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Statement of the Honorable Nydia M. Velázquez, Ranking Member

Committee on Small Business

“The Path to Job Creation: The State of American Small Businesses”

February 1, 2012

Thank you, Chairman Graves.

By almost any measure, conditions for small firms are better today than any time since the recession ended in June of 2009.  According to the Federal Reserve, banks loosened credit restrictions for small businesses every quarter in the last year.  Similarly, the Thomson/Reuters Small Business Lending Index showed an increase in borrowing by small firms for five straight months through the end of 2011.  There has also been a steady decline in delinquency and defaults on small business loans for much of the past year.  These conditions are a significant reason why the NFIB Index of Small Business Optimism registered the fourth straight monthly increase in December.  Last month, 9 percent of small business owners reported plans to increase employment, the second-strongest reading since 2008. 

Even with this progress, a great deal of work remains to be done.    Despite adding 1.6 million jobs to the economy in the last year, federal policies have not been sufficient to overcome job losses incurred in the recession.  The unemployment rate, which has fallen over the past year, is only projected to reach the low eight-percent range by the end of 2012.  Clearly our optimism must be tempered by the reality that we still have a long road ahead of us – with millions of Americans who are seeking work unable to find it.

Members of this committee know better than most that small businesses will be critical for job growth. 

In particular, one group excels over others -- startup businesses grow faster, create more employment opportunities, and are more innovative than older, more established firms.  While startups account for only 3 percent of U.S. employment, they are responsible for nearly one out of every five jobs created year over year. And, according to the Kauffman Foundation, the net new jobs from startups can be credited for all the job growth in the U.S. over a stretch of roughly thirty years. 

If we want to accelerate the recovery, steps should be taken not only to assist small businesses, but also to target help to high-growth startup firms.  Unfortunately, this is one area where federal policy continues to lag.

While general credit conditions have improved, lending to startups and early-stage businesses remains tight.  Last year, the number of small-dollar loans -- those of $250,000 or less -- in the SBA’s 7(a) program fell by over 50 percent, compared to pre-recession levels. 

At the same time, the SBA has dedicated resources to an early-stage investing initiative that both investors and small businesses have criticized as the wrong tool for the job.  If this agency is going to play a significant role in the recovery, it must focus on meaningful initiatives that will provide the most bang for the buck.  This means providing startups with capital options tailored to meet their unique needs.  It means restoring the emphasis on lending to creditworthy businesses, if banks continue focusing on more lucrative loans for big firms.  These are measures that translate directly to a better environment for startups -- and a stronger national economy.

With that said, small businesses of all varieties remain critical to our economic health.  Today I look forward to hearing both anecdotal accounts as well as empirical evidence about the state of the economy.  In doing so, this committee can identify what’s working, as well as areas where entrepreneurs still face challenges.  Hearing this testimony will help us craft better policy solutions to these problems.

Let me thank all the witnesses who traveled here today for both their participation and insight into this important topic.  Thank you and I yield back.