U.S. Senate Small Business Committee – AAJC/AACEP Testimony

September 26, 2008

On September 11, 2008 the U.S. Senate Small Business Committee, chaired by Senator John Kerry (D-MA), held a hearing related to bill S. 2920, which is the U.S. Small Business Administration (SBA) Reauthorization and Improvement Act of 2008.  The hearing was held to address provisions in S. 2920 that would provide venture capitalists incentive for backing minority and women-owned small business owners and an entrepreunership training program for minority and women-owned businesses.  AAJC/AACEP submitted the following testimony in support of these provisions of the bill:

“Business Start-up Hurdles in Underserved Communities: Access to Venture Capital and Entrepreneurship Training”

Written Testimony of:

Vincent Eng & Aarathi Deshmukh
Asian American Justice Center

1140 Connecticut Avenue NW, Suite 1200

Washington, D.C. 20036

Phone: 202.296.2300

Email: veng@advancingequality.org/adeshmukh@advancingequality.org

I. ORGANIZATIONAL BACKGROUND

Founded in 1991, the Asian American Justice Center (AAJC) (formerly the National Asian Pacific American Legal Consortium) works to advance the human and civil rights of Asian Americans through advocacy, public policy, public education and litigation. AAJC is one of the nation’s leading experts on issues of importance to the Asian American community, including equal opportunity, anti-Asian violence prevention/race relations, census, immigrant rights, immigration, language access, television diversity and voting rights. AAJC works with its affiliates, the Asian American Institute in Chicago, the Asian Law Caucus in San Francisco and the Asian Pacific American Legal Center in Los Angeles to enact a sweeping range of programs on critical national issues that enrich, enhance and serve our communities all across the country.

AAJC has a long history of dealing with the adverse impact of United States laws, policies, regulations, and procedures on minority contractors and small businesses, having published a report in 1997 on the plight of Asian American businesses in public contracting,[1] filed an amicus curiae brief in Adarand Constructors, Inc. v. Mineta,[2]partnered with community organizations to reinstate Asian Americans as a presumptive minority group in the city of Chicago’s public contracting set-aside program and preparing for the impending release of a handbook and follow-up report on the disparate treatment of Asian Americans in public contracting. In addition, AAJC recently launched the Asian American Contractor Empowerment Project (AACEP), a project which seeks to build alliances with Asian American business associations and other advocates of small and disadvantaged businesses in order to strengthen and preserve Asian American participation in government business and contracting programs.

II. SUPPORT OF S. 2920’s PROVISIONS DEALING WITH VENTURE CAPITAL AND ENTREPRENEURSHIP PROGRAMS

AAJC supports the provisions in S. 2920 that were the subject of the U.S. Senate Small Business Committee’s hearing on Thursday, September 11, 2008: 1) the creation of additional leverage for venture capital firms that dedicate at least 51 percent of their investment portfolios to underrepresented communities, and 2) the grant program for development of entrepreneurship training programs that would encourage small business growth in underrepresented communities.

Without equal access to capital, Asian American business owners cannot fairly compete in the U.S. marketplace. S. 2920 will encourage financial institutions to look beyond their traditional methods and networks which often, unintentionally, shut out Asian American business owners. S. 2920 tells venture capitalists that they cannot just reach out to the people they know – they must give everyone a fair and equal opportunity to succeed. S. 2920’s venture capital and entrepreneurship programs will open doors of opportunity previously closed to Asian American businesses, as well as those owned by women and other minorities. By including minorities and women in areas traditionally barred to them, the nation’s economy will greatly benefit, and will continue to benefit, from previously untapped human resources.

III. EVIDENCE OF DISCRIMINATION AGAINST ASIAN AMERICAN BUSINESSES

Asian American business owners, similar to other minorities, have faced a long history of racial and national origin discrimination. Today, Asian Americans continue to face both intentional and institutional discrimination. By and large, Asian Americans are still excluded from the “old boys’ networks” that provide access to venture capital and other business opportunities – further highlighting the necessity of implementing S. 2920’s venture capital and entrepreneurship provisions.

A new report and handbook published by AAJC[3], based on research conducted by researcher Paul Ong at UCLA, includes findings that highlight the necessity of S. 2920’s venture capital and entrepreneurship programs:

· Despite the popular stereotype that Asian Americans have extraordinary entrepreneurial drive, the observed self-employment rate for Asian Americans is below that for non-Hispanic whites, 10.8% versus 12%.

· After adjusting for educational attainment, Asian Americans earn only 86 cents to every dollar they would have earned if they had the same self-employment rates and average self-employment earnings. This is consistent with the hypothesis that Asian American business formation and viability is sub-par.

· On average, Asian American firms receive only 72 cents for every dollar in revenues received by white firms, and the respective figure for payroll is only 66 cents for every dollar. In other words, Asian American firms are typically smaller than non-Hispanic white firms – despite their higher level of educational attainment and their supposed entrepreneurial drive.[4]

Unfortunately, the shocking data above do not stand alone:

· One South Asian American businessman, a structural engineer with his own consulting firm in Alameda county (San Francisco), was able to get an unsecured line of credit only after an Asian American loan officer at another white owned bank told him that he would be eligible. He maintained that line for several years with a clean record, yet when a white loan officer took over, she refused to renew his credit line. He finally took his business to a minority-owned bank.

· Asian American business owners are less likely than white male owners to obtain commercial bank loans, at 13 percent versus 16.9 percent, respectively. As a result, nearly one out of four Asian American entrepreneurs is forced to rely on personal loans from family and friends as their primary source of start-up capital.[5]

· Congress has recognized that “[o]ver and over again, studies show that minority applicants for business loans are more likely to be rejected and, when accepted, receive smaller loan amounts than non-minority applicants with identical collateral and borrowing credentials.”[6]

· Financial institutions discriminate against Asian Americans by requiring them to meet criteria different from those required of white borrowers, and requiring greater collateral from them than is required from white business owners, regardless of the Asian American firm’s financial health.

· An analysis of 2000 U.S. Census data shows that after controlling for relevant variables, Asian Americans are less likely to form businesses, and that when they do form businesses, they earn lower earnings than businesses owned by white males.[7]

· The loan denial rate for Asian American businesses is 50% higher than for white males.[8] According to a survey of small businesses conducted by the Board of Governors, firms owned by minorities are especially likely to report that the most important problem experienced by the firm was “financing and interest rates.” One in ten Asian American small business owners listed financing as their biggest problem. Not surprisingly, minority-owned firms, including those owned by Asian Americans, have their loans denied when they should not, and have to pay higher rates of interest when they should not.[9]

IV. CONCLUSION

Constitutional guarantees and anti-discrimination laws on their own have not achieved true equality of opportunity for all Americans. Discrimination still persists within our society and our social institutions. Equal opportunity programs over the past thirty years have helped to lower some of the discriminatory barriers confronting women, Asian Americans, and other minorities. To eradicate those barriers completely, we need to continue those programs and implement new ones where needed. Such programs have been proven effective against both intentionally and unintentionally discriminatory practices.


[1] Asian Pacific Americans and Public Contracting: A Report by the National Asian Pacific American Legal Consortium (1997), available at http://65.36.162.215/files/minority_business_programs.pdf.

[2] 534 U.S. 103 (2001).

[3] Equal Access: Unlocking Government Doors for Asian American Businesses, Asian American Justice Center, ISBN 1-932526-11-0 (2008)

[4] Id.

[5] The Urban Institute, “Do Minority-Owned Businesses Get a Fair Share of Government Contracts?,” p. 38, Table III.1, from the U.S. Census Bureau, 1987 Economic Censuses, Characteristics of Business Owners, also available at http://65.36.162.215/files/minority_business_programs.pdf, p. 36.

[6] See Compelling Interest, 61 Fed. Reg. at 26508.

[7] David G. Blanchflower, An Evaluation of Whether Asian-owned Firms Should be Included in the City of Chicago’s Aspirational Goals Program in Construction 4-5 (2007).

[8] Id.

[9] Id.

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