On June 14, the House Small Business Committee held a hearing on the Small Business Administration’s (SBA) microloan program, which combines loans to microbusinesses (businesses with fewer than five employees) that might not qualify for conventional loans with technical assistance that helps new entrepreneurs succeed.
“In 1992, Congress embraced the idea [of microcredit] and started the Microloan program and shortly after that, the PRIME [Program for Investment in Micro-Enterprise] program,” said Chair Nydia Velázquez (D-NY). She continued, “The SBA Microloan program makes funds available to nonprofit, community-based lenders. In turn, these lenders make small loans to eligible borrowers who are often fledgling entrepreneurs that live in the same community where they work.” Rep. Velázquez added, “Over the years, over $328 million dollars was lent through this initiative. SBA told us that there have been a total of two defaults by intermediaries in the program’s history and that 98.6 percent of the business loans are repaid. A remarkable record. The federal government has shown its faith in this simple, repeatable system by contributing millions of dollars in foreign aid to microloan programs overseas. Even in Iraq, after the fall of Saddam Hussein, our Coalition Provisional Authority, appointed by the president, set up a $17 million direct microloan fund specifically for Iraqi citizens that continues today. So it is hard to understand why the administration is now recommending that we raise the fees intermediaries pay to borrow funds and eliminate specialized assistance that supports the program here at home.”
Ranking Member Steve Chabot (R-OH) said, “According to Dr. Muhammad Yunus, the 2006 Nobel Laureate in Peace and founder of the Grameen Bank, ‘microcredit views each person as potential entrepreneur and turns on the tiny economic engines of a rejected portion of society.’ Unlike Bangladesh or other countries that have emulated the Grameen Bank, microcredit in the United States is not aimed at a rejected portion of society, but rather at those individuals who do not have access to commercial financial institutions and the technical resources to manage those funds. Despite the different target audiences, microlending in the United States represents a variation of the concept developed by Dr. Yunus.” Rep. Chabot added, “But the key to the success of microlending is not the loans; rather, it is the education and counseling that the intermediaries provide to their borrowers. With this knowledge, these entrepreneurs are able to manage their financial resources and ensure repayment of loans. This success is demonstrated by the very low number of defaults in the program…Despite its success, it is important to examine ways to improve the Microloan program. Tight budgetary times call for efficient delivery of government programs no matter how valuable or useful they have been in the past.”
SBA Deputy Associate Administrator Janet Tasker stated, “The Agency has a renewed focus on ensuring that its products and services are accessible to entrepreneurs in the nation’s most underserved markets those with higher rates of unemployment and poverty and lower rates of economic progress. Businesses in these target markets can be reached through non-bank microlenders. According to our FY2006 data, almost 46 percent of microloans were made to women-owned firms, 55 percent were made to racial or ethnic minorities, and 10 percent went to veteran-owned businesses.” In discussing the importance of the technical assistance program, Ms. Tasker said, “One of the most important missions of the SBA is to help small businesses start, grow, and compete by supporting quality training and counseling. Technical assistance for small businesses and entrepreneurs is an important tool, and as partners with SBA, intermediaries are required to provide business-based training and technical assistance to its microborrowers…SBA currently supports the work of intermediaries by providing technical assistance grants intended to help ensure microborrowers’ success.”
Speaking from the perspective of an intermediary lender, Daniel Betancourt, president and chief executive officer of Community First Fund, said, “Many of the entrepreneurs that we assist have had trouble accessing capital through commercial banks and also need substantial training and technical assistance to succeed in launching their businesses. The Microloan program has enabled us to help these entrepreneurs, who have been very successful when given the assistance that they need.” Mr. Betancourt also described Community First Fund’s work with women business owners: “I also want to mention that Community First Fund is a designated Women’s Business Center. We use funds through this program to provide technical assistance and training to women entrepreneurs in our service area. The Pennsylvania Women’s Business Center’s (PWBC) director of training provides five different training courses in four different counties, including an Introduction [to] Business class and a six-week Core Four Business course…PWBC offers one-on-one counseling whereby a staff member meets individually with entrepreneurs to discuss business information, assess client needs, provide information and assistance, and design ongoing client ‘assignments’ to support business development and aid in follow-up meetings.”
Elaine Edgcomb, director of the Fund for Innovation, Effectiveness, Learning, and Dissemination (FIELD) program at the Aspen Institute, said, “Who are these aspiring entrepreneurs? They include: women, minority, and low-income entrepreneurs, individuals with disabilities, refugees and immigrants, welfare recipients, unemployed workers, and others who see the creation of a very small business as critical to their families’ economic progress.” Ms. Edgcomb continued, “In fact, consistently in our surveys of microenterprise programs, we find that: [m]ore than half of their clients are women, and more than half are persons of color, and/or ethnic and other minorities. Nationally only 33 percent of the self-employed are women, and just under 15 percent of businesses are owned by minorities…More than two-thirds have incomes below 80 percent of the median income for their region, and about a third have incomes at or below 100 percent of the federal poverty guidelines.” She added, “Finally many have limited collateral and are constrained by poor or limited credit histories, which would disqualify them for business loans under the credit-scoring systems that banks and other lenders increasingly are using to make small loans.”
Lisa Servon, associate professor at the Milano the New School for Management and Urban Policy, and Edward “Champ” Hall of Pennsylvania, also testified.
