[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN QUEENS, NEW YORK: UNDERSERVED SMALL BUSINESSES:
PROVIDING
ACCESS TO FEDERAL PROGRAMS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 11, 2014
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-058
Available via the GPO Website: www.fdsys.gov
_____
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Grace Meng.................................................. 2
WITNESSES
Mr. Bill Imada, Chairman and CEO, IW Group, West Hollywood, CA,
testifying on behalf of Asian/Pacific Islander American Chamber
of Commerce & Entrepreneurship (ACE)........................... 4
Ms. Joyce Moy, Executive Director, Asian American/Asian Research
Institute at Queens College, New York, NY...................... 8
Mr. William Wilkins, Director of Development, Local Development
Corporation for East New york, Brooklyn, NY.................... 10
Ms. Michele Chang, Acting Chief of Staff, United States Small
Business Administration, Washington, DC........................ 12
APPENDIX
Prepared Statements:
Mr. Bill Imada, Chairman and CEO, IW Group, West Hollywood,
CA, testifying on behalf of Asian/Pacific Islander American
Chamber of Commerce & Entrepreneurship (ACE)............... 31
Ms. Joyce Moy, Executive Director, Asian American/Asian
Research Institute at Queens College, New York, NY......... 38
Mr. William Wilkins, Director of Development, Local
Development Corporation for East New York, Brooklyn, NY.... 41
Ms. Michele Chang, Acting Chief of Staff, United States Small
Business Administration, Washington, DC.................... 42
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Statement of Kenneth H. Ryesky, Esq.......................... 45
UNDERSERVED SMALL BUSINESSES: PROVIDING ACCESS TO FEDERAL PROGRAMS
----------
TUESDAY, MARCH 11, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:05 a.m., at
Queens College, Rosenthal Library, Room 230, 65-30 Kissena
Boulevard, Queens, New York, Hon. Richard Hanna [chairman of
the Subcommittee] presiding.
Present: Representatives Hanna, Meng, Velazquez, and
Clarke.
Chairman Hanna. I call this hearing to order. I am going to
start by thanking Ranking Member Velazquez, the Ranking Member
of the entire Committee, for being here today, and Ms. Meng,
who is a great and thoughtful partner, always deliberate and
always prepared. So it is a pleasure to work with Grace.
Thank you all for being with us today. I would like to
thank each of our witnesses for taking time to provide
testimony on ways we can all work together to increase access
to Federal programs for underserved small businesses.
Small business growth is essential as the United States
still struggles with high unemployment. We know that small
businesses are the catalyst for job creation, creating more
than half the net new jobs between 1993 and 2011. The Small
Business Administration, or SBA, is tasked with aiding small
businesses to promote full and free competition. This aid comes
in a variety of forms, such as increasing access to capital;
providing technical assistance, such as counseling; and
promoting small firms' ability to promote compete for Federal
contracts.
Today, we look forward to hearing from the SBA about how
they are making sure these resources are accessible in
underserved communities. As chairman of the Subcommittee on
Contracting and Workforce, I understand the importance of
ensuring that small firms do not face undue barriers in
utilizing the SBA's programs.
Recently, our Committee approved legislation to ensure
greater opportunities for small businesses in the Federal
procurement marketplace. Notably, one of these bills, H.R. 776,
which Ranking Member Meng was kind enough to cosponsor,
increases the guarantee rate for the SBA Surety Bond Guarantee
Program, which strengthens small businesses ability to compete
for Federal contracts.
At the legislative level, Congress can effectively improve
programs and give SBA better tools to assist small businesses.
But there is a disconnect when the SBA implements these tools
and they do not reach the maximum possible number of small
businesses.
If barriers exist to accessing these programs for firms in
traditionally underserved areas, even the best designed
programs are ineffective.
Currently, the SBA does not have an official definition of
underserved communities, but I understand underserved
communities come in a variety of shapes and sizes, whether it
is in my district in upstate New York where rural firms face
countless challenges, or here in Queens and urban areas, where
small businesses face the same barriers to accessing the SBA's
programs.
In light of that, today's hearing will look at what can be
done to ensure small firms in underserved communities can
access Federal programs meant to promote economic growth and
foster job creation.
Again, I want to thank the witnesses for being here today.
As you know, you have 5 minutes, but we will be lenient. We
want to hear what you have to say.
And with that, I invite Ranking Member Meng to give her
opening statement.
Ms. Meng. Thank you, Mr. Chairman, for your tremendous
leadership and your willingness to hold this important hearing
right here in Queens, New York City.
I also want to thank the ranking member of our entire Small
Business Committee, and my good friend, Nydia Velazquez, and
Congresswoman Yvette Clarke, who is on the way.
I also would like to extend a big thank you to Queens
College and our new interim president, President Gizis, for
hosting us today and for allowing us to hold this hearing here.
And thank you to each and every one of our witnesses for
being here today.
There are a number of programs at the Small Business
Administration and Department of Commerce that are able to help
small businesses achieve success and grow. I have heard from
business owners in Queens and business organizations that there
is insufficient outreach from the Federal Government. These
programs, including loans, government contracts, the Export-
Import Bank, and guidance through Small Business Development
Centers, and mentor protege programs, prove to be successful
once they are accessed.
Today, I hope to learn more about how we can ensure better
access to these programs, which will help our local economies
grow and provide jobs to our communities.
Small-business ownership and entrepreneurship have a long
track record of helping Americans achieve self-sufficiency.
Entrepreneurs launch new ventures for a range of reasons--a
change in career, to bring a new idea to market, to support
their families, supplement their income, or simply to pursue a
lifelong dream.
Here in New York, we have a particularly vibrant culture of
entrepreneurship. This commitment to small business formation
and growth makes our city great and diverse, with new ideas
constantly being brought to fruition, whether it is a new food
truck or a 3-D printing factory.
Entrepreneurship in New York is largely characterized by
diversity. Here in New York, there are 607,000 businesses owned
by minorities. Women own 595,000 enterprises throughout the
State. More than 69,000, almost half, of New York City
businesses are owned by immigrants.
Throughout the country, like in New York, women-, minority-
, and immigrant-owned businesses are thriving. Yet even as
these important populations become more involved in
entrepreneurship, challenges remain.
Our Committee has done significant work looking at the
challenges faced by these underserved entrepreneurs. While
access to affordable capital is a perennial challenge for all
small businesses, for underserved communities, this obstacle
can be particularly daunting.
The Committee held four hearings in the last 2 years
looking at capital access challenges and new opportunities for
financing. This is an area where we know underserved firms face
unique challenges.
Although women own 38 percent of businesses, just 2 percent
of venture capital goes to female-owned firms. For ethnic
minorities, securing capital is also a challenge.
Minority firms with assets of less than $500,000 are three
times more likely to be denied a loan than nonminority firms.
The Committee has also done significant work examining how
businesses from these demographics interact with the
procurement process. Our contracting Subcommittee held four
hearings looking at how we might improve government procurement
programs so that small businesses and women- and minority-owned
firms can secure their fair share of Federal projects.
In particular, we heard from representatives from the
women's business community, who discussed how challenging it
can be to break into the Federal marketplace. These hearings
led to a raft of legislation aimed at improving the situation,
which the Committee finally approved just last week.
It is my hope that today's hearing will shed additional
light on how we can help these types of firms win the Federal
Government as a client.
Additional opportunities exist for these firms by breaking
into new markets, both here and abroad. Our Committee has
looked closely at how trade policy affects small businesses.
And we have seen that, in many cases, underserved businesses
could benefit greatly, if they had the tools, by marketing
their products abroad.
In all of these areas, the Small Business Administration's
programs can play a vital role in giving these firms a hand up.
The agency's Capital Access Programs are critical to helping
small businesses secure loans and equity investment. It has a
series of contracting initiatives that can help these firms
navigate the Byzantine Federal procurement process and land
Federal projects.
The 8(a) program provided valuable mentoring services for
disadvantaged companies, including assistance landing
contracting work. The agency's Entrepreneurial Development
Programs offer vital guidance and technical assistance for
prospective entrepreneurs looking to start a new venture.
The same centers can be a useful resource for growing
businesses looking to expand into new markets, both
domestically and internationally.
It is important that these programs are providing maximum
value and proactively reaching out to traditionally underserved
demographics, like women and minorities.
A series of hearings in the Committee have examined
duplication among entrepreneurial development services. It is
important that different Federal agencies are coordinating
their efforts effectively to underserved small businesses and
entrepreneurs can maximize use of these programs.
Likewise, we previously examined how private sector
entrepreneurial education services can complement the SBA's
work. We have a number of such programs here in New York and I
hope to hear more about them today.
While the SBA does many things well, there have been
concerns about how well its programs are tailored to
underserved communities. With the face of small business
changing, it is vital that the agency keep pace, conducting
meaningful outreach to those entrepreneurs who could most
benefit from this type of assistance.
It is very fitting that we are holding this hearing here in
New York City and Queens. As one of the most diverse areas in
the Nation, we have small businesses that represent every
strand of America's national tapestry. It is my hope that
today's discussion will educate our Committee about how these
programs can be improved while helping educate local
entrepreneurs about the various services available to them.
I yield back.
Chairman Hanna. Do you want to introduce the witness?
Ms. Meng. It is my pleasure to introduce one of our
witnesses, Mr. Bill Imada, the chairman and CEO of the IW
Group, testifying on behalf of Asian/Pacific Islander American
Chamber of Commerce & Entrepreneurship.
Mr. Imada has previously served as a human resources
manager for a major national subleasing company and worked as
an employment recruiter for a small startup placement agency.
He has more than 20 years of experience in marketing and public
relations and has represented some of the top global and
domestic brands in the world and the United States.
Welcome, Mr. Imada.
STATEMENTS OF BILL IMADA, CHAIRMAN AND CEO, IW GROUP, WEST
HOLLYWOOD, CALIFORNIA; JOYCE MOY, EXECUTIVE DIRECTOR, ASIAN
AMERICAN AND ASIAN RESEARCH INSTITUTE, QUEENS COLLEGE, NEW
YORK, NEW YORK; WILLIAM S. WILKINS, DIRECTOR OF DEVELOPMENT,
LOCAL DEVELOPMENT CORPORATION FOR EAST NEW YORK, BROOKLYN, NEW
YORK; AND MICHELE CHANG, ACTING CHIEF OF STAFF, UNITED STATES
SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.
STATEMENT OF BILL IMADA
Mr. Imada. Thank you, and thank you, Mr. Chairman, and
ranking members of Congress, Congresswoman Meng and
Congresswoman Velazquez. I appreciate you inviting me today for
this meeting.
For the record, I am the chairman and founder of the IW
Group. We have offices all over the country, including New
York, and we have been in business for 23 years.
I am also the chairman of the Asian/Pacific Islander
American Chamber of Commerce & Entrepreneurship, which is a
mouthful, so I apologize. We call ourselves ACE, and ACE is the
primary voice for the Asian-American and Pacific Islander
communities focusing on business-related issues, and we are
based in Washington, D.C.
ACE was established to be a visible and credible voice in
the halls of government. Last October, we convened several
Chambers from 16 different States and the District of Columbia
to talk about some of the issues that impact our community.
The key areas that we focused on were access to capital,
Federal contracting, and small businesses development
assistance. We also agreed, all these different Chambers from
around the country, after meeting with both Republican and
Democratic leaders, that we need to develop a system for
collecting, monitoring, and verifying data on federally
supported programs addressing the needs of AAPI businesses.
We also want to reduce the language barriers and the
cultural barriers that impede small businesses from seeking
help from organizations like the SBA and the Minority Business
Development Agency.
We also want to make sure that SBA and MBDA add business
development centers specifically in places where there are
large immigrant and minority communities, and one of those
areas is specifically here in Queens.
And we want to also hold Federal agencies and prime
contractors that work with these Federal contracts accountable
for meeting all minority business development goals.
So I am going to start by addressing some of these areas
separately.
Access to capital: Although the SBA encourages more AAPI
business owners to apply for Government-guaranteed loans
through their preferred lenders, we believe a large percentage
of businesses do not. A full 33 percent of small businesses do
not apply because they fear rejection from the organizations
that are lending to them.
We believe other factors may also include the following:
One, there is a distrust of what a preferred Government lender
will do with their personal and financial information, which is
what we discovered with the U.S. Census; a pervasive belief
that SBA officials may not have the ability to assist them in
languages other than English; three, an overwhelming fear that
rejection will lead to a loss of face and the potential for the
loss of good credit; four, a strong and pervasive feeling that
lending institutions do not have the means or the resources to
explain why a loan was not given, and actually counseling them
so they can get a loan in the future; and a lack of
understanding and knowledge that even a Government-backed loan
still requires some personal guarantees in the form of
collateral that may be difficult for a small business to
obtain; six, a lack of SBA and Minority Business Development
Centers in communities where small business enterprises are
being established, and that specifically means places like
Queens here in New York, as well as the San Gabriel Valley in
California; and more must be done with ACE and regional Asian
Chambers and business organizations to alleviate these
sometimes opaque cultural barriers to capital.
I will move on to Federal contracting. There needs to be
stronger and more visible oversight on Federal contracting
processes. While Executive Order 11625 requires Federal
agencies to report their minority business development
activities, a more comprehensive data collection process must
be employed to ensure that more AAPI small businesses have
opportunities to participate in the Federal contracting
process.
Over the past year, several AAPI business owners have
recounted how they have been invited to serve as subcontractors
on Federal contracting opportunities and through the
procurement process. The prime contractors, often nonminority-
owned firms, have a long history of Federal contracting deals,
and they enlist diverse businesses to bolster their team's
credentials.
However, a number of business owners, including my own
firm, have served on winning teams only to be told that there
isn't enough funding in the budget to utilize all the diverse
team members. In other words, the prime contractors were
ultimately unwilling to allocate even a penny of funding from
their budget to utilize diverse talent suppliers on their team.
It is essential that once a Government contract is awarded,
budget allocations are reviewed and monitored to ensure that
contracting opportunities are available to all willing and
able.
Also, in order to increase the success rate of AAPI-owned
small businesses in the Federal contracting process, and for
other minority businesses, it is critically important to
identify members for the 8(a) and other business development
programs early and to work with the regional Asian Chambers to
match them with qualified AAPI suppliers.
Small business development assistance: In the past few
months, ACE has worked with the SBA and the MBDA and made great
strides with both of them. In high-level meetings that were
held in Washington and later on in San Francisco, ACE signed a
memorandum of understanding with the SBA and continues to have
ongoing dialogue with their representatives. Our MOU
established a framework for ACE to partner with SBA on
monitoring programs, services, and initiatives designed to
address the needs of AAPI and other minority-owned businesses.
Furthermore, after several conversations with the Minority
Business Development Agency, two of their representatives were
actually designated to work closely with ACE and the regional
Chambers to advance AAPI businesses nominated by the leaders of
several Chambers around the country.
We also hold regular conversations with MBDA and SBA
leaders to advance and promote business centers to address
cultural needs as well as cultural barriers.
To build on these successes, we continue to advocate for
more small business development centers. We also encourage SBA
and the MBDA to recruit, hire, and advance more AAPIs and other
minorities with specific language and cultural skills, so that
they could address the needs that are often important to the
small business community.
Since the majority of AAPI business owners are recent
immigrants to this country, language and cross-cultural skills
are needed to instill trust to provide culturally relevant
consultations with AAPI business owners and other minorities.
In some cities where there are MBDA and SBA offices, there
are few if any officials or specialists of AAPI heritage. It's
often case, there is only one.
In conclusion, in order to ensure that AAPI small
businesses continue to have access to capital, Federal
contracting opportunities, and small business development
assistance, we must verify data that serves as a benchmark for
their progress and the progress of the Federal Government--more
outreach specialists with language and cross-cultural
experience, more SBA and MBDA business development centers in
growing immigrant communities, and greater accountability for
meeting and achieving stated goals for minority business
development.
I also wanted to introduce some people in the audience, our
new president, Sach Takayasu, is with us as well as a brand-new
Asian Chamber here in New York that is being started by June
Jee, Kevin Zhang, and Patricia Shibata, so they will be able to
help support that.
I also want to mention, since I have a few more minutes,
that when there is in-language assistance at the SBA and MBDA
centers, San Francisco implemented a program with Chinese
language brochures and flyers to talk to Chinese business
owners about the needs that they might have, and it was
standing room only.
And earlier in a conversation with one of the SBA offices,
they said that the reason why they didn't have Korean, Chinese,
and Spanish speaking people at some of their offices is because
there wasn't a demand. So I just think it is very important to
point out that even if it doesn't appear that there is a
demand, if you provide in-language support or in-culture
support, you are going to get people to participate, because in
San Francisco, it was standing room only, and they had to turn
people away just by doing things in the Chinese language.
I also wanted to accent again that there has to be very
strong oversight, because if there isn't strong oversight by
the Federal Government when people get these contracts, they
are not always given those awards.
So thank you very much for your time.
Ms. Meng. Thank you, Mr. Imada.
It is my pleasure to introduce Ms. Joyce Moy, the executive
director of the Asian American and Asian Research Institute and
professor of small business management and entrepreneurship at
the City University of New York.
Ms. Moy was the first Asian-American director of the New
York State Small Business Development Center at LaGuardia
Community College, where she helped to secure $25 million in
funding for small businesses. She is an expert on the local
economy and the challenges facing our small businesses.
Welcome, Ms. Moy.
STATEMENT OF JOYCE MOY
Ms. Moy. Thank you, Chairman Hanna, Ranking Members Ms.
Velazquez, Ms. Meng, and Representative Clarke. Thank you for
the opportunity to testify before you today regarding
opportunities, needs, the outreach efforts, and technical
assistance to small business communities.
I am executive director of the Asian and Asian American
Research Institute at the City University of New York. I am
speaking today in my personal and individual capacity.
As was stated, I was the first Asian-American director of
the New York State Small Business Development Center, and when
I founded the center right after 9/11 at LaGuardia Community
College, I immediately saw the lack of resources for the
underserved communities.
I created a team that spoke English, Spanish, Korean, and
three dialects of Chinese, in order to address the issues of
these particular communities.
Later, when I became director of economic development at
LaGuardia, I also oversaw the Procurement Technical Assistance
Center, which provides help to small businesses to secure
contracts with the Federal, State, and city governments.
I would like to focus on three issues: number one, outreach
to underserved communities, particularly immigrant communities;
number two, what it really means to provide meaningful and
effective technical assistance to these communities; and then
to make some recommendations about how we can ensure that we
build the capacity for this meaningful and effective business
assistance to these small communities.
First in New York City, as was said earlier, we have a
tremendously diverse business base. Asian businesses in New
York City number in the 150,000s. In Queens alone, over 68,000
of the businesses are Asian businesses.
In the black community, over 154,000 businesses are owned
by black business owners. And in Brooklyn, there are over
52,000 of them.
In the Hispanic community, the numbers are over 140,000 in
New York City with Bronx having over 37 percent of its
businesses owned by Hispanics.
But when we look at the national picture with respect to
immigrant businesses, we find that immigrant businesses make up
17 percent of the small businesses in the United States. They
account for $776 billion in revenue. They employ over 4.5
million people in the workforce.
In New York City, as was said earlier, nearly 50 percent of
small-business owners are immigrants. In the decade between
2000 and 2011, the neighborhoods with highest concentrations of
immigrants saw the largest growth in business, 23 percent
compared to the rest of New York City at 7 percent.
In addition, the growth of employment in these areas was 11
percent versus 4 percent for the rest of New York City. And the
payrolls increased by 56 percent compared to 40 percent of the
rest of the city, showing you just how critical these
communities are.
And in New York City, as many of you know, the population
is 37 percent foreign-born. But if you look at the underserved
communities, 73 percent of the Asian-American community is
foreign-born. Over 31 percent of the black community is
foreign-born. And over 41 percent of the Hispanic community is
foreign-born.
Looking at these statistics show you just how imperative it
is to provide services in-language and with cultural
understanding. But it is not enough to do outreach in these
various languages.
When these folks show up at the door of technical
assistance providers, there must be culturally competent
advisers available. Otherwise, it is nothing more than a false
promise.
In addition to this, because I am running out of time, I
would like to also mention that the SBA has done a great job,
along with other agencies, in reaching out to community
partners to try to add these cultural and linguistic
competencies. However, that alone is not sufficient.
We need to make sure that these community-based
organizations get the financial and other resources necessary
to support the work that they do. Without technical education
of the staff of these organizations, et cetera, again, it is
nothing more than a false promise.
Let me give you an example of what happens when these
community centers are asked to partner with SBA, but are not
given proper training or proper support. Right after 9/11, I
read a story in a Chinese newspaper about a restaurant owner in
Chinatown. There were 11 employees in that restaurant.
One of the owners of the restaurant, Mr. Ho, had gone down
to a Chinatown site for help from the SBA. He went numerous
times in the rain and in the snow, stood out in the cold, and
he was turned away so many times that when the reporter spoke
to him, he said that he had nothing but dry tears to cry. He
was so upset and frustrated. He was about to lose his ability
to support his entire family.
When we looked into it, because we contacted him through
the reporter, we found out that the problem was that the
community translators, who had no business training, told him
that they could not help him unless a majority shareholder
signed the documents. This business had seven shareholders.
There was no majority shareholder.
The translation should have been ``a majority of the
shareholders.'' But because the translator translated
literally, and did not understand the significance of what SBA
required, this man was turned away for weeks.
And had we not see that article, we would not have been
able to help him. And we helped him to secure $75,000 in
assistance. So those are the kinds of things we are talking
about.
We have not just a duty to do things well, but I believe it
is an ethical duty. I think it is important to provide
standardized and professional training to all of our technical
assistance providers. I think there need to be national
standards set for technical assistance providers. If they are
to get the dollars of the SBA, if they are to get the dollars
of the Department of Commerce, let's make sure that we know
that all of our technical assistance providers reach a basic
benchmark of knowledge and then proceed from there.
Without competence in culture and language and technical
assistance, all of this outreach, again, is nothing but a false
promise. Thank you.
Ms. Meng. I yield to Ms. Clarke to introduce her witness.
Ms. Clarke. Thank you very much, Ranking Member Meng, Mr.
Chairman, and Ranking Member Velazquez.
I would like to, Mr. Chairman, ask that my opening
statement, as unanimous consent----
Chairman Hanna. Without objection, so ordered.
[The statement of Ms. Clarke follows:]
Ms. Clarke. Thank you so much, Mr. Chairman.
Mr. Chairman, it is my pleasure to introduce Bill Wilkins.
Bill Wilkins is the director of economic development for the
Local Development Corporation of East New York in Brooklyn. His
responsibilities include but are not limited to managing
several city and State economic development districts that are
set aside specifically to bring investment, tax incentives, and
employment opportunities to East Brooklyn.
He is an active member of the board of directors of the
Trey Whitfield School, former board member of the Minority
Education Sports and Arts Organization, and a member of Berean
Missionary Baptist Church, as well as Kappa Alpha Psi.
A graduate of Syracuse University, he also has
certifications from Harvard University, the American Banking
Institute, and the New York City Department of Consumer
Affairs.
Without further ado, I would like to thank Mr. Wilkins for
appearing today. We look forward to your testimony.
STATEMENT OF WILLIAM S. WILKINS
Mr. Wilkins. Thank you very much. Thank you to all of the
members, and I am very pleased and honored to be here.
As stated, I am the director of economic development for
the Local Development Corporation of East New York. Since 1979,
our principal mission has been to foster economic and business
development in East Brooklyn and surrounding communities.
Economic development is achieved when you have capital
investment mixed with job creation or job retention. As a
byproduct of capital investment and job growth in distressed
areas, tax incentives and other programs like the SBA 504 and
7(a) are incorporated into the equation to induce or incent the
required result.
Being in harmony and in accord with our business
development team, the LDC engages in the seamless integration
of a myriad of activities and programs that foster both short-
and long-term economic business development benefits to
Brownsville and surrounding communities.
We are funded by the SBA administration through the Women's
Business Center, and I give credit to Congressman Velazquez for
having the insight and belief in our ability to administer
programs that actually are helpful to communities in the
forefront of creation of Women's Business Centers. We are one
of the first designated in New York City.
The SBA and the Women's Business Center actually provide us
with the economic development tools in our toolbox to assist
entrepreneurs and businesses.
We promote and use both loan types in instances when
clients are short on equity or undercapitalized. Both loan
products are necessary and needed in the marketplace by virtue
of creating additional flexibility to underwriting
requirements. In other words, many deals that are essential to
the marketplace would not get done unless both programs were in
existence.
Post-Superstorm Sandy, the turnaround time in processing
loan applications has been taking longer than normal. But
recently, we are starting to see an improvement.
Secondly, I encourage the SBA to continue to explore ways
to streamline their loan application and support documentation
requirements.
Thirdly, the SBA should continue to work with community-
based organizations that have boots on the ground to assist the
marketing of SBA loan products.
I would just like to speak to a couple of I think key
factors that would have significant benefits to organizations
that are actually working with, as Professor Moy stated, we
have over a half billion minority entities that are functioning
businesses. One thing that is paramount is to really provide
capacity strengthening for community-based organizations.
Organizations that have the required skill set and the
benchmark, if we had a pool of money, whether it be $50,000 or
$100,000, we could execute some of the deliverables that our
city, State, and Federal contracts have and really start to
assist and see some exponential benefits to those
entrepreneurs.
We need capacity-strengthening money. That is what we need.
We know what we are doing. We have the capacity. We have the
ability. But if we had more flexibility, I think that we would
start to see immeasurable results.
Secondly, I think that it is incumbent upon us to really
take a step back and understand the entities and businesses
that we are helping. Most businesses are family businesses,
whether they are Fortune 100 or 500. You have the Heinzes, you
have the DuPonts, you have the Rockefellers. It is the same
thing.
Our businesses, the money that is created in inception, is
from friends, family, and acquaintances. That is the seed
money, coupled with credit, that creates your seed money to
engage in business.
We on our side of the table provide the technical
assistance to help these businesses to succeed. What we need to
do, what we need to think about, is that we have a significant
amount of home-based businesses that have reached the capacity
of production in their homes. They don't have the capital to
move into brick-and-mortar or to a commercial storefront. What
we need to do is start to look at public land to create
incubators for these individuals. The public land is sitting
there. It is not generating any revenue.
Right now, we are working on a project to create a retail
incubator using cargo containers. Cargo containers are in
Williamsburg, they are in Dumbo, they are in Manhattan in our
more tony neighborhoods. We can also use this same concept in
our at-risk communities because you are not going to have the
startup costs.
A cargo container is $2,500. You can retrofit it for
another $2,500 or $5,000. If it is food related, then it is
about maybe $15,000. So you can actually have a business start
operating with the startup capital of only $15,000 or $20,000.
And it starts to create economic synergy within the
community, because then you have businesses who employ locally
and people start shopping locally. That creates a microeconomic
stimulus plan, because now the money is circulating within our
distressed communities. That doesn't take hundreds of millions
of dollars.
We are starting this project actually with about $500,000
from EDC and some foundation money, and we are going to have
eight to 12 entrepreneurs and also about eight artisans and
create studio gallery space where people start to take more
pride in their community.
This is happening in our more tony neighborhoods. It can
also happen in our more distressed neighborhoods.
In addition to that, I think that there is a need for more
money for marketing, for our Women's Business Centers, and
SBDCs.
As Professor Moy said, we have over a half billion
entities. A lot of individuals don't know we exist. We need
money to really get the word out from a grassroots level that
we are there, that we are competent, and there should be
standards. There should be benchmark standards for the delivery
of service, because we need some sort of accreditation.
In addition to that, right now, we are working and using a
model from the hub zone to have a designation ``Made in
Brooklyn.'' Brooklyn is hot. We are experiencing a
Manhattanization of Brooklyn, and we are also at looking at
some of the standards from the hub zone as it relates to the
address of the business, and also the address of the employees,
to use that as part of one of the requirements to have this
distinction as ``Made in Brooklyn.''
Lastly, I would just like to end with procurement, because
in coming to meetings that are held, and there are always, on
the city, State, and Federal level, you need to do business. It
is extremely daunting to do business with government. We rolled
up our sleeves and we tried.
As a matter of fact, it was at my encouragement that I had
a business actually secure a very small contract with the
Federal Government. We made the widget. We are fine with it. To
send our finished product to the Government, the book is about
3 inches thick as to how this Federal agency would accept this
end product. We then had to use a subcontractor to even ship
our finished product. And we said, you know what? It really
just isn't worth it.
Thank you very much.
Ms. Meng. It is my pleasure to introduce Ms. Michele Chang,
the acting chief of staff at the U.S. Small Business
Administration. Ms. Chang works alongside the SBA administrator
and deputy administrator. She oversees the day-to-day
operations, personnel, and decision-making processes at the
agency.
Previously, Ms. Chang was an engagement manager with
McKinsey & Company, a global management consulting firm. I had
the pleasure of hosting her at the Business and Leadership
Summit in D.C. where 60 constituents and small-business owners
listened to her valuable advice.
Thank you and welcome, Ms. Chang.
STATEMENT OF MICHELE CHANG
Ms. Chang. Thank you, Chairman Hanna, Ranking Member
Velazquez, Ranking Member Meng, and Congresswoman Clarke. Thank
you for inviting me to testify today.
It is an honor to be here in New York to discuss SBA's
ongoing efforts to increase access to capital, counseling, and
contracting opportunities in underserved communities.
We commend the Subcommittee for highlighting this important
topic and are grateful for your continued leadership and
support.
America's 28 million small businesses are the engine of our
economy and one of our country's greatest assets. They employ
half of the private sector workforce and create two out of
every three net new private sector jobs.
At the SBA, we are committed to ensuring that all
entrepreneurs, including those in underserved communities, such
as minorities, women, veterans, people with disabilities, and
those in urban and rural areas, have the tools they need to
grow their companies and create jobs.
According to the Urban Institute, SBA-guaranteed loans are
3 to 5 times more likely than conventional loans to go to
minority- and women-owned businesses. We are working to fill
existing market gaps for underserved communities across the
board, with both microloans and smaller dollar loans.
While we have already expanded and simplified our Community
Advantage program and streamlined our signature Small Loan
Advantage program, we are constantly looking for more ways to
make it easier and cheaper for entrepreneurs to reinvest in
their businesses. That is why this past October, we reduced
fees to zero for borrowers and lenders for all 7(a) loans $150
and less.
Due to these efforts, SBA has supported over $126 billion
in lending to more than 260,000 small businesses and
entrepreneurs since 2009.
However, a loan can only take an entrepreneur so far. Our
data shows that small-business owners who have long-term
counselors are more likely to hire, grow, and increase revenue.
To help make that happen, we have an extensive nationwide
network of 900 Small Business Development Centers, over 100
Women's Business Centers, and 12,000 SCORE volunteers. Last
year alone, these resource partners counseled and trained more
than 1 million small-business owners across the country.
Building on our current efforts, President Obama's fiscal
year 2015 budget invests $7 million to support our successful
Boots to Business initiative, which offers transitioning
servicemembers intensive entrepreneur training through the TAP
program. Boots to Business is expected to reach an estimated
25,000 veterans across all military branches.
In addition to our capital and counseling programs, SBA
works to level the playing field for small businesses to access
Federal contracting opportunities. Each year, the U.S.
Government spends about $400 billion in contracts. And it is
SBA's job to ensure that 23 percent of those dollars go to
small businesses.
We are continually working to make sure that our minority,
women, and veteran contracting programs are effective. In fact,
we launched a pre-8(a) business development training series to
help potential 8(a) firms prepare for success in the program.
And we established the government contracting classroom, which
is an online tool geared toward underserved communities.
As a result of these efforts, during the first term of the
Obama administration, small businesses accessed more than $376
billion in Federal contracts. That is $48 billion more than the
previous 4 years combined, even as overall contracting spending
decreased during those years.
These programs and initiatives enable us to continue
supporting underserved entrepreneurs like Tony Baird, the
recipient of SBA's 2013 Veteran-Owned Business Achievement
Award.
With the help of our local resource partners in Syracuse
and an SBA-guaranteed loan, Tony was able to leverage his
experience in the U.S. Army to launch a successful electronics
startup. Tony Baird Electronics has since been able to pursue
higher value contracts with the Federal Government.
This is a perfect example of how SBA's capital, counseling,
and contracting programs enable underserved entrepreneurs to
pursue their dreams of small business ownership.
Under this administration, SBA has become more accessible
and created more opportunities for underserved entrepreneurs
than ever before. We have been able to achieve this by
connecting need with opportunity, forging new relationships
with lenders and community organizations that can help us
better serve the small businesses.
We have formed partnerships with organizations such as ACE,
which is represented today by Bill Imada, as well as the U.S.
Black Chamber, the U.S. Hispanic Chamber, Women Impacting
Public Policy, the National Minority Supplier Development
Council, and the National 8(a) Association.
These strategic alliances enable us to leverage our
partners' nationwide networks and connect us directly with the
communities they support.
While we are proud of all that SBA has accomplished
alongside this Committee, we must continue to be diligent in
our work to support underserved entrepreneurs. We know that
with the right tools, small businesses in these communities can
have significant impact in driving economic growth and creating
jobs where they are needed most.
Thank you again for having me today, and I am happy to
answer your questions.
Chairman Hanna. Thank you all. Thank you very much. You are
great advocates.
I am going to turn over the first questions to Ranking
Member Meng.
Ms. Meng. Again, thank you to all of our witnesses for your
important testimonies.
My question is for Ms. Chang. What is SBA doing to make
sure its programs and services are cost-effective? And,
alternatively, if our other three witnesses could talk about
what you think the SBA could do to make sure its programs and
services are more cost-effective?
Ms. Chang. Thank you. Every day, we are trying to figure
out how we can make sure we are using taxpayer money most
effectively.
The primary focus over the last 4 years is to make sure we
are streamlining our programs and our processes as much as
possible.
For example, one of our main focuses over the last 4 years
was looking at our loan programs. In the past, our 7(a) and 504
applications were quite extensive, quite long, and it was quite
burdensome, not only for small businesses, but also for banks.
Over the last few years, we have taken a very fine toothcomb,
going through all the different paperwork and really making
sure we are really distilling it just down to the paperwork
that really needs to be done.
So we have taken a number of efforts to streamline various
numbers and processes not only in our capital programs, but
also in our SBIC, our SBI programs, and also our Federal
contracting side.
We are always working with community leaders, also, to
understand what more we can do. So we are excited and we went
to learn more about what people are hearing on the ground and
what more we can do to help.
Ms. Meng. Anyone can start or chime in.
Ms. Moy. In looking at finances, I would advocate for
greater investment. It is important to make things more
efficient. It is important to look at metrics and so on. But
without the all important initial investment, we, in fact, wind
up losing.
For example, if we are not paying our small business
development counselors sufficient salaries, so that they are
able to be retained over time, we lose them. And I think many
of us have seen the statistics. It costs almost 60 percent of a
person's salary to replace them when you look at starting from
scratch with benefits and contributions and things like
unemployment insurance, when you look at the ramp-up time, et
cetera, and the loss of time, in terms of counseling clients.
So I think we have to look at how we are funding these
centers and making sure that the investment is adequate. And
then I think you will see a return on investment.
And then, with regard to metrics, the way that we measure
things is somewhat interesting. It is important to count the
number of clients that come in the door. It is also important
to count the number of clients who have left and not come back.
Retention is extremely important.
Again, the investment makes the difference in whether we
retain and ultimately graduate, if you want to use that term,
successful entrepreneurs.
Mr. Imada. I would have to agree with Ms. Moy that you get
what you pay for. So it is very important that when you are
hiring professionals at the SBA, that you hire professionals
that are going to stay. So I do think retention is an issue,
because when the community gets used to one or two people, and
those people leave, then the SBA has to start all over again
from scratch.
I also recommend very strongly, and we have been partnering
with the SBA, who has been very open about this, is to work
with some of the alumni and get the mentors, for instance, from
the 8(a) program early, and get them to help counsel some of
the new businesses that are coming in. And I think that that
should be a little bit of a requirement of anybody that
qualifies for some of these loans or gets in the 8(a) program,
that they are mentoring the next generation of small
businesses. And that would help immensely, because I think most
people would trust another small business person that has gone
through this process.
But I do have to applaud the SBA for the 7(a) program,
because that is one area that we think is critically important,
to provide lending at microloans as opposed to some of these
bigger loans, which are a lot more attractive to the SBA
lenders, but to give more of these microloans to these
startups, because this is, typically, what they want.
Ms. Meng. Mr. Imada talked about the need for more SBDCs
throughout the country in certain communities, and many of you
talked about the importance of culturally competent staff at
the centers.
In Queens, we have two SBDCs. Do you believe that they are
currently sufficiently equipped? And how could they be
improved?
Ms. Moy. I do know the SBDC system in Queens quite well.
There is one at LaGuardia Community College, and then there is
one in York College in the southern part of Queens. Both of the
centers, I believe, are heavily utilized.
But I also believe that both centers could use augmentation
in terms of their budget and staffing. It may not be
necessarily a path to set up a brand-new SBDC, but, certainly,
there should be extensions of the current SBDCs, again with
additional staffing and additional funding, that could service
communities.
When you have heavy concentrations of small business
owners, such as you do here in the Flushing area, for example,
and a particularly close with community, it may warrant a
specific SBDC with language capacity or a specific satellite of
an SBDC with language and cultural capacity.
Mr. Imada. I would say it is important to have a new
center, provided that the hours are different. Part of the
complaint the small business community has is that these
centers run regular hours. But when you are a business, a
Dominican business or a Korean business or a Chinese business
or a Haitian business or a Russian business, you work 80 hours
a week. And so coming to the center at 10 o'clock or 1 o'clock
isn't always possible.
So it would be great, if we open another center in the
Queens area or in Bronx or in Brooklyn, that it has staggered
hours, because some of the business owners would like to arrive
and get the counseling later in the evening, as opposed to
during regular business hours.
So I would encourage that, if you do that, to not only put
some resources behind it, but to look at staggering the hours
so that more people could take advantage of these development
centers.
Ms. Chang. Just one point of clarification, the Small
Business Development Centers are SBA resource partners, so
technically, their employers are not SBA staff.
However, we work very closely with them to make sure that
they are representing the communities that they serve.
One point I would like to also address, Mr. Imada's point
about making sure we are being responsive to small business
owners. We understand, a small business owner, it is a hard
job. You work all hours of the day. It is your lifeblood. Any
hour is fair game.
So one of the things that we are doing at the SBA to try to
be more cost-effective is to provide more training and webinars
online that are accessible at any hour of the day. We
understand that it is not the same as an in-person touch, but
it is something that we have been trying to do to make it a
free, easy way for folks to get access to free counseling.
We have what we call the Online Learning Center, which has
a number of different webinars and training tools that help
small businesses learn about not only the services SBA
provides, but also basic questions about how do I build a
business plan, how do I find financing. So we encourage folks
to check that out at SBA.gov
Ms. Meng. Thank you.
Before I yield to Congresswoman Velazquez, I would just
like to echo the sentiments of Mr. Imada and would welcome, I
believe, with many of our constituents and small businesses, a
center within the Sixth Congressional District.
Thank you. I yield back.
Ms. Velazquez. Thank you, Mr. Chairman Hanna, and
Congresswoman Grace Meng, for the incredible job that you are
doing as ranking on this important Subcommittee, and
Congresswoman Clarke, a very active member of our Committee.
This Small Business Committee is one of the few that really
work in a bipartisan way. Just last week, we reported out seven
bipartisan bills, and I am proud of the work that we do,
because we really understand that there is no Republican or
Democratic approach to deal with issues that are important to
small businesses.
And the work that small businesses do is very important for
our economy, particularly at a time when our economy continues
to struggle. We know that small businesses are the job
creators. So if we want the economy to grow, we have to create
jobs. But in order for small businesses to create jobs, there
has to be a climate that is conducive for businesses to do what
you do best.
The face of small businesses in America is changing. There
are more women. There are more brown faces. There are more
Asians. There are more immigrants.
And so we need to bring the Small Business Administration
to its core mission, and that is to help small businesses
either access credit or capital, at a time when financial
lending since 2007 has been ineffectively providing capital to
small businesses, because credit standards are being tightened.
And yet even those who partner with SBA, because SBA doesn't
make loans, SBA partners with those financial institution.
One thing that SBA needs to get into its mentality is ...
what are the types of capital that we need to focus on? Are
those the big loans, the $5 million loans, the $7 million
loans? Or microlending?
For immigrants and for those startups, the portfolios show
that it is between $50,000 to $250,000. When we do not demand
that banks make those smaller loans because they are not
profitable, that is a disservice. And so we expect for SBA and
the new administrator to focus more on those types of loans.
In terms of procurement and accessing the federal
marketplace, for years, as ranking member of the Small Business
Committee, and as chair of the Small Business Committee, I took
it upon myself to put together a scorecard grading all the
federal agencies on whether or not they fulfill the contracting
goals set up by Congress.
When some in the administration said that yes, they
achieved the 23 percent, we discovered through investigations
conducted by GAO that those contracts they said were given to
small businesses were miscoded and given to big businesses.
I am really excited about the fact that under President
Barack Obama and the previous administrator, she instituted,
she adopted my scorecard. And for the first time this year, we
are seeing that it might achieve the contracting goal of 23
percent for small businesses.
Look, it is the largest purchaser of goods and services in
the world, the federal government. So it is a market for small
businesses, and we have to make sure that there is a level
playing field and that the federal government's message to
small businesses is that we are open for business, and we want
small businesses to participate in the federal marketplace.
Because when you do, we all win.
Competition is good, even for the government and for
taxpayers, because no one produces and provides better services
than small businesses. Even the private sector, corporate
America, turns to small businesses to be able to provide the
work that they need.
So I am happy and expect the new SBA administrator to
continue to focus on making sure that all the federal agencies,
starting with SBA, because it will be quite embarrassing if we
produce a report that shows that even the SBA--that used to
happen before--didn't comply with the statutory goal of 23
percent.
In terms of SBDC, I agree with you.
Ms. Moy, you have experience. You know what works, what
doesn't work, with the Small Business Development Center. I
believe that is one of the most important investments that we
make in the federal government.
For every dollar that we spend in services that we provide
through SBDCs, the government gets $2.62 in tax revenues. So it
is a great investment.
You are right, we need to have more staff. We need to pay
better. Otherwise, we are going to train them and they are
going to leave. What we need to do is not cut like we did, that
the administration proposed cutting--I don't even remember the
amounts--but proposed cutting the funding for SBDC. My reaction
to the administration is don't cut the funding to those
institutions and those partners that have a proven record, that
have been tested, just because we want to create pilot programs
that have not been authorized by us, that are untested, and
that do not have a track record.
Just last week we passed legislation, my legislation, that
will prohibit the creation of any pilot project that has not
been authorized by Congress. And use that money to fund SBDCs
that have a proven record in their communities.
So my question, based on my comments, to Ms. Moy and Mr.
Imada, do you believe that, in terms of the needs for
businesses, immigrant businesses, is it the big loans or the
smaller loans that SBA needs to focus on?
Ms. Moy. I would agree with you, Congresswoman Velazquez,
that it is the smaller loans between $50,000 and $250,000 that
will really seed the capital that is needed by these smaller
businesses and will allow them to grow to the next level.
There are a lot of services for the startups, not enough
service and concentration on these growing businesses for whom
the $50,000 and $250,000 would be particularly important.
I also want to take the opportunity to just clarify
something about my comments. I do agree that a Small Business
Development Center right here in a location such as Flushing is
extremely important. But my comments about the possibility of a
satellite office was based partly on my fear that funding would
be taken away somehow from the two existing centers, which are
extremely needed.
But a third center in Queens, particularly with Asian and
Hispanic language capacity, is urgently needed as well.
Mr. Imada. I would have to say that we need to have both
loans, and I will tell you why we also have to have the larger
loans. It is that it is very important for us to create jobs.
And so some of the successful businesses, they are making $10
million, $20 million, $30 million per year, but then they hit a
wall.
So a lot of these women-owned businesses, in particular,
they are very successful, they have done extremely well over
the years, but they ultimately get to this place where they
don't know how to scale up their business, and that is where
they need a loan. So I do think that once those minority
businesses do well, particularly women minority businesses,
then we need to have some system in place where they can get
those loans.
But I am also concerned about the smaller organizations,
because we have a lot of organizations that come here, a lot of
minorities coming from all over the world, and they just need a
break. And most of the lending institutions, even if they are
preferred lenders and are supported by the SBA, they still have
to come up with a certain level of personal collateral. And
many of these small businesses don't know how to do that.
And as Ms. Moy said, when they are going to these centers,
if there is no one who can speak Espanola, or Korean, or
Chinese, or even some of the language out of the Caribbean and
Eastern Europe, then they can't get access to that information,
because most of these lending institutions do not provide that
support.
And even worse, when they are turned down for loans, there
is no one there to explain why they didn't get the loan and
what they need to do in order to get it. So I think it is both.
Ms. Velazquez. Thank you.
I yield back.
Chairman Hanna. Thank you.
Ms. Clarke?
Ms. Clarke. Thank you very much, Mr. Chairman. Let me add
my voice in thanking you and Ranking Member Meng, as well as
the ranking member for the full Committee, Ms. Velazquez, for
holding this field hearing in here in New York City.
We have a very unique business climate here in New York
City, and I think it can serve as a model for other regions
that have the diversity that we have here in the city of New
York, in terms of our entrepreneurs.
One of the things that I would like to raise with you, Ms.
Chang, and just get feedback from our panelists about, is the
whole idea of cultural competencies. I think that it is a
scenario where we are actually losing money, losing
opportunity, because we are not able to create the nuances
within programs, agency policies and procedures, that capture
the full breadth and depth of entrepreneurial spirit that
exists within our communities.
And I was taken by Ms. Moy's testimony about cultural
competencies in the agency itself among its executives and its
professionals, and how we address that in a way in which it
doesn't take us beyond the mission of the agency, but enhances
the mission of the agency in the regions in which SBA operates.
I think if we break it down to sort of the microlevel and
look at how our partnerships with our community-based
organizations, and our collaborations, are just that,
collaborations. It is one thing to offer the Local Development
Corporation of East New York a contract to do some services,
but as Bill has stated, it is another thing to truly partner
and look at the resource allocation and how those connections
are made to be effective on the ground in the communities that
we operate in.
So I would like to ask the panelists, in your experience,
without any major law or regulation having to be changed, what
are some of the nuts and bolts, or nuanced ways in which you
would like to work with the SBA?
Bill, do you want to start?
Mr. Wilkins. Yes, I can weigh in on that. I think it
touches on a previous question that the member raised as far as
cost-effectiveness. One of the difficulties that we encounter
is the human hours spent with reporting with the documentation.
We just went through, actually, an audit and there is a
constant interaction with our office, with SBA, and it is
positive. But on the reporting side, because, as you know, the
director of the Women's Business Centers, they have to be
vetted. Our director spends a considerable amount of time on
the reporting of interface with SBA. This is a very bright
woman, an MBA who is extremely proficient as far as her
technical assistance and being a counselor. We find it
extremely effective when she can teach.
When she is able to teach and we are not doing the one-offs
anymore, we do trainings for a multiple of people, whether it
be QuickBooks, whether it be marketing, whether it be using
social media. So now an hour or two that she spends on
reporting, that hour or two can actually help 20 or 30
individuals in the classroom.
So to come back to the point of cost-effectiveness, I think
that is very important.
To Congresswoman Velazquez, we have to have SBA play in the
micromarket. As you know, banks, it is just not profitable. We
have to figure out ways in which we can go back to something of
the '60s or '70s and go to character lending. Direct lending,
character lending with the support, and I am trained by
Professor Moy as far as credit, and we know the ins and outs.
Actually going through one of her trainings, we were taken
aback by the skill set, inherently the skill sets of the people
who were taking her curriculum, and sending these people out
into the marketplace as professionals. They really didn't have
that type of background. The curriculum was great. It was a
great manuscript. But they didn't really have the skill set to
really advise someone on something as important as credit.
I mean, credit is essential for all of us. It is a
beginning framework to really manipulate yourself through the
marketplace so you not paying more than what you have.
What I find is that our ethnic communities have come up
with their own solutions. Whether it be a Caribbean with the
susu, whether peer lending. Also hard-money lending, I recently
had one of our businesses on Jamaica Avenue, an apparel
manufacturer, borrowed about $18,000 from a hard-money lender.
He was paying about $250 interest a month. So I was thinking,
well, you borrowed $18,000; you're paying back $22,000, we then
invoked City National Bank into the equation, which actually
gave him a line credit and also a credit card. And now he is
able to sustain himself during his down period.
So I think that we have to look at the nuances. We have to
look from not the top down but from entrepreneur, and also from
the vantage point--it was stated that an entrepreneur spends
about 80 hours a week in their business. It is very difficult
to pull these people into our centers for training. It is an
interesting dichotomy, because you have ownership and you have
rank-and-file. There is no middle management.
When you leave the shop, you are not talking to your
vendors, you are not talking to your suppliers, you are not
producing for your customers. Their time is invaluable. So we
have to make sure that our approach is insightful, and it is
extremely valuable that we are able to penetrate.
What we do is a before-business breakfast so that way
everybody can be at their desk by 9 o'clock, or open the store
at 9, so we look at that 7 to 9 o'clock in the morning to
really provide the training that the business community needs.
Ms. Clarke. So the question is, is this a 21st century
model? We are sort of hardwired on the 9 to 5 as employees,
oftentimes, but the entrepreneur is the element that we are
trying to focus on. So how does our agency respond to the world
of the entrepreneur that doesn't transpose an employee's
template on top of them. Because if our workforce is working 9
to 5 and the assistance that is needed is needed either before
9 or after 5, then it almost becomes a daunting task for those
individuals. And those individuals that don't get help when
they need it, it is too late after the fact. They are out of
business.
Would you say, Ms. Chang, that there is a desire within the
agency to embrace some nuances, and to work with community
based, with our organizations that are focused on business, to
create the space for these nuances?
Ms. Chang. I would say absolutely. This is something that
we strive and work to do every day.
And I think what you all are highlighting is the same thing
we are struggling with every day. How do we, as a Federal
agency, continue to stay nimble and innovative, and keep up
with the changing population that we are serving, which are
small businesses?
And as you rightly highlighted, they are an evolving
population, which is often changing. So we are always trying to
make sure that we are keeping a pulse of what is on their
minds, how do we make sure that we are serving them
appropriately.
So conversations like this are extremely helpful. What has
also been helpful for us is that some of our partnerships that
we have done with very community-based focus groups. I
mentioned the Chambers that we have partnered with, and through
those partnerships, we have partnered with their local chapters
within all the different communities. And we really do rely on
those partnerships to help us make sure that we are not losing
sight of what people are really experiencing on the ground. I
think it is very easy for folks to think in D.C. that you are
not thinking what is happening on the ground. But that is what
why it is so important for us to utilize our field network, our
resource partners, as well as these partnerships, so we can
continually make sure that our services are providing the need
that people need.
Ms. Clarke. And is there a place in the agency where you
can actually do an analysis of practices, and whether, in fact,
these practices have yielded far more in terms of business
assistance than perhaps a previous practice has?
Ms. Chang. That is a great question. And we are very fact-
based, data-driven agency. We try to make sure that, whenever
possible, we are making policy and programmatic decisions based
on facts.
There actually is the SBA's Office of Advocacy, which is an
independent office of the SBA, which is mandated with doing
research and analysis of what are the changing trends within
the small business community. So that seems like a natural fit
for that office.
And I am happy to bring this back to those folks and say
this is a pressing issue.
Ms. Clarke. We actually have a representative sitting here
with us. Ms. Teri Coaxum is here from the Office of Advocacy.
And it is great that that independent office exists. What
becomes even greater is if their findings find their way into
policy.
Ms. Chang. Absolutely.
Ms. Clarke. Because at the end of the day, we should not
come here again next year for a field hearing after receiving
this information without there being some steps taken to verify
the facts that have been presented here today, and then make
the necessary adjustments to address these very concerns.
Because if they are concerns here, they are concerns in other
parts of the country as well. And perhaps there are
environments similar to ours, in terms of entrepreneurship, the
markets, that can benefit from what we have learned here today.
So I wanted to share that with you.
And just one final question, Mr. Chairman, if you will just
indulge me, because I want to talk about the credit markets.
That has been something that has just been so devastating for
so many entrepreneurs, so many families, because, quite
frankly, we are all counting on the market and entrepreneur to
be the breadwinners for our families.
As the credit market begins to loosen, are you noticing any
difference in those who come to you seeking assistance, or have
you begun to see a return to normal credit markets? I am just
going to put that out to the entire panel.
And I yield back after their answers, Mr. Chairman.
Ms. Moy. First, I want to commend the SBA for its
partnership outreach in working with the Hispanic Chamber and
the other ethnic Chambers, for example. But that is not a
substitute for providing substantive day-to-day technical
assistance, because, again, many of these Chambers do wonderful
work. They are great in terms of convening conferences and
seminars, and so on. But they are not in a position to
handhold.
Many of these Chambers are made up of volunteers, or they
are made up of very small staff. So that again is not a
substitute for funding and total and complete support for
organizations like the LDC of East New York who do the day-to-
day hard, grappling work.
And then secondly, in terms of the credit markets, I think
that over the past several years, entrepreneurs have taken a
tremendous beating. They have, more than ever, relied on credit
cards and other things to fund their businesses, to keep the
cash flow going, to try to hold on until the economy turns.
And so the course that Mr. Wilkins mentioned is a class
that I have done for over 300 counselors who are embedded with
community-based organizations throughout New York City. And the
kind of credit reports that we are seeing show people whose
credit has been battered.
And I am wondering whether or not there is a way to help
underwriters begin to look at shorter credit histories, going
back 3 years instead of 7. That could actually help to turn the
tide, because I think if you look at a business, and you see a
positive trajectory, a constant increase in credit--in other
words, their credit scores are getting better over a 3-year
period of time--that might in fact enable these people to
access credit where they can't, because the credit reporting
agencies bury these people in 7 years of bad history.
Mr. Imada. I would have to agree 1,000 percent with Ms.
Moy, because when I started my own company, it took me 7 years
to convince a lender that I was worthy. And most businesses do
fail, a lot of businesses do fail within the first 2 to 3
years. But once you pass that 3-year threshold and you have a
positive cash flow, even if you have a little bit of a negative
credit rating, there should be a little bit more access to
credit from the banks, particularly from the preferred lenders
that support the SBA program.
One thing I wanted to mention about what Bill had to say,
and what Ms. Chang had to say, is that it would be great if we
could get more people in the SCORE program. The SCORE program
is excellent, but we need to get more people that graduate from
the 8(a) program, more corporate executives who are people of
color.
And one area where that might happen is a lot of these
lenders actually have employee resource groups. And to get
those employee resource groups, the African-American, the
Latino, the Asian, the disabled, the veteran resource groups,
to serve as mentors for these small businesses, I think that is
a really good place to get the corporations involved, get
businesses involved, to help support these businesses in the
community.
Mr. Wilkins. Just to weigh in, I think, as far as your
question as it relates to the credit markets, it is an
interesting dynamic, because I think our first-tier lending
institutions have sort of ignored the market unless you are
really a middle-market client. We have the secondary lenders,
whether it be Project Enterprise, Accion, and other community-
based credit unions, they sort of fill the void and also the
SBA.
But the paradigm is that businesses fail because they are
undercapitalized. They don't have enough money. And the first
thing that suffers is your credit.
And then you go to lending institutions that are looking at
your credit. And they are going to feel that they can't help
you.
Prior to that, the businesses, the principals had a 700
credit score, and they were flush with cash. The issue is that
that money was not married with institutional money being bank
money. That is the problem, because there are always mitigants
to getting started.
And you think that your cash register will start to jingle
after 3 months, and it takes you then 7 months to get your
permits from the Department of Buildings. You don't have enough
of a buffer to sustain that extra 4 months of paying a lease
and paying employees and utilities because you don't have the
cash flow.
And because now you don't have the cash flow, you don't
have the ability to market and be successful.
So I think what is needed is that, institutionally, we have
to start looking at more creative credit opportunities, because
if you have an individual working 80 hours a week doing
something, I think they are going to be successful. We need to
have money to support these individuals and look at it
differently, especially when we are working in distressed
communities.
Chairman Hanna. Thank you.
Ms. Meng, do you have a question?
Ms. Meng. Just a final question for all of our panelists.
If you could come up with a wish list for SBA, what are some of
your biggest challenges, and how could Congress be helpful in
the imminent future?
And to our other panelists, what are some ways that Federal
agencies can immediately advertise or better market their
services, in your opinion? How can they do even better?
Ms. Chang. We probably want a lot of things on a wish list,
but I think some of the things that you highlighted today are
really what we are trying to figure out. How do we make sure
that we are continuing to evolve and be able to stay up with
the changing needs of small businesses?
So some of the different things that we at the SBA have
looked at are different ways to make sure that we are
tailoring, particularly our entrepreneurship training program,
to different segments of the group.
So as you will see in President Obama's fiscal year 2015
budget, in there are a number of requests for very specialized
entrepreneurship training. I mention the Boots to Business
program that we have highlighted. We also have training around
entrepreneurship education, which traditionally has been known
as our emerging leaders program, which is an intensive mini-MBA
type course for existing small businesses.
We would love to make sure that we are able to continue to
provide these services to small businesses across the Nation,
and we have always enjoyed the support of this Committee and
look forward to that going forward.
Ms. Moy. Since access to capital is so critical for small
businesses, I would like to look at whether or not a fund could
be created specifically in the $50,000 to $250,000 range, where
the underwriting criteria could be loosened a bit, providing
that people in this program are paired with technical
assistance. So that when they apply for the money, they work
through very carefully as to how that money will be applied,
because a lot of the problems, for example, that Mr. Wilkins
cited were really cash flow problems. They didn't have
sufficient reserves in the beginning, and so forth. And we have
seen programs where people working with technical assistance
providers learn to apply the funds in the right way, so that
they don't blow through it, putting it all into marketing when
there are other things to balance in the business as well.
So again, a small fund that could provide these amounts,
helping them to build credit. There are things in New York
City, for example, called credit builder loans where somebody
could borrow--well, actually, the amounts are quite small,
$300. The amount of money is actually put into a bank account
and each and every month, the payment is drawn from that, so
that these folks have a track record of perfect payments for a
period of time, like 1 year, and it helps to rebuild their
credit.
So something of that nature that can help a business owner
quickly ratchet up and better his credit will then allow him to
go and connect back into the traditional banking world.
Ms. Velazquez. Will the gentlelady please yield?
Ms. Meng. Yes.
Ms. Velazquez. Ms. Moy, why is it that you don't believe
that the microlending program fits the bill? It is a
combination of capacity building, plus money from $500 to
$50,000, and in some instances to $100,000.
And it is a very effective program. In fact, it has the
lowest default rate of only 2 percent, and 62 percent of those
microborrowers are women, where we fill an incredible vacuum,
because when you talk about access to capital, women are really
shut out of the financial institutions.
Ms. Moy. So I do believe that the microfunding programs
have been very effective. And programs like Accion that look at
nontraditional criteria for making loans, such as paying rent
on time and so forth, the kinds of things that the traditional
banks may not look at, have been extremely effective.
But I think that the rapport and the technical assistance
have to be paired, and that this relationship is an ongoing
relationship, so it is not the kind of relationship where you
go to the technical assistance provider to get through the
crisis, and then you don't come back.
The point is to have the relationship established at that
point, and then for it to continue, so that we can make sure
that these businesses get to the next level, because to fund
them, and allow them to stabilize and then to watch them fail a
year or two later, is not what we are looking for. We are
looking for that sustained growth.
Ms. Velazquez. But in the order for them to go to the next
level and get a larger amount, they have to continue to go
through technical assistance.
Ms. Moy. I think that would be key to success, because,
again, they have to be able to develop the skills necessary to
move on to the next level. These classes like the mini-MBA
training is exactly the kind of thing they need, but we have to
stabilize the business to the point where they can step away
from the business in order to acquire those skills.
Mr. Imada. My wish list is very simple. I think that what
would be great is to have more of the successful businesses
come back and mentor the community. I do think that the access
to the microlending is critically important.
But I also think that some of these Dominicans and
Nicaraguans and all these people that are starting businesses,
Koreans and Chinese and Russians, they don't necessarily want
the Government to help them, but they want to know that the
Government is behind them if they need support.
So the microlending is important. Give them the tools and
the apparatus to be able to manage that. Give them the tools
and apparatus that is within those communities where they can
have mentors. And the SBA should be looked at as a convener, a
convener of talent, a convener of information, a convener of
access to different types of lending programs and technical
assistance, if they want. And that requires a lot of patience,
some partnerships, and some people who are culturally
interested in these communities and are aware of what their
needs are.
Mr. Wilkins. As far as my wish list, I will just highlight
the fact of the capacity-strengthening grants maybe can be
proportionate to what the Women's Business Centers or SBDCs
receive. I think that we would start to actually experience a
significant growth in being able to help entrepreneurs.
Secondly, as we look to streamline applications for the 504
or the 7(a), also to streamline the reporting requirements for
these centers. It really takes a considerable amount of human
hours to be able to address some of the deliverables that we
have, which are important. But we need to be able to streamline
it.
Thirdly, the underwriting criteria and personal guarantees
for SBA have to be looked at. We recently went through an
experience with a very successful business in Coney Island,
actually. I am not going to say their name. But basically, they
had the capacity to do all of the rehabilitation for their
business post-Superstorm Sandy, about $2 million. On the back
end then, they were trying to receive a loan from SBA.
There were seven equity owners. Four of them, their assets
were about $17 million. SBA was dogged for the fact that they
wanted all seven to sign. The three minority equity holders
really were not involved in the business, and they didn't want
to pledge personal guarantees.
That particular loan was overcollateralized. They only
needed $2 million. The four people with assets were about $17
million. It took us about 2 to 3 months to go through this. And
this is after you have a victim of Sandy.
So we need to look at some of the underwriting criteria,
because it creates a disdain for the SBA that is not deserved.
Ms. Meng. Thank you. I yield back.
Chairman Hanna. Thank you.
Mr. Wilkins, Mr. Imada, you mentioned the lack of personal
collateral is a problem to start up a business.
Mr. Wilkins, you spoke of character loans. You also talked
about additional flexibility.
Ms. Chang has a responsibility to see to it that this money
is paid back, that the Government's risk is at a minimum. So
knowing that there is a large default rate with small
businesses, startup businesses, and Ranking Member Velazquez
mentioned the 2 percent loss rate for the microloans, how do
you reconcile Ms. Chang's responsibility to see to it that she
does her job and the public trust is respected, and Mr.
Wilkins' notion, and I am not faulting it, that somehow we have
character loans?
And we have people with no equity, and yet we all want to
grow businesses, that all sounds wonderful, right? But how do
we do that in a world that protects Ms. Chang from not writing
a bunch of bad loans, and Mr. Wilkins who would like to see
people with very little equity, but good character, hardworking
people, get a business, and you who have people with no equity?
I was in business for 30 years. That is a tough recipe for
Ms. Chang. So what do we do? Do we increase the loss ratio to 5
and accept it?
I am just interested, especially from Mr. Wilkins, because
I sympathize with you. However, I don't see how we can just
hand money out to people based on character. Character is
important, but character is also a function of paying your
bills over time, and accepting responsibility and proving that
you have a product that people want, and you know how to manage
things.
So I am just curious, how do we accomplish what we all want
to do here and grow small businesses, particularly with
minorities? That is what we are talking about today. How do we
get there from here?
Mr. Wilkins. I think you just have to take common sense to
a high place as it relates to character lending. It could be as
simple as you have SBDCs and WBCs, allow them the flexibility
within their client base to choose two or four entities to
engage in these character loans, because the centers have
worked with individuals.
Someone that is coming into my center every week to receive
counseling, those are the people that repay loans. The
individuals, when you say, ``Well, you know what? I need to see
2 years of your personal tax returns and 2 years of your
business tax returns and your certificate of incorporation.''
The individuals that give you that information back timely,
those are the people who repay loans.
I am a prior loan officer for a community development
credit union, and I had a portfolio of over $1.5 million. When
you have individuals who are experienced in lending, there are
certain steps and mandates that you can create in the lending
process where you have a higher rate of success.
On the backside, it is a very difficult space, as far as
lending to individuals on a character basis. But then, on the
other side, we will have $100 million loans to very successful
entities also fail.
So there also has to be a tolerance. And if we look at that
every dollar that we lend, the Federal Government is getting
$2.62 back, then I think we have a little flexibility to
underwrite some bad loans.
Mr. Imada. Well-said. That is all I have to say.
Ranking Member Velazquez gave a very important statistic,
and it is 2 percent. We are talking 2 percent of that large
group of people who are getting these microloans who are not
paying them back. This is actually a very small amount of
lending.
If we look at some of the bigger loans that are going out
and those failed, we are talking about significant amounts of
money. This is a very small and insignificant amount of money.
But one thing that I think it is important to know about
immigrant businesspeople, and I work with day in and day out,
regardless of where they are from, is that they do not want to
lose face in the community. Not repaying even the smallest loan
loses face in the community.
And I think that that is something that is not necessarily
discussed in halls like this, but these small businesses take
their businesses very seriously. That is why we have such a low
rate of default, because they want to make sure that if they
are borrowing from institutions that are backed by the
Government, that they are going to return every single dime of
that money, because the Government has provided them an
opportunity to live in this country and thrive.
So I think we do need to give a little bit of leeway to
those immigrants.
But I also agree with Bill, because you empowered some of
these organization and entrusted these organizations to work
with women- and minority-owned businesses. Give them a little
bit more leeway to make those decisions, because they work with
these people day in and day out. They know their record of
returning calls, paying bills, meeting their deadlines.
So, I would say, if you are going to entrust them with
support, with Federal dollars, then entrust them with the
support in being able to pick and choose some of the people who
need those funds.
Chairman Hanna. Thank you.
So just to paraphrase what you have both said, because to
me, it is very interesting, you are asking to give the SBA
latitude to make loans that don't fit the traditional notion of
those things required to make a loan. So Ms. Chang would say I
have an allowance, a portion, if you will, as an opportunity,
without retribution from her bosses, to make loans to people
who don't fit the bill.
Is that what you are saying, too, Mr. Wilkins?
Ms. Velazquez. Mr. Chairman, I just would like to call
attention to the fact that SBA doesn't make loans. SBA
guarantees loans.
Chairman Hanna. Correct.
Ms. Velazquez. So it is the bank, ultimately, that will
make that final decision whether or not they have the
requirements----
Chairman Hanna. But the bank's loan is based on the
guarantee, so it is all interconnected. And, certainly, the
backup for the bank being the SBA matters a lot.
I find it interesting, and I don't disagree with you. If
you look at projects around the world, and things like that,
places around the world that don't have the kind of protection
of property rights that this country has, they managed to go
through those in different ways.
Mr. Imada. Chairman Hanna, I do have to say I agree with
Representative Clarke. We have to look at different ways to
look at lending. We can't do the same thing that we have been
doing day in and day out. We have to look at small business as
an opportunity for growth, as you have all stated, as everybody
here has stated on this panel.
Small-business people take risks each and every single day.
Many of these small businesses, frankly, would be dependent on
the Government if they didn't have an opportunity to start a
small business. And most of them do not want to. They want to
make a living for their friends and their family. They want to
contribute to their communities. They want to do things that
are going to benefit society as a whole.
So I believe that we have to look at how we lend
differently with keeping in mind how the demographics have
changed in this country.
Chairman Hanna. Thank you.
Ms. Moy. Pardon me, Chairman Hanna, if I may, character
loans have been in existence in these communities for
generations. The susu that was mentioned by Mr. Wilkins, in my
own community, family associations, people from the same
village, have pooled money together, and members who have the
same surname draw a lottery and they are allowed to borrow from
this fund to start their businesses. That is how my family
started its businesses three or four generations ago.
And those are character loans, because if you don't pay
them back, everybody, not only here in the United States in
your community hears about it, but your great-grandmother in
the village hears about it. So you pay it back.
Organizations like Project Enterprise, for example, you are
put forth as a candidate to borrow money based on the group
that you formed and the community support that you have from
other business owners. This model works.
And whether it is face or business reputation, et cetera,
there are things that we can adopt from this. Indications of
character do come from things like paying your rent on time,
paying your phone bill on time. These are not traditional
measures that have been captured by the credit bureaus. Accion
USA has used this very successfully.
Chairman Hanna. That is Mr. Wilkins point, that they need
to be, correct?
Mr. Wilkins. Yes.
Ms. Moy. Thank you, Mr. Chairman.
Chairman Hanna. Thank you.
If there are no further questions, I want to thank Queens
College for hosting us, and thank you all for participating
today. I appreciate your insights into the challenges facing
the underserved small businesses and in ways to reduce barriers
to accessing Federal programs.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting material for the
record. Without objection, so ordered.
Chairman Hanna. This hearing is now adjourned. Thank you
very much.
[Whereupon, at 12:39 p.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Distinguished Members of the U.S. House of Representatives
Committee on Small Business and Subcommittee on Contracting and
Workforce:
Thank you for extending me the opportunity to offer my
testimony today. It is truly a great honor and privilege to be
with you today.
For the record, my name is Bill Imada and I am one of the
co-founders of the Asian/Pacific Islander American Chamber of
Commerce & Entrepreneurship, which is also known by its
acronym, ``ACE.'' ACE was established in January 2013 and is
based in Washington, D.C. Our mission is to address the needs,
interests and aspirations of business owners, entrepreneurs and
corporate leaders of Asian American, Native Hawaiian and
Pacific Islander American heritage. I am also the founder,
chairman and chief collaboration officer of a certified
minority-owned and operated small business that focuses on
marketing and communications to the greater Asian-American and
Pacific-Islander (AAPI) communities.
ACE was established as a business advancement organization
and strives to be a visible and credible voice for the AAPI
business sector in the halls of government in our nation's
capital. For the past year, our 22-member board of directors
met with and listened to the leaders of dozens of AAPI business
organizations from more than 25 states to learn from their
experiences as small-business advocates. What we heard
reinforced our resolve to be a representative voice for AAPI
small-business owners and entrepreneurs with elected and
officials and federal agencies such as the U.S. Department of
Commerce, U.S. Department of Labor, U.S. Department of
Education, U.S. Small Business Administration and others.
The AAPI community represents some of the most recent
immigrants in the United States all the way to some of the
oldest communities that were instrumental in the development of
this country. As entrepreneurs, AAPI-owned businesses represent
the gamut of large companies that manufacture products and
distribute across the nation or around the globe, to the
smallest businesses around the block from your own
neighborhood. Yet too often, it seems as though many AAPI
entrepreneurs must start from square one and are often
overlooked as key stakeholders in the business community and
are rarely acknowledged by policy makers as contributing more
than $500 billion in annual economic output and nearly three
million jobs.
It is critical to state that we can only be successful in
advancing economic development, business growth and new job
creation if the federal government and federal agencies work in
tandem with community-based AAPI chambers, business
organizations and professional associations. Last October, ACE
convened a meeting with more than 200 AAPI chamber leaders,
business owners, entrepreneurs and corporate officials
representing 16 different states and the District of Columbia.
This was the first time these business leaders had ever met in
person to address the needs of the AAPI-business community.
During this and subsequent meetings, we were able to review and
discuss several topics of mutual interest and concern. As a
direct result of these meetings, we identified three specific
areas to address:
1. Access to Capital
2. Federal Contracting
3. Small Business Development Assistance
We also agree that we can only make progress in these areas
by:
1. Developing a system for collecting, monitoring and
verifying data on federally supported programs
addressing the needs of AAPI and other minority small
businesses;
2. Reducing language and cultural barriers for small
businesses and entrepreneurs that impede them from
seeking assistance;
3. Adding SBA and MBDA business development centers
in growing immigrant and minority communities; and by
4. Holding federal agencies and prime contractors
accountable for meeting all minority business
development goals.
I would like to start by addressing each area separately.
Access to Capital
According to the U.S. Census, more than two-thirds of the
AAPI populations immigrated to this country and now consider
America their home. Due to language and cultural issues--which
set many of these immigrants and their families apart from the
American mainstream--starting a business is often viewed as the
best (and only) way to earn an income and to make ends meet.
Today there are over 1.54 million AAPI-owned businesses in the
country, with m ore than 80 percent of them small, family-run
operations with no paid employees. These businesses, according
to U.S. Census Bureau's 2007 Survey of Business Owners (SBO)
conducted as part of the 2007 Economic Census, generated $514.1
billion in annual economic output and support more than 2.84
million jobs. Seven years later, we can only assume these
figures are higher today.
However, as a result of the chaos and confusion caused by
subprime mortgage lending to individuals and families who could
not qualify for prime-rate loans, and the ultimate crash of the
real estate and mortgage markets, the banking industry began
lending money only to individuals who posed the least financial
risk, leaving many small-business owners and entrepreneurs
without the capital needed to expand their operations, hire new
talent, open new offices, advance sales and marketing, or
invest in new equipment that would allow them to compete
successfully in an increasingly competitive marketplace. This
lack of capital has also constrained the ability of small
businesses to increase production, introduce new products or
develop new services that would allow them to accommodate
larger corporations or compete for federal contracts.
There are signs of progress. The U.S. Small Business
Administration (SBA) has made historic gains with AAPI-owned
and operated small businesses, as well as with other minority
groups and women. From January 2009 to March 2013, more than
$19 billion or 27,485 SBA loans were granted and distributed to
AAPI small businesses. The San Francisco SBA District Office
held seminars in Chinese, attracting a capacity crowd of
Chinese-American business owners eager to learn more about
fiscal management, loans, mentorship programs, and business
development training. We believe these gains can be improved
significantly in the months and years ahead through stronger,
more-targeted outreach and through education and partnerships
with AAPI chambers and business organizations.
Although the SBA encourages more AAPI-owned small
businesses and entrepreneurs to apply for government-guaranteed
loans through their preferred lenders, we believe that a large
percentage of businesses do not. A full 33 percent of small
businesses do not apply because they fear rejection by the same
lending institutions that are there to assist them. But ACE and
many of the regional AAPI chambers believe there are other
critical factors that may dissuade an AAPI small-business owner
from applying for an SBA loan. These factors include:
A distrust of what a preferred government
lender will do with their personal and financial
information;
A pervasive belief that SBA officials may
not have the ability to assist them in languages and
dialects other than English;
An overwhelming fear that rejection will
lead to ``loss of face'' in the community or adversely
impact their credit scores;
A strong and pervasive feeling that lending
institutions do not have the means or the resources to
explain why a loan was denied;
A lack of understanding and knowledge that
even a government-backed loan still requires some
personal guarantees in the form of collateral that may
be difficult for many smaller businesses to provide;
and,
A lack of SBA and MBDA development centers
in communities where many of these small business
enterprises are established--especially in areas such
as Queens, New York.
A large number of AAPI businesses encounter these issues
and more must be done with ACE and regional AAPI chambers and
business associations to alleviate these sometimes opaque
cultural barriers to capital.
Federal Contracting
Although tools (such as websites and webinars) are
available to help AAPI small business owners secure information
about federal contracting opportunities, there continues to be
a lack of knowledge and awareness about them and about how to
utilize these options. Nearly all of the AAPI chamber and
business association leaders who met with us in Washington said
they were unaware of these tools that were available to them,
which meant that many of their members lacked the knowledge and
understanding of federal contracting opportunities.
Unfortunately, many ACE and AAPI-chamber leaders only learned
about federal contracting opportunities after they were
officially awarded.
One program that could be helpful to many AAPI small
businesses interested in pursuing federal contracts is the 8a
program. I can speak from personal experience that the 8a
program has the ability to advance AAPI businesses in the
federal contracting arena. After applying for 8a status at a
local SBA office, my own firm achieved this designation several
years ago. But once my firm became a bona fide 8a company, my
partners and I did not know what to do next. Fortunately, I
recognized quickly that we needed to actively and assertively
market ourselves and our company to be viewed as a credible
supplier to the federal agencies. This was no easy task when
the field of potential suppliers (large and small) is filled
with legacy firms with decades of relevant experience pursuing
and securing federal contracts, and a wide cadre of 8a firms
competing to attract attention to their products and services.
Within a very short period of time, my firm was able to secure
a major federal contract and quickly found ourselves among the
ranks of 8a graduates. While I was successful, I believe I was
the exception, not the rule.
There needs to be stronger and more visible oversight on
the federal contracting process. While Executive Order 11625
requires federal agencies to report their minority business
development activities, a more comprehensive data collection
process must be employed to ensure that more AAPI small
businesses have opportunities to participate in federal
contracting opportunities. Over the past year, several AAPI
business owners have recounted how they have been invited to
serve as subcontractors in the federal contracting and
procurement process. The prime contractors--often non-minority-
owned firms with a long history of federal contracting deals--
enlist diverse businesses to bolster their teams' capabilities
and to demonstrate their commitment to supplier diversity.
However, a number of business owners, including my own firm,
have served on winning teams only to be told that there is not
enough funding in the budget to utilize all of the diverse team
members. In other words, the prime contractors were ultimately
unwilling to allocate any funding from the budget to utilize
the talent diverse suppliers bring to the team.
Small, diverse businesses that are not given any paid
contractual work often do not lodge a protest because they run
the risk of being ostracized by the prime contractors and other
team members that win many of the large federal contracts.
Congressional representatives and federal agencies could
mitigate this challenge by simply asking prime contractors to
report their budget allocations before a contract is awarded,
during the contract period, and once a contract is completed
and fully executed. It is essential that once a federal
contract is awarded, that includes AAPI subcontractors and
other diverse suppliers, budget allocations are reviewed and
monitored to ensure that contracting opportunities are
available to all willing and able.
Current U.S. government procurement policy needs to
reinforce what is known as ``maximum practicable'' contracting
and subcontracting opportunities for small businesses. This
reinforcement and strong encouragement is critical since
federal agencies missed two percent of their contracting goals
(23 percent), resulting in a loss of $10 billion for small
businesses.
Mentorships and training also increase the chances that
AAPI small businesses can secure more federal contracting
opportunities. While the SBA does have a mentorship program in
place for 8a firms and other diverse suppliers, very little is
known about this program or its success rate. In order to
increase the success rate of AAPI-owned small businesses in the
federal contracting process, it is critically important to
identify mentors early and to work with the regional AAPI
chambers and business organizations to match them with
qualified AAPI suppliers.
Small Business Development Assistance
The U.S. Department of Commerce, through the SBA and the
Minority Business Development Agency (MBDA), offer assistance
to small businesses and entrepreneurs who have specific
financing and business development needs. While many of their
programs benefit AAPI businesses, it is clear from ACE's
discussion with the regional AAPI chambers and business
organizations that many more AAPI small businesses could
benefit from the business loans, 8a program, technical
assistance, business counseling and business development
programs that are offered by SBA and MBDA.
In the past few months, ACE has made great strides with the
SBA and the MBDA. In high level meetings that were held in
Washington, D.C. and later in San Francisco, ACE signed a
Memorandum of Understanding (MOU) with the SBA and continues to
have ongoing dialogue with their representatives. Our MOU
established a framework for ACE to partner with the SBA on
promoting programs, services and initiatives designed to
address the needs of AAPI-owned small businesses throughout the
country.
ACE also received an invitations to meet with former SBA
Acting Administrator Jeanne Hulit and also met with other
business associations to discuss how the SBA could enhance
their outreach to diverse small businesses nationwide. As a
result of our meetings with the SBA, we have received a myriad
of information about programs and services that will benefit
regional and local AAPI chambers and business association.
After several conversations with the MBDA, two of their
representatives have been designated to work closely with ACE
to advance 15 AAPI firms nominated by the leaders of several
regional AAPI chambers of commerce. We also hold regular
conversations with MBDA leaders to advance and promote more
MBDA Business Centers to address the cross-cultural needs of
AAPIs, and were delighted to learn that five of these centers
are located in communities with large and growing AAPI
populations. To build on these successes, we continue to
advocate more of these small business development centers,
especially in areas such as the Queens borough of New York and
the San Gabriel Valley in the Greater Los Angeles area. We also
encourage the SBA and MBDA to recruit, hire and advance more
AAPIs with language and cross-cultural skills to navigate the
cultural barriers that arise with diverse AAPI-owned businesses
and business organizations. Since a majority of AAPI-business
owners are recent immigrants to this country, language and
cross-cultural skills are needed to instill trust and to
provide culturally relevant consultations with AAPI business
owners. In some cities where there are MBDA offices, there are
few, if any, officials or specialists of AAPI heritage.
In conclusion, in order to ensure that AAPI small
businesses continue to have access to capital, federal
contracting opportunities and small business development
assistance, we must verify data that serves as a benchmark for
their progress and the progress of the federal government; more
outreach specialists with language and cross-cultural
experience; more SBA and MBDA centers in growing immigrant and
minority communities; and, greater accountability in meeting
and achieving stated goals for minority business development.
ACE and the regional AAPI chambers and business
organizations recognize that the federal government cannot be
held fully responsible for the success of AAPI small businesses
in the country. The AAPI small business community, in
partnership with government and corporations, must work more
collaboratively together to ensure that all AAPI and other
minority companies have their opportunity to grow, develop and
thrive. We also recognize that ACE and the AAPI business
community must act assertively, but responsibly to ensure that
information about government programs and services are made
available to the greater Asian American, Native Hawaiian and
Pacific Islander business communities.
Once again, we can only be successful in advancing economic
development, business growth and new job creation if the
federal government and federal agencies develop a system for
collecting, monitoring and verifying data on mentor-mentee
programs, reducing language and cultural barriers for small
businesses and entrepreneurs that impede them from seeking
assistance, adding SBA and MBDA business development centers in
growing immigrant and minority communities, and by holding
federal agencies and prime contractors accountable for meeting
all minority business development goals.
Thank you for advancing the interests of AAPI-owned
businesses and entrepreneurs. We look forward to our continued
partnership with each of you and with the federal agencies
dedicated to addressing the needs, interests and aspirations of
all people living and working in our country.
Written Testimony of Joyce Moy
Executive Director
Asian and Asian American Research Institute
City University of New York
March 11, 2014
Thank you to Chairman Graves, Ranking Member Nydia
Velazquez, Congresswoman Meng and Members of the Subcommittee
for the opportunity to provide testimony on the needs, outreach
and technical assistance to underserved small business
communities.
I am Joyce Moy, Executive Director of the Asian and Asian
American Research Institute at the City University of New York.
I am speaking in my individual capacity, and the views that are
expressed are my own. My area of focus is entrepreneurship and
economic development. I have started and run businesses, and
have been and continue to be a practitioner in entrepreneurship
technical assistance and training, in addition to my teaching
in the academy. I was the first and to date I believe am the
only Asian American appointed as Director in the New York State
Small Business Development Center (SBDC) system which is funded
by the United State Small Business Administration and New York
State. This was located at LaGuardia Community College, City
University of New York. Later, in my capacity as the Director
of Economic Development at the College, I oversaw not only the
SBDC, but the federally funded Procurement Technical Assistance
Center which works to help businesses secure federal, state and
local contracts as well as corporate supplier diversity
opportunities.
I will focus on several issues: 1) outreach to under-served
business communities, in particular immigrant communities; 2)
providing meaningful and effective technical assistance to
these communities and 3) recommendations to ensure that we
build capacity and meaningful and effective assistance to help
these business communities thrive and grow.
Nationally, immigrant businesses make up 17% of small
businesses, account for $776 billion in revenues, and employ
over 4.5 million workers or 14% of all small business
employees.\1\
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\1\ Fiscal Policy Institute, Immigrant Small Business Owners: A
Significant and Growing Part of the Economy, June 2012.
In New York City, 48% of all small business owners are
immigrants.\2\ In the period 2000 to 2011, the neighborhoods
with the highest concentrations of immigrants, according to the
Census, showed growth of nearly 23% compared with the rest of
New York City. In addition, the growth of employment of these
small businesses increased by 11% vs. 4% for the rest of New
York City, and payrolls increased by 56% vs. 40%.\3\
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\2\ Fiscal Policy Institute, FPI's Immigration Research Initiative,
October 2010.
\3\ Ofice of the New York State Comptroller, The Role of Immigrants
in the New York City Economy, November 2013.
As is reflected in the businesses in New York City, 37% of
New York City's population is foreign born, and in counties
such as Queens, it is nearly half. Over 73% of the Asian
population is foreign born, and 31% of New York City's Black
population is foreign born, while 41.2% of the Hispanic
population is foreign born. This highlights the need for
culturally, linguistically and technically competent services
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to these businesses if they are to grow.
Increasingly, there has been outreach to the immigrant
communities in various languages. Many agencies provide
workshops on the services they provide in language. However, if
there is not a culturally and linguistically appropriate
service provider when the business owner arrives at a technical
assistance center or other organization for assistance, all the
outreach would be for naught.
To be fair, SBA and other federal agencies have tried to
partner with community based organizations that may have the
cultural and linguistic capacity they see as needed. However,
these organizations are often not given adequate support,
financial and otherwise, so they lack resources and the
training needed to assist the immigrant business owner in a
meaningful and effective way. Many rely on volunteers who do
not have adequate training. This may not only lead to
assistance which is not sufficiently effective, but can in fact
be detrimental.
Let me cite one of many examples. When the SBDC at
LaGuardia Community College was founded in response to 9/11 so
as to get more resources in New York City, I immediately
discovered that immigrant business owners were facing
difficulties and not able to get the assistance they needed. I
built a team that not only had the business skills and training
needed, but spoke, English, Spanish, Korean and three dialects
of Chinese.
In reading the Chinese newspaper, I learned of a restaurant
that employed 11 people, in Chinatown. One of the owners had
gone for assistance at a SBA site established in Chinatown to
assist business owners, partnering with a community
organization. He waited in the rain, snow and cold numerous
times, and was so frustrated after being turned away over and
over again for improper documents that he said he cried so much
that he only had dry tears to cry. When we located him with the
assistance of the reporter we learned that he was turned away
because he was told by volunteer English/Chinese translator at
the SBA site that he had to have ``a majority owner'' rather
``the majority of owners'' sign the documents. The owner and
the translators did not understand the difference between ``a
majority owner,'' meaning an owner with more than 50%
ownership, as opposed to ``the majority owner.'' This company
had 7 equal owners, so they needed the signatures and
information of 4 owners out of the 7. Without an understanding
of the business context, the volunteers could not possibly have
understood this, and it is clear they did not have the
training, although they did have the cultural and language
skills. Fortunately with our intervention, he was able to
obtain $75,000 in assistance.
In my capacity as Director of the LaGuardia SBDC, I
conducted a series of workshops on starting a business, legal
structures and taxation, marketing and financing for business.
When I presented this at an Asian American women's business
organization, I found in the audience the entire staff of a
community based organization that had just partnered with SBA
in Chinatown. The staff was there so that they could get
uniform training on the issues that were presented. Because we
presented real nuts and bolts, this training was needed to get
everyone on the same page. Today, it is still clear the
community partners coming on line, do not have much needed and
standardized training available to them. Quality control is
imperative. Many of the SBA and other agencies have partners
who have varying degrees of knowledge, training and capacity.
Again, the cultural and linguistic competence alone is not
sufficient without the business knowledge. If these services
are to be offered, they should come with a degree of quality
control, and the government agencies can not only play a role
in ensuring this, but I believe it is ethically bound to do so.
So in conclusion: The outreach and services to the under-
served immigrant business population must be both meaningful
and effective.
1. Culturally and linguistically appropriate outreach alone
is not sufficient. There must be culturally and linguistically
appropriate service providers.
2. Community partners need better support and resources.
3. Uniform and standardized training is needed across the
range of technical assistance providers. We must build the
capacity of our partners, and ensure quality across the board
for the organizations and their volunteers.
Thank you to the Subcommittee for this opportunity to
present this testimony. I would be happy to take questions.
Testimony of William S. Wilkins
Director of Economic Development
The Local Development Corporation of East New York
My Name is William Scott Wilkins, and I am the Director of
Economic Development for the Local Development Corporation of
East New York (LDCENY). Since 1979 the LDCENY's principal
mission is to foster economic and business development in East
Brooklyn and surrounding communities. Economic development is
achieved when capital investment is coupled with job creation
or job retention. As a by product of capital investment and job
growth in distressed areas, tax incentives and or programs like
the SBA 504 or 7A are incorporated into the equation to induce
or incent the required result.
Being in harmony and accord with our business development
team the LDCENY engages in the seamless integration of a myriad
of activities and programs that foster both short and long term
economic and business development benefits to the Brownsville
and surrounding East New York (ENY) community. We are funded by
the Small Business Administration (SBA) through the Woman's
Business Center and rely upon SBA programs like the 504 and 7A
to add to our economic development tool box.
We promote and use both loan types in instances when
clients are short on equity or are undercapitalized. Both loan
products are necessary and needed in the market place by virtue
of creating additional flexibility to traditional underwriting
requirements. In other words, many deals that are essential to
the market place would not get done unless both programs were
not in existence.
Post Super Storm Sandy, the turnaround time in processing
loan applications have been taking longer than normal but
recently we are starting to see an improvement. Secondly, I
encourage the SBA to continue to explore ways to stream line
their loan application and support documentation requirements.
Thirdly, SBA should continue to work with community based
organizations (CBO's) who have ``boots on the ground'' to
assist in the marketing of SBA loan products.
Lastly, I encourage SBA to introduce technical assistance
providers to work with applicants and borrowers thus creating
mentorship opportunities and increase the probability of
repayment.
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Chairman Hanna and Ranking Member Meng, thank you for
inviting me to testify today. It is an honor to be in New York
to discuss SBA's ongoing efforts to increase access to capital,
counseling, and contracting opportunities in underserved
communities. We commend the Subcommittee for highlighting this
important topic and are grateful for your continued leadership
and support.
America's 28 million small businesses are the engine of our
economy and one of our country's greatest assets. They employ
half of the private sector workforce and create two out of
every three net new private sector jobs. And at SBA, we are
committed to ensuring that all entrepreneurs, including those
in underserved communities--such as minorities, women,
veterans, people with disabilities, and those in urban and
rural areas--have the tools they need to start and grow
companies and create jobs.
According to the Urban Institute, SBA-guaranteed loans are
three to five times more likely than conventional loans to go
to minority- and women-owned businesses. And we are working to
fill existing market gaps for underserved communities across
the board, with both microloans and smaller dollar loans. While
we have already expanded and simplified our Community Advantage
program and streamlined our signature Small Loan Advantage
program, we are constantly looking for more ways to make it
easier and cheaper for entrepreneurs to reinvest in their
business. That is why, this past October, we reduced fees to
zero for borrowers and lenders for all 7(a) loans $150,000 and
less. Due to these efforts, SBA has supported over $126 billion
in lending to more than 260,000 small businesses and
entrepreneurs since 2009.
However, a loan can only take an entrepreneur so far. Our
data shows that small business owners who have long-term
counselors are more likely to hire, grow, and increase revenue.
To help make that happen, we have an extensive nationwide
network of 900 Small Business Development Centers, over 100
Women's Business Centers, and 12,000 volunteer SCORE
counselors. Last year alone, these resource partners counseled
and trained more than 1 million small business owners across
the country.
Building on our current efforts, President Obama's Fiscal
Year 2015 budget invests $7 million to support our successful
Boots to Business initiative, which offers transitioning
service members intensive entrepreneurial training through the
Transition Assistance Program (TAP). Boots to Business is
expected to reach an estimated 25,000 veterans across all
military branches.
In addition to our capital and counseling programs, SBA
works to level the playing field for small businesses to access
federal contracting opportunities. Each year, the U.S.
government spends about $400 billion in contracts, and it is
SBA's job to ensure that 23 percent of those dollars go to
small businesses. We continually work to make our minority,
women, and veterans contracting programs more effective. In
fact, we launched a Pre-8(a) Business Development Training
Series to help potential 8(a) firms prepare for success in the
program and established an online tool, the Government
Contracting Classroom, which is geared toward underserved
communities.
As a result of these efforts, during the first term of the
Obama Administration, small businesses accessed more than $376
billion in federal contracts. That is $48 billion more than the
previous four years, even as overall contract spending
decreased during those years.
These programs and initiatives enable us to continue
supporting underserved entrepreneurs like Tony Baird, the
recipient of SBA's 2013 Veteran-Owned Business Achievement
Award. With the help of our local resource partners in Syracuse
and an SBA guaranteed loan, Tony was able to leverage his
experience in the U.S. Army to launch a successful electronics
startup. Tony Baird Electronics, Inc. has since been able to
pursue higher value contracts with the federal government. This
is a perfect example of how SBA's capital, counseling, and
contracting programs enable underserved entrepreneurs to pursue
their dreams of small business ownership.
Under this Administration, SBA has become more accessible
and created more opportunities for underserved entrepreneurs
than ever before. We have been able to achieve this is by
connecting need with opportunity--forging new relationships
with lenders and community organizations that can help us
better serve these small businesses. We have formed
partnerships with organizations such as ACE, which is
represented today by Bill Imada, as well as the US Black
Chamber, US Hispanic Chamber, Women Impacting Public Policy
(WIPP), the National Minority Supplier Development Council
(NMSDC), and the National 8(a) Association. These strategic
alliances enable us to leverage our partners' nationwide
networks and connect directly with the communities they
support.
While we are proud of all that SBA has accomplished
alongside this Committee, we must continue to be diligent in
our work to support underserved entrepreneurs. We know that
with the right tools, small businesses in these communities can
have a significant impact in driving economic growth and
creating jobs where they are needed most.
Thank you again for having me here today, and I look
forward to answering your questions.
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