, a moving and storage company, a typical
American firm. They were in the process of getting one of these
loans when not only was the program capped, as you all are well
aware of, but they outlawed piggybacking.
To me, two other very insulting and harmful things
happened. Number one, as I understand it, this announcement was
made at 5:00 in the evening of December 23, 2003. Now, is that
a coincidence? No. I think that is an injustice. It is a slap
in the face of every small business in this country that they
could abuse the Christmas holiday to take away a valuable
program like this.
Moreover, it is my understanding this company--you know,
these SBA loan applications are not short and simple. It is a
stack about six inches high. A lot of work goes into that
material. They have not even been able to get the application
back.
They applied for the loan. All this stuff happens. It is
not their fault at all. We are going to lose the opportunity to
create jobs in the Nashville area, and then they will not even
give them their application back. This is a terrible injustice.
I know that this Committee is working hard to improve the
program, to get the funding that it needs, but I am just
embarrassed that this happened anywhere in America, much less
in the Nashville, Tennessee, area.
Mr. Pilcher is here to give his outstanding testimony, and
we appreciate that very much.
Chairman Manzullo. Mr. Pilcher, we look forward to your
testimony. If you could move that mike as close to you as
possible? With the lights, when it is yellow you have one
minute. Is this your first time testifying before Congress?
Mr. Pilcher. Yes, it is.
Chairman Manzullo. You have a total of five minutes.
Mr. Pilcher. Thank you, sir.
Chairman Manzullo. Thank you. You thought I said a total of
one minute?
STATEMENT OF DAVID PILCHER, TED R. SANDERS MOVING & STORAGE
Mr. Pilcher. Thank you, Representative Cooper, for that
introduction.
Chairman Manzullo, Ranking Member Vel zquez and Members of
the House Small Business Committee, thank you for this
opportunity to address you today regarding the SBA funding cap
and related matters.
My name is David Pilcher, and I am the financial officer of
Ted R. Sanders Moving & Warehouse, Inc., an agent of Allied Van
Lines. We are a family run business, as you heard, with active
participation by most of the owner's family, and we employ
approximately 30 to 40 people. In fact, this will be, as he
said, the family's 109th year in the business.
I joined the company about a year and a half ago. Shortly
after that, we realized we could significantly improve our cash
flow by refinancing the mortgage on our building. We were
halfway through the 10-year term of our current mortgage, and
interest rates were and continue to be very favorable.
After talking to several lending institutions without
success, we contacted the SBA division of U.S. Bank in
Nashville. We met with them and spent many hours accumulating
the required paperwork. The outlook appeared positive for us.
In mid December, after doing virtually everything asked of
us and within the required timeframe, we were told our
application looked good and would receive approval for a new
mortgage in the amount of about $1.5 million through the SBA
7(a) program.
Suddenly, in January, we learned that everything had been
put on hold because of the SBA shutdown. Worse, when the
program resumed, there was a cap of $750,000 with no additional
participation or piggybacking allowed to make up the needed
difference. That was only half of what we needed.
I cannot adequately express to you how devastating this bad
news was for our company, but I am going to try. In effect, the
rug had been pulled out from under us. Because this was a
refinance, no alternative is currently available to us,
including the 504 program. This SBA guaranteed loan would have
freed up over $7,000 per month of real cash flow, almost
$85,000 a year at the present interest rate.
To a small business like ours, this is a very significant
amount of money. This money could be used in several ways--to
improve and grow our business, which is hiring additional sales
people, hiring labor staff, upgrading and adding to our truck
fleet so we could bring in new business or upgrading our
warehouse facilities.
I do not have to explain to you that this growth would also
generate new tax dollars as well. Small business, as you know,
is the lifeblood of this country, and it needs to be supported
in positive ways wherever possible.
I realize we are not alone in this struggle. In one of our
local papers, I read last week about a businessman who was
trying to close an SBA loan also in a timely manner in order to
purchase and remodel a building for a new business. I believe
the reporter is here or was earlier. It was reported that he
might lose a six figure downpayment because of these delays.
That is a lot of money.
On behalf of Ted R. Sanders Moving & Warehouse and all the
small businesses throughout this country, we urge you to
restore the full funding for this program, restore the cap to
the $2 million loan level and especially lift the piggyback
prohibition.
Thank you for your time and attention, and I will answer
any questions.
[Mr. Pilcher's statement may be found in the appendix.]
Chairman Manzullo. Thank you for your testimony.
Our next witness is Don Wilson, president and CEO,
Association of Small Business Development Centers. I look
forward to your testimony.
STATEMENT OF DONALD WILSON, ASSOCIATION OF SMALL BUSINESS
DEVELOPMENT CENTERS
Mr. Wilson. Mr. Chairman, we appreciate being back with you
again. On behalf of the 5,000-plus Small Business Development
Center counselors and trainers around the country, we are very
grateful for this opportunity.
I could not help but be struck by the comments of the
Administrator, in which he kept talking about the struggles
that SBA had in dealing with the continuing resolution--how
being frozen at last year's levels or the previous year's
levels was a burden that posed for them. Astoundingly, they are
now proposing a budget that will allow them to spend even less.
It is shocking, in my opinion, to see the downgrading in
funding for management and technical assistance programs at a
time when the demand is greater than ever. The issue, Mr.
Chairman, is really jobs and who creates them.
The reason we have a budget deficit is because people are
not working. If they are not working, they are not paying
taxes. Congress is absolutely strapped in how to fund
education, health and so forth because for three consecutive
years revenues to the Treasury have declined. That is the first
time since the 1920s.
Now, if small business generates 52 percent of the GDP and
nearly two thirds of the new jobs, and we do not have jobs for
people to pay taxes so you have the dollars to appropriate, why
do we keep cutting programs for small business? Small
businesses are appreciative of the tax cuts that they receive.
But if they cannot afford to buy $25,000 worth of equipment,
raising the expensing allowance to $100,000 really does not do
them much good.
Look at the numbers in my statistics that I provided in the
testimony. I ask that my complete testimony be included in the
record. Look at the small business sector of this economy
compared to the world economies, and then look what we are
investing in small business.
The Administrator spoke of the tremendous increase in loans
that the SBA is making. Where do you think people go to get
help filling out the forms that Congressman Cooper was just
talking about? They go to the SBDCs and the Women's Business
Centers. SBDCs are being cut. Women's centers are being level
funded.
The New York SBDC, the Missouri SBDC, the Ohio SBDC, the
Indiana SBDC, the Illinois SBDC-- They have dramatically less
funding today than they did in 2002, and now we are proposing
to cut them again.
SBDCs are flattered that we are viewed as one of the core
programs, but as we watch management and technical assistance
programs being eliminated, who is going to take up the slack?
Take, for example, Congressman Bradley's District. The SBDC
in New Hampshire has not had a funding increase since 1997.
There are 14 SBDCs in this country, including Delaware and the
District of Columbia, which are here in the audience today.
They have not had a funding increase since 1997, and SBDCs are
expected to pick up the slack? We are closing centers and
laying off counselors.
Two million Americans have been jobless for 26 months or
more, the highest level of long-term unemployment in two
decades. These people are out of desperation turning to self-
employment. They do not know how to start a business. They may
have a skill, and they are coming to the SBDC. Our productivity
levels are the highest we have ever seen. We cannot continue to
do more with less. We have been doing that for the last six
years.
This Committee is the only committee that can get the
attention of the budgeters and say you are simply not
allocating enough for small business. It is not a matter of
whether we get a tax cut. The issue is what is small business
getting out of the dollars that are going into the Treasury.
Every year, they are declining. We would submit that is the
wrong message to send to small business in this country.
Mr. Chairman, we implore you and this Committee to speak to
the budgeters. Ask for a fairer allocation of funding for
management and technical assistance programs, so that those men
and women who are unemployed, and those men and women who are
trying to keep their businesses alive in the face of higher
energy costs and higher health insurance costs can survive and
create the jobs this economy must have.
Thank you very much.
[Mr. Wilson's statement may be found in the appendix.]
Chairman Manzullo. Thank you, Mr. Wilson.
Our next witness is Mr. Chris Crawford, executive director
of National Association of Development Companies. I look
forward to your testimony.
STATEMENT OF CHRIS CRAWFORD, NATIONAL ASSOCIATION OF
DEVELOPMMENT COMPANIES
Mr. Crawford. Thank you, Mr. Chairman. Good afternoon. I am
pleased to provide a comprehensive written statement on the
SBA's 2005 504 program budget request and ongoing performance
objectives. I would like to comment this afternoon on 504's
desperate 2004 reauthorization situation.
N.A.D.C.O., CDC members and first mortgage partners
provided nearly $8 billion in long-term capital to job creating
small businesses last year representing a 27 percent increase
from 2002. This is a clear tribute to the growing demand for
the SBA 504 program and the capital needs of America's small
businesses.
Our industry thanks Chairman Manzullo and Ranking Member
Vel zquez for your support by temporarily reauthorizing the 504
program until March 15 of this year. Your actions have kept our
program open. Our program receives no appropriation and is
solely dependent on fees which must be reauthorized or we will
be shut down on the 15th.
The number one issue for the 504 industry is House passage
and enactment of the SBA reauthorization bill. Mr. Chairman, we
understand that your negotiations with the staff of the
Government Reform Committee have proved successful and that all
the issues have been concluded on the contract bundling
question.
We urge you to work directly with Chairman Davis to
finalize the deal and then move the bill to the Floor under an
open rule if necessary to ensure its timely passage to keep 504
alive.
Thank you.
[Mr.Crawford's statement may be found in the appendix]
Chairman Manzullo. Thank you.
Our next witness is Anthony Wilkinson, president, National
Association of Government Guaranteed Lenders.
Anthony, you have an apartment out here now?
Mr. Wilkinson. I am working on it.
Chairman Manzullo. You are working on it. We look forward
to your testimony.
STATEMENT OF ANTHONY WILKINSON, NATIONAL ASSOCIATION OF
GOVERNMENT GUARANTEED LENDERS
Mr. Wilkinson. Thank you, Mr. Chairman, Ms. Vel zquez, for
having me back. As you know, I testified before this Committee
a couple of weeks ago about the SBA shutdown of the 7(a)
program and how many applicants have been adversely impacted by
the actions taken by the Administration.
Since that hearing, basically nothing has changed. There
are still many, many small businesses who cannot access capital
due to the lending restrictions on the 7(a) program. You have
already heard from one, and you are going to hear from three
other small businesses who have been harmed by the 7(a) program
restrictions.
I want to personally thank all of them for taking the time
away from their families and businesses and coming to
Washington to represent small businesses. Their stories will
put in real life terms just what the unfair actions taken by
the Administration have done to them. They are very, very
interesting stories.
These businesses are from all over the country. They are
different types of businesses, but the one thing they have in
common is that they needed SBA assistance to meet their
financing needs, and the SBA, who we thought was there to help
them, is now not there.
Rather than cover my written testimony, I thought I would
take the balance of my time and just respond to some of the
statements made by the SBA Administrator. He said that the
industry has said we need to get the cap lifted, that we need
to get restricted lifted. He is exactly right. There are
borrowers all over this country who do not have access to
capital, and we need to find a solution quickly so that we can
get the loan cap lifted and the piggyback restriction lifted
and we can get back to meeting their financing needs.
The Administrator also said: ``We had to return loans.''
That is simply not true. There have been other funding
shortfalls in the past. The SBA never returned the loan
applications. They simply would process them up to the final
point of approval, put them in a queue and as funding became
available start funding those loans in the order that they were
processed.
The Administrator said that we processed all loans that
have been resubmitted. I can tell you that there are some folks
sitting at the table with me today whose loans were not
processed.
The Administrator said we never had volume like this. There
was no way to anticipate the kind of loan volume we had. Mr.
Chairman, from their website it says they did $11.3 billion in
lending last year, and there was a $500,000 loan cap in place
for five months. They probably would have done close to $12
billion last year, so, yes, they knew what loan volume was.
There was some talk today about a new proposal being rolled
out. We have not been briefed, nor were we consulted about what
impact the changes in the proposal might have. I am beginning
to wonder if this was an attempt to deflect any kind of heat
that the Administrator might have gotten because their fiscal
2004 budget was a bust and the fact that the actions taken by
the SBA earlier this year have financially harmed many small
businesses. We cannot get away from the fact that many small
businesses have been financially harmed by the actions taken by
the Administration.
The Administrator said five percent of the number of loans
or 30 percent of the dollars fall in loans of $750,000 or more.
That number would have been higher had we not had a loan cap in
place this year and for the five months in last year.
The Administrator said the new proposal is a savings for
the taxpayer. From the fiscal year 2005 budget information, you
will see that borrowers and lenders in the 7(a) program have
been overcharged $1.2 billion--that is B for billion--in this
program since the start of credit reform.
This program has been in effect at a zero subsidy rate for
quite some time. Before we consider alternatives to address the
funding shortfall, I think we need to take a look at the
subsidy model. I am under the impression that Congress had
asked GAO to validate and do a study of the econometric model
to make sure that it was statistically valid, to make sure that
it was fair, that it was reasonable.
Last I heard, the SBA had not been cooperative in providing
the information that GAO needed. I know that Senator Snow's
staff had to contact the White House asking them for help in
getting SBA to turn over the data necessary for them to do
their study.
I think before we discuss any options, we need to make sure
that the model is validated, that it is fair and it is
reasonable.
Mr. Chairman, I would be happy to respond to any other
questions.
[Mr. Wilkinson's statement may be found in the appendix]
Chairman Manzullo. Thank you very much. You know, Anthony,
that I held the SBA Administrator and the head of OIRA hostage
here to bring about a resolution on an issue that involved
disaster loans to travel agents.
We have always considered ourselves to be a very active
organization here. The budget parameters are there. Stuff is
going to be moved around within the budget itself, okay, so
nothing is set in stone just based upon the President's budget
itself. It is simply a guideline.
The next witness is Mr. Phil Pegg, Jr. from 4D Solutions in
Boyertown, Pennsylvania.
Mr. Pegg. Thank you, Mr. Chairman.
Chairman Manzullo. We look forward to your testimony.
Mr. Pegg. Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
STATEMENT OF PHIL PEGG, JR., 4D SOLUTIONS
Mr. Pegg. Good afternoon, distinguished Members of the
House Small Business Committee. On behalf of 4D Solutions and
the small business workforce of the United States, I appear
before you in a time of crisis seeking your assistance; a
crisis that has originated from the very government
administration which was formed to support and protect the
small business community.
As you know, the SBA has imposed a recent cap on the 7(a)
loan guarantee program. This imposed cap will have devastating
consequences for small businesses like ours. Please allow me to
explain in the hope that this cap may be immediately repealed.
We have three specialized export working capital program
loan guarantees through the SBA's U.S. Export Assistance Center
located in Philadelphia, Pennsylvania, as well as an SBA
disaster loan. For the last seven years, the SBA has told us
that we could renew our loans as many times as necessary. We
subsequently built our business model around that
understanding.
Two of these loans were signed and approved for renewal on
January 4, 2004, and had received a loan number. It was only
after we had received approval that the SBA informed us that
there was a cap, and we would not be renewed. We were told that
SBA upper management decided to cap the 7(a) loan program to
$750,000. Our loans exceed the $750,000 cap.
It is one thing to give borrowers a 12 month warning and a
fighting chance. It is something entirely different when you
present companies with no warning at all. The manner in which
this cap has been imposed is effectively designed to hurt or
mortally wound those small businesses that currently hold loans
that are in excess of $750,000.
In other words, if these loans cannot be renewed due to the
cap, they would subsequently become unguaranteed, and the
lenders would undoubtedly call them in, effectively putting us
out of business.
The EWCP loans have been the lifeblood of our firm. For
over seven years, 4D has worked with the SBA, from the firm's
inception to one of our crowning achievements, being presented
in Harrisburg with the Pennsylvania Governor's Exporter
Excellence Award for 2001. 4D has even been used repeatedly by
the SBA as a success story in their own newsletter.
Our firm provides mission critical, interactive computer
based training to the Royal Saudi Air Force. Most of these
contracts are 18 to 24 months in duration and worth in excess
of $1.5 million. Our solutions have been chosen over Lockheed-
Martin and British Aerospace, just to name a few.
Make no mistake. The larger companies still have a huge
advantage. They have money to spend in up front costs of
developing and training programs for a major military aircraft.
The SBA leveled that playing field. Without them, we could have
never borne the initial start up or operating cost from one
contract to another.
Now the irony is overwhelming. The SBA, who was so
instrumental in our growth and success, in one stroke will be
responsible for our demise and certainly many others like us.
Everyone knows that small businesses are the number one job
creator in this country. Our business is located in Boyertown,
Pennsylvania, a community that survives on small businesses
just like ours. We hire people and buy goods and services all
within 20 miles of our office. There is little doubt that this
cap will impact our community and others.
This cap also sends a clear message to the Saudis we work
with that the United States is pulling back on their financial
support of international business relations with Saudi Arabia.
It has taken us years to build up a track record of trust with
them.
We examined all the other options, including EX-IM Bank,
but they cannot legally finance military projects. As a result,
my bank and the SBA are my only resource. I must add that our
track record as a borrower has been excellent. We pride
ourselves on being responsible corporate citizens, and today
our firm has never missed a loan payment or by our own action
put in jeopardy one of our guaranteed loans to the SBA.
In conclusion, at a time when America is losing its
isolationist way of doing business and expanding our great
economy globally, it just does not make logical sense to drop
the funding to a program that has made a huge impact on my
firm's ability to expand internationally.
Therefore, I ask you to immediately remove this newly
imposed cap and expedite the funding of the SBA's 7(a) program,
as well as the funding of the Division of International Trade
and USIACs across the country.
Thank you.
[Mr. Pegg's statement may be found in the appendix]
Chairman Manzullo. Thank you very much.
The next witness is John Sprague, managing partner,
Everglades Adventures at Pahokee, Florida.
Mr. Sprague. Yes, sir. Pahokee means grassy waters.
Chairman Manzullo. It means grassy waters?
Mr. Sprague. Yes, sir.
Chairman Manzullo. We look forward to your testimony.
STATEMENT OF JOHN SPRAGUE, EVERGLADES ADVENTURES
Mr. Sprague. Chairman Manzullo and Ranking Member Vel
zquez, thank you very much for the opportunity to testify
before this House Small Business Committee.
I am a managing partner of Everglades Adventure Company,
LLC, that is based in Pahokee, Florida. To give you a little
bit of quick background, this is in Palm Beach County's other
coast. It is basically rural glades. We rely primarily on
agriculture, a lot of sugar.
The city itself has a population of about 6,000. It is a
poverty level of 29.4 percent of the population, a per capita
income of $10,346. The mayor and city council felt that the
only saving grace that the city may have to be able to pull
itself up from this poverty is its location on Lake Okeechobee.
Because it did not have the expertise to develop the
waterfront, it did an RFP to bring a company in. We came and
answered that.
What we are attempting to do is build a first-class
recreational resort on the edge of Lake Okeechobee and bring
tourists as the dollars needed for the city to build the city
back up to what it was at one time. We have been doing very
well in the development. It is ahead of schedule. However, one
slight problem has arisen.
We are located on state lands. When you go for conventional
financing, you cannot encumber state lands, which means the
normal finance package for us we cannot obtain through
traditional banks.
The SBA 7(a) program was the program that fit exactly what
we needed. Our loan for $1,709,000 would have pretty much put
the project very close to completion and additionally on toward
doing 25 direct full-time jobs and 90 created in total in the
area.
However, to give you an idea if we could get the other
financing based on the $750,000 cap, our payments for that
$1.709 million under the 7(a) program would be about $11,807
per month. If we did it with a $750,000 cap and went to
conventional based on the short terms we would get, those
payments now climb to $24,057 a month, which basically makes
the project untenable and unprofitable to do.
We are very concerned that this type of action by the
Administration at this point is very harmful to business aside
from our individual project. It affects minorities. It affects
actually the City of Pahokee to be able to pull itself out of
its economic condition and bring it back to the area where so
many of its residents presently are not on subsidies.
Secondly, it is very important to the State of Florida.
Governor Bush has given us economic grants, along with Palm
Beach County. Of course, he spearheaded the project in getting
us the permission to do it on state lands and also waived all
of their fees so the City of Pahokee would be a 25 percent
profit maker as part of our company.
The project is coming along fine. We are hoping that
everybody on both sides of the aisle, as well as the
Administration, looks at this program and says you know, we
might have made a mistake here. This is actually harming small
business. It is harming minorities. It is harming companies all
over this country.
Then to have us find out that really there is no subsidy to
this program, that the overpayment in fees has made it self-
supporting, definitely I believe would make it a reason that
you need to relook at this program and put it back to where it
was before so my company, along with the rest of them around
the country that need this kind of funding to be able to
provide the jobs for our towns and our cities and allow people
that live in poverty to pull themselves up to a decent wage can
continue to happen in this country.
Also, I would like to say that Mayor J.P. Sasser has come
with me, and if possible I would like to give him a minute.
Chairman Manzullo. Why do you not have him stand up so we
can recognize him? There you are. Thank you.
Mr. Sprague. Would it be possible, Mr. Chair, to have him
just speak for a minute from a city perspective?
Chairman Manzullo. You have 50 seconds left. Come on down.
State your name and spell it for the record, Mayor.
Mr. Sasser. Okay. I am Mayor J.P. Sasser, and that is S-A-
S-S-E-R. I want to thank you for this opportunity.
What Mr. Sprague said is very true. We are a very small
city, predominantly African-American and Hispanic. Our primary
employer is sugar, and the 90 jobs that Mr. Sprague will offer
have just been offset by U.S. Sugar laying off 97 people this
past week.
What we are doing is we are sinking, and we are sinking
fast. We have hitched our wagons, so to speak, on our
development of our marina and campground, and we are hoping our
downtown redevelopment and our economic revitalization will be
successful because of that.
Thank you very much.
[Mr. Sprague's statement may be found in the appendix]
Chairman Manzullo. Mayor Sasser, thank you very much for
adding to the testimony.
Our next witness is Mr. Elliot Moses, CEO of Daco
Enterprises, from Sandy, Utah. We look forward to your
testimony.
STATEMENT OF ELLIOT MOSES, DACO ENTERPRISES
Mr. Moses. Thank you, Mr. Chairman, Congresswomen,
Congressmen, ladies and gentlemen. Thank you for this
opportunity to tell my story. I hope this effort will result in
areas of change and possibly even some rectification of the
issue for my company.
My wife and I had been nearly a year in negotiations to buy
Daco Enterprises, Inc. We had a letter of intent, and we were
very close to signing the final deal. Applications were made at
several banks for $1.3 million. Our presentations were very
strong, showing over $1.5 million of equipment and collateral
plus a sizeable amount of cash that we were injecting.
Funding proposals were entertained, and we down selected to
two. One was an SBA 504 and the other an SBA 7(a) loan
guarantee. By mid December of 2003, we had everything together
and submitted to the commercial loan officer. It was processing
through Bank One's preferred lender program. This program
expedites the processing since the bank's approval criteria has
been preapproved by the SBA to meet the SBA's underwriting
requirements.
We were told that the SBA's stated service level agreement
to provide a funding number is 24 hours. On December 23, the
SBA notified Congress of their intent to establish a loan cap
for loans approved by the SBA on or after January 8, 2004. This
is 15 days, as required by Congress. The choice to include so
many holidays in this notice period is unmistakable.
On the 26th, Bank One approved our application for SBA
eligibility. The final SBA application package was sent to Utah
for our signatures on December 30. Four business days later, on
January 5, the originals arrived at the Tempe, Arizona, Bank
One loan coordinator's desk. She requested the SBA
authorization number, and the SBA faxed back a control number
the same day indicating they had received the package and it is
in their funding queue.
Based on the assurances that funding would indeed be there,
we closed on the business on January 8. The next morning, we
received the shocking news of what the SBA did. On January 6,
the SBA shut down funding. On the 8th, the SBA faxed a notice
dated January 5 to Bank One with a control number indicating
that the funding had been stopped, that the application package
would be returned to Bank One and removed from the SBA queue.
It is very strange that the notice would be dated January
5. It is not clear whether that was inadvertent or deliberate.
If the latter, it conflicts directly with congressional
mandate.
By being bumped out of the queue, it is the SBA's intent to
delay the dissipation of their funds, but in actuality it
denies us legitimate opportunity to funding due to the loan cap
which we no longer fit under.
In order to rescue our deal, we obtained bridge funding for
the full amount. The concept was that the full authorization
bill would restore funding and the old caps. The bank incurred
and advanced us the funds. When the bridge funding is due to be
paid back in less than three months, we must either have new
funds in place or be foreclosed upon. I understand that we
cannot apply under the 504 program because we have received
bridge financing.
In the worst case, this will mean 25 persons will be out of
work. We will be financially ruined, if not totally bankrupted.
The previous owner does not have the funds to step in in front
of the bank and also stands to lose a sizeable sum in deferred
payments, thereby decimating his retirement plan.
In the best case, Congress will cause the SBA to remedy the
effects of their misapplied funding curves or, even better,
raise the funding caps to allow more significant business
formation than ever before.
For ourselves, we wish the SBA would place us back in the
queue where we originally were and simply fund that which we
were mere hours from funding. This is the fair and correct
method that should be applied in what I am to understand is
about 200 cases. The lower funding cap should apply to those
that apply on or after January 8, as Congress intended the
notification method to operate.
Let me tell you a little bit about Daco with the spare
moments remaining. We are located about 15 minutes from
downtown Salt Lake City, Utah, in a high tech corridor that has
invented television and the first implanted artificial heart.
It has also been the birth of WordPerfect and Novell and many
other companies.
Therefore, it is no surprise that Daco is a high tech, high
tolerance machine company with laser welding and engraving
capabilities. We serve the aerospace, electronics and primarily
the medical industry. Your next x-ray may come from equipment
with our parts in it. Your relative's chemotherapy may come
from an implant we machined. The Air Force can get some parts
only from us.
Our employees make good skilled labor wages. None of our
employees are paid less than $10 an hour. We have the benefits
in the top five percent of our state. We added one new employee
last month and are adding another this month. Our backlog has
already jumped 25 percent this year. We are looking to spend
more than $100,000 on new equipment this year and half a
million dollars over the next two or three years, all financed
conventionally.
We and companies like us are the ones putting jobs into
this recovery. Well, that is, unless things are allowed to
remain as the SBA has made them.
I beseech you, the Members of this Committee, the SBA and
all Members of Congress to allow businesses like ours to do
what we do best, which specifically includes creating new jobs,
paying significant taxes and growing our economy further with
capital spending. Many countries would like to have these
manufacturing jobs. Please do not make another reason to send
them there.
I thank you for this opportunity to address this Committee
and thank the staff for their most kind treatment.
[Mr. Moses' statement may be found in the appendix]
Chairman Manzullo. Ms. Vel zquez, I am going to let you ask
the questions here because we are going to run out of time.
Ms. Velazquez. Why can we not go vote and come back here?
Chairman Manzullo. We can come back, but why do you not go
ahead?
Ms. Velazquez. I would prefer for Mr. Ballance to go first.
Chairman Manzullo. Mr. Ballance?
Mr. Ballance. Thank you very much, Mr. Chairman and Ms. Vel
zquez.
Gentlemen, I did not hear all of your testimony, but I
think I know the issue. Some have told us that you can get this
money from regular channels, regular banks. Is that true? You
do not need the SBA 7(a) program.
Mr. Sprague. In our particular case, sir, we cannot because
we are located on state lands. You cannot encumber state lands.
Therefore, normal banks will not do most of the things that we
need to do there--infrastructure, buildings, sewer extensions,
the kinds of things that we need to do to expand the building.
Where normally you could finance that conventionally, they will
not do it.
Mr. Wilkinson. I would venture a guess that none of these
gentlemen would be here today if they could have gotten
conventional financing.
Mr. Ballance. Well, that is my thought. How do you feel,
and I am just going to ask a couple of general questions. How
do you feel that you have been treated in terms of getting
notice regarding the cutbacks and the cutouts and the fact that
the loans would not be available?
Mr. Sprague. Putting this project together has been very
lengthy because we are also located on the dike or the U.S.
Army Corps that surrounds the dike, so we had to go through
months and months of engineering for the Corps to make sure
that we would not in any way cause any breaks or whatever in
their dikes.
This process of putting everything together with grants,
with Florida, Palm Beach County, getting approvals, permits and
everything else, of course, has gone through a very long
process. Of course, the final designs could not be completed
until we knew what permits and how exactly we could design and
what we could do. We had to go through that process before we
could even apply to SBA.
I have been a Republican my whole life. I just never
thought in my entire life cycle that what I believed stands for
that we support small business, that they would look at a
program that actually hurt small business. I just never thought
that anything would happen with this program. It is a good
program. It fits a niche need in this country that you cannot
necessarily get with conventional financing.
It came as a total surprise, and I will say the number of
days with Christmas probably is not the way to treat free
enterprise and additionally that they would need that short--I
mean, they must have known that they were headed for problems.
I would say that they could have given a lot further notice
than what they gave business.
Mr. Ballance. Let me ask one specific question. I did not
hear your testimony, but as an exporter could you elaborate on
why financing from the Export-Import Bank is not an option for
4D Solutions?
Mr. Pegg. Yes, of course. EX-IM Bank will not allow us to
produce any kind of military training, military product and
export it within their financing guidelines.
Mr. Ballance. I am getting a little help from my staff
here. Mr. Pilcher, how will not receiving this loan affect the
long-term viability of your company? Is the 504 program an
alternative for Sanders Moving? What about a conventional loan?
Mr. Pilcher. Well, for starters, the 504 program does not
even apply to our situation because it is a refinancing, so we
do not even meet the guidelines for 504.
This time of the year is traditionally a slow time for the
moving industry, the moving and storage industry. We were
really counting on this loan being in place last month because
it would have made this month a lot more bearable than it has
been and it is going to be.
As I indicated earlier, every month of delay is costing us
over $7,000 that we are having to spend maintaining our current
loan situation. That is money that could be used to add new
employees, to add a truck, put another crew on the road, take
on new business and help make our company more profitable.
Mr. Ballance. Thank you.
Chairman Manzullo. We are going to have to break and then
come back here. We live by the bells here. We hope to be back
in about 15 minutes.
[Recess.]
Chairman Manzullo. Mrs. Vel zquez?
Does anybody here have to catch a plane right away?
[No response.]
Chairman Manzullo. All right. Go ahead.
Ms. Velazquez. Tony, people assume that if you are a
successful business, small business, you do not need the 7(a)
loan program. Can you tell us why successful businesses do need
the 7(a) loan program?
Mr. Wilkinson. Yes, ma'am. There would be a host of
reasons. It could be that it is financing of collateral that
will have a very specific nature like a single purpose facility
or collateral that would not be readily liquidated if it was
repossessed.
It is businesses where they are doing well, but they have
some kind of credit deficiency that the lender turns to the SBA
and that guarantee that the SBA provides to mitigate whatever
the risk might be.
Yes, we hope they are successful businesses because that is
why we are financing them. We use the SBA guarantee to mitigate
the risk in the transaction.
Ms. Velazquez. Thank you. The Administrator said SBA's
solution will permit the small businesses that are here today
to get their loans approved.
I know you do not know the details of the proposal or the
particulars of these businesses' applications, but can you tell
us from what you know today whether these businesses will get
their loans approved?
Mr. Wilkinson. With a 50 percent guarantee, I would bet at
least two of them would be denied. Again, I do not know all the
details of the application.
Ms. Velazquez. What is the percentage?
Mr. Wilkinson. Two of the four.
Ms. Velazquez. Two of the four?
Mr. Wilkinson. I think a third one could have perhaps been
served if the piggyback restriction had been lifted and they
could have gotten a piggyback first mortgage even with the cap
in place.
Ms. Velazquez. Thank you.
Mr. Sprague, it is my understanding that your community was
designated as an area for economic development by the State of
Florida, and they contributed a significant amount of resources
to this project.
What was the state's response when they found out that the
federal government was pulling funding?
Mr. Sprague. They do not know. I am meeting with Governor
Bush's staff on Monday in Tallahassee. I think this has been
one of the best kept secrets at this point.
I think it is a matter that a lot of the Members just do
not understand this is going on, number one, because they just
have not looked through all the budget at this point. Secondly,
even if you read something, unless you are familiar with the
program you may not necessarily understand the impact. I think
it is a matter of educating both sides of the aisle on this
issue.
We have a declaration that Pahokee is an area of critical
economic concern, and they have helped us the best they can.
The county has done the same thing. I am quite sure that when
the Governor's office finds out about it, hopefully we will be
soliciting his help.
Ms. Velazquez. Maybe the Governor of Florida knows someone
here in Washington.
Mr. Sprague. I am going to ask him that question.
Chairman Manzullo. Mr. Moses?
Mr. Moses. Yes?
Ms. Velazquez. If you were to lose SBA financing for your
project, what are the chances that some of your customers will
look elsewhere and take their business to some of your foreign
competitors?
Mr. Moses. Without the financing from the SBA, we will not
have the working capital available to buy the machines that we
plan on buying. We are talking about some pretty sophisticated,
high tech machines. They are very close tolerance. They are
multi-axis machines. We try and buy American wherever possible.
Sometimes the stuff is not available.
I will tell you. There are foreign countries that would
love to have that kind of equipment and that kind of stuff
located in their country and produce it there. We are trying to
make it American made.
Ms. Velazquez. Mr. Moses, can you please elaborate on why
you are not eligible for the 504 program?
Mr. Moses. Being caught between closing and pulling the
funding right thereafter, we had to do something quick because
we were in the middle of the contract period. We had to fund
the purchase.
The 504 program does not allow for the bridge financing
that we received. It would then be determined to be a
refinance.
Ms. Velazquez. So if you do not receive the funding through
the 7(a) loan program, what effect will this have on your
employees?
Mr. Moses. In the worst case, we would have to shut down.
We would lose 25 employees. If we were able to find some other
financing of some nature, it is not going to look nearly as
good.
The cost on our working capital would probably eliminate
our entire capital budget. We would not be buying any more
machine tools and doing any more business, and we probably
would also have to do some layoffs because we may not have the
equipment to replace other equipment and continue producing
what we produce.
Ms. Velazquez. You mentioned that this was a unique
product. Can you please explain to the Committee why a
conventional loan would not work?
Mr. Moses. With a conventional loan, they rate buyouts as
much more risky, and they assign a much higher interest rate to
them. We also get much shorter payback terms.
One of the things we were looking for from the 7(a) program
was the generous payback period. That payback period made the
difference between growing or shrinking if we had to go even
partial conventional, which a 50 percent guarantee program
would do as far as weighting of the components.
Ms. Velazquez. Mr. Sprague, can you please explain to the
Committee why a conventional loan would not work for you?
Mr. Sprague. There are two parts to that. The biggest part
is that the infrastructure which we are expanding in all areas
in cabins and buildings and sewer connections and electrical
and upgrades to the marina, building buildings, our development
is spread over many, many facets. Part of them we have pieces
of grants for and whatever, so it is kind of complicated,
number one.
Number two and the biggest reason is when we turned to
conventional financing they looked at the project. They looked
through our paperwork. They looked at our balance sheets. They
looked at income, our business plan, and said you are
excellent. Wait a minute. You are on a lease. You are on state
lands. I am sorry. We cannot do your loan.
Here is who can. The federal government has a loan program
which is really designed for this type of thing. That is where
you need to go because we are unable to fund you.
Ms. Velazquez. The small business people that are here who
applied for a 7(a) loan and have not been able to successfully
get it because of the unique circumstances, are your employees
aware of what is going on? What is the morale?
Mr. Pegg. Our employees have just become aware, and they
think we are going out of business.
Mr. Pilcher. Our rank and file employees are not aware of
the refinancing activities we are trying to do. We have a very
small office staff, and I am sure just about everybody in the
office knows what is going on.
Three-fourths of the people in the office are related,
family related, so they are all aware of it. As I mentioned
earlier, in addition to the owner there are four sons who work
in the business, and we are all on the same management team.
They are all aware of it.
I spent the better part of my first year with the company
trying to arrange conventional refinancing. We just could not
get the terms we needed. In some cases they would not even talk
to us at all.
You know, this really was going to be a life saver program
for us. The monthly payment is about two-thirds of what our
current payment is. As I mentioned in the testimony, we are
going to have to refinance it anyway in a few years.
We could possibly struggle along for another four years,
but this really would have helped us grow the business and get
out of some of the problems that we are in.
Mr. Sprague. In our case, most of the employees have not
been hired yet. It is not just our employees. All the
businesses downtown and the building owners are all expecting
our project to be the catalyst for the city.
It is not just whether or not how our employees feel. It is
that this was the catalyst for the whole downtown of the city.
If we cannot generate the catalyst, what is the impact to the
city, to all the residents of the city? It has major impacts at
the end of the day.
Mr. Pegg. I would like to add one thing for the record. We
approached several lending institutions over the last seven
years and discussed with them other more traditional options.
The 7(a) program, as I put down in our testimony, has been
critical to our company because our company is built on
knowledgeable capital. We do not have smokestacks. We do not
have plants. We do not have lots of capitalized equipment. We
have lots of very smart, hard working people that get together
and design and put together these projects and deliver them in
an interactive, multimedia format to the people of Saudi
Arabia.
That said, these projects in their nature, in their very
nature, take anywhere between 18 and 24 months to complete. The
sheer amount of expense that it takes to ramp up, getting
everybody together, traveling over there, collecting the data,
shooting the video, creating the graphics, creating the
animation. We become this organization of highly motivated,
hard working people, but again we are in a very plain building,
and we wait for these large milestone payments at the end.
Every traditional lender that we have ever talked to says
go to the SBA. You have a contract. Go to the SBA. The SBA will
guarantee it. Then we will lend you the money. We cannot
possibly survive if we do not have that guarantee.
If we do not have that loan, this next payment that we get,
you know, we will not be able to draw it back down because our
renewal has not been funded. We will go out of business, and we
will default on this project.
Ms. Velazquez. Thank you, Mr. Chairman.
I want to thank all of you for coming here and sharing your
experience and your pain. I am sorry that the federal
government is failing you. It really saddens me that the
Administrator could come here before this Committee, and he is
so committed to small businesses that he did not stay to listen
to your stories. He did not stay so that you could tell him
that he knew darned well last year they would be running out of
money.
Mr. Chairman, I think that you understand that this is a
real crisis for small businesses in this country, and I hope
that pretty soon you conduct a hearing on your proposal that
has been submitted by the Administration and co-sponsored by
you.
Chairman Manzullo. Thank you, Mrs. Vel zquez.
Ms. Velazquez. Are you going to have a hearing?
Chairman Manzullo. Give me a chance to think about it.
Obviously if we have legislation, we will have a hearing.
Ms. Velazquez. We will? Thank you.
Chairman Manzullo. Anthony, with regard to piggybacking
loans, walk us through that.
Mr. Wilkinson. How it works?
Chairman Manzullo. Yes.
Mr. Wilkinson. A piggyback is where a lender makes some
piece of the financing transaction in a first lien position and
then the SBA 7(a) loan comes behind in a second lien position.
It is really basically the 504 type of loan structure where
there is a private sector lender in the first and then SBA in
the second. That is what a piggyback structure is.
Chairman Manzullo. So the reason that the SBA eliminated
the piggyback is that the budget authority has to show the
first position as part of the budget authority?
Mr. Wilkinson. I believe the reason that they gave for
eliminating piggybacks was a simple effort to lower loan
demand.
Chairman Manzullo. SBA still allows SBA taking a first
position and anybody coming in afterwards. Is that correct?
That is still allowed?
Mr. Wilkinson. That does not happen. A lender would not put
itself in a second lien position.
Chairman Manzullo. Let us talk about the responsibility of
some banks around here. Mrs. Vel zquez and I sit on the Banking
Committee, and I am really tired of these giant lending
institutions only making ``safe'' loans and not making
character loans and you guys having to go to the federal
government time after time after time again being subject to
the appropriations process.
Here you have people, Mr. Pegg. We have two manufacturers
out of four people that are suffering. I spent about 85 percent
of my time on manufacturing. In fact, I just gave an interview
to CNN calling for the resignation of the chairman of the
President's Council on Economic Advisors who is thrilled with
the offshoring of the high value white collar jobs and does not
think that any job in this country has been lost to China.
When I see people like you, Mr. Pegg, who are fighting back
and you, Mr. Moses, in manufacturing, where are the banks? You
have track records. Why do they not get involved in this thing?
Mr. Moses. Would you like me to answer that?
Chairman Manzullo. Yes, sir.
Mr. Moses. My bank that I am working with--in fact, I was
working with several of them. They were all willing to take
their share of the risks with the program. They are right ahead
of me in the risk amount.
I am taking the greatest risk. The bank was actually taking
the next greatest risk, and then came the government taking the
third greatest risk.
Mr. Pegg. I would just say in our situation that there was
no incentive for the bank to take the risk. We have cleared
up------.
Chairman Manzullo. What is the incentive? Meaning what?
Mr. Pegg. Well, why should they take more risk? We have
been operating through this SBA program for seven years.
Chairman Manzullo. Through that same bank?
Mr. Pegg. Through the same banks, yes.
Chairman Manzullo. Which bank is that? A local bank?
Mr. Pegg. M&T. It was All First. Before that it was Penn
Business.
Chairman Manzullo. Different names?
Mr. Pegg. Penn National. All the same people we have been
working with.
Chairman Manzullo. Okay.
Mr. Pegg. There is no need to fix it because it is not
broken. It has been working fantastic.
Chairman Manzullo. Maybe they should understand that it is
broken, and they have an obligation as the local lender to come
in there and help save some jobs.
Mr. Pegg. If anything, they have actually communicated to
us that there have been rumblings that they were going to do
less SBA type loan activity, but there was absolutely no
verbiage, no conversation whatsoever that indicated that they
would do any kind of traditional lending with us.
Chairman Manzullo. Have you asked them to factor your bill
of lading or your payments?
Mr. Pegg. We presented them with contracts, Mr. Chairman.
Chairman Manzullo. That is not enough?
Mr. Pegg. No. They look at us, and they will say how big is
your home? What does your private asset portfolio look like?
Chairman Manzullo. That is the problem in America today. No
one lends on the basis of somebody's integrity, even years and
years and years of track record.
There is a problem with the SBA. We talked a year ago about
the fact that there would not be enough money. It is very
distressing, extremely distressing. This hearing did not have
to take place with this.
Let me say this. There are people here from the SBA that
have stayed the entire program. Karen Haas, Deputy Assistant
Administrator, Office of Congressional Legislative Affairs.
Karen, why do you not raise your hand back there? Could you
introduce some of the other folks from SBA that have sat
through the hearing to make sure they listen to the testimony?
Ms. Haas. John Whitmore.
Chairman Manzullo. John Whitmore. Okay.
Ms. Haas. Brian Worth.
Chairman Manzullo. Brian. Okay.
Ms. Haas. Emily Murphy, Will Meade.
Chairman Manzullo. Karen, thank you.
Mr. Sprague, have you looked to the Department of
Agriculture? There are certain types of loans that are
available in low economic areas.
Mr. Sprague. To be honest, no, sir. You know, this whole
thing came down pretty recently, as you know. We got the phone
call. I forget when my partner called me and said do you want
today's bad news.
Chairman Manzullo. Okay.
Mr. Sprague. No, sir. First, we really believed that at the
end of the day that the Members of both sides of the aisle
would say at least the 7(a) needs to be taken back.
Chairman Manzullo. It would take a special supplemental
appropriation of $30 million in order to restore it.
Mr. Sprague. $30 million in the realm of the----
Chairman Manzullo. I understand.
Mr. Sprague[continuing]Federal budget is pretty small.
Chairman Manzullo. We said that last year.
Karen, if I could be so bold? Could Mr. Sprague meet with
you afterwards and any of the other folks that are here?
Go ahead, Karen. Perhaps you could help them because maybe
there is money available through Agriculture on it.
Mr. Wilkinson. Could we set up times for the other 250
applicants that are in the same boat?
Chairman Manzullo. Anthony, if you did not ask that
question I would have been disappointed. Listen, you guys have
been great.
Do you have any more questions over there, Frank?
Mr. Ballance. I did have one that I think I will ask Mr.
Pegg. Do you do international business?
Mr. Pegg. Yes, sir.
Mr. Ballance. What would happen to your business, and I
guess others who are in small business can consider this
question, if you did not get the loan and you had to say go
under? I am hoping that will not happen to you, but you are
fulfilling a demand obviously. What is going to happen to that
demand?
Mr. Pegg. We typically compete with not only other U.S.
prime contractors that have offices in the Kingdom of Saudi
Arabia, but also a whole host of other international
competition primarily coming out of the U.K., coming out of
France and Germany.
I would guess that on any given contract we probably have
anywhere between six and a dozen competitors that are ready to
jump in and take care of that work.
Mr. Ballance. Are any of those American businesses, or are
most of them foreign?
Mr. Pegg. Most of them are foreign.
Mr. Ballance. How many of your jobs are on this side?
Mr. Pegg. Fifteen people.
Mr. Ballance. I represent a rural area, Mr. Chairman. SBA
has always been looked upon as an agency that would help
businesses who were either struggling or who were trying to get
started or who maybe did not have a track record.
The banks, as you point out, are there. They do not promise
to create jobs, at least the ones I have talked to. I am just
wondering if any of you are from rural areas what the impact
might be in terms of just that fact alone.
Mr. Sprague. Pahokee is definitely rural. It is 6,000
people. It is stuck out kind of by itself on the other side of
Palm Beach County.
Let me take one example of that. We have been putting in
rental boats, and part of that is we want to do guide service
and eco tours. We have had a maintenance man, a young, black
guy, a really neat guy. As a matter of fact, I am going to hate
to lose him on maintenance, but he really took an interest in
the boats so Jim decided let us bring a captain teachers course
out to Pahokee, and let us see if we can get enough people in
Pahokee who would actually study and become captains.
This young man studied very, very hard. We gave a bunch of
it on our time. Anyway, he has passed, and he has his captain's
license. He will be the first black captain, as far as I know,
in all of the Glades to ever receive his captain's license.
He is so happy that he would like I think us to take his
diploma and blow it up and put it on a billboard, but that is
what we are trying to do. We are trying to give people a
different alternative than going out in the fields and picking
agriculture or sugar or whatever it is and raise the standard
of living through bringing recreation to Pahokee, Florida.
You know, we are going to have all kinds of jobs that we
are going to create. It is going to raise the standard from
$10,000 to what we believe is going to be the median of about
$26,000 within the city when we do this project.
I hope that answers your question.
Mr. Ballance. I just think there is a tremendous need for
this program. We just have to put the hammer down and see if we
can find the money.
Chairman Manzullo. Congresswoman Majette, do you have any
questions? Congresswoman Vel zquez has a question.
Ms. Majette. Okay.
Chairman Manzullo. Let me go with her, and then we can
bounce to you if you have a question.
Ms. Velazquez. Thank you. Thank you. Tony, it seems that
there is a sense here of some people, some Members, that this
situation is for the banks to be blamed. Can you comment on
that?
Mr. Wilkinson. Well, that is interesting. First of all,
there have been shutdowns in the past. One of the shutdowns,
the first one I remember, prompted the legislation that now
requires a 15-day notice because the SBA at this particular
time just closed the program and did not accept applications.
Well, as all these applicants will tell you, you do not
just put that application together overnight. It takes a while
to put the application together. You spend lots of time and
money getting to that point. To have the rug jerked out from
underneath you just was not fair, so we suggested to Congress
that we put in a notification requirement giving folks an
opportunity to finish their application and hence the 15-day
requirement was passed.
Since then there have been a couple more shutdowns. Every
time the SBA announces that a loan cap is coming they have a
spike in demand. That demand comes from the applicants who are
in the middle of their application process. They hurry and get
it finished and get it submitted before the deadline.
It is not surprising. It has happened in the past. SBA knew
that there would be a spike in demand when the cap was
announced. It is just the way it works.
Ms. Velazquez. So if they wanted to, they could have held
the applications and waited until the money was available?
Mr. Wilkinson. Absolutely. That is what they have done in
the past. These applications should have been retained and put
in a queue and funded as money became available rather than
returning the applications, and in some cases where the
applications are like Express and PLP faxed applications, those
applications were physically destroyed, run through a shredder.
Ms. Velazquez. Mr. Pegg, in your testimony you mentioned
that you have a disaster loan, right?
Mr. Pegg. Yes.
Ms. Velazquez. Could you please tell us what will happen to
this disaster loan if you cannot renew your capital line?
Mr. Pegg. We will probably default on the disaster loan
because we will be out of business.
Ms. Velazquez. Has the SBA offered to defer the payments
until this problem is worked out?
Mr. Pegg. No.
Ms. Velazquez. Maybe you can meet with SBA today and
discuss that.
Mr. Pegg. That would be great. Thank you.
Chairman Manzullo. Congresswoman Majette, did you have a
question?
Ms. Majette. Yes.
Chairman Manzullo. Okay. Go ahead, please. You have to turn
on your microphone.
Ms. Majette. Thank you, Mr. Chairman, and thank you,
gentlemen, for being here.
My question is for Mr. Sprague. I understand that you have
had some challenges. Can you tell me? Is there a reason why
your company would not be able to refinance through other non-
SBA sources?
Mr. Sprague. Yes, ma'am. We have a multifaceted project. It
is infrastructure, sewer, water. It is buildings, swimming
pools, fixtures, cabins, boats, rehabbing bathrooms. I mean, it
is multifaceted.
We looked at everything we needed to complete and do this
project, some of it immediately. We have finished the plans.
The engineering is done. We have gone through the very
intricate process with the Army Corps because we are on their
dike so it is not the normal permitting process. We have to go
through all kinds of additional hoops.
We got the package for it, and we went through to
conventional financings with what we needed with the
explanation that they went through the package, thought we
looked real good. They went through our balance sheets, our
business plan, profit and loss, everything, where we have been
since we have been there.
Then they learned that we are sitting on state lands, and
you cannot encumber state lands. Therefore, we do not fit in
their financing box. They suggested we have the perfect program
for you. It is SBA 7(a).
We started working on our SBA 7(a) documents, and we got
that completed. We submitted it. I want to say we submitted it
on the 6th, not even knowing that there was already happened in
December. We were not even aware of that.
We turned it in because my partner is pretty good about a
complete package. I believe that we had everything in our
package when it was completed and given to them. Then we
received a telephone call. He gave me the news a few days later
about the SBA.
I do not believe at this point--the Chair said that we may
be able to. There may be some Agricultural money. I do not
know. I mean, the government has helped us a lot because it is
a public/private partnership that we are doing with the city.
We are an area of economic critical concern, and we have all
these designations.
We are willing to do whatever we can, but we believe, and
as has been shown to us by the banks, that this 7(a) program is
perfectly designed for our type of facility. Unfortunately, we
need a fair amount of money because it is not a little project.
Ms. Majette. Has this change in circumstance cost you
personally or cost the company? How has it affected you?
Mr. Sprague. Well, every day. My partner and I have gone
two and a half years without drawing a paycheck because we want
to make sure everything we do goes back in. Somewhere my wife
says, you know, there should be a paycheck coming our way one
of these days.
What it does, though, is it slows the whole project down. I
do not know how we are going to do this now. Some of it is
grants. We have to look at those kind of dates. We are going to
have to see how this thing goes together.
It is not just us. It is the whole downtown redevelopment
because we are that catalyst for bringing people. This one will
open that little shop, and this one will have a breakfast and
lunch. This one will do this, and that one will do that. All
these closed businesses will hopefully start reopening.
It is not just waiting to see how we are going to put our
project back together and figure out how this is going to work
and how many years it is going to slow us down in trying to
achieve where we have to go and what is going to happen at the
end of the day.
It is a whole bunch of other people that are sitting and
waiting because they had high expectations that all of a sudden
everything was coming together. It was all coming together. I
mean, this thing came out of nowhere.
Ms. Majette. So your project really is the linchpin----
Mr. Sprague. Yes, ma'am.
Ms. Majette[continuing]In terms of development in that
entire area?
Mr. Sprague. Yes, ma'am.
Ms. Majette. Sort of dropping the pebble in the pond, and
the ripples would continue to go around.
Mr. Sprague. That is it. The city council has been good. I
mean, they have now looked. All right. The center of town down
from the project. What do we need? We need parking. They have
just gone out and committed that they are going to buy this
property around here and commit parking for all the businesses
down there.
We have people coming. Now, the businesses do not have
parking. There will be public parking. You know, everybody is
planning all going on here, and now all of a sudden somebody
pulled the rug out from under everything.
Ms. Majette. Is there any way that you can break up the
financing to be able to------.
Mr. Sprague. The problem is, I do not know. I am not saying
that there are not a few pieces that we can do. In other words,
like if we go like I just needed a front endloader. Yes, we
went out and did conventional financing on it. Not a problem.
You know, if we do not pay the payments, they have something
they can grab.
A lot of what we are doing is not grabbable as far as the
banks are concerned, or it is multifaceted. You know, it is a
little bit here and a little bit there, and it is hard to go
out and get that kind of stuff.
At this point we do not know how it is going to work. My
partner is back, and that is his main penance I call it is to
work on this kind of stuff. That is his half. He is trying to
figure out where we are going to go. When I get back, I guess
we will try to figure out where we proceed from now.
Ms. Majette. I guess the Everglades adventure has become a
misadventure.
Mr. Sprague. It is still an adventure. I am not sure it is
a misadventure yet, but it definitely got a little more
adventuresome than it was.
Ms. Majette. More adventurous than you intended it to be?
Mr. Sprague. Yes.
Chairman Manzullo. They need some venture capital.
Mr. Sprague. Yes.
Ms. Majette. Thank you. Thank you for your testimony.
Mr. Sprague. Yes, ma'am.
Chairman Manzullo. I want to thank all of you for coming.
Mr. Sprague and Mayor, I would suggest the EPA has all
kinds of grants for wastewater treatment facilities, for
drinking water. There is a tremendous amount of resources that
are out there. If you pay taxes, I guess you are eligible to
apply for these grants and loans if they are there.
Karen, you could help them and guide them into other
programs that are available with the staff that is available?
Thank you very much. We want to thank the SBA and their staff
for being here.
We want to thank the witnesses, especially those of you who
have come from long distances to be here.
Is this your first time to testify before Congress, David?
Mr. Pilcher. Yes, it is. I will be here all day tomorrow,
so I can meet with you as long as you would like.
Mr. Moses. Likewise for me also.
Mr. Pegg. Us too.
Chairman Manzullo. Listen, I understand. You need to talk
to the guys at the SBA. I would also suggest that you talk to
your Senators and your U.S. Representative.
In our district we have a person that does full-time
economic development. We are savaged with double digit
unemployment in my district. It is getting worse because we
have a heavy manufacturing base, and, Mr. Sprague, we have a
good portion of the Mississippi River in our district. We are
in the process of trying to develop things similar to what you
are doing, so that is why I have a particular interest in what
you are doing.
To all of you, thank you for coming here. It is a real
privilege to be Members of Congress and to have people who are
impacted by these government programs to come and testify
before us.
The hearing is adjourned.
[Whereupon, at 5:15 p.m. the Committee was adjourned.]
[GRAPHIC] [TIFF OMITTED] T3891.001
[GRAPHIC] [TIFF OMITTED] T3891.002
[GRAPHIC] [TIFF OMITTED] T3891.003
[GRAPHIC] [TIFF OMITTED] T3891.063
[GRAPHIC] [TIFF OMITTED] T3891.064
[GRAPHIC] [TIFF OMITTED] T3891.004
[GRAPHIC] [TIFF OMITTED] T3891.005
[GRAPHIC] [TIFF OMITTED] T3891.006
[GRAPHIC] [TIFF OMITTED] T3891.007
[GRAPHIC] [TIFF OMITTED] T3891.008
[GRAPHIC] [TIFF OMITTED] T3891.009
[GRAPHIC] [TIFF OMITTED] T3891.010
[GRAPHIC] [TIFF OMITTED] T3891.011
[GRAPHIC] [TIFF OMITTED] T3891.012
[GRAPHIC] [TIFF OMITTED] T3891.013
[GRAPHIC] [TIFF OMITTED] T3891.014
[GRAPHIC] [TIFF OMITTED] T3891.015
[GRAPHIC] [TIFF OMITTED] T3891.016
[GRAPHIC] [TIFF OMITTED] T3891.017
[GRAPHIC] [TIFF OMITTED] T3891.018
[GRAPHIC] [TIFF OMITTED] T3891.019
[GRAPHIC] [TIFF OMITTED] T3891.020
[GRAPHIC] [TIFF OMITTED] T3891.021
[GRAPHIC] [TIFF OMITTED] T3891.022
[GRAPHIC] [TIFF OMITTED] T3891.023
[GRAPHIC] [TIFF OMITTED] T3891.024
[GRAPHIC] [TIFF OMITTED] T3891.045
[GRAPHIC] [TIFF OMITTED] T3891.025
[GRAPHIC] [TIFF OMITTED] T3891.026
[GRAPHIC] [TIFF OMITTED] T3891.027
[GRAPHIC] [TIFF OMITTED] T3891.028
[GRAPHIC] [TIFF OMITTED] T3891.029
[GRAPHIC] [TIFF OMITTED] T3891.030
[GRAPHIC] [TIFF OMITTED] T3891.031
[GRAPHIC] [TIFF OMITTED] T3891.032
[GRAPHIC] [TIFF OMITTED] T3891.033
[GRAPHIC] [TIFF OMITTED] T3891.034
[GRAPHIC] [TIFF OMITTED] T3891.035
[GRAPHIC] [TIFF OMITTED] T3891.036
[GRAPHIC] [TIFF OMITTED] T3891.037
[GRAPHIC] [TIFF OMITTED] T3891.038
[GRAPHIC] [TIFF OMITTED] T3891.039
[GRAPHIC] [TIFF OMITTED] T3891.040
[GRAPHIC] [TIFF OMITTED] T3891.041
[GRAPHIC] [TIFF OMITTED] T3891.058
[GRAPHIC] [TIFF OMITTED] T3891.059
[GRAPHIC] [TIFF OMITTED] T3891.060
[GRAPHIC] [TIFF OMITTED] T3891.061
[GRAPHIC] [TIFF OMITTED] T3891.062
[GRAPHIC] [TIFF OMITTED] T3891.042
[GRAPHIC] [TIFF OMITTED] T3891.043
[GRAPHIC] [TIFF OMITTED] T3891.044
[GRAPHIC] [TIFF OMITTED] T3891.046
[GRAPHIC] [TIFF OMITTED] T3891.047
[GRAPHIC] [TIFF OMITTED] T3891.048
[GRAPHIC] [TIFF OMITTED] T3891.049
[GRAPHIC] [TIFF OMITTED] T3891.050
[GRAPHIC] [TIFF OMITTED] T3891.051
[GRAPHIC] [TIFF OMITTED] T3891.052
[GRAPHIC] [TIFF OMITTED] T3891.053
[GRAPHIC] [TIFF OMITTED] T3891.054
[GRAPHIC] [TIFF OMITTED] T3891.055
[GRAPHIC] [TIFF OMITTED] T3891.056
[GRAPHIC] [TIFF OMITTED] T3891.057