[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                       FULL COMMITTEE HEARING ON
                      INCREASING ACCESS TO CAPITAL
                   FOR OUR NATION'S SMALL BUSINESSES

=======================================================================

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________
                              MARCH 1, 2007

                               __________

                          Serial Number 110-4

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


JUANITA MILLENDER-McDONALD,          STEVE CHABOT, Ohio, Ranking Member
California                           ROSCOE BARTLETT, Maryland
WILLIAM JEFFERSON, Louisiana         SAM GRAVES, Missouri
HEATH SHULER, North Carolina         TODD AKIN, Missouri
CHARLIE GONZALEZ, Texas              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              MARILYN MUSGRAVE, Colorado
RAUL GRIJALVA, Arizona               STEVE KING, Iowa
MICHAEL MICHAUD, Maine               JEFF FORTENBERRY, Nebraska
MELISSA BEAN, Illinois               LYNN WESTMORELAND, Georgia
HENRY CUELLAR, Texas                 LOUIE GOHMERT, Texas
DAN LIPINSKI, Illinois               DEAN HELLER, Nevada
GWEN MOORE, Wisconsin                DAVID DAVIS, Tennessee
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
BRUCE BRALEY, Iowa                   VERN BUCHANAN, Florida
YVETTE CLARKE, New York              JIM JORDAN, Ohio
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


WILLIAM JEFFERSON, Louisiana         DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas                 ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin                SAM GRAVES, Missouri
YVETTE CLARKE, New York              TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


WILLIAM JEFFERSON, Louisiana         LYNN WESTMORELAND, Georgia, 
RICK LARSEN, Washington              Ranking
DAN LIPINSKI, Illinois               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               STEVE KING, Iowa
GWEN MOORE, Wisconsin                MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


JUANITA MILLENDER-McDONALD,          LOUIE GOHMERT, Texas, Ranking
California                           LYNN WESTMORELAND, Georgia
CHARLIE GONZALEZ, Texas
RAUL GRIJALVA, Arizona

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Tasker, Janet, Small Business Administration.....................     3
Schroeder, David G., Independent Community Bankers of America 
  (ICBA).........................................................     6
Bartram, David, National Association of Guaranteed Lenders 
  (NAGGL)........................................................     8
Landis, Mary, National Small Business Association (NSBA).........     9
Schmitt, Michael, Metalworking Group, Inc........................    12

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    29
Chabot, Hon. Steve...............................................    32
Tasker, Janet, Small Business Administration.....................    33
Schroeder, David G., Independent Community Bankers of America....    38
Bartram, David, National Association of Guaranteed Lenders.......    47
Landis, Mary, National Small Business Association................    56
Schmitt, Michael, Metalworking Group, Inc........................    65

Statements for the Record:
America's Community Bankers......................................    69

                                  (v)

  


                  FULL COMITTEE HEARING ON INCREASING
          ACCESS TO CAPITAL FOR OUR NATION'S SMALL BUSINESSES

                              ----------                              


                        THURSDAY, MARCH 1, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Shuler, Bean, Cuellar, 
Altmire, Braley, Clarke, Sestak, Chabot, Fortenberry, 
Westmoreland, Gohmert, Fallin, and Buchanan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. The House Small Business Committee is 
called to order. Today, we will hold a hearing entitled, 
``Increasing Access to Capital For Our Nation's Small 
Businesses,'' and it is the intent to examine the challenges 
faced by entrepreneurs in securing affordable financing and 
propose solutions to meet those challenges.
    Let me start off by thanking everyone for being here today. 
Welcome to all the witnesses.
    While small businesses are the country's economic drivers 
and job creators, accessing the capital they need to 
successfully grow a business is always challenging. As most of 
us know, many entrepreneurs just starting a firm cannot qualify 
for traditional bank loans and rely heavily on borrowed money 
from friends, family or credit cards.
    In the past, this is where the SBA has stepped in to help 
businesses in need of financing. There is no question that its 
loan programs have been a great source of capital for 
entrepreneurs, providing 40 percent of all long term financing 
and putting $25 billion into the economy annually. The 
partnership between small business lenders and the government 
has allowed entrepreneurs from all walks of life to secure 
affordable capital.
    For all of the good that these initiatives are doing they 
could clearly be doing more. SBA's access to capital programs 
are a necessary tool for small firms; however, we need to find 
a way to decrease costs and increase access to these services 
especially in underserved areas. With veterans returning from 
Iraq, and the increasing number of women and minority 
entrepreneurs, affordable financing is more important now than 
ever.
    One thing we cannot forget is why these programs were 
created in the first place, to provide long-term capital to 
this nation's small businesses. This was its original purpose 
and this is its true potential. For these initiatives to live 
up to their original intent, we need to make them affordable 
for small businesses.
    What has always set SBA's loan programs apart from other 
financing means are the local ties to the community. Many are 
combined efforts, working with the SBA and private sector 
lenders in a public-private partnership to provide capital to 
small firms. In helping small business owners, they are also 
contributing to the economic development in their local 
communities.
    The SBA's financing programs are essential for many 
entrepreneurs to get started or expand their businesses. for 
the programs to best serve small firms they must have the tools 
needed to provide affordable capital. With small firms creating 
three out of every four new jobs and comprising over half of 
the nation's gross domestic product, it is a big problem when 
they do not have much needed funds. A small business owner 
should not be left with the difficult choice of either scaling 
back plans to expand their firms or risking the failure of 
their business.
    Today, we will be hearing from small businesses advocates 
who will tell you what entrepreneurs are experiencing. Also in 
today's hearing, we will look at how the SBA loan programs can 
be improved to meet the needs of small businesses. This is an 
opportunity for us to listen and to take action so that we can 
create an environment that small firms can succeed in.
    It is crucial that our nation's 26 million entrepreneurs 
have the ability to secure capital and to continue to spur 
economic development. We need to ensure SBA's loan programs are 
the premier lending tool for entrepreneurs. Access to capital 
is access to opportunity and by putting capital back into the 
hands of our small businesses we give entrepreneurs a chance to 
compete in today's marketplace.
    And now, I am very pleased to yield to the Ranking 
Minority, Mr. Chabot, for his opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. Thank you, Chairwoman Velazquez, and I want to 
thank you for holding this hearing, and I want to thank all the 
witnesses for participating here today, particularly, Mike 
Schmitt, who is the President of the Metalworking Group for my 
district in Cincinnati, Ohio, in Corine Township, but we want 
to thank all of you for making the trip here today.
    In my view, today's hearing on improving small businesses' 
access to capital is one of the most important hearings this 
Committee will hold during this session of Congress. While many 
challenging issues confront small businesses--excessive 
litigation, burdensome regulation, affordable healthcare, high 
taxes, and contract bundling, just to name a few--none of these 
issues matter if small businessmen and women cannot borrow the 
seed money they need to start, and improve, their businesses.
    The 7(a) and the 504 lending programs, administered by the 
SBA, are critical for the success of many small businesses in 
this country. These programs allow entrepreneurs, who may not 
otherwise have the opportunity, the chance to start their own 
business or to make improvements in their businesses.
    Unfortunately, many small businesses have experienced 
difficulty in obtaining this much needed capital of late. After 
a 25 percent increase in the number of 7(a) borrowers in 2005, 
there was a 37 percent decline in borrowers during 2006 which 
some attribute to the rising fees paid by borrowers and 
lenders.
    Over the last few years, the 7(a) and 504 programs have 
been self-sustaining, operating at zero-subsidy and no 
appropriations, which eliminates the funding shortages the 
program experienced in the past. In my view it's the most 
desirable way to fund the program since it is paid for by those 
who use it. That said, we must make sure the lending programs 
continue to be used by those who need them and I know that we 
plan to take a close look at the programs' recent fee 
increases.
    This hearing is the first step toward reauthorizing the SBA 
and its programs--a process that hasn't been completed, 
unfortunately, since 2002. It's important that the SBA and its 
programs be thoroughly reviewed and evaluated to improve what's 
working and to fix what isn't.
    I look forward to working with Chairwoman Velazquez to 
ensure that the SBA's loan programs operate as efficiently and 
effectively as possible.
    And, once again, we want to thank all the panel members for 
coming out here today to testify before the Committee.
    I yield back the balance of my time.
    Chairwoman Velazquez. Thank you, Mr. Chabot.
    Chairwoman Velazquez. And now, I will call on Ms. Janet 
Tasker. She's the Deputy Associate Administrator for Capital 
Access at the United States Small Business Administration. The 
Office of Capital Access manages the administration business 
loan programs, and performs lender oversight function at the 
SBA.
    Ms. Tasker, you will be recognized for five minutes.

 STATEMENT OF JANET TASKER, DEPUTY ASSOCIATE ADMINISTRATOR FOR 
       CAPITAL ACCESS, U.S. SMALL BUSINESS ADMINISTRATION

    Ms. Tasker. Thank you, Chairwoman Velazquez, Ranking Member 
Chabot, and Members of the Committee, for inviting me to 
testify about SBA's reauthorization and the Fiscal Year 2008 
budget for capital access.
    I am Janet Tasker, SBA's Deputy Associate Administrator for 
Capital Access. The Office of Capital Access manages the 
guaranteed business loan programs, the investment programs, the 
surety bond program, international trade programs, and the 
lender oversight function at SBA. I am proud to discuss our 
Fiscal Year 2008 budget, which reflects the President's 
commitment to America's small businesses and supports 
Administrator Preston's new reform agenda to expand the Agency 
services and make our programs more customer driven, while 
ensuring fiscal restraint and responsible stewardship of 
taxpayer dollars.
    The Small Business Administration plays an important role 
in supporting America's entrepreneurs and small business 
community. Each year, we are reaching more small businesses at 
an extraordinary rate, and doing so at no subsidy cost to the 
taxpayer. Fiscal year 2001, the loan program served about 
48,000 small business borrowers. Fiscal Year 2006, this number 
had doubled to more than over 100,000, in both the 7(a) and 504 
loan programs.
    The President's Fiscal Year 2008 proposal will support a 
total of more than $28 billion in SBA financing for small 
businesses. The proposal requests authorizations of $17.5 
billion for the 7(a) program, $7.5 billion for the 504 program, 
$3.0 billion for the SBIC debenture program, and $25 million 
for the Microloan program.
    The 7(a), 504, SBIC and Microloan program levels build on 
the continuing success that SBA has achieved in its loan 
programs over the past five years. in 2006, we served more 
small businesses than ever before. In our major loan programs, 
we increased the gross number of loan approvals by 99 percent, 
from 50,233 in Fiscal Year 2002 to over 100,000 loans in Fiscal 
Year 2006. Likewise, 7(a) lending to minorities and women have 
increased dramatically, more than doubling since Fiscal Year 
2002 in terms of the number of loans funded. These record 
numbers are possible in part because of the zero subsidy policy 
that was adopted at the beginning of Fiscal Year 2005.
    We are pleased that the 2008 budget proposes a number of 
fee reductions in our business lending programs, due to 
outstanding portfolio performance, enhanced lender oversight, 
and positive economic projections. The 7(a) program, SBA is 
seeking to lower the ongoing annual fee on lenders from 55 
basis points in 2007 to 49.4 basis points in 2008, resulting in 
a savings of $657 over the lifetime of an average loan of 
$145,000.
    The budget proposes elimination of the 50 basis point up-
front fee on loans in the 504 CDC program, initially saving the 
borrower nearly $3,000 on the average loan of $582,000.
    SBA also requests a reduction in the ongoing annual fee for 
the SBIC Debenture program, from 90.6 basis points in 2007 to 
71.7 basis points in 2008, representing a savings of nearly 
$359,000 over the life of an average guarantee. These fee 
adjustments are significant, and we are pleased that they will 
help the participants in our program access the capital 
necessary to establish and grow small businesses across the 
country.
    One specific area of the 7(a) program, we are requesting 
authority to charge a fee on pools of loans sold in the 
secondary market. This will enhance the ability of SBA to 
properly manage our programs by covering more of our expenses 
through fee authority, rather than taxpayer subsidy. We are not 
proposing to charge a fee at this time, but believe that the 
statutory authority to charge a fee in the future under certain 
circumstances, such as interest rate changes that affect the 
program, is appropriate. Borrowers would not be affected at 
all, as the fee would be paid by investors in secondary market 
certificates.
    Another key priority of SBA's 2008 budget will support our 
new Administrator's commitment to maximizing the effectiveness 
of Agency resources by building on the improvements of the past 
several years in centralized lending functions. By centralizing 
our 7(a) loan liquidations, we saved taxpayers approximately 
$18 million in Fiscal Year 2006, even while our portfolio was 
growing markedly.
    Administrator Preston is committed to better monitoring and 
management of performance metrics through centralization, 
ensuring consistent application of SBA's policies and 
procedures. While SBA has successfully improved customer 
service, efficiency and accountability, with reduced staffing 
levels in recent years, this year's budget requests a staffing 
increase of 28 new FTEs to support the Agency's oversight and 
portfolio management functions. Efficient infrastructure to 
manage our risks is more important now than ever before, due to 
tremendous growth in our loan program, and we believe that new 
FTEs are necessary to strengthen and support these critical 
functions.
    We are also pursuing several measures to minimize the 
potential for fraud in our loan programs, including the 
leveraging of data analysis techniques to identify portfolio 
trends that may be indicators of fraud, as well as meeting with 
fraud experts in the public and private sectors. We continue to 
refer evidence of potential fraud to the Inspector General for 
investigation in a timely manner, and have incorporated the 
referral process into our SOP for lender referrals.
    Administrator Preston placed a high priority on better 
targeting SBA's programs and services to under-served markets, 
when he was sworn in as head of SBA in July, 2006. We have made 
notable progress in this area.
    In October, the Agency launched the New Markets Tax Credit 
Pilot Loan Program to provide capital to small businesses and 
economically distressed urban and rural areas, or ``New 
Markets.'' This pilot program allows certain Community 
Development Entities to purchase up to 90 percent of the gross 
loan amount of SBA Express or Community Express 7(a) loans to 
``qualified'' businesses in low-income communities.
    Additionally, the Fiscal year 2008 budget request includes 
a proposal to expand the potential reach of the Microloan 
program to under-served communities, by moving the program to a 
zero subsidy. In past years, SBA has proposed eliminating the 
Microloan program because under current structure it is very 
costly to the taxpayer, relative to the amount of capital it 
lends.
    However, SBA will be able to offer loans to virtually any 
eligible intermediary by changing the rate at which the 
intermediaries borrow from 3.77 percent, which is below the 
Government's cost of funds, to 5.99 percent, which is 1 percent 
above the Government's cost. Intermediaries will continue to 
receive a better than market rate of interest, and businesses 
in under-served markets will have expanded reach through non-
bank microlenders.
    The Agency is also seeking to vastly expand the number of 
outlets providing training to Microlenders by utilizing our 
technical assistance resource partners, including the Small 
Business Development Centers and Women's Business Centers 
located throughout the country. By shifting Microloan technical 
assistance to our extensive network of existing resource 
partners, SBA has the potential of tripling the potential 
outlets for microenterprise lending and will save almost $13 
million in Fiscal Year 2008.
    In conclusion, we are very proud of the growth in the 
business lending programs, and our efforts to ensure that this 
growth is managed in a reasonable and prudent manner.
    Today, SBA is helping more small businesses meet their 
financing needs than ever before, especially in our Nation's 
under-served markets.
    Thank you for your time today, and I would be happy to 
answer any questions.
    [The prepared statement of Ms. Tasker may be found in the 
Appendix, on page 33]
    Chairwoman Velazquez. Thank you, Ms. Tasker.
    And now our next witness is Mr. David Schroeder. he is the 
President of the American Enterprise Bank in Buffalo Grove, 
Illinois. He is here on behalf of the Independent Community 
Bankers of America, which represents nearly 5,000 community-
based financial institutions nationwide.
    Mr. Schroeder, you will be recognized for five minutes.

STATEMENT OF DAVID G. SCHROEDER, INDEPENDENT COMMUNITY BANKERS 
                       OF AMERICA (ICBA)

    Mr. Schroeder. Thank you very much, Chairwoman, Ranking 
Member Chabot, and Members of the Committee. My name is David 
Schroeder. I am the President of American Enterprise Bank, a 
locally-owned, $325 million community bank in Buffalo Grove, 
Illinois. I'm pleased to appear today on behalf of the 
Independent Community Bankers of America and its nearly 5,000 
members nationwide. The community banking industry thanks you, 
Chairwoman Velazquez, for holding this important hearing. I 
know this Committee has a history of working well and on a 
bipartisan basis to focus on the needs of small businesses.
    Community banks serve a critical role in financing small 
businesses. In Illinois alone, there are 549 community banks 
that have made a total of 194,000 small business loans or $21 
billion in small business lending. Community-based banks forms 
the building blocks of our Nation's communities, providing the 
needed small business capital and credit to all geographic 
regions of the country, both large and small.
    First of all, I want to make it very clear that the SBA 
Guaranteed Loan Programs are unique and extremely valuable, in 
providing needed long-term capital to small business borrowers. 
The SBA loan programs truly represent a success story of how 
the Federal Government, working with private sector lenders, 
can fund small businesses that otherwise would not have access 
to capital.
    Community lenders, like American Enterprise Bank, are proud 
to work with the SBA in helping supply needed long-term capital 
to small businesses across the Nation. Last year, American 
Enterprise Bank facilitated $25 million in 7(a) loans, and $28 
million in 504 loans, in our local communities. American 
Enterprise recently earned the distinction of being named 
``Lender of the Year` by SomerCor 504, a Chicago-based 
Certified development Corporation.
    With small business development, one of the fastest-growing 
segments of our changing economy, the demand for small business 
capital will only increase. However, ICBA believes recent 
changes to the budget and loan programs are causing the SBA to 
fall short of its ability to facilitate affordable small 
business capital. Recent budget cuts, sharp fee increases on 
both lenders and borrowers, and the elimination of the 
successful ``LowDoc'' program have undermined the full 
potential of SBA lending programs.
    We have witnesses a disturbing decline in the number of 
community lenders actively participating in SBA loan programs. 
While the number of SBA loans has increased, the number of 
participating lenders, and the size of loans, continues to 
fall. The shrinkage of average loan size has left many small 
businesses with less capital to grow their businesses and 
create jobs.
    Given the growing demand for small business capital, one 
would expect the number of lenders actively participating in 
lending--SBA lending programs to grow. Unfortunately, this is 
not the case.
    In recent years, many community banks have found it much 
harder, and not easier, to provide needed capital to small 
businesses through the SBA loan programs. Notably, the number 
of lenders that have made at least one SBA 7(a) loan has 
dropped almost in half since 2001. This is a very disturbing 
trend.
    The majority of our Nation's commercial banks are, indeed, 
community banks. However, today, just the top ten SBA lending 
banks do nearly 60 percent of all SBA loans. SBA lending should 
not be allowed to morph into a one-size-fits-all, cookie-cutter 
program that works only for a limited number of big bank 
lenders in limited small business needs. The SBA loan programs 
should be allowed to work well for lenders making ten loans, as 
well as 10,000 loans.
    ICBA supports the SBA loan programs, and respectively 
proposes several recommendations that will address problem 
areas. Our recommendations include:
    1. Restoring a reasonable 7(a) loan program appropriation 
to allow the sharp increases on lenders and borrowers to be 
scaled back.
    2. Boosting the SBA budget, which has been cut nearly in 
half in the past six years.
    3. Reinstating the successful ``LowDoc'' program with an 85 
percent guarantee for loans up to $250,000.
    4. Reinstating the availability of ``piggyback'' financing 
to help serve businesses with larger borrowing needs.
    5. Allowing $19 billion in 7(a) lending authority and $9 
billion in 504 lending authority, up from last year's budget.
    6. Applying additional SBA budget resources to better staff 
and support regional SBA offices.
    The ICBA believes the growing demand for small business 
loans only validates the importance of ensuring a more robust 
Small Business Administration. Financing more small businesses 
in turn creates more jobs, and provides revenue back to the 
Federal Government.
    In conclusion, the ICBA urges the SBA programs be allowed 
to work for as many interested lenders as possible, in many 
geographic areas, to best meet the needs of small business 
borrowers. Providing needed capital resources to small business 
through broad community bank participation in SBA lending will 
help strengthen economic growth and foster greater job 
creation.
    ICBA sincerely appreciates this opportunity to testify 
today. Thank you very much.
    [The prepared statement of Mr. Schroeder may be found in 
the Appendix, on page 38]
    Chairwoman Velazquez. Thank you, Mr. Schroeder.
    Our next witness is Mr. David Bartram. he is the President 
of the SBA Division of U.S. Bank, a large banking institution 
that operates SBA lending centers in 24 states. Mr. Bartram is 
Chair of the National Association of Government Guaranteed 
Lenders, a trade association of approximately 700 lenders 
participating in the Small Business Administration's loan 
programs.
    Welcome.

  STATEMENT OF DAVID BARTRAM, CHAIR, NATIONAL ASSOCIATION OF 
             GOVERNMENT GUARANTEED LENDERS (NAGGL)

    Mr. Bartram. Thank you very much, Chairwoman Velazquez, 
Ranking Member Chabot, and Members of the Small Business 
Committee. My name is David Bartram, and I am the President of 
the SBA Division of U.S. Bank. Our division operates SBA 
lending centers in 24 states, and we are one the largest SBA 
lending partners. Last year, U.S. Bank provided $542 million in 
long-term SBA loans to over 4,700 firms nationwide. U.S. bank 
is a committed small business and has an ongoing, or an 
outstanding, SBA portfolio of approximately $1.6 billion.
    Prior to joining U.S. Bank, I was the Chief Operating 
Officer of Bank of Commerce, where I worked for 15 years. This 
bank was a small community bank that specialized in SBA and 
7(a) lending and 504 lending.
    I'm also currently serving as the Chairman of the Board for 
the National Association of Government Guaranteed Lenders. This 
trade association has approximately $700 lenders, participating 
in the loan programs that comprise over 80 percent of the loans 
that are made through the programs. Our members include 
regional banks, non-bank lenders, large nationwide banks, 
certified development companies, credit unions, and small 
community banks, which comprise the largest membership.
    We appreciate the opportunity to testify today on the 
effectiveness of the SBA loan programs. The SBA 7(a) and 504 
programs fill a significant gap for small businesses that need 
access to long-term capital. In fact, 40 percent of all long-
term capital provided to small business is done through the SBA 
loan programs. This means that SBA is the single largest 
producer of long-term capital to small businesses. While it is 
true that commercial banks make many small business loans, 
these conventional loans typically have maturities of three 
years or less, since short-term deposits fund commercial banks. 
Therefore, by bridging the credit gap, the SBA fills a critical 
need for small businesses, especially for start-up and early 
stage companies.
    While the program has worked well, we believe they can be 
improved. NAGGL has proposed 7(a) program changes that we judge 
will increase access to capital, reduce costs to many small 
business borrowers, and improve the economics to retain and 
grow the number of lenders in the program. Our suggestions will 
be delivered to you next week, in the form of a legislative 
proposal, but they will include the following:
    1. Increase the maximum 7(a) loan size to $3 million with a 
maximum guarantee of $2.25 million. Since 2002, the volume of 
loans of $250,000 or more has been generally flat. These larger 
loans pay disproportionately higher fees, thus, subsidizing the 
costs of smaller loans. This is especially true for loans with 
guarantee portions over $1 million, since this fee is by far 
the largest of all fees charged to 7(a) borrowers. A request to 
increase the maximum loan size of $3 million is the most 
requested program change by our 700 members, particularly, 
small banks.
    2. Allow the use of alternative size standard, currently 
sued in the 504 and the SBA program. This change will remove 
one more hurdle for lenders' participation in the program.
    3. Allow 7(a) and 504 combination loan packages where a 
borrower could utilize the maximum guarantee amounts available 
under each program.
    4. Allow the use of a rate index rather than ``the lowest 
prime rate as published in the Wall Street Journal.'' This use 
of a longer-term rate index could lead to lower cost of 
borrowings for small businesses.
    5. Allow the use of weighted average coupon loan pools for 
secondary market sales. This will allow the secondary market to 
become even more efficient.
    6. Extend the prepayment penalties for loans with 
maturities of 15 years or longer to five years, as opposed to 
the current three year. The five year prepayment penalty would 
then be on a sliding scale of 5 percent in year one, to 1 
percent in year five. The current prepayment fees are extremely 
high, and this proposed change could reduce fees for future SBA 
borrowers.
    We believe these changes will increase the access to 
capital for many small businesses, and will also decrease the 
cost of the loan programs.
    Many of our proposals should have a positive subsidy 
impact, meaning fees to the program could be reduced in the 
future. The SBA, under the new leadership of Administrator 
Preston, has appeared receptive to these suggestions.
    Chairman Velazquez and Ranking Member Chabot, this 
concludes my comments, and thank you very much for the 
opportunity to testify today, and I'd certainly be glad to 
answer any questions.
    [The prepared statement of Mr. Bartram may be found in the 
Appendix, on page 47]
    Chairwoman Velazquez. Thank you, Mr. Bartram.
    Our next witness is Ms. Marilyn Landis. She's the Owner and 
President of Basic Business Concepts, Inc., a consulting and 
financial management company in Pittsburgh, Pennsylvania. Ms. 
Landis is the First Vice Chair of the National Small Business 
Association, a volunteer-led association that advocates on 
behalf of small businesses.
    Welcome.

     STATEMENT OF MARILYN LANDIS, NATIONAL SMALL BUSINESS 
            ASSOCIATION (NSBA), SMALL BUSINESS OWNER

    Ms. Landis. Thank you.
    Good morning. My name is Marilyn Landis, and I'm please to 
be here on behalf of the National Small Business Association. I 
would first like to thank Chairwoman Velazquez for holding this 
very important hearing, and for being such a strong and 
outspoken advocate for increased access to capital 
opportunities for U.S. small businesses. I also would like to 
thank Ranking Member Chabot for his long-time support for 
entrepreneurs. The entrepreneurs of the National Small Business 
Association look forward to working with you on the House Small 
Business Committee.
    I am proud to serve as the first Vice Chair for NSBA as we 
celebrate our 70th year of small business advocacy, and 
continue our longstanding tradition of working in a non-
partisan manner to promote pro-small-business policies. In 
addition to my leadership role within NSBA, I am the owner of 
Basic business Concepts, a consulting and financial management 
company serving small businesses primarily in Pennsylvania and 
Ohio.
    Prior to starting Basic Business Concepts, I spent 30 years 
working for and with commercial lenders, banks and small 
businesses throughout western Pennsylvania. I worked for three 
of the largest SBA lenders in the country--marketing, 
originating and underwriting SBA loans--and have continued 
working with my clients on securing SBA loans as well as myriad 
other sources of capital. Small-business owners face many 
obstacles in trying to garner capital. Many small and start-up 
businesses lack the assets necessary for traditional bank 
loans. Smaller loans are generally less profitable for banks 
and typically have a higher default rate. The increased usage 
of personal credit ratings for business owners further 
exacerbates the problem. Additionally, ongoing bank 
consolidation has resulted in fewer community banks, fewer 
character-based loans, and more difficulty for small-business 
owners.
    One of the biggest barriers to small business financing is 
debt secured by equity and fixed assets. Many small business 
owners do not have the kind of equity required by banks to 
acquire a sizeable loan. This gap in debt equity financing 
primarily hinders both start-up businesses and growing 
businesses. An entrepreneur wishing to open any business would 
face significant barriers to financing, as home ownership [if 
the entrepreneur owns a home] rarely meets the equity 
requirements for receiving a larger commercial loan. Small 
business owners seeking to expand his or her business, or hire 
additional employees, faces the same equity challenges.
    Bank regulators require business borrowers to have either 
equity in hard assets or historic cash flow to support their 
loan request. Rapidly growing businesses, like mine, that are 
not traditional brick and mortar, have neither. We are forced 
to use bank credit lines which, if not security with equity in 
a home, are increasingly credit card accounts. As such, these 
loans are subject to credit card regulations which permit 
significantly higher and more volatile rates and payment 
structures. Rapidly growing service and technology companies do 
not want to rely on credit card debt--they are forced to.
    Additionally, too many banks rely solely on the personal 
credit score of the business owner, and neglect to evaluate the 
owner's business experience or the long-term viability of the 
business. Individuals with high credit scores and/or equity in 
a home can secure a loan, whereas an experienced entrepreneur 
may not. Lower credit scores may only reflect the presence of 
both personal and business debt on the business owner's credit 
report, not a poor credit history. We firmly believe that in 
time the unintended consequences of the over-reliance on credit 
scoring, and lack of emphasis on the actual viability of the 
business, will increase small business defaults by over-
extending credit to the inexperienced and denying credit to 
viable functioning businesses.
    NSBA also strongly supports efforts to allow small 
businesses to earn interest on their checking accounts, and SBA 
thanks Chairwoman Velazquez for introducing the Business 
Checking Fairness Act, and urges the Full Committee to support 
this important piece of legislation.
    Banking practices that restricted access to capital were a 
key catalyst in the creation of the SBA's flagship 7(a) loan 
program. The goal under the generally accepted premise that 
small business growth is a good thing was to encourage greater 
lending to smaller, potentially riskier clients. As you can 
see, however, imperfections within the market still exist, and 
SBA loan programs are as important now as ever.
    As everyone in this room can attest, the 7(a) loan program 
has had a bumpy ride over the past five years. The program has 
faced loan caps, a complete shutdown, and a zero budget. The 
7(a) loan program is now running on a zero subsidy, which 
requires no appropriations but has led to higher increased fees 
on lenders and borrowers.
    While some have argued that the zero subsidy and lack of 
appropriations has led to stability in the program, we would 
argue that stability and funding the 7(a) program are not 
mutually exclusive. Hindering the 7(a) program and placing the 
financial burden on small business owners, because Congress has 
been unable to enact appropriation measures, is simply unfair.
    When the program first went to zero subsidy rate in 2005, 
lenders and borrowers were hit twice by increased fees. While 
the number of loans being made has steadily increased, both 
loan volume and loan size has decreased since the new subsidy 
rate went into effect.
    Perhaps, the most worrisome numbers, however, are the 
number of banks involved in the 7(a) program. Higher fees are 
not only pushing business borrowers toward credit card 
reliance, they are driving banks out of the program. The number 
of lenders registered that actually made at least one loan 
between 2001 and 2005 has decreased dramatically, almost 50 
percent. SBA Administrator Preston has stated that in keeping 
with the Agency's efforts to run a more efficient agency, the 
goal is to fold the Microloan program in with the 7(a) loan 
program and have small business development centers assume the 
technical assistance responsibilities currently provided 
through the Microloan program. We do not believe that this is 
in the best interest of the Microloan program or the aspiring 
entrepreneurs it strives to assist.
    In conclusion, Congress must recognize that the majority of 
small businesses in today's economy are not fixed asset 
intensive, and should have the lead in ensuring that 
traditional financing practices do not restrict small business 
growth. NSBA urges Congress to examine the benefits of 
reforming the current limitations placed on banks in lending to 
small businesses, and fully supporting and funding existing SBA 
loan programs.
    I thank you for your time, and welcome any questions you 
may have.
    [The prepared statement of Ms. Landis may be found in the 
Appendix, on page 56]
    Chairwoman Velazquez. Thank you.
    Now I recognize Mr. Chabot for the purpose of introducing 
his witness.
    Mr. Chabot. Thank you, Madam Chair.
    I'd like to welcome Mike Schmitt from my district in 
Cincinnati, Ohio, where he is President of the Metalworking 
Group, which is in Corine Township. Mr. Schmitt's business, 
Metalworking Group, employs 70 people, and they do sheet metal 
fabrication, robotic welding, machining and other things.
    He used the 504 loan to help finance the business which is 
now generating about $9 million in annual revenues. He's a 
graduate of the University of Notre Dame, with a B.S. in 
Mechanical Engineering, and he received his MBA from Xavier 
University, which is also in Cincinnati.
    He's a member of the Tristate Tooling and Machining 
Association, and was President of that organization from 2001 
to 2003, and we would all like to welcome you here this 
morning.
    Mr. Schmitt, we look forward to your comments.

  STATEMENT OF MICHAEL SCHMITT, PRESIDENT, METALWORKING GROUP 
                   INC., SMALL BUSINESS OWNER

    Mr. Schmitt. Thank you. Good morning.
    I'd like to thank Chairperson Velazquez, Ranking Minority 
Member Chabot, and the entire Committee, for giving me the 
opportunity to provide remarks concerning the benefits small 
businesses receive using the SBA's 504 program.
    Moreover, I would like to personally thank the leadership 
in the Committee for steadfastly championing small business 
issues, including those of the 504 program, and for introducing 
legislation that will improve the 504 loan program for future 
small business borrowers.
    I purchased the Metalworking Group in 2000, after having 
worked there for ten years. A t that time, the company had 
approximately 70 employees with $9 million in annual revenues.
    Our primary business is contract manufacturing focusing on 
sheet metal fabrication, robotic welding, machining, painting, 
and metal stamping. Our competitive advantage is the ability to 
offer our customers the most diverse range of manufacturing 
solutions in the Midwest. We serve many industries including 
medical, machine tools, consumer products, and defense.
    In 2004, we needed to invest in the company to continue 
growth. The real estate lease under which we were operating was 
a burden to the cash flow and investment opportunities for the 
Metalworking Group. We needed to purchase capital equipment in 
order to continue our strategy of automating and offering our 
customers a high-tech solution to their manufacturing needs.
    To maximize our potential, we contacted Horizon Development 
Corporation to explore the 504(a) SBA loan program. The 
Economic Development Office of our locality, with whom we 
initiated a relationship regarding a tax abatement program in 
1999, recommended Horizon CDC. The 504 loan program was the 
most attractive way for Metalworking Group to free up resources 
and allow us to invest in our future. We were able to save 
significant dollars, which could then be used towards the 
purchase of new equipment such as laser cutters, robotic 
welders, and CNC machining centers.
    The assistance Horizon provided in obtaining the 504(a) 
funding was professional and invaluable. Although the 504(a) 
was not the only financing in which we participated, it was the 
catalyst for all future investments because it allowed us to 
save valuable cash reserves.
    The 504(a) loan is critical to companies like Metalworking 
for a number of reasons. First of all, the loan structure 
requires the participating banks to offer favorable terms in 
the loan package, such as the length of amortization. For 
planning purposes, it is especially helpful to have a long and 
uniform payout schedule. Secondly, the program offers a better 
interest rate due to the participation of the SBA.
    Metalworking Group was able to put less money down for the 
transaction. This saved us at least $130,000 of cash reserves. 
Another benefit to the borrowers is that the loan structure, at 
20 years fixed interest, required the participating banks to 
conform to the same structure. Without that, we would have had 
a significant interest rate risk in as little as five years.
    With the favorable financing we were able to obtain through 
our 504 loan, Metalworking Group has experienced some success. 
Today, we currently have 150 employees and we have doubled our 
annual revenues to nearly $18 million.
    Horizon is an integral part in bringing these loans to 
fruition. They have the incentive to help businesses and 
educate clients on the availability of these programs. Banks 
are certainly willing to participate in these loans, but I feel 
they would prefer conventional lending in order to control the 
terms and rates.
    Horizon provided important and specific professional help 
throughout the loan process. Without Horizon, we would have 
been hard pressed to obtain these loans. Since these programs 
are not our expertise, the services Horizon offered were 
indispensable. Negotiating the legalities and conditions with 
the banks would have been nearly insurmountable without their 
help. Without this assistance, we would not have access to 
capital available to larger companies.
    Horizon CDC was able to provide the 504 loan at an 
extraordinarily low cost to our company. The beneficiaries of 
this low cost are not only our company, but include our many 
new employees, other companies with whom we conduct business, 
and as a result, the local area and community as a whole.
    I also want to stress that Horizon CDC played a critical 
role in balancing the interests of our company, the SBA and the 
bank. Horizon provided assistance at every level of the 
project--offering advice, support and expertise critical to our 
success. Horizon has also helped other small businesses obtain 
504 financing; they have approved over $229 million in 
financing to over 900 small businesses that have generated over 
8,000 jobs since they were formed in 1982.
    In short, having Horizon as our advocate in the project, 
having them provide optimally structured 504 financing at the 
lowest possible cost and in a professional and expeditious 
manner, was critical to maximizing the benefit to our company 
and our community.
    In conclusion, I understand that through 504, SBA provides 
the largest and most successful small business economic 
development financing program the Federal Government has today. 
I hope I have shed some light on its real value to small 
businesses and to the American economy. Its significance 
reaches far beyond the statistics of numbers and dollars of 
lending done each yea; the jobs and community development alone 
helps to create and the business growth it fosters, the 
benefits to our employees and their families, and, ultimately, 
our community, are all a result of the 504 loan program. from a 
small business perspective, 504 and CDCs are a critical 
component in securing reasonable financing for growing small 
businesses in America. I know that without the staff at Horizon 
CDC, we would not be as successful as we are today--we would 
not have created as many new jobs or accomplished as much for 
our company or our community.
    Many people are fond of saying that ``small business is the 
engine that drives the United States economy,'' an idea in 
which I deeply believe. With your continued support and 
hopefully legislation for the enhancement of the 504 program, 
this will sure continue to be the case.
    Again, I thank the Leadership, Committee Members and 
Committee staff for its tireless work in support of SBA and the 
504 program. I am available for any questions you might have. 
Thank you.
    [The prepared statement of Mr. Schmitt may be found in the 
Appendix, on page 65]
    Chairwoman Velazquez. Thank you, Mr. Schmitt.
    Ms. Tasker, I listened to your testimony quite carefully, 
and, basically, you talked to us and gave an overview of the 
same information that Administrator Steven Preston gave to us 
when he appeared before this Committee. And, I was struck by 
the fact that in all of your testimony there is not a single 
recommendation to improve the SBA's business finance program.
    Clearly, small businesses have a lot of needs out there, as 
you listened to the rest of the testimony provided by the 
witnesses here. The Agency ranks among the lowest on consumer 
satisfaction, so I believe that there is room for improvement.
    So given that, why haven't you come up today with any 
recommendations as to how can we improve the business loan 
programs?
    Ms. Tasker. Congresswoman Velazquez, we are continually 
working to improve our business loan programs, both in terms of 
the way we offer our services. It's at the cornerstone of 
Administrator Preston's reform. He wants us to be customer 
centric, transparent, and outcome focused, and all of our 
efforts are really designed to make improvements in those 
areas.
    Chairwoman Velazquez. Can you tell me how you are going 
address the fact that lenders participation is down, loan 
volume down 3 percent for the first time in four years, fees 
are at an all-time high, consumer satisfaction was ranked among 
the lowest in the Federal Government?
    Ms. Tasker. Let me just speak to a couple of those points. 
In terms of less lenders being involved in our programs, if you 
are relying on some of the data that we provided you, the way 
we count the number of lenders in our programs we've adjusted. 
Before we counted all of our -- all of the various branches, so 
one large national lender might be counted 35 times, if they 
had a presence in 35 different states. We've tried to 
consolidate it so we can understand exactly who our lenders 
are, and so that is part of the result of it.
    Part of it is the result of just the general consolidation 
in banking itself. So, we believe that we are reaching more 
small businesses every day and every year, so we don't really 
see it as an issue, in terms of the banks' participation.
    That said, we do significant outreach through our district 
offices to bring in, particularly, the smaller local community 
banks, and we do a lot of work in terms of training them and 
bringing them up to speed.
    Chairwoman Velazquez. Well, maybe it might not be the 
outreach the answer, but maybe it might be a recommendation as 
to how to address legislatively, maybe?
    My next question to you, I want to ask you about one 
proposal to increase the maximum limit on the 7(a) loans beyond 
the current $2 million limit. Based upon trends that the Agency 
has observed in the 7(a) program, do you believe there is 
adequate demand from borrowers to justify the increasing of the 
maximum loan size beyond the current limit?
    Ms. Tasker. Congresswoman Velazquez, we haven't evaluated 
the demand for that since we don't offer loans in that area. We 
certainly know that lenders are interested in increasing their 
loan size to $3 million.
    Chairwoman Velazquez. Do you think that the proposal is a 
good idea?
    Ms. Tasker. We would have to evaluate it, we don't have 
enough experience with that. Our real issue would be around, 
one, making sure we are serving--truly serving small 
businesses, and, two, what the impact on the subsidy rate would 
be.
    Chairwoman Velazquez. Well, we have been talking about this 
for the last two years, and you still have time to evaluate it?
    Ms. Tasker. we haven't made any loans in that range, so we 
can't -- we don't know what the performance would be, 
Congresswoman.
    Chairwoman Velazquez. Mr. Bartram, most of your proposals 
seem to be on initiatives that are focused on mostly high-
volume 7(a) lenders. What in your proposal will help the small 
lender?
    Mr. Bartram. Well, if you go to the first proposal, and 
small banks would certainly benefit, I believe, more from this, 
and is being asked by our small bank membership for this, is 
the larger loan size.
    A small bank, small community bank, has issues with legal 
lending limits, has liquidity issues, and being able to have a 
larger SBA 7(a) loan with a guarantee that that small lender 
could sell into the secondary market, would, basically, allow 
them to help a larger customer need and would also allow them 
to get the liquidity back through the sale in a secondary 
market.
    Our second proposal, the alternative size standard, 
presently there's about 38 different size standards that a 
lender has to go through to calculate if a business is deemed 
to be small. The 504 program and the SBIC program have a net 
worth and a net profit test. This would be much simpler for all 
lenders to use. It will also allow those customers that get a 
504 loan may now be eligible to get a 7(a) loan.
    Chairwoman Velazquez. Mr. Schroeder, you heard NAGGL's 
legislative proposal, do you think that it is something that 
you, as the small banker, can use?
    Mr. Schroeder. Quite honestly, Congresswoman, we are 
interested in having an SBA program that has a wide variety of 
programs that can meet a number of different small business 
needs. There is definitely not a one-size-fits-all program that 
is going to satisfy, not only all of the different bankers' 
needs, but all of the different lender needs.
    So, the greatest variety of programs is something that we 
would be looking for, not only for our bank, but also for our 
association.
    Chairwoman Velazquez. Well, do you think that the 
legislative proposal is a one-size-fits-all?
    Mr. Schroeder. I believe that the SBA is gravitating 
towards a one-size-fits-all program. So, yes.
    Chairwoman Velazquez. Thank you.
    Mr. Bartram, in your view, what is the role for the small 
non-PLP lender, who makes only a handful of loans in the 
program? Would you support initiatives that encourage small 
lender participation, even if it has a positive impact on the 
subsidy rate?
    Mr. Bartram. Well, presently, the SBA is consolidating out 
of the district offices into a one centralized processing 
center for non-PLP loans. Basically, it gives the benefits that 
the LowDoc program gave prior, and, in fact, the center is in 
Hazard, kentucky, where the LowDoc center was.
    So, the smaller lender will have a more consistent 
processing time, will be able to get much more expertise to 
guide them through that process, so I think that the smaller 
lender that does five loans or less will be served under this 
new process.
    Chairwoman Velazquez. Sir, do you think that centralizing 
is a good idea?
    Mr. Schroeder. It's been our experience in the lending 
community that the further away the decision makers are from 
the community and from the actual situations, the more 
difficult it is to get a quick decision and a decision that's 
most appropriate for the bank, as well as the borrower.
    I would, as a result, caution and have some concerns with 
the consolidation of the offices in small areas, or, I'm sorry, 
into larger offices in, you know, just a single geographic 
region of the country.
    It's been our experience that having a regional office is 
positive, because you have someone there that knows the area, 
knows your community, and you can have a greater, to me, have 
greater impact in getting a positive decision.
    Chairwoman Velazquez. Mr. Schroeder, we have heard the 
arguments that higher loans fees have actually benefitted the 
program, and that this is reflected in the 7(a) program's 
increased lending volume since moving to this zero subsidy 
rate. My concern, however, is that by focusing on volume we are 
missing the true intent of the program, to help those who 
cannot otherwise secure capital. With higher fees, do you think 
that some of the deserving borrowers are being pushed from the 
program in favor or borrowers that the program was not 
originally intended to serve?
    Mr. Schroeder. Definitely. I think it is clear and 
irrefutable that the number of SBA loans are up, the number of 
dollars are up. It's also clear, however, that the number of 
lenders are down, and community banks are, in terms of active 
participants, in other words, one SBA loan or greater, is half 
of what it was several years ago. And, as I mentioned in my 
testimony, this is a very disturbing trend for us.
    I think two things happen at this--and have happened as a 
result of the fee increases. First, on the lender side, second 
on the borrower side. On the borrower side, I think what you 
said is correct, I think that the lenders--sorry, the borrowers 
that are at the margin just, you know, perhaps, you know, just 
qualifying for an SBA loan, are the ones that are not going to 
be granted those loans, or be able to afford those loans 
because of the higher fees.
    I think also, looking on the bank side, when you have 
higher lender fees some of the banks that do not make a number 
of SBA loans, that haven't made a real solid commitment to the 
program, but may want to do one, two, five, ten a year, these 
lenders, as a result of the higher fees, are dropping out of 
the program, and I think the numbers speak for themselves.
    So, I think it's really a two-fold impact on the borrower, 
as well as on the banks.
    Chairwoman Velazquez. Thank you, Mr. schroeder, and I 
recognize the Ranking Minority.
    Mr. Chabot. Thank you, Chair.
    Let me start out with Mr. Schmitt, if I can. Mr. Schmitt, 
would you discuss, I know a lot of small business nowadays 
struggle with being competitive with some of our overseas 
competitors, and there's an emphasis on modernizing, and 
actually being able to compete, or, perhaps, the pay rates are 
lower, perhaps, in other countries. Could you tell us, how did 
this enter into your ability to be more competitive and 
modernize your business, how did that play into that?
    Mr. Schmitt. That's a great issue, something we face every 
day. You know, we lose parts to overseas competitors on a 
regular basis, but they tend to be lower-tech parts and higher 
volume. And, the way for small manufacturers to stay 
competitive, and to increase their business, is to do higher 
precision work, to invest in technology, to automate so, you 
know, you are hiring higher-skilled people, but less of them, 
but with the ability to do, you know, computer-controlled 
machinery.
    So, one of the things that we needed to do when we decided 
to try to grow and try to invest in the company, is to free up 
capital and money so we could buy that type of equipment, in 
order to compete, you know, in order to be more efficient and 
be able to produce more parts per hour, versus somebody who is 
not doing it as competitively.
    So, that's what drove, you know, our decision to use a 504 
program and to use lower-cost capital, and to free up money to 
invest in automation, because you have to, I mean, because, you 
know, we are fighting that every day.
    Mr. Chabot. So, having access to the 504 loan was important 
and enabled you, among other things, to increase your employees 
from 70 up to 115, was it?
    Mr. Schmitt. One hundred fifty.
    Mr. Chabot. One hundred fifty employees.
    Mr. Schmitt. Yes, absolutely. You know, we saved 
substantial money on the down payment, you know, in the loan. 
We saved--not only do we have a good interest rate, but our 
lease payment was so much higher than our mortgage payment. We 
saved a tremendous amount of money for that, which we rolled 
over into equipment purchases for some of the high-tech laser 
cutting equipment from Cincian, Incorporated, also, you know, 
right in Cincinnati.
    Mr. Chabot. Thank you very much.
    Ms. Tasker, let me move to you next, if I can.
    Several of the witnesses on the panel stated that the move 
to zero subsidy is causing some problems, most notably higher 
costs for lenders and borrowers, and fewer lenders 
participating in the program.
    I'm sure that you've heard these concerns before. Could you 
explain in greater detail as to why moving to a zero subsidy 
system is a positive move for the future of the SBA?
    Ms. Tasker. Certainly, Congressman.
    We believe the zero subsidy definitely provides stability 
to the market, and allows us to have an uninterrupted stream of 
capital available for loans to small businesses.
    When we are subject to appropriations, and appropriations 
are, you know, held up over time for a variety of reasons, we 
are faced frequently with having to place caps on the program, 
or even shutting the program down if we don't have 
appropriations to allow us to reach the level of lending that 
there's demand for in the market.
    With regard to fees, I am somewhat confused, because from 
our perspective, and the numbers that we look at, the fees are 
really, basically, at the same level that they were ten years 
ago. There was a period during 2003 and 2004 where the fees 
were reduced by Congress, but if you take that anomaly out we 
are really at a very stable level in terms of fees, and, in 
fact, our proposal for Fiscal Year '08 is to reduce the ongoing 
fee.
    Mr. Chabot. Okay, thank you very much.
    Mr. Schroeder, if I could turn to you next.
    What, specifically, can be done to increase lender 
participation in the SBA programs?
    Mr. Schroeder. One specific thing that can be done is to 
reinstate the LowDoc program. You know, I'm very familiar with 
the letter that this Committee, as well as your Senate 
counterpart, sent to the SBA back in June of '05, regarding not 
considering, not terminating the LowDoc program, which was 
terminated.
    Our bank participated in the LowDoc program. I don't recall 
any losses or delinquencies that we had with that program, and, 
quite honestly, we genuinely miss that program.
    And, I would like to make the following point, and I 
reiterate this point, it's critical to have a variety of 
programs to meet the needs, the individual needs, of 
businesses. There is no one program that you can sits well for 
every single borrower. You really need a basket of products and 
services, and be able to choose from among those to best meet 
the needs of each individual borrower.
    So, really, no one financial structure works well for every 
borrower, and there's really no one size fits all.
    So, the LowDoc program would be one that we would like to 
see reinstated.
    Mr. Chabot. Thank you.
    Mr. Bartram, of the borrowers from USA Bank, under the 
guaranteed loan programs, what's the typical reason that they 
would not have qualified for a commercial loan from the USA 
Bank, your bank?
    Mr. Bartram. Well, from US Bank, our experience, and if we 
can kind of separate the kind of requests that we would see, we 
have an SBA Express Program that we utilize quite a bit, and so 
a customer would come in, and usually these are for the smaller 
loan requests, they would ask for $50,000, let's say, on a 
conventional loan, and these are credit scored types of 
requests, so they may not meet certain credit scored criteria. 
So, we could shift them into the SBA program.
    For other SBA loans, it's, typically, because the company 
is either a start-up or is a younger company, maybe less than 
five years old, where it doesn't have the proven track record 
of cash flow for us to make a conventional loan. So, that 
customer could go into the SBA program.
    And lastly, it might be that the company, like Mr. Schmitt 
here, where they are looking to buy a long-term asset, 
commercial real estate, large piece of equipment, the SBA 
program affords us to provide longer terms. So, the company 
could save the cash flow to hire more people, let's say.
    So, those are the typical reasons and why we use a program.
    Mr. Chabot. Thank you.
    And finally, Ms. Landis, you brought up the need for 
greater transparency in small business credit scoring and/or 
loan approval requirements. Could you give us an example as to 
what, specifically, is lacking in this regard?
    Ms. Landis. Sure. What happens with the business of the 
credit scoring the way it has evolved to today, is only 30 to 
35 percent of the credit score is based on actual payment 
history. The rest of it is based on how much credit is 
outstanding.
    These are things that I have learned in working in industry 
and being around it, the type of that credit, how new it is, 
think about the typical business owner, my business credit 
score, for example, because I personally signed for all my 
credit my business credit that's grown my company rapidly, my 
personal credit resides on the same credit report, my business 
is six years old, so my credit is relatively new, because I am 
service provider without the hard assets to be able to borrow 
against, much of that tends to be credit card type debt. So, 
that brings my credit score down.
    I know this clearly, because I'm in the industry. Many SBA 
lenders do a first pass on the lending using their credit 
score, and in some cases they don't give them an alternative if 
they fall below the credit score, they simply don't get the 
financing.
    Most of the public is unaware of that. The credit scoring 
process does not distinguish between personal and business 
debt, and it puts us at a disadvantage.
    Mr. Chabot. Okay, thank you very much.
    I yield back, Madam Chair.
    Chairwoman Velazquez. Sure, thank you, Mr. Chabot.
    Before I recognize Mr. Sestak, Ms. Tasker, you said that 
you were confused regarding the fact that the levels of the 
fees today are as high as they were ten years ago. Well, I'm 
not confused, because I know why, the fact that they were too 
high ten years ago, and that they are too high today.
    You know why they were reduced, because they were too high.
    Ms. Tasker. My point, Congresswoman, was that people are 
talking about fee--significant fee increases, and from other 
than where the fees were reduced by Congress for that two-year 
period, they are at a stable level, and that was the point I 
was trying to make.
    Chairwoman Velazquez. They were reduced because they were 
too high, this is why we reduced the fees.
    Mr. Sestak, you are recognized for five years--for five 
minutes.
    Mr. Sestak. I went over time last time.
    Thank you, Madam Chairwoman.
    I hope I am not asking a question, and I'm sorry I had to 
step out and missed some of the testimony, which I did go over, 
I am curious about the trends, and, ma'am, if I might, Ms. 
Tasker, what's the profile now of the lenders? Has it changed 
since 7(a) has moved to a zero subsidy program?
    Ms. Tasker. I don't want to speak incorrectly, and I 
haven't actually looked at the number, you know, compared based 
on the zero subsidy.
    I do know that our portfolio operates, you know, generally, 
around the 80/20 rule, and it has consistently, which means 
that about 20 percent of our lenders generate close to, you 
know, 80 percent of our volume, but that means we've got 
several thousand lenders that are doing businesses in their 
local communities.
    Mr. Sestak. Do you know if the profile of the borrowers has 
changed, since we went to zero subsidies?
    In short, I'm curious, have there been changes in the 
communities that are being served? Are we missing what we 
should be getting to, not how much? What's inside whatever how 
much is? What's the profile on the borrowers?
    And, if you don't know, is it possible to find it and get 
back?
    Ms. Tasker. We can certainly give you some additional 
information. We do know that the loan size has gone down 
significantly over the last several years, and the average loan 
size is about $140,000, which means we are reaching more small 
businesses. We know we are actually seeing increases in certain 
areas.
    Mr. Sestak. Does your data--can you better assess, are you 
able to with your database, because I'm really taken with data 
and modeling, are you able to figure out, you know, the 
profiles and what types of small businesses at all, if this has 
any implications, as compared to '04, '03?
    Let me just ask, if you could--if anyone could get back on 
that and the 504 lenders, the same type of profile that might 
have been impacted, is there any changes in trends that might 
be, you know, how do we compare the snapshot back then with the 
trends now?
    Ms. Tasker. We can get you, perhaps, not everything you 
would like, but we can look at the data that we have, and we 
can certainly give you industry, you know, types of loans, and 
geography.
    Mr. Sestak. The other question I had was the LowDoc 
program, as we discontinued it, you know, we used to give 
access to $150,000 for a shorter period of time and less, and I 
think we've moved--I think that guaranteed 80 percent, correct?
    Ms. Tasker. It depended on the size of the loan. I mean, it 
was an 85 percent guarantee after--
    Mr. Sestak. Have there been any implications of moving to 
SBA Express, where we are only guaranteeing 50 percent, and 
that's by the private lender, isn't it, or is it still by--it's 
primarily run privately now, correct? I mean, there's kind of 
been a shift, right, from LowDoc to SBA Express.
    And, I'm curious again, are there any ramifications. or any 
profiles, or trends, having made this fairly dramatic shift, I 
would think?
    Ms. Tasker. We have seen a significant increase in our SBA 
Express program. It is, all of our loan programs are delivered 
by our lenders and funded by our lenders. We guarantee the 
loan. For the SBA Express program, it is a 50 percent 
guarantee, not the typical 75 percent guarantee for our 
program.
    LowDoc itself, though, did not perform well for us, and as 
we indicated, and that actually was a centralized program, too, 
it was centralized in Kentucky and in Sacramento.
    Mr. Sestak. And performing well means?
    Ms. Tasker. We had a high level of defaults, and it 
affected our performance of the portfolio overall.
    We are centralizing as has been stated. We will have 
centers again in Sacramento and in Hazard, Kentucky, where we 
believe that a lot--and we are looking for a more streamline 
process for smaller loans, which would be consistent with 
LowDoc, we just need to put more controls around it.
    Mr. Sestak. The reason I'm curious is, my district, and 
it's adjacent to Philadelphia International Airport, 85 percent 
of--we lost 607 small business in three years, one out of five 
manufacturing establishments. I'm very curious about, I've 
watched what's happened over the years with SBA's programs, if 
there's any data to indicate, you know, who is being impacted, 
some might say harmed. But, I think the focus has to be that we 
shifted something as we moved loan making and administrative 
processes to private commercial partners, I can't believe we 
are just straight sticking this profile out, and there must be 
something in there to show, is SBA really doing what--you know, 
focusing upon who it should be focusing upon, as you've made 
this shift, at least my understanding of the shift over the 
last few years. Is that all right?
    Ms. Tasker. We can certainly try to get you some 
information, and you may want to follow up to make sure we get 
you what you are looking for.
    But, lenders have been delivering our programs for 15 
years, there hasn't been a shift recently.
    Mr. Sestak. Right, but we've shifted, you know, the 
subsidies, I mean, some of that cost is now being borne by 
others than it was before, am I correct?
    Ms. Tasker. We went to a zero subsidy program in 2005.
    Mr. Sestak. Yes.
    Ms. Tasker. And--
    Mr. Sestak. There may be no correlation, but I'm just 
trying to get a grip, why 607 small businesses, the national 
level of education is higher than--the level of education in my 
district is above the national median for number of high school 
graduates and college graduates, yet, 607 small businesses 
disappeared.
    I'm sure there's no correlation, but I'd sure like to see 
if there was, you know, what the profile is, and thank you very 
much.
    Sir?
    Mr. Schroeder. Congressman, if I could just dovetail off 
of--onto your comments. I think the observations that you made 
are, you know, very, very correct. There is a concentration--
there's a concentration in the larger banks doing a much 
greater percentage of the SBA loans.
    There's also a trend in terms of community banks not 
participating in the programs, and dropping out of the program, 
and there is also a trend in having a smaller dollar size, 
average dollar size, of the SBA loans.
    I think our bank is a little bit different, our community 
bank is a little bit different. We tend to do a smaller number 
of larger SBA loans, and in addition to that, in terms of 
marketing, I think we market our programs a little bit 
different, perhaps, than some other banks. We take a more 
traditional approach. We mine our opportunities through more 
traditional sources, attorneys, accountants.
    Mr. Sestak. Right.
    Mr. Schroeder. CPAs, insurance professionals.
    Chairwoman Velazquez. Time.
    Mr. Sestak. Sir, I am out of my time. But, the reason I am 
curious is, I've watched in Head Start, as they want to take 
these programs, and large non-profits come in, and the little 
local communities--no longer are able to focus and be, not just 
advise, but focus, and I'm curious if that's happening as 
bigger banks come in over smaller banks. Don't know, but that's 
the trend.
    Sorry.
    Chairwoman Velazquez. Thank you.
    Mr. Sestak. Thank you very much.
    Chairwoman Velazquez. Thank you, your time is expired.
    Mr. Fortenberry.
    Mr. Fortenberry. Thank you, Madam Chair.
    Thank you all for appearing today.
    I have a smaller or more minor issue, Ms. Tasker, I'll get 
to after discussion of the larger issue here. Some of this 
ground has already been covered, but I think it's worth 
repeating.
    The underlying tension in the hearing is, the good news is 
we have more loans and a larger loan portfolio. Your concern, 
Mr. Schroeder, about increased concentration, though, in the 
industry.
    And, I would like, let's unpack that. You've done a good 
job unpacking it from your perspective, and what are some of 
the potential causes.
    Mr. Bartram, perhaps, you can address that issue, given 
that you seem to be one of the beneficiaries, given your larger 
loan portfolio size, or your larger dealings with the SBA. Is 
this a result of economies of scale, efficiencies that are 
leading to, again, increased loans in the market, increased 
opportunities? How do you balance that with Mr. Schroeder's 
concern that we do have an obligation to ensure that the more 
participants, or the more banks, or other potential lenders 
that participate, will provide more access to larger numbers of 
people?
    If both of you would address that, I'd appreciate it.
    Mr. Bartram. Certainly, I would appreciate that.
    There are really two reasons, I think, for that. First of 
all, the SBA Express program, which provides a 50 percent SBA 
guarantee, and the tradeoff for that is that the lender gets to 
use their own processes and their own loan documentation, so 
they can do it in a very efficient manner, and they can 
dovetail that in with their conventional process.
    And, because of the larger banks have a lot larger flow of 
credit requests, they have done a very good job, US Bank being 
one, of utilizing the SBA Express programs, and those, 
typically, are very small loans. The average size of our SBA 
Express loan is $33,000. These are made to customers that we 
wouldn't have serviced before, because it acts as a default 
program. So, we pick up a client that we would have, absent the 
SBA Express product, not served.
    So, the growth in units in the SBA is attributable to the 
SBA Express program, and because, as I mentioned, larger banks 
have utilized this program, and that's why if you look at the 
top ten SBA lender in units today it is comprised mostly of 
large banks. Ten years ago it was non-bank lenders and 
community banks.
    The second issue is that some time during the 1990s, and I 
was the Chief Operating Officer of a small community bank, big 
banks made the decision that small business lending was 
profitable venture to get into. And so, many of the large banks 
really did focus on small business lending.
    We used to get our transactions, when I was a community 
banker, from the larger banks that didn't want to provide a 
half million dollar credit to a customer, because it was too 
small for them to deal with. Today, big banks want that 
business. So, the bigger banks are doing a very good job in 
servicing small business clients. So that, too, has impacted 
that shift.
    Mr. Fortenberry. Can I interrupt you one moment? Do you 
have agreements with smaller banks, even community banks, to 
act as, in a certain sense, retail brokers, the storefront that 
allows you to pass through, or allows them to pass through 
loans to you?
    Mr. Bartram. We certainly do. We are the sixth largest bank 
in the country, and we do correspondent banking, providing 
other services for small community banks, and one that we also 
provide is that if you have an SBA loan, and you don't want to 
do it, we can go ahead and do it, and we can then go ahead and 
compensate you for that. The deposits and other services would 
stay with that bank.
    Mr. Fortenberry. Thank you. Time is limited, thank you.
    Mr. Schroeder. Again, I can only speak to my experience in 
our community bank, and we really mine our SBA lending 
opportunities, as I mentioned before, through more traditional 
sources, professionals, financial consultants, attorneys, CPAs 
and the like.
    Once we've identified those opportunities, we do a thorough 
job of underwriting those potential opportunities, if they are 
approved fund them, and that's--you know, that's really the way 
we have developed in terms of our own bank.
    Mr. Fortenberry. Thank you.
    And, Ms. Tasker, I need more information on the New Markets 
Tax Credit Pilot Program.
    Ms. Tasker. What kind of information are you looking for?
    Mr. Fortenberry. Well, who is going--where is it going to 
be piloted, and who, primarily, is it going to be targeted to, 
or give me some examples of where it has worked. I've heard of 
a circumstance in Milwaukee.
    This is just a request to your agency, you can work--you 
can get back to our staff.
    Ms. Tasker. All right. Thank you.
    Mr. Fortenberry. Thank you.
    Thank you, Madam Chair.
    Chairwoman Velazquez. Thank you.
    Mr. Altmire.
    Mr. Altmire. Thank you, Madam Chair, and I want to say 
hello especially to my constituent, Marilyn Landis, who has 
been a friend for a long time, and an advocate for small 
business, and a champion to small business. Welcome today, and 
thanks to the rest of the panel.
    I'm Chairman of the Oversight and Investigations 
Subcommittee, so I have an oversight-related question, that in 
order to keep costs low under the 504 program, it's vital that 
defaulted loans be properly liquidated. In many cases, when a 
504 program borrower defaults, it's the SBA that takes the 
required liquidation and foreclosure actions.
    So, how, aggressively, has the agency pursued liquidation 
and stemmed losses on defaulted 504 loans?
    Whoever is most appropriate to answer.
    Ms. Tasker. I will take a shot at it, Congressman.
    We have, our liquidations are centralized. We issued, right 
now, and handled--not centralized, but handled through SBA, and 
we work with the CDC locally to liquidate the loans, we issued 
a proposed regulation to allow the CDCs to do more of the 
liquidation, and we hope to have that completed shortly.
    But, generally, we believe that liquidations are effective. 
The losses in the program are insignificant, and resulting in, 
fees today are really at a record level, and, you know, fees, 
really, are driven by the defaults in the program.
    Mr. Altmire. How many personnel work, and are currently at 
work, liquidating defaulted 504 loans?
    Ms. Tasker. I would have to get you that number, I'm sorry, 
I don't have it here.
    Mr. Altmire. But, do you feel confident that these are 
folks who are trained and have the experience necessary, and 
committed to that task?
    Ms. Tasker. Yes. We have been in the process of 
centralizing that away from the district offices, although we 
are still going to use local counsel in that area, and so, as 
we are centralizing we are making sure that we have talented 
and experienced people working on that, and those that are 
being trained, you know, at a less experienced level are 
partnered with people that have experience, so that we ensure 
an effective job is done.
    Mr. Altmire. Thank you.
    Second question. Lending in the 504 program is expected to 
increase this year, but the SBA has not proposed to increase 
the program level funding from the amount that was requested 
for FY '07. What is the SBA's management plan to process the 
significant increase in 504 loans?
    Ms. Tasker. We believe that the $7.5 billion that we 
proposed is adequate for this year. We didn't reach that level 
last year, so we believe we are in good standing. We do track 
it year to day, and we are consistent with last year.
    Mr. Altmire. Do you expect in future years there will be 
any added employees to process, or do you think that the level 
is sufficient?
    Ms. Tasker. Certainly staffing has to be driven by 
production metrics, and if production increased we would have 
to accommodate it through either improved processes and/or 
increased staffing, depending on the best way to approach it.
    Mr. Altmire. Great, thank you.
    Chairwoman Velazquez. Thank you.
    Mr. Schroeder, today over 60 million Americans live in a 
community that has been designated with a shortage of health 
professionals. If the 7(a) program were adapted to provide 
loans to medical professionals, located in under-served areas, 
what would be necessary to encourage more lenders to market 
these loans?
    Mr. Schroeder. I think, certainly, a mission of the SBA is 
to identify areas where their programs can address the needs of 
the communities. If this is identified as a legitimate need 
within either a community, group of communities, or geographic 
area, as far as I'm concerned they should have the available 
programs to be able to serve those needs. And, that would 
include, certainly, what you have said in terms of SBA loans 
related to the health care professionals.
    Chairwoman Velazquez. Thank you.
    Last year, on a bipartisan basis, Mr. Schroeder, many 
members of the Small Business Committee urged the Small 
Business Administration to preserve the LowDoc program. We have 
heard various arguments as to why the program was eliminated, 
but there has been little analysis conducted by the SBA to 
support elimination of the program.
    What are your observations on the reasons why LowDoc 
program was terminated?
    Mr. Schroeder. Again, I don't have specific inside 
knowledge, you know, from within the SBA, as to why those--why 
that program was terminated.
    My feeling, however, is that the LowDoc program would be 
best suited for banks that do a smaller number of SBA 
transactions, and those, you know, may very well be in smaller 
communities, in rural communities.
    And, I believe by preserving or reinstating that program, 
we would legitimately increase the number of banks, 
particularly, the smaller banks and banks that don't do large 
volumes of SBA loans to get back into the program, which I 
think is really a stated intent of the SBA.
    Chairwoman Velazquez. Ms. Tasker, I would like for you to 
submit in writing the matrix that you used to conclude that the 
program was too costly.
    Ms. Tasker. Yes, ma'am.
    Chairwoman Velazquez. Ms. Bean, you will be recognized for 
five minutes. Are you ready? I'm sorry, no, let me go to Mr. 
Chabot first.
    Mr. Chabot. Thank you, unless Ms. Bean would like to go, I 
just have a couple of quick questions.
    Okay, thank you.
    Very quick questions, relative--I think Mr. Larson raised 
the issue about liquidation rates, I think we only get back 
about .20 cents on a dollar, if I'm not mistaken, which is 
pretty low rate. And, it's my understanding that it's being 
looked into, kind of a better alternative. Perhaps, allow the 
certified development companies, either by themselves or 
through the retention of liquidation experts, to liquidate 
their own loans, and, hopefully, this would increase returns, 
thereby reducing the subsidy costs and the fees that lenders 
and borrowers must pay to maintain the zero subsidy rate in the 
program.
    Is that accurate, Ms. Tasker? Is that my understanding of 
what's being considered, or could you shed any light on that?
    Ms. Tasker. Yes, Congressman.
    As I indicated, we actually issued proposed regulations 
last fiscal year that would allow the community development 
companies to liquidate their own loans, under certain 
conditions that indicate, you know, the qualifications to do 
so.
    We anticipate issuing that guidance that would give them 
that opportunity.
    Mr. Chabot. And, I assume you would agree that .20 cents on 
a dollar is something that certainly needs to be improved upon, 
and that's what the goal of this is.
    Ms. Tasker. Yes, although I would need to verify for you 
that that's an accurate number.
    Mr. Chabot. Okay.
    Ms. Tasker. I do just want to point out that in the 504 
program we eliminated the up-front fee in the Fiscal Year '08 
budget, and then the annual ongoing fee increased slightly 
from, what, .018 percent to .021 percent, which is really to 
accommodate some of the fee we would need by eliminating the 
entire up-front fee. So, it's a very, very low fee, which 
indicates it's a good performing portfolio, and that we haven't 
had significant losses.
    Mr. Chabot. And then one other point I just wanted to make, 
if you could clarify, there's been, you know, considerable 
discussion here this morning, and this has been an ongoing 
issue, and I think it's important for us to address the issue, 
and that's relative to the rates which were at one level, and 
then for a couple years went to a lower level, and now they are 
back up to where they were initially, etcetera.
    The two years that they were lower, my understanding is, is 
that had to do with a challenging economy, and a recession or 
whatever, and that was the reason for lowering them until we 
could kind of kick start the economy, get it moving again, and 
you are back up at something that over time, when you are 
dealing with budgets and how much money you are going to spend 
in all areas, this is one that's factored into that.
    Is what I said accurate, and do you want to expound upon 
that in some manner?
    Ms. Tasker. No, that's correct, and again, the fees are at 
the same level, the issue really is now whether or not, you 
know, who is paying for it, the person that's getting the 
benefit by virtue of the loan, as opposed to the taxpayer.
    Mr. Chabot. All right, thank you very much.
    Chairwoman Velazquez. Ms. Bean?
    Ms. Bean. Madam Chairwoman, thank you for recognizing me. I 
do apologize to all here for not being here earlier. We had a 
financial services mark-up that I was in, and I do apologize, 
but glad to see you all here. Thank you for your advocacy of 
the small business community and for helping them grow, by 
providing access to capital.
    I also want to acknowledge Mr. Schroeder, who is from 
Illinois, and right near my district, and maybe I'll direct 
this question to him, as being in the community banking 
business, one of the issues that's been very important to me is 
the 7(a) loan program, particularly, that the fees continue to 
be going up, and that becomes, not only unhelpful to the 
borrowers, but to the lenders themselves.
    Can you speak to how important it is to you to see those 
fees be reduced, to give you the flexibility to use some of the 
funding so that you can keep those fees reduced?
    Mr. Schroeder. Definitely. Again, from our perspective, the 
increase in fees have had several undesirable results within 
the SBA loan programs.
    Obviously, when you increase fees something has to give, 
and as we have discussed in our testimony, written testimony, 
as well as the oral testimony, really, I think two things have 
happened.
    I think there's been, as a result, a reduction in the 
number of lenders that are active in the program, particularly, 
community bank lenders, and in terms of the borrowers, 
particularly, the borrowers at the margins, I think are the 
ones that are suffering the most as a result of these fee 
increases.
    So, we would certainly encourage the SBA To roll those 
back, to make them as reasonable as possible.
    Ms. Bean. Well, I'm glad to hear you confirm that. I know 
Ranking Member Chabot and I are working on some legislation to 
address that and provide for that flexibility. But, your real-
world perspective I think helps support our understanding of 
what we've been hearing from our districts. I know my district 
has really benefitted from the 7(a) program. There are a number 
of folks across all three counties that I represent in Cook, 
Lake and McHenry, who have been able to grow.
    Some people think of the loans as the sort of incubator for 
new businesses. What I've seen more of is, as people are ready 
to take on that next plant and expand into new services or new 
products, that loan funding makes all the difference to allow 
them to continue to grow their business, which certainly has a 
very positive effect on our economy in terms of jobs, but also 
for those smaller businesses around them that are part of their 
supply chain in their growth model.
    And so, I'm going to continue to support that.
    And, I yield back.
    Chairwoman Velazquez. Thank you.
    Mr. Chabot?
    Okay, well, let me take this opportunity again to thank all 
the witnesses for the insightful information that you have 
provided us, and the type of concerns and issues that have been 
addressed throughout the hearing.
    And, let me just say that in the next week or so we'll be 
moving legislation that will address, and will take seriously, 
some of the issues and concerns that have been raised this 
morning.
    I will ask unanimous consent for any statement that wanted 
to be submitted to the record be submitted, and I want to, for 
the record to reflect that this hearing is adjourned.
    Thank you.
    [The hearing was adjourned at 11:32 a.m.]

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