STATEMENT
of the
Honorable Nydia M. Velázquez, Chairwoman
United States House of Representatives, Committee on Small Business
Full Committee Hearing: “Increasing Access to Capital for Small Businesses”
Wednesday, October 14, 2009

 

Whether we’re talking about equity investment or traditional bank loans, access to capital has always been a major obstacle for small firms. Today, that challenge is compounded. According to a July survey by the Federal Reserve, 35% of domestic banks have tightened small business lending. Even loans through the SBA are down. For small firms, these declines are more than a simple setback. In fact, a lack of financing has forced many entrepreneurs to delay projects and put off investments. In some cases, it is limiting small firms’ ability to create much needed jobs. 

For small firms, access to capital is access to opportunity, and it’s clear that small firms are in need of both. That’s why the bill we’re examining this afternoon delivers critical small business funding. I’d like to thank Representative Schrader, Chairman of the Subcommittee on Finance and Tax, for his leadership in moving the legislation forward. It is a bipartisan product, one that could not have come together without the work of 8 different committee members—including 2 from the minority. Their efforts were instrumental in drafting a blueprint that accounts for every stage of the small business life cycle—from startup to IPO.

The small business startup stage is especially critical to our economy. That’s because new firms generate jobs and revenue where there once were none. But of course, entrepreneurs can’t create new positions and paychecks out of thin air—startups require significant capital to get off the ground.  Unfortunately, however, funding to these firms is declining. In the last quarter of 2008, it plunged $5.4 million. The legislation we’re discussing today will stem those drop-offs by providing critical, early-stage capital. It not only greases the wheels for equity investment, but also expands SBA’s microloan program. In doing so, it provides an additional $110 million to our smallest, most promising startups. Because small firms comprise 99.7% of all employer companies, that revision is more than an investment in small businesses—it is an investment in American job growth. 

Small firms’ funding needs begin in the startup stage. But, as any small business owner will tell you, they certainly don’t end there. Even established firms require periodic capital infusions—particularly when it comes to enhancing their ventures. Today’s legislation helps firms secure financing for new purchases. It also raises SBA loan guarantees, reducing risk for lenders. That’s critical, because some banks are saying they won’t loosen lending standards until the middle of 2010—and that’s at the earliest.

For small firms that rely on loans, an 8-month waiting period might as well be a death sentence. That’s why it’s so important that we move forward with this legislation now. It will help small firms to purchase new equipment and inventory, and it will allow every business—regardless of industry—to hire new workers.

At a time when our economy is struggling, it only makes sense to stabilize the small business community. After all, it was small firms that sparked a recovery during the downturn of the mid 1990’s. For this reason, we want to be sure that entrepreneurs have the resources to weather more than just an economic storm. With important improvements to SBA’s disaster loan program, we can protect the foundation of our economy—even in the event of catastrophe. Following a natural disaster, capital is nothing short of a necessity. But for many small firms, it is the only issue that matters at all—catastrophe or no catastrophe. In a hearing this committee held last week, that fact became abundantly clear.

This past Wednesday, our committee met to discuss the state of small firms in the housing sector. We expected the conversation to focus on items like Section 179 expensing and the First Time Home Buyer’s Credit. As it turns out, our witnesses had another, more pressing issue in mind—access to capital. One witness, despite owning a profitable venture, simply could not find a bank to finance his operations. As a result, his firm was forced to delay $1 million in contracts and, ultimately, lay off 10 workers. I wish I could say his story was unique. But the truth is, this sort of thing is happening everyday, and we cannot afford to continue down this road. That’s why this legislation is so vital. It will ensure small firms have access to the capitalthey need to keep operations running, and the opportunity they need to grow our economy.