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36–105 PDF 2007

FULL COMMITTEE HEARING ON THE

SMALL BUSINESS ADMINISTRATION’S

MICROLOAN PROGRAM

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JUNE 14, 2007

Serial Number 110-30

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES

Tasker, Janet, United States Small Business Administration ............................ 4

Betancourt, Daniel, Association for Enterprise Opportunity ............................... 5

Hall, Edward, Champ Hall’s Barber Shop and Barber College ........................... 8

Servon, Lisa J., Milano the New School for Management and Urban Policy ..... 9

Edgcomb, Elaine, The Aspen Institute .................................................................. 12

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 28

Chabot, Hon. Steve .................................................................................................. 30

Tasker, Janet, United States Small Business Administration ............................ 31

Betancourt, Daniel, Association for Enterprise Opportunity ............................... 36

Hall, Edward, Champ Hall’s Barber Shop and Barber College ........................... 40

Servon, Lisa J., Milano the New School for Management and Urban Policy ..... 43

Edgcomb, Elaine, The Aspen Institute .................................................................. 49

(V) 

(1)

FULL COMMITTEE HEARING ON THE 

SMALL BUSINESS ADMINISTRATION’S 

MICROLOAN PROGRAM 

THURSDAY, JUNE 14, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:04 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Shuler, Cuellar, Braley, 

Clarke, Ellsworth, Chabot, Akin, and Musgrave. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I call this hearing to 

order. Today’s hearing will focus on the reauthorization of the 

Small Business Administration’s Microloan and PRIME Programs 

that are very important to the smallest businesses. One of our most 

basic rights is the freedom to pursue our dreams as far as our 

imagination and ability allows. According to a study by the Office 

of Advocacy, about 700,000 entrepreneurs realize their dreams each 

year and start up a new business. As a result at least 20 million 

firms operating in this country are very small with fewer than five 

employees. 

Over 50 percent are home-based. Helping these businesses start 

and grow provides a significant benefit for our local economies. 

There is a simple model called microcredit that has drawn on being 

copied worldwide and is designed to nurture budding entrepreneurs. Microcredit programs combine loans, technical assistance 

and peer involvement. This has been remarkably successful in 

bringing opportunity to individuals that were never given a choice 

or a chance. Communities soon learn that these home-grown investments provide economic benefits and increased employment in 

return. 

In 1992, Congress embraced ideas, started a Microloan Program 

and shortly after that, the PRIME Program. SBA Microloan Program makes funds available to nonprofit community-based lenders. 

In turn, these lenders make small loans to eligible borrowers who 

are often fledgling entrepreneurs that live in the same community 

where they work. This program reaches many who otherwise would 

not be served by the private sector or even the SBA’s 7(a) loan program. For example, microloan borrowers may be unable to get a 

traditional loan from those sources due to poor credit history or a 

2

lack of business experience. It has provided an important source of 

capital for low-income women business owners and minority borrowers. Finally, the loans tend to be geographically diverse as 

roughly 1/3 of the microloans are made in rural America. Over the 

years, over $328 million was lent through this initiative. SBA had 

told us that there have been a total of two defaults, two defaults 

by intermediaries in the program’s history and that 98.6 percent of 

the business loans are repaid, a remarkable record. 

The Federal Government has shown its face in this simple rectifiable system by contributing millions of dollars in foreign aid to 

microloan programs overseas. Even in Iraq. After the fall of Saddam Hussein, our coalition provisional authority appointed by the 

President set up a $17 million direct microloan fund specifically for 

Iraq citizens that continues today. 

So it is hard to understand why the administration is now recommending that we raise the fees that intermediaries pay to borrow 

funds and eliminate specialized assistance that supports the program here at home. Administrator Preston stated recently that he 

expected the high fees will reduce the usage of these loans. It is 

unclear why we will cripple a program where such a small investment generates economic activity and create jobs simply by making 

loans to deserving individuals who otherwise would not get a 

chance. Our local businesses are not less deserving than those we 

fund overseas. Given the success of this program, we will be building it up, using what we have learned to improve it and replicating 

it in as many ways as possible. 

It is important that we strengthen the Microloan Program so 

that we can ensure that all will-be entrepreneurs have the opportunity to realize their dreams. We look forward to hearing our witnesses’ opinions on the program, their suggestion for improvements 

and reaction to recent funding recommendations. I would like to 

take this opportunity to welcome all the witnesses, and to thank 

them in advance for their testimony. And I now yield to Ranking 

Member Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you, Madam Chair Vela ́zquez. And we want 

to also thank the witness panel here this morning and thank you 

for holding this important hearing on the Small Business Administration’s Microloan Program. The program needs to be reauthorized, and this is the first hearing to address this important subject 

in a number of years in this committee. According to Dr. Muhammad Yunus, whom I actually had the opportunity to have lunch 

with a couple of months ago in Bangladesh, the day before he announced that he was going to form a party and run for president, 

but apparently he ultimately didn’t do that. 

There is some turmoil going on in Bangladesh right now and 

there is a caretaker government, very interesting topic but not the 

topic of this hearing, I digress. He was the 2006 Nobel laureate and 

peace and founder of the Grameen Bank. ′′microcredit views each 

person as a potential entrepreneur, and turns on the tiny economic 

engines of a rejected portion of a society′′ is the quote. Unlike Bangladesh or other countries that have emulated the Grameen Bank, 

microcredit in the United States is not aimed at a rejected portion 

3

of society, but rather at those individuals who do not have access 

to commercial financial institutions and the technical resources to 

manage those funds. Despite the different target audiences, microlending in the United States represents a variation of the concept 

developed by Dr. Yunus. 

Although there are no completely accurate statistics, there are 

approximately 550 organizations providing some type of microcredit 

in the United States. This hearing focuses on the approximately 

170 lenders that operate as intermediaries under the Small Business Administration’s Microloan Program. The SBA does not provide microcredit directly to entrepreneurs. Instead, the SBA provides below market rate loans to nonprofit intermediaries. These 

institutions then make loans to the entrepreneurs. 

As with other SBA financing programs, the SBA does not provide 

all the funds for financing. Intermediaries must contribute 15 percent of the value of loans in non-Federal funds. But the key to the 

success of microlending is not the loans. Rather, it is the education 

and counseling that the intermediaries provide to their borrowers. 

With this knowledge, these entrepreneurs are able to manage their 

financial resources and ensure repayment of loans. This success is 

demonstrated by the very low number of defaults in the program. 

And I believe that the chairwoman referred to these figures, but I 

think to some degree, we should refer to them again. 

According to the SBA’s statistics, only 17 loans to borrowers defaulted between fiscal years 1992 and 2006. Another 38 were liquidated over the same period. To put that in context, intermediaries make about 2,500 loans a year, and there were only 

7,700 loans to borrowers outstanding at the end of fiscal year 2006. 

Thus, the default rate was negligible. Despite its success, it is important to examine ways to improve the Microloan Program. Tight 

budgetary times call for efficient delivery of government programs 

no matter how valuable or useful they have been in the past. I am 

very interested in listening to the testimony of the witnesses that 

we have here this morning to see what improvements can be made 

in the program to maintain its success while recognizing the need 

to spend the taxpayers’ dollars in the most responsible manner. 

Again, I want to thank Chairwoman Vela ́zquez for holding this 

hearing this morning, and thank you to the panel of witnesses who 

will be testifying when we stop talking, and I would yield back the 

balance of my time. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. Our first witness is Ms. Janet Tasker. Ms. Tasker is the deputy associate administrator for Capital Access at the Small Business Administration. The associate administrator for Capital Access reports directly 

to Administrator Preston. Her office oversees and manages the 

SBA offices of lender oversight, international trade, financial assistance and investment division, which includes the SBDC program. Prior to becoming deputy director, Ms. Tasker headed a lender oversight office during the implementation of new lender money 

foreign system. Ms. Tasker, welcome. 

4

STATEMENT OF JANET TASKER, DEPUTY ASSOCIATE ADMINISTRATOR FOR CAPITAL ACCESS, UNITED STATES SMALL 

BUSINESS ADMINISTRATION 

Ms.TASKER. Thank you. Chairwoman Vela ́zquez, Ranking Member Chabot and members of the committee, thank you for inviting 

me to testify about SBA’s Microloan Program. As you noted, I am 

Janet Tasker, the deputy associate administrator for Capital Access. In its current design, SBA’s Microloan Program combines the 

resources of the U.S. Small Business Administration with those of 

locally based nonprofit organizations acting as intermediary lenders to provide loan and technical assistance to small businesses. 

ChairwomanVELA ́ ZQUEZ. Ms. Tasker, would you please bring 

your microphone closer to you? Thank you. 

Ms.TASKER. Is that better? 

ChairwomanVELA ́ ZQUEZ. Yes. 

Ms.TASKER. In its current design SBA’s Microloan Program combines the resources of the U.S. Small Business Administration with 

those of locally based nonprofit organizations acting as intermediary lenders to provide loan and technical assistance to small 

businesses. Under this program, SBA makes funds available to 

intermediaries which, in turn, make loans of up to $35,000 to eligible borrowers. In fiscal year 2006, SBA made 39 loans to intermediaries totaling $17.8 million and in turn, intermediary lenders 

made 2,542 microloans totaling $32.8 million to small business borrowers. 

It is important to note that we approved almost 43,000 loans under $35,000 in our 7(a) loan program, which accounted for 44 

percent of all loans made in the 7(a) program. Coupled with the approximately 2,500 loans made through the Microloan Program, 

SBA did close to 50,000 microloan activities in fiscal year 2006. 

SBA’s Microloan Program can be an important and useful tool for 

those who are unable to obtain capital through traditional lenders, 

many of whom are in underserved markets. Reaching out to entrepreneurs in our underserved markets has been a top priority for 

Administrator Preston ever since he took office, and therefore, we 

support the continuation of the Microloan Program with some important reforms. 

We are aware that the number of microloans has remained stagnant at 2,500 per year. We share the committee’s goals of providing 

effective and efficient assistance to underserved markets. In order 

to accomplish this, it is crucial that SBA and this committee work 

together when drafting microloan reauthorization legislation to create a comprehensive and effective plan to help our underserved 

markets. We look forward to working with this committee on the 

reauthorizing legislation in the coming weeks to achieve our mutual goals. An important aspect of the Microloan Program provides 

technical assistance to small borrowers. Technical assistance for 

small businesses and entrepreneurs is a crucial tool. And as partners with SBA, intermediaries are required to provide businessbased training and technical assistance to its microborrowers. SBA 

recognizes that these borrowers need more help with business planning and development than the average entrepreneur, and that is 

why it is important to ensure that resources are properly being 

used to serve the needs of the microborrowers. 

5

Currently SBA supports the work of intermediaries by providing 

technical assistance grants intended to ensure microborrowers’ success. In fiscal year 2006, SBA spent $11.7 million to provide 125 

grants to nonprofit intermediaries for training and counseling to 

microenterprises. In the same year, over $100 million was provided 

for technical assistance through SBA’s network of training and development resources. We believe the valuable experience of our existing resource partners can be helpful to microborrowers, particularly since 94 percent are located within 20 miles of an SBDC, a 

women’s business center or SCORE partner. To ensure the success 

of the technical assistance programs, accountability and the use of 

technical assistance funds is important to SBA. This past Monday 

on June 11, the House Appropriations Committee approved a budget for SBA for fiscal year 2008 in which $17 million was provided 

for microloan subsidy and technical assistance. 

By providing such resources we recognize that Congress views 

technical assistance programs as a crucial tool to the small business community. SBA also recognizes the importance of this program as well as ensuring that the resources provided to technical 

assistance providers are properly used to assist microborrowers, develop successful business plans. Again, we would appreciate the opportunity to work with the committee to achieve our shared goals 

of improved accountability and effectiveness of the Microloan Technical Assistance Grant Program. 

In conclusion, I would like to thank the members of this committee for the opportunity to speak on behalf of SBA’s Microloan 

Program. I appreciate your time and I value any questions you may 

have. 

[The statement of Ms. Tasker may be found in the Appendix on 

page 31.]

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Tasker. Our next witness is Mr. Daniel Betancourt. Mr. Betancourt is the president and 

CEO of the Community First Fund in Lancaster, Pennsylvania. His 

group has been an intermediary offering microloans and technical 

assistance since the inception of the SBA Microloan Program in 

1992. The Fund serves 13 counties in central Pennsylvania. Mr. 

Betancourt is also the board chairman of the Association For Enterprise Opportunity, the national leadership organization for 

microenterprise development organizations across the country. 

Mr. Betancourt, you have 5 minutes to make your presentation 

and the entire testimony of every witness will be entered into the 

record without objection. 

STATEMENT OF DANIEL BETANCOURT, CEO OF COMMUNITY 

FIRST FUND, LANCASTER, PENNSYLVANIA, ON BEHALF OF 

THE ASSOCIATION FOR ENTERPRISE OPPORTUNITY 

Mr.BETANCOURT. Thank you. Thank you for allowing us to speak 

before you, Chairwoman Vela ́zquez and Ranking Member Chabot. 

We appreciate your time and other members as well. As you said, 

I am here to talk to you as a practitioner, one of those 70 intermediaries across the country. You already mentioned that we provide microlending across Pennsylvania, about a third of the State 

just north of here, and I am also the chairperson of the National 

6

Association for Enterprise Opportunity, and we have about 600 

members, many of which are intermediaries here. So I am also 

talking on behalf of the microlenders. But I want to talk to you 

today about the Microloan Program, we are a very successful program. 

I was really glad to hear Ranking Member Chabot mention Dr. 

Yunus, because I actually met him just about a month ago in Kansas City, and we were able to ask him a question. What was the 

key element to making microenterprise work? And he actually 

mentioned creating financial institutions which I found really interesting because this is what we are here to talk about today, to really enhance what we are doing. 

As you know, this program, SBA Microloan Program has been 

compared to the 7(a) program. The last time I spoke before your 

committee, Chairwoman, we were just a microlender. Today we 

also have the 7(a) program. So I can talk to you both as a 7(a) lender. By the way, we were approved back in the fall. And they are 

really different clients. We find that we have been unable to approve any of our clients in the 7(a) program, so this is a program 

that is very unique, of all of the programs that are available at the 

SBA. We all know it is unique because it provides technical assistance, all that training, and there is a reason why people pay back. 

You just don’t give money to folks and expect it to come back. 

You really do have to provide that training, technical assistance 

that we all understand. Really what we are talking about is providing access to capital. Many of these clients, aspiring entrepreneurs, do get the training. They really have a lot of experience. 

They know what they are doing. They might have worked in the 

pizza shop and now they want to buy it. They really understand 

the business, they understand the training we provide to them, and 

what they really need is access to capital. When you don’t have a 

history, financial history, you are unable to get bank financing, including 7(a). You just don’t qualify for that. 

This program as you know also provides low cost capital to intermediaries. And one of the initiatives that is being proposed here is 

to increase that capital. I want to talk a bit more about the impact 

of that on our program. As you mentioned, both the ranking member and chairwoman, the default rate here is 1 to 2 percent. It is 

extremely low. And one of the reasons for that again is the technical assistance. I do want to just introduce a gentleman that you 

are going to be hearing from in a few minutes, Edward ′′Champ′′

Hall, one of our borrowers. He has received three microloans from 

us over the past 5 years. He has a very successful barber school. 

You are going to hear a lot about that. He spinned off a lot of barber shops in the neighborhood and created many, many jobs. We 

have also provided business counseling. 

He has a very interesting story about how he came to our organization, challenged us. We said no to him a few times. He kept coming back, kept working with us. And because of his labor and his 

love and the passion for his work, you will see a very interesting 

success story. He will talk more about that. He is kind of shy so 

we will have to get him going here as well. 

Again, we obviously oppose the President’s recommendation to 

eliminate the technical assistance. Interestingly enough, this is the 

7

first time in 4 years that there is not a proposal to eliminate the 

program in its entirety, which is, I think, an acknowledgement that 

this program is working, although there is some tweaking going on 

here. We are not sure why. The interest rate—what I heard is 

being recommended to increase, is really going to impact our program, and I am a banker, former banker, worked at a very large 

commercial institution, and I want to tell you—I won’t get into the 

technical aspects of this. But let’s just say the interest rate that we 

get is about 2 percent, and one of the reasons why the default rate 

is so low is that we are taking the losses. You heard Ranking Member Chabot mention that we are putting 15 percent reserve away 

for any losses. 

And so if we are putting—let’s just say that we put away 5 percent even though we locked away 15, and if we are getting a 2 percent rate, and we put a 5 percent reserve rate which is a requirement of our auditors, and then we are trying to recover some of our 

costs, let’s say 2 percent above that, already you are talking about 

a 9 percent rate. The maximum rate, I believe, is 9.3 or something 

like that. If you increase that rate even by 2 percent, you are talking about increasing these rates substantially for borrowers. And 

then if you eliminate the technical assistance, my reserve rates are 

going to have to go up. So quite frankly, this program would not 

work for us. We wouldn’t even be able to borrow from this program. 

And I don’t say that lightly because this is a fantastic program. We 

have used—we will talk a little bit more about our activity. But I 

am not trying to get too technical. But I want to you to understand 

the impact of a rate increase on an organization like ours. So as 

I said, the elimination of the technical assistance doesn’t make 

sense with the low default rate. There is a proposal to have other 

technical assistance intermediaries provide technical assistance to 

our clients. In other words, and we love—we work with the SBDCs 

and the SCOREs. We think they do a fantastic job. But I want to 

tell you, what is the incentive of a technical assistance organization 

to collect my loans? 

ChairwomanVELA ́ ZQUEZ. Mr. Betancourt, your time is expired. So 

if you please—

Mr.BETANCOURT. I will summarize. I see 44 seconds there. But 

I will summarize. 

I also want to just talk about the PRIME Program. You know 

that is a program that works with very low income entrepreneurs. 

It is one of the few in the Federal Government that is there. To 

date, it is only working in a few States. It does not include Pennsylvania. We really ask that you will expand that program. And finally, I just want to thank you for the opportunity to speak in front 

of you today. Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[The statement of Mr. Betancourt may be found in the Appendix 

on page 36.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. Edward ′′Champ′′ Hall. Mr. Hall is the owner of Champ’s Barber Shop and 

Champ’s Barber School located in Lancaster, Pennsylvania. Mr. 

Hall is a microloan recipient who built a successful barbering business and then opened a successful barber school in his home comVerDate 0ct 09 2002 12:16 Jan 07, 2008 Jkt 033615 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36105.TXT LEANN
8

munity. From that start, Champ has been able to help many others 

to find productive work or start businesses of their own. Welcome, 

sir.

STATEMENT OF EDWARD ′′CHAMP′′ HALL, OWNER, CHAMP 

HALL’S BARBER SHOP AND BARBER COLLEGE, LANCASTER 

CITY, PENNSYLVANIA 

Mr.HALL. Good morning. Chairwoman Vela ́zquez, Ranking Member Chabot, members of the committee. I am very elated and humbled to be here to share with you my personal story on how the 

Small Business Administration Microloan Program assisted me 

with my small business. 

I want to acknowledge Dan Betancourt with Community First 

Fund for the business advice and working capital I received because of the Microloan Program and the Association For the Enterprise Opportunity, which is the national leadership organization for 

microenterprise in the United States. 

My name is Edward hall. I am the owner of Champ’s Barber 

Shop and Barber School in Lancaster, Pennsylvania. The Microloan 

Program played a key role in helping me to achieve the level of success that I have obtained. In 2003, I called Dan Betancourt from 

Community First Fund, and I shared my idea of opening a barber 

school. I was unable to get a loan from a bank because of my credit 

history and my exact words to Mr. Betancourt was, ′′just give me 

a chance.′′ before receiving the microloan, Community First Fund 

provided counseling, they reviewed my business plan. The loan, 

along with the second loan I received, was used to renovate my 

barber shop and to furnish my barber school. The loans were paid 

back in approximately 2 years. In 2005, I won the business development award for all the businesses that had opened under my tutelage. 

And thus far, it has been 13 businesses that have opened, and 

several are in the process of striving to become self-sufficient entrepreneurs. It is very gratifying to me to see these students who have 

trained in my barber school facility become business owners and 

providers to their families. And the entire State of Pennsylvania, 

there are approximately 6 barber schools. My school was chosen to 

host the State barber exam. 

Students come from different parts of the State to my school to 

take the barber test to be licensed as a professional barber. I am 

currently in the process of getting accredited to receive financial 

aid. And this will allow me to grow my school. I am presently in 

with what is called candidate status. There is approximately 300 

customers that come into my school for haircuts per week. That is 

over a thousand a month, and the haircuts are at budget prices 

which helps assist parents with multiple children. 

If the Microloan Program does not receive the support and funding it deserves, many of the entrepreneurs throughout the country 

will find it difficult, if not impossible, to get the financial assistance 

that they need to fund their new or growing small businesses. Furthermore, the business assistance which accompanies the loans is 

a big help to entrepreneurs. And therefore, I respectfully request 

that the committee show its support for the small business in 

9

America by working to ensure that the SBA Microloan Program is 

provided with adequate funds. 

Without the SBA Microloan Program, such as Community First 

Fund, I would not be here today to share my personal story as a 

small business owner. 

In my conclusion, prior to opening my barber school, people told 

me it wouldn’t work, no one is going to go in there to allow students to practice on them, which reminds me of the story of the 

man who went into a foreign country and he had the intention in 

mind to sell shoes. But when he got into the country he noticed 

that no one wore shoes, and so he packed his boxes of shoes up and 

he fled the country. 

Another man went into the country with the same idea in mind. 

He wanted to sell shoes, and when he got there, he noticed too that 

no one wore shoes in this country. And so he called back to the 

States and said, send me more boxes of shoes because he saw an 

opportunity, and I saw an opportunity. And so my school was the 

first school in Lancaster. I saw that opportunity. And I am asking 

you, on behalf of many aspiring and existing entrepreneurs who 

are just like myself, to give them an opportunity. Thank you for listening to my story. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Hall, for your passion 

and congratulations for your vision. 

Mr.HALL. Thank you. 

[The statement of Mr. Hall may be found in the Appendix on 

page 40.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Lisa Servon. Ms. 

Servon is a Ph.D., is the senior research fellow for the New York 

America Foundation. She is also an associate professor at the 

Milano Graduate School of Management and Urban Policy of the 

New School in New York City and acting director of the Community Development Resource Center located there. Ms. Servon has 

written numerous articles and papers on microenterprise development, including strategies for the futures of such programs. Her 

most recent articles on this subject include Policy Options to Support Entrepreneurship Among Low-Income Americans written in 

2005—or published in 2005 and Microenterprise Development in 

the United States, 2004. Welcome.

STATEMENT OF LISA SERVON, ASSOCIATE PROFESSOR, 

MILANO THE NEW SCHOOL FOR MANAGEMENT AND URBAN 

POLICY 

Ms.SERVON. Good morning. Thank you so much for having me. 

Madam Chair Vela ́zquez, Ranking Member Chabot and other members of the House Committee on Small Business, I am really glad 

to be here today. As Chair Vela ́zquez mentioned, I am a professor. 

I am a scholar, not an advocate. So that puts me in a bit of a different position from some of the other people here today. In my 

work, which has spanned about 13 years looking at microenterprise 

development in the U.S., I have interviewed literally hundreds of 

entrepreneurs like Mr. Hall across the country as well as policymakers, bankers and other field experts, the people who provide 

10

these services. My research and analysis over those 13 years leads 

me to conclude that both the microloan and PRIME programs are 

incredibly important, particularly the training and technical assistance pieces. Primarily because—or one of the reasons being that as 

you mentioned talking to Mr. Yunus and other people here, the 

contexts in which entrepreneurship is done is very different in the 

U.S. than it is in the developing world. 

The fact that U.S. entrepreneurs need to—we were just talking 

about the barber exam before the proceedings started this morning. 

The regulations, the licensing and certification requirements, filing 

taxes in the U.S. makes this a very different environment and requires that people have much more sophisticated skills than they 

do in the developing world which is why these training and technical assistance subsidies are incredibly necessary. 

My co panelists, other witnesses here have really testified to the 

importance of the program. And so I really want to focus my remarks today on how we could strengthen the Microloan Program 

and make it better in the coming years. Recognizing, as the ranking member mentioned in his opening remarks, that the burden of 

proof is on us to demonstrate that a dollar spent on microenterprise development has to bring at least as much bang for the buck 

as it would be spent on anything else, and I think that the research 

that I have done as well as others in the room really does demonstrate that. 

So I have written about—one of the ideas that I have written 

about is the idea of separating training from lending in some of 

these programs. The training and lending functions of microenterprise development programs in order to make them field more efficient. The microloan and PRIME programs essentially do this, in 

that, the Microloan Program focuses on lenders and the PRIME 

Program focuses on training. But I think that they could do it better, do a better job of that by creating the appropriate incentive environment and rewarding programs that perform these functions 

best. 

With respect to their Microloan Program, I think one of the 

things that we need to do at this juncture—and it is great to do 

it with support coming from both sides of the aisle—is to recognize 

that conditions are different now than they were when these programs were created in the 1990s, and that some of the assumptions 

that guided the creation of the program might not be as true today 

as they were before. In other words, the program hasn’t kept pace 

with the changes in the financial services environment and the regulatory environment. So having said that, I think that the 

Microloan Program should be revised in the four following ways: 

First, implement performance standards and data collection requirements that would help to sort of make sure that the dollars 

are getting into the hands of the right programs that are really focussing on microentrepreneurship. One of those performance standards I think should be raising the minimum number of loans that 

a program makes every year. The current number is four, and the 

Association For Enterprise Opportunity has recommended that 

good programs should work toward making at least 40 loans a 

year. 

11

If you raise that floor then what happens is that the dollars for 

the program are really going into the people’s programs that have 

the mission of making a lot of loans and getting the dollars into 

the hands of entrepreneurs rather than making just a few loans. 

In terms of data collection, the Aspen Institute has implemented 

its MicroTest program which provides standardized data and performance indicators for the field. And one idea would be to require 

that participating programs in the Microloan Program use 

MicroTest, recognizing also the data collection costs money, and 

one of the reasons we don’t have more programs doing MicroTests 

now is that they need the support to do that. So if you create the 

requirement, you also have to create the means to do it. 

Second, change the funding formula by which technical assistance funding is determined. Right now, I think as we all know, 

technical assistance dollars are tied to loan dollars. And that creates two problems. One, it fails to acknowledge the amount of assessment and screening and training that goes to people who are 

not ready to borrow. Sometimes a program might have to see 5 or 

10 entrepreneurs to find one who is ready to borrow. And that is 

money that is well spent because they get good financial literacy 

education and other outcomes out of that money. 

The second problem is that tying TA dollars to loan dollars creates an incentive to cream, to take only the very best people who 

are really ready to borrow and to ignore the people who with a little bit extra assistance might be willing, might be able to step it 

up a little bit. 

Third, provide support to build the capacity of microlenders. 

There is a rarely used provision in the legislation to fund training 

for low income fund managers and other staff and the SBA should 

continue to invest in the field by supporting peer training and capacity building efforts. And finally, consider eliminating the interest rate cap of 8 1/4 percent, allowing programs to implement riskbased pricing, charging different rates to different types of borrowers. Now, I want to be clear that I don’t mean that the higher 

interest rate should be required. 

I think the program should have the flexibility to decide to 

charge whatever interest rate they think is acceptable as long as 

it is done in a socially responsible way. And I also want to be clear 

that if higher interest rates are charged, it will not be enough to 

subsidize these programs and eliminate the training component. I 

realize I am slightly over time. So I want to say thank you very 

much. I look forward to questions, and I appreciate the ability to 

be here today. 

[The statement of Ms. Servon may be found in the Appendix on 

page 43.]

ChairwomanVELA ́ ZQUEZ. Thank you, Dr. Servon. Our next witness is Ms. Elaine Edgcomb. Ms. Edgcomb spearheads the Microenterprise Fund for Innovation Effectiveness Learning and Dissemination known as the FIELD Project which is part of the Aspen 

Institute. FIELD focuses on microenterprise development. She has 

also served as the founder and executive director of the Small Enterprise Education and Promotion Network an association of nonprofits that supports small business and microenterprise in the deVerDate 0ct 09 2002 12:16 Jan 07, 2008 Jkt 033615 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36105.TXT LEANN
12

veloping world. She has written extensively on evaluation practice, 

institutional development and international and U.S. microenterprise strategies. Welcome.

STATEMENT OF ELAINE EDGCOMB, DIRECTOR OF THE FIELD 

STUDY, THE ASPEN INSTITUTE 

Ms.EDGCOMB. Thank you very much. Chairwoman Vela ́zquez, 

Ranking Member Chabot and other members of the Committee on 

Small Business, thank you for inviting me to appear before you 

today. The purpose of my testimony is to offer a context for understanding the SBA Microloan Program and PRIME in the United 

States and the importance that Federal funds play in opening enterprise opportunity to critical groups of emerging entrepreneurs. 

While an array of economic trends prompt millions in America to 

pursue self-employment, many face barriers to credit, knowledge 

and networks that are available to better off entrepreneurs. We 

have evidence that there are some 10 million individuals who face 

these barriers, and they are the clients that the more than 500 

microenterprise programs across the U.S. seek to serve with 

microloans, such as those made through the SBA Microloan Program, and with training and technical assistance services such as 

those supported by the PRIME Program. 

Who are these aspiring entrepreneurs? Consistently in our surveys of programs, we find that more than half of their clients are 

women and more than half are persons of color ethnic or other minorities. More than 2/3 have incomes below 80 percent of their 

area’s median income, and about a third have incomes at or below 

100 percent of the Federal poverty guidelines. More than half of all 

clients come to programs either to learn to start a business or with 

businesses that are less than a year old. 

And finally, many are limited by limited collateral and constrained by poor or limited credit histories, which would disqualify 

them for business loans under credit scoring systems that lenders 

increasingly use to make small loans. The Association For Enterprise Opportunity reports that SBA microloan intermediaries work 

with clients that have FICO credit scores as low as 550, and we 

are aware of programs that make loans to borrowers with no credit 

score at all. 

As a contrast, AEO also notes that the 7(a) lenders usually serve 

borrowers with FICO scores of 700 and above. And in our research, 

we have found that most banks won’t lend to borrowers with a 

score below 680. Despite the serious disadvantages experienced by 

these entrepreneurs, FIELD’s research has found that those who 

receive assistance from microenterprise programs do well. Studies 

that track their outcomes after receiving services find that they 

start and grow businesses, their businesses survive at rates comparable to other small businesses, they create employment for their 

owners and others. Research also demonstrates that overall, the 

quantitative benefits resulting from these services in the form of 

increased employment, increases in household income and reductions in public assistance outweigh the costs of the services themselves. We have observed that microenterprise development programs are able to achieve these results because of three factors. 

13

First, their careful assessment of potential borrowers using alternative credit analysis methodologies allows them to look under the 

surface of a traditional credit score to better understand the character commitment and capacity of a borrower. 

Second, the training and technical assistance that they offer to 

all clients makes a critical difference in business success. Within 

the Microloan Program, the technical assistance is intimately connected to the loan process itself. In addition, the majority of clients, 

more than 80 percent, come to microenterprise programs seeking 

training and technical assistance rather than a loan. This underscores the value of the PRIME Program as it provides resources to 

assist those who would not be served under the Microloan Program. 

Further, our research has found that clients who participate in 

and complete training are more likely to have a business after receiving services or report that their business has grown than those 

who do not complete training. Finally, programs’ attention to financial literacy and credit repair counseling help clients strengthen 

their overall financial position. 

Recognizing that personal and business financial matters are 

intertwined and that education and financing are equally important, microenterprise programs work with clients holistically to position them for future advancement. And when loans are made 

within this context, they are much more likely to succeed. Our research has shown that as Federal resources have become more constrained in the past few years, the microenterprise field has found 

itself increasingly challenged to maintain let alone expand the level 

of services it can provide to these entrepreneurs. The Federal Government, working in concert with the nonprofit microenterprise 

field has a critical role to play in ensuring the dreams of these entrepreneurs and the benefits that they provide to our communities. 

Thank you very much, and I look forward to your questions. 

[The statement of Ms. Edgcomb may be found in the Appendix 

on page 49.]

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Edgcomb. Ms. Tasker, I 

would like to address my first question to you. During this year’s 

hearing on SBA’s fiscal year 2008 budget proposal, Administrator 

Preston came before the committee and he made helping underserved communities a central point in his testimony. And today we 

heard testimony about the importance of the microloan and PRIME 

programs in helping these communities. 

So I would like for to you explain to us, how does this continuing 

the microloan technical assistance and PRIME programs further 

SBA’s ability to help low-income individuals? 

Ms.TASKER. Thank you, Chairwoman. We aren’t eliminating 

technical assistance. We are suggesting that they are proposing 

that the technical assistance would be provided by our existing 

technical assistance providers. Approximately 94 percent of our existing technical assistance providers are within 20 miles of our 

microlenders, and so we believe we have an extensive network that 

would be able to continue to meet the needs of the underserved 

markets. 

14

ChairwomanVELA ́ ZQUEZ. Okay. In your budget request, how 

much money did you request for all these providers to be able to 

add this new responsibility? 

Ms.TASKER. I apologize. I am not sure if I know the exact number. 

ChairwomanVELA ́ ZQUEZ. Zero. 

Ms.TASKER. Zero. Thank you. I knew it was minimal. 

ChairwomanVELA ́ ZQUEZ. Minimum? Zero is minimum? 

Ms.TASKER. Minimal. I apologize. 

ChairwomanVELA ́ ZQUEZ. Uh-huh. 

Ms.TASKER. But the fact is, these technical assistance providers 

serve over 1 million businesses that are coming in, and so to add 

2,500 to that number, you know, it is around less than 1/10 of a 

percent increase in terms of what we are doing. 

ChairwomanVELA ́ ZQUEZ. Let me ask you, did the SBA do an assessment of replacing the technical assistance component of the 

microloan and PRIME programs with SBDCs and women’s business centers? 

Ms.TASKER. An assessment? We certainly looked at the numbers 

and looked at who was being served, yes. 

ChairwomanVELA ́ ZQUEZ. Did you do a cost, how much it would 

mean for them? 

Ms.TASKER. I would have to check on that. I am not aware of it, 

but I just don’t want to—

ChairwomanVELA ́ ZQUEZ. So it is hard for me to believe that you 

could present a request to this committee and to Congress for a significant change in this important program without preparing even 

a basic estimate of the costs involved to provide the service. 

Ms.TASKER. Chairwoman, we did provide a basic estimate. We 

looked at the numbers they are already serving and the numbers 

they would add, and we didn’t believe that that would significantly 

increase the cost. 

ChairwomanVELA ́ ZQUEZ. Well, I want for you to provide the assessment to this committee. 

Ms.TASKER. Yes, ma’am. 

ChairwomanVELA ́ ZQUEZ. Ms. Tasker, the model of combining 

microloans with technical assistance is supported broadly by, as 

you saw, foundations, national, State, local governments, relief organization, the World Bank, the United Nations and the Nobel 

committee. So it is not surprising that the current administration 

funds microloan lending program for businesses overseas, like we 

are doing in Iraq. And I mentioned in my opening statement that 

we provided $17 million to provide such microlending in Iraq. So 

I want for you to explain to this committee, why is it good for Iraq, 

but it is not good here at home? 

Ms.TASKER. Well, we would certainly agree that it is good for 

both Iraq and for the U.S. And we do have programs and as we 

said in technical assistance. 

ChairwomanVELA ́ ZQUEZ. Wait. The difference that we are asking 

the microlenders and the borrowers here at home to shoulder the 

burden. 

Ms.TASKER. We are simply saying, Chairwoman, that we believe 

there are other avenues from which the technical assistance can be 

provided. That said, we certainly want to work with you. We share 

15

your concerns and want to see how we can come out to you know 

a solution that you know works for everybody, and provides transparency and accountability. 

ChairwomanVELA ́ ZQUEZ. I welcome that. 

Ms.TASKER. We certainly want to work with you. 

ChairwomanVELA ́ ZQUEZ. We heard that the default rate is very 

low and only less than 2 percent. And Mr. Betancourt and Mr. 

Hall, in their testimony they said that a good reason for that is the 

technical assistance portion of that. So I want to ask you, what will 

be the effect if the SBA eliminates the technical assistance component or moves it well outside of the microlending’s operation? 

Ms.TASKER. First, may I just clarify one thing? The default rate 

that we are talking about that is less than 2 percent is the loans 

that SBA makes to the microintermediaries. The actual default 

rate on the microloans themselves or the borrowers default on is 

actually around 12 percent. So there are losses and there are losses 

associated with the borrowers themselves. That said, we do believe 

you know there is—

ChairwomanVELA ́ ZQUEZ. What was it in 2006? 

Ms.TASKER. The numbers I have are about around 12 percent. 

ChairwomanVELA ́ ZQUEZ. We are going to get back to you on this 

default rate. 

Ms.TASKER. Okay. I just wanted to clarify. Because there is two 

dynamics going on here. 

ChairwomanVELA ́ ZQUEZ. Let me ask you, will you State for the 

record that defaults will not increase and that the program costs 

will not rise? 

Ms.TASKER. I can’t predict the future, Chairwoman. Certainly 

any program we have in place we want to manage so that we can 

limit those to you know the least amount possible. 

ChairwomanVELA ́ ZQUEZ. Mr. Betancourt, you mentioned that you 

would like to be able to offer other variable terms in the microloans 

that you make. What sort of terms do you think will be most helpful that you cannot now offer? 

Mr.BETANCOURT. Well, right now you can’t use it for a line of 

credit. You can only use it for term loans. So, for example, if Mr. 

Hall wanted a working capital line to increase his business—he 

mentioned about—he is going to be getting a financial aid program. 

In other words, his students can borrow money from the government to go to his school. In the meantime, he needs to fund his 

business until that happens and we don’t have the ability through 

his program to do that. We gave him money for the equipment to 

renovate but not working capital to grow his business. So that is 

a limitation. 

ChairwomanVELA ́ ZQUEZ. Dr. Servon, SBA has described that 

what they are doing is preserving the program and protecting it in 

terms of the proposals and the changes that they are proposing. 

How will raising the costs of microloans to low-income borrowers 

and eliminating funding for the individualized technical assistance 

affect the program? 

Ms.SERVON. I think there are two things that could happen. The 

default rates would go up if there is no technical assistance, the 

other is you will get this creaming effect that I described before, 

which is that if there is no technical assistance and the pressure 

16

is on the program, the providers to keep the default rates low, then 

they will take more qualified borrowers who are people who are 

more likely to be able to get say a 7(a) loan or a bank loan, and 

that defeats the whole purpose of the program to begin with. Because the purpose is to target people who with some help with 

some technical assistance can actually move into the ranks of entrepreneurs, and then move on to mainstream financial institutions. 

There is a third effect, which I just thought of which is I just finished doing a round of about 100 interviews with entrepreneurs in 

New York City for the economic development corporation. And 

what we see there is where there isn’t provision, people are using 

loan sharks and paying it up to 740 percent interest. So if these 

sources are not available, then that is the other place that people 

go, either there or credit cards. 

ChairwomanVELA ́ ZQUEZ. Thank you. Ms. Edgcomb. And this will 

be my last question before I turn to Mr. Chabot on this round. 

We really value your 20 years of experience in this FIELD, and 

the studies that you have conducted on the microloan programs’ 

success. I would like to ask you, do the administration’s proposal 

for this program jeopardize the successful structure of the programming review? How exactly? 

Ms.EDGCOMB. I think they do jeopardize the structure of the program. The thing that is important to recognize about the technical 

assistance provided within the Microloan Program is that it is different than general business development technical assistance. 

That is provided to other entrepreneurs. We distinguish between 

two types of technical assistance that programs offer. Within a 

lending process, the kind of technical assistance that is offered is 

intimately tied from the start of that loan to the end of the loan. 

At the up front stage, there is a very close assessment of the 

business, and an education of the borrowers with respect to the financial underpinnings of the business and how credit can be effectively used to grow that business and how credit can be effectively 

managed. 

The program is also proactive during the course of the loan. So 

whenever a problem may arise around repayment, the program can 

intervene and provide support on operational and other issues. If 

you take that relationship and break it apart, another resource provider, no matter how good in many technical ways, will not be as 

intimately engaged with that borrower and cannot support that 

borrower effectively in the same way. 

ChairwomanVELA ́ ZQUEZ. Ms. Edgcomb, I know that you have 

been doing annual tracking on the set of microlenders regarding 

the default rate. And in your testimony, you say that the SBA 

Microloan Program experienced a default rate of less than 1 percent in fiscal year 2006. You stand by that data? 

Ms.EDGCOMB. Yeah. I do stand by that. I think Ms. Tasker is correct that that is what the program’s default rate—the Microloan 

Program’s default rate is to the SBA. When we look at overall loan 

loss rates and we track between 50 and 60 programs annually, we 

find that the median and average loan loss rate is around 7 percent 

and leading programs are at 3 percent and under. So there may be 

17

some that are higher than that. But overall, we find that those are 

where the rates are. 

ChairwomanVELA ́ ZQUEZ. Thank you. Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. Let me begin with you, 

Ms. Tasker, if I can. I have to say our chairwoman, it is hard to 

believe she wasn’t a trial attorney because she is one of the most 

effective cross-examiners that I have ever seen. I would hate to 

have come up against her in the 15 years that I practiced law in 

a courtroom. 

ChairwomanVELA ́ ZQUEZ. I have to tell you that my father was so 

disappointed when I said to him that I will not go to law school 

when I was accepted, by the way, in New York. So I decided to get 

into the business of politics. 

Mr.CHABOT. I am going to check you out and make sure you 

weren’t a trial lawyer because you are much more effective than 

most lawyers that I have seen in the courtrooms. Ms. Tasker, I 

thought it would be fair to give you the opportunity if there were 

any comments you might have relative to any of the questions you 

were asked that you perhaps didn’t have time to maybe give an answer if there was anything there you would like to say. 

Ms.TASKER. Thank you very much. I would very much like to reiterate that we are not trying to eliminate technical assistance. I 

have heard what the other witnesses have said about you know the 

various other forms of technical assistance that is available, and 

certainly that is something that we think is important to understand. We really would like to have better you know accountability 

and transparency around what technical assistance is provided, 

both through our larger network of technical assistance providers 

as well as on the microloan microintermediaries. 

We do understand that some of the technical assistance grants 

that are provided are used for overhead costs and things of that nature. So we would welcome the opportunity to work with you to get 

more accountability and understanding about what kind of technical assistance is being provided and how it is being provided, so 

we all understand you know that the microborrower itself is benefiting from that. 

Mr.CHABOT. Thank you. Mr. Betancourt, Mr. Hall and Dr. 

Servon, let me ask all of you this question if I could. 

Relative to the technical assistance that we have referred to this 

morning, could you give us some real-world kind of examples of 

what kind of assistance that we are talking about here and how it 

would help those small businesses that are going to benefit from 

the Microloan Program that we are addressing here this morning? 

Maybe we will start with you, Mr. Betancourt. 

Mr.BETANCOURT. Yes. If I can address just for a moment my colleague here, Ms. Tasker, in terms of technical assistance that she 

believes could be provided somewhere else and then I will come 

home to your question if I could just for a moment. The profile by 

the SBDC, the clients that they work with by their own admissions 

to this committee, I have been at these committees before—they 

really don’t work with the profile of clients that we work with. And 

from their own research they will tell you, they do not work with 

these very low monetary individuals and the percentages bear that 

18

out. And so to say that they are going to be able to take care of 

our clients by their own research, that doesn’t even bear that out. 

The kind of assistance that we do, and I think Elaine Edgcomb 

said it very well—the kind of technical assistance has to do with 

the core competency of lending. And when you have a training or 

technical assistance organization try to provide technical assistance 

to my client, it is very general, it is very good but it doesn’t deal 

with the core competency of lending. In other words, the due diligence that we have to do to get them through the sophistication 

that has been talked about here by both the research folks here 

that deals with zoning, deals with helping them start the business, 

file a name. 

That is very specific to lending and also the credit repair piece 

that we have to do. That is specific to lending, expertise in the 

lending field that generalists really may not understand those nuances. In Mr. Hall’s case, yes, he may have worked with another 

organization with the business plan. We reviewed that, critiqued 

that specifically to lending. So what I would say is that there are 

other folks that provide technical assistance and do a fantastic job. 

A, their profile is not the same and B, it is not specifically to lending. 

One final point is—and this is experience that we have had in 

Pennsylvania, the economic development department actually had 

a program that the TA organization would provide TA for our loan 

clients. And what we found is, there was not an incentive for them 

to make sure that we got paid on our loans. It just—it just isn’t. 

They can go out and meet with them. But to get that dollar back 

to us, we had the incentive to get it back because it was obviously 

lent to us. So our particular experience it did not work out in Pennsylvania for us. The program went away, and we went back to us 

providing technical assistance to our borrowers. 

Mr.CHABOT. Thank you. Mr. Hall, did you want to talk about the 

a technical aspects, how it benefited your business detect directly 

or what the details were? 

Mr.HALL. Yes. Thank you. If it had not been for Community 

First Fund, I would not have been able to open a barber school. 

They helped me to furnish the entire place. Not only did they help 

me, but I look at the future. They created jobs for other people 

through the help of me. As I indicated in my testimony, 13 other 

businesses that have opened through my school and I get calls all 

the time for students. So as far as jobs go, it created many jobs in 

our community and outside of Lancaster County in terms of providing employment for the students. 

Mr.CHABOT. Thank you. Dr. Servon? 

Ms.SERVON. I think one of the important things to think about 

is to sort of set the context for this discussion of what the training 

offers, is that over the past, say, 15 years, the financial services environment has gotten incredibly complex, right? So particularly in 

the low-income neighborhoods that these programs target, you 

have on the one hand, mergers and consolidations in the finance 

industry that are bringing banks the traditional mainstream financial institutions farther away from the borrowers. 

Secondly, you have increasingly sort of technological technical decision processes for making loans, like the small business credit 

19

scoring system, that really eliminates the kind of relationship lending that these programs do. Third, you have a huge increase in the 

number of alternative or what I would call fringe financial assistance, fringe financial services providers like check cashiers and 

predatory lenders. So the people who are living in the neighborhoods that these microenterprise programs target are much more 

likely to walk outside their doors and see a check casher than to 

see a bank branch. 

So given that environment, you often have people coming into 

these programs that have, as Elaine mentioned, poor or no credit 

history, little or no collateral, and perhaps a big credit card debt 

if they were able to get a credit card because they really don’t understand the way to use different credit tools. So a program like 

the ones that we are talking about would traditionally start out 

with some basic financial education, depending on where the potential borrower entrepreneur is at, possibly some credit repair and 

some of these programs are actually offering credit builder loans 

that help a person get a credit score or get a better credit score. 

A $500 loan they pay back quickly and it gets them a score that 

can be used to leapfrog them into the mainstream financial services 

institutions. 

That would be followed by a screening that weeds out people who 

might not be serious about starting a business or not be ready so 

that they don’t take a lot of training resources away from other 

people. That is an important element that many of these programs 

already have in place. Then those that are screened would go into 

a multi-week course that would end up with them doing a business 

plan, a market analysis, presenting some cash flow statements that 

they could bring to a bank or a lender or get a loan at that particular lender. 

Sometimes they offer sector-specific training. So there are programs that look at the needs in a particular neighborhood, like for 

example, WHEDCo in the South Bronx offers home-based child 

care training and a commercial kitchen because a lot of the entrepreneurs in that neighborhood either provide home-based childcare 

or food. So the actual hands-on business experience is combined 

with the sector specific kind of training. Often they provide specialized workshops in marketing in budgeting in other kinds of finance. And then importantly post-loan technical assistance so that 

once you graduate from that program and you get your loan, you 

learn more about what the next step is in terms of the kinds of 

credit you might need. 

So for example, moving from a traditional term loan to a line of 

credit and understanding the differences and how to use those different forms of credit. I would agree with Mr. Betancourt that the 

SBDCs and the SCORE are not really equipped to deal with that 

range of technical assistance needs that entrepreneurs like Mr. 

Hall face. 

Mr.CHABOT. Thank you. And Madam Chair, if I have time I 

would like to ask one question of Ms. Edgcomb, if I could. I believe 

in your testimony you said that 50 percent of the small companies 

that are started under these are women-owned companies. Is that 

correct? 

20

Ms.EDGCOMB. At least 50 percent are clients of microenterprise 

programs, yes. 

Mr.CHABOT. Could you discuss the dynamics that are at work 

there, and do you anticipate that that would be the case in the future, and if there is a pattern towards what type of businesses they 

might be, that sort of thing?RPTS DEANDCMN HERZFELD[11:04 

a.m.] 

Ms.EDGCOMB. We have consistently seen over the years that the 

majority of clients served by programs are women. We assume that 

that will continue to be so in the future. In fact, AEO has a standard that microenterprise programs should serve at least the number of women in their programs that are, you know, proportion of 

our population, but we have seen microenterprise programs serve 

many more women than that. 

There are a variety, some programs totally dedicated to women, 

such as WEDCO, which Lisa just mentioned, some that serve both 

men and women, and there are more women creating businesses 

year after year. 

Right now the microenterprise program served—I think what I 

had seen was there’s about 33 percent of all businesses in the U.S. 

Are women-owned, and microenterprise programs serve more than 

50 percent of women business owners, so you can see that they 

served many more women in their position in the economy. 

Mr.CHABOT. Thank you very much. I yield back my time, Madam 

Chair. 

ChairwomanVELA ́ ZQUEZ. Mr. Ellsworth. 

Mr.ELLSWORTH. Thank you, Madame Chair. I was thinking of 

what Mr. Chabot said about a trial attorney, and I was thinking 

of my former life as a detective. We would have solved a lot more 

crimes had you been on my detective squad. We are glad you are 

here, too. 

Mr.CHABOT. If the gentleman would yield? 

Mr.ELLSWORTH. I would. 

Mr.CHABOT. She wouldn’t have been on your squad, you would 

have been on her squad. 

Mr.ELLSWORTH. I would have hated also to have to arrest her if 

that were to ever have happened. 

My first questions are for Mr. Hall. Could you tell me the range 

in price of a haircut in your shops. 

Mr.HALL. In the barber school there are budgeted haircuts, and 

it helps parents with multiple children. Five dollars, and we do 

over 1,000 people a month. In the barber shop if you make an appointment, it is $15; or as a walk-in, $10; if you have additional 

facial hairs it is $3. 

Mr.ELLSWORTH. I heard a rumor that haircuts were approaching 

$400. I am glad that is not true. There is still hope for guys like 

me out there. I appreciate that. 

What is the average barber when he graduates from the school 

salary in your area, a yearly salary? 

Mr.HALL. I would estimate anywhere from 20- to 35,000 annually. 

Mr.ELLSWORTH. What about health insurance; do they then provide it on their own or in the school? Your employees, do you have 

a health insurance program also? 

21

Mr.HALL. No. Usually the individual barber would provide their 

individual health coverage. 

Mr.ELLSWORTH. And could you have done what you have done 

starting with that bad haircut you got when you were a young man 

that I read about over here—I didn’t just guess that—could you 

have done and been where you are today without this program? 

Mr.HALL. No, no. I would say without Community First Fund, I 

wouldn’t have been able to open the school. They gave me a chance 

when I couldn’t get a loan because of my credit history, since then 

I was able to clean up my credit history, but I wouldn’t have been 

able to do it without Community First Fund. 

Mr.ELLSWORTH. Congratulations. 

Mr. Betancourt, I am really excited that sometimes we don’t 

think Federal programs work very well. This seems to be at least 

one. A lot of what I have seen in the small business since I have 

been here for 6 months, a lot of our programs seem to work pretty 

well, and I am proud of that. 

With this program being successful, and the pay-back rate, and 

the training is really—can you tell through kind of a day in the life 

of the curriculum? You touched on it a little bit, but just go 

through the areas you would teach somebody from start to finish 

that brings that rate of pay back up. 

Mr.BETANCOURT. What is interesting is that every intermediary 

is able to see what the needs are in their community. So if you ask 

this question to 170 organizations, you are going to get different responses. I know there is one organization in Milwaukee, they primarily work with women, and they have a whole series of things 

all the way through. 

In our particular program we have an 8-week small business 

training program. If you can imagine—I went to business school, 

and I take for granted what the difference between a partnership 

is, and a sole proprietorship, and an S Corp. and C Corp. You 

know, our entrepreneurs don’t even know the difference between 

that. We teach them bookkeeping. Now, granted this is 8 weeks, 3 

nights, so it is a little fast-paced, but I want to distinguish that between the one-on-one technical assistance, which is really good. 

This is the fantastic thing about the program. If someone is coming up short on a particular part that we are teaching in teaching 

the marketing—one of the things when he opened up his barber 

school, the first question was, what are other people doing, what 

is your price, what research have you done? 

We force them to think about what other schools are doing, not, 

hey, just because you have a great idea, put your sign up, and people are going to come. Yes, maybe they’ll see a need, like he talked 

the shoes, in this case a barber school, but we challenged them to 

do the market research. 

So the basic of a business, the accounting side and marketing 

side, the management side and the structure side, those are the 

things they are getting. More importantly, the one on one, we tailor-make that one on one with each client. We actually have a technical assistance plan which varies with every entrepreneur. 

Mr.ELLSWORTH. Thanks to all the witnesses. I yield back what 

little time is apparently left. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

22

Mr. Shuler. 

Mr.SHULER. Madame Chair, thank you so much for again your 

commitment to small business. 

Ms. Tasker, we heard the testimony from Administrator Preston. 

He showed us a budget, and the only increase that we really saw, 

and I may be wrong about this, was increase in administratively 

here in Washington, increasing the number of employees here, but 

yet almost every single program—and we have got all these witnesses here, and I just met with a group in my own district before 

I came up about them working with the SBA and how important—

they were looking at a small company, that they could grow it to 

get it out of small business, over 1,000 employees, possible in my 

district, but they need help and assistance. 

North Carolina alone since 2004 went from 103 loans to 58, 103 

to 58, and that is just 2004. What is it going to be—and that is 

microloans. What will it be in 2 years? 

If we increase the percentage, if we go up 2 percent on our interest rate, what is the number of delinquents, defaults that we are 

going to have with these loans, and what will it push that number 

to? Are we looking to totally do away with—is this just a way for 

the administration to say, this is something we don’t want, that we 

will just phase this out, because we will say nobody is using the 

program anymore? 

We are certainly seeing every time the SBA comes to our—there 

is nothing I have seen in a positive manner there to do its real job, 

that is to increase the amount of assistance to, increase the programs, not to pull back. Every single time, every time I see the 

SBA is on the panel, I say to myself, I can’t believe they have 

shown up again, because it has been so difficult. 

Looking in my district, I want more entrepreneurs. Entrepreneurs must be a thing of the future because we got an invention 

entrepreneurship reality show on TV. It seems more people want 

to be self-sufficient, be their own boss; that we should be increasing 

the funding, and obviously part of that lies upon us, no doubt about 

it. But we have to have your vision and your direction. So feel free 

to elaborate as long as we have. 

Ms.TASKER. Thank you. 

A couple of broader things with what you said. Certainly we are 

here to support entrepreneurs, and that is what SBA is about. And 

I think we do a lot of really good work and good things, both 

whether it is the technical assistance that the entrepreneurial development does and promotes, and whether it is the loan programs 

that we generally do. 

We have in the past—in the past budgets actually proposed 

eliminating the microloan program. The Administrator Preston 

came in and really spent a lot of time looking at it and really spent 

a lot of time trying to see that this program served a different need 

and a different group of potential entrepreneurs than our other 

programs do. We certainly agree with that. 

He worked with us and worked with OMB to come up with a proposal that we felt leveraged the resources that we had, and to come 

up with a program that we would continue to meet the needs of 

the very beginning entrepreneurs, if we want to put it that way, 

in terms of who we understand the microloan program serves. 

23

So it is not an attempt to reduce and eliminate the program. 

With that said, we have budget constraints that we have to live 

within and do believe that $100 million devoted towards technical 

assistance is a significant amount in our broader network. 

We definitely want to work with you to come up with a legislation for the microloan program that works. Administrators are 

very, very committed to it and are very committed to using this as 

one of the tools we use to reach underserved markets. We do believe accountability around it is important so that we really understand what kind of assistance. We don’t have good data about it, 

so understanding what kind of technical assistance is being provided and the effectiveness of it, we believe, is a key part of what 

we want to work with you to achieve as we go forward. 

Mr.ELLSWORTH. Madame Chair, could I—

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr.ELLSWORTH. If we increase the percent of loans and cut the 

assistance program, doesn’t that seem we are only going to increase 

the number of delinquencies and increase the number of defaults 

on the loans if you don’t have that technical assistance in the people that are there? You are raising the rate, plus you are taking 

away something that could actually help benefit—pay back these 

loans. 

Ms.TASKER. As I said, I can’t predict what is going to happen. We 

certainly are not going into this—

Mr.ELLSWORTH. But you are not predicting it. That has to be a 

part of the analysis to know if you are going to cut some program 

and increase a rate; that has to be part of the overall picture to 

realize that, hey, we are going to make two major changes that is 

going to impact the rate of which people pay their loans or pay off 

their loans or the number of defaults—I personally feel you take 

those away, increase the rate, you will increase the number of defaults and increase the number of delinquent payments. 

Ms.TASKER. Again, we—that is not our intent in terms of the proposal that we made. The proposal that we made we felt we had 

service—I understand what the panel is saying, but the intent of 

our program, we are spending $100 million on our legislative proposal on technical assistance. So we acknowledge that is an important key part of it. 

Again, I think really being able to link up and as we go forward 

understanding—you are saying it just makes sense, and I am not 

disagreeing. A lot of things make sense if you think about it, but 

we don’t know to what degree the technical assistance is linked up 

other than just anecdotally. So we do believe if we are going to continue to use technical assistance as a key part of that, we have to 

have the transparency around what is used and the benefits associated with it so we can come to those firm conclusions based on empirical information as opposed to it makes sense to me when I say 

that. 

Mr.ELLSWORTH. I suggest we reach out to other people who can 

put this analysis together before we make such—what I feel—a 

horrible mistake. I would reach out to people that actually know 

and can actually see some of the analysis that could be possibly 

done. 

Thank you so much, Madam Chair. Thank you. 

24

ChairwomanVELA ́ ZQUEZ. Mr. Chabot. 

Mr.CHABOT. I will be very brief, thank you, Madam Chair. 

Somewhat in response to Mr. Shuler’s comments, I agree with 

him in some respects, but I think one other point that should be 

made, I am inclined to agree with my colleagues that it is probably 

not a good idea to deemphasize the technical assistance within the 

programs that we have been discussing here this morning and go 

a different route. So I agree with my colleagues there for the most 

part. 

I, however, relative to businesses on a more macro level, the 

business growth, et cetera, I would say the administration, the jobs 

that are created, businesses that have been started, the general 

welfare of the economy right now, the Small Business Association 

has a role to play in those jobs, but when one considers the health 

of the economy, that is much more significant in the creation of 

businesses than the SBA’s role in it, when we are really fair about 

it. They are involved in some of them, but the overall health of the 

economy is much larger and more significant than businesses being 

created, et cetera. 

I think this administration’s tax policies, to the extent in cutting 

marginal rates, cutting capital gains rates, attempting to do away 

with the death tax and a whole range of things, has had a significant impact on the economy, has benefited the economy, and we 

have seen considerable growth. We see unemployment right now, 

whereas we would like to see it even lower, it is at historically 

lower levels of 4-1/2 percent; the stock market at or near all-time 

highs, although they have dropped, and they are heading back up, 

and who knows where they are going to be in the future. We would 

certainly like to see gas prices lower. 

Things are far from perfect, however overall I think the economy, 

due to the administration’s policy’s, especially tax cuts, that is why 

we have to make them permanent, have been helpful in the economy. So I wouldn’t want to leave that out there that they made errors relative to small business which have hurt business overall in 

the economy. 

I am losing my voice. I yield back. 

ChairwomanVELA ́ ZQUEZ. Ms. Edgcomb or Dr. Servon, I would 

just like to ask you in terms of the population that we serve 

through microenterprise and microlending, how much effect the 1.3 

trillion tax cuts have on that population. What is the benefit of the 

tax cut for the low-income 50 percent of women who participate? 

Ms.EDGCOMB. I am not sure I am an expert on tax policy and the 

effect of the tax cuts, but I can say that regardless of the macroeconomic effects, we know that there are communities of disadvantage that remain in the United States, communities of disadvantage with respect to enterprise opportunity, particularly women, 

persons of color, low-income, people living in disadvantaged communities, both urban and rural. Those people exist. We also know 

there are a set of economic factors or trends in the U.S. That, 

again, regardless of the macroeconomic policies of the government, 

are trends that have been negatively affecting a number of people, 

and that includes people who have lost jobs because of outsourcing 

and trends and globalization, people who are heavily constrained to 

work multiple jobs because of low wage rates, people who live in 

25

communities where industry has left. There is a set of trends that 

we also have to keep in mind, and there are people hurt and left 

behind by those trends. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms. Tasker, what we have seen here regarding the low percentage of default rate shows that both borrowers and lenders have 

been doing quite a good job at borrowing the money, providing the 

technical assistance so that this individual will not default, that 

they will pay back. And it has been stated here that the type of 

individuals who come to Mr. Betancourt to ask for money, to get 

access to capital are the type of individuals that do not have a credit history or any credit at all. 

Since they repaid, my question to you is how can we, SBA, help 

these individuals go to the next level in terms of building up their 

credit history? I know, for example, that most of the intermediaries 

have only such a small volume of repayment records that it makes 

them ineligible to report for the major credit reporting agencies. So 

I want to ask you, what can you do to help these individuals to 

build up a credit history or a credit record? 

Ms.TASKER. That is my understanding as well, that a lot of the 

micro intermediaries, because they don’t have sufficient volume, 

can’t report credit. One of the things we talked about doing and 

can certainly pursue further to see if it is feasible is group them 

together and have them report in groups so that we can get that 

information out, because it does—at the end of the day, it drives 

a lot of the long-term financing for—getting established as a business. We can certainly do that. And we would certainly be willing 

to work with you and the industry to see if there are other ways 

to help support getting that information out. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Betancourt, can you tell us how much of the money you used 

for microloan costs, how much it costs you and how much it will 

cost under the administration proposals? 

Mr.BETANCOURT. I think under this proposal, we wouldn’t even 

be able to use it, quite frankly; we just wouldn’t be able to borrow 

at those rates. And so in many respects we wouldn’t be able to lend 

to gentlemen like—

ChairwomanVELA ́ ZQUEZ. Let me say that if you use it, will the 

increased costs be passed through the borrowers? 

Mr.BETANCOURT. Well, if we were to pass it along—we would 

have to pass it along if we were to borrow it, yes, say it that way. 

ChairwomanVELA ́ ZQUEZ. All right. Any other question from any 

of the Members. 

Mr.ELLSWORTH. I have one more. 

ChairwomanVELA ́ ZQUEZ. Sure, Mr. Ellsworth. 

Mr.ELLSWORTH. Ms. Tasker, the total budget of this program, 

$13 million, is that pretty close, pretty accurate. 

Ms.TASKER. Yes, sir, 13-, 14 million, yes. 

Mr.ELLSWORTH. And I agree with the Ranking Member that in 

tough financial times, back home they used to say I was tied like 

bark to a tree. I like to always call it thrifty or frugal, but that is 

the way they described it at home. 

When I look at successful programs like this, and we were talking about Iraq earlier, and they say, where will you find the money 

26

and the offsets? When we lose skid loads of billions of dollars in 

Iraq, not just what we are doing in business, but when you lose 

cash in the billions, that is one way you can offset it. When 1.6 billion a year doesn’t get paid in Federal taxes from companies that 

get Federal contracts, that could offset a lot of years of a program 

like this. I am not specifically—I am just talking in general. I can 

find that money in about a minute and a half of where we could 

supplement this and keep a successful program like this, and I just 

wanted to get that on the record. 

ChairwomanVELA ́ ZQUEZ. Mr. Betancourt. 

Mr.BETANCOURT. If I could make one point, I noted we were talking about the technical assistance to borrowers, I wanted to talk 

about the technical assistance we provide to nonborrowers for a 

moment. 

We are all familiar with the PRIME program, the unique program that provides technical assistance to nonborrowers. This program works with extremely low-income borrowers. One of the best 

things you can do for a borrower is to let them know maybe they 

shouldn’t go with a business and maybe provide that technical assistance you were talking about earlier. In many respects that program—it is the same profile that we do, but it does all that upfront time that we are all concerned about that needs to happen 

before they can borrow from us. Unfortunately this program over 

the past couple of years has been reduced to just a few States. We 

all know 5-plus years ago it worked in all the States. We really 

want you to think about that program. In Pennsylvania and other 

States we have a hard time working with nonborrowers at this profile level. And so we want you to consider that, the PRIME program, maybe adding to all 50 States and maybe increasing that appropriation. 

ChairwomanVELA ́ ZQUEZ. Mr. Betancourt, the PRIME program 

statute was authorized as part of the Gramm-Leach-Bliley Act, and 

it is not codified in the Small Business Act even though it is operated by SBA. Do you see a value of moving the statutory authority 

for the PRIME program to the Small Business Act. 

Mr.BETANCOURT. I would have to refer to my policy folks. 

Mr.KELLY. Yeah, yeah. 

ChairwomanVELA ́ ZQUEZ. You can stand up, identify your name 

for the record, and can answer the question. 

Mr.KELLY. My name is Kevin Kelly. I am with the Association 

For Enterprise Opportunity. I am the managing director for policy 

and advocacy. 

And, yes, that has been one of our recommendations that we 

have forwarded in the past year to committee staff here asking 

that that could be done so that, in fact, it is in the proper place. 

SBA had been running that program, but you are right, it was authorized in a different place. So to put it where it belongs, it should 

be in there. 

ChairwomanVELA ́ ZQUEZ. Thank you very much. 

Any other questions? 

Hearing none, I want to thank all the witnesses. This has been 

an important hearing today, and I would just like to announce the 

fact that in the next few months we will be working on the reauVerDate 0ct 09 2002 12:16 Jan 07, 2008 Jkt 033615 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\36105.TXT LEANN
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thorization of these programs. I want to thank all the witnesses for 

their testimony today. 

Members have 5 legislative days to submit statements or other 

material for the hearing record. And with that, the hearing is adjourned. 

[Whereupon, at 11:34 a.m., the committee was adjourned.]

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