[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

                              ----------                              
                   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

                              ----------                              

                           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

                              ----------                              


                         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:]

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    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:]

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    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:]

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    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:]

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    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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