Thank you, Mayor Heitke. And thank you, everyone. It’s great to be here.
I can’t think of a more fitting place to talk about small business and the SBA than the National League of Cities. I’ve been on the road recently—as have my colleagues in the Administration that you’re hearing from at this conference. We’ve been talking to people in your cities and towns – particularly to small businesses who are the heart of local economies.
I’ve been to Saginaw, Michigan, and Arkadelphia, Arkansas. I’ve been to Las Vegas and Nashua, New Hampshire. Small businesses and their cities are closely linked…
Half of working Americans either own or work for a small business, and over the past 15 years, they created 64% of net new private sector jobs. At the same time, we know that 62% of Americans live in cities, yet you generate 90% of the nation’s economic output.
In other words, small businesses and their cities both “punch above their weight” in making a strong economic impact.
Let me just paint a backdrop by saying that there are really two kinds of small businesses.
There are the businesses on Main Street – the drycleaners, the auto repair shops, the diners. They’re the fabric of our daily lives. The SBA has served them well since we were created in 1953, and we will continue to do so.
The second kind are the high-growth and high-impact small firms – sometimes called ―gazelles.‖One study shows that there are about 375,000 of these firms.
They’re not just in big cities or on the two coasts. They’re in every industry and every county across America. Some are high-tech start-ups, but others are 100-year-old manufacturers that are reinventing how they do business. Today, if we work together, we can give both Main Street and high-growth small businesses the tools they need to grow and create good American jobs. How do we do it?
At SBA, it starts with the 3 Cs: access to capital, counseling, and opportunities in federal contracting – capital, counseling, and contracting.
The first ―c‖is capital. Everyone here knows it’s been a tough year for small business. It looked particularly bleak at the end of 2008. Credit was frozen, we were losing more than 700,000 jobs a month, and we were worried about a possible Depression.
Then, with support from groups like the National League of Cities, the President signed the Recovery Act. What did that mean for the SBA? Well, how many of you have heard of SBA loans? Our 7(a) and 504 loans are provided through about 5,000 lending partners. They help small businesses grow and create jobs. The Recovery Act allowed us to raise our government guaranty on 7(a) to 90% and reduce or eliminate fees in both. With the increased guaranty, we said to your banks and credit unions, ―We’re willing to help you take a little more risk to get capital in the hands of good, creditworthy small businesses.With the waived fees, we said, ―We want those dollars to stay in your city and get reinvested in your small businesses.
This two-part formula worked. More than 1,100 banks came back that hadn’t given SBA loans since 2007. And here’s the headline: With their help, we’ve leveraged about $500 million of funding into about $22 billion in credit into the hands of entrepreneurs and small business owners. That’s a good investment of taxpayer dollars, and our borrowers are telling us that it has helped them save and create hundreds of thousands of jobs.
So, capital is our first ―C… Our second “C” is counseling.
Our data shows that small business owners who have a long-term counselor are more likely to hire, grow and increase revenues.Not many people know just how extensive our counseling network is. I call it the SBA ―bone structure.The backbone is our SBA employees on the ground in 68 field offices around the country. We also have about 900 Small Business Development Centers, most at local colleges and universities… more than 100 Women’s Business Centers… and more than 370 chapters of a mentoring program called SCORE. How many of you have heard of these?
There are about 14,000 SBA-affiliated counselors who serve about 1 million people each year – and the best part is… it’s free. We estimate that there is an SBA counselor within about an hour of every small business in America. Here’s my message: Use them – the reason they exist is to help your city’s small businesses.
Capital… counseling…The third “C” is contracting. At SBA, we work across federal agencies to ensure that 23% of federal contracts go to small business. This is a win-win. Contracts are the ―oxygen‖that small businesses need to build their top line. At the same time, the government gets to work with some of the most innovative, nimble and responsive companies – often with a direct line to the CEO. Cash flow is tight, so Recovery Act contracts have been an important source of revenue. So far, over $6 billion in Recovery Act contracts have gone to small businesses – over that 23%. And we’re continually working to meet the government’s overall contracting and set-aside goals.
So, the ―3 Cs have played a crucial role in helping small businesses put the brakes on the recession… But we still need to do more – and for the remainder of my time today, I want to touch on 3 key areas: the Small Business Jobs Plan, exporting, and health insurance reform.
First, I know that small business access to credit remains one of the League’s top legislative priorities, so I want to give a brief overview of our Small Business Jobs Plan. In crafting the plan, we analyzed the gaps that still exist in the lending market. Then, we constructed targeted proposals that address the most critical problems. We found 5 problems and 5 solutions that build on what works, maximize limited taxpayer dollars, and make targeted changes as quickly as possible.
1. First, for community banks that don’t have the capital to lend, we need a Small Business Lending Fund. That’s $30 billion to lend not to the “big guys” but to smaller community banks that already do the lion’s share of small business loans. And we’ll lower their interest rate down to as low as 1% if they increase their small business loans over 2009 levels.
2. Second, for banks still having trouble taking risk, we’ve asked for a long-term extension of the increased 90% guaranty and reduced fees (that I talked about earlier). There are bills in the House and the Senate to extend these provisions beyond March, so we hope that this will make it to the President’s desk soon.
3. Third, many small businesses need bigger SBA loans to create jobs – especially franchisees, manufacturers, and exporters. The President has asked Congress to increase the cap on SBA’s loans from $2 million to $5 million. Bigger SBA loans mean more jobs.
4. Fourth, small businesses need more working capital. Right now, some small businesses are getting orders and trying to hire workers and restock shelves. By temporarily raising the cap on our Express Loans from $350,000 to $1 million, we can give them the liquidity they need to regain traction and sales.
5. Fifth, we know that many owner-occupied small businesses have commercial real estate mortgages that will need to be refinanced in the next year or two. It’s critically important that we prevent creditworthy firms from facing unnecessary foreclosure and lost jobs. So, we want to open up SBA’s 504 program for refinancing. 504 refinancing will allow them to lock-in stable, long-term financing and save jobs, while freeing up banks to make even more small business loans.
It’s important to note that none of these 5 components involve building up a massive new bureaucracy. The best way for small businesses to get these loans quickly is not directly from the SBA, but through our huge network of nearly 100,000 local bank-branch partners in your cities. That approach makes sense, and our network of SBA lenders is growing every day.
But creating good American jobs involves much more than just making sure that small firms have loans. We also need to find new opportunities for growth – in areas like exporting and clustering.
How many of you heard about the President’s push to double exports in the next 5 years – either in the State of the Union or the last few days? The fact is, 96% of the world’s consumers live outside of the United States.
Big businesses already know that. But today, many small business owners are waking up to find an email in their Inbox, saying, “We want your product, but we’re in India, or Colombia, or South Korea.”
The problem is that small businesses account for only about 30% of export revenues, and more than half of our existing exporters only ship to 1 country.
I’m part of the Export Promotion Cabinet because we want to change that. The SBA and partners like the Department of Commerce and our 900 Small Business Development Centers will be the ―boots on the ground. We know where the small businesses are, and how to reach them.
We’ll help identify potential exporters, we’ll prepare them, we’ll connect them opportunities, and we’ll support them with export financing.
For example, we’re going to work with Ex-Im Bank and other agencies on a toolkit to help with everything from how to get started… to how to find a lender who can help. And we need your help. So, I encourage you to take a hard look at the high-growth firms in your community and ask ―Who’s exporting? ―Who could be exporting? and ―How can we work with local SBA partners to double our city’s exports and create more jobs?
One way to increase your city’s global reach is through regional innovation clusters. Has anyone here heard of clustering? It’s an approach that helps you build on the unique strengths that already exist in your city. I saw the potential of clustering in my hometown of Brunswick, Maine. To help create more jobs after a base closed, we brought together local boat builders and researchers who used composites to test boat hulls. They leveraged their combined skills and now we’re selling Maine-built boats as far away as Shanghai.
Already at the SBA, we’ve kick-started clusters in robotics in Michigan and Virginia. And, now, we’re doing a nationwide competition for a new cluster in energy efficient buildings with the Department of Energy. I believe that clusters have a great potential to strengthen our economy and move it forward, especially in cities and regions that are hit hard by job losses. I hope that we can work with the League and with city leaders to establish more regional innovation clusters in the coming years.
Finally, there is one issue that spans across all of America’s small businesses – regardless of whether you’re a Main Street small business looking for a loan… or a high-growth business looking to export… And that issue is health insurance reform. The number-one concern of small business owners is access to affordable care for their employees.
13 million of America’s uninsured work in small businesses with less than 100 workers. Small businesses pay up to 18% more per employee than big ones. They’re the hardest hit in cities across America – and they deserve better.
Right now, Congress is working around the clock to stop this untenable situation.
And the proposed benefits for small businesses are huge: More than half of small employers – about 4 million – could qualify for tax credits to help cover their workers this year. Many sole proprietors and their families will be eligible tax credits, too. And in the future, they’ll all be able to increase their purchasing power through new health insurance exchanges. [And when it comes to the employer responsibility requirement, the smallest firms are exempt. And only about 10,000 of 6 million small employers will be forced to choose to either buy into the system or pay the penalty.]
Make no mistake. Lack of reform is hurting small business. It’s impeding the potential of entrepreneurs who can’t leave their big firm for fear of losing their insurance. This unsolved problem is weakening our competitiveness. We simply must have reform that provides access to affordable healthcare for small business owners and their employees. In these tough times, we have a lot of work to do:
The SBA will continue our work with capital, counseling, contracts… and we will move forward with a Small Business Jobs Plan, increased exports, and health insurance reform.
I’ll close with a quote from the President. He was speaking to small business, and I know that each of you interact with small business every day in your cities and towns. He said, ―I know that times are tough and I can only imagine what many of you are going through, in terms of keeping things going in the midst of a very tough economic climate, but I guarantee you this…
This Administration is going to stand behind small businesses. You are our highest priority because we are confident that when you are succeeding, America succeeds.”
Today, both the President and I know that small businesses, both Main Street businesses and innovative high-growth firms, are the foundation stone of America’s cities, both large and small. Thank you for working with us to ensure that they can do what they’ve done throughout history – drive America toward even greater success and prosperity.