    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                      STATE OF THE SMALL-BUSINESS ECONOMY

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

                                    HEARING

                                   before the

                          COMMITTEE ON SMALL BUSINESS

                                 UNITED STATES

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD

                               FEBRUARY 13, 2013

                                   __________

    [GRAPHIC] [TIFF OMITTED]

                Small Business Committee Document Number 113-002
                  Available via the GPO Website: www.fdsys.gov
                       HOUSE COMMITTEE ON SMALL BUSINESS

                         SAM GRAVES, Missouri, Chairman
                               STEVE CHABOT, Ohio
                                STEVE KING, Iowa
                             MIKE COFFMAN, Colorado
                           BLAINE LUETKEMER, Missouri
                         MICK MULVANEY, South Carolina
                             SCOTT TIPTON, Colorado
                       JAIME HERRERA BEUTLER, Washington
                            RICHARD HANNA, New York
                             TIM HUELSKAMP, Kansas
                           DAVID SCHWEIKERT, Arizona
                           KERRY BENTIVOLIO, Michigan
                            CHRIS COLLINS, New York
                            TOM RICE, South Carolina
                   NYDIA VELAZQUEZ, New York, Ranking Member
                             KURT SCHRADER, Oregon
                            YVETTE CLARKE, New York
                              JUDY CHU, California
                            JANICE HAHN, California
                         DONALD PAYNE, JR., New Jersey
                              GRACE MENG, New York
                            BRAD SCHNEIDER, Illinois
                              RON BARBER, Arizona
                        ANN McLANE KUSTER, New Hampshire
                            PATRICK MURPHY, Florida

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

                                C O N T E N T S

                               OPENING STATEMENTS

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

                                   WITNESSES

    Randall Kroszner, Ph.D., Norman R. Bobins Professor of Economics,
      University of Chicago Booth School of Business, Chicago,
      Illinois.......................................................     3
    Ms. Maria C. Coyne, Executive Vice President, Consumer/Small
      Business, Key Bank, Cleveland, Ohio, on behalf of the Financial
      Services Roundtable and the Consumer Bankers Association.......     6
    Mr. Sean Falk, Owner/President, WolFTEAM LLC/Nachogang LLC, Cedar
      Park, Texas on behalf of the International Franchise
      Association....................................................     7
    Ms. Margot Dorfman, Chief Executive Officer, US Women's Chamber
      of Commerce, Washington, DC....................................     9

                                    APPENDIX

    Prepared Statements:
        Randall Kroszner, Ph.D., Norman R. Bobins Professor of
          Economics, University of Chicago Booth School of Business,
          Chicago, Illinois..........................................    30
        Ms. Maria C. Coyne, Executive Vice President, Consumer/Small
          Business, Key Bank, Cleveland, Ohio, on behalf of the
          Financial Services Roundtable and the Consumer Bankers
          Association................................................    38
        Mr. Sean Falk, Owner/President, WolFTEAM LLC/Nachogang LLC,
          Cedar Park, Texas on behalf of the International Franchise
          Association................................................    59
        Ms. Margot Dorfman, Chief Executive Officer, US Women's
          Chamber of Commerce, Washington, DC........................    62
    Questions for the Record:
        None.
    Answers for the Record:
        None.
    Additional Material for the Record:
        Hon. Grace Meng..............................................    68
        B. Dan Berger, Executive Vice President, Government Affairs,
          National Association of Federal Credit Unions. Letter for
          the Record.................................................    69
        Testimony of The Association for Enterprise Opportunity (AEO)    71

                      STATE OF THE SMALL-BUSINESS ECONOMY

                          Wednesday, February 13, 2013

                      House of Representatives,
                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 1:00 p.m., in Room
    2360, Rayburn House Office Building, Hon. Sam Graves [Chairman
    of the Committee] presiding.
        Present: Representatives Graves, Chabot, Luetkemeyer
    Mulvaney, Tipton, Hanna, Huelskamp, Schweikert, Collins, Rice,
    Velazquez, Chu, Hahn, Payne, Meng, Barber, and Kuster.
        Chairman Graves. We will go ahead and call this meeting to
    order.
        I want to welcome once again our new members of the
    Committee and those visitors to the Small Business Committee.
        As we kick this off, for the last 2 years we have usually
    started our work with the Small Business Committee by listening
    to experts provide views on the economy and the challenges that
    lie ahead. We are going to do the same this year with a
    distinguished panel of witnesses whose testimony is going to
    help us better understand the current environment and how real
    small businesses are coping in an economy that remains in a
    stubborn recovery.
        With the economy contracting by 0.1 percent in the fourth
    quarter of 2012 and the unemployment rate increasing to 7.9
    percent in January, there is serious concern about whether the
    country is on the right track. Our economy is large and very
    complex, with many factors influencing its trajectory. As we
    examine these factors, we must take a hard look at the policies
    coming out of Washington to determine what we can do
    differently or what we can do better.
        One thing we know is that small businesses will be the
    leaders of a strong recovery. Yet, time and time again, the
    policies proposed by the current administration fail to take
    into account this important segment of the economy. In fact,
    last night I think the President only mentioned small business
    twice in his remarks.
        When small businesses do poorly, the economy suffers.
    According to the National Federation of Independent Business,
    small-business owners continue to be pessimistic about the
    future. These concerns have kept them from borrowing, hiring,
    and expanding. Business owners lack confidence in their future
    because of the uncertainty over taxes, the burden of
    unnecessary regulations, and the cost and compliance demands of
    healthcare, and low consumer spending. In fact, consumer
    spending, which accounts for 70 percent of overall economic
    activity, grew only 0.2 percent in December, which is a very
    discouraging sign for small businesses who are looking to
    expand.
        I look forward to the hearing. I look forward to listening
    to our witnesses. We will certainly benefit from their
    perspective on the state of the economy and how small
    businesses are faring.
        I appreciate all of you coming out. I know that some of you
    have come a good distance, and we very much appreciate that.
        With that, I will turn it over to Ranking Member Velazquez
    for her opening statement.
        Ms. Velazquez. Thank you, Mr. Chairman.
        And I, too, want to welcome the new members on our side,
    Mr. Payne from New Jersey and Ms. Kuster from New Hampshire.
        As members of this Committee are aware, the success of our
    overall economic recovery hinges on how small businesses fare.
    While few will argue our economy is where it needs to be, it is
    also hard to ignore the important strides that have been made
    to date.
        Since 2009, GDP growth has expanded at a moderate 3.2
    percent, suggesting the economy is making gradual improvement.
    Likewise, although the employment situation remains
    challenging, we have seen 35 consecutive months of positive job
    growth and more than 2 million jobs created last year alone.
    Still, the pace of this growth is far from sufficient. For
    those who lost their livelihood in the recession or young
    people entering the job market, there remain too many
    applicants for too few opportunities.
        As is always the case, the gains exhibited by the broader
    economy are closely linked to trends in the small-business
    sector. Recent survey data found small-business owners'
    optimism regarding the next 6 months' growth by 5 points in
    January.
        Another encouraging sign has been the easing of the small-
    business credit markets, ensuring a flow of capital to small
    firms looking to expand their operations. According to the most
    recent Federal Reserve senior loan officer survey, most banks
    are loosening credit standards for small-business and
    commercial loans. Moreover, February data finds that 73 percent
    of small firms report being able to obtain the financing they
    need, the highest level in 4 years. Affordable credit will
    remain key to growth in this sector. If, as we often say, small
    businesses are the backbone of the economy, affordable capital
    is the lifeblood.
        Beyond the need for affordable financing, small companies
    also need additional customers in order to expand and take on
    more workers. Small businesses certainly have concerns about
    changes to the regulatory environment. However, a recent
    analysis by the Federal Reserve suggests that the biggest
    obstacle to small-business job creation may actually be the
    lack of consumer spending.
        In that regard, measures that generate consumer spending,
    such as payroll tax cuts, may offer a better path forward for
    boosting small-business growth and hiring. Indeed, the recent
    Federal Reserve letter calls into question whether regulatory
    uncertainty is truly impeding employment gains.
        It goes without saying that our economy has not achieved
    the level of growth all of us on both sides of the aisle want
    to see. Americans understandably expect more. However, it is
    also important to remember the dire state of the economy in
    2009. After 4 tough years, we are beginning to see glimmers of
    hope on the horizon, and our Nation's small businesses are
    leading the way.
        I look forward to hearing from our witnesses as to how this
    Committee can be more helpful in fostering an environment that
    helps small businesses succeed, grow, and create the jobs
    Americans so desperately need.
        And, with that, I thank you, all the witnesses, for being
    here today.
        I yield back.
        Chairman Graves. Thank you all again. To explain the
    process--first of all, we are probably going to have a series
    of votes sometime during the hearing, probably in about 30
    minutes, in which case we will recess for a short period of
    time. We are going to try to get through as much testimony as
    we can.
        You each have 5 minutes, and the lights will turn yellow
    when you have 1 minute left. If you go over, it is not a
    problem. We are not going to kick you out of here for that. If
    you have something to say, we would encourage you to say it.
        So, with that, we will start with our first witness here
    today, which is Professor Randall Kroszner, who is the Norman
    R. Bobins Professor of Economics at the University of Chicago
    Booth School of Business. Prior to joining the faculty at the
    University of Chicago, Professor Kroszner served as a Governor
    of the Federal Reserve System from 2006 to 2009.
        Professor Kroszner, thank you for being here. Welcome to
    the Committee, and we look forward to hearing from you.

     STATEMENTS OF RANDALL S. KROSZNER, NORMAN R. BOBINS PROFESSOR
    OF ECONOMICS, BOOTH SCHOOL OF BUSINESS, UNIVERSITY OF CHICAGO,
     CHICAGO, ILLINOIS; MARIA C. COYNE, EXECUTIVE VICE PRESIDENT,
     KEYBANK, CLEVELAND, OHIO, ON BEHALF OF THE FINANCIAL SERVICES
      ROUNDTABLE AND THE CONSUMER BANKERS ASSOCIATION; SEAN FALK,
      PRESIDENT AND OWNER, WOLFTEA, LLC AND NACHOGANG, LLC, CEDAR
         PARK, TEXAS, ON BEHALF OF THE INTERNATIONAL FRANCHISE
    ASSOCIATION; AND MARGOT DORFMAN, CHIEF EXECUTIVE OFFICER, U.S.
             WOMEN'S CHAMBER OF COMMERCE, WASHINGTON, D.C.

                    STATEMENT OF RANDALL S. KROSZNER

        Mr. Kroszner. Thank you very much. I am delighted to be
    back now as a professor rather than as a Governor of the
    Federal Reserve. But I am delighted to be back here before you
    again.
        Chairman Graves, Ranking Member Velazquez, and members of
    the Committee, thank you very much for asking me to testify on
    the state of the overall economy and the economic outlook. I
    will touch briefly on a few of the aspects of our economy and
    economic challenges in my remarks, but certainly I will look
    forward to your questions on a wide variety of issues.
        I will be focusing primarily on the general economic
    outlook and leave it to my colleagues to talk more specifically
    about some of the issues facing small businesses, but I will
    touch on a few of those issues.
        The way that I characterize the U.S. economy for roughly
    the last year or so and, unfortunately, I think, going forward
    is we are in a sideways slide--that is, that we are unlikely to
    see a strong breakout in growth. I also think we are very
    unlikely to see a double-dip type of recession.
        Now, of course, shocks can come along. There are a lot of
    unexpected factors that can happen, whether it is in Europe,
    whether it is a cybersecurity attack, whether there can be some
    sort of natural tragedy. So, obviously, those factors are ones
    that I can't take directly into account. But I think if we were
    to go along without major shocks, we will continue in this sort
    of sideways slide.
        What I mean by that is that we have been having job growth,
    private-sector job growth, at a modest level, which has kept
    the unemployment rate roughly constant, moving down slightly.
    Roughly a year ago, it was slightly above 8 percent. Today, it
    is just slightly below 8 percent. So hardly any progress,
    despite job growth of more than 150,000, 180,000 jobs per
    month, because the population is gradually growing, the labor
    force is gradually growing, so it is just basically keeping us
    treading water. That is why I kind of characterized things as a
    sideways slide.
        Now, some people have become concerned because the GDP
    report from the last quarter suggested a very mild contraction.
    I think there were a number of one-time factors having to do
    with the timing of some government expenditures that were very
    strong in the third quarter, very weak in the fourth quarter,
    and Hurricane Sandy that led to a slight contraction. I think
    going forward we are likely to see a continuation of the kind
    of growth that we have been seeing, which has been around 2
    percent, maybe in the low to mid 2's, but sort of around 2
    percent or so going forward.
        Fortunately, the rate of inflation continues to be subdued.
    Since mid-2009, inflation, as measured by the Personal
    Consumption Expenditures Index, has averaged about 2 percent
    per year and was just 1.7 percent in 2012. So certainly we have
    to be mindful of swings in prices of commodities, energy, food
    stuffs. Obviously, I am from the Midwest, so we have seen a lot
    of challenges because of the drought that we have been facing
    out there. But the overall pace of inflation has been quite
    moderate.
        If you look at surveys of consumers, surveys of
    professional forecasters, as well always market-based measures,
    there is no expectation of a significant increase in inflation.
    It seems to be at roughly the same level that it has been, or
    expected to be at roughly the same level that it has been. And
    I think that is fortunate that we don't see that, but obviously
    we always want to be mindful of a potential for that to change
    as the economy evolves.
        So what I really would like to see is the U.S. achieve a
    more robust, noninflationary recovery, and I believe that we
    can. In my formal written remarks, I have more details on the
    state of the economy, and feel free to ask questions about
    that, but I just wanted to mention a few factors that I think
    are very important.
        When we look at surveys both of small businesses and of
    large businesses, the things that keep coming up on top of the
    agenda for them, their concerns that are holding them back, are
    Federal Government policies, the Federal budget, the cost of
    health care. This seems to come up over and over again--the
    Duke/CFO Magazine survey; the NFIB, the National Federation of
    Independent Businesses. These keep coming up.
        One of my colleagues, Steve Davis, has looked at a measure
    and developed a measure of economic policy uncertainty. Looking
    at how much that has gone up since the crisis, particularly
    focused on these issues of Federal Government policies, Federal
    budget, and the cost of health care, he estimates that GDP
    growth may have been reduced by up to 2.3 percent, investment
    by up to 14 percent, and employment, up to 2.3 million jobs. So
    this is sort of a concrete illustration of how uncertainty
    about the policies that are before Congress and the
    administration can slow economic growth.
        Going forward, I think it is crucial for the Congress and
    the administration to understand that policy uncertainty is
    taking its toll on the economy. So clear or clean resolutions
    of uncertainty on fiscal policy and regulatory policies
    undoubtedly would help to spur a recovery, but it is also
    important that they be resolved in ways that are pro-growth. So
    it is not just the resolution, but it is how they are resolved.
        Just to quickly tick off three areas, I think the tax
    system should be seen as not simply a mechanism for raising
    revenue but also for something that can provide more incentives
    for growth. A recent study that I cite in my written testimony
    suggests a consistent and large adverse effect of corporate
    taxes on both investment and entrepreneurship. And so I think
    we need to think very carefully about that, when thinking about
    corporate tax reform.
        I think, second, on government expenditures, it is very
    important to think about how we can sustain economic growth. A
    lot of government expenditures, like in Japan--where they have
    been doing this now for 2 decades, where their debt-to-GDP
    ratio has gone from 70 percent to 250 percent. They have had
    anemic growth because they have not focused on growth-oriented
    spending, just simply spending in and of itself.
        Finally, when coming to resolve uncertainty with respect to
    regulation, thinking about the role of cost-benefit analysis,
    ensuring that the costs and benefits are weighed in thinking
    about regulatory implementation, is very important.
        Thank you very much.
        Chairman Graves. Thank you, Dr. Kroszner.
        I think we are going to go ahead and recess now. We only
    have two votes, so we will run over and vote and then turn
    around and come back. I am going to guess we will be gone about
    25 minutes.
        I apologize for the delay. I had hoped we would get through
    a little bit farther, but Nydia and I don't get to make the
    schedule, unfortunately.
        So, with that, we will recess and be right back.
        [Recess.]
        Chairman Graves. We will call the hearing back to order.
        Our next witness is Maria Coyne, who is the executive vice
    president for consumer and small-business lending at KeyBank.
    KeyBank is headquartered in Cleveland, Ohio, and has 1,088
    branches throughout 14 States. Maria joined KeyBank in 2001
    after serving as a small-business strategist for the Greater
    Cleveland Growth Association.
        Maria is testifying on behalf of the Financial Services
    Roundtable and the Consumer Bankers Association.
        Welcome to the Committee.

                      STATEMENT OF MARIA C. COYNE

        Ms. Coyne. Chairman Graves, Ranking Member Velazquez,
    members of the Committee, I am honored to be here today
    speaking with you about small business, a matter that is near
    and dear to my heart.
        And as you pointed out, I am here today representing not
    just KeyBank but also testifying on behalf of the Financial
    Services Roundtable and the Consumer Bankers Association.
    Collectively, the Roundtable and the CBA represent many of the
    Nation's leaders in small-business lending.
        First and foremost, KeyBank and the entire financial
    services industry are committed to small-business lending, as
    it is a core component of our overall business and small
    businesses are the cornerstone of the U.S. economy. Banks are a
    crucial partner to businesses, and we are stepping up our
    lending so small business can do what they do best: invest in
    communities. At KeyBank, we are committed to making loans in
    the communities we serve.
        As our country continues to recover from the economic
    crisis of a few years ago, there are a number of factors that
    will have a direct impact on small businesses and small-
    business lending in 2013. These challenges threaten the long-
    term health of the economy of the U.S. and must be resolved
    quickly in order to provide a stable path forward for
    consumers, businesses, and lenders. We urge Congress and the
    administration to address these challenges as soon as possible.
        The industry is consistently hearing from their small-
    business clients that general economic conditions make them
    less inclined to take on additional debt. Also, a key issue is
    consumers' lack of confidence, resulting in lower sales,
    particularly on the smaller end.
        A secondary problem is the diminished credit profiles of
    many small businesses due to the current economic environment.
    Collateral value has declined, and with limited collateral,
    small businesses that are otherwise creditworthy have had to
    rely increasingly on loans backed by the SBA to get the funding
    that they need.
        So how do we improve small-business lending? KeyBank, the
    Roundtable, and CBA have supported and will continue to support
    the various efforts of this Committee and Congress to expand
    small-business lending and to stimulate economic development.
    As a result, many small-business lenders have instituted
    aggressive measures to ensure no stone is unturned when finding
    ways to make more quality loans.
        In 2011, KeyBank, along with 12 other banks, made a
    commitment to increase small-business lending by $20 billion
    over 3 years. In September of 2012, the SBA announced that the
    banks are more than halfway to meeting that commitment--well
    ahead of the 3-year deadline. Additionally, in May of 2012, the
    SBA named KeyBank the top SBA Large 7(a) Lender of the Year. We
    are proud to have earned SBA's highest recognition.
        SBA programs, in general, posted the second-largest dollar
    volume ever in fiscal year 2012. However, despite the positive
    results SBA programs have produced the last several years,
    changes are needed to ensure the continued success of SBA's
    programs. For instance, streamlining the application process
    for the 7(a) and 504 program would reduce response times and
    paperwork.
        So what does 2013 look like for small-business lending? It
    is a myth that banks are holding back the economy by refusing
    to loan to small and large businesses. In fact, overall
    domestic loans increased 5 percent by the end of 2011, reaching
    $2.1 trillion by the end of the second quarter of 2012.
        However, today's economic environment remains a challenge
    for many small businesses. We expect small-business loan demand
    to remain stable at a relatively low level in 2013, with flat
    to slightly better results from 2012.
        The National Federation of Independent Businesses has
    consistently reported that the overwhelming majority of small-
    business owners report their financial needs are met and they
    are not interested in borrowing. As lenders, we, too, have seen
    no significant signs of improvement, as the creditworthy
    businesses have routinely reported that they are willing to sit
    on the sidelines until the economic environment settles.
        Accordingly, we look at SBA and other government-guaranteed
    programs as important levers in generating loan volume. We
    expect SBA 7(a) volume to be elevated over 2012 production, and
    we also expect the SBA 504 program to continue to play an
    important role in the business real estate market.
        In conclusion, KeyBank, the Roundtable, and CBA support the
    Committee's efforts to review areas where it can support small
    businesses as well as other alternative avenues to help create
    business opportunities through innovative policy solutions that
    will help create a foundation to build a strong and prosperous
    economy. While the efforts to increase small-business lending
    by Key and the industry overall have produced a variety of
    positive outcomes, we know more work has to be done to make
    sure capital reaches entrepreneurs and small-business owners
    who need it.
        This concludes my testimony, and thank you for listening.
        Chairman Graves. Our next witness is Sean Falk, who is the
    owner of Wolftea, LLC and Nachogang, LLC. Sean owns 12
    franchise businesses with brands such as the Great American
    Cookie Company, Pretzelmaker, Mrs. Fields Cookies, and
    Salsarita's Fresh Cantina. Sean is testifying on behalf of the
    International Franchise Association. Sean is also a former
    member of the U.S. Marine Corps who served in the gulf war and
    in Bosnia.
        Sean, thank you for being here. Nobody told you that we
    enjoy samples on the Committee?

                         STATEMENT OF SEAN FALK

        Mr. Falk. I thought about it.
        Chairman Graves, Ranking Member Velazquez, and members of
    the Committee, thank you for your invitation to testify at
    today's hearing. I am honored to speak with you regarding the
    current state of small business in America. I believe my role
    as a small-business owner gives me a unique perspective that is
    not heard often enough in Washington.
        So my name is Sean Falk. I am a Marine Corps veteran, and I
    own and operate 12 franchise locations. I am a proud
    participant in a diverse franchise community which supports
    nearly 18 million jobs. You may recognize some of my businesses
    as Salsarita's Fresh Cantina, Great American Cookies, Mrs.
    Fields Cookies, and Pretzelmaker.
        I bought my first franchise in 1998, and through 2008 I was
    averaging a little over one location per year that I would be
    opening. My business could grow even faster and create more
    jobs if Washington took more meaningful steps to address the
    tax and spending issues and regulatory uncertainty.
        Government plays an important role in my business
    decisions. As a business owner, I can't make future business
    plans when Congress passes and extends regulations for only 1
    year at a time. The moving target created by short-term fixes
    makes it extremely difficult for me to evaluate investments and
    business opportunities and hampers my efforts to expand and
    execute a long-term business plan.
        Small-business owners across the country also need to
    consider historically low profit margins, commodity and fuel
    prices, unemployment insurance rates, exchange rates, and a
    host of other factors. For me, raising prices is not an option,
    forcing me to scramble to keep up with new threats to my bottom
    line.
        Prior to 2008, securing financing to open my franchise
    locations was relatively easy, given my good standing with the
    banks. However, in 2008 when the financial markets started to
    go south, so did my ability to access capital. Banks began
    restricting lending and raised loan standards at a time when I
    was still growing. Unfortunately, from 2008 to 2011, my
    business did not grow and I opened no new stores.
        In 2011, I felt a change in the economic tide. Banks were
    reaching out to me again offering capital. The caveat was that
    the loans must be guaranteed by the Small Business
    Administration. But the application and approval process for an
    SBA loan took over 6 months, and I was forced to push back the
    opening of my stores. I finally opened up two new locations in
    April and May of 2012.
        Implementation of the Affordable Care Act has also
    presented an enormous challenge. Navigating the constant
    changes, waivers, extensions, regulations, and clarifications
    of an already-cumbersome law diverts my focus from developing
    my business and creating new jobs. Also, there are very few
    government resources to help guide small businesses through
    this process.
        Currently, I employ 43 full-time equivalent employees. If
    my business grows and I create more jobs, I will also
    drastically increase my costs due to the employer mandate. This
    has an undeniable impact on my bottom line and is making me
    reconsider opening new locations. Also, I may be forced to
    manage my employees' hours to less than 30 hours per week.
        With these challenges and changes, I fear that it may be a
    struggle just to keep the doors open on some of my 12
    locations. Of course I would relish the opportunity to grow my
    business, but the recent burdens placed on small business and
    the uncertain economic climate have given me reason for pause.
        The state of the small-business economy is extremely
    fragile. I hope policymakers will consider focusing their
    energies on address the burdens we face in a business-friendly
    manner. It is time to address these fundamental challenges
    facing our economy that are keeping small-business owners and
    entrepreneurs on the sidelines.
        Thank you for this opportunity, and I look forward to
    answering any questions the Committee may have.
        Chairman Graves. Ms. Velazquez?
        Ms. Velazquez. Mr. Chairman, it is my pleasure to introduce
    Ms. Margot Dorfman.
        Ms. Dorfman is the founder and CEO of the U.S. Women's
    Chamber of Commerce. The Women's Chamber of Commerce represents
    500,000 members, three-quarters of whom are small-business
    owners and Federal contractors. Through her leadership, this
    organization has championed opportunities to increase women's
    business, career and leadership advancement.
        Additionally, Ms. Dorfman has extensive background in
    business, including over 10 years in executive positions with
    General Mills and other Fortune 500 firms.
        Welcome.

                      STATEMENT OF MARGOT DORFMAN

        Ms. Dorfman. Thank you.
        Chairman Graves, Ranking Member Velazquez, and members of
    the Committee, thank you for the opportunity to speak today on
    behalf of the U.S. Women's Chamber of Commerce and our 500,000
    members, three-quarters of whom are American small-business
    owners and Federal contractors.
        In preparation for today's hearing, we surveyed our
    members. We see that small businesses are anxious to get
    forward movement and they are looking for opportunities,
    resources, connections, and a positive business environment.
    While business budgets are tight and access to capital is in
    the top three needs of our small businesses, access to
    contracts and affordable benefits are clearly the most
    requested when our members are asked how we can help them reach
    to the next level.
        On the Hill, the budget obstacles you face impacts our
    members. According to one member, budget uncertainty on the
    part of our clients in the Federal, State, and municipal
    sectors is a big issue. Many of them cannot move forward to get
    their projects going because they do not know what is going to
    happen with agency budgets.
        Even so, there are a number of things you can do today to
    help small businesses grow, prosper, and fuel our economy. Help
    small businesses secure affordable access to capital, not just
    for the larger small businesses and the gazelles; help access
    to capital get down to mainstream businesses, including women-
    owned, veteran-owned, startups, and rural businesses.
        For example, women own nearly one-third of all businesses
    in the United States, but we are still receiving only 12 to 13
    percent of the SBA-backed loans. One member states, ``Access to
    capital is very difficult in this lending environment. I am
    finding that unless you are established and have assets on
    hand, banks will not loan you money.'' And another member says,
    ``Lending is now taking place outside of the box with private
    lenders and investors for small businesses. This is a risky
    situation because they usually ask to take controlling interest
    in your company.''
        You have it within your power to compel the SBA to
    significantly increase their commitments to helping all small
    firms access the capital they need to grow their businesses and
    fuel the growth of our economy. Help small businesses secure
    affordable business benefits so that we can compete for quality
    workers and support our own families.
        We still need access to affordable health care and related
    insurance products and business insurance, disability
    insurance, but also affordable workplace retirement programs.
    Many industry barriers exist, and big-business privileges
    enable large businesses to access these important and necessary
    benefits far more affordably than the tight-budgeted small
    businesses.
        Help small businesses secure access to Federal contracts.
    While the SBA claims small businesses are receiving nearly 23
    percent of all Federal contracts, their efforts need to be
    stronger to assure our fair share of contracts is really being
    awarded to small businesses. The Small Business Administration
    Office of Inspector General reports that there is still a large
    number of big businesses included in those statistics, as well
    as large businesses that establish passthrough companies to
    funnel Federal expenditures through small-business programs.
        The Inspector General's October 2012 report on the most
    serious management and performance challenges states that
    ``previous OIG audits and other governmental studies have shown
    widespread misreporting by procuring agencies since many
    contract awards that were reportedly awarded to small firms
    were actually being performed by larger companies.'' One member
    who is pursuing a $50 million job at Camp Pendleton stated,
    ``When I looked at the list of attendees at the pre-walk, I was
    astonished to see the names of five large primes that in no way
    qualify as small businesses.''
        The OIG goes on to say, ``The SBA needs to ensure the
    contracting personnel are adequately trained on small-business
    procurement and are reviewing this data prior to awarding
    contracts.''
        I would add the SBA should be undertaking significant
    training of government contracting personnel relative to all
    small-business programs. Most important to my constituents at
    the U.S. Women's Chamber of Commerce is the training and use of
    the Women-Owned Small Business and Economically Disadvantaged
    Women-Owned Small Business set-aside program.
        Many of our women-owned small businesses report that
    contracting officers remain unaware, untrained, and unmotivated
    to make use of the program that was put into place to end the
    more than a decade of shortfalls and the paltry 5 percent goal
    for contracting for women-owned firms. Another member shared,
    ``I have to express my extreme frustration with access to
    contracts. The WOSB targeted set-aside is one of the most
    complicated set-asides to procure. Very few agencies are using
    this program.''
        And, finally, I implore you to help the health of the
    economy by avoiding undue fiscal austerity and fiscal calamity
    that will impact the growth of small businesses through reduced
    Federal spending, Federal layoffs that will drive down consumer
    spending, and cuts in important programs that add revenues to
    our economy.
        Thank you.
        Chairman Graves. I appreciate everyone's testimony, and we
    are going to start our questions off with Mr. Collins.
        Mr. Collins. Oh, thank you, Chairman.
        I want to thank the witnesses for coming. Your stories are
    compelling.
        Mr. Falk, thank you for sharing your entrepreneurial story.
    And many congratulations on your success.
        Let me go back to myself for a second. With the exception
    of my time as Erie County executive, I have spent my entire
    career as a small-business owner. So, like you, I do understand
    the obstacles, the hurdles that are facing small companies and
    people that are, like yourself, trying to grow.
        The competing interests of putting a first-rate product or
    service to customers, managing employees, raising capital, and
    maintaining a solid balance sheet are a balancing act. Every
    day, nearly 28 million small-business employers employ 60
    million people in this country; it is half of the private-
    sector workforce. I can assure you, I will work with my
    colleagues to make sure that we do what we can to make sure
    small business has a voice here.
        My specific questions may be twofold. You touched on the
    Affordable Care Act, Obamacare. I have heard and I have met
    with other franchise owners that they are actually right now
    cutting the hours of many of their workers from 40 hours to 29
    hours as a workaround to the penalties. And, if so, that is
    going to be having a negative impact on families in this
    country. They may now have to get a second job, where currently
    they have a full-time job.
        I would like you to share with us if you have heard the
    same or if you are looking at that same issue in cutting hours.
        Secondly, if there were one, two, or three things we could
    do here to change, a regulation or otherwise, do you have a top
    one, two, or three? I would appreciate your comments.
        Mr. Falk. I assume the one or two that you are talking
    about is in reference to the Affordable Care Act, or just any
    regulation in general?
        Mr. Collins. No. Any of them.
        Mr. Falk. Okay.
        In regards to the managing the hours, I have full-time
    employees that will remain full-time employees even after the
    implementation of the ACA. However, there are many businesses
    that are trying to manage those hours. I don't know if it is
    necessarily with the people who are truly full-time and always
    have been full-time, but it is definitely some people who are
    working 31, 33 hours a week. They are going to manage those to
    get down to 29 to avoid a full-time classification for that
    employee. Forever, a full-time employee has always been
    considered 40 hours, but now we have to look at it in a much
    different way.
        So, yes, I will manage that aspect, but I really won't cut
    my full-time employees down to 30 hours just to avoid that.
        But specifically with the ACA and regulations, if we could
    change the 30-hour requirement so that a full-time employee is
    a different amount of hours, that would be more helpful for us.
        And then also raising the 50 full-time equivalents. I don't
    understand how that impacts small businesses. That is not a
    small business. I have 12 locations; they employ 6 to 10 people
    at each location. I am still very small compared to some big
    employers. So if that number could be raised, it would be
    significant for me.
        Mr. Collins. Thank you for sharing that, because that is
    some of the workarounds I think we could at least propose. So I
    appreciate those comments.
        Mr. Falk. Absolutely.
        Chairman Graves. Nydia?
        Ms. Velazquez. Thank you, Mr. Chairman.
        Dr. Kroszner, last month, the Wells Fargo Small Business
    Index jumped 20 points from the previous quarter. Key drivers
    of this include greater optimism about revenues, capital
    spending, and jobs.
        Given this, do you believe that 2013 will be a better year
    for small businesses than 2012?
        Mr. Kroszner. Well, I think we are starting to see some
    optimism in certain areas, but we are also seeing some
    challenges both in surveys of small businesses and in the
    economy more generally.
        So I think, as I had described in my testimony, the number
    of surveys of both large and small business have suggested that
    they may be reducing their capital spending for the next year.
    There was a survey that was just reported in the Wall Street
    Journal earlier this week and also from the Duke and CFO
    Magazine survey that suggests there will be some reduction of
    capital spending relative to last year.
        Hopefully, with resolution of uncertainty about some of the
    policies that are before the Members of Congress today, we may
    be able to----
        Ms. Velazquez. Isn't that more directly linked to the lack
    of demand than consumers walking through their doors?
        Mr. Kroszner. Well, certainly, one of the concerns is the
    impact of all this uncertainty on consumer demand and the
    consumers' willingness to buy. Unfortunately, there is, as
    economists call it, a simultaneity. When there is a lot of
    uncertainty hanging over people's heads, consumers are a little
    bit less willing to buy, firms are less willing to hire and
    invest, and it makes it more difficult to have the general
    takeoff.
        Ms. Velazquez. Okay. Thank you.
        In the most recent Federal Reserve senior loan officer
    survey, it is clear that the credit standard for all firms,
    including small businesses, have been easing, while demand for
    loans has been increasing. What do you attribute this positive
    development in the small-business lending markets to?
        Mr. Kroszner. So I think there are a variety of factors,
    but I think some of it has been the policies that the Federal
    Reserve has pursued to try to provide sufficient liquidity for
    the markets and confidence that we will not get into a
    deflation situation, as Japan had gotten into. Taking out that
    tail risk of deflation I think has been important in instilling
    some confidence in the financial sector.
        I think we have also had some reduction in some of the
    uncertainties related to Europe, or at least temporarily we
    have, and I think that has been helpful.
        Ms. Velazquez. Thank you.
        Ms. Coyne, since the Small Business Jobs Act of 2010
    increased the maximum SBA loan size to $5 million, the
    percentage of smaller loans, defined as those $150,000 or less,
    has declined from 17 percent of total lending dollars in 2009
    to just 9 percent in 2012.
        What can we do to reverse this trend and prevent a gap in
    funding for these new and emerging businesses that need smaller
    amounts of capital?
        You know, in previous recessions, what we saw, it was that
    people who were laid off, they went on, they got capital, it
    was much easier to access capital, they opened up startup
    businesses. This time around, we are having trouble in terms of
    business formation.
        But as you can see, when the SBA and the Federal Government
    step in and guarantee those loans and increase the cap,
    financial institutions lend. But you lend and you make those
    big loans because they are more profitable than those less
    profitable lower amount of dollars, $150,000.
        Ms. Coyne. Yes.
        Ms. Velazquez. When you look at the portfolio of the 7(a)
    loans, the demand is not for the big loans, the $5 million
    loans. The demand is for those smaller loans. What can you the,
    financial institutions do, to address this gap?
        Ms. Coyne. I think that is an excellent question, and I
    think that the SBA program is particularly useful for those
    startup companies that you referenced.
        In my written testimony, I had referred to a client of ours
    in Cleveland, Laticia Ortiz, who a little less than 2 years
    opened Tortilla La Bamba with a $15,000 SBA loan. She is doing
    great. We are talking with her now on potentially--she has
    outgrown the 7,000 square feet that she is in. We are talking
    with her about a 504 loan to buy a building.
        I think we have to take advantage of--use the full range of
    the spectrum of what is available to us in the SBA.
        I can name instances of coffee shops in Tacoma and lots of
    other client transactions that we have done that are across the
    whole size gamut.
        I agree, we have to be active with the small, with the
    medium, and with the large-sized loans and continue to support
    SBA. I think it is a wonderful tool, especially for startups
    and especially for companies that have collateral values that
    have declined or they have had other impairment through the
    recession.
        Ms. Velazquez. Do you know the problem I have with the
    financial institutions lending to small businesses? That even
    when the Federal Government steps in and guarantees those loans
    to 90 percent, you are going to go and make the big loans, but
    then there is a gap.
        Ms. Dorfman, in 2009, the American Recovery and
    Reinvestment Act increased the SBA guarantee on loans to 90
    percent as an incentive for private lenders to increase small-
    business lending. While the outcome was a temporary spike in
    SBA activity, since the incentive ended last year lending has
    returned to the lackluster levels of 2009.
        Do you think the money used to incentivize private lenders
    would be better spent on an SBA direct lending program?
        Ms. Dorfman. I would say absolutely yes. We have seen the
    banks for years now cherry-pick the businesses that they feel
    that they can make the most money on.
        And I personally in my former years was a recipient of an
    SBA loan, but I was declined from many a bank because we were
    looking for $75,000. And the banker told me pointblank, If it
    was a $10 million loan you were going after, we could work with
    you. At the time, it was an 80 percent guarantee, and they said
    no way. We had double collateral sitting there. We had to go to
    an alternative lender. That continues today. It is still the
    cherry-picking.
        I believe there was a hearing a few years back and the
    focus was, the key issue was the cost to doing the loans. So if
    we go to the student loan way of doing things, have the loan
    done by the SBA, get it set up, and then sell off the paper,
    then those costs for the banks won't be there and we can
    actually see the levels of lending that are needed at the
    smaller levels to be satisfied.
        Thank you.
        Ms. Velazquez. Thank you, Mr. Chairman. I yield back.
        Chairman Graves. Mr. Chabot, do you have something to
    submit?
        Mr. Chabot. Yes. Mr. Chairman, I would ask for unanimous
    consent to speak out of order.
        Chairman Graves. Sure.
        Mr. Chabot. Thank you. I have a meeting out in the hallway,
    and I just wanted to enter into the record a letter from the
    credit union industry relative to capital access.
        Chairman Graves. Absolutely. Without objection----
        Mr. Chabot. Thank you.
        Chairman Graves. We will put that letter in the record.
        Mr. Tipton?
        Mr. Tipton. Thank you, Mr. Chairman.
        I would like to thank the panel for taking the time to be
    able to testify here today.
        Dr. Kroszner, I guess I would like to start with you. I am
    a small-businessman. That has been my real life. And when I was
    listening to your testimony, you had noted that there is
    probably not going to be a double-dip, no dramatic growth, a
    sideways slide that you describe.
        Would it be a fair characterization that you are pretty
    much couching this as that it is not as horrible as it was but
    it is really not getting any better?
        Mr. Kroszner. We have seen very little progress in the
    unemployment rate. As I mentioned, we have spent roughly a year
    right around 8 percent. I think gradually we will be moving
    down. But I just don't see the impetus for growth coming.
        As I mentioned, a number of the surveys of both large and
    small business have said, because of uncertainties and concerns
    about costs and regulation, they are very concerned about
    increasing capital spending this year. I think that makes it a
    difficult environment to think we are really going to get much
    of a takeoff.
        Mr. Tipton. So we even probably really agree. You know,
    when we are talking about 7.9 percent unemployment, we all know
    it is really much higher. You know, in my district, my two
    largest communities, the real unemployment, those that are
    underemployed, those who have simply given up, we have our two
    largest communities right now, as we boast of jobs created in
    the State of the Union last night, we are sitting at almost 20
    percent unemployment. We haven't been able to get this going.
        And it resonated with me when you were talking about what
    Japan was going through in terms of spending in relation to
    GDP. It is absolutely essential that this Nation start to truly
    address getting this fiscal house in order. It is not spending
    not one more cent, but reducing what we are spending in
    Washington, D.C.
        Mr. Kroszner. I think it is also very important to think
    about what the spending is on. In Japan, there was, as I
    mentioned, a very large increase in spending, often under the
    guise of stimulus, but it didn't really help to generate
    increases in GDP--the classic bridges to nowhere.
        I think government spending can be helpful when it is
    focused on areas where there are bottlenecks, where there are
    high productivity benefits of that spending. But one has to do
    a very careful analysis, and I think in many cases that is not
    the case. And I think just saying we need to spend more is not
    an appropriate response. We need to spend smartly and spend how
    we can increase growth in the U.S. economy.
        Japan is a great example where a lot of spending has not
    helped increase GDP.
        Mr. Tipton. I will tell you, one thing that I would like to
    explore a little bit, you made the comment that the rate of
    inflation is still low. But in terms of core inflation rate, we
    do not include food prices, we do not include energy prices. We
    have just seen a spike in fuel costs again in this country,
    which is increasing the cost of being able to deliver pretzel
    dough coming in, which is not factored into real inflation.
        Are these some of the hidden mine traps that this economy
    is really facing that is really stunting growth?
        Mr. Kroszner. Well, the numbers that I quoted were the
    Personal Consumption Expenditure Index, so that included all
    prices, including energy, foodstuffs, and such. If you just
    look at the core prices that were most recently reported in the
    GDP report, it is actually a bit lower. It is 1.5 percent,
    rather than 1.7, or an average of around 2 percent for the full
    headline number.
        I think we do have to be mindful of inflation pressures and
    that they could come at some point in time. Right now, if we
    look at both market-based and survey-based measures, we don't
    seem to see them there, but we need to be ever vigilant on
    that.
        Mr. Tipton. Thank you.
        Ms. Coyne, I would like to visit with you just a little bit
    in terms of access to capital. Key is a pretty big bank, but we
    have a lot of small community banks that are out there, as
    well, that can certainly lend themselves to being able to loan
    to small businesses, startups as well, in addition to the SBA.
        When we talking about Dodd-Frank, and now probably of more
    concern to me even is Basel III coming through, and the capital
    requirements that are going to be imposed on all of the banks,
    be it the big guys and the little guys as well, how
    constrictive is that in terms of banks' ability to be able to
    make loans?
        Ms. Coyne. Well, thank you for your question. I would add a
    couple things.
        First of all, even big banks are focused on serving small
    business. You know, we have just added 225 bankers who do
    nothing but transactions of $150,000 and less. They are housed
    in our business-intensive branches. So even big is very
    responsive to the community.
        I think my concern around Basel III has not so much to do
    with the capital levels at my bank, which are very solid, but
    more so what it would do to borrowers who use home equity as
    collateral. Because the rules around Basel capital will require
    you to hold more capital if there is a greater than 80 percent
    loan to value. So that could, in fact, have a negative impact
    on any borrower who uses--it could make that capital more
    expensive.
        So there are a lot of nuances to Basel III that, you know,
    have us a little bit have a watchful eye. And I think as an
    industry, we are in business to lend money, and we definitely
    want to support the communities that we do business in.
        Mr. Tipton. Thank you.
        I see my time has expired. I yield back, Mr. Chairman.
        Chairman Graves. Ms. Kuster?
        Ms. Kuster. Thank you very much. Thank you, Mr. Chairman
    and Ranking Member Velazquez. It is nice to be a part of the
    Small Business Committee. So, welcome.
        I just had a quick question. Mr. Falk and Ms. Dorfman also
    mentioned the issue of health care. I have also spent 25 years
    in the small-business world.
        And I am just wondering, Mr. Falk, when you talked about
    the burden of health insurance regulation, I am curious, as a
    small-business owner, how do you insure your employees? And
    what is the impact of illness or disability either of the
    employees or members of their family on your business?
        Mr. Falk. My full-time employees have access to health care
    from me. I supplement a plan for them to insure themselves and
    sometimes their family if they need it.
        Ms. Kuster. And the employees that are working 6 hours a
    day, 5 days a week?
        Mr. Falk. Well, in reality, I don't have a lot of those. We
    have a very part-time staff. We have a lot of 16-year-olds to
    21-year-olds. They are really not using this as a career.
    Usually my managers and assistant managers are kind of career
    people, so that is maybe two people per location. Everybody
    else is kind of a transition employee. They give me 3 to 12
    months. They are really not looking for health care. They are
    either on their parents' plan or, you know, they are just
    starting out in the business world, maybe going through college
    or looking for a better opportunity.
        Ms. Kuster. Thank you.
        And just one more. Ms. Dorfman, with your membership--and I
    was in a woman-owned business, so I am just interested in that
    question for you, about your experience on how employees get
    their health care and what the impact of illness, both for the
    employee and the family, is on the business.
        Ms. Dorfman. Right. Currently, our members try to provide
    benefits for their employees because that is the only way that
    they can be competitive in the marketplace, in Federal
    contracting. So this is something they really want to do.
        In the past, we have heard from them that their cost of the
    premiums have been skyrocketing. And so we are hopeful, with
    the new act, that we will be able to mitigate some of those
    costs and bring that down. Now, it is too soon to say because
    not everything is up and running and probably there are some
    changes going on that the dust still hasn't settled on.
        I would like to point out that that is not the only
    affordable benefit that my members want. They also want to
    provide retirement plans. And there is nothing out there that a
    small business can access.
        We tried to leverage our scale and put together a multiple-
    employer plan for our members and their employees, and the
    Department of Labor came out with a letter last year that
    virtually we had to close it down before we even got it off the
    ground. And what we were able to do with it was provide a way
    to get in without spending a lot of money, where we aggregated
    the cost. So if you are looking at a Lockheed Martin or a
    Boeing, they have a lot of people, they have lower costs. Well,
    you have the scale of the Chamber, you can do the same thing.
        So those are the types of things. We need to go beyond just
    health care, but the retirement, especially for women business
    owners because they live longer, they need to support
    themselves, their families, their employees, and their
    employees' families.
        Ms. Kuster. Thank you. Thank you very much. That is my
    experience, as well, was the skyrocketing cost of health care
    in a small-business environment.
        Thank you. I yield back the balance of my time.
        Chairman Graves. Mr. Luetkemeyer?
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Just for Ms. Coyne--that is an interesting name for a
    banker, by the way.
        Ms. Coyne. I have heard that before.
        Mr. Luetkemeyer. I have a banking background, and they call
    my daughter, who is Nicole, ``Little Nickel,'' so I understand
    where you are going there.
        Just kind of curious, you talked about, you know, as the
    top lender with SBA, what is the average size of the loans that
    you are making? Do you know offhand?
        Ms. Coyne. I don't. I do know, though, that, you know,
    something--in 2012, 43 percent of the loans that we made were
    actually under $50,000. But I can't give you an average size
    off the top of my head.
        Mr. Luetkemeyer. Okay. So 43 percent of all your commercial
    loans, or is that just SBA loans?
        Ms. Coyne. In our small-business space.
        Mr. Luetkemeyer. Okay. What percentage of your commercial
    portfolio are SBA loans? Just roughly.
        Ms. Coyne. Twenty percent, roughly.
        Mr. Luetkemeyer. Okay.
        Ms. Coyne. Yeah.
        Mr. Luetkemeyer. Is that an average across the industry?
        Ms. Coyne. I think we have been very committed to the SBA
    program. So those that are active in the program, I would say,
    at this point, of where we are in the economic cycle, that is
    probably pretty typical for the industry.
        Mr. Luetkemeyer. Okay. And you indicated that some changes
    needed to be made, and the other thing you mentioned was
    streamlining the process. Are there other things that you would
    suggest to the Committee here? Because this is the Committee
    that actually oversees of the SBA, and if you have ideas, we
    would certainly like to hear them.
        Ms. Coyne. We do. CBA and the Roundtable has a pretty
    exhaustive list that we would love to share with you after
    the----
        Mr. Luetkemeyer. An exhaustive list.
        Ms. Coyne. Well, they are mainly around improving the
    application process----
        Mr. Luetkemeyer. Very good.
        Ms. Coyne.--and then around more transparency around the
    SOP----
        Mr. Luetkemeyer. Okay.
        Ms. Coyne.--and, you know, allowing us to be more helpful
    and getting more public opinion around the SOP and more kind of
    regularity in when those changes are made.
        Mr. Luetkemeyer. Okay. You indicated that some of your
    customers are having some difficulty in expanding. They are
    concerned about the economy and actually willing to sit on the
    sidelines until the economy gets better.
        Is that a general statement that can go across the board,
    or is that just isolated instances? Or how do you feel your
    business customers and the climate they anticipate is out
    there?
        Ms. Coyne. I would say that is something that the whole
    industry has seen over the last, say, 2 to 3 years, that the
    most creditworthy borrowers are the ones that are sitting on
    the sidelines waiting until they see more stability in the
    economy. They are holding back on that next investment, hiring
    that next person, buying that next piece of equipment until
    they feel that things have settled more.
        Mr. Luetkemeyer. The biggest problem in the stability and
    uncertainty, is that regulatory problems?
        Ms. Coyne. Regulatory problems, tax uncertainty, all of the
    things that have been mentioned earlier--health care. All of
    those things I think are weighing on the minds of business
    owners.
        Ms. Velazquez. Mr. Luetkemeyer, I have, if you are
    interested, the answer to your question about the loan size for
    KeyBank.
        Mr. Luetkemeyer. I am giving up my time here, but that is
    fine. Go ahead.
        Ms. Velazquez. The trend shows that it continues every year
    to make larger and larger loans.
        Mr. Luetkemeyer. Well, reclaiming my time, I think that the
    size and inflation and types of businesses out there,
    microbusinesses, mom-and-pop shops, are very difficult to get
    started anymore. So you are looking at bigger loans because it
    takes a bigger business to cash flow, to spread your costs
    over. I mean, it just makes sense.
        Ms. Dorfman, you made a comment a while ago, you had four
    things that were problems for getting businesses going: access
    to capital, affordable business benefits, access to Federal
    contracts, and the government needs to spend more money.
        With regards to the access to Federal contracts, are there
    barriers now for women-owned businesses that are not there for
    any other businesses?
        Ms. Dorfman. There are. The government has never met the 5
    percent goal for doing business with women-owned firms. Since
    1994, there has been a goal set. And so the challenge is that--
    --
        Mr. Leutkemeyer. And what is the reason for that? Are there
    not enough people applying, or----
        Ms. Dorfman. Oh, no, we have----
        Mr. Leutkemeyer.--they are just being turned down, or they
    are not qualified individuals to be given contracts to, or is
    there another barrier there?
        Ms. Dorfman. The barriers include trying to get the access
    to the contracts. Typically, in the past, women-owned firms
    have had to compete against the large corporations. Now, with
    the woman-owned small business set-aside program that has been
    implemented, while that has helped, there are a lot of flaws
    that still remain that need to be changed.
        And I can continue, if you want, with the different flaws.
        Mr. Luetkemeyer. Well, that is a whole other issue we could
    get into. I have one real quick question with regard to Dr.
    Kroszner here.
        Cost-benefit analysis, in your testimony you said it is
    very important and needs to be understood better, and there
    seems to be a lack of the administration to be willing to go
    down that road. Do you want to elaborate for just a few seconds
    here? I am out of time though.
        Mr. Kroszner. I think this is a very, very important issue,
    and I think it should be a high-priority issue.
        As I mentioned, Executive orders from Ronald Reagan through
    President Obama have talked about the importance of cost-
    benefit analysis. And I think having that as a priority, making
    sure that when regulatory changes occur that Members of
    Congress think about including cost-benefit analyses, or
    requesting cost-benefit analyses, I think would be very
    helpful.
        Mr. Luetkemeyer. Very good. Thank you.
        And I yield back. Thank you, Mr. Chairman.
        Chairman Graves. Mr. Payne?
        Mr. Payne. Thank you, Mr. Chairman.
        Let me see. Ms. Dorfman, I apologize if you have already
    elaborated on this, but something that was concerning to me is
    you say about 90 percent of small businesses have fewer than 20
    employees, which means they are not subject to the mandate in
    the Affordable Care Act.
        However, these businesses are eligible to receive tax
    credits towards the purchase of health insurance. Given those
    realities, do you believe that the concerns regarding its
    impacts on small business are overblown?
        Ms. Dorfman. I do believe that to be true. We had connected
    with our members during the healthcare debate, and what we
    found was many of them were paying mortgage payments for each
    person, monthly mortgage payments for each person that they
    had. And they said, you know, with the mandate, the cost of
    that fee would be a lot less than what they are paying
    currently.
        One member recently cited that they have five employees and
    they are paying $42,000 annually for health care, so that is--
    --
        Mr. Payne. Okay. Thank you.
        Mr. Falk, you know, many people have limited access to
    capital, and in our continued economic trend of uncertainty
    many venture capital firms are hesitant to invest in startups.
    Should Congress consider any tax policies?
        Mr. Falk. I am sorry. Repeat your question?
        Mr. Payne. You know, because a lot of companies have limits
    to access to capital and there is uncertainty in the economy,
    many venture capital firms are hesitant to invest in startup
    firms.
        Should Congress consider any tax policies, such as some
    sort of investment tax credit, to encourage firms to invest in
    new enterprises?
        Mr. Falk. You know, in my case, I don't think that the
    answer is to change things with venture capitalists. I think
    that the traditional, conventional loan process is still the
    best way for me to go. So if we can make either the SBA process
    or some of the regulations on the bank less, so that they can
    maybe take into account relationship and prior history of
    payment of loans rather than just a calculation from the
    government standpoint of what qualifies and collateral and
    assets, that would make my life a lot easier.
        I used to be able to go in on a Tuesday and apply for a
    loan. It would take me 20 minutes to describe my business
    prospect. And they would call me back on Thursday with the
    money. And now it takes me 6 months through an SBA process to
    get the money. And all along, all those times, I either paid my
    loans on time or aggressively in advance. But now, after 2011,
    they don't take the relationship into play anymore, and that
    hurts me. And I understand that that is not always the best way
    to lend money, but it worked for me, and now I suffer because
    of it.
        Mr. Payne. And why do you think that is?
        Mr. Falk. I think it is because of the regulations that
    have now fallen down on the banks on what they need to put in
    reserve to back that loan. So the banks see a big expense. When
    they have to move money in reserve, more money than they used
    to have to, they have to put money in reserve to back that
    loan, and they do not get to experience the income until the
    loan is paid off.
        Ms. Velazquez. Would the gentleman yield, Mr. Payne?
        Mr. Payne. I will yield.
        Ms. Velazquez. Thank you.
        Ms. Coyne, what is the average length of time for an SBA
    loan guarantee?
        Ms. Coyne. From application to booking?
        Ms. Velazquez. Yes.
        Ms. Coyne. You know, at KeyBank we have SBA specialists in
    each one of our markets, so we try and expedite that process.
    And it will depend on if there is real estate involved or not.
    If there is not real estate involved, we can get it
    underwritten and closed in a couple of weeks. If you have to
    wait for an appraisal, then you have to go through that.
        Ms. Velazquez. The reason I am asking is because when I
    hear a statement that it takes 6 months for an SBA-guaranteed
    loan, it really worries me. So we have to do something about
    it.
        What would be the average length of time for processing
    such a loan?
        Ms. Coyne. The average is between 30 and 60 days.
        Ms. Velazquez. Okay. Thank you.
        Mr. Payne. Thank you.
        Chairman Graves. Mr. Hanna?
        Mr. Hanna. The general impression I get here is some people
    like the way things are, some people would like things to be
    better. But, just generally, is it everybody's feelings that
    somehow the government should be a bigger backstop?
        I mean, my understanding of what banks used to do and still
    do is become a filtering place for good loans, bad loans,
    marginal loans, and that SBA--the marginal risks that the SBA
    took was related to that somehow. But people need to realize
    that the government can't simply be the backstop for everything
    that banks used to do.
        I am interested in how you feel about it, especially--my
    sister is a WBA, and I respect the position you are in. But do
    you think there is a point at which the WBA relationship is
    less necessary? Or apparently you think it is more necessary,
    ma'am?
        Ms. Dorfman. I am sorry. I wasn't sure of the question.
        Mr. Hanna. Well, it is essentially a way to advance women-
    owned businesses that presumably wouldn't have that same
    advantage any other way.
        Ms. Dorfman. You mean the women-owned small business
    program for access to Federal contracting?
        Mr. Hanna. All of that.
        Ms. Dorfman. There has been inherent discrimination.
    Federal contracting is one; access to capital. I can tell you,
    I still have members who come to me and say, can you believe I
    wanted to take out a business loan and they want my husband's
    signature? It still goes on today. So there are inherent
    challenges.
        We would love everything to be equitable. We are not asking
    for a leg up above the other, but we need a level playing field
    so that we can grow. Women own one-third of all businesses in
    the United States. If we can help women-owned firms grow, we
    can turn the economy around. And that is my goal.
        Mr. Hanna. Sir? Do the franchises--your story is an
    interesting one. I give you a lot of credit.
        Mr. Falk. Well, Mr. Hanna, I would actually prefer the
    government to get out of the way a little bit more. When I had
    my relationships with the bank, they based it on the
    relationship.
        Mr. Hanna. And your worth, your ability to work, produce,
    be successful----
        Mr. Falk. That is correct.
        Mr. Hanna.--was somehow relevant, right?
        Mr. Falk. That is correct.
        Mr. Hanna. So it was a backstop that somebody could look at
    and say, this guy is a reasonable loan.
        Mr. Falk. A local bank decision backstop, not a government
    one. And so they knew from my history that I had a good
    business model, that I was a great operator, and that they were
    able to lend me money and I would pay it back on time.
        Mr. Hanna. So let me just ask kind of an obscure thing. Do
    you think that the government is in the business of--or creates
    businesses that might not otherwise be created and, by
    definition, are much, much more likely to fail?
        Mr. Falk. I don't know that to be true, sir, no.
        Mr. Hanna. Uh-huh. Kind of my opinion, just by the way.
        So thank you. I am good.
        Mr. Falk. Sure.
        Chairman Graves. Ms. Chu?
        Ms. Chu. Yes, I would like to ask questions that pertain to
    how well our current government programs are working for small
    business.
        And, first, Ms. Dorfman, if I can ask you about the women-
    owned small business set-aside. Of course it is aimed at
    expanding Federal contracting opportunities for women-owned
    businesses, but you reported that many of the U.S. Women's
    Chamber of Commerce's women-owned businesses say that many of
    the contracting officers are unaware, untrained, and
    unmotivated to make use the program.
        You were starting to talk about some of the flaws in the
    program. So could you talk about what is the flaw in the
    program and what could we do to change it?
        Ms. Dorfman. Sure.
        The first one, as you mentioned, is the contracting
    officers are not using the program as they should be. The
    program itself has a--one of the technical things is they
    actually have to certify the self-certified women-owned firms,
    and it rests on their backs or their shoulders. If there is a
    problem with that contract, ultimately if it is challenged,
    then they are the ones that are responsible. So we would love
    to see some legislation that would take that off their
    shoulders and put it back into the SBA's lap.
        The other thing is the ones that claim that they don't know
    about the program, I know that there are a lot of folks that
    may not have been trained. Early on, the training was, I would
    say, weak. There wasn't a lot of training out there just
    because they didn't have the funding to get the training out
    there. So there could be more to be done. Right now they put it
    on the Web site and say, go to that. We know that it is complex
    and the contracting officers will need to ask questions about
    it. So that is one key area.
        Another thing is, when we talk about leveling the playing
    field, components in some of the other programs that are not in
    this are the sole-source and also the Mentor-Protege Program.
        And then, overall, if we want to really help small
    businesses grow, which will help the economy grow, is we need
    to raise the goals to a level that resonates with the actual
    demographics of our community and of the country. And so, okay,
    you are not going to give us a 30 percent goal, I know that,
    but raise the women-owned small-business goal to 10 percent and
    raise small business overall to 35 percent.
        The other thing is contracts for small businesses overall.
    There are a lot of exclusions going overseas. If there is a
    contract that is fulfilled overseas, those contracts are not
    held to the goaling. And we are losing billions of dollars in
    lost opportunities for small businesses.
        So there is quite a number of things that can be done to
    strengthen this.
        And then the NAICS codes, we know they are going to be
    looking at them. But the NAICS codes as they are, a number of
    the agencies can't use the program because the NAICS codes
    aren't inclusive of what they buy.
        So, thank you.
        Ms. Chu. And also you said that there are problems with
    making sure that small businesses get their share overall, and
    not just women-owned businesses, but overall small businesses
    get their share of the Federal contracts. And yet we have
    programs like the Office of Small and Disadvantaged Business
    Utilization and procurement center representatives who are
    supposed to enforce this. So what----
        Ms. Dorfman. And the issue there is, the small-business
    offices, they are wonderful, they do what they can, but they
    are only as good as the Secretary's commitment to doing
    business with small businesses. So that is their piece.
        When you look at the PCRs, the procurement center
    representatives, I heard that we are down to something like 20
    or 25 people leaving and such. And at the height I think we had
    150. Those are the people who make sure that the contracts
    coming down, if it can be set aside to a small business, it
    will be. We need to hire a lot more of those to make sure that
    we are getting our fair share.
        Ms. Chu. Thank you.
        And, Ms. Coyne, has your bank participated in the SBA's 504
    loan refinancing program?
        Ms. Coyne. We have. And we were big fans.
        Ms. Chu. Do you feel it was beneficial to small business?
        Ms. Coyne. Extremely beneficial.
        Ms. Chu. Because it has expired as of last September. And
    it was created under the Small Business Jobs Act. Would you
    like to see this program reauthorized or made permanent?
        Ms. Coyne. We certainly would. We would love some
    legislative help on that.
        Ms. Chu. And why is that?
        Ms. Coyne. Well, there were many instances where we were
    able to help borrowers, you know, in many ways consolidate some
    of their debt and add additional financing and really grow
    their businesses, really add jobs, really be able to take their
    firm to the next level. We have lots of examples of businesses
    that would not be where they are today were it not for that
    program.
        Ms. Chu. Thank you.
        I yield back.
        Chairman Graves. Mr. Mulvaney?
        Mr. Mulvaney. Thank you very much, Mr. Chairman.
        Very briefly, Mrs. Dorfman, I think I heard your testimony
    just a few minutes ago. I urge you to consider the possibility
    that when one of your members is asked by a lender for her
    husband's signature on a loan that that is not automatically a
    sign of discrimination. I can assure you that my wife has been
    asked to sign several loans, and I have never considered it to
    be a sign of discrimination against me. It is probably just
    because we have marital assets being offered as security for
    that loan.
        You work for an excellent organization, one that I have had
    before my panel last year several times. And I do believe there
    is discrimination, especially in things like the construction
    industry, towards women-owned businesses. But I encourage you
    to find a better example than simply cosigning a note or
    cosigning a guarantee because, as any banker will tell you,
    especially in States where there are marital assets or joint
    assets, it is not at all unusual for the man and the wife to be
    on the note together.
        But that is not what I want to talk about. I want to talk
    to Mr. Falk.
        Mr. Falk, thank you for coming in today. I have eaten at
    several of your restaurants. I was a little disappointed that
    my chairman mispronounced the restaurant that I used to own and
    operate, Salsarita's Fresh Cantina.
        Thanks a lot, Mr. Chairman.
        And, yes, we do need to get samples so clearly the folks
    can understand how to pronounce the name.
        Mr. Falk. Absolutely.
        Mr. Mulvaney. I am going to do something different this
    year. I have spent the last 2 years trying to draw attention to
    exactly what you all are here to talk about today, which is the
    impact of our Federal Government on, specifically, small-
    business owners. And the very cynical position that I have
    arrived at right now is that not nearly enough people in this
    town care. People on this Committee care, people in both
    parties on this Committee care about you as small-business
    owners, but, generally speaking, this town doesn't care about
    you. And I know that because my party just ran a national
    campaign and tried to draw attention to the plight of small-
    business owners and job creators and we got killed.
        So I am going to do it differently this year. I am not
    going to talk about your bottom line, Mr. Falk. I am not going
    to talk your ability to grow, your return on assets, because,
    quite frankly, people don't care. We just passed a tax law here
    that supposedly was against just rich people but grabbed people
    in your particular circumstance.
        Again, people don't care about that. What do they care
    about? What do I care about? I care about your workers. I care
    about the folks who work for you. And I want you to tell me
    what it means at your business. My guess is you probably hire
    the same sort of folks I did. You hire a mishmash of young
    people who were maybe going to community college, maybe a
    single mom, maybe a guy who is supporting a family, younger
    folks.
        And tell me what it means to them when you are dealing now
    with the Affordable Care Act, you have to cut back on their
    hours or have to look at possibly restricting the growth of
    your permanent employees.
        Mr. Falk. Well, I agree with you wholeheartedly that it is
    not about taxing me as a business owner; it is about me
    employing more people and those people earning money and having
    payroll taxes that go to the Federal Government and also having
    money that gets back into the economy to buy more things and
    create the demand that would raise all of our boats at the same
    time.
        So when we look at some of the regulations that are coming
    down, specifically the ACA, you are absolutely correct that, as
    I mentioned earlier, we will start managing those hours of
    those people that are close to that 30-hour threshold. And they
    will have to get two jobs now instead of one, and we will have
    to coordinate schedules when they are at one job or the other.
    And they still won't have health care.
        And so it just creates a difficult situation for us as
    employers, not being able to hire someone that is committed to
    our organization and wants to make us get better and help us
    all do better in the workplace and in the business environment.
    But now they have troubles as a family, trying to work two
    jobs, still not making a good wage.
        Because, quite frankly, as I mentioned, I pay my full-time
    employees much more than the minimum wage, but my brand-new 16-
    year-olds to 23-year-olds that are only going to be there 6
    months or so, they do make the minimum wage. And because they
    are not committed and don't have an interest in my business
    because they are only working 15 hours a week or 30 hours a
    week, now they will work two minimum-wage jobs instead of
    having the opportunity to grow with me, become assistant
    manager, become a keyholder or a shift leader, whatever it is,
    and make more money with me alone and possibly get health care
    eventually.
        Mr. Mulvaney. I think it a great point. I am thinking back
    to the folks who worked at my restaurant when I ran it. And,
    you know, there is a 25-year-old mother of two who comes to you
    and says, My kid needs braces, can I get a couple more hours
    for the next couple of weeks? The answer is going to be no.
        Mr. Falk. Absolutely.
        Mr. Mulvaney. The answer is going to be no. Go someplace
    else if you want to take care of your family. Take on another
    job. Take on another burden. And then try--you are absolutely
    right--try and mesh this work schedule with that work schedule,
    with the schedule to pick up the kids. We have unintended
    consequence on top of unintended consequence.
        And I am done talking about the impact on small business
    because not enough people care. And they are going to start
    talking for the next 2 years about the impact on real workers,
    because it is hurting them just as badly.
        Thank you, Mr. Chairman.
        Chairman Graves. Mr. Rice?
        Mr. Rice. Thank you very much for being here today.
        Thank you for allowing me to serve on the Committee. It is
    an honor to be here.
        I appreciate you all taking your time to come here and
    educate us.
        I come from a background of local government, county
    commissioner, and recognized early on that if our county was
    going to attract jobs, that we had to be competitive. And
    looking at this on a national scale, I am concerned that the
    United States had better start taking that attitude as a
    country. And maybe then we will stop hemorrhaging some of the
    American jobs that we have been hemorrhaging.
        Mrs.--I can't--Coyne? Mrs. Coyne?
        Ms. Coyne. Yes.
        Mr. Rice. I can't read with my glasses on, and I can't see
    far away with my glasses off.
        What would you say is the primary source of capital for a
    small business?
        Ms. Coyne. I would say it depends on what stage they are in
    in their lifecycle.
        Mr. Rice. Just beginning.
        Ms. Coyne. Just beginning, most small businesses are
    actually started out of personal savings, borrowing from
    friends, family, taking a partner, credit cards, home equity.
    Typically, that is how most people start a small business.
        Mr. Rice. At what point do they get to the banks?
        Ms. Coyne. Once they have about 2 years of financial
    statements and they have had good counseling on keeping good
    records.
        They should have a relationship with a banker from the
    start, I would contend. Even if they aren't ready to borrow
    from a bank, I think it is really important that they get the
    advice of a banker on how you get ready to borrow from a bank.
        Mr. Rice. Would you say it is easier today to get access to
    capital through a bank than it was 2 years ago?
        Ms. Coyne. I would say that, you know, we have plenty of
    capital to lend, and I think we are not--you know, many of my
    peers in the industry feel the same way, that we are in
    business to lend money. So I think that, yes, there is probably
    much greater--in fact, it is pretty competitive right now in
    the small-business lending.
        Mr. Rice. So you don't think Dodd-Frank has slowed your
    lending down at all, made it harder for you to loan?
        Ms. Coyne. I think that Dodd-Frank has added more
    regulatory burden to the organization as a whole. And how any
    bank looks at how they allocate resources has been impacted by
    Dodd-Frank because we certainly have lots of folks, you know,
    worrying about compliance and making sure that we are----
        Mr. Rice. And you don't think that affects your lending
    practices at all?
        Ms. Coyne. Not explicitly.
        Mr. Rice. Okay. All right.
        What about the regulatory structure as a whole, Mr.
    Kroszner? Let's talk about the corporate tax structure. Do you
    think our corporate tax structure is competitive worldwide?
        Mr. Kroszner. Unfortunately, I have to say no. We have very
    high corporate taxes relative to most of the major countries
    around the world, and we have an extremely complex tax system.
        Mr. Rice. All right.
        And, Mr. Falk, what do you think about our regulatory
    structure as a whole and the hoops we make small business jump
    through? Do you think that makes us more or less competitive
    worldwide?
        Mr. Falk. I think it makes us less more competitive--much
    more less competitive.
        And here is the reason. Every time I talk to a franchise
    owner, I am heavily involved in multi-unit franchising and
    seeing multi-unit owners, and I see a lot of different
    franchisors. The vast majority of the deals that they are
    signing today are international. They always come up and say,
    We just signed a 30-store deal in Abu Dhabi or in Aruba or
    Brazil. They are never saying, We just signed 15 or 20 in
    Tennessee or Kentucky or Michigan. Those just don't happen.
        And I think it is because our, in the United States, our
    business model has continued to erode. In the late 1990s and
    early 2000s, we could pretty much guarantee maybe a 15 to 20
    percent profit that fell to the bottom line. Today we are in
    the single digits of 5 to 8 percent, something like that. And
    anything can upset that cart to where we are not making any
    money whatsoever.
        Mr. Rice. Is it getting better or worse, do you think?
        Mr. Falk. It is getting worse.
        Mr. Rice. Uh-huh.
        Mr. Falk. Like Dr. Kroszner said, when we look at the cost
    of inflation, we are really not taking into account fuel costs
    and the cost of food. I used to buy a bag of dough for my
    pretzels in 2000, let's say, for about 8 bucks. It is $24 now.
        And so our margins continue to be eroded by fuel costs,
    unemployment insurance, the cost of commodities, minimum-wage
    increases, all those things. So our profit margin is down. So
    we are trying to make a decision on whether we want to open up
    any locations whatsoever.
        Mr. Rice. Okay.
        And one last question. You know, we went through an
    argument about whether we were going to extend the payroll tax
    cut last year for 3 months or 9 months, and we have just
    extended the debt ceiling for 3 months and all these things. Do
    you all plan on anything longer than a 3-month time horizon?
        Mr. Falk. I would love to; however, I cannot. And that is
    what makes it so difficult, is trying to understand for me to
    try to make a long-term business plan and make a decision about
    whether I should open a business. My return on investment is
    typically 3 to 7 years. And if I can't figure out if I am going
    to get a return on investment because the regulations are so
    short-term, then I am not going to open up anything right now
    until I know what the regulations are going to be.
        Mr. Rice. All right. So last question, and I know my time
    is up. Do you see the United States Government as a benefit to
    your business or a hindrance to your business, something you
    have to overcome?
        Mr. Falk. Absolutely a hindrance, unfortunately.
        Mr. Rice. Thank you.
        Chairman Graves. Mr. Huelskamp?
        Mr. Huelskamp. Thank you, Mr. Chairman. It is a pleasure to
    be on the Committee with you this year and to be here today and
    to hear from some very interesting testimony.
        I have a few questions. I want to follow up first with Ms.
    Coyne on--there were some Dodd-Frank questions, as well.
        Do you have a guesstimate in your bank of how many folks
    are engaged in compliance efforts, regulatory stuff, out of
    your total workforce?
        Ms. Coyne. I couldn't give you a percentage off the top of
    my head, but I can definitely assuredly tell you that the ranks
    have grown, and the number of folks we have in compliance and
    risk management overall have probably doubled over the last,
    you know, 3 to 5 years.
        The other thing I would add about Dodd-Frank is there are
    still some unknowns which may ultimately impact lending in the
    small-business area because the rules haven't yet been defined
    on how we are going have to collect certain information and so
    forth. So it may be too soon, actually, to say how some of this
    is going to play out. But there certainly have been lots of
    resources devoted to compliance.
        Mr. Huelskamp. Doubled in the last 3 to 5 years.
        Ms. Coyne. Yes.
        Mr. Huelskamp. And if I understand, I think your bank,
    combined employees, probably employ more folks than every bank
    and credit union and other financial service company in my
    entire congressional district. It is very big. How many
    employees do you all have?
        Ms. Coyne. Fifteen thousand people.
        Mr. Huelskamp. Fifteen thousand.
        Ms. Coyne. Yep.
        Mr. Huelskamp. And when you were testifying earlier about
    the impact of Dodd-Frank and how that was impacting your
    ability to continue to loan money to small businesses, it was a
    different story than I was hearing from my small banks and my
    community banks.
        Ms. Coyne. Yes.
        Mr. Huelskamp. Credit unions, just an enormous effort of
    compliance. And I haven't heard about doubling, but in terms of
    that effort, just making it extremely difficult.
        In many cases, the established customers not able to
    continue, like Mr. Falk indicated--practices that had been
    working, they are current on their loans and coming in--and are
    unable to continue that. Even though the banker would like to
    do that, the examiner says, Too bad. And so, yeah, there is a
    lot of capital to loan, thanks to the Federal Reserve, but the
    ability to get it out the front door seems extremely limited.
    So I appreciate that.
        But, Dr. Kroszner, a follow-up on the Federal Reserve. And
    we have seen an enormous increase in the money supply since
    2008. Didn't see any information in your testimony. What do you
    expect will happen with that? Because I am particularly
    troubled by that. This is an unprecedented increase, and we
    still have a--well, the economy went backwards last quarter. I
    wonder if you could shed some light on that.
        Mr. Kroszner. Sure. I would be delighted to.
        So the size of Federal Reserve's balance sheet has grown
    dramatically, more than tripling, and it is likely to grow even
    further as they continue to buy more assets.
        Now, that has led to a large increase in the amount of
    reserves that are on banks' balance sheets. And KeyCorp and
    many others have a lot of excess reserves that they are, I
    would assume, hoping to lend out and at some point will be
    lending out. But fortunately that has not led to a very large
    increase in the money supply or inflation because people are--
    both individuals holding a bit more cash and firms holding a
    lot of the excess reserves.
        The key question is going to be, will the Federal Reserve
    be able to make sure that, in the transition, that these excess
    reserves don't turn into very high money growth and high
    inflation down the line?
        Right now we are not seeing evidence of that. The inflation
    rate has been quite tame over the last few years, despite the
    very large growth in the reserves and the balance sheet of the
    Federal Reserve. The expectations of where inflation is likely
    to go--both individual-consumer-based surveys, professional
    forecasters, and market-based, have not suggested high
    inflation is expected. But I think it is very important to keep
    a laser focus on that to make sure we don't get into a high-
    inflation environment.
        Mr. Huelskamp. And I appreciate that. And hopefully, as was
    indicated, the measures don't capture everything in the
    inflation rate. But, you know, this is really unprecedented.
    Monetary policy like we have with actually no economic result,
    or very little, coming out at the same time is so
    unprecedented.
        One other thing with Mr. Falk. I appreciate your being here
    as a real-life owner of a small business.
        The Federal Reserve Bank of San Francisco put out a study
    in the last few days, I think it was, that said concerns over
    taxes, regulations, and the President's healthcare plan were
    not having a measurable impact on hiring. Would you agree with
    that study coming out of the Federal Reserve of San Francisco?
        Mr. Falk. I think that can be answered in a couple
    different ways. It does not impact me hiring currently from my
    locations. I have a minimum staffing requirement. I mean, I
    can't reduce my staff. However, it does impact me in making a
    decision to open up new locations, therefore affecting hiring
    in the long term.
        Like I said, every location I open, on average, employees 8
    to 10 people. I have four agreements, open franchise
    agreements, that I would open tomorrow if I had access to
    capital and if I didn't have the decision process of how these
    regulations are affecting me and whether I even want to open
    them in the first place. And so if could open those 4, I could
    employ 50 more people immediately.
        Mr. Huelskamp. Okay. Thank you.
        I yield back.
        Chairman Graves. With that, I would like to again thank all
    of our witnesses for being here today to discuss the current
    state of the economy and access to capital. And I look forward
    to using your testimony to help guide us in the coming year
    when we work on legislation.
        Ms. Dorfman is no stranger to this committee, but I will
    take issue with one thing you said, and that is that women live
    longer than men. I think we should have equal access to
    longevity.
        Having said that, I would ask unanimous consent that all
    Members have 5 legislative days to submit statements and
    supporting materials for the record.
        Without objection, that is so ordered.
        And, with that, the hearing is adjourned.
        [Whereupon, at 3:11 p.m., the committee was adjourned.]

                                A P P E N D I X

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                     Statement of Congresswoman Grace Meng

        Chairman Graves, Ranking Member Velazques, and my esteemed
    colleagues, I am honored to be here today and I welcome the
    opportunity to be a member of this important committee. We have
    been entrusted with a critical mission, and that is to create
    the conditions in which our economy can thrive. I look forward
    to working with each one of you in a bipartisan manner to
    achieve our goals.
        And to those that are here before us to testify at today's
    hearing, good afternoon and thank you being here.
        As a daughter of small business owners, I know that
        Small businesses are the engines that drive our economy.
    From family-owned restaurants to high-tech startups,
    entrepreneurs and small-business owners are chief components to
    our communities and to our economy. They are responsible for
    creating 65% of net new jobs in the past 17 years, paying 43%
    of the US private payroll, and representating 99.7% of all
    employer firms.
        One of the most important and bipartisan efforts Congress
    has is providing small business owners with the confidence they
    need to succeed. Confidence that capital will be readily
    available, confidence that interest rates remain low and
    steady, and confidence that their voice will be heard at this
    hearing and many more.
        Undergoing the worst economic disaster since the Grat
    Depression is a tremendous obstacle to overcome. Despite this
    immense challenge, we are slowly but surely revitalizing our
    economy. At this juncture it is more vital now than ever that
    we as Americans understand, every dollar a small business owner
    makes does not go to a multimillion dollar pension for a CEO,
    but goes to a much needed soccer jersey and cleats, it goes to
    the home renovation for an expanding family, and it goes to one
    of our nation's most effective employers.
        Not only do I support small businesses in my day to day
    personal life, but I will commit myself in Congress to
    supporting initiatives that encourage growth and stability for
    small business owners.
        I look forward to your testimony and thank you for your
    time.
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