Royce Highlights Barriers for Start-Ups Accessing Capital

Statement

U.S. Representative Ed Royce (R-Calif.) questioned expert witnesses on the barriers start-up businesses face when trying to access capital during a Capital Markets and Government Sponsored Enterprises Subcommittee hearing entitled "The JOBS Act at Four: Examining Its Impact and Proposals to Further Enhance Capital Formation."

"In California, as you know, we've got a world-class network of start-ups from Silicon Valley to Orange County. The issue of access to capital for start-up businesses is critical to our state's economy but critical also to ensuring our country remains the best place for entrepreneurs to bring products to market. Mr. Keating, you note in your testimony that the Micro Offerings Safe Harbor Act, which I'm an original cosponsor of, "appropriately scales federal rules and regulatory compliance for small businesses' pursuing capital. Mr. Keating, how will this legislation help these start-ups that are looking for the investment to hire, grow, and enter the market?" asked Rep. Royce.

"It all comes down to the cost. When we talk about scaling federal rules, look at the data… that shows that regulatory costs certainly fall much more heavily on small businesses. Take the next step and consider the regulatory costs on start-ups, and it becomes even more daunting. When I mentioned before the issue on angel-investing, that's certainly in the equation here in terms of both on the supply and demand side. Anytime you can open up avenues here through reduced costs for entrepreneurs to gain access to capital, it's a positive development," replied Mr. Raymond Keating, Chief Economist at the Small Business & Entrepreneurship Council.

"I'm an advocate for regulatory relief for our nation's community financial institutions when it comes to their ability to lend. Legislation I've authored, HR 1188 or the Credit Union Small Business Jobs Creation Act, would free up smaller lenders when it comes to working with business start-ups. What role do community financial institutions play in capital formation for start-ups? What are the problem areas since the financial crisis, and how could Congress help on that front?" concluded Rep. Royce.

"My immediate response is those small financial institutions are crucial for small businesses, that's the bottom line. When you look at their share of loans to small businesses, they're it. They're critical. The regulatory costs of, for example, Dodd-Frank and so on fall more heavily on them, and small businesses get hurt as a result," replied Mr. Keating.

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