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| <title> - EXPLORING CHALLENGES AND OPPORTUNITIES OF UNDERSERVED BUSINESSES IN THE 21st CENTURY</title> | |
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| [House Hearing, 116 Congress] | |
| [From the U.S. Government Publishing Office] | |
| EXPLORING CHALLENGES AND OPPORTUNITIES OF UNDERSERVED BUSINESSES IN THE | |
| 21ST CENTURY | |
| ======================================================================= | |
| HEARING | |
| BEFORE THE | |
| SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS | |
| OF THE | |
| COMMITTEE ON SMALL BUSINESS | |
| UNITED STATES | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED SIXTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD | |
| FEBRUARY 7, 2019 | |
| __________ | |
| [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] | |
| Small Business Committee Document Number 116-003 | |
| Available via the GPO Website: www.govinfo.gov | |
| __________ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 34-645 WASHINGTON : 2019 | |
| ----------------------------------------------------------------------------------- | |
| For sale by the Superintendent of Documents, U.S. Government Publishing Office, | |
| http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, | |
| U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).E-mail, | |
| <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="d8bfa8b798bbadabacb0bdb4a8f6bbb7b5">[email protected]</a>. | |
| HOUSE COMMITTEE ON SMALL BUSINESS | |
| NYDIA VELAZQUEZ, New York, Chairwoman | |
| ABBY FINKENAUER, Iowa | |
| ANDY KIM, New Jersey | |
| SHARICE DAVIDS, Kansas | |
| JARED GOLDEN, Maine | |
| JASON CROW, Colorado | |
| JUDY CHU, California | |
| MARC VEASEY, Texas | |
| DWIGHT EVANS, Pennsylvania | |
| BRAD SCHNEIDER, Illinois | |
| ADRIANO ESPAILLAT, New York | |
| ANTONIO DELGADO, New York | |
| CHRISSY HOULAHAN, Pennsylvania | |
| VACANT | |
| STEVE CHABOT, Ohio, Ranking Member | |
| AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member | |
| TRENT KELLY, Mississippi | |
| TROY BALDERSON, Ohio | |
| KEVIN HERN, Oklahoma | |
| JIM HAGEDORN, Minnesota | |
| PETE STAUBER, Minnesota | |
| TIM BURCHETT, Tennessee | |
| ROSS SPANO, Florida | |
| JOHN JOYCE, Pennsylvania | |
| Adam Minehardt, Majority Staff Director | |
| Melissa Jung, Majority Deputy Staff Director and Chief Counsel | |
| Kevin Fitzpatrick, Staff Director | |
| C O N T E N T S | |
| OPENING STATEMENTS | |
| Page | |
| Hon. Andy Kim.................................................... 1 | |
| Hon. Kevin Hern.................................................. 6 | |
| WITNESSES | |
| Ms. Marla Bilonick, Executive Director, Latino Economic | |
| Development Center, Washington, DC............................. 4 | |
| Ms. Sharon Pinder, President & CEO, Capital Region Minority | |
| Supplier Development Council, Silver Spring, MD................ 7 | |
| Mr. Davy Leghorn, Assistant Director, American Legion Veterans | |
| Employment & Education Division, Washington, DC................ 9 | |
| Mr. Michael Romano, Sr. Vice President of Industry Affairs & | |
| Business Development, NTCA--The Rural Broadband Association, | |
| Arlington, VA.................................................. 10 | |
| APPENDIX | |
| Prepared Statements: | |
| Ms. Marla Bilonick, Executive Director, Latino Economic | |
| Development Center, Washington, DC......................... 23 | |
| Hon. Kevin Hern.............................................. 27 | |
| Ms. Sharon Pinder, President & CEO, Capital Region Minority | |
| Supplier Development Council, Silver Spring, MD............ 29 | |
| Mr. Davy Leghorn, Assistant Director, American Legion | |
| Veterans Employment & Education Division, Washington, DC... 36 | |
| Mr. Michael Romano, Sr. Vice President of Industry Affairs & | |
| Business Development, NTCA--The Rural Broadland | |
| Association, Arlington, VA................................. 44 | |
| Questions and Answers for the Record: | |
| Questions from Hon. Bradley Schneider to Mr. Davy Leghorn and | |
| Answers from Mr. Davy Leghorn.............................. 54 | |
| Additional Material for the Record: | |
| CCA-Competitive Carriers Association......................... 56 | |
| EXPLORING CHALLENGES AND OPPORTUNITIES OF UNDERSERVED BUSINESSES IN THE | |
| 21st CENTURY | |
| ---------- | |
| THURSDAY, FEBRUARY 7, 2019 | |
| House of Representatives, | |
| Committee on Small Business, | |
| Subcommittee on Economic Growth, | |
| Tax, and Capital Access, | |
| Washington, DC. | |
| The Subcommittee met, pursuant to call, at 10:10 a.m., in | |
| Room 2360, Rayburn House Office Building. Hon. Andy Kim | |
| [chairman of the Subcommittee] presiding. | |
| Present: Representatives Kim, Davids, Schneider, Delgado, | |
| Radewagen, Hern, and Spano. | |
| Chairman KIM. We are going to get started here. We have a | |
| number of members that are coming over from the National Prayer | |
| Breakfast so they will come in and the Ranking Member will come | |
| in as he is able. | |
| I am Chairman Andy Kim. I am eager to get started here. I | |
| just want to have an opportunity to be able to make sure we are | |
| hearing from the incredible people that we have today that are | |
| going to be sharing with us. | |
| Small businesses make up over 99 percent of all businesses | |
| in the United States and employ almost half of our nation's | |
| workers. In 2018 alone, America's small employers added 1.9 | |
| million net new jobs to the economy. As I have seen firsthand | |
| in my district in New Jersey, Main Street businesses are the | |
| backbone of our communities. | |
| In my home state, small businesses employ nearly two | |
| million people, making up nearly half of the private workforce. | |
| Among them are approximately 58,000 veteran-owned businesses | |
| and over 250,000 female-owned businesses, which is why I am | |
| particularly happy to be chairing this hearing today. | |
| While nearly every entrepreneur faces obstacles when it | |
| comes to getting a new business off the ground and running, | |
| entrepreneurs from traditionally-underserved backgrounds tend | |
| to face even greater barriers to entrepreneurial success. | |
| We often hear that access to capital is the biggest | |
| challenge facing aspiring entrepreneurs. As the lifeblood of | |
| all new businesses, affordable capital is crucial to starting a | |
| business. Without it, new firms often cannot buy inventory and | |
| equipment, pay their employees, and expand operations. | |
| Unfortunately, studies have shown that women, minority, and | |
| veteran-owned businesses face heightened obstacles to securing | |
| affordable capital. For example, the Minority Business | |
| Development Agency found that minority-owned firms experience | |
| denial rates three times higher than other firms. Despite a | |
| similar demand, 60 percent of veterans reported a financing | |
| shortfall and had approval rates 10 percent lower than all | |
| other firms. | |
| In response to these challenges, minority-owned firms are | |
| more likely to rely on personal sources of funding, such as | |
| savings, a family member, or credit. This unfortunate reality | |
| is not only unsustainable, it is also hindering small business | |
| growth. | |
| Unfortunately, barriers to entering Federal procurement | |
| markets are also common for underserved firms. Federal | |
| contracts are a great source of potential for business growth | |
| and it is crucial that we find ways to make them more | |
| accessible to budding small firms. | |
| Setting government-wide small business contracting goals | |
| was a meaningful step towards increasing small business | |
| participation in the Federal procurement marketplace. However, | |
| as the numbers show, we will have work to do to level the | |
| playing field for underserved businesses. | |
| For instance, women-owned businesses were awarded $21 | |
| billion of the total $500 billion in contracts for fiscal year | |
| 2017. This is highly disappointing considering that women | |
| entrepreneurs contribute over $1 trillion a year to the U.S. | |
| economy. | |
| Meanwhile, rural businesses are facing a unique set of | |
| challenges, including smaller labor pools, slow population | |
| growth, net outmigration, and health problems including | |
| diabetes and opioid addiction. Though these issues impact rural | |
| communities at large, they can also have a devastating impact | |
| on rural entrepreneurship and business growth. | |
| To address these disparities, SBA created several | |
| initiatives which we will hear more about today. For many | |
| underserved businesses, initiatives such as Small Business | |
| Development Centers, Women's Business Centers, SCORE, and | |
| Veterans' Business Outreach Centers are there to provide | |
| mentorship and other key services. | |
| Today, I look forward to hearing the recommendations and | |
| feedback of our distinguished witnesses to strengthen these | |
| initiatives, as well as other Federal programs and private | |
| sector actions serving underrepresented entrepreneurs. | |
| I hope today's hearing will be a productive opportunity to | |
| explore the challenges facing small firms while identifying | |
| areas where we can work together on legislation that seeks to | |
| level the playing field for America's small businesses. | |
| Thank you. | |
| The Ranking Member will submit his statement for the | |
| record. | |
| And if other Committee members have opening statements | |
| prepared, we would also ask that they be submitted for the | |
| record. | |
| I would like to take a minute to explain the timing rules. | |
| Each witness will get 5 minutes to testify. Each member will | |
| get 5 minutes for questioning. There is a lighting system to | |
| assist you. The green light will be on when you begin, the | |
| yellow light will come on when you have 1 minute remaining, and | |
| the red light will come on when you are out of time. And we | |
| will ask that you stay within the timeframe to the best of your | |
| ability. | |
| Now, I would like to introduce our witnesses. Our first | |
| witness is Ms. Marla Bilonick. Ms. Bilonick has been the | |
| executive director of the Latino Economic Development Center | |
| since 2014. She has also worked for Seedco where she assisted | |
| businesses in Lower Manhattan that were impacted by the attacks | |
| of September 11th. Ms. Bilonick is a member of the board of | |
| directors of the National Association of Latino Community Asset | |
| Builders. She is a graduate of the University of Wisconsin at | |
| Madison and received her Master of Arts degree from Johns | |
| Hopkins University of Advanced International Studies (SAIS). | |
| Welcome back, Ms. Bilonick. | |
| Our second witness is Ms. Sharon Pinder. Ms. Pinder is the | |
| president and CEO of the Capital Region Minority Supplier | |
| Development Council (CRMSDC), a nonprofit corporation whose | |
| mission is to link corporations and government agencies with | |
| minority business enterprises. Prior to joining the council, | |
| she served as the director of the Mayor's Office of Minority | |
| and Women-Owned Business Development for the City of Baltimore. | |
| She was also Maryland's first appointed cabinet secretary of | |
| the Governor's Office of Minority Affairs. Ms. Pinder holds a | |
| Master of Science degree in Technology Management from the | |
| University of Maryland, University College, where she has the | |
| honor of serving as professor of practice in the School of | |
| Graduate Studies. | |
| Welcome, Ms. Pinder. | |
| Our third witness today is Mr. Davy Leghorn. Mr. Leghorn is | |
| the assistant director of the Economic Division of The American | |
| Legion where he oversees employment, small business, and VA | |
| contracting policies. He also administers The American Legion's | |
| Veteran Entrepreneurship Program. Mr. Leghorn served as a motor | |
| infantryman in the United States Army, then as a civil affairs | |
| specialist with the 450th Civil Affairs Battalion. He currently | |
| serves as the sergeant-at arms for George Washington Post 1 in | |
| The American Legion Department of the District of Columbia. | |
| Welcome, Mr. Leghorn, and thank you for your service. | |
| And today's final witness is Mr. Mike Romano. Mr. Romano | |
| serves as a senior vice president of Industry Affairs and | |
| Business Development for NTCA, the Rural Broadband Association. | |
| NTCA represents roughly 850 telecom companies throughout the | |
| United States, many of whom are located in rural communities | |
| and small towns with a goal of ``building a better broadband | |
| future for rural America.'' Prior to joining NTCA in 2010, Mr. | |
| Romano worked at Bingham McCutchen LLP, Global Telecom and | |
| Technology, America Online, and Level 3 Communications and | |
| Swidler Berlin. Thank you for joining us today. | |
| I want to just get started right from the beginning, so Ms. | |
| Bilonick, you are recognized for 5 minutes. | |
| STATEMENTS OF MARLA BILONICK, EXECUTIVE DIRECTOR, LATINO | |
| ECONOMIC DEVELOPMENT CENTER; SHARON PINDER, PRESIDENT AND CEO, | |
| CAPITAL REGION MINORITY SUPPLIER DEVELOPMENT COUNCIL; DAVY | |
| LEGHORN, ASSISTANT DIRECTOR, AMERICAN LEGION VETERANS | |
| EMPLOYMENT AND EDUCATION DIVISION; MICHAEL ROMANO, SENIOR VICE | |
| PRESIDENT OF INDUSTRY AFFAIRS AND BUSINESS DEVELOPMENT, NTCA- | |
| THE RURAL BROADBAND ASSOCIATION | |
| STATEMENT OF MARLA BILONICK | |
| Ms. BILONICK. Good morning, Subcommittee Chairman Kim and | |
| members of the Subcommittee. It is my sincere honor to be | |
| speaking with you all today. | |
| My name is Marla Bilonick, and I am the executive director | |
| and CEO of the Latino Economic Development Center (LEDC). | |
| LEDC is a 28-year-old organization with the mission to | |
| drive the economic and social advancement of low- to moderate- | |
| income Latinos and other underserved communities in the D.C. | |
| and Baltimore metropolitan areas. We operate out of six offices | |
| in the region, with over 40 professional and bilingual staff | |
| providing top-notch services to our clients. On an annual | |
| basis, we serve well over 4,000 low- to moderate-income | |
| residents. We are a SBA Microlending Intermediary, SBA | |
| Community Advantage Lender, and certified Community Development | |
| Financial Institution (CDFI). | |
| Since we began lending in 1997, we have rolled out more | |
| than $15 million in capital and have provided small business | |
| technical assistance services to thousands of aspiring and | |
| existing small business owners in the region. LEDC is a member | |
| of, and I sit on the board of the Opportunity Finance Network, | |
| a membership organization representing the over 1,000 CDFIs in | |
| the United States. The challenges I will outline are consistent | |
| with what we hear from our fellow CDFIs operating similarly | |
| underserved communities around the nation. | |
| LEDC exists to help underserved populations overcome the | |
| challenges that stand in their way of achieving their full | |
| potential for achieving financial stability and income | |
| mobility. While the challenges before them are countless, those | |
| I would characterize as the most significant are: lack of | |
| access to capital, lack of access to information and | |
| educational resources, poor or no credit history, and systemic | |
| and institutional racism and sexism. | |
| In my testimony, I will elaborate on each of these barriers | |
| to success. As the head of a Latino-facing organization and | |
| member of the Board of Directors of the National Association of | |
| Latino Community Asset Builders (NALCAB), I will also include | |
| information on small business challenges that are specific to | |
| the Latinx community. | |
| So starting with lack of access to capital, the traditional | |
| commercial banking system is often not a viable resource for | |
| underserved small businesses. Commercial banks defer to a fixed | |
| minimum credit score they will accept for loan approvals and | |
| are further hindered from serving small businesses due to | |
| restrictions around lending to startups or providing smaller- | |
| dollar financing. A recent report from the Woodstock Institute | |
| cited that the number of CRA-reported loans under $100,000 in | |
| 2015 remained 58 percent lower than in 2007. What is more, bank | |
| branches are consolidating and closing at a steady clip, with | |
| 1,700 bank branches closing in the 12 months between June 2016 | |
| and June 2017. | |
| The alternative for underserved entrepreneurs operating in | |
| this climate is to take out credit cards that often charge high | |
| interest rates, access high-cost financing via the emerging | |
| online lending industry, tap into merchant service cash | |
| advances, obtain a loan from a loan shark, or obtain a loan | |
| from the CDFIs in their area. I will note that we have several | |
| loans in our portfolio that are restructured financing deals | |
| for entrepreneurs who fell prey to the allure of online | |
| lenders. | |
| On the other hand, data shows that CDFIs in OFN's | |
| membership alone have originated more than $65 billion in | |
| financing in urban, rural, and native communities through 2016. | |
| To quote OFN's president, Lisa Mensah, `` CDFIs exist to move | |
| money to places missed by traditional lenders.'' However, CDFIs | |
| face challenges in terms of reaching the very communities that | |
| need our services due to minimal or nonexistent marketing | |
| budgets, challenges to capitalizing our loan funds, and/or | |
| sustaining the high overhead costs associated with the labor- | |
| intensive loans we underwrite. | |
| In terms of lack of access to information and educational | |
| resources, starting or growing a business is not for the faint | |
| at heart. In an ideal scenario, an entrepreneur has the time | |
| and support to complete an in-depth business plan, complete | |
| with a market analysis, elaborate revenue projects, a well- | |
| developed management plan, and options for financing their one- | |
| time startup costs, as well as ongoing or variable costs to | |
| come. | |
| Unfortunately, underserved entrepreneurs do not always have | |
| access to business planning information or resources, nor do | |
| they have the time to invest in business planning as they are | |
| looking to their business ideas as a source of income for | |
| themselves and their families. | |
| In addition, the regulatory framework is a maze of | |
| processes and agencies that few could understand without | |
| outside support. Depending on the business type, entrepreneurs | |
| frequently need to go through several licensing agencies and | |
| register with their state and jurisdiction to be compliant. | |
| Layer on top of that the language barrier that many of our | |
| immigrant Latinx clients face, and it is doubly challenging to | |
| meet compliance requirements. | |
| I am actually going to skip the reference to poor and no | |
| credit history, although it is a significant challenge. I want | |
| to get to sort of the last section which I think is probably | |
| the most challenging around systemic and institutional | |
| discrimination. | |
| So my testimony cites the same research that you cited, Mr. | |
| Kim, from MBDA, around the disproportionate disapprovals for | |
| minority and female borrowers. And, you know, just showing that | |
| identical applications from minority and nonminority applicants | |
| were rejected up to 54 percent times more frequently. And for | |
| women, women-owned businesses received nearly 50 percent less | |
| funding than men-owned businesses, and that funding actually | |
| declined by 42 percent between 2016 and 2017. | |
| In closing, my request would be that we do not lose sight | |
| of the protections for consumers in general, as well as | |
| minorities. The CFPB, OCC, Fed, and FDIC should continue and | |
| deepen their evaluation of commercial bank activities with | |
| regard to the demographics of who is and who is not receiving | |
| loans. | |
| Just yesterday, the CFPB said it plans to abolish most of | |
| its critical consumer protections governing payday loans. And | |
| while that is not necessarily a direct correlation with our | |
| small business clients, it just is a signal to the attitude of | |
| the CFPB at this moment in time, which is certainly troubling. | |
| Specifically, the CFPB should finalize its implementation of | |
| section 1071 of the Dodd-Frank Act, which would require | |
| financial institutions to compile, maintain, and report | |
| information regarding credit applications made by women-owned, | |
| minority-owned, and small businesses. This kind of information | |
| would provide policymakers with insights into the precise | |
| shortcomings of diverse businesses in seeking credit, enabling | |
| policymakers to craft narrowly-tailored legislation designed to | |
| remedy the shortcomings within each of these entrepreneurial | |
| communities. | |
| Thank you. | |
| Chairman KIM. Thank you so much. | |
| Before we move on to our next witness, I just wanted to | |
| recognize our Ranking Member here and turn it over to him for | |
| his opening statement.[16]fb[17] | |
| Mr. HERN. Thank you, Mr. Chairman. Thank you for your | |
| kindness in doing that. My apologies for my tardiness. We were | |
| at the National Day of Prayer, so I appreciate that. | |
| I just want to say that as a small businessperson for 34 | |
| years and a person who has lived the American dream, come from | |
| extraordinary poverty to being a very successful | |
| businessperson, there is nothing that has been a greater joy | |
| for me later in my life than to help small businessmen and | |
| women see their ideas brought to life, to start small | |
| businesses, to help so many try to find, actually write | |
| business plans, and to find access to capital, help them mold | |
| and model their business plans to work. | |
| And so with about 99.9 percent of all businesses in the | |
| United States being classified as small, the impact that small | |
| businesses have on our economy cannot be overstated. In my home | |
| state of Oklahoma alone, we have over 340,000 small firms who | |
| employ over 700,000 people. Many of these businesses are owned | |
| by minorities, women, and veterans, and many of these | |
| businesses are located in rural areas. | |
| Small businesses owned by minority, women, and veterans | |
| face a unique set of challenges, ranging from raising adequate | |
| financing, to building social capital, to finding the effective | |
| mentors. Rural businesses, however, while facing those | |
| challenges, also tend to face a different set of challenges, | |
| most notably, access to reliable and affordable broadband | |
| service. | |
| Today, more than 24 million Americans lack access to high | |
| speed internet, the vast majority of whom live in rural | |
| communities. When comparing urban and rural broadband | |
| development, 97.9 percent of urban America has access to both | |
| fixed and mobile broadband, while only 68.6 percent of rural | |
| citizens have the same access. | |
| The lack of a solid business case for rural broadband | |
| deployment remains a certain reason for what is often referred | |
| to as the `` digital divide.'' Large telecommunications | |
| companies have little incentive to invest in broadband | |
| infrastructure in areas with low population density. Instead, | |
| small telecommunications carriers are far more likely to invest | |
| in rural communities, often because they are communities. | |
| Frequently, however, these small firms face numerous challenges | |
| in their efforts to increase broadband access. | |
| Small businesses specifically require access to reliable | |
| and affordable technology to compete with larger competitors. | |
| According to a recent study, digitally advanced small | |
| businesses were shown to be more than three times likely to | |
| create jobs and experience revenue growth at a rate four times | |
| higher than small businesses who do not employ technology. Yet, | |
| despite such outstanding returns, many small businesses do not | |
| take full advantage of the technologies available to them. | |
| Often, this is due to owners not realizing the benefits of such | |
| tools offered to them, or simply lacking access to reliable | |
| technological resources as a result of cost or location. | |
| Today's hearing will allow us the opportunity to further | |
| discuss these and other challenges that businesses owned by | |
| minority, women, veterans, and rural Americans face while also | |
| exploring potential ways to improve and elevate these issues | |
| moving forward. | |
| I look forward to hearing from our witnesses, I again | |
| apologize for my tardiness, and to having a productive | |
| conversation. | |
| Thank you, Mr. Chairman. I yield back. | |
| Chairman KIM. Thank you. I look forward to working with you | |
| on this Subcommittee to do what we can for small businesses. | |
| And I have to say I am just in awe of your experience, the | |
| great success that you have had over your career, your | |
| particular knowledge about small businesses. I think it is | |
| going to add a tremendous amount of expertise to this | |
| Subcommittee, and I am looking forward to working with you on | |
| that. | |
| Mr. HERN. Thank you. | |
| Chairman KIM. Why do we not get moved back to the witness | |
| panel? | |
| I want to move it over to Ms. Pinder, if you do not mind. | |
| You are recognized for 5 minutes. | |
| STATEMENT OF SHARON PINDER | |
| Ms. PINDER. Good morning. I am Sharon Pinder, and for the | |
| last 4 years I have been the president and CEO of the Capital | |
| Region Minority Supplier Development Council. Good morning, | |
| Chairman Kim, Ranking Member Hern, and distinguished Committee. | |
| I thank you for the opportunity today to have this | |
| conversation. | |
| Today I am actually in real awe as I look at the picture of | |
| the late Congressman Parren Mitchell on the wall when he was | |
| Chairman of the Small Business Committee. I think about 40 | |
| years ago, and the foundation of all MBE programs that exist | |
| today, Public Law 95-570. And so as we look at the basis of the | |
| foundation of MBE programs and its challenges, we will talk | |
| about day, they (challenges) still exist 40 years later. | |
| The Capital Region Minority Supplier Development Council, | |
| is the nation's certifying body for the private sector created | |
| on the heels of civil unrest in the late 1960s, our mission is | |
| to certify, develop, and advocate for minority businesses. | |
| The Capital Region Minority Supplier Development Council | |
| (my particular territory) is the State of Maryland, District of | |
| Columbia, and Northern Virginia. In addition to that, I operate | |
| two Minority Business Development Agency (MBDA) Centers. One is | |
| the MBDA Business Center Washington D.C., and the other one is | |
| the only federally funded center, federal procurement center. | |
| Yesterday, I was talking to a group of minority businesses | |
| and I just arbitrarily asked the question, ``What are your | |
| issues''? ``What are the problems that you face as | |
| businesses''? And without script, just generally what they said | |
| to me was (1) capitalization or the undercapitalization of | |
| their businesses; (2) not having that network or those | |
| relationships; and (3) not being able to navigate as you look | |
| at contracts opportunities. | |
| As we look at the 21st century, many programs and ideas | |
| aimed at leveling the playing field have existed for over 40 | |
| years, and across this country we witness enormous gaps that | |
| exist between the current measures of minority and women | |
| availability and number of relative size of minority-owned | |
| firms that you would expect to exist across the country. These | |
| gaps are not without severe consequences for economic health of | |
| the country as a whole. | |
| When minority businesses thrive, communities of color | |
| thrive as well. Diverse businesses which are more likely to | |
| hire local and employ people of similar backgrounds work as | |
| powerful forces for economic development. Communities of color | |
| will become the majority in 2044 or before. And how minority | |
| businesses fair will impact the sustainability and strength of | |
| our nation. | |
| Our nation's economic history is rich with examples of | |
| public policy and government actions facilitating the spirit of | |
| entrepreneurship and directly contributing to the success of | |
| capitalism. At critical junctures throughout the | |
| industrialization of America, the Federal Government has | |
| proactively redirected the flow of commerce and in effect has | |
| launched the birth of new giants of American industry. From the | |
| issuance of Federal land grants that were essential to spurring | |
| the growth of railroads and to breathing life into the | |
| telegraph and telephone industries, from granting the licenses | |
| and broadcasting frequencies to radio and television companies, | |
| and from the construction of Federal highway systems to the | |
| creation of aviation and aerospace programs, the government has | |
| been a willing partner in forging a path for new industries. | |
| For example, the adoption of airmail as the primary mode of | |
| transportation for the U.S. Postal Service consequently aided | |
| in contracts to a number of airlines and placed them in a path | |
| that they became really successful in the private airline | |
| industry. | |
| Due to time, I am going to skip down to the next part of my | |
| testimony. | |
| So what we should consider that timing is everything and | |
| that this is a critical juncture in our history with an | |
| opportune time to use the model of the past for purposeful and | |
| intentional support from the government. Today's minority | |
| businesses can be tomorrow's moguls, whereas past | |
| discriminatory practices prevented their participation in | |
| building some of the nation's top industries because quite | |
| frankly minority businesses were not at the table when those | |
| industries were born. There is an opportunity now by which | |
| minority businesses can benefit by being at the table during | |
| the infancy of some of today's emerging industries and | |
| technologies. As in the past, partner with the government and | |
| as that industry grows, those minority businesses will grow as | |
| well. Thank you. | |
| Chairman KIM. Thank you for that. And I agree with you. | |
| Timing is everything. And we are at a critical juncture, which | |
| is why we were grateful to have your expertise here today to | |
| help us think through the way forward. So thank you so much for | |
| that. | |
| Mr. Leghorn, I want to turn it over to you. You are | |
| recognized for 5 minutes. | |
| STATEMENT OF DAVY LEGHORN | |
| Mr. LEGHORN. Chairman Kim, Ranking Member Hern, and | |
| distinguished members of the Subcommittee, on behalf of our | |
| national commander, Brett R. Reistad and the nearly two million | |
| members of The American Legion, we thank you for the | |
| opportunity to testify today on exploring challenge sand | |
| opportunities faced by veteran businesses. | |
| In our testimony, we covered a broad spectrum of topics | |
| from Federal contracting to entrepreneurial development | |
| programs and access to capital. We would like to dedicate the | |
| balance of our time this morning to just two issues. | |
| One detriment to the veteran small business industrial base | |
| has always been the misinterpretation of legislation that has | |
| designated SDVOSBs as a preferred contracting group. In | |
| legislation from 1999 and 2003, Congress gave SBA and other | |
| agencies broad business development authority to help veterans. | |
| Unfortunate, the SBA and FAR Council announced in 2005 | |
| rulemaking comments that government-wide SDVOSB program was for | |
| established businesses and was not meant to aid in development | |
| for new businesses. | |
| The Kingdomware decision affirmed the intent of the SDVOSB | |
| set-aside goal in the Veterans Entrepreneurship and Small | |
| Business Development Act of 1999, was to encourage small | |
| businesses and was not intended for the purpose of fulfilling a | |
| quota. The Supreme Court opined that the goals exist to provide | |
| real opportunities for service-disabled veterans and that the | |
| subsequent enactment of the Veterans Benefits, Health Care, and | |
| Information Technology Act was ancillary in nature to the | |
| Veterans Entrepreneurship and Small Business Development Act | |
| and shares the same intent. | |
| This is significant because agencies are now reminded that | |
| this reasoning applies to both the Small Business Act goals as | |
| well as goals under agency-specific laws like the Veterans | |
| First Contracting Program at VA. The American Legion had hoped | |
| that the outcome of Kingdomware would force SBA and the FAR | |
| Council to revisit the rules of the Veterans Entrepreneurship | |
| and Small Business Development Act. This has not occurred. To | |
| this end, The American Legion asked Congress to encourage SBA | |
| and the FAR Council to carry out their business development | |
| authority. | |
| Further, the Kingdomware decision signaled the Supreme | |
| Court's approval for a model of veterans first or service- | |
| disabled veterans first to exist in contract set-aside and | |
| preference programs. Congress can now extend this model | |
| government-wide in a Small Business Act or an agency-specific | |
| legislation. | |
| Additionally, The American Legion would like to discuss our | |
| support for SBA's entrepreneurial development programs. Since | |
| 2012, the Boots to Business curriculum taught during the | |
| military's Transition Assistance Program has been very | |
| successful. Since its implementation, Boots to Business has | |
| been the litmus test that has convinced veterans to launch | |
| their business or to delay the process until they are ready. | |
| In the 2019 National Defense Authorization Act, there was | |
| an attempt to make at least one of the TAP capstone courses | |
| mandatory. The American Legion supports this effort and hopes | |
| this will expose more service members to SBA and their | |
| grantees. | |
| The American Legion believes more service members should | |
| have access to SBA programs. Currently, National Guard and | |
| reservists are not eligible for veteran entrepreneurship and | |
| loan programs until they are activated under Title 10. This is | |
| why The American Legion supports legislation that would amend | |
| 15 USC to extend the eligibility for veteran-focused SBA | |
| programs to service members who have been ordered to perform | |
| active service for more than 30 consecutive days. | |
| Increased utilization of SBA's veteran-centric programs | |
| will require more veteran business outreach centers (VBOC). The | |
| American Legion supports the creation of more VBOCs. | |
| Puerto Rico, Guam, Virgin Islands, and American Samoa are | |
| often overlooked for veterans programs and services, despite | |
| the heavy military presence and recruitment efforts that occur | |
| there. This is why we support the Puerto Rico Small Business | |
| Assistance Act. The American Legion asks this Committee to | |
| authorize VBOCs in Puerto Rico and other underserved areas | |
| where veterans reside. | |
| In conclusion, Chairman Kim, Ranking Member Hern, and | |
| distinguished members of the Committee, The American Legion | |
| thanks you for the opportunity to explain the position of | |
| nearly two million members of The American Legion, and we look | |
| forward to any questions you may have. | |
| Chairman KIM. Thank you, Mr. Leghorn. That was very | |
| informative. | |
| I want to turn it over to Mr. Romano. You are recognized | |
| for 5 minutes. | |
| STATEMENT OF MICHAEL ROMANO | |
| Mr. ROMANO. Thank you, Mr. Chairman. | |
| Good morning, Chairman Kim, Ranking Member Hern, and | |
| members of the Subcommittee. Thank you for the opportunity to | |
| testify today. | |
| My name is Mike Romano. I am the senior vice president at | |
| NTCA-The Rural Broadband Association. We represent | |
| approximately 850 small businesses that provide broadband in | |
| rural America. | |
| Our hope today is to offer a helpful perspective as a | |
| complement to the discussion of underserved areas and | |
| populations by my fellow witnesses. The capital-intensive | |
| nature of building infrastructure is particularly challenging | |
| in light of the deeply rural, sparsely populated areas NTCA | |
| members serve. Yet even as our members' rural broadband | |
| networks are difficult to build and maintain, they are | |
| essential to ensure that other small businesses and consumers | |
| in rural America can connect with the rest of the world. | |
| Indeed, we believe that a key to helping underserved | |
| communities of all kinds in the 21st century is to deliver 21st | |
| century connectivity--high-speed broadband upon which users can | |
| rely to invest in and operate their own businesses to create | |
| jobs and provide opportunity. | |
| Investing in broadband has far-reaching effects for urban | |
| and rural America alike, creating efficiencies in health care, | |
| education, agriculture, energy, and commerce. America needs | |
| rural broadband not only to help farmers efficiently produce | |
| crops sold across the U.S. and around the world, but to help | |
| small businesses of all kinds participate in the national and | |
| global economies and to help all rural citizens experience the | |
| life-changing benefits of distance learning, telemedicine, and | |
| teleworking. | |
| This task of connecting everyone, however, is easier said | |
| than done. These challenges can present in different ways in | |
| different parts of the country for different communities of | |
| users. In rural areas, communities are more likely to be | |
| underserved from a broadband perspective because the economics | |
| of connecting them are difficult, if not impossible to | |
| overcome. Distance and density present physical challenges | |
| unlike any other for the business case of deploying and | |
| sustaining connections. To compound the business case further, | |
| rural areas are on average poorer than many urban areas and | |
| have lower broadband adoption rates. | |
| Despite such challenges, NTCA's small business members have | |
| worked to connect rural America through an effective mix of | |
| entrepreneurial spirit, community commitment, and Federal and | |
| state support programs. Most NTCA members live and work in the | |
| communities they serve. They therefore have ever incentive to | |
| upgrade networks that connect their workplaces, their kids' | |
| schools, their libraries, and their hospitals. But as I | |
| mentioned, the business case is challenging and complicates | |
| greatly both access to and use of capital. | |
| This is where Federal and state programs play a key role. | |
| For example, the Federal Universal Service Fund (or USF) | |
| enables and sustains communications infrastructure in rural | |
| America, helping carriers make the business case needed to | |
| justify loans or use of other private capital. Although the | |
| USF's effectiveness was hampered for years due to arbitrary | |
| caps and regulatory uncertainty, the FCC responded late last | |
| year to consistent calls from hundreds of members of Congress | |
| on a bipartisan basis, calling for an infusion of resources and | |
| other improvements. It is our hope that the bipartisan reforms | |
| adopted by the FCC will unleash a new round of broadband | |
| investment in rural areas and help to sustain the networks | |
| already built. | |
| It is important too that the USF programs involve more than | |
| just helping connect rural areas. More than two decades ago, | |
| Congress wisely structured the USF as a comprehensive umbrella | |
| with components that seek to address connectivity concerns for | |
| discrete sets of potentially underserved populations through | |
| coordinated programs--schools and libraries, low-income | |
| consumers, rural healthcare, and high cost support for rural | |
| networks generally. | |
| Indeed, in helping to make sure rates for services are | |
| affordable on rural networks, the high cost program of USF | |
| helps Americans living in rural poverty afford better access to | |
| communications. We therefore believe the Federal universal | |
| service mechanisms as a whole represent a well-thought, | |
| comprehensive strategy aiming to ensure that every American-- | |
| regardless of the specific challenge that renders them at risk | |
| of being unserved or underserved--will be connected. | |
| The Rural Utilities Service (or RUS) also plays a | |
| significant role in helping small broadband providers access | |
| capital to deploy infrastructure in areas where returns on | |
| investment are measured in decades. Congress has expanded the | |
| role of RUS and rural broadband deployment through significant | |
| resources for new broadband loans and grants. These additional | |
| funds are welcomed and it is now important to ensure that the | |
| USF and RUS and other programs are coordinated and used as | |
| efficiently as possible. | |
| Much has already been accomplished in connecting rural | |
| America. For example, 70 percent of NTCA's members' customers | |
| already have access to 25/3 megabits broadband which the FCC | |
| deems to be the standard at this point for broadband, and many | |
| have faster connections, even up to gigabit service. | |
| But much work remains, too, especially in the areas not | |
| served by smaller operators like those in our membership where | |
| a digital divide exists. | |
| We look forward to working with your Subcommittee and your | |
| congressional colleagues to ensure that we can address the | |
| connectivity needs of underserved and unserved areas and keep | |
| connected those areas that are fortunate enough to be served | |
| today. Thank you. | |
| Chairman KIM. Thank you. And I just wanted to thank again | |
| all four of you for your testimony here today. | |
| I will certainly start moving forward with turning it over | |
| to my distinguished colleagues in just a few minutes but I did | |
| want to just start by asking a few questions myself. | |
| I want to start by saying I come into this position with a | |
| lot of humility. You know, I have a lot to learn. All of us | |
| have a lot to learn about what it is that we can do to serve | |
| small businesses, and the four of you, amongst many others, | |
| bring that kind of experience that we need to keep hearing | |
| about. | |
| I joined this Committee, and this was a priority of mine | |
| because my district in New Jersey is a small business district. | |
| You know, my district has, from the largest employer, a joint | |
| military base, but all the small businesses that continue to | |
| serve the base or are a part of both Burlington County and | |
| Ocean County. | |
| My priority is always to protect these military families | |
| and, veterans living in my district in particular. And less | |
| than 3 months ago, SBA and the Federal Reserve Bank of New York | |
| released a comprehensive report on the state of | |
| entrepreneurship for military veterans, and it is quite frankly | |
| concerning. The report found a generational decline in veteran | |
| entrepreneurship with fewer young veterans owning businesses | |
| than past generations. At the same time we are now beginning to | |
| see veterans owning businesses at lower rates than nonveterans. | |
| I want to ask unanimous consent to submit this report to | |
| the record. | |
| Without objection, the motion is agreed to. | |
| We know that historically the opposite has been true, that | |
| veterans have been generally more entrepreneurial than | |
| nonveterans. Of course, the skills gained during military | |
| service, teamwork, discipline, perseverance, a strong work | |
| ethic and crisis management all are important parts of the | |
| equation and those skills certainly have not changed. | |
| So Mr. Leghorn, I want to build off of your very | |
| informative statement. I want to ask you, just taking a step | |
| back, what has changed? You know, why in your experience are | |
| fewer young veterans launching businesses and having | |
| difficulties with access to capital and the financing | |
| shortfalls? I just wanted to hear from you that bigger picture. | |
| Mr. LEGHORN. Thank you for your question, Chairman. I think | |
| the main reason why we are not seeing as many veterans get into | |
| small business these days and embrace that entrepreneurial | |
| spirit is because of the recession and we are still kind of | |
| climbing out of the recession. A lot of these folks are very | |
| hesitant to take risks right now. As the economy improves, I | |
| hope that this is a trend that will be reversed. | |
| In terms of lending, I think one of the rather cool things | |
| that have happened since the decline of regional and community | |
| banks is that lending has kind of diversified and this is a | |
| trend we would like to see a lot more of and I think when the | |
| veterans do come back and start their own businesses the | |
| lending field is going to be very different for them and it is | |
| going to be very conducive to starting new business. | |
| Chairman KIM. Thank you for that. | |
| Based on what you were saying, what we have heard from all | |
| four, not every business owner experiences the same struggles | |
| when starting or growing a business. So Mr. Leghorn, just one | |
| final follow up. What are some of the obstacles unique to | |
| veteran startup companies? I want to get a better sense of what | |
| you feel like is particular obstacles or opportunities that are | |
| being faced and things that we might be able to do to support. | |
| Mr. LEGHORN. The main thing that hampers veteran-owned | |
| small businesses is collateral and we are generally cash poor. | |
| You know, and that is why folks like what I spoke about before | |
| with the diversity of lending and CDFIs are so important for | |
| the veteran community because normal bank products generally do | |
| not work for us and larger banks are less likely to make 7(a) | |
| loans to folks without collateral. | |
| Chairman KIM. Well, thank you for that. | |
| I want to make sure we turn it over to my other colleagues | |
| who I am sure have very insightful questions. | |
| So Ranking Member, Mr. Hern, I want to turn it over to you. | |
| You are recognized for 5 minutes. | |
| Mr. HERN. Thank you, Mr. Chairman. | |
| As an opening statement to your testimony, I will tell you, | |
| I look around. I think I may be the oldest up here. I have been | |
| creating jobs for a long time. I know that. First small | |
| business 1985. I will tell you, also having started a bank and | |
| still in banking, I sat on the board until I got this gig in | |
| November and I had to resign that board. But I chaired the Loan | |
| Committee for 10 years. And as you probably can imagine, I have | |
| a tremendous heart for small businesses and people who want to | |
| take that journey. | |
| Mr. Leghorn, you said your problem with your folks are lack | |
| of collateral and cash poor. I will tell you that represents | |
| about 99.9 percent of the folks out there that have an idea, is | |
| how do I get that idea off the ground? So I would say that is | |
| probably ubiquitous to everybody that is trying to create a | |
| business for the first time. | |
| I will tell you, you are so right that there are a lot less | |
| community banks today than there were 15-20 years ago. And | |
| Dodd-Frank was really the catalyst to that because right now | |
| community banks over the last 5 years are hiring a lot more | |
| compliance officers than they are actually lending officers | |
| because you still have to make money in the banking business | |
| and you have to also comply with Federal Government | |
| regulations. | |
| So, you know, you all have to work within the banks. The | |
| banks are very competitive. They are trying to loan to | |
| everybody and they still have to meet the creditworthiness that | |
| is required of them of the Federal Government because they are | |
| monitored relentlessly, audited by the Federal Government and | |
| by their banking institutions in their states. And so as we | |
| look at this, you know, we have got to figure out how to help | |
| folks get mentored, and I think your agencies do that. How to | |
| present a business plan, because everybody has to look at | |
| everybody as if there are no color, there are on genders, to | |
| actually make a loan. Because we have to have the ability to | |
| repay our loans, either through a guaranteed process through | |
| the SBA, or if it is a traditional loan, which many are made, | |
| there obviously has to be the ability to actually function and | |
| make that loan work. | |
| Ms. Pinder, could you tell me, since we are talking about | |
| this mentorship, could you tell me how you do that with the | |
| folks that you represent in getting them off the ground if they | |
| come to you with an idea? | |
| Ms. PINDER. Our organization is made up of the Fortune 500 | |
| type companies of corporations. So we do not necessarily look | |
| at startups. And so when a startup comes to us, our question is | |
| ``Are you ready to do business with these corporations?'' And | |
| if they are not ready to do business, offer building capacity | |
| support. And so startups, depending upon the industry, because | |
| sometimes industry if it is like information technology or if | |
| that is the idea, may attract more equity (funding) kind of | |
| things. But to answer your question, we do mentor companies in | |
| terms of getting them prepared to do business with our | |
| corporations. And we do that in a number of ways. | |
| We have a MBE Academy. We have educational and training | |
| programs to help people become, at the end of the day, | |
| competitively viable. | |
| Mr. HERN. Okay. Mr. Romano, more and more people today, | |
| usually they are sole proprietors, they do not really have | |
| employees. They have an idea and to go from being an idea to | |
| having multiple employees, which lends itself to usually going | |
| into an urban area, if you live in the rural area which many of | |
| Americans do, especially throughout the Midwest, how does what | |
| you are trying to accomplish, putting broadband in rural areas, | |
| how does that help them make that transition from an idea to | |
| concept of starting, making money, getting contracts and work, | |
| to getting employees? | |
| Mr. ROMANO. Thank you, Ranking Member Hern. | |
| I would say the first thing is if you are looking to locate | |
| a business, one of the first things we hear from relocation | |
| firms or from folks looking to get something off the ground is | |
| what kind of connectivity do I have? Because whether it is | |
| obtaining supplies, finding customers, finding markets, that | |
| connectivity is critical. | |
| One of the programs we have started is called Smart Rural | |
| Community, and it is really intended to focus on not just the | |
| fact that you have got networks out there but sort of celebrate | |
| and accentuate the uses of them--focusing on what are people | |
| doing to generate economic development, job creation, and | |
| therefore be able to stay in a rural area rather than have to | |
| move necessarily to the city. We want people to be able to | |
| choose where they live rather than be forced to live in a | |
| certain place based upon what kind of access they have. | |
| Mr. HERN. Thank you. | |
| One last question for, is it Ms. Bilonick? Oh, wow, two in | |
| a row. That is good. | |
| Could you help me understand, and I apologize that I missed | |
| your opening statements, but could you let me know what is your | |
| default rate of when you are trying to lend and get folks | |
| started? | |
| Ms. BILONICK. So we have typically stayed below a 10 | |
| percent default rate, which we feel is excellent given the fact | |
| that we are giving loans to what folks would call sort of the | |
| most risky population out there. That is startups. That is | |
| folks with poor or no credit. And so we are very proud of the | |
| default rate. | |
| Mr. HERN. That is incredible. | |
| Ms. BILONICK. Yeah, thank you. | |
| Mr. HERN. Thank you. | |
| Chairman KIM. Great. Thank you for that. | |
| I want to recognize my colleague from New York, Congressman | |
| Delgado. | |
| Mr. DELGADO. Thank you, Chairman, Ranking Member. Thank all | |
| of you. I find your testimony very, very informative. | |
| I am going to get right to it. I have a few questions. | |
| So in parts of my district, Upstate New York, Hudson | |
| Valley, Catskills, very, very rural area. I have driven by | |
| signs that say broadband access coming soon. It is a sight that | |
| is hard to imagine in New York, in the USA, in the 21st | |
| century. I cannot overstate how big an issue this is for small | |
| businesses and communities in my district and Upstate New York. | |
| Mr. Romano, your testimony very powerfully speaks to that. In | |
| today's global economy it is unthinkable that startup | |
| businesses; mom and pop shops; young students; small dairy | |
| farmers; and innovative, sustainable ag operations are being | |
| left behind. Left behind because of where they live and | |
| operate. | |
| Now, my state has made significant investments of late to | |
| bridge this gap, but as we look to a more connected future, I | |
| think it is critical that we also work to ensure equitable | |
| broadband access. And again, as you note in your testimony, the | |
| minimum service thresholds today will be unworkable for folks | |
| tomorrow. We should be aspirational as we think about the | |
| quality and speed of service folks need to keep up with our | |
| rapidly changing economy. | |
| So with that in mind, Mr. Romano, what is an acceptable | |
| speed of service? Not by definition, but in practice. And how | |
| can we ensure rural communities like mine do not get left | |
| behind again? | |
| Mr. ROMANO. Thank you, Congressman. | |
| We have a number of members in your district and I know | |
| that they are doing a very good job with broadband but they | |
| also look around and see the challenges you are talking about. | |
| New York is taking important steps to try to address that. | |
| It is somewhat frustrating sometimes when you focus on a | |
| static speed definition. You're building a network that is | |
| financed for and then intended to last for decades, 20 years. | |
| We really believe that you should be looking more at the future | |
| proof utilization of the network, the applications that are | |
| going to be utilized, not aiming for a speed standard by date X | |
| but thinking about will that network be scalable to fulfill | |
| demands that we might expect reasonably 10, 15, 20 years from | |
| now, telemedicine applications, 4K TV definitions, 8K and | |
| beyond. So we really like to focus more on the future-proof | |
| nature of the technology underlying the network than speed at | |
| any given moment in time specifically. | |
| Mr. DELGADO. And I appreciate your desire not to want to | |
| put a number out, but is there a range? | |
| Mr. ROMANO. I would say we should be aiming for networks | |
| that are capable of delivering at least 100 megs today and | |
| scalable to hit gigabit and beyond tomorrow. | |
| Mr. DELGADO. Good. | |
| Another issue, again, this is for you, Mr. Romano, is | |
| broadband mapping. Current mapping practices rely on census | |
| blocks, meaning that if just one home in that block has | |
| broadband, the entire area is considered served. In rural | |
| areas, one census block can span several counties. Can you talk | |
| a little bit about the importance of establishing an accurate | |
| national broadband map? | |
| Mr. ROMANO. One of the most significant problems in | |
| identifying where broadband is needed is false positives. | |
| Overstatement of coverage that leads to--in census blocks that | |
| might be miles wide--one customer on one part of one location | |
| denying service essentially to a customer miles and miles away. | |
| Movement towards a more granular or accurate map is going to be | |
| important. I would submit that granularity and accuracy are not | |
| the same thing. We need to both get more granular and get more | |
| accurate. Unless you are going to independently verify the | |
| submissions by providers in question, I believe you are always | |
| going to need sort of like what RUS is looking at now, a | |
| challenge process or some way of having a verification of no | |
| matter what kind of data is submitted by a provider, ultimately | |
| having the opportunity to say, yeah, they are there or no, they | |
| aren't. That is the only way we are going to get to make sure | |
| that no customer is left behind simply because they happen to | |
| live in a geography where somebody else claimed to serve. | |
| Mr. DELGADO. Thank you. Thank you. | |
| And I have just one more question for you, Ms. Bilonick. I | |
| really appreciate your remarks. | |
| I want to speak to some of the limitations you outlined for | |
| CDFIs. And putting aside the impact of Dodd-Frank, you do list | |
| a couple of other items that you think pose stress or strain on | |
| your ability to do the work that you are doing. Specifically, | |
| and I just want to note, too, that in my district the work that | |
| your kind of program provides has had a tremendous effect and | |
| has provided a lot of opportunities, particularly for folks | |
| actually just north in the Albany area. So I really appreciate | |
| that work. | |
| But specifically, you talk about nonexistent marketing | |
| budgets, challenges to capitalizing on your loan funds and/or | |
| sustaining the high overhead costs associated with labor- | |
| intensive loans we underwrite. | |
| Could you specifically tell me what we can do to help | |
| address these factors? | |
| Ms. BILONICK. So I think to start, the marketing issue is | |
| an issue that all CDFIs face. I think anyone who has worked in | |
| the industry and gone to a dinner party knows that once you | |
| tell someone that you work for a CDFI it is then like a 20 | |
| minute later conversation describing what CDFIs do, the | |
| coverage in the whole United States and the impact that we | |
| have. | |
| So one thing, you know, specifically, I think, and I was | |
| actually speaking with OFN about this as well, is just a | |
| broader marketing campaign about the existence of CDFIs. I | |
| think there are so many clients that come through our offices | |
| that say we had no idea this existed, if I had only known 10 | |
| years ago, you know, fill in the blank. But it is just sort of | |
| the best kept secret out there and we really feel like that, | |
| and maybe that is more at the local level in doing PSAs and | |
| some things we could certainly engage our local governments in | |
| as well. | |
| And then with regard to capitalizing our loan funds, I | |
| would just, I would not say beg but I would request that you | |
| please keep the line items for CDFI fund in Treasury and the | |
| Small Business Administration be fully funded because that is | |
| something that really impacts our bottom line it is actually | |
| the lowest cost capital that we can access in terms of debt to | |
| then relend out. | |
| And then my last issue around the labor intensivity of the | |
| work that we do, we are really dependent on the philanthropic | |
| community, whether that be government grants or corporate | |
| foundation grants that we rely on just because the work that we | |
| do lending with small businesses is so intensive. You know, if | |
| you walk into a bank you may meet with a loan officer and then | |
| they ship your application to a central office located | |
| elsewhere and that is sort of the end of the story and you may | |
| have a really quick turnaround, but there is not that face to | |
| face and personal experience. For us, we are typically working | |
| with people who have a very big story behind what they are | |
| presenting on paper and then in addition to that what they are | |
| presenting on paper requires a lot of support from us to | |
| actually get from their idea phase to like we help people put | |
| together their projections for their loan applications to us. | |
| So we are doing a lot of technical assistance just in the | |
| underwriting process, so it is not, you know, we do have an | |
| algorithm that we use internally but it is not like a spit it | |
| into the machine and get a response, which is the beauty of | |
| CDFIs, and that is how we are able to do the loans that we are | |
| able to do, but it costs a lot of money and it costs a lot of | |
| manpower even at our most efficient. | |
| Thank you so much. Thank you. | |
| Chairman KIM. Great. Thank you so much. | |
| I want to now recognize the gentlelady from American Samoa. | |
| Ms. RADEWAGEN. Talofa. Good morning. | |
| I want to thank Chairman Kim and Ranking Member Hern for | |
| holding this hearing. I represent the territory of American | |
| Samoa. We have the highest enlistment rate in the United States | |
| Army, and because of that we are also among the highest veteran | |
| rate per capital. Veterans and serving reservists own and | |
| operate businesses throughout my district, so I would like to | |
| direct a couple of questions to you, Mr. Leghorn, though you | |
| are all welcome to answer if you have any additional input. | |
| What resources are veterans currently lacking during their | |
| business creation process? | |
| Mr. LEGHORN. Thank you for your question, ma'am. | |
| One of the issues with the military's Transition Assistance | |
| Program is that it overly focuses on making resumes. The | |
| problem with American Samoa is that when veterans go back to | |
| American Samoa there are not any employers there for them to | |
| give a resume to. What American Samoa really needs is a VBOC so | |
| that there can be economic development and veterans can go back | |
| and actually create jobs. So that is definitely something I see | |
| that needs to happen. | |
| Ms. RADEWAGEN. Okay. Your testimony highlights challenges | |
| associated with veteran participation in the Federal | |
| contracting process. Can you please expand on what those | |
| challenges are and any solutions you would recommend? And what | |
| role does mentorship play in veteran entrepreneurship? | |
| Mr. LEGHORN. So I think there were two questions there. I | |
| will tackle the first one. I will parse them apart. | |
| So in terms of participation in Federal contracting, like | |
| we mentioned in our testimony, the foundation legislation that | |
| created SDVOSBs as a preferred contracting group was focused on | |
| established businesses and it was determined at the time that | |
| it was not meant for business development. So what that means | |
| is that in Federal contracting right now we see a huge sum of | |
| money being given to very few small businesses, whereas we want | |
| the business development aspects to lead the program towards | |
| giving more money to a larger pool of veteran-owned small | |
| businesses. | |
| And the second part of the question was regarding what we | |
| are doing mentorship-wise? | |
| Ms. RADEWAGEN. Yes. | |
| Mr. LEGHORN. Okay. So The American Legion is one of the few | |
| organizations that offer small business counseling. We help you | |
| with your governance documents. We help you onboard to VA's Vet | |
| First program. And we also provide advocacy and also we do a | |
| lot of events that bring government officials into the room | |
| where veteran small businesses can interact with them. So | |
| pretty much advocacy, counseling, and events is what we do. | |
| Ms. RADEWAGEN. Thank you. | |
| And so as a follow up to that, what additional resources | |
| are necessary to foster increased mentorship opportunities? | |
| Mr. LEGHORN. Can you clarify if you meant what The American | |
| Legion needs? | |
| Ms. RADEWAGEN. Well, what additional resources are | |
| necessary to foster increased mentorship opportunities? That | |
| would be part of it. | |
| Mr. LEGHORN. Well, I definitely think The American Legion | |
| could use another small business counselor and advocate like | |
| me. I think on the government side we definitely want more | |
| entrepreneurial development programs for veterans. We want the | |
| programs to have more of a business development aspect. We want | |
| access to the 7(J) program, and definitely more VBOCs. When we | |
| are talking about mentorship, VBOCs are where the rubber meets | |
| the road for veterans. | |
| Ms. RADEWAGEN. Thank you, Mr. Chairman. I yield back. | |
| Chairman KIM. Thank you. | |
| I want to now recognize the gentlelady from Kansas, | |
| Congresswoman Sharice Davids. | |
| Ms. DAVIDS. Good morning. Thank you for your time, and I | |
| really enjoyed reading through your testimony. I know I missed | |
| a significant portion of it. | |
| But there are a couple of things, so I am actually in the | |
| Kansas City metro area in Kansas and I always love to talk | |
| about how entrepreneurship is baked into the DNA of the | |
| community that I live in. And because of that, one of the | |
| things that I have seen a lot of is this idea of an ecosystem, | |
| and actually, I am sure that you all have talked about this a | |
| lot, is the ecosystem that is needed to support entrepreneurs | |
| and small businesses as they develop and grow from very small | |
| businesses to small businesses that can do contracting with | |
| larger organizations. | |
| Can you talk a little bit about the, maybe coalition, if it | |
| is coalition building that you have done? I know the OFN exists | |
| and there are a few other spaces. And actually, this is | |
| probably something that all four of you could maybe say a | |
| little bit of something about. I think that when we look at | |
| statistics, like the Kansas City Fed did a report not too long | |
| ago showing that across the country African American women are | |
| the highest, fastest growing segment of entrepreneurs, and I | |
| know in Kansas City, the Kansas City area, we have got an | |
| ecosystem that can help support folks, like law firms, SEED Law | |
| in Kansas City does a lot of work with small businesses. We | |
| have got a number of other organizations that help people from | |
| CDFIs until they are ready to take on larger contracts. | |
| Can you talk a little bit about how we can look at, I do | |
| not know if it is metrics? I do not know what it is, but how we | |
| look at how we are supporting the entire ecosystem, not just | |
| individually CDFIs or mentoring programs. You cannot mentor | |
| your way out of not having access to capital. So can you talk a | |
| little bit about that? | |
| We will start here with Ms. Bilonick. Thank you. | |
| Ms. BILONICK. So I would just say we have been very lucky | |
| in that we have had at the local level and national level sort | |
| of preexisting coalitions like OFN, like the National | |
| Association for Latino Community Asset Builders. At the local | |
| level we are part of a coalition called the Coalition for | |
| Nonprofit Housing and Economic Development, which is a | |
| longstanding organization that has people both from the housing | |
| and small business development side of work here in Washington, | |
| D.C. | |
| I think what is challenging, at least from my point of | |
| view, and I do not purport to speak for the entire panel, but | |
| from my perspective I think the coalitions that exist between | |
| like organizations are there and are in place. The more | |
| challenging piece is forming coalition and community between | |
| needed partnerships that are in differing spaces. For example, | |
| you mentioned like the legal field. So we have a partnership | |
| with the D.C. Bar Pro Bono Legal Clinic, but that was sort of | |
| happenstance because someone on our board is the person that | |
| leads that clinic. And so I think fostering those kinds of | |
| relationships would be extremely valuable for the ecosystem. | |
| Like, those of us who are operating in the same space, we know | |
| each other, we see each other at meetings. You know, we work | |
| together. But I think the more challenging hurdle for us to | |
| overcome as an ecosystem is really bridging those networks that | |
| are sort of outside of our comfort zone or outside of our usual | |
| suspects because those networks, you know, I mean, I would even | |
| say for myself, the people on the panel are not people that I | |
| work with on a daily basis and we could all benefit from | |
| working together. And so, you know, that is where I think there | |
| is a big challenge. | |
| Ms. PINDER. Again, thank you for your question. | |
| I think what we need to do is recognize that some groups | |
| are different. You talked about African American women being | |
| the fastest growing segment in entrepreneurship, and they are. | |
| And so when you then think about wraparound services for | |
| businesses, it is not a cookie-cutter approach. I always tell | |
| businesses that they need the ABCs. That is the attorney, | |
| banker, and the CPA. Right? And so once you have that | |
| foundational kind of activities understand that is an integral | |
| part of your business it helps. But I agree with my colleague, | |
| there are some intersections of resource that are available. | |
| Whether you are the person that wants to kick the tires and see | |
| if an idea works, well, there are resource centers for that, | |
| whether that is PTAP, SBRC, and that kind of thing. And so just | |
| an understanding of those issues that businesses face, in | |
| particular businesses of color, you know, and looking at | |
| microlending, for example, looking at alternative methods of | |
| financing businesses, bootstrapping is, yes, universal in terms | |
| of people starting businesses, but the long-term effect of | |
| businesses that are bootstrapped, which mean started without | |
| capital on minority businesses is greater than other | |
| businesses. And so just recognizing what those nuances are | |
| relative to groups of entrepreneurs. | |
| Chairman KIM. Ms. Davids, do you want to follow up? | |
| Ms. DAVIDS. Well, the time ran out. | |
| Chairman KIM. Yeah, I mean, I am happy to allow it. | |
| Ms. DAVIDS. Do you mind? Yes, do you mind if we take the | |
| time? Thank you. | |
| Mr. LEGHORN. Thank you for your question, ma'am. And I | |
| believe part of your question was regarding metrics. And that | |
| is the part that I really want to address. | |
| From our testimony, we discussed how SBA and the resource | |
| partners were really reliant on metrics drawn from the 7(a) | |
| loan program. The 7(a) loan program has diminished in | |
| utilization coinciding with the disappearance of regional and | |
| community banks. So we do not believe that the 7(a) loan should | |
| be used as the primary metric anymore. I do not know what other | |
| metrics might be but we have to find other ways of getting | |
| information aside from pulling it all from 7(a) loans when it | |
| comes to job creation and lending. | |
| Mr. ROMANO. And to pick up on that point about metrics, | |
| there is no shortage of metrics in the telecommunications | |
| industry, but one thing I think that could be relevant here is | |
| the areas our members serve, a town of 5,000 people is a | |
| metropolis. And so any small business growth there accrues to | |
| the benefit of the community as a whole because there are not | |
| that many businesses to start, and a lot of people working from | |
| home even as well, telecommuting, if you will, teleworking. | |
| Some way though it occurs to me that tracking sort of small | |
| business growth in these deeply rural areas paired with, quite | |
| frankly, and there are statistics separately on this, what | |
| kinds of increases in connectivity--what has made it possible | |
| for the small businesses to either establish, relocate, or grow | |
| in those deeply rural areas--I think is the kind of metric that | |
| would be relevant to see the better broadband somebody gets, | |
| how much better do they do in terms of building and growing | |
| small business. | |
| Ms. DAVIDS. Thank you. | |
| Chairman KIM. Thank you so much. Thank you again to all the | |
| witnesses for taking time out of your schedule to be with us | |
| here today, and I want to thank my colleagues as well for their | |
| time and for their insightful questions and points. | |
| As we have heard today, we certainly have our work cut out | |
| for us. As we are striving to create more opportunities for | |
| underserved businesses, small businesses, from accessing | |
| affordable capital to being able to meaningfully compete for | |
| contracts in the Federal procurement marketplace, | |
| underrepresented entrepreneurs have had the deck stacked | |
| against them for too long and it has kept them from creating | |
| good private sector jobs in their local neighborhoods. | |
| I look forward to working with my colleagues to find policy | |
| solutions that will empower them to create the good-paying jobs | |
| of the 21st century. | |
| I would ask unanimous consent that members have 5 | |
| legislative days to submit statements and supporting materials | |
| for the record. | |
| Without objection, so ordered. | |
| And if there is no further business to come before the | |
| Committee, we are adjourned. Thank you. | |
| Mr. HERN. Mr. Chairman, can I say one thing? | |
| Chairman KIM. Yes, please. | |
| Mr. HERN. I just want, because in business you are about | |
| getting results, and I know that you are probably going to | |
| leave here and feel like you testified and nothing really got | |
| done. But we will work hard on this because it is so important | |
| to our nation and I said this in our Full Committee, that we | |
| cannot have big businesses in the future if we do not have | |
| small businesses today because we are the incubators, the small | |
| businesses, for all the big businesses that we have in American | |
| today that put so many people to work. So I know you are not | |
| asking to create more programs. You are asking us to help make | |
| these better and secure them. And so I assure you that I will | |
| work with my Chairman that we make that happen with the team, | |
| that we look at every opportunity. And I am with you on the | |
| metrics, and Ms. Davids, my colleague from Kansas. You know, | |
| the problem in business is when you have more than one set of | |
| books you never get anything done. So we have to find the right | |
| numbers that measure everything because every group that is | |
| asking us for help will say that they are the fastest growing. | |
| And so we have to really determine the fastest growing and | |
| where the real needs are because it is different across this | |
| very nation and we have to make sure that we take care of | |
| everyone to the best of our abilities. Thank you. | |
| Chairman KIM. Thank you for that. I think that spirit and | |
| that energy is something all of us here on the Subcommittee | |
| feel. There is a reason why I wanted to join this Committee on | |
| Small Business because it has a reputation of just working | |
| together across the aisle, bipartisanship, to be able to get | |
| things done for small businesses in America. And I think I am | |
| looking forward to working with the Ranking Member and members | |
| on both sides for us to be able to make sure that we can move | |
| ahead in that productive way. | |
| So we certainly will follow up. We are eager to get to work | |
| and do what we can to improve the overall climate and | |
| ecosystem, to borrow a word, for small businesses in America. | |
| So thank you again. We stand adjourned. Thank you. | |
| [Whereupon, at 11:23 a.m., the Subcommittee was adjourned.] | |
| A P P E N D I X | |
| [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] | |
| Opening Statement of Ranking Member Kevin Hern | |
| Committee on Small Business | |
| Hearing: ``Exploring Challenges and Opportunities of Underserved | |
| Businesses in the 21st Century'' | |
| February 7, 2019 | |
| *As Prepared for Delivery* | |
| Thank you for yielding, Chairman Kim. | |
| With 99.9 percent of all businesses in the United States | |
| being classified as small, the impact that small businesses | |
| have on our economy cannot be overstated. In my home state of | |
| Oklahoma alone we have over 340,000 small firms who employ over | |
| 700,000 people. Many of these businesses are owned by | |
| minorities, women, and veterans and many of these businesses | |
| are located in rural areas. | |
| Small Businesses owned by minority, women, and veterans | |
| face a unique set of challenges, ranging from raising adequate | |
| financing, to building social capital, to finding the effective | |
| mentors. Rural businesses, however, while facing those | |
| challenges, also tend to face a different set of challenges, | |
| most notably, access to reliable and affordable broadband | |
| service. | |
| Today, more than 24 million Americans lack access to high | |
| speed internet, the vast majority of whom live in rural | |
| communities. When comparing urban and rural broadband | |
| deployment 97.9 percent of urban America has access to both | |
| fixed and mobile broadband, while only 68.6 percent of rural | |
| citizens have that same access. | |
| The lack of a solid business case for rural broadband | |
| deployment remains the central reason for what is often | |
| referred to as the `digital divide'. Large telecommunications | |
| companies have little incentive to invest in broadband | |
| infrastructure in areas with low population density. Instead, | |
| small telecommunications carriers are far more likely to invest | |
| in rural communities, often because they are their communities. | |
| Frequently, however, these small firms face numerous challenges | |
| in their efforts to increase broadband access. | |
| You may ask, why do small businesses need broadband access? | |
| Why is this a challenge to rural businesses? Simply put, small | |
| businesses need access to modern technology to complete in the | |
| modern marketplace. In 2018, 95 percent of Americans own a cell | |
| phone and 89 percent of Americans use the internet. Technology | |
| has influenced nearly every aspect of society. From | |
| manufacturing to education, access to technology is synonymous | |
| with success. | |
| Small businesses specifically require access to reliable | |
| and affordable technology to compete with larger competitors. | |
| According to a recent study, digitally advanced small | |
| businesses were shown to be three times more likely to create | |
| jobs and experience revenue growth at a rate four times higher | |
| than small businesses who don't employ technology. Yet despite | |
| such outstanding returns, many small businesses do not take | |
| full advantage of the techniques available to them. Often, this | |
| is due to owners not realizing the benefits such tools offer | |
| them, or simply lacking access to reliable technological | |
| resources as a result of cost or location. | |
| Today's hearing will allow us the opportunity to further | |
| discuss these and other challenges that businesses owned by | |
| minority, women, veteran and rural Americans face while also | |
| exploring potential ways to improve and elevate these issues | |
| moving forward. I look forward to hearing from our witnesses | |
| and to having a productive conversation. | |
| Thank you and I yield back. | |
| [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] | |
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