STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
House Committee on Small Business
Hearing on "Laying the Groundwork for Economic Recovery: Expanding Small Business Access to Capital"
Wednesday, June 10, 2009, 1 p.m.

Whether you talk to the owners of a Silicon Valley start-up, a mom-and-pop restaurant, or a hardware store on Main Street, entrepreneurs across our nation face a common challenge – they cannot find the capital necessary to sustain their businesses.  For many firms, this can make the difference between staying open or going under. 

During today’s hearing, we will examine what options are available to help small companies access capital.  Lenders and entrepreneurs will share the real world challenges they face in today’s tightened credit conditions, as well as their ideas for making things better. 

In previous recessions, the SBA has filled the gaps in private capital markets.  Today, that is not the case.   Loans funded by the SBA’s flagship program have seen double digit declines, meaning, when we need the SBA to step in and help lift the capital markets, they are actually doing less.  This is a result of poor policy decisions, inept management and a lack of funding at the agency over the last eight years finally taking its toll on the programs.

The American Recovery and Reinvestment Act has helped lay the foundation to start turning things around.   The new law made loans less expensive for borrowers, putting more money in the hands of small firms.  It also gives banks greater incentives to lend, by increasing the percentage of a loan the government will guarantee.  It’s a start, but we have a long way to go.  To date, the SBA has not implemented over half of the Recovery Act provisions that Congress passed and the President signed.  But, as more and more of these initiatives come on line, entrepreneurs should see an improved lending environment. 

Even with these steps, small businesses are still finding it difficult to secure credit.  Overall, lending is down over fifty percent.  At this rate, the SBA will make nearly $5 billion less in loans than it made in the previous year, demonstrating that serious difficulties in the credit market still exist.  How we overcome these challenges will be an important part of today’s discussion.

All options are on the table in finding a solution to these very real problems.  Where we can enhance existing initiatives, we should do so.  But, when programs no longer work, they must be replaced with measures that do meet small businesses’ needs.  No initiative should continue simply because of a special interest.  The only measurements should be – do these programs serve small businesses?  And, do they help small firms access capital?   If we cannot answer yes to both of those questions, then we have to ask, why are they here?

Our goal must be to expand options for small businesses seeking financing.  As with health care, in many communities, entrepreneurs have only one or two options for lending.  That is not real competition and it doesn’t give firms the flexibility they need to realize their potential, grow and create jobs.

Ultimately, the full range of small business capital needs must be met – from the micro-borrower who needs a few thousand dollars to the high-growth company seeking equity investment.  No such menu of choices exists today – and the options are becoming more limited.  By the end of last year, venture capital was down 26 percent.  Venture capital was instrumental to the role technology played in turning the economy around in the 1990s and it will be just as important today as it was a decade ago. 

In creating paths to capital for small firms, we have our work cut out for us.  If we have learned anything in recent years, it is that ensuring the capital markets function smoothly requires a robust public-private partnership.  It is my hope that today’s hearing begins a dialogue about how to renew that partnership.  I have always said that access to capital is access to opportunity.  In today’s economy, the ability to tap into capital means a laid off worker can launch their own venture.  It means companies that would otherwise close their doors stay open and keep providing jobs.  It means that when the economy improves, small businesses can hire again and sustain our nation’s recovery.