[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN JACKSONVILLE, FL:
DISPARITIES IN ACCESS TO CAPITAL: WHAT THE FEDERAL GOVERNMENT IS DOING
TO INCREASE SUPPORT FOR MINORITY OWNED FIRMS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 12, 2018
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-062
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
28-840 PDF WASHINGTON : 2019
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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
JOHN CURTIS, Utah
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. James Comer................................................. 1
Hon. Al Lawson................................................... 1
WITNESSES
Mr. Jimmy Van Horn, Lead Lender Relations Specialist, United
States Small Business Administration, Jacksonville, FL......... 4
Ms. Hillary Almond, Owner, Almond Engineering, Jacksonville, FL.. 5
Ms. Roslyn Phillips, Vice President, The Hester Group,
Jacksonville, FL............................................... 7
Mr. Dane Grey, President, Elite Parking Services of America,
Jacksonville, FL............................................... 9
APPENDIX
Prepared Statements:
Mr. Jimmy Van Horn, Lead Lender Relations Specialist, United
States Small Business Administration, Jacksonville, FL..... 27
Ms. Hillary Almond, Owner, Almond Engineering, Jacksonville,
FL......................................................... 30
Ms. Roslyn Phillips, Vice President, The Hester Group,
Jacksonville, FL........................................... 32
Mr. Dane Grey, President, Elite Parking Services of America,
Jacksonville, FL........................................... 34
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
DISPARITIES IN ACCESS TO CAPITAL: WHAT THE FEDERAL GOVERNMENT IS DOING
TO INCREASE SUPPORT FOR MINORITY OWNED FIRMS
----------
MONDAY, MARCH 12, 2018
House of Representatives,
Committee on Small Business,
Jacksonville, FL.
The Committee met, pursuant to call, at 10:02 a.m., in the
Hadlow Board Room, Jacksonville Chamber of Commerce, 3
Independent Drive, Jacksonville, FL, Hon. James Comer
presiding.
Present: Representatives Comer and Lawson.
Mr. COMER. Good morning. I call this hearing to order.
Before we begin, I want to thank the ranking member, Mr.
Lawson, for inviting me to be here with him in his district
today. While we may be from different political parties, we are
both fighting hard on behalf of America's small businesses here
in Jacksonville and in my district in Kentucky, and all across
the country.
Access to capital has been a top priority for this
Committee. It gives small businesses the resources they need to
keep the doors open, the lights on, to purchase inventory, pay
employees, and expand their businesses.
However, since the financial crisis almost a decade ago,
small business owners across a variety of industries and
demographics report that it is still difficult to acquire
capital. Since the crisis, the number of community banks in the
United States has decreased, the amount of paperwork for banks
and businesses has increased, and it has become more difficult
for small businesses just to meet payroll.
This morning we will hear from a distinguished panel on how
the small business access to capital landscape has changed and
how the Federal Government can help create an environment where
all small businesses have access to the resources they need to
succeed.
Again, I appreciate the ranking member for his hospitality
and the witnesses for taking time away from their businesses to
be here today. I look forward to your testimony.
I now yield to Mr. Lawson for his opening remarks.
Mr. LAWSON. Thank you very much, Mr. Chair. I am delighted,
and good morning to everyone.
Our nation's economy is growing largely due to women- and
minority-owned businesses. The economy relies on nearly 8
million minority businesses and generates over $1 trillion in
revenue and employs over 7 million workers. Despite these
numbers, minority-owned business, small firms, including women,
still face hurdles.
We also hear that access to capital is the biggest
challenge. This is problematic because capital is the lifeblood
of any business. It helps companies buy inventory and
equipment, pay their employees, and expand operations.
Unfortunately, minority-owned firms, including women, are
more likely than other businesses to be denied traditional
financing compared to other businesses. In fact, the average
African American owner raises about $500 in equity in the first
year, compared to $18,000 for the average white business start-
up. And in D.C., which is a venture capital funding market,
they are 18 percent less likely than white start-up owners to
receive such investment.
Much of this disparity can be laid to the lack of
representation within the lending industry. This is very
important because research has shown that investors are
predisposed to exhibit a preference for people who are similar
to them. So it really doesn't matter who is at the table when
the minority business owner is asking for capital.
In order for these firms to play their traditional job-
creating role, we must take steps to address these challenges.
Within this context, it is important to remember that lending
through the Small Business Administration is significant for
women and minority business owners, yet improvements are needed
to ensure SBA loans are reaching these entrepreneurs.
Today's hearing will take the pulse of the small business
lending environment for minority business owners, along with
women entrepreneurs, and gain insight about how to expand their
financial options. As we do this, it is important to remember
that what makes sense for one entrepreneur might not for
another, and that is a broad spectrum of the capital options
for small firms. Some businesses' needs can be met with
conventional loans. For others, a debt-based solution may not
make sense at all. Equity in investment might be the best fit.
The reality is we need to support the next generation of
minority entrepreneurs to be empowered to take on the
challenges of starting a business and becoming an economic
powerhouse. On that note I would like to thank our witnesses
for taking the time to be here.
Thank you, and I yield back, Mr. Chairman.
Mr. COMER. If any other Committee members have an opening
statement prepared, I ask that they be submitted for the
record.
I would like to take a moment to explain the timing and the
lights for you. You will each have 5 minutes to deliver your
testimony. The light will start out as green. When you have 1
minute remaining, the light will turn yellow. Finally, at the
end of your 5 minutes, it will turn red. I ask that you try to
adhere to that time limit, but if you need a few more seconds
or minutes to wrap up, that is fine.
I will yield back to Mr. Lawson to introduce the panel.
Mr. LAWSON. Thank you, Mr. Chairman.
First we have Mr. Jimmy Van Horn, who is the Lead Lender
Relations Specialist for the Small Business Administration.
Welcome, Mr. Van Horn.
His experience includes economic policy with regard to
financial markets and compliance with state and Federal
securities laws and regulations. As a lending relations
specialist with the SBA, he is responsible for working with
small business and educating those firms about small business
lending programs. Again, I would like to welcome Mr. Van Horn
to this Committee.
Next we have Ms. Hillary Almond. Ms. Almond is President of
Almond Engineering. It is a civic engineering consulting firm
in Florida and Georgia. She is a graduate of the University of
Alabama and received her Master's degree at the University of
Florida, where she studied environmental engineering.
One thing, Ms. Almond, is that my wife graduated from the
University of Alabama, and also from the University of Florida.
I want to thank Ms. Almond. Thank you for being here and
working with the panel.
Next is Ms. Roslyn Phillips. Ms. Phillips is the Vice
President of The Hester Group, an 8(a) woman-owned small
business that provides professional services to Federal
agencies. She currently manages The Hester Group 8(a) SBA
status and their portfolio, which includes government agencies
as well as private corporations.
Ms. Phillips' career as an executive spans over 25 years,
including consulting in the public and private sector. She
previously served as Policy Advisor for the City of
Jacksonville. She led the team administering for the Northwest
Economic Development Fund, the Empire Zone and Empowerment
Zone, and designed and implemented the SWJEDF, a better
Jacksonville plan that had resulted in $134 million in private
investment and over 2,500 jobs.
Ms. Phillips, thank you very much for being here.
Mr. Dane Grey is President of Elite Parking Services of
America, a company that specializes in parking and
transportation management services that employs nearly 400
employees. As a small business owner, Mr. Grey has led Elite
Parking Services to develop new services that have
revolutionized parking services and management, including the
development of the first human capital management system that
used automated services to manage his operation.
Mr. Grey has amassed numerous awards, including Business
Journal's Top 40, Under 40, and was a nominee for the Ernst and
Young Entrepreneur of the Year Award. He is a graduate of the
JU University and received his MBA from Delta State University.
Mr. Grey, welcome.
I want to thank them and welcome them to the Committee.
Mr. Chairman, I yield back.
Mr. COMER. Thank you.
We will begin with the testimony.
STATEMENTS OF JIMMY VAN HORN, LEAD LENDER RELATIONS SPECIALIST,
UNITED STATES SMALL BUSINESS ADMINISTRATION, JACKSONVILLE, FL;
HILLARY ALMOND, OWNER, ALMOND ENGINEERING, JACKSONVILLE, FL;
ROSLYN PHILLIPS, VICE PRESIDENT, THE HESTER GROUP,
JACKSONVILLE, FL; DANE GREY, PRESIDENT, ELITE PARKING SERVICES
OF AMERICA, JACKSONVILLE, FL
STATEMENT OF JIMMY VAN HORN
Mr. VAN HORN. Good morning. Mr. Chairman, thank you and the
entire House Small Business Committee for inviting me to
testify here before you for the Small Business Administration.
My name is James Van Horn, as you said earlier. I am the Lead
Lender Relations Specialist in North Florida here in the
Jacksonville area. The North Florida District Office is
responsible for the delivery of SBA's programs and services
throughout our 43 counties here in North Florida. Today's
hearing topic of access to capital supporting minority firms is
one of the core missions of the SBA.
SBA has a number of programs that provide access to
capital. The most common and widely known is the 7(a) loan
program. Our agency aims to help small businesses obtain credit
which is otherwise unavailable through conventional terms. As
many of you know, oftentimes entrepreneurs have the will and
drive to succeed, but access to capital unfortunately proves to
be an insurmountable hurdle. That is where the SBA comes in.
Our programs have been helping small businesses get on their
feet and grow for decades, particularly in the North Florida
area.
The 7(a) loan program is the Small Business
Administration's primary lending program. It provides
assistance to small businesses. This loan program offers
guaranteed loans to small businesses up to $5 million, and can
be used for small business purposes, including acquiring land,
purchasing or constructing buildings, purchasing equipment, and
working capital. The SBA works with lenders to provide loans to
small businesses. The agency doesn't lend directly to the small
businesses. They use lending institutions throughout the area
to actually get our capital out to the businesses.
The SBA has established credit terms and conditions for
these loans. Community development organizations and micro-
lending institutions are all offering. The SBA reduces risk for
these lenders by making it easier to get access to capital for
these loans.
Administrator McMahon and our Office of Capital Access in
headquarters have been stressing to our lending partners that
we want to see more small-dollar loans being made to minority
entrepreneurs. Our focus is to help those who need capital
most. This includes minority-owned businesses, women-owned
businesses, our veterans, and our emerging markets.
For those businesses who need longer-term loans for real
estate, fixed assets, or large equipment, we have the 504
Certified Development Company loans. The SBA 504 Loan Program
is a powerful economic tool that offers smal1 businesses
another avenue for business financing while promoting business
growth and job creation. The 504 loan is made through our
Certified Development Companies in North Florida, and SBA's
community-based lenders can also provide the 504.
The 504 loan also is typically structured through 40
percent SBA funding of the total project costs. Participating
lenders come in with 50 percent of the total project costs, and
then borrowers are typically required to contribute anywhere
from 10 to 20 percent to the project.
For businesses that need smaller amounts of dollars, SBA
has the direct micro-lending program, the SBA micro-lending
program, providing entrepreneurs loans of up to $50,000, and
the program has an average loan amount of about $13,800. Year-
over-year, the SBA has seen a 5 percent increase in these loans
which have supported 17,500 American jobs. Another interesting
fact is that over 8 percent of these micro-loan recipients have
gone on to receive larger loans from the SBA to support their
continued growth.
All of SBA's loan programs have unique eligibility
requirements. In general, eligibility is based on what a
business does, how they receive their income, the character of
the business, and where the business operates. Also, businesses
must meet size requirements and be able to repay loans from
within the cash flow of the business, and must have sound
purposes.
In addition to the financing programs noted earlier, I
would like to take a moment to highlight some of SBA's other
services, in particular our counseling assistance programs that
are set up in North Florida. If a small business seeks
additional funding but perhaps needs some technical assistance
to polish their business plan, we can absolutely help with
that. Our office can connect a small business with a vast
network of counseling services through the Small Business
Development Centers and other resource partners that we have
here. We have found that these services are invaluable in
preparing a small business to seek additional funding.
I am proud to work for the SBA, and I am proud to serve
this community here in Jacksonville. Thank you again for
inviting me today, and I look forward to speaking with you
further.
Mr. COMER. Thank you, Mr. Van Horn.
Ms. Almond?
STATEMENT OF HILLARY ALMOND
Ms. ALMOND. Thank you for allowing me to testify today.
Just to give you a little background, I am Hillary Almond.
I am President and Founder and majority owner of Almond
Engineering. About 14 years ago we started. We have actually
been in business for 12 years now, but our journey started
about 14 years ago when I resigned from JEA, the local utility
company here. I was an engineer for JEA and got promoted to a
manger, and I actually handled all of the operations and
maintenance for the department. So I had all the maintenance
personnel. I sat on negotiation committees. I had a lot of
experience dealing with a lot of different stuff.
I resigned after our first child was born. I was going to
stay home. After a year of doing that I told my husband if I do
one more load of laundry in front of Oprah, I think I am going
to go stir crazy. So he encouraged me to reach out and talk to
old clients, and I started doing an engineering project here
and there. I called it my naptime job. While my son napped, I
would do a little work, and one job grew to two, to many.
My husband is also a civil engineer. We realized it was
time. I had too much work. We had another child by that time,
and we wanted to go out on our own. So three weeks later we had
a little office in San Marco, no clients except for the ones
that I had brought on. He did not walk away with any of his
clients. We had almost no savings because when I quit I took a
60 percent pay cut, and it was just a leap of faith. We started
Almond Engineering.
Now we are eight strong, eight employees, and in our first
year we are projected to make a million dollars this year. A
lot of people say, wow, that is a lot of money. Well, over
$850,000 of that goes back into the business with employees,
taxes, and insurance. So you might be grossing a million
dollars, but you are not making a lot. And every dime that we
made goes back into the business. You are buying computers and
you want to hire people, but you don't have the money to do it.
It is a hamster wheel that you can't get off of. It is very
difficult to grow your business. We have been trying for years
now. We just don't have the funds to hire another PE, which are
very expensive positions, to do the work.
So, Jacksonville is a unique market for engineering firms.
As a woman in business, we have gotten our Jacksonville Small
Emerging Business certification, our JSEB, our DBE, and
unfortunately shortly after the recession we went for our 8(a).
I went through 80 percent of the application process, and my
ambassador actually had me stop because she said because I was
white, I would not be considered for 8(a).
That was unfortunate, and I have been very shy to go back
after 8(a). It is unfortunate. I should probably go after it
again because it is an amazing opportunity.
So getting loans, getting capital, it is very difficult as
a small business. My husband and I are the only owners. We are
the only shareholders in the company. So when you go to do an
SBA loan, the banks shy away. Maybe that is something the SBA
can work on. But when you go to a bank and you want to do an
SBA, they constantly tell you no, no, let's go to provisional.
They really do not help with the SBA process. So we have not
been successful in that.
We have never had government assistance. The only time we
have ever gotten a loan was during the recession, and I don't
know how we got through those years, but we did. We never had
to fire a single employee. We paid them before we paid
ourselves, and I refuse to go back and look at the books
because I don't know how the bills were paid, but they were. It
is very tough. Now, I wouldn't change it for the world, a lot
of sleepless nights. There are a lot of rewards in owning your
own business. But, yes, having government assistance would be
wonderful.
I mean, right now I need all new computers. I need to hire
about three more employees. It is a wonderful problem to have,
but unfortunately I just don't have the capital to bring those
employees in, because you have to float their salaries for
about six months in order to wait for the jobs to get done and
the money start coming in.
That is a very difficult problem for small firms. We hit
the ceiling where we just can't break a little higher. We are
working on it, but maybe something like AA would help or
working with SBA to get something that would float us for a
year for that business, because we definitely have the
clientele and the book work.
Thank you very much.
Mr. COMER. Thank you.
Ms. Phillips?
STATEMENT OF ROSLYN PHILLIPS
Ms. PHILLIPS. Good morning. I am Roslyn Phillips. I am the
Vice President of the Hester Group, a small, woman-owned,
minority business that is certified as an 8(a) as well as a
HubZone by the SBA.
Thank you for the opportunity to speak with you this
morning on the subject of small business disparities in access
to capital.
The inability to access much needed capital, as was just
stated, already is quite a daunting task or an obstacle to many
small and minority businesses, and it continues to make it
difficult for them not only to survive but for them to thrive,
not stifling the opportunity to grow as the banking industry
continues to, it appears, tighten its lending policies for
small business investment.
Business owners who have not adequately positioned
themselves to meet the credit standards find themselves
utilizing credit cards or lenders of last resort with extremely
high interest rates. That further erodes the ability of the
small business to retain their equity to reinvest into the
business or to improve their financial standing that would
position them or allow them to get a traditional loan. Small
business owners, when in crisis, often resort to taking second
mortgages on their homes or even exhausting their savings in
order to continue to survive.
Hester Group, as I said, is a woman-owned, minority firm.
Hester Taylor Clark, the owner and founder and president of The
Hester Group, having received a computer for Christmas in 1998
from her family, she really had had the desire to start her own
business and be an entrepreneur and to have work/life balance
with her two small children that they were raising at the time.
And harboring that dream of owning her own business, she worked
at warp speed, and by year end of 1998 Hester Group was a
reality. Ms. Clark used her savings to capitalize her micro
business in the early years, and as her business development
efforts began to result in contracts, she was able to self-fund
the initial growth of her business and hire a couple of people
to work with her on the contracts that she had received.
Entrepreneurs in many instances are excellent at performing
the work of the business and providing the services, but
oftentimes they don't have the skills or the ability to handle
the business of the business, if you will. They either lack the
time or lack the business acumen to manage the business, or
they fail to realize the importance of the business side in
ensuring the continuation and the longevity of their business,
and that includes things like strategic management, financial
planning, marketing, and the overall operations of the
business. They are often too busy seeking new opportunities
and, in many cases, as I said, performing the work and
providing the services.
Once, when asked how she knew her business was successful,
Ms. Clark responded that she had money in the bank. It was
successful. Well, that might have been true, but what she did
not have was corporate infrastructure to make informed
decisions to support the growth that she envisioned for her
company.
In 2011, having been in business for nearly 13 years and
growing from a micro business to a thriving small business with
about eight employees, Hester Group was ready to move to the
next level. It was at that time that the recession hit, and it
was in full force, and dollars that might have been available
for marketing and communications, PR, which was the business
that Hester Group was in, were tightening, and the need to
diversify business revenue was apparent if the company was to
grow.
Having been successfully awarded local and state government
contracts, Ms. Clark began to explore Federal contracting, and
at that point it led her to the SBA. Ms. Clark spent months
researching best practices for managing and growing her
business, and available resources for training and business
development. SBA became an invaluable partner to Ms. Clark as
she sought to grow her business. In particular, she utilized
the 7J Training Program and established a line of credit
through the Loan Guarantee Program with the SBA.
She identified mentors that helped her recognize what she
needed to grow. As a result of that, she sought me out. We had
known each other in the past, and she was looking to bring on
someone with accounting and management background, the
financial experience that I brought to the company at that
time.
Mentors were very important to her in helping her identify
and make those decisions. Fortunately, the owner was always a
step ahead of what was needed to grow the company to the next
level, making sure that she positioned herself by adding me to
the team to put in financial infrastructure that led to her
ability to access capital when needed.
From my more than 30 years of experience working with small
businesses, it is my observation that the more things change,
the more they stay the same for small businesses. The
infrastructure is not in place when needed most of the time
that allows them to get the capital that they need. The
obstacles that have been identified over the years are lack of
a solid business plan to make a case for loan or venture
capital investment; lack of equity to invest; insufficient
financial documentation that demonstrates past performance and
profitability to support a loan; lack of knowledge of available
resources such as the SBA, SCORE, MBDA, SBDC, Jacksonville
Chambers Women's Center, Athena Link and others, all that were
utilized by Ms. Clark in making her case and getting the
information, the education that she needed. Understanding the
importance of establishing a business relationship with a bank
before you go in to get a loan is very, very critical in
ensuring your ability to access capital.
I know my time is up, so I am going to wrap this up.
Continuing investment in education and outreach for small
businesses is an investment in a thriving economy. The work of
the SBA and its partners is just invaluable. Hester Group has
been in operation now for 20 years. We are ready to move to our
next level of growth. We are looking at the changes at SBA with
the Protege Program, how we might be able to formalize some of
the mentorship that we have had in the past in order to help us
do that. We are an example of when things go right and you take
advantage of the resources, and you are aware of them--a lot of
times companies are not aware of the resources that are
available to you and put those support systems in place.
Hester Group now has nearly 30 employees and over $3
million in annual revenue, and we appreciate the opportunity to
present this morning.
[The statement of Ms. Phillips follows:]
Mr. COMER. Thank you very much.
Mr. Grey?
STATEMENT OF DANE GREY
Mr. GREY. Thank you, Congressman Al Lawson, Congressman
James Comer, and the U.S House of Representatives Committee on
Small Business for coordinating this hearing and for inviting
me here to speak today. I would also like to thank the
Jacksonville Chamber of Commerce for hosting this hearing and
for its continued leadership in supporting the business
community here in Northeast Florida.
I am the President and CEO of Elite Parking and Elite
Transportation Services. We specialize in transportation and
parking management services for municipalities, downtown urban
markets, airports and hospitals across the United States.
Our company, which I founded in 2007, is known for its
focus on innovation in parking and transportation. It started
as a part-time project from my dormitory room at JU. We are now
a national company with over 400 employees.
We recently announced the expansion into the autonomous
vehicle industry by becoming the exclusive provider of
operational and management support for an autonomous self-
driving shuttle known as Olli, which is manufactured by the
only U.S.-based manufacturer of autonomous vehicles, Local
Motors of Arizona. Local Motors developed Olli in 2016 as a
self-driving shuttle designed for sites using low-mass transit,
such as airports, campuses, hospitals and municipalities. The
shuttles, which will be operated by Elite Transportation, have
a maximum speed of 25 miles an hour and include speech
recognition capabilities that allow the vehicles to talk to
passengers.
From airports to university campuses, the future of
autonomous vehicles will transform the way we think about mass
transportation. Our company is preparing to offer expertise in
transportation support and technology, making it easier for
organizations and local communities to own and operate their
own fleet of autonomous vehicles.
We obviously look forward to continuing to develop our
technology and transportation offerings such as autonomous
vehicles throughout Florida, including here in Jacksonville, as
well as Miami, Tampa and Orlando. We are also looking to expand
into other areas around the country that are embracing this
technology. Cities such as Jacksonville, San Jose, Ann Arbor,
Boston, Pittsburgh, and Austin have been identified as areas
that are embracing new transportation technologies in the field
of transportation such as autonomous vehicles. In addition to
those cities, we as a company are looking at expanding into
additional places such as Kansas City, Akron, Cleveland,
Atlanta, Savannah, Montgomery, Nashville, and Southern
Kentucky.
We have been blessed that our company continues to grow. We
have great capital partners such as Signet Enterprise, a global
private investment firm that provides us with capital
investment to grow as an organization. As a small business
which is growing, without the access to capital, our economic
footprint in this sector would not be where it is today. While
our company has seen success in accessing the much-needed
capital investment, there are many stories of companies that
have stalled or closed due to a lack of investment. While
government at times can focus on assisting large businesses,
which is important, ensuring that foundations are laid so
smaller businesses can succeed is equally as important.
Thank you again to the Jacksonville Chamber of Commerce for
being such a great regional partner to businesses in Northeast
Florida, and thank you again, Congressman Lawson and
Congressman Comer, for allowing me this opportunity today. I
look forward to answering any questions you may have.
Mr. COMER. Excellent opening statements. Mr. Lawson, you
assembled a very impressive panel for discussion here today.
Since I am a Tennessee Titans season ticket holder, I was
advised I should yield to you, since you are from Jacksonville,
to begin the questioning.
Mr. LAWSON. Thank you very much, Mr. Chairman.
One thing I wanted to say before we start the questioning
is you see us as politicians, but besides coaching basketball
for eight years, I have also been in the insurance business for
36 years. The Chairman here has also been in business. Serving
on the Small Business Committee, we know the importance of
accessing capital and the importance of how small business has
contributed to the economy and employment here in America. So
we are not only politicians but business owners too, and it
gives us the opportunity to try to remove some of the obstacles
in the way of small businesses to see how we can get more
people in business.
Mr. Van Horn, the micro-loan program has long been used by
minorities and women entrepreneurs, yet the program only
provides about $50 to $70 million per year in financing, much
lower than the $23 billion in the 7(a) loan. Is this program
meeting demand? And if not, what recommendation do you have to
make it more effective?
Mr. VAN HORN. I thank you for the question. I think the
micro-loan program is doing a tremendous job. As a matter of
fact, this is my first year in Florida. I spent the last 10
years in Denver, Colorado, where I saw the micro-loan program
exclusively produce a tremendous amount of small business loans
to start-up capital for businesses that are just getting going.
This also gives the ability for those small business owners
to work with a technical assistance program through the micro-
loan program to actually build the business. They don't just
give them the loan, pat them on the back and say good luck.
They actually work with them on a number of different things--
their marketing, Quick Books, whatever it is they need
assistance with to grow, and then ultimately getting them to
the point where they are able to go to the larger lending
institutions.
I view the small business micro-loan program as a
fundamental step toward small businesses that are just getting
going and for those businesses that are just needing a small
amount of capital.
Something that we have also done through the SBA is give
these intermediary lending institutions the ability to lend on
the 7(a) platform as well. The Community Advantage Loan Program
is a loan program that is our micro-loan program. Institutions
are able to access it as well, and those loans are just like
the 7(a) lending program that you would find in a bank. The
purpose of this is to try to get more programs out to
communities that don't necessarily have the lending
institutions in place to offer these 7(a) loans.
Mr. LAWSON. Ms. Almond, your testimony is very interesting.
The problem is you don't have access to capital. Do you want to
comment on the question I asked of Mr. Van Horn in terms of the
capital resources that are available?
Ms. ALMOND. I don't see that. Maybe we just are going after
the wrong channels. The only capital we have been able to
access is a line of credit based on our own personally. As I
said, we go to the banks, and I have actually tried to go
through several banks, and the bankers, the people who do the
loans there don't even want to talk about SBA. It is uncanny.
They don't even want to discuss it. I hit a brick wall every
time, because I would love to get an SBA loan. That would help
me, and I don't know if they can do it based on hiring people,
but I do need new equipment. We just trickle in a computer
here, trickle in a computer there. We just have the same
$15,000 on the server. I had to front all that, because I have
not found anybody who is willing to help us.
We are a healthy company. We are not struggling in the
sense of--yes, I do worry about the payroll, but I have not
seen that available to us. I will be talking to you after.
Mr. VAN HORN. Yes, absolutely.
I work in the field for the SBA. Again, like I said, I
cover 43 counties all throughout the Panhandle, all the way
down to Orlando. There are two lending specialists in my
district office, two to cover 43 counties. So what you just
described is something I deal with on a daily basis, and I tell
business owners that the best advocate I can be for you is to
sit down with you one-on-one, find out what industry you are
in, how much money you are looking for, and what you are going
to be using those things for within the business. Something
that the actual government has complete access to our number of
systems that I can go back and draw upon for financial history
to see what lending institutions are lending to industries such
as yours.
Too often, a business will walk into a bank that may just
not be lending in the industry that they actually are in. And
despite being a viable business and the cash is flowing well,
it just may not be something that the institution is looking to
finance. So finding the right banking lender at the right time
is crucial to small business, and that is one of the biggest
services that I can provide, working with small businesses one-
on-one.
Mr. LAWSON. Ms. Phillips, you seem to have a great deal of
success in cutting through all the problems. Would you really
talk about how you were able to access capital in your group
and what you all have done to gain access to SBA?
Ms. PHILLIPS. Thank you, Representative Lawson. The Hester
Group early on established a line of credit with the bank that
we have a banking relationship with, but it was based on a
personal line of credit and not from the business. We were
ready to move into the next level once we had received our
designation as SBA. The types of contracts that we were looking
at required that we had a much greater need for access to
capital than the $50,000 allowed for. Although we had a long-
term relationship with that bank, for the business, instead of
using that bank, we went to a community bank, and it was
through the community bank working with SBA that we were able
to get a loan guarantee that allowed us to access money as
needed for the contracts that we were receiving. Having those
contracts in place obviously was a great benefit to us because
it helped to show our ability to repay those loans. But I think
the first thing is that Mr. Van Horn is correct. Sometimes you
are not going to be able to go to your established bank because
they may not be making loans of the type that you are looking
at for the industry that you are looking at.
Our first contract, our first major contract, we needed to
have the ability to pay 20 employees. That is a hefty contract,
and these were licensed employees that might have been
engineers or what have you, so they demanded a high rate of
pay. Hester Group at that time found that support through the
community banking industry.
Now, what has happened with some of the changes that
happened during the recession is many of those banks have been
bought up. The one that we went to is no longer in existence.
It was bought by someone else. So making sure that you have all
that information and that you don't just stop at that one door.
If one door closes, you just go to the next one and knock on it
until you get what you need. Again, the SBA has lots of
programs, lots of support, and one of the challenges I think is
that people really don't know what is available to them as far
as counseling and support and training through the SBA, and
making sure that there are avenues to get that word out is very
important.
Mr. LAWSON. Mr. Grey, starting your business from a dorm
room at JU, how have you been able to access capital and move
all across the country?
Mr. GREY. What we did initially, going back to Ms.
Phillips' statement, was we put together a business plan. Back
then I knew that it was just something we were doing as a side
project. I was working a full-time job and at the same time
growing my company. Once I went and jumped out to do it full
time, I knew I needed to do a few things.
One is to create something different, something that would
change the world. And two, have a viable product that our
customers can actually use. And three, put together a business
plan that can actually help us with a group that understood our
business. So it was a combination of different things.
After we went and presented for our capital, then we
decided it was important that we put together a board so that--
I still have my controlling interest, but a board that made me
accountable as a CEO for the things that I did and decisions
that I made. That helped us tremendously as we began to grow,
because capital then came because we had something we could use
to go to market and say here, look at what we do, and this is
how we do it, this is why we are different. That was tremendous
for us to grow and has been tremendous for us to keep growing.
Like every company, growth is great, but it also comes with
significant complications and problems. I can tell you from
running a payroll and thinking I love off payroll weeks and
love the regular weeks. You go through your mind, and as the
company is growing it constantly becomes more and more
important to have access to capital, and our partners have
provided that for us. So it has been something great to be part
of programs where the SBA has funded, such as the DB programs.
You know that the program has helped more companies grow and
expand.
Mr. LAWSON. I can't tell you how many Committee meetings we
have had in the past year. One of the questions that we always
ask so that we can work on issues that are really important,
what are some of the problems? What do you see that we could do
in Congress to help SBA, especially in the application process,
undo regulations that you all see that we have on small
business that we might be able to change?
Mr. VAN HORN. I think something you have heard from the
panel here is the lack of communication, something that
oftentimes is, quite frankly, one of the biggest obstacles that
we face as the SBA. Getting our name and our programs out there
so that people know within the communities that we serve what
is available to you, what can you get access to, that is a huge
obstacle for a lot of small businesses. I think just the fact
of knowing what an SBA loan is or how it works or how to get
one, where do you go as far as where the banks are.
Unfortunately, SBA can't make a banking institution make a
loan. These loans have to actually go through their committees,
their boards, and ultimately our service is through that
banking institution. So depending on what type of lender it is,
they can make a credit decision right there in-house without
SBA even giving final approval prior to them actually
disbursing funds.
There are a number of different programs. We have 11
different lending programs. Currently, right now, we are making
term loans through lines of credit, cyclical financing types of
loan programs.
Things that primarily get in the way, you could have credit
problems. Credit is an issue. There are a number of collateral
that one must pledge to get an actual loan, something that we
can work on as far as the programs and how they work. We are
providing a Federal guarantee for these loan programs so that
we can shore up a little bit of the risk for the banking
institutions taking these loans on. But maybe we should get
them to look at that a little bit differently.
Mr. LAWSON. That's fine. I am going to yield back to the
Chairman and maybe come back for some other questions. But I
want the Chairman to be able to ask some of the questions that
are critically important.
Mr. COMER. Thank you, Mr. Lawson.
Touching on what you said, Mr. Van Horn and Ms. Almond's
testimony, I will just give you a brief summary of my
background. My business is agriculture. I am a farmer by trade.
I have been in Congress 16 months. Before I came to Congress I
was commissioner of agriculture in Kentucky, which is what Adam
Putner is here in Florida. We worked together on some issues.
But I also was a director of a community bank for 11 years,
and being from a very rural, poor community in Appalachia in
Kentucky, we had two community banks. Unfortunately, the bank
that I served as director of did not do very many SBA loans,
very few. The other bank did. I am not a director of the bank
anymore. I resigned when I became commissioner of agriculture.
But how can we get some of these community banks that, for
whatever reason aren't doing many, if any, SBA loans--and there
are several in Kentucky, throughout Kentucky. There are banks
that really love this game. There are some that do not. What
can be done to get the banks to utilize the SBA more?
Mr. VAN HORN. SBA lending in itself is somewhat of a
specialty in the banking industry. The larger banks have entire
divisions that are dedicated to doing only SBA loans. They may
have 30 to 40 loan officers that understand how to originate
service from start to finish, whereas a community bank in a hub
in a rural area may only have one individual who hasn't even
ever done an SBA loan.
Something the SBA has done here within the last five years
to make credit easily accessible to those rural communities is
brought all of our systems online and utilize a system called
SBA-1 which takes a loan from origination all the way to the
back end. This is a system that ultimately can be easily used
at a bank, and it takes just a little bit of training from the
district office to those institutions to be able to get on the
platform with SBA.
And then really helping the bank understand and recognize
an SBA loan when it walks in the door. That is something else
we can train our banking institutions on. Unfortunately, like I
said, I am one of two individuals in the district that covers
43 counties. Getting out to all these banks is something that
is very daunting. I spent the last week in Pensacola and
visited a number of smaller institutions that may only have one
or two individuals.
The biggest thing I can do for them is be a resource to
them when they think they have an actual SBA loan in front of
them, someone they can call, someone they can get in touch
with. I have also offered a number of different avenues to get
eligibility questions and credit analysis questions answered to
these financial institutions. We have a website called
7(a)Questions.com, 504Questions.com, where they can send in an
eligibility piece describing what kind of loan they are looking
at and seeing if it is eligible for SBA and then taking it
further beyond that.
So we are working very hard to get into these communities
and really spread the word about SBA. Again, I go back to that
community advantage program. That was something that was
brought on by the Small Business Jobs Act, and it was developed
to reach more rural communities and communities in which we are
trying to gain more access to capital out there because of the
lack of lending institutions they may have to choose from. We
are getting the opportunity for these 7(a) loan programs to
actually be done through micro-loan institutions, all the CDFIs
that we can qualify out there to offer these for more access to
capital.
Mr. COMER. Great.
Switching gears a little bit, Mr. Grey and Ms. Phillips,
what could be done to get more minority entrepreneurs? I know
access to capital has to be a huge impediment. That is a huge
impediment to a lot of small businesses. But you all are
absolutely huge success stories. What can be done to get more
minority-owned businesses started? Is the SBA in your opinion
doing enough to help with educating young minority
entrepreneurs about services that are provided? Is there more
that the government can do?
In Kentucky--I don't know about Florida, but in Kentucky,
there are few minority-owned businesses that we have, and that
is something that, when I was campaigning for Congress, I
wanted to try to work with. We have Murray State University in
my district, which remember them when you are filling out your
brackets against West Virginia.
[Laughter.]
It has a tremendous program there to try to get more
minority entrepreneurs.
What advice do you have to try to expand minority
entrepreneurship in America?
Mr. GREY. Well, if I had to give my opinion, I think first,
as far as the community, we as a community have to reach out to
those schools and let people know what it means to be an
entrepreneur and how they can get started.
The second thing is that the Federal Government should fund
micro-loan programs to help small businesses that are starting
out. I mean, I know the Chamber has a great one here locally
that they try to use to get these smaller companies, whether it
be innovations or payroll, because when you think about it, if
you are looking in a segment to start a new company, you have
to make payroll. Are you going to put it on your credit cards?
You are going to max them all out, which is going to run your
credit score down. Or you are going to use every dollar you
have in your savings. To do that, to go to a traditional bank
to get an SBA loan is going to be fraught.
So there are more roadblocks set up to stop you from being
able to grow your company than there is roadblocks that are
avenues to help you grow your company. So micro-loan programs
represent a great opportunity to do so, and they can also give
the companies what they need to continue to grow.
Ms. PHILLIPS. If I could add, one of the points that I was
going to make earlier before I ran out of time was the impact
of the educational system on even the belief or the
preparedness of individuals to want to be entrepreneurs. The
lack of educational achievement, what is going on in many of
our cities and our urban communities, and the disproportionate
involvement with the criminal justice system I think negatively
impacts small businesses and entrepreneurs going in.
I think it starts back with even the public school
educational system, the need for having more technical
education programs where people get skills and learn a trade
that would influence their ability or their desire to become an
entrepreneur would be a part of it.
Many of the businesses that we do see being developed are
developed by default, if you will, out of a necessity because
of that lack of education or skill or having had some kind of
involvement in the criminal justice system, people can't access
the jobs that are available. So by default, they decide to
start a small business of some sort based on something that
they feel that they can do. But because of that lack of
education or involvement in the criminal justice system, they
cannot access any capital in any arena.
So looking at ways in which we can assist those micro-
businesses and providing some funding to them as they grow and
as they are able to do something, because if you start a small
yard maintenance business and your lawnmower breaks and you
have nowhere to go in order to replace that lawnmower, then you
are out of business and you may not have other options or those
kinds of things.
So micro-loan programs, small business programs I think
will help many smaller businesses and those businesses that are
by default or out of necessity, because they want to make a
legitimate earning to provide for themselves and their families
I think is important. But as you grow into the larger
businesses too, ensuring that there is an avenue to success by
having available education and counseling support, as well as
we used a lot of mentors. They were informal mentors. So having
people that are successful that are willing to give of their
experience and knowledge to young people or smaller businesses
is important as well.
Mr. COMER. Great.
Mr. Grey, you mentioned in your expansion you were looking
into Southern Kentucky. Give me a call if you ever end up in
Southern Kentucky, we will see if we can be helpful.
One last question, and then I will yield back to Mr.
Lawson, and I am switching gears again.
With respect to the potential of having community bank
Dodd-Frank reform, would that have any impact on the SBA?
Because I think that has been--I was on a bank board before
Dodd-Frank and after Dodd-Frank, and I understand why Congress
passed Dodd-Frank, because you had a lot of bad actors, like
Lehman Brothers and some of the big Wall Street banks, Bear
Stearns. But in my opinion, and this is my opinion, it had an
adverse effect on community banks because community banks are
very different than the big banks, and the community banks
didn't violate any laws, they didn't have hardly any bad loans
on the books.
If Congress is able--and the Senate, I believe, has a
legitimate chance at passing some type of reform, at least to
reduce the regulatory burden and the compliance requirements
for community banks, just community banks, not Wells Fargo or
Citibank or any of those but community banks--would that, in
your opinion, Mr. Van Horn, have any impact on the SBA
especially or community banks' ability to provide access to
capital?
Mr. VAN HORN. With regard to Dodd-Frank and community bank
lending, actually SBA provides quite a bit of liquidity to the
bank if properly utilized. They can sell our loans on the
secondary market. Our loan programs actually offer quite a bit
to the community banking industry. I have seen community bank
lending utilizing our programs because of what has happened
with Dodd-Frank and what-not.
Working for the Federal Government, I would love to give
you an opinion on what I think. Unfortunately, I don't think
that would be prudent. If you would like to speak later, I
would love to talk. Fortunately, sir, like you have heard on
the panel here, there are a number of things we can do.
Just the programs and services I have gone over today, that
just touches on a small amount of the actual resources that we
provide. We have a robust resource network partnership here in
the local area. Our counselors and women businesses are
unmatched throughout the country. I have been a part of a
number of them across the country.
I think educating entrepreneurs and individuals that want
to become entrepreneurs, even in an earlier setting, high
school settings, those types of settings would be crucial for
providing the resources and just the knowledge of what is
available out there.
But to get back to Dodd-Frank and the banks, I take things
as they come, and I react to markets. I hopefully can get our
programs out to more entrepreneurs here in the future.
Mr. COMER. Great. Thank you.
I will yield back to Mr. Lawson.
Mr. LAWSON. Thank you, Mr. Chairman.
One of the things, the gentleman stated that when you are a
politician and you are running for office, one of the first
things you say is I am going to bring jobs into the community.
But when you get to Congress, even coming from the state
legislature, you get into Congress and all of a sudden it hits
you in the face, what jobs are you going to bring to the
community? Are you going out to recruit corporations?
For example, Amazon, we participated in the application
process to try to bring Amazon to the Jacksonville area, which
probably could attract 5,000 more jobs. But there was other
competition throughout Florida and other places for Amazon to
be located, and we subsequently found that they went someplace
else. We didn't learn right away that the success of job growth
is related to small minority businesses, and they are growing
at a very fast rate.
So the first thing you want to do is try to see what can
you do with SBA and other obstacles, just as the Chairman
talked about, Dodd-Frank, to make access to capital one of the
biggest things that affects small business growth. So as a
result, on the Small Business Committee, one of the things that
Congress, what we tried to do is to bring these hearings all
across the country down into the communities where the small
businesses are located to let the small businesses tell you
what you can do in Congress in order to make it easier for them
to get capital, to hire employees, et cetera.
So one of the questions that I have is how small business,
SBA, improve the application process and procedures so that
more minority and small business can take advantage of the
program. So, Mr. Van Horn, I know we asked you a lot of
questions, but it is critical that we find out whether there
are major obstacles that stand in the way that need to be
changed that we can bring in before the Committee. We hear
stories like Ms. Almond's all the time. So what I am going to
tell you is that one of the things I am going to do with the
staff that we have here is to make sure that we do everything
we can to help you in your situation. You can go ahead.
Mr. VAN HORN. So in regard to getting more access to
capital, can you repeat the last part of your question again?
Mr. LAWSON. Let me just read the whole question. How can
SBA improve the application and the processing procedure so
that more minority small businesses can take advantage of the
program? I know one of them you said earlier is lack of
communication. In the application process, you also help them
through the application process, because it may become
expensive. They have to get an attorney or someone else to help
them file the application.
Mr. VAN HORN. Yes, sir. I will touch on a number of things
that you alluded to. So again, I have been with the SBA for 10
years. When I first started with SBA, I worked with a number of
career employees who have been with the agency for 20, 30, 40
years. The communication to the public about SBA loans may be
from business owners, may be from bankers that don't want to
deal with SBA lending. There are a lot of misnomers out there
about the Small Business Administration, and I am here to tell
you that during my time I have seen the SBA makes leaps and
bounds to try to make access to capital easier.
What I mean by that is when you walk into a bank and ask
for an SBA loan, first of all you need to speak to a
specialist, and you need to speak with the person who knows how
and what to do to identify you and what they are going to
require of you. Again, this is not a stack of paperwork
anymore. This is an online program. When the Small Business
Jobs Act came out and they raised the limits on the 7(a) loan
program from $2 million to $5 million, you are right, a lot of
lenders started to do those bigger loans, starting working with
a lot more existing businesses.
So what we did was kind of tailor that back to what we call
the 7(a) small loan, which was an expedited loan processing
that with the system that we are utilizing now, SBA-1, can
qualify you and ultimately get you funds within a week's time.
These systems were put in place to where you can sit down and
actually do an application with your banker right there and
know if you have a conditional approval for funding.
Time is money. I realize that. These individuals realize
that. But when it comes to getting our access to capital and
what we are doing to try to help that, we are improving our
systems daily. Ultimately, again, we are a government
organization. We are a little bit behind what you would see in
the public sector as far as accessing systems. That may be
something that you can help us with, getting more access to
faster operating systems and things that we can utilize to get
access out. But we are trying to do everything we can.
Most importantly, we are trying to listen to the community
that we service and find out what they need and what is it that
we can do here locally to try to make those things happen. I am
not trying to change the markets in Nebraska or Tennessee. I am
trying to change markets here in North Florida, the territory
that I cover. So I am working hard and my district is working
hard to make sure that the individuals that are looking for
capital are going to get service the right way.
Mr. LAWSON. Ms. Almond, what should we take back to
Washington tomorrow?
Ms. ALMOND. Mr. Grey hit the nail on the head. He said
something so profound. As a small business owner with eight
employees, I have eight employees, and that is eight families
that I am responsible to make sure that they pay their bills.
If I couldn't get my 8(a), getting government contracts in
Jacksonville as a small business is very difficult, especially
for a civil engineering firm, because the set-asides are
usually poor. Other types of businesses can get concrete work,
or maybe janitorial services. But a civil engineering firm--and
I know I am being very specific here--the only way we tend to
be able to get government contracts is to piggyback on a larger
firm. A larger firm that goes out to these are engineering
firms. They are not willing to hire a civil engineering firm to
get credits. They are going to get another--they are not
competing with their work.
So our business is very heavily dependent on the private
sector. I would say 95 percent of our work is private sector.
Anybody who works with developers knows that payment is not
always going to come out on time. You love to get a government
contract because you know you are going to do the work, you are
going to do it on-site, you are going to get paid in a certain
amount of time.
The problem that I see, as Mr. Grey said, is you want to
make payroll. So if that client doesn't pay you--hey, the check
is in the mail--it doesn't show up and you have payroll, you
are on the credit card. Or in my case, I can't tell you how
many times I have not taken my pay, my paycheck, because it is
important to me that my employees get paid, and I cannot count
how many times that means I am late on a bill. But that is my
responsibility to my employees. So our credit is not stellar,
where some other people's would be.
All the banks we talk to are SBA loan banks, and I am
talking to the SBA people. But if you don't have 800 credit or
above, they just don't want to deal with you. But we deal with
a cash flow crisis because we are private sector dependent.
That is a big problem. I mean, our credit is not bad, but it is
not stellar. We have great clients, we have a great reputation,
we have backlog, but they don't want to look at that. So that
is a huge problem for small businesses. Just something to
consider.
Mr. LAWSON. Okay. And what I was piggybacking on is in
saying that when we go back tomorrow--and maybe Ms. Phillips
can comment on that--oftentimes we ask the Chairman of the
Committee and so forth to try to find out when we are out in
the field what situation can we change. Do we need more capital
for SBA? A lot of people probably in this room today are small
business owners, and the idea also to get information on what
we might be able to do in Congress to help them grow their
business and at the same time change because we have the people
coming over at SBA that we are trying to find out what we can
bring back to them for them to change. They seem to be pretty
willing to make those changes.
One other thing I want to say, Ms. Phillips, is you said
something in your statement that because of the criminal
justice system, how some people automatically, because they
can't get into the job market, it is by accident they start
their own business. Well, Congress should look at that area.
When I was in the state legislature, we tried to make sure
that, for the first time, that some people involved in the
criminal justice system that was not heinous crimes and so
forth be given another opportunity, because it doesn't make any
sense that they cannot become full citizens in the community.
So as a result, that is one area that I will be working on
in the congressional area to try to see what can we do to set
up special programs where we can review those applications a
little bit differently so that they will have the opportunity
to grow their business. It might be one mistake, but we aren't
going forward by preventing people from having an opportunity
and resources, because we have a lot of businesses now that are
beginning to hire these individuals and giving them the
opportunity so they can really take care of their families. So
I just want you to know that I really appreciate you saying
that. Maybe you can comment on what we might be able to do to
make it better.
Ms. PHILLIPS. Thank you. It sounds like you are on the
right track. Again, many times people do have a skill or a gift
or a talent that they could utilize in order to gain if not
employment, to start their own business and to be able to be
productive and create income for their families. So you are on
the right track.
But again, education is key, making sure that people are
aware of what is available, the resources that are available to
them. Here at the Chamber, the Women's Center has been an
invaluable partner to us, working specifically with women and
the issues that women address or women face in business. The
Hester Group is a woman-owned minority business, so we have
obstacles that come at us from many angles as we begin to look
at moving to the next level and growing the business.
But making sure that there is not only the programs in
place, and SBA certainly I would think, based on the testimony
of Mr. Van Horn being only one of two in a 43-county area, that
they could use more resources, getting the word out and making
sure that there are field people that can work with the lending
institutions as well as with the businesses that need the
support is helpful. The SBDC has been very helpful. But if you
don't know about these resources, then you can't tap into them.
The Hester Group started as a PR marketing firm. We can help
the SBA with that.
[Laughter.]
Ms. PHILLIPS. I had to say that. The boss is in the
audience.
[Laughter.]
But making sure the information gets to the people that can
use it is very critical and very important to making sure it
works.
The 8(a) program and the Federal programs that are set-
asides and that kind of thing that you have to qualify for,
they are not the golden egg for small businesses. We run into
SBA-approved businesses every day that have never received a
Federal contract. De-bundling some of the very large contracts
is really important for small businesses to be able to access
and get awards of contracts that would support going to a
lending institution maybe and showing their repayment ability
or stream of income to repay that helps get the approval. But
when you have $100 million contracts that are being let by the
government, there is limited opportunity for small businesses
to really compete to get those kinds of contacts. So de-
bundling those contracts or making them smaller so that we can
be competitive is something that the Hester Group for many
years has been addressing and talking about.
The business of being in business is hard work, and I am
sure all of these business owners spend a lot of time in
business development. Relationships are very important. We talk
to people for years, years, before we are able to identify an
opportunity where we can work with an agency. It doesn't happen
overnight.
Mr. LAWSON. Mr. Grey, if you were testifying before the
congressional committee next week, and they asked you the
question what can Congress do to improve or remove some of the
obstacles and so forth, I know that probably in the type of
business you are in, there is a lot of paperwork and a lot of
things. What can Congress do to remove some of the obstacles
that keep you from growing your business?
Mr. GREY. Well, first, we are a little bit different. A lot
of our stuff is regulated because we are transporting the most
precious cargo ever, humans. So I can understand some of the
regulations. From the small business side in terms of access to
capital and growth, I think some of the policies or regulations
that are created for small companies are kind of almost like an
oxymoron. Going back to small business access to capital and
having to have an 800 credit score but you are using your
credit cards, it doesn't kind of go hand in hand.
So having an opportunity or creating legislation or a
vehicle that can help small business gain access to capital and
then go through the education process of gaining more
opportunities would help small businesses tremendously.
Mr. LAWSON. Ms. Almond, since you have had a lot of
difficulty in terms of being able to employ those eight people,
if we can take a message back that can help you more for you to
be able to grow your business, is it just access to capital
sources that you can go to?
Ms. ALMOND. Well, we still are a very healthy company. I
don't want anyone to think we are dying down here. No, we are a
very strong company. We do what it takes to get work.
Having access to capital is only one aspect. I don't like
how difficult it is to get government contracts. It is
extremely difficult, and I have been working on it for 12
years. I worked for JEA, and getting a JEA job is almost
impossible. Everybody wants to use the big, expensive firms. We
do the same quality work for a lot less, so why are small
companies not given more set-asides?
Like I said, having government contracts is a very nice,
steady stream of income. They are not going to disappear one
day, which happens a lot in the private sector. So it is a two-
fold system. Yes, access to capital right now would be enormous
for my company, because I am at that precipice where I need it
because I need to hire more people to handle the workload that
is coming in. It is incredible what is happening today. Our
work has exploded, but I have to handle that with the staff I
have, which is incredibly difficult. But again, it is private
work, so we hope we get paid at the end of the day.
So I think it is two-fold. Make it easier to get SBA loans,
let us know more about it. The places I go, I am asking around
people who have not gotten SBA loans but know the process. So I
am talking to, I think, the right people. But also, don't make
it so difficult to have qualified small firms do government
work. I love Jacksonville. I was born and raised here. But it
is a good ol' boys network. I mean, I know I am not saying
things that nobody knows. So it is incredibly difficult to go
out there and just try to prove yourself that you can do these
jobs. I think it is a two-fold system here. I don't think the
access to capital is the end-all and be-all of helping small
firms.
Mr. LAWSON. I am going to ask the man to change all that.
[Laughter.]
You wanted to comment, Ms. Phillips?
Ms. PHILLIPS. Yes. In preparing for today, I actually
reached out to several small business owners and just asked
them what some of their experience has been, and the access to
capital they confirmed was one of the greatest challenges that
they have.
One of the things that they mentioned, and I knew a number
of things that I mentioned in the testimony that people use
their charge cards and other things, but there are these
alternative finance companies, I will say. They named several
of them. Several of them named the same companies that small
businesses are now going to, and based on their bank statements
and the revenue that they are generating on a monthly basis,
they can very quickly get loans. But some of these loans are at
30 percent interest, 30 percent interest. The devastation that
that has on a business, that is 30 percent of whatever the
amount they are lending that they can't reinvest into their
business or that they cannot use to make payroll or what have
you.
One individual told me yesterday that she borrowed $20,000
after the hurricane in order to make repairs to her building so
that she could continue to operate, and though she paid it back
in 11 months, she paid $6,000 in interest on $20,000. That is
tantamount to loan sharking, it seems to me.
So I don't know if there is any regulation that can be done
with those kinds of things or not, but certainly that was a bit
of a surprise to me, and I heard it from more than one.
Mr. LAWSON. Mr. Chairman, with that, I yield back.
Mr. COMER. Thank you.
One thing I want to catch up on that we hear a lot, and we
have had a few Committee hearings, we the Small Business
Committee, pertaining to the difficulty with small businesses
to obtain government contracts. I have two huge entities in my
district that have a lot of government subcontractors,
contractors and subcontractors, Fort Campbell military base in
Fort Campbell, Kentucky, and then we had in Paducah, Kentucky a
uranium enrichment plant that is being deactivated by the
Department of Energy. So that is a huge, huge project, and a
lot of our small businesses complain that only the big
corporations get in and that they are at the mercy of those big
corporations when they can do the same thing. So that is
something that the Committee has heard in the past. It is
something that I am going to try to do everything I can to see
that the small business is on a level playing field with the
big, mega, publicly-traded companies. So I appreciate that.
Mr. Lawson, that concludes my questioning. I will yield
back to you for any further questions. If not, then you can
provide your closing statement.
Mr. LAWSON. Okay, Mr. Chairman. I just have one question.
For those of you who have previously applied for SBA loans,
what help or insight can you offer for those considering
applying for loans?
I might start off with Mr. Van Horn and just go through the
panel before we make any closing statements.
Mr. VAN HORN. What insight can I provide to someone
considering an SBA loan?
Mr. LAWSON. Right, considering an SBA loan.
Mr. VAN HORN. I would consider utilizing our full service
of resource partners to help you develop a business plan that
you are going to be able to walk into the bank with and have
all the different things that they are looking for addressed.
I would also consider being very realistic with the money
you are asking for. If you want $100,000, if you want $1
million, know where you are going to be putting that money, and
make sure it is clearly defined in your business plan. The
first thing a banker or a banking institution is going to do is
read your executive summary to find out who you are, and then
they are going to flip to your financials. They want to look at
your cash flow projections and/or, if you are an existing
business, they are going to want to see what that cash flow
looks like, and they want to know what are you going to be
utilizing those funds for within that business, because
ultimately they want to know how you are going to repay them is
what it comes down to.
Can I touch on a couple of different things as well?
Mr. LAWSON. Yes.
Mr. VAN HORN. As far as 8(a) goes, I work in an office that
has about five individuals that work with the 8(a) program.
Something I have done with the financial division within our
district is to start working with the 8(a) firms that are first
coming on and then working our way through the existing 8(a)
businesses to connect them with banking institutions that are
familiar with their industry so that they have an avenue of
capital to reach out to when they need that. I think that is
crucial. From the beginning hopefully that can happen, and I am
trying to make sure that that is happening at this point now.
But to get back to what would prepare an individual, I
would ask that an individual considering SBA financing--and I
know this might come off a little brazen, but I would like to
talk to you. I would like the opportunity to sit with you. I
would like the opportunity to utilize the information I have at
my fingertips to help put you in the right seat in front of the
right person at the right time. I have found that that is one
of the biggest things that I can do to help a small business
such as yourself, Ms. Almond, such as yourself, Ms. Phillips.
Those are the types of things that I can personalize and try to
get the right answer or the right lending institution to you at
the right time.
So again, be realistic, and have a firm, developed business
plan, and utilize the resources that we have here. Most of the
resources that we have are actually free of charge or a small
charge, and that is few and far between when it comes to small
business. Nothing is free in business. But we would like to
make sure that you are getting the information and the mentors
ultimately that you need to be successful.
Mr. LAWSON. Ms. Almond, did you want to comment?
Ms. Phillips?
Ms. PHILLIPS. I think he touched on all of the points that
I made earlier, that solid business plan and the importance of
it to attracting venture capital or getting bank financing,
making sure that you have some equity. Financiers want to see
some skin in the game, they say, in order to show your
commitment to the business and your willingness to invest your
own funds into it.
Financial documentation. Having graduated from FSU with a
degree in accounting, you need to make sure that your finances
are in order, your tax returns, all of those things, that you
are meeting those responsibilities and those requirements and
have them in place.
Being able to show your past performance and your
profitability in that past performance, your success there, is
important.
Utilize your resources. The Women's Center here, as I said,
we utilized quite a bit. If they cannot help you, they
certainly have the referrals to the resources that can assist
you as you go through your financing.
Understanding the importance, again, of having a banking
relationship is also important, I believe.
So if you do all of those things, as well as finding a
unique niche--Hester Group is very good at managing and
attracting good talent to fulfill the needs of our clients. So
what makes you different from all of the other small businesses
that are out there competing to do the very same thing and
being able to share that. You have to have an elevator speech,
and everybody you talk to, you need to have your business cards
and you need to be passing them out.
But as it relates to getting the capital that you need,
utilize your resources. Get a mentor.
Mr. LAWSON. Mr. Grey?
Mr. GREY. My last thing would probably be a lot of
companies would probably look for infrastructure to grow upon.
So that type of capital is very complex capital because it
sometimes has great yield, and it can also be a great loss as
well. So understanding core values and aligning your
organization. Core values would be one of the areas where I
would say we struggled in our initial set-up and having to
figure out how to get the right people, because when you start
off as a company of 100,000 and you get to a company of a
million, and then two, and then 15, you are a whole different
organization. So having that type of brain power to help you
grow is something that is crucial, and understanding how to
manage that brain power as well is critical for any business
owner.
Mr. LAWSON. Okay, thank you very much.
Before I make my closing comments, I understand that Mr.
George Morgan is here from the City Commission.
Will you please stand? Thanks for being here with us today.
[Applause.]
Ladies and gentlemen, first of all I want to thank the
panel here for their input today, and I want to thank all of
you all for coming here today. Hopefully in some way, the
information that was provided from the panel will be very
helpful to you in the business process.
I would like to say that I have several of my staff members
who are here that can be very helpful to you. Margaret is a
legislative director. Jenny, who we got from Jacksonville, is
here. Tony is here. The staff director, Cardinal Wesley, is
here. We are located, as you know, on David Street.
So I really would like to take some of the personal
situations that you experienced, Ms. Almond, that we can really
help you through the whole process. And I want to say, Mr. Van
Horn, we will take back that other staff as needed in order for
all of the areas that you have to cover--I would just like to
say, I think you are doing a tremendous job.
I would like to say to the Chairman from Kentucky, since
this is March Madness, I wanted to remind you that in 1972 we
beat Kentucky on our way going to the national championship. So
I don't want to forget about that.
[Laughter.]
You were there in '72? That was a great feat. I might say
that last year I had a March Madness party that I had for
Congress whenever she was playing Xavier. So I did all that
bragging, and when we got there they blew us out and I didn't
have very much to say. So I hope it will be a little bit
different this time in playing Missouri.
[Laughter.]
But I learned a long time ago, and certainly in the
legislature, that the reason why we are here is because you
want us to work on your behalf. That is what my philosophy has
always been, and this is what Congress should always be about,
is bringing committees to the communities. There have been
several in here I know who have traveled up to Washington,
D.C., but this is what it is about, is bringing the committee
down here so you can hear firsthand.
I am so fortunate that the Chairman and I came from similar
backgrounds, rural. He used to tease me that when he passed
through my city, if you blink your eye, you miss the city. But
that is where it all started from. So we want to make sure that
we are going to grow the economy and have more jobs, that we
remove all of the obstacles that stand in the way of small
businesses.
So we are here to work with you and take this message back.
It is going to be kind of busy up there the next couple of
weeks, but let us know when you are coming by so that we can be
there for you.
SBA, I guess we asked a lot of questions, but it is real
helpful, a lot of the information that you gave us today.
With that, Mr. Chairman, I yield back to you.
Mr. COMER. Well, thank you, Mr. Lawson. Thank you for
coming up with the idea to have the field hearing here in
Jacksonville today.
I want to thank our witnesses for your testimony.
I especially want to thank our business owners for the
economic impact, for the risks that you have taken, for the
jobs that you have created, and we hope that you have continued
success and continue to grow and expand your businesses.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record.
Without objection, so ordered.
This hearing is now adjourned. Thank you.
[Whereupon, at 11:32 a.m., the Committee was adjourned.]
A P P E N D I X
Testimony of
James Van Horn
Lead Lender Relations Specialist
North Florida District Office
U.S. Small Business Administration
HOUSE SMALL BUSINESS COMMITTEE
FIELD HEARING
March 12, 2018
Good morning Mr. Chairman, thank you and the entire House
Small Business Committee for inviting me to testify on behalf
of the Small Business Administration today. My name is James
Van Horn, and I am the Lead Lender Relations Specialist in the
North Florida District Office here in Jacksonville. The North
Florida Office is responsible for the delivery of SBA's many
programs and services throughout the region. Today's hearing
topic of Access to Capital and supporting minority firms is one
of the core missions of the SBA.
SBA has a number of programs that provide access to
capital. The most common and widely known is the 7(a) loan
program. The role that the SBA and the Office of Capital Access
plays in our credit markets fills an important gap in the
lending marketplace. Our agency aims to help small businesses
obtain credit which is otherwise unavailable through
conventional lending. As many of you know, oftentimes
entrepreneurs have the will and drive to succeed, but access to
capital unfortunately proves to be an insurmountable hurdle.
That is where we come in. Our programs have been helping small
businesses get on their feet and grow for decades, particularly
here in North Florida.
The 7(a) loan program is the Small Business
Administration's primary program providing financial assistance
to small businesses. This loan program offers guaranteed loans
to small businesses of up to $5 million on reasonable terms and
conditions that can be used for business purposes, including
acquiring land, purchasing or constructing a building,
purchasing equipment, or working capital. The SBA works with
lenders to provide loans to small businesses. The agency
doesn't lend money directly to small business owners through
the 7(a) loan program. The lender provides the loan to the
small business and SBA provides a guaranty to the lender. The
SBA has established credit criteria and terms and conditions
for loans made by its partnering lenders, community development
organizations, and micro-lending institutions. The SBA reduces
risk for lenders and makes it easier for small businesses to
get loans.
Administrator McMahon and our Office of Capital Access in
headquarters have been stressing to our lending partners that
we want to see more small-dollar loans being made to
entrepreneurs. Our focus is on helping those who need capital
most--that includes minority-owned businesses, women-owned
businesses, our veterans, and all of our emerging markets.
For those small businesses who need longer-term loans for
real estate, fixed assets, or large equipment, we have the 504
Certified Development Company program. The SBA 504 Loan program
is a powerful economic development loan program that offers
small businesses another avenue for business financing, while
promoting business growth, and job creation. 504 loans are made
available through Certified Development Companies (CDCs), SBA's
community based partners for providing 504 Loans.
504 Loans are typically structured with SBA providing 40%
of the total project costs, a participating lender covering up
to 50% of the total project costs, and the borrower
contributing at least 10% of the project costs. Under certain
circumstances, a borrower may be required to contribute up to
20% of the total project costs.
For business needs at the smaller end of the dollar
spectrum, SBA has the direct Microloan program. Microloans are
loans in what would be considered ``smaller'' amounts than
conventional business loans. SBA's Microloan program, for
instance, provides loans of up to $50,000 to help small
businesses and certain not-for-profit childcare centers start-
up and expand. SBA makes loans to not-for-profit lending
intermediaries who then make microloans to small businesses for
up to $50,000. However, the program has an average loan size of
just $13,800. Year-over-year, we have seen a 5% increase in
these loans which have supported an estimated 17,500 American
jobs. Another interesting fact is that over 8% of our microloan
recipients have gone on to receive larger loans from the SBA to
support their continued growth. This is incredibly encouraging
and we would definitely like to see this number continue to
increase. The key to this program is the Technical Assistance
the microlender provides to the borrower.
It is incredibly encouraging to see the impact that the
Microloan program has had for so many American small business
owners. This program is a way for aspiring and existing small
business owners to access capital at a reasonable rate,
especially when you compare it to maxing out multiple credit
cards at much higher interest rates.
All of SBA's loan programs have unique eligibility
requirements. In general, eligibility is based on what a
business does to receive its income, the character of its
ownership, and where the business operates. Also, businesses
must meet size standards, be able to repay the loan from the
cash flow of the business, and have a sound business purpose.
Even those with bad credit may qualify for an SBA-guaranteed
loan.
In addition to the finance programs noted earlier, I would
like to take a moment to highlight some of SBA's other
services. In particular, our counseling and assistance
programs. If a small business seeks additional funding, but
perhaps needs some technical assistance or to polish their
business plan, we can help with that. Our office can connect a
small business with a vast network of counseling services
through the Small Business Development Centers and other
resource partners. We have found that these services are
invaluable in preparing a small business to seek additional
funding.
I am proud to work for the SBA and to help the local
community here in Jacksonville. Thank you for inviting me here
today and I'm happy to answer any questions you may have.
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Roslyn Mixon Phillips March 12, 2018
Statement to the House Small Business Committee hearing on
``Disparities in Access to Capital: What the Federal Government
Is Doing to Increase Support for Minority Owned Firms.''
Good morning,
I am Roslyn Mixon Phillips, Vice President of Hester Group,
a small, woman-owned, minority business, certified as an 8(a)
and HubZone by the SBA.
Thank you for the opportunity to speak with you this
morning on the subject of small business disparities in access
to capital.
The inability to access much needed capital, already quite
a daunting task/obstacle for many small and minority
businesses, continues to make it difficult for them survive not
to mention stifling any opportunity to grow as the banking
industry tightens their lending policies. Business owners who
have not adequately positioned themselves to meet credit
standards find themselves utilizing credit cards and lenders of
last resort with extremely high interest rates. That further
erodes their ability to retain equity for reinvestment or to
improve financial standing that would position the business for
tradition loans. Small business owners when in crisis often
resort to taking 2nd mortgage loans on their homes or exhausted
their savings just to survive.
Hester Group (HG) is a small, women owned, minority firm.
Having received a computer as a Christmas present from her
family and a desire to have work/life balance as she raised her
two children, the dream that she had harbored of owning her own
business moved at warp speed and by year end HG was a reality.
Hester Taylor Clark, the Founder and President of HG, used her
savings to capitalize her micro business in the early years and
as her business development efforts began to result in
contracts was able to self-fund as she bought on staff.
Entrepreneurs in many instances are excellent at performing
or providing the service but not as good at handling the
business of the business. They may either lack the time, lack
the business acumen to manage the business or fail to realize
the importance of providing for the strategic management to
include financial, operations and marketing. They are often too
busy seeking new opportunities and, in many cases, performing
the work.
Once when asked how she knew her business was successful,
Ms. Clark responded that she ``had money in the bank''. That
was true, but what she did not have was corporate
infrastructure to make informed decisions to support the growth
that she envisioned for the company. In 2011, having been in
business for nearly 13 years and growing from a micro business
to a thriving small business, HG was ready to move to the next
level. It was at a time the recession was in full force and
dollars that had gone into PR and marketing were tightening and
the need to diversify business revenue was apparent, if the
company was to grow.
Having been successfully awarded local and State government
contracts, Hester began to explore federal contracting
opportunities which lead to the SBA 8(a) Program. At this point
self-funding was no longer an option.
Ms. Clark spent months researching best practices for
managing and growing small businesses, available resources for
training and business development. SBA became an invaluable
``partner'' in the company's growth through the 7J Training
Program and establishing a line of credit through its loan
program.
Additionally, she identified mentors that helped her
identify what she needed to prepare for growth. Identification
of mentors is vital to transitioning the business and
identifying obstacles and how to overcome them. Mentors are not
all one size fit all and HG has had several informal mentors
depending on the issue/need. With the recent changes to the SBA
Mentor Protege Program, HG is currently looking to identify a
formal mentor as we move to the next level of growth.
Fortunately, the owner of Hester Group was always a step
ahead of what was needed for the next level which positioned
her to have the financial infrastructure in place to access the
capital when needed.
From my more than 30 years of experience working with small
businesses, my observation is the more things change, the more
they stay the same, the infrastructure is not in place. The
obstacles to accessing capital for small and minority owned
businesses have not changed:
Lack of a sold business plan to make case
for loan or venture capital
Lack of equity to invest
Insufficient financial documentation that
demonstrates past performance and profitability to
support ability to repay
Lack of knowledge of available resources and
support such as SBA, SCORE, MBDA, SBDC, Jacksonville
Chambers of Women's Center, Athena Link and others
Understanding the importance of establishing
relationship with Banker/Financial Institution
An additional point I would like to add is the impact of
education and criminal justice system on small minority
businesses that are businesses by default. Many of these
businesses are born out of necessity as the owners have no
other options to generating income to provide for themselves
and their families. Opportunities for these micro small
businesses to access capital don't exist as the barriers are
insurmountable for most, if not all, existing programs or
financiers.
Continuing investment in education and outreach for small
minority businesses is an investment is a thriving economy.
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