[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
JOB CREATION, COMPETITION, AND
SMALL BUSINESS' ROLE IN THE UNITED STATES ECONOMY
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 14, 2018
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-054
Available via the GPO Website: www.fdsys.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
26-561 WASHINGTON : 2018
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
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
JOHN CURTIS, Utah
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. Steve Chabot................................................ 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. Steven H. Strongin, Head, Global Investment Research
Division, Goldman Sachs, New York, NY.......................... 4
Mr. JR Foster, President and CEO, Robert Louis Group, Cincinnati,
OH............................................................. 6
Ms. Jessica Johnson-Cope, President, Johnson Security Bureau,
Inc., Bronx, NY................................................ 7
APPENDIX
Prepared Statements:
Mr. Steven H. Strongin, Head, Global Investment Research
Division, Goldman Sachs, New York, NY...................... 25
Mr. JR Foster, President and CEO, Robert Louis Group,
Cincinnati, OH............................................. 131
Ms. Jessica Johnson-Cope, President, Johnson Security Bureau,
Inc., Bronx, NY............................................ 133
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
JOB CREATION, COMPETITION, AND SMALL BUSINESS' ROLE IN THE UNITED
STATES ECONOMY
----------
WEDNESDAY, FEBRUARY 14, 2018
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:02 a.m., in Room
2360, Rayburn House Office Building, Hon. Steve Chabot
[chairman of the Committee] presiding.
Present: Representatives Chabot, Radewagen, Knight, Kelly,
Blum, Comer, Gonzalez-Colon, Fitzpatrick, Marshall, Norman,
Curtis, Velazquez, Evans, Murphy, Lawson, Espaillat, Schneider,
and Adams.
Chairman CHABOT. The Committee will come back to order.
We will now shift to a hearing on the Role of Small
Businesses in the American Economy. And we want to thank our
witnesses for being here today. And we will get to you very
shortly.
The American economy, I believe, is poised for great
things. Significant growth is occurring across the Nation, and
Americans, and particularly entrepreneurs, are finally, once
again, optimistic about the future of business. In fact, the
National Federation of Independent Optimism Index of their
members recently reached one of the strongest readings in the
45-year history of the survey, and it is just getting started.
Congress and the President have worked together to end the
oppressive regulatory burden of the past several years, and the
proof, as they say, is in the pudding. Multinational
corporations, like Apple and Chrysler and IBM are again
investing heavily in American manufacturing and American jobs,
giving the burgeoning economy an enormous boost.
All that good news comes even before we consider the effect
of the significant pro-growth policies of the tax cuts we
passed at the end of last year. Again, American companies are
stepping up and investing in their infrastructure and their
workforce.
Because of the tax overhaul, over $3 billion in bonuses
have been given to employees at the largest companies, like
AT&T, American Airlines, Fifth Third Bank, and on and on. But
it is working for small firms, too, like the $1,000 bonuses
given to Sheffer Corporation's 126 employees in Blue Ash, Ohio,
next door to my district.
But as always, we can do more. Much more. Our small
businesses, the true engines of our economy, unfortunately,
continue to experience a rigid lending environment. While large
companies can turn to debt and equity markets to raise capital,
small businesses all over the country regularly turn to
conventional bank lending to finance their projects, and at
times, small firms are unable to access conventional lending so
they have nowhere to turn for the capital to grow their
businesses and create jobs.
Making access to capital easier for small firms has been a
priority of this Committee since day one. Recent research
conducted by Goldman Sachs has shown that while some areas of
the country have experienced a falling of sorts in credit
markets, the same cannot be said for largely urban and
predominately rural areas of our country. For a rising tide to
truly raise all boats, we must continue to find ways to help
small businesses in those areas.
We have an excellent panel of policy experts and small
business owners to explain this new research and offer
suggestions as to what the Federal Government can do better.
That includes mimicking some of the successes found in Goldman
Sachs 10,000 Small Businesses Initiative that has helped over
7,000 small firms in all 50 states get started or expand.
I am looking forward, as I know we all are, to this
discussion this morning.
And I would now like to yield to the ranking member, Ms.
Velazquez, for her opening statement.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. And thank you for
holding this timely hearing.
Today, we will touch on one of the central issues for small
business formation and growth, namely capital access. In recent
years, we have seen a decline in entrepreneurship, with the low
point arriving in 2014, when just 450,000 businesses were
started. This reduction in business formation can be attributed
to a number of factors, but the availability of affordable
credit has certainly been one of the reasons.
Lack of capital remains an ongoing problem for many
businesses, regardless of their size or location. However, this
issue is particularly pronounced for women and minorities, even
though they are the fastest growing groups of entrepreneurs. We
are potentially losing out on millions of jobs that could be
created by these firms, and if lending shrinks due to recent
market volatility, it will be much worse.
That is why today's hearing is so timely, so we can learn
about private sector initiatives that could complement our
government efforts to grow our nation's entrepreneurial sector.
Entrepreneurial development initiatives prove to be critical by
providing counseling and training resources to help small
businesses start, grow, and compete in the market.
While the Small Business Administration and other federal
agencies provide support in these crucial areas, private sector
alternatives often have the capacity for filling in gaps.
One such initiative is the 10,000 Small Businesses program,
a public-private partnership designed to promote growth and job
creation potential for small business owners. Efforts like this
one are critical in helping small business owners who strive to
grow and create meaningful impact in their communities. By
leveraging the ability of community development, financial
institutions, this program has reached businesses in every
state, as well as Puerto Rico and D.C.
CDFIs and the Treasury's CDFI Fund help small businesses
access credit opportunities when traditional financial
institutions fail to lend.
With accessible rates and transparent terms, they help
increase the likelihood of a small firm's success. In fiscal
year 2016 alone, CDFIs made over 39,000 loans or investments
totaling over $3.6 billion and financed more than 11,000 small
businesses.
This hearing gives us the opportunity to hear from business
founders regarding their experiences in starting and running a
business and research showing the challenges they overcame to
become successful. Hearing your experiences and stories helps
the committee make better decisions as we work to foster an
environment conducive to small business growth.
With that, I want to thank all the witnesses for their
participation and insights. And welcome. I really appreciate
that you are here this morning.
I thank the chairman, and I yield back.
Chairman CHABOT. Thank you very much. The gentlelady yields
back.
And if Committee members have opening statements prepared,
I would ask that they be submitted for the record.
And I will take just a moment to explain our timing lights.
The rules are very simple. You get 5 minutes and the lights
assist you in that. The green light will be on for 4 minutes,
and then the yellow light will come on to let you know you have
got a minute to wrap up. And then the red light will come on
and you are supposed to wrap up then. And we ask you to kind of
stay within that. If you go a little long we will allow you to
have a little extra time, but try to stay within if at all
possible.
And I would now like to introduce our very distinguished
panel here this morning.
Our first witness is Steven Strongin, head of Global
Investment Research at Goldman Sachs. He is also a member of
their Management Committee, Firm-wide Client and Business
Standards Committee, and Firm-wide Reputational Risk Committee.
Prior to joining the firm, he spent 12 years at the Federal
Reserve Bank of Chicago, most recently, as the director of
Monetary Policy Research. He earned his undergraduate and
graduate degrees in Economics from the University of Chicago,
and a graduate degree from Northwestern University's Kellogg
School of Management. And we thank you for being here this
morning, Mr. Strongin.
Our second witness is J.R. Foster, President and CEO of the
Robert Louis Group, or RLG, in America's greatest city,
Cincinnati, Ohio. I happen to represent Cincinnati. RLG is a
full service commercial real estate brokerage and facilities
management firm focused on representing the real estate and
facility needs of companies, governmental agencies, nonprofits,
and investors. RLG's integrated services allow them to achieve
optimum results across their clients' entire real estate
portfolio. While headquartered in Cincinnati, they have
additional offices in several lesser cities, like Chicago, and
Columbus, Ohio. Just kidding. And we thank you for your time
here this morning. They are all great cities. Not as good as
Cincinnati, but they are great cities.
And I would now yield to the ranking member for
introduction of the next witness. And she comes from a pretty
special city, too.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
It is my pleasure to introduce Ms. Jessica Johnson-Cope,
President and Principal of Johnson Security based in the Bronx,
New York. Johnson Security is a third-generation, family-owned
firm, which has been recognized as one of the 5,000 fastest
growing private companies in America for 3 years, and the 2013
Black Enterprise Family Business of the Year. Ms. Johnson-Cope
earned a Bachelor of Science in Industrial Engineering from
Northwestern University, and a master's degree in Market
Research from the University of Georgia. She is also a graduate
of the inaugural class of the Goldman Sachs 10,000 Small
Businesses Initiative. Thank you for joining us, and I look
forward to your testimony. Thank you.
Chairman CHABOT. Thank you very much.
Mr. Strongin, you are recognized for 5 minutes.
STATEMENTS OF STEVEN H. STRONGIN, HEAD, GLOBAL INVESTMENT
RESEARCH DIVISION, GOLDMAN SACHS; JR FOSTER, PRESIDENT AND CEO,
ROBERT LOUIS GROUP CINCINNATI; JESSICA JOHNSON-COPE, PRESIDENT,
JOHNSON SECURITY BUREAU, INC.
STATEMENT OF STEVEN H. STRONGIN
Mr. STRONGIN. Thank you, Chairman Chabot, and Ranking
Member Velazquez. It is a pleasure to be here and to get a
chance to talk about small businesses.
You very aptly summarized what I think is the core economic
issue we face in small businesses, which has been slow growth
and access to credit. When you look at the data, it is stark.
Given the most recent data we have, for the first time in
modern times, in fact, before we had data, small businesses
today are actually in smaller numbers than they were at the
beginning of the recession. So we have actually not had a net
increase in small businesses over this time period.
This coincides with the 10,000 Small Businesses Summit. We
use that as an opportunity to talk to the small businesses, to
better understand what the challenges were, and to try to
construct what would be a practical way of addressing those
issues.
In the process of doing that, I think there are two broad
issues which I think this Committee is in position to think
about addressing. The first is the sheer volume of rules and
regulations faced by small businesses. When you are a large
business, you have large groups of people who figure out what
the rules are, who track them down, and help you comply with
them. When you are a small business that falls to the CEO. That
is an enormous challenge that in many cases has changed growth
plans, has changed the ability to expand into new regions, has
changed the actual business models of these firms.
When you talk to small businesses, and we did at length and
surveyed them, the number one request you hear from them is
essentially a central registry of what all the rules and
regulations are that they need to deal with, whether it be
state or local. I think it would also probably end up being the
greatest database of red tape in the history of mankind. But I
think it would actually help people run their businesses in a
much more coherent way.
The second thing that comes out of that, and I will come a
little bit quickly to the causes of this, is a more centralized
way of meeting certification standards and examinations. One of
the things I think that Congress has done well over the last 20
or 30 years as the regulatory burdens have increased, is they
have sought to exempt small businesses. But one of the problems
is, when you actually talk to small business, is those
exemptions have not worked, and in some cases have actually
added to the burdens.
And the reason for that comes in two flavors. The first is
what I would call indirect regulation. If you want to deal with
a large corporation, they become responsible for making sure
that their contractors meet all the rules. So instead of a
small business having to get certified once for money
laundering, Foreign Corrupt Practices Act, discrimination,
small business statutes, they end up having to certify with
every single one of their customers that they meet the
standards necessary for that customer, which turn out to be the
same for everyone because it is the same Federal rules that are
being required to be met. So the exemption turns what would
have been one form into 50 or 100 forms that are essentially
identical and all need to be processed. Right? And so what
requires essentially is a more central repository of meeting
those requirements and that serving as the exemption or safe
harbors for their customers when they hire them that they do
not become responsible for every bit of their behavior. That
indirect regulation has ended up being a major issues for these
firms, sometimes in ways that are almost impossible to
overcome.
The other broad category is what I would call accidental
regulation. Both the ranking member and the chairman brought up
quite correctly that access to capital is a key issue. Our
survey, for example, indicated that for the 10,000 Small
Businesses, if you could double the amount of financing they
had they would increase employment by 30 percent. The economic
consequence of that is incredible, particularly when you think
about the fact that half of employment in the United States is
in small businesses.
Why do they not have that access to capital? What are the
issues in access to capital? And I think this is where the
conversation often becomes confused. The reality of small
businesses is that most of the lending, 70 percent in the case
of 10,000 Small Businesses, is based on FICO scores, which
essentially means it is consumer credit, not business credit.
And so that as we think about new business credit programs we
miss 70 percent of the issue, particularly when you are
thinking about startups, which both the chairman and ranking
member brought up. That almost inevitably has to do with
mortgages, second mortgages, credit cards, personal lending,
not with special lending programs.
So as we think about the regulatory burdens, right, a lot
of them come out of the consumer programs and not out of the
business programs, and so it takes a much broader look at the
issues to understand what the real hurdles are to running a
small business, founding a small business, and growing a small
business today. As you will hear from the business owners
themselves, the amount of creativity needed to find financing
means they are looking at every possible channel. And when you
look at actual credit channels, what that means in essence is
that the consumer channels and the small business channels and
small lending channels pick up the dominant amount of that
financing because they are the big sources of funds.
And so as we think about really addressing the issues, it
is centralizing and simplifying the processes, and it is
actually understanding which credit channels they use and
addressing those that I think would provide the most impact and
provide the most relief and the greatest growth in small
business.
Thank you very much.
Chairman CHABOT. Thank you very much.
Mr. Foster, you are recognized for 5 minutes.
STATEMENT OF J.R. FOSTER
Mr. FOSTER. Mr. Chairman, members of the Committee, thank
you for the opportunity to testify today.
This is a big moment for my family and myself. My parents
have been married 56 years and counting. They never graduated
past the tenth grade in high school. My father spent 46 years
working in a transmission plant in Cincinnati, Ohio for General
Motors in a small town called Norwood. From his backbreaking
work that he was able to put forth at General Motors, he sent
me to Cincinnati Country Day High School, a college prep high
school, as well as DePaul University in Greencastle, Indiana.
As a first generation college graduate and growing up in a
blue collar neighborhood in Cincinnati on the west side of
Cincinnati, I know a little bit about hard work and overcoming
the odds. They say that to who much is given, much is required,
and I am honored to be here.
My name is J.R. Foster, and I am the CEO and founding
member of Robert Louis Capital and Robert Louis Group based in
Cincinnati, Ohio. Of the thousands of commercial real estate
brokerage and investment banking firms in the country, I am a
rarity among the bunch. My company is one of the only minority-
owned and minority-certified commercial real estate brokerage,
facility management, and access to capital firms in the
country.
Our approach is twofold. We help corporations, government
agencies, and nonprofits with their real estate brokerage and
facility management needs, and we do so in a way that also can
help them secure minority spend goals. Secondly, we are leading
the charge, actually leading the charge in helping small
business owners gain access to capital. Last year alone we
helped over 300 businesses secure $345 million in capital
ranging from SBA loans to conventional and alternative debt.
I am here today because I am one of the recent graduates of
the Goldman Sachs 10,000 Small Businesses program, and I am
proud to represent my fellow alumni, the program, and the small
business owners who share my same story. I personally knew I
had the drive and the determination to start my own company so
I did so. When I was 31 years old, my best friend, now business
partner and I, left two well-paying jobs on Wall Street to
start our own company. What I did not realize is all the
hurdles that come with being a small business owner, and a
minority-business owner at that. You take a leap of faith
without knowing the underlying pitfalls that derail, frustrate,
and leave some of the best minds in America for broke. By our
second year in business, I found myself lost in a sea of
managing employees; customers; contractors; payroll; marketing,
which I know nothing about; and the like.
I needed something more than my corporate career had taught
me. By chance, I was introduced to the Goldman Sachs 10,000
Small Businesses program which we affectionately call 10KSB.
After a year of great coursework, excellent classroom
engagement, and a dialogue with over 100-plus small business
owners, my cohort, I was able to start excelling at areas where
I fell short. I also discovered that our local Chamber of
Commerce in Cincinnati and other minority organizations like
the Urban League and African-American Chamber were also great
in helping build capacity of small business owners.
After graduating the program, over the past three years, we
have increased our employee count. We were able to secure
additional financing for growth, and our revenue has gone from
$250,000 in 2014 to well over $2 million at the end of 2017,
basically doubling year after year.
What I ask of the chairman and the Committee is to help
level the playing field for small business owners, and minority
business owners at that. Having spent the last two days of the
10KSB Summit here in D.C., I have continued to hear access to
capital on the minds of my fellow alumni. Far too often,
business owners are scraping together funds using high-interest
credit cards and also taking on private capital partners that
ultimately put them in the golden handcuffs. Even with SBA
lending, having already tarnished their credit, overleveraged
themselves with debt, they quickly become unable to qualify for
government-backed loans, and I see this every day because we
are on the frontlines of helping clients secure capital. So I
ask that you consider helping a business like mine create a
credit-friendly, national lending platform and ecosystem that
business owners can have a centralized place to secure capital
and where banks compete for their business.
Thank you for your time today. It has been a pleasure
speaking with you, and I am honored to be here.
Chairman CHABOT. Thank you very much. Appreciate your
testimony.
Ms. Johnson-Cope, you are recognized for 5 minutes.
STATEMENT OF JESSICA JOHNSON-COPE
Ms. JOHNSON-COPE. Mr. Chairman and members of the
Committee, thank you for your time today. I am reminded of the
days when I walked the halls of this building as a
congressional page.
I am Jessica Johnson-Cope, president and CEO of Johnson
Security Bureau based in the Bronx, New York. I am also the
vice president of the Soap Box located in Brooklyn, New York.
Johnson Security provides professional security guard and
armored car services. Since 1962, three generations of my
family have helped to protect the people, places, and valuable
property around New York City. My grandparents left their home
in the segregated South in search of opportunity. To them and
many others, small business ownership represented those
opportunities, the chance to live the American Dream, and to
provide for their family.
I am the beneficiary of their vision and their hard work.
For the past 10 years, I have led Johnson Security. Shortly
after I took over the business due to the untimely passing of
my father, I applied to the Goldman Sachs 10,000 Small
Businesses program with hopes of keeping our doors open long
enough to celebrate our 50th anniversary. Even though I had
watched my father and grandmother make significant business
milestones, I did not feel like I was efficiently equipped to
help Johnson Security reach its full potential. 10,000 Small
Businesses provided me with the tools I needed--executive
business education, networking and peer learning opportunities
with my peers in the program, business advisory services, and
preparation to obtain financing.
Since completing the program, Johnson Security has created
over 150 jobs. We have access to capital. We have done business
with at least seven other program alumni. Additionally, we are
preparing for the next phase of innovation and job creation.
Based on the success of Johnson Security and using lessons
from 10,000 Small Businesses, my husband and I started a second
business, the Soap Box, where we are able to live out his
family's entrepreneurial vision. The Soap Box provides premium
laundry services in the Bedford-Stuyvesant neighborhood where
we live. The Soap Box not only allows us to save our clients
time, it allows us to employ seven people and to transform our
community while collaborating with other small businesses. Our
work comes with its challenges though as we try to navigate
burdensome regulations. Nonetheless, we are determined to
continue to grow.
The impact of the 10,000 Small Businesses program is
evidenced not only in the impact that I have shared with you
but also in the outcome that the 2,200-plus program alumni who
have gathered here in D.C. have witnessed in addition to the
research that Steve just presented.
My peers and I face many challenges as we grow our
business. The current business environment makes it
increasingly difficult to businesses like ours to survive, let
alone to grow. One challenge is finding capable talent. In
addition to leading my family business, I serve on a New York
State Workforce Investment Board. In this capacity, I hear
about candidates who lack the technical skills that we need as
our industries advance. Additionally, I hear of the number of
people coming into the workforce without key skills that
include communication and critical thinking skills, basic soft
skills. I know of countless small business owners who would
welcome workforce development investment from the government.
By providing small businesses with better information on, and
access to WIOA initiatives, you can better make a significant
difference in addressing some of the workforce disadvantages
small businesses like ours face
Another challenge is in obtaining capital, as you have
heard. It can be even more difficult for minorities and women-
owned businesses. Johnson Security received financing and we
have been able to use that money to grow. You can ensure that
the Nation's businesses can effectively utilize the SBA
programs that are intended to help businesses like ours.
Federal contracting is yet one additional area where you
can remove some of the barriers to small business success.
Johnson Security has leveraged many of the small business
Federal business programs to become a contractor. However, we
know of many agencies that have fallen short of their
subcontracting goals. You can put stronger accountability
measures in place to ensure that more contracts are awarded to
our Nation's qualified small businesses.
In closing, the Goldman Sachs 10,000 Small Businesses
program has been instrumental in the growth not only of Johnson
Security Bureau, but the Soap Box, and over 6,700 companies
across this Nation. I encourage you to promote the program to
viable firms in our districts and to watch and see the impact
that that will have on our economy. I also implore you to
consider making changes to some of the regulations that are
hindering small business growth.
Mr. Chairman, I thank you for your time and attention this
morning. I look forward to the work this Committee will do to
continue to help make our Nation's small businesses big.
Chairman CHABOT. Thank you very much. Appreciate it.
And I recognize myself for 5 minutes to begin the
questioning. And I will begin with you, Mr. Strongin.
On a macroeconomic level, have we been doing the right
things over the past year with eliminating some of the
regulatory burdens and lowering taxes as was done recently in
the tax bill? Would you expect to see positive trends in small
business formation in the near future? And how long does it
take to have those incentives reach the person wanting to start
a business?
Mr. STRONGIN. I think there are two aspects to that. It is
certainly the right direction. I think when you look at the
sheer volume of rules, one of the small business owners used
the phrase, ``the death of 1,000 cuts.''
Chairman CHABOT. Would you mind pulling the mic a little
closer? We have got some competition at the door.
Mr. STRONGIN. No problem. One of the small business owners
used the phrase, ``the death of 1,000 cuts.'' And I am afraid,
you know, when you cut that by 10 percent, it is still not that
pleasant. And so I think as you think about really changing the
burden, you actually have to think about things like safe
harbors and common certifications that will cut through
hundreds, if not thousands of rules in one step, rather than,
you know, surgically removing bits and pieces. And so I think
that broadly it will help.
I also think that when you look at the consumer and
financing side, that the changes there have actually so far
been quite modest. You know, there is certainly intent, whether
it be with the Fed or the CFIB to change the rules, but when
you look at the academic work, it has been very clear that
small business lending and consumer lending and particularly
startup financing has been one of the areas in which the
regulators have put the greatest burden on capital standards,
and particularly, and I think this is something that gets
missed, when you look at business formation in low-income and
rural areas where FICO scores tend to be low, those burdens are
extraordinarily high. And so I really do think it will be
important to look very carefully at the lending standards that
were developed post-financial crisis to give them a greater
friendliness to lending for the purposes of small business
startups and small business operations.
Chairman CHABOT. Okay. Thank you very much.
And could you, I will just follow up with a question, do
you have an opinion relative to, say, Dodd-Frank, what effect
that has had on access to capital with small businesses across
the country?
Mr. STRONGIN. One of the difficulties in analyzing Dodd-
Frank is that when it generates--I think the current count is
23,000 pages at the Federal Register--that it becomes a little
difficult to separate out one item from the next.
Chairman CHABOT. Yeah.
Mr. STRONGIN. The way we have approached this question is
looking at the cumulative impact. And when you look at the
cumulative impact, we are roughly 700,000 small businesses
short of where you would have been under pre-financial crisis
rules. That is a great number of small businesses. So that
financial burden looks quite high. When you look also at what I
would call the leap phase of small businesses, when they go
from small to not small, that has equally been hit in the
numbers. And the number of public companies has been falling
because those are the two places where it is the greatest leap
of faith in the process. And when you create a system that is
anti-risk, it is the moments of that leap of faith that are, of
course, going to get hit the worst.
Chairman CHABOT. Okay. Thank you very much.
Mr. Foster and Ms. Johnson-Cope, I will ask you both, if
you could, could you tell us how the 10,000 Small Businesses
program has directly impacted you all, and do you think this is
something that could be replicated in other parts of the
country?
Mr. FOSTER. For myself and for our firm, it has helped
tremendously. I mean, the Goldman Sachs 10,000 Small Businesses
program has allowed us to leverage my alumni that are in the
room. Right? As a small business, you do not really have the
opportunity to go out and start a board of directors. And so
being able to leverage the folks that are in my cohort who have
like-minded experiences that I have gone through, it is more of
a sounding board of folks that have reached those same kind of
hurdles and trying to get over those hurdles. So for us, we
have been able to leverage that community that Goldman Sachs
provides, as well as I think the program should be replicated
and produced across the country.
Chairman CHABOT. Thank you very much.
Ms. Johnson-Cope?
Ms. JOHNSON-COPE. As a graduate of the inaugural class in
New York City, we had the opportunity not just to build
relationships with the community college partner, LaGuardia
Community College, with the other program participants, but
also with members of the administration at Goldman Sachs and
members of the city administration in New York City. So the
program represented the best of public-private partnership. And
instead of giving us a golden ticket, it gave us the
opportunity to learn how to navigate corporate, private sector
business opportunities for us to grow, as well as how to take
advantage of some of the publicly available resources. So just
bringing better attention to what resources were available to
us, that has helped tremendously, and then the relationships
have really put us over the top.
Chairman CHABOT. Thank you very much. My time is expired.
The ranking member is recognized for 5 minutes.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Mr. Strongin, in your written testimony you touch on the
geographic concentration of capital. Besides location
preferences, there is a tendency for banks and venture
capitalists to invest more in male-owned than female-owned
businesses. Minority-owned firms fare just as poorly. In your
experience, what impediments are there for minorities and women
to gain access to capital?
Mr. STRONGIN. This goes back to what I was talking about
when I was talking with the chairman about anti-risk. It is not
that women or poor communities are sort of worse risk
inherently, but they typically have less equity in their homes
and they typically have----
Ms. VELAZQUEZ. I am not referring to poor communities. I am
referring to minority business owners who might be doing quite
well, even medium size, yet the data showed that access to
capital is more difficult to come by than white male owned.
Mr. STRONGIN. I did understand the question.
One of the issues you run, and this is equally true of
rural lending, is that when you look at the way the risk
calculations are done, you take account of both where you do
business, how you do business, and the assets held by the
business. And so what you get is a reflection of the asset
concentration that mirrors the business problem you just
raised. Is it the groups who have the greatest asset
calculations because of their personal assets typically have an
easier time getting funding? You also have an issue that those
people who are doing business in well diversified richer
communities have an easier time getting credit because they are
less risk. All right. And so one of the things, and this goes
to the heart of whenever you talk about entrepreneurship, if
you do not embrace risk, you end up disenfranchising large
groups of people who want to make that leap.
Ms. VELAZQUEZ. Okay. Thank you.
Mr. Foster, I would like to hear your take on that
question.
Mr. FOSTER. We represent or have 170 banks that we work
with across the country and it is interesting to see the type
of companies that come to our table looking for access to
capital. And those that come to us that are minority, women-
owned, LGBT, veteran-owned businesses, and mostly the minority
and women-owned set, find challenge the greatest challenge
because I think banks provide a higher scrutiny on them than
their majority counterparts. And we see it across the board,
whether it is credit score, FICO, whether it is P&L and balance
sheets. I think they have less access to some of the best
minds, CPA firms, legal counsel, which hinders them when they
actually are putting their package together for lending. And so
what we have tried to do is create a level playing field so
that we provide that expertise when they cannot afford to.
Ms. VELAZQUEZ. Thank you.
The U.S. inflation grew over 2 percent in January, making
it more likely that the Federal Reserve will raise interest
rates quickly this year. This in turn will make the cost of
capital more expensive for small businesses. What impact will
this have on women and minority borrowers who continue to
struggle getting loans?
I am sorry but----
Mr. STRONGIN. No, it is quite all right.
Ms. VELAZQUEZ. Am I becoming; right?
Mr. STRONGIN. No, I mean, this goes to how you think about
growth from the deepest level. Whenever you talk about any
issue related to social mobility, the faster the economy grows,
the more impact you will have on disadvantaged communities. And
so the strength of the recovery will be very important for the
positive. Equally, and this I think is the point, the increase
in interest rates acts as a counterbalance there because it
makes it harder for those who do not already have that capital
to get it. And so it is going to work both ways. The business
opportunity is going to rise. The ability to exploit it is
going to go down.
Ms. VELAZQUEZ. Ms. Johnson, please, can you talk to us
about the workforce disadvantages that small businesses like
yours face compared to larger counterparts?
Ms. JOHNSON-COPE. So I mentioned potentially greater access
to and information on the WIOA initiatives. What I have seen
serving on the New York State Workforce Investment Board is
that typically, the WIOA programs are focused toward the large
corporations and small businesses do not even know they exist.
And when the grant and funding opportunities are presented, you
have to have a massive program and someone who specializes in
writing grants and writing proposals, and as a small business
owner, typically we do not have that personnel. We do not have
the resources to go after those opportunities, and the large
corporations do not welcome us to be a part of their proposals
to take advantage of those initiatives. And so if we cannot
even get people who can provide good customer service skills,
we cannot look at people who have good computer skills or
additional skills that are needed as we try to compete not only
as small businesses but as we compete as a Nation.
Chairman CHABOT. The ranking member's time has expired.
Ms. VELAZQUEZ. Thank you.
Chairman CHABOT. Thank you.
Ms. VELAZQUEZ. Thank you.
Chairman CHABOT. The gentlelady from American Samoa, Ms.
Radewagen, who is the chairman of the Subcommittee on Health
and Technology is recognized for 5 minutes.
Mrs. RADEWAGEN. Talofa. Good morning. Thank you, Mr.
Chairman, and the ranking member for holding this hearing
today, and thank all of you for testifying today. I represent
the territory of American Samoa, a little jewel of the Pacific.
Small businesses are a little different at home. Almost
every family has one. In fact, 99 percent of our businesses in
American Samoa are small businesses. So there is growing
produce or livestock that they sell at the market. These small
businesses are our community, our family.
This leads me to my first question. Both Ms. Johnson-Cope
and Mr. Foster, can you talk a little bit about how your
companies are helping to invigorate your communities, and how
successful small firms can have a ripple effect on the
surrounding areas in a symbiotic relationship? American Samoa,
our only source of higher education is our local community
college, and Ms. Johnson-Cope, I see as part of your experience
with the 10,000 Small Businesses program, you mentioned a
community college partner, LaGuardia Community College. Would
you say that the college was offering courses to their students
that would make it easier for you to make that student your
next employee? Is the curriculum beneficial for employers? Are
they producing graduates with enough skills, or are you finding
that you still have to invest resources into training? I am
interested in seeing what I can bring back to my own community
college to help develop small businesses in American Samoa.
Ms. JOHNSON-COPE. So through the relationship with the
Goldman Sachs 10,000 Small Businesses program, I have had the
opportunity to work with Dr. Gail Mellow, the president at
LaGuardia Community College. And we have had very extensive
discussions on how their curricula could better demonstrate
what employers like Johnson Security need in terms of workforce
development in terms of skills and talent. And so to that end,
we are looking at creating a special security initiative to
help better prepare some of my employees, as well as other
students that come through the college. The challenge is for
the community college environment there are so many other
issues at hand. Everyone is expected to go to college. There is
a negative perception for people who go through community
colleges, and many community colleges, there may not be as
strong a link to the corporate world, the small business world,
and so the relationships and the curriculum do not match up on
a one-to-one basis. But through 10,000 Small Businesses, we are
having the opportunity to have those discussions and shape the
curriculum that will make a difference. And we do see a ripple
effect in our community. So as an example, my business is
located in the same neighborhood where I grew up. So I have to
be accountable to my neighbors and the people that remember me
as a child, and I can see the difference that we make in that
we are putting people to work. We are taking them out of the
homeless shelters. We are taking them off of the public funding
rosters and it is making a difference. We cannot do it for
everyone, and we cannot do it without the help of leaders like
yourself.
Mrs. RADEWAGEN. Mr. Foster?
Mr. FOSTER. So our experience is twofold. We have the
fortunate nature of being on the access to capital side, so we
are very much engaged with local community organizations that
are helping put folks back to work. So one of the organizations
that we work closely with is the Joseph House in Cincinnati,
which is an institution that helps veterans that are coming
back into the workforce either find employment and/or start
their own company. And so on the side of starting their own
company, we are helping them put forth access to capital. We
are at least helping them with programs to get access to
capital ready.
On the flip side, the other side of the coin, we have one
of the largest minority-owned facility management companies in
Cincinnati, and of the 120 contract workers that we have, more
than half of our folks are from the workforce development
startup communities. So you have those that we are putting back
to work, whether they are out of the prison system or out of a
veteran situation. So it gives us the ability to kind of give
back to the community in that way through workforce
development.
Mrs. RADEWAGEN. Thank you.
Mr. Strongin, I just wanted to mention that with regard to
at least microfinance business loans, out in our neck of the
woods they tend to favor women because they find that the women
are the ones who pay their debts and the men tend to allow
their loans to go into arrears. I just thought I would throw
that in.
Thank you, Mr. Chairman. I yield back.
Mr. STRONGIN. We have another program called 10,000 Women
that has used that globally quite well.
Mrs. RADEWAGEN. Cool. Thank you, Mr. Chairman. I yield
back.
Chairman CHABOT. Thank you very much. The gentlelady's time
is expired.
The gentleman from Pennsylvania, Mr. Evans, who is the
ranking member of the Subcommittee on Economic Growth, Tax, and
Capital Access is recognized for 5 minutes.
Mr. EVANS. Thank you, Mr. Chairman.
Mr. Strongin, I want to have you respond to something Mr.
Foster said, and the phrase he used is ``credit friendly
lending ecosystem.'' So in your mind, I am interested in you
telling me what do you think is a credit friendly lending
ecosystem? What do you think that is from your perspective?
Because on your page 17 you have ``putting the cost of new bank
regulations in economic context,'' as well as I heard the
chairman ask the question about Dodd-Frank. So I am trying to
understand in your mind what you think that means.
Mr. STRONGIN. It is actually a great phrase because I think
one of the real problems in the way the financial system has
evolved is it is friendlier to some activities than others. And
so in the case of small businesses, inventory financing is
okay. Asset purchases is tough but doable. But true growth
funding is virtually impossible.
Mr. EVANS. And I heard you yesterday say at this
roundtable, you raised the question around the tax policy.
Yesterday, do you recall when you raised a question around,
well, we make decisions about tax policy. We just passed a tax
bill and the impression I got from you yesterday was you raised
some questions about what we did with that tax bill and
decisions we made. Do you recall that conversation yesterday?
Mr. STRONGIN. I do.
Mr. EVANS. Okay. So can you speak to a tax bill that was
pushed through this process, how exactly does that in a
specific way help in terms of small businesses?
Mr. STRONGIN. I want to start with a bit of information
that Jessica normally actually provides about the way they have
community impact. When you talk to the small businesses, one of
the things you hear over and over again is the incredible work
they do in taking people who are otherwise not ready for the
workforce, investing time and effort into those people, and
creating people who are truly productive members of our society
and have much better lives. The tax code, as it is currently
structured, provides no tax benefits for that investment at
all. It does not recognize it because it is not a structured
investment in the way that a bank thinks of an investment. It
is the sweat and time of the business owner themselves, and
that is not recognized as investment.
On the other hand, if you buy a machine to replace that
person, that is recognized by the tax code as an investment.
That is not a particular attack on the last tax bill; that is
an attack on the last 40 tax bills, that we do not recognize
the fact that the time and effort and sweat of these business
leaders to create a better workforce and to strengthen our
communities is not recognized as the investment it really is.
Mr. EVANS. Okay. I understand that. And understand, I have
only been here for 13 months. So that is the only bill that I
dealt with. So you talk about the 40 tax bills. What I am
trying to do is figure out a way that nexus. How do we, in a
very specific way, move the needle? When you talked about the
disconnect on economic growth and small businesses and large
businesses, so I am trying to understand something. And second,
let me piggyback real quick, CDFIs. I think the conversation
came up about CDFIs. Goldman Sachs put up like 200 and what, 50
million or something CDFIs. You chose to use that mechanism
versus the financial aspect of going to banks. Talk a little
bit about that.
Mr. STRONGIN. This goes to the ecosystem question that you
raised, is that you need different types of financing at
different moments in a firm's lifetime. The startup tends to be
very mortgage, credit card, personal asset intensive. When they
are healthier and larger, it tends to be more the sort of
standard bank lending to small businesses. When you need to put
that leap to an investment, when you are going to grow a
business from 30 employees to 200 employees, that is when these
special lending programs become very important, like the CDFIs.
They have been in special cases very successful, but broadly,
they have never been large enough to make a broad scale
macroeconomic difference. To certain businesses they have been
very, very important and very helpful. And from the standpoint
of our own experience with it, we have had people who have been
helped. Interestingly enough, they were not the people we set
out to help. The actually people in the 10,000 Small Businesses
program actually have not used our CDFI to a great extent. Some
have, but it turned out that a different group of small
business owners came in and used it.
And that goes to your ecosystem. You really need healthy
lending and access to capital along the entire lifespan of
these firms, and that tends to be different answers at
different points in their lifespan.
Mr. EVANS. I yield.
Chairman CHABOT. Thank you very much. The gentleman's time
has expired.
The gentleman from Iowa, Mr. Blum, who is the chairman of
the Subcommittee on Agriculture, Energy, and Trade, is
recognized for 5 minutes.
Mr. BLUM. Thank you, Chairman Chabot. Thank you to our
panelists for being here today.
I am a small business owner myself, and I represent
northeastern Iowa. And as I tour my district of 20 counties,
the biggest issue that small businesses have in my district is
finding employees. And I have talked to Secretary Mnuchin about
this. I have talked to Speaker Ryan about this. I believe the
tax reform we just passed could lead to 4 percent economic
growth sustained over the next 10 years, certainly 3-1/2
percent. But I think a couple things could hold us back and I
would just like to get your thoughts on these. The biggest
thing is finding employees. And what comes to my mind is some
sane immigration policy, and also, a sane welfare reform
policy. So I would love to hear your thoughts. I do not want
this to get political but finding employees is a challenge. And
just deliver your thoughts on where do we look for employees?
Is the government helping or hurting in that aspect of it?
Mr. STRONGIN. So the representative would like me to talk
about immigration and welfare without being political?
Mr. BLUM. That is a challenge, is it not?
Mr. STRONGIN. That will be an interesting challenge.
Mr. BLUM. Point well taken.
Mr. STRONGIN. You are quite right. Immigration, and if you
talk to business leaders broadly, particularly corporate CEOs,
they will talk about immigration and flexible immigration and
skill-based immigration as one of their top priorities. Because
when you are trying to grow a firm, very typically there will
be specific skillsets you are missing, and the ability to get
the best people for those specific skills is very important.
When you go to less skilled labor, immigration also plays a
role. So does the educational system. So do the incentives to
work. One of the things that I think is very important, and my
panelists can talk to this better, is the fact that we do not
recognize how small businesses actually create workers and
train workers, and the way that interacts with the minimum wage
among other roles is an issue. Small businesses get no training
credits. They receive no training credits from when they take
someone who has not graduated high school, who potentially has
been incarcerated, who has potentially been unemployed because
of structural dislocations from a factory in a rural town, and
they train that person. They give them new skills, and they
employ them. That process is completely unrecognized by the
system today. And the notion that we would then potentially
create some significant grant form so they could qualify goes
right back into the red tape issue.
And so I think a true appreciation of the role these
businesses play will in some part help you with that workforce
problem because that is how you create it.
Mr. BLUM. That is a good point. I would like to hear from
the other panelists as well.
Mr. FOSTER. Our biggest challenge on the facility
management side is workforce because of the folks that we
employ. The folks that are pushing brooms and turning wrenches
often do not come from the background of college graduates and
whatnot. And so as you mention, our biggest challenge is we are
pulling direct capital from our company to train those folks,
right, and not getting a strong return as it relates to the
contract with our client. So what we are having to do is really
do grassroots training. Create facilities and create training.
And what we have done in Cincinnati is we have partnered with
other like-minded business owners who also are going through
the same thing that we are going through. We partnered with a
general contracting company in Cincinnati and we are putting
their folks and our folks through the same rigorous training
but also pulling from the same candidates. So we can also flex
workers from their contracts to our contracts to make sure that
we are providing the right sort of customer and client first
attention to the contract.
Ms. JOHNSON-COPE. What I have noticed is that there are
people who are sitting on the sidelines who are not in the job
market even though the statistics show that employment levels
are improving. And I guess that is a good place to have a
conversation with small business owners, with the people who
are sitting on the fringes and not working, and understand
where is the disconnect that makes them not want to work. I
have seen young people who have turned down job opportunities
because they are waiting for that $15 an hour job because of
the promise of a higher minimum wage. At the same time, they
are currently not working, they do not have a good set of
skills, and not willing to get those skills, but they have the
promise of a higher minimum wage. And so it is important to
have a discussion not only with the business owners but with
the elected officials, those people that are sitting on the
fringe. And then also understanding where are we going as a
Nation in terms of our jobs so that we can make sure that we
can invest in the skills that people need because if you had
thought back 10, 20 years ago, we were not thinking that people
would be largely using the Internet and that robots would be
replacing people, so we need to be thinking forward about what
jobs are going to come and then engage the people who are not
working to figure out how to put them to work.
Mr. BLUM. Thank you very much. And I yield back the time I
do not have.
Chairman CHABOT. The gentleman yields back.
The gentleman from Florida, Mr. Lawson, who is the ranking
member of the Subcommittee on Health and Technology is
recognized for 5 minutes.
Mr. LAWSON. Thank you, Mr. Chairman, and welcome to the
Committee.
I was just sitting here listening to a great deal of what
you all were stating, and I have been in business for the past
36 years, and when I first went in I was in the insurance
business. And over the years in dealing with attorneys,
doctors' offices, and everybody else, when you are in
interviews and stuff like that it was always about access to
capital. So some 40 years later the same issue is surfacing
about access to capital. And since the downturn in the economy
since 2008, the same things happens now with small businesses.
And then you are seeing some increases in small businesses
except for African-American businesses. Can you tell me,
because it has been an issue for a long time, what is it going
to take in your opinion to increase the growth when access to
capital to African-American businesses so they can hire in some
of these disadvantaged communities, what you talked about, Mr.
Strongin, before, because that is where it needs to increase so
you can actually put people to work and at the same time help
improve the economy.
And the last thing I want all you all to address, and I
always ask this in the Committee, what can this Committee do to
really help small businesses? You know, when you talk about
Dodd-Frank, 7,000 pages of information that people have to go
through, what can we do? And I am going to try to cut it short
because I would like to hear from all of you all about how can
we increase it?
Mr. STRONGIN. When you talk to the small business owners
themselves, and they will do this far better than I, starting a
small business is an act of faith in yourself and in the
economy. And the lending and access to capital around that is
inherently going to be a fairly risky process. And if you look
at the history of that process, it has always been sort of
personal lending, savings, family help. That is not really
going to change. We are not going to create a program where we
are going to give everyone one chance at a small business. It
is about the small business owners' faith in themselves and
allowing them to take that chance.
What happened post-crisis is we developed a belief that
people were no longer capable of making that decision for
themselves. We began to leave that decision to the banks, that
the banks were supposed to prevent people from taking bad
risks. That act of faith is often a bad risk. The statistics on
success in starting a small business are frightening. It is all
the more credit and more amazing when you see people do it and
succeed or do it a second time or a third time and succeed. And
that really does require an attitude toward risk that is
different. And it is something we have done in the past. If you
look at the financial crisis in the 1980s, the number one goal
of financial policy in the 1980s was to maintain credit to
those businesses, and they succeeded and you had small business
growth. That was not without a price. The S&L crisis was the
bill for that policy but it maintained a level of
entrepreneurship. It created an amazing number of small
business jobs. And it allowed that entrepreneurial spirit to
go. But it was very much an ideological embracing of risk. This
time we have decided that risk itself is a problem. That is the
access we have to develop these decisions on, and that is the
act of faith that drives entrepreneurship and growth, not a
program.
Mr. LAWSON. Mr. Foster?
Mr. FOSTER. From my standpoint, it starts earlier than
that. I think it starts with access to education. I think it
starts with access to opportunity. And then you get to access
to capital. Because I think in our community, the black
communities, African-American communities and minority
communities as a whole, we do not get a lot of opportunity to
experience being a business owner, seeing our families, our
father, our mother being a business owner. Right? And so first,
you need to start at the education level and what does it mean
inside of our school systems to run a business? Can we get
programs to help youngsters understand what it means to run a
business? And then once that, you have the opportunity and the
mindset, and then you can start putting in programs like Access
to Capital at an early age. So that is my thought. And then
from there it starts to grow throughout the lineage of minority
and African-American households.
Mr. LAWSON. Mr. Chairman, I yield back.
Chairman CHABOT. Thank you very much. The gentleman yields
back.
And the gentlelady from Puerto Rico, Ms. Jenniffer
Gonzalez-Colon, who has unfortunately had to experience when a
hurricane comes through and wipes out a great deal of the
infrastructure and the challenge that that is is recognized for
5 minutes.
Ms. GONZALEZ-COLON. Thank you, Mr. Chairman. And thank you
for your leadership, allowing us, and the small businesses in
Puerto Rico to recover with the measures that are so important
to do so. So this kind of hearing, it is important to us. And I
will first of all say thank you to the Goldman Sachs 10,000
Small Business program. We actually got 10 or more people from
Puerto Rico into your program. Actually, one of them is here
today, Iris Vincent, from Primary Corp in Puerto Rico. And we
feel very proud about her. She is an entrepreneur, small
business woman that has been awarded actually by her leadership
on the island and by the Small Business Administration. And
actually, that will be my first question.
Do you think the territories, and we are not just talking
about Puerto Rico. We are talking about the U.S. Virgin
Islands, American Samoa, Guam, Northern Marianas, and even, of
course, you do not count Washington, D.C., as a territory, but
do those territories have different challenges in terms of
accessing those kinds of loans and investments to make that
first effort to establish a firm?
Mr. STRONGIN. They do. One of the aspects of the modern set
of rules is that almost any area that faces special challenges,
right, whether it be rural farming communities or territories
where the risk profile is higher, faces difficulties in getting
credit from the centralized banks. The way we now score banks
on their lending practices and the way we view discrimination
means that any area that is higher risk creates legal
challenges for the bank if they lend into it.
When I was at the Federal Reserve was the period where we
phased in CRA, which had exactly the opposite intent. Right? It
was about getting credit into those communities. The way we now
score banks, we make that provision of credit sort of
regulatorily dangerous because bad performance, higher rates to
different areas all create potential legal problems.
Ms. GONZALEZ-COLON. What can this Committee do to help
those territories to access that?
Mr. STRONGIN. So I think that from the standpoint of the
way the regulation of banks is set, it really has to be about
more the actual risk allowing the lending to be more about the
borrower and less about the borrower group. I do not want to
suggest that banks are perfect in any stretch of the
imagination.
Ms. GONZALEZ-COLON. No.
Mr. STRONGIN. When it comes to the way they embrace each
and every community, but when you set up the rules to enforce
very precise treatment, inevitably those rules will be highly
discriminatory against some communities and in favor of others.
And the way the current rules are set up, it actually hurts the
communities most in need of help, the ones with very specific
economic structures, right, where they tend to get bad weather.
Farming communities because of similar weather issues are very
high-risk areas, and so they tend to have the greatest problems
getting credit.
Ms. GONZALEZ-COLON. Can you and all the witnesses provide a
list for the Committee of those recommendations that you
understand will help us out, because my time is almost set to
expire and I want to make another question. You can submit that
to the chairman.
But I am very impressed about the testimonies regarding Mr.
Foster and Ms. Johnson regarding how your businesses grew, grew
your revenues, created more jobs, expanded your operation. You
accessed financing. So for me it is important to know what
skills do that program, the 10,000 Goldman Sachs program,
actually help to improve and develop? What are those skills
that are mostly needed that makes a difference between that
kind of program and others?
Ms. JOHNSON-COPE. The first skill I would say is
confidence, because it is one thing for me to do business with
business in my community that are small just like I am. To have
to make a case to a firm like Goldman Sachs and to large
corporations as to why they should do business with me, it gave
me an air of confidence that prepared me to go into other
corporations and to ready my business and ready my team to
provide our services on a grander scale and to show people in
our community that we were able to go beyond what we had
previously seen as our limit. So confidence is that first
skill.
Another skill would be just in financial management. To
look at dollars and add a zero to the level and volume of
contracts we had previously done. It opened our eyes to bigger
opportunities. And so it allowed us to walk into more contracts
and to prepare to create those jobs that our community needed.
So confidence and financial management.
Chairman CHABOT. The gentlelady's time has expired.
The gentlelady from North Carolina, Ms. Adams, who is the
ranking member of the Subcommittee on Investigations,
Oversight, and Regulations is recognized for 5 minutes.
Ms. ADAMS. Thank you, Mr. Chairman. Thank you, Ranking
Member Velazquez, for hosting today, and to all of the
witnesses, thank you very much for your testimony.
Mr. Strongin, HBCUs are well suited to foster
entrepreneurship and start-up business growth due to access to
high caliber human capital, our students and professors, while
also providing a support structure to establish new ventures. I
was delighted to see that Goldman Sachs is recognizing the
untapped potential of HBCU institutions and is partnering with
at least one HBCU. Last year, the Goldman Sachs 10,000
partnered with Morgan State, and so I have a couple of
questions for you. First of all, if you could expand on
Goldman's partnership with Morgan, what is Morgan's role in the
partnership, and do you have future plans to partner with other
HBCUs?
Mr. STRONGIN. The last part of that is easier for me to
describe than the first.
Ms. ADAMS. Okay.
Mr. STRONGIN. The answer to that is yes. We are looking to
expand the program broadly. This year we set up a national
cohort that would allow us to bring people from across all 50
states and even where we did not have a partner. We continue to
search out partners, particularly in areas where the benefit
would be greatest and where we can stretch into the black
community, into the Hispanic community. Also, into the rural
communities. One of the things the research has shown very
strongly is that small businesses are incredibly important for
creating resilience in communities and very important for
renewal of communities. Much better than a single factory from
a large corporation. And so in our own view of creating a
healthy economic environment, creating a good ecosystem for
small business we think is the single greatest thing we can do
to improve community resilience particularly in those
communities that have been hardest hit. And that can either be
a geographic community, or an ethnic community, or a territory.
It really has to do with dealing with the major economic forces
we face today of technological disruption, globalization, the
issues in urban communities, the issues in rural communities we
face, that when you are trying to fix those issues, that
expanding outreach, particularly across those communities that
need that help, this is the best place to do it. And so it is
why the program was formed in the first place, and it is why we
are attempting to expand it. And it is why we brought everyone
together at the summit, to communicate that to Congress, right,
so they can understand why we think this is part of the answer.
Ms. ADAMS. Yeah, well, you are certainly very visible
today, and I want to commend you on your program and those nice
scarfs that the folks are wearing. Wonderful. Wonderful. I see
Joyce Brayboy, and I want to thank you for being here. And all
of the folks from Goldman Sachs. I had an opportunity to visit
the headquarters up in New York a few months back.
Diverse business owners add to the supply chain in valuable
ways, and research shows that companies that embrace diversity
are more profitable than companies that do not. So does Goldman
Sachs's 10,000 Small Businesses program teach businesses how to
navigate other companies, supply diversity programs, and how
does this program serve as a feeder into that chain?
Mr. STRONGIN. It certainly does. I mean, the graduates can
speak to than better than I can. I will note before I pass it
to them, because they will do it better than me----
Ms. ADAMS. We have got 1 minute.
Mr. STRONGIN.--is that part of the proposal is I think that
is also something you can help with, which is by making the
certifications more common and more simple, it will make it
much easier for those businesses to succeed.
Ms. ADAMS. Okay.
Mr. FOSTER. Yeah, I will add just a quick comment to that.
I think Goldman Sachs, and just the program as a part, has done
a great job at helping us navigate negotiating, contracts,
compliance, risk, things that come along with a small business
that we necessarily do not see on a day-to-day basis because
our heads are down and our eyes are on our business, but
Goldman Sachs kind of allows us to think of our business in a
different way.
Ms. JOHNSON-COPE. I would like to add, my grandmother was a
graduate of Fayetteville State University.
Ms. ADAMS. All right.
Ms. JOHNSON-COPE. And a lifelong supporter of HBCUs. And as
a result of graduating from the Goldman Sachs 10,000 Small
Businesses, I got an opportunity to do business with a large
corporation that now asks who else are you doing business with
as a result of working with us? So they want to see that the Me
Too effect works in a positive way. If you can do business with
a corporation like a Goldman Sachs, that you are actually going
to leverage that opportunity to get experience in other
corporations, because if it is working, then other companies
want to take advantage of that.
Ms. ADAMS. Right. Thank you. I tip my hat and shout out to
all the HBCUs, and especially those in North Carolina. We have
more. Nothing could be finer than to be in North Carolina at an
HBCU.
Thank you, Mr. Chairman. I yield back.
Chairman CHABOT. Thank you very much. The gentlelady's time
is expired.
The gentleman from Illinois, who I believe will be our last
questioner today, Mr. Schneider, who is the ranking member of
the Subcommittee on Agriculture, Energy, and Trade, is
recognized for 5 minutes.
Mr. SCHNEIDER. Thank you, Chairman, and Ranking Member for
having this Committee. I want to thank the witnesses for
joining us today and sharing your experiences.
I am a huge fan of the 10,000 Small Businesses. I had a
chance to work with it in Chicago. I know many alumni. I know
what you do, and I am just grateful for all of that.
As my predecessor speaker talked about colleges, I am going
to do my one little pitch and take that prerogative. As an
industrial engineering graduate of Northwestern University, it
is good to have you here and see your success, but also as a
graduate of Kellogg, to have two Northwestern people here is
remarkable. But I also have to give credit to the purple tie
since even though you did not go to Northwestern, we have got
the trifecta.
This is an important program, and Ms. Johnson-Cope, I want
to start with you because your story caught my attention. Third
generation business?
Ms. JOHNSON-COPE. Yes, that is correct.
Mr. SCHNEIDER. So you went to school. You studied
engineering. Did you know when you went to college that you
would come back and work in this business?
Ms. JOHNSON-COPE. When I went to college, I knew I wanted
to be a boss, but I did not think that I would come back to run
the family's business. And what I find, in a lot of second and
third generation potential business owners, the invitation is
not there to come and help run the business because we see
business differently than the previous generations have. And so
one of the recommendations I have made to SBA Administrator
McMahon is to maybe look at how we can recreate SCORE to engage
younger people and encourage them to go into entrepreneurial
ventures, particularly for family-owned businesses, because I
know it is something that I did not necessarily think about,
but once I stepped into my role it seemed very natural.
Mr. SCHNEIDER. And just to convey my bias, I spent much of
my career consulting to family-owned businesses and working in
family business. And my wife is in a family business. I think
the advantage, and Mr. Strongin, you pointed to something about
communities. The fact that small businesses--and I will add
family businesses--are important for resilience, and the
resourcefulness of communities, I think we need to make sure we
continue to push that forward.
Having been in a third generation business, and Mr. Foster,
I will come to you next on this because it is a different
experience than for Ms. Johnson-Cope, how has the 10,000 Small
Businesses experience, the classroom program dealing with other
people who may have started businesses, different experiences
than you, how has that affected your approach to business? Ms.
Johnson-Cope first.
Ms. JOHNSON-COPE. So we all cook at home; right? So it is
one----
Mr. SCHNEIDER. No.
Ms. JOHNSON-COPE. You do not even make toast? So it is one
thing to try to cook at home based on what you have watched
someone before you do. It is another thing to go to culinary
school and learn how to do it professionally. And so the
Goldman Sachs 10,000 Small Businesses program actually gave me
context to what I had watched growing up. And then it taught me
how to leverage the experience I had gained working for other
businesses outside of my family business and to actually lead
my firm. Because the jobs that I had did not teach me how to be
a CEO. If I had waited until I had worked my way up through IBM
where I previously worked, it would have been 20-some years
before I would have been CEO, if that. Right? And so the
Goldman Sachs 10,000 Small Businesses program actually gave me
a shorter runway to pick up the skills that I needed to lead
and actually be the CEO of a company, to grow the business, and
to make decisions on a high level that I would not have that
opportunity to do had I been working for someone else or had I
been trying to figure out those skills on my own.
Mr. SCHNEIDER. Mr. Foster, your experience. You said you
came from New York.
Mr. FOSTER. Well, I lived in New York doing investment
banking.
Mr. SCHNEIDER. Doing investment banking. Okay. But very
different experiences than going back home and starting a
business with a friend as a partner, which I imagine sometimes
strains friendship and sometimes strengthens it. How has this
affected what you are trying to do?
Mr. FOSTER. From the 10,000 Small Businesses standpoint?
You know, as she said, it really shortened that runway. And for
me, it reinforced all the things that I had been experiencing
prior to joining the program. And also as I mentioned earlier,
just the community of folks to leverage within my cohort was
second to none because you do not know what you do not know.
And when you are in business and you are going through trying
to win contracts, trying to manage employees, you are just
doing it as you think you should do it, right, and then going
through the program and then coming out of the program, I just
had so much of a stronger toolkit behind me. And so that is how
it has helped me.
Mr. SCHNEIDER. Great. And I am almost out of time so I am
going to ask a rhetorical question of Mr. Strongin, about
something you said in your submitted testimony that I think is
really important. And it is the statistic that between 1977 and
2007, so a 30-year period, projections for small business
startup and development, there are 675,000 ``missing
businesses.'' I think there are a lot of reasons for that. We
have talked about some of them here, but promoting a culture of
entrepreneurship, helping young people understand that they can
be their own boss, they can pursue their own dream, I think our
role--I say all the time there are four things needed for
success--a business model. You guys are responsible for that
and Goldman is helping with that. But access to capital, access
to talent, and a stable and conducive business environment,
that we all have to work together. Congress has to do its part.
But promoting that and trying to fill that gap, because if we
are going to continue to grow our economy, whether it is after
recovery in difficult places, in communities that are trying to
turn around having lost major companies, or just in general
looking at a new economy developing every decade, we need to
promote a strong startup culture and give the people in those
businesses the skill.
So let me close and say thank you to Goldman Sachs for
doing this program. It is a fabulous program, and thanks to
both of our witnesses from experience. You did a great job. And
with that I yield back.
Chairman CHABOT. Thank you very much. The gentleman's time
has expired.
And we want to thank our panel here this morning and now
this afternoon for really excellent testimony. I think it was a
very enlightening discussion. Great questions from the folks up
here on both sides and great answers from you all. So hopefully
we can replicate much of what you have accomplished across the
country and have more and more small businesses created all
over American and thrive and get the American economy booming.
So thank you very much for participating in this today.
I would ask unanimous consent that all members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
And if there is no further business to come before the
Committee other than Happy Valentine's Day, everybody, the
Committee is adjourned. Thank you.
[Whereupon, at 12:17 p.m., the Committee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Chairman and members of the committee, thank you for
the opportunity to testify at today's hearing. My name is J.R.
Foster, Founder and CEO of Robert Louis Companies based in
Cincinnati, Ohio. I feel very fortunate to have a few moments
to speak with you about my story as a small business owner.
Of the thousands of commercial real estate and investment
banking companies in the country, I am a rarity among the
bunch. My company is one of the only minority-owned full
service commercial real estate brokerage, facility management
and access to capital firms in the country. Our approach is
two-fold. We help large corporations, government agencies and
non-profits with their real estate brokerage and facility
management needs--and do so in a way that can also help them
reach their minority inclusion goals. Secondly, we are leading
the charge in helping small business owners gain access to
capital and debt financing. Last year alone, we helped over 200
small business owners secure $345 million in capital ranging
from SBA loans to conventional and alternative debt.
I am here today because I am one of the recent graduates of
the Goldman Sachs 10,000 Small Businesses program and I'm proud
to represent my fellow alumni, the program, and other small
business owners who share my story.
I personally knew I had the drive and determination to run
my own company. So when I was 31 years old, my best friend and
now business partner left two well-paying jobs on Wall Street
to do so.
What I did not realize is all of the hurdles that comes
with being a small business owner, and a minority business
owner at that. You take a leap of faith without knowing the
underlying pitfalls that can derail, frustrate and leave some
of the best minds in the country for broke.
By our second year in business, I found myself lost in the
sea of managing employees, customers, contractors, payroll,
marketing, and the like. I needed something more than my
corporate career had taught me.
By chance, I was introduced to the Goldman Sachs 10,000
Small Businesses program (which we affectionately call 10KSB).
After a year of course work, excellent class room engagement,
and dialogue with the 100 (plus) small business owners in my
cohort--I was able to excel in areas where I fell short. I also
discovered that our local chamber of commerce in Cincinnati and
other minority organizations like the Urban League have been
helpful in growing the capacity of small business owners.
Since graduating from the program, over the past three
years we have increased our employee count, secured additional
financing for growth and our revenue has gone from $350K in
2014 to well over $2MM at the end of the 2017. Basically,
doubling year after year.
What I ask of the Chairman and the committee is to help
level the playing field for all small business owners. Having
spent the last two days at the 10KSB Summit here in DC, I've
continued to hear access to capital on the minds of my small
business alumni. Far too often business owners are scaping
funds together, using high interest cards or taking on private
capital partners that ultimately put them in golden handcuffs.
Even with access to SBA lending--having already tarnished their
credit and over leveraged themselves with debt, they quickly
become unable to qualify for government backed loans. I see
this every day as my company strives to help companies gain
access to capital.
I ask that you consider helping a business like mine create
a credit-friendly national lending platform and ecosystem that
business owners can have a centralized place to secure capital
and where banks compete for their business.
Thank you for your time today. I have enjoyed sharing my
small business experience and am grateful to be here.
Testimony of Ms. Jessica Johnson-Cope
President & CEO
Johnson Security Bureau, Inc.
Before the House of Representatives Committee on Small Business
Mr. Chairman and members of the Committee, thank you for
your time and for the opportunity to testify at today's
hearing. I am Jessica Johnson-Cope, President and CEO of
Johnson Security Bureau, Inc., located in the Bronx, New York.
I am also the Vice President of the Cope Brothers & Sons, LLC
dba the Soap Box, located in Brooklyn, NY.
Johnson Security Bureau, Inc.
(www.johnsonsecuritybureau.com) provides professional security
guard and armored car services. Since 1962 three generations of
my family have helped to protect people, places, and valuable
property across New York City. My grandparents left their homes
in the segregated South in search of opportunities. To them,
and many others, small business ownership represented freedom:
the chance to live the American dream while providing for their
family. I am the beneficiary of their vision and hard work.
For the past 10 years I have led Johnson Security. Shortly
after I took over the business, due to the untimely passing of
my father, I applied to the Goldman Sachs 10,000 Small
Businesses Program with hopes of keeping Johnson Security's
doors open long enough to celebrate our 50th anniversary. Even
though I had watched my father and grandmother achieve
significant business milestones, I did not feel sufficiently
equipped to help Johnson Security reach its full potential.
10,000 Small Businesses provided the tools I needed, in
executive business education through a local community college
partner (CUNY LaGuardia Community College); networking and peer
learning opportunities with other program participants;
business advisory services and mentoring; and preparation to
obtain financing.
Since completing the program, Johnson Security has created
over 150 jobs. Our revenues have increased more than 10-fold.
Our operations have expanded into two neighboring states. We
have done business with at least seven (7) other program
graduates. Additionally, Johnson Security has successfully
applied for financing to support our growth. Our team is now
preparing for the next phase of innovation and job creation.
Based on Johnson Security's success, and using lessons
learned from 10,000 Small Businesses, my husband and I started
another company, the Soap Box (www.soapbox.nyc), where we
continue his family's entrepreneurial legacy. The Soap Box
provides premium laundry services in the Bedford Stuyvesant
neighborhood where we live. The Soap Box not only allows us to
save our clients time, it allows us to employ seven (7) people,
and to transform our community, while collaborating with other
local businesses. Our work comes with challenges though as we
try to navigate burdensome regulations. Nonetheless we are
determined to continue to grow.
The impact of the 10,000 Small Businesses program is
evidenced not only in the results I've cited, but also in the
outcomes the 2,200+ program alumni who have gathered here in
Washington, D.C. this week have experienced, and in the
research data that have been presented.
My peers and I face many challenges as we grow our
businesses. The current business environment makes it
increasing difficult for small businesses to survive, let alone
grow. One challenge is finding capable talent. In addition to
leading our family businesses, I serve on the New York State
Workforce Investment Board. In this capacity, I hear of many
job candidates who lack technical skills that are required as
industries advance. I also hear of a number of people entering
the workforce who lack key soft skills, such as communication
and critical thinking skills.
I know countless small business owners who welcome
workforce development investment from the government. By
providing small businesses with better information on and
access to local Workforce Innovation & Opportunity Act (WIOA)
initiatives, you can make a significant difference in
addressing some of the workforce disadvantages small businesses
like our face compared to larger corporate competitors.
Another challenge is in obtaining the capital firms like
ours need, which can be even more difficult for minority and
women-owned businesses. Johnson Security received financing
that provided working capital to mobilize new projects, cover
payroll expenses, and expand our marketing efforts. You can
ensure that our nation's small businesses can effectively
utilize the U.S. Small Business Administration (SBA) lending
programs that are intended to benefit firms like ours.
Federal contracting is another area where you can remove
some barriers to small business success. Johnson Security is a
federal contractor that has leveraged federal small business
programs as a business development tool. There are several
agencies that fall short in meeting the small business
contracting goals. You can put stronger accountability measures
in place to ensure more contracts are awarded to our nation's
qualified small businesses.
In closing, the Goldman Sachs 10,000 Small Businesses
program has been instrumental in the growth of Johnson Security
Bureau, Inc., the Soap Box, and more than 6,700 other program
alumni, particularly in job creation, and in access to capital.
I encourage you to promote the program to viable firms in your
districts. Watch and see what impact those businesses will have
on our economy. I also implore you to consider making changes
to some of the regulations that are hindering small business
growth.
Mr. Chairman, I thank you for your time and attention this
morning. I look forward to the work this Committee will
continue to do to help make our nation's Small Businesses Big!