[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.]


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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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