[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                        UNLEASHING MAIN STREET'S POTENTIAL: 
                        EXAMINING AVENUES TO CAPITAL ACCESS

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                              
                            JANUARY 18, 2024

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                               

            Small Business Committee Document Number 118-036
             Available via the GPO Website: www.govinfo.gov
                   HOUSE COMMITTEE ON SMALL BUSINESS

                    ROGER WILLIAMS, Texas, Chairman
                      BLAINE LUETKEMEYER, Missouri
                        PETE STAUBER, Minnesota
                        DAN MEUSER, Pennsylvania
                         BETH VAN DUYNE, Texas
                         MARIA SALAZAR, Florida
                          TRACEY MANN, Kansas
                           JAKE ELLZEY, Texas
                        MARC MOLINARO, New York
                         MARK ALFORD, Missouri
                           ELI CRANE, Arizona
                          AARON BEAN, Florida
                           WESLEY HUNT, Texas
                         NICK LALOTA, New York
                          CELESTE MALOY, Utah
               NYDIA VELAZQUEZ, New York, Ranking Member
                          JARED GOLDEN, Maine
                         KWEISI MFUME, Maryland
                        DEAN PHILLIPS, Minnesota
                          GREG LANDSMAN, Ohio
                  MARIE GLUESENKAMP PEREZ, Washington
                        SHRI THANEDAR, Michigan
                       MORGAN MCGARVEY, Kentucky
                       HILLARY SCHOLTEN, Michigan
                          JUDY CHU, California
                         SHARICE DAVIDS, Kansas
                      CHRIS PAPPAS, New Hampshire

                  Ben Johnson, Majority Staff Director
                 Melissa Jung, Minority Staff Director
                           
                           C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Roger Williams..............................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Mr. Kevin O'Leary, Chairman, O'Leary Ventures, Miami Beach, FL...     5
Ms. Jill Bommarito, Founder and Chief Executive Officer, Ethel's 
  Baking Company, Shelby Township, MI............................     7
Mr. Douglas Holtz-Eakin, President, American Action Forum, 
  Washington, DC.................................................     8
Mr. Everett Sands, Founder & Chief Executive Officer, Lendistry, 
  Los Angeles, CA................................................    10

                                APPENDIX

Prepared Statements:
    Mr. Kevin O'Leary, Chairman, O'Leary Ventures, Miami Beach, 
      FL.........................................................    43
    Ms. Jill Bommarito, Founder and Chief Executive Officer, 
      Ethel's Baking Company, Shelby Township, MI................    45
    Mr. Douglas Holtz-Eakin, President, American Action Forum, 
      Washington, DC.............................................    48
    Mr. Everett Sands, Founder & Chief Executive Officer, 
      Lendistry, Los Angeles, CA.................................    59
Questions and Answers for the Record:
    Questions from Hon. Velazquez to Mr. Everett Sands and 
      Answers from Mr. Everett Sands.............................    68
Additional Material for the Record:
    America's Credit Unions......................................    71
    California Association for Micro Enterprise Opportunity 
      (CAMEO)....................................................    74
    Chamber of Marine Commerce...................................    78
    The Daily Dish...............................................    82
    Engine.......................................................    83
    FDIC on Deposit Insurance Thresholds.........................    86
    Small Business Investor Alliance (SBIA)......................    90
    The Washington Post..........................................    96

 
UNLEASHING MAIN STREET'S POTENTIAL: EXAMINING AVENUES TO CAPITAL ACCESS

                              ----------                              


                       THURSDAY, JANUARY 18, 2024

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360, Rayburn House Office Building, Hon. Roger Williams 
[chairman of the Committee] presiding.
    Present: Representatives Williams, Luetkemeyer, Stauber, 
Meuser, Van Duyne, Mann, Ellzey, Molinaro, Alford, Crane, 
Maloy, Velazquez, Landsman, McGarvey, Gluesenkamp Perez, 
Scholten, Thanedar, Chu, Davids, and Pappas.
    Chairman WILLIAMS. Okay, it is 10 o'clock. We are right on 
time.
    Before we get started I want to recognize Congressman Mann 
from Kansas to lead us in the pledge and the prayer.
    Mr. MANN. Thank you, Mr. Chairman.
    Join with me in prayer.
    Dear Lord, thank you that we get to live in the greatest 
country in the history of the world. We pray for all the small 
business owners and all those that are thinking about starting 
a small business. Please bless their efforts. We pray that they 
would be led by you, as would everyone on this Committee. And 
we commit this hearing to you and your will. Thanks that we get 
to all be here. In the name of Jesus, amen.
    I pledge allegiance to the flag of the United States of 
America. And to the Republic for which it stands, one nation 
under God, indivisible, with liberty and justice for all.
    Chairman WILLIAMS. I would also like to make mention that 
you will periodically see some of our Members moving in and 
out. We might have a moment where there is a lot of people. We 
might have a moment where there is not so many people. Do not 
let it worry you because we have got other hearings going on 
and people have to be at those. So that is a normal process. So 
make you aware of that.
    Good morning, everyone. I now call the Committee on Small 
Business to order.
    Without objection, the Chair is authorized to declare a 
recess of the Committee at any time.
    I now recognize myself for my opening statement.
    I want to welcome all of you here today to the hearing 
which will focus on finding solutions for entrepreneurs to more 
easily access capital so they can grow their businesses.
    I would like to start by thanking all of our witnesses for 
being with us today. Thank you very much. And we know you could 
be focusing on your core business operation. We greatly 
appreciate your attendance and your input.
    Small businesses are the backbone of our communities and 
the engines of growth for our economy. Our nation's job 
creators have faced many challenges over the past few years 
from labor shortages to crippling inflation, yet we still 
prevail. While our business owners continue to face and 
overcome never-ending hurdles, as this Committee heard prior, 
access to capital remains a top concern for main street.
    For a business to get off the ground, small business owners 
must invest their time and financial resources. For most 
entrepreneurs, this means going to the bank to secure a loan. 
This capital provides them with the resources needed to compete 
in the marketplace and contribute to the American economy.
    Unfortunately, high interest rates and tightening lending 
standards are a significant barrier to growth for main street. 
We know American entrepreneurs who are just starting their 
journeys and have little credit history will be subjected to 
sky-high interest rates under the current economic headwinds.
    As interest rates remain high, the federal government 
should be looking at other barriers that are making it more 
expensive to lend money to main street. However, there is a 
proposal making its way through the Federal Reserve System that 
will do the exact opposite. And I am, of course, speaking of 
the proposed Basel III capital requirements. If implemented, 
this rule would require the banks to hold more of their capital 
on the sidelines rather than lend it out to small businesses. 
This would harm small businesses with thin credit histories. 
The most of this is implemented.
    Main street has been playing defense since this 
administration came into office, and this rule would only serve 
to make matters worse. For some businesses, they do not want to 
go to a bank and take on debt. These startups may turn to 
venture capital funds which invest capital in exchange for 
equity in the business. This is a risky undertaking for the 
venture capitalist betting on a business's success, but this 
type of financial agreement helped build some of the most 
successful companies we have seen in our time.
    Despite these tough economic headwinds, main street still 
finds its way to thrive. Just as it always does, we on this 
Committee are focused on ensuring our nation's small businesses 
have a fighting chance. And I am very much looking forward to 
today's discussion as many are.
    So with that I want to yield to our distinguished Ranking 
Member from New York, Ms. Velazquez, for her opening remarks.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. I would like to 
thank all of the witnesses for being here today.
    As both Chair and Ranking Member of this Committee, 
ensuring small businesses have access to credit and investment 
opportunities has always been one of my top priorities. Under 
the leadership of President Biden, small business growth has 
proved resilient. Since he took office, 60 million Americans 
have filed to start new businesses, the strongest stretch on 
record.
    While economic progress continues to be made, we must do 
better, and that means ensuring all of America's small 
businesses have the capital they need to succeed. 
Unfortunately, data published by the Federal Reserve found that 
minority-owned businesses were just as likely to apply for 
credit in 2020 but Black, Asian, and Latino-owned small 
businesses were less likely than White-owned businesses to 
report receiving all of the credit that they sought.
    When it comes to venture funding, that disparity is even 
more staggering. Black and Hispanic female entrepreneurs 
received less than 1 percent of all venture capital investments 
in 2020.
    SBA's capital access programs are critical to addressing 
these disparities. For example, the SBA's Community Advantage 
program has been successful at bridging this market failure, 
facilitating more than $139 million in microfinancing to 
underserved small businesses last year. Democrats have 
developed numerous other policies and programs to facilitate 
financing to women and minority-owned small businesses but this 
idea has been met with continued opposition from the majority.
    The majority recently passed Congressional Review Act 
legislation seeking to overturn the CSBB's Section 1071 rule 
which is specifically designed to ensure women and minority-
owned small businesses receive access to financing on terms 
similar to those as White-owned firms. This legislation was 
immediately vetoed by President Biden.
    Attempts to ensure our banking system is resilient and well 
capitalized and capable of supporting busineseses in both good 
economic times and bad are also being met with stiff opposition 
from the majority.
    The proposed joint rulemaking implementing the Basel III 
Endgame agreement is fully consistent with the important aim of 
enhancing the ability of small businesses to access financing.
    Two key points about the proposal must be made from the 
outset. First, the proposed rule is just that, a proposal. It 
is not final, and on several occasions, Vice Chair Barr has 
reiterated his willingness to meet with interested parties and 
hear feedback. Just last week on my invitation, Vice Chair Barr 
met with Democrats on this Committee to discuss the proposal 
and answer our questions.
    Secondly, there are more than 4,500 banks in this country 
and less than 40 percent of them will be directly affected by 
the rule. Community banks--I repeat, community banks which do 
approximately 40 percent of the nation's small business lending 
will not be impacted by the proposal.
    Small businesses remain the backbone of our nation's 
economy, and ensuring large banks remain well capitalized so 
they do not create another financial crisis is critical to 
ensuring all main street small businesses have access to credit 
and investment opportunity.
    Thank you, and I yield back.
    Chairman WILLIAMS. Thank you.
    We will now introduce our witnesses. I will start by 
recognizing my colleague, Representative Meuser to briefly 
introduce our first witness appearing before us today.
    Mr. MEUSER. Thank you, Mr. Chairman, very much.
    Our first witness with us today is Mr. Kevin O'Leary, also 
known as Mr. Wonderful. Many have seen him, of course, on the 
very successful and long-running show Shark Tank. Mr. O'Leary 
is the Chairman of O'Leary Ventures located in Miami, Florida. 
Mr. O'Leary founded O'Leary Ventures in 2000 to support 
startups and early-stage businesses across virtually every 
sector because of the breadth of his investment portfolio. As I 
understand it, much of it from Shark Tank. O'Leary Ventures has 
a proprietary network that continually works to support 
portfolio companies. In 2007, he joined the cast of the 
Canadian TV show Dragon's Den, the international business 
reality show, a precursor, of course, for U.S. Shark Tank 
franchise. He is also the author of a best-selling series of 
books and has spoken to future entrepreneurs at Harvard, Notre 
Dame, MIT, and Waterloo, among others. Mr. O'Leary also serves 
on the investment committee at Boston's prestigious 200-year-
old Hamilton Trust. Mr. O'Leary graduated from the University 
of Waterloo where he received an honors bachelor's degree in 
environmental studies and psychology. That is what my son is 
majoring in. There is hope for him. He then went on to attend 
the Ivy Business School where he earned his MBA. Mr. O'Leary, 
you are known as being a very direct, truthful, and fiscally 
responsible businessman. We here on this Committee want to base 
our priorities on the real world. And so from all of our 
witnesses, thanks for bringing the real world to our Committee. 
And thank you all very much for being here.
    With that, Mr. Chairman, I yield.
    Chairman WILLIAMS. The gentleman yields back.
    Our next witness is Ms. Jill Bommarito. Ms. Bommarito is 
the founder and CEO of Ethel's Baking Co., located in St. Clair 
Shores, Michigan. Ms. Bommarito founded Ethel's Baking Co. in 
2011 to carry on her tradition of cooking with love but, how do 
yall say it--celiac disease, a family struggle for over 30 
years, often left many disappointed with recipes tailored to 
exclude gluten. When she hosted her first Christmas dinner for 
extended family, she made an entire gluten-free meal, the 
highlight of which was the now famous Pecan Dandy Bars. Today, 
along with her daughter Lily, they continue to take old-
fashioned favorites catering to a modern appetite that creates 
gluten-free, non-processed food in over 1,500 stores across 
North America and online. Ms. Bommarito graduated from Michigan 
State University, a Spartan, with a Bachelor of Arts in 
communication and economics. So thank you for joining us today 
and we look forward to our conversation ahead.
    Our next witness here with us today is Dr. Douglas Holtz-
Eakin. Dr. Holtz-Eakin is the president of the American Action 
Forum located here in Washington, D.C. Dr. Holtz-Eakin founded 
American Action Forum in 2009. Prior to that he served in a 
variety of influencing policy decisions, including chief 
economist of the President's Council of Economic Advisors from 
2001 to 2002, which he also worked as a senior staff economist 
from 1989 to 1990. From 2003 to 2005, he served as the sixth 
director of the Congressional Budget Office assisting Congress 
with numerous policies, including the 2003 Tax Cuts, the 2003 
Medicare Prescription Drug Bill, and the 2005 push for Social 
Security Reform. He was also the director of domestic and 
economic policy for the John McCain Presidential Campaign and 
then went on to serve as a commissioner on the congressionally 
chartered Financial Crises Inquiry Commission. Dr. Holtz-Eakin 
received a Bachelor of Arts in economics and mathematics from 
Dennison University and then went on to receive his Ph.D. in 
economics from Princeton University. Thank you for joining us 
today, and we look forward to our conversation ahead.
    I now recognize the Ranking Member from New York, Ms. 
Velazquez, to briefly introduce our last witness appearing 
before us today.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    I would like to take a moment to recognize Mr. Evertt Sands 
and thank him for joining us here this morning. Mr. Sands is 
the founder and CEO of Lendistry, a national CDFI small 
business lender located in Los Angeles, California. Mr. Sands 
has more than 20 years of experience in banking, facilitating 
loans to underserved small business owners who need access to 
responsible capital. Mr. Sands has shared his experience and 
recommendations with Fortune, the National Urban League, the 
Wall Street Journal, and Bloomberg. He is a graduate of the 
University of Pennsylvania and he is an Advisory Board Member 
of the Penn Institute for Urban Research. Thank you, Mr. Sands. 
It is a pleasure to have you here this morning.
    Chairman WILLIAMS. Thank you. And again, we appreciate all 
of you being here today.
    So before recognizing the witness I would like to remind 
them that their oral testimony is restricted to 5 minutes in 
length. If you see the light turn red, you have got a problem, 
okay, in front of you. It means your 5 minutes have concluded 
and you should wrap up your testimony. And every now and then 
if you go over I will remind you a little bit and so we will 
keep this thing moving.
    So with that being said I now recognize Mr. O'Leary for his 
5-minute opening remarks.

 STATEMENTS OF KEVIN O'LEARY, CHAIRMAN, O'LEARY VENTURES; JILL 
BOMMARITO, FOUNDER AND CHIEF EXECUTIVE OFFICER, ETHEL'S BAKING 
COMPANY; DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION FORUM; 
AND EVERETT SANDS, FOUNDER & CHIEF EXECUTIVE OFFICER, LENDISTRY

     STATEMENT OF KEVIN O'LEARY, CHAIRMAN, O'LEARY VENTURES

    Mr. O'LEARY. Thank you, Chairman Williams, Ranking Member 
Velazquez, and Members of the Committee, thank you for giving 
me time to testify about the state of small business in 
American.
    I am the Chairman of O'Shares, an ETF indexing firm and 
Chairman of O'Leary Ventures management, a private equity and 
venture investment firm. As an investor, I support 
entrepreneurs at every stage of their journeys. I have dozens 
of family-run businesses in our investment portfolios.
    My definition of a small business is a private firm, often 
family owned, that employs between 5 and 500 people. These hard 
working men and women that basically account for 60 percent of 
job creation in America. There is no denying they are the 
backbone of the economy.
    For decades, the US economy has enjoyed historically low 
interest rates. Access to capital at a low cost is always the 
key for funding receivables, capital expenditures, and making 
payroll. For small businesses in America, the majority of these 
services were provided by the network of over 4,000 regional 
banks. Almost a year ago, the network began to falter. Silicon 
Valley Bank and Signature Bank failed, and First Republic Bank 
was bailed out by taxpayers and then sold off to J.P. Morgan. 
This occurred while the Federal Reserve was raising rates at an 
unprecedented pace from almost 0 to the current 5.5 percent 
terminal rate. Regional banks immediately faced heightened 
scrutiny of their balance sheets and liquidity ratios and now 
bank policies are under review by their regulators. The 
predictable reaction was for the banks to tighten their loan 
books. This was immediately felt by hundreds of thousands of 
small business owners in every sector and geography in America. 
Not only did their rates increase, but regional bank liquidity 
dried up too. In many cases they now have to make use of the 
private shadow banking market at rates of 16 to 22 percent.
    At the same time, federal programs like the PPP had ended 
and the Employee Retention Credit payments were suspended by 
the IRS in Q4 of 2023. To date they have not resumed and the 
whole ERC program is currently scheduled to end on April 15th 
of 2025 or even sooner.
    Unfortunately, the majority of small business owners have 
no idea if they qualify for any of the programs inside of the 
Inflation Reduction Act (IRA), The CHIPS Act and Science Act, 
obviously, and Infrastructure Act. Small businesses do not have 
the resources to retain lobbyists, legal and financial advisors 
that interpret the acts and manage the application process. If 
small businesses in America are responsible for 60 percent of 
domestic jobs, why are these acts not written to spend 60 cents 
of every dollar on them, especially when their traditional 
sources of funding and government support programs have ended 
or been suspended. Instead, it looks to the market like the 
IRA, CHIPS and Infrastructure Acts were written specifically 
for S&P 500 companies that have no trouble accessing capital, 
yet only create 40 percent of jobs, many of these in foreign 
subsidiaries.
    I would like to suggest some recommendations to the 
committee.
    One, create a payroll protection program to protect 
noninterest paying payroll accounts in regional and community 
banks during the inevitable consolidation of over 4,000 
regionals down to a market stable number. I first heard of this 
idea from Senator Hagarty and think it would be helpful.
    Two, work with the numerous agencies that are implementing 
both the IRA, CHIPS, and Infrastructure Acts to ensure small 
businesses receive the fair share of these programs. Form a bi-
partisan council that advocates for small business in America 
that is always at the table when new policy is being 
considered. This would ensure that new government programs and 
laws are actually supporting small businesses and job creation 
in America.
    Thank you very much.
    Chairman WILLIAMS. Thank you. And I now recognize Ms. 
Bommarito for her 5-minute opening remarks.

 STATEMENT OF JILL BOMMARITO, FOUNDER AND CEO, ETHEL'S BAKING 
                              CO.

    Ms. BOMMARITO. Thank you. Chairman Williams, Vice Chairman 
Luetkemeyer, Ranking Member Velazquez, Committee Members and 
guests, good morning.
    My name is Jill Bommarito, and I am the founder and CEO of 
Ethel's Baking Company located in Metro Detroit. We are a 
leading wholesale gluten-free bakery specializing in dessert 
bars and cookies sold in grocery and specialty stores in 49 
states. I am also an alumna of the Goldman Sachs 10,000 Small 
Businesses program.
    It is an honor to be here today, and I appreciate your 
invitation and your attention to how a lack of access to 
capital is a barrier for small business growth.
    Ethel's Baking Company now has annual revenue of $5 million 
and 26 full-time employees. I started my business in 2011 in a 
church kitchen with a $10,000 loan from my mom.
    I quickly learned that accessing capital through 
traditional lending institutions was impossible without 2 years 
of profitability to show. That barrier led me to borrow from 
friends and family, as well as from our personal savings and 
401k to grow the business growth. In fact, I was not able to 
secure my first business loan for over 5 years after I started 
the company.
    We continued to grow and needed additional working capital 
but a second barrier arose. I learned that traditional lenders 
are also reluctant to lend to business that are growing 
quickly. Fast growth equals risk.
    For small business owners, this feels contrary to the 
American Dream. Creating jobs, taking on the risks of starting 
something new is important but we are not treated as important.
    In 2019, with distribution expanding, Ethel's had reached 
capacity. The only way to access the capital needed to expand 
was to sell equity in my company. This allowed me to build out 
our new 20,000 square foot facility manufacturing space to meet 
demand and also allowed me to have access to working capital 
and start that next level relationship with banking.
    We continue to grow our customer base and receive purchase 
orders from large retailers like Costco, Target, Whole Foods, 
and more. This requires more capital.
    When small business owners like me cannot access a loan, we 
are faced with three choices. We deplete personal and
    retirement savings. We have the option for utilizing high-
interest loans and credit cards, non-traditional lenders, and 
predatory lenders that exploit small businesses. Or sell equity 
to raise capital.
    My relationship with our lender is strong, but the fact is 
that businesses like mine, growing quickly and in the food 
sector, are deemed risky. This has led me to sell additional 
equity.
    Here is the truth. My ability to access capital for my 
business is my top concern every single day. That is true for 
every small business.
    It is troubling that the Federal Reserve is considering a 
rule, the Basel III Endgame, that would further restrict access 
to capital for small businesses. If enacted, this rule would 
not only cut off many small businesses from accessing the 
capital that they need to grow, but it will push small business 
owners to predatory lenders because they will have no other 
choice. I come from a family of entrepreneurs , and I have seen 
firsthand the consequences of predatory lending. It is simply 
unconscionable.
    From my perspective, I respectfully offer two things this 
Committee and Congress could do to help small businesses like 
mine:
    First, oppose the Basel III Endgame. I would like to extend 
my appreciation to Chairman Williams for expressing concerns 
about Basel III in a letter to the Federal Reserve. I would 
also like to thank Subcommittee Chair Meuser and Ranking Member 
Landsman, for leading a bipartisan letter about the proposal's 
negative impact on small business lending. I have joined over 
3,000 small business owners from the 10,000 Small Business 
Voices community who signed our letter to the Federal Reserve 
expressing our concerns about the impact of the Basel III 
Endgame.
    And second, modernize the SBA through reauthorization. As 
you know, the SBA has not been reauthorized by Congress in over 
20 years. Small businesses would benefit from an agency that is 
as nimble and can work at the speed that we work today. Through 
Congressional reauthorization, the SBA could be charged with 
solving these capital barriers that currently exist.
    Thank you for your time, and I will gladly answer any 
questions
    Chairman WILLIAMS. Thank you very much.
    I now recognize Mr. Holtz-Eakin for his 5 minute opening 
remarks.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                             FORUM

    Mr. HOLTZ-EAKIN. Chairman Williams, Ranking Member 
Velazquez, Members of the Committee. Thank you for the 
privilege of being here today to discuss access to capital and 
headwinds to growth in the small business community.
    I want to make three brief points and then I look forward 
to answering your questions.
    At the moment there are really two near-term threats to 
access to capital. The first which has been mentioned already 
is the economic environment in which small businesses are 
operating, an environment characterized by tight credit 
conditions, high interest rates, and the prospect of slow 
economic growth over the interim. This runs the risk of both a 
recession and limited access to capital because of the high 
interest rates.
    The thing that I would note about the economic conditions 
that I think is most troubling is that there is a very 
unbalanced growth pattern going on in the U.S. economy. We have 
seen some high topline economic growth numbers but they are 
driven entirely by households. Business investment in the 3rd 
quarter was dead flat. It looks to be repeated in the 4th 
quarter. That is the issue of small businesses not investing, 
not having any access to capital. And every post-war recession 
pandemic was led by a downturn in business investments. So that 
outlook is very important and one of real concern to me.
    How long the Fed remains tight is a real issue. To give you 
some sense of it, the core PCE price index inflation peaked at 
5.6 percent. It is now at 3.2 So that is 2/3 of the way to the 
2 percent target and that took almost 2 full years. So the 
notion that somehow credit conditions will ease quickly I think 
is far from guaranteed.
    That puts an emphasis on policy to provide access to 
capital. And here I think the real near-term threat is the 
regulatory burden being placed on businesses, and especially 
small businesses.
    As I note in my written testimony, the Biden administration 
is imposing a regulatory burden from finalized regulations that 
averages about $150 billion a year so far for each year in 
office. That is 50 percent higher than any previous 
administration and well above typical administration burdens of 
$40 to $20 billion a year. That is simply an enormous headwind 
to growth and access to capital. That is across all agencies. 
The particular regulatory issue that this one raised so far is 
the Basel III Endgame. This is a proposed rule which is unique 
in that it provides no quantitative estimates or justification, 
no benefits when we know there will be large costs to raising 
capital standards by 20 to 30 percent. It would be in the 
regulators' interest to demonstrate quantitatively the impacts 
on the economy and in particular the small business community 
but we have not seen anything like that. So hopefully, the 
final rule will look a lot better than the proposed rule.
    In survey evidence of the small business community, the 
proposed rule is really quite frightening. Sixty-seven percent 
of respondents said that if it finalized they would halt their 
expansion. Forty-two percent said they would be considering 
layoffs. And some 21 percent contemplating closing their 
businesses as a result. So this is a rule that has enormous 
impacts on the economy.
    Going forward and over the longer term, I think the biggest 
policy uncertainty comes from the federal budget. The federal 
budget, according to the Congressional Budget Office will have 
$20 trillion of deficits over the next 10 years and there is 
simply no question that that kind of demand for capital by the 
federal government is going to impede the private sector's 
ability to get that capital and the most easily crowded out 
will be the small businesses. And so that cannot hold.
    Even more important is how it gets resolved. One way to 
resolve that problem is to rely extensively on tax increases, 
in particular, the 2017 act will sunset in almost its entirety 
at the end of 2025. To simply take away the pro-growth aspects 
of that act in particular or taxes in general as a way of 
solving our budget deficits is not going to be a good solution. 
It is going to hurt the small business community dramatically. 
A better solution would be to rein in the growth of the large 
entitlement spending programs that are driving those deficits. 
Keep the tax burden as low and efficient as possible and 
provide a growth environment in which the small business 
community can prosper while putting the federal fiscal house in 
order.
    There are many problems facing the economy. Those are the 
three I think that are most important for this Committee right 
now. I thank you for the chance to be here.
    Chairman WILLIAMS. Thank you very much.
    I now recognize Mr. Sands for his 5-minute opening remarks.

     STATEMENT OF EVERETT SANDS, FOUNDER AND CEO, LENDISTRY

    Mr. SANDS. Committee Chairman Williams, Ranking Member 
Velazquez, Vice Chairman Luetkemeyer, distinguished Members of 
the Committee, thank you for your interest in my first-hand 
knowledge.
    My name is Everett K. Sands. I am honored to be invited 
back to offer testimony before this Committee. I have over 20 
years of experience in lending at community banks. One of the 
largest national banks and founder and CEO of the only fintech 
community development financial institution, Lendistry, which 
has taken 1.7 million applications since our history.
    My message today is that main street businesses that power 
our economy need small dollar loans to grow to the next level, 
and right now you have an army of CDFIs that stand ready to 
support them.
    My written testimony outlines in detail the demand for 
smaller loans and that CDFIs, including Lendistry, have proven 
themselves to be the most effective capital deployers to 
underserved communities as a percentage of loans originated. 
Yet, we work with one hand tied behind our backs due to the 
hurdles that made sense when they were first enacted and no 
longer fit today's financial landscape.
    In order to do our part to unleash main street, we need you 
to unleash us.
    My first recommendation is to fix the state-by-state 
licensing model that prevents CDFIs from efficiently serving 
small businesses on a nationwide footprint. The current state-
by-state licensing requirement for CDFIs not only limits how 
quickly capital can be distributed but also how effective the 
CDFI designation can be as a force to deploying responsible 
capital and lower loan amounts.
    Applying a universal licensing model similar to residential 
lending, nationwide mortgage licensing system will bring about 
three clear benefits.
    One, CDFI's can move faster to deploy capital when it is 
needed.
    Two, CDIs can easily attain the risk management benefits of 
geographical distribution.
    And three, more lenders will be motivated to attain a CDFI 
designation which would significantly increase the supply of 
capital provided on responsible terms and through market forces 
make predatory lending businesses less economically viable.
    My second recommendation is to increase the access to 
Federal Home Loan Bank and grant access to the Federal Reserve 
Bank for CDFIs. The elements that go into determining a loan's 
interest rate are broken down simply in my written testimony. 
But to get right to the point, the cheaper the capital is for 
CDFIs, the more savings are passed down to borrowers in the 
form of lower interest rates. Interest received on small loans 
simply does not add up to enough to keep the CDFIs in business 
or innovate. So if a CDFI does not have low-cost sources of 
liquidity and has not received adequate capital, lending 
capital from banks, it has to make the decision to either 
leverage high-cost capital resulting in higher rates for 
borrowers or just not provide small loans at all.
    Allowing access to CDFIs to the FRB and FHLB would again 
have three main benefits.
    One, additional sources of liquidity, which means CDFIs 
could provide more loans to underserved communities.
    Two, access to lower cost of funding will immediately 
decrease the interest rate CDFIs provide to their customers.
    And three, as Mr. O'Leary said, private lending capital has 
decreased pretty significantly and the government needs CDFIs 
to keep the playing field both responsible and equitable.
    The third recommendation is to form a taskforce to analyze 
programs on an ongoing basis and implement adjustments to make 
sure they remain catalytic and responsive. As evidenced by PPP, 
SSBCI and the many programs implemented to provide pandemic 
relief, our government can rise to the occasion to deploy 
assistance and save small businesses. From the capital 
deployer's perspective, government support is best when it is 
catalytic to help new industries, like renewable energy, thrive 
and innovate, and responsive. Capital deployment should be 
considerate of current market conditions like inflation.
    Programs should also be built with processes in place for 
accountability and reporting and adjusting based on those 
findings. This means that though a great deal of money is 
pushed towards states to support small businesses via programs, 
there is no system in place to make sure programs continue to 
fit market conditions or to measure their effectiveness in 
relation to their missions. Instead of adjusting current 
programs to keep them effective, we create new programs.
    In closing, Congress has taken great strides in recent 
years to increase access to capital for borrowers and remove 
roadblocks from most of our effective lenders. For mission-led 
lenders, part of the Endgame is disruptive and predatory firms 
by offering accessible, responsible alternatives. In my 
experience, knowledge, as well as innovation are most powerful 
when execution. It is my hope that with the information 
gathered in this room from myself and my fellow witnesses swift 
action will follow. Only then can main street's potential truly 
be unleashed.
    Thank you for your time.
    Chairman WILLIAMS. Thank you very much.
    I now recognize myself for 5 minutes.
    Ms. Bommarito, it is inspiring to hear the story of how you 
grew your business from a kitchen in a church to currently 
shipping your products to 49 states across the country. I want 
to congratulate you on this incredible accomplishment and hope 
you are proud of what you have built.
    Ms. BOMMARITO. Thank you.
    Chairman WILLIAMS. You mentioned in your testimony that you 
were not able to get your first business loan until 2016 when 
you used a building you purchased the prior year as collateral. 
Since this time your capital needs have changed as you have 
indicated since your business has grown.
    So my question is for the other entrepreneurs that might be 
listening to this hearing can you talk about how your capital 
needs have changed through the lifecycle of your business?
    Ms. BOMMARITO. Thank you, Chairman Williams.
    Yes, they have. When we started you need basically money to 
be able to build your inventory and cover your receivables. As 
you grow that grows exponentially and will continue to do that. 
With that you are also seen as a higher risk as you are 
growing. Anything over 10 percent is considered risky from what 
I have been told from banks. And you know small businesses 
often do grow more than 10 percent a year. It is the large 
organizations that are happy with the 2 percent or a 5 percent 
increase in profits in growth. And it changes over time. It 
will continue to change. We need to have the access at the 
local level from our community banks in order to grow our 
businesses.
    Chairman WILLIAMS. Thank you.
    Now, many young people were first exposed to 
entrepreneurship through a TV show called Shark Tank. It is 
hard to watch that show and not think about using your own 
background and strengths to create a product that solves a 
unique problem in the marketplace. However, having an idea 
might be the easiest part of someone's entrepreneurship 
journey. There is a lot of work to turn an idea into a business 
plan and then to successfully execute it. I believe Congress 
could help many of these small businesses by simply making it 
easier to access federal dollars, and the government is one of 
the largest customers in the world and we should allow small 
businesses to understand and compete for the funds without the 
need for an entire legal department.
    So Mr. O'Leary, you have a lot of experience advising small 
businesses. So when you see Congress pass some of these bills, 
how do you advise small businesses if they want to compete for 
the incentives? And how do you believe they have a fair shot?
    Mr. O'LEARY. I think many of these bills were authored 
without, in my view, without any consideration of small 
business. They obviously, in my view, were built for companies 
that came here to Washington, could afford lobbyists, talked 
about sectoral needs like infrastructure, spending, or CHIPS 
Act for giant behemoth companies that make these semiconductors 
and, you know, obviously when these were crafted there was 
nobody at the table for small business. I read these acts. I 
look for where small business is considered. I do not see a 
single line. I am sorry. That is just the way it is. And my job 
is to be an advocate for these men and women of which there are 
millions in America, every small business is going to be a big 
business if it is successful one day. Every behemoth started 
small but today we have tilted our support. When we write these 
acts, why is 60 cents on the dollar not given to small 
business? Because those are the next generation of companies 
that will create the jobs and keep a competitive economy. A 
global competitive economy.
    My job here in Washington, I am spending a lot more time, 
is going up and down the halls banging a gong saying what about 
my guys? I do not get this. Where is our piece of this? There 
is none. And so I think that is bad policy. I think there is 
every reason to ask why we are not being considered.
    On top of that, and you brought this up in your question, I 
thank you for it, the regulatory environment, when you pile on 
the federal regulations onto state regulations have made it so 
difficult to start a business in the first place.
    And again, to be candid, I do not invest in California or 
New York or Massachusetts anymore. I cannot do business there. 
It is not my fault. I put my money into North Dakota, West 
Virginia, Florida, Texas, where the path of least resistance is 
found. And that is okay. The competition of states. But if this 
is not obvious to people that you can actually regulate 
yourself out of business, check out California. Thank you.
    Chairman WILLIAMS. Thank you very much.
    And for the time that I have remaining, real quickly, as 
officials of the U.S. Federal Reserve are considering possible 
adjustments to the Basel III proposal, Mr. Holtz-Eakin, do you 
have any insight on its cost-benefit analysis?
    Mr. HOLTZ-EAKIN. They have displayed no public cost-benefit 
analysis, and I think it would be important in the final rule 
to have that analysis included.
    Chairman WILLIAMS. All right. I now recognize the Ranking 
Member for 5 minutes of questions.
    Ms. VELAZQUEZ. Yes. Thank you, Mr. Chairman.
    Mr. Sands, the Paycheck Protection Program highlighted 
racial disparities in banking. As a national CDFI, can you 
explain how Lendistry is trying to bridge this gap and provide 
access to credit to small businesses in underserved 
communities?
    Mr. SANDS. Yes. Thank you for the question.
    As CDFIs, we have a responsibility really and it breaks 
down into three things. The first is providing access to 
capital to all underserved, undercapitalized businesses. That 
is what we do.
    The second thing is to be able to take in data and 
basically prove that the small businesses have the ability to 
pay back. It is a perceived risk that minorities are not able 
to pay and so we do our best to work on that.
    Ms. VELAZQUEZ. Can you explain how SBA programs, like the 
7(a) and Community Advantage programs, have helped your 
organization bridge this gap?
    Mr. SANDS. Yeah. As you heard, even from the small business 
today, it is hard when they are in the beginning stages. And so 
programs like SBA, SSBCI, allow us to bridge that gap by taking 
additional risk and those guarantees effectively help us to 
take that risk and then prove that they can pay back and grow.
    Ms. VELAZQUEZ. There have been several attempts to 
permanently authorize the Community Advantage Program but those 
attempts have proven unsuccessful. How will permanently 
authorizing this program facilitate more lending to small 
businesses?
    Mr. SANDS. So authorizing Community Advantage is important, 
and permanently authorizing it is something that must be done. 
What we need to consider also is that the lenders look very 
much like their small businesses. Microlending program, 
Community Advantage are for the smaller lenders. CA SBLC is for 
the medium lenders. And SBLC is for the larger lenders. I would 
ask us to think about that as we move forward.
    Ms. VELAZQUEZ. Thank you. I understand Lendistry recently 
decided to seek an SBAC license from the SBA and that decision 
was predicated at least in part by the passage of the Inflation 
Reduction Act (IRA) and the equity financing incentives it 
provides. Can you provide us with a little more perspective on 
that decision? Do you think the incentives provided in the IRA 
will increase venture funding to small businesses more 
generally?
    Mr. SANDS. Absolutely. I mean, it is unfortunate that 
sometimes you have to be surgical in terms of looking at these 
bills as Mr. O'Leary mentioned but one of the benefits of IRA 
was that it does allow for the SBIC program to be expanded. 
Lendistry is always looking for patient capital. We are always 
looking for ways that we could lend to underserved businesses 
and that need is growing and larger loan amounts are required 
in this day and age, especially to participate in programs like 
what we are trying to do with renewable energy, et cetera.
    Ms. VELAZQUEZ. Thank you.
    Ms. Bommarito, the government guarantee provided by the SBA 
in the 7(a), the 504, and the other capital access programs 
enables lenders to offer more affordable loans with more 
advantageous repayment terms than they otherwise would. Would 
that help small businesses better overcome many of the economic 
pressures we are discussing here this morning? Have you 
utilized any of the programs that I mentioned?
    Ms. BOMMARITO. Thank you very much for that question. And 
yes, my first loan was an SBA loan. But if I can be very frank, 
I started conversations when I started the company over 12 
years ago. Every single bank I have been in front of has not 
wanted to do an SBA loan because of the paperwork, the time it 
takes, and have pushed me to do a non-SBA in every 
circumstance. So I pushed and pushed and pushed and they had to 
end up doing the SBA loan and I am so thankful that we were 
able to do that. But I do believe that----
    Ms. VELAZQUEZ. Okay, my question is if you have ever 
utilized.
    Ms. BOMMARITO. Thank you.
    Ms. VELAZQUEZ. Some of the programs will provide better 
terms.
    Mr. Holtz-Eakin, this is the rule, the Basel III Endgame. 
You just stated here that the rule is more than 300 pages and 
more than 50 plus pages have an economic analysis, the Fed's 
analysis. For you to come here and state that the rule was 
written without any economic analysis is not true. I invite you 
if you have not read it to read it and then we can discuss 
whether or not you might find that that is insufficient but to 
state that it has not done an economic analysis is not correct.
    And then the banks, the Basel III impact over banks over 
100--I still have, oh, I am over. Most of the changes 
associated on the rule are related to market trading, not 
credit risk.
    Chairman WILLIAMS. Time is up.
    Ms. VELAZQUEZ. I yield back, Mr. Chairman.
    Chairman WILLIAMS. Thank you.
    I now recognize Representative Luetkemeyer from the great 
state of Missouri for 5 minutes.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman.
    You have got a great panel today. Congratulations on 
putting this together.
    Mr. Holtz-Eakin, let me start with you. In testimony before 
the Banking Committee, which I sit on, and Ms. Velazquez does 
as well, Vice Chairman Barr, whose proposal is basically this 
Basel proposal, has responded to the question from me 
personally, have you had an economic analysis of this said no. 
So I think your answer is correct. I do not know where she is 
getting her information from but even the Fed Vice Chair of 
regulation who proposed the rule said there is no economic 
analysis which is horrible from the standpoint of proposing 
rules and understanding the effect on this economy.
    It reminds me of the old debate about Cecil--if you want to 
go there.
    But anyway, Mr. Holtz-Eakin, this Basel rule, proposal in 
my mind, is a disaster from the standpoint we have just come 
through the COVID situation and our banks performed admirably. 
Had a hiccup this spring but that was our own fault not because 
of the economy. So I would just like your opinion on this rule 
as a former banker and a former regulator. When they say that 
this is only going to affect the top group of banks, these 
things roll downhill. Even your community banks at some point, 
the regulators are going to sort of wink and nod and say this 
is a really good idea. You need to be implementing this.
    What is your thought process on this rule and its effects 
on capital access to small business?
    Mr. HOLTZ-EAKIN. So the financial markets are by definition 
interconnected. And so to impose these capital requirements, I 
suppose you would say like the operations risk, my discontent 
with the proposed rule is there is no quantification of how 
large is operations risk. There is no quantification of the 
benefits to holding particular amounts of capital against 
operations risks. It is just hold this and we will assign it to 
operations risk. I think they could do a better job in 
defending the proposal.
    Costs are costs. That is not going to be confined to 
operations. They are going to have to raise the revenue to 
cover those costs. That means all credit will get more 
expensive. This is going to get embedded across those banks' 
pricing structures. And the smaller banks often by and large 
are banks for funding needs of various maturities and it will 
spill over to the smaller banks. You cannot isolate it in just 
the largest banks.
    They also extended it beyond what Basel III required them 
to affect regional banks in ways that I did not understand. And 
do not address Silicon Valley or Signature or any of the things 
that went on. And so this is an implementation of Basel III 
that does not hue to the necessary implementation. It has a lot 
of new, undocumented capital requirements that are costly but 
without demonstrated benefits, and it will affect the entire 
financial sector.
    Mr. LUETKEMEYER. Thank you for that. And I appreciate your 
comment with regards to about $150 billion worth of new rules 
and regulations of cost compliance each year. That is a huge 
driver of inflation when you add that as a cost that has to be 
embedded into the price of the product or services, especially 
a small business.
    Mr. O'Leary, thank you for being here. Great to see you 
again.
    This morning I saw an article that said there is about $8.8 
trillion in CDs and money market funds that is available and 
probably going to shift to the equities market as a result of 
interest rates coming down. That is both wonderful and not so 
hot at the same time. It is a two-edge sword. It is a bad deal 
from the standpoint that a lot of those dollars are there for 
the banks to be able to loan money to small businesses. If 
those flow out that means they have fewer dollars to invest. 
But it is also a good deal from the standpoint there may be 
some more venture capital dollars available for small business.
    Would you give me your opinion on that, please?
    Mr. O'LEARY. First of all, the assumption that interest 
rates are going down, I am not so sure. As we all know, the Fed 
mandate is 2 percent inflation. Not 2-1/2, not 3, not 3.2. I 
assume, they will stay the course at 5.5 terminal rate until 
they actually see 2 percent in sight which is nowhere near in 
sight for a whole bunch of infrastructure reasons. In addition 
to a lot of new capital coming, fresh capital, I call it 
helicopter money from infrastructure, CHIPS, and science, and 
from IRA. That is inflationary. I know we called it the 
Inflation Reduction Act. Any time you print money it is 
inflationary, period. There is no other way to interpret it.
    And so I think that is the pressure. It is sucking and 
blowing at the same time. A bit of a problem. But it has been 2 
generations of people that have never seen money in a bank or 
in a short-term CD or short-term Treasury, make over 5 percent. 
And now they have seen it for the first time. the market gives 
you 7 to 9 percent over a long period of time. And so some 
portion of that money is going to stay exactly where it is 
because the typical portfolio pre-pandemic was kind of 60 
percent equity, 40 percent fixed income, of which now Treasury 
is very attractive.
    So I would agree with you. There is going to be some 
pressure in terms of keeping that capital in a form that banks 
can lend it out.
    But I have to speak to this Basel III issue from a 
different perspective. It is bad policy and here is why. Today, 
our banks, the money center banks compete with New York, 
Zurich, and Abu Dabi. Those are the other----
    Chairman WILLIAMS. The gentleman's time is up.
    Mr. O'LEARY. Sorry.
    Mr. LUETKEMEYER. Thank you. My time is up.
    Chairman WILLIAMS. I now recognize Representative Pappas 
from the great state of New Hampshire for 5 minutes.
    Mr. PAPPAS. Thank you very much, Mr. Chairman. I thank our 
panel for their comments here today as we think about some of 
the barriers our small business faces in accessing capital and 
some of the threats on the horizon, too.
    Mr. Sands, if I could start with you. As you know, rural 
small business and entrepreneurs have long faced undue barriers 
with respect to accessing capital. According to a 2021 SCORE 
report, 40 percent of rural small business owners have trouble 
accessing capital. Most end up using their personal savings as 
we heard about earlier in terms of finding that funding source 
to be able to grow and thrive.
    The Expanding Access to Capital for Rural Jobs Act is a 
bill that I helped introduce last year. It would expand the 
office of the Advocate for Small Business Capital Formation to 
include Rural small businesses and help ensure that their 
concerns and priorities are heard by SBA. I am wondering if you 
have other thoughts about this specific sector, rural small 
businesses, what we can do to improve access to capital for 
those main street businesses that we know are underserved and 
face struggle in terms of finding the capital they need.
    Mr. SANDS. Thank you for the question.
    I think ultimately, what it comes down to is the deployers 
of capital are missing in states like New Hampshire. And so I 
think there needs to be some investment in terms of trying to 
bring more responsible capital deployers not only to New 
Hampshire but also to all rural areas and think about programs 
that can support bringing those capital deployers to the state. 
Likewise, I also mentioned about the state-by-state licensing. 
If you take someone like us at Lendistry who are in California 
and we are trying to go into New Hampshire, there are actually 
barriers for us being able to lend in your state.
    Mr. PAPPAS. Thanks for that. I am wondering if you wanted 
to add anything to the discussion around Basel III. We know 
that this would impact banks with over $100 billion in assets 
specifically but this is a very significant and complex 
regulatory proposal. There are a lot of concerns. I hear them 
from my main street business sector, my lending community, that 
it could have potential downstream impacts in terms of access 
to capital. So we know that banks and CDFIs like you do more 
than 40 percent of the small business lending. What would you 
expect the impact would be in terms of your organization's 
lending capacity if this program is implemented? And do you 
share some of the concerns that have been voiced today?
    Mr. SANDS. Yeah. I think we all want prudent banking, and 
we all want banks to have the right amount of equity in order 
to function. Likewise, we do not want at risk any of your 
deposits. That being said, we should recognize that we are in 
an inflationary environment. We should recognize that the rule 
is a proposal but it is not ready for the current environment 
that we are in today. So my actual recommendation would be to 
postpone Basel III as it stands today because as others have 
indicated, it will start at the top banks. It will then trickle 
down into community banks. It will then trickle down into 
community development financial institutions. And afterwards it 
would then obviously go to small businesses.
    Mr. PAPPAS. Well, I appreciate those comments.
    Ms. Bommarito, if I could turn to you. And thanks very much 
for talking a little bit about your business history. We know 
that in addition to capital, the most precious resource you 
have is your time. So being here and giving voice to these 
concerns is really very much appreciate and something we hear 
from folks in our own districts.
    You mentioned SBA reauthorization, the need to take a look 
at this. Can you be more specific in terms of some of the thing 
that this Committee should consider as we look at either a 
wholesale reauthorization or pieces of SBA that need to be 
modernized to meet the needs of businesses like yours?
    Ms. BOMMARITO. Absolutely. And thank you for this question.
    As a small business, when I started, you do not feel you 
matter. And we cannot singly. We need a centralized 
organization, the SBA, that represents us so that we can have 
that voice together. And the modernization by reauthorization 
is so important and it allows us to have more communication, to 
be able to utilize the system in a way that we are used to 
working with technology, to be able to understand these bills 
in a better way, and to be able to find out how we can access 
them. Because as it stands today, I do not have the time to 
even begin to read through those and find a way to be 
successful, take advantage of that for our business, and to be 
able to grow in a better way.
    Mr. PAPPAS. Well, thanks for that. We certainly hope to 
continue to hear the voices of our main street small businesses 
as we move forward on this Committee. Thank you for all of your 
comments, and I yield back my time.
    Chairman WILLIAMS. The gentleman yields back.
    I now recognize Representative Stauber from the great state 
of Minnesota, for 5 minutes.
    Mr. STAUBER. Thank you, Mr. Chair, and Ranking Member 
Velazquez for holding this hearing.
    You know, my home state of Minnesota has a rich history of 
entrepreneurship. These businesses are the cornerstone of our 
economy. And having been a business owner for 31 years it was 
tough at times. Yet, for all their efforts, the grit and 
determination, too many small businesses struggle to access the 
capital they need to survive. Small businesses have struggled 
under this administration, whether it is rising inflation due 
to Bidenomics, supply chain issues, or workforce shortages, 
they should not have the additional struggles due to lack of 
access to capital which translates to lost opportunities, 
unfulfilled potential, and ultimately missed contributions to 
our economy. Even alternative methods to funding such as 
venture capital are feeling the pressures of Bidenomics.
    Mr. O'Leary, despite what the Biden administration claims, 
inflation remains high and it has recently started to tick up 
again. How has inflation impacted venture capital lending?
    Mr. O'LEARY. Dramatically. In the last 24 months, it has 
seen a 39 percent decline in funding. And so the typical VC 
firm today is not worried about new deals. They are trying to 
determine in their portfolios which ones should survive and 
which ones they are going to let die. It is extremely difficult 
to raise capital for any company today from the traditional VC 
model as a result of this rapid change. It is almost 
unprecedented to go from zero to 5.5 percent terminal rate and 
not expect it to be like a jolt through the economy and now you 
are starting to really see it. And so there are some methods by 
which equity crowd funding, which is part of the CARES Act from 
way back that is actually working. I think over 308 million 
were raised last year using that. And that is a different form 
of financing. But that is a drop in the bucket compared to the 
billions required to fund growth through venture capital.
    I would go as far to say right now venture capital is dead 
and it is just waiting to see what the outcome is on these 
changes to the bigger bank environment. Because remember, they 
partner with a lot of other capital, too.
    Mr. STAUBER. And that was, my next question is what 
differences are you seeing in the VCs from entrepreneurs that 
are trying to pitch their business?
    Mr. O'LEARY. Well, if you are a startup you are in trouble. 
If you are just in your first round you are in trouble. If you 
have already got a VC backing you for a first, second, maybe AB 
round, they are going to look at you closely to decide if you 
are one of the ones that are going to survive. You have a 
chance. But if you miss that window, which was basically 36 
months ago, this is a very difficult time. And probably the 
best measure of this is the Shark Tank index. You should see 
the deals we are getting now because they cannot get money 
anywhere else. That is what happens.
    Mr. STAUBER. Right. Right. Right. Thank you, Mr. O'Leary.
    You know, as small business run into issues with access to 
capital, Basel III, it has already been mentioned, you know, it 
sounds reasonable until you realize the consequences of it 
which will squeeze access to critical financing for the 
businesses that drive our communities.
    Mr. Holtz-Eakin, raising capital requirements will likely 
create barriers to growth. How could the Fed modify a Basel III 
source workable to help small businesses?
    Mr. HOLTZ-EAKIN. I think the first and most important 
observation is that the banks are well enough capitalized at 
present so the Fed's stress test, they have been demonstrated 
to be well capitalized. The scenarios they can put through 
could be modified. So the overall need for capital has not been 
demonstrated by the Fed. If they want to tailor the capital 
charges they should be taking things off and adding the new 
risk charges. That is probably the biggest sort of framework 
that they could follow in doing the Basel III.
    And I do not see the benefit to extending it to the smaller 
banks, the regional banks. There is nothing in Basel III that 
addresses the difficulties that presented First Republic, 
Signature, Silicon Valley. Those are different phenomenon.
    Mr. STAUBER. Thank you.
    And then we heard that this adminsitratino has placed $150 
billion of additional regulations on small businesses. Is that 
a good thing, Mr. O'Leary?
    Mr. O'LEARY. No. That is insane.
    Mr. STAUBER. Ms. Bommarito?
    Ms. BOMMARITO. Anything that creates more paperwork for us 
and more money is detrimental.
    Mr. STAUBER. Mr. Holtz-Eakin, putting additional $150 
billion on small businesses a year, is that a good or bad 
thing?
    Mr. HOLTZ-EAKIN. It is a real headwind to growth. And it is 
unprecedented in previous administrations.
    Mr. STAUBER. Mr. Sands?
    Mr. SANDS. I would concur. The number is just too large 
considering where we are at in a macroeconomic environment.
    Mr. STAUBER. Yeah. And I would say, too, we are hearing, in 
this Committee we are hearing small business men and women come 
before us all the time and talk about the regulations. It is 
stifling the growth for their company and we can change that 
with a different administration. I yield back.
    Chairman WILLIAMS. I now recognize Representative McGarvey 
from the great state of Kentucky for 5 minutes.
    Mr. MCGARVEY. Thank you, Mr. Chairman. I appreciate 
everybody being here today, and particularly talking about an 
issue that obviously this Committee cares about a lot, which is 
access to capital for our small business owners.
    One thing we have not hit a lot on today which I want to 
touch on is also the lack of access and the disparity in access 
to capital for minority and women-owned small businesses in 
this country. The data demonstrates this gap without question. 
I can also tell you from going around my district in 
Louisville, Kentucky, and talking to many successful 
entrepreneurs that women-owned businesses, that Black-owned 
businesses, other minority small businesses, it confirms it. 
They have trouble getting access to the capital they need to 
keep their businesses going and growing.
    So I am glad to have that opportunity to discuss some of 
the SBA's critical programs. Some of their successful 
initiatives even, like 7(a), like 504, like the Community 
Advantage programs, as well as get into the Fed's Basel III 
proposal.
    So you know, Mr. O'Leary said something; he does not see 
enough legislation and things talking about getting money to 
small businesses. I just want to put in a plug for a bill I 
have introduced that would create a position within the SBA 
that specifically is targeted toward getting money to small 
businesses, particularly our minority-owned small businesses 
because we do need to make sure that capital is flowing and we 
need to be intentional in our policy decisions about it.
    Mr. Sands, your institution, 60 percent of your loans are 
with minority and women-owned borrowers. So I know that 
Lendistry would not be directly affected by the Basel proposal 
but I have heard concerns at home that changes to capital 
requirements could change the relationship between the banks 
targeted by the rules and the smaller financial institutions 
they do business with and invest in. Do you foresee your 
relationship with the larger banks or the relationships of your 
peers at community banks and MDIs changing as a result of the 
Basel proposal, and are you concerned that large banks will 
reorient away from institutions like yours and partner with 
CDFIs less often?
    Mr. SANDS. Yeah. I mean, one of the reasons why I mentioned 
that maybe we should postpone it is because I do think that 
there should be a step back in saying how can we leverage rules 
like CRA reform and other rules so that we can make sure that 
the CDFIs and small businesses are not necessarily affected. 
But there is always the potential that the larger institutions 
will stop lending to us and as a result of obviously the ratio, 
the financial ratios they will have to succumb to. Most of them 
are extremely prudent, and so therefore, whatever the rule 
passes they are going to try to be even more efficient in terms 
of that.
    Mr. MCGARVEY. I guess part of what the Basel proposal is is 
assigning a higher risk weight to the small or medium 
businesses that are not publicly traded than they would to a 
publicly traded one. What do you think? Do you think that the 
small businesses are more risky than the larger, more publicly 
traded ones when you are talking about providing capital from a 
lending institution?
    Mr. SANDS. No. I think that the answer is that as long as 
we leverage data and we look at the information that is within 
those loans, there is a perceived risk out there. But 
leveraging that data using the credit enhancements of SBA, 
SSBCI, et cetera, we have been able to prove that that risk is 
not actually a reality.
    Mr. MCGARVEY. So you do not think this would put an 
unnecessary burden on private businesses trying to access 
capital?
    Mr. SANDS. I think there is always the potential that it 
does. Depending on how the banks react, they are going to swing 
the pendulum completely to the right and they are going to be 
over conservative. I do not necessarily think that there is 
$150 billion in terms of additional regulation. I think what we 
are using extremes here. I think banks have an opportunity to 
be more efficient. I think that they have an opportunity to 
raise equity appropriately and they have an opportunity to make 
sure that they protect all of our depositors which is the U.S. 
citizen.
    Mr. MCGARVEY. The last question I will go to Mr. Holtz-
Eakin. You have argued that increased capital requirements 
result in either, (1) the banks making fewer loans to smaller 
businesses, or (2) that the loans they do make become more 
expensive. Obviously, something we are concerned about as a 
Small Business Committee.
    Mr. HOLTZ-EAKIN. Right.
    Mr. MCGARVEY. Last spring in this Committee, we heard from 
a professor at NYU, Kathryn Judge, that higher capital 
requirements actually lead to more lending. When a bank has 
more capital it lends more. This is borne out in the data when 
you look at the data between the years 2013 and 2019 after 
Dodd-Frank. Two economists made the same point last week I saw 
in the Washington Post. So this is not a gotcha question. It is 
a sincere question. Why do you think that information is wrong? 
And is that a correlation or is it more causal?
    Mr. HOLTZ-EAKIN. I think it is a correlation. And if you 
compare 2013 and 2019, you are comparing the entire economic 
and financial environment in 2013 with 2019. A lot of things 
going on there. My statement is about hold everything else 
constant, change Basel III in isolation. What happens if you do 
not change anything else to generate better lending 
opportunities and you just make it more expensive? The banks 
are either going to cut down on their risk or they are going to 
raise their return. And so they will cut people off or they 
will charge more.
    Mr. MCGARVEY. Thank you, Mr. Chairman. I yield back.
    Chairman WILLIAMS. Now I recognize Representative Meuser 
from the great state of Pennsylvania for 5 minutes.
    Mr. MEUSER. Thank you, Mr. Chairman. Thank you to all our 
witness. This is an excellent exchange. We really appreciate 
it.
    So I spent over 20 years helping grow a small business into 
a large business and that is why I am very happy to be on this 
Committee so we can advocate as well as, in fact, lobby for 
small businesses to the best of our abilities. From taxes, 
regulations, inflation, workforce shortages, what occurred with 
COVID in many states, shutdowns, access to capital, all 
challenges far more for small businesses as I think we all 
agree than for the larger businesses. And with some of these 
new ideas of restrictions on access to capital we have data 
that shows only 20 percent of small businesses feel they have 
adequate access to capital that does not keep them from being 
able to sleep at night. And yet, we have this Basel III 
proposal that clearly we are talking about.
    You know, the United States very simply has been a place, 
the most competitive place to grow a business. We are a country 
of entrepreneurs . That is what grew our country. In fact, 45 
percent larger economic growth from 1945 to 2000 than the EU 
because we are an entrepreneurial country. But since 2000, it 
has been equivalent to the EU because of largely regulations 
and added taxes and such.
    So Mr. O'Leary, I want to bring up, you brought up the 
Payroll Protection idea.
    Mr. Chairman, for the record, Representative Luetkemeyer 
and I wrote a letter to FDIC Chair Gruenberg on this exactly, 
the TAG program, which would raise the Payroll Protection up to 
a million dollars from the 250. So I want to let you know we 
are working on that, and actually, Mr. Luetkemeyer has a billon 
that as well that we will pursue if we cannot get the FDIC to 
strongly consider it.
    But let's talk about Basel III right now, Mr. O'Leary. From 
Brian Moynihan to Jamie Dimon, all big names but certainly to 
Ms. Bommarito and most small businesses, and everyone here on 
the panel feel that the Basel III will restrict. And clearly, 
when 20 to 30 percent of the large banks' reserves need to be 
increased, businesses are going to go to smaller banks, 
community banks. They will have more customers, more requests 
for loans, but that will limit the loans to small businesses. 
It is not so much the community banks are going to be hurt by 
it. It is the small businesses that will be hurt by it. So, Mr. 
O'Leary, if you would expand upon that.
    Mr. O'LEARY. Yeah. I think everybody has an opinion about 
this. Mine is let's look at the loan book itself. If Basel III 
was implemented as it stands, unchanged, it would shrink loan 
books in America in my view between 500 billion to 800 billion 
in the first year. But that is not the worst part of this bill 
or this idea or this policy. It is the competition between 
money centers. So let's do a use case. Right now every state 
wants its own AI data center. Those projects are $1.2 billion. 
And you have to go get capital for that. And after the 
Ukrainian War everybody figured out, wait a second, where is my 
data? Well, let's make it domestic. Let's make sure we know 
where it is and it is protected. So those projects are popping 
up all over the states and all over the world.
    Now, if you have to fund 1.2 billion, you have to go to a 
money center bank to get some portion of that in debt and then 
look to the markets for equity. If we implemented this, we 
would be less competitive than what is going on in Abu Dhabi or 
in Zurich or in London. Why would we do that to ourselves? Why 
not look at their regulation and say what is the level playing 
field here to make sure that it is competition at its best? The 
American banking system with all of its volatility has proven 
over 200 years the economy that we have today, the envy of the 
whole world. Why would we ever put ourselves in a situation 
where we are less competitive than a bank in Abu Dhabi? Who 
would do that? Why would you do that? Does that even make 
sense? Is that even American? That is my question.
    Mr. MEUSER. Sure. Okay. Terrific.
    Quickly on taxes, the Tax Cut and Jobs Act, R&D tax credit, 
bonus depreciation, small business tax cut, all will be phased 
out frankly if we do not work that through and frankly have a 
new administration in order to assure that we remain 
competitive. How much of a hindrance would it be on small 
businesses if those tax----
    Mr. O'LEARY. Well, it is a horrible time to do that because 
obviously the stress in the system we all have been discussing 
for the last hour is showing up and manifesting itself mostly 
in community and regional banks where the loan books are very 
tight and there is a lot of liquidity. You are just taking away 
more tools, survival tools from a small business. They need 
every tool they can get and they need to be recognized in new 
policy every time it is written. I say 60 cents out of every 
dollar always goes to small business and that has never 
happened here. Maybe we should start thinking about that.
    Mr. MEUSER. Thanks.
    Mr. Chairman, just quickly, Mr. Holtz-Eakin wrote an essay 
on Basel III----
    Chairman WILLIAMS. The gentleman's time is up.
    Mr. MEUSER. I yield back.
    Chairman WILLIAMS. He yields back.
    I now recognize Representative Landsman from the great 
state of Ohio for 5 minutes.
    Mr. LANDSMAN. Thank you, Mr. Chair. And thank you for being 
here with us, all four of you.
    I want to start with Mr. O'Leary and Mr. Sands. Mr. 
O'Leary, you talked about a small business council. And I am 
hoping that you might say a few words about it. What I took 
from your comments was we are investing all of these dollars 
across multiple initiatives and in having a small business 
council, some infrastructure with leadership mostly from the 
small business world I suspect and lending partners would be 
there to ensure that the policies, the investments are flowing 
to small businesses as well as larger businesses. And, you 
know, minority-owned businesses, too. Can you just say a word 
or two about that?
    And Mr. Sands talked about a taskforce, too. I am curious 
about your thoughts on how that could happen and advice to us 
on building that into our work but also the administration's 
work.
    Mr. O'LEARY. Well, first, the work at hand on existing act 
is to find ways to interpret them so some of that capital can 
flow to small business. Now, they do not have any 
representation up here in my view.
    Mr. LANDSMAN. Yeah.
    Mr. O'LEARY. And they do not have the millions that you 
require each year to hire advisors and lobbyists. So this is 
something that I am very fortunate from my portfolio I can 
afford to hire these people and I work very hard on The Hill to 
get my companies their fair share if you want to call it that. 
But what about the other millions of small businesses? That is 
number one.
    And I am very fortunate this afternoon I will be meeting 
with the Secretary of Commerce to go specifically over the 
CHIPS and Science Acts. I have got a bunch of analysts behind 
me here coming with me. Show us where the 7 to 9 billion you 
claim is available in that act for small business. I will find 
a way to get it to small business. If it is there I will do it.
    I would like to get the same support in the IRA and 
anything to do with infrastructure. I am willing to invest in 
that. But this idea of having a seat at the table on new policy 
that this would not ever happen again that is the 
infrastructure I am asking all of you to consider. That the 
next time you write an act put me in the room.
    Mr. LANDSMAN. Yeah. Thank you for----
    Mr. O'LEARY. Or somebody like me.
    Mr. LANDSMAN. Yeah. Thank you for that.
    Mr. Sands, any additional comment? It seems like you are on 
a similar trajectory.
    Mr. SANDS. Yeah. I will just give you a real world example. 
SSBCI is for credit enhancements, money that went to states.
    Mr. LANDSMAN. Yeah.
    Mr. SANDS. Several of the states are now listening to the 
small business and lending community and saying maybe instead 
of just a credit enhancement we will do a loan participation.
    Mr. LANDSMAN. Yeah.
    Mr. SANDS. The net effect is a blended rate that is taking 
rates down to borrowers. We need some kind of current thinking 
as we think about things like Basel and other things about how 
we are going to actually implement this and hedge against 
obviously inflationary pressures.
    Mr. LANDSMAN. I think you are both getting at something 
that I would suspect would have bipartisan support from this 
Committee and hopefully something that emerges from this 
conversation, that building that infrastructure with you all. 
And I cannot imagine that there is going to be much 
disagreement up here. And so hopefully we can come together and 
work on this with all of you and others.
    The same I think is true for the federal licensing 
suggestion, that there has got to be more because that does cut 
through some of the state regulatory issues and creates a 
universal process. So I would love to work on that with my 
colleagues.
    Ms. Bommarito, you have participated, as you mentioned, in 
the 10,000 Small Businesses work. We have a program in 
Cincinnati, at Cincinnati State. I participated. The folks who 
graduated have been really successful and I have gotten to 
spend a lot of time with them.
    Advice. I am particularly interested in this sort of 
infrastructure, building out this infrastructure where small 
businesses are at the table. Based on your experience, what 
would you want to see?
    Ms. BOMMARITO. Thank you for that question.
    First, I have to say the Small Business Administration is 
really important and I am really thankful. But having access to 
the systems and being able to use the services and products can 
be challenging. Please bring us in and let us help be part of 
the solution and take our ideas as an innovation center. We 
will help and we can help everyone make it a better and more 
prosperous environment for us as small businesses truly.
    Mr. LANDSMAN. Thank you. And I yield back.
    Chairman WILLIAMS. The gentleman yields back.
    I now recognize Representative Mann from the great state of 
Kansas for 5 minutes.
    Mr. MANN. Thank you, Mr. Chairman. And thank you all for 
being here today.
    I represent the Big 1st District of Kansas which is 60 
primarily rural counties in the western and central parts of 
Kansas. My district is the number one beef producing district, 
the number one wheat producing district, and the number one 
milo producing district in the whole country. We have 60,000 
farms, ranches, feedyards, and other small businesses mostly in 
the agriculture space.
    The folks in my district know all too well that their 
livelihoods often depend on forces outside of their control 
which are droughts, floods, geopolitical advancing conflicts 
can directly impact the markets that impact them. That is why 
for decades, small business end users like farmers and ranchers 
have used derivatives to hedge against volatility. Hedging 
common risks takes volatility out of the market for them. It 
also helps them manage interest rate fluctuations and input 
cost increases that are vital for them to maintain their 
business.
    Unfortunately, the new bank capital requirements from the 
Federal Reserve's Basel III Endgame--and by the way, it has 
been called Basel, Basel, Basel. It seems like it is all bad, 
Mr. Chairman, for the district, for the small businesses in my 
district. But the Endgame proposal threatens access to critical 
risk management tools for the Ag industry and the small 
businesses in my district. These sweeping proposals will make 
it costlier for banks to centrally clear derivatives, leaving 
commodity producers with higher prices and less ability to 
hedge these risks. These tools allow Ag producers more 
predictability in their day-to-day operations, ultimately 
showing up in prices we all pay at the grocery store. Simply 
put, when banks face new capital hikes, farmers, ranchers, and 
our small agribusinesses pay more to hedge that risk.
    My first question would be for you, Mr. Holtz-Eakin. It 
appears the federal regulators have done minimal economic 
analysis on the downstream effects that these requirements will 
have on our agriculture end users that are far outside of the 
major urban financial centers, especially small businesses like 
grain elevators and family farms. How can we better ensure the 
federal regulators account for the interests of all of our 
American communities, our rural Ag producers included?
    Mr. HOLTZ-EAKIN. Well, first I will just note that there is 
a bipartisan letter from Members of Congress to the regulators 
about this issue of derivatives hedging which Mr. Meuser 
signed. And I do not know if you signed. I recommend that 
letter to you. It sort of spells out the problem very clearly.
    The second thing I would say is I am not a lawyer so my 
understanding of the Regulatory Flexibility Act is that it was 
passed by Congress to make sure that all the regulators were 
cognizant of the direct and indirect costs they placed on small 
businesses. And it seems that with great regularity nobody pays 
attention to the direct and indirect costs that people place on 
small businesses. It has happened in both administrations and 
both parties for a long time.
    I would suggest you take a close look at the Regulatory 
Flexibility Act and see where it can be tightened up to make 
sure that that analysis actually gets done and that failure to 
do it makes the rule nonviable. And that does not seem to be 
the case right now.
    Mr. MANN. I agree.
    Mr. Chairman, I appreciate you often highlight on this 
Committee, you know, our small businesses are also our farmers 
and ranchers who feed all of us but are often left out of the 
discussions and I believe are left out of the regulators when 
they think about these rules and how they will be impacted.
    Second question will be for you, Mr. O'Leary. What are the 
biggest things you think the federal government ought to do to 
support our businesses and our rural smaller communities across 
this country?
    Mr. O'LEARY. It is to focus on the liquidity right now at 
regional community banks particularly around payroll. That 
Wednesday night is crucial. So if you think about what they 
draw down from the banks and have for 100 years plus is they 
need capital for plant and equipment, that is longer term 
loans. They need to factor their receivables. If you are 
selling widgets to a big box retailer and they are paying you 
in 90 days, you need that cash in 30. And obviously, payroll. 
And so immediately I think the 4,000 banks will probably 
consolidate down to 3,000 or something in the next 5 years. 
During that consolidation period there is going to be a lot of 
instability in the bank that is being merged or acquired or 
whatever. Right now the way the rules are it is cheaper to let 
a bank fail right now because the government bails out the 
bank. Then you go buy the assets. That is kind of nuts. That 
should be fixed. Let the market be the market. But there is 
going to be a consolidation. And I think supporting payroll 
during that time would be number one. And just this regulation 
right now being contemplated, they are in gridlock. They do not 
know what the liquidity requirements are going to be so they do 
not loan anything. I mean, it is pretty bad. I am glad you are 
having these hearings. That is the right question. But this has 
got to be scrutinized at the regional level now. The big guys 
are having no problems at all. Plus, you are about to give them 
another $2 trillion because there is none of it for small guys. 
I bring that up one more time with feeling. Thank you.
    Mr. MANN. Thank you. With that I yield back the balance of 
my time which I do not have any more of. So thank you, Mr. 
Chairman. I appreciate it.
    Chairman WILLIAMS. The gentleman yields back.
    I now recognize Representative Chu from the great state of 
California for 5 minutes.
    Ms. CHU. Mr. Sands, thank you for being here and for 
highlighting in your testimony the persistent gaps in access to 
capital faced by underserved small businesses.
    Since 2011, the Community Advantage program has been very 
successful in closing the gap in terms of being able to lend to 
underserved communities and has been far more successful than 
the SBA's traditional 7(a) loan program in that regard and has 
been successful in making loans. Just last year made 791 loans 
valued at $140 million. And that is why I have worked for years 
to make the program permanent. I urge my Republican colleagues 
on this Committee to join me as I work to introduce legislation 
to make this proven program permanent once and for all.
    I understand that Lendistry has participated in the 
Community Advantage program in the past. Can you talk about 
your experience as a Community Advantage lender and how 
participating in the program allowed Lendistry to better reach 
underserved small businesses? If Congress makes the program 
permanent, what impact would that have on mission lenders' 
ability to continue meeting underserved businesses' needs in 
closing the gap and capital access?
    Mr. SANDS. Thank you for the question.
    So we leveraged Community Advantage, one, to be, as you 
mentioned, to be able to lend to underserved communities. It 
allowed us to have a program, quite frankly, that offered us a 
couple things. One, the ability to scale as we build our own 
internal infrastructure. Two, it gave us the ability to have 
strong risk management at leveraging government programs to get 
there. And then three, there was liquidity that could be 
created in the SBA secondary market. Community Advantage should 
be permanent. I would also encourage us to make sure that we do 
not try to trade operational efficiency for permanency.
    Ms. CHU. Okay. Well, I would like to ask about the 
necessity for CFPB's section 1071 rule which requires financial 
institutions to collect demographic information on those 
applying for small business loans. There are significant gaps 
in access to capital. The gaps were made particularly clear 
during the Paycheck Protection program. For example, in 2021, 
there was a shocking L.A. Times report showing that minority 
communities in the L.A. area received far fewer PP loans than 
White majority communities despite Congress's clear intent that 
PPP should prioritize the underserved. Compounding that issue 
was the lack of data in the program. Three-quarters of the PPP 
loans issued in 2020 included no demographic information 
because the initial PPP application did not ask for that. And 
in fact, because of that lack of data, the L.A. Times had to 
cross reference census track data to reach their conclusions. I 
believe that what happened here is why we need the demographic 
data transparency in small business lending that CSBB section 
1071 rule provides.
    So Mr. Sands, can you speak to the lessons of the PPP and 
why data transparency like the kind required in section 1071 is 
needed to both understand small business lending and the 
disparities?
    Mr. SANDS. Sure. So first of all, we use data primarily for 
three things. One, it is to market and understand how we should 
market and where we should market to help underserved 
communities. Two, it is to decide what is the appropriate risk 
management that we should be taking. Even though an SBA loan 
might offer up to 75 percent that may or may not be the 
appropriate amount. And then the third thing is we use it 
obviously as a tool in terms of being able to, again, disrupt a 
perceived risk in terms of lending to small businesses.
    PPP was very interesting and the fact that it showed that 
banks actually can provide the data, it does need to be in a 
structured environment, and we were able to actually release 
data on a weekly basis coming out of SBA's office in terms of 
who the lending went to.
    The other thing I will mention to this body is there is 
something called the Corporate Transparency Act in which we are 
trying to make sure that we understand who the small businesses 
are so that we do not have issues like, obviously, financing of 
terrorism. If you were to take what happened in PPP and you 
take the Corporate Transparency Act, those two things could be 
combined to actually execute on 1971 which does need to be 
enacted.
    Ms. CHU. And I want to ask you a particularly important 
question about the effort needed to comply with rule 1071. We 
have heard from some of the rule's opponents that financial 
institutions do not have the resources to comply with the rule. 
But I understand you are a CDFI with a small compliance staff 
and that you were able to collect this data. Can you tell us 
about your experience with it?
    Mr. SANDS. Yeah. So first of all, as a former banker, 
whenever you open a bank account they collect the data already. 
So the data is already there. Second, I will say as an 
institution that did 200,000 PPP loans, it is not as hard as it 
might seem. Now, there has to be a focus on actually delivering 
the results and making the data available. But it is possible.
    Ms. CHU. Thank you.
    Mr. SANDS. Thank you.
    Chairman WILLIAMS. I now recognize Representative Ellzey 
from the great state of Texas for 5 minutes.
    Mr. ELLZEY. Thank you, Mr. Chairman. Thank you all for 
being here.
    This is a fascinating hearing. And Chairman, thank you for 
doing this. As you all well know, he is a car dealer and a very 
good one from the Dallas-Fort Worth area. He knows about 
business so it is extremely important that we are holding these 
hearings.
    I think that the name Basel III Endgameis exactly the right 
description of this, although their marketing might want to go 
back and take a look at that. There is no regulation that this 
administration will not find overseas that harms American 
businesses and adopt it. That is the bottom line.
    Much like Tracey, I am from a very rural district and I 
come from a community banking family. The big guys can do 
anything they want and get bailed out. And then the hammer of 
the government comes in and treats everybody like they are the 
same size nail and they hammer the same regulations into 
FirstBank Southwest of Amarillo, Community National Bank of 
Waxahachie as if they are the big boys. When they do these 
regulations they harm people like Ms. Bommarito with her family 
business. And then it sends them to somebody like Mr. O'Leary 
who has made a great business and I am so glad you are here to 
speak the truth the way you do. It is very enlightening, Mr. 
O'Leary. But you do not want to send your business or sell a 
part of your heart and soul, Ms. Bommarito, to somebody like 
Mr. O'Leary. You want to access that capital in a much better 
way because you are giving away, you know, you are going to 
sell him your leg. You no longer have access to that leg with 
your business. And he might let it die. He said it. He said it. 
They have to decide if they are going to let you die or not. If 
you have access to capital in a much better way you do not have 
to worry about that because that is your business.
    Now, there is a market for that and I am not trying to 
disparage the VC community. However, small businesses, 60 
percent of American business are like yours, an entrepreneurial 
spirit that you named after your grandmother. You do not want 
to go to VC. You want to have access to this capital that folks 
like us up here who write these laws, most of the folks who 
write the laws do not own a business and have never run one.
    Government jobs exist to stay in business. They do not do 
that by throttling back on regulations. They have to justify 
their existence with more regulation.
    So I am willing to bet that the cost of your bars has 
probably gone up because of the cost of production because you 
have to buy pecans from farmers who are having to get the 
nitrogen from Ukraine. So anybody who says that a war in 
Ukraine does not have a strategic impact on this country is 
wrong.
    So with the remainder of my 2-1/2 minutes though, because 
as you said earlier, Mr. O'Leary, why would we do this to 
ourselves, I am going to yield the next 2 minutes and 24 
seconds to you to finish that thought about Abu Dhabi.
    Mr. O'LEARY. Yeah. There is a competition in the world 
today for capital. And it does not have a nationality. It looks 
for the path of least resistance and it goes to the place of 
greatest safety.
    The unique situation of America is if you have a project, 
and I referenced this earlier, like a data center which pencils 
out at 11 to 15 percent return for 20 years, where are you 
going to put that, in Ukraine? No. You are going to put it 
somewhere in the United States where it is safe. If you can get 
the permits and the regulatory environment is good and the 
state taxes are competitive and you can get the customer, like 
an Amazon or a Microsoft or the IRS or a government agency, 
these are huge projects. And normally, you would go to the 
domestic money center bank to say I have got a 1.2 billion 
project here penciling out at 11 to 15. I have got lots of 
interest in it. But I need a banking partner. Well, you stick 
this Basel thing in here, we are not going to be talking to New 
York. We are going to talking to Abu Dhabi. That is what is 
going to happen. Why would you? I mean, think about that. Why 
do more people not think about that? You want everybody to say 
are we in a competitive football game here? That is what we 
need. Every single rule in that telephone book has to be the 
same rule everybody else is playing with because we are talking 
about trillions of dollars here looking for returns. It has got 
to be the same playbook.
    And that is what regulators' job is to do. To make sure 
that we do not put a ball and chain on an American money center 
banks or businesses large or small. It is that simple. That is 
what they really should be focusing on. Not paragraph 86(b) and 
one line. As an aggregate, does this policy make us less 
competitive, in addition to the fact that we are going to lose 
500, 800 billion of loans. This is horrible policy. It is 
horrible. There is nothing good about it.
    Mr. ELLZEY. Mr. Chairman, I yield.
    Chairman WILLIAMS. The gentleman yields back.
    I now recognize Representative Alford from the great state 
of Missouri.
    Mr. ALFORD. Thank you, Chairman Williams, and Ranking 
Member Velazquez, for holding this. This is a very important 
hearing that we are having today, as is each one of these 
hearings we have before the Small Business Committee because it 
is really dealing with the fabric of America. And I am so glad 
you are here. Thank you for coming here today.
    As a previous small business owner, I know just how 
important capital is. Not just to start a business but to 
maintain it. I also understand that access to capital can be a 
challenge, especially in districts like mine. In some parts of 
our district it is a banking desert if you will.
    Today, businesses are already struggling under rampant 
inflation, ongoing supply chain issues, workforce shortages, 
and burdensome regulations. Basel III Endgame proposal would 
add additional pain to our small businesses by shrinking their 
access to capital. As we have heard today, it would force banks 
to increase the amount of capital that they hold by an 
estimated 20 percent on average. This proposal will hurt banks. 
It will force banks like the Community Bank of Raymore where I 
bank to keep more money on the sidelines, shrinking capital 
costs for our small businesses which are most vulnerable. These 
increased costs would force banks to either lend to fewer 
customers or to increase the cost of lending to businesses at a 
time when small businesses need this capital, and more 
importantly, as was pointed out here, they need the 
relationship with the community bankers.
    However, the Biden administration is more focused on 
falling into line with international regulatory guidelines 
rather than protecting American small businesses.
    Mr. Douglas Holtz-Eakin, according to a study done by your 
colleague, Dan Goldbeck, there are currently an estimate $616 
billion--$616 billion in total cost of this administration's 
365 proposed rules. Does the $616 billion figure include 
indirect costs from regulations?
    Mr. HOLTZ-EAKIN. No. Those are simply the direct costs as 
measured by the circular and the OIRA at the Office of Energy 
and Budget.
    Mr. ALFORD. Anyway to estimate, guestimate, give us your 
best figure of what those indirect costs might be.
    Mr. HOLTZ-EAKIN. I will be happy to get a number back to 
you, a heroic estimate of this. But I will just note that in my 
written testimony I catalogued some of the studies that have 
been done about the impact of these regulatory costs on the 
growth environment, on the growth in the economy. That is the 
indirect cost that matters the most. The bottom line and the 
ability of firms to expand. And the reason I am so concerned it 
at this moment is that to say you do not have access to capital 
is you are constrained by your cashflow. And so certainly, 
access to capital is a direct solution to that. But if you are 
eating up more of your cashflow complying with regulations you 
made the problem worse. If you are eating up more of your 
cashflow to pay taxes because expensing is gone. You are now 
depreciating capital or R&D, you made the problem worse. In 
every way the environment is stacked against being able to 
suvive on your cashflow.
    And so I think the Committee certainly should be looking at 
the Basel final rule but it needs to look at the environment in 
its entirety.
    Mr. ALFORD. Mr. O'Leary, in your remarks you mentioned that 
large government programs like the Inflation Reduction Act and 
CHIPS Act are written specifically for large companies. How can 
Congress better support small businesses which employ the 
majority of Americans?
    Mr. O'LEARY. Yeah, 60 percent. So right now given that 
those are already passed and they are effectively law, it is 
helping those of us who work for small business, help us 
interpret these acts in a way where we can access them because 
what my role is in my portfolio company and there are many 
people like me, is we have the resources to hire the 
professionals, the lawyers, the accountants, and the lobbyists 
even, if we could figure out how to interpret it so that we 
could make these applications and guide them through the 
process. I am working hard at that now. I am spending more time 
in Washington than I ever have trying to figure out CHIPS and 
Science, specifically, and IRA because I have, myself, a 
database of 80,000 small businesses. They rely on me to come 
here and find out what is going on. Then I tell them. And we 
are very fortunate to do this. And then for those that can 
apply, we will manage that process for them. We hire the 
accountants and the lawyers. We do all that. And that has 
become a huge business. And for all of the criticism of PPP, it 
is a blunt instrument, but it saved so many companies. So even 
if only 70 percent of it was used wisely, it really worked. The 
same for the ERC program which is going to end probably next 
week. But that was used widely. And I understand the criticism 
and everything but it did save businesses. So now that those 
are gone, give me something else to work with is what I am 
asking.
    Mr. ALFORD. Thank you, sir. We are out of time.
    Mr. O'LEARY. Yeah.
    Mr. ALFORD. I yield back, Mr. Chair.
    Chairman WILLIAMS. The gentleman yields.
    I now recognize Representative Gluesenkamp-Perez from 
Washington for 5 minutes.
    Ms. GLUESENKAMP PEREZ. Thank you, Chairman. And thanks to 
our witnesses for being here today.
    Ms. Bommarito, I really appreciate you being here to speak 
to the Committee as a small business owner. And I appreciated 
your testimony about the difficulties you had in accessing 
capital to start and expand your business.
    So before coming to Congress I ran an auto repair and a 
machine shop with my husband. And I have been in your shoes. 
You mentioned resorting to borrowing money from friends and 
family and dipping into your personal savings to fund business 
growth. I, on my bookshelf at home have a book. No in-law wants 
to see How to Borrow Money from Friends and Family from Nolo 
Press. And so I feel that distinctly. But I will say when you 
are able to pay back your family with an appropriate market 
level interest rate you are building generational wealth for 
you and your community and not shipping it off elsewhere. So I 
think there are advantages to your position.
    Here on the Small Business Committee we have oversight of 
the Small Business Administration. I think it is important for 
us to dig into how SBA loan programs, which are meant for 
people like you and I, function or more frequently do not 
function. And my husband and I actually bought the building our 
shop operates out of with a 504 loan. And I have an 
undergraduate degree in economics. It took me a year to 
navigate and fill out that paperwork. One of the sellers like 
had a heart attack during the environmental review. The whole 
thing almost collapsed. Like it is burdensome. And then you 
think about, you know, I do not know in your case but like if I 
were doing the business on my own, right, you are running HR, 
you are doing all these things that really limit your capacity 
to navigate a bureaucracy. And I understand this has been a 
popular line of questioning but I am wondering if you could 
talk about what a more nimble program would look like. Like, 
what do you see as things we should pull out or not?
    Ms. BOMMARITO. Thank you for this question, Congresswoman. 
And I feel your pain.
    The SBA has their heart in the right place and that is a 
fact. And we know that. Being able to access the documentation 
and have it make sense and have it work appropriately as you 
are filling it out, when you are punching in those letters, it 
is challenging and it does not work the way that we are used to 
working with technology today. And I would love to see an app 
that goes along with this. And I would love it to interface 
more seamlessly with the lending institutions. And hold them 
somewhat accountable. So there are a lot of things that we 
could do and do together. And I would like you to involve us, 
the SBA to involve us in this process. We are entrepreneurs . 
We have the ideas. We can help make it a more nimble and 
interactive system. We want the SBA to be successful and 
modernizing by Congress would help.
    Ms. GLUESENKAMP PEREZ. Yeah. Absolutely.
    You mentioned the need to reauthorize and reform the SBA. I 
think we agree that both Congress needs to do a better job of 
making entrepreneurs more aware of these resources but also 
making the programs more accessible for actual small business 
owners whose most valuable resource is your time.
    So I am curious, how did you find out about the 
availability of 504 loans? I mean, just the universe of 
information that is available to people in your capacity. Like, 
how do we enable more small businesses like us to access and 
hear about them? Because that is the first step.
    Ms. BOMMARITO. That is a great question. A variety of ways. 
You know, the Goldman Sachs 10,000 Small Business program 
brings people in together to speak to this. Local lending 
institutions would come and visit me. Our local government came 
and shared what lenders were highlighting SBA loans. So I do 
feel like in general the business community and government 
community are aware and try to make it accessible. I just think 
it is a little wonky as we are going through the process.
    Ms. GLUESENKAMP PEREZ. Yeah. The access information is 
really concerning to me. Right? If you do not know about the 
program you are not going to access it. And I think that basic 
informational hurdle is immense.
    I have also seen a lot of difficult like I remember there 
would be these meetings at, you know, 11 a.m. on the other side 
of town. Right? Like, who can leave your business at 11 a.m. on 
a workday to get to this meeting? And so having actual small 
business owners at the table when these structural decisions 
are made I think is a critical facet you were pointing to.
    And so thank you to all of our witnesses so much for 
spending our time here today. And I yield back.
    Chairman WILLIAMS. The gentlelady yields.
    I now recognize Representative Molinaro from New York for 5 
minutes.
    Mr. MOLINARO. Thank you, Mr. Chairman. And thank you, Ms. 
Bommarito, for giving face to the challenges that small 
businesses have interfacing with not only federal regulators 
and agencies but state and local.
    And Mr. O'Leary, I want to get to you in a moment about the 
great state of New York, or the once great state of New York. 
But nevertheless, in rural communities like the ones I 
represent in Upstate New York, we certainly recognize the need 
to access capital is even more pronounced. Add those challenges 
to already a local economy squeezed by inflation and the access 
to workforce and supply chain issues and communities like ours 
continue to struggle. There are as we have all acknowledged a 
slew of new laws and regulations coming into place that we know 
will impact community banks and smaller businesses, including 
Basel III, some of the new SBA lending rules, and new CRA 
rules, among others. Even Chair Jerome Powell acknowledged that 
raising capital requirements also increase the cost of and 
reduces access to credit. We acknowledge these things. My local 
banks, community banks, are struggling to keep faith with their 
mission, serving small businesses and investing in their 
communities.
    So Mr. Holtz-Eakin, I am going to start with you and just, 
if you would, reinforce to us or for us, obviously, how to 
maintain essential credit flow to small businesses. What would 
you reinforce? Where would we begin in the rescinding of or 
reorganization of specific regulation for small business, small 
banks to access and make those capital investments?
    Mr. HOLTZ-EAKIN. Well, I mean, certainly the issue of the 
moment is the Basel III proposal. And they have a chance to 
finalize the rule in a very different form. And one hopes that 
the regulators have taken the public comments on it to heart 
and we see a very different----
    Mr. MOLINARO. So emphasize for the few people from Upstate 
New York who are watching me right now, I want them to hear 
those very specific reforms.
    Mr. HOLTZ-EAKIN. They would not raise the overall level of 
capital as dramatically as they propose and would not do it 
right now. Remember, there are all sorts of other things 
impinging. Access to capital, whether it is the restrictive 
monetary policy, the slow growth in the economy, this is going 
to be a tough environment to begin with. Has already been 
because we have seen the end of the easy money on the credit 
side. So financial conditions have tightened considerably. This 
would add to that. So defer it. Make it more sensible directly 
for the banks involved where you add new charges that are 
legitimate and documented, reduce others that are unnecessary. 
I think they can do that. And do not extend it to the regional 
banks. I do not understand that. There is no need to. And your 
folks would be much more dramatically impacted by that. So that 
is the most important thing.
    Then more generally, look at the regulatory environment and 
recognize that that is something that disproportionately 
impacts small businesses. And this regulatory environment is 
unprecedently expensive at a time when expenses are a big 
issue.
    Mr. MOLINARO. I appreciate that.
    Mr. O'Leary, I just, one, want to thank you not only for 
participating today but emphasizing in New York State the 
challenges that we have. We lead the nation in outmigration. 
More people leaving the state of New York than any other state 
in the nation. We shoulder the highest burden of taxation of 
any people in the country. And because of it we see the 
hollowing out of our communities. We could spend certainly more 
than 2 minutes on that. And I thank you for highlighting those 
challenges.
    Your testimony today touches on the collapse of Silicon 
Valley and Signature Banks and the touched conditions that 
regional banks faced with rapidly rising interest rates. Of 
course, we recognize the Fed messaging a decrease in interest 
rates over the next year. What do you believe is necessary for 
the long-term stability of our banking and venture capital 
sectors? And quite simply, what behaviors from before need to 
be corrected moving forward?
    Mr. O'LEARY. Those three cases studies you pointed out to 
in my personal opinion are examples of idiot management. So 
they are unique in that respect. And they deserve to be dead. 
That is how our system works. We get rid of bad managers.
    But right now because of them it has tripped off a whole 
scrutiny at the regional bank level of the regulatory 
environment which has cascaded all the way up to Basel III. So 
we are going to make these regional banks very hard to operate 
profitably if this continues. That would be the first thing I 
would want to fix is try to say, look, let's make sure for the 
next 36 months that these banks are not in a situation of 
uncertainty. Because that is what they are right now. The 
reason you do not loan to this wonderful bakery is they do not 
have the certainty to know what the rules are going to be. So 
that has got to get cleared up. These are within our control. 
And so we should implement that immediately.
    I think Basel III is incredibly bad policy and the best 
thing to do with bad policy is keep looking at it until 
everybody agrees it is bad policy. I would keep looking at it. 
It is horrible.
    Mr. MOLINARO. I appreciate your subtle and reserved nature. 
And with that, Mr. O'Leary, I, Mr. Chairman, yield back.
    Chairman WILLIAMS. The gentleman yields.
    I now recognize Representative Scholten from Michigan for 5 
minutes.
    Ms. SCHOLTEN. Thank you, Mr. Chair. Thank you so much to 
all of our witnesses for taking the time to be here today. This 
is an incredibly important hearing.
    Small businesses throughout the country navigated an 
economically unpredictable pandemic. And with stabilizing the 
economic factors those still operating face a cautiously 
optimistic future. My state of Michigan is home to nearly 1 
million small businesses who employ nearly half the state. Over 
80 percent of our businesses in Michigan are considered small. 
Even larger share in my district, Michigan's 3rd Congressional 
District. It is not an overstatement to say they truly are the 
lifeblood of our economy.
    Many of these businesses are owned by women, minorities, 
members of the LGBTQ community, veterans who face steep hurdles 
in accessing capital. Access to capital is the number one 
obstacle that we continue to hear about.
    My first question is for Mr. Sands. What data do regulators 
use to avoid discriminatory policies? And are the tools missing 
that prevent financial regulations from fully accounting for 
the range of livelihoods that are impacted by the rulemaking?
    Mr. SANDS. Yeah. The answer today is that you do not have 
the tools. But if you look back at PPP when you did have the 
tools, Congress appropriately, in a bipartisan way reacted and 
made it so that more small businesses could get access to 
capital.
    I would like to also say that SBA just made 40 rule changes 
in August. We should actually give ourselves a chance to see if 
those rule changes actually work because I think they are going 
to provide more access to capital for small businesses 
including like the bakery here for Michigan.
    Ms. SCHOLTEN. How much time would you anticipate we would 
need to see if they worked?
    Mr. SANDS. I think you could generally give somewhere 
between 12 and 24 months to start to see. If you look at the 
numbers, we had our largest lending in terms of SBA to African 
Americans, Hispanic Latinos, and women as of September 30, 
2023, with Hispanic Latinos and African Americans both 
eclipsing $1 billion for the first time in SBA's history. So 
the numbers are already headed the right way.
    Ms. SCHOLTEN. Thank you.
    Keeping on the theme of access to capital, again, number 
one issue cited by small businesses as well as hiring talent 
and growing revenue, the businesses in my state share these 
concerns and these struggles along with others throughout the 
country. Despite these well-known challenges, in June of last 
year, applications for new businesses started to surge to the 
highest levels that we have seen in 2 years. Again, cautiously 
optimistic as I mentioned in my opening remarks.
    For any of the witnesses or even all of you, what more can 
Congress do to equip the next generation of small business 
owners and entrepreneurs to take on these issues that we are 
facing the 21st Century and get ahead of the challenges of 
tomorrow?
    Mr. SANDS. I will start. I think the first thing is 
obvious, which is that we need to do better marketing of the 
programs and products that are out there for small businesses. 
It is quite alarming to hear that some of the small businesses 
are not finding the programs or they have to go across town or 
anything like that in order to get information. We live in a 
digital age where Chipotle texts you if you need a burrito. So 
we should be able to actually get information out about 
programs pretty readily and pretty conveniently.
    Ms. SCHOLTEN. I could not agree more.
    Mr. HOLTZ-EAKIN. I worry most about the environment in 
which they are going to have to operate and would encourage 
Congress to put the fiscal house in order. The future is one in 
which the federal government will increasingly consume the 
capital economy with the deficits that will run. And the 
resolution of those deficits is going to put an enormous 
uncertainty about the business environment in which they will 
operate. You can take all of that off the table by just putting 
the fiscal house in order.
    Ms. BOMMARITO. And I second what Mr. Sands said. But we are 
talking a lot about Basel III and being an obstacle to lending 
and capital. It has been historical. That has been one of our 
biggest issues. Not adding anything else but also holding the 
banks accountable. And there is a lot to be said about everyone 
supporting small business and being in our corner. But being 
accountable in all ways and being able to share that 
information is really important.
    Ms. SCHOLTEN. Right.
    Mr. O'LEARY. I would say one of the greatest challenges for 
any of the work being done here is to communicate it to the 
recipients that deserve it. And most small businesses have no 
idea that these programs are even available. So if you look at 
the private sector how they solve that problem, they have 
really gone to social media in a big way. And so to get a 
bigger presence, Hi, are you a business in Michigan with 50 
employees? We have a program here in the federal government and 
this is how you can apply for it. That is a 15-second 
commercial. That should be on Facebook, LinkedIn, X, 
everything. And REMnant cable. That is how we advertise in the 
private sector, and somehow that is not being done federally, 
which is a mistake.
    Ms. SCHOLTEN. Thank you for your very responsive and 
helpful answers. I yield back.
    Chairman WILLIAMS. The gentlelady yields.
    I now recognize Representative Maloy from Utah for 5 
minutes.
    Ms. MALOY. Thank you. This has been a great hearing. It has 
been really informative, and most of the things that I planned 
on asking about have been very thoroughly covered so I am going 
to switch gears just a little bit. Hang in here with me.
    Utah is a very entrepreneurial state. We have a lot of 
small businesses. A lot of people want to start up something of 
their own. And we also have a lot of rural and mid-size markets 
that struggle to get access to capital. And also to the kind of 
resources we have just been talking about. Our universities are 
doing a good job. They are working to fill that gap setting up 
departments to help small businesses. But I was recently 
approached by somebody in Utah about an SBIC style program 
within the SBA that they think would be a good model where 
larger, more successful businesses can help finance and mentor 
new, smaller starting businesses. And I just want to know, I 
know this is not what you are expecting, but starting with Mr. 
O'Leary and work our way down, do you think there is room in 
the SBA for that? And if so, what would this Committee and 
Congress need to do to create the sort of regulatory 
environment that would be able to make that successful?
    Mr. O'LEARY. That would work if you gave a tax incentive to 
do that because you are taking valuable time and resources from 
a company and going into a mentorship program. What they would 
obviously do is find companies they wish to acquire if they 
were growing successfully in their sector. So they would 
probably be, if you gave a program like that and said, look, it 
is a 100 percent write off in the year that you spend it, or 
whatever it is you are going to do, I would go look for 
companies that I want to buy and I would invest in them and try 
and mentor them up to growing and then I would acquire them. I 
would use it as a tool to grow. It would work.
    Ms. MALOY. Okay. Thank you.
    Ms. BOMMARITO. Working within your community and working 
collaboratively makes great sense and is very efficient working 
with the organizations that we are familiar with. I do not see 
a downside to it but there has to be an incentive to make 
sense. And I think that it would be a great asset to the 
community to be able to do that.
    Ms. MALOY. Thank you.
    Mr. HOLTZ-EAKIN. Put me in the O'Leary camp. There is 
nothing to stop them from doing that now. And so to get them to 
do some things that are not yet in their interest you are going 
to have to provide some sort of financial incentive and then 
you could produce the program.
    Ms. MALOY. Okay. Thank you.
    Mr. SANDS. I will just give two points of reference. One, 
the Goldman Sachs 10,000 Small Business program which we sit as 
a moderator on is something that you could use to model it 
after. Second, the state of Utah has state small business 
credit initiative money and a portion of that has been 
allocated toward venture capital. So maybe you can use that as 
your leverage to give that incentive that was already 
mentioned.
    Ms. MALOY. Okay. Thank you. You all answered that a lot 
faster than I expected you to so I am going to ask another 
question.
    I am also hearing that a lot of startups cannot qualify for 
loans because they do not have 3 plus years of operational 
costs, the existing collateral, or strong personal credit 
history. I am going to do the same thing, just run down the 
panel. Are those the appropriate standards or do we need to 
update those in the business world?
    Mr. O'LEARY. They might have been 60 years ago but they are 
not today. I mean, that is the problem. A lot of these 
regulations were formed in different economies and so they 
should be modified. Those are to onerous and too punitive and 
they obviously are not working. They have to be changed.
    Ms. MALOY. Okay. Thank you.
    Ms. BOMMARITO. I second that. But I also wanted to just 
share a small business survey.
    Goldman Sachs's 10,000 Small Business Voices surveyed our 
small businesses. And 78 percent of small businesses are just 
concerned about their ability to raise capital and have access 
to it. Only 29 percent said that they could afford to take out 
a loan. So that is another really important piece which goes to 
the point of interest rates. And 85 percent said access to 
capital continues. If it tightens it is going to impact growth 
of business which I will come back to being able to access it 
before your 3 years in business and down the road.
    Ms. MALOY. Yes. Thank you.
    Mr. HOLTZ-EAKIN. So in the end this is about measuring risk 
and the risk associated with the loan. And there is nothing 
magic about those metrics of risk assessment. Certainly, things 
have changed over time. And Mr. Sands is the business of 
finding situations where the risk assessment is wrong and 
helping both himself and the customer as a result. So usually 
you get locked into old risk assessment metrics because 
regulations require them.
    Ms. MALOY. Yeah.
    Mr. HOLTZ-EAKIN. And the laws require them. And so that is 
the flexibility you need. To allow people to use a risk 
assessment makes sense on the ground that is appropriate for 
that situation.
    Mr. SANDS. I would just say there is a mismatch between the 
business and the lender. There are community development 
financial institutions that do not require that at all.
    Ms. MALOY. All right. Thank you.
    I yield.
    Chairman WILLIAMS. The gentlelady yields.
    I now recognize Representative Crane from Arizona for 5 
minutes.
    Mr. CRANE. Thank you, Mr. Chairman. Thank you all for 
showing up today. It is an honor to have Kevin O'Leary, AKA Mr. 
Wonderful appear before the Small Business Committee today.
    Back in 2014, I took my garage born, Made in the USA 
company on Shark Tank with my wife, Jen, who is in the audience 
today. I thought I had prepared for everything, for every 
question that any Shark might ask about any given topic. One 
thing that I did not prepare for was to have Kevin O'Leary make 
the first offer to invest in my company, Bottle Breacher. I 
guess I did not prepare for it because I believed that Kevin 
O'Leary would hate my company and my product. I thought he 
might say something like, ``Let's take this behind the barn and 
shoot it,'' something that he often says on television. I am 
honestly very grateful that he did make the offer. I am even 
more happy that Jen and I accepted the offer. We learned 
firsthand why he is called Mr. Wonderful. Despite the fact that 
he is often portrayed as a complete hammer on television, every 
entrepreneur that I know that made a deal with him absolutely 
loves him and appreciate him. He works very hard to make sure 
his companies are successful, and I know he talked me off many 
ledges several times. Thank you, Kevin, for all you do for the 
small business owners of this country.
    My questions to you, sir, are less about access to capital 
but as somebody who I know studies economics. My questions to 
you, sir, about the dangers to our small business community and 
our national economy alike because of our federal government's 
lack of fiscal responsibility.
    Mr. O'Leary, are you aware that we have a national debt of 
about $34 trillion?
    Mr. O'LEARY. Yes, I am. This issue seems to get kicked down 
the road one administration after the other regardless of 
party.
    Mr. CRANE. Yes, sir.
    Mr. O'LEARY. And it will come home to roost one day. I do 
not know what that day is. But as a percentage of GDP, which I 
think is the right way to look at this, it is getting 
perilously high to almost post-Second World War. So this is 
going to be a concern. And to the extent that you bring this 
narrative up, I can see you are one of the people here on The 
Hill that cares about this.
    Mr. CRANE. Yep.
    Mr. O'LEARY. There is not enough of you. That is the 
problem.
    Mr. CRANE. No, there is not, sir. And I do want to 
acknowledge this is a Democrat and Republican issue. I am in 
the meetings on our side all the time and there is very little 
appetite to quit spending money we do not have.
    And I just want to ask you, sir, when this house of cards 
collapses, because it is going to collapse. This is not 
sustainable. You know it. I know it. And anybody that studied 
history knows that no country in the history of the world can 
continue to run up deficits and debt like we are. What do you 
think happens to small businesses when this finally collapses?
    Mr. O'LEARY. It will not be just small businesses. When the 
cost of capital gets to the point where more than half of the 
government's budget is servicing interest, which is the 
disaster scenario you are talking about, it wipes out every 
business in America. It does not matter what size it is. 
Because if there is no more working capital, basically, you 
start taxing people. I mean, there are examples. There is 
Britain when it decolonized the world. Their tax rates were 80 
percent. They were just trying to fund everything through the 
government and it really did not work. The French tried that, 
too. That would be a horrible outcome for America, which is the 
bastion of capitalism on earth. I am glad we are talking about 
it but your job is to get half this place talking about it.
    Mr. CRANE. Yeah. Absolutely.
    Mr. O'LEARY. It does not matter what party they are in.
    Mr. CRANE. No, you are absolutely right.
    Mr. Douglas Holtz-Eakin, do you have anything to say on 
this, sir?
    Mr. HOLTZ-EAKIN. I have been talking about this for 20 
years. I was the CBO director beginning in 2003 and there has 
been nothing done to change the trajectory which is 
fundamentally unsustainable and represents simply a self-
inflicted wound. And the day at which it matters is today. It 
is already harming the economic environment in the United 
States. Every time you take a dollar from the private sector 
and put it into the best government investment you lose rate of 
return. So every one of those transfers lowers the standard of 
living. And we are doing that right now. It is just a little 
bit each year and we do not notice. But if you add it up we are 
going to have less growth in the standard of living, more 
stagnation, more discontent.
    Mr. CRANE. Sir, why do you think nobody up here seems to 
care?
    Mr. HOLTZ-EAKIN. It is someone else's problem; right? I 
have got to get to the next election that is, you know, 9 
months away. I am not going to talk about these hard issues. I 
am going to let the next guy deal with it. And the result has 
been a bipartisan failure for 20 years to stop the increase in 
the debt relative to GDP. We have never seen it before where it 
did not stabilize in some way. It has just gone up. It is an 
unprecedented error and it is a dangerous one.
    Mr. CRANE. Thank you, sir.
    I yield back, Mr. Chairman.
    Chairman WILLIAMS. The gentleman yields back.
    I now recognize Representative Van Duyne from Texas for 5 
minutes.
    Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
    When people think of access to capital, they often do not 
think of the tax code. But through the Tax Cut and Jobs Act we 
were able to allow businesses, especially small businesses, to 
keep more of their money and incentivize reinvestment into 
their business. And I have spoken with many business owners in 
North Texas that have been able to significantly expand the 
last few years thanks to provisions of the TCJA.
    Last year, my Ways and Means Committee colleagues and I 
held field hearings in cities and towns across the country to 
hear directly from people and small businesses about the 
challenges that they are experiencing. The overwhelming message 
that we have heard is that TCJA spurred economic growth and 
competitiveness. Unfortunately, these pro-growth provisions 
included as part of the TCJA have already expired, including 
full and immediate expensing for research and development, full 
expensing of investments in new equipment, machinery, and 
technology, and business interest deductibility, which makes it 
easier for small businesses to access capital.
    Extending these tax provisions will empower our job 
creators to grow, expand their workforce, and reinvest funds in 
their workers rather than using those funds to pad the coffers 
of IRS bureaucrats. Without these tax provisions, we are ceding 
our competitive advantage to countries like China, which is the 
exact opposite of what we saw through TCJA. Restoring these 
provisions would uplift American workers, strengthen the U.S. 
economy, create American jobs, and help us better compete on 
the global stage.
    I would once again like to thank the Chairman for holding 
this hearing and look forward to future hearings on this 
subject later this year, particularly how private equity 
provides an alternative to traditional lending avenues and 
increases opportunities to access new capital investments.
    Mr. Holtz-Eakin, what would happen to capital access for 
small businesses if we allowed the 2017 Tax Cuts to expire?
    Mr. HOLTZ-EAKIN. I think it would be a dramatic impact on 
small businesses, in particular the economy in general.
    Ms. VAN DUYNE. Anything more detailed than that?
    Mr. HOLTZ-EAKIN. Well, those are pro-growth provisions that 
incentivize investments in physical capital, innovation, and 
the workforce that put it on a level playing field from a tax 
prospective. You can deduct all of them. It is the right thing 
to do.
    The overall pace of the economy would slow. You are not 
going to lend to people whose companies are not growing very 
fast, so it is going to restrict it in that way. And as I 
mentioned before, the small business community is very cashflow 
constrained and these are about being able to invest up front 
and maintain your cash flow because you get full deductibility. 
It is a crucial part of the small business environment.
    Ms. VAN DUYNE. So as we see interest rates and traditional 
lending methods become more expensive and harder to attain, 
where do you see private equity coming into play?
    Mr. HOLTZ-EAKIN. I do not have a particular button I would 
push but I have great confidence in the entrepreneurs who are 
out there in the financial sector, whether fintechs or private 
equities or any other non-bank lender to step in and provide 
capital where there is a return. And making sure that the 
regulatory environment supports that and does not impede it I 
think is the primary objective.
    Ms. VAN DUYNE. So do you think the primary objective for 
businesses when they are looking in banks, when they are 
looking to actually invest should be on the ROI or that should 
be on what people look like, where people are located, and how 
much money they make?
    Mr. HOLTZ-EAKIN. I am a big fan of ROI.
    Ms. VAN DUYNE. I appreciate that.
    Mr. O'Leary, you have been holding back today and I would 
like you to tell us what you really think. I appreciate the 
work that you have done with small businesses versus large 
businesses. I have been trying to introduce a number of pieces 
of legislation that recognize the fact that when we add all 
these regulatory burdens on to our small businesses it affects 
them in ways unseen in large corporations. When we are talking 
about incentives--I know that you were talking about 
specifically adding incentives to small businesses--every time 
we do that we seem to grow the federal government. Four hundred 
seventy-five billion dollars is what we spent in 2022 on 
servicing our debt alone. That is expected to go to $1.4 
trillion in less than 10 years, by 2032. Every time that we add 
in another program we are increasing the size and we are 
increasing the scale and increasing the regulatory burden on 
small businesses. Have you ever heard a small business say they 
want more regulations?
    Mr. O'LEARY. No. I never have. Your state, actually, is an 
example of what has occurred post-pandemic on the competition 
between states because what we all learned as investors was 
most companies now, whether they are large or small, only get 
40 percent of their staff to work in headquarters. So we 
realized right away, and this has been happening very quickly, 
we can move it to Texas. We can move it to Florida. We can move 
it to North Dakota, West Virginia, Oklahoma, where we never 
thought about doing that. And get the benefits of policy, less 
regulation, more competitive tax rates, and then employ people 
in any other state. I have got people working for me that were 
headquartered in Florida but they work in Massachusetts. Why 
they choose to do that I have no idea but we are paying our 
taxes in Florida because that is where we are HQ'd. Texas was 
the main beneficiary of that because they had the benefit of 
the tax but also the most progressive and less obstructive 
restrictions and regulations. You are the example of what 
everybody has to try and copy. I mean, good for you guys. But 
my job every day is to deploy capital. I go to the path of 
least resistance and one of those states is Texas. So 
congratulations.
    Ms. VAN DUYNE. So you are saying policy matters?
    Mr. O'LEARY. Well, yeah. Are you kidding? You know, you do 
not have to loan as much money to small business if you reduce 
the regulation. Because that is their cost. You give them 
money, then you regulate it back. Like that is kind of nuts. 
Just get rid of the regulations. You do not have to loan them 
money in the first place.
    Ms. VAN DUYNE. I appreciate it very much.
    I yield back.
    Chairman WILLIAMS. The gentlelady yields back.
    We now will be closing out this hearing. We want to thank 
the witnesses very, very much for your testimony. It was very, 
very interesting and worthwhile, and more than that I think 
important for both sides of the aisle to hear how the issues 
facing small business, the importance of small businesses, and 
the idea that we have got to provide small businesses 
everything they need to be competitive, to actualy make a 
profit. Because the more profits that a company makes the more 
tax revenues actually come in. And so both sides of the ledger 
win.
    Without objection, Members have 5 legislative days to 
submit additional materials and written questions for the 
witnesses to the Chair which will be forwarded to the 
witnesses. We ask the witnesses to please respond promptly.
    If there is no further business, without objection this 
Committee hearing is adjourned.
    [Whereupon, at 12:07 p.m., the committee was adjourned.]
                            
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