Good Morning. I'm Rex Hammock, Chairman of Hammock Publishing Inc. in Nashville, Tennessee. My company, which three partners and I founded in 1991, today employees 15 full-time employees and several part time staff, along with utilizing the services of numerous independent writers and photographers from around the country. We are a custom publisher of magazines, newsletters and website content for corporate clients. For instance, we publish the magazine, Roadking, for the TravelCenters of America (TA) network of 120 truck stops nationwide -- a magazine with a circulation of 250,000 over-the-road truckers.
Thank you, Mr. Chairman, for giving me the opportunity to testify on behalf of the National Federation of Independent Business regarding interest bearing checking accounts for small businesses. NFIB is the nation's largest small business advocacy organization, representing 600,000 small business owners in all 50 states and the District of Columbia. The typical NFIB member employs five people and grosses $350,000 in annual sales.
In a recent NFIB survey, 86 percent of small business owners said they should be able to earn interest on their checking accounts. But, before I explain why this is so essential to a small business owner, it is important for the Committee to understand the composition of the business community and some demographics of small business owners.
One inaccurate perception in this country is that all business is big business. This is not correct. Sixty percent of all employers in the United States have 4 employees or fewer and 94 percent employ fewer than 50 employees. These figures illustrate a fact that is typically lost during debates on the impact of certain regulations -- small business by pure volume dominates this country's economic engine. With this in mind, I'd like to submit my full testimony into the record at this point.
When we started Hammock Publishing, we had a total of six employees, including the four of us who founded the company. At that time, we did not have a bookkeeper on staff, so I, with the help of an accountant who checked in once a month, did the day-to-day bookkeeping. While there's a fog of excitement through which I recall the activities of setting up the business, I can still vividly remember going through the process of applying for a business line-of-credit and setting up a checking account through the small business banking department of the local branch of a large regional banking company.
That was when I first learned that a business can't earn interest on a checking account. I remember thinking it was odd and asking my banker, "Why not?" He said simply that it was against the law. But as a way around the restriction, he suggested that I set up what a bank called a "liquid investment account" -- which was similar, he told me, to a money market account. And so, that's what we did. We had three accounts with the bank: a checking account, a liquid investment account and a line-of-credit.
During those first two or three years, I personally would call the banker each day or so and shift funds around from account to account in order to insure that I was neither paying interest on the line-of-credit or losing interest that could be in the liquid investment account.
As any new business owner will tell you, there are a lot better ways to spend your time than calling your banker. But small business owners, by our nature, break out in hives at the thought of money sitting in a banking acount not earning interest.
Even after our company grew larger and we were able to hire a bookkeeper, we continued to use this method of calling the bank to move funds around in order to get around the restrictions on business checking account interest. I can remember waking up many nights trying to recall if I had transferred the intended funds from one account to another. The next morning it would not seem like a big deal, but when you are running a small business, even little nuisance problems can grow large at about 2:30 in the morning.
After some good-natured complaints to my banker regarding this stone-aged approach to banking, he suggested that I set up a sweep account to automate what we were doing manually each day.
While a sweep account may make sense for a larger company with an in-house accounting and financial staff and the technology to go online with its financial institution, most small businesses like ours, while computerized, still do not bank online. We soon found that the sweep account resulted in a flood of paper from the bank: each day a reconciliation statement letting us know how the money had been shifted around. And because this is done via the mail, there is always a two-to-three day delay in the information flow so we never have an accurate, up-to-the minute view of the flow of funds among our banking accounts.
Don't get me wrong. I am not arguing against sweep accounts. But they are a bookkeeping nightmare for a small business which would rather have their bookkeeping and accounting staff focused on managing payables and receivables than in keeping up with a flood of paperwork pouring out of the bank. For instance, in 1997, we received over 250 statements from our bank regarding our sweep account.
Ironically, we did not earn a significant amount of interest (or save interest on our line-of- credit) from this mountain of paperwork. And if you consider the allocation of bookkeeping staff time to handling the paperwork and the lack of oversight caused by the sweep solution, I could argue that we would have been much better off leaving the funds in a non-interest-bearing account - which is what many small business owners do - a fact that restricts much needed capital from those who need it most.
I commend you, Senator Shelby, for introducing S. 1405, the Financial Regulatory Relief and Economic Efficiency Act. This legislation would eliminate the archaic banking law that has hampered the ability of small businesses to make effective use of their funds. Small business owners, like myself, would no longer be at a disadvantage by having to either use expensive sweep technology or be forced to keep our money in non-interest bearing checking accounts.
It seems so logical, so simple, so common sense, to allow banks to pay interest on a business checking account as they do on personal checking accounts.
I urge this Committee to lend its support to ensuring the expeditious adoption of this important legislation. Mr. Chairman and members of the Committee, thank you for the privilege of allowing me to speak to you today.
I would be pleased to answer any questions.
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