STATEMENT
of the
Honorable Nydia Velázquez, Chair
Committee on Small Business
Hearing on the SBA’s Microloan Program.
June 14, 2007

Today’s hearing will focus on the reauthorization of the Small Business Administration’s Microloan and PRIME programs that are very important to the smallest businesses.      

One of our most basic rights is the freedom to pursue our dreams as far as our imagination and ability allows.  According to a study by the Office of Advocacy, about 700,000 entrepreneurs realize their dreams each year and start up a new business.  As a result, at least 20 million firms operating in this country are very small, with fewer than 5 employees.  Over 50 percent are home-based.  Helping these small businesses start and grow provides a significant benefit for our local economies. 

There is a simple model called micro-credit that has grown and been copied worldwide and is designed to nurture budding entrepreneurs. Micro-credit programs combine loans, technical assistance and peer involvement.  These have been remarkably successful in bringing opportunity to individuals that were never given a chance.  Communities soon learned that these home-grown investments provide economic benefits and increased employment in return. 

In 1992, Congress embraced the idea and started the Microloan program and shortly after that the PRIME program.  The SBA Microloan program makes funds available to nonprofit, community-based lenders.  In turn, these lenders make small loans to eligible borrowers—who are often fledgling entrepreneurs that live in the same community where they work.

These programs reach many that otherwise would not be served by the private sector or even the SBA’s 7(a) program.  For example, Microloan borrowers may be unable to get a traditional loan from those sources due to poor credit history or a lack of business experience.   

It has provided an important source of capital for low-income women business owners and minority borrowers.  Finally, the loans tend to be geographically diverse – as roughly one-third of the Microloans are made in rural areas.

Over the years, over $328 million dollars was lent through this initiative. SBA has told us that there have been a total of two defaults by intermediaries in the program’s history and that 98.6 percent of the business loans are repaid – a remarkable record. 

The federal government has shown its faith in this simple, repeatable system by contributing millions of dollars in foreign aid to Microloan programs overseas.  Even in Iraq, after the fall of Saddam Hussein, our Coalition Provisional Authority, appointed by the President, set up a $17 million dollar direct micro-loan fund specifically for Iraqi citizens that continues today.

So it is hard to understand why the administration is now recommending that we raise the fees intermediaries pay to borrow funds and eliminate specialized assistance that supports the program here at home.  Administrator Preston stated recently that he expected the higher fees would reduce the usage of these loans. It is unclear why we would cripple a program where such a small investment generates economic activity and creates jobs simply by making loans to deserving individuals who otherwise would not get a chance.  Our local businesses are no less deserving than those we fund overseas. 

Given the success of this program, we should be building it up, using what we have learned to improve it and replicating it in as cost effective way as possible.  It is important that we strengthen the Microloan program so that we can ensure that all would-be entrepreneurs have the opportunity to realize their dreams. We look forward to hearing our witnesses’ opinions on the program, their suggestions for improvements and reaction to recent funding recommendations.