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In order for small firms to play their traditional, job-creating role, a number of factors must be in place.  Perhaps the most important ingredient is the availability of capital. However, obtaining conventional credit can be particularly difficult for small businesses – making the Small Business Administration’s lending programs critical to filling this gap.

As a result of SBA programs, entrepreneurs are provided with greater access to capital through the extension of federal guarantees on a long-term basis.  Namely, SBA’s 504 program helps small businesses obtain long-term financing for major assets, such as real estate and equipment.  It gives them much needed access to capital on par with their larger counterparts. 

Most importantly, financing under this program is secured through a unique three part structure, requiring as little as 10 percent put down by the small business borrower. The rest of the funds are provided by the banking partner at 50 percent and 40 percent by a Certified Development Company, a local non-profit, corporation. 

The 504/CDC program was not only designed to assist small firms in obtaining necessary capital, it was meant to spur economic development and create and retain jobs. Since its inception, the program has supported over 2 million jobs. In fact, a two year study of the program concluded that two-thirds of borrowers reported job growth within two years of receiving the loan and averaged nearly 12 new jobs. 

It should also be noted that the 504 program experienced three consecutive years of growth and grew nearly 7 percent to over $4.7 billion in fiscal year 2016. Nevertheless, a few issues have been presented to the committee that may point to ways that the program could operate more effectively.  For example, concerns have been raised about the decline in loan volume since the program’s peak, as well as the secondary market and the use of 7(a) loans over 504 loans.

And, while 504 loans are made throughout the United States and U.S. territories, they tend to be concentrated in very specific areas of the country. For instance, just over a handful of states account for over half of approved loans. I applaud the great effort made by lenders making these loans. Yet, I am disappointed that just over a quarter of 504 loans are going to minority-owned businesses and that many lenders remain somewhat hesitant to approve more than a few of them each year. I hope to hear from witnesses about finding solutions to improve the program and reach more underserved populations.

Today’s hearing will provide us with an opportunity to hear experiences of 504 partners and what can be done to better facilitate the use of the program. Overall, we are seeking to ensure that the 504 program works for CDCs and banking partners, who in turn must make it work for their small business borrowers. 

On that note, I would like to thank our witnesses for taking time to be here.  Their views and experiences will be valuable to this Committee as we consider how best to meet entrepreneurs’ capital needs.