Velazquez on the Small Business Lending Fund Act

WASHINGTON, June 16 /PRNewswire-USNewswire/ – Rep. Nydia M. Velazquez (D-NY), the Chairwoman of the House Committee on Small Business, spoke on the floor of the House of Representatives today in support of H.R. 5297, the Small Business Lending Fund Act of 2010.  The following are her remarks as prepared for delivery:

"Small businesses, which represent 99.7 percent of firms – are the key to the recovery of the U.S. economy.  Through innovation and hard work, they are able to not only create jobs, but 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 also recognizes that capital markets are changing dramatically.  Credit standards have become stricter and small businesses are now looking not only to loans and credit cards to finance their operations, but also 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 equity investment has declined.  Last year, such investment 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.  Because of this, entrepreneurs that need equity investment to fulfill their business plan have been left 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 shows 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 the program, the agency will provide matching funds to qualified privately managed investment companies, who will in turn invest in small companies.   To ensure that the public and private sector's interests are aligned, the SBA's funding would be provided at a 1-to-1 ratio of private investment capital.

"Only investment companies with a proven track record of returning a profit to investors will receive funds.   These managers must have experience 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, who already have substantial experience in financing small firms.

"To participate in the program, investment funds must convey an "equity interest" to the SBA, similar to that in which an individual investor would 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 ground-breaking, 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.  

"The face of American small business is changing – and rapidly.   Twenty years ago, entrepreneurs were likely to rely on loans and credit cards to launch 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 for 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 started in garages, we need new ways of meeting businesses' capital needs.  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."  

SOURCE Chairwoman Nydia M. Velazquez (D-NY), House Committee on Small Business