[Senate Hearing 116-55]
[From the U.S. Government Publishing Office]
S. Hrg. 116-55
REAUTHORIZATION OF THE SBA'S INTERNATIONAL TRADE PROGRAMS
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
APRIL 10, 2019
__________
Printed for the Committee on Small Business and Entrepreneurship
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
36-841 PDF WASHINGTON : 2019
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SIXTEENTH CONGRESS
----------
MARCO RUBIO, Florida, Chairman
BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
JAMES M. INHOFE, Oklahoma CHRISTOPHER A. COONS, Delaware
TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii
JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois
MITT ROMNEY, Utah JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
Michael A. Needham, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
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Opening Statements
Page
Rubio, Hon. Marco, Chairman, a U.S. Senator from Florida......... 1
Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator from
Maryland....................................................... 2
Witnesses
Panel 1
Glaccum, Mr. David M., Associate Administrator, Office of
International Trade, U.S. Small Business Administration,
Washington, DC................................................. 4
Panel 2
Pringle, Ms. Signe, Assistant Secretary for Business Development,
Maryland Department of Commerce, and President, State
International Development Organizations, Baltimore, MD......... 22
Gornall, Mr. Scott, Vice President of Sales, BAON Enterprises,
LLC, Chestertown, MD........................................... 28
Mencia, Mr. Manny, Senior Vice President, International Trade &
Development Enterprise Florida, Coral Gables, FL............... 33
Pische, Mr. Daniel, Senior Vice President, First American Bank,
Coral Gables, FL............................................... 39
Alphabetical Listing
Cardin, Hon. Benjamin L.
Opening statement............................................ 2
Comments from Connecticut, Idaho, Iowa, Kansas, Massachusetts,
Michigan, Mississippi, New Hampshire, New Jersey, Rhode Island,
Utah, and Virginia
Testimony.................................................... 72
Glaccum, Mr. David M.
Testimony.................................................... 4
Prepared statement........................................... 7
Responses to questions submitted by Chairman Rubio........... 62
Gornall, Mr. Scott
Testimony.................................................... 28
Prepared statement........................................... 31
Mencia, Mr. Manny
Testimony.................................................... 33
Prepared statement........................................... 36
Pische, Mr. Daniel
Testimony.................................................... 39
Prepared statement........................................... 41
Pringle, Ms. Signe
Testimony.................................................... 22
Prepared statement........................................... 25
Rubio, Hon. Marco
Opening statement............................................ 1
REAUTHORIZATION OF THE SBA'S INTERNATIONAL TRADE PROGRAMS
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WEDNESDAY, APRIL 10, 2019
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 2:32 p.m., in
Room 428A, Russell Senate Office Building, Hon. Marco Rubio,
Chairman of the Committee, presiding.
Present: Senators Rubio, Ernst, Young, Romney, Hawley,
Cardin, Cantwell, and Shaheen.
OPENING STATEMENT OF HON. MARCO RUBIO, CHAIRMAN, A U.S. SENATOR
FROM FLORIDA
Chairman Rubio. Today's hearing will come to order, and I
want to thank the witnesses who are here and some who are on
their way.
Today's hearing is titled the ``Reauthorization of the
SBA's International Trade Programs.'' It is the Committee's
second in a series focused on reauthorization of the Small
Business Act. It builds on last week's capital access
reauthorization hearing in many ways.
Our first hearing discussed the SBA's 7(a) guarantee
lending programs at large. This week we are going to dive into
the export-specific loan programs, a division of the 7(a)
program that is offered though the SBA's Office of
International Trade. We will also examine the State Trade
Expansion Program, which is commonly referred to as STEP.
Despite boasting a remarkable 30.2 million small businesses
in our country, the SBA's Office of Advocacy reports that a
little under 288,000 businesses are involved in export. That
means less than 1 percent of small firms are exporting. That is
problematic because three-fourths of the world's purchasing
power and 96 percent of the world's consumers reside outside of
the United States. So you can see the potential for small
business growth through expansion into international markets.
My home State of Florida was the eighth largest exporter in
the country. More than 232,000 jobs in Florida are supported by
international trade, and 56,664 small businesses are operating
as exporters. So why do not more small businesses export?
The most recent Small Business Exporting Survey, prepared
by the National Small Business Association and the Small
Business Exporters Association, reports high barriers to
exporting. Small businesses report in the survey a lack of
exporting education, concerns that they will not get paid by
foreign buyers, and of fear regulatory barriers and complexity.
The State Trade Expansion Program that I mentioned a moment
ago, or STEP, provides matching grants to U.S. States and
territories to help more small businesses begin exporting or
expand the volume of goods and services they already export.
The impact that STEP has had on small businesses has been
truly remarkable. In 2016, STEP aided more than 7,000 small
businesses and returned approximately $31 for every one Federal
dollar invested.
In addition to STEP, the SBA Office of International trade
also administers three export-specific loan programs. They are
the Export Express loan program, the Export Working Capital
loan program, and the International Trade loan program. All
three are offered through the 7(a) loan program.
The export-specific loan programs were reported to have
collectively only provided small businesses with a total of
$734.6 million in loans last fiscal year.
We know that loans are also made to exporters through the
general 7(a) loan guarantee program as opposed to the export-
specific products due to a lack of clarity from SBA on
requirements and eligibility. That is according to many SBA
lenders.
Many of the states with the highest number of SBA export-
specific loans are represented by members of this Committee.
Last fiscal year, Florida, New Jersey, Illinois,
Washington, and Missouri were listed among the top 10 export
loan markets. Despite making up half of the top loan markets, a
total of only 144 export-specific loans were made in these five
states. In fact, only 476 export-specific loans were offered
nationwide last fiscal year.
The total number of export-specific loans not only
concerned me in terms of their limited small business impact,
but also with regard to the program's overall efficiency
levels.
Currently, the SBA employs over 20 GS-15-level individuals
to administer the export-specific loan programs, making the
administrative costs of the program remarkably high. In
addition to the cost of salaries and expenses for these 20-plus
employees, taxpayers also support office space and travel
expenditures, again, to support less than 500 export-specific
loans in a single year.
Today's hearing will give us the important opportunity to
assess the SBA international trade programs and examine
potential improvements from both committee members and our
witnesses.
And with that, now I recognize the Ranking Member, Senator
Cardin.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, RANKING MEMBER, A
U.S. SENATOR FROM MARYLAND
Senator Cardin. Well, thank you, Mr. Chairman.
I am going to just emphasize some of the points that you
made in your opening statement, and that is we are pleased that
this is our second hearing on the reauthorization of the SBA
programs. We dealt with access to capital in the last hearing,
and today we will deal with the international trade.
We know that small businesses are the growth engine of
America. That is where jobs are created and innovation takes
place. We also know that so many small businesses are not
engaged at all in international trade, even though their
products could be in international trade. And we also know, as
you pointed out, the global marketplace is where most consumers
are. So it only makes sense for us to try to connect small
businesses to the global market.
SBA has tools that we need to take a look at. That is our
responsibility at the Small Business and Entrepreneurship
Committee.
You mentioned the primary program, the State Trade
Expansion Program, STEP. There are also three investment
programs that are available under the small business that we
need to take a look at to see how those programs are working as
well.
Quite frankly, according to the most recent performance
reports on STEP, every dollar invested in a program returns
$31, so it is a pretty good return. I understand that there is
a lot of capacity that needs to be expanded, but we are getting
a good return today.
The report also found that STEP generated more than $500
million in export sales and assisted more than 7,000 small
businesses nationwide. More than 3,000 of those businesses were
able to explore export opportunities for the very first time.
That is exactly why we have the STEP program.
In total, STEP and the three SBA export loan programs--the
Export Express loan program, the Export Working Capital loan
program, the International Trade loan program--led to $3.1
billion in export sales for small businesses in FY18.
As we will hear from our witnesses today, exporting is no
easy task, and for a small businesses, it can seem
overwhelming.
On top of creating a good product that consumers want,
companies must learn how to access international markets and
then find capital to expand into those markets.
Small businesses with their razor-thin profit margins and
smaller staff simply do not have the time and money it takes to
travel abroad, make the contacts with potential trading
partners, and navigate the rules that govern international
trade.
To help small business overcome these barriers, Congress
created STEP in 2010. The program awards grants to State
economic development agencies so they can help small businesses
attend international trade shows and connect with customers in
foreign markets. The grants also allow economic development
agencies to provide counseling and training to help small
businesses understand the rules of international trade.
I have seen the benefits of these programs in my home State
of Maryland, which has received seven STEP grant awards since
Congress created the program. The grants have helped Maryland
small businesses and helped sciences, defense, cybersecurity
sectors, and expanding into international markets.
And today I am thrilled that we will have the opportunity
to hear about one of those success stories. Scott Gornall from
BAON Enterprises, a software distribution firm located on the
Eastern Shore of Maryland, will tell us how a 2018 STEP-funded
trade mission to Asia and Europe resulted in the company
signing its first international deal, and even better, the
company made many vital connections on the trip that continue
to fuel its international expansion. That is exactly why we set
up STEP.
STEP is an invaluable resource for American small
businesses, which is why we must take every opportunity we have
to improve the program to make it even more effective, and I
hope this hearing will help us lead to those results.
A GAO report released last month found that the State
economic development agencies face severe obstacles in
administering STEP grants, including cumbersome red tape,
inconsistent communication from the agencies, and inflexible
requirements. Let us hear about that. Let us see what we can do
to make this program more efficient and less burdensome on the
groups that we are trying to help, the State economic
development agencies.
So I am looking forward to hearing from both panels of our
witnesses. I hope that we can have a concrete discussion.
I might say, Mr. Chairman, that the administration's FY2020
budget proposing a 60 percent cut in STEP is not the direction
I hope we go in. Given the President's emphasis on reducing the
trade deficit, it is hard to understand why the Administration
would propose drastic cuts to a program that has proved to
increase American exports.
I look forward to hearing from our witnesses.
Chairman Rubio. Thank you.
Our first witness, our only witness on the first panel, is
Mr. David Glaccum. He is the Associate Administrator of the
SBA's Office of International Trade. He was appointed by
Administrator McMahon just 2 months ago, and before that, he
had served as the Policy Advisor, Deputy Chief of Staff, and
most recently as Chief of Staff to former UN Ambassador Nikki
Haley, and before that, he survived his work as Chief Counsel
to Senator Lindsey Graham.
[Laughter.]
And he has a bachelor's degree in Culinary Management from
the Art Institute of Pittsburgh and then a JD from the
University of South Carolina School of Law.
Thank you for being here. Welcome to the committee.
STATEMENT OF DAVID GLACCUM, ASSOCIATE ADMINISTRATOR, OFFICE OF
INTERNATIONAL TRADE, U.S. SMALL BUSINESS ADMINISTRATION
Mr. Glaccum. Thank you.
Chairman Rubio, Ranking Member Cardin, and members of the
committee, it is an honor for me to be here today to discuss
the Small Business Administration's Office of International
Trade.
As just mentioned, prior to joining the SBA, I served as
Chief of Staff to the United States Ambassador to the United
Nations, Nikki Haley, and before that, I worked for her in the
governor's office in South Carolina. And prior to joining
Governor Haley's team, I had the honor to serve as Chief
Counsel to South Carolina Senator Lindsey Graham on the Senate
Judiciary Committee, and I would just like to note, as I said
in my written testimony, that it was a great honor when I
worked with your staff, Senator Cardin, to get the National
Blue Alert bill passed, which I know we worked on for many
years, and 2015 we got it passed.
Senator Cardin. I thought that face looked familiar.
[Laughter.]
Mr. Glaccum. Yes. That is right.
So, anyways, but I worked with many members of this
committee.
But in my new capacity at the SBA, my mission is easy to
explain. We seek to help small businesses find global
customers. I am still fairly new in my role as Associate
Administrator, but I feel we have already set a new tone and
direction to better assist small businesses to export and
compete in international markets.
Nearly 96 percent of consumers live outside the United
States, and two-thirds of the world's purchasing power is in
foreign countries. While 98 percent of U.S. exporters are small
businesses, only about 1 percent of America's small businesses
are exporting, and our job is to find out what is holding the
rest of them back and break down those barriers, creating a
value chain for small businesses.
We do this through three functions and divisions within our
program office. First, our International Affairs and Trade
Policy Division helps open global markets to small businesses.
In USMCA negotiations, for example, our SBA team had a seat at
the table through multiple negotiating rounds. As a result, the
agreement is the first to feature a chapter dedicated to small
businesses, and we look forward to the agreement being approved
by Congress later this year.
Second, our Federal and State Trade Development Division
focuses on working with our resource partners to identify small
businesses with global sales potential, prepare them for
success, and facilitate new market opportunities.
We also seek to expand small business global market entry
through the STEP program, which I know many of you are aware of
and has already been discussed.
In 7 program years, STEP has supported export activities in
127 countries. Over the last 3 completed years, $44 million
have been awarded, resulting in almost $1.5 billion in U.S.
export sales reported.
Third and finally, we have our International Trade Finance
Division, which in partnership with our private-sector lenders,
helps finance export sales through three programs that can
guarantee up to 90 percent of export-focused loans. Those
products are the International Trade loan of up to $5 million,
the Export Working Capital loan of up to $5 million, and the
Export Express loan of up to $500,000.
In Fiscal Year 2018, we booked over 470 export finance
loans for nearly $735 million, supporting over 10,900 jobs, and
$2.6 billion in reported export sales. And while the work we do
has been impactful, we can and will expand our reach to improve
this small business value chain.
I will continue to look at how we position our staff across
our district offices and how they support our exporting
mission. We will be more strategic with what markets we target
to ensure they align with growth sectors in the United States,
and along those lines, SBA is engaged in several preliminary
international trade engagements. And like the USMCA, we will
ensure that small business interests are represented.
We will be more aggressive in our marketing campaign so
that lenders and small businesses are aware of our programs,
and those Government-wide that could help them export. This
requires our continued partnership with other Federal agencies
like the Department of Congress and the U.S. Trade
Representative.
And we are reviewing our finance products to make sure we
implement necessary changes to adapt them to current market
conditions.
The effort under way by this committee to reauthorizing
Small Businesses Administration programs provides an
opportunity for us to work together and identify results-based
updates to our programming that will recalibrate and modernize
our toolkit to accomplish our mission, and in my case, that
mission is to help small businesses reach global customers.
So I am honored to be here in front of you all today, and I
thank you again for the opportunity to testify. And I look
forward to answering any questions you have.
[The prepared statement of Mr. Glaccum follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Rubio. Thank you.
We will start with the Ranking Member.
Senator Cardin. Thank you very much. Thank you for
reminding me about Blue Alerts. That was a great effort, so
thank you on that.
I want to start by just asking you. If you can respond now,
fine. If not, if you will let our committee know. I heard from
a lot of the economic agencies in regards to the STEP program
about the burdensome application process. They say it can top
out over 100 pages. It seems to be a bureaucratic challenge for
many economic agencies to request these grants.
Are you looking at the process to see whether we cannot
streamline that and make it more cost effective for the
agencies that are applying for the grants?
Mr. Glaccum. Thank you for that question, Senator.
In fact, we are, and it is a big application packet. It can
require up to 28 different pieces of information, but
everything that is currently required is either statutorily
required, such as the consultation letter with other Federal
agencies or the governor's designated entity or OMB regulations
or other Federal grant CFR regulations that require certain
financial accounting or some of our program-specific internal
Office of Grant Management requirements.
So we are looking at that, and since I have been there, our
team is dedicated to streamlining that process, our STEP team,
and we are seeing what things potentially we can reduce.
As I am aware right now, everything is either required by
one of those three entities. Our internal processes, we do
through all of our granting or all of our loan programs or
through statute or regulation, but I commit that we will
continue to work to make sure we are only requiring what is
necessary to make the program effective and reduce the burden
on states.
Senator Cardin. I understand some of this might be our
responsibility to clarify or change, and that is why I say if
you will make suggestions to us as we are looking at
reauthorizing the STEP program, we can consider those types of
issues.
We also are interested in what data is important for you to
be able to collect in order to be able to have the information
you need to make policy judgments, and it would be nice to know
whether we had the right mix today or whether we can streamline
that process also in order to make this a more efficient
process.
Mr. Glaccum. We are evaluating that, both on what kind of
information is required to get the best use. As you all noted,
over $30 to 1 in investment, but if you look at dollars spent,
because our utilization rate is down, it actually goes up to
$40 to 1. So, if states are putting the money to use, it
actually increases the return on investment.
We are looking at that to see if there is more information
we can request or seek to either streamline the process or find
the best uses, but we look forward to working with you all on
that. Yes.
Senator Cardin. In the 2015 reauthorization of STEP, you
were given authority to prioritize within STEP. So you can
prioritize for women, for underserved communities, for rural
areas. Can you tell us how that authority is being used and
whether you think this is an area that we could work on in
order to make sure we target underserved communities, women-
owned businesses, and rural areas more than we have in the
past?
Mr. Glaccum. Yes, Senator, and thank you for that question.
So we do have the authority to prioritize them, and we do
encourage through our funding announcement and our guidance
that states seek out eligible small business interests that are
in those communities.
So, currently, we do track that information, those as they
come in. If they are reporting, it is either a rural or
minority or woman-owned business, we track that information,
and if it is in line with our broader SBA mission led by the
Administrator to help in those communities.
So I do think it is something we can do better at, meaning
internally as we review applicants and as we award points, but
it is certainly something we encourage and track and would like
to work with you all on.
Senator Cardin. Good. I appreciate that.
We also appreciate your observations in regards to the
three loan programs that you have as to whether the underserved
communities can get access to those loans at the percentages
that we would like them to get access to it.
So if we need, in the reauthorization process, to give you
additional authority or direction there, it would be helpful
for us to know.
One of the data points I would like to know is how many of
those loans are going to underserved communities, rural
communities, and to women. That would be useful for us to
understand.
We know overall in the SBA, those numbers are low, but my
guess is in regards to international trade, it may even be
lower than that. So it would be useful for us to have that
information in how we can fine-tune these tools, perhaps giving
you greater discretion, so that you can also reach out to try
to bridge the gap that currently exists in these areas.
Mr. Glaccum. Yes. And I, unfortunately, do not have those
numbers in front of me, but we will make sure we get that
information.
Senator Cardin. I appreciate that. Thank you very much.
Mr. Glaccum. Thank you, Senator.
Chairman Rubio. Senator Ernst.
Senator Ernst. Thank you, Mr. Chair, and thank you, Mr.
Glaccum for being here today, too.
Trade is very critical to success, especially in Iowa. One
in five jobs in Iowa is tied directly to trade, so I am glad
that we are taking some time today to discuss ways that we can
strengthen and improve small business export development and,
of course, create more opportunities for our small businesses--
very, very important to Iowans--so thank you.
I would like to start out by talking a little bit more
about the STEP program, and thank you. I think this is a great
focus for the committee today. I just want to talk through some
of the concerns that I have heard coming from Iowans.
You have addressed some of them already, but if you have
additional feedback, I would certainly love to hear that.
Some of the things that Iowans have just communicated to us
are those administrative challenges. You talked about the
streamlining opportunities that we might have. I think that
that would be important.
So administrative challenges associated with a program,
some of those would be inconsistent timing of funding
opportunity announcements--that has been a concern--questions
not being answered in a reasonable time frame, and a lack of
feedback or justification regarding applications. Can you
address some of those concerns and maybe what could be done
different to address some of those Iowans' concerns?
Mr. Glaccum. Yes, Senator, and thank you for that question.
So I have heard all three of those concerns, and to take
the funding announcement, that is a process that has been
somewhat inconsistent, and we are trying to improve that. So
that it is never going to get to a place where we can say this
day every year, but certainly a better range so that there is
not such variance so that the states can participate--or plan
appropriately.
We are looking at that internally to see not only how we
can maybe reduce the administrative burden, but also that helps
us turn around our internal process as we go through our
reviews to make sure the funding announcement goes out
consistently, so absolutely.
As far as turning around information in a timely manner,
our staff, even before I got there, they have already started
changing on that. But, certainly, since I have been there, we
are seeking ways to not over-communicate, but increase
communication as much as we can.
So, for example, we have implemented a district call that
we want all STEP recipient economic developments to do district
calls with our STEP director and his team of our program
managers so that we can share the information.
We recently did a call I think 2 weeks ago with governors'
offices working through our leg-affairs team, so that we can
put it on their radar that this is coming. So it is an effort
to--even before the funding announcement goes out, but put as
much information as we can in advance so that, hopefully,
states and State development offices can plan appropriately.
So we are going to continue to increase, find ways,
continue these kind of regular communication with governors'
offices and State development organizations.
So, in all, we are aware of some of these burdens, and we
are trying to find ways to streamline the process, make it
easier, because I assure you, as much as you all do, I want
these dollars to be used. I want them to be put to use. My
focus is growing exports for small businesses.
Senator Ernst. Right.
Mr. Glaccum. And we know it is effective programs.
Senator Ernst. Okay.
Mr. Glaccum. I look forward to any--and we continue to look
forward to any feedback that might also help improve our
processes.
Senator Ernst. Yeah. Thank you very much. I appreciate
that, and thanks for being proactive on that. I guess with the
calls that are done, I think that is a great way to do it as
well, just make folks aware of what is happening, what is going
on in the SBA, and those funding opportunities. So thank you
for being aware of that and actually then taking action on some
issues that have been identified. I appreciate that.
I would like to go on and talk a little bit about the
international trade partners with trade agencies in other
Federal departments. What are you doing to take a look at some
of these other departments, the trade programs that they have?
How are you collaborating or maybe sharing some of the
different best practices through those trade programs?
Mr. Glaccum. Thank you for that question, Senator, because
it is something I have been focused on in the early weeks of me
being in the position.
There are a tremendous amount of resources available to
companies to help with export promotion, export finance and
otherwise, but it does not seem that we always do--we the
Federal Government--do a great job of really coordinating and
working in a systematic approach to benefit whoever our client
is, and in my case, it is small business.
So what we are doing is--there is the Trade Promotion
Coordinating Committee, which is operated out of Commerce, but
we are the chair of the Small Business Working Group, and
before I came, they met very infrequently, I think quarterly at
most. And it was not based on a readouts really how do we work
together, as kind of a report on things we are all doing.
So we are going to take a more systematic approach to
making sure that all the programs that are available are
aligned. We are going to try and do more joint field events to
where we are bringing in, whether it is commerce or whether it
is EXIM or any of the other Federal partners--USDA--we are
working with Foreign Ag Service--to really have a targeted
approach working through our regional staff so that we can
bring all available resources to the potential exporters, make
them aware.
It is tough for small businesses. They do not have a bunch
of time to scour through the alphabet soup that is Federal
programs. So we are going to do a better job of aligning our
program areas and creating a real export strategy for small
businesses that we hope we can share in easy digestible formats
so small businesses can use that.
Senator Ernst. I appreciate that.
There are a lot of programs available out there. We want to
make sure our small businesses and entrepreneurs know about
them, so I appreciate it.
And just if I could on a side note, you are aware of the
flooding that is going on. We just had a little discussion
about it. We do have flooding going on through the Midwest. I
was at an informational meeting a number of weeks ago, almost
immediately after the flooding had started, and SBA already had
their PIOs out on ground and were at those informational
meetings for our constituents. So I just want to thank
everybody from SBA for being active and engaged in that.
Thank you.
Chairman Rubio. Thank you,
Senator Hawley.
Senator Hawley. Thank you, Mr. Chairman.
Mr. Glaccum, I noticed in the SBA's Congressional
Justification and Annual Performance Report that you mentioned
SBA's plan to pair with other Federal agencies, including USDA,
which you mentioned just a second ago, to expand financing
infrastructure for small business. The potential of the USDA
partnership is particularly interesting for me because the
Missouri export of agricultural products is, of course, a major
driver of our economy. Agriculture is our number one industry.
Many of our small businesses in the State of Missouri are farms
or in some way involved in the agricultural sector.
Can you expand as to what that kind of partnership that you
have mentioned in the report--what that might look like or what
it will look like in the future?
Mr. Glaccum. Yes. Thank you for that question, Senator.
So on the export side, it is still fairly new, but we are
trying to replicate some of the good work that has already been
done between USDA and SBA on the regular lending.
So, for example, it is really just sitting down and
figuring out what we all do and how we can address the
communities and benefit them.
So there was a recent event through our district office,
regional office, and the same USDA counterparts in South
Carolina where we brought a bunch of constituents in, and this
was not for the international specifically, but just rural in
general, to talk through how our programs can work together and
create the value chain.
So we have recently over the past, I would say, 4 weeks
tried to expand that partnership outside of USDA, SBA
regularly, but also doing the FAS, Foreign Ag Service, and our
office on how we can then take a targeted approach, similar
approach in the field and bring the programs available to
agriculture or other rural export potential businesses.
So it is really a field operation where we align and make
sure we are doing stuff together. We do not want USDA doing an
event on a Tuesday and SBA comes in on a Friday and maybe we
have the same clients and maybe we do not, but really finding a
targeted approach in the field. And so we plan to do that with
USDA, specific export programs, and something that the--before
I got there, certainly, the Administrator had already made a
focus, a priority for our agency.
Senator Hawley. Very good. Thank you for that. I look
forward to working with you on that.
Let me ask you about some of the complaints that I hear
about STEP now, switching to STEP in particular. I think we are
going to hear on the next panel from a gentleman who had some
experience as a small businessman.
I can tell you that the Missouri Department of Economic
Development has communicated to my office that they feel that
the STEP program is very--the administrative burden placed on
small businesses is acute and that this is a very significant
problem with STEP assistance.
Let me just ask you, because you do not get to be on the
same panel with them, but Mr. Mencia, who is going to testify
next, he has made some particular recommendations. I would just
be curious about your reaction to these to improve the STEP
grant process, and these are, I have to say, very similar to
ones that the Missouri Department of Economic Development has
talked about with my office.
So, for example, he encourages us to think about reducing
the administrative burden, the reporting requirements, to
establish a consistent partnership in funding with all of the
states, to increase funding overall, and then to allow more
flexibility for states to allocate or repurpose funds. Do you
have reactions to any of those proposals?
Mr. Glaccum. I do on the administrative burden. Like I
said, we are and will certainly engage with this Committee on
ways to decrease the burden because we believe, based on our
review, these are what are required, either by our internal
control processes, and again, it is a grant program where we
are responsible for distribution of those dollars and proper
accounting and financial meeting, so it is something we take
very seriously with the taxpayer dollars.
But there are ways we can reduce it, we think, and so we
are taking a look at exactly what those are, and we will get
back.
So the administrative burden, we have heard that numerous
times, and it is something we are taking a serious look at.
As far as the increase in the amount, right now we are
hovering for the last 3 years at about an 80 percent
utilization rate. My focus is on taking the money that Congress
has generously appropriated and increasing that utilization
rate, and until I can get--use $18 million, I do not know what
I would do with more, although I do hope that we will increase
that at the end of this year through some of the changes we
have already made, such as a 2-year performance period, and
others will increase that. But that is something we are focused
on.
So some of those items--and our repurposing of dollars,
that is a conversation I have had just this week with our team.
Some things are mandated at 10 percent or more of a change in
either budget areas or key personnel changes. We have to seek
certain approvals. It is in the Federal Register. Under 10
percent, though, I think we can provide greater flexibility,
and it is something my team is already looking at.
Senator Hawley. That is great. That is good to hear. Thank
you very much.
Thank you, Mr. Chairman.
Mr. Glaccum. Thank you, Senator.
Chairman Rubio. Thank you.
Just to keep building on it, the STEP program has a lot of
promise to it in terms of the results, but we have been hearing
for a long--I know you have been there since February, but for
the time I have been on this committee and certainly since we
came in and started talking about reauthorization, going back
to the burdens of administering STEP grants, the states are not
usually--having served at the State level and the legislature
and the likes, states are not usually walking away from money
unless it is really bad or hard to use. And that seems to be
the case here.
We have heard things about how long it takes for the
application and an unpredictable time frame.
The one thing that has also been pointed out is that this
requires the states to outline specific activities that they
intend to support through the use of grant funds, including the
dates, the times, the locations of the events. For example, we
are going to take a trade mission on February 8th or whatever
it might be. If any of those details change, then they have to
come back and redo the whole programming. It requires the
states to have to go back to SBA to request the reprogramming
of the funds if it is a--I do not even know. Even if it is a
technical change or it requires a substantial, but these things
change from time to time. That is just one example.
And what we heard--and I think we will hear later today--is
how complicated and inconsistent and time consuming that
becomes.
I think what you just testified is that it is your
understanding that that is what the current law requires you to
do and that therefore would require a legislative fix on our
part to be able to streamline this and make it more attractive
for states to use?
Mr. Glaccum. Thank you for the question, Senator.
Yes. The reprogramming of funds, if it is related to scope
of program, so in the budget area, or staff that are
implementing a grant, because we check the staff, those do
require prior approval over 10 percent, if it impacts the
program over 10 percent.
If it is under 10 percent, there is more flexibility, and
that is something we are looking at to make sure we are not
placing additional burden internally. We do require
notification of any changes, even under 10 percent, and we,
like I said, just recently had internal conversations about how
we can reduce that burden because we are allowed flexibility in
the Federal Register. Yes, sir.
Chairman Rubio. So I think what we can do is two things
here. Hopefully, one is that you will figure out under the
existing authorities if we can build in some flexibility.
No one I think is against ensuring that programs are being
properly administered, and they are for the purpose that was
previously approved. But we also want to make sure that there
is flexibility built in for things that might change the scope
of it or the timing of it or whatever it might be, that you are
fully utilizing that.
And on our end, of course, one of the things I hope the
committee will do is work to figure out what more flexibility
we can give you.
And we are going to talk to the states about it because
ultimately we want them to be using this and to be involved in
it.
Now, I want to ask also about something I mentioned in my
opening statement. There are 21 SBA export finance managers
across the country. Most are compensated at the GS-15 level,
and they work to administer the SBA export loan programs.
Now, based on the data that we have over the past 10 years,
each one of these 22 finance experts are doing on average just
22 loans per year. Now, that does not mean that they are not--
that they are just sitting around doing nothing. It means that
there seems to be a mismatch between the number of people
assigned to this program and the number of loans they are doing
on average per year.
Given the loan number of SBA export loans, would it be more
efficient for SBA to solely support exports through the general
7(a) program and thereby freeing up, whether it is those
employees or their mission, to increase the agency's focus and
resources on the STEP program and other efforts to grow the
number of small businesses that are involved in exporting? In
essence, is there a possibility here for a reallocation of
resources to help build up the STEP program, bring in more
exporters, and handle the loans through the 7(a) that seems to
have the critical mass already to be able to process work?
Mr. Glaccum. Thank you for that question, Senator.
I think trade finance is different than domestic finance,
and therefore, it fills a gap. And our programs, our three
programs fill a gap that might not be available to an SME
seeking to export.
And so we do a great job. SBA does a great job, and I do
not know the particulars, of course. You all met with Capital
Access last week. We do a great job of meeting the needs of
small businesses as they seek to grow, but there--and whether--
and we could still do that through the 7(a). As you referenced,
we do support exporters to that program.
But the nature of international trade finance is just
different than 7(a). So I think we are trying to do a couple of
things. One, I agree--and as I mentioned previously, we can do
a better job of aligning the strengths of field staff, and that
is not just our 21 staff that work for OIT, but also working
through our district and regional offices with those loan
officers. And a lot of them already have, which is required by
the law, DITOs, or international trade officers, district
international trade officers. They have collateral duty that
are supposed to not only promote our normal 7(a) programs but
also work with our international programs.
So we are currently undertaking a review process--or we are
past review, and we are starting to align our programs with our
normal field offices, our 68 field offices, to see how our
specialists can work with those assigned in the district
offices to promote these loan programs.
But we are also looking at the programs themselves. I do
think some of the regulations internal--this is an SBA thing
that we are looking at--are not matching the program with who
our audience is. The exporters are different than domestic, and
while there are differences in what the programs can be used
for, their operation falls under our bigger domestic umbrella.
So both in clarifying things for lenders and small
businesses, which I know you all mentioned in your opening, but
also just the operation of them themselves, which we have
received a lot of lender feedback, both at our annual lender
roundtable, but just developing these relationships on how we
can improve the programs themselves to increase their volume.
So I really think these programs in international finance
itself are a key element if we want to seek to increase
exporters, especially SMEs. They have difficulty getting access
to this type of capital, but I do think we can do a better job
internally and are going to do a better job internally aligning
what resources are available to us to make sure that we can do
more lending.
Chairman Rubio. Ranking Member.
Senator Cardin. Can I just comment on that? I think the
Chairman has raised a very valid point.
I agree with you. I think we need to maintain export loan
programs under the SBA, but I think it is really troublesome,
the volume that is being done, under 500 a year in the three
programs combined.
And as we look at reauthorization, I think it would be
helpful to get your suggestions as to why this program is not
being better utilized. We have been told it is not widely known
that these loan opportunities exist, but also, do we have the
three right categories? Should there be further refinement in
order to meet the needs that are out there? Should we do better
in promoting it? I think all of those are questions that we
would like to have information on as we move forward because I
think the Chairman is raising a very valid point.
Absent us dealing with this, as the efficiency factor on
the staff versus the number of loans that come out, there is
going to be a hard time maintaining these programs, unless we
can make them more popular and better utilized.
Chairman Rubio. Senator Young, you just arrived. Did you
have a question?
Senator Young. Well, thank you, Mr. Chairman.
I wanted to ask you--proceed. Mr. Glaccum, thank you so
much for appearing before the committee.
With respect to the STEP program, there was a March 2019
report. Have you been asked about that thus far from the GAO as
it relates to the STEP program?
Mr. Glaccum. No, sir.
Senator Young. Well, having just walked in, I will ask you
about that.
This report, again, March 2019 GAO report, noted that the
Small Business Administration does not have proper procedures
in place to guarantee that states meet their match requirement.
The same report also found a low rate of grant dollar
utilization by a number of states receiving STEP dollars. Can
you tell me what steps the Small Business Administration is
taking to remedy both of these programmatic issues within the
STEP program, sir?
Mr. Glaccum. Yes, and thank you for that question, Senator.
So on the first aspect, we have--you know, we work very
closely with GAO when they are doing this type of oversight,
and we have already engaged with the Office of Grant Management
who helps with the backbone of operation of the program to make
sure that before we are closing out loans, the requirements for
match are included.
So we hope that through these new processes, managed out of
Office of Grant Management, so not by our program managers, we
will have better oversight to make sure that everything is in
compliance.
On utilization rate, I did talk briefly on that earlier.
There are a few things we are doing. One is greater
coordination. We have dedicated a staff member to working with
states and their State development offices to coordinate
between our district offices and our field staff that are on
the ground that might know of more small businesses that are
eligible because of their daily interactions and they have a
product and feed them to STEP, make sure everybody is aware of
STEP. So that is one thing we are doing.
And we are also trying to really focus on best practices. I
mean, I know it sounds like a simple thing, but some states do
this really well and spend their money and get a higher rate of
return, and so how do we try and replicate that? Even though it
is going to be different sectors, all states are different.
They have different priorities, but how do we replicate some of
the good work that some are doing with states that might not?
So what are the greatest returns on investment? How do we
coordinate our resources? How do we align the best uses, the
eight approved uses, to make sure that states are able to
utilize it? Because dollars actually used actually produce a
fairly high rate of return, and we want to increase that.
So we are taking a new look at how we implement the
program, and hopefully through greater coordination and
awareness of other programs available, we can increase
utilization.
Senator Young. Excellent. Thank you.
With respect more broadly to SBA international trade
programs, are there overlapping functions across different SBA
international trade programs that perhaps this committee should
take into consideration so that we might consolidate the
programs and scale up those that are working most effectively?
Mr. Glaccum. That is what the Ranking Member just
mentioned.
We are taking an internal look at exactly that and to see
what aspects of the programs are most effective to fill the
trade financing gap for small businesses, and we look forward
to working with the committee once we have a better answer.
Senator Young. Okay. Back to the STEP program, SBA reported
to Congress that the program had more than $31 of return per
Federal dollar invested in FY16. Given--and should probably
invest like a trillion dollars in it, then, right, you know,
based that? No. That was tongue-in-cheek for the record.
[Laughter.]
Given that less than 1 percent of U.S. small businesses
reach international markets, what do you believe is the most
effective step that a State like mine, Indiana, can take to
maximize ROI from a STEP program grant?
Mr. Glaccum. Yeah. And I would just like to note that that
is 30 total, including dollars that are not used. So if you
look at dollars used, it has raised over 40 to 1, so it is
actually money going in.
I think getting, expanding the net, I think we want to make
sure that there are more eligible small businesses that know
about the program and are seeking to do it.
We, of course, would like nothing more than states--or
eligible small businesses to be able to use it year over year
until they build their capacity to take on, but we really want
to broaden and make sure we are reaching people that might not
have thought about it. Have you thought about what global
markets are out there, what customers are available to you?
Bring that information to them and hope to get more small
businesses involved in the STEP program because I think that
will both increase its utilization rate but potentially expand
its ROI.
Senator Young. Well, following up, I come from a small
business family. I have discussed this quite a bit, first with
my father, now with my brother who is working in the business,
and they shy away from most Government programs. I think in
past, we may have utilized the SBA program for loans, but
setting that aside, it is just intimidating. They do not know
where to start. They do not want to burn a lot of time because
time is essential when you are the owner or top manager at a
fairly small family enterprise.
So what is SBA doing to make sure that rank and file
entrepreneurs, what sort of reforms might have been made,
understand what programs are out there for them and how they
might utilize them most effectively to their advantage?
Mr. Glaccum. Yeah. We are currently about to roll out a new
marketing strategy to produce this exact type of information,
and I really think it is----
Senator Young. Through social media? Can it be targeted to
particular types of sectors and sizes of business?
Mr. Glaccum. Yes. Through our website and just good old-
fashioned materials that we can hand out when a small business
walks into one of our resource partners, an SBDC. So we are
looking outside of just what is our footprint, meaning big SBA
footprint, our 68 district offices, but who are our resource
partners, who are private-sector partners that can talk about
these programs, what trade associations and others that
represent a lot of potential exporters or exporters and help
others find natural partners to really share this information.
But I do think our resource partners, women's business
centers, small business development centers, and others can
help provide this kind of information because they are the
normal touch.
And yes, they get funded by us, but they are not the
Federal Government, so it is a lot better.
And it is also increasing communication with our states. I
mentioned earlier that we are--through STEP, we have recently
done a governor's staff call, where we hosted a call to talk
about STEP and answer any questions they had. We had a
director's call with the economic development agencies that
participate in this, but it is really information sharing
because, again, although we feed it to the states and states
give it to the small businesses, the states are a little--it is
a little more comfortable, and as you know working there--and I
have worked in a governor's office--it might be a more
natural--an easier relationship than thinking of it as just a
Federal program. So it is really increasing our information
sharing with our partners, I think.
Senator Young. Excellent. Thanks for your service.
Thank you, Mr. Chairman.
Chairman Rubio. Thank you.
Thank you for coming today. I appreciate it very much.
Thank you for your time. We wish you the best. We look forward
to working with you on all these items. Thank you.
Mr. Glaccum. Thank you.
Chairman Rubio. So we are in the middle of a vote now, and
at some point, someone will arrive and take the chair while I
go vote and then come back.
But I am going to go ahead and begin to seat the second
panel. I know two of our witnesses, I believe, are en route.
Two are here, and as they help you settle in, I will just do
the introduction.
Signe Pringle is the Managing Director of the Office of
International Investment and Trade and Maryland Department of
Commerce. Ms. Pringle is responsible for the State's
international operations, including attracting foreign direct
investment and export promotion. In addition to her role at the
Maryland Department of Commerce, Ms. Pringle currently serves
as the president of the State International Development
Organizations, or SIDO.
``SIDO.'' Is that how I pronounce this?
Ms. Pringle. ``SIDO.''
Chairman Rubio. SIDO, okay. Like Fido, SIDO. All right.
Scott Gornall serves as the Vice President of Sales and the
owner of BAON Enterprises. Before joining BAON, Scott was Vice
President of Sales for Rosoka Software, Inc., a natural
language processing or NLP product company. BAON is a U.S.
Small Business Administration-certified small, woman-owned, and
economically disadvantaged company. Scott is also a veteran of
the U.S. Marine Corps, where he served as a communications
engineer for years.
Thank you both for being here. We are waiting for Manny
Mencia, who is the Senior Vice President of International Trade
and Development for Enterprise Florida. Their flight was
delayed, but I understand they are en route and should be here
soon.
And Daniel Pische is the Senior Vice President with the
First American Bank, where he also serves as a member of their
Senior Loan Committee. He oversees First American Bank's SBA
product line as well as their lending team in South Florida.
So, Ms. Pringle, we will being with you. Thank you for
being here. We appreciate it very much.
STATEMENT OF SIGNE PRINGLE, ASSISTANT SECRETARY FOR BUSINESS
DEVELOPMENT, MARYLAND DEPARTMENT OF COMMERCE; AND PRESIDENT,
STATE INTERNATIONAL DEVELOPMENT ORGANIZATIONS
Ms. Pringle. Thank you very much.
Chairman Rubio, thank you for the opportunity to testify
before you today. Missing the members and the Ranking Member
Cardin, but happy to be here today.
My name is Signe Pringle, and I am the Assistant Secretary
at the Maryland Department of Commerce. And I oversee the
offices of business development, finance programs, the office
of military and federal affairs, and international investment
and trade, and I lead the team focused on attracting investment
into Maryland as well as assisting Maryland exporters.
I am also currently the president of SIDO, which is the
State International Development Organizations, and here in that
capacity as well.
I was going to echo my colleague's comments from Florida,
but he is not here. He has not had a chance to talk yet, so I
do want to mention that we greatly appreciate your strong
support for the State Trade Expansion Program, to STEP, and
other resources to assist small firms through the export
process.
For today's hearing, I want to discuss how we assist small
businesses in Maryland to start and expand their exports and
then want to talk specifically about the SBA STEP program.
As we discussed or we are going to be discussing further,
international trade plays a key role in creating and supporting
good jobs in our State. In Maryland, 99.5 percent of the jobs,
the businesses are small businesses, and only nearly 582,000 of
these small businesses, 6,500 export, and that is only 1
percent of total businesses that export from Maryland, which is
on par with the national average.
Through the Maryland Department of Commerce, we are helping
more Maryland companies extend their reach to international
markets. Maryland has 16 foreign offices around the world to
help these companies market their products and services and
connect with potential clients and customers abroad.
In 2018, Maryland exports increased by almost 30 percent,
compared to the previous years. We are on the right track
clearly, but additional resources such as the STEP program are
critical to our mission.
As mentioned earlier in earlier panels, small businesses
are often experiencing difficulty navigating the resources and
the available services that are out there. That is why a strong
partnership between the State and Federal agencies, such as
SBA's STEP, small business development centers, as well as U.S.
Department of Commerce are crucial to our mission.
And as I mentioned earlier, STEP is an important component,
an asset to our shared mission, as it gives the resources and
confidence for those small businesses that are looking to
expand or start exporting to--for markets.
More than 50 Maryland companies take advantage of the STEP
program annually, and that number has a range from 50 to 80 per
year and report upwards of $50 million in confirmed export
sales as a result of the assistance received.
Last year Maryland reported 30 percent return on investment
on STEP funds that were used to supplement the State's export
promotion budget.
Maryland small businesses do various international trade
shows around the world. Just to name a few, we go to Medica in
Germany, Arab Health in UAE, as well as Paris Airshow in
France.
Just as an example, a company based in--Maryland company
based in Baltimore County that makes pneumatic tube systems for
hospitals and health care clinics has used STEP funds to attend
the Arab health trade show with the State of Maryland in
previous years, and as a result, the company has reported $6
million in confirmed export sales to UAE and Qatar and now
displays at the Arab Health trade show every year in their own
booth.
The STEP program has enabled Maryland to boost its export
program promotion and assist additional small businesses by
providing the necessary resources and tools to gain access to
these international markets.
However, we all agree that we need to make some key changes
to the STEP program when it comes to administrative burden and
lessening that.
For a small State with limited staff as Maryland, we
believe that our staff time is best used to serve small
businesses directly and assisting them with their efforts to
expand globally.
At SIDO, we are committed to working closely with SBA and
Congress on continuing to improve the STEP program, and I also
want to compliment our SBA STEP team for their partnership and
participation at SIDO annual conferences.
In conclusion, I do want to comment a few of these proposed
changes to the STEP grants and the reauthorization, which
include reducing the administrative burden, establishing
consistent partnership and funding with all states, increasing
the funding to $30 million or more, and allowing more
flexibility for states to allocate and repurpose the funds.
I want to thank the committee again for your support and
leadership on this issue. Again, we strongly support the
reauthorization and full funding of the STEP grant program and
look forward to working with you.
Thank you and the committee for the opportunity to appear
before you today, and I look forward to your questions.
[The prepared statement of Ms. Pringle follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Romney [presiding]. Thank you, Ms. Pringle.
Mr. Gornall, apparently you have already been introduced.
Is that correct?
Mr. Gornall. I have.
Senator Romney. You have. All right. Well, I will dispense,
then, with reading a full description of your background, but
an individual of substantial experience in the private sector
and doing work around the world in sales and as an owner and
vice president. So I appreciate your being here and would
appreciate your testimony.
STATEMENT OF SCOTT GORNALL, VICE PRESIDENT OF SALES, BAON
ENTERPRISES, LLC
Mr. Gornall. Thank you very much, Senator.
Senator Romney, Ranking Member Cardin, greetings from the
Eastern Shore, and distinguished members of the committee,
thank you for the honor of testifying in our Nation's Capital
in support of reauthorizing the Small Business Administration's
STEP grant initiative.
Again, my name is Scott Gornall. Along with my business
partner, Mary Valenti-Bloom, we are building BAON Enterprises
on Maryland's Eastern Shore.
BAON is certified by the Small Business Administration as a
small, woman-owned, HUBZone firm, and economically
disadvantaged. We are a software distributor of data analytics
and cybersecurity products, and as a distributor, we are
slightly different in that all of our clients are other small
businesses.
These business are not served by traditional wholesalers.
They may be too small, too new, new to a geographic area, or
require special technical skills, but they all have great
growth potential. So, when we succeed, other small businesses
succeed too.
Operating in a HUBZone means we are bringing economic
development to a community that needs it more than most.
Technology development and sales is a global industry.
Growth markets for our clients are just as likely to be in
Singapore, London, and Frankfurt as Washington and Chicago.
A core part of our service is brokering partnerships
between U.S. and international firms.
We applied for and received our first STEP grant in 2017,
which we invested in travel across the European Union for 2
weeks. We attended numerous partner meetings and three trade
shows in Scotland, England, France, and The Netherlands, and we
became expert luggage packers.
The savings from the grant allowed us to also attend the
Singapore Airshow in early 2018 as one of Maryland's delegates.
As a small business, there would have been no way to justify
such cost without some support.
Combined, these trips accomplished the following: $6,000 of
STEP grant investment has directly or indirectly generated just
over a quarter of million dollars in new revenue. Added $2
million to our pipeline over the next 24 months. It helped BAON
close our first international customers. One of those customers
has already placed a second large order. We were invited to
join a prestigious legal technology incubator in Singapore. We
were the first U.S. firm to receive such an offer. We now have
multiple new clients and partners in the United Kingdom,
Austria, France, Italy, Singapore, and India. Our business has
accelerated much faster than could otherwise have been
possible.
The Singapore Airshow was instrumental in meeting two new
partners in India, one of which is joining us in a multi-
million-dollar health care proposal to the government of India.
If awarded, the team would include, to our in-country partners,
four U.S. small businesses, including Lamotte, which is a water
testing company; Agile Innovations; and APS Global from
Maryland; two larger U.S. firms; and Washington College in
Chestertown, Maryland.
Recognizing that it is not just about business, we are
working with our technology partners to donate products and
training to nonprofits that would otherwise struggle to afford
it.
The length of time needed to finalize customer contracts
may be as long as 9 months. This means we should see continued
benefit throughout 2019 and 2020.
The impact of our STEP grant has benefits well beyond just
our business, nor is it limited to just a single fiscal year.
As taxpayers and based on our experience, we feel strongly
that the STEP grant program is a good investment for the
following reasons. First, it is targeted. Funds are limited to
expenses directly tied to international marketing efforts. This
is closely monitored and comes in the form of reimbursements.
As a taxpayer, knowing that a business is willing to invest its
own hard-earned money up front is a good indicator it will be
well spent.
Second, there is cost sharing. Small business owners have
to watch their money closely. Every expense is both an
investment and a risk. Our grant reduced our cost but also
helped to reduce the risk of international marketing events,
which we may not have been able to justify for another year. We
estimate we are now a full year ahead of schedule because of
these grants.
Finally, it comes as part of a package that includes the
fantastic team at Maryland's Department of Commerce, and this
is very important. To us, our company, they are more than
program administrators. They truly have become our business
partners. Without them, we would not have had the level of
success we enjoy today.
Secretary Schulz's Business and Industry Sector Development
team is led by Ms. Pringle and includes a talented staff, some
of whom are here today: Alex Clark; Jessica Reynolds; our point
person and agent, Andrew Kreinik; and others. They work
tirelessly for Maryland's business community. For example, we
have two new partners in our portfolio, thanks to events hosted
by them in Maryland.
Senators, BAON has applied for and been awarded a second
STEP grant in January of this year to continue our efforts. We
have already used this to meet with and sign two new
partnerships. We plan to use some of these funds to engage with
the incubator program in Singapore on behalf of our current
clients.
In 2020, we plan to apply for the U.S. Commercial Service's
Gold Key Matching Service. Our business pipeline looks very
good, which means it should be the right time to be able to
take full advantage of that program.
Senators, thank you for all of your efforts on behalf of
the U.S. small business communities, and thank you for the
opportunity to appear here today.
[The prepared statement of Mr. Gornall follows:]
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Senator Romney. Thank you very much.
We are next going to hear from Mr. Mencia, Senior Vice
President of the International Trade and Development Division
of Enterprise Florida. He also serves on the board of the
Florida Export Finance Corporation, the World Trade Center in
Miami, the Florida Trade Partners Alliance, and the Florida
District Export Council. He obtained his Bachelor of Science
degree from Florida International University in education and a
Bachelor of Arts degree from St. Thomas University in political
science.
Mr. Mencia, I appreciate your being here, and you can
proceed with your testimony.
Senator Cardin. Mr. Chairman, let me just note before Mr.
Mencia begins, with the Ranking Member coming from Maryland and
the Chairman from Florida, I do not have to worry about flights
for our witnesses to come from our State. So we understand
there may have been some challenges, and your timing could not
have been better. And we certainly welcome both of our
witnesses.
Senator Romney. It does seem that the Ranking Member and
the Chairman, who is voting right now, had something to do with
the selection of the participants.
Senator Cardin. That is not true.
Senator Romney. Totally random?
Senator Cardin. No. Florida and Maryland are number one
in--it is actually Maryland and Florida are number one and two
in this field.
Senator Romney. Thank you, Mr. Ranking Member.
[Laughter.]
Senator Cardin. Utah is three.
Senator Romney. There we go.
Please, Mr. Mencia. Thank you.
STATEMENT OF MANNY MENCIA, SENIOR VICE PRESIDENT, INTERNATIONAL
TRADE AND DEVELOPMENT, ENTERPRISE FLORIDA
Mr. Mencia. Thank you, Mr. Chairman, Ranking Member Cardin,
members of the committee, thank you for the opportunity to
testify before you today. My name is Manny Mencia. I am the
Senior Vice President for International Trade and Development
for Enterprise Florida.
I am responsible for directing Florida's international
trade programs and strategies, which focus on helping small
businesses in our State to increase their exports. I am also
the past president of the State International Development
Organization, or SIDO, and that is the capacity that I am here
today with.
On behalf of SDIDO and our State trade directors throughout
the country, I want to thank you for your commitment to small
business exporters. We appreciate your strong support of a
State Trade Expansion Program, or STEP, and look forward to
working with you on its reauthorization.
Today I want to discuss the importance of international
trade for small businesses using Florida as an example and then
talk specifically about the STEP programs, including
recommendations on how we can improve the program.
According to the Business Roundtable, 2.4 million jobs in
Florida are supported by international trade. That is one out
of every five jobs, and more important, these are jobs that pay
17 percent higher than State average wages.
Florida has the largest--second largest concentration of
exporters in the United States, more than 58,000, and we are
among the top, among the top three on the percentage of our
manufactured production that is exported, yet 95 percent of
Florida exporters are small companies. And it is well
documented that small companies need more support than the
larger ones to be successful. That is where SBA and STEP play a
key role.
For our State, STEP is a key component of our shared
mission to help small business exporters. STEP provides small
companies the incentive and the resources to start exporting or
to expand into new markets.
In addition, the STEP grant program has been an important
bridge to increase coordination and communication between the
State and the Federal trade agencies.
And on that note, I also want to highlight another Federal
partner, the U.S. Commercial Service. They play a very
important role in identifying international buyers and
investors and in supporting our State programs.
In Florida, we were regular participants in the STEP grant
program from the start in 2011 and used it until 2015. With the
assistance of STEP, EFI was able to launch an export
diversification program that helped more than 400 small
companies enter new markets and diversify their exports.
However, in recent years, the administrative burden of
managing the grant program became too onerous for us, and it
was simply no longer worth the time and investment. We have not
applied for STEP for the last 4 years.
In Florida, we have been very fortunate to have the
resources to continue to help small firms with exporting, but
most states, especially the smaller states, do not have that
luxury, and I fear that if we do not make some key changes and
reduce the administrative burden, then more states would not
apply, and therefore, it will jeopardize our mission and the
objective that Congress envisioned when they created the STEP
grant program.
At SIDO, we are committed to working closely with SBA and
Congress on continuing to improve the STEP program. Before I
provide my recommendations, I want to compliment the SBA STEP
team for their increased communication and partnership with our
states. They have been regular participants at our SIDO
meetings, and that face-to-face time has helped with the
overall execution of the grants.
Now, my recommendations, number one, reduce the
administrative burden of STEP. This includes the application
and extensive reporting requirements. The SBA requires a vast
amount of reporting, many of which are not required or seen by
Congress. The reporting takes a large amount of time that
should be spent on helping small businesses.
Number two, establish a consistent partnership and funding
for all states. The application and allocation of grant monies
has been widely inconsistent and confusing for many states. In
recent years, states that were not awarded grants did not
receive feedback on why they were not selected. Moving to a
formula grant and matching component will help establish a more
transparent grant process and allow the states to prepare
better.
Number three, increase funding to $30 million or more. To
make the program more effective for both states and businesses,
we need to increase the funding to make it worth it. This is
especially true if we maintain the current administrative
requirements. If not, we will see more states decide not to
apply for the grants.
Number four, allow more flexibility for the states to
allocate and repurpose grants. States need to have the
flexibility to adjust their STEP programming to conform to
market conditions. Increased flexibility would allow the states
to fully use their STEP funding for the most efficient use, all
working to get the best return on investment.
That concludes my testimony. I want to thank the committee
again for your support and leadership on this issue, and we
strongly support the reauthorization and funding of the STEP
grant program and look forward to working with the committee.
Thank you so much for this opportunity, and I look forward to
your questions.
[The prepared statement of Mr. Mencia follows:]
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Senator Romney. Thank you, Mr. Mencia.
Mr. Pische is Senior Vice President with First American
Bank, another individual from Florida apparently, and is a
member of their Senior Loan Committee. He oversees the First
American Bank Small Business Administration product line as
well as their lending team in South Florida.
Mr. Pische, we are happy to have you with us today.
STATEMENT OF DANIEL PISCHE, SENIOR VICE PRESIDENT, FIRST
AMERICAN BANK
Mr. Pische. Good afternoon, Senator Cardin and Senator
Romney. I appreciate the opportunity to join this committee in
representation of First American Bank and also export lenders
nationwide.
First American Bank is a privately held commercial bank
based outside of Chicago, Illinois. We have operations in
Wisconsin and South Florida, where I am based overseeing our
trade finance line.
Our interests with the SBA program dates a long time back.
We have had wide use of the export programs, as recognized when
we were Export Lender of the Year in 2017, as well as with the
President's ``E'' Award for Export Service in 2018. Our
applications for both programs focused on our use of the SBA
program, specifically the export product line.
We have seen and been able to be part of a wide variety of
success stories, ranging from medical device manufacturers in
Miami to food exporters in Chicago. During that time, we have
seen that really exporters vary from region to region. An
exporter in the Midwest could be a second-generation Mueller
Report. In South Florida, that could be a first-generation
distributor, primarily to Latin America, and even in some of
our more rural locations, that manufacturers and exporters look
different there as well.
When we think of exports and we think of exporters, the SBA
programs, and most involved in international trade tend to
focus on the export, not necessarily the exporter. For
manufacturers in the Midwest, they might be a predominantly
domestic company that is beginning to export, might only
represent 20 to 30 percent of their overall sales. Whereas, in
Miami, it is not uncommon to have a company that is 80-plus
percent.
We have worked with a company named Demetech in Miami
Lakes, a medical device Mueller Report, and they have grown
through their use of the SBA programs over the last 9 years.
We had Global Link and Supplies, a paper exporter based out
of Coral Gables, who eventually established a manufacturing
plant in Houston that now employs over 100 individuals.
So exports, exporters vary widely, and one of the largest
challenges for the program is recognizing the scope of services
necessary to support that.
Looking at trade finance, the background of trade finance
has to be asset-based lending, and it is not uncommon for
lenders to establish minimum requirements: $1 million, $2
million is not uncommon at all. One of the challenges we are
here to address regarding the SBA and its export programs has
to do with lack of adoption, relative stagnation over recent
years.
One of the reasons for that is that, frankly, if the
program is defined with most lenders as being $1 million or $2
million to $5 million, that is a relatively narrow band.
There have been a few recommendations that myself as well
as a lot of experienced export lenders under the SBA programs
have made. Some of those include raising the Export Working
Capital Program to $10 million.
The reason behind increasing it has to do largely with the
expanded life cycle of international trade. It is not uncommon
for those orders to take two to three times as long as domestic
orders.
In addition, having a way of simplifying the working
capital programs at large is probably the best way of reaching
success in support of exporters because they do look different
in different parts of the country. We do need to have a working
capital program that can support the Midwestern Mueller Report
as well as the South Florida distributor.
The fee structure at the SBA is a hindrance. Working
capital lines are designed to be written and renewed on an
annual basis. The fee structure in place right now is largely
predicated on term loans. The idea of a quarter basis point fee
in year one with a fee increasing to as much as 3.75 percent in
year two is a very challenging component of the working capital
programs, combined with a few other suggestions related to ways
of improving the program.
In a lot of ways, the programs as they are right now are
already robust and flexible. So it is not a matter of if we can
tweak this program, we can get more use out of it, but rather
what can we do to bring more lenders in, main reason for the
$10 million limit; what can we do to get more engagement at the
local level, education being an important part of it; and
ultimately how do we define success with financing exporters?
It is not defined as using one program or another, using an
SBA program, international trade versus 7(a) term loan. It is
really about the use of funds, regardless of what the exporter
is, who they are, what they export, finding a way of supporting
the exporter, not just using the program designated as
supporting it. A holistic approach is an important--and one way
that we can really support exporters further.
[The prepared statement of Mr. Pische follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Romney. Thank you, Mr. Pische.
I have a few questions, but given the fact that I am not
really a chairman, I am going to turn to the Ranking Member and
let him--oh, here you go. Oh, suddenly I am a real chairman. I
am going to let the Ranking Member ask any questions he may
have.
Senator Cardin. Senator Romney, first of all, thank you
very much for stepping in.
Just to explain to our witnesses, there is a vote on in the
floor of the United States Senate. The first vote is still on
the board. The second vote will start soon. As soon as the
second vote starts, Chairman Rubio will be returning. So it is
not his rudeness. It is the fact that we had two votes. I left
immediately after the first vote so we could continue the
hearing, not to inconvenience people.
So we thank you for your patience, and thank you, Senator
Romney, for stepping in.
Mr. Gornall, first of all, thank you for being here. You
put a face on what we are trying to do. What a success story,
what you have been able to do on the Eastern Shore of Maryland,
and getting the partnerships and continued business on
international trade. You represent a real success story.
Ms. Pringle, Mr. Mencia, we want to work with the states. I
am very proud of what Maryland does for small businesses in
international trade, the State initiatives. We have
international trade offices. You are out there all the time
working on behalf of small business and trying to get them
access to trade.
So my question is, how can we make the tools that are
available more effective?
Mr. Mencia, you gave us some really good suggestions in
regard to the STEP program.
Mr. Pische, you gave us some suggestions in regards to at
least the working capital loan program. I do not know if that
also applies to the international loan program. You are shaking
your head. That would be yes.
And then, of course, the express program is a little bit
different.
My question really to, I guess, first, anyone that wants to
answer, what can we do to better inform the small business
community about the availability of these loans? The numbers
are really shockingly low.
I accept the fact that it may not--we have to deal with the
cost factor. We heard that on 7(a) loans and 504 loans also,
but people know about those loans. They do not know as much
about the international trade loans that are available under
the Small Business Administration. So how do we get our states
to work with the SBA?
Yes, we are willing to look at trying to lower the cost. We
are looking at trying to increase the cap, if that makes sense,
on working capital with trade be over the $5 million limit. We
are willing to look at those issues, but how can we take what
you have been able to do in the community so well and outreach
to the small business community to try to get them, encourage
them in international trade? How can we tie in the tools we
have available at the SBA so we can have more success stories
like Mr. Gornall?
Mr. Pische. I will take that. One of the challenges with
export finance is that it is more complicated than a lot of the
other SBA programs.
If you think of the use of funds, working capital is
certainly one of the more complicated ends of financing for
small business.
As far as what the SBA can do, it is helping to promote the
availability of the programs. I do not believe they are as
prominently displayed as they can be.
The Export Working Capital is by far the best program the
SBA has. It is flexible. It meets the needs of most exporters.
There are a couple minor improvements that can be made, but
beyond that, the program does largely what we want it to do.
Having some availability for domestic receivables would
help. Having small businesses call and have an order somewhere
in the United States that they need to finance and having to
try and explain why they cannot finance that small order on
their line of credit is challenging. Having the ability of a
fee structure that allows for an incremental annual fee versus
the hockey stick approach that you see right now, where lenders
are trying their hardest to keep a loan under 12 months versus
having the loan issued for 2 years at a time or an
authorization that allowed you to renew a loan annually, I
think is a commonsense reform.
And then also looking at how we define export support,
whether that is a 70 percent exporter or a 30 percent exporter,
those are both export companies. And having a working capital
suite within the SBA, including the CAPLine program, is one way
of bringing that support to those younger exporters.
Many of the companies that we have engaged with the SBA on
have eventually outgrown it. They have used it for a period of
time, capitalized their business and moved off. That is a
success story.
Senator Cardin. Absolutely.
Mr. Gornall, I do not know whether you needed the loan
programs or not. We know that you connected through the trade
shows. So how did you find out about these opportunities, and
is financing an issue that you knew about, or did you have all
the access you needed for capital?
Mr. Gornall. Senator Cardin, thank you for that question.
We have not needed access to capital yet, and I will frame
my answer in the context of where we are in our growth path. We
are just coming through, I would say, like our first phase of
our export growth and having worked through one cycle of the
STEP grant program.
We are a company that has just come through the first,
about to enter our second, and while we have not needed access
to capital, if I would make a suggestion, echoing what I see in
the commercial sector, there does not appear to be what I would
call an ``onboarding program,'' a term you might hear in the
commercial world, where if you engage with a large corporation
as an employer or partner, there is usually some initial
engagement process that leads to then a more customized
approach after the fact.
We found this program really more by accident. We went for
assistance with export issues regarding encryption technology,
and to their credit, Ms. Pringle's team actually reached back
out to us and asked us and engaged with us. And we were quite
surprised to see the amount of resources that were available.
So it is not a case where we were looking for this. They
actually--it was really thanks to their outreach that we
discovered it, and they have been fantastic ever since.
Senator Cardin. That was my point. I think the states
already have outreach, and how do we get the SBA tools better
utilized by the partnership between the Facebook and the State?
Thank you. I want to yield to the Chairman, if I might,
because the second vote is going to be on soon. If there is
more time, I will come back.
Senator Romney. Thank you.
Ms. Pringle, it sounds like you and Mr. Gornall somehow
made a connection, and that is how Mr. Gornall heard about this
program that allowed him to go to the trade shows and get the
substantial additional business that came to your company. Is
that right? Is that how that occurred?
Mr. Gornall. That is correct.
Senator Romney. And you indicated that she reached out to
you, or her office contacted you? Is that what happened? How do
you determine who you are going to reach out to and offer the
suite of services that you have?
Ms. Pringle. Sure. So we do a lot of joint outreach efforts
with our Federal partners as well as local EDOs that have some
international services or programs that they are offering at a
local jurisdiction level.
So when we do these panels and outreach efforts throughout
the State with five staff, six staff--keep in mind we cover the
whole world on foreign direct investment attraction as well as
export assistance--we do engage with all the companies that are
attending these events that have questions, that exchange
cards. So we follow up and see where we can present
opportunities to them because we have to project some of these
trade shows we are going to be attending under the STEP funding
we receive in the course of 1 to 2 years.
So when we look at these trade shows and what would be a
good fit for Maryland small businesses, we reach out to the
folks that we consider might be actually benefiting from these
shows and recruit them to join us to go exhibit under the
Maryland pavilion.
Senator Romney. I do not want to act like a quintessential
conservative, but something that does come to my mind, as I
listened to Mr. Mencia's suggestions, was whether or not we
would be wiser to simply have the Federal Government provide to
the states funding which would go perhaps on a per capita basis
or number of small businesses or whatever basis you might have,
but just distribute the money to the states and let you decide
how you want to use these funds to help people get to trade
shows as opposed to having an application process and a
bureaucracy in Washington reviewing the applications, awarding
applications to states, just instead simplify it dramatically
by giving states some kind of a pro rata share and letting them
make their own decisions.
Does that make any sense, or is it like no, it really makes
more sense to have a Federal organization and bureaucracy
overseeing the effort?
I will look at Mr. Mencia first. I imagine that Ms. Pringle
does not want to answer that question.
Press the button there. Yeah.
Mr. Mencia. I truly believe in the partnership concept with
our Federal agencies. We work quite closely in Florida with
SBA, with EXIM Bank, and with our U.S. commercial services
offices, and I believe this partnership process makes us
stronger.
I would concur also to comment on the previous question
that there is a marketing issue. We refer a lot of clients to
the SBA offices, international companies, and there is a fear
factor. A lot of the clients are very concerned about the
volumes of paperwork and the difficulty, and I believe if we
all work together to market the programs more effectively, the
programs would be much more successful.
Senator Romney. Yeah.
Mr. Mencia. But I do believe the partnership, the Federal-
State partnership, is very valuable.
Senator Romney. And what is it that the Federal Government
provides, besides money, that is helpful to the program from
your perspective?
Mr. Mencia. Well, from the SBA perspective, there is the
guidance, the business. The other services that are not export-
related, I believe, are very valuable. From the commercial
service perspective, we rely on them, on things like market
research, trade information, which allows in turn to focus, in
my case, more than 90 percent of our budget to helping a
company find a client in a foreign market, which is what export
promotion is about.
Senator Romney. Thank you.
Mr. Mencia. Thank you, Senator.
Senator Romney. Ms. Pringle, do you have a comment on that?
I do not want to put you on the spot.
Ms. Pringle. No. Just to add that all of our services
really complement each other, whether it is the State level,
the SBA, the Commerce. Not all states really have a great
relationship perhaps with one or the other or both of these
Federal agencies, but we really enjoy a strong partnership with
USIAC in Baltimore as well as SBA.
So I think where we are lacking, where our resources are
lacking, whether it is the finances of the human resources or
the foreign posts that the U.S. Department of Commerce has
abroad, I think when we really join the forces, it makes a huge
difference than all of us trying to accomplish something
separately and help build a pipeline of new companies that
might be benefiting the programs as well.
Senator Romney. Do you have any perspective as to why some
states are not participating in this program?
Ms. Pringle. In the STEP program?
Senator Romney. Yes, in the STEP program.
Ms. Pringle. I think some of it goes back to the
administrative burden.
When the funding was cut, we actually skipped one year in
Maryland as well because it did not make sense for us to apply
for whatever the maximum was for us, a couple hundred thousand
dollars. I cannot put up a full staffer spending a whole year
working on administering this $200,000 grant. It just would not
give us the return on investment.
So I think it is the administrative burden that really
scares some of the states away, that it is just not worth their
time, because we have to put our staff, full-time staff to work
on this.
Senator Romney. Yeah. Mr. Mencia, yes.
Mr. Mencia. Senator, we are one of the states that has not
taken STEP funds for the last 4 years or so.
Actually, what happened with us is the third year of the
initial STEP program, the funding was reduced, and we felt that
we needed more to be able to implement the program, which, by
the way, I have always said the STEP program allowed the State
of Florida to dream.
We created this series of programs, of grant programs that
have been of enormous value, but what happened is with that
reduced funding, I went to the Florida legislature for
assistance to see if I could get further funding, and to my
great surprise, the Florida legislature saw the value of the
STEP program and began funding my grant programs by a million
dollars a year. So we decided that it would be best to allow
other states to share since we had sufficient grant funds, so
that was our case.
Senator Romney. Thank you. Thank you.
While the Chairman is catching back up to date with the
Ranking Member as to what was said, I am just going to ask one
more question of Mr. Pische, and that is with regards to
financing for small businesses in doing international sales.
To what extent is this a total mystery to small businesses
that do not begin to take advantage of the resources that the
SBA provides for this kind of financing?
Mr. Pische. I think it is. The challenges of exports are
not just how you sell internationally, but how do you finance
it? Is your bank able to service that type of financing? That
might often require you to find a new lender. That is not
uncommon.
A lot of companies we experience are using some of the
SBA's program on the younger end tend to be looking at both the
State and the Federal level for guidance. It is a complicated
process. If you think of a small business, you can open up a
coffee shop, but if you wanted to figure out how to roast your
beans and sell them in South America, it is a substantially
different process.
Finding programs, whether they are through Department of
Commerce, we have had a lot of experience with ExporTech, which
is run under the Manufacturing Extension Partnership, programs
that allow a business to work with somebody to develop an
export plan, understand what it takes to sell and succeed
internationally, both how to sell and how to get paid, which is
one of the areas that EXIM Bank is quite active with their
Trade Credit Insurance Program.
It is not something that can be solved with a 60-minute
breakfast presentation, and it really does require a deeper
diver if you want to reform your business to be able to sell
internationally.
It is one thing to have customers come into your door. It
is another thing for you to go out in other countries, find
those buyers, where the trade show has become so important
internationally, find a way to finance that order, make sure
you are removing risk by getting those orders insured or having
a letter of credit in place, and ultimately growing
internationally. That is a vastly different challenge that
small businesses face.
Senator Romney. Thank you, Mr. Pische, and not out of
disrespect, I am going to leave to go vote and turn the gavel
back to the man who deserves it, Senator Rubio.
Chairman Rubio [presiding]. Thank you.
We have votes, and so we have to be strategic about when we
go, and I am grateful to Senator Romney for taking the gavel
and running the committee.
The Ranking Member has one question, and he is going to
have to----
Senator Cardin. It is not really a question. It is really
an observation.
Chairman Rubio. Okay. And then we are going to Senator
Shaheen after that.
Senator Cardin. And I have to apologize because I am going
to have to go cast the second vote.
As I told Chairman Rubio, I think this panel has been
excellent. They have really helped us.
Mr. Mencia, you have explained why you have not applied for
the STEP grants. We need to make it easier for you to be able
to apply for the STEP grants, and especially, you have given us
specific suggestions in regards to the loan programs.
And, Mr. Gornall, we very much appreciate your practical
way that you were able to get the business through the STEP
program itself.
Ms. Pringle, I know your program in Maryland.
I guess my plea is tell us how we can build on that
partnership that you have talked about between the Federal
Government and the State government so that, yes, we need to
improve the tools. We are going to make the loan programs less
costly and more available, but we also need to integrate it
into the efforts you are making at the State level and get the
information out, working with our business community, so that
these tools are better understood, because I will tell you, as
I said to the first panel, first witness, if we do not get the
volume up, these loan programs are not going to be there
because the numbers just do not justify the administrative cost
over a longer period of time.
We know the need is there. You have pointed out the need is
there. So we have got to make the programs more effective, and
we need the partnership of our State that make that work.
I welcome your thoughts on that.
Ms. Pringle. If I could just comment. Thank you so much,
Senator Cardin.
I think for us in Maryland, what works is we really get
along, personalities, people who work together. We go to visit
companies together. We are pulling USIAC representatives. We
are pulling SBA representatives. When we do panels, we always
have everybody representing. We know each other so well that
when a company comes through the door. Whether it comes through
Maryland Commerce Department, SBA, or USIAC, we know what type
of assistance they need.
We talk as we are talking about a whole pool of resources
available, not just our Maryland Commerce Department resources.
So I think that is one step, the relationship building within
each State, with the Federal Government agencies, and really
strengthening that partnership. If you work as one team, I
think it makes a whole lot of sense.
Chairman Rubio. Senator Shaheen.
Senator Shaheen. Well, thank you, Mr. Chairman, and thank
you to our witnesses for being here.
I am a big fan of the STEP grants. I actually was one of
the cosponsors of that legislation, got it into the Small
Business Jobs Act, so it has made a huge difference for small
businesses in New Hampshire.
And I share the concern that Senator Cardin expressed that
we need to encourage states to apply for these grants.
I know, Mr. Mencia, that you represent a State that has
declined to compete for STEP funds, and yet you support fully
funding the authorized level of $30 million. So can you talk a
little bit about how you think increasing funding for STEP
could help change the calculus on a State like yours that would
encourage to then apply for those funds?
Mr. Mencia. I will start by clarifying that the reason we
stopped using STEP funds is we were able to secure from the
Florida legislature a grants program of a million dollars every
year. So we felt that it was not necessary for us to be
competing with the other states for the funding.
Senator Shaheen. In New Hampshire, we appreciate that. More
money for us.
[Laughter.]
Mr. Mencia. But we do find great value in the program. I
think for the smaller states that do not have the advantages
that some of our larger states with larger programs have, STEP
has been a godsend. Even for my State, the STEP program allowed
us to implement dreams, to implement programs that we wanted to
do, export diversification programs, a whole family of them. We
were able to implement them because of STEP. So I think STEP is
a great, great partnership between the states and the Federal
Government and should be continued and budgeted at a high
level.
Senator Shaheen. Thank you.
Does anybody else have thoughts about what--for states that
do not have a budget or support for exports, how can we
encourage those states to apply and participate in this
program?
Mr. Gornall. Senator, as one of the companies that took
advantage of it, it was mentioned earlier that Ms. Pringle and
her team were very proactive in reaching out to the community.
I think having someone that is specifically targeted at
reaching out to those businesses. As someone who faced the
initial daunting task of paperwork and the process, it is a
little intimidating, particularly if you are not familiar or
had not worked with Government before, so I think having
someone to hand-hold those companies to get them to a point
where they at least know where to start.
Someone mentioned earlier, where do you start? How do I get
started? There are so many things. This webpage has so much
information. I think having that human contact initially with
small businesses is critical.
Senator Shaheen. Should we try and simplify the application
process?
Ms. Pringle, do you----
Ms. Pringle. Yes, absolutely.
Just to echo my colleague, Manny's comment here, obviously
this program is very important for us. STEP funds probably
account for almost 20 percent of our State export promotion
budget. So we are very, very happy to have that supplement our
programs and boost our outreach efforts.
But, yes, I think if companies hear the horror stories from
other states or other companies how the administrative side of
it and application process can be quite scary, then yes.
Especially for new exporters, they are not going to even try.
So for us to continue with that program to support this
program, some of these suggestions that Mr. Mencia was saying
earlier plus some of the letters that we collected from states,
12 states, that outlined very specific areas where we can
improve, I think that will certainly help the usage of the
grant program.
Senator Shaheen. Thank you.
Mr. Mencia. If I may add?
Senator Shaheen. Sure.
Mr. Mencia. Besides simplifying the application process, it
is adding flexibility to allow the State to repurpose the
funds.
For example, if there is a market downturn somewhere, it
does not make sense to make it a very difficult process, to be
able to change those funds to take advantage of opportunities
in another market that may pay a much bigger return on
investment.
Senator Shaheen. Great. Thank you. Very helpful ideas as we
think about how to make the program more effective. Thank you.
Chairman Rubio. Thank you.
I get to ask I think as many questions as I want now
because there is nobody here, but we will not keep you that
long. I appreciate, I know some of you had some travel
problems, probably Daniel and Manny. But I appreciate you guys
making the time to come here.
A lot of the things I was going to ask have been asked
already, so I wanted to focus in on a couple.
But just to close the loop on that point, as an example,
you are taking a trade mission to some country in South America
like--I do not want to mention a specific country because it is
probably not a good example, but suddenly, there is some sort
of instability. The place falls apart, and you decide you want
to use those funds to go to another country that has better
opportunities.
Your argument is by the time you work through the
repurposing process, the fiscal year may have elapsed, and it
should not be that difficult. And so that sort of flexibility
is the kind of thing we are looking at, and one of the things
we are going to look at as a committee is how much of that
flexibility already exists and they are just not using it and
how much of it would require us to make some statutory changes.
The other thing I did want to focus on a little bit,
because I do not think it has been asked yet--and if it has, I
apologize, but it is the similarities between what the SBA
offers and what some other Government entities may offer as
assistance to exporters.
I would open this up to anybody. I was going to ask Mr.
Mencia and Mr. Pische, but I think all of you could answer this
question if you have something to add to it.
There is a 2013 GAO report, and it looked at the overlap in
Government services--the SBA, Department of Commerce, EXIM--all
offering various small business export-related products, some
of which are, as I said, very similar to one another.
So, for example, EXIM is limited to offering only loans
below $10 million for all medium and long-term transactions,
which has resulted in the Bank is largely now doing a lot of
transactions for small and midsized businesses.
In 2018, EXIM small business loans accounted for 66 percent
of its total authorizations and 91 percent of its transactions.
So, ultimately, SBA and EXIM's export finance offerings are
very similar. They are targeting the same group, and often they
are viewed by some as actually competing against each other.
So, in your individual experiences, how do the SBA loans
differ from the EXIM product? What makes those products
different from--how is what SBA offers different from what EXIM
offers?
Mr. Pische. When taking a look at the suite of products
offered by the SBA and the EXIM Bank, there is certainly some
overlap when it comes to working capital financing. The Working
Capital Guarantee Program of the EXIM Bank is quite similar to
the Export Working Capital Program of the SBA.
That being said, the Bank is in--and has been in its
current condition for the past 4 years, which is compressing
their--the loans that they are working on largely into the same
space as the SBA. As we have always looked at it, the SBA was
for younger companies. The EXIM Bank had the opportunity to
grow and service larger companies beyond the $10 million limit
that is currently. But, in addition, the EXIM Bank is probably
most used by our small businesses through their Trade Credit
Insurance Program, which is often the best starting point for
an exporter as they build up their sales.
There is a robust secondary--or a private market for trade
insurance, but it does require a certain amount of volume
before it makes economic sense----
Chairman Rubio. To do the EXIM?
Mr. Pische. To do private company, private insurance
market.
Chairman Rubio. Oh, I am sorry.
Mr. Pische. So the EXIM Bank--the insurance product, very
similar to how the SBA's position, it is a stepping stone, and
that without enough export volume, the economics of obtaining a
trade credit insurance policy on the private market is not
always there and can be a limiting factor.
The EXIM Bank's programs, including their medium term, tend
to be focused more on the international component. Whereas, in
terms of how we think about the SBA's programs, a lot of it has
to do with what can we do to support the small business
exporter.
As I mentioned to Ranking Member Cardin, our goal of the
program is not to keep exporters on it. It should be a way for
them to get their start and eventually move off of it, and that
is frankly what we have seen.
So when comparing it to the 7(a) program or the 504 program
or some of the other SBA programs, the export side specifically
when it comes to working capital is never going to come as
close. There is nothing that will happen that will do that
because, if anything, the exporters grow so quickly, they
eventually will outgrow the program or become capitalized to a
point where they do not need the program, and they move off of
it.
So it is not a loan--similar to a term loan of 20--a
mortgage or a 25-year mortgage that can be done under 7(a) now,
where a loan is outstanding, a lot of them will use it and
eventually move off of it. And it is not a loan program that
can be packaged and sold. The fact is that the lenders who are
active under the international trade programs and those focused
on working capital vary in many ways from the lenders who are
focused on originating loans and----
Chairman Rubio. Just to summarize, I guess to sort of
paraphrase what you are saying, the SBA loans are sort of
startup fuel for a company that is getting into this field, so
they can get into the export market, grow, and not need loans.
The EXIM are designed to finance particular foreign deals.
Mr. Pische. It is a component of it or at least provide the
working capital to support it. Under a fully authorized bank,
you would be looking at larger transactions.
Chairman Rubio. Do you know--does anyone know why the EXIM
loans have foreign content restrictions, but the SBA loans do
not?
Mr. Pische. I am not sure if there is a particular reason.
The SBA requires those loans to be exported from the United
States. It just does not have the content restriction, which
can be cumbersome, frankly.
Chairman Rubio. Does anybody else have anything to add on
those products?
Mr. Mencia. I was going to say while I was delayed in
Miami, Mr. Chairman, I actually referred one of my client
companies to the SBA for working capital, a loan that he was
looking for.
I really like the working capital loans of SBA. I really
also support and work with EXIM Bank on the guarantees of
export transactions because many banks--you know, for small
companies, many banks will not touch bankable transactions
unless they have the guarantee from EXIM or from another
source.
Chairman Rubio. Can I ask, beyond the STEP program, what
other Government programs--it could be outside of SBA--has
Enterprise Florida participated in for purposes of expanding
export?
Mr. Mencia. We are the largest buyer of Gold Keys in the
world, in the United States. That is a matchmaking program of
the U.S. Department of Commerce. We do multiple trade missions
around the world.
Right now we are planning on implementing missions to
Morocco, Vietnam, Israel, and Colombia, and about 75 percent of
the companies that are participating will be using the Gold Key
programs to find clients. We specialize on helping small
Florida companies to do export diversification because small
companies tend to do business in one, two, maybe three markets
at the most. So helping them diversify is the best thing you
can do to help them create more jobs.
Chairman Rubio. This is for the whole panel. If I am a
small business and I have gained a contract, whether it is for
services or the export of goods in some market somewhere, what
embassy support do you get, if you have--if you run into
issues, beyond the consular services that we provided to
personnel? Is it Commerce that takes the lead?
Let us say that I, through an SBA program, go in and do a
deal in Haiti, and then a year into it, I begin to run into
friction of some kind. Who do I turn to? Even though it may
have been set up through the STEP or it may have been financed
through SBA, who on the ground at the Haitian Embassy would
handle--and I will use that because that is the last foreign
trip I took. Who handles that for me? Is it through the
Commerce presence?
Mr. Mencia. It would be--I go first to the U.S. Department
of Commerce. They have an advocacy center that helps companies
that are being singled out unfairly. For trade disputes, that
staff on the ground at the U.S. Embassy's commercial section is
very valuable, and by the way, that is a serious issue which
the deployment overseas has been decreasing dramatically
through the years.
So, in many countries, we no longer have that level of
support, Mr. Chairman.
Chairman Rubio. Anyone else had an experience with--or is
it pretty much the same?
Ms. Pringle. Same, pretty much the same here, through the
U.S. Department of Commerce, foreign posts, when they offer the
advocacy services. We are trying to resolve some of the issues
the company might face, whether it is customs or tariffs or
bigger problems.
Chairman Rubio. So let us say I do a trade mission. I am a
small company. I jump on a trade mission to Vietnam. I see an
opportunity. I come back and begin to explore it. What is the
interaction between the trade mission?
As part of that mission, who makes me aware of the
potential SBA resources that are available for me to--if I have
to have some capital investment to actually service the client?
Let us say I have a deal that is going to require me to produce
double what I produce now. Even though the mission is a
Commerce mission, is there enough integration that someone from
that--on that mission or in Commerce would refer me to the
appropriate product at the SBA level to allow us to finance
that?
Ms. Pringle. Hopefully, yeah.
Mr. Mencia. Yeah.
Ms. Pringle. If we are organizing a trade mission on the
State level, then, of course, we will refer the client back to
where the appropriate service is offered, whether it is the
financing, the capital, or actually finding new markets or
doing due diligence through U.S. Department of Commerce.
If it is U.S. Department of Commerce through their, let us
say, Trade Winds Program, that is a very effective program,
companies abroad to meet with some of the foreign posts and
understanding doing business in those countries in hopes--I am
hopeful that they would, yes, do the same referrals to SBA
programs as well as to State programs.
So the referral process seems to be quite effective at
least in----
Chairman Rubio. I only ask because I know one of the things
that--you can be very successful in business and not be
sophisticated in international trade, and it is a big risk for
someone who has never done this before to access a market,
unless there is someone earlier on that helps guide them
through it.
And one of the things I would imagine people run into, you
know, after they come back from the mission is how do I now
access the appropriate program to allow me access to the
capital that I need in order to service this new client that I
have.
So you were about to say something, Mr. Pische.
Mr. Pische. We have had great success working with the U.S.
Export Assistance Centers, which will often have
representatives from both SBA and EXIM Bank.
We work closely with members of the international trade
programs at both. When we are referred into a small business, I
will tell both sides, it is my job to figure out what program
suits them best as opposed to trying to have them compete.
Some of the programs, like I said earlier, are competitive,
but I found that having that contact with the USIAC early on
will often allow them to get any questions about either program
answered by somebody who is knowledgeable and then ultimately
referred over to lenders for ultimate financing.
Chairman Rubio. I guess my last question, again, for all of
you--and I do not know, Mr. Gornall, if you have been asked
this question or not. I am just going to read here so I get the
numbers right. An estimated 30.2 million small businesses in
the United States and less than 1 percent are export.
Now, I recognize that not every business is exportable,
right? A dry cleaner. You cannot export that service, as an
example. But I think there are more companies that could and
actually realized it.
As a small business who is actively involved in exporting,
what would you say are the challenges and the barriers that you
face, but writ large the industry faces in expansion, not just
to export, but to the right markets, the places--I mean, just
identify where would be the right place for me to try to expand
to. What are the challenges that a company faces? Because it
seems to me like it would be quite intimidating for someone who
has only serviced a local market for a long time.
Mr. Gornall. Thank you, Senator.
It absolutely is a challenge, and because we represent
other small businesses--these are all technology firms, many of
whom are started by academics, who not only are new to
international, in some cases they are actually new to running a
business as well. So it is doubly so. You have a business
experience gap. You have export knowledge gap, and there is
also cultural gaps.
I think we would be remiss to ignore that last point
because you are not just dealing with regulatory issues. There
are actual cultural gaps as well.
And where we have seen some effectiveness working with Ms.
Pringle's team is--and this goes back to your previous question
in terms of identifying resources, either in the United States
or in-country--they actually began to introduce us to the right
resources that they anticipated that we would need.
In our case, we had already identified where a number of
our potential markets were based on the markets that we serve,
the particular vertical markets that we serve, but I think the
outreach programs that we have seen in Maryland, where it is
what I would consider a low-risk investment for a business
owner, where you have an opportunity to network with other
exporters prior to making that decision was very helpful for
us. A 2-hour drive is much less of a risk than flying to a
foreign country.
Because Maryland hosts events like this and invites other
small businesses, that has been a great opportunity to lower
the barrier to considering export.
Chairman Rubio. I told you that was my last question. I
have just one more. It is not in the script. No one wrote it.
So I hope it is topical, but it is interesting to me.
It seems that the expansion of online commerce is a
potential significant barrier remover for a lot of small
businesses. In essence, where 25 years ago, you would have to
have potentially a physical presence in a country, you can now
expand your product into markets across the World Wide Web and
allow the commerce to exist in that way.
Is that happening? Do you think that--obviously, you still
need to be able to know how to target and advertise or reach
the right people and market to the right people, but is it your
sense that small businesses are fully utilizing the potential
to do that, particularly in countries that have rapid
deployment of online access to potential customers? And is that
something outside of the loan programs that we should be
thinking about expanding or providing more training for small
businesses on how they can use online platforms to reach
customers halfway around the world without potentially even
taking a trade mission?
Mr. Mencia. Mr. Chairman, I would say that----
Chairman Rubio. Is the microphone on?
Mr. Mencia. Sorry.
Chairman Rubio. There you go.
Mr. Mencia. I would say internet commerce is a great
leveler of the playing field for the small businesses around
the world. I think any additional support Government could lend
would be very valuable.
I think one of the challenges, of course, is that small
companies usually lack the resources to localize their
websites. In other words, they have a website in English. They
are using it in the Middle East or in China. Not everyone is
going to be able to take advantage of it.
A program that we are using, utilizing our grants, the
grants that began with the STEP program, is we have a Web
localization program now where we provide partial funding for
companies to translate their websites when they are
successfully penetrating new markets, and that, for a small
business, is a great asset.
Chairman Rubio. What about in Maryland? Do you see that
opportunity?
Ms. Pringle. Yes, absolutely. More and more companies are
looking to engage in the e-commerce field, but also, as you
mentioned earlier, it presents new challenges not only to our
export services and the canceling and the topics and be up to
speed with what is happening, but the regulatory environment
still plays a key role also. Manny mentioned how do you
position your products to be appealing to the foreign
countries--or the markets, targeted markets, through their Web-
based services, but also protecting your IP, if there is any IP
involved, obviously, if you are selling your products through
an e-commerce platform.
But, yes, we do see a lot of interest from companies to
engage in e-commerce.
Chairman Rubio. My mother-in-law is a freight forwarder.
Her primary customers were in Venezuela, which obviously now is
a disaster. It was years ago, obviously, and it has only
declined since then, and she has expanded to other markets to
try to adjust.
But because of that, what was always stunning to me is this
is--I do not know if this dynamic exists anywhere else, but it
does in South Florida. We have, for example, Dolphin Mall that
has a hotel on the premises in Dade, because literally people
from Latin America will fly and stay at the hotel for 3 days to
shop for consumer goods. And I am shocked that we have not
reached a point where instead of flying all the way down here
and staying at a hotel and filling up the suitcases and flying
back with the stuff that they purchased, more of that is not
happening in e-commerce, but I imagine it would eventually
migrate in that direction.
I think the same is true for producers of unique products,
whether it is in South Florida, Maryland, or anywhere in the
country. That eventually, as the buying power of the consumer,
anywhere in the world, continues to grow, their desire for
certain products that are found locally should grow with it, I
would imagine, and the ability to connect the producer on our
end to the consumer over there with minimum barriers is one of
the unique attributes of this new economy that is different
from 25 years ago, across the board.
You used to have to have a lot of advertising and a big
storefront to be a business. Today there are people working out
of their home on eBay or whatever it is they are selling, their
crafts.
So I just think it is a unique place for us to continue to
explore because there are both in the services realm, but
particularly in the goods, a real opportunity to help companies
grow in that field without having to set up some of the local
presence that is an impediment to a lot of them.
Well, I appreciate all of you for coming today, for
traveling here, for being a part of this. It is useful to us.
We are trying to reauthorize SBA, which is a unique opportunity
to go through it and modernize it, so that its programs reflect
the 21st century economy, the unique challenges and
opportunities that are before us, and your testimony today is
very important. So we are really grateful to you for coming and
for being a part of it and for giving us your time and your
insight on the programs that are offered by the SBA's Office of
International Trade.
The hearing record is going to remain open for 2 weeks.
What you said here today will be a part of our record. We will
be able to refer back to it as we move forward on our work, and
it will be available to our colleagues as well.
There may be some follow-up statements or questions for the
record. They would be submitted by Wednesday, April 24th, at
5:00 p.m. It is possible that you may get some questions. We
would ask that if you can, you would answer them so we can
include it as part of our record.
So I am really grateful to all of you for being here. Thank
you very much.
And with that, this hearing is adjourned.
[Whereupon, at 4:25 p.m., the Committee was adjourned.]
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