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FULL COMMITTEE HEARING ON

LEGISLATION TO PROVIDE

FUNDING LEVELS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 27, 2007

Serial Number 110-48

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 

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 

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 

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

PANEL I 

Carranza, Hon. Jovita, United States Small Business Administration .............. 3

PANEL II 

Kelly, Kevin, Association for Enterprise Opportunity .......................................... 15

Kuczarski, Don, Credit Union National Association ............................................. 16

Keenan, Jody, Association of Small Business Development Centers .................. 18

Crawford, Chris, National Association of Development Companies .................... 20

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 33

Chabot, Hon. Steve .................................................................................................. 35

Carranza, Hon. Jovita, United States Small Business Administration .............. 36

Kelly, Kevin, Association for Enterprise Opportunity .......................................... 39

Kuczarski, Don, Credit Union National Association ............................................. 43

Keenan, Jody, Association of Small Business Development Centers .................. 47

Crawford, Chris, National Association of Development Companies .................... 50

Statements for the Record: 

National Association of Federal Credit Unions ..................................................... 53

(V) 

(1)

FULL COMMITTEE HEARING ON 

LEGISLATION TO PROVIDE 

FUNDING LEVELS 

Thursday, September 27, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 9:30 a.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia M. 

Vela ́zquez[Chairwoman of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Gonza ́lez, Cuellar, Ellsworth, Chabot, Bartlett, Akin, Fortenberry and Heller. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. I now call this hearing to order to review legislation providing funding levels for programs within the 

Small Business Act. 

As the American economy continues to evolve and change, so 

must our economic policies. This Committee has already taken 

steps to make certain that programs at the SBA are transformed 

to meet the needs of this Nation’s 27 million small business owners. To this end, we have reported over a dozen bills that will provide technical assistance, access to capital and the overall tools for 

success. 

The focus of today’s hearing is to review legislation that provides 

the necessary authority and funding to implement this reform. It 

is one of the last pieces of the puzzle as Congress moves forward 

with implementing the first major reform to the SBA in a decade. 

A major challenge for the SBA and its program has been meeting 

the growing demand for services. Nowhere has this been more evident than in the Entrepreneurial Development Program. 

SBDCs and Women’s Business Centers have played a vital role 

in helping small businesses where they have been faced with severe budget crunches. Over the last 5 years, many centers have 

seen the Administration cut their budgets by up to 20 percent. This 

is despite the fact that a $1 investment in SBDCs generates an estimated $3 in tax revenue. For this program to maintain experienced staff, they must have sufficient resources. This legislation 

will provide such funding. 

A primary role of the SBA is to help entrepreneurs that have the 

drive but need assistance. The perfect example is the returning veteran who is prepared to start his or her own business venture. By 

funding the Office of Veterans Business Ownership, this can be 

2

achieved. Veterans often bring a unique skill, but they, like other 

budding entrepreneurs, struggle in converting these dreams into a 

successful business. 

It is also critical that small firms have the necessary access to 

capital. With a growing credit crunch, entrepreneurs are faced with 

few options when it comes to financing. The 7(a) and 504 loan programs have filled a critical void when capital is scarce. This legislation will ensure that the SBA loan programs will never have to 

shut down due to excess demand. 

And while later today we will move a bill in the House that puts 

venture capital in the hands of small businesses, this bill will provide the authority to do so. 

Micro lenders will also be able to continue serving entrepreneurs 

who will not have the opportunity otherwise. Considering that the 

default rate on micro loans continue to be at or near zero, it only 

makes sense to increase the authorization for this program. 

Finally, it is important to know that this bill will increase funding for the HUBZone program. It may seem odd to do so, considering the Inspector General has deemed that the program is 

plagued by fraud. However, this money will provide the SBA with 

the ability to carry out the program the way it was intended. 

I want to thank the SBA and stakeholders for coming here to discuss these programs and ways to improve them. An authorization 

bill expresses this Committee’s intent on how the programs should 

be operated, but before making recommendations it is critical to 

seek the input of those who carry them out. For too long the Administration has either underfunded or underutilized initiatives 

that have successfully assisted small businesses. This has been an 

obstacle to their success. The legislation we are considering today 

changes that by enabling the SBA and its partners to provide the 

necessary capital and technical assistance. The Committee will use 

this hearing to make any changes so that the SBA can meet their 

client’s needs. 

I look forward to today’s discussion and will yield to Mr. Chabot 

for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. I would like to thank the chairwoman for holding 

this important hearing to address one of the more technical yet significant issues that this Committee must consider as it wraps up 

its efforts to examine and reauthorize the Small Business Act and 

the Small Business Investment Act in 1958. The major SBA financing programs—the 7(a) Guaranteed Loan Program, the Certified 

Development Loan Program and the Small Business Investment 

Company Program—operate without any appropriation at all. Even 

so, it is the responsibility of Congress to ensure that limits are imposed on the ability of the Small Business Administration to guarantee repayment of obligations authorized by banks and CDCs and 

SBICs. In doing so, Congress must balance the need to protect the 

full faith and credit of the United States with a need to ensure that 

the SBA has sufficient authority to meet the financing needs of a 

small business community. 

In addition, there are two other major financing programs, the 

Microloan Program and the Surety Bond Program, that utilize 

3

minimal levels of appropriations. Even with a need for an appropriation, these programs still operate through reliance on the full 

faith and credit of the United States. As a result, Congress must 

exercise its responsibility to ensure that the full faith and credit is 

used in a sensible manner. 

Today, we also will hear about the needs of the Small Business 

Development Center Program. Even though the funding level for 

that program is determined in the appropriation process, the formula for the allocation of funds among the various grantees in the 

SBDC program is based in part on the levels authorized in the 

Small Business Act. 

There are also a number of additional separate authorization levels that are scattered throughout the Small Business Act. In almost 

all cases the programs operate without regard to authorization levels, as long as there are funds appropriated for them. In addition, 

Section 20 of the Small Business Act contains a permanent authorization for all programs as long as funds are appropriated for the 

programs. 

In my opinion, there is no absolute legal need to dictate authorization levels for programs that have permanent operating authority or whose operating funds derive from a salary and expenses account in the SBA appropriation. Even though there is no absolute 

legal need to undertake consideration of the myriad of these authorizations, I think the Committee can use this process for separate authorizations to provide an additional opinion to the appropriators on the importance and funding levels for various programs. The Committee already had one shot at that in the budget 

views and estimates letter. But this provides a second opportunity 

to express to the appropriators which programs should receive 

more funding than the requests submitted by the SBA. 

Given the potential that this authorizing process may have for 

the Committee’s oversight of the SBA and the information it can 

supply to the Committee on Appropriations, I believe that the process serves a valuable public policy goal, even though it does not 

constitute a strict legal necessity. 

Again, I would like to thank Chairwoman Vela ́zquez for holding 

this hearing and look forward to the ideas offered by our distinguished panelists; and I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

ChairwomanVELA ́ ZQUEZ. Our first witness is Ms. Jovita 

Carranza. Ms. Carranza is the Deputy Administer of the U.S. Business Administration. She helps to manage the agency’s more than 

80 field offices across the country, as well as a portfolio of direct 

and guaranteed business loans, venture capital investments and 

disaster loans worth almost $80 billion. Welcome. 

STATEMENT OF THE HONORABLE JOVITA CARRANZA, DEPUTY 

ADMINISTRATOR, UNITED STATES SMALL BUSINESS ADMINISTRATION 

Ms.CARRANZA. Good morning. Thank you, Chairwoman 

Vela ́zquez and Ranking Member Chabot. Thank you for inviting me 

to testify on the proposed authorization levels for the Small Business Administration programs. I will separate my comments into 

4

the three major program areas at SBA: credit programs, noncredit 

assistance programs and general authorizations. 

The Administration has some concerns with the proposed authorization levels. The draft bill’s authorization for the 504 program is 

consistent with the 2008 budget request. However, the 7(a) authorization of $20 billion is significantly higher than the 2008 budget 

request of $17.5 billion. We do not recommend a higher authorization at this time. In addition, the Administration does not support 

authorization of the participating securities program. SBA will 

carry out its commitment to the program but cannot justify any 

further authorization. Also, we do not believe a further authorization for DELTA loans is necessary. SBA has seen no demand for 

these loans in recent years. 

We also have concerns about the authorization levels of noncredit 

technical assistance programs. SBA’s budget submissions for these 

programs reflect our desire to make these programs more efficient 

so that SBA can increase the assistance we provide to small businesses. The draft legislation authorizes these programs at levels 

much higher than the 2008 budget and recent enacted amounts. In 

addition, while the Administration supports micro lending, we believe the $20 million authorization for PRIME is duplicative of the 

technical assistance already provided for prospective micro borrowers. 

The Small Business Act contains several independent authorizations, as well as a general authorization of appropriation for SBA’s 

operating budget. An example is the HUBZone program, the current HUBZone authorization of $10 million, which will double to 

$20 million in the draft bill. In the most recent appropriation, the 

program received a $2 million line item. However, SBA allocates 

resources of close to $9 million to the program. The disparity between the line item, the authorization and the allocation highlights 

the inconsistencies in our current budget process. The Administration recognizes that the Congress wishes, through line items and 

specific authorizations, to clarify its priorities and exercise its oversight function. 

Unfortunately, the restrictive nature of line items can inhibit the 

flow of resources to program priorities rather than ensure them. As 

a result, the Administration’s budget request has therefore often 

asked for the elimination of line item appropriations. I would like 

to point out that the 8(a) program has no specific authorization levels, just a permanent authorization. Yet SBA allocates resources of 

over $30 million to support the 8(a) program. 

Finally, let me mention the programs that will cease without reauthorization; and those are the Coverdell Drug-Free Workplace 

Program, gift acceptance and cosponsorship authority for SBA outreach activities and the Advisory Committee on Veterans Affairs. 

In addition, several other programs will no longer have authorization for appropriations: the HUBZone program, the Women’s 

Business Center Program, Small Business Development Center, 

the National Women’s Business Council. 

Only the Drug-Free Workplace Program is not reauthorized. The 

Administration would like to express its support for the Drug-Free 

Workplace Program. It provides substance abuse training and asVerDate 0ct 09 2002 09:36 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38206.TXT LEANN
5

sistance for small business. All of these programs need congressional action to ensure their continued operation. 

Chairwoman Vela ́zquez, that concludes my testimony. I appreciate the opportunity to share the Administration’s views, and I 

look forward to any questions that you may have. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[The prepared statement of Ms. Carranza may be found in the 

Appendix on page 36.]

ChairwomanVELA ́ ZQUEZ. Ms. Carranza, during last week’s hearing I asked that the SBA perform on-site inspections of companies 

approved to the HUBZone program. This will ensure that businesses meet the requirements, and it will crack down on the fraud 

that the SBA’s Inspector General has identified. 

Your response to my question was that on-site reviews will require additional resources. Would you agree that an authorization 

of $20 million for the HUBZone program will provide the SBA with 

the resources to do on-site inspections? 

Ms.CARRANZA. Congresswoman Vela ́zquez, what I do recognize, 

as I stated in the testimony, that the line item does not allow us 

the flexibility to transfer the existing funds from program to program so that we can optimize not only the resources but from people to funds to be able to allocate the appropriate funds where we 

need it for program integrity program oversight and reform. 

ChairwomanVELA ́ ZQUEZ. How would you conduct on-site inspections in response to the General Inspector’s finding? 

Ms.CARRANZA. It would be not only through resource allocation 

but understanding the broad definition of HUBZone as well. 

ChairwomanVELA ́ ZQUEZ. So would you answer my question? Will 

$20 million be enough resources for you to conduct on-site inspections? 

Ms.CARRANZA. I will not be in a position to address that because 

of the unknown, the number of resources that would be needed to 

perform those on-site. 

ChairwomanVELA ́ ZQUEZ. So would you then submit, prior to the 

markup of this legislation, a number telling us what will be the resources necessary to conduct on-site inspections? 

Ms.CARRANZA. I will be glad to work with your staff on that particular request. 

ChairwomanVELA ́ ZQUEZ. In your testimony, the SBA requested to 

increasing the authorization levels for the 7(a) loan program. Given 

that the loan program operates at a zero subsidy rate, it is insignificant whether authorization levels are at $17.5 or $20 billion. So 

my question to you is, why does the Administration continue to 

halt reservations and allow the loan market to determine the loan 

amounts even if it will keep a zero subsidy framework in place? 

Would you agree that the increased unauthorization will do nothing but increase the costs for the Federal Government? 

Ms.CARRANZA. Congresswoman Vela ́zquez, I was writing when 

you mentioned the loan program. Can you please repeat the loan 

program? 

ChairwomanVELA ́ ZQUEZ. The 7(a) loan program, you know that is 

at a zero subsidy rate level. 

6

Ms.CARRANZA. Yes, and with that the budget reflects the desire 

to provide a reasonable estimate to loan growth. At this point, we 

are managing the particular program with two factors at hand: 

contingent liability and the underwriting. We are, as you know, 

much like the Committee, stewards of the taxpayers’ dollars. 

ChairwomanVELA ́ ZQUEZ. If you allow me, given the fact that it 

is at a zero subsidy rate, it means it doesn’t cost any money to the 

Federal Government. So my question is, it is totally irrelevant, 

$17.5 million or $20 million, if you are making the argument that 

it costs more money to the taxpayers. 

Ms.CARRANZA. For us to accept a $20 million without an experience or a trend of growth that would reflect the need for that, Congresswoman Vela ́zquez, would be premature. We base the $17.5 

based on what the current trends are in volume growth, and so we 

have an infrastructure that supports the particular budgetary request, or I should say the authorization request. 

ChairwomanVELA ́ ZQUEZ. Not based on testimony that was given 

to this Committee. And the fact of the matter is that what we see 

is an increase in volume in terms of applications submitted to get 

7(a) loans, and so with this we will prevent another shutdown. 

Ms.CARRANZA. We have not experienced any particular shutdown. And if I may ask, Chairwoman Vela ́zquez, can you clarify on 

the shutdown? Are you talking about shutdown on the program? 

ChairwomanVELA ́ ZQUEZ. Well, you were not here. You were not 

at the SBA when this happened twice. It was under Hector 

Barreto. When he came here and he said he didn’t need any more 

increase in the funding level, that it was enough, enough was that 

it wasn’t enough. And then they had to shut down the program 

twice. 

Let me ask you another question. In testimony before this Committee, the agency has promoted long-term counseling in the entrepreneurial development programs as a primary objective. Yet, due 

to budget cuts requested by the Administration, SBDCs have seen 

client hours decline for the first time in the history of the program. 

How can the agency submit proposals that continue to cut resources when this action has been found to be inconsistent with 

stated objectives? 

Ms.CARRANZA. The technical assistance—and I can’t answer for 

the decline in their particular technical assistance hours, but I do 

know that we have an expansive network to include SBDCs, Women’s Business Centers, SCORE, the district offices that are offering 

technical assistance. So where I cannot speak to the reduction of 

technical assistance hours, I can speak to the network of available 

technical assistance. 

ChairwomanVELA ́ ZQUEZ. One thing is clear, the network cannot 

work without the money. The fact of the matter is that testimony 

given to this Committee showed that the hours of counseling has 

declined for the first time in 5 years. Would you agree that there 

is a correlation between the cut in funding and fewer client hours? 

Ms.CARRANZA. I would have to perform a particular analysis to 

be accurate in that assessment. At this point, SBDCs and Women’s 

Business Centers are increasingly, increasingly under pressure and 

are a vital part of the Administration’s initiative; and we are seeking an increase in particular funding for our network because we 

7

recognize not only their essential and vital importance in the 

growth of small businesses—

ChairwomanVELA ́ ZQUEZ. Would you clarify that—

Ms.CARRANZA. Yes. 

ChairwomanVELA ́ ZQUEZ. —when you talk about the increase of 

funding? 

Ms.CARRANZA. Yes. At this point, fiscal year 2008, we have $140 million that the Committee is requesting. Our request is $87.1; and 

we believe that the funding request ensures continued oversight of 

the SBDC grant process, as well as policy issues and an adherence 

to procedures. 

ChairwomanVELA ́ ZQUEZ. How would you qualify that as an increase compared to last year’s budget request or compared to 2001? 

Ms.CARRANZA. I misspoke on the increase in funding. It is for 

2009, Congresswoman Vela ́zquez. 

ChairwomanVELA ́ ZQUEZ. Now I recognize Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. 

Ms. Carranza, on the SBDCs, do they continue to seek funding 

from nonFederal sources as well as from the funding and could you 

discuss that a bit? 

Ms.CARRANZA. Yes, Congressman Chabot. 

Our objective on the network, the resource partners is not only 

to help them develop but also for them to develop sustainability 

and to pursue—I will give you an example in the Women’s Business Centers—after 5 years, to pursue matching funding so that 

they are not strictly dependant on our particular grant system and 

we can allocate resources and expand the network to give opportunities to other centers. 

Mr.CHABOT. Thank you. 

Why do you think that there is such a disparity in the budget 

levels that are requested, say, by the Administration or by some on 

this Committee, what they believe is necessary, and what the Appropriations Committee may think is necessary and then what 

some in the private sector think is necessary? Why do you think 

there is so much—is there a disconnect or is it just a difference in 

opinion? What would you attribute that to? 

Ms.CARRANZA. At this juncture, the new leadership in the agency, Congressman Chabot, we are addressing not only the efficiency 

of programs but the reform of the programs and the value proposition of the programs and oversight. While we believe, based on 

the changes that we are putting in, the retooling of the various programs and whatnot and the experience that we have had in the 

particular—whether it is loan programs, technical assistance, access to capital, we look at the current experience, the goals that we 

have set out, the progress we made in each area and the infrastructure, the current infrastructure in its current state that we have 

to support those programs. 

So although the funding may—we recognize the need for additional funding. Should it be at the level that the Committee is proposing is one that is under evaluation. We believe we performed 

the full assessment of the need for each program addressing resources needs, oversight, again, a process of engineering. I can’t 

emphasize enough that this new leadership in the agency is looking 

at both efficiency reform and oversight. 

8

Mr.CHABOT. Thank you. 

And, finally, in your written statement, you mention that the 

participating securities program has proven to be very costly, quite 

costly to the American taxpayer. Could you elaborate on that a little bit? 

Ms.CARRANZA. Yes. There is a concern with regards to the majority ownership—excuse me, I’m sorry. 

Mr.CHABOT. Sure. Take whatever time you need to discuss it; 

and if you would feel more comfortable getting back to us in writing on that, that would be agreeable to me. 

Ms.CARRANZA. I do have knowledge on that. I’m sorry, Congressman. I will answer your question. 

There is a couple of points that we need to consider in that particular program. If we have—and our objective in that particular 

program is to enable these companies to compete in the government contracting, for them to grow at a level of ability. 

What we are talking about is the overcapacity of the particular 

firms and those particular firms overextending their leverage. And 

so, in addition to what we have identified as problematic, I would 

like to, again, take your recommendation to work with your staff 

to clarify the other dynamics that are playing out. 

Mr.CHABOT. That will be fine. And we can elaborate a little more 

on the question, and if we can get it back in writing in the future 

that will be certainly acceptable. 

I yield back the balance of my time. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez. 

Mr.GONZA ́LEZ. Thank you very much, Madam Chair. 

I want to start off with my apologizes to the Chair, the ranking 

member and to other members of the Committee. I need to be getting over to a markup. I think I am already late, and my apologies 

to the witness. 

But, Administrator Carranza, I guess I just kind of want a bird’s 

eye view so that maybe the people that are interested in this process kind of understand the relationship between Congress and the 

White House. I truly believe when SBA individuals come up here 

regarding budgetary matters you are not given any latitude or 

flexibility. My understanding since I have gotten to Congress is the 

White House has a budget, and all departments and agencies are 

going to fit in that budget. Whether you agree with the final number or not, it doesn’t matter. You are given marching orders, and 

I respect that. So Congress cannot take at face value what the 

White House has determined are the priorities on which tax monies will be invested. That is why we have the difference. 

And I know that the ranking member indicated, well, why do we 

have this difference of opinion? Well, we go to our districts, we listen to our businessmen and women, we identify programs that we 

believe are important, that are underfunded, not utilized, underutilized, and that is the difference. 

I understand. I mean, we have had Secretary Leavitt up here in 

the past couple of weeks saying, don’t give me more money for 

HHS. We are happy with what we have got. Don’t give us more on 

any of these particular programs. Because those were the marching 

orders from the White House. That is the way it really works. That 

is my understanding. 

9

I guess if I had a question it would be, if you disagreed with the 

White House on the overall funding limits that have been requested at the SBA—because I know that you are given a number, 

that is just the way the real world works—would you be able to 

come before us and express a difference of opinion than the bottom 

line that the White House has established for the SBA? 

Ms.CARRANZA. Yes, I believe there has been a track record with 

the administrator that has proposed an increase in the budget from 

previous years and has challenged some of the perspectives. And 

we have been able to achieve a level of budget allocation for either 

necessary resources, automation, et cetera; and we are in a position 

to do that as well this year. 

Mr.GONZA ́LEZ. That would increase the overall target monies 

that have been basically allocated by the White House for the SBA. 

I understand you can say we think this program needs more 

money, but we will take it from this other program that you guys 

in Congress are willing to bump up. I am talking about the overall 

ceiling, the amount that the White House has said, this is SBA’s 

budget, this is what—you are not going to go over it. You can play 

around with the numbers, reallocate them on programs, but you 

are not going to go beyond. 

And then in your determination you try to do that, but you can’t. 

So now you come before Congress, you come before this Committee 

and you say, we are going to go over and above the overall amount 

that has been allocated or identified or targeted by the White 

House in their budget to Congress. 

Could you and would you do that? 

Ms.CARRANZA. As an advocate of small businesses as well as a 

fiduciary responsibility to the taxpayers, we will make the necessary recommendations to continue the viability of SBA and take 

the position of addressing the particular needs of SBA. We would 

take that position. 

Mr.GONZA ́LEZ. All right. And it is a good answer, but I am not 

sure. 

I just want to know—and I am so sorry that you are the one I 

have to pose this question to. But let us just say you have a dollar 

budget. The White House says you cannot spend more than $1. 

Within that $1 you can shift around priorities. Then Congress 

comes and says, well, we think it should be $1.20. Because we go 

back home, we are the representatives of the people, and we should 

have something to say about our business businesses, right. 

And then you say, do you know what, Congress is not so wrong. I am going to ask for another dime, $1.10. So you would come and 

testify that you are basically going to bust your budget, the White 

House budget by asking for another 10 percent, another dime. 

Would you do that? 

Ms.CARRANZA. I believe that the Administration is very committed—once again, I have to reiterate—to the growth of the small 

business community as well as a responsibility to the taxpayer. As 

it relates to my responsibility as COO deputy, I would look for opportunities where I could work within the budget allocated so that 

no one program is compromised and we would meet the needs of 

our small business community. 

Mr.GONZA ́LEZ. And I know that my time is up. 

10

I appreciate the position you are in. People get appointed within 

administrations for reasons, and I think they are basically told the 

parameters of their operation. But the answer to my question is we 

are not going to get a White House official that is going to come 

from a department or an agency that is going to contradict the bottom line of the White House. And the answer to all this is a matter 

of priorities. If the White House believes SBA is a priority, then 

there will be some funding. We disagree that the White House believes it is truly a priority. 

And, with that, I would yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Gonza ́lez. 

I just wish to remind you that a former colleague of ours was the 

Secretary of the Army and came before Congress and testified in 

the Senate that the budget wasn’t sufficient. So what happened to 

him? He was fired. 

Next, Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. 

Welcome to the Committee. 

Following up on Mr. Gonza ́lez’s line of questioning, I serve on the 

Armed Services Committee. What we do there to determine what 

might be done with additional money is simply to ask the services 

to give us an unfunded priorities list. If you had more money, what 

would you use it for? They, like you, are constrained to a budget 

which is given to them, but there are always needs beyond the 

budget, and they help us determine what really the allocation 

ought to be with this unfunded priorities list. 

If we asked you for an unfunded priorities list, if you had more 

money, what would you do with it, could you give us that list? 

Ms.CARRANZA. Yes, I could give you that list, which would incorporate, again, program viability, the assessments of a program, expand our outreach programs and initiatives, develop further the 

skills of our employees. Because there is a lot of training that still 

needs to take place. So it is about resource development, program 

viability and expanding the outreach programs. 

Mr.BARTLETT. Madam Chair, I would suggest that we might get 

around this problem we have with the people from the agencies 

being constrained to defend a budget given to them by the Administration by asking them for their unfunded priorities list; and that 

will tell us what they think is the most important thing that they 

would spend money for if they had additional money. This doesn’t 

violate their commitment to toe the party line, but it does give us 

the information we need in deciding how much additional monies 

they ought to get. 

Might I ask you, what do you think is the major factor inhibiting 

the growth of small businesses in our country? If there was one 

thing that you could change that would facilitate the growth of 

small businesses in our country, what would it be? 

Ms.CARRANZA. That same question was asked several times, Congressman, when I either interviewed or whatever in public venues. 

That is strictly my current assignment as a public servant. And the 

question was about education, accessibility to information, resource 

development. The inhibiting is not so much outlets, because we 

have over 1,400 outlets. We have thousands of SCORE members. 

So it is not about personnel out in the field. It is more about outVerDate 0ct 09 2002 09:36 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38206.TXT LEANN
11

reach programs, viable ones, connectivity to the communities and 

educating, strategic education and accessibility to information, access to funds. 

I believe the Administration has done exceptionally well in the 

sense that we now have Lender Advisory Councils, we have Trade 

Association Councils. So our collaboration has expanded. We have 

a unified front in helping out the small business community, and 

I believe it is doing more of what we have in place now. 

Mr.BARTLETT. Madam Chair, those small businesses that have 

capabilities that are of interest to our military, where most of our 

subcontracting is done, face an intimidating bureaucracy. And I 

think for those small businesses, many of whom have really great 

ideas that would benefit our military, if we could just do something 

to make this red tape bureaucracy less intimidating. 

Our office tries very hard to do that. We hold procurement seminars. We have the government agencies come out and meet with 

our small business people. The last time we did this we had over 

500 small businesses who were there. But many of them have ideas 

that we really need in our government. But they are just intimidated by the huge bureaucracy, and what they need is hand-holding. I think the Small Business Administration is in a particularly 

favorable position to help them do that. 

By the way, in a former life I was a small business person working for the government. I also worked for the government in writing requests for proposals, and then I was in the small business 

world responding to those requests for proposals. So I have been 

on both sides of that street, and I understand the problems that 

are there. 

Thank you very much for your testimony, and I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Fortenberry. 

Mr.FORTENBERRY. Thank you, Madam Chair, for holding this 

hearing. 

This is a little bit beyond the scope of what the purpose of the 

hearing today is, but it is related to Congressman Bartlett’s question as well. I think we have to continually ask ourselves that 

question, because you have one of the most important jobs in government. I know you recognize that. Obviously, you spend yourself 

because—on this form of public service you believe in it. 

This is where most people are working to try to get a little bit 

ahead in life in small business, and the more that we can augment 

opportunities in the private sector for risk-taking and entrepreneurial risk-taking, small business ventures, the more we are going 

to provide one critical function of government and that is creating 

a society that provides more hope and more opportunity for people 

to take care of themselves and their families. 

I have given this speech before. Ms. Vela ́zquez has heard it. But 

I think this is important. It is absolutely essential work. So the 

question as to what barriers are out there is an essential one. 

We tend to define—we tend to have several premises, though, at 

work to answer that question at all times. Is it access to capital? 

Well, we are doing a lot in that regard. Is it access to information? 

You just gave an overview, a good overview of your collaboration 

with the private sector, the volunteer forces out there, who can asVerDate 0ct 09 2002 09:36 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38206.TXT LEANN
12

sist in helping that discernment process and education process for 

somebody who is willing to take this kind of risk. 

Is it a question of connectivity? That is a good one. That is stepping beyond the traditional premises by which we generally approach the question as to why somebody would want to take the 

risk and how do we encourage that. But are there other considerations? Are there other tax policies at work here that potentially 

inhibit? Do we have tax codes favoring larger types of structures 

that compel people to work for an entity versus to try to be that 

entity themselves? 

Do healthcare policies inhibit entrepreneurial risk-taking? In 

other words, if I am tethered—if I have got a vision, I have got the 

risk capital, and I have got the will to undertake a new venture, 

but I am tethered to what I am doing because I need the 

healthcare policy, is that a significant economic drain in terms of 

potential productivity on our society because either we are not allowing portability of a catastrophic policy or we are not emphasizing health savings accounts enough that would again empower? 

These are the broadening, I think, of the framework by which we 

ask ourselves how do we improve what we are doing, which I think 

is good and substantial, but continue to do self-evaluation in terms 

of public policy as to how we augment these efforts. 

So there is a lot there to unpack, I know, and that is a nice 

speech. But I think it is a—or hope it is a nice speech. I think it 

is a challenge to all of us to think creatively about that central core 

question: What are the inhibiting barriers to entry in terms of 

small business entrepreneurial risk-taking? Do they fall outside 

sometimes the traditional parameters which we put out around the 

question, which is basically access to market information and capital? 

Ms.CARRANZA. Let me answer that question three-fold, Congressman, as you delineated. 

Healthcare, and I will say healthcare through education, when 

we meet with the trade associations as well as small business community, because we do perform numerous listening tours where we 

meet with small businesses, and the barriers are cost, cost of their 

infrastructure healthcare, cost to having to manage, when you 

mention barriers, are very cumbersome, complicated administrative 

requirements to apply. 

So you have healthcare, you have ease of use to our particular 

programs, both for the private sector as well as the public, private 

and public. And then you have taxes. So when we speak with tax 

structure, should they be taxed, as you mentioned, at the same 

level as large entities, large firms? So the resounding message that 

the small business community will ask us to support and have a 

voice is in those three areas. 

Can you make it easier dealing with government? Let us talk 

about taxes. You have a couple of associations here that will talk 

to that. And healthcare, if there is anything you can do to advocate 

cost-effective or affordable healthcare. 

So it is very consistent and we need to unify in order to be much 

more responsive to the small business community, especially the 

micro loan level. 

13

Mr.FORTENBERRY. Sure. Madam Chair, if you could indulge me 

a moment more for a little more dialogue. Do I have the time? 

ChairwomanVELA ́ ZQUEZ. Yes. 

Mr.FORTENBERRY. Thank you. 

Here is another one, and it is a smaller component of overall tax 

policy. But when you look at again lowering the barriers to entry 

and empowering risk-taking, for instance, you have got a number 

of persons interested in developing home-based business ideas, yet 

you have tax policies that aren’t necessarily favorable toward that 

or are more stringent or potentially penalized versus other—it is 

just an opportunity. I think we potentially have to look at one area 

of the code. 

I appreciate what you are saying, that we in this dialogue have 

identified a couple of key pieces that fall outside of those barriers—

of those traditional barriers such as healthcare and regulation. 

I will just give you a small story. A number of years ago, my 

family was in a partnership to look at buying a small business and 

then potentially expanding it. The threat of having to fill out the 

paperwork and the divulgence of information that was so expansive 

compelled us to just go elsewhere. And we were able to do that. 

Maybe many people aren’t. 

So I think that is a good point you make as well. How do we decrease the complexities of compliance? 

And so, anyway, I appreciate your willingness to engage in this 

dialogue about creative thinking to overcome to what we don’t traditionally consider barriers. Thank you. 

ChairwomanVELA ́ ZQUEZ. Ms. Carranza, I want to ask the final 

question. Every time that we have conducted hearings, we bring 

the experts to testify. Time and time again, they tell us that training and technical assistance improves the chances of a business to 

succeed; and the data is there that shows that a person who received technical assistance and training has a better chance to succeed in their businesses. Yet many socially and economically disadvantaged individuals lack access to general business training, 

networks and capital. Since these resources continue to be lacking 

in the private sector, why has the agency requested to fund the 

PRIME and micro loan programs well below the congressionally 

authorized levels? 

Ms.CARRANZA. PRIME, as well as resource partners that offer 

the technical assistance, I need to share with you, Congresswoman 

Vela ́zquez, that today’s training material, it continues to be enhanced. And I will give you an example to expound on the point 

of not only variability to technical assistance but also the type of 

information that is being shared. 

We have not only on-site hand-holding—as one of the congressmen mentioned—type training, but we also have another program 

that is funded, which is called the 7(j) training, which is contracted 

training in order to help develop small companies to prepare them 

for government contracting. 

With regards to the hand-holding-type training, on-site training, 

resource-partner training, each one of those various programs are 

funded in their own capacity. But, in addition to that, sophisticated 

type of training that we are offering, virtual training and bilingual 

training. 

14

ChairwomanVELA ́ ZQUEZ. You just said it, sophisticated. And 

what is the type of constituents that we are talking here about? 

Who are the ones that really needs the type of technical assistance 

that can not be received from a 7(j) or any of the other programs? 

These are economically and socially disadvantaged. They need special, unique, tailored technical assistance for this population in 

order for them to be prepared and ready. 

Ms.CARRANZA. The position that I would take is, Congresswoman 

Vela ́zquez, is PRIME going to meet the needs or is there another 

assessment of training mechanisms that are in place that need to 

be? To your concern, and I agree 100 percent, sophistication means 

a matter of just having a more robust training material, not a higher level of technical content, but it is more about meeting or designing training material that would meet the needs of the, as you 

indicated, the underserved market client. But we believe that there 

is about 12 programs that are offering technical assistance. We 

need to be better prepared to assess what is out there being provided, not about spending more, but actually rationalizing and assessing the value proposition of what is already in place as it relates to the budgeting of various training programs. 

ChairwomanVELA ́ ZQUEZ. Time and time again, you know, you 

show the disconnect between the agency and the real needs of a 

special population that cannot be served through any of the other 

programs that you have in place—

Ms.CARRANZA. Congresswoman Vela ́zquez—

ChairwomanVELA ́ ZQUEZ. —in the whole world. And we brought 

experts here who did so much work on micro loans. India, China, 

South America, they have micro loans and technical assistance; 

and it is working. They are working in those areas. Why can’t we? 

If the entire world is doing it and it is good for them and it is proven to work, why can it not work here? 

Ms.CARRANZA. Congresswoman Vela ́zquez, I bring a sensitivity to 

this role. I have had a mother who only had second grade education, so I fully understand the need for special attention and special focus for an underserved market. So please accept the fact that 

we are analyzing and recognizing the need that a particular populous needs as far as technical assistance. 

ChairwomanVELA ́ ZQUEZ. So you are going to agree with us that 

there has to be a need to increase the authorization levels for micro 

loans and PRIME. 

Mr. Akin, do you have any questions? 

Mr.AKIN. No thank you. 

ChairwomanVELA ́ ZQUEZ. The gentlelady is excused. Thank you 

very much. 

Let us move to the second panel: Mr. Kelly, Crawford, Keenan 

and Kuczarski. 

ChairwomanVELA ́ ZQUEZ. Our first witness is Mr. Kevin Kelly. 

Mr. Kelly is the Managing Director for Policy and Advocacy at the 

Association for Enterprise Opportunity. The Association for Enterprise Opportunity is the national organization that represents local 

micro enterprise development organizations throughout the United 

States. 

Mr. Kelly, thank you. You have 5 minutes to make your presentation. 

15

STATEMENT OF KEVIN KELLY, MANAGING DIRECTOR FOR 

POLICY AND ADVOCACY, ASSOCIATION FOR ENTERPRISE 

OPPORTUNITY 

Mr.KELLY. Thank you, Chairwoman Vela ́zquez. 

I am happy to be here today to talk about three different programs at the Small Business Administration that affect micro enterprise development organizations and micro entrepreneurs 

around the country. These three are the Women’s Business Program, PRIME and the SBA Microloan Program. 

Specifically, what we are recommending for authorization levels 

for the Microloan Program is two components, the lending component and a technical assistance component. The lending component 

we are recommending for fiscal year 2008 an authorization of $110 

million and for fiscal year 2009 $120. For the technical assistance 

component, we are recommending at fiscal year 2008 an authorization of $80 million and for 2009 of $90 million. The PRIME program for both 2008 and 2009 are recommending the same amounts, 

an authorization level of $20 million. For the Women’s Business 

Centers program in fiscal year 2008, we are recommending an authorization of $17 million and in 2009 $17.5 million. 

These three programs are the bread and butter, so to speak, of 

the micro enterprise development field here in the United States. 

There are some other Federal programs that can be used for micro 

enterprise development. However, they are not specifically set up 

for that purpose alone; and micro enterprise groups compete with 

a lot of other different kinds of activities. It is sometimes hard to 

get information about how much of those dollars really go to micro 

enterprise groups and SBDC and some of the other programs. So 

these three are really of most critical concern to our constituency. 

Just to give you some numbers, the Microloan Program, which is 

the single largest dedicated source of Federal dollars for micro enterprise in the U.S., since 1992 has made over 26,000 micro loans 

totaling over $318 million. This has primarily gone to women, minority and low-income entrepreneurs around the country. It is a 

very cost effective program. There is close to zero percent default 

rate on the lending portion of it, and the training and technical assistance has been very important in keeping up that very low default rate. 

Another point to make is, on the lending portion, the authorization that we are asking for is not in actual dollars, it is a lending 

authority. Because money is being paid back from previous loans, 

there is money coming back into this; and so it is a slightly different number. It is a much lower appropriations level, as opposed 

to the level that I am asking for the lending authority itself. 

What we are trying to do with our recommendation is get this 

program back up to what it once was before. In the last 6 years, 

it has been cut year by year; and now we are at a much lower rate. 

We want to get it back up to where it was before, which is similar 

to what we are asking for the other programs. 

With PRIME, it is a program that is set up really specifically for 

two things. It provides dollars for micro enterprises that do not 

need loan capital. They only need technical assistance and training. 

They are not yet ready for loan money or perhaps have a business 

16

that doesn’t need a lot of loan capital and they don’t need that 

right now. 

It is also focused more on low-income people. There is a requirement that 50 percent of all the grant award goes to help low-income entrepreneurs. These make it unique. 

This is a program that was requested actually by groups in the 

field, because a lot of them do not do lending. That is one thing 

that is a little bit different here. 

I know that a lot of people on the Committee are familiar with 

the Grameen Bank model, which is a lending model. In the U.S., 

about half the groups are doing that and about another half are not 

doing loans. They are only doing technical assistance and training. 

So a program like a Microloan Program doesn’t meet their needs. 

They are not able to actually accept it, because they are not doing 

any lending. So the situation here in our country is a little bit different. Plus, for this program, what I mentioned about the focus on 

low-income people is different than other programs at SBA. 

Again, we want to get this back up to what it once was. When it was first passed, it was a $15 million national program. It has 

been cut down to currently $2 million, and we want to get it back 

up to what it was before. 

The Women’s Business Centers program is the third one that we 

are supporting. Close to 200,000 women were counseled and 

trained last year alone for this program, and it meets the unique 

needs of women entrepreneurs, and it is one that we would support. Again, we are asking for $17 million for 2008 and $17.5 million for 2009, and those are slight increases from what they have 

received. Altogether, these three programs, by giving higher authorization levels, we will be able to create more jobs and support 

more micro enterprise development efforts around the country. Our 

country would benefit through more tax dollars and more people 

employed. 

I salute your efforts for looking at the authorization levels and 

trying to increase them and to make recommendations to the appropriators. I appreciate the opportunity to testify today. Thank 

you. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Kelly. 

[The prepared statement of Mr. Kelly may be found in the Appendix on page 39.]

ChairwomanVELA ́ ZQUEZ. Our second witness is Mr. Don 

Kuczarski. He is the Senior Vice President of Business Banking for 

Greylock Federal Credit Union in Pittsfield, Massachusetts. He is 

testifying on behalf of the Credit Union National Association. 

CUNA represents over 90 percent of all State and Federal credit 

unions in the United States. 

Welcome. 

STATEMENT OF DON KUCZARSKI, SENIOR VICE PRESIDENT 

OF BUSINESS BANKING, GREYLOCK FEDERAL CREDIT 

UNION, PITTSFIELD, MASSACHUSETTS, ON BEHALF OF THE 

CREDIT UNION NATIONAL ASSOCIATION 

Mr.KUCZARSKI. Thank you. Good morning, Chairwoman 

Vela ́zquez, Ranking Member Chabot and other members of the 

17

Small Business Committee. I am Donald Kuczarski, Senior Vice 

President of Business Banking at Greylock Federal Credit Union in 

Pittsfield, Massachusetts. I appreciate this opportunity to appear 

before the Committee on behalf of the Credit Union National Association and to express our support for maximum funding levels of 

the Small Business Administration 7(a) Loan Guaranty Program. 

CUNA is the Nation’s largest credit union advocacy organization, 

representing over 90 percent of our Nation’s approximately 800 

State and Federal credit unions, their State credit union leagues 

and their 89 million members. 

Greylock is the leading mortgage and auto lender in Berkshire 

Country. It has also become a leading lender for small businesses, 

thanks in large part to the SBA’s 7(a) lending program. 

Chairwoman Vela ́zquez, I am honored to be here to speak to you 

about the positive impact that SBA lending offers to our local economy, to our credit union and, most importantly, to our members. 

Your leadership and efforts to encourage credit unions to participate in SBA programs is greatly appreciated, and we thank you for 

introducing the Credit Union Small Business Lending Act. We 

truly value our partnership with the SBA that has helped so many 

small business owners and contributed to an economic turnaround 

in western Massachusetts. 

While we offer all the services typically found in a commercial 

banking operation, we focus on small businesses with business loan 

requests between $10,000 and $200,000. Many of these loans, due 

to their higher risk profile, would not have been made without the 

assistance of the SBA. They were ineligible for conventional financing due to minimal management experience, sufficient collateral or 

the business had a limited track record. 

As a community based credit union, Greylock has always taken 

pride in giving auto loans and mortgages to members who were unable obtain conventional financing. With the help of the SBA, Greylock has been able to extend that philosophy by injecting over $11 

million into the local economy. 

Thanks to the SBA program we can offer financing at reasonable 

rates to small companies that do not fit the standard underwriting 

criteria. 

Let me give you an example: A local family sought to purchase 

and expand a bakery business. The collateral associated with this 

loan would have been inadequate for Greylock to help them. But 

through the SBA program we created the financing they needed, 

and the small business is now growing rapidly into a regional 

wholesaler. The business deserved to be financed; and, thanks to 

the SBA, Greylock Federal Credit Union was able to help them get 

started. 

Small businesses are the lifeblood of the economy in our hometown region, and Greylock is the leading source for small business 

financing thanks to SBA. We would appreciate your help in making 

sure that flow of financing continues. As you know, credit unions 

have a cap on the amount of commercial lending they can engage 

in. We are currently limited to 12-1/4 percent of assets; and, from 

our experience, the cap is artificial and far too restrictive. Less 

than 8 years into our commercial lending and after only 5 years 

18

with SBA lending, we will soon hit the cap and have to limit future 

loans to businesses in Berkshire County. 

Strictly speaking, SBA loans do not count toward the cap. Currently, only the guaranteed portion of a loan is excluded. However, 

these loans often evolve into conventional loans, so the cap hamstrings us, thus taking away the flexibility that has been the key 

to our success. Chairwoman Vela ́zquez, your legislation, the Credit 

Union Small Business Lending Act, will expand the member business lending cap by exempting the entire loan amount from the 

cap, providing credit unions with additional capacity to make 

nonSBA business loans. 

Mr.KUCZARSKI. There is also a provision in the Credit Union 

Regulatory Improvements Act, H.R. 1537, that would increase the 

MBL cap from 12 and a quarter percent to 20 percent of assets. 

Not only would this provide relief to credit unions already offering 

member business lending, but also make it feasible for other credit 

unions to incur the expenses in establishing business lending programs and allow many more local businesses to have the benefits 

of increased lending options. 

CUNA is hopeful that credit union participation with SBA’s 7(a) 

program will continue to grow. However, credit unions will have a 

difficult time when faced with the current road blocks of increased 

fees and inadequate funding of SBA’s programs. By definition, 

these loans are going to small and start-up businesses, and increased fees can really hurt them when they are managing very 

tight margins and cash flows. 

For example, we recently provided financing to a payroll company for the acquisition of a competitor. Our member had to pay 

an $8,200 fee to SBA for a $34,000 loan. 

Again, thank you for the opportunity for us to share our thoughts 

on sustaining and improving the 7(a) program. It means a lot to 

our credit union and to the small businesses we serve in Berkshire 

County. I’d be happy to answer any questions. 

[The prepared statement of Mr. Kuczarski may be found in the 

Appendix on page 43.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Kuczarski. 

Our next witness is Jody Keenan. Ms. Keenan is the State director for the Virginia Small Business Development Centers. She was 

recently elected, congratulations, as chair of the Board of Directors 

for the Association of Small Business Development Centers whose 

members make up the 63 State, regional and territorial SBDC programs that serve all 50 States, the District of Columbia, Puerto 

Rico, the Virgin Islands, Guam and American Samoa, welcome. 

STATEMENT OF JODY KEENAN, STATE DIRECTOR, VIRGINIA 

SMALL BUSINESS DEVELOPMENT CENTERS, ASSOCIATION 

OF SMALL BUSINESS DEVELOPMENT CENTERS 

Ms.KEENAN. Thank you very much. Good morning, Chairwoman 

Vela ́zquez, Ranking Member Chabot and members of the committee. I appreciate your invitation to present ASBDC’s views concerning authorized funding levels for our Nation’s Small Business 

Development Center Network. And I want to thank you on behalf 

of ASBDC and the dedicated men and women who are part of the 

19

SBDC network for your unwavering support. You have been true 

champions of small businesses and the small business development 

centers that serve them. 

Chair Vela ́zquez, I want to personally thank you for your leadership and your work to help secure desperately needed funding for 

the SBDC program. Thanks to your efforts and the support of the 

Budget and Appropriations Committees, the House Financial Services appropriations bill contains a much needed increase in funding 

for the SBDC network. Thank you. 

SBDC is a vital resource for America’s small businesses. As you 

know, the fastest area of entrepreneurial growth is among women 

and minorities, an area where SBDC have a great deal of experience, expertise and success. More than 40 percent of our clients are 

women; 31 percent are minorities; and 10 percent of our counseling 

clients are veterans. 

In 2006, the SBDC network helped in-depth clients, those who 

received five or more hours of SBDC consulting during the year, to 

create 67,000 new full time jobs, save an additional 76,000 jobs, 

and generate 201 million in new Federal revenue as a result of economic growth. 

SBDCs help Americans start and grow their own businesses, create jobs, grow our economy and strengthen the fabric of society. 

And we do all of that while generating more tax revenue than it 

costs taxpayers to fund the SBDC program. 

I believe a government program with this kind of result deserves 

the investment of Federal resources. However, the SBDC network 

today receives less Federal funding than it did in 2001, even without accounting for inflation. With inflation, the average state will 

receive approximately 19 percent less Federal funding in 2008 than 

in 2001 unless our Federal funding is increased. 

SBDCs are closing and cutting back on services across the Nation. We were able to provide business consulting to 28 percent 

fewer small business owners in 2006 than we were able to serve 

just 2 years earlier. And we provided 24 percent fewer business 

consulting hours in 2006 than just 3 years prior. 

For all of these reasons, the ASBDC respectfully asks the committee to increase the SBDC reauthorization to $140 million in fiscal year 2008 and $145 million in fiscal year 2009. These levels of 

authorized funding will allow the SBDC network to recover from 

declining real Federal funding, to meet the growing demand for 

SBDC services and to increase business and job correction. In addition, these increased authorization levels will once again indicate 

to the Budget and Appropriations Committees the strong support 

of the Small Business Committee for the network of America’s 

SBDC. 

Madam Chair and Ranking Member Chabot, we also ask for your 

continued support to ensure core funding for the SBDC network is 

restored. The ASBDC shares the committee’s strong interest in increased efforts to address special needs in the business community. 

While our association has been concerned that new GRANT programs could adversely impact funding that is distributed to State 

networks based on population, we sincerely appreciate the reassurance of committee staff that core funding will be restored before 

new grant programs are funded. And we ask that the conference 

20

reports on the bills creating new grant programs include language 

to that effect. 

Finally, Madam Chair and Ranking Member Chabot, the SBDC 

network deeply appreciates the operational changes the committee 

included in the SBA Entrepreneurial Development Programs Act of 

2007. These changes, such as strengthening privacy protection for 

SBDC clients, will greatly enhance the network’s ability to serve 

the small business community and aspiring small business owners. 

Chair Vela ́zquez, Ranking Member Chabot and members of the 

committee, thank you again for all you have you done to ensure 

that small businesses, aspiring entrepreneurs and the SBDCs that 

serve them have the resources they need. I appreciate your willingness to consider our views. 

[The prepared statement of Ms. Keenan may be found in the Appendix on page 47.]

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Keenan. 

Our next witness is Mr. Chris Crawford, is the president and 

CEO of the National Association of Development Companies. 

NADCO provides legislative and regulatory support for the 504 

program on behalf of member certified development companies and 

other program affiliates. 

Welcome, sir. 

STATEMENT OF CHRIS CRAWFORD, PRESIDENT AND CEO, 

NATIONAL ASSOCIATION OF DEVELOPMENT COMPANIES 

Mr.CRAWFORD. Thank you, Madam Chair. And thank you for the 

opportunity to provide input to your consideration for fiscal year 

2008 and 2009’s authorization ceilings. I would also like to thank 

the committee and the House of Representatives for its passage of 

H.R. 1332 earlier this year. This is a bill that contains many, many 

enhancements for the 504 program that will greatly assist America’s small businesses when it becomes law. 

First, the fiscal year 2008 authorization, the administration has 

requested only $7.5 billion for the 504 program for fiscal year 2008. 

NADCO recommends that the committee seek a minimum of $8.5 

billion for the program ceiling for 2008, and I understand that you 

are supportive of this amount. 

The 504 has been at zero subsidy since 1997 and has grown at 

an average annual rate of 27 percent since that year while costing 

taxpayers absolutely nothing. Our growth rate just for the past 5 

years has exceeded 16 percent. While this growth rate would indicate a demand for fiscal year 2008 of just under $8 billion, we are 

very concerned about the impact of a slowing economy in the coming several years. As our economy slows, traditional small business 

lenders will almost certainly tighten credit. Recent history demonstrates that banks generally demand higher down payments, 

shorter loan terms and increased interest rates of small business 

borrowers during economic turndowns or recessions. 

Further, banks frequently turn to credit enhancement programs 

such as the 504 program to decrease their risk of loss for small 

business loans. If such a downturn does occur, and many economists are certainly forecasting that, demand for the 504 program 

will certainly increase. And our history of the past 22 years during 

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downturns and recessions demonstrates that we will see greater, 

more rapid growth. 

NADCO believes that authorizing a ceiling of anything less than 

$8.5 billion will greatly increase the risk of forcing SBA to move 

to a credit and restriction plan, which would cut off small businesses from much needed capital to create jobs. 

On to fiscal year 2009, the administration has requested only $8 

billion for fiscal year 2009 for 504. As the economy slows in 2008, 

NADCO is concerned this will continue into 2009. Thus it will be 

imperative that 504 not be restricted in its provision of long-term, 

reasonably priced credit to small businesses during the span of this 

committee’s reauthorization of the program. We urge the committee 

to provide a minimum of $9 billion in authority, and I understand 

that you all support this level also. 

Again, NADCO is pleased that the House has passed H.R. 1332. 

This is a bill we consider critical to enhancing the 504 program for 

small businesses. We hope that the committee will work with the 

Senate Small Business Committee to craft a final bill containing 

the many benefits of your and that body’s legislation during the 

final months of this congressional session. We also hope to the committee will seek the authorization levels I have expressed in this 

testimony. 

Thank you very much. 

[The prepared statement of Mr. Crawford may be found in the 

Appendix on page 50.]

ChairwomanVELA ́ ZQUEZ. Thank you. Thank you all for your testimony here this morning. 

I just would like to address one of the issues, Ms. Keenan, that 

you raised, and that is, are you concerned about core funding? And 

I want you to know that I, too, share your concern, and that is 

why—and one of the reasons why we included language in the bill 

that passed the House which states that any SBDC grant program 

funding should not come from this core funding. 

Can you talk to us about what an additional 20 percent in funding will mean for the average center and the businesses they serve? 

Ms.KEENAN. Well, it will certainly be a communication to our 

local funding partners that our Federal partner is at the table with 

us. It will also allow us to shore up our resources and reach more 

businesses to help them create more jobs and create more wealth 

in the local community. 

ChairwomanVELA ́ ZQUEZ. Mr. Kuczarski, one of the goals of today’s hearing and the legislation under consideration is to increase 

access to capital for small businesses. Unfortunately, many of the 

requirements set by the SBA for making 7(a) loans are too burdensome for many small credit unions. 

Is it possible that in using alternative size standards, more credit 

unions will participate in the 7(a) loan program and we could increase the overall—and if you do that, that will help increase the 

volume of loans throughout that program? 

Mr.KUCZARSKI. Thank you. I agree that whatever we can do to 

increase the size limits and make more businesses eligible on behalf of the SBA program would be beneficial to our local economy 

22

and to the country to grow our businesses and the entrepreneurial 

spirit of our country. 

May I comment on the SBDC? I agree that the SBDC is an excellent program. 

ChairwomanVELA ́ ZQUEZ. Uh-huh. 

Mr.KUCZARSKI. And our association and our partnership with the 

SBDC is fabulous. It has a great benefit to our SBA members who 

go to the SBDC to get information and training to make sure that 

they are successful businesses. So, I agree, I do support the increase. 

ChairwomanVELA ́ ZQUEZ. You spoke about the preferred lender 

program in your testimony, and it has been difficult for many credit unions to become preferred lenders in the 7(a) program due to 

the stringent requirements by the SBA. 

What do you think could be done within the administration to 

make it easier for credit unions, like yourself, to obtain this type 

of lending accreditation? 

Mr.KUCZARSKI. We were approved to be a preferred lender to the 

SBA. After being in SBA lending for a few years, we looked at our 

experience and the quality of our lending prior to giving us that 

designation. What could have sped the process up would have been 

the—looking at the experience of the lenders that we had within 

the credit union, because our lenders had previous SBA lending experience. 

With the PLP program, we are capable of turning around loans 

much quicker, and it makes it much more flexible in granting SBA 

loans to our businesses. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Crawford, you mentioned when you talked to us about the 

increasing lending activity among your members when there is a 

downturn in the credit cycle, and obviously with the subprime market and other economic factors, there is concern that this situation 

could occur. 

Can you talk about how your program can ensure available capital during this period and why an appropriate authorization level 

is necessary to ensure the program can perform this role? 

Mr.CRAWFORD. Yes, thank you very much. Well, I am certainly 

hopeful, I followed—as a homeowner, I followed the subprime lending debacle, and am certainly hopefully that we are not going to 

see it bleed over in our portfolio. Right now, our portfolio, all indications from the agency are it is performing extremely well. Our 

experience, as I talk to members, because I have asked this question of them, are we going to have a problem with portfolio performance? Our experience seems to be, and this is true from my 

own personal experience, a former small business owner, that small 

business owners will generally bend over backwards to make their 

loan payments on their businesses, because if they lose their businesses and their business location, they lose their livelihood. 

Whereas if they lose their house, they move to another house. It 

is tough, but they don’t lose their income. So our experience has 

been that the subprime lending may well not bleed over into our 

portfolio performance. 

I believe that banks, as they tighten the screws, as I talked 

about, I think they will turn more and more to 504 as a credit enVerDate 0ct 09 2002 09:36 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38206.TXT LEANN
23

hancement vehicle, and we already see that happening. Our loan 

volume this year is up 11 percent. And I expect that rate of increase to increase as it has been doing over the past 4 months. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Kelly, you were here and you saw my exchange with Ms. 

Carranza regarding PRIME on the microloan and the technical assistance aspect of both programs. We know and you know because 

surveys of microenterprises reveal that many entrepreneurs or potential entrepreneurs seek training before even applying for a loan. 

Do you think that one of the biggest obstacles that small businesses face in this Nation is lack of access to capital? And when 

a bank knows that a person who is applying for a loan has received 

a type of technical assistance, do you think that would be an incentive for those banks to make those loans? 

Mr.KELLY. Yes, I do believe that. The main issue I think for the 

folks that our members help is training technical assistance. They 

need to have that when they get a loan, and for those that are not 

ready for a loan, that is their primary need. 

I would like to point out also that in the microloan program on 

point, there is a program that was within there for nonlending 

groups to get money through their program. They then use that to 

do training and technical assistance, the groups then went to 

banks, CDFIs and other financial institutions at the local level and 

obtained the loan. So the reason that those financial institutions 

gave them the loans was precisely because they did have that 

training of technical assistance and that program got stopped because the microloan program got cut back and the dollars weren’t 

available anymore. 

ChairwomanVELA ́ ZQUEZ. So you also heard that the technical assistance is provided through other programs, why do you think this 

particular microloan and PRIME technical assistance components 

are so important and unique? 

Mr.KELLY. We are dealing with different people is basically is the 

short answer. The other programs I think are fine for who they 

help, but for the mostly low income, often rural folks who don’t 

have a lot of other options, these programs really fill a need for 

them that the other programs just don’t. They don’t get the same 

level of technical assistance throughout the whole process—before 

the loan, when the loan is made and after the loan is made—like 

you get in the microloan program, the real basic help that the 

PRIME program takes. And some of them are really dealing with 

what I call financial literacy issues that the other programs really 

are not addressing. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Kelly. 

Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. 

Mr. Kelly, I will begin with you if I can. I wanted to talk with 

you briefly about the microloans, also something I have had an interest in for a long time. I remember seeing and you mentioned the 

Grumman bank. And there was a program I remember seeing 20 

years ago on 60 Minutes, that was the first time I was aware that 

they even existed or that there was such a thing. And they had the 

guy that started the Grumman bank, Dr. Mohammed Yunus, who 

I had the great pleasure to have lunch with a few months back. He 

24

is a Nobel Peace Prize winner. And if you know anything about 

Bangladesh, they have a very challenging political landscape right 

now. 

There is a caretaker government, and he was thinking about 

throwing his hat into the ring through an alternative party, and he 

tried it for a couple of months, thought better of it and got the heck 

out of it. And I guess a lot of people think that politics—it takes 

somebody, I guess with a unique ability to withstand all kinds of 

criticism from all kinds of angles and a lot of other things, but certainly in that area that I just mentioned, the area of helping people 

who really need help. He was one of the premiere people on earth. 

And wrote—and of course, microloans, here we don’t have the abject poverty in general here in the United States. Although, obviously, we do have poverty in this country, but in Bangladesh, it 

was a woman, for example, who couldn’t afford—had no capital, 

couldn’t afford to get the sewing machine, for example, and there 

would be a group that would keep kind of an eye on each other, 

make sure everybody paid it back. And the default rate was very, 

very low there. 

And fortunately, here, the microloan program also the default 

rate has been very, very low. The loans are obviously larger than 

one would see in Bangladesh in general, and we have been reviewing those and talking about increasing them. 

But could you discuss just briefly why—how—why the 

microloans have been successful in that area? One might think, because they are relatively low loans with people who may not have 

a long track record and may be new in business, that perhaps there 

would be a higher default rate because people wouldn’t necessarily 

have the skills or the business acumen or whatever it is and just 

might fall into debt and just not be able to handle the loan, but 

that is not what we think. 

Could you discuss that, why it has been so successful and maybe 

we can replicate it in other areas? 

Mr.KELLY. Yes, I think the answer to it relates to what I was 

saying just a second ago, and it has to do with the training and 

technical assistance. And the extent or nature of that, groups like 

our members that are microenterprise development groups around 

the country are providing to entrepreneurs, again all through the 

whole process, so before you even get the loan, they work with 

them. We have found that some of the people really are not prepared, and then when the loan is made, you keep in touch with 

them constantly, so if any problem crops up, the nonprofit group 

who is working with them hears about it and can deal with it then, 

not when it is too late, after the loan is made, to continue working 

with them as well. 

That I think is really the reason that it has been a success. And 

obviously a commercial bank could not do that kind of thing; it is 

too costly for them. So that is why this type of approach works so 

well with this particular niche in the population. 

Mr.CHABOT. Thank you. 

Mr. Kuczarski, if I could go to you next. First of all, I have always been very impressed with the role that credit unions have 

played and filled in the overall economy and then putting people 

oftentimes with limited means to do much better and to support 

25

their families and to create more jobs and all the rest. So my hat’s 

off to the credit unions for what they have been able to accomplish. 

You had stated that many of the loans that you have processed 

would not have been made without the assistance of the SBA. 

Could you tell us some of the specific difficulties that these borrowers face, that they would not have been able to do it but for the 

SBA? 

Mr.KUCZARSKI. Of course. In my testimony, I mentioned a few of 

those factors, and one is, many times, is lack of collateral. A member may be buying a business that may not have tangible assets 

that they can pledge as collateral or they may not have a home, 

and where you are actually financing the goodwill of the business. 

And the SBA allows us to enter a transaction with this member 

without a proper underwriting criteria with cash flows and allow 

us to do that loan, where typically a conventional financing package would not be feasible. 

Another issue that we look at is also management experience. 

We may have a member looking to buy a business that may be new 

into the industry. It is a successful business, but they want to purchase the business, and they may have either a lack of a down payment or they may have a lack of experience in that particular industry, and that is where the SBDC comes in to play for training. 

Training is critical for the success of these businesses and the SBA 

also helps with a lowered down payment; in situations, typically 10 

percent for a down payment versus your typical 20 percent down 

in conventional financing. 

Mr.CHABOT. Thank you very much. 

Ms. Keenan, could you talk briefly about what specific services 

that you would look to expand if the authorization is raised, as well 

as the actual appropriation of course as well? I know you already 

discussed it somewhat, but could you expound upon that a little 

bit? 

Ms.KEENAN. We would certainly be able to meet the growing demand for our services. In the area of business planning, access to 

capital, government procurement, international trade, compliance, 

services to manufacturers and sustainability issues and expanding 

companies, emerging company technologies. 

Mr.CHABOT. Thank you. 

And finally, Mr. Crawford, given the present credit crunch, what 

is the outlook for small business growth and expansion in the near 

future if you could comment on that, if you want to wade into those 

waters. 

Mr.CRAWFORD. I am probably biased on this, having owned two 

small businesses and having created a number of jobs, including 

during a recession. I think that the entrepreneurial spirit of this 

country and of business owners is phenomenal. 

A lot of people have been laid off. I came out of banking, both 

my banks are toast. They are gone. They have laid off folks, thousands of folks. Those folks are making a good living now. Many of 

them, the people that I know, have created their own businesses, 

and they created them in tough times, and they made a go of it. 

The grease that feeds that wagon train is capital; it is money. And 

that was certainly true in my case, and it is true in most cases that 

I have seen. That’s why we cannot restrict access to capital. We 

26

have to make it more convenient. We have to bring the SBA into 

the 21st Century—we have to bring them into the 20th Century. 

Their use of technology needs to be advanced. Their staffing levels, you all have touched on that this morning. I believe our own 

program’s growth is going to become restricted by simply staffing 

levels, the ability to approve and authorize 504 loans. I have talked 

about that to the administrator on a couple of occasions, and I 

think those are going to be critical issues for us in the coming year, 

especially if we go into a recession where we and 7(a) are needed 

most. 

Mr.CHABOT. Thank you very much. 

I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. 

Mr. Kuczarski, I am a big fan of credit unions, they serve a real 

niche need. You all make loans that the major banks wouldn’t even 

think of making. They would lose money making the loans. So I am 

very jealous that we don’t put at risk our credit unions because 

they are very important for our small businesses. And I notice in 

your prepared testimony that you note that the field of membership 

for your credit union is anybody who works and lives in Berkshire 

County. 

Mr.KUCZARSKI. Yes. 

Mr.BARTLETT. Credit unions enjoy certain regulatory releases 

that banks aren’t subjected to. You have certain tax advantages. 

And my concern is that if you—if your field of membership is the 

world, then how are you different from a bank? And the banks are 

watching that. 

And I would encourage you to not put at risk the very valuable 

service that you provide to our citizens by making yourself look so 

much like a bank that you are indistinguishable from a bank. And 

their plea that you are one of them and should be subject to the 

same regulations and taxes as them because you are unfairly competing, it is hard to refute. Just a word of caution that you are a 

unique organization and please don’t make your field of membership the world, because then, how are you different from a bank? 

And their plea is that you in fact are not different and therefore, 

you should be subjected to the same regulations and taxes as they. 

I think if you were not here, a large number of people would be 

denied services that are very important to them. 

I would just like to ask a question about HUBZones. I don’t know 

if my personal experience with HUBZones is the usual experience, 

and that is what I would like to get an answer to. All these small 

business programs help people, and they are very important. But 

my experience with HUBZones is that they go beyond helping people; they help whole areas. 

I have a whole county which is a HUBZone. And the jobs that 

are being brought to that county are not the average jobs in the 

county. The jobs that are coming there pay three or four times the 

mean salary that is paid in that county. 

They are doing that because, in our government, we have 

HUBZone goals for all of our agencies, and it is the one area where 

our agencies are probably having the most trouble of meeting their 

goals, and so these business people see an opportunity to get a bit 

27

of an advantage. And these are almost all competitive, the acquired 

contracts. And they see a bit of an advantage in operating from a 

HUBZone. So they voluntarily move their business to the 

HUBZone. And the local community colleges cooperate in providing 

courses so that they will have the workers they need, but they 

bring with them some workers and very high salaries. 

By the way, that same county had the first HUBZone contract 

in the whole country. It is Garrett County in Maryland, and the 

first HUBZone contact was to Garrett Containers, and they are a 

very successful business now, building a lot of shipping containers 

for the military. 

Is my experience an unusual experience, or is it a usual experience that the HUBZone contracts are helping communities by 

bringing higher paying jobs to the community, not just more lowpaying jobs, which many of our small businesses do, but higherpaying jobs to the community. Do I have an unusual district or is 

that the norm? 

Mr.KUCZARSKI. I apologize, Congressman Bartlett, I am not that 

familiar with—

Mr.BARTLETT. The rest of you, are you familiar with HUBZones? 

Ms.KEENAN. A little bit. Just to say that I think that is certainly 

the intent of the HUBZone program. One intent is the economic development, stimulation and creation within a community. I am in 

Northern Virginia, and we don’t have very many in Northern Virginia, but certainly throughout Virginia. An analogous example 

might be an enterprise zone that the State runs, which is a very 

similar example, where companies come in and bring a certain percentage of their workforce. But HUBZone requires that you hire 

local employees and residents as employees. And so, in that case, 

I think your example is certainly what they are striving for in the 

program. 

Mr.BARTLETT. Well, 35 percent have to live in the HUBZone 

area, but they could have moved in. 

Ms.KEENAN. They could have moved in. 

Mr.BARTLETT. Which is what some of our people are doing. And 

every one of those high-paying persons that move in, that creates 

several good jobs, support jobs in the community. 

Well, I thank you very much for your testimony and yield back 

the balance of my time Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr. Ellsworth. 

Mr.ELLSWORTH. Thank you, Madam Chairwoman. 

Mr. Crawford, in your written testimony on page three, I believe 

verbally, too, you talked about that history demonstrates the banks 

in tough time reacted in a couple of different ways, this paragraph, 

the first full paragraph on page 3. I was just curious if you had information on how the credit unions in those same situations, those 

same tough times, how the credit unions react. Do you have any 

information on that? Do they implement those same things? Shrink 

the credit box? Are they easier to work with, do you have an opinion on, that when tough times occur? 

Mr.CRAWFORD. Well, I am sure you want to address that same 

question to the other witness. 

Mr.ELLSWORTH. Absolutely. 

28

Mr.CRAWFORD. My personal experience was, when I attempted to 

borrow money during a recession for a small business that I owned 

from the Postal Service’s credit union for which my wife was a 

member, I was turned down. That was the only loan I have ever 

been turned down for in my entire working career. It was in tough 

times. I guess they thought we didn’t have good enough credit, 

even though I could have written a check for what I was actually 

asking for. 

So I can only suspect that Postal Union executives act as most 

bank executives do, and they take a much more careful look at 

their credit, especially for their commercial credits. My experience 

has been, when things get tough, you don’t cut off loans to your 

Fortune 500 companies, because they are going to pay the loans 

back. You don’t cut of loans to consumers, because there are so 

many of them, you are going to make your money back on the numbers. And so who do you cut loans off to? Well, you cut loans off 

to small businesses. That has been my personal experience. That 

is what I hear. I spent 15 years in banks; that is what I saw in 

banks. I would suspect that credit union executives, because they 

have a fiduciary responsibility to their members, they would probably look much more carefully at their credits. 

Mr.ELLSWORTH. Thank you. 

And to follow up, and then I will let Mr. Kuczarski follow up on 

that, but in your opening statement, Mr. Kuczarski, you asked 

some of the things like raising above the 12.25, 12 and a quarter 

cap would make it easier for to you make these loans. Do the other 

three organizations represented have an opinion on Mr. Kuczarski’s 

request? Do you support that? Can you officially support those requests on behalf of your organizations and that can either take a 

yes or no. If Mr. Kuczarski wants to comment on your comment or 

my first question. 

Mr. Kelly. 

Mr.KELLY. I don’t really have an opinion on that. I am not qualified to comment on that program. I don’t know enough about it, 

sorry. 

Mr.ELLSWORTH. Ms. Keenan. 

Ms.KEENAN. I am not prepared to comment on it. I would just 

say that increasing and expanding the outlets for capital for our 

small business clients and constituents is always a priority.

Mr.ELLSWORTH. And Mr. Crawford? 

Mr.CRAWFORD. Well, I spent 15 years with the American Bankers Association which has—

Mr.ELLSWORTH. I know your answer then. 

Mr.CRAWFORD. Strong opinions. Interestingly, my uncle ran a billion dollar credit union in Texas. He and I used to have violent conversations about the issue of competition by credit unions, going 

back to Mr. Bartlett’s comments. So I should probably shut up. 

Mr.ELLSWORTH. And in all fairness, Mr. Kuczarski, if you would 

like to close. 

Mr.KUCZARSKI. I will approach that whole issue regarding the 

differences between credit unions and banks. 

Mr.ELLSWORTH. You could take 3 days on that or more. 

Mr.KUCZARSKI. I will comment on the issue of, in the event we 

do enter a recession, what would happen to our ability to provide 

29

capital to small businesses. So we are a small business lender, that 

is what we do. We do not deal with large businesses. Obviously, we 

would look overall at our portfolio to look at the integrity of our 

balance sheet. If we see that there is a deterioration, obviously you 

need to take certain things into consideration. But when a member 

comes in, you have to look at the specific deal. You have to look 

at the member. You have to look at what they are proposing. And 

you have to look at the merits and not necessarily about the overall 

economy. Obviously, that does play a fact into the equation, but it’s 

a very variable and subjective decision based upon the merits of 

that particular borrower. 

Mr.ELLSWORTH. Thank you. 

Madam Chairwoman, I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Fortenberry. 

Mr.FORTENBERRY. Well, you all heard my earlier question, so I 

am going to ask it again. And I think that I understand clearly 

your message, and I think you have laid out very well the primary 

drivers of empowering risk-taking access to capital; understanding 

of the market in particular; I think one of you mentioned experience in a particular industry, absolutely foundational. 

A number of years ago, we changed the Tax Code to allow for accelerated or higher levels of depreciation, write-offs, immediate 

write-offs for higher levels of capital investment. I think that alone 

was such a powerful tool in the expansion of small business that 

I am not sure we clearly have noted the impacts of that. Its related 

to the fundamental question, let’s broaden our thinking as to how 

we empower more people to understand and undertake risk taking 

for the purposes of their own welfare and societal benefit of new 

products being brought to market. 

Health care I think is one of those inhibiting factors that keeps 

people from stepping beyond what their current confines are in 

order to enter into a new venture. 

Certain other tax policies, I mentioned the general restrictions, 

or let’s say the lack of incentive regarding home base businesses, 

could be another one which you obviously would significantly lower 

costs, particularly as we are entering into an age of telecommuting 

and linkages through other forms of advanced technology that 

would help us rethink the whole concept of how you get to the 

place where you produce that marketable product. 

You all are on the ground and you know this. And I just would 

like to again challenge all of us to think in partnership about those 

other aspects, those other barriers that exist out there and what 

potential policy solutions there are to reduce those, to lower those 

that would augment our good ability at trying to provide capital, 

and trying to provide education, outreach, and trying to provide 

mentoring so that the poor resource allocation doesn’t take place, 

and that is an important part of your work as well. 

Mr.KELLY. Thanks for the question, Congressman Fortenberry. 

In response to one of your points about the health care, that is absolutely something we hear. I was at a meeting we had in Knoxville a couple years ago where we actually were meeting with entrepreneurs, not the nonprofits of the system. When we broke, people went into their different States, and there were four different 

States represented. Everyone of them independently came back and 

30

reported to the group that health care was the number one issue. 

And in the discussion, the women that were in the group all said, 

I am working at another job because I need to keep my health care. 

I really don’t want to do that. I want to stop that, and focus all 

my attention on this business that I also have, which is on the side 

right now. 

Mr.FORTENBERRY. I don’t think we clearly understand what a 

significant drain on productivity that is in this country. I don’t 

think we clearly understand that, and that is one of the reasons, 

obviously, I am laying this out; not necessarily as a challenge to 

you all, but just to help us think creatively as to how we overcome—that is a good anecdotal story. I think it is repeated in so 

many ways across the country in so many forms. Sorry to interrupt. 

Mr.KELLY. That is fine. 

It is a complicated issue, and we certainly don’t recommend any 

particular kind of bill or—I wish I knew what the answer was to 

the health care situation here, but it really is an issue for our folks 

on the ground. 

Mr.FORTENBERRY. Here is a very small example, I will give you 

another; this is anecdotal. In my district, in one of my small towns, 

I had a small business owner come to see me, and I had introduced 

a measure last year that would allow a rollover of retirement plans 

into health savings accounts with the idea that the measure overcomes a potential barrier to entry into a small business because it 

is lowering the cost of basically start up, allowing someone to use 

an existing fund that sits out there. And obviously, health savings 

accounts also can be retirement accounts, so it is consistent with 

the original legislation. It ended up being in our tax bill last year. 

It didn’t pass as a separate measure, but it did pass in the overall 

tax measure. I didn’t think anybody paid attention to it until this 

small business person came to me and said, Jeff, that was huge for 

me and my employees, huge. It allowed my employees and me to 

maintain our health care policies by giving them an opportunity to 

start the health savings accounts, and obviously he had some type 

of cash-dropping policy that he subsidizes for them. So, again, I 

just lay that out anecdotally as a way to creatively think about how 

we potentially overcome something that is very real inhibitor out 

there. 

The other ones are other creative tax policies that I think we 

ought to really focus on as to how we can stimulate potential small 

business investment. Again, going back to the tax policy several 

years ago allowing for the higher levels of immediate write-offs and 

capital investment, I just think that I was a huge boost to the 

small business sector. But I want to hear your ideas. I am not here 

to preach at you. I am just trying to extract from you, because you 

are the experts and you see this. 

ChairwomanVELA ́ ZQUEZ. Your time. 

Mr.FORTENBERRY. Am I done? 

Mr.CHABOT. There is a red light. 

Mr.FORTENBERRY. Oh, is that what that means? 

Mr.CHABOT. Yes. 

Mr.FORTENBERRY. Can I have 15 seconds? I’ll stop. Thank you, 

Madam Chair. 

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ChairwomanVELA ́ ZQUEZ. Are you going to continue preaching, or 

are you going to ask a question? 

Mr.FORTENBERRY. I will be quiet. 

Mr.CHABOT. I give unanimous consent that the gentleman be 

given an additional minute to wrap up and ask a question that 

could be responded to. 

ChairwomanVELA ́ ZQUEZ. Without objection. 

Mr.FORTENBERRY. Thank you very much. When I was a brand 

new Member of Congress, it used to frustrate me about the Congress Members who would never get to their question, but here I 

am. So please, you respond. 

Ms.KEENAN. I would just say that the small business development centers, specific to the area of health coverage, a few years 

ago we worked on a project with the Health Leadership Council to 

put together a compilation, and this was in Virginia of health care 

products and ranges of cost that we then used to educate small 

businesses about what options there may be, so that although it 

can be prohibitive and certainly there is a reason—and we have the 

same examples, people that their spouse works while they start 

their business so can use their health insurance. 

We started with this education initially to inform employers 

about what options may be available and that could be affordable 

so that they would be able to have an insured workplace. So that 

is one avenue, but you are absolutely right. There needs to be a 

continued look and review of how to lower the barriers for entry 

so that more businesses and more entrepreneurs are encouraged to 

take that risk. 

ChairwomanVELA ́ ZQUEZ. Mr. Fortenberry, if you will yield for a 

second. This committee recognizes the important aspect of health 

care in terms of the impact that it has on small businesses. That 

is why we created a grant program, a health care initiative under 

the small business development centers so that they could provide 

assistance in matching small businesses with health care providers. 

Mr.FORTENBERRY. Thank you. 

ChairwomanVELA ́ ZQUEZ. Time has expired, and I will ask a last 

question to Mr. Crawford. Mr. Crawford, in your testimony, you stated that the $7.5 billion 

in loan authority that the administration has proposed would be insufficient to confront the rising demand for 504 loans. Can you explain why a higher authorization level is necessary, and what will 

be the consequences if the amount exceeded authority? 

Mr.CRAWFORD. Well, first of all, if I extend the current growth 

rate for this year we go beyond $7.5 billion, which means almost 

by definition you are going to see program shutdown if we grow 

just to 11 percent. I don’t have any doubt that we will grow faster 

than 11 percent, because I personally believe, and I think Mr. 

Greenspan has agreed with me, that we are headed for a slow 

down. And if that happens, we will grow faster. That means they 

will shut us down sooner or go to credit restrictions, as you referred to, that occurred with a 7(a) program some years ago, that 

it seems like you or I are the only ones in this room that remember 

that, but that did occur—I am sorry, and Barry remembers it. But 

I don’t want to see that with a 504 program. We are at zero subVerDate 0ct 09 2002 09:36 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38206.TXT LEANN
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sidy. The portfolio is performing extremely well. It seems to me, as 

you referred to 7(a), there is absolutely no cost to the taxpayer to 

put us at 8 or 8.5 or 12 and a half for that matter, but I would 

encourage that consideration. 

ChairwomanVELA ́ ZQUEZ. Thank you. And again, I want to thank 

all of you for coming here today and also for the work—the great 

work that you do in providing entrepreneurial development technical assistance, access to capital to small businesses in this country. 

And I just want to make sure that you know that this has been 

an important discussion that will help us in crafting the final bill 

that we will have before this committee for consideration. 

I ask unanimous consent that members have 5 legislative days 

to enter statements and supporting materials into the record. Without objection, so ordered. This hearing is now adjourned. 

[Whereupon, at 11:21 a.m., the committee was adjourned.]

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