[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
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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
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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:]
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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:]
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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:]
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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:]
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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:]
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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.]
[all]