[Senate Hearing 114-455]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-455

                       MINORITY ACCESS TO CAPITAL

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

                             FIELD HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 16, 2015

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------
                              
                   DAVID VITTER, Louisiana, Chairman
              BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 JEANNE SHAHEEN, New Hampshire
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                  Zak Baig, Republican Staff Director
                 Ann Jacobs, Democratic Staff Director
                            
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Cardin, Hon. Benjamin L., a U.S. Senator from Maryland...........     1
Edwards, Hon. Donna, a U.S. Representative from Maryland.........    89

                               Witnesses

Castillo, Alejandra Y., National Director, Minority Business 
  Development Agency (MBDA), U.S. Department of Commerce, 
  Washington, DC.................................................    10
Doss, Antonio, District Director Washington Metropolitan Area, 
  U.S. Small Business Administration, Washington, DC.............    74
Hairston, Carl L., Administrative Vice President, M&T Bank, 
  National Capital Business & Professional Banking Regional 
  Manager, Washington, DC........................................    79
Tucker, Stanley W., President and CEO, Meridian Management Group, 
  Inc., Baltimore, MD............................................    82
Gross-Wade, Shelly, President & CEO, FSC First, Largo, MD........    89

                          Alphabetical Listing

Cardin, Hon. Benjamin L.
    Opening statement............................................     1
    Prepared statement...........................................     5
Castillo, Alejandra Y.
    Testimony....................................................    10
    Report titled ``Disparities in Capital Access''..............    11
    Prepared statement...........................................    69
Doss, Antonio
    Testimony....................................................    74
    Prepared statement...........................................    76
Edwards, Hon. Donna
    Opening statement............................................    89
Gross-Wade, Shelly
    Testimony....................................................    89
    Prepared statement...........................................    92
Hairston, Carl L.
    Testimony....................................................    79
    Prepared statement...........................................    81
Tucker, Stanley W.
    Testimony....................................................    82
    Prepared statement...........................................    85

 
                       MINORITY ACCESS TO CAPITAL

                              ----------                              


                         MONDAY, MARCH 16, 2015

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                         Bowie, MD.
    The Committee met, pursuant to notice, at 10:04 a.m., at 
the Picard Center/Bowie State University Student Center-Wiseman 
Ballroom, Bowie State University, Bowie, Maryland, Hon. Ben 
Cardin, presiding
    Present: Senator Cardin.
    Also present: Representative Edwards.

 OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, A U.S. SENATOR 
                         FROM MARYLAND

    Senator Cardin. Good morning, everyone. Let me welcome you 
all to this hearing for the Small Business and Entrepreneurship 
Committee.
    I, first, want to thank Bowie State University for their 
hospitality. Dr. Brown has always been open to us.
    We are very proud of the work that is done at Bowie. This 
is an incredible institution that provides an extremely 
important function for our community, as I think President 
Obama has recognized the importance of this particular campus. 
So we thank you for allowing the hearing to take place at Bowie 
State University.
    I want to thank Senator David Vitter, the Chair of the 
Committee on Small Business and Entrepreneurship, for agreeing 
to allow this field hearing to take place on access for 
minority businesses to capital. I am the senior Democrat, the 
ranking Democrat, on the Small Business Committee, and he has 
authorized this hearing and for me to chair this hearing.
    We will be joined by my colleague, Congresswoman Donna 
Edwards. She will be here, we believe, in about 30 minutes. 
When she gets here, I will recognize her and allow her to make 
some opening comments and join us in this very, very important 
hearing.
    I want to acknowledge Kevin Wheeler, who is staff of the 
Small Business and Entrepreneurship Committee. I think she is 
around here, right there.
    Kevin has been with the Committee for a long time, and if I 
get into trouble she is going to make sure I get back on track. 
So I appreciate that very much.
    I also want to introduce Ann Jacobs, who is the Democratic 
Staff Director for the Small Business Committee, over there, on 
the corner.
    Steven Umberger is here, who is the Maryland Director for 
the Small Business Administration, and has the State of 
Maryland except for the Washington suburban areas. And we have 
Mr. Doss here, who represents that part of the territory for 
the Small Business Administration, plus Northern Virginia and 
the District of Columbia.
    The Small Business Committee is a committee that I wanted 
to serve on.
    I also would like to recognize--I know Michele is here 
representing my colleague in the United States Senate, Senator 
Barbara Mikulski. I am going to be joining Senator Mikulski in 
a few minutes, in about an hour or so, in Baltimore with Vice 
President Biden, but Senator Mikulski is an incredible partner 
on the small business issues.
    And Terrance is here representing Congressman Steny Hoyer.
    So we have the full Federal delegation from Prince George's 
County. All four of us who represent will be participating in 
this hearing either through staff or through, Donna Edwards, in 
person. So I do appreciate all their help.
    When I was elected to the United States Senate, the 
majority leader asked which committees I want to serve on. And 
there are obviously committees that are what we call the top-
tier committees, such as the Finance Committee and the Foreign 
Relations Committee, Environment and Public Works Committee, 
and I am proud to serve on those committees.
    But I asked the majority leader if I could serve on the 
Small Business and Entrepreneurship Committee. That was one of 
my top choices because I recognize that the economic engine of 
America is basically our small businesses. That is where you 
are going to get job growth. That is where you are going to get 
innovation. And, new ideas are going to come from small 
businesses.
    And particularly in Maryland, I understand how important 
small businesses were to our state economy.
    So the majority leader recommended my appointment, and I 
have been on the Small Business Committee now for eight years 
and am now the lead Democrat on the Committee.
    So I wanted to take a look at how we can do things that are 
better, what we can do to help small business growth in our 
community. We need to do a better job for small businesses.
    When I was first elected, I recognized the SBA needed 
additional resources. With President Obama's elections, I 
supported an amendment during the budget process that increased 
the funds going to the SBA so that they could have the capacity 
to help.
    I brought the people in from the SBA when I was first 
elected and looked at the numbers as to how much aid was going, 
how many loans were being made to minority businesses, and I 
was pretty shocked by the low numbers. And we set out to do 
something about it, and we have improved those numbers.
    And they are better today, but they are still not where 
they need to be. When we take a look at the numbers, we see 
that we could be doing a better job.
    And, I had a chance to talk to Alejandra before we got on 
the--before we started the formal hearing.
    But this is a matter of the values of America. We believe 
that everyone should have the opportunities of this country. 
So, therefore, it is a matter of our values that we make sure 
that those minority businesses and disadvantaged communities 
have the tools necessary to achieve our values, our 
opportunities, in this country.
    It is a matter of basic fairness, but it is also a matter 
of our economic growth. If we deny a segment of our community 
its full potential, we lose the strength in our economy.
    So we must do a better job, and that is one of the reasons 
for this hearing--is to take a look at how we can do a better 
job in allowing those creative individuals the opportunity to 
have the financing necessary to achieve their dream but at the 
same time to achieve the dream of America--the strength of our 
economy.
    So since becoming ranking member of this Committee, I, 
along with other members of this Committee, have made it a top 
priority to focus on removing the barriers that still affect 
minority-owned small businesses. In some cases, those barriers 
are not unlike the barriers which plague all businesses, but in 
some cases the obstacles that minorities and small business 
owners face are very unique.
    Minority businesses represent 35 percent of the population 
but only 22 percent of the businesses. This achievement gap 
results, in part, from the significant obstacles that minority 
business owners face in accessing capital.
    If minority-owned businesses had a rate comparable to their 
share of their population, that would mean 2.3 million more 
minority-owned firms and 11.7 million jobs. You can see the 
impact it has on our economy.
    Minority-owned businesses are two to three times more 
likely to be denied credit, more likely to avoid applying for 
loans based on the belief that they will be turned down, and 
more likely to receive smaller loans and pay higher interest 
rates on the loans that they do receive.
    The recession hit all small businesses hard, but it hit 
minority-owned small businesses especially hard, and recovery 
has been uneven for different minority groups.
    The Small Business Administration and the Minority Business 
Development Agencies have created various programs to improve 
access to capital.
    I want to just, before I start with our panel--we will 
obviously focus on the tools we have in government and what we 
can do in government to make those tools more effective, but we 
also need to look at the private sector and what we can do to 
make sure that the private sector participation is open to 
minority businesses.
    In many cases, it is a matter of just education and a 
matter of outreach, but we need to do a better job because it 
is not just the tools that are available in government. We have 
to make sure that all the partners that are important for 
economic growth are sensitive to the potential and fairness of 
our country.
    Well, we have an excellent panel with us today to talk 
about these issues, and I thank each of them for being here at 
Bowie.
    I will introduce the four witnesses that are here. We are 
still waiting for Shelly Gross-Wade. She indicates she will be 
here in about a half an hour.
    But I think we will start with our witnesses:
    Alejandra Castillo, who is the National Director of the 
Minority Business Development Agency. She works directly with 
minority businesses, and I thank her very much for being here.
    Mr. Antonio Doss, who is the District Director Washington 
Metropolitan Area of the U.S. Small Business Administration 
representing Maria Contreras-Sweet, the Administrator of the 
Small Business Administration, who has been to Maryland several 
times and one of the most aggressive leaders I have ever seen 
on small business issues.
    Mr. Doss, it is a pleasure to have you here. As I indicated 
earlier, you represent the area that we are here, Bowie, and 
the Washington suburbs as well as Northern Virginia and the 
District of Columbia.
    Mr. Carl Hairston, the Administrative Vice President for 
M&T Bank, the National Capital Business and Professional 
Banking Regional Manager, which is one of the preferred lenders 
in the SBA programs and has been actively engaged--the bank 
actively engaged--in loans to small businesses.
    And, Mr. Stanley Tucker, who is President and CEO of 
Meridian Management Group--30 years of experience in the 
business field in this area. He is a friend and an adviser and 
extremely active in minority business issues.
    So we have an excellent panel, and Ms. Castillo, we will 
start with you.
    [The prepared statement of Senator Cardin follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
STATEMENT OF ALEJANDRA Y. CASTILLO, NATIONAL DIRECTOR, MINORITY 
BUSINESS DEVELOPMENT AGENCY (MBDA), U.S. DEPARTMENT OF COMMERCE

    Ms. Castillo. Thank you very much.
    Good morning, Chairman Vitter, Ranking Member Cardin, and 
members of the Committee. I am Alejandra Castillo. I serve as 
the National Director of the Minority Business Development 
Agency, MBDA, at the U.S. Department of Commerce.
    For the purpose of this hearing, I will focus on the 
continued challenges minority business enterprises, or MBEs, 
face in accessing a broad array of capital during their life 
cycle. My testimony highlights our research findings and 
underscores the actions we have taken to create a more robust 
and sustainable economic ecosystem for minority businesses to 
grow and thrive.
    MBDA is the only Federal agency tasked to help MBEs realize 
their full economic potential through technical assistance, 
public and private contracting opportunities, advocacy, 
research, education, and strategic partnerships. This work is 
accomplished through our nationwide network of 44 business 
centers. Each center provides services that offer access to 
capital, access to contract, and access to new markets.
    Since 2009, MBDA has assisted clients in accessing nearly 
$26 billion in contracts and capital while creating and 
retaining 87,000 jobs. Celebrating 45 years of service, MBDA 
has been working aggressively to expand the economic footprint 
of MBEs.
    According the U.S. Census Bureau's 2007 Survey of Business 
Owners, MBEs contributed more than $1 trillion in total 
economic output and employed nearly 6 million Americas. These 
findings highlight the direct and significant contribution of 
minority firms to the national economy.
    In addition, we know that the face of America is changing. 
We only need to look at the demographic changes occurring 
throughout the country. By 2020, more than half of the nation's 
children are expected to be part of a minority group or ethnic 
group. By 2043, the minority population will be the majority 
group in this country.
    This data translates equally in the business community, 
with over 5.8 million MBEs, and growing, delivering goods and 
services.
    It is, therefore, important to note that if the U.S. hopes 
to remain globally competitive engaging MBEs is no longer a 
moral or civic imperative, it is a strategy, economic, and 
business imperative, too.
    Opportunity abounds for the development, growth, and 
diversification of industries for MBEs. MBEs are sources of job 
creation and economic development for many communities around 
the country. However, they continue to encounter barriers in 
accessing capital, contracts, and export markets.
    In 2010, MBDA released a report titled ``Disparities in 
Capital Access.'' Here are just two of the many key findings: 
Minority-owned firms received lower loan amounts than non-
minority-owned firms by almost 50 percent. Minority-owned firms 
are three times more likely to be denied loans than nonminority 
firms.
    Chairman Vitter and Senator Cardin, I ask that MBDA's 
``Disparities in Capital Access'' report be added to the 
written testimony at this time.
    Senator Cardin. Without objection, it will be included.
    [The information follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Castillo. Thank you.
    The good news is we are making significant inroads. In 2014 
alone, MBDA helped secure over $2 billion in capital and 
financing. The creation of MBDA's new Access to Capital Team is 
helping us introduce our clients not only to traditional 
lending sources but also to alternative ones.
    Our work is twofold--to educate and prepare our MBE clients 
and firms about the type of financing available, and to 
advocate and educate a broad array of capital and lending 
institutions about the growth potential of MBEs.
    While debt capital, bank lending, continues to be the 
primary source of financing for small and minority-owned firms, 
we also know that in order for these firms to grow they need to 
explore equity capital as well. Once again, MBDA is focused on 
finding ways to unleash a broad spectrum of capital 
opportunities.
    This past October, I spoke at the Minority Finance Forum 
hosted in partnership with the Association for Corporate Growth 
in Chicago. I addressed over 800 investment bankers, private 
equity groups, bank fund managers, family offices, mergers and 
acquisitions companies, and encouraged them to look at MBEs as 
possible partners.
    We are making inroads here in Maryland. One success is that 
of our Baltimore Business Center and their work with M. Luis 
Construction, Inc., the only minority and woman-owned asphalt 
manufacturer in the nation. The Baltimore Business Center's 
consulting services led to $27 million in procurement and $21 
million in surety bonding for M. Luis Construction. We are 
pleased to be part of their success.
    Our mission is to champion minority businesses nationwide. 
We are unyielding in this pursuit.
    On behalf of MBDA and the U.S. Department of Commerce, 
thank you, Mr. Chairman and the Committee, for the opportunity 
to testify.
    Understanding that the changing role of minority businesses 
in our nation's economic future is mission-critical and 
supporting their growth through access to capital is paramount. 
Now, more than ever, our nation's diversity translates into 
economic advantages in domestic and global marketplaces.
    We salute the Committee, the Committee's work in addressing 
obstacles to capital faced by minority businesses.
    I welcome the opportunity to discuss further MBDA's efforts 
to encourage the full spectrum of financing and capital access. 
I am happy to answer any questions.
    Thank you very much.
    [The prepared statement of Ms. Castillo follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Thank you very much for your testimony.
    Mr. Doss.

    STATEMENT OF ANTONIO DOSS, DISTRICT DIRECTOR WASHINGTON 
     METROPOLITAN AREA, U.S. SMALL BUSINESS ADMINISTRATION

    Mr. Doss. Good morning, Ranking Member Cardin and 
Congresswoman Edwards.
    Administrator Contreras-Sweet sends her regards and regrets 
as she could not attend today's hearing.
    I am Antonio Doss, and I serve as District Director of the 
U.S. Small Business Administration's Washington Metropolitan 
Area District Office.
    I am joined today by my colleague, Steve Umberger, the 
District Director of SBA's Baltimore Office, which supports 
entrepreneurs and Maryland's small business owners who reside 
outside of Prince George's and Montgomery Counties.
    As you know, SBA's mission is to strengthen the nation's 
economy by enabling the establishment and vitality of small 
businesses. Underpinning all of our efforts is this notion of 
inclusive entrepreneurship. By this, I mean we work to ensure 
that SBA products and services are available to small business 
owners regardless of age, race, gender, geography, or 
socioeconomic status.
    My testimony today will focus on our lending programs, but 
I would be remiss if I did not mention government contracting 
because of the essential role it plays in the Capital Region 
and throughout Maryland.
    SBA programs, like the 8(a) Business Development Program 
and HUBZone, help ensure that underserved small businesses 
receive their fair share of the Federal pie. Last year, we were 
pleased to join Senator Cardin and the NASA administrator to 
announce that the Federal Government met our statutory goal of 
awarding at least 23 percent of all Federal contracts to small 
businesses.
    But on the topic of today's hearing, providing more capital 
to underserved and minority small businesses, this has been a 
particular focus of Administrator Contreras-Sweet.
    In fiscal year 2014, we made loans more affordable by 
waiving fees on all 7(a) loans under $150,000. As a result, 
minority lending under $150,000 increased 23 percent in fiscal 
year 2014. We are encouraged by these results and plan to 
continue the fee waiver in fiscal year 2016.
    The micro loan program is another key piece in our 
underserved strategy. It helps ensure that borrowers have the 
support and technical assistance they need. The micro lending 
program provides funding for loans up to $50,000 through 
nonprofit lenders.
    Over half of all micro loans have been awarded to minority-
owned businesses. Nearly 30 percent of all micro loans were 
awarded to African-American business owners.
    Another effective program for underserved borrowers is our 
community advantage program. This program allows our micro 
lenders, CDCs, and other non-bank lenders to offer 7(a) loans 
up to $250,000. The program also helps meet the credit 
management and technical assistance needs of small businesses 
in underserved markets that might not quality for traditional 
financing.
    SBA approved a record $19.2 billion in lending under the 
7(a) program last year. We are on track for another record-
breaking total this year.
    Maryland small businesses received $245 million in SBA-
supported loan approvals under the 8(a) program. Maryland's 
minority-owned businesses accounted for 38 percent of the 
number of 7(a) guaranteed loans by SBA in the State and 44 
percent of the dollar value.
    We have made progress on underserved lending, but we know 
more must be done to achieve our vision. We are taking steps to 
do more by making SBA loans easier to access, quicker to 
process, more affordable, and less cumbersome to originate.
    This spring, we will roll out SBA One, a revamped lending 
platform that will serve as a one-stop shop for all steps of 
the loan process, from determining eligibility through closing 
out the loan.
    In another effort to streamline the SBA process, last year 
we rolled out a new SBA predictive credit scoring model for 
loans $350,000 or less. It puts greater emphasis on a 
borrower's business score.
    Finally, we are making it easier to connect with SBA 
lenders. Just last month, we introduced a new web-based tool 
called LINC. It allows prospective borrowers to fill out a 
simple online form and get connected with interested SBA 
lenders within 48 hours.
    LINC began by connecting small business owners with micro 
lenders and nonprofit lenders. Later this year, we plan to add 
banks and conventional commercial lenders.
    SBA remains committed to helping current and aspiring 
entrepreneurs secure the financing and the support they need to 
start, sustain, and grow their businesses. The new tools we 
have implemented are designed to get more credit in the hands 
of small businesses from all walks of life. We are committed to 
innovations that will allow us to serve and assist minority-
owned businesses in Maryland and across America.
    Thank you for the opportunity to provide this testimony, 
and I welcome your comments and questions.
    [The prepared statement of Mr. Doss follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Thank you very much for your testimony.
    Mr. Hairston.

 STATEMENT OF CARL L. HAIRSTON, ADMINISTRATIVE VICE PRESIDENT, 
 M&T BANK, NATIONAL CAPITAL BUSINESS AND PROFESSIONAL BANKING 
                        REGIONAL MANAGER

    Mr. Hairston. Good morning. Thank you, Senator Cardin, for 
hosting this meeting, and as well to Congresswoman Edwards in 
her absence. On behalf of our Chairman and CEO, Robert Wilmers, 
of M&T Bank, we appreciate the opportunity to testify this 
morning.
    We are very committed as a bank to small business lending 
throughout all of our geographies. We continue to be committed 
to small business lending. We are one of the 20th largest banks 
in the country, but we are the 6th largest Small Business 
Administration lender in the country. So we continue to be very 
committed.
    When you look at--and I will speak on both our commitment 
to the Baltimore District Office of the SBA as well as the 
Washington District Office of the SBA. And just to share some 
figures, we continue to be the number one SBA lender in volume 
in both districts. So when you look at the Maryland area, we 
continue to drive the most small business lending volume 
through the SBA in these geographies.
    One thing that I wanted to highlight in addition to the 
written testimony that I already provided, when you look in the 
Baltimore District, of the SBA loans that we issued, 29 percent 
of those loans were issued to minorities in the Baltimore 
District.
    When you look at the Washington District Office, 45 
percent--of the loans that we extended in the most recent 
fiscal year ending September 30, 2014, 45 percent of those 
loans were extended to minorities.
    When you look and include females, white females in that 
number, in the Washington District, it actually totals 56 
percent, and in Baltimore it totals almost 45 percent.
    So our commitment is very sound.
    With that, we still continue to see challenges in working 
with minorities, and that is why we have partnered with 
organizations such as the Bowie BIC here in Prince George's 
County, to further strengthen opportunities to work with 
minority businesses, as well as other organizations across the 
region.
    To highlight some of the challenges we continue to see when 
we look at some of the lending volume, both SBA and non-SBA, 
many of the challenges surround equity injection challenges, 
with minority borrowers being able to meet equity injection 
requirements.
    And then also, when we think about the most recent downturn 
and some of the regulatory changes that many financial 
institutions have to address and have to speak to with 
borrowers, is liquidity. So even after a minority borrower has 
brought forth the required equity injection, we also look at 
what resources do they have to fall back on should they 
encounter a challenge or difficulty with either their startup 
or their existing business.
    And the biggest thing that we see is really collateral 
shortfalls. When you look here in Prince George's County, prior 
to the downturn, we saw minority businesses making even greater 
strides prior to the downturn. What many lenders were able to 
leverage towards lending to minority borrowers then was the 
equity that existed in their residences.
    So when you look at this geography, many of the businesses 
tend to be more service business-oriented. So they are not 
capital-intensive. They do not really have the fixed assets 
that you can typically fall back to serve as collateral. Being 
that they are more service-oriented, the collateral challenges 
with lending to those types of businesses are even greater.
    We absolutely leverage the Small Business Administration, 
but even leveraging the Small Business Administration, we still 
typically do not have enough collateral to shore up what that 
gap may be between what the guarantee will be provided by the 
SBA versus the assets that a minority borrower has to fall back 
on for collateral purposes.
    So when we look, we see those as some of the challenges we 
continue to try to overcome when we are lending to minority 
borrowers.
    We are very committed in working with all of the partners 
in addition to the SBA to find ways to extend more loans to 
minority borrowers, and we are interested in continuing the 
dialogue and being a part of any further discussions to support 
minority business lending in this region.
    Thank you.
    [The prepared statement of Mr. Hairston follows:]
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Thank you very much for your testimony.
    Mr. Tucker.

  STATEMENT OF STANLEY W. TUCKER, PRESIDENT AND CEO, MERIDIAN 
                     MANAGEMENT GROUP, INC.

    Mr. Tucker. Senator Cardin, thank you so much for being--
inviting me here to testify.
    I am actually wearing two hats this morning. I am wearing 
the hat as President of Meridian Management Group, where we 
manage several funds, but I am also representing the National 
Association of Investment Companies, which is a trade 
association that focuses on providing equity capital to 
minority- and women-owned businesses.
    Meridian Management Group--actually, at one point, I was a 
state employee, but then we privatized.
    We manage actually several funds. We manage the Maryland 
Small Business Development Financing Authority. We manage 
Invest Maryland, which is an equity capital for early stage 
funds. We manage another fund called Maryland Casino Business 
Investment Fund, where we can provide debt and equity. And, we 
also manage Community Development Ventures, Inc.
    And our strategy, Senator, over the years was that we 
wanted to be able to provide a continuum of financing products, 
if you will, where we can actually birth a company and be 
involved with them, taking them all the way public, and we have 
done that for several years.
    What is important is what is the return. I am specifically 
talking about the State of Maryland. When you look at the kind 
of investments in lending that we are involved with in 
Maryland, you look at the economic impact that we are 
providing. And we do an economic impact every five years.
    In the last five years, the deals that we did generated 
about $3.4 billion in sales, about $1.04 billion in income, 
generated and created about 3,007 full-time jobs, and also 
created and generated about $109 million in state and personal 
income taxes and about another $31 million in other income 
taxes, which totaled about $140 million in taxes.
    And if you look at the investment that the State made over 
that period of time, it is about $21 million they invested in 
the Maryland Small Business Development Financing Authority.
    However, if you look at the return, they are getting 8 to 1 
return on investment. If you factor in a loan loss, it becomes 
a 6.6 to 1 return on investment. So, a tremendous investment 
that the State is realizing as a result of investing in the 
Maryland Small Business Development Financing Authority.
    Also, if you look at the demographics, as we know, 
demographics drive everything. In Maryland right now, as we 
speak, K through 12 is majority minority. So if you project 
out, Senator, you will see that the employment, the jobs, the 
workers, etc., school-age, college-age, it is going to be 
majority minority.
    And so what we have found is that if we can, in fact, grow 
these minority- and women-owned businesses because there is a 
direct correlation between the growth of these businesses and 
who they are, minorities hire minorities; women hire women.
    And particularly, what is a very key point that we found in 
our analysis is that minority businesses are more susceptible 
to hiring ex-offenders, and that is very, very important 
because we know the challenge ex-offenders have once they are 
released. I mean, they are literally cut off from everything, 
if you will.
    But we have found that they are, in fact, really more 
susceptible. Why do they do it is because most of them have 
relatives and friends and neighbors, and what not, that they 
know that they need a job. They are good people. They have made 
a mistake, but they need to have a second chance.
    I have been testifying in the legislature this year and 
last year about second chance, expungement, etc., because it is 
very, very important.
    So the growth of these businesses is very, very important. 
So we are developing this strategy and have been developing 
this strategy to grow these businesses.
    Obviously, access to capital is a critical, critical part 
of not just debt but also equity.
    Changing hats for a minute, the National Association of 
Investment Companies is a trade association that provides 
particularly equity financing for small minority, and 
particularly minority, and women-owned businesses.
    Senator, this is very, very important. I have several 
reports here, if you will, and with regard to the returns that 
these funds that focus on minority businesses provide to their 
investors. And their returns are actually superior to the 
general private sector market, if you will.
    But there was this kind of opinion that because we were 
investing in minority- and women-owned businesses that our 
return would not be as high. That is absolutely not the case. 
We have independent studies here that were done by KPG and 
others, showing the return.
    However, even with those returns, obtaining funds from the 
pension funds around the country is challenging. Why? Well, 
pension funds have these consultants which they call 
gatekeepers, if you will.
    And the gatekeepers do not want to get out of their comfort 
zone, if you will, because, to be quite candid with you, there 
is this bias because they feel as though that if they are 
investing in minority- and women-owned businesses the returns 
are not going to be the same. Well, the studies absolutely show 
that is not the case.
    And so we do these studies so we can talk with the 
gatekeepers but also talk with those that are making the 
decisions at the board levels as well as to really what can 
happen if, in fact, these funds can go into these firms that 
are investing in minority- and women-owned businesses.
    If you look at the size of the funds, the average minority-
owned venture capital fund or private equity fund is about $150 
million; the average fund in the other areas is close to a half 
a billion dollars. And so there is a huge disparity there in 
terms of the capital that is needed to invest in these.
    But we have shown that we have given the returns. We have 
shown that we are taking companies public. We do not know what 
else to do, and so we really need some assistance in making 
that happen.
    I will stop there and be happy to answer any questions.
    [The prepared statement of Mr. Tucker follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Let me acknowledge that I am joined by my 
colleague, as I indicated earlier, Donna Edwards. She is an 
incredible effective, active person in the House of 
Representatives on these issues. She has been fighting for 
minority financing and for economic development in distressed 
areas as one of the national leaders on the Transportation 
Committee and in the leadership of the House of 
Representatives.
    Congresswoman Edwards, would you like to make a comment.

OPENING STATEMENT OF HON. DONNA EDWARDS, A U.S. REPRESENTATIVE 
                         FROM MARYLAND

    Representative Edwards. Well, first of all, thank you very 
much, Senator Cardin, for being here, and particularly in 
Prince George's County, and to our witnesses today.
    Several of our witnesses I have had an opportunity to work 
with over the course of several years on these very issues, 
both with minority-owned businesses at large but also women-
owned businesses, Hispanic-owned businesses, where we know, as 
Mr. Tucker has already stated, that there clearly is a 
demonstrated record of success of these businesses. And so we 
have to get--we have a challenge of getting over the hurdle 
that does not enable minority-owned businesses to thrive in the 
same kind of robust way.
    And how fitting, Senator Cardin, that we are here in Prince 
George's County because we know that there is robust small 
business development and entrepreneurship going on here in this 
county, and if we can figure out the way that we can take some 
of those businesses from the place that they are and really 
provide the kind of robust resources, technical development, 
that they need and that they want, and expose them to business 
opportunities that others of our businesses face, we know that 
that will double and result in a benefit both to our local 
economy, to our State's economy, and of course, to the national 
economy.
    And so I want to thank you very much for bringing these 
important issues, and I look forward now to joining in some 
questions with Senator Cardin at the lead of our witnesses 
today.
    Thank you very much.
    Senator Cardin. Well, thank you. I appreciate those 
comments.
    Let me turn to Shelly Gross-Wade, the President and CEO of 
FSC First. FSC First is a preferred alternative lender under 
the SBA 504 Commercial Real Estate Loans, the Small Business 
Community Advantage Loan Program, the State of Maryland 
Microenterprise Loan Program, City of Bowie Revolving Loan 
Fund, and the Prince George's County $50 million EDI Fund.
    It is a pleasure to have you with us.

  STATEMENT OF SHELLY GROSS-WADE, PRESIDENT AND CEO, FSC FIRST

    Ms. Gross-Wade. Thank you, Senator, and my sincere 
apologies for being a little bit late.
    I am indeed happy to be here to, first of all, as 
Congresswoman Edwards, welcome and thank you for bringing this 
opportunity to Prince George's County.
    Secondly of all, I am very close to the grassroots 
businesses in Prince George's County. As a quasi-government 
agency, FSC First has just within the last week or so conducted 
a focus group of small businesses within Prince George's 
County. We extended the invitation to business owners who were 
familiar with, and unfamiliar with, the plethora of services 
that we offer at FSC First.
    So I am happy to share with you some real-world feedback 
that we have just gleaned from these businesses based on where 
they are at this point in their business operations, as well as 
what they would like to see as resources available to them, so 
that they can continue and thrive and grow not only in Prince 
George's County but globally.
    FSC First, as I have mentioned and as you have already 
noted, is a 37-year-old nonprofit organization in Prince 
George's County. We have had the distinct designations of being 
a CDFI through Treasury as well as a community development, or 
certified development, entity participating in the SBA 504 
program.
    When we look at the profile of businesses that we have 
assisted in their development, we have loaned funds to 
companies that are both startups as well as growing and 
expansion companies. We have helped those that are attracted to 
the county as well as those that are in a rapid growth mode and 
may be facing some challenges.
    The difference between us and other lenders is that we 
spend a lot more time with these business owners, providing 
them with access to technical assistance as well as access to 
alternative sources of capital.
    And one of the things that has become very evident to us is 
the business community, in particular, is in need of increased 
and enhanced business acumen. Our business owners know their 
products and services very well. They struggle with taking 
their business to the next level of growth, and that suggests 
to us that they are in need of technical assistance, more in-
depth technical assistance.
    And so we are familiar with, and have utilized, the SBA's 
funded small development services, center services. We also use 
other resource partners like the Maryland Women's Business 
Center, which is also federally funded. We have referred 
business to the Bowie Business Incubator.
    And, however possible, we try to attract and partner with 
those technical assistance providers to make sure that 
businesses have access to subject matter experts that can help 
them delve a little bit deeper into connecting the dots from 
``I have a product or service to offer that generates 
revenues'' to ``How do I generate the next level of revenues 
and growth strategies for my company.''
    Interestingly enough, in the focus group, a couple of 
businesses mentioned that what they want and need more than 
anything else is business coaching, preferably from subject 
matter experts like the Service Corps of Retired Executives, 
SCORE, but more one-on-one type of assistance as opposed to 
classroom training. They really emphasized that coaching and 
mentoring is something that they feel very strongly would be 
the level of technical assistance that would help get them to 
the next level.
    So where are we as far as providing access to capital? At 
FSC First, we make loans that range from $5,000 to $5.5 
million, using the SBA 504 program.
    However, the average loan that we have seen in our 
portfolio has been at $178,000, which suggests to us that we 
are meeting people at their point of need. We rarely see 
businesses that come to us that cannot meet the definition of 
small business as defined by SBA.
    However, I would suggest that about 75 percent of those 
businesses that come to us on an annual basis would not be 
prepared to gain access to capital. They really do not 
understand the depth of capacity that they need to calculate 
the amount of funding that they need nor to calculate their 
ability to repay.
    And so while we might have many, many different types of 
financing sources available--my colleague, Stanley Tucker, 
talked about making sure that there is equity funding available 
and making sure that the sources of venture capital are more--
have a broader perspective on what they invest in.
    We also see that those businesses that come to us could 
benefit from additional funding sources but are not yet 
prepared. And so the step for FSC First is to prepare them so 
that we can take advantage of where they are now and prepare 
them for greater funding as they move on to traditional 
lenders.
    And I will stop there and save the rest of my remarks for 
the question and answer period.
    [The prepared statement of Ms. Gross-Wade follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Well, thank all of you for your comments. I 
think it has been extremely helpful.
    And, as you know, the hearing record will be available to 
all the members of the Congress. So this will be part of the 
work of our Committee and part of the work of the House and the 
Senate.
    Last Friday, I was at the Census Bureau. I was there to 
support the President's request for the resources necessary 
that we have an accurate census and it is done in a most cost-
effective way. You need information in order to be able to make 
the right decisions in not only our government but in our 
country. So the census work is critically important.
    I say that because I was listening to your testimonies.
    Ms. Castillo, you mentioned the fact that the private 
sector lending is equally important and, in some cases, more 
important than what is happening in the government sector.
    Mr. Hairston, your comments sort of connected the dots for 
me about why our minority businesses are harder hit in 
recessions. And you pointed out--and I did not realize--that 
they are more dependent upon their personal residence equity 
for loans than the nonminority community.
    Ms. Castillo. Right.
    Mr. Doss. Absolutely.
    Senator Cardin. And I wonder if we have really good data to 
show that.
    And then, Mr. Tucker, your point about reentry really hit 
home. I mean, that is one of the high priorities of our 
country, and if we had that data to show, we may be able to get 
additional resources to minority businesses because of their 
activities in hiring ex-offenders.
    So it seems to me having adequate useful information on 
minority businesses and small business activities is critical 
to make the right decisions.
    And I know we have a lot of material that is made 
available, and I get a lot of reports. But is the data we 
currently have in the most useful form in order to help 
minority businesses gain access to the type of capital that 
they need?
    Ms. Castillo. So if I may, Senator, as you know, the U.S. 
Department of Commerce Census Bureau, we do the survey of 
business owners. That is done every five years. The new data 
will be coming out in June, which is critical.
    And the Department is working very diligently to see how we 
can actually roll out the data more quickly and is also 
partnering with the Kauffman institute in making sure that the 
data is provided in much more real time, if you will, because 
you are absolutely right. You can only--as the saying goes, you 
can only manage that which you measure, and measuring and being 
able to actually have much more robust information.
    Now I will tell you that MBDA, as we commission different 
reports, it is precisely because of that--because we want to 
bring that data in a way that is more digestible and that 
really tells the story. So, when I talked about our disparity 
in access to capital report, that is the type of information 
that is gleaned through that type of much more in-depth 
research.
    We are developing a three-year agenda, a research agenda 
that will help provide more information to all of these 
practitioners, if you will, and have more data that is more 
compelling. We know the information kind of instinctively, but 
when you see it, when you can actually see the charts, see the 
economic impact that this has, it is very persuasive.
    Senator Cardin. I think the more--I mean, showing how many 
minority businesses have to put their homes up for collateral, 
to me, would be a very telling situation.
    Mr. Tucker. Could I speak to that for a minute, Senator? 
You will find that is pretty high.
    Ms. Gross-Wade. Yes.
    Mr. Tucker. But let's talk about the data. I think the data 
is critical.
    The data that Ms. Castillo talked about, the census data, 
etc., is very, very good data and what has been used over the 
years. But what happens with that data also is by the time they 
collect it and they actually publish it, there is an extensive 
period of time.
    Let me suggest this: It is something that we are trying to 
do, and we have been working with Dr. Timothy Bates, who is 
probably the top person in the nation in this minority business 
piece. He has done extensive research in this area.
    And Tim--I mean Dr. Bates--has said, and what we have been 
trying to do, is that the data that is collected nationally in 
the census, with regard to minority businesses and small 
business as well, that same data is actually collected annually 
at the state level. Okay?
    And so what we are trying to do is get access to that data 
at the state level, and Dr. Bates is trying to get access to 
that data at the state level. They are looking at California 
and Maryland. I know because Tim and I go way back.
    And so we are trying to modify the law in Maryland at the 
state level so we can get that same data annually, okay, 
because what happens is, and the challenge is, that these 
various minority business and women business programs--they are 
being challenged. And we must have the data, up-to-date data, 
okay, to beat back the challenges.
    The census data is good. However, sometimes it is dated. 
Okay?
    But if we could get this data--in Maryland, it is called 
ES-202. Okay? And we want to modify that language so we can get 
this data to the researchers.
    As a matter of fact, Senator and Congresswoman Edwards, we 
were having some challenges and still have some challenges in 
Maryland, trying to modify this data.
    So what happened--there is a gentleman at the Department of 
Labor, Bureau of Statistics who said--because they have so much 
confidence in the research of Dr. Bates and his team, said that 
they will cover the costs. It would not cost Maryland a dime to 
collect this data. That is how important they feel it is that 
we get access to that data.
    This really needs to be done nationally. Okay? But we want 
to have some pilot projects.
    And we need some assistance on that so we can get that 
language modified at the state level so that that data can be 
collected annually and then use that data to undergird, if you 
will, the minority business programs in Maryland but also use 
it as a model for the nation.
    Representative Edwards. Senator Cardin, if I could follow 
up.
    Senator Cardin. Sure.
    Representative Edwards. Let me just follow up with that 
because I remember when we passed the American Recovery and 
Reinvestment Act and a lot of that money went into research, 
went into transportation. One of the challenges that I found on 
our Transportation Committee is getting reports back about how 
much of those significant Federal dollars went down and out to 
minority- and women-owned businesses.
    And one of the big challenges was that there was not a 
required reporting mechanism from the state to the Feds so that 
they could report back to Congress. And as a result, it was 
very difficult, except in some ways with states that were 
better at reporting than others, about where those resources 
went and how we could better direct some of them to minority-
owned businesses.
    And so I want to ask you, especially in some untraditional 
sectors, like transportation, like research and technology, how 
it is that we could function as a Federal Government in our 
oversight capacity in the Congress and try to tease out some of 
that data so that it becomes more useful for doing the right 
thing.
    Mr. Doss. If I could add just a moment on the same topic 
with data, at the Small Business Administration, of course, we 
have our Office of Advocacy, which works very closely with the 
Department of Census and collects and uses a lot of the 
information that is provided by the Census Department. It is 
valuable information for us, for our business owners, for the 
general public and our agency in terms of understanding what 
the needs are, what the situations are that exist with 
businesses, and we use that data on a regular basis. We have an 
annual update even to our small business profile.
    We always will welcome the opportunity to have more data, 
particularly as it relates to minority and small businesses, as 
we try to better understand the impact of both of those groups 
on the economy because we are interested in growing the economy 
very much locally, whether it is here in Bowie or somewhere in 
Prince George's County or at the state level.
    But being able to see what the impact of those small 
businesses is in terms of helping to drive the small business 
sector and the economy in general is something that we are 
interested in.
    Representative Edwards. Because wouldn't it help if, for 
example, the SBA knows that we are doing a lot of job creation 
in the areas of research and technology, but our small business 
loans that are coming are in some of the service sectors?
    Would it help you to be able to make an argument to an M&T 
Bank, for example, or to a venture capital investor that it 
makes sense to make loans in those sectors where we are growing 
the economy and we are growing resources so that we can then 
spread out some of those opportunities into the future?
    And I would ask that of M&T Bank.
    Mr. Hairston. Sure.
    Representative Edwards. What would you need to know to make 
a better business decision about making a loan to a small 
business?
    Mr. Hairston. Absolutely. We are fortunate now where we are 
able to get a sufficient amount of information from the Small 
Business Administration because we are literally able to see, 
by various minority categories and groups, what percentage of 
our lending is actually being directed to those respective 
groups.
    To go back to one of the questions and the points prior, I 
think one of the pieces that it seems that the SBA would be 
able to provide is what percentage of those minority borrowers 
did we have to lever their personal residences. All that 
information is absolutely available.
    When I look at this geography, I would definitely say 
whether it is minority borrowers or majority borrowers, having 
worked for M&T and other parts of our footprint where the 
businesses are more capital-intensive manufacturing, this 
geography--I will tell you, having been in the Mid-Atlantic 
with M&T, both in Baltimore and now in the National Capital 
area, it is absolutely a higher proportion, both minority and 
majority, where you have to lever their residences just based 
upon the larger percentage of the businesses being more 
professional services-oriented, whether they are government 
contractors or non-government contractors, because you do not 
really have other collateral that you can rely upon.
    With that being said, I absolutely believe there are 
opportunities as you think about the technology. We have 
struggled with the technology piece because when we look at 
technology companies we sort of look at them on a continuum and 
many technology companies do not fall into that category in the 
early stages where they are targets for debt capital. They are 
largely looking for equity capital.
    We challenge--we are challenged, you know, to really 
understand who are all the providers out there that can work 
with them.
    Being a highly--being in a highly regulated industry, you 
know, we have to be able to--as Shelly referenced, we have to 
be able to show that--whether we are going to try to get an SBA 
guarantee, we still have to be able to show that they have got 
a track record or, if they do not have a record, that they have 
the ability to immediately generate revenue that will turn and 
provide an ability to pay whatever that debt is. That is 
typically a challenge for most of your technology-oriented 
companies in this geography.
    So partnering and working with the types of organizations 
that can fill that equity gap is really still an area that is 
still not--and especially in the State of Maryland, I think 
there are some strides that have been made, but there are still 
significant challenges there.
    Senator Cardin. So let me follow up on these issues.
    Mr. Doss mentioned many of the tools that the SBA has 
implemented in order to try to help minority businesses gain 
access to capital. So I particularly would be interested in, 
Ms. Gross-Wade and Mr. Hairston, since you work directly with 
borrowers, whether these tools are working as well as they 
could and the priorities.
    Mr. Doss mentioned the fact that the SBA loans under 250--
no. The SBA loans under--was it $150,000 where there is no fee?
    Mr. Hairston. Correct.
    Senator Cardin. Where the fees are actually subsidized by 
the other borrowers because this is a zero-sum game, if I 
understand correctly, but that that has increased the volume. 
So the initial costs being a little bit less has had an impact.
    The micro loan program, which has a very high concentration 
within minority businesses.
    The SBA Community Advantage Loan Program, which was a pilot 
initiation for loans.
    The simplifications procedures through the internet, 
whether it is the LINC program or the SBA One that is going to 
be initiated this year and has not started yet.
    The credit rating simplification.
    And I have not mentioned the 504, the SBIC, and the other 
programs we have available.
    Could you handicap for us whether--how effective these 
programs are and whether they could be more effective?
    One of the things we have to talk about in government is 
that we just cannot layer program upon program upon program. We 
have got to make sure that we have the most effective use of 
the government tools to deal with the issues.
    Which are worth further investments here?
    Ms. Gross-Wade. If I may, I think the Community Advantage 
Program is one of the best financing tools that have come out 
of the SBA in a very long time. It allows for us to put the 
money out on the street at a much faster pace than the 
traditional SBA products.
    I think that the ability to know going into the deal that 
you are going to have an SBA guarantee at a certain level helps 
you in structuring the deal, as a non-bank lender.
    And we are one of your CDFIs that is a Community Advantage 
Lender. We are just now getting ourselves up on the learning 
curve with how best to deploy that tool. We are striving to 
become a dedicated or designated Community Advantage lender, 
which would give us some unilateral authority in the types of 
loans that we underwrite and use the SBA guarantee on.
    But is it efficient? Yes.
    Is it effective? Absolutely. Everything that we are looking 
at now we are looking at first to see if it is going to qualify 
for Community Advantage.
    I will also tell you that while you have standards for 
evaluating those credits there is a great deal of latitude 
given to the lenders on how to defend the request for the 
borrower.
    So I am particular, both personally and professionally. I 
am a strong proponent of Community Advantage.
    The range is from $5,000 to $250,000, and that seems to be 
our sweet spot, with us being a revolving loan fund.
    Senator Cardin. And that is so valuable because it 
streamlines and makes it faster and more predictable.
    Ms. Gross-Wade. Yes, yes. And the turnaround time for us 
has improved significantly. I mean, we are able to get those 
deals underwritten and transmitted electronically to the SBA so 
that we have a credit that is well-packaged, underwritten, 
approved, and received the SBA guarantee in less than two 
weeks, which means we can go to closing and fund in a much 
shorter period of time.
    Mr. Hairston. And I would add the complement to the 
Community Advantage Program, which is a program that the SBA 
rode out in the most recent fiscal year, is the Small Loan 
Advantage Program, which is designed for financial 
institutions, for credit requests as well, $5,000 up to 
$350,000.
    I have to tell you we are huge fans of the Small Loan 
Advantage Program and the benefits, the efficiency of it, not 
just from the process time. The reality is we want to get the 
loans closed as quickly as we can.
    And what you would see--and the data would show that many 
of the minority borrowers really fall into that space----
    Ms. Gross-Wade. Right.
    Mr. Hairston [continuing]. From a traditional lending 
standpoint, where the Small Loan Advantage Program really does 
adequately meet their borrowing needs under that program.
    And when they do not, we can then go to the traditional 
7(a) program, which--you know, they have streamlined it. With 
that being said, they continue to look for more opportunities 
to make that program even more efficient.
    We are fortunate because we are a preferred lender. So we 
have the unilateral authority to act on behalf of the SBA.
    But I would definitely tell you the Small Loan Advantage 
Program has been very beneficial. Our average loan size at M&T 
is about $148,000. So we really cater to your average, typical 
small business that has been in existence typically for three 
years or more, and that program really does meet the needs from 
that standpoint.
    The challenge, once again, that even under that program 
that we still have is when there is a collateral shortfall and 
how do we fill that.
    So, if we can work to partner with other organizations 
where we may have that collateral gap and fill those needs, I 
think that is an opportunity to really drive more of that 
minority lending, which is really necessary.
    Representative Edwards. Let me just ask whether--on the 
7(a) program, because those are loans that are under $150,000, 
how much the fee waiver provisions contributed to the increase 
in those loans and the ability to get those loans out.
    Mr. Hairston. Yeah. When it first rode out, during that 
initial fiscal year, we saw a 21 percent increase in volume in 
the space of $150,000 and under.
    So we are absolutely proponents of it. We are strongly in 
favor of continuing the waiver because the reality is in the 
way that we manage this; those loans that are extended to those 
borrowers that are $150,000 and under, they are more like 
consumers. They think more like consumers.
    So, when you approach them--and that guarantee fee under 
the express program could be, you know, I say as little as 
$750. But when you are talking to somebody who thinks more like 
a consumer and they can get a credit card where there is no up-
front fee, it does not matter that the rate could be 18 percent 
all in.
    And even on the SBA side, you can do prime.
    And even, let's say on the high end as prime plus 5. Prime 
plus 5 would be 8 and a quarter.
    Because they do not have to pay that up-front fee of $750, 
they will go with the credit card instead of going with the 
express loan.
    Ms. Gross-Wade. Right. That is an interesting point, if I 
may piggy-back on that.
    Out of the focus group session that we had over a week ago, 
it was very insightful to us that most of the business owners 
were not at all adverse to having a higher interest rate. They 
wanted to know that the funds would be available at the time 
that they needed.
    Mr. Hairston. Yes.
    Ms. Gross-Wade. There was no criticism or concern at all 
about the cost of money.
    And so that was a new reality for us, if I may put it that 
way, because the perception as a lender is that we try to be 
very cognizant of the fact that we are making loans to 
businesses that are, in most cases, pre-bankable. So we want to 
be very sensitive about what interest rate we give them.
    And they are saying, we do not care what the interest rate 
is; we just need to have access to the money.
    And the other reality is whatever the interest rate is that 
we propose to them as an SBA lender, as a government-backed 
lender, it is still going to be a lot less costly than a credit 
card rate. Yet, many of the businesses that we see come in with 
exorbitant credit card debt that they would like to have 
refinanced.
    And those rates are almost prohibitive----
    Mr. Hairston. Yes.
    Ms. Gross-Wade [continuing]. For us to even take that debt 
out.
    Representative Edwards. Thank you.
    Ms. Castillo.
    Ms. Castillo. I would like to join in and maybe broaden the 
conversation as well because MBDA focuses on growth. How do we 
get businesses, not just at the small end of the spectrum but 
also getting them, moving them, through the growth spectrum.
    So going back to what Ms. Wade was saying, the lending 
tools are critical but making sure that these businesses are 
ready, that they understand all the financial that they need to 
have available.
    I will also submit to you that lending also depends on the 
industry that you are in. Transportation, construction, for 
example, a surety bonding is a huge issue.
    On the exporting side, we work very closely with Ex-Im Bank 
to make sure that we are getting more minority businesses, who, 
by the way, are twice as likely to export than nonminority 
firms, to access the opportunities that exist either through 
Ex-Im Bank, OPIC, or others.
    So I just want to make sure that as we talk about minority 
businesses that we are looking at minority businesses just not 
at the small level but how do we help them grow. That is where 
the job creation comes in play. That is where the tax revenues 
are going to grow. And that is really where the future of the 
country is going.
    It is making sure that we have all of those tools at every 
life--at every point of their life cycle.
    Senator Cardin. It is the reason why the SBA administrator 
is so much in favor of Ex-Im Bank reauthorization.
    I was at a small business in Baltimore that is absolutely 
vital.
    And your point about minority businesses and exports is a 
very good point. As we talked earlier, a lot deals with the 
fact of the diaspora community. They have contacts and can 
get--make those contacts work for commercial ties. And it is an 
area that is certainly underutilized and one that we need to 
move forward.
    I have one last question, and then I will let Congresswoman 
Edwards talk about her issues.
    That was a Freudian slip----
    [Laughter.]
    I better--for the sake of Chris Van Hollen, I better 
correct the record or I am going to get in trouble with my 
other colleagues.
    There is--as you know, there is a desire to increase the 
cap on the 7(a) loans. It does not cost any money because they 
are offset with the cost. But it would go from about $18 
billion to $23 billion, and I think all of us support that. The 
volume needs are there. Why don't we meet those needs?
    I was just interested as to whether we have an indication 
whether by raising that cap it will be more beneficial to 
minority businesses than the general population of small 
businesses or whether it would probably have no major impact on 
how the allocations are being made between minority and 
nonminority small businesses.
    Mr. Hairston. I would immediately add, you know, if we look 
at the data for M&T just in the most recent fiscal year. So 45 
percent of the loans that we extended in fiscal year 2014 went 
to minority borrowers. So, even if we just looked at that data.
    And I remember when there was the potential for a delay 
with our SBA processing, and we literally, four weeks prior, 
sort of sent a message out throughout the institution. You 
know, try to push these loans through as fast as you can 
because, potentially, we may have a delay and we do not 
necessarily know how long that will last.
    The reality is if we were consistent and we ran into an 
issue with the cap you could say that 45 percent of our 
borrowers would not be able to access capital.
    Senator Cardin. That is helpful.
    Mr. Tucker. Let me--two things, two points I want to make 
because we manage state funds.
    And one of the things we did, it was somewhat--it is 
actually still unique in the country. We wound up privatizing 
the management of the fund, and when we privatized the 
management of it, it gave us a lot more flexibility in terms of 
bringing different kinds of capital to the table.
    Then we were able to leverage some of our dollars, to 
leverage our specialized small business investment company.
    We were able to--we came up with the idea of putting 
language in the gaming bill where 1.5 percent of the gross 
revenues would go to a fund to invest back into small minority- 
and women-owned businesses.
    So we were able to do a number of things.
    Actually, I made a recommendation to the SBA administrator 
about maybe 10 or 15 years ago. I said, you know what I think 
would be interesting? If you privatize SBA and see what happens 
and if folks have to really, really pay their own way, if you 
will, in terms of what they do.
    But also, in terms of dealing with your question, one of 
the challenges minority- and women-owned businesses have is 
capacity, and the quickest way to get that capacity is to buy 
it. People do it every day.
    Over the next 10 years, all the baby boomers in the country 
are going to sell their businesses. The question is, who are 
they going to sell them to?
    So, in Maryland, we are looking at introducing legislation 
that says this:
    If someone sells his or her business to a minority or a 
woman, one, the profits they make off of that sale, they would 
not have to pay state taxes, one.
    Two, if someone makes an equity investment in the 
transaction, they will be able to get an investment tax credit 
up to a half a million dollars.
    Three, if the owner hangs around and helps with the 
transition, whatever salary they receive, they will get a 
special tax treatment on that.
    And, four, if the owner helps finance the transaction, they 
will get a special tax treatment on that.
    So what are we trying to do? We know these businesses are 
going to sell because their wealth is tied up in these 
businesses. The question is, who are they going to sell them 
to?
    So we want to create an environment where they will sell 
them to minority- and women-owned businesses. So now they get 
back a pass--and here's the other thing that's very important.
    One, we keep those businesses in the State of Maryland. The 
sellers, usually when they sell, what they will do is they will 
go to Florida, establish residence, come back to Maryland, sell 
their business, and get the first plane back to Maryland--back 
to Florida.
    So we want to keep them here. We want to keep those 
businesses here. And now as they become owned by minority- and 
women-owned businesses, they get the minority- and women-owned 
status. They can grow their businesses.
    We have done several economic impact analyses which show 
that if, in fact, this legislation was in place it would be a 
net positive to the State of Maryland.
    And SBA in acquisitions, SBUs and SBA with guarantees to 
banks and what not, help with financing these businesses. So 
access to capital, again, becomes a critical part of these 
acquisitions.
    We are very excited about it. We think we are going to be 
able to get it through. We did not introduce it this year, but 
next year we probably will.
    Senator Cardin. Good point. Well, before I make some final 
comments, let me turn it over to the Honorable Donna Edwards.
    [Laughter.]
    Representative Edwards. Thank you very much, Senator 
Cardin. And I really do appreciate your being here today 
because I think over the course of my, you know, last several 
years of service in the Congress we have had a number of events 
in my congressional district that are really targeting various 
sectors of our widespread minority-owned business community and 
small business community.
    And I think some of the challenges that I have heard are 
clearly the businesses that are on the smaller end. They are 
start-ups. They are the ones that Mr. Hairston referred to as 
sort of consumer-oriented. And so we have a set of programs 
that are important for those.
    But I want to go back to Ms. Castillo's point, and it is 
that we have to also figure out a way that as we get these 
businesses, you know, started and they are growing and they are 
developing, what is the thing that we can do--what are the 
things that we can do that jumpstart those businesses, that 
take them to the next level, that makes them both regional and 
transnational competitors but also makes them global 
competitors?
    And I have in my mind one small business that I--what 
started out to be a small business that I know really well. A 
couple of guys working in the space industry, who decided that 
they were going to jump off and start their own little firm, 
and they did. And so they became 8(a)-qualified, which was 
really great.
    And then the challenge--and Mr. Doss knows this--was how do 
you go from there to competing in a wider marketplace and 
growing your business? And this business did that.
    And I am not going to name the names because I think I am 
looking at him right outside my right eye.
    But then they grew, and now they are transnational 
competitors, and they are global competitors. And they are 
minority-owned businesses--businesspeople. And they started out 
at the ground level, just with an idea of how to go to that 
next level.
    That is what I would like to see for all of our small 
businesses.
    And I think, you know, Senator Cardin--I know that Senator 
Cardin shares this.
    And I know that here in this county and across our state we 
have, you know, people out there who have some great ideas. And 
they just need us to figure out ways to invest in those ideas, 
not to do the work for them, as you indicated, but to provide 
the tools, the mechanisms, the mentorship, Mr. Doss, that these 
businesses need, the investment that they need, whether it is 
equity, capital and venture funds, or it is an under $150,000 
loan so that we can grow them.
    This is the tool for our new economy. Senator Cardin knows 
this.
    We know that in a world that is becoming increasingly 
diverse--and that is true for our state--that our job creation 
and our business creation is going to take place with these 
entrepreneurs.
    And so I just want to thank Senator Cardin and thank each 
of you for being here today to help us figure out how we can 
jumpstart some of those businesses.
    Thank you, Senator Cardin.
    Senator Cardin. Well, thank you very much. I really do 
appreciate that.
    And I appreciate each of your participations here today, 
and I look forward to working with each of you as we try to 
sort out what we can do a better job on, helping minority small 
businesses.
    Mr. Doss pointed out this is the--access to capital is the 
critical part of the equation; it is not the only part of the 
equation. We have government procurement, which is clearly an 
area that we have worked very, very hard on. We have technical 
assistance to help, regulatory relief, the tax code. And we go 
and on and on, on the different issues that affect small 
businesses and minority-owned businesses.
    So the issue, though, of capital is a critical issue 
because, as has been pointed out by all of you, there have been 
extreme difficulties of minority businesses to get access to 
equity capital, to get access to capital during tough times, 
the options that they have that they can exercise. All that 
makes it a real challenge.
    And as a result, we have not reached anywhere near our 
potential in this country for minority opportunity, which is a 
key value of our country, and we have denied our economy its 
full strength. And for those reasons, we have to pay greater 
attention to it.
    I am encouraged by the testimonies today, and I am 
encouraged by the leadership at the SBA and Department of 
Commerce in providing where we can.
    And in the private sector, Mr. Hairston, you were kind of 
modest when you said that you are the largest lender for small 
businesses. You are the dominant lender for small businesses in 
our State, and we appreciate that very much.
    We want to take your best--I know you would like 
competition. So I know you want to get the other banks out 
there doing better; I know.
    Mr. Hairston. They are welcome.
    Senator Cardin. Yes, I understand. But we would like to 
take the best practices and share that so that we can get more 
activity and get more opportunity for small businesses and 
minority businesses to be able to take advantage of the 
opportunities of this country.
    So this hearing was to explore ways that we can do that. I 
think it has been extremely helpful, and we will be following 
up to figure out how we can implement policies that can lead to 
the proper results for minority businesses in our community.
    Thank you all.
    With that, the hearing will stand adjourned.
    [Applause.]
    [Whereupon, at 11:20 a.m., the hearing was adjourned.]
  

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