Small Business Jobs and Credit Act of 2010

BREAK IN TRANSCRIPT

Ms. VELÁZQUEZ. Mr. Chairman, I yield myself such time as I may consume.

Small businesses, which represent 99.7 percent of firms, are key to the recovery of the U.S. economy. Through innovation and hard work, they are able to not only create jobs but to also build the foundation for future growth. We saw this after the recession of the early 1990s. As we emerge from the latest downturn, small firms will again lead the way.

This downturn has affected every facet of the global economy. Most of the focus has been on repairing the residential housing market and homeowners in particular. It is important to note that this has greatly impacted small businesses as well. Through the Recovery Act, we were able to help them, providing more than $28 billion in assistance through the SBA. H.R. 5297 builds on this by establishing additional lending initiatives that will give small businesses even greater financing options.

This legislation, Mr. Chairman, also recognizes that capital markets are changing dramatically. Credit standards are stricter, and small businesses are now looking not only to loans and to credit cards to finance their operations, but they are also looking to equity investment to turn their ideas into reality. This has become even more pronounced as asset values have declined, leaving entrepreneurs with less collateral to borrow against.

Unfortunately, small firms' access to venture capital and to equity investment has declined. Last year, such investments plummeted from $28 billion in 2008 to only $17 billion last year. This is due, in part, to the previous administration's decision to terminate the SBA's largest pure equity financing program--the Small Business Investment Company Participating Securities program. This has left many entrepreneurs who need equity investment to fulfill their business plans without a source of such financing.

As a result, it has become more difficult to start a new business and to create the jobs that come with such activity. This is seen in data from the Bureau of Labor Statistics, which show that self-employment declined by 7.5 percent between 2007 and 2009. Less entrepreneurship is never a good thing, but during a recession, it is particularly problematic as small firms generate two-thirds of net new jobs.

In order to address this, title III creates a $2 billion investment fund at the SBA. Under this program, the agency will provide matching funds to qualified privately managed investment companies, which will, in turn, invest in small companies. To ensure that the public and private sectors' interests are aligned, the SBA's funding would be provided at a 1-to-1 ratio of private investment capital.

Funds from the program will only be given to investment companies that have a proven record of returning a profit to its investors. These managers must have experience in investing in small, early-stage companies. They must have the ability to provide leadership as these entrepreneurial endeavors grow. In selecting investment firms to participate in the program, the SBA will give a special preference to Small Business Investment Companies, which already have substantial experience in financing small firms. In exchange for receiving funds, participating investment funds must convey an equity interest to the SBA, similar to that of which individual investors will receive.

The equity interest shall entitle the SBA to a repayment of its investment and a proportion of any profits made by the investment company. As a result, the government is on a level playing field with private-sector investors, and the taxpayer stands to benefit from the growth and success of these small companies.

By giving entrepreneurs access to $2 billion in equity investment, we will provide them the resources to grow and create the types of long-term employment gains we need. It goes without saying that the groundbreaking, innovative firms that rely on such investment tend to be some of our most prolific job creators. Between 2006 and 2008, these companies created eight times more jobs than other businesses. That is exactly the kind of job growth Americans need right now.

Mr. Chairman, I support this legislation.

I reserve the balance of my time.

BREAK IN TRANSCRIPT

Ms. VELÁZQUEZ. Mr. Chairman, I yield myself such time as I may consume.

I want to use this time to respond to those who are making the assessment that this money, that there are not safeguards into this legislation to make sure that the money goes to small businesses. First, banks must apply to the Treasury to receive funds, with a detailed plan on how to increase small business lending at their institution. This language was included at my insistence that we need to make sure that small businesses will get the benefit of this legislation.

Second, this capital, repayment of the government loans will be at a dividend rate starting at 5 percent per year. This rate will be lowered by 1 percent for every 2.5 percent increase in small business lending over 2009 levels. It can go as low as a total dividend rate of just 1 percent if the bank increases its business lending by 10 percent or more, incentivizing banks to do the right thing. To ensure that banks actually use the funding they receive, the rate will increase--and there are penalties--to 7 percent if the bank fails to increase its small business lending at their institution within 2 years. To ensure that all federal funds are paid back within 5 years, the dividend rate will increase to 9 percent for all banks, irrespective of their small business lending, after 4 1/2 years.

Let me just make it clear: What the CBO estimates through what they provided to the Congress and telling us, CBO estimates that this provision will save taxpayers $1 billion over 10 years, as banks are expected to pay back this loan over 10 years, with interest.

I reserve the balance of my time.

BREAK IN TRANSCRIPT

Ms. VELÁZQUEZ. Mr. Chairman, I yield myself the balance of my time.

Mr. Chairman, the face of American small business is changing--and rapidly. Twenty years ago, entrepreneurs were likely to rely on loans and credit cards to start up or expand their businesses. This met the needs of most entrepreneurs, but today's startup costs have grown dramatically. This has caused many small companies to turn to equity investment, particularly those in high-growth, technology-based sectors which show the greatest promise to create new jobs. For these firms, their assets are not buildings or machinery; they are people, ideas and skills. For this new generation, the old method of securing capital, through debt, is no longer sufficient by itself.

In a world where revolutionary new products are conceived in dorm rooms, and companies are launched in garages, new ways of meeting businesses' capital needs are needed. Through the Small Business Early Stage Investment program, this bill recognizes this fundamental shift and takes steps to meet the capital needs of our new businesses. Our Nation's entrepreneurs have led us out of every previous recession, and they can do so again, but only if we give them the right tools. This legislation will make loans more affordable for existing businesses so they can grow and add to their payrolls. And for the enterprises just getting off the ground, it will reinvigorate investment in cutting-edge startups.

A vote for this bill is a vote in favor of the American traditions of innovation and entrepreneurship. I urge my colleagues to vote with the small businesses in their district; vote ``yes.''

I yield back the balance of my time.

BREAK IN TRANSCRIPT

Ms. VELÁZQUEZ. I thank the gentleman for yielding.

Mr. Chairman, since the financial crisis struck in 2007, much has already been done to help banks and financial institutions stay solvent. Those steps were necessary. I firmly believe that without them, the financial crisis would deepened, unemployment would have been higher, more Americans would have suffered, and our economic recovery may have been delayed for many years.

Despite these efforts, our entrepreneurs are still struggling to tap into the credit they need. As we revisit this problem once more, it is vital that we ensure that the benefits of this bill reach small businesses. That is the intent of this legislation. But without the right safeguards, this will be another attempt that fails to address the underlying problem of small business access to capital.

If this measure is not crafted properly, loans which go to large businesses could qualify under the program. Mr. Chairman, I support this amendment.

BREAK IN TRANSCRIPT

Ms. VELÁZQUEZ. America's small businesses have always pioneered new economic fields and sectors. Today, small businesses continue to be some of our most creative innovators. As our Nation shifts away from the fossil fuels and seeks clean sources of energy, entrepreneurs are leading the way. Today, small businesses represent 90 percent of those companies operating in the renewable and energy efficiency industries.

Small firms are also making important contributions in the realm of life sciences and biomedicine, uncovering groundbreaking therapies and medicines. Technologies used in our national defense have also been advanced by small businesses. Components of the Predator drone, for instance, were developed by small firms. And small businesses are helping develop new information technology and digital media services that better connect our world.

The United States must continue to lead in all these areas if our economy is to remain strong in the long term. This type of innovation creates good-paying, highly skilled jobs. However, before these businesses can develop the next game-changing defense technology, unearth the next medical breakthrough, or discover a new source of clean energy, they need capital. The amendment before us simply ensures that the Small Business Early-Stage Investment program is targeted to fields like these, where there will be the biggest payoff for economic growth and job creation.

Madam Chair, this is a good amendment. It will ensure the industries of tomorrow and future companies can secure financing to get off the ground. I urge my colleagues to vote ``yes.''

I yield the balance of my time to the gentleman from Missouri (Mr. Graves).

BREAK IN TRANSCRIPT

Source