[Senate Hearing 112-837]
[From the U.S. Government Publishing Office]
S. Hrg. 112-837
SMALL BUSINESS RECOVERY: PROGRESS REPORT
ON SMALL BUSINESS JOBS ACT OF 2010 IMPLEMENTATION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MAY 19, 2011
__________
Printed for the Committee on Small Business and Entrepreneurship
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED TWELFTH CONGRESS
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MARY L. LANDRIEU, Louisiana, Chair
OLYMPIA J. SNOWE, Maine, Ranking Member
CARL LEVIN, Michigan DAVID VITTER, Louisiana
TOM HARKIN, Iowa JAMES E. RISCH, Idaho
JOHN F. KERRY, Massachusetts MARCO RUBIO, Florida
JOSEPH I. LIEBERMAN, Connecticut RAND PAUL, Kentucky
MARIA CANTWELL, Washington KELLY AYOTTE, New Hampshire
MARK L. PRYOR, Arkansas MICHAEL B. ENZI, Wyoming
BENJAMIN L. CARDIN, Maryland SCOTT P. BROWN, Massachusetts
JEANNE SHAHEEN, New Hampshire JERRY MORAN, Kansas
KAY R. HAGAN, North Carolina
Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
Wallace K. Hsueh, Republican Staff Director
C O N T E N T S
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Opening Statements
Page
Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana. 1
Snowe, Hon. Olympia J., Ranking Member, and a U.S. Senator from
Maine.......................................................... 13
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 18
Witnesses
Panel 1
Johns, Hon. Marie, Deputy Administrator, U.S. Small Business
Administration................................................. 18
Graves, Don, Deputy Assistant Secretary, Small Business,
Community Development, and Housing Policy, U.S. Department of
the Treasury................................................... 23
Panel 2
Blinderman, Eric H., Co-Owner, Mas (Farmhouse) Restaurant........ 64
Arslan, Kristie L., Executive Director, National Association for
the Self-Employed.............................................. 71
Woodie, Patrick N., Vice President, Rural Delelopment Programs,
North Carolina Rural Economic Development Center, Inc.......... 80
Alphabetical Listing and Appendix Material Submitted
Arslan, Kristie L.
Testimony.................................................... 71
Prepared statement........................................... 74
Blinderman, Eric H.
Testimony.................................................... 64
Prepared statement........................................... 67
Graves, Don
Testimony.................................................... 23
Prepared statement........................................... 26
Johns, Hon. Marie
Testimony.................................................... 18
Prepared statement........................................... 21
Johnson, Alex and van Hook, Brian
``Progress Reprot: SBA Requirements in the Small Business
Jobs Act of 2010''......................................... 113
Landrieu, Hon. Mary L.
Testimony.................................................... 1
Prepared statement........................................... 5
Vistage Confidence Index Data................................ 33
Vistage Confidence Index Data Q1 2010........................ 39,
47, 96
``The Small Business Jobs Act of 2010 (PL 111-240): A
Progress Report of SBA's Requirements''.................... 47
``Small Business Jobs Act (SBJA) Success Stories''........... 87
Shaheen, Hon. Jeanne
Testimony.................................................... 18
Snowe, Hon. Olympia J.
Testimony.................................................... 13
Prepared statement........................................... 15
New York Times article titled ``Why Won't the S.B.A. Lend
Directly to Small Businesses?''............................ 56
State International Development Organizations 111
Woodie, Patrick N.
Testimony.................................................... 80
Prepared statement........................................... 82
SMALL BUSINESS RECOVERY: PROGRESS
REPORT ON SMALL BUSINESS JOBS ACT
OF 2010 IMPLEMENTATION
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THURSDAY, MAY 19, 2011
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m., in
Room 428A, Russell Senate Office Building, Hon. Mary L.
Landrieu, Chair of the Committee, presiding.
Present: Senators Landrieu, Cardin, Shaheen, and Snowe.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S.
SENATOR FROM LOUISIANA
Chair Landrieu. Good morning, everyone. I would like to
call our meeting to order, and I would like to thank all of our
witnesses for joining us this morning, particularly our
witnesses on this second panel who are going to be bringing
real life testimony to the issues that we are looking at and
reviewing.
As many of you know, this week is National Small Business
Week. President John F. Kennedy started this tradition in 1963
to recognize the contributions of small businesses to the
economic vitality of our country. The following year, President
Johnson awarded the first ``Small Businessman of the Year''--I
underline the word ``Businessman of the Year''--to a Mr.
Berkley Bedell.
Mr. Bedell was from Spirit Lake, Iowa. He was President of
Berkley Company, a manufacturer of fishing lines. His business
was started in a bedroom or a workshop while he was still in
high school. At the time, President Johnson said that Mr.
Bedell represented millions of American small businesses who,
as Saint Paul wrote, were not slothful in business, but fervent
in spirit.( That was from Romans 12:11.
While times have changed since then, I believe it is still
our responsibility as policymakers to lift up these
entrepreneurs that are not slothful in business, but are
fervent in spirit, and that is the purpose of today's hearing.
We want to recognize the 27.2 million small businesses in
America that are struggling to recover from the great
recession. More specifically, we will hear how our Federal
Government, how our Federal Government is implementing the
Small Business Jobs Act passed last year with the help of many
members of this Committee. This legislation has been touted as
the single most important piece of legislation in decades for
small business.
Let me just mention a few other things, and then I will
recognize Senator Shaheen who is here for her opening statement
in just a moment. I want to put a few things into this record.
Last Congress, the 111th Congress, the Committee heard
compelling testimony from small business owners across the
country struggling to keep their lights on, their doors open,
and stretching to keep valuable employees on the payroll.
Many business owners could not get conventional bank loans.
Others saw substantial reductions in their existing lines of
credit. Still others had cutting-edge products but did not see
an opportunity to contract with the Federal Government. The
results were alarming.
Since 2008, small firms accounted for between 64 and 80
percent of net job losses in our country. That is beginning to
reverse. We are excited about that, and we will hear more about
that today.
To address these issues, I am proud to have led Senate
efforts to enact the Small Business Jobs Bill of 2010. The bill
was signed into law by President Obama on September 27th. The
Jobs Act provided many things: support to small businesses in
many important ways, $12 billion in immediate tax relief,
increasing access to capital by increasing SBA loan limits,
establishing the Small Business Lending Fund, strengthening the
core programs of the Small Business Administration which
resulted in more money for counseling services for small
business development centers, increased export opportunities,
and a more level playing field for small businesses looking for
opportunities to contract with the Federal Government.
First, the Jobs Act included multiple small business tax
cuts effective for 2010 that provided incentives for small
businesses to make new investments in property and real estate
and expand their operations. For example, small business owners
who bought new equipment in 2010, the Jobs Act included
enhanced expensing provisions that allowed the immediate write
off of the first $500,000 of tangible personal property and up
to $250,000 for certain investments in real estate.
Also, for the first time ever, self-employed business
owners could deduct 100 percent of the cost of health insurance
for payroll tax purposes. In my home state of Louisiana alone,
there are over 234,000 self-employed individuals eligible for
this tax break. All together, the bill included over $12
billion in tax cuts for small businesses at a time when they
needed them the most.
Next, the Jobs Act focused on the major hurdle limiting
small business growth and that was the lack of access to
capital. In particular, the Jobs Act continued vital programs
from the American Recovery and Reinvestment Act which spurred
lending to small businesses. It eliminated the borrower's fees,
increasing the Federal Government guarantee on SBA loans from
75 percent to 90 percent. At the time our bill passed, these
provisions had already supported $30 billion in lending to more
than 70,000 businesses since 2009. The extension of these
Recovery Act provisions in our bill allowed an additional 1,500
businesses to receive more than $750 million in loans.
The Act permanently raised the maximum loan size for SBA's
two largest programs, increasing the maximum 7(a) loan size
from $2 million to $5 million and the maximum 504 loan size
from $1.5 million to $5.5 million. These were extraordinary
accomplishments in this bill, and I am proud to have lead that
effort.
In addition, the Treasury Department was tasked with
implementing two new programs designed to support private-
sector lending to credit-worthy small business. The Small
Business Lending Fund makes billions of dollars in capital
available to roughly 7,000 healthy community banks in our
country. We will hear more about that today from Mr. Don Graves
and from the Honorable Marie Johns.
This strategic public-private partnership could leverage
billions of dollars in additional lending to smaller firms.
Treasury has already received applications from 700 banks for
roughly $10 billion. That is encouraging. We are making
progress.
The Small Business Credit Initiative, which was pushed by
several members of our Committee much to my joy, will support
at least $15 billion in new lending by strengthening state
small business programs.
I know Senator Hagan is going to be particularly happy
because there are some really wonderful opportunities that will
be shared today from that part of the country.
Under the Jobs Act, key enhancements were made to enhance
and improve SBA programs. As we know, only 1 percent of small
businesses export. With 95 percent of the world's consumers
outside of the United States, it is important that this
Committee took the opportunity to strengthen our export
programs. We are going to hear some testimony today about how
that is working.
Our bill improved SBA export financing programs by
significantly increasing the maximum size of export loans and
by expanding the network of SBA export finance specialists that
counsel exporters and help them underwrite the loans. It
created a State Trade and Export Program which will provide $60
million in grants to states to bolster bluster their programs.
Let me say one other thing before closing. In addition to
all of the things that I mentioned, this bill also increased
enhancements to the small business contracting program. The
Federal Government has over $500 billion a year available for
purchases of goods and services, and we opened up opportunities
for small business, woman-owned businesses, HUBZones, and
service-disabled veterans to participate in that program.
In closing, I just want to highlight a couple of
provisions. I give you one example in closing of how this
specifically worked for a business in Louisiana.
Baker Sales of Slidell is a small business that operates in
Louisiana. It has operated for many years. When the
construction slump occurred and the recession began, it saw its
sales drop by 20 percent, and then again when the Deepwater
Horizon explosion happened and the moratorium was put into
effect, sales fell even lower. They have been in business for
30 years. They had imported steel products and sold them within
a 200-mile range of Slidell. They wanted to export but it was
simply a pipe dream.
Last March, however, they received assistance from the
Regional Director of U.S. Commercial Service Staff in New
Orleans to travel to Panama to identify potential clients.
Baker Sales lacked the capital to make these investments. A
local bank was not going to give them capital when the
collateral and collections were in Panama. They could not
enforce in the event that something went south on this. But
with this new program, Baker Sales received $3 million from a
7(a) loan that helped them to secure the contracts in Panama,
expand their export opportunities and give them a path forward
out of what has been a very difficult economic time for them.
They have hired two additional employees, and they expect to
expand sales in the future.
So today we will hear some additional success stories like
Baker Sales in Slidell. I am proud of the work that this
Committee has done and we are going to get some testimony from
our key witnesses about what more we can do to improve the
outlook for small businesses in America today.
Let me turn it over to my ranking member, Senator Snowe,
and then we will receive opening statements from Senator
Shaheen as well.
[The prepared statement of Senator Landrieu follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, RANKING MEMBER, AND
A U.S. SENATOR FROM MAINE
Senator Snowe. Thank you, Chair Landrieu, for holding this
hearing today to examine the implementation of the Small
Business Jobs Act of 2010. It is fitting that we would be
exploring the implementation of this legislation at a time
which is coinciding with National Small Business Week that
highlights and celebrates the accomplishments of our nation's
nearly 30,000,000 small firms.
Now, perhaps more than ever, we will rely on small business
to lead us out of our continued economic morass as they have
done time and time again in the past.
I appreciate that we have Small Business Administration
Deputy Administrator Marie Johns and Deputy Assistant Secretary
Don Graves here to update us today on the status of the Jobs
Act, and I especially thank our small business witnesses for
offering their perspectives as well.
As Ranking Member of this Committee, I certainly know
firsthand that there is no more urgent imperative than job
creation in our country. Our nation has now endured 27 straight
months with unemployment at 8 percent or above. And last month,
unemployment once again reverted to an unacceptably high 9
percent.
We cannot allow these persistently high levels of
unemployment to become the new normal. It is essential that we
focus, like a laser, on bolstering our economy and creating
jobs. And the best way to spur economic growth is to empower
our nation's small businesses. Whether reducing regulatory
burdens, increasing access to capital, supporting pro-growth
tax policies or encouraging exporting, we must continue to seek
ways to create a better climate for small businesses across the
country.
It is with this in mind that we developed a framework for
the Jobs Act through a series of small business bills. The Act
includes, as the Chair has indicated, many of the Committee's
long-standing priorities, and certainly mine.
For instance, increasing the maximum loan limits for the
SBA 7(a), 504, and microloan programs. The Act expands export
technical assistance and trade promotion. It included tax
measures like those to permit general business credits to be
carried back five years and taken against the Alternative
Minimum Tax.
Unfortunately, I had serious misgivings about the Treasury
Small Business Lending Fund that was included in the
legislation on the Floor. I was particularly concerned by the
Congressional Budget Office score warning that, when analyzing
the Lending Fund with the most comprehensive methodology, it
could potentially cost taxpayers more than $6.2 billion.
Furthermore, just last week, the Treasury Inspector
General's Office issued a report on the implementation of the
Lending Fund, which suggests that interest in the program is
tepid, at best. In fact, according to the report, Treasury now
expects to only distribute about one half to two thirds of the
authorized $30 billion.
As of April 18, only 626 lending institutions out of
approximately 7,000 nationwide had applied to participate in
the initiative, and only $9.2 billion in funding had been
requested. Moreover, the TARP recipients, otherwise known as
the Troubled Asset Relief Program, have requested a full 64
percent of that $9.2 billion. These institutions would
essentially be paying off one taxpayer-funded credit card,
TARP, with another in the form of the Lending Fund, to obtain
lower interest rates without restrictions like those on
executive compensation.
The report revealed that TARP recipients are not expected
to get much additional capital beyond their outstanding TARP
investment balances, placing in doubt how much new lending will
actually take place.
So, this begs the question: Is not this lending fund
proving to largely be a TARP refinancing program? It has
obviously been demonstrated that there has not been great
interest in the initiative. I know the Administration is
extending the deadline for applications from March 31 to May 16
of this year, and I would like to explore that with you, Mr.
Graves.
While I clearly have concerns with the Lending Fund in
particular, I hope that we can have a constructive dialogue
with respect to its implementation, but also the outcomes that
are occurring with all the other initiatives that were
incorporated in this legislation that ultimately became law
last fall.
I am eager to hear about the desired effects of these
initiatives because it is critically important in the final
analysis to ensure that these programs are efficient and
effectivene and that they are producing results.
We have got to turn this economy around. We have to create
jobs, and I know that we created 244,000 jobs last month, but
we would have to continue at that rate every month for five
years in order to achieve the pre-recession levels of
unemployment of 2007.
So, that underscores the magnitude of the challenge before
us as a country and that is why many of the initiatives in this
Act are going to be very good in terms of working in that
direction, but we have to make sure that it is done well and it
is implemented efficiently so that we can achieve the results
more immediately.
So, I thank our witnesses here today and the Chair for
convening this hearing. Thank you.
[The prepared statement of Senator Snowe follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair Landrieu. Senator Shaheen.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM
NEW HAMPSHIRE
Senator Shaheen. Thank you, Chair Landrieu and Ranking
Member Snowe, for holding the hearing today on the
implementation of the Small Business Jobs Act. It is fitting
that we are doing it during small business week.
The Jobs Act was a very important effort to help small
businesses that create two thirds of the jobs in this country.
We all know there is more work to do because too many small
businesses are still struggling with access to credit.
I, unfortunately, cannot stay to hear your testimony, but I
did want to phase two issues that I hope you will address.
First of all, both Senators Landrieu and Snowe have talked
about the export provisions in the new legislation.
In New Hampshire we think those are critical. We have got
to give small businesses access to international markets to
help them grow, and I think New Hampshire is one of the 53
states that has applied for funding through the State Trade and
Export Promotion Program.
So clearly there is a lot of interest. I think the role
that SBA can play in coordinating the export efforts across the
Federal Government will really be critical.
The second provision that I wanted to call your attention
to has to do with the 504 refinancing provisions. My
understanding is that only 20 loans have been approved since
the passage of the bill; and these are provisions, as we all
know, that will be very important in giving businesses access
to working capital.
So, anything that can be done to help facilitate those
loans will be very important.
Thank you very much for being here. I look forward to
reading testimony and hope you will give real consideration to
moving of those two provisions.
Chair Landrieu. Why do we not go right into the testimony
from Administrator Marie Johns and then Mr. Don Graves.
STATEMENT OF HON. MARIE JOHNS, DEPUTY ADMINISTRATOR, U.S. SMALL
BUSINESS ADMINISTRATION
Ms. Johns. Thank you. Good morning, Chair Landrieu, Ranking
Member Snowe and to Senator Shaheen and members of the
Committee.
As has been cited a time or two, this is National Small
Business Week, and it is the week we celebrate and empower
small businesses that drive our economy, keep America
competitive, and importantly create jobs.
The SBA is hosting a three-day conference here in
Washington, DC, where we are honoring small business owners
with awards for Small Business Champions, Small Business
Persons, Chair Landrieu, of the Year, and more. These small
business owners and others like them have gotten a big boost
from the Small Business Jobs Act.
Since the passage of the Jobs Act in September 2010, SBA
has worked hard to implement the many provisions that affected
our programs. The Jobs Act affected all of SBA's largest
programs, including our support for access to capital, small
business contracting, counseling and training, and exporting.
Some of these provisions were quick fixes and easy to
implement. Others will take more time, but rest assured that
SBA is working diligently to implement every provision as soon
as possible.
To begin with, almost immediately, the agency began making
loans with the temporary increased guarantee and reduced fees
authorized by the Jobs Act. This helped us put $12 billion in
loans into the hands of small businesses at a time when they
needed that lending support more than ever.
Second, the Jobs Act also raised the limits on our loan
sizes, from $2 million to $5 million. This increased size will
help manufacturers, exporters, and other small businesses. For
example, Great Falls Marketing in Auburn, Maine received
approval of a $2.6 million loan for purchase of an existing
business. They anticipate creating 80 jobs as a result.
The Jobs Act also contained 19 provisions making it easier
for small businesses to compete for and win more of the $500
billion in federal contracts awarded each year.
For instance, the law reaffirmed equal treatment or parity
across federal contracting programs. This meant that, when
awarding contracts that are set-aside for small businesses,
contracting officers are free to choose among businesses owned
by women and service-disabled veterans, as well as businesses
participating in the HUBZone and 8(a) programs.
And the SBA quickly implemented the repeal of the
Competitiveness Demonstration program, which will help small
businesses compete for contracts in areas such as construction,
landscaping and pest control.
Third, the Jobs Act also provided funds for counseling and
training, which included $50 million in grants for our Small
Business Development Centers around the country. All of this
money is out of the door and is going to fund innovative
counseling projects in areas such as exporting, regional
innovation clusters, and support for young entrepreneurs and
under served communities.
The fourth and final way the Act is helping small
businesses is through increased support for exporting.
The Jobs Act raised the size limits on our International
Trade and Export Working Capital loans to $5 million and Export
Express loans to $500,000, and it also made the Export Express
program permanent.
And Chair Landrieu already has cited the great success of
Baker Sales in Slidell, Louisiana as one of the examples of how
these tools have been put to use by small companies in creating
jobs.
At the same time, SBA is reviewing and evaluating the first
year proposals for the State Trade and Export Promotion grants
pilot, which will fund $30 million to state programs this year
to increase exporting.
As we implement provisions of the Jobs Act, we have
continuously sought input from small business owners, lenders,
and other stakeholders.
The SBA's Jobs Act Tour has already visited ten cities,
with three more planned in the very near future. At each tour
stop, top SBA officials are sharing information on how small
business owners can take advantage of the Jobs Act, as well as
talking with them about what works, what we can build on, and
what needs to be improved going forward.
The response to the Jobs Act Tour has been overwhelmingly
positive. In the surveys conducted after each tour stop, 92
percent of the respondents felt that they had a chance to give
input to SBA on its programs; 94 percent of respondents learned
new, valuable information about SBA programs; and 95 percent of
respondents thought they would be able to use the information
they learned at the event to help their business. We have had
over 1900 attendees thus far, and we are expecting a total of
2600 by the end of the tour.
I am very pleased to be here today. Thank you for this
opportunity to discuss the Small Business Jobs Act, and I am
happy to take your questions.
[The prepared statement of Ms. Johns follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair Landrieu. Thank you very much.
Mr. Graves.
STATEMENT OF DON GRAVES, DEPUTY ASSISTANT SECRETARY, SMALL
BUSINESS, COMMUNITY DEVELOPMENT, AND HOUSING POLICY, U.S.
DEPARTMENT OF THE TREASURY
Mr. Graves. Good morning, Chair Landrieu, Ranking Member
Snowe, and other members of the Committee. Thank you for the
opportunity to be here today along with my colleague, Marie
Johns.
I am grateful for the chance to discuss our efforts to
create the conditions for small businesses and entrepreneur to
thrive, help create jobs and grow the economy.
Small businesses are vital to our economic growth. Small
firms employ approximately half of all Americans and are
responsible for two thirds of net job creation.
This is why supporting the economic conditions in which
small businesses and entrepreneurs can thrive through improving
lending conditions, tax incentives, and healthy conditions for
investment has been and will continue to be a top priority.
The Administration also recognizes the unique hardships
faced by small businesses today. Through no fault of their own,
these businesses have borne much of the burden from the
financial crisis.
In the aftermath of that crisis, small businesses have been
faced with a cycle of increased customer demand, slower
payments on their invoices and reduced lines of credit. With no
other options, many have been forced to downsize and lay off
workers.
To help small businesses recover, grow and create jobs,
last September President Obama signed into law the Small
Business Jobs Act, the most important comprehensive piece of
small business legislation in over a decade.
Certainly the both of you in this room were instrumental
and thank you so much for your work on that. I commend you for
that work, and we are excited to continue to implement that
legislation.
Since the bill was signed into law, Treasury has been hard
at work in implementing two of the programs' crucial small
business programs that were part of that Small Business Jobs
Act. The Small Business Lending Fund and the State Small
Business Credit Initiative to help small businesses access
affordable credit in order to expand and create jobs.
The Jobs Act also contained eight small business tax cuts,
part of 17 small business tax cuts the President has signed
into law, that provide additional tax relief to help small
businesses invest and create jobs.
At the Treasury, I oversee the State Small Business Credit
Initiative and the Small Business Lending Fund. The State Small
Business Credit Initiative is a $1 and a half billion program
designed to support lending for small businesses by
strengthening state-based capital access programs, loan
guarantee and loan participation programs, state-sponsored
venture capital programs, and other innovative state small
business initiatives.
As a result of the financial crisis and state budget
shortfalls, many of these programs have been cut back at the
very moment they are needed the most. The SSBCI, or the State
Small Business Credit Initiative, was intended to help reverse
that trend.
I am pleased to say that as a result of the good work of my
Treasury colleagues, 48 states, the District of Columbia, and
all five territories have notified Treasury that they intend to
participate in the State Small Business Credit Initiative.
We have already received 13 applications from states thus
far requesting funds that would collectively leverage over $3.2
billion in lending to small businesses.
Treasury has approved allocations to North Carolina for $46
million and California for $169 million; and their programs
have already utilized the funds to increase lending to small
businesses in those states. Allocations for Vermont and
Missouri have also been approved, and Missouri reports that
applications to its State Small Business Credit Initiative
program, a state-run venture capital fund, has already totaled
more than $50 million, exceeding the fund's planned initial
capacity. Additional approvals for Hawaii and Indiana were
announced earlier this week.
The second program that I oversee is the Small Business
Lending Fund which encourages lending to small businesses by
providing capital to qualified financial institutions with
assets under $10 billion.
The program works by providing capital to participating
community banks through Treasury purchases of preferred stock
or debt instruments from each bank.
Since banks leverage their capital, the Small Business
Lending Fund will help increase lending to small businesses in
an amount that is multiples of the total capital provided to
participating banks helping small businesses to expand and
create new jobs.
The dividend or interest rate banks pay to Treasury on
Small Business Lending Fund funding helps incent them to lend
to qualified small businesses in need of financing.
Under the Jobs Act the rate will be reduced as a bank
increases its lending to small business insuring that the
benefits of this program only go to banks that use capital to
extend additional credit.
I am pleased to report that as of this week we have
received 702 applications and total requests for $10.1 billion
in funding. We expect to complete our initial application
reviews in the next few weeks and hope to complete initial
fundings of those institutions in June.
We believe that the Small Business Lending Fund will have a
meaningful impact toward increasing small business lending
across the country which in turn will help create jobs and grow
the economy.
We are also looking ahead to identifying and addressing
challenges facing small business that will be important to
overcome to build a more competitive economy over the long
term.
In March Treasury co-hosted a conference convening
policymakers, business leaders, entrepreneurs, and academics to
draw additional attention to the evolving challenges facing
startups and small companies, identifying opportunities to
reduce barriers to their success and find new ways for the
private sector and public sector to work together to help them
access the capital they need to succeed.
With that, let me thank you again for the opportunity to be
here today and reiterate how appreciative I am of this
Committee's work and the commitment to America's small
business.
I am happy to answer any question you may have.
[The prepared statement of Mr. Graves follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair Landrieu. Thank you very much, and we will have a
first round of questions by the members. We have been joined by
Senator Cardin from Maryland. We appreciate him being with us
this morning.
Before I get into the questions, I want to submit a couple
of things for the record that I found quite encouraging.
One is a document that I received about a couple of weeks
ago from the Vistage CEO Confidence Index first quarter report.
It is the largest survey of CEOs in our country. Vistage is a
for-profit company that has operated for many, many years. They
polled their members that represent businesses from $5 million
to 50 million. Some are a little smaller. Some are larger but
that is their average member basically.
The wonderful outcome is that 65 percent of these CEOs
stated that compared to a year ago overall economic conditions
in the U.S. from their perspective have improved. 54 percent of
the CEOs expect their firms' total number of employees will
increase during the next 12 months. 47 percent said the best
way the government can help create jobs is to expand access to
capital, and 76 percent anticipated their firm's sales revenues
will increase.
So, I wanted to submit that to the record. I think that is
one piece of evidence that suggests we are moving in the right
direction although we have many challenges ahead.
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Chair Landrieu. The second is a document about the
unemployment rate because I think that it is important for us
to really understand the facets of the unemployment rate which
we do not always by just talking about the averages. But the
rate for individuals 25 years or older is only 7.6 percent. It
is higher than we would like but it is 7.6 percent.
Interestingly, the unemployment rate for workers with a
college or graduate degree is only 4.5 percent in our country
today. Unemployment rates for high school is 9.7, and with some
college or an associate degree, it is 7.5. But unemployment
rates for workers with less than a high school diploma is 14.6
percent.
So, while this Committee can lower the unemployment rate by
the work that we do, passing laws and new programs and policies
to help get small businesses up and operating, some of these
challenges are structural in terms of how this country is
either interestingly or not, wisely investing in the workforce
to provide them the skills they need to create jobs.
While I will, as Chair of this Committee, take a good bit
of responsibility to end this recession, I would suggest that
the Committees of Health and Welfare and Education have a
similar challenge in bringing these numbers down.
And, I think that the Administration understands that and
it is why they have a broad array of programs to end this
recession, not just small business bills but we are doing our
part.
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Chair Landrieu. Let me start with a question to you, Mr.
Graves, because as a strong supporter of the Small Business
Lending Fund, which is a new and innovative approach, 700 banks
have applied. Now, that is less than about 20 percent of those
that are eligible.
As you know, I intended for all of the community banks to
be eligible but we have run into some difficulty there because
of some restrictions in parts of law.
However about 3700 C Corporation community banks are
eligible, yet only 20 percent have applied for funding. That is
about 600 banks.
One way to look at it is there are 600 banks more than
there were a year ago that have access to these funds to lend.
But could you explain why Treasury has not made your investment
decisions yet?
When can some of these banks anticipate receiving the green
light from you all? There are several in Louisiana that are
actually quite excited about this opportunity.
Can you shed some light on this for us?
Mr. Graves. Thank you for that question. I will try to tell
you what we are trying to do with the program. We have worked
very quickly to try and get these two new programs that
Treasury is implementing under the Small Business Jobs Act up
and running.
We have worked expeditiously. We have a very strong team
that we have put together to stand up these two new offices
within Treasury to get these programs off the ground.
I think it is important to remember that while we are
moving as quickly as we can on those programs, it is important
and, in fact, you required us to ensure that we balance both
the speed with which we get the programs implemented with the
need to ensure we are making prudent investment decisions and
protecting the taxpayers' dollars.
So, we have instituted a fairly robust, a very robust
system of reviewing potential investments, ensuring that every
institution that applies meets the eligibility criteria, that
we then consult with federal banking agencies and in some cases
state regulators when appropriate, and then Treasury performs
its own individual assessment on the financial standing of that
institution and its ability to participate in the program.
Once we make our approval decision, we then will let the
banks know and they will be able to close within 30 days of
receiving that approval.
We have conducted a significant amount of outreach with
community banks all around the country. We have conducted more
than 30 webinars, teleconferences, and industry events all
across the country.
We have a dedicated webpage and a call center with our
Small Business Lending Fund team. We talk with community banks
all across the country every single day of the week. We look
forward to announcing our first round of funding very soon. In
fact, I expect within the next few weeks we will be making
those decisions for the institutions, and we will be getting to
closings beginning in June.
Chair Landrieu. Okay. I am going to ask you, not right now
but in a few minutes, your response to some other GAO report
findings that just came out on this program.
But let me ask Ms. Johns. If you could put the chart up,
the 39 programs that were either created or enhanced under the
Small Business Jobs Act of 2010, most of them are completed by
your agency and you were the implementor for this, I
understand; and most of them have been completed.
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But there are two particularly, there are 28 provisions
that have been completed. That is 72 percent. Nine provisions
that are in the process of being completed, and two provisions
that are not complete.
The two, I understand, that are not complete are the export
assistance centers and then one on contracting policy. Can you
comment on why the delay on those two particular programs or do
you have any comments about that at this time?
Ms. Johns. Yes, Chair Landrieu. Thank you for the question.
And I also want to thank you for your leadership on the Small
Business Jobs Act. And to Ranking Member Snowe, we greatly
appreciate your support of many of the provisions that made
their way into this Act.
Overall I am very proud of the way that the SBA has moved
forward to implement these provisions. We took this role very
seriously because we know that small businesses were waiting
for these critical tools to be in their hands so that they
could grow their businesses and create jobs.
As far as the export provisions are concerned, a lot of
work has been done. Very shortly we will be naming a new
Associate Administrator for the Office of International Trade.
Individuals have been hired, additional trade counselors have
been hired in two of the USEACS around the country.
And, the process is ongoing and there is a requisition out
for additional hiring. So that process is well underway.
We have provided reports to this Committee regarding travel
and other----
Chair Landrieu. And the contracting policies seem to be
slow in being implemented.
Ms. Johns. Well, the contracting policies, first of all,
one of the primary contracting policies that the bill advanced
was the clarification regarding parity.
So that provisions in the bill immediately gave contracting
officers across the government a clear signal, clarified rule
so that they had much more available at their hand in order to
meet the government's 23 percent contracting goal for small
businesses because, as you know, prior to the Small Business
Jobs Act there was some confusion about how our programs lined
up.
But the parity issue in the Small Business Jobs Act
resolved that and so that was an important provision under
contracting.
As far as other of the contracting provisions in the Act,
as you know the contracting process is not, that is not a
process the SBA owns and we cannot stand up those new
provisions on our own. We have to go through a process through
the Federal Acquisition Council, the FAR process, and it takes
time.
But we are moving apace and many of those provisions are
poised to become effective in the very near future.
Chair Landrieu. Thank you. My time has expired.
Senator Snowe.
Senator Snowe. Thank you.
Mr. Graves, with respect to the Treasury lending program,
of the 702 institutions that are now participating in the
program, how many loans have actually been issued?
Mr. Graves. We have actually not made investment decisions
on any of the 700 institutions that have applied, so no loans
yet have come from capital that comes out of the program.
The deadline for this program was September 27 and we
expect that all applications that meet the eligibility criteria
will have been approved by September 27 so that we will get
those dollars out the door to the community banks so that they
can do the hard business of supporting small businesses.
Senator Snowe. So, it will be this fall when small
businesses could actually receive loans?
Mr. Graves. That is a good question. We believe that
beginning within the next few weeks dollars will begin to go
out the door to community banks and that those banks will then
on-lend based on the incentives built into the Small Business
Job Act.
Senator Snowe. What I was saying earlier in my opening
comments about TARP refinancing is that ultimately, what it
suggests is that there is going to be minimal new small
business lending, with very few new institutions participating
in the program. In fact, as I understand it, it is only about
$3 billion that would represent new institutions. Is that true?
Mr. Graves. It is a good question because a number of
people have asked that of us as well before. It is important to
remember that this program is not a TARP program. I just want
to make that clear at the outset.
Any institution that meets the eligibility criteria
regardless of whether they are a TARP institution or a non-TARP
institution is eligible to apply and participate.
The other thing that I would say is that this is not a
program to assist CPP banks. In fact, there is no opportunity
for an institution to decrease their interest rate without
increasing the amount of small business lending that they do.
Senator Snowe. But with the threshold you are using as a
standard, they only have to increase lending by 2.5 percent. So
essentially, they can exchange what they receive under TARP for
this program at a lower interest rate and they only have to
increase their small business lending by 2.5 percent, a minimal
increase, frankly.
So, you are really replacing one with the other. The
objective is not to assist the TARP recipients, but the net
effect is that it is happening.
The point here is that are we just turning over one program
to the another. This same money is now benefitting those who
have already received a great benefit from the United States
Government, when we would like to invite other institutions
into the small business lending fray to expand the loan
portfolios among banks and other entities that can issue these
loans.
So that is one of my concerns that I think needs to be
addressed. From what I understand, TARP recipients are seeking
investments that exceed their remaining TARP balances by only
10 to 30 percent. So, it really does beg the question of how
much new lending will actually occur under this program.
And they get a 1 percent loan, am I correct, if they meet
the 10 percent increase in lending?
Mr. Graves. I share your concern. In fact, no CPP
institution will get to an interest rate of 1 percent unless
they increase their lending to 10 percent just like any other
institution that participates in the program.
The program was really meant, as I understand it, to
increase small business lending. It is really to get capital
out to small businesses all across the country.
Senator Snowe. And the question is how that happens. From
what I understand, it is not exactly happening with the maximum
effect. That is the problem here because of the perverse
incentives created in the program.
Now, for example, from 2008 to 2010 lending institutions'
small business lending declined by 9.2 percent to $652 billion,
according to this chart, the second lowest level since 2005-
2006. Yet the latest Thompson-Reuters/Paynet Small Business
Lending Index shows that small business lending in March of
this year already increased by 12 percent compared to a year
ago.
So, you are using a very exceptionally low benchmark, four
quarters ending with June of 2010, to incentivize banks to
increase small business lending when, in fact, that small
business lending is already occurring without this program
having been implemented yet.
So, that is the problem.
Mr. Graves. Would you like me to speak to that?
Senator Snowe. Yes.
Mr. Graves. I think it is important to remember that the
baseline that was set in the legislation was done so because it
was really looking as a means to increase small business
lending from where we were, as you suggest, just last year at
the low water mark in recent years.
And if institutions were given a baseline that was
significantly higher, those institutions would not participate
in the program.
So, what we were trying to do is incentivize banks to
increase their lending, giving them all the tools at their
disposal, giving them the capital that the need so that they
can actually get those dollars to all the small businesses
around the country that are looking for capital.
Senator Snowe. Just a follow-up, because I know my time has
expired. If banks have only maintained the 12 percent trend
that is already occurring, they can lock-in on an interest rate
of 1 percent. That is the point, and that is the incentive for
them to transfer from one program to another, the TARP program
to this program. Thank you.
Chair Landrieu. Senator Cardin.
Senator Cardin. Well, first, let me thank Senator Landrieu
and Senator Snowe for this hearing. I think one of the most
important responsibilities of this Committee is oversight. It
is one thing to pass laws, but it is to make sure those laws
have the intended effect. I know that sometimes that is hard
for a Committee to do, and I applaud our leadership of this
Committee of understanding the importance by conducting this
hearing.
The legislation, the Small Business Jobs Act, had many
important provisions. I was a little late getting here today
because I was attending a conference from our small business
centers, development centers on export activity. That was one
of the major issues in this legislation, and we are making some
progress on export activities.
We also had tax credits. I think it is important for us to
understand how they are working.
The first point that has been mentioned here is this bill
was aimed at improving access to credit for small businesses. I
think Senator Snowe's questions are not only good questions but
we need to get better answers.
This was a major initiative. Some of us would have
preferred some of this money going into direct loans, and we
were told, ``No, this is going to be the incentive to get the
community banks more interested in making loans to small
businesses.''
This was a large commitment of Federal resources. So, we
need better answers. We need to know how much is getting out
there. I am a little disappointed it is taking this long. I
think many of us thought that this would get out a lot quicker
and there would be more interest.
So, I just want to support the questions that have been
asked by our two leaders. We need to have better information to
this Committee as to how this program is working.
And the questions Senator Snowe asked as to whether this is
just what would have happened and are just giving incentives to
community banks that are not needed or whether we really have
leveraged a lot of new activity out in the community is a
question we need to answered.
So, I am going to ask our leadership here to follow up and
make sure we get information in this Committee to make sure
that we are accomplishing what we intended to do.
I want to talk about another part of the Small Business
Jobs Act and that was to improve government procurement
opportunities for small businesses.
I helped draft a provision in the Small Business Jobs Act
that requires Federal contracting officials to complete small
business training before receiving certification.
There is a real concern as to whether the procurement
officers in our agencies have a bias towards existing
relationships with contractors, mainly large businesses, to the
exclusion of opportunities for small businesses in our
community and that this Committee wanted to do something about
that by requiring that the contracting officers have greater
sensitivity to not only the letter but the spirit of our law to
engaged smaller companies.
There was also a second provision added that requires
reports to Congress dealing with veteran-owned, women-owned,
and disadvantaged small businesses.
So, could I ask either of you or both of you if you could
give us a status as to how the implementation of those
provisions is working and how you intend to comply with your
requirements in keeping us informed as to the progress being
made in regards to those targeted small businesses?
Ms. Johns. Good morning, Senator Cardin, and I would be
happy to respond to your questions, and we are also grateful
for your support of this important piece of legislation for our
small businesses.
Our government contracting organization works regularly
with contracting officers, and particularly the OSDBUs across
all of the Federal agencies. We meet on a regular basis,
monthly actually.
In addition, we have a senior level effort focused on
contracting and ensuring that across Federal agencies that at
the Deputy Secretary level that those individuals are aware of
what the contracting goals are across the different
certification programs that the SBA manages and that they
understand how their agencies need to organize and to ensure
that the information flows so that they are also able to focus
on meeting their particular goals for Federal contracting.
Senator Cardin. Are they bringing the employees in who are
responsible for training?
Ms. Johns. Yes, we are working with the Federal
Acquisitions Institute and the Defense Acquisitions Institute
to develop a curriculum for contracting officers. That will be
an enhancement to the training work that we are already doing
on a regular basis.
Senator Cardin. What is the time frame for being able to
implement this training curriculum?
Ms. Johns. Within the next few months.
Senator Cardin. Can you be more specific?
Ms. Johns. Probably in the September, October time frame.
Senator Cardin. Will all contracting officers be required
to go through this training?
Ms. Johns. Yes.
Senator Cardin. How long will it take for the contracting
officers to be able to get the benefit of this new curriculum?
Ms. Johns. Senator, I do not know the end date. We have not
established an end date. The focus has been on getting the
curriculum in place and beginning the training, and we have the
commitment to stay with the training as long as it takes to
make sure that everyone is covered.
Senator Cardin. Could I ask that my office and I think the
Committee may be also interested in reviewing the curriculum
that you are changing and the time schedule for contracting
officers and which agencies you anticipate being the first and
the time schedule necessary to get all contracting officers up
to speed with this new curriculum?
Ms. Johns. Certainly. I would be happy to.
Senator Cardin. And the reports to Congress that are
required, I take it you will meet those deadlines and you will
get us information as to specific progress being made with
veteran-owned, women-owned, disadvantaged small businesses?
Ms. Johns. Yes, Senator, we will.
Senator Cardin. One last question, Madam Chairman, if I
might, getting back to credit. There was a second part, a major
initiative other than the SBA guarantees. We also provided
funds to state governments who have programs dealing with
credit.
I know what is being done in Maryland but I would ask that
our Committee be kept informed, that you provide to us the
specific activities that have been generated by states as a
result of the additional resources made available at the
federal level.
My reason for asking that, Madam Chairman, is following up
on Senator Snowe's point, I would like to see, if we could, the
relative activities generated by our partnerships with the
states versus the additional monies being made available to
community banks so we can see where we are getting the most
activity for the resources. That is our responsibility.
So, if you could make that information available to us, it
tell us where we need to put our attention.
Mr. Graves. We would be happy to do so.
Senator Cardin. Thank you.
Chair Landrieu. And I thank you. Senator, you raised
several excellent points, and our next panel will have some
specific information about how those state programs are
working.
But I want to remind everyone that one of the reasons we
could not do directly is because of the strong opposition from
the minority party. They would not approve of direct lending
from the SBA, and so in order to get money out to small
businesses with that not being an option, the only option we
really had was to work either with state programs, regional
programs, or the community banks.
So, we will see, you know. We have crafted something. We
hope it works. We are not sure it will. That is what this
hearing is about. I myself, as the lead architect of this bill,
am very interested to see.
Because there were different ideological views on both
sides of the aisle, we really did not have all options open and
available to us. But we did the best we could.
Let me ask a question, and we will go through a second
round of questions and then get to our second panel.
One of the things I was most interested in, and I am not
sure we were able to be successful, was giving some relief for
debt refinancing for the commercial real estate section. We
wrote a section in the bill entitled small business access to
capital trying to provide some relief refinancing.
Our understanding, however, is that there has been minimal
usage of this program. We are hearing from banks that the rules
that are written which we think might be much more narrow than
what our law intended is not helping to provide the relief that
we had hoped for.
So, Mr. Graves, do you have any comments about this
particular section, or Ms. Johns?
Ms. Johns. Yes, Senator. Chair Landrieu, I would be happy
to respond.
The 504 commercial refinancing initiative was a new program
for us. In every instance when we have a new program, we are
always balancing two key objectives, that is, getting the
program into the hands of small businesses as soon as possible
but also ensuring that we are delivering the program in a way
that ensures that we are good stewards of the Federal
resources. And so those are the objectives that we were
balancing as we rolled out the 504 refi.
Once we put the initiative into the marketplace, we also
are constantly gauging how the market is responding. In the
case of 504 refi, it became clear to us that we needed to take
a second look at opening up the provisions of the 504 refi to
include more businesses, and that we have done. We have made a
mid-course correct.
The comment period on the change has just closed. We made
sure that we contacted all of the industry associations and
talked with them and we were in close contact as we were
developing the mid-course correction, and so we are looking
forward to getting the new 2.0, if you will, version of the
program in place, and we are sure that we will see some
progress.
Chair Landrieu. Because this is very, very, very important.
Many, many, many small businesses have seen, of course, the
value of their buildings that they own or their commercial
collateral basically decline but they still have fairly strong
balance sheets and a refinancing opportunity could really help
them.
If it is done correctly, it will work; and if not, it is
going to be another missed opportunity for businesses out
there, and contribute to the spiraling down of this market.
So, again, our Committee cannot do everything in this
regard but this is a very special initiative. Please keep us
posted as to how. And if it is the language of the law that is
preventing you, the way we wrote it, then I would be open to
some modifications. But hopefully you can take the language as
it was written and implement the rules so that it is actually
works and people can take advantage of it.
One more question. Then I will turn it over to Senator
Snowe for her second round of questioning.
The Jobs Act, we talked about this but it is worth
repeating again. The State Trade and Export Promotion Grant
Pilot Program, can you provide the Committee with an update on
the status of this program? Specifically, how many of the 56
eligible states have submitted applications for this particular
program?
Ms. Johns. Yes, Senator, I would be happy to do that. We
have received applications from, I believe, 53 of the 56
eligible. In fact, as we speak, there is an interdisciplinary
team of reviewers who are meeting at the SBA. They have been
there all week.
We compiled a team of folks from around the agency to bring
various expertise to the review process. In addition, we also
sought out reviewers from other Federal agencies. So, we have a
reviewer from Ex-Im Bank, and we have a reviewer from the
Department of Commerce because we wanted to have the strongest
possible team.
They are hard at work this weekend and intend to complete
their work by the end of the week. So, we are very eager to
make these selections, get these proposals, the response to
proposals back out to the states.
Chair Landrieu. Okay. Finally, as I turn it over to Ranking
Member Snowe, I want to be very clear that I agree with Senator
Cardin that the oversight of this Committee is important.
Instead of just sitting here twiddling our thumbs and
wringing our hands because we do not know what do to help small
business, we have tried many different things.
We are now in the process of evaluating what works well and
what is not working, but you cannot stand still in a situation
like this and do nothing. You must move forward aggressively.
We have started new regional programs, export programs,
partnerships with our community banks. We did everything but
direct lending because we were blocked from doing so but we
could potentially revisit that later on.
Let us see what is working and then make the adjustments as
we go forward but getting capital into the hands of Main Street
businesses, not businesses on Wall Street and not big multi
corporations that have many ways to access capital. Main Street
businesses remain our goal to drive down these unemployment
rates and provide opportunity for the American dream.
Ms. Johns. Chair Landrieu, may I make just one comment in
response?
Chair Landrieu. Okay.
Ms. Johns. I just want to assure the members of this
Committee that at the SBA we share your sense of urgency on
that, and the notion of constantly looking at how the programs
as we get them out into the hands of small businesses, we are
constantly looking at how those programs are being received and
what tweaks, what mid-course corrections we need to make as we
did in the 504 refi. We reacted very quickly to that, and I
want to assure you that that is our approach for all of these
provisions.
I am traveling regularly. Since the first of the year, I
have been to over half of our regions talking to hundreds,
literally hundreds of small business owners asking them about
the Small Business Jobs Act, educating them on the tenets of
the Act.
We had a Small Business Jobs Act tour, 13 cities planned.
We are just down to the last two cities. We are out and about
as an agency talking regularly to small businesses and seeking
their input on how we can do what we are doing better, how we
can make these programs work more effectively for them.
So, I just wanted to assure the members of the Committee
that we share your sense of urgency on those very critical
issues.
Chair Landrieu. We appreciate the effort and we are going
to be looking for some very clear results as the weeks and
months unfold.
Senator Snowe.
Senator Snowe. Thank you, Chair Landrieu.
Just to follow up on the issue of direct lending, the
Administration opposed direct lending as well. It essentially
did not want the government to become a bank. There is a big
difference between guaranteeing loans and writing and being
directly involved in issuing those loans.
In fact, there is an article right here in the New York
Times, dated March 10, ``Why Won't the SBA Lend Directly to
Small Businesses?'' and there is an indication that the
President responded that to do so, the government would have to
stand up, in his words, ``A massive bureaucracy and it would
take too long and you would be frustrated.''
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So, I think the point is there are some legitimate issues
in direct lending. In any event, I think the point here now is
that we have to get into the oversight issues and to make sure
that this program is working.
I do have strong concerns on the TARP side, and I have
already indicated that to you. One other issue.
I have introduced a bill on a couple of issues concerning
the Lending Program, Mr. Graves, but one of which I wanted to
raise with you today because you may already be addressing it,
is that my bill would prevent the Treasury from issuing a loan
to any institution that has been deemed by its regulator to be
unhealthy. What would you be doing in that regard? Do you get
reports?
How do you evaluate those who are seeking loans under this
program if their regulator deems them to be unhealthy? You are
not prohibited from still continuing to issue those loans.
Mr. Graves. Thank you for that question, Ranking Member
Snowe.
We share your concerns about ensuring that every investment
made in an institution is done so in an institution that is
healthy, that has the financial wherewithal to increase its
lending to small businesses.
In fact, as I mentioned at the beginning, we have
implemented a very strong and robust system of reviewing every
application that comes from a community bank.
Each institution has an initial eligibility assessment
performed by the Treasury team. Then we conduct a consultation
with the federal banking regulator of the institution. In some
cases where it is appropriate, we conduct a consultation with
the state regulator as well.
Treasury has its own internal investment team that conducts
a separate independent analysis and evaluation of each and
every one of those applications that comes back to us from the
Federal banking regulators before we make any decision to make
an investment in a community bank.
Really what we are trying to do is make sure that, while we
are trying to get these dollars out the door and trying to
support small businesses, we also want to make sure we make
prudent investment decisions and do our very best to protect
the American taxpayer.
Senator Snowe. Thank you.
Mr. Graves. Thank you.
Senator Snowe. Administrator Johns, one of the issues I
wanted to explore with you is that some have suggested that
increasing the loan limits as we have under the 7(a) and the
504 programs in this Act would crowd out small borrowers.
What is your response to that? I know that, according to
the most recent data from the SBA, over 60 percent of the
agency's 7(a) loans over the past ten years have been under
$150,000 and over 80 percent have been under $350,000.
It appears that the small loans have been growing faster
than the larger loans. But can you comment on this issue
because clearly we want to make sure that smaller entities,
smaller businesses, are having access to these loans? It looks
like it is certainly possible that it is occurring, but I would
like to hear comments from you.
Ms. Johns. Thank you, Ranking Member Snowe.
Actually there is no indication of any so-called crowding-
out effect. In fact, I am sure we have shown you data that
there was a major spike in lending at the end of the year. That
was as a result of the fact that there was much pent-up demand
for the 90 percent guarantee and the fee waivers.
And so there was a lot of activity at the end of the year.
That spike was not due to the larger loan size. In fact, our
data shows that really just 3 percent of our loans are in the
larger loan size between the $2 and $5 million. That has been
very consistent over the course of time since the passage of
the Small Business Jobs Act.
So the notion of crowding-out effect has not at all
occurred.
Senator Snowe. That is great.
Also, as you know, on the loan guarantees we have reduced
the borrower's fees and the lender's fees, and that is
obviously not going to reoccur in this economic climate. Do you
think that will discourage lending at all? Do you think it is
going to have any net effect on loans?
Ms. Johns. Well, certainly those were initiatives that were
very well received by the market, but we are still continuing
to see a general up tick in loans. The other reality is that
the small business needs for capital are not monolithic.
Yes, we have businesses who need the higher loan limits
which is why that was an important provision in the Jobs Act,
but we also have small businesses who have reacted very well to
the increase in micro lending.
So we have small businesses who need capital across the
spectrum from the relatively small dollar loans in the micro
lending space to the $5 million loans that are available
through the 7(a) program and the 504 program.
What we are charged to do as an agency is to make sure,
again, that we are looking across that spectrum and continuing
to identify gaps that may still exist and to keep this
Committee apprised of that and to seek your help in addressing
those.
Senator Snowe. Thank you.
Chair Landrieu. Senator Cardin.
Senator Cardin. Thank you. Again I thank both of our
witnesses.
I did not mean to get into a debate on direct loans. But
let me, if I might, just point out two things. First, SBA does
make some direct loans in emergency situations.
Number two, when there is a 90 percent guarantee of the SBA
loans. In other words, when the government taxpayers are on the
line for 90 percent of these loans, it seems to me making it a
100 percent we can then have direct accountability.
When you are dealing with a third party bank, it is much
more difficult for us to get the results that we want out
quickly.
That was my point on it, but I am very proud of the Small
Business Jobs Bill and I really do congratulate Senator
Landrieu. I was at caucus meetings when you are trying to get
the Floor time and there is no stronger advocate on behalf of
small businesses and doing our work, than Senator Landrieu.
It is not easy to get the Floor time to get a bill passed.
This is a major bill masking major new tools available to help
small businesses and we are very proud of this bill, but our
responsibility is oversight and to make sure that every dollar
that has been made available is used to maximum advantage to
create jobs and that is through small businesses.
I come back to procurement and I know I represent the
people of Maryland, and because of Maryland's location, we have
a lot of government agencies that are located here, and we have
a lot of small businesses that depend upon government
procurement. So, it is of great interest to the people of
Maryland.
There have been documented abuses by agencies; and one of
the things that we have been able to do, this Committee, is to
support the SBA and give it the tools. It was this Committee--I
serve on the Budget Committee. It was a direct result of
Senator Landrieu and Senator Snowe's efforts that we were able
to elevate the budget for the SBA.
I applaud you for that, and we got that as an amendment to
the Budget Resolution that gave the SBA the tools so that you
could be the advocate for small businesses within the
Administration.
We know agencies at times want comfortable relationships
with who they are already doing business with. So they bundled
contracts, small contracts that could be given to small
companies into large contracts in which only large companies
can compete.
We want you there fighting on behalf of small businesses
saying, no, do not bundle these contracts and elbow out small
companies from being prime contractors, because we know in the
prime contract/subcontract relationships there are abuses there
also. Better off to get small companies really into the game.
We do put a lot of confidence in the SBA being there as the
advocate on behalf of small businesses, taking up the fight
within the Cabinet Room and within the Administration.
The curriculum you are developing for training we see as a
major step forward. I just urge you as you implement this law
that you bring in the small companies and listen to their
stories as to their experiences with the Department of Defense
or with the Department of Agriculture, with all of the agencies
of government, because there are horror stories out there as
they try to get through the mine fields of getting their fair
share of the procurement work of government.
I appreciate your response as it relates to the curriculum
that is being implemented and the training sessions, et cetera,
but it is also going to take the SBA as an advocate to fight
comfortability that currently exists in the agencies in the
relationships they have with large contractors where we have
got to get small business in the door there.
Ms. Johns. Thank you, Senator Cardin.
I have to say to you I could not agree with you more about
the importance of the SBA's role as the voice of small
business. We take very seriously and wear very proudly that
mantel of being the advocates for small businesses within the
government and beyond.
And as far as my personal commitment, I have been involved
in small business issues long before I have had the honor to
serve in this Administration in this role.
I am a local person, and a lot of people have my phone
number. So, I am regularly taking phone calls on a Saturday,
people stopping me at church, small business owners I know a
lot of them, talking about issues and giving feedback on how
our agency can work more effectively.
So, believe me you have my 150 percent commitment, and that
is why I do make it a point of talking to small businesses
whenever possible, because that is where our richest source of
information is.
We have got to know how these programs are really playing
on the field so that we are prepared to make adjustments as we
need to, and that is what we do.
Senator Cardin. Thank you. You are going to be getting some
more calls. I am looking at six cards that I picked up this
morning from the small business conference.
Ms. Johns. Hand them over.
Senator Cardin. I am taking this case work myself so I will
be contracting you.
Ms. Johns. We will be happy to come to your office and give
you an update.
Senator Cardin. Thank you very much. I appreciate it.
Chair Landrieu. Thank you very much.
The contracting of small business has no stronger advocate
than Senator Cardin. He speaks to us about that everyday, does
he not, Senator Snowe? And thank goodness for him.
I thank you. I have one question but I am going to ask for
a response in writing about the tax provisions in the small
business lending bill to Treasury. You can supply this in
writing. When will you be able to provide an analysis of
whether small businesses were able to take full advantage of
the tax provisions in the bill?
I know that some small businesses have not yet filed their
returns and do a delayed filing in October but I will submit
that to you and you can respond in writing.
Mr. Graves. We would be happy to do so, Chair Landrieu.
Chair Landrieu. Thank you all very much. I appreciate it,
and we will move to second panel now. Thank you.
As they are moving, to save time, let me begin introducing
our second panel. We will be hearing directly from small
business owners from their view and perspective how this new
bill is helping them or providing opportunity.
We will also be hearing from the Association of the Self-
Employed, and the Vice President of a rural program from North
Carolina.
So, first let me introduce Eric Blinderman, Founder and
Owner of Mas Farmhouse, a highly-rated New York City
restaurant. He is currently constructing, with the help of an
SBA 504 loan, a second restaurant; we are looking forward to
hearing his testimony this morning.
Also, Ms. Kristie Arslan, Executive Director of the
National Association of the Self-Employed. This association
represents the interest of America's smallest businesses,
employing themselves, one person. She is a New Yorker and
currently serves on the Board of Directors of the Coalition for
Affordable Health Coverage and Small Business Legislative
Council.
And finally, Patrick Woodie, Vice President of Rural
Programs for North Carolina's rural center. At the rural
center, he oversees capacity building programs in the area of
infrastructure, business development, and workforce
development. We are very interested to hear this morning, Mr.
Woodie, how one of our state programs that many of us supported
so wholeheartedly is working.
So you all know your time constraints, and Mr. Blinderman,
we will start with you.
STATEMENT OF ERIC H. BLINDERMAN, CO-OWNER, MAS FARMHOUSE
RESTAURANT
Mr. Blinderman. Thank you, Chairwoman Landrieu, Ranking
Member Snowe, members of the Committee, for inviting me to
testify this morning about issues pertaining to implementation
of the Small Business Jos Act of 2010.
To understand how the Small Business Jobs Act has impacted
Main Street and specifically my restaurant in New York City, I
think it is important to get a little bit of background about
where my restaurant came from. It is a small business success
story that was conceived initially after the tragedy of
September 11 in New York City.
In those troubled times, my business partner, Chef Galen
Zamarra and I turned our attention from grieving into
reconstruction which included the nuts and bolts of assembling
our first restaurant.
I was then a 27-year-old kid focusing on financial models,
preparing the business plan, otherwise taking the business-side
steps to our broad ideas into reality. Chef Zamarra, of course,
focused on the artistic side.
I had no experience. I was a 27-year-old kid. But with
business plans in hand, I went to the place that had the money,
banks. I would leave my day job at my law firm, go to the
teller at HSBC, Chase, Bank of America, you name it, in my best
business suit, say to the teller that I was a small business
owner, here was my partner, and we were looking for a half a
million dollars to sit there an open up a restaurant in New
York City with little to no experience, no capital, and no
assets.
Fortunately, after being turned away by just about every
bank up and down Manhattan, Wall Street, Fifth Avenue, Sixth
Avenue, you name it, I persisted and was placed in touch with a
consortium of other banks, a state-chartered entity called the
New York Business Development Corporation (NYBDC).
The New York Business Development Corporation's purpose is
to provide creative underwriting solutions for non-traditional
lending risks, the category into which we clearly fell. Because
of the NYBDC's relationship with the United States Small
Business Association, Small Business Administration and
conventional banks, they were able to mentor me through what
was a complicated and difficult SBA lending process, but with
their assistance, I was able to procure a $500,000 SBA 7(a)
term loan, a $50,000 World Trade Center Small Business
Development Loan and was able to open and construct Mas
Farmhouse.
In terms of public/private partnership, the lending package
worked exactly as designed. My partner and I used SBA
guaranteed funds to renovate a Greenwich Village restaurant
which had gone bankrupt as a result of September 11 and
converted it into Mas Farmhouse.
Now, more than seven years after opening, we employ
approximately 35 individuals, generate hundreds of thousands of
dollars in city, state, and federal tax revenue each year, and
continue to pay down the balance of our loan, without ever
having never missed a single payment.
Of course, all good stories must come to an end but for Mas
Farmhouse, a small business, that ending is unclear because,
despite our successes, our continued existence is bounded by
the terms of our commercial lease which has less than three
years left before it expires.
Moreover, despite my best efforts to arrive at business
terms with my current landlord, we have not been able to extend
that lease because of various economic conditions that the
landlord has placed upon my business as a condition of lease
renewal.
Enter the Small Business Stimulus Package of 2010. The
Small Business Stimulus Package of 2010, as everyone is aware,
was initially put to vote in July of 2010, which was around the
time that Chef Zamarra and I had located an alternative
location within which to either open up a sister restaurant to
my current restaurant or to relocate my current restaurant
should the time arise that relocation is required.
At that time, I began approaching the NYBDC once again to
request financial assistance not to lease the property,
although the property was available to lease, but to purchase
it outright, to obtain what I call a forever home, a place that
I would have the ability to sit there and manage my business
and perpetuity without ever having to run the risk of being
thrown out from my place of establishment because of rent
increases, because of other conditions or various other
provisions which could attach as a result of a leasing
relationship.
And unfortunately, I was told by the NYBDC that, although
we were a creditworthy business and we were qualified to obtain
lending through various programs, the SBA's lending limit of $2
million prohibited us from purchasing that property outright
for conducting our expansion plans.
In addition, the SBA informed me that the requested
financing package was going to result in a total of nearly
$60,000 in lending fees which, for a small business like a
restaurant owner, is a very large sum of money.
Notwithstanding, the NYBDC courted aggressively many
lenders, Citibank, HSBC, Chase and others, and we ultimately
settled on Citibank, which was the recipient of troubled asset
relief funding and were able to procure funding in the amount
of $3,179,850 to permit construction of Mas La Grillade, broken
down in the form of a 504 SBA loan, $1.5 million from Citibank.
NYBDC lent us $1.2 million and a further 7(a) loan in this span
of $420,000.
The importance of this expansion to my business cannot be
understated. The SBA 504 program has allowed me to purchase
this property outright by placing only 10 percent down on our
purchase price. Because our existing restaurant runs on tight
margins as I explained earlier, we would never have been able
to purchase this property but for the existence of the small
business stimulus package.
Second, the collective terms of the loan package will
result in my new restaurant paying thousands of dollars less
per month in loan servicing costs than I currently pay in fixed
costs for my existing restaurant.
Most importantly, we are in the process within the next 90
days of hiring 65 new people to staff and run my new
restaurant.
Importantly, these benefits do not just inure to me as a
business owner. They also inure to the City and State of New
York and the Federal Government. For example, projected revenue
of my new restaurant should generate hundreds of thousands of
dollars in sales tax for the City and State of New York.
In addition, each of my 65 anticipated employees will pay
federal, state, and local taxes and contribute their share to
social security, Medicare, and Medicaid, and related
entitlement programs.
Payments to the hundreds of food vendors, beverage, and
other vendors who service my restaurant, which include local
fishermen, farmers, and others provide additional revenue for
local, state, and Federal coffers.
Indeed, these benefits have already begun accruing despite
the fact that my restaurant is under construction as we are
using our SBA funds to employee dozens of architects,
engineers, plumbers, electricians, contractors, and others.
In short, the bottom line of my small business should be
measured by its cash flow and profitability. I believe the same
metrics should be utilized to measure the success of the Small
Business Stimulus Package of 2010.
As businesses take advantage of the bill's benefits to
open, expand, and grow, this Committee should analyze whether
they are generating employment opportunities, contributing to
economic expansion, creating new revenue streams for government
entities, and repaying their debts with interest and without
default.
If, on balance, the net sum of loans made pursuant to the
Small Business Stimulus Package of 2010 achieves these
objectives, I think the United States will have benefitted
greatly from it.
I am confident that Mas La Grillade will meet these
objectives and am grateful and thankful for the passage of this
bill.
Thank you for your time this morning and I apologize for
having run slightly over.
[The prepared statement of Mr. Blinderman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair Landrieu. That is okay.
Mr. Blinderman with testimony like that, you could run a
half an hour over your time. It is music to my ears to hear how
helpful our efforts have been here to you and to your
restaurant. But I want to say how extraordinarily pleased I am
that you took your time to come to this Committee to share your
story of fighting so hard to create a business in the United
States of America.
I can only say it should not have been that difficult, and
I can only say how tragic, shameful, and ultimately destructive
it is when a gentleman with your credentials which I want to
read into the record. He received a J.D. cum laude from Cornell
Law School. You then graduated with distinction in
international law from the University of Oxford.
Yet, as you testified, you went to every bank on Fifth
Street, Sixth Street, and beyond to try to get a loan to start
a business and you were turned down.
So, my question to those listening is if a gentleman with a
degree of distinction from Oxford cannot get a loan from the
United States banking system, how is it possible for 99 or 100
percent of the kids that I represent who are young people in
the State of Louisiana who we do not go to Oxford, how is it
possible for them to start a business?
That is why this Committee passes the envelope for new and
innovative ways to get capital into the hands of young
Americans who we spent millions of dollars literally educating
but yet our system falls so short on giving them the
opportunity to start business.
As long as I chair this Committee, we are going to continue
to push open this door.
Ms. Arslan.
STATEMENT OF KRISTIE L. ARSLAN, EXECUTIVE DIRECTOR, NATIONAL
ASSOCIATION FOR THE SELF-EMPLOYED
Ms. Arslan. Thank you, Chair. Thank you, Ranking Member and
the members of the Committee, for allowing the National
Association for the Self-Employed to testify here today on
behalf of our 200,000 members and the 22 million self-employed
Americans nationwide.
We are here today to talk about the implementation of the
Small Business Jobs Act and the next steps we must take to
improve and expand upon the vital benefits it offers America's
smallest businesses.
With the current economic dialogue so focused on jobs, it
is important to note that our members and the 22 million
Americans that are self-employed are not solely ``hobby''
enterprises or temporary freelance workers between permanent,
``real'' jobs.
Being self-employed means you have created a job for
yourself. Self-employed businesses successfully provide for
families. They contribute to their local communities, and these
jobs are just as valuable to the economy as an office or a
factory job, and these businesses are just as essential to the
economy as their larger counterparts.
Despite accounting for 78 percent of all small businesses
in the U.S. and collectively contributing close to $1 trillion
to the economy every year, the dynamic self-employed community
is too often misunderstood and under represented in the policy
fashioned for small business. Our Nation's lawmakers and
regulatory agencies commonly craft policy geared toward the
tiny sliver of the business population that is corporate
America. The narrow policy focus on the small percentage of
businesses is why the Small Business Jobs Act was so crucial to
our community. This legislation included key provisions that
benefitted the vast majority of micro-businesses and provided
some much needed bottom line tax savings to the self-employed.
For years the NASE has been working to allow the self-
employed access to the same tax benefits enjoyed by all other
businesses. A key disparity in the tax code is the treatment of
health insurance costs. The self-employed do not received a
business deduction for health insurance costs causing these
businesses to pay more in payroll taxes known as self-
employment tax than all other businesses.
With the passage of the Small Business Jobs Act, the self-
employed were allowed to deduct their 2010 health insurance
costs from the self-employment tax on their 2010 tax return.
What did this one-year deduction mean for someone who is self-
employed? Based on the average health insurance costs out
therein the individual market, the one-year deduction in this
bill saved self-employed business owners approximately $456 to
$968 in taxes. That is bottom line savings. Depending upon
their cost of coverage, many businesses actually saved more
money.
NASE member Michael Kagan of Dover-Foxcroft, Maine, is
owner of M. Kagan & Associates. A self-employed biotech
consultant, Mr. Kagan saved $1,400 in taxes this year due to
this one-year tax deduction in the Small Business Jobs Act, and
he used that money to reinvest in his business in office
automation and help grow his business exponentially.
Timothy Doyle, a NASE member from Donaldsonville,
Louisiana, an electrical contractor, saved $730 in savings from
this one-year deduction and he put that money to pay for his
next two months of health insurance premiums.
In this difficult economic time, this deduction in the
Small Business Jobs Act helped business owners lower their tax
liability or provided them with a substantial refund that could
be used to reinvest in their business.
Best of all, this deduction, though temporary, put the
self-employed, America's smallest businesses, on the same
playing field as other businesses for the first time.
The question now should be whether we extend this benefit
and how we better implement it for the future.
The NASE strongly supports leveling the playing field
permanently in allowing the self-employed a permanent deduction
for health costs for payroll tax purposes.
We understand, though, in this difficult fiscal climate
that an immediate permanent solution may be difficult to
achieve; however, we strongly feel that this deduction should
be extended at least for a two-year period.
Should an extension pass, we urge Congress to encourage the
IRS to rethink its approach in implementing this vital
deduction. The method the IRS used was very confusing and not
the standard approach for a business deduction. They created a
new line, Line 3, in Form 1040 Schedule SE, the form utilized
to calculate self-employment tax, to allow self-employed
taxpayers to take this deduction.
It would be preferable and a lot less confusing to
taxpayers to include this deduction on Form 1040 Schedule C in
Part II, which incorporates all business expenses. Self-
employed taxpayers had to carefully read the directions for the
2010 Form 1040 Schedule SE to take advantage of this one-year
deduction since deductions are not typically on this form.
Furthermore, because the bill was passed so late in the
year, it left little time for the IRS to provide guidance to
stakeholders and taxpayers on this deduction. An extension of
this critical tax deduction for the self-employed community
needs to be passed as soon as possible in order to allow the
IRS to be able to put this on the 2011 tax form and give
stakeholders the ability to educate business owners on how to
take advantage of this benefit.
In the current climate, policymakers on both sides of the
aisle have been struggling to find ways to stimulate the
economy. While efforts have been notable and have helped some
industry sectors, only the Small Business Jobs Act has helped
America's smallest businesses.
America's self-employed have long asked for the same
opportunity to success as their larger counterparts. They seek
no more than the same benefits that big business receive. So we
encourages lawmakers to extend the key provisions in the Small
Business Jobs Act. Thank you.
[The prepared statement of Ms. Arslan follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair Murray. Thank you.
Mr. Patrick Woodie.
STATEMENT OF PATRICK WOODIE, VICE PRESIDENT, RURAL DEVELOPMENT
PROGRAMS, THE NORTH CAROLINA RURAL ECONOMIC DEVELOPMENT CENTER,
INC.
Mr. Woodie. Thank you, Madam Chairman and members of the
Committee, for this opportunity to report to you on North
Carolina's implementation of the North Carolina Capital Access
Program.
I am Patrick Woodie, Vice President of Rural Development
Programs for the Rural Economic Development Center. For more
than 20 years, our nonprofit organization has developed,
promoted, and implemented sound economic strategies to improve
the quality of life for rural North Carolinians.
Typically, the Rural Center works in 85 of North Carolina's
100 counties. The North Carolina Capital Access Program is the
exception. At the request of North Carolina's Governor, Beverly
Perdue, the Rural Center is leading this statewide effort to
spur new job creation and business investment. While the State
Small Business Credit Initiative offers states the flexibility
of using their allocation to boost small business lending,
North Carolina has elected to invest its full allocation in the
Capital Access Program, or NC-CAP.
The Rural Center has a 14-year history of operating this
program. In 1994, North Carolina was one of the first states
outside of Michigan to adopt a CAP program. From 1994 to 2007,
NC-CAP enrolled 1,850 loans totaling $103 million and creating
or retaining more than 27,000 jobs. This was accomplished with
an allocation of $3.6 million from state appropriations and
other sources.
Today, thanks to the Small Business Jobs Act, NC-CAP has
been re-launched on a fundamentally larger scale. North
Carolina will receive $46.1 million that will enable up to $800
million in small business lending to more than 10,000
businesses in our state.
NC-CAP is a voluntary, loan-loss reserve portfolio
insurance program. Eligible lending institutions, banks, CDFIs,
and federally insured credit unions, elect whether to
participate. The program allows a bank to mitigate the risk of
its small business lending. For loans enrolled in the program,
the borrower and/or the lender pays a fee of 2 to 7 percent.
NC-CAP matches that amount, and the combined total is deposited
in a loan loss reserve account at that lending institution. As
more loans are enrolled, the reserve pool grows. In the event
of a default on an NC-CAP loan, the lender may draw upon the
reserve pool to cover the loss. Lenders are solely responsible
for underwriting the loans and defining terms. Loans may be
used to buy land, construct or renovate buildings, purchase
equipment, or provide working capital.
Why does North Carolina believe in this program? First, it
is cost effective. For every $1 we invest, a lender will
typically loan $20 to small businesses. Second, it is non-
bureaucratic. Paperwork is minimal, and the process is seamless
for the borrower. Finally, it is proven. Not only do we draw
upon our own experience, but more than 30 states have
successfully operated CAP programs.
Last December, North Carolina joined Michigan as the first
two states to apply under the State Small Business Credit
Initiative. In February and early March, the Rural Center held
11 briefing sessions across North Carolina to roll out the
program. These briefing sessions drew hundreds of participants,
including banks, other lenders, technical assistance providers,
and small business owners.
Today, 26 lenders, including 23 banks, two CDFIs and one
credit union have enrolled in NC-CAP. These 26 lenders
represent 30 percent of all branch bank locations in the state,
giving the program statewide coverage. Another 15 lenders are
in the process of signing up, and we continue to recruit
others. Our staff has made face-to-face contact with each of
North Carolina's 130 banks, as well as our credit unions and
CDFIs.
North Carolina enrolled the first loan in the country using
the federal allocation. At this early stage, we have 16 loans
enrolled, including loans for restaurants, logging, and air
cargo businesses. We anticipate a rapid escalation in
enrollments, and in the next three weeks, we embark on a
statewide publicity campaign.
The leadership of several important partners is noteworthy.
Senator Kay Hagan, who gave her support to this important
legislation, our Governor who seized the opportunity afforded
to our state by the State Small Business Credit Initiative,
BB&T President and CEO Kelly King, who embraced and promoted
the program to his fellow CEOs.
As the former Chairman of our Board of Directors, Kelly was
instrumental in bringing the CAP program to North Carolina
originally. We also appreciate our partners at the North
Carolina Department of Commerce and the SBTDC and in the State
Small Business Credit Initiative Office at U.S. Treasury. They
have been very responsive to our needs to helping ensure the
success of our efforts.
Our state has suffered severe losses from the recent
recession. Now, as we begin to see signs of an improving
economy, this new program is finding its legs. It could not be
happening at a better time to stimulate the business and job
growth we desperately need.
Thank you.
[The prepared statement of Mr. Woodie follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chair Landrieu. Thank you so much. I am so excited to hear
about your success in North Carolina, Mr. Woodie, and I know
Senator Hagan was absolutely a leader in pushing us to
establish this provision within our bill, and also Senator
Levin was very instrumental having some experience in Michigan,
of course.
So, let me ask you this too again, for the record. What
happened in North Carolina between 2007 and 2011? Did the
program go away?
Mr. Woodie. The program did go away for a period of about
four years.
Chair Landrieu. And why despite its success?
Mr. Woodie. Despite its success, our primary funder had
become the Golden Leaf Foundation, and the real reason it went
away was, as it came time to raise a third round of capital for
the program, their priority is investing in tobacco-dependent
and economically distressed counties.
About two-thirds of total loans had been made in the 15
urban counties in North Carolina, and just their priority as a
funder did not meet their funding priorities.
Therefore, much to the disappointment of several of the
banks that participated, we shut down the program for a period
of four years.
We began looking early in 2010 as this opportunity looked
like legislation was taking place that might include a
provision like the State Small Business Credit Initiative, we
started looking very early on at this as an opportunity to
restart NC-CAP on a much larger scale.
Scale was one of the issues with the earlier program. We
had a very small amount of capital. Banks are very reluctant
to, even though it is a great tool, it works very well for
them, the ones that used it actually speak very highly of it;
it is difficult to get banks to invest heavily in a program if
they are not sure how long it is going to be around.
And so that certainly was an obstacle with our early
program.
Chair Landrieu. So the authorization, if the staff will
remind me, for our program is five years for this? Five years.
So we hope that that will give you some stability for the start
up on this, and we are really going to be looking at how this
works because we are just desperate literally to find models
that work for people like Mr. Blinderman, who could not do more
in terms of what America expects of young people to do other
than going to school, graduating at the top of their class,
getting extraordinary degrees, yet when they go out to start
business, there is no capital for them to start.
And we wonder why we are having difficulty putting this
recession in our rearview mirror. We are trying it all, all of
the above, and I am excited about the program in North Carolina
and potentially we could have a field hearing there at an
appropriate time to really showcase what you all are doing and
we are anxious to hear what Michigan is doing as well.
Let me ask. Ms. Arslan, you testified that you are happy
for the smallest businesses in America to be on a level playing
field with the largest, and you realize the financial
constraints that we are under.
What do we estimate it would cost to try to put these small
businesses on an equal playing field? What are the most recent
estimates? And do you have any suggestions about how we might
step into that over time, for the record?
Ms. Arslan. Again, I think this one-year tax provision was
a good start. It will allow us to see the effectiveness of this
deduction.
Again, you know, it is up to the business owner to take
full advantage of the deduction. I do think we would get better
utilization if the IRS more effectively implemented the
deduction, as mentioned putting that deduction on Schedule C
where all other business expenses currently lie.
But again, there are 22 million self-employed Americans
that qualify for this particular tax benefit. Again in terms of
qualifications, they simply have to be self-employed, a
Schedule C filer, and they have to purchase their own health
coverage. So anyone who meets the qualifications can take
advantage of this.
In terms of cost of this bill, we for years have promoted
legislation to address this inequity permanently, and the bill
has been scored at $2 to $2\1/2\ billion a year over 10 years.
Again, it is in complete correlation or relation to the
number of self-employed people out there purchasing their own
health care. So, the smaller the number of self-employed out
there purchasing health coverage, the less people qualify for
the deduction. The more, the more people qualify for the
deduction which would address how much it costs.
But again, at the end of the day, why is it okay for the
smallest businesses out there to pay more into the tax, more in
revenue, more in taxes than larger businesses?
Why is it okay that a large business gets to deduct their
health care costs, that workers of larger businesses get to pay
for those health care costs with pretax dollars?
But someone who is a one-person business, self-employed who
needs the most assistance has to pay more in payroll taxes than
anybody else. Again, it is just a fairness issue. In this
economy, that money is even more important because every little
bit counts.
Chair Landrieu. Thank you.
Finally, Mr. Blinderman, your story is exactly what we had
hoped for when I myself and my colleagues passed the Small
Business Bill.
Could you restate for the record what you think your
business in terms of its contribution to the local economy in
terms of taxes that you are paying, employees. You mentioned
something about suppliers. Would you state for the record the
far reach of your successful small business?
Mr. Blinderman. Sure. I think to answer that question, it
is best to understand the model of my existing restaurant.
Currently, we have 35 employees and we generate over $3
million per year in gross revenue. Of that, it is fully taxable
as income, as an LLC pass-through to all the owners and
investors of the restaurant.
In addition, all of our 35 employees are paid on the books.
In the restaurant industry, people are aware that oftentimes
tipped employees are paid out in cash each night. That does not
happen at Mas Farmhouse.
Everyone receives the cash that comes in each night, or
credit cards. It is deposited into the banks, funneled through
our payroll company. Payroll taxes are deducted. Medicare,
Medicaid, Social Security.
Our payroll averages between $23- to 28,000 per week at Mas
Farmhouse. Translating those numbers into Mas La Grillade,
which will be a bigger restaurant and employ more people, our
projected revenues conservatively, if we are able to meet our
numbers, would generate anywhere from, again, $3.2 to $3.7,
potentially more, million dollars in gross revenue which would
be fully taxable by Federal, state and local authorities.
In addition, our 65 employees, if you take the $23- to
28,000 per week we spend in payroll each and every week at Mas
Farmhouse, you can effectively double that and perform the
calculations to determine Social Security, Medicare, Medicaid,
and other entitlements which will be deducted in addition to
other taxes.
I think most importantly, though, are the trickle-down
effects for suppliers and vendors. Mas Farmhouse is built upon
a model of sustainability and organic cuisine which, back in
the day before it was a buzz work, has been open for seven
years.
That means we source all of our ingredients as much as
possible within 150 miles of New York City. Farmers who would
not otherwise be able to meet the New York restaurant market,
growers, fisherman and others, people who we will spend $60 to
100 per week but which for them is a lot of money in revenue
that we will consistently transfer over whether we are buying
meat, poultry, fish or vegetables.
In addition to our wine purveyors, in addition to all of
the other vendors, from our glassware purveyors, our silverware
purveyors, our cloth purveyors, our laundry needs, and all of
the various other entities that go into servicing a full
service fine dining restaurant.
So, that is the benefits that I think one can expect, and
those are the benefits that have already been achieved at Mas
Farmhouse, which again was an SBA success story.
Chair Landrieu. Thank you so much.
I want to submit for the record--I think that would be an
excellent way to close--your time has been very much
appreciated--with a list of over 40 businesses.
We literally could have filled this panel with hundreds of
success stories of small businesses just like yours and
programs statewide and regional programs that are stepping up
to respond to the new provisions in this Act.
So, I am going to submit it for the record just a list of
40 businesses that we know of that have benefitted. Eight jobs,
18 jobs, 40 jobs, 10 jobs, and I could go through this list,
hundreds of jobs created.
[The documentation follows:]
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Chair Landrieu. But we are not going to rest on our
laurels. We want to see what is working. What we can make work
even better until this recession is in the rearview mirror.
So thank you all very much. We really appreciate your
advocacy on behalf of yourself and the organizations you
represent.
And this meeting is adjourned. Thank you.
[Whereupon, at 11:48 a.m., the Committee was adjourned.]
APPENDIX MATERIAL SUBMITTED
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