United States. Congress. Senate. Committee on Smal.

Entrepreneurship in America : reinventing the SBA, the stake for Minnesota small business : field hearing before the Committee on Small Business, United States Senate, One Hundred Fourth Congress, first session, April 19, 1995 online

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S. Hrg. 104-283

A ENTREPRENEURSHIP IN AMERICA:

^ REINVENTING THE SBA-

' THE STAKE FOR MINNESOTA SMALL BUSINESS

Y 4. SM 1/2: S. HRG. 104-283 ^^^^~^^



Entrepreneurship in ftnerica: Reinve...

ra^LiU iiJj]ARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION



APRIL 19, 1995




FES f s {S2



Printed for the use of the Committee on Small Business



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995



For sale by the U.S. Government Printing Office
Superintendent of Documents, CongresBional Sales Office, Washington, D.C. 20402



S. Hrg. 104-283

^ ENTREPRENEURSHIP IN AMERICA:

\^ REINVENTING THE SBA-

^ THE STAKE FOR MINNESOTA SMALL BUSINESS



Y 4, Sli 1/2: S, HRG. 104-283 — =^^=

Entrepreneurshlp in Anerica: Reinve...

i^iii.L.u njiARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



APRIL 19, 1995







Printed for the use of the Committee on Small Bxisiness



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995



For sale by the U.S. Government Printing GfTice
Superintendent of Documents, Congressional Sales OfTice, Washington, D.C. 20402



COMMITTEE ON SMALL BUSINESS

CHRISTOPHER S. BOND, Missouri, Chairman
LARRY PRESSLER, South Dakota DALE BUMPERS, Arkansas

CONRAD BURNS, Montana SAM NUNN, Georgia

PAUL COVERDELL, Georgia CARL LEVIN, Michigan

DIRK KEMPTHORNE, Idaho TOM HARKIN, Iowa

ROBERT F. BENNETT, Utah JOHN F. KERRY, Massachusetts

KAY BAILEY HUTCHISON, Texas JOSEPH I. LIEBERMAN, Connecticut

JOHN WARNER, Virginia PAUL D. WELLSTONE, Minnesota

WILLIAM H. FRIST, Tennessee HOWELL HEFLIN, Alabama

OLYMPIA J. SNOWE, Maine FRANK R. LAUTENBERG, New Jersey

Louis Taylor, Staff Director and Chief Counsel
John W. Ball III, Democratic Staff Director



CONTENTS



OPENING STATEMENTS

Page

Wellstone, The Honorable Paul D., a United States Senator from Minnesota .. 1

WITNESS TESTIMONY

Barca, Peter, regional administrator, Region V, U.S. Small Business Adminis-
tration 7

Daum, Edward, district director, Minneapolis District Office, U.S. Small Busi-
ness Administration 46

Jeffers, Truman, executive vice president and chief executive officer, Min-
nesota Bankers Association, Minneapolis 66

Geiger, Gary, president. Heritage Bank N.A., Willmar 68

Blum, Alexandra L., economic development director, Bremer Financial Serv-
ices, Inc., St. Cloud 71

Alexander, Robert J., executive director, Minnesota Business Finance, Inc.,

St. Cloud 79

Dorsey, John C. (Chuck), president. Signal Bank, West St. Paul 80

Mandery, Craig, founding partner. Maximum Graphics, Incorporated, Chaska 89
Solem, Steven, co-owner. Central Minnesota Tool & Stamping Inc., Little

Falls 91

Rydmark, Cheryl, sole proprietor, Cheryl Rydm ark-Goldsmith, Minneapolis .... 93
Childs, Timothy T., president, TLC Precision Wafer Technology, Inc., Min-
neapolis 94

Peterson, Barbara, owner, Barbara-Leonard Specialists, St. Paul 96

Mathews, Mary, president. Northeast Enterprenevu- Fund, Inc., Virginia 99

Shipp, Patrick, president. Shippers Sports Bar and Grill, Inc., Cambridge ....... 106



Sparling, John, director, Pine Technical Small Business Development Center,
PineCitv , 108

Fant, Karl, president, Theseus Research, MinneapoUs; accompanied by Ken-
neth M. Wagner, executive vice president, Theseus Research; on behalf
of Minnesota Project Innovations 109

Nakasone, John, president. Painting by Nakasone, St. Paul 116

Johnson, Jill, owner and founder, Johnson Consulting Services, Fridley; and
chair. Small Business Council, Minnesota Chamber of Commerce 117

Rothweiler, Beatrice, president, Minnesota Chapter, National Association of
Women Business Owners 118

Temali, Mike, executive director, Neighborhood Development Center, St.
Paul 132

Winters, Sandra J., branch president and senior lender. First National Bank
of Monticello, Lakeville Branch, and chair. Commercial and Retail Lending
Committee, Minnesota Bankers Association 134

Maddox, Wendell, president. Ion Electronics Company, Minneapolis; and vice-
chairman. White House Conference on Small Business 135

Brennan, David P., Ph.D., director. Small Business Institute, University of
St. Thomas, St. Paul 136

McLean, Warren, president and chief executive officer. Metropolitan Economic
Development Association (MEDA), MinneapoUs 138

Jorgenson, Randy L., executive director. Southwest Regional Development
Commission, Slayton 139

Bertelsen, Robert C., past president, National Service Corps of Retired Execu-
tives Association (SCORE); member, MinneapoUs Chapter of SCORE; and
member, SBA Advisory Council in Minnesota 148



Page

Januschka, Mark F., assistant vice president and SBA program manager,
Zapp National Bank, St. Cloud 154

ALPHABETICAL LISTING

Alexander, Robert J.

Testimony 79

Barca, Peter

Testimony 7

Prepared statement and attachments 11

Bertelson, Robert C.

Testimony 148

Attachments to statement 150

Blum, Alexandra L.

Testimony 71

Prepared statement 73

Brennan, David P.

Testimony 136

Childs, Timothy T.

Testimony 94

Daum, Edward

Testimony 46

Prepared statement and attachments 49

Dorsey, John C. (Chuck)

Testimony 80

Prepared statement 82

Fant, Karl

Testimony 109

Attachments to statement 112

Geiger, Gary

Testimony 68

Prepared statement 70

Januschka, Mark F.

Testimony 154

Jeffers, Truman

Testimony 66

Johnson, Jill

Testimony 117

Jorgenson, Randy L.

Testimony 139

Prepared statement 141

Maddox, Wendell

Testimony 135

Mandery, Craig

Testimony 89

Mathews, Mary

Testimony 99

Prepared statement and attachments 101

McLean, Warren

Testimony 138

Nakasone, John

Testimony 116

Peterson, Barbara

Testimony 96

Prepared statement 98

Rothweiler, Beatrice

Testimony 118

Prepared statement and attachments 120

Rydmark, Cheryl

Testimony 93

Shipp, Patrick

Testimony 106

Prepared statement 107

Sparling, John

Testimony 108

Solem, Steven

Testimony 91

Prepared statement 92



Page

Temali, Mike

Testimony 132

Wagner, Kenneth M.

Testimony 109

Attachments to statement 112

Wellstone, The Honorable Paul D.

Opening statement 1

Prepared statement 4

Winters, Sandra J.

Testimony 134

COMMENTS FOR THE RECORD

Alsadi, Sadi, owner. Princess Marble, statement 157

Anderson, Marge, chief executive, Mille Lacs Bank of Ojibwe, statement 158

Atchison, Dean C., vice president, senior loan officer, Community First Na-
tional Bank of Fergus Falls, letter 163

Balsimo, Larry, D.C., Balsimo Chiropractic, statement 164

Barton, Thomas L., Bertram, Vallez, Kaplan & Talbot, Ltd., letter 165

Beethe, Curtis, president, Unicopy Advanced Imaging, letter 166

Boldon, Cheryl L., vice president and chief executive officer, Drug King,

Inc. dba Snyder Drug, Butler Drug & Uptown Pet, statement 167

Bringgold, Paul H., president. First National Bank of Cannon Falls, letter 169

Buesgens, Tyrone S., president. Valley Bank Minnesota, letter 170

Clemenson, Lyle J., Clemenson Enterprises Incorporated (CEI), statement 171

Erdman, Jennifer L., IMI Porcelain Doll Center, letter 173

Fallek, Max, president, American Institute of Small Business, statement 174

Flanagan, Dale A., vice president, Airena, Inc., letter 177

Flory, John K., economic development director, Whittier Community Develop-
ment Corporation, letter 178

Frentz, Joan, JWF Concepts, Inc., statement 180

Hamilton, Roger D., vice president. Riverside Bank, statement 182

Hammer, Jeffrey R., president, Crystal Cabinet Works, Inc., letter 184

Hazen, Jerry, letter 185

Heck, Robert, president. Twin Cities-Metro Certified Development Company,

statement 186

Hinz, Donald E., Eagle Environmental, Inc., letter 187

Holtmeyer, Gene, president, Holtmeyer & Smith, Inc., statement 188

James, John C, chairman. Town and Country Bank, letter 189

Johnson, Pamela, president. Comprehensive Rehabilitation Center, state-
ment 190

Johnson, Randy, president, The Relay House Inc., letter 192

Judkins, Wesley W., director of physical development, Region Nine Develop-
ment Commission, statement 194

Kennedy, Greg, president. Design Station, Inc., statement 196

Kewley, Monte, president. Galaxy Computer Services, Inc., statement 197

King, Barb, president. Landscape Structures Inc., letter 198

Klein, Robert, chapter chair, St. Paul Area Chapter 391, Service Corps of

Retired Executives Association (SCORE), letter and statement 199

Kriedberg, Larry and Betty, Ribbon Magic, letter 202

Kruger, Mary J., state director, Minnesota Small Business Development Cen-
ter Network, Minnesota Department of Trade and Economic Development,

statement and attachment 204

Martine, J.V., vice president, Southview Bank, letter 208

Morey, Diane, business loan specialist. Headwaters Regional Development

Commission, letter 209

Novak, Gary G., president. Industrial Electric Company, letter 210

Ohlander, Ben G., vice president, MidAmerica Bank, letter 211

Olson, Randall D., executive director, Minnesota Project Innovation, Inc.,

letter 213

Pogatchnik, Bruce A., president. First State Bank of Finlayson, letter 215

Poulsen, Janet, Echo Field Cottons, letter 216

Reid, Karen, coordinator, Minneapolis Consortium of Community Developers,

letter and attachments 217

Roberts, Barbara A., P.E.C. Mobile Communications, statement 231

Roberts, Daniel J., assistant vice president, Richfield Bank & Trust Co.,

letter 233

Rothstein, Marv, senior vice president, First Integrity Bank, letter 234



Page

Russick, L. David, TUBS, Inc., letter 235

Seeley, Joyce, executive vice president, Aver Corporation, statement 236

Smith, Theo, president. Careful Industries, Inc., statement 237

Snook, Paul, director of economic development, Watonwan County Economic

Development, letter 239

Spang, William M., Jr., president, Mountain Iron First State Bank, letter 241

Sweet, Clark H., senior vice president, First Bank System, letter 243

TembreuU, T.A., senior vice president. Anchor Bank National Association,

letter 245

Thares, Jim, director, Benton County Office of Economic Development, letter . 246

Thompson, Tracy Troke, program manager, FINCA Minnesota, statement 247

Thomsen, Happy B., president, T.H.T., Inc. dba Stillwater Automotive Diag-
nostic Center, letter 249

Thull, Lona Lee, president. Friendly Cruises, Inc., statement 250

Tohal, Brian, economic development director, Sibley Economic Development

Commission, letter 251

Vagle, Ronald M., Rovak, Inc., letter 253

Valiant, Ron, construction management coordinator. The Minnesota Chip-
pewa Tribe, statement 254

Van Dyne, Doyle A., president, Kanabec State Bank, letter 255

Warta, Denis J., coordinator, New Ulm Economic Development Corporation,

letter 256

Whims, Mark, president, WW Constructors, Inc., statement 257

Wichem, Travis, Color Tile and Carpet, statement 259

Wilson, William A., Batteries Plus, Duluth, letter 260

Wingert, Monique E.M., vice president. Moving Equipment Rental, Inc., let-
ter 261



ENTREPRENEURSHIP IN AMERICA:

REINVENTING THE SBA— THE

STAKE FOR MINNESOTA SMALL BUSINESS



WEDNESDAY, APRIL 19, 1995

United States Senate,
Committee on Small Business,

Washington, D.C.
The committee met, pursuant to notice, at 9:30 a.m., in the Ma-
plewood Community Center, 2100 Whitebear Avenue, Maplewood,
Minnesota, the Honorable Paul D. Wellstone presiding.
Present: Senator Wellstone.

OPENING STATEMENT OF THE HONORABLE PAUL D.
WELLSTONE, A UNITED STATES SENATOR FROM MINNESOTA

Senator Wellstone. Welcome, everybody. This is going to be an
official Senate Small Business Committee hearing. And I want to
thank everyone for being here. I am a little bit amazed at the turn-
out. Although when I think about the importance of these pro-
grams to the small business community, and for that matter to the
Minnesota economy, I think I understand why you are here.

Let me, first of all, ask George Rospect to please stand, from the
Maplewood City Council. George, I have to tell you, this is a beau-
tiful center. Absolutely. Thank you very much for letting us be out
here today. We really appreciate it.

Mr. Rospect. We are very proud of it. I understand there will
be a tour afterwards for those who are interested. I will be happy
to be the tour guide.

Senator WELLSTONE. OK. Great. I am going to open this morn-
ing's official field hearing of the United States Senate Committee
on Small Business. This is one of a series of hearings initiated by
the Chairman, Kit Bond, from Missouri. I think a couple of hear-
ings have taken place in Missouri and Tennessee as well. The topic
is "Reinventing the Small Business Administration: The Stake for
Minnesota Small Business."

Our topic is a timely one. SBA Administrator Phil Lader, who I
have talked with at great length, has issued a set of proposals
which he calls "Phase Two Reinvention" of the SBA. This is also
referred to as the "stretching taxpayer dollars," sounds good so far,
proposal. Other proposals may be offered as well to cut SBA pro-
grams or spending. Undoubtedly some of you all, and we are going
to have some tremendous testimony, will have different proposals
to set forth today.

(1)



I expect to relate some of what I learn here today, maybe all of
what I learn here today, to the Small Business Committee. I want
to let you know that this is far from symbolic. The timing of this
hearing in Minnesota is exquisite. It is important because on next
Thursday in D.C. we are scheduled in the Small Business Commit-
tee to examine the SBA 7(a) loan guaranteed program.

All of today's testimony will be on the official transcript, which
will be forwarded to the Committee. And all of today's testimony
will count and will be important. I am interested in ail of it, but
in particular, of course, that regarding the largest SBA program,
the 7(a) program. And it's the 7(a) program that I think is espe-
cially a focus of some of the new reform proposals. So we want to
focus on that.

I would like to welcome our new regional administrator, Mr.
Peter Barca. Peter, welcome. Thank you very much for being here.
Mr. Barca has been administrator of SBA's Region 5 office in Chi-
cago since February. And I think that it is extremely important
that Mr. Barca is with us. We are very pleased that he is. Peter,
I want to introduce you to the small business community here in
Minnesota.

Accompanying Mr. Barca is Ed Daum, who I think almost every-
body here probably knows well. Ed has been director of the Min-
neapolis district office of the SBA for about 8 years. I would like
to personally thank Ed Daum and, Ed, your staff for the excellent,
and I believe I see heads nodding in the affirmative, I do not be-
lieve I exaggerate when I say excellent service that you have deliv-
ered to the Minnesota small business community. You have done
superb work. And we thank you.

We are going to hear from Minnesota lenders, from small busi-
ness borrowers, and from other participants in SBA programs. I
think that overall what we are going to hear is a very positive
story about some programs that have been very beneficial to a cru-
cial sector of our state's economy. The programs are being delivered
to more and more Minnesotans in more and more a cost effective
way, which I think is precisely the goal.

This is an important story. During the past 2 years, as I think
almost everybody in this room probably knows, the SBA has been
transformed. Stream-lining the operations, reducing the paperwork
for small businesses has meant that we have been able to serve
more small businesses for fewer taxpayer dollars. And since 1992,
as the number of loans guaranteed by SBA has doubled, the loans
program cost to taxpayers has been reduced. That's a very good
record.

The low documentation or the LowDoc program is very popular
here in Minnesota. And I know from the Small Business Commit-
tee in Washington, very popular throughout the country. I am
pleased to say that we have two certified development companies
in the state named as accredited lenders, which is actually some-
thing I can be proud of because I thought that this truly
steamlined the process by making sure the CDCs could themselves
go ahead with loan evaluations.

I think this has really made a difference in terms of the speed
of the processing of 504 loans. And correct me if I am wrong, but
I think Minnesota leads the Nation in utiHzing the 504 program.



Other SBA programs have important advocates that are here, and
we will be hearing about those programs as well.

Finally, let me just simply make a case that while there is much
that I think we can be proud of and some very important changes
that have taken place, I think we do today have to look very, very
carefully at some of the proposals that are going to be on the table.
And at what I hope will be, the bottom line for this hearing: how
we can keep delivering good bang for the buck. I want to make
sure that we do continue to deliver good bang for the buck for Min-
nesota small businesses and taxpayers.

[The prepared statement of Senator Wellstone follows:]



PAUL D. WELLSTONE

eWflGV AND NATURAL RESOURCES
^ LABOR AND HUMAN RCSOURCES



lanittd 3tattB Senate

WASHINGTON. DC 20510-2303



STATEMENT OF SENATOR PAUL WELLSTONE

U.S. SENATE SMALL BUSINESS COMMITTEE

HEARING ON REINVENTING SBA

APRIL 19, 1995

I'm very pleased to open this morning's official field hearing of
the United States Senate Committee on Small Business. It is one
in a series of hearings initiated by the Chairman of the Small
Business Committee, Senator Kit Bond of Missouri, in cooperation
with the Committee's Ranking Member, Senator Dale Bumpers of
Arkansas .

Four hearings in the series were held last week in Missouri and
Tennessee. Today's hearing here in Maplewood will focus on the
topic, "Reinventing the Federal Small Business Administration -
the Stake for Minnesota Small Businesses."

I think that many of our witnesses and other participants today
are aware of the timeliness of our topic, which should ensure
that the full Committee will be particularly interested in our
findings. SBA Administrator Philip Lader has issued a set of
proposals which he calls "Phase 2 Reinvention" of the SBA. We
will hear about these proposals, which some also have heard
referred to as the "Stretching Taxpayer Dollars" proposals. We
also expect that further proposals will be offered in Congress to
cut SBA programs or spending, perhaps in either the House or
Senate small business committees. Undoubtedly, some participants
today will have views about these proposals.

I would like to announce at this point that I will have my first
opportunity to relate some of what I learn here today to the
Small Business Committee next Thursday in Washington. On that
day the full Committee is scheduled to examine in a hearing the
SBA's 7(a) loan-guaranty progreun. All of today's testimony will
be made part of the official transcript, and I assure you that I
aim to make full use of our findings regarding all SBA programs.
But I especially look forward to information I can relate to my
colleagues on the Committee regarding the 7(a) program, which of
course is the largest SBA program nationally and here in
Minnesota. The 7(a) program is the subject of some of the more
notable, perhaps even controversial, reform proposals.



I welcome our new Regional Administrator, Mr. Peter Barca. Mr.
Barca is the Administrator of SBA's Region 5 office in Chicago,
which, of course, is the regional office covering Minnesota and
five other states. Mr. Barca is a former U.S. representative
from Wisconsin and was a state representative in Wisconsin, as
well. He has extensive public and private sector experience in
management, education, employment and training issues, and I
think it is important that Mr. Barca be introduced to Minnesota's
small-business community early in his term. We look forward to
his testimony as part of our first panel. Mr. Barca, thank you
for coming.

Accompanying Mr. Barca is Ed Daum, who has been Director of the
Minneapolis district office of the SBA for about eight years. I
want Mr. Daum to know, and would like him to let his staff in
Minneapolis know, how much we appreciate the excellent service
that is delivered to Minnesota small businesses through our SBA
district office. Thank you, Ed, for your work.

In addition to representatives of the SBA, we will hear today
from Minnesota lenders, from Minnesota small -business borrowers,
and from other participants in federal small-business programs.
I believe that we will hear a largely positive story regarding a
set of cost-effective and beneficial federal programs which serve
a crucial sector in our state's economy. And I think we will
hear that these programs are being delivered to more and more
Minnesota small businesses in a more and more cost-effective
manner .

At a time when virtually every area of federal government
activity is being scrutinized, this is an extremely important
story to tell. I think the public needs to be made aware of the
human stories behind the numbers that are discussed during what
can often be dry and confusing policy debates .

During the past two years, the federal Small Business
Administration has been literally transformed. Nearly anyone who
has done business with the SBA recently realizes this. The
reinvention process at the SBA, initiated in 1993 by Erskine
Bowles and now continued by Administrator Lader, has already
achieved remarkable results.

Streamlining the SBA's operations and reducing paperwork for
small businesses has allowed us to serve more businesses for
fewer taxpayer dollars. Between Fiscal Year 1992 and the current
fiscal year, it is projected that the number of 7(a) loans
guaranteed by SBA will have doubled. The volume of those loans
to small businesses will have increased from $5.9 billion to
about $7.8 billion. And yet, the cost to taxpayers for the 7(a)
program will have been reduced from $273 million in FY 1992 to
just $215 million this year.

The Low Documentation, or "Low-Doc," program already is proving
popular among 7(a) lenders and borrowers here in the state. And



I'm pleased to say that we have had two certified development
companies in the state named as "accredited lenders," which will
help reduce paperwork and processing-turnaround time in the 504
loan program. The Microloan program, the SBIR program and the
8(a) program each have important advocates here in Minnesota, as
well, as we will see. Therefore, I want to move at this point on
to our witness panels.

First, however, it is necessary to point out that, at the same
time that we are calling attention to our success stories here in
Minnesota, and at the same time that we offer deserved
congratulations to the SBA for the impressive steps they have
taken to reinvent themselves to become more cost-effective, we
also need today to look carefully at the new proposals I
mentioned earlier to cut or "streamline" SBA programs and budgets
further .

A principal purpose of today's hearing is to ensure that any
steps that the SBA or Congress proposes to take that will affect
the operation of programs benefitting Minnesota businesses -
especially any changes that might require legislative action by
the Small Business Committee - receive proper consideration from
those businesses that will be affected. That is why I will be
asking Mr. Barca to join me at this table to hear the testimony
of the panels of Minnesota lenders, borrowers and other SBA
program participants. It is also why I will ask Jill Johnson to
join me here, as well. Ms. Johnson has been involved with the
SBA for many years and was named national "Small Business
Advocate of the Year" by SBA last year. She chairs the Small
Business Council of the Minnesota Chamber of Commerce and is a
Minnesota delegate to the White House Conference on Small
Business.

I think it is safe to say that there is probably no group of
Minnesotans who mo^e fervently supports the idea of reducing the
federal budget def*icit than our small-business owners . I think
that this is an audience that appreciates the need to cut costs
and to innovate to find efficiencies. What I hope we can learn
today is how we can continue to deliver excellent economic
benefit to Minnesota and American small businesses in the most
cost-effective way.

In other words, how can we make sure that we keep delivering good
bang for the buck for American small businesses and taxpayers?



Senator Wellstone. I will be asking Mr. Barca and Mr. Daum
to join me here to hear testimony. And at the same time, I would


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Online LibraryUnited States. Congress. Senate. Committee on SmalEntrepreneurship in America : reinventing the SBA, the stake for Minnesota small business : field hearing before the Committee on Small Business, United States Senate, One Hundred Fourth Congress, first session, April 19, 1995 → online text (page 1 of 19)