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ACCESS TO CREDIT IN "DISTRESSED" COMMUNITIES Y4,SM 1:103-33 Access to Credit Ir "Distressed** Co... HEARING BEFORE THE SUBCOMMITTEE ON MINORITY ENTERPRISE, FINANCE, AND URBAN DEVELOPMENT OF THE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION COMPTON, CA, JUNE 25, 1993 Printed for the use of the Committee on Small Business Serial No. 103-33 JUL J 9 or^ot U.S. GOVERNMENT PRINTING OFFICE 70-190^ WASHINGTON 1994 : ForsalebyiheU.S.GovemnienlPrimingOffice Sui)erintendeniofDocuments.CongressionalSalesOffice,Washington,DC 2t>402 ISBN 0-16-0442A1-9 ^0 ACCESS TO CREDIT IN "DISTRESSED" ^ COMMUNITIES \ Y4.SM 1:103-33 Access to Credit in "Distressed" Co... HEARING BEFORE THE SUBCOMMITTEE ON MINORITY ENTERPRISE, FINANCE, AND URBAN DEVELOPMENT OF THE COMMITTEB ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION COMPTON, CA, JUNE 25, 1993 Printed for the use of the Committee on Small Business Serial No. 103-33 JUL 9 jppA I U.S. GOVERNMENT PRINTING OFFICE 70-190ti WASHINGTON 1994 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocumenl.s,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-044241-9 COMMITTEE ON SMALL BUSINESS JOHN J. LaFALCE, New York, Chairman NEAL SMITH, Iowa JAN MEYERS, Kansas IKE SKELTON, Missouri LARRY COMBEST, Texas ROMANO L. MAZZOLI, Kentucky RICHARD H. BAKER, Louisiana RON WYDEN, Oregon JOEL HEFLEY, Colorado NORMAN SISISKY, Virginia RONALD K. MACHTLEY, Rhode Island JOHN CONYERS, Jr., Michigan JIM RAMSTAD, Minnesota JAMES H. BILBRAY, Nevada SAM JOHNSON, Texas KWEISI MFUME, Maryland WILLIAM H. ZELIFF, Jr., New Hampshire FLOYD H. FLAKE, New York MICHAEL A. "MAC" COLLINS, Georgia BILL SARPALIUS, Texas SCOTT McINNIS, Colorado GLENN POSHARD, Illinois MICHAEL HUFFINGTON, California EVA M. CLAYTON, North Carolina JAMES M. TALENT, Missouri MARTIN T. MEEHAN, Massachusetts JOE KNOLLENBERG, Michigan PAT DANNER, Missouri JAY DICKEY, Arkansas TED STRICKLAND, Ohio JAY KIM, California NYDIA M. VELAZQUEZ, New York DONALD A. MANZULLO, Illinois CLEO FIELDS, Louisiana PETER G. TORKILDSEN, Massachusetts MARJORIE MARGOLIES-MEZVINSKY, ROB PORTMAN, Ohio Pennsylvania WALTER R. TUCKER UI, California RON KLINK, Pennsylvania LUCILLE ROYBAL-ALLARD, California EARL F. HILLIARD, Alabama H. MARTIN LANCASTER, North Carolina THOMAS H. ANDREWS, Maine MAXINE WATERS, California BENNIE G. THOMPSON, Mississippi Jeanne M. Roslanowick, StaffDirector Steven Lynch, Minority StaffDirector Subcommittee on Minority Enterprise, Finance, and Urban Development KWEISI MFUME, Maryland Chairman JOHN CONYERS, Jr., Michigan RONALD K. MACHTLEY, Rhode Island FLOYD H. FLAKE, New York JAMES M. TALENT, Missouri NYDIA M. VELAZQUEZ, New York JOE KNOLLENBERG, Michigan WALTER R. TUCKER m, California JAY DICKEY, Arkansas CLEO FIELDS, Louisiana LUCILLE ROYBAI^ALLARD, California EARL F. HILLIARD, Alabama Bruce Gamble, Subcommittee StaffDirector Aluson Baird, Minority Subcommittee Professional StaffMember (U) CONTENTS Page Hearing held on June 25, 1993 1 WITNESSES Friday, June 25, 1993 BryantJohn, chairman and CEO, BryantGroup Consulting and Management Inc., and Operation Hope, Los Angeles 34 Mantle, Mike, president. Bank of America, Community Development Bank and chairman, American Bankers Association's Community Development LendingCommittee ". 22 Watkins, Dayton, Counselor to the Administrator ofthe SBA accompanied by Bernard Kulik, Assistant Administrator for Disaster Assistance and Mike Lee, District DirectorofLosAngeles District Office 5 APPENDIX Openingstatement: Mfume, Hon. Kweisi 51 Prepared statements: Mantle, Mike 81 Watkins, Dayton 54 (III) ACCESS TO CREDIT IN "DISTRESSED" COMMUNITIES FRIDAY, JUNE 25, 1993 House of Representatives, Subcommittee on Minority Enterprise, Finance, and Urban Development, Committee on Small Business, Washington DC. The subcommittee met, pursuant to notice, at 9:50 a.m., at Comp- ton City Hall, 205 S. Willowbrook Avenue, City Council Chambers, Compton, CA, Hon. Kweisi Mfume (chairman of the subcommittee) presiding. Chairman Mfume. Ladies and gentlemen, good morning, and welcome to this hearing of the Subcommittee on Minority Enter- prise, Finance and Urban Development. I'd like to thank you for being here and thank also the members of this committee who have traveled a great distance to join us this morning. I'm pleased to welcome you to today's hearing, and pleased also that it is our first field hearing and that it's being convened here in this congressional district in California, a district now represented by former mayor of Compton, my colleague and friend Walter Tucker, III. Al- though Walter, as many ofyou know, is serving in his first term in Congress, he has already demonstrated leadership and a tenacious commitment to work toward solutions to critical problems that are confronting urban America that we believe will serve him and his constituents well over the years to come. He is a valued member of this committee. We look forward to and respect his wisdom and his insight. It's a pleasure for this committee tojoin him and tojoin all ofyou here in Compton today. Today's hearing will focus on concerted efforts by the Small Busi- ness Administration and private lending institutions to provide credit to economically distressed communities through loans, to small and minority businesses and, through other innovative meth- ods, utilizing public and private sector resources. Small business development is central to the recovery and sustained growth of our economy in this country. Minority business development in particu- lar is essential for economic revitalization of urban city communities where crime is commonplace and unemployment levels contin- ue in an upward trend, a trend that is intolerable in many re- spects. Given that many of you and many other residents across this country who reside in urban communities tend, as many of us are, to be members of ethnic minority groups, we believe that the per- (1) sistent negative stereotype and the racial barriers further hinder us and our Nation, quite frankly, with respect to social and economic progress. It has been estimated that small businesses, as most ofyou know, provide at least two-thirds ofall newjobs in this country, and firms of fewer than 20 employees contribute most of the employment opportunities. As large firms reduce and restructure their work force, the role and importance of small minority businesses become even more critical to our Nation. Hence, this realization makes the issue before our subcommittee today fundamentally important to all citi- zens of this Nation. Without access to capital, small and minority owned business concerns cannot grow, expand, or provide employment opportunities that urban residents so desperately need. As chairman of this subcommittee, I am deeply committed to in- suring that Federal policies promote the formation and the development of minority owned businesses in our major cities, which ul- timately fosters domestic tranquility. I, like many of my collesigues on this committee, have long been concerned about the availability of credit to minority businesses and the minority business market- place. This subcommittee's jurisdiction requires that we focus par- ticular attention on this issue because it largely determines the ability of minority firms to grow and to prosper. It has been demonstrated that minority owned businesses confront more obstacles in obtaining capital than small nonminority businesses in general. Some have even suggested that the disparity in the total number of minority-owned businesses as compared to the overall minority population, is creating societal problems affecting families, neigh- borhoods, unemployment, crime, and the general welfare of our cities and ofour Nation as a whole. While the United States has spent over 2 years in a slow economic recovery, the small and minority business community h£is been, and continues, in my estimation, to be plagued by a chronic and debilitating capital crisis. Although there has been much rhetoric tossed about, particularly following the civil rebellion which oc- curred here last year, the problem continues unaddressed, in our opinion, in any realistic way in urban and rural communities all across this Nation. I have heard first-hand concerns of minority businesses that suggested both equity and debt capital are in short supply. When debt capital is made available, it is relatively more costly to this segment ofthe business community, in contrast to the experience ofnonminority business owners. In its 1992 report to Congress and to the President, the U.S. Commission on Minority Business Development stated, and I quote, that "minority business which historically start out under capital- ized, quite often find it next to impossible to secure financial assistance to grow and expand their companies." Moreover, access to capital and credit for minorities in businesses is at the heart of re- solving many of the problems in American that are both economic and social. I would be, therefore, unreasonable to suggest that as a result of the testimony we receive today, members ofthis subcommittee will be prepared to develop comprehensive strategies to address the many ills facing our communities; however, we are very much committed to focus the attention ofCongress and the Executive Branch and, for that matter, to the entire business community, on the economic development needs in our urban centers and to propose solutions that are meaningful and desirable for all concerned. This morning, we will hear from a senior official from the U.S. Small Business Administration who will give us an overview of available programs that promote small business development. He will also share with us the measures taken by the SBA in response to the unique needs in the Los Angeles small business community. We will also hear today from local private lending institutions who have been widely recognized as being the avant garde of providing credit to underserved communities here in Los Angeles and in the Los Angeles area. Finally, we will hear from a local entrepreneur and civic leader who will share his personal experiences in develop- ing coalitions to revitalize communities throughout the greater Los Angeles County area. Before I introduce witnesses, I would, however, like to introduce members of this subcommittee. Those members, as you know, have traveled a great distance to be here and are very anxious to participate in this hearing. I would be remiss if I did not yield first for opening remarks to my colleague, who represents this area, Walter Tucker, who I spoke about earlier in my remarks. Again, it's the pleasure ofthis subcommittee to have him as a member and to participate in these hearings in his district. Congressman Tucker. [Chairman Mfume's statement may be found in the appendix.] Mr. Tucker. Thank you very much, Mr. Chairman. This is an opportunity and an occasion that is unparalleled and unprecedented. It is most certainly a time for me of personal excitement and personal interest. This is the edifice and the hall in which I served for a year-and-a-half as mayor of this fine city, the city of Compton, and this is the seat that I served in many a nights of great battle and great political discussions. But now I come back here as the native son to represent the interests not only of Compton, but of this entire district and this entire country as well, as a U.S. Con- gressman. I want to congratulate Chairman Mfume, who is not only the chairman of the Subcommittee on Minority Enterprise, Finance, and Urban Development, but who is, and has distinguished himself as a very preeminent leader as the chairman of the Congressional Black Caucus, which of course is a national organization. We're so happy to have other Congress Members here representing the Black Caucus and also representing this subcommittee. We have, of course, and not to get too far ahead of you, Mr. Chairman, but I want to congratulate to my left, Congressman Earl Hilliard from Alabama for being here and showing a commitment and conscien- tiousness to be a part ofthis hearing. Also, to my far right, it gives me great pleasure to recognize and introduce to you the youngest Member of Congress, black, white, or otherwise, and that is none other than Cleo Fields from the State of Louisiana. Once again, this is a part of and, in fact, the kick-off of history in the making, and that is, the Black Caucus, coming to Los Angeles for the very first time in history. The Black Caucus' Public Policy Conference will take place at the Airport Hyatt Hotel that will be going on this entire weekend. This is the first event of what promises to be a very eventful weekend, and once again, I want to congratulate Chairman Mfume, and I want to congratulate the staff members for all the work that they have done, and we look forward to the testimony ofthe participants. Chairman Mfume. Thank you very much, Walter. I'll take a minute to sort of reintroduce following the remarks of Mr. Tucker, in alphabetical order the other two Members of Congress who are here with us and to advise you that to my immediate right and to your left is Bruce Gamble, the Staff Director of this subcommittee. Joining us from the State of Louisiana, as you heard earlier, is Cleo Fields, who has really juggled her schedule this morning and who is supposed to be part of another hearing that's taking place out at the airport and is here instead as a member of this subcommittee, a rather distinguished member, to participate in today's hearing. Mr. Fields from Louisiana. Mr. Fields. Thank you, Mr. Chairman. I want to also thank you, Mr. Tucker, for giving us the opportunity to come to a fine place called Compton, and also a fine place in your congressional district. It's always good to be a part of a district that's moving and eco- nomical development is certainly an aspect that we must deal with today. I want to also thank you, Mr. Watkins and other members of the panel for being here this morning. I've had the opportunity to meet with Mr. Watkins, and we've talked about several economic development aspects of the African-American community. We've also talked about the 8(a) Program which is very important to this community as well as this country. We've had an opportunity to talk about how we can get the SBA to network with colleges and universities, particularly historically black colleges and universities across the country, because I do think a place where you can get a lot of research as well as a place where you can also serve as a nu- cleus and educational platform for a bunch of kids, a bunch of col- lege students. Last, I'm concerned about the credit, that many businesses find themselves in a credit crunch because they're not able to borrow the necessary moneys to expand their business, and that's some- thing that I'm sure that we'll get into later on in this hearing. I just want to thank you, Mr. Watkins, along with Mr. Hilliard and Mr. Bernard. I want to thank each of you for being here. Mr. Chairman, it's a pleasure to be here, and Walter, thank you for the invitation to your district. Chairman Mfume. Thank you very much, Mr. Fields. Thanks for We adjusting your schedule also to be a part ofthis hearing. appre- ciate that. Finally, let me introduce to you the other member of this committee. Earl Hilliard, who is from the State of Alabama and a former distinguished member of that State's legislature. He is a contributing member of this committee. We are very happy that he could find it in his schedule also to come out here to Comp- ton and to be with us this morning. The gentleman from Alabama, Mr. Hilliard. Mr. Hilliard. Thank you very much, Mr. Chairman. Mr. Chair- man, I'm very happy to be here, and I'd like to thank Congressman Tucker for the invitation that he extended to this committee to come and talk about a subject that is very dear to America. If we are to strengthen America, we must make sure that we reveal or