[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                    SUBCOMMITTEE ON FINANCE AND TAX


                    HEARING ON LEGISLATIVE PROPOSALS


                          TO REFORM THE SBA'S


                        CAPITAL ACCESS PROGRAMS

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JULY 23, 2009

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 111-039
Available via the GPO Website: http://www.access.gpo.gov/congress/house




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                        PARKER GRIFFITH, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

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

                                  (ii)




                         STANDING SUBCOMMITTEE

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 (iii)





                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page

Schrader, Hon. Kurt..............................................     1
Buchanan, Hon. Vern..............................................     2

                               WITNESSES

Humphreys, Mr. William, President & CEO, Citizens Bank, Corvalis, 
  OR. On behalf of American Bankers Association..................     4
Wayman, Ms. Carol, Senior Legislative Director, Corporation for 
  Enterprise Development.........................................     5
Robson, Mr. Joe , President, The Robson Companies, Inc., Broken 
  Arrow, OK. On Behalf of the National Association of Home 
  Builders.......................................................     7
Finch, Ms. Zola, RMI CDC, Jefferson City, MO. On behalf of the 
  National Association of Development Companies..................     8
Swartzman, Mr. Steve, C3 Capital, Kansas City, MO. On behalf of 
  National Association of Small Business Investment Companies....    10
Ransone, M.D., Mr. Sterling, Deltaville, VA. On behalf of 
  American Academy of Family Physicians..........................    12

                                APPENDIX


Prepared Statements:
Schrader, Hon. Kurt..............................................    29
Buchanan, Hon. Vern..............................................    31
Humphreys, Mr. William, President & CEO, Citizens Bank, Corvalis, 
  OR. On behalf of American Bankers Association..................    33
Wayman, Ms. Carol, Senior Legislative Director, Corporation for 
  Enterprise Development.........................................    41
Robson, Mr. Joe , President, The Robson Companies, Inc., Broken 
  Arrow, OK. On Behalf of the National Association of Home 
  Builders.......................................................    47
Finch, Ms. Zola, RMI CDC, Jefferson City, MO. On behalf of the 
  National Association of Development Companies..................    53
Swartzman, Mr. Steve, C3 Capital, Kansas City, MO. On behalf of 
  National Association of Small Business Investment Companies....    60
Ransone, M.D., Mr. Sterling, Deltaville, VA. On behalf of 
  American Academy of Family Physicians..........................    68

                                  (v)



                    SUBCOMMITTEE ON FINANCE AND TAX

                    HEARING ON LEGISLATIVE PROPOSALS



                          TO REFORM THE SBA'S



                         CAPITAL ACCESS PROGRAM

                              ----------                              


                        Thursday, July 23, 2009

                     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. Kurt Schrader 
[chairman of the Subcommittee] presiding.
    Present: Representatives Schrader, Moore, Kirkpatrick, 
Halvorson, Buchanan, Luetkemeyer and Coffman.
    Also Present: Representative Ellsworth.
    Chairman Schrader. I now call the hearing to order for the 
Finance and Tax Subcommittee of the Small Business Committee.
    In the current environment, businesses everywhere in every 
industry face a common problem. They cannot access affordable 
capital. This means that entrepreneurs are looking to expand 
and hire more workers, cannot. It also means that small 
companies who want to borrow money to stay afloat are unable to 
secure credit. In previous downturns when credit dried up, the 
Small Business Administration's lending programs helped filled 
in the gaps, providing firms the capital they need to drive the 
economy back towards prosperity.
    Unfortunately, in this recession, SBA's Capital Access 
programs have been unable to fill their traditional role, 
leaving many small businesses with very few options. Small 
business' capital challenges are not confined to the SBA 
lending programs. Commercial lending has been greatly 
restricted, and a recent Federal Reserve survey found that 69 
percent of domestic lending institutions have tightened their 
lending standards on commercial and industrial loans. I'd argue 
it's much higher than that.
    Equity capital is also falling off. Venture capital 
investments were cut in half during the spring, making the 
second quarter in a row with a decline of more than 50 percent. 
The American Recovery and Reinvestment Act, which the President 
signed into law in February, took important steps towards 
addressing some of the small business capital needs. By making 
loans less expensive for small business borrowers, and 
increasing government guarantees, this law will generate $20 
billion in new lending authority. However, we are far from 
where we need to be. The number of 7A loans is down 50 percent 
compared to fiscal year 2008. Clearly, if we're going to meet 
the small business' capital needs, much more needs to be done.
    Today, we have before us a set of proposals, all of them 
aimed at getting capital flowing to small businesses by 
modernizing SBA's programs, and I look forward to the panel's 
testimony on their value. As we discuss these proposals, we 
should keep three central goals in mind, in my opinion. First, 
we should work to broaden the range of options available to 
small businesses seeking capital. And SBA program that works 
for a family-owned business in Salem, Oregon may not be the 
right solution for a high-tech startup in Pittsburgh, or a 
manufacturer in Akron, Ohio. Our efforts must help all types of 
firms access capital, whether they choose to raise capital 
through micro loans, government guaranteed loans, or equity 
investments.
    Second, we need to make capital more affordable. Being able 
to find a small business lender is one thing, securing a loan 
at terms that work for the borrower are another. And, thirdly, 
we need to help small businesses recover after natural 
disasters. Hurricane Katrina and other catastrophes, even on my 
Pacific coast, have made clear there are deep and longstanding 
problems with the SBA's disaster recovery initiatives. It is 
vital that we correct those problems. When disaster strikes, 
small businesses must have the resources they need to rebuild 
our communities, and help restore economic prosperity.
    The challenges facing the small business community were not 
created in a day. Indeed, many of the problems in SBA's Access 
to Capital programs can be traced back to eight years of 
neglect and mismanagement. These issues will take time and 
patience to resolve, but one thing is clear, small firms are 
going to remain our country's primary job creators. They need 
access to capital, and that will require strengthening and 
improving the programs here in the Small Business 
Administration.
    With that, I'll recognize Ranking Member Mr. Buchanan for 
his opening statement.
    [The prepared statement of Chairman Schrader is included in 
the appendix.]
    Mr. Buchanan. Thank you, Mr. Chairman. I appreciate the 
opportunity, especially for holding this meeting today, looking 
for capital.
    I know as a person that I'm not a career politician. I've 
been in business, self-employed for 30 years. I've been very 
fortunate and blessed to live the American dream, created 
thousands of jobs. I was involved probably about five years ago 
as Chairman of the Florida Chamber, so I've seen it. And I can 
tell you there, I've never seen the environment, I remember 
going through the early `80s with interest rates at 19, 20 
percent. I remember the early `90s, the S&L Bank crisis, but 
this is about one of the toughest crises that I've seen. And 
the main thing is, three years ago there was an abundance of 
credit. I mean, it just seemed like there was too much credit. 
There was credit everywhere, and I've been involved. I see the 
bankers here from 20 years on bank boards.
    Today, there's very little or no credit. And I'd say 
probably pretty much no credit. I talked to a banker this past 
Friday who is town. He was asking me about having some trouble 
with his equity in his bank, and we were just talking about it. 
And he's very involved with all the bankers in our community. 
And I asked him, I said, ``Is there much credit or any 
credit?'' If someone wants to borrow $1 million, real estate, 
he said, ``Well, if they want to borrow $1 million today, 
you've got to put up a $1 million CD.'' I mean, that's 
basically no credit. Talked to another banker on Friday where 
they've got a presence all across the southeast, 11 states. I 
mean, Sunday night actually, we were out a little boat cruise 
thing, and talking to her, and the same type of reality.
    Now, southeast might be tougher than some areas, but I know 
I'm in southwest Florida. I see the home builders here today. 
We've been devastated. I don't know that we have maybe one or 
two homebuilders left, because a lot of them had been very 
profitable, very successful for a lot of years. There is no 
capital. Most of the loans are actually being called today.
    So, I look forward to working with the Chairman to see what 
we can do to draft some bills to get some capital flowing until 
the banks can get back on line. I know a lot of banks say they 
are still lending. There's some lending out there. But, again, 
as I think back on Sunday night when I talked, I asked the 
banker, I said, ``Are there any businesses in our community 
that are really making any money?'' And she looked over at me, 
and she says, ``I don't know of any.'' I mean, that's pretty 
scary when you think about it. `08 was tough. A lot of the 
people in `08, I'm in a small group of CEOs that we meet for 
the last 20 years, very successful over that period of time. 
And most of them lost--and we were sitting down, this is a pre-
Christmas party meeting, lot of CEOs, big companies, billion 
dollars in sales type companies, and most of them lost a third 
of their net worth in `08 alone. When you look at--there was 
nowhere to hide. So, this is really impacting small business.
    The Florida Chamber, we had 137,000 businesses we represent 
in our federation. Ninety-nine percent of those businesses were 
small business, and they created 75 percent of the jobs in 
Florida. With no capital available to these small businesses, 
we're going to have a record number of people that have either 
gone out, or are on the verge of going out. So, we really 
have--this is a serious problem.
    That's why I challenge my friends in the administration. We 
really need to focus on the number one priority, getting our 
economy and jobs, helping working families. That's where it 
needs to happen. To make that happen, we've got to have access 
to capital, small companies.
    So, I appreciate your time and effort for being here today. 
We're looking for answers, and as I--many people that know me, 
this isn't a Democrat or Republican thing. This is an American 
thing. We need to work together to figure out how to get out of 
this crisis. Thank you.
    [The prepared statement of Mr. Buchanan is included in the 
appendix.]
    Chairman Schrader. Do any of the other members have any 
opening statement they would like to make?
    All right. Seeing none, we'll go to testimony from the 
witnesses. Just so everyone understands the rules of engagement 
here, you have five minutes to make your statement, so please 
summarize your written remarks. A green light indicates go, 
yellow means you've got a minute, so be thinking of 
summarizing, and red means I'm going to have to stop you. I 
apologize for that in advance.
    So, our first witness will be Mr. William Humphreys. Mr. 
Humphreys is the President and CEO of Citizens Bank located in 
Corvallis, Oregon, a community bank with 150 employees. He is 
testifying today on behalf of the American Banker's 
Association. ABA is a trade association for banks representing 
over 95 percent of the industry's $13.6 trillion in assets, and 
employ over 2 million men and women. Welcome, Mr. Humphreys.

                 STATEMENT OF WILLIAM HUMPHREYS

    Mr. Humphreys. Chairman Schrader, Ranking Member Buchanan, 
and members of the Subcommittee, my name is Bill Humphreys, 
President and CEO of Citizens Bank, Corvallis, Oregon. Citizens 
Bank is a 52-year old community bank, which focuses on small 
business, lending to small businesses and farmers in 10 
communities throughout Oregon's Williamette Valley.
    The focus of this Committee is extremely important. 
Consistently, small businesses are drivers of new ideas, new 
employment, and new economic growth. For banks like mine, small 
businesses are our bread and butter. While some might think 
that the banking industry is composed of only large global 
banks, the vast majority of banks in our country are community 
banks, small businesses in their own right. In fact, over 3,400 
banks, 41 percent of the total, have fewer than 30 employees.
    The efforts that we've made, that have been made by this 
Committee, the Congress as a whole, and the Administration to 
improve the environment and opportunity for small business 
through changes to the SBA program have been needed for many 
years. The SBA's programs have struggled over the last few 
years, loan volumes fell by 30 percent last year, and continue 
to fall this year, as well. The economy is certainly playing a 
significant role in this decline. However, it's also due to the 
SBA programs being too costly, and difficult for lenders and 
small businesses who wish to access the program.
    Chairwoman Velazquez has introduced a legislative proposal, 
which ABA believes would make the SBA programs more effective.
    First, the legislation calls for establishment of a program 
within the SBA to assist with outreach to small lenders who are 
not participants in the SBA's 7(a) program. This is vitally 
important. SBA lending is very specialized, and lending 
requires skilled personnel with expertise in SBA policies and 
procedures. Providing a dedicated outreach effort to these 
lenders, primarily community banks like mine will only increase 
lenders' willingness to participate in the agency's program.
    Second, the legislation seeks to make the Rural Lender 
Outreach Program, Community Express, and Patriot Express 
Programs permanent. This is laudable. Although, the SBA has 
fallen short in promotion and marketing programs.
    ABA has a number of recommendations we believe will help to 
expand the reach of the SBA programs amongst small businesses.
    First, Congress should extend provisions that expand both 
the 90 percent guarantee and fee relief for an additional two 
years beyond the 2010 expiration date. Both of these have 
provided much needed boost for lender participation in the 
programs.
    Second, the SBA should eliminate, or reduce, the 
restriction on refinancing. The restriction often prohibits the 
borrower from obtaining new financing that is critical to 
continued success of that business, and often causes the bank 
to write new loans without the help of the SBA, or to ask the 
borrower to seek help of another lender.
    Third, the SBA should improve the quality of the guarantee 
itself. As the current guarantee is only valid if certain 
conditions are strictly adhered to, the collateral assets, and 
often the business itself, must be liquidated prior to payment 
on the guarantee by the SBA. This process can be delayed by 
bankruptcy, by difficult repossession issues, and other 
factors.
    Fourth, the guarantee approval process should be improved. 
Generating the information and documentation required by the 
SBA is not easy for the lender. Many small banks have found it 
necessary to seek the help of a third-party packager, who would 
gather necessary data to gain approval, creating additional 
time and expense for the borrower.
    Finally, the human resources capacity of the SBA should be 
expanded in order to ensure adequate staff is available to 
implement from a market, and manage the many initiatives of the 
SBA.
    The American Bankers Association would be happy to work 
with this Subcommittee on these and other ways to improve the 
SBA. And I'd be happy to answer any questions. Thank you.
    [The prepared statement of Mr. Humphreys is included in the 
appendix.]
    Chairman Schrader. Thank you very much, Mr. Humphreys. 
Thanks for coming from so far away.
    Mr. Humphreys. Thank you. Thanks for having me.
    Chairman Schrader. The next witness is Ms. Carol Wayman. 
She's the Senior Legislative Director of the Corporation for 
Enterprise Development, the CED is a leading non-profit 
association dedicated to expanding economic opportunity, 
helping Americans start and grow their businesses. Welcome.

                   STATEMENT OF CAROL WAYMAN

    Ms. Wayman. Thank you, Chairman Schrader, and thank you, 
Ranking Member Buchanan, and members of the Subcommittee. It's 
an honor to testify today in support of the Small Business 
Administration's Microloan program. We'd like to thank 
Chairwoman Velazquez and the Administration for support for the 
SBA Microloan program, and making it a priority, and helping to 
improve the economy, and create jobs.
    CFED knows that self-employment can build wealth for low-
income and minority families, and we strongly support the SBA 
Microloan program, which provides capital, training, and 
technical assistance to disadvantaged entrepreneurs. Since its 
authorization in 1991, this program has continued to receive 
bipartisan support, and we believe that the draft legislation 
under discussion provides an excellent opportunity to 
strengthen a program that reduces poverty, and creates jobs.
    I have five more points to make on the legislative 
proposal. First, we are pleased to see that the Subcommittee 
has included language that allows Microloan Intermediaries to 
offer more flexible credit terms, such as lines of credit.
    Second, we welcome language that expands eligibility 
requirements for prospective Microloan Intermediaries. We agree 
with the Subcommittee that SBA should have the discretion to 
determine the type of experience necessary to become an 
Intermediary.
    Third, we are pleased to see the Subcommittee recommend 
increases on the cap on borrowing by Intermediaries. Many of 
the highest performing Intermediaries in the Microloan program 
have reached that $3.5 million limit, and more businesses are 
coming back to them for loans, and they can't make loans that 
they'd like to make. So, the recommendation to increase it to 
$10 million is something we strongly support.
    Fourth, we are pleased to see an increase in the maximum 
loan amount that an Intermediary can make to a borrower from 
$3,500 to $50,000. We think this increase reflects the key 
market reality, the investor return on a $50,000 loan is 
frequently deemed too low for most mainstream financial 
institutions. I note, however, that the majority of Microloans 
remain small, at about $13,000.
    Lastly, we support the proposal to increase the percentage 
of technical assistance grants that may be used for providing 
information and technical assistance to prospective borrowers. 
We also support the proposed increase in percentage that 
Microloan Intermediaries can use for third-party technical 
assistance.
    In this economy, Microloan Intermediaries need flexibility 
to serve future entrepreneurs, instead of the current 
restriction to provide technical assistance mainly to current 
borrowers.
    We also recommend the Subcommittee consider the following 
four changes to the Microloan program as part of any final 
legislation.
    First, we'd like to lower our remove the loan loss reserve 
requirement. Intermediaries in the SBA Microloan program must 
maintain a 15 percent loan loss reserve fund that really 
results in unnecessary levels of passive capital. The SBA 
Microloan program has made loans that no bank would dare take 
on; and, yet, has the lowest default rate of any SBA lending 
program.
    While SBA regulations allow this requirement to be lowered 
to 10 percent, the Microloan program is the only SBA lending 
program that requires a loan loss reserve fund. And this 
limitation forces the SBA to limit its best performing program.
    Second, we would allow the use of one-time use of SBA 
Microloan funds for Microloan Intermediary capital improvement 
projects. This enables these high volumes Intermediaries to 
expand and improve their facilities to meet increased demand.
    Third, we recommend eliminating the requirement that 
Intermediaries cannot operate in more than one state without 
prior and burdensome approval. Permitting multi-state use of 
Microloan funds will facilitate regional economic development.
    And, finally, we'd like to expand SBA reporting 
requirements. Unfortunately, SBA provides very little 
information on the Microloan program. Without data, it is very 
difficult for the Microenterprise field to target areas for 
improvement, and efficiency. Ideally, we would like to see 
annual SBA reporting requirements, such as loans made, loan 
dollar volume per Intermediary, credits for improvements, and 
jobs created.
    In closing, we would like to thank the Subcommittee once 
again for the opportunity to testify today, and we look forward 
to partnering with Congress, and the Administration to enable 
low-income entrepreneurs, who are ready to go from business 
curious, to business capable. Mr. Chair.
    [The prepared statement of Ms. Wayman is included in the 
appendix.]
    Chairman Schrader. Very good. Thank you very much. Your 
expertise is appreciated.
    Our next witness is Mr. Joe Robson from the Robson 
Companies, Incorporated located in Broken Arrow, Oklahoma. A 
builder of residential and commercial properties, Mr. Robson is 
testifying on behalf of the National Association of Home 
Builders, which has represented more than 800 state and local 
homebuilder associations since its founding in 1972, and 
perhaps you can say bearing the brunt of our current crisis. 
Welcome, sir.

                    STATEMENT OF JOE ROBSON

    Mr. Robson. Thank you very much. That's 1942, so -
    Chairman Schrader. Oh, excuse me. I apologize.
    Mr. Robson. It maybe a typo. But, thank you, Mr. Chairman.
    Since the onset of the economic downturn, Congress and the 
Administration have taken several important steps to respond to 
the crisis. Our members certainly appreciate those efforts. 
However, the crisis wears on, and more resources are needed.
    We welcome the opportunity to comment on how to potentially 
expand the role of the Small Business Administration and its 
Capital Access programs to help struggling small businesses, 
including homebuilders.
    The current housing recession is the worst since World War 
II. Housing starts are down 80 percent since January of 2006, 
and virtually every housing indicator reached an all-time low 
in the last two quarters. Glimmers of hope, however, suggest 
that the three plus year decline in housing may have 
stabilized. These buds of growth notwithstanding, a number of 
specific headwinds will continue to buffet any significant 
housing recovery. The strongest of these include excess 
inventory of vacant homes and apartments, foreclosures that 
continue to feed this inventory, continuous downward price 
pressures from too much supply and not enough demand, tight 
mortgage underwriting and low appraisals, and extremely 
difficult financing terms and availability for builder 
acquisition development and construction loans, or AD&C loans.
    The data suggests that residential construction is now 
bounding along a bottom. We forecast that housing starts face a 
low slow, recovery that will take several years. NAHB forecasts 
525,000 housing starts for 2009, and 650,000 for 2010. This is 
less than half of our forecast for long-term housing demand.
    Of the issues I mentioned, two stand out for their acute 
impact on home builders, low appraisals, and lack of financing 
for AD&C loans. My written statement explains in detail the key 
components of these issues, but suffice it to say that taken 
together, they are placing enormous pressure on home builder's 
bottom lines, and for many endangering their ability to survive 
the economic downturn. Additional credit resources could help 
them survive until the economy recovers.
    Historically, NAHB builder members have not been able to 
access SBA loan programs, because they do not serve the primary 
need of most builders, access to AD&C credit. Non-builder NAHB 
members, such as suppliers, manufacturers, and others likely 
can utilize SBA programs. However, SBA guarantee loans cannot 
be used to finance real estate development activity.
    As part of the American Recovery and Reinvestment Act, the 
SBA toolbox was expanded with the creation of the America's 
Recovery Capital Loan Program. This program allows for loans of 
up to $35,000 for payments on principal and interest on 
existing loans, qualifying small business debt, including 
mortgages, and for other purposes. NAHB strongly supports this 
program, and is hopeful that it can help our members.
    Turning to the new proposals the Committee is crafting for 
SBA, we applaud the proposed improvements of the 7(a) program, 
especially the Capital Backstop program. This could help expand 
the pool of participating SBA lenders, while also providing a 
backstop for loans, if no lender can be found.
    One potential improvement we suggest is to further specify 
the borrowers who are eligible to participate. It is unclear to 
us, for example, if homebuilders would qualify.
    Finally, we support the Committee's proposal to establish a 
Supplemental Loan Assistance program to compliment the lending 
initiatives currently administered by the SBA. Providing for 
significantly larger loan amounts than the 7(a) or ARC 
programs, and targeting businesses in the construction industry 
would be extremely helpful to NAHB members.
    Further, creating a role for SBA as a backstop lender can 
help insure liquidity for these loans. But to help homebuilders 
specifically, we urge the Committee to include residential AD&C 
financing, as an eligible use of these funds.
    We are glad to work with the Committee as it further 
develops this proposal. And that concludes my remarks. And, 
again, thank you for allowing me to testify today.
    [The prepared statement of Mr. Robson is included in the 
appendix.]
    Chairman Schrader. Thank you very much, Mr. Robson.
    Our next witness is Ms. Zola Finch. Ms. Zola Finch is the 
Director of Finance of RMI CDC based in Jefferson City, 
Missouri. Thank you for coming.
    Ms. Finch is testifying on behalf of the National 
Association of Development Companies, the leading trade 
association of certified development companies, which 
administers the SBA's 504 CDC program. Welcome to the 
Committee.

                    STATEMENT OF ZOLA FINCH

    Ms. Finch. Good morning. My name is Zola Finch, and I'm the 
past Chairman of NADCO. And I'm pleased to provide a statement 
about our industry's proposals to improve access to capital by 
small businesses.
    I would like to thank Chairman Schrader and Ranking Member 
Buchanan, and the entire Subcommittee for continued support of 
the CDC industry in the 504 program. The Subcommittee has 
worked closely with SBA and our industry to insure the 
availability of this program to small businesses for many 
years.
    First, I'd like to discuss the need to reduce the cost of 
the 504 program. SBA has informed us that the 2010 budget 
increases the cost of the 504 program by 38.9 basis points. 
This is due to at least two factors in SBA's econometric model; 
the national unemployment rate, and the forecast of the 504 
default rate. With both of these factors being impacted by the 
current recession, but the effect is expected to be short-
lived, we ask the Subcommittee to support an appropriation 
sufficient to offset the fee increase for the next two years, 
as small businesses return to a growth mode, and improve their 
cash flow.
    We request this to be taken up as soon as possible in order 
to change the impact of the subsidy fee increase on our FY 2010 
borrowers. It does not seem right in this economy to provide 
small businesses fee relief in the Stimulus Bill in February of 
`09, and turn around and increase their cost of borrowing in 
October of `09.
    Second, we need to reach out to more small businesses with 
new capital. Congress and the Obama Administration have worked 
hard to put more fixed asset financing and working capital into 
the hands of small businesses hard-pressed by this recession. 
However, our industry believes that more should be done quickly 
to have added impact on small businesses that can create the 
jobs needed to pull America out this recession. We believe that 
many small businesses either need access to larger guaranteed 
loan amounts, or have already used up their allocated maximum 
under the current 504 law. The current restrictions can be 
addressed in three ways.
    First, to increase the maximum 504 debenture beyond its 
$1.5 million limit. Second, to allow a borrower to maximize the 
use of both 504 and 7(a) loan limits. And, third, eliminate the 
regulation that restricts business owners with higher net worth 
from participating in the 504 program.
    Next, I'd like to comment on the need to reduce loan losses 
with more effect devoted to the loan liquidation and recovery 
process. At Congress' direction several years ago, SBA created 
a new regulation that enabled taking advantage of recovery 
expertise within the CDC industry. Many CDCs already perform 
these tasks for other loan programs that they administer, but 
CDCs have not been given the ability and freedom by SBA to do 
this on a broad scale. NADCO believes that losses can be 
reduced if CDCs perform recoveries and seek settlements from 
loan guarantors of 504 projects.
    NADCO also recommends other program changes to reduce loan 
losses. We should make the program more flexible in allowing 
higher owner equity injections to reduce the high cost of first 
mortgages. If we reduce the overall cost of borrowing, we 
enable small businesses to save more cash for working capital.
    Also, we need to make the SBA programs more relevant and 
productive. Loan volume for both 504 and 7(a) has improved 
slightly since the passage of the Stimulus Act, but many of 
those benefits have not been yet implemented by SBA. Both 
programs are still down around 50 percent from levels two years 
ago.
    Part of this volume loss is clearly due to small businesses 
pulling back on demand, but a substantial part could be due to 
SBA, and even our own lending industries failing to respond to 
the ever-changing need of the small business financing world.
    Both the SBA 504 and 7(a) programs are over 20 years old, 
and with an environment of restrictive and overbearing 
regulations having evolved within the federal bureaucracy, with 
the new administration and fresh thinking from senior policy 
makers, NADCO sees an opportunity to break out of the old 
program's restrictions and bureaucracy. We see the chance to 
work with new leadership teams, and with the new Congress to 
expand program benefits to more borrowers. And with that 
expansion comes more jobs.
    NADCO believes the first step in the process of expanding 
and enhancing the 504 program is to clarify the structure of 
CDCs that deliver the program in order to insure and enhanced 
level of services by CDCs.
    We thank the Subcommittee for considering several program 
changes that will increase the focus of our industry on 
community development through our CDC non-profit organizations 
in future years. We also thank you for developing legislation 
to more tightly define the security that funds the 504 program.
    SBA has become one of the largest economic development 
agencies in the federal government. By leveraging its guarantee 
authority in lender industries, SBA has directly assisted in 
the creation of over 5 million jobs, through more than $200 
billion in 504 first mortgages, 504 second mortgages, and 7(a) 
guaranteed bank loans. But, like any mature agency, SBA has to 
re-evaluate its products to serve the changing needs of small 
businesses.
    NADCO encourages Congress to collaborate with the new SBA 
management and lenders to tear down those restrictive walls, 
and create the financing and economic development programs 
vital to America's future. Small businesses that are healthy 
and successful will lead us out of this recession. Let's help 
them now. Working together, we can get America working. Thank 
you.
    [The prepared statement of Ms. Finch is included in the 
appendix.]
    Chairman Schrader. Very good. Thank you.
    Our next witness is Mr. Steve Swartzman, and he's a 
principal in C3 Capital in Kansas City, Missouri. Mr. Swartzman 
is testifying today on behalf of the National Association of 
Small Business Investment Companies, the professional 
association for companies that administer the SBA's SBIC 
program. Welcome to the Committee.

                  STATEMENT OF STEVE SWARTZMAN

    Mr. Swartzman. Chairman Schrader, Ranking Member Buchanan, 
and members of the Subcommittee, thank you for giving me a 
chance to testify on behalf of the National Association of 
Small Business Investment Committees.
    My name is Steve Swartzman, and my partners and I at C3 
Capital manage two funds that hold SBIC licenses. SBICs are 
private equity firms that raise private capital, and agree to 
invest exclusively in American small businesses in return for 
being able to access SBA leverage to multiply the amount of 
capital available to small businesses. SBICs invest, putting 
our money at risk first, in small businesses that we think will 
succeed.
    First, let me say that this is a great program that has 
worked very well for us, and our investors, and the 33 
companies in which we have invested over $137 million over the 
past six years, all the way from Florida to Oregon. Our 
companies have created thousands of jobs, and greatly added to 
the economy in countless ways; all at no effective cost to the 
taxpayers.
    The program works, and has great and dedicated people in 
place. So, I come here not to criticize, but to promote the 
growth and utilization of the program. This is a market place 
program, not any kind of a handout. The SBA is paid back in 
full with interest and fees. There is also a market need for 
SBICs, which invest in small businesses that larger funds 
overlook. We invest in a highly inefficient part of the capital 
markets that is made more efficient by this program, 
particularly in a recessionary environment like the current 
one.
    We provide loans to small businesses that are beyond the 
risk profile of banks. And, as you can imagine in the current 
environment, that risk profile has changed pretty dramatically.
    The SBIC Debenture program is authorized to provide $3 
billion a year in leverage. Less than $1 billion was utilized 
last year. All the money left on the table by the under-
utilization of the program is money that is not going to grow 
out best job creators, which are small businesses.
    Over the next four years, assuming full utilization, as 
much as $10 billion could be made available to small businesses 
under the current program, again, at no net cost to taxpayers. 
The SBIC Debenture program has paid for itself through interest 
payment and fees, and has done so for the past 50 years.
    So, how do we reform the program? First, successful SBICs 
should be welcome to stay in the program by creating a clear 
and predictable re-licensing system. Our second license took 
over a year, despite the fact that our first fund had already 
gone through a lengthy licensing process, and we had the same 
management team in place, and the same strategy, and had a 
successful fund.
    If a fund has already been fully vetted, licensed by the 
SBA in the past, proven itself financially, complied with 
federal regulations and passed annual examinations by SBA 
regulators, also, has adequate infrastructure in place, and 
wants to continue to invest in small businesses, then we 
believe it should be able to receive a new SBIC license 
quickly.
    The family of funds limit, not the individual fund limit, 
should be raised to allow for successful repeat funds to grow 
and stay in the program. Successful SBICs are being driven out 
of the program, because the repeat licensing process is so 
onerous, unpredictable, and expensive. It makes no sense to 
graduate funds out of the program that have proven themselves 
to be successful in the small business space. These are exactly 
the kinds of funds that should be kept in the program. And, 
given that the program is operating at below 30 percent 
capacity, there's clearly no danger in using up the program's 
budget by keeping successful funds in the program.
    There are a few other additional reforms that we'd like to 
propose. The Energy Saving Debenture, which was passed by 
Congress in 2007, is still not available. The SBA needs to 
implement this investing tool. And Congress needs to fix the 
technical error in the statute that excludes most SBICs from 
the Energy Debenture program.
    Currently, even if the regs were in place for the program, 
only 11 licensees, which have been in place since October of 
2008, are eligible to utilize the program. Small businesses, 
not just large multi-nationals, should have the ability to 
compete in the green economy.
    Further, SBICs should not be disadvantaged as they compete 
in the market. We need more rules to reflect the market 
realities and protect taxpayer's investments.
    I also want to mention the Financial Regulatory Reform, and 
how that may affect SBICs. SBICs are already highly regulated, 
and should not be regulated twice by adding additional layer of 
SEC regulation on top of that, that's already in place. This 
would add additional infrastructure, and cost compliance 
expenses. And we're already highly regulated by the SBA.
    In conclusion, I just want to say that a fully utilized SBA 
program can provide billions in capital to domestic small 
businesses that will create more jobs than any other part of 
the economy. The Recovery Act was projected to save or create 4 
million jobs at a cost of nearly $197,000 a job, but it costs 
only between $11-33,000 to create a job by a small business 
investment. If the existing SBIC program were fully utilized, 
it could create hundreds of thousands of jobs over the next 
four years, and do so at zero net cost to the taxpayers.
    [The prepared statement of Mr. Swartzman is included in the 
appendix.]

    Chairman Schrader. Excellent points. Thank you very, very 
much. Good testimony.
    Our last, but not least, witness is Dr. Sterling Ransone, a 
family physician from Deltaville, Maryland. He's testifying on 
behalf of the American Academy of Family Physicians, one of the 
largest national medical organizations at the center of our 
healthcare reform discussions, with more than 94,600 members in 
50 states and territories. Welcome to the Committee, sir.

                 STATEMENT OF STERLING RANSONE

    Dr. Ransone. Thank you, sir. Chairman Schrader, Ranking 
Member Buchanan, and members of the Subcommittee on Finance and 
Tax, I'm Dr. Sterling Ransone, a practicing family physician 
from Deltaville, Virginia.
    I'm here representing the 94,600 members of the American 
Academy of Family Physicians. I'm pleased to be here today to 
support the Small Business Health Information Technology 
Financing Act. Congresswoman Dahlkemper's bill goes a long way 
in helping family physicians adopt health information 
technology, or HIT.
    To give you some context, let me share with you some 
information about the AAFP and Family Medicine. The AAFP is the 
only medical society devoted solely to primary care. Nearly one 
in four of all office visits made to physicians are made to 
family doctors. This is 208 million visits each year.
    In our fragmented world of healthcare, family physicians 
treat the whole person across all ages. Due to the number of 
patients that we see each year, and the wide range of medical 
services we provide, the AAFP is committed to HIT as one way to 
improve quality and cost-effectiveness of healthcare in the 
United States. H.R. 3014 will be a welcome adjunct to the 
provisions contained in the Recovery Act, which passed last 
February.
    The AAFP worked closely with Congress to craft the Recovery 
Act provisions on HIT. The law makes an unprecedented 
investment in HIT, and it reflects an understanding that HIT is 
critical in any reformed healthcare system. However, the 
Recovery Act funding does not contain a crucial piece that this 
bill provides; that's access to up- front capital for 
physicians seeking to purchase HIT systems.
    We appreciate that H.R. 3014 includes guarantees for loans 
to physicians and practices, and helps providers using HIT to 
improve care and help patients. We also appreciate that this 
legislation recognizes that solo, small, and medium-sized 
physician offices still find it difficult to afford health 
information technology.
    While everyone benefits from these HIT systems, the 
physician bears the cost of acquiring the system and 
implementing it in the practice. Unfortunately, primary care 
practices are seeing declining reimbursements, and increasing 
operating costs. This has severely restricted the access to 
capital to invest in HIT.
    Right now, about one half of family physicians are using 
electronic health records, and we are proud of that fact. 
Nevertheless, based on an August 2008 survey, the other half 
said that cost was the most important reason that they were not 
adopting HIT.
    Let me give you a personal example. I've got a friend in 
solo practice in Richmond, Virginia, who employs one nurse and 
one administrator in his three exam room office. Since my 
physician friend is aware of the benefits of HIT, he undertook 
a serious review of the available electronic health records to 
find one that would fit his practice, was affordable, and 
appropriate to use.
    Unfortunately, despite his due diligence, he came to the 
reluctant conclusion that as a small business owner, he simply 
could not afford to make that investment. My friend is 
precisely the type of small practice this bill would target.
    Let me close with three others points. The specifics of the 
Recovery Act are still unclear, especially the definition of 
meaningful use. Loans such as these, and H.R. 3014 could at 
least help physicians determine how they'll pay for HIT. 
Meeting the eventual meaningful use requirements and staying 
current will mean both time, and money for family doctors. 
Consulting, training, and work flow redesign must be considered 
in addition to hardware and software issues. These are going to 
be ongoing costs for each physician.
    Last, a streamlined application process with minimal 
paperwork also will be key to attracting the busy physician in 
solo, small, or medium-sized practices. We ask the other 
witnesses at this hearing to develop applications that are as 
simple as possible.
    Healthcare is a significant component of our economy. Our 
committees are working right now to pass healthcare legislation 
that will improve quality and cut costs. We appreciate that 
H.R. 3014 will help physicians to adopt HIT, which is an 
essential component to any quality improvement initiative.
    While health information is only one portion of this highly 
complicated industry, investment in HIT at the practice level 
is critical to improving the healthcare of our patients. It 
will reduce costly medical errors. It can help patients manage 
their healthcare more efficiently, and will contribute to the 
nation's economic recovery.
    Thank you for this opportunity to testify.
    [The prepared statement of Dr. Ransone is included in the 
appendix.]
    Chairman Schrader. Thank you very much, Doctor. Appreciate 
your coming, and the quality of the testimony regarding HIT.
    I guess I'll start with the questions. I'll start with Mr. 
Humphreys, if that's all right.
    Legislation we're considering would require the SBA, 
theoretically, to finally pay its guarantees promptly. What 
sort of benefit do you think this would have, and what are the 
real roadblocks, from your perspective, in actually making that 
happen here?
    Mr. Humphreys. Well, the realistic roadblocks are the fact 
that you still need to realize on the collateral. If there are 
assets held as collateral, they need to be liquidated. 
Oftentimes, in the process of liquidation, the borrower hires 
an attorney, the bank hires an attorney, they go through the 
liquidation process. It's very difficult on a borrower. That 
can mean survival, just in the liquidation of a single SBA 
transaction. Oftentimes, it tips them into bankruptcy delays. 
And then once you go through that process, and who knows how 
long it takes, then you can make application to the SBA to 
realize on the guarantee.
    Currently, that's held up, but if that's expedited, that 
will help, but it doesn't help the real issues of the damage 
that can be done in the process.
    Chairman Schrader. Very good. Thank you.
    If we're able to actually expedite things, do you feel more 
lenders will come into the program?
    Mr. Humphreys. Based upon what I see right now, it could 
help somewhat. I don't really think it is a significant 
improvement in terms of gaining more participation in the 
program.
    Chairman Schrader. And of the proposals you mentioned, 
which do you think is the most important one that would get 
more people into the program?
    Mr. Humphreys. Well, refinancing current debt is a very big 
issue. And if it could be expedited to the point where upon 
default an application was made to the SBA, and the SBA then 
would start working immediately with the bank in advance of 
liquidation, or in advance of bankruptcy, to try to resolve the 
issue. And allow, maybe, a refinance, allow, maybe, 
restructuring of the transaction, instead of just following 
strictly the rules of liquidation of existing collateral. That 
might be helpful.
    Chairman Schrader. Okay. Thank you very much.
    Mr. Robson, homebuilders, as I said before, have been 
hardest hit, it seems like, of anybody; although, some of my 
small business friends might argue that. What do you think 
about the federal efforts so far? I mean, increasing the 7(a) 
guarantees, and some of the fee elimination. I mean, the dollar 
amounts sometimes think were a challenge, I would assume, for 
your men and women. So, could you comment, please?
    Mr. Robson. Well, the dollar amounts generally, probably, 
are a problem. Really just having specifically not being able 
to use the 7(a) program for development activity, that's going 
to be most of our members' needs, as far as construction loans, 
and development loans. And even in this market, there are still 
some building going on that need to be financed someway. So, 
expanding that so that it would include development activity 
would be very helpful.
    Chairman Schrader. Do you have a size in mind?
    Mr. Robson. Not particularly. I mean, we could work with 
you on that. I don't-
    Chairman Schrader. A range, perhaps?
    Mr. Robson. You know, I would have to get back with you on 
a specific size. Our members are all across the board, so to 
say a specific size on 7(a) program would be difficult for me 
to do, but I'd be happy to get back with you.
    Chairman Schrader. I appreciate that. I appreciate that.
    Ms. Finch, in your testimony, you touched on the fact that 
it would be nice to have the CDCs get expanded authority for 
liquidation, kind of plays to some of the discussion that Mr. 
Humphreys had. Could you expand on that a little bit?
    Ms. Finch. As I said in my testimony, yes, the law was 
passed to allow CDCs to do liquidation. And, currently, we just 
don't have the guidelines, and regulation, and policies from 
the SBA to really fulfill that. So, we have--CDC industry does 
deliver many other types of loan programs, and we have years of 
experience in doing liquidations, so we feel like we are 
competent, and able to do that, but we do need to have 
regulations, SOPs, et cetera, so that we have the tools to move 
forward and do those liquidations, and maximize recoveries on 
504.
    Chairman Schrader. Okay. Thank you. Very good.
    Dr. Ransone, Ransone, excuse me.
    Dr. Ransone. That's fine.
    Chairman Schrader. I'm not good at this.
    Health IT, that's a big deal. I mean, it was in the 
Recovery Act, it's talked about by a number of groups here on 
Capitol Hill. And certainly, as a veterinarian, I've tried to 
incorporate some of that in my little business world, and seen 
great improvements.
    Is there any other particular aspects in terms of making 
sure that doctors are aware of opportunities that might be 
forthcoming with new legislation for them to access some 
capital, or at least have the opportunity to get this into 
their practices?
    Dr. Ransone. Oh, absolutely. The example I used in my 
testimony was a good friend of mine who was in my class, and 
the doctors want to adopt HIT technology. The problem is that 
so many of us are small businessmen, just finding that 
capital--my friend, when he went out, he did a good search. And 
this was last year. It was going to cost $40,000 for three 
people in his office in order to buy the hardware to adopt HIT. 
And that's exclusive of buying licensing fees the next few 
years, and things like that.
    The biggest thing about the current bill, H.R. 3014 is 
going to be a deferral on the loan for the first one to three 
years. When anyone adopts Health Information Technology into 
their office, you can't go into it right away. When you've been 
using pad and paper to take notes about a patient, that's how 
we were trained. That's what I've done for the last 15 years. 
And it's a very innate thing. Having to put a computer between 
you and a patient, you need to learn how to use it, especially 
folks like me who aren't touch typists. So, there's an 
incredible loss of productivity for the first three months.
    For me, personally, when we adopted HIT, it took me about 
two years before I finally got up to my initial--or back to my 
original productivity. And it was--HIT is essential, and it's 
going to benefit the patients, and it's going to benefit the 
economy. The problem is, is that the local family doctor out 
there, it takes a while to get things going. So, we are very 
excited, and we would love to see any type of deferral on these 
loans for the first one to three years, so that while our 
productivity is down, we're not having to pay it back.
    An example would be, I buy my car. I just bought a new 
F150. Okay? So, I got a loan, and I'm paying it back right 
away. I'm driving the car right away. The problem--and I'm 
getting the benefit of that F150. The problem is, with HIT, as 
soon as we adopt it, and we do the research, and we get the 
computer system in our office, we're not at that same 
productivity. We have to drop off, and we're not making as much 
money to pay off our loan, so the deferral is really important 
in that.
    Chairman Schrader. Very good. I certainly experienced that 
in my own veterinary world. It took me a couple of years to get 
back up to speed, but wouldn't do without it at this point in 
time.
    I'll defer now to Ranking Member Buchanan for some 
questions.
    Mr. Buchanan. Thank you, Mr. Chairman.
    Mr. Humphreys, I mentioned earlier, and I'll talk a little 
bit about SBA. Three years ago, I said roughly, two and a half, 
there was an abundance of credit, and today there's very little 
or no credit, unless you have a lot of capital.
    I talked to a community banker, as I mentioned earlier, 
Friday for last, this past Friday, and I've sensed that in the 
community. A lot of it is because they claim regulators and 
they're putting pressure on their capital, most banks are 
leveraged 10-1, 12-1, whatever it is. What's your thought on 
that statement? Do you think that's the reality today, that 
most small businesses find themselves in, where there's little 
or no capital available, other than they put a $1 million CD to 
get $1 million. I mean, how far is that off, or is it?
    Mr. Humphreys. Well, I know that things are difficult 
around the country, and for many, many small businesses and 
banks, as well. I can only refer to my bank, and the experience 
that I have. And that's not exactly true for our bank.
    We increased our business loan total, so now we're working 
with a fairly small base, $310 million in loans.
    Mr. Buchanan. Do you lend in Florida?
    Mr. Humphreys. We don't lend in Florida. We increased-- we 
stick with our market area very consciously, but we increased 
by 8 percent our loan totals in `08. And year over year to 
June, we're up 5 percent. And we anticipate, we're budgeting 
another 5 percent through the end of this year. We just hired 
three lending officers, two of which are managers of branches, 
and lending officers, another commercial lending officer. So, 
we're open for business, and we're making loans. And just the 
replacement, just to replace the paydown of the existing base 
requires quite a bit of lending. We're closing about 100 new 
deals a month in our small bank.
    Mr. Buchanan. How has the criteria changed? Let's put it a 
little different way, for the bank in three years, how you 
looked at a loan three years ago, and what you might look at 
today?
    Mr. Humphreys. We've not--we believe that good business 
credit underwriting is good business credit underwriting. We 
haven't changed. We're using the same standards we used for the 
last 10 years, and we will continue to use those same standards 
going forward. A good deal is a good deal, and a good deal 
today is no different than a good deal yesterday.
    Mr. Buchanan. I think, probably, regionally, different 
parts of the country, because every bank will say the same 
thing as what you said. If I find something that meets the 
criteria, but the problem is everybody had a pretty rough `08, 
`09 isn't much better, so the banks, the underwriting is a 
higher standard. And, yet, you can't find a lot of those 
companies making it.
    Let me jump over in terms of the SBA. You know, you've got 
this 90 percent guarantee. Why isn't more banks taking 
advantage of it, in your opinion? Because it sure seems to me, 
I mean, it would be a great way to get more capital out. The 
banks are guaranteed 90 percent. I know it's not 100 percent, 
but 90 percent, we'd want to have the banks have some sense of 
obligation, some risk, because it's the taxpayers' money. But 
why don't we have more banks?
    And I've got to tell you, in the `80s, I was completely 
frustrated. We were trying to help people get loans through 
SBA, and it was just aggravating, cumbersome, took forever, the 
bureaucracy. You know, there's not enough in it to make it 
work, because of the energy you've got to put in to get one. 
But that was--I'm hopeful that that gets better. The reality of 
it is, we need to get more capital out there for small 
businesses. But I was just curious, your experience. I don't 
know if your bank is using it. And, if it is, what's been your 
experience?
    Mr. Humphreys. We've been an SBA lender over the years. We 
have not used SBA 7(a) in recent years. We are an active 504 
lender.
    One of the reasons I think SBA 7(a) grew in volume, and now 
has fallen in volume, is because of the liquidity issue. Banks 
used 7(a) loans to create liquidity, because if you have a 7(a) 
loan, there's a ready market to sell the loan, and replenish 
the funds back into the bank. And liquidity issues right now 
aren't what they were two years ago, or even a year ago. Banks 
have more liquidity today for a number of reasons, so they're 
not seeking the SBA 7(a) participation.
    The underwriting standards are still the same. If you write 
a 7(a) loan, it needs to be a good loan. You can't make it a 
better loan by putting the guarantee--you can't make a good 
loan out of a bad loan by putting a 7(a) guarantee. And the SBA 
works with the bank. They're good underwriters there, and they 
agree with the underwriting conditions. So, right now, banks 
have liquidity. When they can make a loan, they will make a 
loan. If the underwriting criteria are there, that loan will be 
made. And in most cases, the bank doesn't need the 7(a) 
guarantee to make it a good credit transaction. So, I think 
right now, primarily, liquidity is causing the downturn.
    Mr. Buchanan. Ms. Wayman, I was going to ask, what is the 
profile of a person that walks in for a Microloan? I mean, 
what--tell me what that person, I know they're entrepreneurial, 
I've had some people ask me about it. I've seen it. People said 
if I could get $15,000, I could set up my sprinkler company, or 
whatever. I just need some seed money, but I was interested, 
because I'm not sure I have the right impression, but I'd be 
interested in your thoughts on that.
    Ms. Wayman. Thank you for the question. And the average 
entrepreneur who comes into our business, comes into the 
Microloan Intermediaries and request the loans are low- income, 
or moderate income. They increasingly more are looking to self-
employment, because they've been laid off from a job. They have 
business ideas, but they can really benefit from business 
coaching, business planning assistance, getting their credit 
score all set. And then helping them develop their business 
plan.
    We tend to give--the Microloan Intermediaries provide 
credit primarily to women. Over half of the loans are made to 
women, African Americans, Latinos, Asian Americans, and Native 
Americans, so the Microloan Intermediaries are serving 
disadvantaged populations.
    Mr. Buchanan. Now, let's say someone comes in for a 
Microloan for $20,000. You approve it, and then they come back 
a year later, nine months later, and need another 15. Normally 
most people, I found over the years, that go out of business, 
they're out of capital, and they've got to shut down. Maybe if 
they had a little bit more--what is the possibility of that?
    Ms. Wayman. The Microloan Intermediaries are very flexible, 
and work with the credit needs of whatever the entrepreneur is. 
And, in many cases, they come in with smaller loan requests, 
and then pay that back, and build it up. We're actually seeing 
that you can--if you've been paying, and you're in great shape, 
you can always come back for more loans up to that $35,000 
maximum, of course. But what we are seeing now is, part of the 
goal of the Microloan program is to move these entrepreneurs 
into the mainstream financial sector. And what we're finding is 
a number of those entrepreneurs we thought were working with 
the various banks, and commercial banks, are now having 
difficulty in coming back, and their lines of credit have been 
terminated. So, they're coming back to the microlender and get 
as much of the loan as they can.
    Mr. Buchanan. And then in terms of--one last question. In 
terms of, you mentioned that line of credit, what do you-- how 
do you term out a line of credit? I mean, obviously, it's 
paying interest on the outstanding, but what kind of terms 
would they come in and sign up for a line of credit? Is that a 
one-year deal, and then it resets, or you ideally want to pay 
it off, or does it term out after interest only for a year, 
then a five-year amortization, or what do you do?
    Ms. Wayman. The microloans right now are typically three to 
six year loans. They're not lines of credit. That's one of the 
things we're hoping to see in the re-authorization. It's more 
flexible, it uses four lines of credit, so that folks, 
especially folks like air conditioning repair services that are 
seasonal, aren't saddled with a three to six-year loan.
    Mr. Buchanan. Mr. Robson, I wanted to--I'm interested in--
because the thing that's really, in my opinion, really hurting 
a lot of homebuilders is the amount of foreclosures. I want to 
just jump on that for one second, and we'll get back to the 
other thing.
    I don't see how someone in our area, who is so over-built, 
and so hyped, southwest Florida, Florida, Nevada, different 
parts of the country that really things were going up 20 
percent a year. But, when you're faced with communities with a 
lot of foreclosures, and you can--say a guy gets cost of 
building a house, the land, the dirt, the land, and sticks and 
bricks, and all, that's $250,000. But someone can buy a house 
down the street, or next to it, for 175, or short-sale. It 
seems like we've got to get through that inventory for builders 
to have an opportunity, many of them, to get back, unless 
they've got someone who's just go to have a new house.
    I wouldn't go buy a new house, if I can buy it for a third 
less next door. How big of a problem is that to the 
homebuilders of America?
    Mr. Robson. In certain markets, certainly, that's a 
problem, but that's really limited to only about four major 
markets. The rest of the country, unfortunately, has that whole 
mentality spilling over to appraisals, and that sort of thing. 
So, I think there's--you can't pinpoint one market and say 
that's a problem on a national basis.
    And, as I mentioned in my oral statement, there are even in 
the south Florida market, opportunities where somebody has 
owned their own land, and have held it for a long time. 
Frankly, with building materials and that sort of thing, the 
way they are right now, it's not a bad time to build, if that 
is what you are so inclined to do.
    Certainly, there are price ranges, and certain types of 
products that may be more over-built than others. So, it's hard 
to do a broad-brush as far as real estate markets are 
concerned. But, absolutely, foreclosures are a problem, whether 
it's owner-occupied, or investor, or whether it's something in 
inventory that builders had been holding.
    Mr. Buchanan. You mentioned low appraisals. What were you 
referring to there, just the industry, the banks appraising 
things? I just want to get your--I have my own thoughts on 
that, but just get your thoughts, and what you were referring 
to. I got the impression you were saying it's hurting the 
industry, low appraisals.
    Mr. Robson. Well, in fact, we had meetings this morning 
with one of the appraisal groups. You know, what tends to be 
happening is, there's been a shift primarily to the appraisal 
management companies that tend to be kind of a low dollar 
appraisal source, where they are demanding two- day turnarounds 
for appraisals, very short time frames. A lot of the appraisers 
that are doing those, frankly, don't know the market. They're 
using short sales, and foreclosed properties when there are 
actually other comparables out there to use. Some of the code 
that is being talked about that's going to be implemented, 
actually started in May, where--not that it says this, but 
there can't be any collaboration. You can't talk--the lender 
can't talk to the appraiser, and the buyer can't talk to--I 
mean, in reality, that has to happen, so there's a number of 
issues and fixes that need to be made to appraisals. And I'll 
give you an example in Tulsa, Oklahoma.
    We have a house, a builder came up to me. He sold the house 
for $230,000, same house for a custom, and in Tulsa, Oklahoma, 
it's a small enough market that going a few miles down the 
street isn't going to be a problem. And we're actually one of 
the few markets that actually have price appreciation in homes. 
It came in below cost for a construction loan. That is a 
problem, even in markets that are doing fairly well, so the 
appraisal issue is a major, major concern.
    Mr. Buchanan. The last question was just, the ARC loans you 
mentioned, how does that--what size should they be? How is that 
going to help? Will that help homebuilders, and maybe also 
just--I don't know many homebuilders that have really worked 
with SBA much in the past.
    Mr. Robson. Well, they haven't--certainly, we have had some 
of our builders try to access ACR loans. One--I think there's 
two or three problems with it. If you don't deal with a bank 
that's already in the program, if you're a new customer, you're 
probably not going to get it. I think banks are using those 
programs to help their existing customers. If you're not with a 
bank currently, trying to get one as a new customer is going to 
be very, very difficult.
    Secondly, what we're finding is that on the ARC loans, a 
$35,000 limit, you've got the same pack of material, I mean, 
the same processes, and everything else that go into a regular 
SBA loan for $35,000. So, I'm not sure how cost- effective it 
is with the amount of red tape that you have to go through to 
make it worth somebody's while, unless it's with an existing 
customer.
    Mr. Buchanan. Ms. Finch, I was just going to ask you, on 
CDCs, would they support changes to the program if authorized 
debenture is greater than $4 million?
    Ms. Finch. Yes, we would. And the reason being is because, 
as I said in my testimony, we're looking at multiple projects. 
So, I've got borrowers out there, personally, that have hit the 
$1.5 million, or if they're public policy, a $2 million limit. 
And if they're a manufacturer, they hit the $4 million limit. 
So, in order to do multiple loans to a borrower, we would be 
supportive of that.
    Mr. Buchanan. Mr. Swartzman, I wanted to run through. You 
said that if you're already doing business as SBIC, it takes a 
year. Why does it take that long if you're looking to expand, 
or whatever?
    Mr. Swartzman. That's a good question. I'm not sure I know 
the answer.
    Mr. Buchanan. I mean, does it take that long to implement 
it, or does it take that long to get an answer? I mean, because 
it's one thing-
    Mr. Swartzman. From start to finish. I mean, that's from 
starting the process, it's a fairly--it's a multi-stage process 
to get a license. You go, you make an application. Then they 
invite you, once you make your application, to come in for an 
interview. If the interview goes well, you've got something 
called a Go-Forth letter, which invites you to make a secondary 
aspect of the application process. And then there's some back-- 
you go back and forth. We're very diligent about going through 
that process. And whenever we have questions about our 
application, we would typically get back within two to three 
days. So, a lot of it, I think, is just staffing issues there, 
and just-
    Mr. Buchanan. How long does it take, if you're starting 
from scratch, wanted to set up an SBIC?
    Mr. Swartzman. Well, the first time we went through it, it 
took us two years, which, I'd say for somebody who's going 
through that, as you're going through it, if you knew it was 
going to take two years, you probably wouldn't do it.
    Mr. Buchanan. Yes.
    Mr. Swartzman. Clearly, at the time we were doing that in 
the beginning, it was around the 2001 time frame.
    Mr. Buchanan. I can't imagine anything taking two years.
    Mr. Swartzman. Yes. Yes.
    Mr. Buchanan. I tell my bankers I want a quick yes or no. 
No, is okay, if you don't want it, or whatever, but the bottom 
line, I don't want to drag for 30 days, but two years, that's-
    Mr. Swartzman. It's not--certainly, that was acceptable. I 
think they were going through a period where they had a lot of 
problem loans, and we're changing the procedures, and making 
them much more rigorous. And we fully support that, and 
understand it should be a very rigorous and thorough process, 
because there's a lot of taxpayer capital at risk.
    On the other hand, I think what we're proposing is once 
they've gone through that vetting process, however long that 
takes the first time around, and you've got funds, you've got 
an existing fund, you have a management team that's proven, you 
have an infrastructure in place, it ought to be a really 
expedited process. And a year is way too long.
    Mr. Buchanan. Just the last question. What kind of 
companies--you said you had 33 companies, and how many 
employees in those companies?
    Mr. Swartzman. Oh, gosh. It ranges from probably the 
smallest investment, the smallest company has maybe seven or 
eight employees, but wonderful margins, and a great little 
business. And the largest ones are maybe 2,000, so there's a 
huge range.
    Mr. Buchanan. Thank you. I yield back.
    Chairman Schrader. Thank you very much. Good questions, 
good answers.
    At this time, the Chair recognizes the gentleman from 
Kansas, Mr. Moore.
    Mr. Moore. Thank you, Mr. Chairman. I would like to just 
take a personal privilege here to welcome Mr. Swartzman, who is 
a constituent in my district, and thank you for being here 
today, Mr. Swartzman, and the other witnesses for your 
testimony.
    Mr. Swartzman, in your testimony, you make a point that SBA 
regulations often provide a disincentive for equity firms to 
receive the SBIC designation, and debenture guarantee. 
Specifically, do you have suggestions as to how you believe the 
SBA regulations could or should be changed, and would many more 
firms if these changes were made be willing to participate in 
the SBA program?
    Mr. Swartzman. Yes. I mean, I think the main one would be 
just making the process for existing funds, again, which have 
proven themselves, and have infrastructures, expediting that 
process to keep them in the program, that's certainly the 
easiest way to utilize more of the capital that's available. 
And, again, each year Congress provides a certain amount of 
capital. And I think the program has been using less than a 
third of that.
    I think there are a few other areas that were listed, and I 
want to put forward, if we could provide some of the same 
incentives to companies owned by veterans as low and moderate 
income types of--low and moderate income areas that there are 
already some incentives in place.
    I think it's important when we look at regulatory reform 
that's going through, making sure that there's a way that SBICs 
can sort of be set aside. And we have some personal experience, 
having--we were in the State of Missouri, we're in Kansas City 
on the Missouri side, and on advice of counsel, we registered 
as an investment advisor in the State of Missouri. And they had 
just gone through changing the process from a handwritten 
system to a--a manual system to an electronic version. There 
was a glitch in our application. And, again, it's something 
that we thought we had to do, but it didn't really apply to 
anything that we did. And three years went by. Every year we 
sort of updated and sent it, and we found out--then we'd pay 
our annual dues. We found out that there was a problem with our 
application, and they came at us and told us that we had to pay 
like a $200,000 fine, and all sorts of legal, sign some 
documents. And we went back and spent--we probably spent 
$100,000 in legal fees to fight this, and we found out we were 
the only firm in the State of Missouri that had even tried to 
register.
    So, when we presented them with all this, look, guys, we're 
going to do this. You're going to fine us. What are you going 
to fine the other private equity groups that have been around 
for 10 years, 12 years, and been operating? And they quickly 
dropped it. But I think it just shows that for firms our size, 
clearly present no systemic risk, to stay in compliance and do 
the things you need to do, you need to have an infrastructure 
in place for that.
    Mr. Moore. Thank you, sir.
    Mr. Humphreys, recently, my office was contacted by a 
constituent who is a small business owner, and she was 
interested in obtaining an American Recovery Act, or ARC loan. 
As you know, the ARC loans were authorized by the Recovery Act, 
and provide up to $35,000 to small businesses struggling to 
meet existing debt obligations. The loans are backed by the 
federal government 100 percent.
    My constituent contacted the bank she'd used for four 
years. They told her the bank had decided not to participate in 
the ARC loan program. She then checked with both the local SBA 
office, and the local Business Development Center. She found 
that although the ARC loans are very new, only a handful, 
approximately six to eight, have been issued in the entire 
Kansas City area.
    On July 1st, I held a forum in my district on access to 
capital for small businesses, and I know there's a great real 
demand for ARC loans. Can you tell us, if you know, why aren't 
more banks issuing these loans? Why can't more businesses 
access these loans?
    Mr. Humphreys. Well, somebody mentioned earlier that 
there's as much work, research, employment of people to round 
up information to make an ARC loan as any other kind of SBA 
loan, a tremendous amount of documentation. And, yet, the 
underwriting standards on the SBA side aren't what the 7(a) 
demands, or the 504 program demands, and certainly not what the 
bank would expect.
    The ARC Loan program is a little bit more like a grant. The 
expectation for repayment is not as high. It's an opportunity 
to help out and, in our opinion, it's a little bit of help. 
But, in most cases, it isn't what the business needs. The 
business needs a restructuring. They need help not just $35,000 
here, and then maybe another quicker response to a guarantee 
claim on another SBA loan.
    I think the SBA and the banks need to work together to be 
creative to restructure the business so that it can work going 
forward. The ARC program, to me, and a lot of other bankers, is 
just a thumb in the dyke.
    Mr. Moore. Thank you, sir.
    And, finally, to Dr. Ransone, is it Ransone, sir?
    Dr. Ransone. It's Ransone.
    Mr. Moore. Ransone. Excuse me.
    Dr. Ransone. Yes, sir.
    Mr. Moore. I appreciate your testimony, what you were 
talking about, electronic medical records, a system nationwide. 
In fact, I filed a bill two or three years ago that would do--
the bill is not the one we're talking about here. But I tell 
folks back home, the first thing you do when you walk into a 
doctor's office or a hospital, is you're given a piece of 
paper, and say here, complete your medical history. And I say 
sometimes the patients get the information right, and if they 
do, the doctors can provide correct medical care. And if they 
don't, who knows what's going to happen.
    Dr. Ransone. Yes, sir.
    Mr. Moore. But you're exactly right. I think we need a 
nationwide system of electronic medical records that would end 
up saving money, even there's an up-front cost. But, also 
provide better care to-- enable physicians, and care- givers, 
healthcare-givers to provide better care to patients. So, I 
applaud what you're doing, and keep going.
    Dr. Ransone. Thank you.
    Mr. Moore. Thank you, Mr. Chairman. Yield back my time.
    Chairman Schrader. Thank you very much. Thank you very 
much.
    We'll go to the good gentleman from Colorado, Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    First of all, to Dr. Ransone, in the Recovery Act, or the 
Stimulus Act, money was appropriated for Health IT. Is your 
organization aware--is that filtering down to, in terms of 
access?
    Dr. Ransone. Not yet. The money that was provided towards 
HIT adoption under the Recovery Act is provided in additional 
incentives for physicians. An example right now, under 
Medicare, CMS right now, starting at the beginning of the year, 
for each Medicare patient that I see and bill, I get an 
additional 2 percent if I file my prescriptions electronically. 
Two percent for my 40 percent, give or take, Medicare patients 
isn't enough to give me enough capital to buy a new system.
    The concern that I have for the physicians over the next 
few years is that number is going down. In two years it will be 
1 percent additional bonus, I guess you could call it. Two 
years after that, it's half a percent, and then after that 
we're actually going to be fined for not e-prescribing.
    Now, e-prescribing is interesting, because I've had an 
electronic medical record in my practice now for about seven to 
eight years or so, and I thought I was e-prescribing. I've 
faxed prescriptions when a patient comes to see me. I can do it 
on the computer, and it's a wonderful thing. And, as 
Representative Moore said, the system is wonderful. I can't 
tell you how many patients I have who come in, who say well, 
what did the ER doctor put you on? Well, a pink pill and a 
white pill. Well, what was that? I'm not really sure. What was 
it for? I don't know.
    With my system now, I can pull up the patient's record from 
the emergency room from the night before, and I can know 
exactly what that ER doctor thought, what he put him on. And I 
can give a lot better care, and I can save lives doing this.
    The problem with the money right now, back to your 
question, in the Recovery Act, it's just it's not accessible 
yet. And what is accessible, isn't enough for us to put an 
outlay for small businessmen to put these computer systems in 
our office. So, that's been the big problem.
    Mr. Coffman. Well, it sounds like a negative net effect, 
because at the end of the day, with the mandate to do the e-
prescriptions, and if people aren't able to do that with 
Medicare, if it's not cost-effective for them to do that, then 
they just may not see Medicare patients.
    Dr. Ransone. Oh, absolutely. And, eventually, it's going to 
be an access issue. For me, personally, I live in a town that 
is 20 minutes from where I grew up, and I see a lot of patients 
that my dad saw. He was a family doctor, practiced for 30 years 
in this rural area. And I see a lot of folks. And the Medicare 
folks who come in, I'm not going to be able to say Aunt Sookie, 
I can't see you any more. You know, that's not going to happen. 
But what's going to happen is, new Medicare patients, and as 
the baby boomers grow up and come in, I'm not going to be able 
to see them.
    In Virginia right now, this kind of speaks to healthcare 
financing, in general, Medicare reimbursement hadn't changed 
for 17 years. This is not Medicare, this is Medicaid. But the 
amount that I was paid for the last 17 years hasn't changed. 
Okay? I pay my nurse more. I pay the power company more. I pay 
more in rent, but my reimbursement or pay hasn't changed at 
all. So, I'm operating at more and more of a deficit every 
year.
    A good friend of mine did a study in his practice, and he 
said well, what if everyone paid what our best insurer pays? 
What if everybody paid Medicare rates, and what if everybody 
paid Medicaid rates? If every single one of his patients paid 
Medicaid rates, each one of the physicians would have been 
$75,000 in the hole at the end of the year. So, when we see a 
Medicaid patient, we are losing money in our practice. And then 
put on top of that other requirements that are going to make us 
lose money, in a few years, if I don't have e-prescribing, I'm 
going to be fine 1.5 percent because I'm not doing this. It's 
just--the requirements that are placed upon us, and then the 
administrative burden that doesn't allow us to see enough 
patients, it's not a financially viable model to run a small 
practice. So, what happens? A lot of the small business 
physicians end up going working for hospitals or larger groups, 
and the rural areas are the ones that suffer, because--when I 
came out, I knew where I wanted to go, and I wanted to go back 
and serve the people that I grew up with. And I did it, and I 
was fortunate to do it. But, in order to do it, I decided to 
work for a hospital.
    Unfortunately, most people who come out of medical school, 
current medical school debt is about $148,000 when you come out 
of school. Most of them don't see that. I can move to a rural 
area and service that kind of debt. I'm sorry. I got away from 
the question.
    Mr. Coffman. That's okay. It's a good discussion for 
another committee.
    Dr. Ransone. Yes, sir. Sorry about that.
    Mr. Coffman. And we're about to expand that whole system 
for you here pretty soon.
    Mr. Robson, a question for you on financing. And that is 
that for homebuilders, I understand that there was a 
requirement in multifamily housing, condominiums, say town 
homes, but it dealt with FHA, that made it difficult with 
homebuilders to say you had to had to have a certain threshold 
sold before FHA financing was available. Can you tell me where 
that is right now from your industry's perspective?
    Mr. Robson. Well, we're talking to them about getting that 
renegotiated. I think it's 75 percent.
    Mr. Coffman. Seventy-five percent?
    Mr. Robson. Which is extremely difficult in today's market.
    Mr. Coffman. Pre-sales have to be about 75 percent?
    Mr. Robson. Right.
    Mr. Coffman. Okay.
    Mr. Robson. And, also, there's a certain limit on how many 
FHA loans will be allowed. I think it's a maximum of 03 
percent.
    Mr. Coffman. Thirty percent? Okay. How significant is that 
to your-
    Mr. Robson. That's very significant, especially if you 
are--well, given the financing, in general, if you're in that 
kind of price range, FHA is the only game in town. I mean, as 
far as mortgage markets across the spectrum, FHA, or Fannie and 
Freddie conventional mortgages are 75 percent, and FHA is 25 
percent. There is no other market. So, if you're looking at 
first time home buyer, condos, lower income condos, to have a 
concentration limit of FHA loans means you only sell 30 percent 
of the condos.
    Mr. Coffman. Okay. My final question then. Mr. Humphreys, 
it just seems like from a regulatory standpoint what I'm 
hearing from my local bankers that the control of the currency 
has come down unreasonably hard, with a mentality of zero risk 
in hiking their capital reserve requirements. And that that--
you can't have a zero risk mentality when it comes to credit 
markets in a free enterprise system. Is that your view? Could 
you speak to that for just a minute?
    Mr. Humphreys. Well, that's certainly my view. You can't 
have a zero risk mentality. The banking business is a risk 
business, and we balance risk versus reward constantly. That's 
what we do when we underwrite loans.
    You mentioned the Comptroller. We're audited and regulated 
by the FDIC, our bank, and we feel like the FDIC is a good 
regulator. They're very professional. They do a good job. It's 
been tough for them, because there is so much to do out there, 
and the banks need their help. But, at the same time, it's a 
difficult market to regulate in, as well, because of the number 
of defaults in banks, et cetera.
    Mr. Coffman. Thank you, Mr. Chairman. I yield back time.
    Chairman Schrader. Thank you very much.
    The Chair will recognize the gentleman from Missouri, Mr. 
Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    To follow-up with Mr. Humphreys, with Mr. Coffman's 
questions here, I know that the regulatory authorities have 
really kind of gone overboard, and have been rather harsh in 
their criticism on some of the requirements for some of the 
loans that have been made. And, as a result, there's a little 
bit of access-to-credit problem as a result of their push-back. 
Have you seen the regulators look rather harshly, or with a 
very discriminate eye at SBA loans? Have they given some 
problems with those, as well?
    Mr. Humphreys. I haven't seen that SBA loans, specifically. 
But loans, in general, including SBA loans, are looked at very 
closely. When the FDIC comes into a bank, if the bank is under-
capitalized, or is not producing net earnings, there's a 
question about the reserves. There is a tendency, I think, by 
the regulator to take a more difficult, serious look at all 
loan transactions. And they have been-- it's been tough. We 
have really had to tape-up, so to speak, for every examination. 
There's no doubt about that.
    But I also think on the other side of the question, if the 
bank is in good condition, reasonably well- capitalized, 
generating some earnings to replace reserves, adequate 
reserves, and not a lot of defaulted loans on the books, the 
regulators go above and beyond to try to work with the bank to 
make sure that they don't go overboard on their assessments.
    Mr. Luetkemeyer. I love that comment, ``Tape- up''. As a 
former bank regulator, I know what you're talking about.
    A question for you with regards to your 90 percent 
guarantee, your comment was you'd like to see an extension of 
that. I know that one of the bankers at home that I talked to 
made the comment to the effect that, you know, if we could get 
to the 90 percent level, it would certainly be helpful. And I 
know that by extending this, I'm sure it's going to help some 
more folks. Have you seen the benefits of this 90 percent 
guarantee already in your bank?
    Mr. Humphreys. Yes. Although, we haven't made any new SBA 
7(a) 90 percent guaranteed loans, I see it as a benefit. Ninety 
percent is better than 80 percent, or 70 percent. And if you 
make a loan with an SBA guarantee, you've got some reasons to 
do so. And having that guarantee at 90 percent is certainly an 
advantage. And I mentioned earlier, liquidity is also an 
advantage. I think a 90 percent guaranteed loan is a much more 
saleable commodity than an 80 percent guaranteed loan, for 
example. So, it's a positive thing both for the customer, and 
for the bank.
    Mr. Luetkemeyer. Well, my constituent was telling me that 
it looked to him it was--it was very helpful to him from the 
standpoint that suddenly because of the increased regulatory 
environment, and pressure by the regulators, this is a way to 
shift some risk over here, and sort of minimize their criticism 
of some of his loan portfolio.
    Mr. Humphreys. Well, it's hard to shift risk by virtue of 
the guarantee. As I mentioned earlier -
    Mr. Luetkemeyer. Go from 50 percent to 90 percent, though.
    Mr. Humphreys. Yes.
    Mr. Luetkemeyer. That's a little bit of shift.
    Mr. Humphreys. The regulators look at the loan as being a--
for what it is. If the loan has an elevated level of risk in 
it, having that guarantee might be somewhat helpful, but it 
doesn't erase the risk involved with respect to the loan 
transaction. Because the regulators know that you have to go 
through the process of collection, and that process might be 
very painful. In fact, it might put the rest of the business in 
jeopardy, just through the process of collection.
    Mr. Luetkemeyer. Thank you.
    Mr. Swartzman, with regards--you made a comment with 
regards to one of the programs, that there's only roughly about 
a third of the money that actually is loaned out it in. Is that 
correct? Did I misunderstand that?
    Mr. Swartzman. Yes. No, that's the amount of capital that's 
authorized every year.
    Mr. Luetkemeyer. Why was not the balance of the funds used, 
not enough demand, or was it over-funded, too much paperwork, 
nobody wants to go through the process?
    Mr. Swartzman. Well, I can -
    Mr. Luetkemeyer. Can you speculate?
    Mr. Swartzman. I can't comment on whether it's too much 
that's authorized, but the reason that not more is utilized, is 
a combination of the fairly slow rate at which new licenses are 
being issued. I think the number of licenses issued last year 
was only six or seven, and it used to be a multiple of that. 
So, there are far fewer licensees. Obviously, that's going to 
reduce demand for the program. And then regular fluctuations in 
the market in terms of needs for capital, so it's a combination 
of those two things, one of which, there's nothing we can do 
about in terms of the demand in the market, but the number of 
licensees.
    Mr. Luetkemeyer. Dr. Ransone, very quickly, you're 
testifying with regards to the medical technology stuff.
    Dr. Ransone. Yes, sir.
    Mr. Luetkemeyer. Maybe this is a moot question here, but 
how far do we go with the SBA program with regards to helping a 
doctor in his practice finance purchase of medical equipment, 
operating costs, buying buildings, refinancing debt? Any of 
that, all of that, some of that?
    Dr. Ransone. The bill, itself, is strictly for health 
information technology, and for the initial capital outlay. The 
problem that I can foresee in the future is, once we get people 
over that hump, is how do we continue to manage that? And 
that's what I think most of the physicians who are small 
business owners are concerned about. And they're trying to look 
towards the future.
    Part of the future is, right now, we don't have 
interoperability standards amongst computers, so if my computer 
can talk to my local hospital, it might not work in four years 
to talk to somebody else's hospital. And if-- we've asked the 
folks at CMS to come up with certain standards that will help 
us. And that's been a second barrier that a lot of physicians 
have had, is we're worried that you make the initial 
investment, and then I can't--my computer can't talk to the 
hospital any more.
    The other things that you mentioned, right now, that's 
where some of the stimulus funds will help cover. Increased 
funding will help us pay for software licenses. If we can 
expand our practices, it will help us pay for new hardware. If 
things happen where we don't meet interoperability standards, 
it will help us go with new technology, and things like that.
    Mr. Luetkemeyer. Very good. Thank you.
    I yield back. Thank you, Mr. Chairman.
    Chairman Schrader. Thank you very much. I'd like to thank 
the panel for a very excellent presentation, and obviously got 
us all interested with a lot of good questions. Appreciate your 
interest in supporting the bill, and additional suggestions 
that we'll take into consideration as we move forward. Thank 
you for making the trip to Washington, D.C. Some came a little 
further than others, but that's still all very good.
    I ask unanimous consent that members will have up to five 
days to submit statements and supporting materials for the 
record. Without objection, so ordered. And this hearing is now 
adjourned. Thank you all.
    [Whereupon, at 11:38 a.m., the Committee was adjourned.]
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