[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.