[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


                                 ______
 
ACCESS TO CAPITAL: CAN SMALL BUSINESSES ACCESS THE CREDIT NECESSARY TO 
                         GROW AND CREATE JOBS?

=======================================================================



                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              JUNE 1, 2011

                               __________


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            Small Business Committee Document Number 112-018
          Available via the GPO Website: http://www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Sam Graves..................................................     1
Hon. Nydia M. Velazquez..........................................     2

                               WITNESSES

Mr. William Hall, CFE, CEO, William G. Hall & Co., Fort Worth, TX     3
Ms. Lynn Ozer, Executive Vice President, Susquehanna Bank, 
  Pottstown, PA..................................................    12
Mr. Robert Kottler, Executive Vice President, Director of Retail 
  and Small Business Banking, IBERIABANK, Lafayette, LA..........    31
Dr. Dennis Jacobe, Chief Economist, Gallup, Washington, DC.......    24

                                APPENDIX

Prepared Statements:
    Mr. William Hall, CFE, CEO, William G. Hall & Co., Fort 
      Worth, TX..................................................     6
    Ms. Lynn Ozer, Executive Vice President, Susquehanna Bank, 
      Pottstown, PA..............................................    15
    Mr. Robert Kottler, Executive Vice President, Director of 
      Retail and Small Business Banking, IBERIABANK, Lafayette, 
      LA.........................................................    34
    Dr. Dennis Jacobe, Chief Economist, Gallup, Washington, D.C..    26
Statements for the Record:
    Hon. Scott Tipton............................................    66
    International Franchise Association..........................    67
    Credit Union National Association............................    71
    Associated Builders and Contractors..........................    73


  HEARING: ACCESS TO CAPITAL: CAN SMALL BUSINESSES ACCESS THE CREDIT 
                   NECESSARY TO GROW AND CREATE JOBS?

                              ----------                              


                        WEDNESDAY, JUNE 1, 2011

                  House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360, Rayburn House Office Building. Hon. Sam Graves (chairman 
of the Committee) presiding.
    Present: Representatives Graves, Bartlett, Herrera Beutler, 
Coffman, Mulvaney, Ellmers, Landry, West, Tipton, Velazquez, 
Chu, Cicilline, Peters, Owens, Altmire, Clarke.
    Chairman Graves. I call this hearing to order. I want to 
thank all of our witnesses for being here today. We look 
forward to hearing your testimony. I apologize for being a 
little bit late as we had a vote called.
    As America works to recover from this recession, which has 
obviously been a terrible blow to a lot of folks, we are going 
to be relying on the nation's small businesses to help lead the 
way.
    For small businesses to expand and create jobs, they need 
adequate financing. However, small businesses are telling us 
that access to capital remains a hurdle in the current economy, 
despite rallies on Wall Street and government efforts to loosen 
credit. On the other side of the equation lenders say that they 
have capital available but businesses are not as credit worthy 
as they were just a few years ago. Banks claim that today's 
borrowers have lower credit scores and lower collateral value 
due to the depressed real estate values. If we want our 
nation's entrepreneurs to grow their businesses and create 
jobs, we need to bridge the gap between lenders and small 
business borrowers.
    We have called this hearing today to examine the challenges 
that both small businesses and banks are facing when deciding 
to expand or to lend money. In addition, we are going to 
examine alternative kinds of financing for small businesses and 
other avenues available for businesses to get the capital that 
they need.
    Again, I am very pleased to have several distinguished 
witnesses here today to provide members of this committee with 
insight about the importance of capital for small businesses 
and the impediments leading to the bank or leading to lending 
that banks are experiencing today. I think this is going to be 
a very good hearing. It is a very timely hearing, obviously. 
And with that, I am going to yield to the ranking member for 
her opening statement and then we will get started.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Job creation is understandably a top priority for all 
Americans right now. New data out just this morning suggests 
the economy added only 38,000 jobs in the month of May. This 
new number shows large firms cut their workforces this month. 
We could clearly use some of the small businesses' job creating 
power right now.
    In order for small firms to play their traditional job 
creating role, several factors must be in place. Perhaps the 
most important ingredient is the availability of capital. If 
small businesses are truly the backbone of the economy, then 
the flow of capital is the lifeline. Although challenges 
remain, there has been progress in this area. Small business 
loan approvals in the first quarter of this fiscal year are up 
15 percent over last year. Fewer small firms are falling behind 
or defaulting on loans, suggesting they are in better shape to 
take on additional debt and hopefully expand.
    Lending through the Small Business Administration is always 
critical for entrepreneurs seeking affordable capital. However, 
during economic downswings when credit is tied elsewhere, the 
SBA's role becomes more important.
    Several provisions this Committee crafted in the Recovery 
Act temporarily boosted SBA-backed lending. Raising guarantees 
on this, SBA 7(a) loans gave banks greater incentive to make 
small business loans. Other provisions made the loans more 
affordable for borrowers. As of now, those steps have 
demonstrated the most quantifiable proven results. Other recent 
policy actions have yet to exhibit the same level of success.
    Examining the amount of SBA lending is only one metric. For 
these loans to ignite real job growth, the agency must 
concentrate on the right kind of small businesses, namely 
start-ups with the highest potential for job creation. On 
average, it costs nearly $75,000 to launch a new enterprise, a 
tough proposition under even the best circumstances. 
Unfortunately, these small start-ups are not seeing their fair 
share of SBA loans. During the first half of fiscal year 2011, 
less than one-quarter of SBA loans' dollars went to start-ups.
    It is my hope that today's discussion will generate new 
ideas about how Congress, the SBA, and the lending community 
can expand all small firms' financing options, but especially 
for those at the earliest stage of the business cycle. As the 
Committee moves forward, we should examine the full spectrum of 
capital options for small firms. Some businesses will do fine 
through conventional loans, while other entrepreneurs can meet 
their capital needs with microfinancing. For start-ups, a debt 
bay solution may not make sense at all. Investment capital 
might be a better fit. What works for a small manufacturer in 
Ohio, may not be appropriate for a family farm in Tennessee, to 
say nothing of a technology start-up in lower Manhattan.
    On that note, I would like to thank our witnesses for 
taking time out of your busy schedule to be here with us. Their 
diverse views and experiences will be valuable to the Committee 
as we consider how best to meet entrepreneurs' capital options 
and needs.
    I yield back, Mr. Chairman.
    Chairman Graves. Thank you, ranking member.
    If any other Committee member has an opening statement, I 
would ask that you submit it for the record.
    I would like to explain the lights to you real quick. Each 
of you have five minutes and the lights will be green. When you 
get down to a minute it will turn yellow and then it will go 
red. We will be a little lenient on that but please try to stay 
within the five-minute mark.

  STATEMENTS OF WILLIAM HALL, CEO, WILLIAM G. HALL & CO., ON 
 BEHALF OF THE INTERNATIONAL FRANCHISE ASSOCIATION; LYNN OZER, 
 EXECUTIVE VICE PRESIDENT, SUSQUEHANNA BANK, ON BEHALF OF THE 
 NATIONAL ASSOCIATION OF GOVERNMENT GUARANTEED LENDERS; DENNIS 
JACOBE, CHIEF ECONOMIST, GALLUP; ROBERT KOTTLER, EXECUTIVE VICE 
   PRESIDENT, DIRECTOR OF RETAIL AND SMALL BUSINESS BANKING, 
   IBERIABANK, TESTIFYING ON BEHALF OF THE CONSUMER BANKERS 
                          ASSOCIATION

    Chairman Graves. Our first witness today is William Hall, 
who is the chief executive officer at William G. Hall and 
Company. Mr. Hall is a Dairy Queen franchisee with five 
locations in Texas. Mr. Hall also serves on the board of 
directors for the International Franchise Association and 
chairs their Credit Access Committee. We appreciate you being 
here today. Obviously, you came a long way, and I look forward 
to your testimony.

                   STATEMENT OF WILLIAM HALL

    Mr. Hall. Thank you, Chairman Graves. And I want to thank 
you, as well as Ranking Member Velazquez and the rest of the 
Committee. Thanks for having me here. Five minutes, it is hard 
for me to say hello but I am going to do my best here.
    As you said, I am a Dairy Queen franchisee in Fort Worth, 
Texas, and I am a member of the International Franchise 
Association Board of Directors.
    I want to talk about the important role in the U.S. economy 
franchising holds. As Ms. Velazquez mentioned, small business 
start-ups are an important part of our economy and franchising 
meets that need but with a little bit of a lifeline for the 
first people and first role in the business because they do 
have a system of training and it allows someone to start a 
business without being in business totally by themselves.
    The franchising world grew at a faster pace than the non-
franchising world up to 2008 when we had the financial 
meltdown. Since then recovery has been very slow, markets have 
been frozen, very difficult to obtain any sort of financing. We 
greatly appreciate the work you guys did on the Small Business 
Jobs Act. Those SBA provisions have been a lifeline for 
franchising. It is something that we really do appreciate. But 
currently, other than SBA, there is very little lending out 
there for the entrepreneurs in the franchising world.
    To survive, the franchising community--we cut back. We 
lived with what we had. We did not add new jobs. We did not 
remodel where we needed to because we were caught in a 
situation where we just could not borrow any money. And that 
was pretty much across the board. That is small to large. It 
impacts all sectors. We delayed the new store acquisitions. 
Franchise wars were not a problem because they could not put 
new people into their units because they could not get the 
initial financing. People would pay the franchise fee but they 
could not get the initial financing to get going.
    We think that small business creates six out of 10 jobs in 
the country, and if we do not have access to credit then we are 
not creating the jobs that we need. We think there is a 20 
percent shortfall in lending to franchise this year and the SBA 
has been critical in filling the need but we are still going to 
be 20 percent short. And that means there are a lot of jobs not 
going to be created that could be if we had normal access to 
credit.
    Franchising is all about small business. Franchising 
sometimes gets confused because people talk about McDonald's, 
even Dairy Queen as being large companies. I started from 
nothing, had nothing, and most of the people I know in the 
franchising business started with one unit and grew from that. 
We are resilient as a group. We are diverse as a group. In the 
franchising industry, 19 percent of the franchises are owned by 
minorities whereas in the nonfranchise sector there is 13 
percent owned by minorities. So we have a great program for 
veterans that come back home. Over 400 franchisors have put in 
a program to give a discounted start-up opportunity for 
veterans. We feel like that has been a fantastic program and 
well received and a great opportunity for our veterans coming 
back.
    As I said, in the franchising world, you are in business 
for yourself but not by yourself. And that is a tremendous 
benefit, which does, in fact, put us into a position where we 
could be a good borrower for these lenders that want to make 
loans, which they need to make loans to be successful. So we 
thought how could we solve this problem without any other help 
from anyone? And we decided as a group to get together from the 
franchising world and reach out to the lenders to try to show 
them what we had to offer because we knew they needed to make 
loans.
    So as a franchise loan, we think it is a better loan than a 
nonfranchise loan because you do have the system in place. 
There is training. There is support. The franchisor does 
underwriting before you go to the lender so there is some 
safety there.
    So what we did is put together a credit summit to bring 
together all the parties. I do not want to take the Committee's 
time to go through it and I do not have the time, but I would 
ask the chairman if we could perhaps introduce this piece into 
the record which does describe the credit conference we had and 
brought together lenders and franchise folks to try to come up 
with a solution, a private sector solution to the problem.
    As we go forward, we need help in this regard. We need to 
help our lender friends to be able to loan money to us. We are 
going to do our part. We are good loans. We are not trying to 
look for a bad loan. We are trying to put a proven loan that 
can be made and paid back. But we do need help because those 
markets are closed to us right now.
    Without the SBA lending right now, we would be a lot less 
people employed in the U.S. And with their help and your help 
to them, I know there will be a lot more jobs available. We are 
not looking for a bailout. We just need access to credit so we 
can grow our businesses and to provide more jobs.
    And I want to thank everyone for having us here. I will be 
happy to answer any questions. Thank you.
    [The statement of Mr. Hall follows:]
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    Chairman Graves. Thank you, Mr. Hall.
    Our next witness I would like to introduce is Lynn Ozer. 
Ms. Ozer is the executive vice president of small business and 
SBA lending at Susquehanna Bank located in Pottstown, 
Pennsylvania. Ms. Ozer is representing the National Association 
of Government Guaranteed Lenders where she has served on the 
board of directors since 1988. Thanks for coming and I look 
forward to hearing what you have to say.

                     STATEMENT OF LYNN OZER

    Ms. Ozer. Thank you, Chairman Graves, Ranking Minority 
Member Velazquez, and all the members of the Committee.
    As Chairman Graves mentioned, I am the executive vice 
president of Susquehanna Bank where I manage SBA and all 
government guaranteed lending throughout our banks for state 
footprint. Susquehanna Bank is a Pennsylvania state chartered 
bank with approximately $14 billion in assets and operates 
throughout 223 branches in the mid-Atlantic states. Susquehanna 
is active in both SBA 7(a) and 504 programs, currently holds a 
portfolio of approximately $300 million in government 
guaranteed loans.
    I am also here representing more than 700 members of the 
National Association of Government Guaranteed Lenders (NAGGL). 
For the past 23 years, I have served on their board of 
directors, and for many of those years I have served on their 
executive committee and as chair of the Technical Issues 
Committee. NAGGL's lender members are responsible for 
approximately 80 percent of the annual 7(a) volume, as well as 
most of the lender portions of the SBA 504 loans.
    Thank you for inviting me to testify and for holding this 
hearing on the important issue of small businesses 
availability--ability to access capital. In the interest of 
time, I will submit my full written testimony for the record 
and provide just a brief summary.
    I want to begin by publicly thanking the International 
Franchise Association (IFA) for taking a leading role, driving 
the discussion on the direct correlation between access to 
credit, job creation, and economic development. Because of the 
exemplary efforts, both NAGGL and IFA today, we have a 7(a) 
loan program that is much better able to meet the capital needs 
of America's small business.
    And it is important to note that the IFA work on this issue 
did not end with the passage of the Small Business Jobs Act. 
Approximately a year ago, while we were working on credit 
access issue on different tracts, NAGGL and IFA began a 
dialogue that we have continued. Through those encounters we 
came to realize that there is a significant overlap in the 
issues affecting both organizations' memberships and to note 
that each group has much to learn from each other. So IFA and 
NAGGL have forged a partnership intended to increase the 
availability of capital to franchise small businesses.
    A highlight of IFA's ongoing efforts to address the credit 
issue was the credit summit that IFA organized and delivered in 
April. Bill Hall, chair of IFA's Credit Committee, has briefly 
described some of the things that IFA is doing, but because 
neither he nor IFA will tout the organization's work to bring 
attention to this important issue and IFA's continuing 
commitment to this effort, I want to do that for him and them.
    I also want to specifically mention the exemplary 
leadership shown by IFA's CEO, Steve Caldeira, who has worked 
tirelessly to highlight the important role that access to 
credit plays in creating jobs and increasing economic output. 
The most important message that I can bring to the Committee 
today is to reiterate what you already know. SBA loans are 
critical to keeping the small business segment of the economy, 
the biggest job creating segment, healthy.
    We are seeing signs of economic recovery, but for a variety 
of reasons accessing capital continues to be difficult for 
small businesses. Lenders want to be able to provide this 
necessary capital, but they are experiencing a perfect storm of 
circumstances that together serve to stifle the conventional 
small business lending activities.
    So how are banks meeting the credit needs of their small 
business customers? Many lenders are increasingly turning to 
SBA loan programs, and in particular to the SBA 7(a) Loan 
Program.
    Having a healthy 7(a) program is essential to keeping 
credit flowing because SBA is the single largest provider of 
long-term capital to U.S. small businesses. Its loan guaranteed 
account for well over 40 percent of all long-term small 
business loans made in America. From the lenders' viewpoint, a 
key benefit to the 7(a) program is that it takes less capital 
to support an SBA loan than it does a conventional loan. From 
the small business viewpoint, the SBA guarantee allows 
increased access to capital, particularly to the kind of 
financing that appropriately matches the loan term to the life 
of the loan assets being financed. That is, finances long-term 
assets with long-term loans.
    According to the federal statistics, a typical 7(a) loan 
has an average original maturity of 12 years, while 
conventional small business loans typically have an original 
maturity of three years or less with a significant majority of 
those loans having maturities of one year or less. Longer 
maturities allow small businesses to access capital that would 
not be available to them if repayment were required in 
substantially shorter periods. The importance of SBA lending to 
small business clearly demonstrates by recent demand for the 
program.
    According to SBA, in the last two years the 7(a) and 504 
guarantees enable private sector lenders to provide 
approximately $42 billion in loans to small business. However, 
the success of the 7(a) program this year is causing a new 
problem. Based on the loan approvals to date, it appears highly 
likely that the program demand will exceed the $17.5 billion 
program level ceiling set by congressional appropriators. This 
means that it is likely that the 7(a) program will have to shut 
down sometime late this summer unless the Congress acts to 
raise the program level. In order to avert this potential 
program suspension, NAGGL, on behalf of its members, is 
requesting that Congress act now to increase this year's 
program level for SBA's business loan programs to $19 billion. 
This increase will not affect the budget because sufficient 
appropriations are already available to support the increase to 
the program level ceiling.
    We know small businesses lead the way to creating new jobs, 
and we know that having a vibrant small business segment in our 
economy is vital to continuing the fragile economic recovery 
that we are seeing. We also know that keeping SBA's 7(a) and 
504 loan programs available to meet the capital needs of tens 
of thousands of credit worthy small businesses that now have 
nowhere else to turn is equally vital.
    Do I still have time left?
    Chairman Graves. You are over.
    Ms. Ozer. All right. Sorry. That wraps it up and I will be 
available to answer any questions.
    Chairman Graves. You will have more opportunity when we get 
to questions.
    Ms. Ozer. Okay.
    [The statement of Ms. Ozer follows:]
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    Chairman Graves. I will now turn to Ranking Member 
Velazquez to introduce our next witness.
    Ms. Velazquez. Thank you, Mr. Chairman. And it is my 
pleasure to welcome and introduce Dr. Dennis Jacobe. He is the 
chief economist at Gallup. In this role he leads Gallup's 
efforts to understand consumer public opinion and the economy 
more broadly. He has designed many of Gallup's special 
financial indexes, including the small business index and 
investor and retirement optimism index. Dr. Jacobe is currently 
focused on the application of behavioral economics to the 
overall idea of financial well-being. Welcome.

                   STATEMENT OF DENNIS JACOBE

    Dr. Jacobe. Thank you, Ranking Member Velazquez and 
Chairman Graves.
    I am pleased to be here today. As you mentioned, I am 
Gallup's chief economist. The comments today are my own, not 
necessarily those of Gallup.
    We at Gallup are concerned about the economy and I will 
summarize my statement very quickly. But we interview 1,000 
Americans every night and we have done so since the beginning 
of January 2008. And we ask them various questions about the 
economy and then we look at those results and report on them on 
a weekly and monthly basis. And what our numbers show us is 
what you saw on some of the economic data today, and that is 
the economy is softening. We have seen it for quite a while. We 
think by asking Americans about how they feel about the 
economy, that we get some insight into where it is headed. And 
so although the economic data you are seeing today lags a 
little bit, we think our numbers are being confirmed by what is 
happening now, and that is we are certainly in a soft patch, 
potentially in a stagnation or a stagflation situation.
    Some of the numbers that we get show that consumer spending 
simply has not been increasing and at the same time we are 
seeing unemployment at very high levels. The number will come 
out Friday. I am not sure what that will be but Gallup measures 
its own unemployment rate. Our number for May is 9.2 percent. 
That is not seasonally adjusted as an unemployment rate, but 
when we look at what we call underemployment, that is the 
people who are unemployed or people who are working part-time 
looking for work, the number goes up to 19.2 percent. And we 
think people underestimate what the effects are on society and 
the economy of having one in five Americans unemployed or 
underemployed.
    In addition to this sort of daily monitoring, we do 
something we call the Wells Fargo Gallup Small Business Index. 
And what we do in that is we survey small business owners 
across the country and ask them a variety of questions to try 
and measure the small business operating environment. I have 
inserted a chart in my testimony, but basically what happened 
is early this year, as consumer confidence was up, so was small 
business confidence. And it was recovering from the last year 
and a half when it was low. In our latest measure in April, 
small business confidence went down. We think that does not 
portend well, but fits with our other measures in terms of the 
economy overall.
    In terms of our credit availability, as part of that index 
we measure and ask small business owners what they feel the 
credit is available to them as small business owners. In my 
testimony I include a chart that shows that about 30 percent of 
small business owners say that it is difficult or very 
difficult to get credit right now. Now, that number may seem 
small but it is about three times what the difficulty of 
getting credit was rated by small business owners prior to the 
recession. In terms of getting--whether credit is easy to get, 
we have about 20 percent who say it is easy to get. Obviously, 
those that are stronger financially than the rest, but that 
number is down from over 50 percent prior to the recession. So 
there is a slight improvement in credit availability for small 
businesses as has been mentioned by a lot of people, but it is 
far down from pre-recession levels.
    There are a couple of different things that I think are 
very important having to do with job creation of small 
businesses. I will not go through that discussion in detail 
except to say that we find that about 40 percent of small 
businesses tell us that they are hiring less people than they 
need. We think that if we can turn that around and actually get 
them just to hire what they need, not necessarily to grow, 
there could be really an explosion in terms of job creation 
that is unexpected by most economists. The question is how to 
do that effectively.
    Three areas that I mention that are not mentioned often, I 
think, one has to do with education. I would be glad to discuss 
that but I think there needs to be some tie-in to education 
from our polling with small businesses. The housing and real 
estate area, which you have heard more bad news about this 
week, which is another area that is very important to small 
businesses, and then finally, some of the energy problems.
    I will be glad to answer any questions.
    [The statement of Dr. Jacobe follows:]
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    Chairman Graves. Thank you. Next I am going to turn to 
Representative Landry for introduction of our final witness.
    Mr. Landry. Thank you, Chairman Graves and Ranking Member 
Velazquez. I would like to introduce Mr. Bob Kottler to you 
all. Though he is based up here in D.C., Mr. Kottler is a 
Tulane grad. I think Mr. Richmond--Cedric is not here--is our 
other--Tulane grad on the Committee.
    A former executive at Louisiana's own IBERIABANK and is 
currently the executive vice president near my hometown at 
IBERIABANK in Lafayette, Louisiana. And this may make him a 
certified Cajun. He may be able to understand me if any of you 
all have problems.
    Mr. Kottler has capitalized on his banking and finance 
expertise and has devoted much of his career to working on what 
makes small businesses work. In his current role at IBERIABANK, 
Mr. Kottler is responsible for the retail segment, including 
retail operations, credit cards, sales, retail training, and 
small business. Before joining IBERIABANK, he was the executive 
vice president for small business banking at Capital One, 
covering Texas, Louisiana, Maryland, Virginia, D.C., New York, 
New Jersey, and Connecticut. I do not know how you connect 
Texas and Louisiana to the east coast, but.
    His team worked in tandem with Capital One's national small 
business credit card team. Mr. Kottler also headed Capital 
One's branch real estate division in the Texas area and served 
as IBERIA's chief sales support officer before IBERIA and 
Capital One's merger. Mr. Kottler started his involvement with 
the Consumer Bankers Association in 1995 as a member of CBA's 
Small Business Committee. He has been extremely active over the 
last 16 years in roles such as chair of the Membership 
Committee and member of the Board of Directors for 10 years. In 
total, Mr. Kottler has nearly 20 years of practical experience 
in providing small business access to capital and credit.
    Mr. Kottler, thank you for your service to our communities 
in Louisiana and throughout the other states, and I am proud to 
have you testify before us all today.
    Chairman Graves. Thanks, Mr. Kottler. I think Mr. Landry 
used up all your time.
    Mr. Kottler. I think so. I should say that was a hard one 
to follow. I yield.
    Chairman Graves. Go ahead.

                  STATEMENT OF ROBERT KOTTLER

    Mr. Kottler. Good afternoon, Chairman Graves and Ranking 
Member Velazquez, and members of the Committee. I am excited to 
be here today.
    As Congressman Landry said, I am Bob Kottler and I am 
responsible for retail and small business banking at 
IBERIABANK. And also a member of the Consumer Bankers 
Association Board of Directors. CBA has been the recognized 
voice of retail banking, including small business lending for 
the nation's capital for 90 years.
    In my positions at IBERIA and CBA and 21 years experience 
in small business lending, I understand the challenges we face, 
especially getting through the current economic environment. 
Over the past few years high unemployment has resulted in less 
consumer spending, and consumer spending is critical to boost 
sales of small businesses and make them healthy. The decline in 
sales and the weak economic conditions have led to weaker than 
normal and inconsistent demand for small business loans. In 
fact, a recent FIB study found that poor sales and uncertainty 
continue to be greater problems for small business owners than 
access to credit.
    In addition to the decline in sales, another factor that 
has diminished the demand for lending is value of home equity. 
And as many of you know, home equity is traditionally a strong 
form of collateral that many business owners use to secure 
their business loans.
    A December study by the Federal Reserve Bank of Cleveland 
found the decline in home values has constrained the ability of 
small business owners to obtain the credit they need to finance 
their business. It is also important to understand how the 
decline in sales and home values has affected small business 
lending. When banks underwrite loans, we look at two things--
cash flow, both historical and projected, as well as the 
collateral securing the loan. The decline in these two criteria 
over the economic cycle have been significant factors behind 
the reduction in lending and make it clear why lending has been 
so difficult. But we do see it improving.
    CBA members report increases in demand for small business 
loans. In addition, the Commerce Department denounced an 
increase in consumer spending for the tenth straight month, 
which we think is a positive sign that we are turning the 
corner.
    So what is CBA doing to improve lending? Many banks have 
instituted aggressive Second Look programs where the banks will 
take a look at a loan that might have been declined and see if 
there is a way to improve it and are looking to find ways to 
make more quality loans through that process. A number of banks 
have also announced new lending programs and commitments to 
small business, and many CBA members have established enhanced 
training and incentives through the branches, which is often 
the primary place our customers come to ask for loans and also 
specifically improving use of SBA programs.
    CBA supported and will continue to support the efforts of 
the Committee and Congress to expand small business lending and 
economic development. We believe SBA program improvements, 
including 7(a) and 504 and express are important, and also the 
Small Business Lending Fund and other enhancements and all of 
those things are getting us--taking us in the right direction 
to make more loans.
    This spring, CBA joined with the International Finance 
Association to sponsor a small business lending summit here in 
Washington, D.C. And through that summit and the dialogue that 
we have had with IFA, we have looked for ways to improve 
lending. As a result, CBA's Small Business Committee is now 
working to develop a template that franchises can use to 
prepare their potential franchisees to secure the financing 
they need. This template will provide the bank information 
about the franchise and hopefully will help us successfully 
underwrite the loan.
    One final point I wanted to stress is the importance of 
communications between borrowers and lenders, even before a 
request is made. The better prepared and knowledgeable a 
borrower is about the process and the more that a lender knows 
about the borrower, the more successful the outcome. Small 
businesses and lenders alike need to work harder to bridge that 
divide and better understand one another. And that is one of 
the things that we have been working on with the IFA.
    In closing, we are just starting to see signs of growth in 
our economy but we think we have a ways to go. Any successful 
small business needs to have sufficient demands and goods in 
order to have strong cash flows to prosper. And we think as the 
unemployment rate falls, demand will increase which will 
continue to improve small business lending and small business 
growth. And CBA looks forward to working with this Committee 
and small businesses to strengthen our nation's economy. So 
thank you for the opportunity to testify and I will be 
available for questions. Thank you.
    [The statement of Mr. Kottler follows:]
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    Chairman Graves. Thank you, Mr. Kottler.
    I am going to pass my line of questions to the end of the 
hearing because I have a lot. But I am going to turn to our 
first member, Mr. West, for questions. Five minutes.
    Mr. West. Thank you, Mr. Chairman. Also, Ranking Member 
Velazquez. And thank you, panel, for taking the time to be here 
with us.
    We just had a very interesting morning. We went over and 
met with President Obama and one of the interesting topics we 
brought up is what we are discussing here today as far as 
lending. And especially the regulatory burdens that we place 
upon our small businesses. One of the things that the president 
said was that these are independent regulators dealing with 
small businesses and they really--the government does not have 
any effect upon them.
    So what I would like to know is, is that really the case? 
Or have you seen an increase of government regulators coming 
down that are restraining or restricting the lending practices 
for our small banks? Because that is a very important 
relationship we have to our small businesses. So I will defer 
to our bankers first and then, of course, Mr. Hall.
    Ms. Ozer. What we found is that the FDIC regulators are 
inconsistently applying regulations throughout the banking 
community. That is what has been reported to the trade 
association.
    Mr. Kottler. I think the banks that are members of CBA have 
not seen a lot of regulatory impact. We are always concerned 
about it but I ultimately think that it is really improvement 
of the economy that is really keeping more loans from being 
made. And that is really the primary influence.
    Mr. Hall. Well, from our--by the way, Mr. Landry, I am from 
Texas. No problem understanding you.
    Mr. West, I think the issue is, from a franchise 
perspective, we are hearing that our borrowers are being 
inconsistently treated in some ways or that the bankers are 
being inconsistently treated. At least that is what the bankers 
are telling us. I have some banking interest myself and I do 
know it is very difficult for the individual banks to know what 
to do. They are sort of just like we are in our business. It is 
very difficult times for the small banks. And so I do--we hear 
on the franchising side that there are significant restrictions 
on credit based on the inconsistency of the regulators. And I 
am not--I do not know enough about it. I am not trying to pick 
on FDIC or anybody else. We are just trying to find a solution 
to the problem.
    Mr. West. Can you all give examples of these 
inconsistencies? Just one or two maybe.
    Mr. Hall. I can tell you what I heard but I do not want 
to--these are the bankers. I will defer to the bankers. Unless 
they do not answer and then I will tell you.
    Mr. West. Hot potato.
    Mr. Hall. Okay. You know, what we hear is that the SBA 
loans--and again, I know we had Mr. Grumberger, who is the vice 
chairman of the FDIC, speak at our credit conference. He 
clearly said we are trying to help you in this effort but we 
hear what is happening is that it is not getting filtered down 
to the local examiners and that what is happening is that at 
the local examination level they are looking at SBA loans as 
being some risk--more risky because they are guaranteed. And 
therefore, are substandard. And so they are getting pushed over 
into a more restrictive line within the individual banks. We 
think franchise loans are good loans but because they are SBA 
loans there is apparently some bias against that. Again, I am 
not--I am only answering because you asked me the question. So.
    Ms. Ozer. Well, this is the same information that we have 
heard as well. And some banks on the government guaranteed 
loans are asked for higher reserves than others on the same 
guaranteed versus unguaranteed portion. So it has been handled 
inconsistently. And then just exactly what Mr. Hall was saying 
as far as the classification of the loan and the risk rating, 
and then that naturally affects how much capital has to be 
reserved for those loans.
    Mr. West. Absolutely. Well, thank you.
    And Mr. Jacobe, one question. In your estimation, what are 
the two economic policy silver bullets that would enhance 
access to capital for our small businesses and help us to 
sustain a growth environment?
    Dr. Jacobe. I wish there were silver bullets, but two 
things that would really help. I think one is stabilizing the 
housing and real estate markets. I think that as you hear from 
the bankers in terms of how small business loans are made, and 
I have worked with bankers for 25 years and they tell me the 
same thing. And that is a lack of collateral. A lot of that is 
related to the housing situation.
    The second thing has to do with education. When we did our 
polling prior to the recession and prior to the financial 
crisis, one of the things we found was that small businesses 
had problems finding people who were skilled and had the skills 
they needed so that they could grow. That remains a problem. 
And when we have polled recently, among the other problems they 
still cannot find the skilled people they need and talented 
people they need in those areas that are growing. So those are 
the two things I would focus on.
    Mr. West. Thank you very much. I yield back, Mr. Chairman.
    Chairman Graves. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Dr. Jacobe, in your testimony you discussed that while 
credit conditions have improved for small businesses, they are 
still considerably tighter than they were in 2006-2007. And I 
know that you mentioned three factors, one of them the housing 
and real estate markets. But do you see, based on the surveys 
that you take every night, any conditions that are improving so 
that we could be to a point where we were five years ago?
    Dr. Jacobe. Well, actually, until about January of this 
year we started to see a lot of things improving. And I thought 
we actually were going to build some economic momentum. And 
that has been sort of dashed in the last couple of months.
    I think that we could build surprising economic momentum 
and we could really get back there if we can unleash this kind 
of pent-up demand in the small business sector and just do a 
few things basically nationally that we could really recover 
very much more quickly than people think.
    Ms. Velazquez. Can you imagine where we would be today if 
we were not infused capital in terms of helping prevent the 
capital collapse--the capital markets from collapsing?
    Dr. Jacobe. That is really interesting. Last night I was 
watching Too Big to Fail. And during the period of time when 
all those events took place, I was polling nightly not only 
national consumers but also banking customers. And I could 
identify very well with some of the feelings that are portrayed 
in that show. It is really hard for people to go back and 
imagine what conditions were at that time. But at that stage I 
was among the group of people who would support almost anything 
because we were really afraid that things were going back to 
the stages of the 1930s. Now, I know a lot of people do not 
agree with that anymore but that is where we fell.
    Ms. Velazquez. And it is interesting that you note that the 
small business index had increased 40 points between July 2010 
and January 2011. What do you attribute this increase to? And 
do you think that the federal stimulus played any role?
    Dr. Jacobe. Well, I certainly think--and people disagree 
about how effective the federal stimulus was and all of those 
kind of things. But we really did see the economy start to 
recover from a really bad point about a year ago. And our 
numbers and consumer optimism and everything really did start 
to pick up late last year into early this year. I think it was 
a combination of things having to do with a lot of 
uncertainties being removed in the economy and people were much 
more optimistic.
    Ms. Velazquez. And you just made a comment that the economy 
is softening. And given the numbers that we heard in terms of 
job creation, adding only 38,000, and that could have an impact 
on capital availability or credit availability for small 
businesses. Up to this point, last year we passed the Small 
Business Lending Fund under the Department of the Treasury and 
it is supposed to provide capital to the banks so that they 
could lend to small businesses. Up to this point, only 626 
financial institutions have applied for the Treasury's SBL. And 
none have been approved yet. So do you see this initiative 
having a major impact on small businesses' ability to secure 
capital?
    Dr. Jacobe. I do not think that anybody really expected to 
have a huge impact from that program. At least the people I 
talked to, particularly out in the banking business, that that 
was really going to turn things around. And so I am not really 
surprised by the result. There are a bunch of issues around 
that program that just make it difficult for small banks to 
take advantage of it. And I am not sure that it will help in 
what I see as softening that is coming.
    Ms. Velazquez. When we were debating the legislation that 
created the Small Business Lending Fund, one of the concerns 
that I raised was the fact that in the language there was no 
requirements to the banks to lend. If you take that money, if 
you access that money, it should go to small businesses. So in 
light that we did not have--we do not have that requirement, 
would you--what do you think will have--the impact it will have 
on small business access?
    Dr. Jacobe. I am not really optimistic that the program 
will have a major impact. It is a little uncomfortable for me 
because I think conditions are bad enough that we ought to do 
anything we can. So anything that provides hope in this kind of 
area I am for. But, you know, in terms of expectations, I would 
not have great expectations.
    Ms. Velazquez. I will have questions for the other 
witnesses but I will do it in the second round. Thank you, Mr. 
Chairman.
    Chairman Graves. Ms. Herrera Beutler.
    Ms. Herrera Beutler. Thank you, Mr. Chairman. And my 
questions are going to be a little bit more directed to you as 
well.
    I really found it interesting in the survey you provided us 
when 40 percent of our small businesses are not hiring as much 
as they could--and we are not talking about--it is difficult to 
create new businesses. Right? In my state legislature I hear a 
lot, let us get new capital and expand. And I kept thinking we 
need to protect the business owners who are currently--those 
small guys who are struggling right now should be our immediate 
focus. That is the quickest way to get job growth in our 
country.
    I have 13, 14 percent unemployment. I have had double-digit 
unemployment for three years now in my biggest counties, and it 
is because we are primarily a small business-based economy. And 
I was looking through these answers that they gave you. 
Seventy-nine percent said they were worried revenues or sales 
would not be able to justify the new employees. Right? So 
nobody is going to buy what they are selling so it is not worth 
it to expand. Worried about cash flow or ability to make 
payroll. I can tell you I have had a lot of small business 
owners who have not taken a paycheck in several years to keep 
their employees employed. Hard to find qualified employees, 
which alludes to your education component.
    And then worried about the potential cost of health care. 
That is something we have not talked about at all here and we 
had a panel on it a couple of months ago. The only thing that I 
was surprised I did not see on here is with regard to the 
regulatory environment. And maybe health care fits under that. 
But this is really much more--I mean, this is much more big 
picture. It is not this regulation or that regulation. Is that 
not something that even registered with this part? Or is that--
or am I--or was it cloaked in the answers for these questions?
    Dr. Jacobe. I think it is overcome by the other answers. It 
is sort of under there somewhere. And when we have had larger 
sample sizes it does show up but it is a much smaller 
percentage.
    Ms. Herrera Beutler. That gets that specific. It is a 
regulation. Okay.
    Dr. Jacobe. Yeah.
    Ms. Herrera Beutler. So going back to the certainty and the 
confidence issue, you know, you had three suggestions or 
solutions. Each one of them could take us a significant amount 
of time. You know, how do we stabilize the housing values? And 
education is obviously more of a state responsibility but there 
are federal workforce programs that we could align perhaps. And 
then energy. And I know we are working on gas prices here. You 
know, get more supply out there and hopefully we can drive down 
the costs. In getting to these three, where would you suggest 
we start?
    Dr. Jacobe. I think that the most important thing that 
could be done, and I know this is not the view of a lot of 
people, is that we need to do something about housing. I think 
that housing has effects across the country that are 
underestimated. It has had a major impact on small business. On 
the collateral small business has, the ability to end, the 
wealth of the American people. And in terms of going forward, 
we have a broken housing finance system. I used to be a housing 
economist many years ago. And if you go back in history as to 
how housing was really stimulated, that has a tremendous impact 
on communities and on growth of small businesses, and then on a 
country. So I know that is not a topic that is being generally 
discussed but I think that is really--we are not going to get 
this economy going to potential without housing. If we get 
housing going, I think the growth is going to be a lot faster 
than most people think.
    Ms. Herrera Beutler. Thank you. And I yield back.
    Chairman Graves. Ms. Chu.
    Ms. Chu. Mr. Kottler, you talked about the decline in 
lending having more to do with drops in cash flow and home 
collateral values over the years. And that increased capital 
requirements and regulatory uncertainty have made it difficult 
to lend. But I wanted to look at the underwriting standards. 
What are the current underwriting standards for applicants 
seeking loans for their small businesses? And have they changed 
over the last three years?
    Mr. Kottler. You know, I think that as the economy 
worsened, there is no question that banks became--banks were 
worried about the uncertainty and certainly spent a lot more 
time asking questions of borrowers and making sure that we 
would make loans that could be repaid so we did not replicate 
the problems that caused some of this in the first place.
    I think we really look at three things when we underwrite a 
loan. First is the cash flow of the business, both how the 
business has done historically and then the projected cash 
flow. So what kind of contracts do they have? What kind of 
opportunities do they have? And I think one of the difficulties 
has been that obviously as the economy has been tough over the 
last couple of years, the historic cash flow of our businesses 
do not look as good as they did in the years before the 
downturn. So that certainly goes into the underwriting.
    The second piece is the secondary source of repayment or 
the collateral of the borrower. And that is where housing has 
come in. Commercial real estate appraisals come in. And clearly 
we have all been very cognizant of making sure that appraisals 
are right. And that they represent the true value of the 
property.
    And then the third is generally, especially in small 
business, the personal guarantees of the business. And we will 
look to the owner of that business to make sure that they are 
strong and can also support the business through any issues it 
would have. So I do not know that it is as much that the 
underwriting has changed more than being very cautious to make 
sure to go through each of those steps and in a lot of cases 
the borrower does not look as strong as they did in the years 
before the downturn.
    Ms. Chu. Are there any barriers though in the process that 
could keep a business owner from securing a loan even though 
they actually might be a good candidate for the loan?
    Mr. Kottler. You know, I am not aware of any. I mean, I 
think that, you know, banks are in the business of lending 
money. It is what we do. And I think that we all want to make 
loans. I can tell you in my business, if it grows, that is what 
we want it to do. So I think the real issue is just getting the 
economy on track, getting the jobless rate down, removing any 
other uncertainties that would cause small businesses from 
expanding. I think if those things happen, then I think we will 
begin to make loans. I will also tell you that our lending is 
up considerably from the bottom, but we are still not all the 
way back to where we were as an industry and as an association 
or members from the top.
    Ms. Chu. I looked with interest at this program by the 
Consumer Bankers Association of which you are a member of the 
board of directors, the Second Look program.
    Mr. Kottler. Yes.
    Ms. Chu. So what would trigger a second look at a good 
candidate for a loan?
    Mr. Kottler. I think that, you know, oftentimes loans will 
get declined by an underwriting. And so what we did is when 
that happens we put--many of our member banks put processes in 
place to have a supervisor or their manager or another 
underwriter take a look at those loans to see if there is 
another question we could ask, more information we could get, 
additional collateral that would make a bank comfortable. But 
something to try to take a look to see how we can make loans. 
And our members have seen anywhere from--we polled our small 
business committee--anywhere from three to 20 percent lift in 
the approval rates of those loans. So it has actually worked--
it has been something that has been successful in helping small 
businesses for our industry.
    Ms. Chu. Ms. Ozer, you look like you have something to say 
on this.
    Ms. Ozer. What I was going to add is the Second Look 
program is just something that a lot--that we do at Susquehanna 
and other banks that participate heavily with the Small 
Business Administration. We do a second look see if we can 
utilize the Small Business Administration's guarantee on these 
loans that do not meet our credit criteria on a conventional 
basis. The credit criteria of our bank, in particular, and I 
believe I am speaking for most banks, has--the credit box 
itself has tightened due to regulations and losses and so 
forth. But what that means is that the businesses that no 
longer qualify for conventional lending fall off their plate 
and land on mine as the director of government guaranteed 
lending. So that is why we have been doing more loans because 
we do look at the same exact criteria that Mr. Kottler was 
speaking about but with the enhancement of the government 
guarantee, we are able to make more loans to small businesses 
by utilizing that. And that is why the vitality of that program 
is so important.
    Ms. Chu. Thank you. I yield back.
    Chairman Graves. Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Briefly, I think one thing we heard earlier bears 
repeating. I was as surprised as Colonel West was when we met 
with the president this morning and were told by him from his 
own mouth that he had very little direct control over the 
regulatory environment. And Ms. Ozer, you mentioned that one of 
the hurdles that you had been facing in your business dealt 
with the FDIC. So I ask you, ma'am, who oversees the FDIC? Is 
it Treasury?
    Ms. Ozer. I think it is an independent agency.
    Chairman Graves. They are under Treasury.
    Ms. Ozer. It is under Treasury.
    Mr. Mulvaney. I believe it is under Treasury, which would 
be Mr. Geitner, who is a presidential appointment. We actually 
have a meeting with Mr. Geitner in a few minutes so I am going 
to ask him directly about his role over the regulatory 
environment. I was very surprised to hear that.
    But let us come to the issue at hand. And I have a question 
for Mr. Kottler. You heard Mr. Hall talk about the role that 
franchising plays. I have been a franchisor. I have been a 
franchisee. And he is absolutely right. There is a tremendous 
pent-up demand in our industry.
    Traditionally, our industry has been sort of a stabilizer. 
It has been countercyclical. When business got bad and people 
got laid off, they would turn to franchising as a way to start 
their own businesses. We saw that in our own business. The 
demand for our restaurants went up dramatically but the ability 
of people actually to open them fell to zero because no one 
could get financing.
    Mr. Kottler, let me ask you this. You talked about what is 
preventing you folks from lending, and I heard all the things 
that I would ordinarily expect, which is our cash flow and your 
collateral. It makes perfect sense to me. But my question is 
this. Is there anything that we can do or perhaps undo as a 
government to help you lend money? And I will give you the 
example that I take from another industry, which is the real 
estate industry which is having a great deal of difficulty 
refinancing right now. And it is in large part because of 
regulation. That there is a rule in place now that says if you 
refinance a real estate loan, even though it is perfectly 
healthy and performing, if you refinance it automatically goes 
into a troubled asset category. And to me that shows some 
opportunity for us to fix things.
    So I put it to you, Mr. Kottler, what can we do or undo to 
help you lend money to folks like Mr. Hall?
    Mr. Kottler. You know, I think one of the things is be 
supportive of the SBA programs. A lot of our banks use them. 
And the increases that were done and the amount to lend and 
some of the other things that were done there have been pretty 
important and banks have used that pretty aggressively through 
this economic environment to make loans.
    I think that is the primary thing other than just the more 
global economic things that I just think we have to continue to 
work on. And that will take care of a lot of it in the process.
    Mr. Mulvaney. Mr. Hall makes an excellent point and you 
talked about the fact in your testimony that if there was no 
SBA, if there were no SBA lending out there we would have 
almost none in our industry. Have you ever done an SBA loan?
    Mr. Hall. No, sir. I have not.
    Mr. Mulvaney. Has anybody--well, I know Ms. Ozer has. Ms. 
Ozer, could you tell us the difference in terms of the 
paperwork involved behind getting an SBA loan and a traditional 
loan? Maybe Mr. Kottler could help on that as well because it 
is not apples to apples. It is much more difficult to get an 
SBA loan than it is an ordinary free market loan.
    Ms. Ozer. The amount of credit information that is required 
from the borrower, the basic credit information is the same. In 
order to do your due diligence and the underwriting process 
that the congresswoman had asked about before, we need the same 
amount of financial information. However, when you are applying 
for an SBA loan, there are rules and regulations, standard 
operating procedures that have to be followed. So if you decide 
to borrow money from a bank who has expertise in that area, 
there should not be a huge amount of difference for the 
individual borrower. But you do need to have a lender that has 
experience in that because there is credit underwriting on the 
bank level and then there is credit underwriting that has to be 
done on behalf of the Small Business Administration. So there 
is basically two times the amount of work. You can use the same 
credit underwriting but you do have forms and applications that 
need to be done, eligibility checklists that need to be done, 
tracking of use of proceeds. And there is more of an 
administrative burden on the bank to do an SBA loan. But the 
borrower themselves should not really be experiencing more 
problems.
    Mr. Mulvaney. I had the great pleasure of having an SBA 
loan one time. It was a great experience, do not get me wrong, 
but if it was between going the SBA route and the conventional 
route, the conventional route was always preferable.
    Yes, sir, Mr. Hall.
    Mr. Hall. Well, I would add that while I have not had an 
SBA loan, it looks like I am going to be going after one. And 
that is--I will just give you the real world perspective on 
that. In the past, you know, if I am putting a unit in or put a 
restaurant in, I am typically putting a lot of capital in there 
already in addition to the loan. And in times past I may not 
have had to guarantee the loan personally. In fact, I would not 
do it unless I absolutely had to. In today's environment, every 
bank is making me guarantee that loan personally. So now faced 
with the fact that I probably cannot get the loan at the 
commercial bank, I am now saying, okay, well I have got to go 
through SBA. If I want to expand my Dairy Queens, which I am 
currently looking at right now, I am probably going to expand 
my Dairy Queens to refurbish them through an SBA program 
because that is really the only route I can take.
    Now, am I excited about, one, the paperwork, and two, 
personally guaranteeing it with everything I have when I am 
putting a lot of capital into it? No, I am not, but I do not 
really have a choice if I want to renovate my units. So that is 
the response about the SBA.
    Mr. Mulvaney. Thank you, Mr. Hall. Thank you, Mr. Chairman.
    Chairman Graves. Mr. Peters.
    Mr. Peters. Thank you, Mr. Chairman.
    I want to talk a little bit about--bank to the bankers' 
situation with making loans. And I know how the deals have 
changed but there seem to be two issues with the banking 
industry that I found in talking to my community bankers, 
credit unions, and others. Is that certainly the deals that are 
coming to you are different. Cash flow is different and 
collateral is different. But in terms of some of the questions 
we have been getting from some of the other panelists as well 
with the FDIC involvement is that oftentimes the FDIC will go 
into a community bank, for example, is what I am hearing, and I 
would like you to respond, is that they will go into a 
community bank and say, basically looking at your portfolio and 
seeing your collateral that you have backing up your portfolio, 
real estate, for example, has dropped so your collateral has 
dropped. As a result of that you need to have increased 
reserves which seems to be a prudent thing to do, is to 
increase reserves as your collateral has dropped. But that, of 
course, limits your ability to lend because you either have to 
bring in private capital, which is a difficult thing to do in a 
tough economy. A lot of small banks do not look like a great 
investment to people, particularly in my area, or you have got 
to actually call in loans or reduce your ability to lend.
    So the question to the two folks from the banking industry, 
to what extent is the fact that you are having trouble finding 
credit worthy borrowers? And to what extent is it the fact that 
just because your own portfolios have dropped, the collateral 
has dropped in value and you simply do not have the capital to 
lend? What is that balance?
    Mr. Kottler. You know, I can tell you from our experience 
at IBERIABANK, we have been very well capitalized and had very 
good lending performance through the cycle. So I will tell you 
that one of the reasons that I came to IBERIA was to do more 
small business lending. That was something the bank management 
and the bank wanted to do. And as a result, I do not think--my 
experience is, at least at our bank, that that has been an 
issue. The issue is really----
    Mr. Peters. More broadly than your bank? Is it an issue?
    Mr. Kottler. You know, it is interesting. I have attended 
some different forums over the last few years and some of the 
smaller banks have certainly raised that issue. But I will tell 
you from my experience at--our bank has $10 billion and my 
experience at a larger bank, I do not think it was.
    Ms. Ozer. My experience with our bank is similar in that we 
have been capitalized and have been able to lend through the 
crisis. We do have issues with loan loss reserves. And on a 
conventional basis, they are looking more closely because of 
regulations and the types of collateral that they are able to 
use. The equity values have decreased but we have available to 
us, the way to make loans, is to utilize the government 
guarantee. And we have been able to do that and to conserve 
capital because that is one of the major things that that 
program allows us to do. The credit worthiness of the 
borrowers, you know, at the present time the people that you 
are looking at now that come in to borrow money, their expenses 
are lean and mean and most of them have a top-line problem and 
not a bottom-line problem because of the consumer spending.
    And those are the things, you know, that makes the banks 
nervous and, you know, we use the government guarantee to do 
that. On a conventional basis, a lot of banks are requiring 
borrowers to pay off their credit lines that they have utilized 
all the way and they do not have availability on it. And then 
with an SBA guarantee, we can give them 10 years to repay that 
loan as opposed to the banks requiring only a two, three, four 
year loan. So by applying a guarantee to it, we increase the 
working capital available to those borrowers to keep them in 
business.
    Mr. Peters. Let me jump in though with your use of the SBA 
which is an important part for you, is that there is some 
discussion on the fees that are assessed on SBA loans. 
Traditionally, those fees have covered all the costs of the 
program. However, now it is being subsidized. And I know the 
administration and others have concerns about the subsidy of 
the fees. All of the fees can be relatively high for a small 
business right now. What impact do you think it would have if 
we are in a position that we do not subsidize those fees and 
actually have to raise those fees? Are you concerned? Maybe 
that is to all the panelists. Are you concerned about having to 
face even higher SBA fees?
    Ms. Ozer. On a personal basis, I mean, the borrowers have 
that concern but this also touches on what Mr. Hall was saying. 
You know, when you utilize an SBA guaranteed loan, it is 
because credit is not available elsewhere. So these small 
businesses are either fighting to stay in business or they want 
to fight to start business. And the fees can be financed and 
amortized over the life of the loan which is generally a longer 
period of time than they would get on a conventional basis. So 
as a lender, yes, it is concerning. As a borrower, I am sure 
that it is concerning as well, except for that if you are in a 
situation where it is the most reasonable way to continue in 
business or start in business, then we are going to continue to 
do it.
    Mr. Hall. You know, I have a financial background, a CPA, 
which I started eight years doing that and I have been an 
entrepreneur since then. Unfortunately, the question I would 
ask the bank now is not about the fees but what is the payment. 
It is a situation where you need the credit. You need to 
finance something. You are going to pay a higher fee and be 
willing to pay a higher fee than you ever thought you would. It 
is the same as the example I gave on the personal guarantee. 
There was a time I said I would never personally guarantee a 
note again. Well, I am eating those words today because to get 
a loan, to expand or even survive, I am going to have to 
guarantee it personally and put on the table everything I have 
worked for all my whole life. But I have to do that to grow.
    Mr. Peters. Thank you, Mr. Chairman. I yield back.
    Chairman Graves. I am going to jump in here real quick 
because we are going to have a series of votes here coming up 
here after a bit. I do not know when they are.
    But I do have a question for you, Mr. Hall. You mentioned 
earlier, and I have heard this, too, about a possible bias out 
there against franchises making it harder for franchisees. In 
fact, I have friends who are trying to get loans for start-ups 
that are new franchises. And they get that impression that 
there is a bias against or that it is much tougher. Can you 
expand on that a little bit? And I would be very curious to 
hear what the others have to say in the banking community.
    Mr. Hall. Well, you know, I think historically people have 
had a negative thought about the restaurant industry and about 
start-ups just in general because, you know, the SBA program is 
not about giving away money to loans that will not pay back. I 
mean, it is a program where you really have to pay the money 
back and there has to be a plan in place.
    So I think there probably has been traditionally a bias 
against some of the franchises. But I think we are turning that 
around, partially with the work the IFA is doing with these 
other organizations. Because to us it is about--we look at it 
as the glass is half full, rather than half empty. We are not 
putting the blame on you guys. This is our responsibility. We 
have got to operate. We have got to grow. And the way we are 
doing that is working together as a group with some other 
people that need to make loans. And the things that we are 
doing are like the underwriting issue that was brought up 
earlier. We accept some of that responsibility. We probably 
were not given the right information to these folks because we 
did not know what to do.
    So through the leadership of Steve Caldeira and the IFA, we 
are creating this environment where we are showing our members, 
both franchisors and franchisees, how to make that loan 
application and the things that the bank needs to be 
successful. So hopefully, we are going to overcome that bias 
that I think has been out there. But I certainly know that it 
has been there but our effort in the future is going to try to 
overcome that.
    I do not know if that answers your question.
    Chairman Graves. Any other thoughts? Anybody?
    Mr. Kottler. I will add that I think that start-up loans 
are the most difficult loans to finance. They oftentimes have 
the least equity going in. They are oftentimes people who may 
or may not have been in that business and want to do something 
new. So I think the issue is less of a bias and more of just 
they are harder to do.
    So I think one of the things that we have talked about with 
IFA is our CBA's Small Business Committee has put together a 
template with a series of questions for the franchise. How 
successful your franchise has been and a whole series of 
questions. And we are hoping as an industry that by starting 
that communication that we will have more success with start-
ups because I do think they are the most difficult things to 
do.
    Chairman Graves. Let me back that up with a question. And I 
would be very curious to hear from everybody. When it comes to 
start-ups and, this is the age-old question. If you are not 
wealthy, you are very limited when it comes to your personal 
guarantee. But you are trying to do a start-up and you have a 
good business plan. Is there anything that can be done to make 
that process a little bit easier? Because those are the people 
that I worry about more than anything else. We have got some 
great ideas out there in many cases but if that individual is 
not wealthy, they do not have the personal backing or that 
personal guarantee, the equity, out there. So what can be--is 
there anything that can be done? And I will just run right down 
the line and I will start with you, Mr. Hall.
    Mr. Hall. Well, you know, traditionally what has happened 
is those initial entrepreneurial-type efforts have been 
financed by friends, family, other outside people. They beg, 
borrow, and steal. Whatever they have to do to get--probably 
the wrong words--but they do whatever they have to do to get 
started. And I think that is sort of what has happened. So I 
think also in the franchise industry, as well, we have a lot of 
people coming into that that their initial capital is coming 
from what we call angel investors, which is somebody that has a 
personal relationship with them. Very difficult to get any 
institutional-type investor to get involved in any kind of 
these small business-type loans that we are talking about.
    But as a rule, I think that initial capital comes from just 
the effort from the individual. Very seldom in my history of 
being in business have I seen a start-up like that be able to 
go in and find a place other than through some foundation or 
something, get the start-up monies. So my personal experience 
is normally they have to take the first step to get into 
business, which is one reason we love the franchise business 
because they are not taking that first step totally by 
themselves. They can accumulate some of this money, they can 
get in business with support from someone else to help them be 
successful going forward and to grow.
    Chairman Graves. Senator.
    Ms. Ozer. I agree totally with what Mr. Hall was saying. 
When you look at, as I have for years, projections and business 
plans to begin with, we see lots of people that we suggest they 
go back to the Small Business Development center. So they go to 
the SBA offices, SCORE offices and so forth, to work on their 
business plans. But the initial equity when you talk about 
that, that is the most difficult part. The hardest loan is the 
start-up capital. They go to friends and family and angel 
investors, but we will not do 100 percent financing. And what 
we find, a lot of times what I see is that these people have 
accessed money from credit cards. And a lot of times we see 
that that is how they start their businesses. And then if they 
do have this wonderful idea they come to us where they have 
already proven some top-line success and they have credit card 
debt. And that is one of the beauties of SBA lending. We can 
refinance credit card debt over a longer period of time because 
they have already proven that they can prove it on a small 
basis. And that is how they get it.
    But the initial capitalization, if you do not have it, you 
have to get a gift letter from your friends and family. You 
have to get investors. If you could sell the bank on your idea 
then maybe you can sell it to somebody else and bring on 
partners and so forth because they do have to have some 
percentage of monies to do that.
    I have information here on the percentage of start-up loans 
that were done by the SBA if you are interested in hearing 
that.
    Chairman Graves. Very much.
    Ms. Velazquez. Mr. Chairman, will you yield?
    Chairman Graves. Yes.
    Ms. Velazquez. I do, too, by the way. And that is my 
frustration. Because when we passed the Jobs Creation bill, it 
was with the purpose of helping provide capital, affordable 
capital to those who were not able to get it through 
conventional financial institutions. And what we have seen is 
that the federal government and SBA is guilty as charged 
because what we are seeing is a concentration on big loans. 
Those--we increase the loans from two to five million, and the 
percentage of smaller loans defined as those less than 150,000 
has declined through SBA guarantee loans from 17 percent to 
eight percent.
    So the problem with this recession compared to other 
recessions is that people lost their jobs and they started up 
businesses. They created businesses. This time around, because 
credit standard has tightened and SBA has not helped because 
basically those guarantee lenders are concentrated on making 
the big loans. Debt financing does not create jobs. Start-ups--
--
    Ms. Ozer. With all due respect, the 7(a) start-up volume is 
up 6.3 percent in numbers and 38.8 percent in dollars in 2011 
year-to-date versus 2010 year-to-date. There is 29 percent of 
the number of loans to start-ups which is defined as businesses 
open for two years or less. There were 10,474 loans made to 
start-ups so far this year versus 9,856 last year. And the 
start-up dollars are 3.255 billion year-to-date versus 2.346 
billion last year.
    Ms. Velazquez. It is up higher from SBA.
    Ms. Ozer. But the information--the thing that I have seen 
just in my bank is there has been a lot of start-ups because 
there are a lot of people out of work.
    Ms. Velazquez. And I bring you back----
    Ms. Ozer. And some of these people that are out of work 
actually do have money as a start-up to start their businesses 
because they have either been laid off with a package or they 
are older, more successful people that have lost their jobs and 
they can do capitalization. So we are doing them. And as far as 
the small loans falling off, a lot of people are using the SBA 
express loans less but they are using the larger loans more. 
But we need those larger loans because as companies grow, like 
Mr. Hall is saying, people that have five and six, they need--
they get above the two million. They have to renovate their 
stores. They need five million. So in my shop, we make loans 
the whole gamut.
    Chairman Graves. I want to go back to my original question 
and that is I am talking about people who are doing start-ups 
that do not have the equity out there for the personal 
guarantee.
    I would be very interested in hearing what you have to say, 
Mr. Kottler, about that. Or what can we do? What can be done to 
help those individuals out? I mean, we hear a lot about those 
people that have that money or have something to back them up. 
But I am talking about those people that do not. What can we do 
in your experience? Or what can be done in your experience?
    Mr. Kottler. You know, I think it is an ongoing process, so 
I do not think there is one silver bullet that gets it. I think 
it is a combination of them finding personal funds or friends 
and family to get started. Coming into the bank and working on 
business plans and beginning a discussion. I think one of the 
most interesting things to me is that customers who come in and 
have discussions about what they are thinking about with their 
banker and get to know them long before they actually come in 
for the loan request have--that helps a lot. And I think then 
just making sure that we have programs with SCORE and SPDCs to 
help out.
    In a bank that I worked for in the past, we actually worked 
with the Kauffman Foundation to do first-time business owner 
training, somewhat similar to some of the first buyer homeowner 
training. And that was very successful. The people that 
graduated from those programs were more successful in their 
business than other start ups. So I think there are a whole 
bunch of different things that we just need to put together to 
make it work as opposed to one big thing.
    Chairman Graves. Dr. Jacobe, do you have anything to add?
    Dr. Jacobe. Well, we have done some surveys asking small 
business owners from their experience starting what did they do 
right and what did they do wrong. One of the things they 
highlighted was not starting with enough capital. They tried to 
get in and they did not have enough capital to make it. And I 
think in this environment, some availability of at least some 
kind of minimum level of capital is even more necessary because 
they are not going to have immediate success. And so you do not 
want a lot of people going out there and trying in this 
environment without some kind of capital foundation.
    Chairman Graves. Who is next?
    Mr. Owens. Thank you, Mr. Chairman.
    Ms. Ozer, you testified before that the issue is really a 
demand issue or a top-line issue. So for businesses, they do 
not have adequate demand really to support a pro forma that 
allows them to come to a bank and secure a loan and that that 
is inhibiting their ability from a financial perspective to 
come in and be successful in the loan process because they need 
to grow the top line in order to be successful to have the 
ability to repay the loan. Is that a fair summary of where you 
think many businesses are at?
    Ms. Ozer. Yes. I am not sure that we are communicating on 
the same-I am saying that existing businesses right now, not 
start-ups.
    Mr. Owens. Right. Correct.
    Ms. Ozer. I am not talking about pro formas. I am saying 
that what we are seeing is that the bottom line is profitable 
but some of them have been experiencing downward trends in the 
top line so that in order for us to make a loan, we need to see 
year-to-year that either the bleeding has stopped and they can 
still pay or that it is, you know, back to increasing again.
    Mr. Owens. Okay, but that obviously puts them in a position 
where there is not as much demand for bank loans. If they are 
not having growth in the top line, they clearly do not need a 
line of credit, for instance, or to increase their line of 
credit because they are not buying additional raw materials or 
additional product for resale.
    Ms. Ozer. Well, they are still funding their receivables 
and sometimes they need to have short-term capital so that they 
can fund their daily activities. If they are not a cash 
business, even the level of business that they are doing, they 
still need short-term credit lines in order to operate on their 
regular cash cycle.
    Mr. Owens. But they are not increasing the level of their 
borrowing, I am assuming.
    Ms. Ozer. Well, it all depends. I mean, a lot of them have, 
you know, they still need to maintain it. And some of those 
businesses----
    Mr. Owens. I did not say maintain. I said increase. They 
are not increasing their borrowing because they do not have 
additional sales or additional product that they are 
purchasing.
    Ms. Ozer. But they need to grow.
    Mr. Owens. Mr. Kottler, Mr. Hall, do you want to comment on 
that?
    Mr. Hall. Yes, sir. Let me just put it in a Dairy Queen 
perspective. Five Dairy Queens. And my sales are not going up 
dramatically, but I am about to have to borrow money to 
renovate those facilities to maintain my existing business or 
else--you can be in business and not keep up with the 
competition and you are just slowly going out of business. So I 
would not--I would say to you, certainly in my personal case I 
am going to borrow money without the expectation of greater 
sales. I hope I get them and I hope I am able to get a higher 
bottom line, but at the end of the day I am probably going to 
have a lesser bottom line but I am still going to be in 
business. And I think there is a lot of that going on that 
maybe does not make much sense to you but if you think about it 
I have got my base. And if my base goes away, then where do I 
get my money? So I am willing to accept less profit to grow, 
but what I am also doing is growing jobs, keeping people 
employed, and keeping my system in place.
    Mr. Owens. Would it be fair to characterize what you are 
doing as more in the form of a capital loan as opposed to a 
working capital loan?
    Mr. Hall. Well, in my business it is just I have to make 
enough to make payroll. And so when I have to borrow that money 
to do the construction, certainly, that would be a capital 
loan. But I am telling you, in a business environment right now 
the margins are so thin that you just literally--there is no 
big cushion. We do not have a big pile of money sitting in a 
bank waiting. We are going, figuring out how to get where we 
need to be.
    But I just wanted to respond to your point about the idea 
of there will be a situation. You cannot always look at this 
and say I am going to get this much return, certainly in a 
small business environment. Because partly it is about the 
family. Partly it is about keeping these people employed and 
keeping our business going.
    Mr. Owens. And obviously, some of this would be cured by 
increased sales.
    Mr. Hall. That would be right. Love to have it. Love to 
have it. More Blizzards is good for me.
    Mr. Owens. I also want to go back to something that Mr. 
Jacobe said before and that was you focused on housing. If we 
solve the housing problem that that would do a number of 
beneficial things, including presumably increasing available 
collateral for loans. What is the solution there? I am curious 
as to the bankers we have on the panel. Do they have a 
substantial amount of foreclosed properties that they are 
holding on their balance sheets or is that not an issue for 
your banks?
    Mr. Kottler. For my bank it is not but certainly for a 
number of our member banks who are some of the largest banks in 
the country, they certainly have been working through those 
issues. But I think from the standpoint of housing value, we 
talk about start-ups and other kinds of small businesses. And 
once a borrower gets beyond personal credit cards and personal 
savings, the place that they oftentimes go to next is to pledge 
their house.
    Mr. Owens. Right.
    Mr. Kottler. Either as a personal loan or a business loan 
to fund their business. And so as home equity values have gone 
down, especially in certain parts of the country more than 
others, it has taken away that source of collateral which has 
made it more difficult.
    Mr. Owens. Mr. Jacobe, what is the solution?
    Dr. Jacobe. Well, I wish I knew. The real solution is to 
get a bottom in housing and a bottom in values so that 
everybody can start improving from that point on. And you know, 
the danger now, if you have seen the latest reports, is that 
everybody is fearing the double-dip in housing, another step 
down. And that has the same kind of repercussion throughout the 
economy.
    You know, I think that traditionally Americans have valued 
homeownership. Some people seem to be moving away from that but 
I think the nation needs to value homeownership and do whatever 
it can to stabilize housing and get people buying again in a 
secure environment. If you are going out to buy a house today, 
leverage works reverse, works against you. And so if the price 
of the house you are going to buy goes down by five percent, 
you can lose your downpayment. The point is you have got to 
stabilize that to get things going. And I think people 
underestimate how important housing is to the future of the 
economy.
    Mr. Owens. Thank you. And I yield back.
    Chairman Graves. Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    There has been discussion about some of the banking 
regulators, and in my community some of the smaller community 
banks were particularly hard hit and their concern was that 
they felt that there was an overreaction to some degree, that 
they were paying for the sins of the big banks during the 
financial crisis. For example, their capital reserve had a 20 
percent increase early on in this crisis. And their market 
niche seemed to be commercial real estate, which was 
particularly hard hit. I wonder if you could comment in terms 
of small business access to capital related to community banks. 
In your view, was there an overreaction by the regulators? 
Anybody.
    Ms. Ozer. Well, we are a little bit larger than a community 
bank having $14 billion in assets, but our commercial real 
estate division was the most hard hit in our bank. So as far as 
an overreaction is concerned, the perception is that the amount 
of capital that you have on reserve now is going to be looked 
at. If they say it is best to be at 10 percent, then you really 
need to have 13 percent or 15 percent. So as such, I do not 
think that they have over--well, are you saying the regulators 
overreacted?
    Mr. Coffman. Regulators to the community banks.
    Ms. Ozer. I do not know the answer to that. I just do not 
know if they overreacted, but they reacted appropriately in 
some cases.
    Mr. Coffman. From a borrower perspective, you know, most of 
the borrowers I know think there was an overreaction, 
especially at the smaller bank level because that was the most 
given response as to why they could not get the same credit 
that they had had in the past. You know, we are facing 
increased regulation and that--so from a borrower's perspective 
there certainly is a perception out there. And, you know, just 
as a general comment, I mean, and the regulators, in good times 
it seems to me they ought to be a little more conservative and 
trying to get you to put stuff back. And then in bad times it 
seems like they ought to be trying to help the good borrowers 
get through the tough times. Because we are talking about 
people that have had a long history of performance and because 
of really something they really did not have much control over, 
are having to struggle.
    Now, unfortunately, I think the community banks are in 
exactly the same position. So that again gets back to the RFA 
program where we are trying to match these two people. We kind 
of both have been in the same position. See if we cannot get 
together and get some supply meeting the demand situation.
    I have had a number of community bankers inform me that 
even if they had performing loans in commercial real estate, 
that those loans were downgraded. And they should have been 
just, you know, a watch put on them but not downgraded. That 
would cause them to pull money available for lending into their 
capital reserve. Anybody else comment on this?
    Just one last related question and that is in terms of job 
creation, which is the subject of today's conference, access to 
capital is very important. But what in your--the majority--I 
was a small business owner. I had a corporation. And the 
majority of small businesses are structured as corporations. In 
terms of job creation what would be the impact of increasing 
the income tax rate on job creation knowing that corporations, 
essentially that is the tax rate that you pay? Would anybody 
like to comment on that? Please.
    Mr. Hall. I am a sucker. I am a sucker for this.
    You know, as a small business owner, you know, as you know, 
as you have already articulated, most of the money flows 
through from our businesses to our personal income tax return. 
And I do not--you know, there is nobody going to tell you we 
want more taxes. I will tell you right now though, I am not 
afraid to pay what is fair and what needs to be paid. But on 
the other hand, you know, we have been hit with the alternative 
minimum tax, as a lot of people have been hit by that over a 
period of time as it just creeped up. People that their 
business income is flowing through to their personal tax return 
and they are not getting any deductions and it is difficult. I 
know it sounds like a lot of money but I am telling you in 
today's environment, if you are trying to survive and 
capitalize your business out of your personal situation, which 
is what all small businesses people do, there are some issues 
as a taxpayer. I do not want to have to pay more taxes. I am 
willing to pay my fair share and I want to pay my fair share, 
but I also have to survive.
    And I will tell you, if you start taxing, and 
unfortunately, I am afraid the situation with health care, you 
are going to lose jobs. You do not realize it but you are. In 
the real world you are going to lose jobs. It has to happen 
because there is no other--we are squeezed so tight right now 
that there is no place for it to go.
    Mr. Coffman. Thank you, Mr. Chairman. I yield back.
    Chairman Graves. Ms. Clarke.
    Ms. Clarke. Thank you very much, Mr. Chairman. Thank you, 
Ranking Member Velazquez. And I would like to thank our panel 
for their insightful testimony today.
    We all understand only when all of our nation's small 
businesses are active participants in a robust recovery that 
adds jobs will our nation fully recover from the recent 
economic downturn. I also understand that allowing the 
regulatory environment to return to one that allowed for the 
financial collapse in the first place is irresponsible at best.
    Today's testimony, especially that of Mr. Jacobe and Mr. 
Kottler, illustrate the difficult task facing our nation with 
the lack of consumer spending highlighted as the top concern of 
small businesses--excuse me, small business owners--with 
regards to hiring. This fact itself feeds back into the anemic 
consumer spending. The fact that private lenders are not 
lending even to those who would otherwise be deemed 
creditworthy has led to the issue that Ms. Ozer pointed out 
regarding the 7(a) program approaching its ceiling later this 
year.
    So my question is this. Given that there is a need and also 
recognizing that returning to lax regulatory environment that 
caused our current problem would be unwise, what else is needed 
to incentivize private lenders to free up the capital that 
would allow small businesses to expand and hire, which in turn 
would turn around the weak consumer spending and get our 
economy back on track?
    Dr. Jacobe. That is a really tough question. I think there 
are a lot of things that could be done that would encourage 
local lenders to hold more loans. Everybody who has tried to 
figure that out has had some difficulty in terms of how to do 
that effectively. And you have tried with various kinds of 
programs. You know, the big thing is to try to get consumers 
spending again. And that is a larger issue. Once that happens, 
then everything turns positive. If in the interim you can 
figure out a way to get lenders to hold more loans themselves 
instead of the government programs but get more loans in some 
kind of incentive way, that would help also.
    Ms. Clarke. Yes, Ms. Ozer.
    Ms. Ozer. I think that, you know, utilizing the government 
programs is helping us to do that but even at that level I 
agree with Mr. Jacobe in the fact that the consumer confidence 
and the consumer spending is all hand-in-hand and that is all 
tied up with more jobs, more disposable income, and so forth. 
So if we can continue to try to get the money out there to 
businesses that hire people, then the outlook will go on. But 
it is a very difficult situation. And I tend to agree with him 
that until the home level, the values in their homes come back 
and they have confidence that they are not going to lose their 
homes, that is their priority, is where they live and that they 
have jobs and money to put on the table, when that comes back. 
I think that the banks are doing everything they can with the 
tools that they have to get money out there to small 
businesses. I know that in our bank, you know, someone else 
asked about the foreclosure rate. If the people are paying on 
the loans, we are working with them and not foreclosing even 
though they have been downgraded because the regulators are 
forcing us to downgrade because the LTVs are not there. But if 
the loans are being paid, they are still in the bank. So, you 
know, the banks are trying to work with the people that they 
have lent money to to keep the businesses going, to keep people 
employed, to keep people spending money. It is just a cycle.
    Ms. Clarke. Okay. Mr. Kottler, did you want to--you are at 
Capital One. You have got to have the answer. What is in your 
wallet?
    Mr. Kottler. I am not there anymore. But you know, it is 
interesting when you watch borrowers. So in a robust economy 
you see borrowers coming in and they want working capital lines 
of credit to hire new people to fund new contracts. They want 
to purchase new equipment which then leads to more people to 
run that equipment to more jobs. Coming out of the bottom of 
this recession what we saw was we started to see loan demand go 
up but it was for things like I want to buy the building that I 
am in because I have been leasing it and now it is worthless 
and I can get a good deal on it. I want to, you know, I want to 
buy my competitor who is weakened and I can do that. And those 
things--those kind of loan requests do not necessarily create 
jobs. So as we get more consumer spending and we get more 
economic growth, then we will start to see those kind of loans 
from established businesses be the kind of loans that say we 
are willing to commit and expand. And that is not--we have seen 
less of that up to this point.
    Ms. Clarke. Do you want to add anything at all, sir? Yes.
    Mr. Hall. No, ma'am.
    Ms. Clarke. Okay. Well, I yield back the balance of my 
time. Thank you again.
    Chairman Graves. I want to thank all of you for 
participating today. And this Committee is about job creation 
and helping small businesses. And we are going to do everything 
we can to try to make sure we do what we can to provide access 
to capital for those small businesses, particularly the ranking 
member and I are very committed to helping those start-ups as 
best we can.
    But again, I want to thank all of you for being here, and I 
would ask unanimous consent that all members have five 
legislative days to submit statements and supporting materials 
for the record. Without objection, it is so ordered. And with 
that, the hearing is adjourned. Thank you all very much for 
coming in.
    [Whereupon, at 2:46 p.m., the committee was adjourned.]
                      CERTIFICATE OF NOTARY PUBLIC


                          DISTRICT OF COLUMBIA

    I, Stephen K. Garland, notary public in and for the 
District of Columbia, do hereby certify that the foregoing 
PROCEEDING was duly recorded and thereafter reduced to print 
under my direction; that the witnesses were sworn to tell the 
truth under penalty of perjury; that said transcript is a true 
record of the testimony given by witnesses; that I am neither 
counsel for, related to, nor employed by any of the parties to 
the action in which this proceeding was called; and, 
furthermore, that I am not a relative or employee of any 
attorney or counsel employed by the parties hereto, nor 
financially or otherwise interested in the outcome of this 
action.

    Notary Public, in and for the District of Columbia
    My Commission Expires: May 31, 2014
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