House Hearing: Small Businesses on Economic Recovery

There's no shortage of ideas on how to generate more jobs to help boost the nation out of its economic doldrums, but many members of the small business community are waiting to follow the lead of the new administration before making any expensive or big-impact decisions.

"Main Street can not be forgotten," Ted Allison, who represents the business community of St. Joseph, Missouri, told the House Small Business Committee on Wednesday in reference to ways the government can help businesses get better access to capital.

"The vacuum has been leadership," he said, referring to a lack of direction from government leaders, especially the current presidential administration.

The hearing, which featured voices from entrepreneurs across many industries, examined the current state of the small business economy and identified what policies could help strengthen it.

"Small businesses will be instrumental to our nation's economic recovery," said Congresswoman Nydia M. Velázquez (D-N.Y.), chairwoman of the House Small Business Committee.

Allison said immediate action from Congress "is imperative," calling for an increase from 2.5 percent to 5 percent the amount of federal funding allocated for Small Business Innovation and Research grants and for more small business development counselors.

Allison, speaking to a packed conference room that forced many attendees to sit on the floor, also said government should provide a 20 percent tax credit to insured individuals and employers who contribute to health care coverage and to exempt the first $30,000 of a small business's net earnings from self-employment tax.

With the nation's unemployment rate reaching a 15-year high of 7.2 percent, "the viability of small businesses is more important that ever," said economist Paul Merski of the Independent Community Bankers of America. He noted that while community banks represent about 12 percent of all bank assets, they make 20 percent of all small business loans and about half of the loans under $100,000 made to small firms are made by community banks.

He said "costly and negative" changes to the Small Business Administration loan program in recent years have forced hundreds of community banks to drop out of SBA programs while a handful of the nation's largest banks dominated SBA lending.

"This gross imbalance in SBA lending was a recipe for disaster," he said.

He suggested that the SBA offer a loan program that guarantees 95 percent of the loan and reduces lender and borrower fees by half of their current level for small business loans up to $500,000.

Merski also noted that 60 percent of all small business lending is backed up by "some kind of real estate collateral," causing suffering for many small business owners whose finances are tied to the failing housing market.

Margot Dorfman of the U.S. Women's Chamber of Commerce echoed some of his concerns, saying the "freefall" happening in small business lending must stop.

"The SBA should be given the authority to directly process small business loans and when necessary, provide high government guarantees," she said.

One surefire way to boost the economy is to invest in the nation's infrastructure; it's an approach that creates jobs and improves daily life, according to contractor Steve Massie who spoke on behalf of the Associated General Contractors of America. Every $1 billion invested in infrastructure projects would create more than 28,500 new jobs, he said. Additionally, at least $100 billion of new infrastructure projects have been delayed because of constricted credit markets.

Many firms are waiting to invest because they're waiting to see "what will be the pattern of the new administration and what path" they head down, according to Massie.

The National Electric Contractors Association lauded President-elect Obama's stimulus plan for including green energy construction and high performance buildings. Timothy Ehmann of O'Connell Electric of Victor, N.Y., who spoke for the association, said his firm's revenues from clean energy technologies have increased from $1 million to more than $20 million during the last five years.

He also recommended a repeal of a 3 percent withholding tax that imposes withholding on all government payments, including government contracts.

Ehmann also said small firms should be given the opportunity to carry back their losses for five years, not the current two years allowed.

Executives from two telecommunications trade associations also called for investment in the nation's infrastructure, specifically citing the benefits of more broadband.

About 80 percent of the members of the Telecommunications Industry Association are small and medium size businesses, said group President Grant Seiffert.

"Start-ups and garage inventors are the lifeblood of our industry, innovation that results from high-risk endeavors many times leads to the household names we have become familiar with over the years," he said.

He also called for a $25 billion grant program for deployment of broadband infrastructure in unserved areas like rural regions.

The U.S. Telecom Association, whose two largest members are Verizon Communications and AT&T, also has many smaller company members.

Alan Roth, senior executive vice president with the group, largely agreed with Seiffert, adding that "broadband is now propelling forward virtually every category of the U.S. economy" including innovations in health care, education and environmental sustainability.

Velázquez said the findings from the hearing would be put in a report and given to Democratic leadership.

By Sharon McLoone |  January 14, 2009; 5:40 PM ET Economy Watch , Policymakers , Regulation Legislation
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