Phillips Works to Increase Access to SBA Programs for Employee-Owned Businesses

Press Release

Date: Dec. 6, 2022
Location: Washington, DC

Today, the House Small Business Committee Subcommittee on Oversight, Investigations, and Regulations, chaired by Rep. Dean Phillips (D-MN), held a hearing examining the challenges employee-owned businesses face accessing Small Business Administration (SBA) lending programs. The hearing gathered lenders and employee ownership experts to testify on employee-owned businesses' obstacles when trying to obtain affordable capital.

"I've seen the countless benefits of this model back home. Minnesota is home to 265 employee-owned businesses, the most per capita of any state. In many cases, workers at these businesses boast higher pay, greater job security, and better benefits, such as higher retirement savings," said Chairman Phillips. "Given the long list of benefits associated with this model, it's vital we ensure these businesses have access to the federal initiatives meant to support all small firms."

Employee ownership refers to any arrangement in which employees share in the profit and losses of a company, often owning shares of stock in the company. Over the years, the number of firms embracing employee-owned models like Employee Stock Ownership Plans (ESOP) and cooperatives has increased steadily. Surveys of these firms show that on average low-wage workers and workers of color who are employee-owners have 17% greater median household net worth and 22% higher median income from wages than their non-owner peers. In addition to their workers' increased benefits, employee-owned businesses also provide an exit strategy for business owners, including the nearly 2.5 million baby boomer business owners expected to retire in the coming years.

Unfortunately, worker-owned businesses often struggle to access financing through SBA programs. For example, SBA's flagship 7(a) loan program requires a personal guarantee from any individual or entity owning a 20% share or greater of a business, which is often unworkable for employee-owned firms, given their unique ownership structure.

In 2018, Congress passed Chairwoman Nydia M. Velázquez's (D-NY) Mainstreet Ownership Act, which included provisions to ease burdensome guarantee restrictions and help retiring business owners convert to an employee-owned model. Unfortunately, in the years following the passage of the bill, SBA failed to follow congressional intent when implementing the bill, leaving many of the challenges faced by employee-owned small businesses unaddressed. The hearing gave members the opportunity to discuss potential congressional action, including bills recently introduced by Chairwoman Velázquez and Rep. Phillips, to build on the Mainstreet Ownership act and reduce barriers to employee ownership.