Statement of Nydia Velázquez, Ranking Member
House Committee on Small Business
"Oversight of the Small Business Administration's Financing Programs"
Wednesday, October, 26, 2011

In the last year, our nation's economy has experienced steady private sector job creation. However, it has not been enough to have a sizeable impact on the unemployment rate, which remains stubbornly high at 9.1 percent. The reality is that we still have a long road ahead of us – with millions of Americans who are seeking work that cannot find it.

Front and center to any solution to this dilemma are small businesses. In every previous downturn it has been small, innovative firms that have created the cutting-edge products and services to lead us forward. In fact, more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly 50 percent of the firms on the 2008 Inc. list of America's fastest-growing companies. Whether it's a Silicon Valley startup or a Main Street "mom and pop," it is clear that small businesses are our nation's job creators.
In order for entrepreneurs to continue to play this traditional, job-creating role, it is essential that they are able to access capital. Doing so provides the "fuel" for innovation and economic expansion across the spectrum of entrepreneurship. It enables unemployed individuals to start their own businesses; helps domestically-oriented companies to sell their goods in foreign markets; and allows high-tech firms to reinvest in R&D.

But small businesses face real challenges in the capital markets. While lending conditions and credit standards are easing, companies' balance sheets have still not recovered from the financial crisis and recent recession. This has left many without the assets to borrow against and with lower revenues than in years' past. As a result, business owners now have fewer options to secure affordable financing.

Lending through the Small Business Administration is always critical to filling this void. Several provisions this Committee crafted in the Recovery Act temporarily boosted SBA-backed lending.

Raising guarantees and cutting fees on SBA's loans spurred demand and was key to the record-setting year the agency experienced. With record 7(a) loan volume of nearly $20 billion, an increase of more than 50 percent, it is clear these policies worked. Impressive growth in the SBIC program, as well as more moderate growth in the 504 program, confirmed the important role that these initiatives play in the capital markets.

With this growth came other changes in the portfolio. The average 7(a) loan grew by nearly 40 percent, while there were percentage declines in smaller loans and those to startups. During economic downturns, smaller loans are especially important as on average it costs nearly $75,000 to launch a new enterprise. With an average 7(a) loan size of now $365,000 – five times the cost of a startup – we must make sure that the agency is not forsaking its roots solely to set records.

During today's hearing, I am hopeful that we will not just tout past performances, but instead focus on how we can expand access to capital for all businesses, especially those at the earliest stage of the business cycle. Startups, particularly those in the high-growth sectors, remain central to our economic recovery and it is critical that we expand their ability to secure financing.

Now is not the time to constrain firms' access to capital and programs like those at SBA that are critical to creating jobs. It is my hope that the Joint Committee on Deficit Reduction will not cut these initiatives as it looks for easy savings. If that happens, we will in fact be reducing future growth – and this would be short-sighted.

Getting financing in the hands of would-be entrepreneurs has never been so important and doing so is not just critical to reducing unemployment, but also to increasing tax revenue and decreasing our nation's debt.
I know the next few months are critical in this regard and I will be focusing on making sure small businesses are not dealt a bad hand when the Committee makes its final recommendation.

On that note, I would like to thank the witnesses for taking their time to be here today. I am interested in hearing their thoughts on how best to meet entrepreneurs' capital needs so that they can create the jobs our country needs.

Thank you and I yield back.

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