STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
House Committee on Small Business
Forum on: “The State of the Small Business Economy and
Assessing Policies to Promote Economic Growth”
Wednesday, January 14, 2009, 10 a.m.

 

Last month, the National Bureau of Economics made it official: the country is in a recession, and it has been for over a year now. Of course, most Americans already knew this. From plunging consumer confidence to soaring unemployment, the signs were--and continue to be--everywhere. In December alone, we lost half a million jobs, bringing last year’s drop-offs to a 63-year high.

Work has already begun to turn the economy around.  The end goal of these recovery efforts should be growth and job creation, two areas in which small businesses excel. After all, small firms are the engine of our economy. They not only create 80 percent of all new jobs, but they also represent 99 percent of American businesses. Today, however, they are struggling to play their traditional role of economic catalyst.

In this morning’s forum, we will look for ways in which small firms can assume that role once again. We will also discuss the current economic climate, and the roadblocks it has created for our country’s entrepreneurs. 

From the local tech startup to the mom and pop restaurant down the street, small businesses are suffering everywhere. Many have been forced to close up shop altogether. At a hearing in November, this committee met Thomas Franke, an entrepreneur whose 83-year-old family business had managed to ride out the Great Depression, but was unable to endure the current downturn. In November, it closed its doors for good.

All across the country, entrepreneurs like Franke are struggling to secure the capital they need to survive. According to the Federal Reserve’s Senior Loan Officer Survey, 75 percent of commercial banks have tightened lending standards to small firms. On top of that, 90 percent of respondents said they had upped the costs of small business credit lines.
During past downturns, small businesses have managed to survive on loans from the Small Business Administration. But today, even those loans are disappearing, with lending down almost 60 percent since last year.  As funding dries up, many entrepreneurs are taking desperate measures, from maxing out credit cards to draining 401ks.

It doesn’t have to be this way. The resources of the SBA loan program could be leveraged to help break the financing logjam. Our nation should use targeted tax incentives to increase investment, generate cash flow and encourage small firms to hire workers. Tax policies can also help spur innovation and encourage investors to put resources behind promising startups.

If we’ve learned anything in the last year, it’s that there is no single, silver bullet fix for our financial woes. That said, we also know that if we are going to bring our economy back on track, we’re going to have to start with the fundamentals. That means jobs, and that means growth. As the backbone of American industry, small businesses can help accomplish both. But before small firms can revive the economy, they will need to survive the recession. In today’s forum, we will look for ways to ensure that they do, and that they are able to play their historic role of economic catalyst.