[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN PHILADELPHIA, PA: SMALL BUSINESS CAPITAL ACCESS:
SUPPORTING
COMMUNITY AND ECONOMIC DEVELOPMENT
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 20, 2017
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-042
Available via the GPO Website: www.fdsys.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
27-253 PDF WASHINGTON : 2018
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Brian Fitzpatrick........................................... 1
Hon. Dwight Evans................................................ 1
WITNESSES
Ms. Dafina Williams, Vice President of Public Policy, Opportunity
Finance Network, Philadelphia, PA.............................. 4
Ms. Leslie Benoliel, President, Entrepreneur Works, Philadelphia,
PA............................................................. 7
Mr. Lin Thomas, Chief Executive Officer, EMSCO Scientific
Enterprises, Inc., Philadelphia, PA............................ 10
Mr. Steve Dorcelien, Owner, Bright Yellow Creamery, Philadelphia,
PA............................................................. 13
APPENDIX
Prepared Statements:
Ms. Dafina Williams, Vice President of Public Policy,
Opportunity Finance Network, Philadelphia, PA.............. 27
Ms. Leslie Benoliel, President, Entrepreneur Works,
Philadelphia, PA........................................... 36
Mr. Lin Thomas, Chief Executive Officer, EMSCO Scientific
Enterprises, Inc., Philadelphia, PA........................ 41
Mr. Steve Dorcelien, Owner, Bright Yellow Creamery,
Philadelphia, PA........................................... 44
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
SMALL BUSINESS CAPITAL ACCESS:
SUPPORTING COMMUNITY AND ECONOMIC DEVELOPMENT
----------
FRIDAY, OCTOBER 20, 2017
House of Representatives,
Committee on Small Business,
Philadelphia, PA.
The Committee met, pursuant to call, at 2:45 p.m., in
Studio C at the Enterprise Center, 4548 Market Street,
Philadelphia, PA, 19139, Hon. Brian Fitzpatrick presiding.
Members present: Representatives Fitzpatrick and Evans.
Mr. EVANS. I would like to say good afternoon to you, and
it is my pleasure. First, I would like to thank the chairman--
first, I would like to thank Mr. Fitzpatrick for being here
today and taking the time to visit my district to hear the
stories of local small businesses. It is great to be here, and
he will call it to order.
Mr. FITZPATRICK. Okay. Good afternoon. I call this hearing
on the House Committee on Small Business to order, and before
we begin, I want to thank Mr. Evans for inviting me to be in
his district, and I can tell you, as a fellow freshman
colleague of Mr. Evans, not only is he a phenomenal legislator,
he is an even better human being. Huge heart, and it is just an
honor to serve with him in Congress. While we may be from
different political parties, we are both proud Philadelphians
and enjoy working in a bipartisan manner in our Committee for
the owners and employers of southeastern Pennsylvania.
To give you a little bit of background on the nature of the
bipartisanship between our members, every single bill we have
passed through our Committee has been voted on unanimously.
That is not always the case with other Committees in the House.
Quite frankly, it is refreshing. Dwight and I have worked
together on numerous pieces of legislation, and I thank him for
his leadership on this Committee. So again, I appreciate his
invitation, and I am looking forward to hearing the testimony
of our witnesses.
Being a small business owner in America is a very tough
job. No matter what your business, you must wear many different
hats. In addition to doing what you went into business for in
the first place, you probably have to tackle responsibilities
such as a tax accountant, advertising executive, regulations
expert, fundraiser, and human resources expert as well. Yet
throughout our history, entrepreneurs in America have done all
these things, and more. But to be in business, there is one
thing that is necessary above all else, and that is access to
affordable capital. It is the fuel that each and every small
business needs to move forward. From the neighborhood ice cream
parlor to a local manufacturer, to the high tech research and
development company, access to capital is paramount. Our
Nation's entrepreneurs and small businesses continue to
experience a difficult lending environment, which is at best
stagnant. In fact, recent research has shown that the total
value of loans by small domestic banks has remained flat since
the recession and depressed compared to levels before the
recession.
All too often, small firms cannot access conventional
lending, so they have nowhere to turn for the capital to grow
their businesses and to create jobs. Despite being credit-
worthy, they are often not--do not have the proven track record
for traditional lending. With limited options in conventional
markets, more and more small businesses are turning to the
Small Business Administration's lending programs as a means to
help finance their dreams. From the flagship 7(a) and the
501(c) CDC programs to the microloan SBIC programs, there are
many options at the SBA to help small firms find affordable
capital products.
While by and large these programs seem to be doing well, we
can always do better. The more capital we free up for deserving
small businesses, the faster our economy will grow, and the
sooner our communities will be revitalized. That is why we are
here today. We want to hear your stories and hear your
recommendations that can help improve access to capital. I am a
firm believer that the best ideas in Washington don't come from
Washington. They come from folks like you, and I am eager to
discuss these critical issues with you today.
And with that, I want to thank you all for taking time out
of your undoubtedly busy schedules to be here today, and I now
yield to Ranking Member Mr. Evans for his opening remarks.
Mr. EVANS. Thank you, Mr. Chairman.
I want to thank the Chairman as someone who is a neighbor.
He is from the 8th Congressional District, and we are really
more than just professional friends, we also are real personal
friends. We have worked together in the short period of time we
have both been there, and this is the thing that needs to
happen in Washington. People working together from the bottom
up.
As the economy continues to strengthen, more entrepreneurs
will seek capital to start ventures to expand existing
businesses. Traditional lending sources often ignore many
communities around the country, resulting in small firms
utilizing other financial programs. Today's hearing will
explore those programs promoting affordable lending, investing
products, and often firsthand account for local small
businesses.
At the federal level, the SBA provides entrepreneurs with
access to capital by the extension of guaranteed loans through
such as the flagship 7A program. But while the overall number
of loans have increased, the percentage going to minorities and
women only firms has remained fairly consistent since 2010, and
is lower than before during the recession. This is--and this is
a consistency that we have heard at hearings at roundtables by
the Committee. That is why as Democratic members of this
Committee, we have emphasized that lending to women and
minority-owned businesses must be improved.
The Microloan Program has been recognized by members of the
Committee as a way to improve lending. The need for more small
business dollar loans is really particularly among the most
underserved markets. Nearly 50 percent of the SBA microloans
have gone to women-owned businesses, 20 percent to Hispanics,
and more than 25 percent to African Americans. This program was
specifically designed to reach those that can't qualify for
traditional financing in order to fulfill and develop their
chances at success. Thus by recently passed legislation
increasing the intermediary loan limits for the microloan, we
have extended the reach of the SBA programs.
Mission-based lenders such as CDFIs and certified
development companies also play an intricate role in the small
business lending space. As they focus on expanding economic
opportunities in their communities, their work has benefitted a
great number of communities across the country, and through
2017, originated more than $42 billion in financing in urban,
rural, and native communities.
Lending outside the traditional consumer banking, better
known as FinTec, has become increasingly popular for small
businesses. And while the speed and the flow of capital may be
an advantage, we must work to ensure that proper protections
are in place for that. For this very reason, the Committee
intends to continue to engage small businesses in the lending
in this topic.
Another key aspect of capital financing is equity
investment. While traditional debt financing tends to cater
more to established small firms, start-ups may lack adequate
revenue streams and credit history. Angel Investing, Venture
Capital, regulatory investment funds like small business
investment companies, all target new and early stage firms. And
like other forms of capital, there remains an unmet need for
those types of finances for small businesses.
With these various areas of lending and investing in mind,
today's hearing will provide the opportunity to explore what
works and where improvement can be made. Overall, this
Committee seeks to ensure that mechanisms are in place to
promote the growth, development, and continued success of small
businesses. I look forward to hearing from our witnesses and
gaining insight into their experiences.
I thank you all and yield back the balance of my time, Mr.
Chairman.
Mr. FITZPATRICK. Thank you, Mr. Evans, and if Committee
members have opening statements prepared, I ask they be
submitted for the record. That is just a procedural thing I
need to say in case anybody back in Washington wants to add
anything to our hearing for the record today.
I would like to take a moment to explain the timing lights
for you. You will each be afforded 5 minutes to deliver your
testimony. The light will start out as green, and when you have
1 minute remaining, the light will turn yellow. Finally, at the
end of your 5 minutes, the light will turn red. I ask that you
try to adhere to the time limit, but given the fact that there
are just a few of us here, we will be very lenient with those
instructions.
So I believe we will start with Mrs. Williams--oh, Mr.
Evans.
Mr. EVANS. Thank you. Thank you, Mr. Chairman. To give you
a little background on Mrs. Williams. Mrs. Williams is vice
president for the public policy at the Opportunity Finance
Network, the leading national network of Community Development
Financial Institutes, CDFIs. She joined the Opportunity Finance
Network in 2006 and leads the organization in policy
development around housing financing, small business lending,
healthy food financing, and coalition building. She also
manages the organization's regulatory advocacy, state and local
policy efforts. She has presented at numerous industry
conferences and contributed to several community development
financial publications. She also graduated Magna Cum Laude from
Temple University. She received a BBA in economics. In her
spare time, she serves on a Board of the Friends, an
international nonprofit providing access to quality education
in Latino America. And as a member of the city's Millennium
Advisory Committee, we welcome Ms. Williams.
STATEMENTS OF DAFINA WILLIAMS, VICE PRESIDENT OF PUBLIC POLICY,
OPPORTUNITY FINANCE NETWORK, PHILADELPHIA, PENNSYLVANIA; LESLIE
BENOLIEL, PRESIDENT, ENTREPRENEUR WORKS, PHILADELPHIA,
PENNSYLVANIA; LIN THOMAS, CHIEF EXECUTIVE OFFICER, EMSCO
SCIENTIFIC ENTERPRISES, INC., PHILADELPHIA, PENNSYLVANIA; AND
STEVEN DORCELIEN, OWNER, BRIGHT YELLOW CREAMERY, PHILADELPHIA,
PENNSYLVANIA
STATEMENT OF DAFINA WILLIAMS
Ms. WILLIAMS. Thank you. Good afternoon, Representative
Evans and Representative Fitzpatrick. Thank you for holding
this hearing on small business capital access. My name is
Dafina Williams, and I am Vice President of Public Policy at
Opportunity Finance Network, and I am pleased to be here today
to testify not only on behalf of OFN, but also as a constituent
of the 2nd District of Pennsylvania.
OFN is a national network of CDFIs, mission-driven
community banks, credit unions, loan funds, and venture capital
funds investing in opportunities that benefit low income and
low wealth, and other under-resourced communities. CDFIs are
financial intermediaries that connect communities to capital
that creates jobs, supports small businesses, builds affordable
housing, cultivates healthy food and energy efficiency, and
promotes safe borrowing and lending.
Currently, there are more than 1,100 CDFIs certified by the
Department of Treasury's CDFI fund. CDFIs in OFN's network
alone--that is about 230 of the 1,100--have originated more
than $54.9 billion in financing in urban, rural, and native
communities through 2016. With cumulative net charge-off rates
of less than 1 percent, CDFIs have proven that they can lend
both responsibly and effectively in under-resourced
communities.
Today, I would like to provide an overview of some of the
challenges facing small businesses in accessing credit, how
CDFIs are helping to address these challenges, and the role
that the federal government can play in providing resources
that further stimulate that flow of capital.
Although lending conditions have remained relatively stable
for the past several years, credit standards for loans have
remained tight since the Great Recession. Less credit-worthy
borrowers, like those in communities disproportionately
impacted by the financial crisis, face significant challenges
to accessing capital to grow or start their businesses. For
women-owned and minority-owned small businesses, these
challenges are even more pronounced.
However, there proven solutions to meeting these
challenges: specialized targeted lending, technical assistance,
and community partnerships can help improve capital access,
create new markets for small businesses, expand networks,
strengthen the borrower to traditional lender relationships,
and support broader economic development goals.
Small businesses are an important driver of economic
growth, but they face both macroeconomic and microeconomic
challenges when attempting to access credit. Some of these
challenges include contractions in the banking system and
lending to small business, a decline in the availability of
small dollar loans, weak or limited credit history, lack of
business and financial management skills, access to
entrepreneurial networks, and limited awareness of lending
options. These barriers are, of course, particularly high for
entrepreneurs who are low to moderate income, women, racial
minorities, and other traditionally disadvantaged populations.
So a little bit about some of the macroeconomic conditions.
U.S. bank branches closed about 4,800 branches between 2009 and
2014. This has created banking deserts, which has particularly
impacted low income communities, rural communities, and
communities of color, limiting access to basic financial
services, as well as credit.
A decline in the number of bank branches and community
banks impacts the availability of credit to small businesses
who typically rely on relationship lending from their local
lenders. In 2015, both the number and dollar amount of CRA
reported loans to small businesses with revenues under $1
million had declined 40 percent below their 2007 levels. There
has also been a decline in the availability of small dollar
loans. The number of CRA reported loans of less than $100,000
in 2015 was 58 percent lower than it was in 2007, even as
demand for these loans remains high. The Federal Reserve's 2016
Small Business Credit Survey found that 55 percent of
applicants actually sought less than $100,000 in finance, so
there is a huge credit gap there.
I am going to let my colleague, Leslie, talk a little bit
more about some of the microeconomic issues impacting some of
these small businesses, but I will move on a little bit to talk
about online lending.
For a lot of small businesses as the brick and mortar
financial institutions continue to retract and close, they are
left with few options and a lot of them are turning to new
online lenders who have entered the marketplace. And to an
extent, these lenders--they are filling a gap and they are
providing access to financial credit and services. However,
some of these online lenders are providing high cost loans
targeting the most vulnerable small businesses with little
transparency about loan pricing and terms up front. Online
lenders may make it fast and easy to get capital, but they
certainly don't make it cheap. Often, small business owners are
not aware that they may have other affordable options available
to them, or that responsible lenders like CDFIs even exist.
Another thing to consider is that racial and gender-based
biases can also prevent small businesses from entering
mainstream lending. Even when controlling for things like
personal wealth and credit scores, people of color and women
are disproportionately denied financing at rates higher than
their white male counterparts.
Despite these challenges, underserved businesses continue
to grow and create jobs. A boost in local small business
ownership can have a positive impact on the economic
development of our region. Analysis of U.S. Census data shows
that the greater Philadelphia area actually lags behind other
large metropolitan areas when it comes to the rate of growth in
small businesses. Additional investments and proven solutions
and programs like those that support the work of CDFIs will
stimulate the flow of capital to business owners, generating
economic activity that can catalyze community development,
create jobs, generate income and wealth, and help chip away at
the city's persistently high poverty rate.
CDFIs are an important part of the small business lending
ecosystem. They provide capital to businesses that cannot
access traditional financing. For small businesses with
financial impediments to securing financing, like lack of
collateral, cash flow challenges, modest business revenues,
CDFIs address these issues by providing a variety of financial
products, including working capital, equity investments, bridge
loans, senior unsubordinated debt, sometimes at below market
rates and with lower and fewer fees that what is traditionally
available in mainstream lending, and also with more flexible
underwriting criteria, credit standards, collateralization, and
debt service requirements.
But CDFIs also recognize that not all the challenges facing
small businesses are financial. Some of them have to do with
the financial and business management and provide--that
businesses have, and so to address this issue, CDFIs also
provide technical assistance and development services to their
lenders. So that means they are taking a holistic approach to
looking at the business, identifying not only what the
financial weaknesses are, but also looking at where they might
need help with their accounting or their payroll, or some of
these other non-financial issues that will really help the
business be not only ready to take on financing, but also to
ensure that they are able to be successful once they are able
to get a loan.
So there are a couple of ways that the federal government
can support the work of CDFIs. There are a few programs that
you mentioned already through the SBA, but there are a couple
more. The first is the Treasury Department's CDFI Fund. This
provides patient, flexible equity capital to CDFIs that allows
them to go out and attract private sector capital that allows
them to then amplify the impact of their lending. For every
dollar of CDFI fund awards that is provided by the federal
government, CDFIs generate an additional $12 in economic
impact. The Markets Tax Credit Program is also an important
source of private sector financing, but is set to expire in
2019 and its future is currently uncertain as Congress
considers tax reform. We also would hope that the Community
Advantage Program pilot program at the SBA would be made
permanent. Currently it is also set to expire in 2020. And that
there will be continued expansion of the Microloan Program and
the technical assistance that it provides to the SBA. We also
think that another round of funding through the state Small
Business Credit Initiative, which is a $1.5 billion lending
program created through the Small Business Job Act of 2010
would also help increase the flow of capital to underserved
businesses. That $1.5 billion was actually leveraged to provide
about $10.7 billion in total financing, and more than 40
percent of that capital went to underserved businesses across
the country. And finally, strong borrower protections are key
to ensure that small businesses have full disclosure of
understanding of fees, terms, and pricing of any of the loan
products that they are accessing. Without these sort of
protections in place, business owners are often susceptible to
predatory lenders or online lenders, and currently, these
protections do exist in the mortgage lending and consumer
finance space, but no current protections exist for small
business borrowers of that same nature.
So thank you for the opportunity to testify today, and I
would be happy to take any questions.
Mr. EVANS. The next person--this is the first time, Benel,
right, Leslie?
Ms. BENOLIEL. Benoliel.
Mr. EVANS. Benoliel--is the President and CEO, of
Entrepreneur Works, a not for profit organization that provides
comprehensive business training, business advisory service,
microloans to entrepreneurs and small business owners of low
income, minority, immigrants, and other underserved throughout
the greater Philadelphia region. Combined over 30 years of
banking and community development experience, Leslie has built
Entrepreneur Works into an effective, nationally recognized,
high impact micro financing and small business development. She
has successfully implemented several national small business
initiatives that brought new corporate resources to invest in a
region--community. Starbucks--created jobs. That is a long
list. Leslie has served on the boards of Pennsylvania Minority
Enterprise Coalition, Sustainable Business Network of Greater
Philadelphia, and currently serves on the advisory committee of
the Philadelphia Office of Community and Economic Development.
STATEMENT OF LESLIE BENOLIEL
Ms. BENOLIEL. Thank you. Good afternoon Representative
Evans and Representative Fitzpatrick, and members of the Small
Business Committee. Thank you very much for this invitation. It
is a great honor. I am also a constituent of the 2nd
Congressional District. My name is Leslie Benoliel. I am the
president and CEO of Entrepreneur Works. We are a nonprofit
CDFI that provides access to loan capital and business training
to entrepreneurs and small business owners throughout the
Philadelphia region. We serve between 200 and 300 entrepreneurs
a year, and primarily in underserved communities. Our
constituents are 84 percent minority, 68 percent low income,
and 60 percent women.
I am here today to express how critically important it is
to support small businesses and to ensure that they have better
access to capital. As it has been mentioned before, and you
know very well in this Committee, small businesses are vital to
and are a key segment of our region and our national economy.
Small businesses--and those are 500 employees or less--
represent by far the largest proportion of all firms, private
sector firms, 99 plus percent, and they account for roughly
half of all private sector jobs. This is true of Pennsylvania
and the Philadelphia region.
It is widely known that small businesses are the largest
creators of jobs in the U.S. year after year, and SBA data
supports this. That said, small business owners are at a
disadvantage. The Philadelphia area ranked 31 out of 40 large
U.S. metropolitan areas for start up activity, according to the
Kaufman Foundation Index of Start Up Activities.
Who are these small businesses? Well they are your
childcare providers, coffee shops, food trucks, dry cleaners,
landscapers, barber shops, professional and health providers,
and we see them throughout our neighborhoods and our
communities, on and near commercial corridors, corridors such
as Germantown Avenue, East Oak Lane in west Philadelphia. We
see, engage, and rely on these small businesses every day. They
are the lifeblood of our neighborhood economies. So I will
offer several reasons why I think small businesses are so
important.
They provide valuable goods and services. Small businesses
create jobs and they--research has shown that small businesses
that are in our communities mostly hire from the communities
that they serve. Small businesses keep the money that they make
circulating locally. Small businesses generate tax revenues,
and small businesses make our neighborhoods and communities
more vibrant, diverse, and interesting, thereby attracting
visitors, new residents, and bringing in investment. Small
businesses create wealth for their employees and for
themselves, and this is especially critical in our lower and
disadvantaged communities.
Entrepreneurship is a viable and critical path to break the
cycle of poverty and for improving economic self-sufficiency.
Research shows that there is a substantial wealth advantage for
those that are business owners compared to those that are not,
and this is especially pronounced among minorities and women.
An AEO study, Association by Enterprise Opportunity, done a
few--couple years ago shows that the median net worth for
black-owned businesses is 12 times higher than for black non-
business owners. Furthermore, minority and women-owned business
creation rates are far exceeding those of non-minority and men.
And immigrant-owned businesses are rapidly on the rise as well.
So there are persistent barriers that stymie small business
growth, especially among underserved populations. Three major
factors are low starting wealth, limited access to credit, and
a trust gap. Access to capital is chief among these needs.
Small businesses that--many small businesses, and this is
especially true of underserved, do not meet bank and
traditional financing standards. They have low credit scores,
insufficient collateral, and limited equity to put in the
business. Minority business owners face deep barriers--steeper
barriers than their white counterparts. With fewer assets and
less disposable income, they don't have the resources to invest
in their businesses, enough runway to get them off the ground,
and not enough assets to leverage other resources. Furthermore,
banks are reluctant to make the smaller loans. Typically--they
may say but they often don't make loans less than $50,000, and
some don't make loans less than $100,000 to small businesses.
They say it is unprofitable.
Minority business owners also feel intimidated by banks,
according to surveys. It is especially acute among black
business owners. They tend to get discouraged and they do not
feel welcome, and that is that trust gap that I mentioned.
Business owners are increasingly turning to these online
lenders, the thin tech lenders, and many of these alternative
lenders are predatory and onerously expensive. The
unsuspecting, uninformed borrower can easily get caught in a
debt cycle, leaving them in worse financial shape, and this is
where we can--CDFIs like Entrepreneur Works and the Enterprise
Center Capital Group can play an important role. We provide a
lot more than just capital. We provide the trusted guidance,
the technical assistance, either directly or partnering with
other community-focused organizations such as women business
development centers and small business development centers, to
help business owners navigate the complexities of owning and
starting up a business. And I would like to emphasize this
point. The capital needs to be coupled with this technical
assistance to ensure better success rates of the business, and
Dafina mentioned this in her testimony. With TA, technical
assistance, the small business owners are better prepared to
take on a loan, are better prepared to use the capital to build
their business, and they are better able to pay the loan off
and thus access to other resources.
CDFIs, WBDCs, and SBDCs form the foundation of a vast
network of business support and business capital. We are
embedded in our communities. We have a deep understanding of
the needs and challenges, and we are trusted partners. Support
for programs such as--support from programs such as those from
the CDFI Fund and the Small Business Administration are so
critically important and have allowed us to reach hundreds and
help hundreds of entrepreneurs a year. And furthermore, we are
very effective at leveraging private sector dollars in
combination with these public dollars.
So what else can we do to unleash the economic potential of
small businesses? I want to offer just a couple of other
promising solutions. We need to help individuals build their
assets with asset building tools, IDAs, individual development
accounts are an example. Greater assets allow these
entrepreneurs with more runway capital, more room to get off
the ground. They also need patient capital, equity, and these
can be in the form of innovative lending programs that include
forgivable loans, loan guarantees, and loan equity blends. So
they need more runway capital, they need more patient capital
so once they get off the ground, they can stay off the ground.
Crowdfunding is an interesting delivery model that is just
coming into play. I think that merits some further look as a
way to target specific populations, and of course, greater
support for the nonprofits that work with these small business
owners. We have a good track record. We don't--we want to
continue that work. We want to be able to do more work.
So in closing, I want to just emphasize that small
businesses are indeed the engine of our economies. It is
imperative that the public, private, and nonprofit sectors work
in concert to support the growth and sustainability of our
small businesses, and especially for our underserved
populations. So I would like to commend the Small Business
Committee for your efforts to raise the awareness about the
disparity of access and capital, and for your work to ensure
that all businesses can grow and prosper. Thank you.
Mr. EVANS. Mr. Chairman, you have now heard sort of the
mechanism--and as you know, we talk a lot about the access of
capital and availability. You have heard that and I think both
have done a great job.
Now we are going to go to two entrepreneurs, and it is
important for the entrepreneurs to give their perspectives and
outcomes.
The first one is Mr. Thomas. He has two dynamic
enterprises, one called ESCO?
Mr. THOMAS. EMSCO.
Mr. EVANS. EMSCO Scientific Enterprises, and the other one
is called?
Mr. THOMAS. SUPRA Office Solutions.
Mr. EVANS. SUPRA Office Solutions. It is a laboratory and
pharmaceutical supply company founded in 1980 which serves
university and national enterprises. The office product company
serves national and small, large corporations and is
headquartered in Philadelphia. Prior to his current position,
he served several top positions over a span of 15 years of
Alpha Office Supply, headquartered in Philadelphia, and before
Alpha, Mr. Thomas served as a managing partner for over 10
years as tax and financial consultant. Lin attended the Kellogg
School of Management of Northwest University, and has a
Bachelor of science degree in accounting from Morgan State
University.
Mr. Thomas?
STATEMENT OF LIN THOMAS
Mr. THOMAS. Good afternoon, Congressman Evans, Congressman
Fitzpatrick, Committee--U.S. Committee chair, as well as my
fellow colleagues here today. It is an honor to represent small
businesses, and I want to just start off by saying that I want
to incorporate the comments by Ms. Williams and Ms. Benoliel
as--and the recommendations that I think are very, very
relevant having been an entrepreneur and having to have
developed a small business. I want to also indicate that this
very same Committee here speaking today in my career, I worked
for Congressman Parren J. Mitchell, who in 1983, '82, during
that period of time was the Chairman of the U.S. Committee on
Small Business. So within my career, I did work for the
Committee on Small Business in Washington, D.C.
I just want to start off by making a few comments. Let me
just adjust my glasses here. I have worked as an accountant,
generally speaking, for years and I have had a host of minority
business clients, and also worked as a consultant for PMBDA,
the Pennsylvania Minority Business Development Authority, our
firm that was responsible for financing and--as a financial
consultant to that agency. We were sort of the group that
analyzed their loan projects for providing technical assistance
and financing to minority businesses. This was during the late
`90s--no, the early `90s, pretty much during the Casey
Administration.
My experience afforded me the opportunity over the years to
have worked with smaller enterprises that maybe only had
capital of--or sales of $5,000 or so a year, and over the
course of my experience, I have had some interactions with
larger enterprises with sales as much $100 million a year.
Most importantly, significantly to me is that perhaps 50 of
smaller minority businesses that I have interacted with over
the years, I have witnessed that withered or died on the
proverbial vine because of a lack of access to capital, and
that was very discouraging. Individuals that had phenomenal
opportunities to grow, develop various enterprises that could
have had a significant impact on jobs and opportunities, and
essentially it was only because of a lack of capital that these
businesses either didn't get the funding that they needed as
talked about as the runway funding, or the more patient capital
that they needed to extend. And that is discouraging, very
discouraging. Conversely, I experienced a period in my career
where I witnessed the positive results and meaningful,
favorable economic impact of businesses that were created,
fostered, revived, and thrived as a direct result of a receipt
of capital via economic development enterprise funds, primarily
received, in those days, from the Commonwealth of Pennsylvania
as well as from the City of Philadelphia. And these funds were
funds that were provided absent the stringent typical
underwriting criteria of most banking institutions. They were
funds that were provided where there wasn't--they were not 100
percent collateralized or innovative collateral approaches were
instituted for the funds where the owners didn't have A-1
capital or credit, rather, ratings. They had, in fact,
depressed credit ratings. But where what was looked at was the
potential of their enterprise, the opportunity of that
enterprise to generate jobs, and that there was a good sales or
a good business projection program that was offered for that
business opportunity.
Simply stated, I just want to place in the record a few
observations over the years. One, small businesses provide the
jobs, and that has been stated, more jobs directly in America.
There is no such thing--and this is important--as the growth
and development of small businesses absent increased
innovative, and relaxed mainline bank underwriting for small
businesses. Okay. You will not be able to support small
businesses without innovative, relaxed underwriting criteria
for these small businesses. Also, there likely does not exist
any--in any business bank portfolio--and this is what I have
learned also. There is always--we talk about whether or not
there is a high delinquency of default rate with small
businesses. There is, in fact, a relatively high delinquency
and default rate with large business portfolios. There is no
portfolio that I have ever seen for financing opportunity that
does not have D&D, or write-off.
Now what do the banks do? Typically, imagine 1,000 loans in
a portfolio. If there are, let's say, 50 of those loans that
are non-performing in that active portfolio, the bank typically
takes those loans out of the active portfolio and they place
them in work-out. So they are no longer calculated in the
calculation of D&D rate, okay, and once they work out these
loans, either write them off or do whatever they are going to
do, or restate those loans and place them back in the active
portfolio, the bank produces a portfolio that appears
acceptable. This doesn't necessarily happen with most of the
smaller loan programs. So there is a tendency to say that there
is a higher rate of delinquency and default. We did a study
with the State's programs and once we restated loans that had
been placed in that portfolio for years, that portfolio
performed just as effectively as the average bank at the time.
Small businesses must be offered the opportunity to be
created--excuse me, I have some gum in my mouth. I apologize
for that. Small businesses must be afforded the opportunity to
be created, grow, and contribute to the economy as in any loan
portfolio. Some will fail. Some will falter and recover. Some
will grow, thrive, and make major contributions and
reinvestments in the economy. Absent access to capital with
slightly relaxed or more innovative underwriting criteria,
these potentially phenomenal contributors to our existence and
economy will likely never come into being or development.
What are some of the methods--and thank you, Congressman
Evans, for mentioning the microloan funds and some of the other
funds that exist within the SBA portfolio. One of the other big
problems is a lack of communication to the individuals that
would best benefit from what does exist, and I would suggest
that SBA very seriously look at advertising on urban radio
stations and that we look at advertising in minority or
minority traditional newspapers, we look at advertising in
minority or oriented TV shows, and social media. It is
important to communicate what is available to the individuals
where they are that need the resources that are relied upon
through this agency, as well as the fact that we need to extend
further opportunities.
In closing, I just want to state--utilize two quotes, and
perhaps they will be considered relevant here. One is ``What
happens to a dream deferred? Does it dry up like a raisin?''
That is Langston Hughes. Paraphrase, a dream deferred is a
dream denied. Alternatively, ``Give me a lever long enough and
a fulcrum on which to place it, and I shall move the world.''
That is Archimedes. So if we are--if we--one, if we deny
minority businesses the access to capital, we are killing
opportunities that exist for so many people that is needed
today, and number two, if we provide access to capital, we can
move the world. Thank you very much.
Mr. EVANS. Thank you. Mr. Chairman, this next person I am
going to introduce, I overheard in the audiences that people
were looking for samples of his product. I just said, Mr.
Chairman, I have never tasted it. This is the first time
meeting him. Steven Dorcel?
Mr. DORCELIEN. Dorcelien.
Mr. EVANS. Dorcelien--founder and owner of Bright Yellow
Creamery, is a graduate of Seton Hall University and earned his
MBA from the University of Connecticut. Prior to Bright Yellow
Creamery, he was a business development and lead at a Global
Law Firm in New York City.
Steven started Bright Yellow Creamery with a vision of
serving a delicious treat as pure as possible through simple
process and real ingredients. That is important, real
ingredients. To hone his skills in creating and operating an
ice cream business, he attended and completed Penn State ice
cream short course in early 2017. Bright Yellow Creamery is now
served at many of the largest farmer markets and gourmet
grocery stores in Philadelphia. Steven currently resides in
Philadelphia, PA, with aspirations of opening his first brick
and mortar in 2018, and maybe he can open it up in the 8th.
Mr. FITZPATRICK. That would be great. Thank you.
Mr. EVANS. Steven?
STATEMENT OF STEVEN DORCELIEN
Mr. DORCELIEN. Thank you. First, I would like to apologize
for not bringing any, but needless to say, hi, I'm Steven
Dorcelien. I would like to thank Representative Fitzpatrick and
Representative Evans for having me today, as well as the
Committee and the Enterprise Center.
My journey up to this point has been a few years in the
making, and many hurdles in between. They say it takes a
village to raise a child. I say it takes the same to raise a
small business. I have been lucky enough to have had a village
help raise the artisanal ice cream company I always dreamed of
having, but it hasn't been easy.
My journey started roughly 2 years prior to launching
Bright Yellow Creamery. Before stepping into the
entrepreneurial world, I always envisioned opening my own cafe
as I worked tirelessly for one of the largest law firms in the
world. With a clear goal in mind, and the knowledge of how
tight access to capital would be for new, and what banks would
call ``high-risk'' companies, I accelerated my savings by
picking up a second job on weekends, renting my apartment out
for additional funds, and diverting my retirement contributions
to low interest bank savings. The approach not only came at the
expense of leisure but also the long-term safety net of
retirement planning. But I knew the gamble before I served my
first ice cream cone. I knew that there was a facade around the
level in which major banking institutions would cater to small
businesses.
I quickly found out that despite a near 800 credit score, 2
years worth of savings, a post-graduate business degree, and a
clear and concise business plan, I was simply too ``high-risk''
for traditional institutional lending. The nostalgic image of a
young person going to their neighborhood bank for a loan to
open their first business was met with a harsh reality. Without
years of business returns and substantial collateral, the funds
I had saved or risky online lending, as some of the folks had
mentioned today, would be my only option. I truly bootstrapped
with our first piece of equipment and our mobile vending unit
nearly depleting all I had.
Despite this, I have been fortunate. Contrary to what most
financial advisors would recommend, I have been fortunate being
in this situation that allowed me to pour out my retirement to
jumpstart my dreams, while many don't share these luxuries.
I met quite a few fellow entrepreneurs in the walls of the
Enterprise Center, many of whom have families to provide for,
loved ones to care for, and dreams worth chasing. The money
that they may have used for some form of savings, however, are
used for basic necessities in life. They, like me, aspire to
use their business as a vehicle to vitalize their community and
create jobs.
This shared mindset is one of the reasons why I have used
Philadelphia's Enterprise Center as the backbone of my
business. Their efforts in assisting minority enterprises with
business resources and support is what drew me in to being a
part of their organization, and their food business incubator
gave me the space I needed to make--and I am a little biased,
but some of the best ice cream in the city.
My journey has been viable and certainly worthwhile thus
far, mostly emotionally. Yet, I continue to find myself in the
same shoes as many others in our inability to tap into
traditional bank lending for continued acceleration. The
ability to purchase larger equipment, hire staff, and secure a
brick and-mortar location are natural progressions for any
business with aspirations of growth, but with limited options
to capital, slow growth appears to be the only way for some of
these companies to move forward.
These businesses quickly become motionless as output is
capped with a lack of resources. Without capital to grow,
expansion quickly becomes impossible, growth--job growth
suffers, and communities suffer.
I am also not naive in understanding that money doesn't
grow on trees. We shouldn't expect to get funding solely based
on dreams--solely based on a dream on paper, but as
entrepreneurs, knowing that there are real lending options out
there if we put together a sustainable business is critical to
our success and psyche, not as a safety net if something goes
wrong, but as fuel to help us go faster. Programs like 7(a),
CDC/504, and Microloans provide lending options for small
businesses where there aren't any. Small business owners are
asked to sacrifice almost everything they have today and their
financial future to match their ambitions. I hope the Committee
recognizes that these--I hope the Committee recognizes just how
vital these capital lending programs are to helping these
ambitious entrepreneurs, even if it is with just a half step
forward.
Mr. FITZPATRICK. Okay. Well thank you. I yield myself back
some time to ask a few questions.
I want to start by thanking each one of you again for
coming. Each one of you are incredible, impressive individuals
in your own right, and I can see why Mr. Evans invited you to
testify today. And now that your testimony is a part of the
record, it is now part of the congressional record, which means
you are now permanently part of American history.
So I want to start with a very important question. Dwight
and I sit on the Small Business Committee together, obviously.
We are geographic neighbors. We are also friends. We come from
different political parties, but we share a common view in the
purpose of this hearing today, which is how to incentivize and
help grow underserved populations in the business community, to
include minority-owned businesses, women-owned businesses,
veteran-owned businesses, and underserved geographic segments
of the population.
A lot of times the targets make their way towards places
like New York or Silicon Valley and they miss places like inner
city Philadelphia, and there is plenty of talent here that we
are well aware that is deserving of the support of the federal
government and of the SBA program. So what can Dwight and I
bring back to our Committee, tangible action things that we can
do on our Committee that we can translate into legislation that
he and I can advance through our Committee and through the
House of Representatives that will make it easier for you to do
what you do, and make it easier for the intended target that we
have here to be able to grow and to expand?
And we can start with Ms. Williams.
Ms. WILLIAMS. That is a great question. So I think that a
lot of times, cities like Philadelphia are not necessarily
viewed as having viable opportunities for small--I think we are
sort of glossed over because there may be reputational issues
there, or there is just a perception that, you know, we don't
have the requisite skills or infrastructure that is needed in
order to be able to support small business growth. So I think
to the extent that, you know, you can continue sort of taking
stories back from, you know, the lenders and the community
organizations, the business development organizations that are
on the ground and sort of lifting up things that are working
and showing that there is actually a lot of promise and
opportunity within this market. That, I think, would sort of
help people understand that, you know, there are resources here
and there is a lot of opportunity.
Ms. BENOLIEL. So yeah, the list is long. I think we do
continue to support--and it is important--support and fund some
of the programs that are effective, and the SBA Microloan
Program, the Community Advantage Program that is the equivalent
of 7(a) but for nonprofits, are critical programs, as is the
CDFI fund, which offers more flexible capital to build the
capacity of lending--nonprofit lending organizations primarily
to do the work.
I will also say that it is very important that the support
for organizations--and there is a lot of talk about is there a
lot of overlap with SB--with the Small Business Development
Centers and the Women's Business Development Centers and
Community Development corporations. The need is so great out
there, I would argue that there is not much overlap. We tend to
serve specific geographies or specialize in specific
populations, so I think it behooves us to support all of
those--or we as a country, as taxpayers, to support all those
efforts. I think the guidance is--and the technical assistance
guidance that goes with the capital is so critically important.
Because a loan is just a transaction, and we provide a lot more
than transactions. We are with the--when I say we, it is our
organization and CDFIs like us that are with the business
throughout their lifetime and help them through the--navigate
the ups and downs. And the longer they stay alive, the longer
they survive, the greater the likelihood that they will survive
and grow.
So anything that helps, you know, secure that ground.
Ms. WILLIAMS. Can I just add to Leslie's point? I just want
to pick up on something she said, and I think that credit
enhancements are really important for lenders so, you know, it
is not necessarily always just about making sure that the CDFIs
or the other lenders have the capital that they need, but they
also might need risk mitigation for their own lending as well.
And so a lot of these programs that are, you know, guarantees
or really helping bring down the risk to the lender, that then
allows them to be able to not only provide capital, but also to
be able to afford to pay for some of these technical assistance
and development services, which are quite time consuming and
expensive to provide. And honestly, that is why you see a lot
of traditional banks don't necessarily provide them, because it
is expensive and difficult to provide the level of technical
assistance that a lot of businesses need in order to be
successful. So to the extent that the federal government can
provide, you know, credit enhancements, credit support, and
support those types of programs, that is going to stimulate the
work that CDFIs and other mission-based lenders are able to do
on the ground.
Mr. THOMAS. Let me just respond and give three quick
examples. For us today, we just won our companies out at inner
city 100 fastest growing companies in the United States. We
just came in two on the list of 100 fastest growing companies
in inner city United States. We just came in with sales last
year north of $20 million. We were turned down for an SBA
guaranteed loan I guess about a year and a half ago or so
because of my credit report. Fortunately, PMBDA, the
Pennsylvania Minority Business Development Authority, had lent
us $100,000, okay, so their criteria, they were able to support
us at a key point in our business' development. Later,
fortunately, the West Philadelphia Financial Services
Enterprise was able to lend us $100,000. PMBDA was paid off in
full. We are paying as agreed to West Philadelphia Financial,
and probably not long ago, TEC, the TEC here lent us $200,000.
So the irony of this is that--and these things, these loans
were critical in our company's development that allowed us to
acquire EMSCO Scientific Enterprises for $2-1/2 million, and
the borrowed funds from private investors and others to get us
to the point where we grew as an enterprise earlier on and
throughout. But the irony of it all is that the underwriting
criteria that SBA placed on the bank that was going to lend to
us, they wouldn't do it because of some of the lending
criteria. Even though we had contracts in hands worth millions
of dollars, we had a track record that showed growth, we were
demonstrating profitability in our enterprise, some of the
criteria was, okay, your credit report as an entrepreneur,
which is obviously--as the gentleman here, I took all my money
out of retirement in the earlier years, placed everything and
every dollar I had in our company and ran my credit cards up to
the hilt, but every single dollar was pretty much tied right to
the development of our enterprise.
So one of the things that I see is that other enterprises
have the capability to look at--a board has the capability to
look at a company, look at the holistic aspect of a company and
say according to contracts or other things, we can
collateralize this loan differently or we can do something
innovative. It seems as though even though SBA guarantees
banks, for some of these programs that the underwriting
criteria it is still difficult for the bank to actually do the
loan. So I would suggest, Representative Fitzpatrick, to answer
your question, and for Representative Evans, that you look at
very, very--have someone on your Committee very, very carefully
look at the underwriting criteria and figure out is there any
kind of innovative relaxation or alteration of the underwriting
criteria that can be looked at?
And again, secondly, I just--to answer your question, I
think there are some good programs that these young ladies are
working with and others are working with that simply need to be
communicated. And I think there is a number of individuals out
there that might--could benefit from what does exist, they just
don't know. And it is probably very important to advertise,
whether it is for veterans in your district, minorities, women,
to advertise, okay, on the media that individuals are tuned
into, these programs.
Mr. DORCELIEN. So for me, I think there--I would like to
see more resources put into educating to what I would call two
pulls of hooks. Sort of the small business owners first, and
not only with educating them on lending options that are
available, but also just the basics on how to run a business,
how to read a financial report. I think a lot of the fellow
entrepreneurs right here have many basic questions that they
don't know where to turn to for these sort of resources.
And also, I think that there should be a little more
emphasis and efforts put into educating the students within
this town on the businesses that are out here. I don't
necessarily think that Comcast should be the only company that
folks think about when they see Philly. There are plenty of
viable, really, you know, successful companies, and we have
students from Penn, Drexel, Temple who are leaving town, who we
need to make a better effort on keeping here.
Mr. FITZPATRICK. I yield to my colleague, Mr. Evans.
Mr. EVANS. I would like to sort of follow up and start with
you, Steven, to what the Chairman said. Because you just made a
point, and I want to probe a little bit on your thinking. What
key piece of advice would you share with inspiring small
business owners who seek to convert their hobby into successful
businesses, and is there anything that you would have done
differently, you know, now that you have a chance to sit back
and you have heard all this conversation. If you were to put
yourself today where you were when you started, I am just very
curious what was the hurdle that made you decide that you
want--because you were in a law firm, right?
Mr. DORCELIEN. Sure, right.
Mr. EVANS. And that is a very successful thing, retirement
and all that stuff that goes with it. But you said I am going
to take that plunge.
Mr. DORCELIEN. Yeah. I have been lucky enough to have known
a lot of small business owners who gave me a lot of advice.
What I would have changed most is probably save a little bit
more, and I say that because I have talked to many folks who
dive into sort of any endeavor without much sort of knowledge
or financial backing. And what I see is that they turn to not
only these online lending options, but folks--I am going to say
in their neighborhood or just folks that they know and they
borrow money from, these sort of frivolous characters who
charge them, you know, these high interest rates and put them
in more debt. So they are starting a business with substantial
amount of debt, and I just--you know, that is just a recipe for
disaster.
So myself personally, I would have changed probably saving
years prior, but if I were to talk to someone, I would say
education most of all, and not only that, not only education on
your product, but how to run a business. A lot of folks don't
even know how to use Excel, don't know how to read a financial
report, don't know P&Ls, and stressing the importance of that
is, you know, I go above and beyond to try to stress the
importance of that to anyone I try to talk to, so that is what
I would recommend to folks.
Mr. EVANS. I am going to piggyback a little bit more.
Mr. DORCELIEN. Sure.
Mr. EVANS. You said you know a lot of folks and at some
point, you decided to make that leap.
Mr. DORCELIEN. Yes.
Mr. EVANS. Once you made that leap, did you suddenly say
how do I get back on that--you jumped in that water and then
all of a sudden----
Mr. DORCELIEN. Back to sort of the 9:00 to 5:00?
Mr. EVANS. Yeah, how to get back to----
Mr. DORCELIEN. For me, never.
Mr. EVANS. Okay.
Mr. DORCELIEN. For me--I can't speak for every small
business owner, but once you step out into that world, then you
are fighting for your own dollar, and you know, you are feeding
yourself without having to, you know, go and clock in, punch
in, punch out. There is no sort of better feeling. And I don't
want to be, let's say, romantic about small businesses, the
idea of it, because you know, there are many sleepless nights.
It is super stressful, super hard, but for me personally, just
sort of the mentality that I have, you know, just fighting for
what I love to do has been rewarding.
Mr. EVANS. Leslie, the reason we are conducting this field
hearing is to get a better sense of the needs of the small
business community in the Philadelphia area. What are the top
concerns that you hear from local small businesses regarding
the access to capital? And we just heard Steven and you hear
from your perspective. I mean, what is one or two things that
you hear from----
Ms. BENOLIEL. From--yeah, from the business owners that we
work with, they almost are self-defeating because they sort of
expect, well, a bank is not going to approve me so they don't
even try. So there is that trust issue that I talked about a
little bit in my testimony. They don't know what they don't
know, and I think a lot of it has to do with they don't have
the confidence to get out there and who to turn to to learn
more. The trust thing is a big issue. They don't want to
necessarily go to a bank and they don't necessarily want to
share their business idea.
So how do you resolve that? We need to develop those
relationships and build that trust, and then help them do the
homework that they need to do before they plunge in.
I want to piggyback on the comment that you made, and this
is what we see a lot of with a lot of the aspiring business
owners that come to us for assistance and capital is they are
about to sign that lease. They are about to purchase out a
piece of equipment without really understanding what market
they are going to serve, and if we get them early enough, we
help them do more of that homework before they commit to some
fixed costs that will quickly eat up what existing resources
they have put in from their personal side, and to the extent
that they have to borrow money. I think a lot of it is about
that at that early education and building that trust and
building that relationship, and helping them create more of a
runway before they try and take off and then just----
Mr. EVANS. The Chairman said--I want to piggyback on what
he said. He asked in a very specific way--and I don't want to
put words in your mouth. I assume you say that you think the
existing programs as described, Microloan and others, are
sufficient to meet the needs, because what I heard the Chairman
say, what specifically we could do together. Do I hear you say
supporting those existing programs, or is there something to be
tweaked to what Steven said? I am piggybacking on what he said,
the Chairman.
Ms. BENOLIEL. I will--yes, they do need to be tweaked. I
mean, fundamentally they are good. The intention is good, but
the devil is in the details.
The Small Business Microloan Program has a component to it
that supports the delivery of technical assistance. The way
that is structured is most of that assistance is post-loan
assistance. In other words, I think it--I don't know what the
percentages are, that most of the monies that support that are
after you make the loan, whereas in reality, a lot of the
assistance is prior to getting that borrower, that applicant
ready to take on the loan. But the support isn't there. That
type of thing needs to be relaxed, more flexible, so that we
know what the borrower needs, when they need it. We should not
be held beholden whether it is before or after. That is
certainly one area that needs to be looked at, and I know there
has been a lot of work done with the SBA to try and change that
particular stipulation.
Mr. EVANS. I yield back to the Chairman.
Mr. FITZPATRICK. Just a question for the panel, and I
believe you had testified to this earlier, I think so, that the
current status of minority-owned businesses in Pennsylvania, I
believe by some measures it has increased pretty significantly
as of late. Is that your understanding? Is that the case, and
if so, what do you attribute that to? What is working currently
in the program, because in addition to talking about what we
should improve, we also need to know what is working to know
that we need to bolster those areas as well.
Ms. BENOLIEL. I think some of the factors that are helping
attributing to that increase is that after the recession, there
were not a lot of jobs and a lot of individuals turned to self
employment as a way to create their own job. And some of that
has continued on. I will note, though, that the minority-owned
businesses, while they are increasing at a faster rate, they
tend to stay much smaller, and that is problematic. I think to
the extent that we can support their growth through capital and
the support programs where they can grow and start to hire
employees, we will start to see a real shift in these
communities where employment--unemployment rates have been
persistently high.
So while there is an increase in the number of
establishments, they are very small and they tend to be non-
employer owned. In other words, they have zero employees. So I
think it is really----
Mr. FITZPATRICK. So that is an accepted stat, then, that
they are increasing in number but not necessarily in success?
Ms. BENOLIEL. Right, and size, and success.
Mr. FITZPATRICK. And you think that is because they have
not been targeted for assistance like some other small business
operations?
Ms. BENOLIEL. I think also the type of assistance that is
provided, they don't have the resources, they don't have the
education necessarily. So some of the programs are--the
guarantee programs are--they do have some requirements that you
meet a certain credit score threshold, you have a certain
amount of collateral on hand. So that works for a certain size
of business with a certain asset base, but it is not going to
work with these tiny businesses. They just won't qualify. So we
need to build that pipeline, and what do we need to do to
connect when they are early established and get them to that
point, and that is where there are some real gaps.
Mr. FITZPATRICK. Mr.--is it Dorcelien?
Mr. DORCELIEN. Dorcelien, yes.
Mr. FITZPATRICK. You had mentioned education. Would that be
a suggestion of actually entering into the realm of educational
policy, which is something we also take up in Congress? Not
necessarily specifically to the Small Business Committee, but
when we are developing curriculum and we are funding the
Department of Education and we sort of provide guidance to what
we should be teaching our kids, both in grade school and high
school. Do you think that it is worth our while to address
business-related curriculum to teach the young folks, not just
necessarily here, but across the country, about
entrepreneurship, about risk taking, about various things? Or
are you just referring to education as far as like the
incubators and accelerators which we see popping up a lot,
which are also part of the SBA program, which allow for
experienced business leaders to mentor new and upcoming
entrepreneurs?
Mr. DORCELIEN. Without a doubt, both. There is no harm in,
you know, school-aged kid learning basic accounting, so the
earlier we can start, the better. I live in a reality where a
lot of the folks that I deal with day to day don't have the
basic sort of knowledge on, again, accounting and financial
planning and that sort of nature, so what I mentioned earlier
was just solely focused on those folks. Obviously I would like
to see it start earlier and earlier, but unfortunately, some of
the kids that I have sort of interacted with aren't necessarily
thinking that long-term or thinking that accounting is all that
important when they are in grade school.
So I would love to see it and I would love to see them
focus on it. In a perfect world, you know, they will take it
seriously but I am not sure if that happens all that often, and
a lot of times folks get into these small businesses out of
desperation, whether it is losing a job or bad economy and
whatnot, and they are getting in there with sort of--without
the tools that they really, really need. So I don't know if,
you know, we can attach that sort of educational requirement to
a lending option or something like that, but I think that that
is vital to their success.
Mr. FITZPATRICK. Does anyone else on the panel have any
thoughts on the educational component?
Ms. BENOLIEL. Well I think it is critically important.
Financial literacy is the fundamental--the most fundamental of
that, to integrate that into our educational curriculum. And
role playing, learning by doing, there are lot of--there are a
number of tools out there that have been used in developing
countries where you are not reading something, but you are
actually acting out a village where you can buy and sell and
employ, and it is those sort of things--the tools exist and it
would be wonderful to integrate some of that into our
curricula.
Mr. THOMAS. Yeah, and if I can add that technical
assistance surrounding credit, maintenance of credit, the
importance of how business individuals ought to--can develop
their credit and also avoid--some individuals aren't aware of
what they can do to repair their credit. That is really
critical. As well as someone to provide some technical
assistance on understanding what financial statements are and
the impact of financial statements are also very, very, very
relevant, critical issues, as well as tax implications of
business decisions.
So those probably--those are three that are critical,
understanding how to repair if there is damaged credit, or
maintain--the importance of maintaining quality credit, the
importance of understanding what a balance sheet and income
statement is from at least a simple perspective, and what they
mean to a business, as well as understanding the tax
implications of financial decisions and importance of
maintaining and having a tax professional and having some
understanding of those implications as well in a business are
important up front as well. Yes.
Mr. DORCELIEN. And if I may add one thing. I am not sure if
this reaches sort of the arm of this Committee, but I think
there has to be more efforts in not necessarily stopping, but
educating small businesses on how to avoid sort of lending
from--or receiving money from predatory lenders. I mean, a lot
of times folks will see these, you know, get money fast
commercials or billboards and whatnot, and automatically think
that, you know, it is a simple five percent or it is the same
as a bank lend--bank loan, when it is obviously not.
So I think that--I don't know if it starts with the
education on the side of the small business or, you know, going
after some of these folks who just take advantage of the poor
and uneducated.
Ms. WILLIAMS. I just want to say that I completely agree. I
think that one of the main places where the federal government
can be incredibly useful is by enforcing and creating strong
borrower protections for small business borrowers, and I
mentioned that in my testimony earlier. But you know, they
really don't have the same protections that are in place now
for some of the--when you are trying to get a mortgage or even
now when you are trying to get a pay day loan, and so when you
couple the sort of availability of predatory financial products
with business owners who don't necessarily have good financial
management skills, it is kind of a recipe for disaster and so
making sure that there are strong borrower protections in place
in the small business lending space is key to protecting some
of these borrowers, especially those who have limited
resources, might be the only savings or investment that you
have, you know, it is important to have some guardrails in
place for lenders.
Mr. FITZPATRICK. I was just advised by our member of the
Committee staff that next Thursday we are having a Committee
hearing on online banking, is that right, which might be
relevant to that.
On the educational piece, I just want to ask this as well.
Business education when we grew up is obviously much different
than it probably should be now, learning basic bookkeeping. How
important--because you people operate in this space every day.
How important is technical knowledge, IT-based, computer-based
knowledge inextricably tied to small business start-ups in
minority business enterprises? Is that educational component
necessary, or I guess another way of saying it is are most of
these small business start-ups, do they require that sort of
IT-based knowledge, given sort of the generation we are living
in where so many new products and ideas are based on something
with a genesis in IT, whether it be the product itself or the
ability to drive the product.
Ms. BENOLIEL. I will jump in. Absolutely, but if you look
back well before you were born, maybe not before you were
born--I mean, cash registers changed tremendously. We had wired
phones and--so technology has always been a piece of that. I
think it is a tool, and the tools are changing, and the tools
are changing so in many ways it is cheaper to run a business,
but it is--it can also make it more expensive.
We integrated a lot of technology learning into our
educational programs, because a lot of entrepreneurs don't know
about these tools that can make--allow them to transact
business in a much more cost efficient way. It also allows them
to reach their markets in a much broader way. But what we are
trying to teach them is how do you target your message--so some
of this is through technology tools, but it is--the marketing
is also what has changed tremendously because of technology.
How do you refine your message so that you are reaching the
particular audience you know who is going to have an interest
in your product or service, and that is not necessarily
intuitive for a lot of business owners that are just struggling
to--I need to buy that piece of equipment to make the ice
cream, to sell the ice cream, but they haven't spent a lot of
time on how am I going to get people to come to me to buy my
ice cream? But technology is absolutely critically important,
but it has been there all along because at one point we didn't
use telephones to conduct business and then the telephone came
around.
Mr. DORCELIEN. Yeah, to quickly piggyback, it is critically
important.
What I have seen is that technology obviously has made my
life a lot easier, whether it is Intuit or whether it is the
accounting software or whether it is social media platforms to
market, I mean, there is no better time than now to sort of
open a business with all the tools and resources that are
available. However, there are many folks who sort of don't know
how to use these tools. A lot of the older entrepreneurs I know
don't necessarily know how to use the social media but know to
balance a checkbook, while a lot of the younger folks I know,
know how to use the social media platforms but don't know how
to balance a book. So there's that dynamic. So I think as much
as we can do to sort of educate these folks on the tools that
are available, because I know folks who are still literally
balancing their checkbooks--I mean, not checkbooks, but
whatever they are--balance sheets by paper, and it is easy for
me to say it, but doing it online is so much easier, so much
cleaner. But they just--they don't feel comfortable. So I think
educating on not only the young, but the old as well.
Mr. THOMAS. And my experience has been, you know,
fortunately our organization is technologically very, very
strong in terms of our ability on a larger level to
communicate, but what I have seen is that the technology is
changing so totally rapidly. I guess that is a very good point
that you are raising that it is helpful for someone to have
technological training or someone in there that is going to
stay on top of the times. For instance, Square is a way. I just
went to a nonprofit fundraiser, you know, and I mentioned to a
gentleman that it was a lot easier if he would figure out in 30
minutes how to get someone to help him realize that he can just
take his phone, order Square, and at the door have people use
credit cards, okay? So if there is a fundraiser and you are
showing up, I want to use my credit card. I don't have to go
through the problem of getting my accountant in our office or
CFO or someone to cut a check and go through all this trouble.
I can just show up, here is my credit card, and pay. That is
easy.
So there are a lot of things that are going on today in
terms of purchasing by way of phones, and these applications
that are just changing so rapidly and you can have money in
your bank account like that that entrepreneurs need to be aware
of, and it is going to continue to change. So whoever is
involved in this process has got to be somebody who is pretty
dynamic that can stay on top of it. But that is another area of
technical assistance that is going to be required in the
evolving business world.
Mr. DORCELIEN. One more thing, sorry. But I also don't
think that technology has to be the sort of end all, be all for
running a business. I think as a small business owner, we wear
many hats. We do it all. We are IT, we are accounting, we are
PR, we are everything. But I think connecting sort of the
smaller businesses with, for instance, with high school kids
and whatnot, so if I need a marketing person, maybe I can get a
high school kid to do some marketing stuff for some intern
credit or something like that. I think connecting those dots
are vital, because folks aren't often thinking about that. So
that is just something that benefits both parties.
Mr. FITZPATRICK. Mr. Evans?
Mr. EVANS. One last thing. One thing I haven't heard--I
only heard you mention it is the ``t'' word, taxes. And
obviously we are talking about small business access supporting
community and economic development. And you know there is a
large debate about tax reform. Tax reform, tax cuts depends on
where you sit and where you talk about it, but you know, I
haven't heard in terms of that--in terms of the equation. Talk
to me a little bit about the whole tax issue, because obviously
you are talking about the federal government. That is a debate
that is going on right now. Any comments on that?
Ms. BENOLIEL. Okay, I will comment, and I will comment from
the perspective of the constituents that we typically serve.
Mr. EVANS. Go ahead.
Ms. BENOLIEL. They may say taxes are owners' problems, but
most of our clients are in that early emerging stage, and they
are not generating any profits to be taxed. So that--it is not
the most critical----
Mr. EVANS. Not an issue.
Ms. BENOLIEL. --issue, even though it is part of the list.
It tends to--when you look at surveys that the Fed has done,
they do a small business survey. Taxes usually fall among
fourth or fifth out of a list of 10, so it is usually--not that
it isn't an issue, but it is not one of the critical issues.
Mr. THOMAS. And let me comment, and what is not mentioned--
I started my career with Pricewaterhouse as an auditor, and I
guess for 10 years one of our expertises in my accounting firm
was taxation for small businesses. And what Leslie states is
very important also, and that is a number--when you all talk on
Capitol Hill about small businesses and taxation of
enterprises, oftentimes there are larger, more established
``small businesses'' such as ours, because a small business is
almost anything that is not a major business.
So that is an issue when you start to make money and you
have profit. That is a major issue. On the flip side, people
talk about writing off for taxes. Taxes don't mean a darn thing
if you have losses, okay, in a sense, or you are not making a
profit because then you are not necessarily sharing. So it is
really a mixed bag.
Now I think on the federal level--on the city level it is
very relevant, very, very relevant on a city level because the
city has its tax on gross receipts whether you make a profit or
not, and they are trying to work with that. That is a real
impediment to smaller business enterprises. Some of the larger
businesses are going to probably, quite frankly--I think the
tax code--let me speak very honestly--is dedicated. The changes
that we are talking about are going to be directed to support
individuals that are making relevantly significant amounts of
money, either personally where they have 250, 300, 400, 500,000
up in revenue that is coming to them that they have the--they
are going to get a tax break on versus those that are in the
middle who probably--the 100,000, 70,000, 40, 50, $60,000 a
year individuals are going to wind up suffering. So--and quite
frankly for businesses, businesses had a capability to write
more things off from a tax perspective, quite frankly.
So I would just say that when it comes to successful larger
small businesses and to really the mega businesses, they pretty
much can afford to pay the tax burden that exists, okay? If
there is going to be any kind of tax considerations, it really
needs to be some consideration for those that are, let's say,
the really micro--the much smaller businesses. And if we take
away some of the things like state tax deductions and city tax
deductions and things of that nature, I think it is going to
hurt those enterprises or those small business people who are
generating less than $100,000 a year, where most are.
Mr. DORCELIEN. And just lastly, I fully agree with the
larger companies being able to afford and pay the tax burdens,
while for me--to sort of go back to that education aspect of
it, that smaller businesses don't necessarily know about the
benefits that they have in deductibles, options that they have.
A lot of folks don't know that, you know. Between their start-
up costs, to even less known things like mileage and whatnot,
they aren't aware that these can be deducted, and a lot of
folks are just going to, you know, their neighborhood--I don't
want to call out any companies by name, but like, you know, the
quick tax turnarounds for, you know, a certain amount of money.
They can't afford, necessarily, a CPA to help them out. So a
lot of folks are taking these tax, you know, returns on their
own and not going to a professional because they simply can't
afford a professional. So I think more education behind how the
taxes can, I guess, help them would be crucial.
Ms. WILLIAMS. I just want to add sort of a different
perspective on the tax issue which is related to the New
Markets Tax Credit Program, which attracts private sector
investors to invest in low income and underserved businesses,
and you know, there is a little bit of concern right now that a
reduction in the corporate tax rate would have a negative
impact on the demand for those types of New Markets Tax Credit,
which could definitely have an impact on the sort of
availability of capital from those type of investors if, you
know, there is not necessarily a need for them to go seek out
tax credits like New Markets, which are a little bit
complicated, a little bit sort of more difficult to implement.
If they are already seeing a reduction in corporate tax rate,
it just might mean that there is not necessarily as much of a
market for these types of credits that are really being used,
you know, for underserved businesses.
Mr. FITZPATRICK. Anything else, Mr. Evans?
Mr. EVANS. That is good, Mr. Chairman.
Mr. FITZPATRICK. Okay. Well I just want to offer my sincere
thanks to each one of you for giving up your time today. You
know, everything you say is part of the record. We actually can
get this printed out and myself and my colleague, Mr. Evans,
are going to review everything that each one of you have said.
We are going to try to digest it and figure out what we can
take as far as action items back to our Nation's capital, and
what we can do to address those things. We will discuss it with
our fellow Committee members and the end goal of these hearings
is not only to--for us to hear real world examples of people
that are living and breathing these things every day, as you
are. That is how you benefit myself and Mr. Evans, but to
actually turn it into action.
So I personally have taken notes here, and I know we are
going to pull the transcript and review that. And beyond
today's testimony, if you ever have anything to offer to our
Committee, you are the best resource we can have on that
Committee, and therefore, you are the best resource for the
Small Business Administration and the best resource for
Congress and for the country, because you are the people that
are seeing the struggles, you are seeing the regulatory burdens
or the tax inequalities or unfairness in the system, and that
is how we can learn about what we need to fix. So I just want
to thank each one of you for coming out. I want to thank Mr.
Evans for inviting me into his beautiful district, and I ask
unanimous consent that members have 5 legislative days to
submit statements and supporting materials for the record.
Without objection, so ordered.
We are adjourned. Thank you.
[Whereupon, at 4:12 p.m., the Committee was adjourned.]
A P P E N D I X
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT
``Small Business Capital Access: Supporting Community and
Economic Development''
The Committee on Small Business
2:30 P.M. on Friday, October 20, 2017
Studio C at The Enterprise Center
4548 Market Street, Philadelphia, PA 19139
Steven Dorcelien
Owner
Bright Yellow Creamery
They say it takes a village to raise a child. I say it
takes the same to raise a small business. I've been lucky
enough to have had a village help raise the artisanal ice cream
company I always dreamed of having, but it hasn't been easy.
My journey started roughly two years prior to launching
Bright Yellow Creamery in the Spring of 2017. Before stepping
into the entrepreneurial world, I always envisioned opening my
own cafe as I worked tirelessly for one of the largest law
firms in the world. With a clear goal in mind, and the
knowledge of how tight access to capital would be for new--and
what banks would call ``high-risk''--companies, I accelerated
by savings by picking up a second job on weekends, renting my
apartment for additional funds, and diverting my retirement
contributions to low-interest bank savings. This meticulous
approach not only came at the expense of leisure but also the
long-term safety net of retirement planning.
But I knew the gamble before I served my first ice cream
cone.
I knew that there was a facade around the level in which
major banking institutions would cater to small businesses. I
quickly found out that despite a near 800 credit score, two
years worth of savings, a post-graduate business degree, and a
clear and concise business plan, I was simply too ``high-risk''
for traditional institutional lending. The nostalgic image of a
young person going to their neighborhood bank for a loan to
open their first business was met with a harsh reality. Without
years of business returns and substantial collateral, the funds
I had saved would be my only option. I quickly found myself
pouring out years of savings to jumpstart my dreams. Bright
Yellow Creamery was truly bootstrapped with our first piece of
commercial equipment and a mobile vending unit nearly depleting
all I had.
With equipment and a framework for the business in place, I
found myself, like many other first time entrepreneurs, at
Philadelphia's Enterprise Center. Their efforts in assisting
minority enterprises with business resources and support is
what drew me in. Under their guidance, my business was born out
of their food business incubator, The Dorrance H. Hamilton
Center for Culinary Enterprises. Seven months later, the
savings initially poured into the business has returned in
earnings and the equipment purchased carries a zero balance.
The journey has been viable and certainly worthwhile thus far,
both financially and emotionally. Yet, I continue to find
myself in the same shoes as many others in our inability to tap
into bank lending for continued acceleration. The ability to
purchase larger equipment, hire staff, and secure a brick-and-
mortar location are natural progressions of any business with
aspirations of growth but, with limited options to capital,
painstakingly slow growth appear to be the only way for some to
continue their dreams. These businesses can quickly become
stagnant as output is capped with a lack of resources. Without
capital to grow, expansion becomes near impossible, job growth
suffers, and communities suffer.
I've been fortunate in my ability to save in the way I did.
With the support of friends. I used my residence as a means of
generating revenue while I stayed elsewhere. I worked for
family members in part-time, flexible roles. And am, somewhat,
young enough to sacrifice a few years of retirement savings for
short-term gain. Many others don't have these luxuries. The
peers I know from the Enterprise Center are chasing their
dreams with families to provide for and loved ones to care for.
The funds that may go into some form of savings are used for
basic necessities in life. They, like me, aspire to use their
business as a vehicle to revitalize a community and create
jobs. Programs like 7(a), CDC/504, and Microloan provide
lending options for small businesses where they aren't any.
Often, small business owners are asked to sacrifice almost
everything they have today and in the future to match their
ambitions. I hope the Committee recognizes just how vital these
capital access programs are to helping those ambitious
entrepreneurs, even if it's with just a half step forward.
[all]