Hearing Recap – Big Ideas for Small Businesses: Fostering American Entrepreneurship through Starting, Sustaining, and Growing Small Businesses
WASHINGTON – On March 16, 2022, the House Select Committee on Economic Disparity and Fairness in Growth – led by Chairman Jim Himes (CT-04) – held a hearing, “Big Ideas for Small Businesses: Fostering American Entrepreneurship through Starting, Sustaining, and Growing Small Businesses,” to hear from experts on the role of small businesses in the American economy, as well as examine barriers and opportunities facing entrepreneurs in building, sustaining, and growing a small business.
“The question today is how can we better support entrepreneurs – who are at the very core of the American Dream – to succeed more often than they currently do,” continued Chairman Himes. “The harsh reality is that most new businesses that start up fail. But from my own experiences, I am certain that many businesses just need easier access to capital and technical assistance. This would also provide new business owners with a foothold into the American middle-class and the ability to live the American Dream.”
“Entrepreneurship is at the very core of the American Dream. In my own experience, there isn’t a neighborhood in America that doesn’t foster entrepreneurs seeking to start a business and fill a need in their community,” said Chairman Himes in his opening remarks. “It is also true that it is very difficult to start and sustain a business. The market can be unforgiving, and entrepreneurs often have difficulty in finding the capital to start and grow their business. I hope that we will spend some time today examining different ways we can help businesses access capital and discuss other challenges small businesses face.”
Watch Chairman Himes’ full opening remarks here.
The Select Committee presented recorded video testimonials from small business owners who shared their challenges starting and sustaining their businesses:
Owner and Head Chef Pamela Cager and Chief Financial Officer Montinique Cager of FAO Café, Cakes and Catering – Winston-Salem, NC
“The federal government can do a great job getting small businesses started. The government has some programs, but not everyone knows about them. We need access to opportunity, funding, and access to knowledge and support.”
CEO in Education Management Janna Rodriguez of Innovative Daycare Corp. – Freeport, NY
“I definitely think that there needs to be a different strategy when it comes to marketing government resources. Small businesses are the backbone of the economy. The resources available are just not accessible to everyone, especially Black and Brown people and women.”
Watch our storytellers’ full videos here.
The following witnesses testified before the Select Committee on the challenges, barriers, and pathways forward to small business ownership:
Ms. LaJuanna Russell, owner of Business Management Associates, Inc. and Chair of the Board at Small Business Majority, testified on impact that small businesses have on the economy, and provided recommendations for Congress that draw on lessons gleaned from the COVID-19 pandemic. “Evidence shows that women of color were launching businesses at 4.5 times the overall rate of new businesses prior to the COVID-19 pandemic,” said Ms. Russell. “Moreover, women-owned businesses and those owned by entrepreneurs of color are statistically more likely to hire diverse, local employees, thus increasing targeted economic opportunities and financial stability for entire communities across the country.” Ms. Russell recommended that elected officials, “increase funding for technical assistance,” and “consider supporting and funding more community banks across the country” as they are uniquely qualified to serve the challenges of rural and underserved communities.
Dr. Brett Theodos, Senior Fellow, and Director of the Community Economic Development Hub at The Urban Institute, described the importance of small business ownership in building community wealth and offered guidance on how Congress can ease barriers facing new and established small business owners. “Small businesses are an anchor of the U.S. economy and an important pathway for achieving the American Dream,” stated Dr. Theodos. “Businesses with fewer than five employees make up 62% of all U.S. businesses, and businesses have immense influence in generating economic growth, especially through the creation of wealth in local economies.” Dr. Theodos advocated for more research to better understand “how to improve access to the right type of capital for business at different life stages,” as well as improving “our understanding of how regulations around business, occupational licensing, etc. affect business startup and growth.”
Mr. Everett K. Sands, CEO and President of Lendistry (a Certified Community Development Financial Institution), testified about ways Congress can expand access to capital for entrepreneurs looking to start and grow a small business. “Congress has allocated significant capital to be available to CDFIs and Minority Depository Institutions to help address the capital availability disparity for underserved communities,” said Mr. Sands. “Through further focused action, Congress can act to ensure allocated capital reaches its intended end-users more quickly, with a larger multiplier effect, and through more distribution points.” Mr. Sands recommended Congress support small businesses in a way that doesn’t solely rely on banks; ease regulatory barriers for CDFIs nationwide, establish mechanisms for accountability and coordination; and support the Small Business Administration in ensuring that it serves the growing needs of small businesses, leveraging lessons learned through deployment of the Paycheck Protection Program.
Mr. John Rogers, Chairman, SBA Council on Underserved Communities; Co-CEO and Chief Investment Officer at Ariel Investments, connected his entrepreneurial experience to existing barriers facing small and minority businesses nationwide. “Entrepreneurship is truly dear to me and clearly in my blood,” started Mr. Rogers. “My great-grandfather J.B. Stradford owned the Stradford Hotel in Tulsa’s Greenwood District, the largest Black-owned hotel in the nation, before it was fire-bombed in the 1921 race massacre. What the district reflected was a thriving Black business community—something Chicago mirrored years later.” Mr. Rogers described reasons for why barriers persist for minority-owned and small businesses, including historical segregation, as there is “a tendency to work with people you know and with whom you are comfortable.” He added that while corporations and non-profits have embraced supplier diversity programs, they de-emphasize professional services, financial services, and other high-earning sectors for minority-owned and small business owners. Mr. Rogers asserted that “as we get further away from the height of the civil rights movement, many Americans are convinced that the economic playing field is fair.”
Ms. Dina Rubio, Owner and Operator, Don Ramon, West Palm Beach, FL, stated “American small business creation is one of the most powerful economic forces in the world. In no other country is it as easy and rewarding to pursue entrepreneurship as here. Americans have an unparalleled privilege to improve our living standards through entrepreneurship, which provides employment opportunities and enormous value to our communities.” In describing her own personal challenges with her small business, Ms. Rubio shared that “it’s a lot for me to compete with bigger companies. They’re paying more. Uber is paying more. Amazon is paying more for the drivers. So, they tend to go to those companies.”
The subsequent Q&A portion of the hearing produced the following points of exchange between the Select Committee Members and witnesses:
Chairman Jim Himes (CT-04) asked “what could the private sector do to be more efficient in the provision of capital for new small businesses?” Mr. Sands responded, “I think the private sector will naturally gravitate towards programs or opportunities in which they were able to deploy capital at scalable amounts.” Mr. Sands added, “as we look at the private industry, we guide them not towards responsible capital, which obviously it has been in predatory lending, and we guide it more towards responsible lending, which will help the businesses like Ms. Rubio and Ms. Russell here today.”
Ranking Member Bryan Steil (WI-01) underscored the value of small business ownership in relation to national economic growth and stressed the importance of cultivating a national landscape that fosters entrepreneurship. “Nearly two thirds of all new jobs come from a small business in this country,” said Ranking Member Steil. “Small businesses provide great opportunities for work, but jobs can't be created without certain conditions. So, I think what we could do today is really dive into some of the challenges people face when they are opening a small business.” Ranking Member Steil also referenced workforce challenges, noting that "we have 11 million open jobs in the country, and so sometimes it's a worker mismatch; it's that the jobs that are available don’t match the labor supply that's available, and one of the big challenges for us is matching those up."
Rep. Ocasio-Cortez (NY-14) asked Dr. Theodos about the “kinds of policing and regulations that street vendors may be subject to both in New York City and across the country.” According to Dr. Theodos, “under the law, street vendors must be licensed. You often need a proof of residency, a photo ID, a sales tax ID number. You need to pay a few hundred dollars to get a license fee, and, in some places like New York, you must register with the Department of Health and Mental Hygiene if you are a food business.” Rep. Ocasio-Cortez further stated that while many think street vending is informal, it is actually well-regulated, and vendors themselves pay taxes. Rep. Ocasio-Cortez also asked “if street vendors are small businesses that pay taxes, and they have to follow an enormous number of regulatory requirements, why is it that many were rejected for Paycheck Protection Program programs?”
Rep. Gonzales (TX-15) expressed disappointment in seeing inequitable dispersal of pandemic relief in his district. He asked Ms. Russell “what can we do at the federal level to make sure that underserved business communities like those in my district in south Texas can adequately participate in and have access to these tools and resources?” Ms. Russell stated that “it goes right back to the technical assistance programs and getting out in that community and being able to serve them and talk about the importance of having a relationship with a bank as you are starting your business.” Ms. Russell further asserted “the technical assistance that I received I know helped me to understand what the needs were. Start your relationship with your bank early. Get in there and understand how you work with the bank so that when these situations are coming, you are prepared, and you are better able to handle the challenges that come with your business.”
Rep. Jacobs (CA-53) asked Ms. Russell if she could “elaborate on the need for investments in childcare for small business owners, including childcare providers, and how the Federal Government can support them.” Ms. Russell stated “when we think about childcare, obviously it is a business, right? It is someone bringing their child in so that they can be properly cared for, and it is important for childcare facilities to have the financial resources necessary for them to survive. However, it is also important for the individuals to be able to afford that facility so that they can ensure good care for their children. Thus, one of the easiest solutions is a tax credit back to the individual so that, as they are paying for that child's care, they are receiving that tax credit.” Dr. Theodos reaffirmed Ms. Russell’s idea, stating that “childcare is a critical tool to unlocking employees to be able to go to work and for business owners who are working. There are important policies that we can undertake as a country to facilitate work, both for employees and for entrepreneurs.”
Rep. Jayapal (WA-07) highlighted how many underserved and very small businesses struggled to receive PPP funds, and asked Ms. Russell how we can leverage lessons learned from the PPP to support small businesses in the future. Ms. Russell explained that the main challenge in applying for these funds comes from completing paperwork. “We know that the Federal Government is capable of being that lifeline when we are in a catastrophic event,” stated Ms. Russell. “But this program changed their rules several times, leading small businesses to ask how to apply the rules correctly for your business to be able to get the loan? And then where do you go? Because if you don't have that established relationship with the bank, you just ‑ you were not going to be able to maximize the PPP loan.”
Summary of Memorandum Prepared by the Select Committee’s Majority Staff:
Small Businesses and Economic Prosperity: Small businesses and entrepreneurship are at the core of economic activity, competitiveness, and resilience in America. Inclusive entrepreneurship and small business ownership opportunities across groups and geography may generate significant benefits to society by creating new employment opportunities, fostering innovation, helping build community and individual wealth, and bringing a diversity of ideas into fruition.
Small businesses comprise 99.7% of all U.S. firms, create 2/3 of all new jobs, and employ almost half of all private sector employees. New entrepreneurial or small business activity is associated with reductions in the unemployment rate and poverty. The median net worth of families who own a business with fewer than five employees is $308,100 compared with a median net worth of $89,000 for families that don’t own a business. However, the impact of owning a small business on building individual wealth depends on several factors, including the amount of available starting capital, industry, and size of the business.
Small Businesses and COVID-19: In early 2020, the federal government provided an unprecedented amount of support for small businesses to help mitigate the adverse effects of the COVID-19 pandemic through the SBA’s $669 billion Paycheck Protection Program (PPP) and the $220 billion Economic Injury Disaster Loan Program (EIDL) – programs under the CARES Act. Research shows that PPP funds reached minority communities later than communities with lower minority shares, which potentially resulted in disproportionate closures of minority-owned and other underserved businesses.
Small businesses were hit particularly hard in the first year of the pandemic, yet at the same time, Americans filed almost 4.3 million applications to start a new business. Early research suggests that this recent surge in new business starts is mostly concentrated in Black and Hispanic communities with much higher median income and correlates with economic stimulus measures.
Key Elements for Starting, Sustaining, and Growing a Small Business: Accessing capital is the primary need faced by entrepreneurs as they seek to start, sustain, and grow their small businesses. Capital financing can come from personal finances, banks or investment firms, or government grants. The latest data shows 75% of entrepreneurs use personal savings to fund their new business, and 19% use a bank loan for startup capital. Informal sources of funding play a large role in the financing of a new venture. For instance, 17% of new employer businesses report using credit cards, and crowdfunding has gained ground as a source of financing for new businesses over the past several years.
Most technical assistance (TA) programs assist businesses in accessing capital for operations or for expanding their business, as lenders generally require substantial documentation that proves the borrower can repay the debt. The COVID-19 pandemic has exposed both the importance and gaps in regional TA services needed to help small businesses navigate through economic shocks. A recent study highlights language and cultural barriers and lack of assistance to meet industry-specific needs as primary gaps in technical assistance to underserved businesses.
States and localities primarily regulate small businesses, and certain permitting and regulatory rules bar entry for would-be business owners. These include compliance requirements where entrepreneurs must learn an array of business regulations as well as regulations specific to their industry to start a company. Additionally, certain laws make it difficult for new companies to enter a new market. While their objectives are to promote high quality services and safeguard public health, researchers and policymakers have acknowledged the obstacles inherent in licensing and underscored opportunities for reform.
Examples of public-private and nonprofit initiatives: America’s SBDC is a nationwide network of Small Business Centers hosted by leading universities, colleges, state economic development agencies, and private partners that provide free business consulting, help accessing capital, and technology development. Between 2019-20, SBDC helped start 18,691 new businesses. Another SBA partner, SCORE is the nation's largest network of volunteer, expert business mentors that has served more than eleven million small business owners since 1964. During the pandemic, SCORE provided management and technical assistance training services to help start 45,027 businesses and create 74,535 non-owner jobs.