[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

                               __________

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            Small Business Committee Document Number 115-042
              Available via the GPO Website: www.fdsys.gov
                   
                   
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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]