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The future of small business in America.

It's a pleasure to join you this morning and a special pleasure to attend a conference that's devoting so much of its agenda to small business issues. You have an impressive array of speakers scheduled for the next two days who will be covering topics crucial to the health and welfare of the small business community.

These discussions have significance for you as small business owners. I understand that almost 62% of NSPA members are sole proprietors. And the conference will be useful to you as professionals who provide services to small business men and women.

I would like to contribute to the proceedings today by telling you what I see for the future of small business and explaining how the Small Business Administration fits into that future.

In the coming months I see prosperity for small firms. Are you surprised? Certainly, things have been rough for everyone in business recently, but indications are that the worst is behind us. I'm not basing this projection on statistics or economic reports from government - although I could. We're getting good news from these official sources. I'm basing my optimism on what you in business are reporting.

Dun & Bradstreet released a survey recently revealing that U.S. business executives expect almost 1.9 million jobs to be created in 1992. Eighty percent (80%) of the gain will be generated by small companies. And the largest employment increases will be in companies with fewer than 20 employees, according to the survey.

Another survey, conducted by the National Association of Manufacturers, reports that the small business sector expects sales to increase. Respondents to this study also predict rising profits in 1992.

This is the kind of news that I enjoy. Business confidence is increasing and people are anticipating good things. I've had it with the bad news.

And I would like to share some good news from the small business community in New England, which I'm particularly proud of because the Small Business Administration has a lot to do with the upturn in business fortunes there.

Just a few months ago, thousands of small business owners were on the ropes in New England. Banks were failing, lending practices were tightened and capital became increasingly hard to find. Many small business owners had nowhere to turn for financial help.

Other firms found their situation just as bad, if not worse; they located lenders, only to see those banks collapse and the Federal Deposit Insurance Corporation step in.

Suddenly and unexpectedly, businesses that had made their loan payments on time, in full, every month for years, found these loans being classified and full payment required. The only problem with many of these loans was the erosion in real estate prices, which reduced their value as collateral. The FDIC often had no recourse but to cut their losses, call the loan in and, if full payment was not received - liquidate it.

Naturally, many small business owners couldn't pay off their loans. Even if they found a lender, the firms were on record as borrowers with classified loans. And the longer their loans were held by the FDIC, the more difficult it became to return to the mainstream of private-sector credit.

Other problems also arose. A great number of small business owners borrowed on short-term notes with balloon payments. They had the assurance of their now-failed bank that, when the notes came due, they could be rolled over into new notes. But these business owners found that the new, consolidated banks would no longer follow this practice. Default, liquidation and bankruptcy loomed.

With so many businesses caught in the crossfire of economic forces, it was critical that we acted - and we did. The SBA is perfectly placed to step in and address this type of problem in a way that meets the needs of borrowers, lenders and the FDIC.

First, we can offer a government guarantee, and second, our credit criteria are primarily concerned with a firm's projected repayment ability and less with the collateral posted against the loan.

In January we began to restore the flow of capital to small businesses through the New England Lending and Recovery Project. SBA task forces are working with the FDIC and others holding loans to find good candidates for refinancing. When the final determination is made to guarantee a restructuring, we help businesses with loans find a bank.

The program is working. Although it's still too early to make firm predictions about the eventual impact of the Project, we expect to restructure loans totaling as much as $600 million. Our program could eventually save 17,000 jobs in New England. That means a lot of families will be able to continue making house payments, sending children to college and enjoying their lives - without the trauma of joblessness.

Due to the success of the New England Lending and Recovery Project and our aggressive promotion of other SBA lending programs, our loan volume today is about 30% ahead of last year's pace. And this surge in demand for SBA-backed loans is pushing the limit on the $3.5 billion guarantee ceiling authorized by Congress for (FY) 1992.

We've been to Capitol Hill requesting supplemental funding for our programs, and President Bush is supporting a supplemental lending authority increase of well over $1 billion. I would like to extend a special "thank you" to a speaker you will be hearing from tomorrow, Congressman Andy Ireland, Ranking Minority Member of the House Small Business Committee, who has stood solidly behind us in our request for supplemental funding.

With the help of the Congressman, we will remain one of the premier sources of financial assistance for qualified entrepreneurs and small business owners - both in starting-up and expanding their operations.

The SBA also serves as the primary advocate for small business here in Washington - making the case for small business interests on Capitol Hill and with government agencies whenever necessary. And as we look to the future, there are a number of issues Congress must consider that are paramount to the growth - even survival - of the small business community. Close to the top of any list is the need for reform of the capital gains tax laws.

I want to thank this organization for your support of the president's call to reduce the capital gains tax. I know that earlier this year the NSPA submitted testimony to the Senate Finance Committee arguing in favor of a capital gains differential.

Reducing the tax is a sound, rational approach to developing capital for investment in economic progress. It's disgraceful that the debate over capital gains has degenenerated into a "rich-versus-poor" issue. This is demogoguery of the highest order.

We all understand that if we can get more money in the hands of people willing to start businesses, employment will increase, consumer spending will increase and Americans from all walks of life will benefit.

The National Association of Manufacturers survey I mentioned earlier also polled its small business members on key issues of the day. Right near the top was spiraling health care costs, which are preventing many businesses, large and small, from providing health benefits to employees. Consequently about 35 million Americans have no health insurance - SBA information shows that three-quarters of these people are employees of smaller companies or their dependents.

The President has proposed a comprehensive plan to control health care costs. It addresses two major problems facing our health care system: inadequate access to affordable health care for some Americans and excessive growth in costs of health care for all Amencans.

The President's plan includes a transferable health insurance tax credit, available even to those too poor to file taxes. This proposal also provides help for the middle class. Up to $3,750 in health insurance costs could be deducted by families with incomes less than $80,000.

More than 90 million Americans would receive assistance under this program.

The package would also reduce costs through major insurance market reforms - for example, pooling smaller businesses so they could receive the same favorable health coverage enjoyed by larger employers. And administrative costs would be lowered by regulatory reforms designed to reduce the paperwork load.

Other health care reform measures have been introduced in both Houses of Congress, many with provisions related to small business. A number of these measures include something called the "play-or-pay" mechanism.

The play-or-pay concept would require businesses large and small to offer health care plans to employees. If the plans weren't offered, the government would confiscate a percentage of the firm's income through an employee payroll tax in order to enroll the uninsured in a government-provided plan. Some bills specify 7.5% as the amount to be taken, but others don't spell out the percentage because it's higher.

This approach is supported by Xerox, Chrysier, Lockheed, Westinghouse and other of our nation's largest companies and trade unions - reason enough to look closely at the legislation.

Generally, big companies can afford health care plans and would hardly be affected by the proposal. But small businesses often do not have a profit margin high enough to support such a tax, and a great many livelihoods would be seriously threatened if it were imposed.

I know that most small business owners are eager to provide health care benefits or to increase the benefits they offer. This is smart business. To stay competitive, businesses must be able to offer attractive benefits packages to prospective employees. But a mandate isn't the way to go. It's inflexible and punitive.

Take a close look at the President's plan. It is comprehsive, fair and workable.

As we head toward the 21 st Century I see challenges, but I also see a bright future for small businesses. And that is crucial to our future as a nation. Let's remember that the small business sector is the heart of the American economy. It is here that we find more than 50% of the work force. Small businesses account for 44% of all sales, generate 39%o of the gross domestic product and are responsible for 50% of all industrial and technical innovations.

The Small Business Administration is more active today in support of this community than at any time in our history. We have the resources to assist small businesses financially and with a variety of training and counseling programs. We have programs for women in business, minority business owners, small business exporters and much more. And we have the support of fine organizations like this one as well as the solid backing of the Administration and many in Congress. I believe you'll be hearing this message of support during the course of your conference.

You are in a unique position to both benefit from many of the services we offer and also to pass along the word about the Small Business Administration to your clients. When the opportunity presents itself, let your clients know we're here. They will appreciate you for it. And, come see us yourselves. We would love to work with you.

Thank you very much for asking me to be here this morning.

Paul Cooksey is the Deputy Administrator at the U.S. Small Business Administration.
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Title Annotation:From the U.S. Small Business Administration: 1992 NSPA National Issues Conference
Publication:The National Public Accountant
Article Type:Transcript
Date:Jul 1, 1992
Previous Article:The IRS: today and tomorrow.
Next Article:Appeals in the 1990s: "new directions." (From the IRS Appeals: 1992 NSPA National Issues Conference)

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