Statement of the Hon. Nydia Velazquez on Empowering Employee Owned Businesses and Cooperatives Through Access to Capital
Washington, September 30, 2021
The COVID crisis dealt a severe blow to American workers. In 2020, the pandemic raised unemployment rates, halted wage growth, and lowered employees’ satisfaction with their jobs. This shock occurred as the labor force was already contending with rising income and wealth inequality and growing uncertainty surrounding retirement security.
The Small Business Committee serves as the voice of small firms in Washington. This includes the employees that help power these businesses as well as the entrepreneurs that start them. One such proven solution to alleviating the problems facing these workers is through the employee-owned business model, which takes various forms – but has a uniting principle that the interests of the employees and owners are aligned.
Today, I’d like to focus on the two most prominent types of employee-owned businesses, the Employee Stock Ownership Plan – also known as an “ESOP” – and cooperatives.
ESOPs and cooperatives create a link between the fortunes of employees and the performance of the companies they work for. As revenue and profits rise, employees are compensated, helping to create a culture of ownership in the enterprise. This model helps to raise wages, promote job preservation, and increase worker benefits.
Employee-owned entities are also more resilient than their peers in the face of crises. For example, a study by the Employee Ownership Foundation found that during the COVID crisis, ESOP firms retained more jobs, maintained standard hours and salaries, and provided protective measures at higher rates than typical firms.
Given the long list of benefits associated with employee-owned businesses, Congress must explore ways to facilitate and encourage the formation of these enterprises. Though employee-owned companies have become more prominent over the years, they continue to face unique obstacles.
For example, co-ops have an especially hard time accessing capital through SBA’s 7(a) loan program. They’re locked out of 7(a) due to the requirement of a personal guarantee from anyone who owns 20% or greater share of a business.
Congress took steps to address this issue by passing legislation I sponsored in 2018. The Main Street Employee Ownership Act sought to lower barriers to accessing capital and allow more employee-owned firms to participate in SBA programs.
But unfortunately, the SBA failed to follow congressional intent and declined to propose alternatives for cooperatives to secure a loan without a personal guarantee. That’s why, as part of our committee’s title of the Build Back Better Act, we provided $500 million in funding for a “Cooperative Lending Pilot” within 7(a) without the requirement of a personal or entity guarantee.
Today, I look forward to examining the potential impact of this cooperative lending pilot program and exploring other ways that Congress can help employee-owned businesses. I look forward to hearing from our witnesses today about the benefits of employee ownership, the challenges these firms face, and what this committee can do to help.