[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
BUILDING OPPORTUNITY: ADDRESSING THE
FINANCIAL BARRIERS TO MINORITY- AND
WOMEN-OWNED BUSINESSES' INVOLVEMENT
IN INFRASTRUCTURE PROJECTS
=======================================================================
VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON DIVERSITY
AND INCLUSION
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 3, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-67
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-105 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on Diversity and Inclusion
JOYCE BEATTY, Ohio, Chairwoman
AYANNA PRESSLEY, Massachusetts ANN WAGNER, Missouri, Ranking
STEPHEN F. LYNCH, Massachusetts Member
RASHIDA TLAIB, Michigan FRANK D. LUCAS, Oklahoma
MADELEINE DEAN, Pennsylvania TED BUDD, North Carolina
SYLVIA GARCIA, Texas, Vice Chair ANTHONY GONZALEZ, Ohio, Vice
NIKEMA WILLIAMS, Georgia Ranking Member
JAKE AUCHINCLOSS, Massachusetts JOHN ROSE, Tennessee
LANCE GOODEN, Texas
WILLIAM TIMMONS, South Carolina
C O N T E N T S
----------
Page
Hearing held on:
February 3, 2022............................................. 1
Appendix:
February 3, 2022............................................. 33
WITNESSES
Thursday, February 3, 2022
Ali, Farad, President and CEO, Asociar LLC....................... 4
Black, Tawanna, Founder and CEO, Center for Economic Inclusion... 6
Gaskin, Philip, Vice President, Entrepreneurship, Ewing Marion
Kauffman Foundation............................................ 7
McGuire, Ying, President and CEO, National Minority Supplier
Development Council (NMSDC).................................... 9
Quick, Jeanette, Head, Compliance and Public Policy, Gusto....... 10
APPENDIX
Prepared statements:
Ali, Farad................................................... 34
Black, Tawanna............................................... 38
Gaskin, Philip............................................... 40
McGuire, Ying................................................ 55
Quick, Jeanette.............................................. 58
Additional Material Submitted for the Record
Beatty, Hon. Joyce:
Written statement of the Credit Union National Association... 64
Written statement of the Innovative Lending Platform
Association................................................ 66
Written statement of Women Impacting Public Policy........... 68
Garcia, Hon. Sylvia:
2020 Research Report--State of Latino Entrepreneurship--by
the Stanford Graduate School of Business in Collaboration
with the Latino Business Action Network.................... 71
Williams, Hon. Nikema:
Written responses to questions for the record submitted to
Farad Ali.................................................. 105
BUILDING OPPORTUNITY: ADDRESSING
THE FINANCIAL BARRIERS TO
MINORITY- AND WOMEN-OWNED
BUSINESSES' INVOLVEMENT
IN INFRASTRUCTURE PROJECTS
----------
Thursday, February 3, 2022
U.S. House of Representatives,
Subcommittee on Diversity
and Inclusion,
Committee on Financial Services,
Washington, DC
The subcommittee met, pursuant to notice, at 10 a.m., via
Webex, Hon. Joyce Beatty [chairwoman of the subcommittee]
presiding.
Members present: Representatives Beatty, Pressley, Lynch,
Tlaib, Dean, Garcia of Texas, Auchincloss; Wagner, Budd,
Gonzalez of Ohio, Rose, and Timmons.
Ex officio present: Representative Waters.
Chairwoman Beatty. The Subcommittee on Diversity and
Inclusion will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of this subcommittee are authorized to
participate in today's hearing.
Members are reminded to keep their video function on at all
times, even when they are not being recognized by the Chair.
Members are also reminded that they are responsible for muting
and unmuting themselves, and to mute themselves after they
finish speaking. The staff has been instructed to only mute
Members and witnesses as appropriate, when not being recognized
by the Chair, to avoid inadvertent background noise.
Members are reminded that all House rules relating to order
and decorum apply to this remote hearing.
Today's hearing is entitled, ``Building Opportunity:
Addressing the Financial Barriers to Minority- and Women-Owned
Businesses' Involvement in Infrastructure Projects.''
I now recognize myself for 4 minutes to give an opening
statement.
Today's hearing will highlight the key challenges and
barriers faced by minority- and women-owned businesses of all
sizes, including obtaining the capital and opportunity
necessary to participate in large-scale Federal infrastructure
projects, and what is needed to ensure that the mistakes of the
past are not repeated and do not become the missed
opportunities of the future.
After several years of celebrating fruitless Infrastructure
Weeks during the previous Administration, I am now proud to say
that the Biden Administration and Congress, led by Democrats in
the House and Senate, passed historic investments in our
nation's infrastructure last November. The bipartisan
Infrastructure Investment and Jobs Act includes an additional
$550 billion to rebuild our roads, bridges, and ports, and to
ensure clean drinking water, expand access to high-speed
Internet, improve our public transit systems, and address the
climate crisis. And, yes, that is a lot that we have done.
According to the Economic Policy Institute, this law will
create roughly--I want you to hear this--772,000 jobs per year,
in addition to strengthening our supply chains, improving
productivity, and reducing long-term inflation. We do say long-
term inflation. That is why infrastructure spending has
typically been a bipartisan issue, with widespread support from
both sides of the aisle.
But for whatever reasons, that was not necessarily the case
this time around. We are already witnessing announcements of
infrastructure projects across this country as a direct result
of passing this bill, even announcements by Members of Congress
claiming credit for investments that they voted against.
The benefit of this historic law will be felt for
generations to come, and numerous studies have shown that
infrastructure yields up to 17 percent return on investment, on
average, which is why we need to ensure that all Americans have
the opportunity to share in this economic activity.
While Federal infrastructure projects of the past have
increased economic growth, historically, they have come to cost
Black and Brown communities their wealth. Fortunately, under
the leadership of Chairwoman Waters, the Financial Services
Committee Democrats worked to include several provisions in the
infrastructure bill and the American Rescue Plan that will
undeniably assist minority- and women-owned businesses' access
to the capital necessary to complete these projects, including
investments in State Small Business Credit Initiatives (SSBCIs)
and the Minority Business Development Agency (MBDA), amongst
others.
Even with these investments, the challenges associated with
minority- and women-owned businesses accessing the capital
required to be in on these infrastructure projects will not be
solved overnight. Thus, the reason for this hearing, so we can
hear from our experts.
Lastly, according to the Small Business Administration,
just 1.7 percent of Federal contracts went to Black-owned small
businesses, and 1.8 percent to Hispanic-owned small businesses.
Historic lack of access to capital, delayed payments from
contractors, and the lack of credit and insurance are all
contributing factors to these dismal numbers.
Thus, thank you, Chairwoman Waters, for your leadership,
and for also establishing the first-ever Diversity and
Inclusion Subcommittee.
With that said, I am excited to hear from our experts in
this hearing.
The Chair now recognizes the ranking member of the
subcommittee, my friend from Missouri, Congresswoman Ann
Wagner, for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman, for holding this
hearing today, and I want to welcome and thank our witnesses
for testifying about the obstacles that women- and minority-
owned businesses face when it comes to accessing capital and
financial services.
Small businesses make up 99 percent of all employers in the
United States, employing some 61 million Americans, or almost
half of our workforce. As our economy continues to recover from
the pandemic, it is critical that Congress focus on policies
that enable all businesses, regardless of race or gender, to
open, grow, and thrive.
While not every business goes public, all businesses need
access to capital, and private market exemptions provide a
useful option for raising capital for many companies.
Fintech is also proving to be a new avenue to accessing
capital that can be more efficient and less costly. This
includes access to microfinance, which can be especially
beneficial to small business owners and entrepreneurs who might
have difficulty obtaining the funding from more traditional
financial institutions to start or scale up their business.
Fintechs have filled this gap, and according to Opportunity
International, a nonprofit that offers microloans, microfinance
offers the chance to, ``focus more on marginalized people,
people who are left behind, and we ensure that the excluded
have access to responsible financial services.''
Congress should continue to focus on finding ways to reduce
the regulatory burdens to starting and growing a business,
highlighting innovative solutions like those offered by fintech
and microfinance, and encouraging startups that are working
toward understanding the needs of underserved communities.
While this hearing is about access to capital and financial
services, this subcommittee must also focus on permanent
regulatory reforms to lift and strengthen minority- and women-
owned businesses. These businesses benefit when we cut
unnecessary costs and expand opportunities for investors to put
their money to work.
Thank you, Madam Chairwoman, and I yield back the remainder
of my time.
Chairwoman Beatty. Thank you.
The Chair now recognizes the Chair of the full Financial
Services Committee, the gentlewoman from California, Chairwoman
Maxine Waters, for 1 minute.
Chairwoman Waters. Thank you so very much, Chairwoman
Beatty. I am so pleased that you are holding this hearing. It
is so timely, it is so important, and I thank you for your
leadership.
President Biden's $1.2-trillion Infrastructure Investment
and Jobs Act not only will repair our nation's crumbling roads
and bridges but also presents an opportunity for minority- and
women-owned small businesses. As we celebrate Black History
Month, we must keep in mind that diversity and inclusion
require intentionality. We saw with the initial rollout of the
Paycheck Protection Program (PPP) that the big banks provided
concierge access to their larger, majority-owned clients
instead of providing fair access to all small businesses, and
it required the members of this committee to end that practice.
I am interested in hearing from our witnesses on what needs
to be done to ensure the Federal Government and the financial
sector make available the resources necessary for minority- and
women-owned firms to access the many Federal contracts in the
infrastructure legislation.
I thank the witnesses for their testimony, and I yield
back.
Chairwoman Beatty. Thank you so much, Madam Chairwoman.
Today, we welcome the testimony of our distinguished
witnesses: Mr. Farad Ali, President and CEO of Asociar; Ms.
Tawanna Black, Founder and CEO of the Center for Economic
Inclusion; Mr. Philip Gaskin, Vice President of
Entrepreneurship at the Ewing Marion Kauffman Foundation; Ms.
Ying McGuire, President and CEO of the National Minority
Supplier Development Council; and Ms. Jeanette Quick, Head of
Compliance and Public Policy at Gusto.
Witnesses are reminded that their oral testimony will be
limited to 5 minutes. You should be able to see a timer on your
screen that will indicate how much time you have left, and a
chime will go off at the end of your time. I would ask that you
be mindful of the timer, and quickly wrap up your testimony if
you hear the chime, so that we can be respectful of both the
witnesses' and the subcommittee members' time.
And without objection, your written statements will be made
a part of the record.
Mr. Ali, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF FARAD ALI, PRESIDENT AND CEO, ASOCIAR LLC
Mr. Ali. Good morning, Chairwoman Beatty, Ranking Member
Wagner, and members of the Diversity and Inclusion
Subcommittee. My name is Farad Ali, and I am the President and
CEO of Asociar.
Additionally, I represent the U.S. Black Chambers
President's Circle and the Airport Minority Advisory Council on
behalf of my group.
On behalf of Asociar and all of the Black businesses
everywhere, I am honored to share my testimony with members of
the subcommittee today on the myriad of issues that Black-,
women-, and minority-owned businesses face when accessing
capital contracts in infrastructure projects. Thank you for
giving me the opportunity to participate in the hearing today.
Asociar was founded in 2012 and established as a valued
partner working to provide technology solutions for various
companies in IT services. For the past 10 years, we have been
able to implement growth strategies for service delivery and
supply chain solutions as a value-added supplier.
As a certified minority-owned business by the National
Minority Supplier Development Council, and a certified Black-
owned business by the U.S. Black Chambers, and a certified
Historically Underutilized Business in Texas and North
Carolina, we still face challenges in accessing opportunities
for growth in the public and private marketplace.
Federal procurement has provided many Americans with
opportunities to grow a business, hire employees, build wealth,
and strengthen the economy in the communities where we live and
work and serve. The Infrastructure Investment and Jobs Act is a
once-in-a-generation opportunity to invest in critical projects
throughout the nation. However, if we are to realize the long-
term return on those investments, we must also understand that
we must hire to do these projects in a way that is very
intentional. This will require coordination and making sure
that we are able to be transparent from Congress to address two
key factors: access to capital; and access to contracts.
First, whether it is pouring concrete, replacing outdated
pipes, or installing next-gen broadband and electric charging
stations, many minority-owned firms will be blocked from
bidding on these contracts because of a lack of capital, not a
lack of capability. To address the barrier of capital access,
financial institutions should be incentivized to create lending
products that align with Federal procurement contract terms.
This will improve cash flow management and alleviate credit
risk.
Additionally, Congress should expand and increase funding
to the Emergency Capital Investment Program through the U.S.
Department of the Treasury. That is to help the Community
Development Financial Institutions (CDFIs) and Minority
Depository Institutions (MDIs) to invest in these underserved
communities, helping to build and investing in the funding and
the programs which will be direct and create the effectiveness
for these financial institutions that participate.
Second, to ensure that the Federal and State agencies
awarding the contracts are able to identify qualified, capable
firms of various sizes, there needs to be a formal alignment
between agencies that serve minority- and woman-owned
businesses, like the U.S Black Chambers, the National Minority
Supplier Development Council, the Airport Minority Advisory
Council, and the Conference of Minority Transportation
Officials. As you know, much of this infrastructure bill is
going towards DOT and FAA, and those are the organizations that
can support their work. For decades, these organizations have
facilitated increasing the capacity of thousands of diverse
firms. They provide support for shovel-ready projects at the
Federal, State, and municipal levels.
Third, to build marketplace capacity, Congress must
strengthen policies that facilitate, measure, and report
mentoring partnerships between larger government contractors
and minority and women contractors. Historically, underutilized
businesses risk falling into a cycle of underutilization. For
example, to get contracts, you must show past performance. But
if you have a chance as a buyer to choose between a vendor who
has less performance or more performance, you are going to
choose the one that has more performance. So, I think it is
going to be critically important that we begin to work on
strengthening mentor-protegee partnerships.
You have my written testimony before you, and in the
interest of time, I would just like to follow up with the last
three points.
Making racial disparity and racial wealth gap reductions is
an economic imperative which benefits everyone, not just a
social benefit directed at a select population. It is critical
that we highlight business solutions that ensure utilization of
women- and minority-owned firms, and I think there are three
ways we can do this: promote lending products in line with
Federal procurement contracts; incentivize coordination between
agencies and minority-serving institutions; and incentivize
measurement and subcontracting mentorship and lending with
financial institutions.
Businesses build communities, and policies set the
foundation for the growth and sustainability of business and
community prosperity for everyone. If executed correctly, the
Infrastructure Investment and Jobs Act can help transform
minority businesses and communities and accelerate the nation
towards long-term success.
Thank you for the opportunity to testify, and I look
forward to answering any questions you may have. Thank you,
Madam Chairwoman, and Madam Ranking Member.
[The prepared statement of Mr. Ali can be found on page 34
of the appendix.]
Chairwoman Beatty. Thank you so much, Mr. Ali, for your
testimony.
Ms. Black, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF TAWANNA BLACK, FOUNDER AND CEO, CENTER FOR
ECONOMIC INCLUSION
Ms. Black. Thank you, Chairwoman Beatty, Chairwoman Waters,
and members of the subcommittee. I appreciate and am honored
for this opportunity to provide testimony today. I am Tawanna
Black, the founder and CEO of the Center for Economic
Inclusion. The Center is committed to closing racial
employment, income, and wealth gaps by building racially
inclusive and equitable regional economies. Founded in 2017,
the Center is the nation's first organization dedicated
exclusively to closing racial wealth gaps by partnering with
employers and regional government agencies in order to build
civic infrastructure and build the capacity of employers, both
in the public and private sectors, in order to close racial
wealth gaps and build racially equitable and inclusive
workplaces.
In addition to working with the public sector and the
private sector, the Center supports the work of employers
throughout the Minneapolis-St. Paul region and the seven-county
metropolitan area, as well as regions across the State of
Minnesota and across the country.
Our economy right now requires diverse talent in high-
demand, resilient industries with family-sustaining jobs. The
economy of the future needs businesses that are resilient,
businesses that can meet the growing supply chain needs, which
will require that Black, Indigenous, Latinx, and Asian
businesses and communities have improved access to capital,
land, and homeownership opportunities.
Our organization is deeply committed to growing Black- and
Brown-owned businesses, and I want to lift up both the
challenges that our businesses face and the opportunities that
our businesses provide toward creating jobs and wealth in our
economy. The Center imagines an economic shift that can occur
as we continue to invest in generational opportunities to
address our country's infrastructure needs. However, this can
only be accomplished if we address systemic barriers in
contracting and the undercapitalization of minority- and women-
owned businesses, particularly those faced by our Black- and
Latina-owned businesses.
Black, Indigenous, Latinx, and Asian-owned businesses and
communities carry the historical burdens of structural
inequities that have been combined and added to throughout the
COVID-19 pandemic to create powerful obstacles facing our
businesses.
Nationally, more than 41 percent of Black-owned businesses,
totaling 440,000 enterprises, have closed, compared to just 17
percent of White-owned businesses.
Minority-owned businesses grow at 3.5 times the rate of all
Minnesota businesses, yet our inequitable access to capital is
keeping our businesses from continuing to grow.
More than 8 in 10 Black employees and 7 in 10 Indigenous
employees have filed for unemployment in our State; and we see
that between 2000 and 2020, the wage gap between Black and
White workers has continued to increase at a rate that our
economy can no longer afford.
In Minnesota, we have a saying that we all do better when
we all do better. This comes from former and late United States
Senator Paul Wellstone. Today, we are not all doing better. At
the Center, we believe that now is the time for us to invest in
creating an inclusive economy that benefits all people. We
project that achieving racial equity and inclusive growth leads
to better economic participation and would generate close to
$6,000 to $8,500 in annual per capita income. This economic
activity would lead to greater opportunities for
intergenerational wealth that benefits our entire economy and
demonstrates the need and opportunity for both assessing and
prioritizing inclusive policies and investments that accelerate
economic growth and competitiveness.
I thank you, Chairwoman Beatty, Chairwoman Waters, and
members of the subcommittee, for both your leadership and your
time today. Together, we believe we can write a new story in
our country's history, developing processes and investments for
informing our infrastructure policies and investments possible
to fuel our country's economic growth through the power of
inclusion, equity, and belonging.
Thank you, and I yield back.
[The prepared statement of Ms. Black can be found on page
38 of the appendix.]
Chairwoman Beatty. Thank you so much, Ms. Black, for your
testimony.
Mr. Gaskin, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF PHILIP GASKIN, VICE PRESIDENT OF ENTREPRENEURSHIP,
EWING MARION KAUFFMAN FOUNDATION
Mr. Gaskin. Thank you, Chairwoman Beatty, Ranking Member
Wagner, and members of the subcommittee, for the opportunity to
testify today.
Kauffman is a private, nonpartisan foundation based in
Kansas City, Missouri, where I lead our work on
entrepreneurship. While most of our work happens outside the
Beltway, we are engaging Washington to bring half of our
nation's potential entrepreneurs off the sidelines. This work
is deeply personal. My family lived one block away from a ZIP
Code with a better reputation. My dad would pick me up after
school, and we would regularly go to a bank. One day I asked
dad, ``Why do we go to so many banks?'' It turns out he was
trying to get that first loan to open a chain of convenience
stores. My dad's barrier to entry was simple: He didn't live in
the right ZIP Code.
He had good credit, but he didn't have credit experience.
Four years later, a Black-owned bank gave him that loan which
he used to open a successful convenience store in South Central
Los Angeles. His success led to another loan and a second
store. But even with that success, my dad continued to face
barriers because of the color of his skin. His experience
resembles the reality that many Americans still face.
Today, Black-owned businesses are twice as likely to be
rejected for loans, start with 3 times less in overall capital,
and 4 in 10 entrepreneurs of color are too discouraged to even
try for a loan for fear that they won't get it.
Even more alarming, of the $69 trillion in global assets
under the 4 major asset classes, less than 1.3 percent is
invested in firms owned by women, Black Americans, and other
people of color.
America cannot afford to waste the energy and ideas of even
one entrepreneur. Women and minorities represent the last great
untapped asset class in America today, and we have no better
opportunity to bring these entrepreneurs out of hiding than
ensuring equal participation in rebuilding our infrastructure.
Untapping this great American resource, our people, is
something for which I see strong bipartisan support, but it
will require that we address the capital access gap for
underserved businesses who stand ready to meet the moment.
At Kauffman, we know the four keys to success: equitable
access to opportunity; funding; knowledge; and support. These
are the pillars of our America's New Business Plan, a research-
vetted policy platform this committee should consider. If our
plan is the, ``what,'' we must not forget the, ``who.'' We all
must champion the help of the locally trusted organizations,
smaller, non-traditional lending partners, and institutions
grounded in the historical and cultural implications of a
community, including Minority Depository Institutions (MDIs)
and Community Development Financial Institutions (CDFIs).
In our own work, innovative capital solutions like AltCap
and the Kansas City COVID-19 Relief and Recovery Loan Fund, and
our Capital Access Lab, are proven models the committee should
examine for replication for the entrepreneurs ready, willing,
and able to rebuild America.
But capital alone is not enough. The knowledge gap needs to
be addressed as well, ensuring that all can find these lending
solutions or even the contracting opportunities rolling out
across the country. In the who-do-you-know world of contracts,
our research shows that new business owners simply do not know
as many people. These challenges are also discussed in
America's New Business Plan.
The role of the Federal Government is critical in assisting
these entrepreneurs. A thriving entrepreneurial landscape will
require a robust public-private commitment towards change.
In closing, the Kauffman Foundation is not only an
incubator or grantor, but we also conduct real-world research
into what succeeds and what fails in entrepreneurship and
capital access. Because of this, we would like to remain a
resource to policymakers and members of the committee as a go-
to partner for premier research, policy recommendations through
America's New Business Plan, industry knowledge, and case
studies on successful models of expanding opportunity to
America's greatest untapped asset class.
Thank you, and I yield back.
[The prepared statement of Mr. Gaskin can be found on page
40 of the appendix.]
Chairwoman Beatty. Thank you so much, Mr. Gaskin. And let
me also thank you for sharing your family's story. It is very
much appreciated.
Ms. McGuire, you are now recognized for 5 minutes to give
an oral presentation of your testimony.
STATEMENT OF YING MCGUIRE, PRESIDENT AND CEO, NATIONAL MINORITY
SUPPLIER DEVELOPMENT COUNCIL (NMSDC)
Ms. McGuire. Thank you, Chairwoman Beatty, Ranking Member
Wagner, Chairwoman Waters, and distinguished members of the
Subcommittee on Diversity and Inclusion. Thank you so much for
the opportunity to testify today.
My name is Ying McGuire, and I am the President and CEO of
the National Minority Supplier Development Council (NMSDC). We
believe every business deserves an unbiased chance. Our
organization serves as a growth engine for minority-owned
businesses, while enabling our 1,500 corporate members to
advance economic equity. NMSDC-certified, minority-owned
businesses have created $400 billion in economic output
annually while generating $48 billion in tax revenue and 2.2
million jobs across the country.
Today's hearing comes as America is experiencing a
widespread and long-overdue reckoning with systemic racial and
gender injustices and inequalities.
Since taking office last year, the Biden-Harris
Administration has made several important commitments to
minorities to decrease the racial wealth gap. These include
requiring 15 percent of all Federal contracts to go to small
and disadvantaged businesses by 2025, releasing the SBA
disaggregated racial and ethnic data on small business
contractors, and making improvements to the category management
system. These efforts are welcome, especially as we learn that
the racial wealth gap continues to be a driver for change and a
policy priority among business owners.
While there have been significant efforts made to address
the racial wealth gap, more opportunities exist within
contracting and procurement through the Federal Government. The
bipartisan Infrastructure Investment and Jobs Act serves as a
catalyst to meet this moment. With the passage of the
infrastructure bill, Congress and the Biden Administration
pledged that minority-owned businesses would be prioritized for
Federal contracting opportunities and would not be left behind
as infrastructure projects unfold across the country.
At a time when many minority-owned businesses find
themselves in a long recovery period from the pandemic, it is
absolutely critical that they are in the pipeline for
procurement. Not only do Federal contracts help businesses, but
they also create jobs and contribute to the recovery and
stability of our communities.
In order to meet the moment, besides access to contracts,
there are two other areas in which I believe this committee and
the Administration can take action towards ensuring equitable
recovery: one, continued emphasis and action towards ensuring
that minorities have access to important financial and
increased capital to start and grow their businesses; and two,
the creation of a Minority Business Enterprise designation to
equalize access to contract opportunities.
As members of this committee are well aware, access to
capital remains one of the most significant issues for minority
business owners. Small Business Administration (SBA) loans have
been great instruments to assist small businesses with fiscal
challenges during these difficult economic times. However, as a
business owner, one never wants to take on more debt. A shift
towards new access-to-capital models that do not add additional
debt burden is needed in order for Minority Business
Enterprises (MBEs) to be economic growth engines in underserved
communities.
My recommendation for the creation of a Federal designation
for Minority Business Enterprises is based on evidence that
while there are existing designations for small and
disadvantaged businesses, it is our experience that these
historical designations have not addressed the wide
institutional disparity of Federal contracts awarded to MBEs.
I have 28 seconds left. I applaud the work of the
subcommittee, and I am committed, and our communities are
committed to working with you on these issues. A friend once
said, ``Access to capital is a bridge; access to contracts is
sustainability.'' Thank you, and I look forward to answering
your questions.
[The prepared statement of Ms. McGuire can be found on page
55 of the appendix.]
Chairwoman Beatty. Thank you so much for your testimony,
Ms. McGuire, and you used your last 48 seconds well, so thank
you so much.
And let me also say, thank you for what you are doing. Your
predecessor, Adrian Crumble, also sat in that seat several
years ago. So, thank you so much.
And now, Ms. Quick, you are recognized for 5 minutes to
give an oral presentation of your testimony.
STATEMENT OF JEANETTE QUICK, HEAD OF COMPLIANCE AND PUBLIC
POLICY, GUSTO
Ms. Quick. Thank you.
First, I would like to thank Chairwoman Beatty, Ranking
Member Wagner, and the distinguished members of the
subcommittee, for holding this important hearing.
We have the shared goal of ensuring that women- and
minority-owned businesses have equal access to capital and
opportunities for growth.
My name is Jeanette Quick, and I am Head of Compliance and
Public Policy at Gusto, a people platform that empowers small
businesses nationwide.
On a personal note, small businesses are near and dear to
my heart. My mother is a Vietnamese immigrant who owned an ice
cream shop when I was growing up. I know firsthand how hard the
work is of small business owners and how important capital can
be to their success. And as a former staffer, I am thrilled to
be on this side of the dais to be able to speak for the more
than 200,000 small businesses and the millions of their
employees that Gusto serves.
Gusto provides payroll, human resources, health benefits,
and financial tools to small businesses across the country. Our
work uniquely positions us to understand the needs of small
businesses and how best to serve them during this challenging
time.
Throughout the pandemic, Gusto has focused on ensuring that
small businesses have access to capital. Gusto facilitated
billions of dollars in Paycheck Protection Program (PPP) loans
for our small businesses, and we are connected to more than 80
financial institutions, including CDFIs, to ensure that our
customers have access to fair and responsible capital.
Gusto is also the Founder and Chair of the Small Business
Relief Council, a cross-industry coalition of over 80 companies
representing millions of small businesses. We are well-
positioned to provide insight into small business financing
challenges.
Gusto believes that a healthy small business ecosystem is
one that is fair and inclusive for all businesses, including
those owned by women and people of color. We support proposals
that ensure equal access to the financial system and include
access to Federal procurement and infrastructure projects.
My written remarks today include a longer discussion on
obstacles that women- and minority-owned businesses face in
starting and expanding their businesses, and policies that can
help address these disparities.
According to Gusto data, action is needed now to help small
businesses. Our data show that small business payroll reserves
in hard-hit industries are tighter now than they were during
the height of the early pandemic. Since the start of 2022, 26
percent of businesses, primarily in the personal services
sector, have less than one month of payroll in reserves. That
is up from 10 percent, when PPP funds first started to impact
small businesses in 2020. Without any new Federal aid, small
businesses have fewer resources and capacity to absorb future
shocks.
Minority-owned businesses have historically experienced
unequal access to capital. For example, White-owned startups
began with more than 3 times the capital of Black-owned
startups. Women- and minority-owned businesses persistently
report having lower levels of access to financial institutions
and, as was demonstrated during the pandemic, lack of
relationships with traditional lenders led to lower access to
PPP loans for these groups.
Our data show that the government can and should do a
better job of outreach to these communities to ensure they have
access to financial products and services that can meet the
needs of their businesses. Gusto is encouraged that the
subcommittee is considering legislation focused on providing
equity funding to minority business owners through the Minority
Business Development Agency (MBDA). These targeted funds,
coupled with technical assistance and training from MBDA, will
have an amplified impact on businesses and the communities they
serve.
Gusto supports reforming the Small Business Administration
(SBA) to better serve women- and minority-owned businesses. We
urge the subcommittee to consider mechanisms to incentivize
private lenders to enter the small business lending market,
including by reducing barriers for SBA lender eligibility and
reevaluating whether the SBA's lending programs are fair and
inclusive, including whether the SBA or other lenders should
continue to use criteria such as background checks, personal
credit scores, collateral, or other information that has
historically disfavored women and minority business owners.
This is an incredibly challenging time for our country and
we can't lose sight of the fact that small businesses are the
job creators and economic engine of our country. Despite the
massive upheaval caused by the pandemic, we are seeing an
increase in new business starts since 2020. Women, and
particularly women of color, are jump-starting the recovery.
Nearly half of businesses started by women in the past year are
minority-owned. Our goal at Gusto is to create a world where
work empowers better lives, and we owe it to all entrepreneurs
to ensure that policies are in place to allow them not just to
survive but also to thrive.
I thank you again for the opportunity to testify, and I
welcome any questions you may have.
[The prepared statement of Ms. Quick can be found on page
58 of the appendix.]
Chairwoman Beatty. Thank you so much, Ms. Quick, for your
testimony. And let me also thank you for sharing your family's
story, as well.
I now recognize myself for 5 minutes for questions. I am
going to try to get through several questions, so if you could
use brevity in your answers, I would appreciate it.
The first question is for you, Mr. Gaskin. I stress the
importance of ensuring geographical diversity of venture
capital investments in an effort to attract more investment and
talented diverse opportunities across the country. In my first
hearing, someone on the other side asked me if I would look at
rural areas, and the answer is yes.
Can you speak to the impact of venture capital investment
in places where it is not typical, as it is in Silicon Valley?
Mr. Gaskin. Thank you, yes. If we look at research showing
that over 75 percent of all venture capital goes to fortified
geographic areas, highly populated, what happens if you are an
entrepreneur and you are in the middle of a State or you are in
the middle of the country? Too many entrepreneurs are on the
sidelines.
And I would say, of that funding, only just over 2 percent
goes to African-American women-led firms, and just over 1
percent to African Americans, and it is lower for all of the
others, which is unacceptable.
The role of CDFIs and MDIs is really important here,
because they understand community and they understand the
businesses that are in those communities and how to better
support them and get money to them. So, I highly recommend that
the role of CDFIs and MDIs is something that the committee can
consider as they move forward. Thank you.
Chairwoman Beatty. Thank you.
Mr. Ali, last Congress in the House, we passed bipartisan
legislation that I introduced to codify a mentor/protege
program at the Treasury Department, a new voluntary program
that seeks to partner large financial institutions with small
community and minority-owned banks.
In your testimony, you actually mentioned such a program.
My question is, would you, as an expert, be willing to write a
letter and to work with the Department of Transportation, since
we know these dollars go through the U.S. Department of
Transportation, and also work with the Department of Commerce?
Because when you look at their Minority Business Development
Agency (MBDA), which is there, they are responsible for a large
number of dollars and programs. Tell us what you think about
that and what impact it could have?
Mr. Ali. Yes, thank you so much. I like to think it is very
important to understanding the capital, and the capacity
building is important. So, having the capital be there with the
Emergency Capital Improvement Plan is critical. As you had
banks, for example, with the MDIs--JPMorgan partnering with
Mechanics and Farmers Bank to build--and because, as we have
heard from testimony from Mr. Gaskin, that provides some
community awareness, allowing the capital to be deployed
quicker.
MBDA having these centers where we are building capacity is
also critically important. It allows for there to be
connectivity between capital and capacity. I would love to work
with that. I appreciate the MBDA. I have worked with them for
20 years, understanding their ability to build the capacity of
minority businesses. But aligning those businesses with capital
so they can get access to contracts is critical, because the
contracts have requirements, and without capital you can't
access those.
So, I would be honored to be a part of that. Thank you very
much. I appreciate it.
Chairwoman Beatty. Thank you.
And lastly, as we know, prior to the passage of the
Infrastructure Investment and Jobs Act, Congress passed the
American Rescue Plan, which authorized some $500 million for
technical assistance and outreach to minority-owned small
businesses through the State Small Business Credit Initiative.
Ms. Black, and Mr. Gaskin, do you believe it would be wise
for States to leverage the State Small Business Credit
Initiative to enable minority-, women-, and even rural-owned
small businesses to compete with this flood of dollars that we
have? And I am going to give you 20 seconds each.
Ms. Black. It is a simple answer: absolutely. It is
critical that we leverage those networks and leverage those
businesses in order to stimulate economic growth in the
communities.
Chairwoman Beatty. Well, we heard that from an expert.
Okay.
Mr. Gaskin?
Mr. Gaskin. Absolutely. When you have 83 percent of
entrepreneurs who can't get a bank loan or venture capital at
the time of starting a business, we have to get money to them
and find them in communities, especially in rural America.
Chairwoman Beatty. Ms. McGuire?
Ms. McGuire. Absolutely. The government agencies like MBDA
need to partner with private sector and community partners.
Chairwoman Beatty. I have 1 second, for the last witness.
I'm sorry, my time is up, so I yield back.
And I now recognize the gentlewoman from Missouri, our
ranking member, Mrs. Wagner, for 5 minutes.
Mrs. Wagner. I thank my friend, the chairwoman of this
subcommittee.
Small businesses are responsible for employing almost half
of the workforce in America today. Ms. Quick, could you please
provide insight on why companies like Gusto and other fintechs
offer crucial resources to companies that lack the capital to
hire in-house legal or finance or HR services that most large
businesses can afford? Ms. Quick?
Ms. Quick. Thank you for the question. Gusto helps small
business owners bridge the gap to transition to a comprehensive
company. Our comprehensive services, which span payroll, human
resources, health benefits, and financial health benefits, help
small businesses scale and manage their growing business.
Gusto offers a suite of financial products called Gusto
Wallet, which is available to employees and employers who use
Gusto Payroll. These products include cash accounts where
employees can put savings, and another product called Gusto
Cashout. These products help promote financial health and
wellness by putting the user in control of their paycheck and
avoiding high-cost, often predatory small-dollar lending
products.
We believe that fintechs and other non-bank lenders have
the ability to expand access to credit for small businesses in
underserved communities. Businesses disproportionately obtained
PPP loans from business lenders who often use automated
underwriting systems to approve loans. These automated
underwriting systems improved approval rates for Black
borrowers who sought loans at both fintechs and traditional
banks.
Through our platform and products, Gusto has deep expertise
in understanding the financial help of small businesses and the
challenges they face in accessing capital and financial
services. This understanding became stronger as we assisted our
small business customers through PPP and other COVID assistance
programs.
Fintechs are able to respond faster and enter underserved
markets more efficiently than some traditional financial
institutions. We view fintechs as a value-added in the
financial ecosystem. Both fintechs and traditional players are
important, but we know fintechs are a great addition, based on
our customer experience.
Mrs. Wagner. Okay. Ms. Quick, do you believe that the
services you provide to these small and micro businesses have
helped new firms, for instance, survive?
Ms. Quick. Yes, we do.
Mrs. Wagner. Ms. Quick, the Consumer Price Index increased
7 percent over the last 12 months, a record increase that is
hurting both businesses and consumers alike. Could you please
expand on the importance of artificial intelligence (AI) and
other fintech software that can quickly respond to market
conditions and provide capital to small businesses and
startups?
Ms. Quick. Great question. As I mentioned, fintech software
providers are able to respond quickly and more efficiently to
changes in the marketplace, often through automated
underwriting and taking into account market conditions in real
time.
Mrs. Wagner. Also, Ms. Quick, Gusto advertises their
ability to help small companies and businesses with everything
from payroll runs to filing your taxes at the local and State
and Federal levels, as well as day-to-day employee management.
Have you seen the positive impact of crowdfunding on small
businesses?
Ms. Quick. We support equal and fair access to capital for
small businesses, whether it is needed for start-up funds or
growth. Gusto doesn't have specific data on whether our
customers use crowdfunding as a source of financing. We have
focused on lending partnerships, but we certainly support any
means of accessing capital and growing businesses.
Mrs. Wagner. Do you believe crowdfunding is a reliable and
essential part of raising capital at all stages of small
businesses or startups?
Ms. Quick. Yes. We believe crowdfunding can be helpful to
starting businesses.
Mrs. Wagner. Great, thank you.
I will yield back my time, Madam Chairwoman.
Chairwoman Beatty. Thank you so much, Ranking Member
Wagner.
I now recognize the Chair of the full Financial Services
Committee, the gentlewoman from California, Chairwoman Maxine
Waters, for 5 minutes.
Chairwoman Waters. Thank you so much again, Chairwoman
Beatty.
I would like to direct my first question to Mr. Gaskin. I
did not know that you were in California and the Los Angeles
area. But I want to know whether or not you are aware of the
$12 billion that Senator Warner and I put together for CDFIs
and MDIs, and that $1.25 billion has been allocated already.
Mr. Gaskin, are you aware of that?
Mr. Gaskin. Yes, we are aware of that, and also doing our
CDFI work here in Kansas City, so I appreciate greatly what you
are doing. Thank you.
Chairwoman Waters. Okay. Thank you very much, because one
of the things that I believe in is that we have to do more to
help our small businesses know about CDFIs, MDIs, and the
resources that we are allocating to them so that they can have
access to these funds.
Mr. Gaskin. Yes.
Chairwoman Waters. Also, I would like to know whether or
not you understand the work that Chairwoman Beatty and all of
us did on this Financial Services Committee with PPP? When the
big banks basically took care of their concierge clients, we
quickly put another $60 billion in and gave a timeframe to get
it out. And, of course, MDIs did very well, and CDFIs, in
getting that money out. So, it is a new day in this committee.
This committee understands the value of CDFIs and MDIs and
access to capital, and we work very hard.
Now, I would like to know more about incubators. I believe
that we need a lot of incubators. Chairwoman Beatty and I would
like to work on funding incubators so that we can have the
resources for small businesses to learn a lot that they need to
know in order to be successful, the insurance and paying the
taxes and the projections and all of that.
What do you think about an effort to multiply incubators in
this country?
Mr. Gaskin. Thank you, and I agree. As I mentioned in our
testimony, in our America's New Business Plan, we lay out the
pillars of funding: knowledge; support; and opportunity. And in
those are opportunities and suggestions that relate to those
types of supports. A lot of our grant-making has been to what
we call entrepreneurial support organizations, which have
included incubators that help entrepreneurs overcome these
barriers of startup, ranging from knowledge to connections to
tools to--
Chairwoman Waters. Do you think that Chairwoman Beatty and
I should try and put together direct funding of some kind to
develop more incubators?
Mr. Gaskin. Yes. In communities, especially in rural
communities where entrepreneurs may not have access to a larger
city, I think that would be helpful.
Chairwoman Waters. Okay. Now, what Chairwoman Beatty is
focused on today with infrastructure, we know that the money is
going out to the cities and the counties and the States and all
of that, and what I have discovered is we don't have enough--
many of our small businesses that are involved in pre-bid
conferences to understand what the opportunities are for
contracting. What can we do about getting that information out?
You have to be in the pre-bid conference.
Mr. Gaskin. Exactly. Contracts, as I mentioned in my
comments, are very, very important. One of the things, whether
it is incubators or accelerators, can do is communicate those
out. Starting in the communities and asking the questions and
looking at, what do the communities need, what do the people
need, and getting an understanding of the ecosystem of
communities and really listening block by block to what the
entrepreneurs and business owners need will help in that area.
Chairwoman Waters. I want to thank you very much. I have
taken up most of your time. But I do want you to talk with
Chairwoman Beatty further, and all of you, about what we can do
to empower our small businesses and get them in the pre-bid
conferences, get the incubators spread out so that they can
help these small businesses, and we are working on the big
banks, and we are seeing some progress there.
Thank you, Chairwoman Beatty, for allowing me this time.
Thank you.
Chairwoman Beatty. Thank you so much, Madam Chairwoman, and
thank you for directing us in our future direction.
The gentleman from the great State of Ohio, Mr. Gonzalez,
is now recognized for 5 minutes.
Mr. Gonzalez of Ohio. It's a great State, indeed. Thank
you, Madam Chairwoman.
Chairwoman Beatty. I just have to add, ``Go Bengals,'' to
that.
Mr. Gonzalez of Ohio. I struggle with that as a
Clevelander, but I am going to pull for them for Joe Burrow's
sake.
But in any event, this is a great hearing. As many of you
know, for the last 3 years I have been focused on, how do we
extend more affordable credit and capital to all Americans, but
knowing in particular that it is oftentimes our minority- and
women-owned businesses that struggle the most with this. So, I
think this is timely, especially in the context of the broader
contracting issues that we are talking about.
Ms. Quick, I want to start with you. You have, obviously,
the payroll product and a wallet product that is for employees,
and I am curious why, from what I can tell, you don't have an
actual loan product? I wonder why, because it strikes me that
with payroll data and wallet-level data, your company is
uniquely positioned to extend credit, or maybe go in that
direction.
I would love to just hear your thoughts as to why that is
not a place where you all have gone to this point.
Ms. Quick. Thank you for your question. We do have Gusto
Cashout, which is a lending product that is based on estimated
earned wages. It enables consumers who are on the platform to
be able to access credit for no or low cost and--
Mr. Gonzalez of Ohio. Can I interrupt you quickly on that?
Does that product help them build credit or their credit
scores? Does that data ultimately filter back to the rating
agencies, or is that just siloed inside of Gusto?
Ms. Quick. We are currently not reporting it to the credit
system, but we are thinking about ways to continue to expand
our product mix to help individuals build credit.
Mr. Gonzalez of Ohio. Anything beyond the earned wage
access products, like personal loans or anything like that? Or
have you all just specifically avoided that, for any particular
reason?
Ms. Quick. Yes. We have partnered with institutions that
offer small business loans. As I mentioned in my testimony, we
are connected to more than 80 financial institutions that offer
small business financing products, including a number of CDFIs.
We have partnered with Opportunity Fund and Pacific Community
Ventures in our home State of California, and we are continuing
to look at other ways to partner with CDFIs as well.
Mr. Gonzalez of Ohio. Thank you. It is my understanding of
these products--I don't have the specific data around yours,
but I believe it is a pretty strong way to help folks build
credit who maybe are outside of the credit system today. I
would encourage you to continue looking at that, because
obviously, we want as many people to have access to affordable
credit as humanly possible.
Mr. Ali, I am going to shift to you for a second. I think
your suggestion around mentorship programs and subcontracting
to give MWBEs more opportunities and then to help them navigate
the sometimes difficult bidding process makes a ton of sense.
When I talk to some of these firms back home, they feel like
they, for one reason or another, cannot or are excluded from
being able to bid appropriately.
You mentioned providing incentives for larger, more
experienced firms to offer these mentorships. What sort of
incentives did you have in mind? Maybe just drill down, if you
could be very specific about what you are thinking? I think
that would be helpful.
Mr. Ali. Thank you for the question, Representative
Gonzalez. I think it is important to understand that the
connectedness is really how people get business done. People do
business with people they know, people they like, and people
they trust. And to have the ability to do that in an
environment where we face difficulties has not been easy.
I think specifically to have the larger businesses
recognize connectedness through some of these minority business
organizations, like the U.S. Black Chamber or the NMSDC or
AMAT, to say we are looking for clients that we can help mentor
and grow and develop, because we understand that would also
build community. And by providing incentives in the scoring as
they are gaining contracts to make sure they are utilizing
these diverse businesses, and then measuring the impact of
those minority businesses on what they are doing in their
community by hiring and giving back.
Mr. Gonzalez of Ohio. I only have 30 seconds, but I really
think this is an area that we should explore because your point
around connectedness is absolutely right. For those people who
come from either a connected family or have the right pedigree
and background, accessing capital, accessing opportunities, and
getting bids, is easy. It is one of the easiest things they can
do. It is one of the best advantages they have. For those who
are outside of that system, it can be an enormous challenge,
and it feels impossible in many respects.
So, I think that is a great idea, and I look forward to
exploring it more with you.
Chairwoman Beatty. Thank you.
The gentleman from Massachusetts, Mr. Lynch, is now
recognized for 5 minutes.
Mr. Lynch. Thank you, Madam Chairwoman. Thanks for holding
this hearing.
I have a background in construction management; that is
what my Bachelor's degree is in. I spent 20 years as an
ironworker, and I am the former president of the Ironworkers
Union in Boston. And I have to tell you that in a lot of this
work, the contracting process and the bidding process is
really--it comes down to a secret handshake. Oftentimes, there
is a preferred bid list and there is a process that is very
difficult for a small firm or a new firm to break through. We
did have some success on the Defense bill a few years ago. We
ran into the same problem that we are talking about with the
infrastructure bill, which is that firms that were known, that
were reliable, that had good safety records, and that had been
through the process were readily recognized and successful in
the bidding process, but newer firms and smaller firms were
shut out of the process.
What Raytheon did--that is the big firm in my area on the
Defense side--is they did a workshop. They brought in all of
these small, women- and minority-owned businesses and did a
workshop on how to bid in this process, and I think that would
be enormously helpful. Because of the size, the dollar numbers
on some of these big contracts coming out on infrastructure,
you really have to try at the subcontractor level and bring
people into the process. It really is complicated, it is
difficult, and unless we make affirmative steps to educate
people and help them become part of the process, they are going
to stay on the outside, and we are just going to have this
small number of contractors enjoying the benefits of this
progress, and it is going to be less competitive.
Those smaller firms--we saw this on the Defense side. The
smaller firms bring the innovation and they bring the price
down. Mr. Gaskin, or Mr. Ali, are we doing any of that, doing
any workshops for women- and minority-owned businesses to
educate them on how this process works?
Mr. Gaskin. Thank you, and I support your comments. This
goes back to the connection and the understanding of community
and the entrepreneurs and business owners in communities and
local institutions like CDFIs, MDIs or others. They have
access. They have the pulse of the community. They have been
doing loans or microloans or other transactions with folks in
the community. So, convening is very important because this is
about equal access to opportunity and support and knowledge
that we mention in America's New Business Plan, absolutely.
You start at the community level and hold forums or have
local folks invite local folks and come in. Because otherwise,
as I said in my comments, people are hiding in plain sight.
Mr. Ali. And I would just edify those comments. If you are
not intentionally inclusive, you become intentionally
exclusive. The work needs to be clear.
And also, it is not only around providing education; it is
that connectedness of really not being a mentor but a sponsor.
So, when you have a corporation or a company that is bigger
than a minority-owned business that says, I am going to sponsor
you, that means they are investing in you, they want you to be
successful. So, they become not just mentors but coaches, and
coaches want to win. If they win with the right team members,
they continue to provide them the success that they need, which
means that they give them their connectedness, they help them
with their capital, and they help them with their capacity-
building.
I think you can't just be teaching, because that becomes
really apathetic because you are doing it out of whatever
galvanized guilt you have. But when you say, I am going to take
you in and build you, that is a different kind of conversation.
Thank you.
Mr. Lynch. I appreciate that, and it is building that
relationship and that familiarity with the process that will
lead to our success. There are examples of that happening, but
unfortunately they are more rare than we would like. I am just
trying to figure out a way to plug these smaller, minority- and
women-owned businesses into the process so that they build
those relationships and they have that opportunity.
But I thank you, and, Madam Chairwoman, I thank you for
holding this hearing, and I yield back. Thank you.
Chairwoman Beatty. Thank you so much, Mr. Lynch.
The gentleman from Tennessee, Mr. Rose, is now recognized
for 5 minutes.
Mr. Rose. Thank you, Chairwoman Beatty, and thanks to
Ranking Member Wagner for holding this hearing.
I also wanted to thank our witnesses for being with us this
morning.
One of the successes of our pandemic response was no doubt
the Paycheck Protection Program (PPP), which had significantly
less fraud, as we have learned, or appears to have had
significantly less fraud than the Economic Injury Disaster Loan
(EIDL) program. According to the Small Business
Administration's Office of Inspector General, the PPP had
approximately $4.6 billion in potentially fraudulent activity,
compared to $80-plus billion in the EIDL program, although the
PPP distributed exponentially more money.
The PPP sent funds through the banking system, as we all
know, while the EIDL program relied on the SBA as a direct
lender. To quote from a statement by the Tennessee Bankers
Association, ``The highlight for the SBA has been the PPP,
which would have been an abject failure without the banking
industry successfully executing the program. SBA has tried
direct lending before and failed time and time again.''
Ms. Quick, in your testimony you recommend streamlining the
SBA loan application process to encourage more banks to
participate in the SBA's lending programs. Could you also speak
about the benefits of having SBA loans go through the banking
system rather than relying on the SBA as a direct lender?
Ms. Quick. Yes. Thank you for this question. As you
mentioned, the banking system was successful in getting
billions and billions of dollars out for PPP. We believe that
the PPP loans were successful in helping thousands of small
businesses to continue to pay their employees, and we are
supportive of any kind of initiatives for both access to
capital through the SBA or through additional private lenders
in the system.
As I mentioned, we believe that fintechs and other non-bank
lenders do have the ability to extend access to credit for
small businesses in underserved communities. We also believe
that traditional financial institutions have the ability to
help better serve small businesses, as well. Some of the
feedback that we have gotten from our Small Business Relief
Council that we run has mentioned to us that small business
lending is currently very difficult, either through the SBA or
as a private company, and there are a lot of barriers to
providing services to small businesses.
We recommend that both the private and public sectors
consider looking at alternative data to underwrite small
business lending and be able to open that credit box for all
small businesses.
Mr. Rose. Thinking about the experience we have just had
with PPP and the financial institutions, what can we do now to
ensure that financial institutions remain an essential part of
providing loans and liquidity to support businesses and
communities, and particularly in times of economic stress?
Ms. Quick. I think we can encourage both lenders, the
private lenders as well as the Small Business Administration,
to look at alternative data, as I mentioned. I touched on the
fact that many small businesses need to present personal credit
scores, collateral, a track record of length of time in
business, and that can be a challenge, particularly for women-
and minority-owned businesses.
We also think there is more we can do to provide financial
education for small businesses. As we know, there are currently
multiple avenues for small business resources through MBDA and
SBA, but many businesses don't know about them. So, I think
there is really an opportunity to make sure that these
resources are more visible to small businesses and that
education is increased to let businesses know what kinds of
things they can access in the financial system.
Mr. Rose. Thank you.
In the few moments that I have left, you are no doubt aware
of CFPB's Section 1071 proposed rulemaking, and I am wondering,
without laying the predicate for that, could you talk about
what the negative impacts are of increasing costs of credit for
small businesses that would likely accompany that rule being
implemented?
Ms. Quick. Gusto is committed to transparency, and we
support policies that can bring greater understanding of the
small business credit market. We know from research that women-
and minority-owned business credit applications are worse than
White-owned businesses, resulting in lower access to capital
for those groups.
We do think it is essential to understand what is occurring
in the market and to try to discern the reasons why underserved
businesses face barriers when trying to obtain credit, and that
the overall goal is to bring greater equity and fairness to
small business lending and create a better ecosystem for small
businesses.
Mr. Rose. Thank you.
I see my time has expired, Chairwoman Beatty, so I yield
back.
Chairwoman Beatty. Thank you so much.
I now recognize the gentlewoman from Massachusetts, Ms.
Pressley, for 5 minutes. Oh, and before you start, happy
birthday to you.
Ms. Pressley. Oh, thank you so much, Madam Chairwoman. This
is a wonderful way to start my day off. Thank you so much for
your leadership, and thank you to our State panelists for
helping us tackle this critically important issue.
As has been stated and we know, but it bears repeating, for
too long, our traditional infrastructure investments and
policies have really exacerbated inequities and disparities in
our communities. In fact, the 1956 Interstate Highway Act,
which created the cross-country system of freeways that we rely
on every day, resulted in the displacement of more than 1
million people and more than 475,000 families in just 2
decades. These highways cut through our neighborhoods, they
darkened pedestrian routes, they worsened air quality, and they
massively diminished property values. Predominantly Black,
Brown, Indigenous and low-income communities lost churches, we
lost green space, and entire swaths of homes. Our communities
lost access to jobs and other critical resources, divestment
that to this very day contributes to the racial wealth gap in
our nation.
Ms. McGuire, what role does taking on debt play in serving
as a barrier for minority-owned businesses in this space?
Ms. McGuire. Thank you for the great question. As I shared
earlier, as a business owner, we don't want to take on more
loan debt. The critical key to success is to allow and give
access to equity capital and government capital, enable them to
grow.
Ms. Pressley. Very good. And can you just expound upon that
a little bit more as to what are some alternatives to loans
that will help minority-owned businesses acquire the capital in
order to be competitive for these contracts that we have been
historically locked out of?
Ms. McGuire. Absolutely. One thing is we can partner with
some of the large financial institutions, and many of them are
corporate members. Their vital critical stakeholders can really
extend funding opportunities and really a lifeline to these
minority-owned small businesses. All of them made a commitment
to racial equity. We talk about the racial wealth gap, and all
of them made a racial equity commitment to provide funding for
infrastructure contracts, and this can be accomplished by using
the racial equity commitment and associated funding to
guarantee loans for MBE required to secure the contract.
One example, a very actionable example, is to create a
Letter of Intent or Memorandum of Understanding (MOU) which
states that if an MBE wins a contract, we will guarantee a loan
to cover 100 days of payroll. That is one example.
The other thing is not just about access. It is the burden
of getting the capital. The underwriting criteria should be
evaluated, and many small MWBE just don't have the financial
acumen to receive the loans, equity, and capital from different
sources. So, helping MWBE understand the requirement and create
a path to success would be ideal.
The other thing that Mr. Ali and other people have talked
about is the connection. People don't have a relationship or
the knowledge to gain access to capital, so how do we, the
government and a community organization like us, become a
matchmaker to connect our underserved communities with sources
of capital out there?
One of the ways to do it is through technology enablement.
Ms. Pressley. Thank you, Ms. McGuire. I will let you go on.
Go on, please.
Ms. McGuire. What if we have a pool that has all sources of
capital out there and intelligently match with the small,
minority- and woman-owned businesses who otherwise never had
the access or relationship? That can be easily created with AI,
with today's technology advancement. Thank you for the
question.
Ms. Pressley. No, absolutely. And I think it just goes to
show that this is about intention, and the will, and the
solutions are available to us.
And on the technical assistance side, as you talk about the
barriers in terms of relationships and access and acumen and
why mentorship is so important and that we are intentional in
our laws to support that, many of the folks that I hear from
back in my district in Massachusetts, in my congressional
district, just don't have extra revenue lying around to hire
expensive consultants and accountants to prepare applications,
so many are worried that they simply won't be ready.
But again, thank you so much. At the end of the day,
infrastructure, in its development and implementation, has the
potential to divide or to bridge, to enforce oppression or to
dismantle it, and we have to learn the lessons of the past and
chart a better course. Thank you.
Chairwoman Beatty. Thank you so very much.
The Chair now recognizes the gentleman from South Carolina,
Mr. Timmons, for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman.
Ms. Quick, I want to follow up on Congresswoman Wagner's
question about crowdfunding. I think there is a lot of
potential in this space for women and minority startups to
access capital. We have all seen the statistics about why these
demographic groups have a harder time accessing institutional
investors, be it pattern matching or whatever else.
Crowdfunding seems to me to have a lot of potential in our
efforts to create a more inclusive economy.
In that same vein, I introduced legislation last year which
would allow small businesses to more easily access venture
capital. My bill, the Improving Capital Allocation for
Newcomers (ICAN) Act, would codify the recommendations from the
SEC's Small Business Capital Formation Advisory Committee by
increasing the cap on the aggregate amount of capital
contributions and uncalled commitment capital from $10 million
to $150 million, and also by increasing the allowable number of
investors or beneficial owners from 250 to 600 for qualifying
venture capital funds.
Chair Gensler has yet to act on these recommendations made
to him, so we introduced this bill. He seems to be more
interested in making life difficult for investors with more
bureaucratic hurdles than anything else. He does not seem to
have any capital formation agenda at all. I hope my colleagues
will support this bill. I know it would certainly be a huge
help to women- and minority-owned startups and small
businesses.
Ms. Quick, could you speak to this proposal and how it
could help entrepreneurs access additional capital?
Ms. Quick. Yes. We are supportive of proposals to help
expand all options for small businesses to grow. We think
capital is important. We don't have particular data on
crowdfunding, per se, but we would love to work with your
office to further understand the proposal and to help think
about additional small business capital options.
We also support education and mentorship programs to help
inform business owners of different financing options and
making sure that there are sufficient protections and risks and
benefits considered in thinking about other forms of capital
for small businesses.
Mr. Timmons. Sure, thank you for that.
One in six women have experienced domestic abuse, and 99
percent of women who have experienced domestic violence have
also encountered financial abuse. This often includes the
abuser taking out loans under the survivor's name to ruin their
credit score. This was something I saw as a domestic violence
prosecutor before I served in Congress.
Ms. Quick, again, is there a way fintech could support
these women and their desire to become entrepreneurs and
overcome challenges with their credit scores?
Ms. Quick. Yes. I believe that fintech has the possibility
and opportunity to help these women who may be experiencing
issues with credit scores. As I mentioned in my testimony,
credit scores have been problematic for many different groups,
including the women that you mentioned, as well as minorities,
and we do think there are opportunities for fintechs to use
alternative data in their underwriting to help provide better
financial services to women and to all individuals.
Mr. Timmons. Sure, thank you for that as well.
Another problem facing employers and entrepreneurs of all
shapes and sizes is the current labor shortage we are
experiencing, but the problem is felt much more sharply for
small businesses where the loss of even a single employee can
truly handicap an operation.
What type of resources can your company and other fintechs
offer to folks who may not have the abilities or tools that
come with a larger business?
Ms. Quick. Gusto provides a number of services to the
smallest businesses and to larger businesses. We help all of
them manage their payroll, human resources, taxes, health
insurance, and financial health benefits, and help them grow
and scale their businesses. We really consider ourselves to be
a partner to these businesses in their day-to-day business
experience. We believe in creating a world where work empowers
a better life, and we think that both ourselves and other
fintechs and other companies have the ability to help small
businesses scale and grow, and it is very important for the
economy.
Mr. Timmons. Sure, thank you for that.
Just for your awareness, I own Swamp Rabbit CrossFit, and
Soul Yoga, in Greenville, South Carolina, and we are actually a
customer of yours, so I appreciate all the good work you are
doing. Thank you.
Madam Chairwoman, I yield back.
Chairwoman Beatty. Thank you so much.
The Chair recognizes the gentlewoman from Michigan, Ms.
Tlaib, for 5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman. I appreciate so
much that we continue to be so laser-focused on making sure
that we have a seat at the table and that implementation is
really the heart of how to make sure that we all have access.
Thank you so much.
According to research conducted by our own Federal Reserve,
business owners of color report having reduced access to
traditional capital from banks and credit unions. In addition,
their analysis also found that creditworthy Black-owned
businesses experienced greater challenges raising capital than
other counterparts.
We know that this lack of access--we have heard it over and
over again as Members of Congress--to traditional capital has
made it incredibly difficult for women and minority
entrepreneurs to stand up and grow their business, and the
Federal Reserve has found that in almost every financing
category, be it loans, credit cards, outside investors, or
grants, people of color entrepreneurs were the least likely to
receive full funding.
So, I am incredibly concerned with how these barriers to
capital are affecting the implementation of many of our Federal
programs and the distribution of Federal dollars, whether it be
the emergency Paycheck Protection Program funding or access to
Federal contracting opportunities, and the bipartisan
infrastructure law.
Ms. Black, Mr. Ali, would public banking help the
administration of programs like the Paycheck Protection Program
be faster and more effective, as well as accessible, to
minority-owned businesses?
Ms. Black. Thank you so much for that question. I would
echo the comments that you offered. I would also offer another
statistic coming from the Federal Reserve Bank's Small Business
Credit Survey, which noted that Black-owned business
application rates for new funding are higher than that of their
White counterparts, yet approval in terms of the amounts that
are approved for them continues to be lower. And while I do
think that public banking is a tool that we have, we also have
the opportunity to continue to invest in community resources
like key revenue-based financing, forgivable loans, to help
address some of the opportunities that have been elevated by
you and by your peers earlier in the questioning, and
opportunities for equity investments.
The more that we continue to see those dollars come
directly into communities that are trusted sources by our Black
and Brown business owners, the more we are going to accelerate
regional inclusive economic job growth.
Ms. Tlaib. Mr. Ali?
Mr. Ali. Yes, thank you very much for the question. I think
it is important to recognize the impact that we have seen that
minority institutions have done because of their ability to
understand what is going on, on each block, as Mr. Gaskin
indicated. I think it is important to do both. If public
financing is going to support, it should probably be more
around the equity space of investing in businesses, much like
we do with Small Business Innovation Research (SBIR) and other
groups, to share in the prosperity of businesses, because
ultimately, when businesses prosper, they end up paying taxes
anyway.
How do we make sure that we can invest in these businesses
in a way that will help them to grow? First, understanding that
minority- and women-owned firms are not all small businesses.
We do have businesses that exceed $10 million, $50 million,
$100 million, that are still suffering, not having the
opportunity to access enough capital for them to grow and to
make the impact that they are making. And remembering that a
lot of these businesses also are hiring people who act and look
more like them, or are gender-specific, so, we see that women-
owned businesses hire more women employees, and we also see
that diverse businesses, Black businesses hire more Black
people, more Asian, more Hispanic.
Ms. Tlaib. I have seen it in my own community. I do want
you, Ms. Black, and Mr. Ali, to know that public banking for me
is really going to be one of those things in the toolbox. I
know we will combat some of the things that traditional banks
are just not going to do. It is overwhelming how much we
educate, tell people about various opportunities, but they
continue to get denied. I know it is going to be effective in
increasing access to Federal contracting opportunities for
minority-owned businesses and expand access to credit for so
many folks.
I think everyone on the panel knows that the PPP was
specifically designed to assist businesses that were hit the
hardest. Yet, according to the National Bureau of Economic
Research, minority businesses were less likely to receive those
loans. Many of the members of the Congressional Black Caucus
tried to address it in the second round, but I know that the
Federal Reserve Bank of New York found that counties, including
Wayne County, Michigan, which I represent, with a higher
concentration of Black businesses, saw the lowest rates of PPP
allocation.
The inequities, as you all know, aren't new. I am worried
that if we are not deliberate in empowering MWBEs in the
implementation of the bipartisan infrastructure law, we risk
making that racial wealth divide worse. Again, I want to
reiterate a push to come up with an alternative to traditional
banks.
Thank you, Madam Chairwoman, and I yield back.
Chairwoman Beatty. Thank you so much, Ms. Tlaib.
The gentlewoman from Pennsylvania, Ms. Dean, is now
recognized for 5 minutes.
Ms. Dean. Thank you, Chairwoman Beatty, and thank you to
all of our witnesses for your testimony today.
As has been discussed at length here today, we cannot
improve minority- and women-owned businesses' access to Federal
contracts without addressing the fundamental issue of access to
capital.
When I talk to minority- and women-owned businesses in my
own district, in suburban Philadelphia, one of the most common
things I hear is how difficult it is to access capital, and as
you all know, especially adequate startup capital. A sad
statistic in Philadelphia, which is adjacent to my district--I
am struck by an analysis that shows we have the lowest number
of Black-owned businesses per capita compared to other big
cities. We clearly have a lot of work to do to ensure that
these businesses can access the capital that they need.
Mr. Gaskin, in your testimony you speak about the Kauffman
Capital Access Lab, an innovative pilot program to develop
investment managers and provide new capital to underserved
entrepreneurs. Can you tell us a little bit more about the
lessons learned from this program? Do you think this model
could or should be adopted at the Federal level?
Mr. Gaskin. Thank you for the question. Absolutely, we do.
We started with our research showing that 83 percent of
entrepreneurs do not access a bank loan or venture capital at
the time of startup. We looked at how could we test a new way,
a new system of getting access, improving capital access to
entrepreneurs. And through a mechanism, we invested in six
funds, and those funds are doing innovative types of financing,
revenue-based financing and other types of things that take the
pressure off the entrepreneur at the beginning. With revenue-
based financing, you are paying back the loan as you make
revenue. And we are seeing that, of our initial $3 million
investment through the Capital Access Initiative, those funds
have now raised over $177 million in additional funding,
funding 40 entrepreneur companies that are having returns.
And it shows two things. It shows that alternative means of
capital are very, very important, and that these entrepreneurs
that may be perceived as being risky are not risky. Our work
with CDFIs is showing that as well.
But I highly recommend that alternative and innovative ways
of financing are embraced more by traditional institutions.
Ms. Dean. That is exciting, that innovation and that
expansion by way of the innovation is really exciting. Thank
you for that answer.
Ms. Quick, and I apologize if you have spoken of this, but
in your testimony you talked about the challenges of delayed
payments for Federal contracts for businesses with the least
access to capital, which unfortunately includes many minority-
and women-owned businesses. Can you speak more about the
consequences of delayed payments to cash flow and to the growth
of a business? What can we in Congress do to address the issue?
Ms. Quick. Yes, thank you for the question, Congresswoman.
We have found that delayed payments have impacted small
businesses. On average, small businesses are owed around $900
billion by both companies that they work with, as well as by
State, Federal, and local government agencies. And we are
advocating for government payments to be made more quickly to
small businesses. When they are not able to access the capital
that they are owed, this leads to a mismatch in capital access
between when that small business incurs expenses and when they
receive the payments back from the government.
We support a return of the QuickPay Initiative, an
initiative under the Obama Administration which guaranteed
payment from the Federal Government within 15 days. That kind
of requirement for States that are distributing infrastructure
dollars will ensure that businesses are rightfully paid on time
without needing to incur new debt.
Ms. Dean. Thank you. That is powerful.
Ms. Black, what actions can the private, public, and social
sector organizations take so that the ecosystem of financial
assistance and minority-owned businesses' access to capital is
able to expand sustainably?
Ms. Black. Thank you so much for that question. There is a
real opportunity for us here to begin to marry solutions across
sectors. The private sector has an opportunity to not only be
investing in both the CDFIs and MDIs and other community-based
solutions, but also to be leveraging their supply chain
opportunities in the same way that government does here. It is
not only about policies but also continuing to increase the
purchasing that takes place from Black and Brown businesses,
from women-owned businesses, in order to increase job growth in
our communities, and they have to be married in those
investments that are coming from the social sector in order to
accelerate job growth and economic growth, recognizing again
that there is not the risk that is inherently portrayed in our
communities.
Ms. Dean. Thank you very much for that answer, and so
quickly delivered.
Thank you, Madam Chairwoman. My times has expired, so I
yield back.
Chairwoman Beatty. Thank you so much for your questions.
Madam Ranking Member, we are going to go to our next
witness, who is a Democrat, unless you have any other
witnesses.
Mrs. Wagner. We're still waiting for Mr. Lucas, but I will
see if he is able to join.
Chairwoman Beatty. Okay. We will come back to you
afterwards. Thank you.
The gentlewoman from Texas, Ms. Garcia, who is also the
Vice Chair of this subcommittee, is now recognized for 5
minutes.
Ms. Garcia of Texas. Thank you so much for bringing these
witnesses forward. It has been very enlightening.
I was a founding member of the Houston Hispanic Chamber of
Commerce a couple of decades ago, it seems like, and I am
feeling like I am in a movie sequel of, ``Back to the Future,''
because we seem to be talking about some of the very same
issues that we talked about back in the 1980s.
While we have made some improvements, there is still so
much more to do in this area to help our small businesses
throughout the country.
It is widely known that small businesses face greater
barriers in accessing critical resources and new opportunities
than bigger corporations. We saw that during the economic
recovery that we have been going through. These barriers are
compounded by factors such as race, ethnicity, gender, and
language, making it more difficult for minority- and women-
owned businesses to get ahead. Even if firms are not engaging
in outwardly discriminatory behavior, subconscious bias and
cultural distance have made it more difficult for lenders and
entrepreneurs to connect, so we must do everything we can to
get that connection.
I want to start with Ms. Black. Ms. Black, first let me
thank you for being, regrettably, the only member of the panel
who mentioned Latinos and the impact of some of these programs
on Latinos, so I thank you for that. I want to specifically ask
you, can you describe some of the language and cultural
barriers that you see small business owners face, and how does
this impact their willingness to pursue new business
opportunities that they can be competitive in?
Ms. Black. Yes. Thank you so much for that, Representative
Garcia. I think it is important to think about language
barriers. We recognize that it is not only a barrier of
translation which so often programs are designed in, but it is
important for us to think about designing strategies from
beginning to end in order to serve both consumers and also
business owners in order to serve them in their own language.
Our organization just today is announcing a new program, a
set of both customized tools and solutions in order to grow
programs and businesses specifically serving Black women and
Latino women in Minnesota in order to grow businesses in growth
sectors, in order to serve so many large corporations in our
communities, and that means from the beginning to the end.
So, having programs that represent those communities,
making sure that they are able to serve their consumers,
whether those are in growth sectors, restauranteurs being able
to go the distance, and understanding those communities. But
that means we have to have staff who come from those
communities, inside government agencies like your own, making
sure that we have those inside our corporations, and that we
have them in every department and not simply concentrated on
the front lines.
Ms. Garcia of Texas. Thank you. As you know, the growth
rate in the number of Latino-owned businesses was higher than
the U.S. national average growth rate for all businesses in 41
States. This is one of the conclusions of a study that Stanford
did in 2020.
Madam Chairwoman, I ask unanimous consent to submit this
for the record.
Chairwoman Beatty. Without objection, it is so ordered.
Ms. Garcia of Texas. Thank you.
I think it is critical that we look at the whole picture
when we talk about diversity and inclusion.
I have a question for Ms. McGuire. I was struck that one of
your recommendations for the Congress was establishing a
designation of Minority Business Enterprise. What do you mean
by that? I know we go through the MWBE certification, so is
this something different, and how would this be different?
Ms. McGuire. Thank you, Congresswoman Garcia, my fellow
Texan. I actually live in Austin, Texas.
Ms. Garcia of Texas. Well, Austin is not Houston.
[laughter]
Ms. McGuire. The Minority Business Enterprise (MBE)
designation is different because today, MBE is buried under
small disadvantaged business. So, if you look at the SBA
designations in the Federal procurement system, you have,
``woman,'' you have, ``veteran, and disabled veteran,'' you
actually have an, ``Alaskan,'' and a, ``Native American''
designation, but you do not have a designation for the
minority-owned businesses.
Ms. Garcia of Texas. Would it be a standalone designation?
Ms. McGuire. Exactly, and that is the only way that we can
clearly connect the 15 percent spend to that designation,
because today there is not a Federal designation. The Federal
procurement system says, ``minority-owned businesses.'' In the
private sector, we certify Asian, Hispanic, Black, and Native
American as MBE designation, and many State and local
governments have MBE designation. The only place that doesn't
have MBE designation is the Federal Government, and that is
what I am suggesting.
Ms. Garcia of Texas. Thank you for that clarification.
And, Madam Chairwoman, I think that is something that
certainly we can work on that shouldn't be insurmountable, and
I would be willing to work with you and the rest of the
committee on that.
With that, I yield back. Thank you.
Chairwoman Beatty. Thank you so much, Vice Chair Garcia.
Now, I recognize the gentleman from Massachusetts, Mr.
Auchincloss, for 5 minutes.
Mr. Auchincloss. Thank you, Madam Chairwoman.
Mr. Gaskin, in your written testimony you shared the story
of your father's struggles to receive a small business loan to
open a convenience store in his community, and after 4 years,
he was finally able to receive a bank loan from a Black-owned
bank.
I introduced the Promoting New and Diverse Depository
Institutions Act because banks and credit unions are a highly
sought-after funding pool for small businesses, but bank
closures and consolidations have limited the options for
potential minority-owned small business owners who are
constantly hearing, ``No.''
In short, the Promoting New and Diverse Depository
Institutions Act would require that prudential regulators
create a strategic plan to help de novo financial institutions,
including MDIs and CDFIs, start and restore competition on a
level playing field to small business lending.
Mr. Gaskin, I will start with you, but I would welcome any
of our witnesses to weigh in here. Can you share the importance
of how sustaining a competitive financial services market will
help entrepreneurs, and particularly entrepreneurs of color,
with affordable capital options?
Mr. Gaskin. Thank you for the question. Looking back, I
wish my dad had had more access and more competition in the
banking and CDFI market.
I will share a story here from Kansas City and the
importance of CDFIs that we have proven out. During PPP, there
was the creation of the Kansas City COVID-19 Recovery Loan
Fund, and we invested in AltCap. AltCap is a leading CDFI here
in Kansas City. And we helped them raise a larger fund, and
over 153 microloans were made, with a zero default rate.
It proves that there are entrepreneurs and small business
owners right here in communities, and CDFIs and MDIs know the
communities, they know the entrepreneurs. A lot of
entrepreneurs, especially in smaller businesses, are just
starting out, so, of course, they don't have relationships with
banks.
So when the PPP program happened, some of them just
couldn't connect with banks because there was not a
longstanding relationship there. I believe that more community
banking and access to the entrepreneurs and small business
owners in those markets is highly important.
Mr. Auchincloss. Another question for you, Mr. Gaskin, or
any of our other witnesses. Could you elucidate how these
smaller institutions and how organizations like yours and
others that are working to provide access to entrepreneurs of
color can work with the really big players in the financial
services system? Bank of America, Goldman Sachs, and JPMorgan
have all made quite tangible commitments to funding small
business formation, and particularly for underserved
communities. Where are the ligaments of connection there to
make sure that capital is going to the highest and best use?
Mr. Gaskin. Thank you. I believe there is a connection
opportunity there because I think there can be complementary
funding initiatives. In America's New Business Plan, we lay out
some funding suggestions that we hope that the committee takes
a look at and considers, because I think there is some public-
private financial investment that institutions could really
find ways to close some of these gaps and connect the dots so
that the money flow to communities is much more fluent and
reaches the end users, who sometimes don't know the programs
are available.
Mr. Auchincloss. Right, because it sort of combines the
best of both worlds. You have the capital of some of these big
institutions, but then the community knowledge and
relationships of the smaller credit unions and banks.
Mr. Gaskin. Yes, exactly.
Mr. Auchincloss. Ms. Quick, I was struck in your written
testimony, and I didn't hear you say it but you may have, about
the problem with receivables with small businesses and the
Federal Government's delayed payment of those receivables. I
think you calculated more than $800 billion outstanding, and
the challenges that poses to working capital for small
businesses. I wanted to give you a chance to expound upon that
in the hearing.
Ms. Quick. Sure. In 2020, Gusto was part of the Equal Pay
Today Coalition that brought awareness to this issue. We
partnered with Fundbox on this and found that small businesses
are owed around $900 billion and take, on average, 28 days to
get paid. This includes payments from both governments and
larger companies that they may be owed money from on
receivables, and government payments can take even longer.
Sometimes, it will take months at a time to get paid money that
is rightfully owed to the small businesses.
Mr. Auchincloss. Ms. Quick, I am going to apologize. My
time has expired. I am going to give you 10 seconds. What is
the most important thing Congress can do to help that problem?
Ms. Quick. Congress can require the Federal Government to
pay small businesses faster, within 15 days.
Mr. Auchincloss. Thank you.
Madam Chairwoman, I yield back.
Chairwoman Beatty. Thank you so much.
Mrs. Wagner, if we have no more witnesses from your side,
we have exhausted the witnesses from our side as well.
Mrs. Wagner. It was a great hearing. Thank you.
Chairwoman Beatty. Thank you.
The Chair would now like to thank our witnesses for their
testimony today.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned.
[Whereupon, at 11:44 a.m., the hearing was adjourned.]
A P P E N D I X
February 3, 2022
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