February 14, 2018

House Small Business Committee “Job Creation, Competition, and Small Business’ Role in the United States Economy”

Key Topics & Takeaways

  • Access to Capital: Many Representatives inquired about how access to capital affects small businesses. All witnesses agreed that access to capital is a great impediment to the growth of small businesses. Steven Strongin said that firms need different kinds of financing at different points in their growth, from home equity and credit when just starting out, to standard bank lending as they get healthier and larger.
  • Regulatory Burdens on Small Businesses: Strongin stated that when Congress is thinking about changing the regulatory landscape, they should consider the “sheer volume” of rules and consider safe harbors and common certifications to create the most impact. 

Witnesses

Opening Statements

Rep. Steve Chabot (R-Ohio), Chairman, House Small Business Committee

In his opening statement, Chabot said that the American economy is “poised for great things,” noting “significant” growth across the nation, investment in American manufacturing and job creation, the “pro-growth” policies of recent tax reform, and entrepreneurs that are “optimistic” about the future of their businesses. Chabot stated we can “always do more,” including putting an end to the “oppressive” regulatory burden businesses face. Chabot said small businesses continue to experience “rigid lending environments” and turn to conventional bank lending to finance projects, and small firms have nowhere to turn to grow their businesses and create jobs. Chabot stated his commitment to continuing to find ways to help small businesses start and expand, particularly noting access to capital as an area of concern. 

Rep. Nydia Velázquez (D-N.Y.), Ranking Member, House Small Business Committee

In her opening statement, Velázquez noted there has been a decline in American entrepreneurship, and the availability of affordable credit and lack of access to capital are among the ongoing causes, and that recent market volatility could make these issues more pronounced. Velázquez noted that these issues are particularly pronounced for women and minorities, even though they are the fastest growing group of entrepreneurs in the country. Velázquez said that private sector initiatives should complement government efforts, and it is critical that small businesses have access to counseling and training resources to start, grow, and compete, noting that the Goldman Sachs 10,000 Small Businesses program is one such example of private-public partnerships helping entrepreneurs.

Testimony

Steven H. Strongin, Head, Global Investment Research Division, Goldman Sachs

In his testimony, Strongin stated the current core economic issues faced by small businesses are slow growth and access to credit. Strongin stated that there are fewer small businesses today than there were at the beginning of the recession, so we have not seen a net increase of small businesses in this time period. Strongin highlighted Goldman Sachs’ 10,000 Businesses Summit, which addresses the challenges faced by small businesses and the practical methods for addressing those issues. Strongin noted two broad issues: the volume of rules and regulations faced by small businesses, and the need for a more centralized way of meeting certification standards and examinations.

JR Foster, President and CEO, Robert Louis Group

In his testimony, Foster discussed his experience running a small business in Cincinnati, Ohio. Foster noted that Robert Louis Group is one of the few minority owned and certified commercial real estate brokerage, facility management, and access to capital firms in the country. He said his firm helps corporations, government agencies, and nonprofits with real estate brokerage and facility management needs. Foster said his firm is “leading the charge” in helping small business owners gain access to capital, and helped over 300 small businesses secure $345 million in capital last year. Foster noted he is a recent graduate of the Goldman Sachs 10,000 Small Businesses program, and is now advocating for a more “level playing field” for small business owners.

Jessica Johnson-Cope, President, Johnson Security Bureau, Inc.

In her testimony, Johnson-Cope discussed her small business, which provides armored car and security guard services and has been run by three generations of her family since the 1960s. Johnson-Cope said that since her participation in the inaugural New York class of the 10,000 Small Businesses program, her company has created over 150 jobs, had access to capital, and done business with at least seven other program alumni. Johnson-Cope discussed the challenges her business faces, including difficulty finding capable talent and obtaining capital. Johnson-Cope stated that the current business environment makes it difficult for businesses to survive. Johnson-Cope said the committee can work to ensure small businesses are able to utilize Small Business Administration (SBA) programs to continue to grow, as well as ensuring small businesses do not encounter barriers when seeking federal contracts.

Question & Answer

Access to Capital

Many Representatives inquired about how access to capital affects small businesses. Strongin stated that if the Federal Reserve raises interest rates, it will make capital more expensive, making it harder for those that do not already have capital to obtain it. Strongin said that firms rely on different kinds of financing at different points in their growth, from home equity and credit when just starting out, to standard bank lending as they get healthier and larger. Rep. Al Lawson (D-Fla) asked what the committee can do to address access to capital, to which Foster replied the committee should focus on providing education and programs for young people to understand at an early age what it means to run a small business.

Strongin noted that women and minorities, while not inherently a worse risk, typically have less equity, which affects their risk calculations and therefore their access to capital. Foster noted that businesses owned by women and minorities find the greatest challenge because they face a “higher scrutiny” from bank, and often lack access to legal and accounting professionals who can assist them in putting together their loan materials, noting that his companies work to provide those services to clients. 

Workforce Development

Johnson-Cope highlighted that many small businesses have difficulty finding capable talent, and that many candidates lack technical skills, including soft skills such as communication and critical thinking. Johnson-Cope stated that many small business owners would welcome workforce development initiatives from the government.

Strongin said that the U.S.’s current tax system does not provide tax incentives for or take into account the investment small business owners make in training and developing workers, noting that if you buy a machine to replace a worker, it is tax incentivized, but improving the workforce itself is not. 

Goldman Sachs 10,000 Small Businesses Program

A number of Representatives asked about the direct impacts of Goldman Sachs’ 10,000 Small Businesses program. Foster stated it helped his business “tremendously,” and allowed him to leverage alumni relationships, provided a community of other small business owners working to get over the same hurdles, and that the program should be replicated across the country. Johnson-Cope stated the program is the “best of public-private partnerships,” and gave her the opportunity to learn how to navigate corporate America, access to public sector opportunities, and access to resources, saying it gave her a “shorter runway” to gain the skills she needed to run and grow her company. 

Regulatory Burdens on Small Businesses

Chabot asked if the government was “doing the right things” to eliminate the regulatory burdens on small businesses and lower taxes, and what the effect of Dodd-Frank has been on small businesses. Strongin replied that things are moving in the “right direction,” but when Congress is thinking about addressing the regulatory burden, they should consider the “sheer volume” of rules and consider safe harbors and common certifications to create the most impact. Strongin continued that it is difficult to “separate one item from the next” in Dodd-Frank, but there has been a cumulative impact on small business formation and the financial burdens are “quite high” as regulations have become “anti-risk.”

For more information on this hearing, please click here.