    [Weekly Compilation of Presidential Documents Volume 31, Number 21 (Monday, May 29, 1995)]
    [Pages 905-909]
    [Online from the Government Publishing Office, www.gpo.gov]

    <R04>
    Message to the Congress on Small Business

    May 25, 1995

    To the Congress of the United States:

        I am pleased to forward my second annual report on the state of
    small business, and to report that small businesses are doing
    exceptionally well. Business starts and incorporations were up in 1993,
    the year covered in this report. Failures and bankruptcies were down.
    Six times as many jobs were created as in the previous year, primarily
    in in-

    [[Page 906]]

    dustries historically dominated by small businesses.
        Small businesses are a critical part of our economy. They employ
    almost 60 percent of the work force, contribute 54 percent of sales,
    account for roughly 40 percent of gross domestic product, and are
    responsible for 50 percent of private sector output. More than 600,000
    new firms have been created annually over the past decade, and over much
    of this period, small firms generated many of the Nation's new jobs. As
    this report documents, entrepreneurial small businesses are also strong
    innovators, producing twice as many significant innovations as their
    larger counterparts.
        In short, a great deal of our Nation's economic activity comes from
    the record number of entrepreneurs living the American Dream. Our job in
    Government is to make sure that conditions are right for that dynamic
    activity to continue and to grow.
        And we are taking important steps. Maintaining a strong economy
    while continuing to lower the Federal budget deficit may be the most
    important step we in Government can take. A lower deficit means that
    more savings can go into new plant and equipment and that interest rates
    will be lower. It means that more small businesses can get the financing
    they need to get started.
        We are finally bringing the Federal deficit under control. In 1992
    the deficit was $290 billion. By 1994, the deficit was $203 billion; we
    project that it will fall to $193 billion in 1995.
        Deficit reduction matters. We have been enjoying the lowest combined
    rate of unemployment and inflation in 25 years. Gross domestic product
    has increased, as having housing starts. New business incorporations
    continue to climb. We want to continue bringing the deficit down in a
    way that protects our economic recovery, pays attention to the needs of
    people, and empowers small business men and women.

    Capital Formation

        One area on which we have focused attention is increasing the
    availability of capital to new and small enterprises, especially the
    dynamic firms that keep us competitive and contribute so much to
    economic growth.
        Bank regulatory policies are being revised to encourage lending to
    small firms. Included in the Credit Availability Program that we
    introduced in 1993 are revised banking regulatory policies concerning
    some small business loans and permission for financial institutions to
    create ``character loans.''
        New legislation supported by my Administration and enacted in
    September 1994, the Reigle Community Development and Regulatory
    Improvement Act of 1994, establishes a Community Development Financial
    Institutions Fund for community development banks, amends banking and
    securities laws to encourage the creation of a secondary market for
    small business loans, and reduces the regulatory burden for financial
    institutions by changing or eliminating 50 banking regulations.
        Under the Small Business Administration Reauthorization and
    Amendments Act of 1994, the Small Business Administration (SBA) is
    authorized to increase the number of guaranteed small business loans for
    the next 3 years. The budget proposed for the SBA will encourage private
    funds to be directed to the small businesses that most need access to
    capital. While continuing cost-cutting efforts, the plan proposes to
    fund new loan and venture capital authority for SBA's credit and
    investment programs. Changes in the SBA's 7(a) guaranteed loan program
    will increase the amount of private sector lending leveraged for every
    dollar of taxpayer funds invested in the program.
        Through the Small Business Investment Company (SBIC) program, a
    group of new venture capital firms are expected to make available
    several billion dollars in equity financing for startups and growing
    firms. The SBIC program will continue to grow as regulations promulgated
    in the past year facilitate financing with a newly created participating
    equity security instrument.
        And the Securities and Exchange Commission's simplified filing and
    registration requirements for small firm securities have helped
    encourage new entries by small firms into capital markets.
        We are recommending other changes that will help make more capital
    available to small firms. In reauthorizing Superfund, my Administration
    seeks to limit lender liability for

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    Superfund remediation costs, which have had an adverse effect on lending
    to small businesses. Interagency teams have been examining additional
    cost-effective ways to expand the availability of small business
    financing, such as new options for expanding equity investments in small
    firms and improvements to existing microlending efforts.
        We've also recognized that we can help small business people
    increase their available capital through tax reductions and incentives.
    We increased by 75 percent, from $10,000 to $17,500, the amount a small
    business can deduct as expenses for equipment purchases. Tax incentives
    in the 1993 Budget Reconciliation Act are having their effect,
    encouraging long-term investment in small firms. And the empowerment
    zone program offers significant tax incentives--a 20 percent wage
    credit, $20,000 in expensing, and tax-exempt facility bonds--for firms
    within the zones.

    Regulation and Paperwork

        But increasing the availability of capital to small firms is only
    part of the battle. We also have to make sure that Government doesn't
    get in the way. And we're making progress in our efforts to create a
    smaller, smarter, less costly and more effective Government that is
    closer to home--closer to the small businesses and citizens it serves.
        In the first round of our reinventing Government initiative--the
    National Performance Review--we asked Government professionals for their
    best ideas on how to create a better Government with less red tape. One
    recommendation was that Federal agency compliance with the Regulatory
    Flexibility Act--that requires agencies to examine proposed and existing
    regulations for their effects on small entities--be subject to judicial
    review. In other words, they said we need to put teeth in the
    legislation requiring Federal agencies to pay attention to small
    business concerns when they write regulations. That proposal has been
    under debate in the Congress.
        Federal agencies are already considering and implementing specific
    ways to streamline regulations and make paperwork easier for small
    businesses to manage. For example, the Environmental Protection Agency
    (EPA) responded to small business owners and advocates who said that the
    agency's toxic release inventory rule was especially costly and
    burdensome. In November 1994, the EPA announced a final rule that will
    make it easier for small businesses to report small amounts of toxic
    releases.
        And SBA has slashed the small business loan form for loans under
    $100,000 from an inch-thick stack to a single page. The SBA is also
    piloting a new electronic loan application that will involve no
    paperwork, but will allow business owners to concentrate on the business
    at hand--building a successful operation.
        When businesses are unable to succeed, no one is served by a process
    that entangles small business owners in an endless jumble of paperwork.
    Sweeping changes made to bankruptcy laws in the past year will help
    small businesses reorganize. Small firms with less than $2.5 million in
    debt may utilize a streamlined reorganization process that is less
    expensive and more timely.
        My Executive order on Regulatory Review provides a process for more
    rational regulation, and we've been listening to the concerns of small
    firms through a Regulatory Reform Forum for Small Business. Five sector-
    specific groups have made specific proposals for regulatory relief.
    These groups have said that a comprehensive, multiagency strategy, with
    better public involvement, is probably the most cost-effective way to
    improve both the quality of regulations and compliance with them. The
    key is to make sure that Government serves small business and the
    American people, not the other way around.

    Electronic Commerce and Government Procurement

        The reinventing Government initiative also called for expanded use
    of electronic marketing and commerce, and we have made great strides in
    providing information about Government programs electronically. These
    methods will increase small business access to markets.
        Another area that has been sorely in need of reform is the
    Government procurement process. In October 1994, I signed into law the
    Federal Acquisition Streamlining Act, which will change the way the
    Government does business. The law modifies more than

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    225 provisions of procurement law to reduce paperwork burdens, improve
    efficiency, save the taxpayers money, establish a Federal acquisition
    computer network, increase opportunities for women-owned and small
    disadvantaged businesses, and generally make Government acquisition of
    commercial products easier. This report documents how small businesses
    are doing under the old system; my hope is that opportunities for small
    business success will be even greater once these reforms are in effect.

    Human Resources

        Beyond encouraging an economic environment that supports small
    business success, opening doors to capital resources, buying more of our
    goods and services from small firms, and getting out of small business'
    way, I believe we in Government have a responsibility to ask whether we
    are doing enough to ensure a healthy and adequately prepared work force.
        I remain committed to seeking a way to provide health insurance
    coverage for all Americans. As this report clearly shows, the number of
    uninsured Americans is too high--and it's growing. Millions of those
    citizens are in working families. And the sad fact is that many of those
    workers are in small businesses, which have seen their premiums and
    deductibles soar. We must make sure that self-employed people and small
    businesses can buy insurance at more affordable rates--whether through
    voluntary purchasing pools or some other mechanism.
        We also ought to be able to ensure that our citizens are adequately
    provided for when they reach the end of their working years. Here too,
    small firms have been at a disadvantage. Our proposed pension
    legislation exempted most small plans from compliance and reporting
    increases.
        And while our industries restructure and move from an age of heavy
    industry to an information age that demands new skills and new
    flexibility, we need to make sure that our work force has the skills and
    tools to compete. That is why I proposed the Middle Class Bill of
    Rights, which would provide a tax deduction for all education and
    training after high school; foster more saving and personal
    responsibility by permitting people to establish an individual
    retirement account and withdraw from it tax-free for the cost of
    education, health care, first-time house buying, or the care of a
    parent; and offer to those laid off or working for a very low wage, a
    voucher worth $2,000 a year to get the skills they need to improve their
    lives.

    International Trade

        We also want to empower small businesses to succeed in a global
    economy. One of the greatest challenges in the next century will be our
    international competition. Ninety-six percent of all exporting firms are
    small firms with fewer than 500 employees, but only 10 percent of small
    firms export; therefore the potential for increasing small firm exports
    is significant. I believe the North American Free Trade Agreement and
    the General Agreement on Tariffs and Trade will benefit small firms
    interested in expanding into international markets in this hemisphere
    and beyond.
        Lending to small exporters is being eased through reforms in the
    Export-Import Bank's Working Capital Guarantee Program. New one-stop
    export shops are moving in the right direction to assist small firms by
    providing access to export programs of the Department of Commerce,
    Export-Import Bank, and Small Business Administration all under one
    roof.

    Hearing from Small Business

        Small businesses are too important to our economy for their concerns
    not to be heard. That is why I have given the SBA a seat on the National
    Economic Council and invited the SBA Administrator in to Cabinet
    meetings.
        Over the past 2 years, my Administration has been asking questions
    of small business owners and listening to the answers--seeking advice
    and guidance from a diverse audience of business leaders to determine
    the most critical problems and devise solutions that work.
        This year presents a special opportunity for small business persons
    to make their concerns known at the White House Conference on Small
    Business, set to convene in Washington in June 1995. In State
    conferences leading up to the national conference, small

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    business owners have been frank about their concerns. I look forward to
    hearing their small business action agenda.
        I firmly believe that we need to keep looking to our citizens and
    small businesses for innovative solutions. They have shown they have the
    ingenuity and creative power to make our economy grow; we just need to
    let them do it.
                                                William J. Clinton
    The White House,
    May 25, 1995.