(Washington, D.C.)—U.S. Senate Committee on Small Business & Entrepreneurship Ranking Member Ben Cardin (D-Md.) today continued to press for increased federal investment in minority-owned businesses during a hearing titled, “Capital Access for Minority Small Businesses: COVID-19 Resources for an Equitable and Sustainable Recovery.”
“We must invest in the programs that we know work, such as the Minority Business Development Agency, which is the only federal agency dedicated to supporting minority-owned businesses, and the 7(a) Community Advantage Pilot Program, which has a long record of successfully getting capital to minority-owned businesses,” Cardin said during his opening statement. “I have introduced legislation to make both of these vital initiatives permanent and codified, because right now they are not.”
More than 50 years ago, the bipartisan Kerner Commission created by President Lyndon Johnson warned of the negative consequences of continued inequality, writing that America was headed toward “two societies, one black, and one white— separate and unequal.”
Cardin called for Congress to use the next economic relief bill as an opportunity to begin making overdue investments in minority-owned businesses: “Last time, we got the funds out the door quickly and helped a lot of people, but far too many minority-owned businesses were left behind… This next stimulus gives us an opportunity to improve on the successes of the CARES Act and do a better job of providing help to minority-owned small businesses. Let us take advantage of this opportunity to avoid the consequences predicted by the Kerner commission fifty years ago, so America is not two societies, separate and unequal.”
Maryland boasts the highest concentration of minority-owned businesses in the country and as committee Ranking Member, Cardin has made increasing federal support for MBEs a top priority.
Last week, Cardin, Senate Democratic Leader Chuck Schumer (N.Y.) and Senate Democrats unveiled the Economic Justice Act, a major new legislative proposal to make $350 billion in immediate and long-term investments in Black communities and other communities of color. For far too long, Congress has underfunded critical priorities like public health, child care, infrastructure, and job creation in these communities. The plan would make a historic federal commitment to communities of color through ten major investments over the next five years.
In May, Cardin and Booker released a proposal to make improvements to federal small business relief programs in order to make it easier for minorities and other underserved small business owners to access the capital they need to survive COVID-19. The senators’ proposal also addresses historical, systemic disparities in access to startup and operating capital, as well as technical training and mentorship, so underserved small businesses have the resources they need to adapt their businesses to the changes caused by COVID-19.
In October 2019, Cardin introduced the Ushering Progress by Leveraging Innovation and Future Technology (UPLIFT) Act of 2019, which would foster innovation and entrepreneurial ecosystems in underserved communities by providing Historically Black Colleges and Universities (HBCUs), minority serving institutions (MSIs), and community colleges with the resources to establish and expand incubators and accelerators for underserved entrepreneurs.
In July 2019, Cardin introduced three bills to increase Small Business Administration (SBA) lending to minority-owned and other underserved entrepreneurs:
- the Closing the Credit Gap Act would make permanent SBA’s 7(a) Community Advantage Pilot Program, which has a record of getting capital to minority entrepreneurs at higher rates than the traditional 7(a) program;
- the Unlocking Opportunities in Emerging Markets Act would establish an Office of Emerging Markets (OEM) within SBA’s Office of Capital Access to ensure that SBA’s access to capital initiatives address the specific needs of entrepreneurs in underserved domestic emerging markets in a coordinated way; and
- the Small-Dollar and Veterans Loans Enhancement Act would eliminate or reduce fees on SBA 7(a) small-dollar loans of $150,000 or less, which make up the majority of the loans that go to women-, minority- and veteran-owned and rural small businesses.
A full transcript of Cardin’s opening statement follows:
Increasing federal support for minority-owned small businesses, as well as small businesses in other underserved communities, has been my top priority since I joined this committee upon entering the Senate in January 2007.
And it has remained my priority as Ranking Member.
My home state of Maryland boasts the highest concentrations of minority-owned and women-owned businesses in the country, so this issue is particularly important to Marylanders.
Decades ago, Maryland leaders recognized the key role entrepreneurship had in efforts to close the wealth gap.
In fact, the first federal set-aside for minority-owned businesses was proposed in 1977 by the late Baltimore Congressman Parren J. Mitchell, who introduced an amendment to a $4 billion federal public works program that required city and state recipients to set aside 10 percent of the funds for minority-owned businesses.
Congressman Mitchell understood that any plan to shrink the wealth gap in America must include entrepreneurship, and that the federal government has an important role to play in helping minority entrepreneurs overcome the historic, pervasive challenges put before them.
The most pervasive of those challenges is access to capital.
Mr. Chairman, while our hearing is focused on ensuring an equitable recovery, I feel the need to place today’s discussion in historical context.
During a field hearing I held on this topic in September 2018 at Morgan State University, an HBCU in Baltimore, an executive of Harbor Bank, which is one of the few remaining Black-owned banks in the country, stressed that lenders working with minorities need to “understand borrowers, not only where they are going, but where they have been.” It is vital that we in Congress approach this problem with the same understanding.
Minority entrepreneurs’ inability to get capital they need to operate and grow their businesses is not new. And the fact that minority-owned small businesses have been disproportionately harmed by the COVID-19 Recession should not be a surprise.
Prior to this pandemic, lending to minority-owned small businesses still had not returned to their pre-Great Recession levels.
The protests sparked by the deaths of George Floyd and Breonna Taylor have further exposed the public health and economic disparities in communities of color—particularly Black communities—that have been made worse by the COVID-19 pandemic.
There is a common saying that I have heard many times by Black leaders in Maryland: “When America has a cold; Black communities have pneumonia.”
These disparities exist because civil rights and true equity are still the unfinished business of America. More than 50 years ago, the nonpartisan Kerner Commission created by President Lyndon Johnson warned of the negative consequences of continued inequality.
The commission wrote in its report that America was headed toward “two societies, one black, and one white— separate and unequal.”
It is no question that our country has made some progress in the decades since the Kerner Commission released its report. But there remains a rooted economic divide between communities of color and white America.
In 1968, a typical middle class Black family had less than one tenth of the wealth of the typical middle class white family. It is the same today.
For Black small business owners and other minority entrepreneurs, the wealth gap has worsened the disparities in lending.
Minority business owners are 2 to 3 times more likely to be denied a loan than nonminority business owners and are more likely to receive less funding and pay higher interest rates on the loans they do receive.
Mr. Chairman, it was with this inequality in mind that Senator Shaheen and I drafted the CARES Act instructing SBA and the Treasury Department to issue guidance to financial institutions participating in the Paycheck Protection Program to prioritize loans for underserved small businesses.
Unfortunately, the Administration did not issue that guidance, which led to the SBA’s IG’s finding that the implementation of PPP “did not fully align” with Congressional intent in the CARES Act.
Implementation of PPP was not the only program in which the Administration failed to use every tool in its toolbox to prevent minority-owned businesses from falling behind during this crisis.
The Administration also failed to implement the EIDL and Emergency Grant Program in a way that would benefit more minority-owned businesses.
So Mr. Chairman, as we discuss how to ensure an equitable recovery for small businesses today, we must think about the problem historically.
We must invest in the programs that we know work: the Minority Business Development Agency, which is the only federal agency dedicated to supporting minority-owned businesses; the 7(a) Community Advantage Pilot Program, which has a long record of successfully getting capital to minority-owned businesses. I have introduced legislation to make both of these vital initiatives permanent and codified, because right now they are not.
We cannot stop there.
I was proud to work with Senator Booker to release a plan outlining steps Congress can take to provide greater help for small businesses in underserved communities with regard to start-up and operating capital, as well as technical training and mentorship.
The aim of our plan is to ensure that when we make it through this pandemic and we have the next economic downturn, we will have the institutions, programs, and knowledge in place to support underserved small businesses in a timely way.
Mr. Chairman, I want to thank you again for calling this overdue hearing, especially as we in Congress continue to negotiate and debate the next round of economic stimulus.
Last time, we got the funds out the door quickly and helped a lot of people, but far too many minority-owned businesses were left behind.
The truth is that, even with the CARES Act, there was inequality in how resources were allocated, including inequality in some of the basic underpinnings of the PPP:
- the primary use of traditional financial institutions to disburse capital meant minority-owned businesses would have a harder time obtaining these important loans; and
- the focus on payroll made the program less useful to many minority-owned businesses, which not only have fewer employees on average, but are less likely to have any employees at all.
This next stimulus gives us an opportunity to improve on the successes of the CARES Act and do a better job of providing help to minority-owned small businesses.
Let us take advantage of this opportunity to avoid the consequences predicted by the Kerner commission fifty years ago, so America is not two societies, separate and unequal.
Thank you, Mr. Chairman and I look forward to hearing from our witnesses.