Kevin O'Leary Testifies on Capitol Hill: Can Small Businesses Survive?

It's an honor to have, uh, Kevin O'Leary, aka Mr. Wonderful, appear before the small business committee today. Chairman Williams, Ranking Member Basquez, and members of the committee, thank you for giving me time to testify about the state of small business in America.

I'm the Chairman of Oares, an ETF indexing firm, and Chairman of O Ventures Management, a private equity and venture investment firm. As an investor, I support entrepreneurs at every stage of their journeys. I have dozens of family-run businesses in our investment portfolios. My definition of a small business is a private firm, often family-owned, that employs between five and 500 people. These are hardworking men and women that basically account for 60% of job creation in America.

There is no denying they are the backbone of the economy. For decades, the U.S. economy has enjoyed historically low interest rates. Access to capital at low cost is always the key for funding receivables, capital expenditures, and making payroll for small businesses in America. The majority of these services were provided by the network of over 4,000 regional banks.

Almost a year ago, the network began to falter. Silicon Valley Bank and Signature Bank failed, and First Republic Bank was bailed out by taxpayers and then sold off to JP Morgan. This occurred while the Federal Reserve was raising rates at an unprecedented pace, from almost zero to the current 5.5% terminal rate. Regional banks immediately faced heightened scrutiny of their balance sheets and liquidity ratios, and now bank policies are under review by their regulators.

The predictable reaction was for the banks to tighten their loan books. This was immediately felt by hundreds of thousands of small business owners in every sector and geography in America. Not only did their rates increase, but regional bank liquidity dried up too. In many cases, now they have to make use of the private shadow banking network at rates of 16 to 22%.

At the same time, federal programs like the PPP had ended, and the employee retention credit payments were suspended by the IRS in Q4 of '23. To date, they have not resumed, and the whole ERC program is currently scheduled to end on April 15, 2025, or even sooner. Unfortunately, the majority of small business owners have no idea if they qualify for any of the programs inside of the Inflation Reduction Act, the CHIPS Act, SCIENCE Act, obviously, and Infrastructure Act.

Small businesses do not have the resources to retain lobbyists, legal and financial advisors that interpret the acts and manage the application process. If small businesses in America are responsible for 60% of domestic jobs, why aren't these acts written to spend 60 cents of every dollar on them, especially when their traditional sources of funding and government support programs have ended or been suspended?

Instead, it looks to the market like the IRA, CHIPS, and Infrastructure Acts were written specifically for the S&P 500 companies that have no trouble accessing capital yet only create 40% of jobs in America, many of these in foreign subsidiaries.

I would like to suggest some recommendations to the committee. Number one, create a payroll protection program to protect non-interest-bearing payroll accounts in regional and community banks during the inevitable consolidations of over 4,000 regionals down to a market-stable number. I first heard this idea from Senator Hagerty, and I think it would be helpful.

Number two, work with the numerous agencies that are implementing both the IRA, CHIPS, and Infrastructure Acts to ensure small businesses receive their fair share of these programs. Form a bipartisan council that advocates for small business in America that is always at the table when new policy is being considered. This would ensure that new government programs and laws are actually supporting small businesses and job creation in America.

Thank you very much.