[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE MARKUP OF
H.R. 3854: THE SMALL BUSINESS
FINANCING AND INVESTMENT ACT OF 2009
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 21, 2009
__________
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Small Business Committee Document Number 111-052
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
PARKER GRIFFITH, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Karen Haas, Minority Staff Director
.........................................................
(ii)
STANDING SUBCOMMITTEES
______
Subcommittee on Contracting and Technology
GLENN NYE, Virginia, Chairman
YVETTE CLARKE, New York AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama
______
Subcommittee on Finance and Tax
KURT SCHRADER, Oregon, Chairman
DENNIS MOORE, Kansas VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona STEVE KING, Iowa
MELISSA BEAN, Illinois W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, Pennsylvania, Chairman
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama
(iii)
Subcommittee on Regulations and Healthcare
KATHY DAHLKEMPER, Pennsylvania, Chairwoman
DAN LIPINSKI, Illinois LYNN WESTMORELAND, Georgia,
PARKER GRIFFITH, Alabama Ranking
MELISSA BEAN, Illinois STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama MIKE COFFMAN, Colorado
______
Subcommittee on Rural Development, Entrepreneurship and Trade
HEATH SHULER, North Carolina, Chairman
MICHAEL MICHAUD, Maine BLAINE LUETKEMEYER, Missouri,
BOBBY BRIGHT, Alabama Ranking
KATHY DAHLKEMPER, Pennsylvania STEVE KING, Iowa
ANN KIRKPATRICK, Arizona AARON SCHOCK, Illinois
YVETTE CLARKE, New York GLENN THOMPSON, Pennsylvania
(iv)
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Graves, Hon. Sam................................................. 2
APPENDIX
Prepared Statements:
Graves, Hon. Sam................................................. 9
Reviewed Bill:
H.R. 3854: "The Small Business Financing and Investment Act of
2009".......................................................... 11
Statements for the Record:
Dahlkemper, Hon. Kathy........................................... 197
Ellsworth, Hon. Brad............................................. 202
(v)
FULL COMMITTEE MARKUP OF
H.R. 3854: THE SMALL BUSINESS
FINANCING AND INVESTMENT ACT OF 2009
----------
Wednesday, October 21, 2009
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2360 Rayburn House Office Building, Hon. Nydia Velazquez
[chairman of the Committee] presiding.
Present: Representatives Velazquez, Dahlkemper, Schrader,
Kirkpatrick, Michaud, Altmire, Clarke, Ellsworth, Bright,
Griffith, Halvorson, Graves, Westmoreland, Fallin, Buchanan,
Luetkemeyer, Schock and Coffman.
Chairwoman Velazquez. I am pleased to call this morning's
markup to order.
Today we will consider legislation to reauthorize and
enhance the SBA Access to Capital Programs. We often refer to
small firms as the engine of our economy. After all, small
companies create more new jobs and drive greater innovation
than big businesses do.
Through the Recovery Act, Congress has delivered important
funding to small firms. Since then we have seen real progress.
Over the last seven months, SBA has made $12 billion in loans.
But as I said back in February, the Recovery Act was a critical
first step, not a silver bullet. Today access to capital
remains a serious challenge for small businesses.
We need to be sure that small firms have all of the
resources they need to grow and flourish because at the end of
the day our recovery will hinge on job creation, the very thing
that small businesses do best.
Historically, small firms have created roughly 64 percent
of all new jobs, but today a lack of capital is hindering their
ability to put Americans back to work. According to a July
survey by the Federal Reserve, 35 percent of banks have
tightened lending to small firms.
Meanwhile, 79 percent of entrepreneurs have seen their
credit card lines cut dramatically. These are troubling
declines not just for small businesses, but for our larger
economy.
The legislation we are considering today will help reverse
this trend. It improves SBA financing options and, most
importantly, creates or saves 1.33 million jobs per year. With
unemployment was 9.8, we could really use those 1.33 million
jobs. That is why this bill is such a critical piece of
legislation.
And I want to recognize Chairman Schrader for his
leadership in moving it forward. I would also like to thank all
of my colleagues who worked so hard to make this bill a
success: Ranking Member Graves, Ms. Halvorson, Mr. Buchanan,
Mr. Ellsworth, Mr. Luetkemeyer, Ms. Kirkpatrick, Ms.
Dahlkemper, Mr. Nye, and Mr. Griffith.
I now yield to Ranking Member Graves for his opening
remarks.
Mr. Graves. Good morning. Thank you, Madam Chairman, for
holding this markup. I appreciate, very much appreciate, your
leadership on this issue and commend you for working in a
bipartisan manner on developing legislation that is going to
provide changes to the Small Business Administration programs
that are going to provide needed capital to small businesses.
Testimony before this Committee shows that small businesses
have been unable to obtain needed capital to maintain or expand
their businesses. In our districts, business owners have noted
that they have seen banks reduce their credit lines and demand
excessive collateral to get a loan.
The inability to obtain capital has a serious detrimental
effect on the capacity of small businesses to grow their
business and pull us out of this current recession.
The Committee has worked hard to produce legislation with
significant discussions between Democrat and Republican
members. The bill before us today is a compilation of
legislative initiatives drafted by members of both sides of the
aisle. Their contributions cannot be understated, and I would
especially like to thank Congressman Buchanan and Congressman
Luetkemeyer for their input on this legislation.
The bill before us today makes important changes to improve
the efficiency and increase the transparency of the SBA's
lending programs. These modifications are needed to insure that
capital is made available to as many small businesses as
possible in a timely manner because delay in the marketplace
can result in lost opportunities for small businesses.
In addition to creating improvements for the management of
the SBA Capital Access Programs, the bill's primary focus is to
provide vital capital to small businesses, including those in
rural areas. The bill increases outreach efforts to rural
lenders in the 7(a) loan program, modifying the areas in which
the new market venture capital companies can operate and will
provide greater investment opportunities for rural areas that
have been bypassed by other venture capitalists.
These are only two of the examples of the many improvements
that this will increase access to capital by small business
owners.
Despite these significant improvements, there are still
some unresolved concerns with the bill. While I strongly
endorse the efforts for the SBA to find lenders to make loans,
I am a little troubled that the SBA could still make a loan if
no bank is willing to make such a loan. To me it suggests an
underlying problem possibly with the loan package, and I do not
think that the SBA should be making the loan.
The disaster loan provisions included an authorization to
make grants to small businesses rather than loans, and I
recognize that FEMA provides grants to individuals, but not
sufficient grant funds to small businesses, and I am not sure
that we should change a loan program to a grant program,
especially without any detailed findings that grants would help
save businesses during recovery from a disaster that were not
saved by loans.
And finally, we must recognize the current fiscal
constraints. The deficit is at an all time high, and Congress
is considering a number of potentially expensive programs, and
I am concerned about the potential overall cost of the bill.
But those are my reservations on the bill before us, and
given the importance of the bills to the potential prosperity
of American small business economy, I support the bill being
reported out of Committee, and I look forward to working with
the Chairwoman to address these concerns as the legislative
process moves forward.
And again, I want to thank you for holding this markup, and
I yield back the balance.
[The prepared statement of Mr. Graves is included in the
appendix.]
Chairwoman Velazquez. Thank you, Mr. Graves.
Are there any other members that wish to be recognized for
the purpose of making opening remarks?
Ms. Halvorson.
Ms. Halvorson. Thank you, Chairwoman Velazquez and Ranking
Member Graves, for holding this morning's Committee markup.
The legislation that we are considering today will provide
a much needed update to the SBA's Access to Capital Programs.
All of us on this Committee have heard from small business
owners in our districts that accessing capital continues to be
a major challenge. So small businesses need capital to grow and
create new jobs, but the credit crunch has made it exceedingly
difficult for them to obtain loans. The SBA's Access to Capital
Programs are supposed to be a resource for small business
owners when they have trouble getting credit from traditional
sources, and unfortunately, we have seen a recent decrease in
the SBA's loan volume.
In Fiscal Year 2009, SBA made around 35 percent fewer 7(a)
loans than it did in the previous year. This needs to be turned
around, and we need action now.
The legislation we are marking up this morning, the Small
Business Financing and Investment Act, will reauthorize and
enhance the SBA's Access to Capital Program so that they can
better serve the needs of our nation's small businesses. I
commend the Chairman of the Finance and Tax Subcommittee, Mr.
Schrader, for taking the lead on this legislation, and I am
also pleased that it incorporates my bill, H.R. 3723, the Small
Business Credit Expansion and Loan Market Stabilization Act.
The language from my bill will improve the SBA's flagship 7(a)
loan program. It extends the provisions in the Recovery Act
that reduced borrower fees and increased the SBA loan guarantee
to 90 percent.
We also raised the loan limit to $3 million, and I look
forward to working with the Chair and the Committee to evaluate
further raising the limit to five million, which is what I have
been hearing from the Committee and outside people that we need
to do.
We are also going to extend the ARC Loan Program, which was
created by the ARRA to provide small business owners with
interest free loans that are 100 percent guaranteed by SBA. The
language from my bill will increase the maximum award from
35,000 to 50,000.
To increase lender participation in 7(a), the bill creates
new rural and small lender outreach programs at the SBA.
And finally, we are going to help veteran entrepreneurs by
fully implementing the SBA's Increased Veteran Participation
Loan Program.
So I think the bill we have before us today is a good step
in the right direction, and I urge members of this Committee to
support it.
Madam Chair, I yield back the balance of my time.
Chairwoman Velazquez. Are there any other members who wish
to be recognized?
Mr. Schrader.
Mr. Schrader. Thank you, Madam Chair.
I would just like to thank everybody on the Committee and
everyone who has come before our Committee and the testimony
they have given to help us fine tune the SBA programs before us
today. I particularly enjoyed working with the Ranking Member
and my colleagues on the other side of the aisle to help reduce
the cost of this bill, recognizing deficit in an issue, but
still trying to make sure the lending markets fee up a little
bit, expand some of our opportunities around the country to get
these agencies, frankly, in a better competitive position, and
then the next step will be to instill confidence in the banks.
We are not adding a whole bunch of new regulations that
would hamper their ability to get involved. No strings
attached; these are just opportunities to get small business
going again, and I really appreciate the opportunity to be part
of this bill.
Thank you, Madam Chair.
Chairwoman Velazquez. Any other member that wishes?
Mr. Ellsworth.
Mr. Ellsworth. Madam Chair, in the interest of time, if I
could just enter a statement for the record, I would appreciate
it.
Chairwoman Velazquez. Without objection, so ordered.
Mr. Ellsworth. Thank you.
Chairwoman Velazquez. Ms. Dahlkemper.
Ms. Dahlkemper. Madam Chair, I would also, in the interest
of time, ask that I have an opening statement that I would like
to enter into the record.
Chairwoman Velazquez. Without objection, so ordered.
Mr. Griffith.
Mr. Griffith. Madam Chair, I, too, would like to make an
opening statement. I am late. Do we have time?
Chairwoman Velazquez. Yes, we do.
Mr. Griffith. We do? Well, thank you, Madam Chairwoman.
In rural America, small businesses often serve as a local
economic anchor. Not only do they create and support jobs, but
they are important contributors to local charities and
nonprofit groups. In small towns, business owners are often
engaged in the civic process and serve as community leaders. In
short, entrepreneurs are nothing short of the glue that holds
rural communities together.
For these reasons, small businesses play a critical role
when communities recover from natural disasters. When tornados
or hurricanes strike, many communities don't fully recover
until local businesses reopen their doors. Once businesses get
back to work, local commerce can resume. Citizens are able to
find employment, and eventually life returns to normal.
The Small Business Administration's Disaster Loan Program
is an important lifeline for businesses that are struggling
after natural disasters. Low interest loans provided through
this program help firms rebuild if their facilities sustain
physical damage. The program can also help small businesses
survive the economic shocks that accompany disasters.
Earlier this year, in April, thunderstorms and tornados
ripped through north Alabama, my district. More than 100,000
homes and businesses in our state lost power. The SBA's
Disaster Loan Program is helping many businesses in the region
get back on their feet. Already the agency has approved more
than one million in disaster assistance loans for businesses.
These funds are helping small firms recover from both the
physical and economic damage caused by storms.
While these programs are valuable, I am afraid they do not
yet function at their highest potential. Earlier this year, the
Government Accounting Office examined the SBA's Disaster
Recovery Programs. Specifically, GAO looked at what SBA has
done to improve these measures since Hurricane Katrina. In
July, when the GAO testified before this Committee, they told
us that the Small Business Administration is still unprepared
to respond to a major disaster.
This gives me reason for concern. As the old saying goes,
hope for the best but prepare for the worst. From what the GAO
is telling us, it looks like some in the SBA may be hoping for
the best.
The legislation we are considering today includes
provisions I author to improve the SBA's disaster assistance
initiatives. By improving how the SBA disburses assistance, the
bill will speed help to all firms more quickly. The SBA also
will be required to establish regional disaster working groups.
This will insure the agency prepares for the most likely
disaster scenarios in different parts of the country.
Madam Chair, access to capital is always important for
small businesses, but when disasters strike, finding an
affordable loan can mean the difference between staying in
business and going under. The legislation before us will help
entrepreneurs find the capital they need in good times as well
as bad.
I urge the adoption of the bill and yield back the balance
of my time.
Chairwoman Velazquez. Are there any other members that wish
to be recognized at this point?
[No response.]
Chairwoman Velazquez. We will now consider H.R. 3854, The
Small Business Financing and Investment Act of 2009, introduced
by Representative Schrader.
[The Bill H.R. 3854 is included in the appendix.]
Chairwoman Velazquez. This legislation is a comprehensive
answer to small firms' capital needs. It carries them
throughout the entire small business life cycle, from day one
of the start-up stage to the point at which they can compete
with the Fortune 500. For small firms just getting off the
ground, Representative Ellsworth crafted important improvements
to the Microloan Program. In the past, that initiative inspired
growth in otherwise struggling communities.
By reducing interest rates and providing more flexible
credit terms, H.R. 3854 gives entrepreneurs greater control of
their finances and empowers them to make new investments.
Meanwhile, a move to pair traditional loans with technical
training programs provides small firms with the information
they need to be successful. At the same time, efforts to draw
more lenders into the program will expand access to this vital
source of funding.
We often talk about the importance of welfare to work.
Well, microloans put people to work through the power of
entrepreneurship. If we are looking for policies that spur job
growth, then this is the kind of program we should be
supporting. Starting a new business is a resource intensive
process, but entrepreneurs' capital needs do not begin and end
with the first business plan. Rather, they continue throughout
all phases of development. For that reason, this bill expands
SBA's 504 Program delivering better financing options to middle
market firms.
To further bolster established companies, H.R. 3854 also
extends successful Recovery Act measures, for example, fee
exemptions on loan guarantees. In doing so, it encourages
greater lending from banks. This is key because many banks are
concerned that they do not have the capital to resume lending
in earnest until the middle of 2010. But as any entrepreneur
will tell you, small businesses cannot afford to wait that
long. They need capital for things like stocking their shelves
and financing investments today, not eight months from today.
That is why Representative Halvorson contributed policies
to streamline SBA's 7(a) program. Her contributions deliver
better funding options to veteran entrepreneurs, the men and
women who have served our country so well and who are now
helping to drive our economy.
Meanwhile we are improving 7(a) financing options and doing
so in a way that mitigates risk to the taxpayer. I want to be
clear. Taxpayer protections are a top priority in this bill. It
ramps up safeguards in a number of ways, including actions
recommended by Representative Buchanan, which allow CDCs to
liquidate defaulted loans.
While the SBA is a critical resource for small firms'
capital needs, there are cases in which its traditional loans
are not enough. For these instances, Congress created a
portfolio of investment initiatives. Through the contributions
of Representative Luetkemeyer, H.R. 3854 will enhance SBA's
largest pool of equity capital, the Small Business Investment
Company Program. It will do this by increasing the number and
size of investments made. This increase could not come at a
more critical time.
In 2009, D.C. firms will invest ten to $15 billion less
than they did in 2008. That is an alarming trend, one that if
not reversed will significantly hamper our recovery. By
encouraging greater participation among successful SBICs, this
bill can breach the gap and get equity capital flowing to small
businesses.
Of all the contributions small firms make to our economy,
innovation is one of the most important. That is why H.R. 3854
targets promising start-ups in fields like renewable energy.
Through provisions introduced by Representative Kirkpatrick, we
are steering investments to firms who focus in that area. In
order to fill the void left by the now defunct participating
securities program, this bill creates a new pool of capital for
early stage firms. That provision introduced by Representative
Nye will increase investment in the kind of high growth start-
ups that create new jobs.
It is important to know, like many of the measures in this
bill, the early stage capital program is governed by critical
taxpayer safeguards. For example, it requires investment
companies to match grant requests with capital from non-federal
resources. SBA will also conduct audits of participating
companies to insure that grants are invested in a transparent
fashion.
Small businesses play a key role in all sectors of our
economy, but they have a particularly strong track record in
the tech industry. So I am pleased that this bill encourages
small firms to invest in an innovative new product. By helping
small medical practices afford health IT, it allows them to
make yet another critical contribution to our economy, a
streamlined health care system. At present only 13 percent of
single doctor practices use HIT. This is because the technology
is extremely costly. For your average three-doctor practice,
implementation runs close to $100,000, a large sum for any
small business.
By helping small practices afford HIT, H.R. 3854 will
encourage greater adoption and, in turn, reduce cost and
minimize errors. This measure will not only improve the quality
of our health care system, but will create jobs for
entrepreneurs in the health IT and technology sector. It would
not have come together without the work of Representative
Dahlkemper, and I am grateful for her work in including this
provision.
H.R. 3854 insures small firms have the financing they need
to not only make new investments, but to weather any economic
storm. Importantly, it also accounts for entrepreneurs in the
event of a natural disaster.
To address shortcomings in SBA disaster loan programs,
Representative Griffith introduced measures to establish
regional working groups. Doing so will help SBA respond to the
multitude of different challenges that could impact our
country.
H.R. 3854 also tailors assistance to fit the express needs
of small firms following a disaster. When it comes to preparing
for catastrophe, SBA's work is never done. This legislation
will help the agency remain vigilant in protecting the small
businesses that drive our economy. These are the businesses
that given the opportunity will drive new growth for our
economy and put Americans back to work.
The fact that this bill has such broad support is testament
to its importance. I am pleased to say that it is backed by a
wide range of groups, almost close to 20. We have the National
Restaurants Association, the American Society of Travel Agents,
the International Franchise Association, Biotech, National
Association of Credit Unions, the National Association of
Investment Companies, the National Venture Capital Association,
the American Dental Association, the American Institute of
Architects, Air Conditioning Contractors of America, the
Association of General Contractors of America, among other.
This bill is about better choices for small businesses. It
allows entrepreneurs to select the best possible funding
options for their firms and will go a long way in empowering
those businesses, but perhaps most importantly, it will help
create and sustain 1.33 million jobs. I cannot imagine anyone
who can argue with that number.
H.R. 3854 is a bipartisan product, and I urge my colleagues
to support its adoption.
Are there any other members who wish to be recognized on
H.R. 3854?
[No response.]
Chairwoman Velazquez. Well, the Committee now moves to
consideration of H.R. 3854. The Clerk will report the title of
the bill.
The Clerk. To amend the Small Business Act and the Small
Business Investment Act of 1958, to improve programs providing
access to capital under such Acts and for other purposes.
Chairwoman Velazquez. I ask unanimous consent that the bill
in its entirety be open for amendment at this time. Does any
member seek recognition for the purpose of offering an
amendment?
[No response.]
Chairwoman Velazquez. Seeing no amendments, the question is
on reporting H.R. 3854. All those in favor say aye.
[Chorus of ayes.]
Chairwoman Velazquez. Those opposed say no.
[No response.]
Chairwoman Velazquez. The ayes have it. The bill is adopted
and reported.
This concludes Committee business for today. I ask
unanimous consent that the Committee is authorized to correct
section numbers, punctuation, cross-references, and to make
necessary technical and conforming corrections on the bill
considered today.
Without objection, so ordered.
This markup is now adjourned.
[Whereupon, at 10:40 a.m., the Committee was adjourned.]
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