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Velazquez on Small Business Access to Capital

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WASHINGTON, June 1, 2011 /PRNewswire-USNewswire/ — Rep. Nydia M. Velazquez (D-NY), the Ranking Member of the House Committee on Small Business, delivered the following statement today at a hearing entitled “Access to Capital: Can Small Businesses Access the Credit Necessary To Grow and Create Jobs?“:

“Thank you, Mr. Chairman.  Job creation is understandably top of mind for all Americans, right now.  New data out just this morning suggests the economy added only 38,000 jobs in the month of May.   As these new numbers show large firms cut their workforces this month, we could clearly use some of small businesses’ job-creating power, right now.

“In order for small firms to play their traditional, job-creating role, several factors must be in place.  Perhaps the most important ingredient is the availability of capital.  If small businesses are truly the backbone of the economy, then the flow of capital is the lifeblood.

“Although challenges remain, there has been progress in this area.  Small business loan approvals in the first quarter of this Fiscal Year are up 50 percent over last year.   Fewer small firms are falling behind or defaulting on loans, suggesting they are in better shape to take on additional debt — and, hopefully, expand.

“Lending through the Small Business Administration is always critical for entrepreneurs seeking affordable capital.  However, during economic downswings — when credit is tight elsewhere — the SBA’s role becomes more important.

“Several provisions this Committee crafted in the Recovery Act temporarily boosted SBA-backed lending.  Raising guarantees on the SBA’s 7(a) loans gave banks greater incentive to make small business loans.  Other provisions made the loans more affordable for borrowers.   As of now, those steps have demonstrated the most quantifiable, proven results.  Other recent policy actions have yet to exhibit the same level of success.

“Examining the amount of SBA lending is only one metric.  For these loans to ignite real job growth, the agency must concentrate on the right kind of small businesses — namely startups with the highest potential for job creation.   On average, it costs nearly $75,000 to launch a new enterprise, a tough proposition under even the best circumstances.  Unfortunately, these small startups are not seeing their fair share of SBA loans.   During the first half of Fiscal Year 2011, less than one-quarter of SBA loan dollars went to startups.

“It is my hope that today’s discussion will generate new ideas about how Congress, the SBA and the lending community can expand all small firms’ financing options — but especially for those at the earliest stage of the business cycle.

“As the Committee moves forward, we should examine the full spectrum of capital options for small firms.  Some businesses will do fine through conventional loans, while other entrepreneurs can meet their capital needs with microfinancing.  For startups, a debt-based solution may not make sense at all — investment capital might be a better fit.  What works for a small manufacturer in Ohio may not be appropriate for a family farm in Tennessee — to say nothing of a technology startup in lower Manhattan.

“On that note, I would like to thank our witnesses for taking time to be here.  Their diverse views and experiences will be valuable to the Committee as we consider how best to meet entrepreneurs’ capital needs.

“I yield back.”

 

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