[Senate Hearing 115-566]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 115-566

  STRENGTHENING ACCESS TO CAPITAL FOR MINORITY-OWNED SMALL BUSINESSES

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

                             FIELD HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 14, 2018

                               __________

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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                     ONE HUNDRED FIFTEENTH CONGRESS

                              ----------
                              
                    JAMES E. RISCH, Idaho, Chairman
              BENJAMIN L. CARDIN, Maryland, Ranking Member
MARCO RUBIO, Florida                 MARIA CANTWELL, Washington
RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina            HEIDI HEITKAMP, North Dakota
JONI ERNST, Iowa                     EDWARD J. MARKEY, Massachusetts
JAMES M. INHOFE, Oklahoma            CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana                  CHRISTOPHER A. COONS, Delaware
MICHAEL B. ENZI, Wyoming             MAZIE K. HIRONO, Hawaii
MIKE ROUNDS, South Dakota            TAMMY DUCKWORTH, Illinois
JOHN KENNEDY, Louisiana
          Skiffington E. Holderness, Republican Staff Director
                 Sean Moore, Democratic Staff Director
                           
                           
                           
                           C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator From 
  Maryland.......................................................     1

                               Witnesses
                                Panel 1

Manger, Mr. Bill, Associate Administrator, Office of Capital 
  Access, U.S. Small Business Administration, Washington, DC.....     6
Medley, Ms. Dawn R., Vice President of Business Finance Programs, 
  FSC First, Largo, MD...........................................    12
Lewis, Mr. John, Executive Vice President-Chief Administrative 
  Officer, The Harbor Bank of Maryland, Baltimore, MD............    18
Bilonick, Ms. Marla, Executive Director, Latino Economic 
  Development Center, Washington, DC.............................    26
Wilson, Dr. David, President, Morgan State University............    31

                                Panel 2

Clark, Mr. Kenneth E., Business Consultant, MBDA Business 
  Center--Capital Region, Capital Region Minority Supplier 
  Development Council, Silver Spring, MD.........................    40
Smoot, Sr. Mr. Tim, Vice President, Chief Financial Officer, Co-
  Founder, Meridian Management Group, Inc., Baltimore, MD........    46
Miller, Ms. Mary, Senior Fellow, 21st Century Cities Initiative, 
  Johns Hopkins University, Baltimore, MD........................    51
Holmes, Mr. Will, Director of Outreach, Goldman Sachs 10,000 
  Small Businesses, Morgan State University, Baltimore, MD.......    57

                          Alphabetical Listing

Bilonick, Ms. Marla
    Testimony....................................................    26
    Prepared statement...........................................    29
Cardin, Hon. Benjamin L.
    Testimony....................................................     1
    Prepared statement...........................................    72
Clark, Mr. Kenneth E.
    Testimony....................................................    40
    Prepared statement...........................................    43
    Supplemental Testimony.......................................    95
    Addendum 1: Minority Business Development Agency Link: NMSDC 
      By the Numbers.............................................   184
Holmes, Mr. Will
    Testimony....................................................    57
    Prepared statement...........................................    59
Lewis, Mr. John
    Testimony....................................................    18
    Prepared statement...........................................    21
    Addendum 1: Milken Institute Phase I Summary.................    99
    Addendum 2: Milken Institute Phase II Summary................   156
Manger, Mr. Bill
    Testimony....................................................     6
    Prepared statement...........................................     9
Medley, Ms. Dawn R.
    Testimony....................................................    12
    Prepared statement...........................................    15
Miller, Ms. Mary
    Testimony....................................................    51
    Prepared statement...........................................    53
Risch, Hon. James E.
    Prepared statement...........................................    92
Smoot, Sr. Mr. Tim
    Testimony....................................................    46
    Prepared statement...........................................    48
    Addendum 1: 2016 Small Business Credit Survey Report on 
      Minority Owned Firms.......................................   191
Wilson, Dr. David
    Testimony....................................................    31

 
  STRENGTHENING ACCESS TO CAPITAL FOR MINORITY-OWNED SMALL BUSINESSES

                              ----------                              


                       FRIDAY, SEPTEMBER 14, 2018

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                     Baltimore, MD.
    The Committee met, pursuant to notice, at 10:04 a.m., at 
Morgan State University Earl G. Graves School of Business and 
Management, Martin D. Jenkins Hall, Behavioral Science Center, 
Room 514, 1600 Havenwood Road, Baltimore, Maryland, Hon. Ben 
Cardin presiding.
    Present: Senator Cardin.

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, RANKING MEMBER, A 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Good morning, everyone. Let me thank you 
all for being here.
    Let me call to order the meeting of the Senate Small 
Business and Entrepreneurship Committee in this field hearing 
at Morgan State University, here in Baltimore. This is part of 
our oversight function of the Small Business and 
Entrepreneurship Committee, and today we will be talking about 
the source of capital for minority businesses. And I thank all 
the witnesses that are here.
    I want to start by first acknowledging and thanking the 
leadership of our Chairman, Senator Risch, who authorized this 
field hearing. I serve as the lead Democrat on the Small 
Business Committee. Senator Risch is the Chairman. The two of 
us have worked very closely together through this Congress, and 
we are very proud that we have been able to produce several 
significant bills that have become law, and we have worked 
together on oversight of the SBA and small business. I 
particularly thank Senator Risch for his cooperation and for 
allowing this Committee field hearing to take place.
    I want to acknowledge the staff that is here. From Senator 
Risch's office, we have Meredith West, Renee Bender, and J.R. 
Walker; and our Chief Clerk of the Committee, Kathryn Eden.
    I also want to acknowledge from the Democratic staff, we 
have Sean Moore, Kevin Wheeler, Beth Bell, Olivia Nutter, Ellen 
Harrington, and Sean Bartlett.
    On my staff, I want to thank Jerome Stevens. Whenever we 
are at Morgan, Jerome is going to be here with me. He is an 
incredible asset to our field operations as my outreach 
director, and I thank you. And Carleton Atkinson, who is my 
Maryland director, is also with us today.
    So we have a full staff that is with us. Steve Umberger is 
here, who is the SBA director in the Baltimore office. He is 
also my neighbor. We are both in the Bank of America building 
together, and I thank Steve. He does a great job in reaching 
out, getting as much input as we can and providing services to 
businesses. He was on the ground immediately every time we have 
had a significant crisis in our business community, Ellicott 
City being one that stands out, the great work that the SBA 
office here did in helping those businesses in Ellicott City.
    Dr. Wilson will be with us shortly, and when he is here, I 
am going to ask the witnesses if we will interrupt for a moment 
so I can give him an opportunity. Dr. Wilson is the president 
at Morgan State University. Morgan State University is very 
proud of the work that they have done in leadership, 
innovation, and producing great leaders in minority-owned 
businesses in our community. There are several examples that we 
will be talking about today that owe their roots to their 
education at Morgan State University. So we are very, very 
pleased about that.
    Again, I thank all the panelists. I thank the people that 
are here.
    Let me just start, if I might. A friend of mine gave me 
this book to read, ``They Call Me Little Willie.'' Now, for 
those of you who know Baltimore, we are talking about Willie 
Adams. He was a legend in our community, a person who was known 
as one of the great leaders in the black community in 
Baltimore.
    I mention Little Willie because it is very relevant to the 
topic we are talking about today, access to capital by minority 
businesses, and Little Willie, Willie Adams, came to Baltimore 
from the South. He had virtually no education, but he was an 
entrepreneur. He had a brilliant mind for business, and just 
about every legal avenue for business was not available to him, 
coming to Baltimore in the 1940s.
    So he decided the only way he could make some money was to 
run numbers. He was good at it. I mean really good at it. He 
understood numbers, and he was able within a relatively short 
period of time to establish the largest numbers business in 
Baltimore and basically was able to get capital. And he used 
that capital to help black entrepreneurship in Baltimore.
    There are many, many examples, but probably the most 
prominent would be Henry Parks and Ray Haysbert with Parks 
Sausage, which was financed by Willie Adams to get started.
    The other, which is known very well, is ANR with Theo 
Rodgers, and the rest is sort of history.
    Now, many think he did a much better job on the use of 
lottery revenues in the states, doing today, but we will not go 
through that.
    [Laughter.]
    But it was the only avenue available to black 
entrepreneurs.
    Now, we have come a long way since those days. We now have 
financing options available to minority businesses and women-
owned businesses, but quite frankly, we still have a long way 
to go.
    Many of you will recall this is my second term as Ranking 
Member of the Small Business and Entrepreneurship Committee. 
For a brief period in 2015, I was the Ranking Democrat, and we 
held a field hearing at Bowie State University in 2015, talking 
about the barriers affecting minority-owned businesses.
    As a result of that hearing, we did talk about the 
importance of the Fee Waiver Program under the 7(a) and how 
that helped minority businesses. We also talked about the SBA 
Microloan Program and its success rate in getting funds to 
small businesses, and we looked at the challenge at that time 
of the baby boomers selling their businesses and whether black 
entrepreneurs were going to be able to deal with that. And we 
looked at employee-owned businesses and other opportunities 
that we thought would be relevant in order to advance those 
issues.
    Well, now I am Ranking Member of the Small Business 
Committee again, and I felt it was important to build on what 
we started in 2015, recognizing that America's strength is in 
our values. It is in our values. Our values are that every 
American, every person has the opportunities of this great 
Nation, and the fact that black owners do not have the same 
ability for capital is against the values of this Nation. We 
need to do something about it. That is who we are as a country. 
So that is one reason we need to look at access to capital.
    Secondly, we know about the wealth disparity in this 
country. We know about the tremendous wealth disparity between 
the minority community, between women, and we need to bridge 
that gap.
    Yesterday, I was at the Congressional Black Caucus when we 
looked at the issues of venture capital with start-up 
companies, and we looked at the disparities there. I commented 
then there is a reason why venture capitalists are not 
investing as much in black businesses. One reason is that you 
look at the senior leadership in venture capital, and only 2 
percent are African American. So there are obstacles that are 
out there that we need to do something about.
    And, yes, it is important because that is what is right 
about this country is to give opportunity to all, but it is 
also holding down the growth potential of this country when we 
hold down entrepreneurship in minority communities.
    The fastest growing firms in the United States are owned by 
minority entrepreneurs. The great State of Maryland is no 
exception. In fact, Maryland is home to the highest average 
number of minority-owned businesses in the country and ranks 
second for minority-owned women businesses.
    In 2012, minority businesses accounted for 38 percent of 
all Maryland small firms compared to 29 percent nationally. 
Despite this growth, gaps in key areas remain in Maryland's 
minority-owned and non-minority-owned businesses.
    In 2012, minority-owned businesses created .8 jobs to the 
economy, compared to the non-minority community, 2.3 jobs. It 
shows that this gap, what is affecting our overall economy. If 
we could do better with access to capital to all businesses, we 
will grow our economy and create more jobs.
    Non-minority-owned firms also reported gross receipts four 
times that of minority-owned businesses. This disparity, if we 
can bridge this gap, we can grow our economy. The gap results 
in part from the significant obstacles that minority business 
owners face in accessing capital, including capital through 
contracting opportunities.
    Here is what we know. Minority-owned businesses are two to 
three times more likely to be denied credit, more likely to 
avoid applying for loans because they believe they will be 
turned down from those lines, and are more likely to get 
smaller loans and pay higher interest rates and use non-
conventional loan sources that are not as regulated.
    Adding to these barriers, we know that banking 
consolidation has harmed small businesses lending in Baltimore. 
There has been a consolidation in banking. We all know that. We 
know how we have seen the conglomerates, these international 
firms. They are not as attuned to dealing with small 
businesses, minority businesses, women-owned businesses.
    According to a recent report from Johns Hopkins--and we 
will have testimony on this from Mary Miller--bank deposits in 
Baltimore nearly doubled between 2007 and 2016, yet the number 
of small loans actually were less. So there has been a 
disconnect between the banking community and providing access 
to capital to small businesses. Access to capital matters 
because it correlates to hiring. Closing the wealth gap between 
minorities and non-minorities are fueling the general economy.
    Based on the data from the National Small Business 
Association, there is a clear correlation between a small 
business' ability to get financing and its ability to hire. If 
minorities are not getting access to capital, the economy is 
losing job opportunity. All of us need to be interested in this 
issue for many reasons.
    As Stanley Tucker testified in 2015 on this topic, ``There 
is a direct correlation between the growth of these businesses, 
minority- and women-owned, and who they are. Minorities hire 
minorities; women hire women.''
    Entrepreneurship is one way to chip away at the wealth gap 
experienced in the minority communities, particularly in the 
black community.
    The Small Business Administration has programs that exist 
to increase access to capital. They do a lot of good, and I 
support them, but some of these programs struggle to adequately 
serve minorities and have been struggling for some time.
    In the 7(a) loan program--this is our premier program under 
the SBA, the one that gets the most attention--black business 
owners received only 4 percent of approvals and 2 percent of 
the dollars in FY 2017, despite owning 9 percent of the 
country's small businesses. That is unacceptable. Hispanic or 
Latino borrowers received only 8 percent of the 7(a) approvals 
and 6 percent of dollars, despite owning 12 percent of small 
businesses. We must do better.
    In Baltimore, the lending environment is even more 
disparate, with black businesses receiving only 19 percent of 
approvals and 12 percent of dollars, despite owning 47 percent 
of businesses.
    The SBA 504 program, which finances buildings and 
equipment, the longer-term financing critical for economic 
expansion of a business, a growth, that are poised to create or 
save jobs, also does a lot of essential financing in this 
country, but it consistently fails to reach black and Hispanic 
or Latino borrowers at the level equal to their business 
ownership.
    Now, not all is bad. The SBA's Microloan Program and the 
7(a) Community Advantage Pilot Program have shown promising 
results in reaching underserved communities, and I hope we will 
have a chance to talk about that. And I look forward to hearing 
more from our witnesses as to how these programs have been 
effective and what we can do to make the 7(1) and 504 programs 
more effective and reaching all audiences.
    Lack of access to credit for minorities is not a new 
problem, and the trends show that this situation is not 
improving as quickly as it needs to do. We can and must do 
better.
    Today, we will hear from witnesses who can talk about the 
programs I just mentioned. If the SBA programs are not working 
to adequately reach all Americans, I want to have a 
constructive exchange about how to make them better. I also 
want to hear about non-SBA products and services that are 
helping minority-owned small businesses in Maryland.
    So, to our witnesses--and I really do thank you all for 
being here. This is an incredibly important topic, and I really 
do look forward to your testimonies and our exchange.
    As is the Committee's practice, without objection, your 
full statements will be made part of our record. We would ask 
that you try to summarize, 5 minutes. We do not have a timer 
on. I think they forgot to bring the timer, but anyway----
    Ms. Wheeler. Kathryn has----
    Senator Cardin. Oh, we do have a timer. I see. I am sorry. 
We have the old-fashioned timer, not quite as fancy as we have 
in our Committee room in D.C.
    [Laughter.]
    But we ask that you try to keep it within that range.
    First, we will hear from Bill Manger, associate 
administrator of the SBA Office of Capital Access. Mr. Manger 
oversees the SBA loan program policy and oversight, managing a 
$120 billion portfolio of direct and guaranteed loans, nine 
operation centers, and 560 employees.
    After Mr. Manger, we will hear from Dawn Medley, vice 
president of Business Finance Programs for FSC First, a 
nonprofit organization whose mission is to provide local, 
small, and minority-owned businesses in Prince George's County 
and the State of Maryland access to creative and innovative 
finance solutions through direct and indirect loans.
    Following Ms. Medley's remarks, we will hear from John 
Lewis, who is executive vice president and chief administrative 
officer of The Harbor Bank of Maryland, the only Maryland-
chartered, African American-owned and -managed commercial bank. 
We did not have Harbor Bank during Willie Adams' day, so that 
did not exist. The Harbor Bank is an important fixture in 
Baltimore, especially for the black business community, 
providing underserved entrepreneurs with SBA loans and business 
assistance, checking and savings accounts, and critical 
financial guidance. Mr. Lewis has over 20 years of experience 
in the financial services. So we welcome you here.
    And lastly on this panel--we have two panels--we will hear 
from Marla Bilonick, the executive director of the Latino 
Economic Development Center, on the importance of SBA Microloan 
Programs for business owners and particularly Latino business 
owners in the Baltimore area and D.C. She has led the LEDC's 
regional efforts to drive the economic independence and social 
advancement of working-class Latinos and minorities. LEDC is 
the second largest SBA micro lender in Maryland--and found out 
this week that they have been approved to participate in the 
SBA's 7(a) Community Advantage Pilot Program. That is 
critically important and one of the subjects we are going to 
talk about today because of the moratorium that has been put in 
place.
    Congratulations for getting in under the wire. We would 
like to hear how you were able to achieve that.
    I will hold the introductions of the second panel after we 
complete the first panel, and we will start with Mr. Manger.

 STATEMENT OF BILL MANGER, ASSOCIATE ADMINISTRATOR, OFFICE OF 
CAPITAL ACCESS, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, 
                               DC

    Mr. Manger. Okay. Thank you to the members of the Senate 
Committee on Small Business for having me testify today. I 
would also like to thank Ranking Member Cardin for the 
opportunity to answer questions in his home State about SBA's 
loan programs and how they assist minorities with access to 
capital. Additionally, I would like to thank our hosts at 
Morgan State University for providing this beautiful venue.
    As associate administrator for the SBA Office of Capital 
Access, it is my job to administer programs that make capital 
available to small business entrepreneurs who would otherwise 
be unable to access capital to start or expand a business 
through conventional means. Many of SBA's lending partners are 
community-based and have a particular focus on providing loans 
to veterans, women-owned businesses, minority-owned businesses, 
and businesses located in rural communities.
    SBA has several programs that help minority entrepreneurs 
obtain access to capital, but the most common and widely known 
is the 7(a) loan program. This loan program offers guarantees 
on loans to small businesses of up to $5 million on reasonable 
terms and conditions that can be used for almost anything, 
including acquiring land, purchasing or constructing a 
building, purchasing equipment, or working capital. On loans up 
to $150,000, the guarantee is 85 percent of the value of the 
loan. For loans over $150,000, the guarantee is 75 percent.
    For small businesses that need longer-term loans for fixed-
asset acquisition, such as property, a building, or heavy 
equipment, SBA offers the 504 Loan Program. These loans are 
made available through Certified Development Companies, CDCs, 
which are SBA's community-based partners. The 504 loans are 
typically structured with a lender providing 50 percent of the 
cost of the project. The CDC is providing the next 40 percent--
that is the 504 loan--and the borrower contributing the 
remaining 10 percent of the project cost.
    The advantage of this program is that it provides terms of 
10 years, 20 years, and, just introduced in April, 25 years, 
all at fixed interest rates. The addition of the 25-year term 
for the 504 program offers borrowers an extra 60 months of 
financing, freeing up cash flow for the small business.
    An example of a recent 504 loan being made to a local 
business owner right here in the Baltimore area is the $3.5 
million loan that went to Laundry City West in June. The owner 
currently has plans to increase the number of his employees 
over the next 2 years.
    Under Administrator McMahon's leadership, there has been 
growth in our smaller, including a record volume of dollars 
lent in our Microloan and Community Advantage Programs. Both 
the Microloan and Community Advantage Programs are designed to 
provide access to capital to traditionally underserved 
communities through mission-oriented lenders.
    The SBA's Microloan Program offers small business loans of 
up to $50,000 from not-for-profit lending intermediaries. SBA 
makes funding available directly to the intermediaries which in 
turn lend to small businesses. The average size of a microloan 
in the program is just under $14,000.
    The program has been very successful in filling a need for 
small loans. For example, in Fiscal Year 2017, the Microloan 
Program provided loans with reasonable interest rates to almost 
5,000 small businesses. Year-over-year, we have seen a 5.6 
percent increase in these loans, which created and/or retained 
an estimated 17,648 American jobs year to date. I would like to 
note here that over 8 percent of our microloan small business 
borrowers return to the SBA when seeking larger amounts of 
capital from one of our other loan guarantee programs.
    In our Community Advantage Program, mission-oriented 
lenders can make SBA-guaranteed 7(a) loans of up to $250,000 
for those small businesses that have capital requirements above 
the microloan limit of $50,000.
    Currently, my office has implemented new collaborative 
efforts with our Office of Field Operations to increase the 
number of loans in both inner cities and rural areas. We have a 
goal to increase the number of loans by 5 percent in HUBZones 
and rural areas, and beginning October 1st, we are offering fee 
relief for 7(a) loans of up to $150,000 made in these specific 
areas.
    We view this initiative and others such as the launch of 
our Lender Match tool last year as valuable ways to provide 
access to capital for minority entrepreneurs looking to attain 
the American dream. Lender Match is a technology platform that 
allows entrepreneurs to complete a quick online form, without 
registration or cost, in order to be connected with an approved 
SBA lender within 48 hours. Lender Match is an extremely useful 
tool to protect small businesses from non-regulated predatory 
lenders.
    Another electronic platform we have developed for our 
lending partners who do not make a large number of SBA loans is 
SBAOne, which provides a step-by-step process for submitting a 
loan with an SBA guarantee.
    Additionally, my office is working in collaboration with 
our Office of Field Operations to train our Lender Relations 
Specialists on how to better support our lending partners, 
encourage more lenders to use our programs, and provide first-
class customer service.
    As you can see, there is a lot of work being done at the 
SBA to help aspiring entrepreneurs everywhere. I am very proud 
of the work we are doing at SBA and the strides we have made to 
make our programs as effective and efficient as possible.
    Thank you very much for inviting me to testify here today, 
and I look forward to answering your questions.
    [The prepared statement of Mr. Manger follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Thank you very much.
    I do also want to acknowledge that Ryan Dorsey is with us, 
the Councilman from this District. We thank you very much for 
being here.
    And we also have a representative representing my colleague 
in the Senate, Chris Van Hollen, my partner, who does an 
incredible job on these issues, small business issues, so thank 
you very much.
    I also want to acknowledge my colleagues in the House that 
represent this area--Elijah Cummings, John Sarbanes, and Dutch 
Ruppersberger--all strong proponents of small business.
    And, lastly, I think I should mention Parren Mitchell, who 
chaired the House Committee on Small Business and provided 
great leadership for the small business community through his 
leadership in the House of Representatives.
    Ms. Medley.

STATEMENT OF DAWN R. MEDLEY, VICE PRESIDENT OF BUSINESS FINANCE 
                 PROGRAMS, FSC FIRST, LARGO, MD

    Ms. Medley. Thank you again, Senator Cardin and members of 
the Committee on Small Business. My name is Dawn Medley, as 
stated before, and as the vice president of Prince George's 
Financial Service Corporation, also known as FSC First, I 
provide oversight of our loan administration team, which 
consists of five bankers, including myself, from various 
institutions like SunTrust, PNC, NCB, CitiFirst, BB&T, and 
SBA's OCRM and various Federal, State, and County State 
agencies.
    And I also administer eight loan products, including the 
SBA Community Advantage Program. We market it as a Small 
Business Growth Fund and SBA 504.
    Again, it is my pleasure to serve on this panel today 
because it is always a great day to speak about what is working 
to assist small business with access to capital and what can be 
done to further improve that effort.
    FSC First has a 40-year successful track record in the 
industry. We were established in 1978 as a 501(c)(3) nonprofit 
organization and in 2000 was designated as a CDFI by the U.S. 
Treasury.
    In 1982, 36 years ago--I was not there then.
    [Laughter.]
    Through the U.S. Small Business Administration, FSC was 
designated as a Certified Development Company, or CDC. We have 
been an SBA Community Advantage Lender now for 5 years, 
receiving our approval in 2013, and received Delegated 
Authority in March of 2017.
    We also serve as a fund manager and lender service provider 
for a Microenterprise Fund; the Maryland Video Lottery 
Terminal, or VLT Program; the County's $50 million Economic 
Development Incentive Fund; the City of Bowie Revolving Loan 
Fund; and two Green Energy Programs, C-PACE and Green Energy 
Loan Guaranty Program.
    Our business loan programs have assisted businesses that 
have created over 7,600 jobs in just the last 20 years. We 
operate very much like a community bank in that we fully 
underwrite all our loans and we retain the loans and service 
them from origination to maturity; however, we also focus on 
business sustainability. There is no need in providing capital 
with terms so burdensome that they are impediments to healthy 
cash flow and liquidity at the outset of the business.
    Our experience as a Community Advantage lender is that this 
program has been an invaluable asset to our ability to provide 
capital to small minority-owned business in Prince George's 
County Maryland. We could do more if we were not limited by 
having to provide loan loss reserves because our $4 million 
loan pool is limited to serving county-based businesses due to 
the funding source for those loan loss reserves.
    Just this past fiscal year, we had to turn away or attempt 
to source another program, $3.4 million in applications from 
small minority businesses throughout Central and Southern 
Maryland across seven counties. We became a CA lender to better 
service this unmet need for capital but are still restricted 
from helping due to this requirement.
    Still, without this guaranty provided by Community 
Advantage, we would not be able to utilize our loan pool at the 
rate we do now because our bank pool of participating lenders 
requires that we have a guaranty in order to lend. 
Nevertheless, we manage to do a very good job providing loans 
in our underserved communities utilizing CA where we can.
    FSC's portfolio of CA loans is diverse, consisting of 100 
percent of loans being made to minorities and 55 percent to 
women-owned businesses. Sixty-six percent of the loans are to 
black or African-owned businesses; 22 percent are to Asian-
owned business, and 11 percent are to American Indian- or 
Alaskan Native-owned businesses.
    Our industry mix is just as diverse, consisting of 
restaurants, food service and caterers, media and broadcasting, 
professional staffing, and construction.
    Seventy-seven percent of our loans have been made in 
underserved markets, as defined by the SBA, creating 122 jobs 
and retaining 94 jobs.
    The CA portfolio is quite healthy as well. FSC has 
experienced zero losses--no defaults, no charge-offs, no 
workouts, no liquidations. There is one caveat. One borrower 
filed for personal bankruptcy, which of course is a technical 
default of the loan documents, but continued to pay as agreed 
and paid the loan off early and in full.
    Our borrowers realize that but for the Community Advantage 
loan guaranty, their business ownership and expansion dreams 
would not be possible, and so they have been diligent in being 
good stewards of the financing that has been made available to 
them.
    Many of our businesses are startup or emerging businesses 
who have been turned away by banks. We manage risks starting 
with the application package, requiring a business plan, not a 
business paragraph, which includes a viable marketing strategy 
and financial assumptions based on current industry data and 
site location demographics.
    A good business in a bad location can be just as 
detrimental as unrealistic revenue projections. We use common 
sense and best practice underwriting to give the business the 
best chance to be able to repay the loan, and we stay close to 
our borrowers through site visits, financial statement and tax 
return analysis, and regular personal engagement, so we can try 
to detect any tremors in the business early enough to help.
    We utilize this approach to be an instrument in eliminating 
barriers to capital and to graduate businesses to being 
bankable.
    One of our borrowers, a media and broadcast company, has 
been able to expand nationally after receiving a $100,000 CA 
loan. Even though they had a collateral shortfall, she has paid 
her loan off 3 years early and is now bankable.
    Prior to Community Advantage, the SBA 504 program was our 
organization's flagship program. It is our desire for it to be 
so again. We have obtained SBA authorizations for 90 loans in 
our 40-year history, most of them not in the recent past due to 
competition with banks utilizing the 7(a) program over the 504 
program, increased regulations, increased compliance and 
reporting requirements, loan submission software limitations, 
and surprise new policies not clearly communicated or included 
in the SOP.
    Even though SBA has been responsive to our inquiries and 
addresses our questions rapidly, the latter makes utilizing the 
program more difficult and is a barrier to making more loans 
and creating more jobs.
    Of those 90 loans, only 29 were to minority-owned 
businesses and 12 were to women-owned businesses.
    We would like the opportunity to increase 504 lending again 
as our pipeline and our target market areas are revealing many 
new possibilities.
    FSC First specializes in blending our diverse loan products 
to create capital solutions for businesses that then create 
jobs and increase economic growth.
    I thank you for the opportunity and for inviting me to 
testify today.
    [The prepared statement of Ms. Medley follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Quite an impressive record. Well done.
    Mr. Lewis.
    I should point out that Joe Haskins, the founder of Harbor 
Bank, is an alum of Morgan State University. I want to point 
that out.

  STATEMENT OF JOHN LEWIS, EXECUTIVE VICE PRESIDENT AND CHIEF 
      OFFICER, THE HARBOR BANK OF MARYLAND, BALTIMORE, MD

    Mr. Lewis. Well, on behalf of our chairman and chief 
executive officer, Joseph Haskins, Jr., thank you for inviting 
The Harbor Bank of Maryland to testify at today's field 
hearing.
    My name is John Lewis, and I serve as executive vice 
president and chief administrative officer of The Harbor Bank 
of Maryland.
    Founded in 1982, The Harbor Bank of Maryland is a Maryland-
chartered commercial bank headquartered in Baltimore, Maryland. 
The Harbor Bank of Maryland is one of few Baltimore-based 
community banks and was founded in part to make capital 
available to creditworthy borrowers who were otherwise unable 
to access bank capital.
    Our portfolio has always been reflective of Baltimore and 
all of its communities. A point of pride and distinction is 
that we have been recognized an unprecedented 12 times by the 
United States Treasury with the Bank Enterprise Award for 
demonstrating an increase in lending, investment, and service 
activities in distressed communities within our footprint.
    The Harbor Bank of Maryland is a U.S. Treasury-designated 
Community Development Financial Institution, or CDFI, a 
designation which requires 60 percent or more of our loans to 
be made in low-income communities.
    Our designation also lists our CDFI target populations as 
low-income communities in Greater Baltimore and African-
Americans.
    The Harbor Bank of Maryland continues to work with the U.S. 
Small Business Administration as a 7(a) lender, a two-time 
awardee under the Program for Investment in Microentrepreneurs, 
known as PRIME, the Baltimore co-chair of the Partnership for 
Lending in Underserved Markets along with the U.S. Small 
Business Administration and the Milken Institute.
    Since its founding, The Harbor Bank of Maryland and its 
affiliates have been innovative in providing capital access, 
advice, and financial services to underserved areas throughout 
its regional footprint of Maryland; Washington, D.C.; and 
Northern Virginia. Its subsidiary, Harbor Financial Services, 
is the first community bank-owned investment subsidiary in the 
country.
    Its holding company, Harbor Bankshares Corporation, 
expanded the organization's ability to provide gap capital by 
winning competitive New Market Tax Credits awards seven times 
for a total allocation of $299 million. Those awards have 
created over 4,000 jobs and attracted over $2 billion in 
investment into local projects which, by definition, would not 
have happened but for Harbor's investment.
    The provision of capital has continued with the growth of 
Harbor's mission-based non-profit affiliate, The Harbor Bank of 
Maryland Community Development Corporation, also a U.S. 
Treasury-designated CDFI. This affiliate provides gap capital 
in forms which range from patient debt capital to equity. Its 
innovations include the formation of an EB-5 Immigrant Investor 
Program Regional Center, the creation of the Minority Business 
Pre-seed Venture Capital Fund. It also has dedicated technical 
assistance and acceleration programs for small businesses, 
neighborhood community development corporations, nonprofits, 
and small real estate developers.
    These programs are all housed in the Joseph Haskins, Jr. 
Center for Community and Economic Development, a 6,000-square-
foot co-working space located at the headquarters of The Harbor 
Bank of Maryland.
    Harbor expects to continue its innovations in providing 
capital to underserved markets with its platform for 
Opportunity Funds, which were created by the Tax Cuts and Jobs 
Act of 2017.
    In September 2016, The Harbor Bank of Maryland began a 2-
year pilot program called The Partnership for Lending in 
Underserved Markets, co-chairing this initiative again with the 
SBA and the Milken Institute.
    I request that the two white papers produced by this 
initiative be officially added to the record.
    Senator Cardin. Without objection.
    [The information appears in the Appendix on page 99.]
    Mr. Lewis. Thank you.
    The ``Partnership for Lending in Underserved Markets'' 
generated the following key considerations for increasing 
capital access. The first was the observation that a committed 
local partner who knows the market and its players well is 
essential to advancing any capital access solution.
    The Harbor Bank of Maryland reintroduced SBA 7(a) lending 
in calendar year 2018 and is currently on track to close 10 
deals totaling approximately $5 million. The range of those 
deals is from $100,000 to $1.5 million.
    Eighty-five percent of those deals are to minority-owned 
companies, and with this measured reentry, we have zero dollars 
on advertising to date. Harbor will close the year as one of 
the most active lenders in the market by deal size and by 
number of deals. This makes the point that community banks are 
essential to small business capital access solutions. Small 
banks lend to small businesses.
    Expert knowledge of local market and submarket conditions 
allows banks to properly assess risk and provide capital where 
other banks may be challenged.
    Another observation of the PLUM initiative was that 
minority businesses benefit from targeted networks that 
prioritize their needs.
    In minority communities, providing access to capital often 
means confronting two challenges. The first challenge is having 
capital in the right form to provide to businesses. Debt is the 
wrong form of capital for many businesses with significant 
operating risk in underserved communities.
    The second challenge is preparing businesses for capital. 
The SBA's offerings through SCORE and similar technical 
assistance programs are key to meeting the specific needs of 
minority businesses. Minority businesses, just like startups in 
Silicon Valley, often need supplements to their human capital.
    The Harbor Bank of Maryland provides technical assistance 
through its various programs and co-working space. Those 
programs were greatly aided by the receipt of two operating 
grants from the SBA's Program for Investment in 
Microentrepreneurs. Those grants allowed us to service hundreds 
of businesses.
    The third observation of the PLUM initiative was the lack 
of understanding of cultural factors as a major factor in the 
barriers to access to capital for black and Hispanic 
entrepreneurs and small business owners.
    The Harbor Bank of Maryland is one of 21 remaining African 
American Minority Depository Institutions, or MDIs. MDIs are 
designated by the Federal Deposit Insurance Corporation. These 
institutions have a long history of providing private capital 
and advice to minority businesses.
    According to a recent study, MDI branches are located in 
Census tracts with an average of 74 percent minority 
population. That is compared to 28 percent for all FDIC-insured 
institutions.
    Our 80 employees are part of the fabric of this community, 
with a depth of access that comes from being born, schooled, 
churched, and accepted by its members. In fact, our Chairman 
and CEO, Joseph Haskins, Jr., is a graduate of this fine 
university we are in today.
    A study by AEO cites three gaps which must be addressed to 
overcome capital access issues: the wealth gap, the credit gap, 
and the trust gap. Earning the trust of minority communities 
takes the demonstrated and enduring commitment to their 
success, health, and inclusion. It is frankly the one area of 
finance where past performance may be indicative of future 
results.
    The last thing I will mention is there are policy solutions 
that serve as barriers to minority capital access. 
Relationships and partnerships with policy champions can be the 
difference between good ideas being executed and good outcomes 
happening.
    There are many aspects of capital access that work. The 
CDFI Fund works. SBA programs that foster small business 
lending and waive fees work. The Program for Investment in 
Microentrepreneurs works. Their continued support by policy 
champions is essential.
    We also believe that the Opportunity Zones created by the 
Tax Cuts and Jobs Opportunities Act creates an outstanding 
opportunity, but we also believe that similar to other programs 
and other challenges to capital access, without having the 
proper intermediaries, capital will not flow through that 
program to minority communities as well.
    A recent study on the MDI industry demonstrates that MDIs 
have the highest percentage of small business loans to total 
assets but also have the lowest median capital-to-asset ratio.
    Thank you for the opportunity to provide this testimony, 
and I welcome your comments and questions.
    [The prepared statement of Mr. Lewis follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Thank you very much for your testimony.
    We will turn now to Ms. Bilonick.

    STATEMENT OF MARLA BILONICK, EXECUTIVE DIRECTOR, LATINO 
          ECONOMIC DEVELOPMENT CENTER, WASHINGTON, DC

    Ms. Bilonick. Thank you.
    Good morning. My name is Marla Bilonick, and I am the 
executive director of the Latino Economic Development Center, 
best known as LEDC. Thank you very much, Senator Cardin and the 
Committee on Small Business and Entrepreneurship for having me 
here today.
    LEDC is a 27-year-old organization with the mission to 
drive the economic and social advancement of low- to moderate-
income Latinos and other underserved communities in the D.C. 
and Baltimore Metropolitan Areas by equipping them with the 
skills and tools to achieve financial independence and become 
leaders in their communities.
    We operate out of five offices in the region, with over 40 
professional and bilingual staff providing top-notch services 
to our clients.
    On an annual basis, we serve well over 4,000 low- to 
moderate-income residents. Scanning all of our programs, the 
majority of our clients are Latino at 60 percent. A sizeable 
portion are African American at 30 percent, and the remaining 
portions are white/Caucasian and Asian at 10 percent.
    Our core asset-building programs are Housing Counseling, 
Affordable Housing Preservation; Small Business Capacity 
Building; and Small Business Lending, which will be the focus 
of my conversation today.
    We are a SBA micro-lending intermediary and a certified 
Community Development Financial Institution. LEDC receives 
support for our lending services from partners including the 
SBA, CDFI fund or Treasury, private corporations, and 
philanthropic foundations.
    Since we began lending in 1997, we have rolled out more 
than $15 million in capital in the form of over 1,200 small 
business loans. We have provided small business technical 
assistance services to thousands of aspiring and existing small 
business owners in the region. Last year, LEDC distributed 
close to 200 loans in the communities we serve.
    Until recently, our loan products ranged from $500 to 
$2,000 on the consumer side and up to $50,000 for small 
businesses as an SBA micro lender.
    So, for 20 years, we were limited to the $50,000 threshold, 
despite significantly rising costs of doing business in the 
neighborhoods where we operate.
    In 2015, we were awarded a Community Economic Development 
Grant through the Department of Health and Human Services that 
allowed us to pilot lending to restaurants at the up-to-
$100,000 level. This program has been wildly successful, as we 
have disbursed $300,000 to four businesses that have created 
over 100 jobs. These loans are performing, despite representing 
the highest-risk industry that we lend to.
    Just 2 days ago, as you mentioned, we were informed that we 
have been approved as a SBA Community Advantage Lender. We are 
extremely pleased and eager to provide larger loans to our 
clients. The demand is there. While we do not have plans to 
abandon our core micro-lending business, we know that there is 
a market of clients with growing businesses that have graduated 
out of our micro-lending program and/or whose capital needs 
exceed our prior $50,000 threshold.
    For example, Mobtown Fermentation, a Baltimore-based 
kombucha company on a growth trajectory that could further 
their market expansion through an additional capital injection. 
Between 2015 and 2016, they grew by 253 percent and continue to 
show remarkable growth of over 100 percent year over year.
    They were capped at our $50,000 maximum loan amount when 
they received a loan from LEDC in January. However, they could 
use additional funding to expand outside of the Maryland, D.C., 
and Virginia markets where they currently have their products 
in 250 stores. They have their sights set on Pennsylvania, New 
Jersey, and New York, but they will not get there by patch-
working together the microloans and the occasional pitch 
competition prize money they may win. Traditional bank 
financing has eluded them as a young start-up.
    We currently have a pipeline of a dozen businesses like 
Mobtown that we will be putting on track for Community 
Advantage loans, now that we have the capacity to serve them. 
The Community Advantage Program is of utmost importance to 
scaling and supporting our small business communities.
    While there is a pervasive belief that CDFIs and other 
community lenders are less equipped to underwrite and service 
larger loans, I would respectfully beg to differ. At LEDC, we 
have a team of 20 staff dedicated to underwriting, risk 
management, portfolio servicing, and providing advisory 
services available to our borrowers. We have a centralized 
underwriting function and staff designated to the sole task of 
monitoring our portfolio and managing risk. Each loan is 
underwritten to an internal algorithm that assesses factors 
including loan to value, cash flow, available collateral, 
business and personal credit profile, among other factors.
    Using this algorithm, we assess each transaction with a 
grade reflecting its level of risk. Our current portfolio at 
risk, measured as loans late for over 30 days, is at 5.1 
percent, with an annual write-off rate that oscillates between 
2 and 2.5 percent.
    We achieve these metrics by having an in-house loan 
servicing team working closely with clients and tracking 
closely the financial performance of their ventures, including 
providing business advisory support where needed.
    We are doing deals that commercial banks would run from. 
However, our intensive underwriting process, coupled with 
constant attention to each deal and each client, keeps our 
loans performing and our portfolio sound.
    The Community Advantage Program is a critical product for a 
specific set of our clients. The communities we serve deserve 
access to a full range of financial products that can be 
tailored to their needs, rather than having to tailor and 
compromise their needs to fit a limited set of offerings.
    I am appreciative of the opportunity to testify and be with 
you today as well as your consideration of my perspective from 
the front line.
    [The prepared statement of Ms. Bilonick follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Thank you very much for your testimony.
    We have been joined by Dr. Wilson, who is the president of 
Morgan State University, one of the great educators in our 
country and doing a great job at Morgan. One of the things I 
like about Dr. Wilson is the way that he works very closely 
with this community and recognizing that the growth of the 
community and both Morgan are indeterminately intertwined.
    So thank you for your leadership, and we would welcome if 
you would like to make a comment, fine, but I just really 
wanted to thank you.

    STATEMENT OF DR. DAVID WILSON, PRESIDENT, MORGAN STATE 
                           UNIVERSITY

    Dr. Wilson. Thank you, Senator.
    Good morning, everyone. First of all, let me thank you, 
Senator Cardin, for creating this opportunity here, so we can 
hear, you can hear, and the Senate can hear from small business 
owners and entrepreneurs. We certainly have appreciated your 
support of Morgan's growth and maturation and the role that we 
play here in spurring economic development.
    We have the Earl G. Graves School of Business and 
Management here, and out of that school, we have an 
entrepreneurship program. We recently partnered with Goldman 
Sachs, and there are 10,000 small businesses programmed that 
are unfolding here in Baltimore.
    We have graduated three cohorts of entrepreneurs now out of 
that program, and so we are delighted that you are creating 
this opportunity to hear from small business owners and 
entrepreneurs as to really what they need in order to grow that 
business, so that businesses can continue to employ more 
individuals in our city and in our region.
    I do know that our honorable mayor, Catherine Pugh, wanted 
to be here today. She had an unfortunate conflict, but Mayor 
Pugh is a two-time graduate of Morgan. She also has an MBA from 
Morgan and started her own businesses along the way. So on 
behalf of our mayor and on behalf of the entire Morgan State 
University community, welcome to our university.
    Senator Cardin. Thank you, Dr. Wilson. I appreciate it 
very, very much.
    [Applause.]
    Mr. Manger, I would like to start with a question to you, 
and I want to put this in context. You rightly so have 
showcased the Microloan Program and the Community Advantage 
Program as to the success in reaching underserved communities, 
minority businesses, and how you have been reaching out to 
improve the programs themselves to meet the mission of the SBA. 
And that is noted.
    Administrator McMahon is well respected in our Committee. 
She has been very vocal about her commitment to make sure that 
the programs are diverse and fairly representative of this 
country.
    So I put that in context to three decisions that were 
recently made by the SBA that I am having a hard time 
understanding how they fit into the mission.
    So let me start with the Community Advantage Pilot Program, 
but I also will want to get on the record the fee waiver 
changes that are being suggested in the 7(a) program, also your 
mission rating, withdrawal of the mission-rating process.
    Mr. Manger. Mm-hmm.
    Senator Cardin. But we have had a lot of testimony from all 
these witnesses on the Community Advantage Pilot Program and 
the importance of that program.
    Administrator McMahon, when asked about that program, was 
very complimentary about it. Recognizing that it is through 
2020, we have been trying to make it permanent, she suggested 
that we wait until closer to 2020 before making those decisions 
so that we can properly evaluate it.
    So we were surprised to learn of modifications that were 
put in to the program by the SBA that could very well affect 
its ability to reach underserved communities. Can you just 
share with us the changes? One is to put a moratorium on 
additional certifications. As you have heard here, there are 
some questions about additional needs in that regard.
    Mr. Manger. Mm-hmm.
    Senator Cardin. Another dealt with increasing the reserve, 
and one of our witnesses already said the reserve is hampering 
her ability to make loans. The other deals with the size of the 
loan and different communities.
    So there were changes that were made. Can you just go over 
the rationale for that and whether there is now a change in 
SBA's position on whether we should try to make this permanent? 
You extended it for 2 years to 2022, but perhaps we should be 
looking at making it permanent.
    Mr. Manger. Sure. So let me start by saying, Senator 
Cardin, that Administrator McMahon and I are very committed to 
seeing the Community Advantage Program succeed. As you know, it 
has been a pilot program for several years now, and we want to 
do everything we can to make it strong and bolster it so that 
it does have long-term sustainability. And we want the 
additional time that we have called for. It is actually 2 years 
that we have called for it. It was to expire in March. We are 
letting it go through the end of the fiscal year to September 
30th, 2022. We want to make sure that we have the time to 
adequately observe the performance of the program based on some 
of the changes that we have made.
    And let me just go into some of the changes that we have 
made. We have extended the pilot, as I said, by 2 years. I want 
to say that we did take a suggestion actually that John Lewis 
made, and it was actually incorporated before we even heard 
from John today, that we have now expanded the ``underserved 
market'' definition to include opportunity zones. So that is an 
expansion of the areas that the loans may be used in.
    The eligibility for delegated status will be contemplated 
after seven loans are made. Right now, we are able to look at a 
lender and see after five loans if they should be given 
delegated status, which is very important. We have decided that 
we would like to see two more loans be disbursed before 
delegated status is reached because we have seen some earlier 
issues, not with any of the programs of my colleagues here on 
the panel--and they have spoken to their performance, but we 
had a report done in conjunction with Dunn and Bradstreet, 
which I brought a copy of here today, that shows that there are 
some lenders in the program that are stressed and seeing 
stressed portfolios that are affecting the program. So we want 
to take steps to make it as strong as possible so that we can 
eventually take it to permanency, just a couple of things that 
we are doing here.
    So we have also looked at the credit scores, credit scores 
of 139 or lower on scores show a much more significant problem, 
three times as great as loans that are at 140.
    So what we are saying is for those Community Advantage 
lenders that want to make a delegated loan, the lowest they can 
go is 140. If they want to go below that, we will let them do 
that, but they have to go through our centers for SBA staff to 
underwrite as opposed to just doing it delegated on behalf of 
the lender.
    So, again, it is just a change to try and tighten up where 
we have seen and identified numerically where we have seen some 
issues.
    We have increased the loan loss reserve correct on only the 
portion--on only the portion that is sold in the secondary 
market.
    When this program was first developed, actually, it was 
prohibited to sell these loans in the secondary market, and in 
fact, initially, under the Obama administration when this 
program was rolled out, the loan loss reserve was 15 percent. 
It was lowered to 5 percent for the portion that is not sold in 
the secondary market, and the portion that is sold in the 
secondary market went down to 3 percent when they allowed them 
to be sold in the secondary market.
    All we are asking is to increase that on the sold in the 
secondary market by 2 percentage points to 5 percentage points, 
so it is going to be 5 percent across the board. It is still 
lower than the program started with under the previous 
Administration, and the reason why we are doing that is because 
any loans that are sold into the secondary market, the SBA must 
make the money available to the investor who is holding that 
loan immediately before we can take any recovery. So we think 
that by adding an additional 2 percent that it will be in the 
loan loss reserve will help us be able to have some of that 
money to, again, pay the investor that has the loan on the 
secondary market.
    Most importantly, actually we took some steps here that I 
think the Community Advantage lenders should be appreciative of 
as well as our small business borrowers. We are limiting the 
fees that may be charged to a borrower, and we are also 
limiting the fees that a lender service provider can charge a 
Community Advantage lender because we have seen--again, the 
reports show it--that there have been some very stiff fees 
charged to not only borrowers but then to Community Advantage 
lenders who use a lender service provider. And we want to limit 
that because that is not the point of the program. We want to 
make sure we are getting capital out to small businesses. We do 
not want people to take huge fees away from the small business 
borrower or the Community Advantage lender.
    So these are steps that we are taking to strengthen the 
program. We want the additional time to observe the program 
with these changes in hopes that then, yes, we will be able to 
make the program permanent.
    Senator Cardin. Thank you.
    We were just somewhat taken aback that the changes were 
made when we thought all that would be made when the decision 
on permanency was made.
    Each of our other panelists have talked somewhat about 
different changes. Ms. Medley, you mentioned the reserve as 
affecting your ability to make loans. You have had a perfect 
record, and yet--so you were, I think, arguing that the 
reserves could even be lower. So I do not know if you want to 
comment or not about the increase from 3 to 5 percent in 
regards to part of these loans.
    Ms. Medley. Thank you, Senator Cardin.
    The reserves, the regular reserves that you must have on 
the portfolio at 5 percent are a challenge enough.
    When we explored selling loans on the secondary market, our 
analysis at the lower loan loss reserve amount was that it made 
no economic sense for our organization to be in the secondary 
market because of the additional reserves.
    If they are higher, there is no way that we would ever get 
to the point where we would be able to sell loans on the 
secondary market, which does improve cash flow. But when we did 
the long-term analysis on whether we should sell the loans or 
keep them in portfolio and just continue in that direction and 
not sell, it was more cost effective for us not to sell in the 
secondary market because of the reserve amount. And, certainly, 
with them increasing, there would be no possibility in the near 
future.
    Senator Cardin. Mr. Lewis, you mentioned the gaps that we 
have in regards to minority communities. You mentioned the gaps 
on wealth and on trust, but you also mentioned it on credit.
    Here, we are talking about increasing the credit score for 
participation. Does that present a problem as you see it?
    Mr. Lewis. So, generally, when we look at credit scores, 
particularly with entrepreneurs, anyone who has walked that 
path knows when you are starting a business, you do what you do 
to keep the business going, right? And that in itself, if you 
are starting from a position of not having wealth and your own 
cushion and not having family and friends and other investors, 
means that sometimes you may have a history of paying some 
bills slow. You may still pay them, but you may pay them slow.
    And that walk in that progression, certainly from someone 
who is not starting from a position of strength, would say by 
the time you get to actually having a successful business that 
is ready to grow, that is ready to meet with a lender or CDFI, 
that experience getting up to that point may have impaired your 
credit.
    And it speaks--a lot of the work that we do is not 
formulaic. It is relationship based. It is getting to 
understand borrowers, not only where they are going, but where 
they have been. And that relationship base basis of doing your 
underwriting and considering credit diminishes the importance 
of credit scores and things holistically about the opportunity 
to lend.
    But, certainly, anything that speaks to raising the 
required credit scores will be punitive to borrowers 
ultimately.
    Senator Cardin. Ms. Bilonick, my numbers show there are 113 
Community Advantage providers. I do not know if that includes 
you or not, so maybe it is 114.
    Ms. Bilonick. Probably not.
    [Laughter.]
    Senator Cardin. And they are located in 39 states.
    But my information also shows that we do have regional gaps 
in having the availability of these programs. With a moratorium 
being imposed, if it was imposed last week, you would not be 
eligible.
    From the Latino community, which is an emerging community 
in so many parts of the country, do we have enough CA-
authorized providers to make these loans, or will the 
moratorium have an impact? There is a growing change in this 
country.
    Ms. Bilonick. I will say that I do not know the geographic 
disbursement of the current CA lenders to make an educated 
answer for that question, but I would imagine that it will have 
an impact on minority communities that need this financing to 
be able to successfully grow their businesses.
    You know, apologies for not knowing this correct scenario.
    Senator Cardin. No, no. But the Latino community seems to 
be a growing community.
    Ms. Bilonick. Absolutely.
    Senator Cardin. And the fact that you just got certified 
points out that there is a growing need in the community----
    Ms. Bilonick. Definitely.
    Senator Cardin [continuing]. And trying to be filled. My 
concern is that imposing a moratorium freezes the CA lenders 
that we currently have.
    In the Latino community, it seems like it is a more dynamic 
community that may not now be able to get a CA lender in order 
to take advantage of this program.
    Ms. Bilonick. I think that is absolutely right.
    And I did want to just also add onto what John was saying. 
I think the other issue in terms of credit score that our 
clients have is not only late payments but using sort of--as I 
said, patch-working together alternative methods so that they 
can put together what does not exist in the market, which is 
the funding that they need.
    So they may be overleveraged, which is bringing their 
credit score down, just because they have maxed-out credit 
cards and other forms of credit that they have creatively put 
together in order to be able to finance their businesses.
    Senator Cardin. And, Mr. Manger, I would just hope that we 
will get this input because I think we all want to make this 
program work as effectively as possible. I would just hope that 
there will be an opportunity for this type of input as we look 
toward the ultimate resolution of the permanency of this 
program and how it should be configured.
    Mr. Manger. Certainly.
    Senator Cardin. And how we can learn from this program in 
regards to the 7(a) program itself and the 504 program as to 
how we can make it more effective in reaching underserved 
communities.
    Mr. Manger. Senator, that is really exactly why we are 
taking the actions that we are taking now. We want to make 
sure, again, we can bolster the program and make it as strong 
as possible.
    What we are seeing, again--and the numbers were provided--
the last 12-month default rate for those Community Advantage 
loans that were made with scores below 140 is over 10 percent. 
That is much higher than any other cohort in our 7(a) 
portfolio, and all we are saying is that you can still make a 
loan below 140 credit score, but it has to be done through one 
of our centers.
    If you want to be a delegated lender, then you will have to 
make the loans above that 140 level, just because of the 
evidence that we have seen in the default rate.
    Just to give you the balance, those over 140, the last 12-
month default rate is below 4 percent. So you see how 
dramatically it increases when you go below 140. That is what 
our concern is.
    Senator Cardin. But I would just counter that, and I think 
Mr. Lewis might be the best to respond to this.
    One of the trends that we have seen that has been just a 
trend that has hurt us in making credit available to small 
businesses has been the banking consolidation, the loss of 
headquarters, more branch banks, et cetera.
    You look at a Harbor Bank, and you see an institution that 
is a community institution. They cannot run away from the 
community. We will find them, and their record is incredible in 
underserved communities.
    But as we move more to the consolidation and branches, yes, 
it may seem like a simple process to have a different entity 
make that determination, but it becomes intimidating for 
minority businesses.
    Mr. Lewis.
    Mr. Lewis. Certainly.
    So I would say the key point here is that scoring in itself 
can be challenging for small businesses, for minority 
businesses, for the things that we talked about before. There 
are gaps in access.
    So when you get to distribution, which is really the score 
of this, which is how do I get to these businesses, in getting 
to the businesses, you have got to be able to get to a point 
where you understand them and understand them not from a score 
perspective. Even if that is the best that you have, it is an 
inferior way to make loans because lending is like any 
investing. If you know your neighborhoods, if you know your 
entrepreneurs, if you know your business opportunities better 
than anyone else, you can make a loan that other people may not 
be able to make. And, if anything, that is the distinction of 
community banks, of MDIs, of local lenders.
    The other thing that I would lift, though, that is very 
important, when we talk about low-income communities or 
communities that have been disinvested for generations and 
generations and generations, they have particular challenges. 
There is a heightened risk profile generally in those 
communities, which does not say that you cannot lend in those 
communities. It says that you have to be an expert at lending 
in those communities.
    One of the things that has been very effective for us--and 
in doing that, you may be taking on a heightened risk in your 
portfolio, and you have to acknowledge that. You have to price 
it well. You have to structure well.
    But in doing that, one of the things that has been 
effective for us in taking that increased level of risk has 
been the Bank Enterprise Award that we won 12 times. 
Essentially what that does is it allows us to take the risk, 
have a riskier portfolio, and then be compensated for having 
made those loans, in arrears which is not perfect, but it still 
is a compensation for taking those risks. And we are able to do 
it effectively.
    So one of the things that I would offer and think of, if it 
is that you want to get to the point where you have got lower 
credit scores and still have the flexibility of doing it the 
way that we do it is to have some consideration of how you 
helped those lenders through capital support, so they continue 
to make those loans on a riskier level.
    Senator Cardin. Good suggestion.
    Yes.
    Ms. Bilonick. I just had a question with regard to the 
amount of time that would be added to the process by needing to 
refer to the SBA to underwrite.
    My fear would be that doing that would just drive the 
businesses to alternative sources like online predatory 
lenders, just because it will add a significant time to the 
underwriting process versus doing it in-house.
    Senator Cardin. And these are areas I hope that the SBA 
will take into consideration as we are continuing.
    I know our Committee is going to take a good deal of 
interest in this and try to be constructive in working with the 
SBA. I share that concern.
    You have a process now. If you do a different process, one 
of the things that we find with minority businesses, they do 
not make applications because they think they are going to get 
rejected, and they use the alternative sources, which are not 
good. And you wonder why there are more failures. There are 
more failures because they are undercapitalized.
    It is a cycle that we are trying to break, and I understand 
the logic behind every change you suggested. I would just urge 
that we look at the results. We have had really good results 
from the CA program. Let us make sure that we are improving 
those results, not moving in the wrong direction.
    I want to ask you quickly about the fee waiver.
    Ms. Bilonick. Yeah.
    Senator Cardin. This was an area of major interest in the 
last hearing we had. Congress is very much interested in the 
fee waiver program.
    As I understand it, you have modified the fee waiver 
program for loans under $150,000 under 7(a). That will only 
give partial fee waiver unless the loan is in one of the 
HUBZones or rural areas. Is that----
    Mr. Manger. That is correct.
    Senator Cardin. So does not that work to the disadvantage 
of the other 7(a) loans, small loans?
    Mr. Manger. So, currently, you are correct. This year, any 
loan under $125,000 gets fee relief. Again, the decision was 
made, though, that we wanted to offer fee relief targeted to 
help those communities that are underserved.
    If you get a small loan in the suburbs, should that person 
really get the fee relief or should the fee relief be targeted 
to HUBZones and rural areas that are underserved and 
underbanked, as you were talking about?
    So we have changed, shifted this year, the goal or the 
initiative so that fee relief will be offered up to $150,000, 
slightly higher, but again zones made in HUBZones or rural 
areas.
    Senator Cardin. I would just make this observation. I do 
not know if that is accurate. The fee waiver seems to have been 
very effective in helping underserved businesses.
    Mr. Manger. And that is what we are trying to still target.
    Senator Cardin. We are not sure if the definition of rural 
and HUBZone equates to underserved businesses, and I just hope 
we can evaluate that because we do think there are a lot--I 
mean, I know a lot of parts of Maryland that have had 
designations, are losing their designations. We have used a 
longer average time, so that they can continue to get some of 
the advantages of being in an economic zone. But these are 
businesses that cannot get the conventional types of interest.
    We used a smaller loan amount as the barometer to give the 
relief on fees because they are the ones that go more to the 
targeted businesses that we are trying to get help to, the 
women and minority businesses, et cetera.
    So I am not sure limiting it to HUBZone and rural--it may 
very well exclude a target group that we are trying to get to.
    Mr. Manger. I would just say, Senator Cardin, with all due 
respect, I think there are some small businesses that are 
getting loans of up to $150,000 that are really not an 
underserved market, and again, it could be a business that is 
located in a suburb of Washington, D.C., that then gets the fee 
relief, and the question is do they really need the fee relief 
or should it be going to historically underutilized business 
zones, which is the definition of a HUBZone?
    Senator Cardin. Well, we might differ on this.
    Mr. Manger. Okay.
    Senator Cardin. Let us share the information back and 
forth.
    Mr. Manger. Yes.
    Senator Cardin. I know of a lot of businesses that are 
minority-owned, women-owned businesses that do not fall in 
rural and do not fall in a HUBZone that should qualify for the 
maximum amount of help that we could give them to get loans. 
They cannot otherwise get those loans. I do not know if the 
observation here of anyone else on the panel on this or----
    [No response.]
    Let me move to my last point, and I will try to cover this 
quickly.
    Mr. Manger. Sure.
    Senator Cardin. And that is this mission rating. I 
understand you have pulled that, and the mission rating was an 
effort to try to identify those lenders that are giving smaller 
loans, rural loans, minority businesses, women businesses, 
veterans businesses, export businesses. Basically, we are 
trying to give them a mission rating so they could be 
identified as carrying out the mission that we want them to do 
in regards to underserved areas.
    It is also my understanding that you pulled that because 
this is a self-reporting information, and you were not clear as 
to the reliability of the self-reporting information, even 
though you do use self-reporting information for a lot of other 
purposes within the SBA.
    It seems to me that was sort of a sledgehammer approach to 
a program that is aimed at trying to identify those lenders 
that are carrying out the mission that we want them to, and now 
we have nothing.
    Mr. Manger. Well, Senator, I would just say that you are 
exactly correct that all of that data is reported on a self-
reporting basis, and we actually caveat any of the information 
that we put out and publish the data, and that it is captured 
on a self-reported basis.
    In fact, actually over 10 percent come in with undefined, 
undisclosed. So we thought it was not fair to rate a lending 
institution based on incomplete self-reported data. That is the 
issue.
    Senator Cardin. Do you have an alternative?
    Mr. Manger. I think we can continue to look at it, Senator, 
but we want to make sure that, again, in terms of credit risk 
oversight--and we just passed the 7(a) oversight bill--we want 
to make sure that we have as much oversight over those programs 
as possible, and trying to come up with some way to give 
someone extra credit based on unsubstantiated information just 
does not seem the right way to do it. So we will continue to 
look at other ways we can go about getting the mission 
accomplished.
    Senator Cardin. I want to thank all of the panelists. This 
has been, I think, extremely helpful.
    As I said in the introduction to Mr. Manger's question, our 
Committee wants to work with the SBA to accomplish the mission 
in helping underserved communities. We recognize it is a 
difficult definition of ``underserved communities,'' and that 
is why some of our concern on how you have drawn some of these 
lines.
    So we will continue to have this dialogue. We welcome our 
witnesses to continue to share with us your success.
    Very impressive record, Ms. Medley, in your business.
    And Harbor has an incredible record in helping our 
community.
    Ms. Bilonick, we look forward to your record. We do not 
have a record yet from you.
    [Laughter.]
    Although it has been 24 hours.
    Ms. Bilonick. Right.
    Senator Cardin. But we look forward to the growth of your 
business in our community.
    So thank all of our witnesses for the testimony.
    Ms. Bilonick. Thank you
    [Applause.]
    Senator Cardin. We have a second panel. We are looking 
forward to that. Our second panel--as we are making the 
transition, I will do the introductions in order to save a 
little bit of time.
    On our second panel, we have Ken Clark, who I believe is 
also a graduate of Morgan State University.
    Mr. Clark. Yes, sir.
    Senator Cardin. All right. We want to make sure we get that 
in there, Dr. Wilson. The use of this room is contingent upon 
promoting Morgan State every time we can.
    He is a business consultant in the Minority Business 
Development Agency Business Center representing the Capital 
Region Minority Supplier Development Council. In this role, Mr. 
Clark provides strategic counseling and business development 
services to local and national minority businesses.
    We will then hear from Tim Smoot, senior vice president and 
co-founder, CFO of Meridian Management Group, who will speak to 
us about the investment capital for minority-owned firms. We 
are happy to have Meridian Management Group back with us today, 
as we had the president and CEO, Stanley Tucker, join us in 
2015. Mr. Tucker is a frequent advisor to many of us here in 
the State of Maryland.
    And then we will hear from Mary Miller, who is a senior 
fellow at the Johns Hopkins University, 21st Century Cities 
Initiative. She will present findings from the 21st Century 
Cities eye-opening report entitled ``Financing Baltimore's 
Growth: Strengthening Lending to Small Businesses.'' Ms. Miller 
is the lead author of the report, and her team conducted 
critical research and identified causes for the decrease in 
small business lending throughout Baltimore County.
    Finally, we will hear from Will Holmes, who is representing 
Morgan State University in his role as the director of outreach 
for the Goldman Sachs 10,000 Small Businesses Initiative. As a 
consultant and small business owner, Mr. Holmes is living the 
access-to-capital issue, while helping expand opportunities for 
other minority businesses in Baltimore.
    So we will start first with Mr. Clark.

   STATEMENT OF KENNETH E. CLARK, BUSINESS CONSULTANT, MBDA 
    BUSINESS CENTER-CAPITAL REGION, CAPITAL REGION MINORITY 
        SUPPLIER DEVELOPMENT COUNCIL, SILVER SPRING, MD

    Mr. Clark. Good morning, Senator Cardin. Thank you very 
much for the opportunity to be here. Kenneth Clark, business 
consultant in the Minority Business Development Agency Business 
Center-Capital Region.
    This business center is operated by the Capital Region 
Minority Supplier Development Council under the leadership of 
Sharon Pinder, our president and CEO who could not be here 
today.
    I am delighted to be here at Morgan State in the newest 
building on campus, as both Ms. Pinder and I are alumni of this 
great institution.
    You have my written testimony, and I would like to reserve 
the option to offer some clarity and minor corrections in an 
updated submission in a few days.
    I will summarize some of the points in my testimony at this 
time. The original testimony is a little longer than 5 minutes.
    For clarity, I would like to explain the roles of the 
Capital Region Minority Supplier Development Council and its 
relationship with Minority Business Development Agency in the 
operation of MBDA Business Centers.
    The Capital Region Minority Supplier Development Council, 
CRMSDC, is one of the 23 regional councils of the National 
Minority Supplier Development Council, which was formed in the 
aftermath of the riots following the assassination of Dr. 
Martin Luther King. The significance of the establishment of 
the NMSDC was that it was built on the idea of economic 
development and wealth creation in the minority communities. 
NMSDC was established--they established regional counsels to 
certify minority businesses and to provide a linkage to their 
corporate procurement departments.
    The councils continue to host trades fairs, conferences, 
one-on-one matchmaking, and various networking events to foster 
interaction between MBEs and corporate buyers, most often 
through corporate supplier diversity professionals.
    CRMSDC also offers highly impactful training to the 
leadership of minority firms at major university business 
schools like Tuck, Kellogg, and others, and supplement that 
with local training opportunities. This has helped minority 
firms to move from startup and subcontractor status to more 
sustainable businesses.
    The impact of CRMSDC's activities is that its nearly 350 
minority businesses generate over $3 billion in revenue and 
employ approximately 20,000 people, and that is within this 
region.
    This tracks well with the National Minorities Supplier 
Development Council, where 15-, 1,600 corporations work with 
12,000 certified minority businesses to create $400 billion in 
output and $2.2 million in jobs. And I provided a graphic for 
your information on that.
    The Minority Business Development Agency developed along a 
similar path following the riots, only this way in the Federal 
Government with people like Parren Mitchell and others, 
Executive Order--putting pressure on the Administration--
Executive Order 11625, over 45 years ago, started OMB, the 
Office of Minority Business Enterprise, OMB.
    The Minority Business Development Agency, which was the 
name change, serves as the only Federal agency tasked to help 
minority businesses realize their full economic potential 
through technical assistance centers, public and private 
contracting opportunities, advocacy, research, and education 
for Minority Business Enterprise growth and development.
    The bulk of this work is accomplished throughout a 
nationwide network of 35 Minority Development Agency Business 
Centers.
    Included in that number are four manufacturing centers, 
which promote capacity building among minority manufacturers 
and one Federal Procurement Center.
    There is an Minority Business Development Agency 
manufacturing center located--operated by the City of Baltimore 
here at Morgan State University in the Business School.
    Each center provides services that assist businesses in 
accessing capital, accessing contracts, accessing new markets, 
as well as helping them in their growth in size and scale, 
providing strategy consulting.
    In 2016, CRMSDC, under the leadership of Sharon Pinder, 
competed to win an MBDA grant to run a business center here in 
the Washington, D.C., area. Later, in 2016, CRMSDC won a bid to 
run a Federal Procurement Center, the only one of its kind in 
the Nation. The Federal Procurement Center is designed to 
specifically help minority businesses with access to Federal 
and federally funded contracts.
    The business centers can help work with MBEs operating in 
Federal, State, local as well as corporate contracts. So our 
result is that we have a dual, two-pronged approach.
    Both teams use information systems tools provided by MBDA. 
They use our personal contacts and our personal knowledge of 
the various commercial and governmental sectors to help their 
clients win and--find and win contracts.
    They also assist their clients with finding loans, working 
capital, and other financial instruments from minority-friendly 
sources of which they have identified.
    At a recent training conference, both of our centers were 
recognized as being outstanding for our ability to provide 
contract activity, financial access, job creation, and 
retention of goals.
    The two centers combined have about 220 clients, and they 
have won over $240 million in contracts and have created 1,700 
jobs in the last year's program.
    There are a number of barriers that we operate to try to 
eliminate. Those barriers are timely bid notification, explicit 
discrimination due to stereotypes, higher and double standards, 
and MBE/DBE stigma.
    We compete with larger--we try to help against large 
project sizes, bonding and insurance requirements, and timely 
payment.
    We also try to combat the barrier of good faith to use 
minorities, except when they are required in a contract. There 
is explicit discrimination, and this whole issue of MBE and DBE 
stigma is a problem.
    The issues boil down to access to capital, contract and 
network access, and marketplace discrimination.
    I see my time is out, so I will thank you very much for the 
opportunity to present this testimony, and I will answer any 
questions you might have.
    [The prepared statement of Mr. Clark follows:]
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    Senator Cardin. Thank you, Mr. Clark.
    Mr. Smoot.

STATEMENT OF TIM SMOOT, SENIOR VICE PRESIDENT, CHIEF FINANCIAL 
     OFFICER, CO-FOUNDER, MERIDIAN MANAGEMENT GROUP, INC., 
                         BALTIMORE, MD

    Mr. Smoot. Thank you, Senator. I appreciate you inviting us 
today. I would like to thank you guys.
    My name is Tim Smoot, senior vice president and co-founder 
and CFO of Meridian Management Group, hereafter called MMG, a 
minority fund manager that provides capital to small-, 
minority-, women-, and veteran-owned businesses primarily based 
in Maryland. The majority of our funds managed by MMG are from 
Federal and State sources. The lion's share of the businesses 
we assist are unable to obtain financing from banks and other 
traditional financial institutions. MMG has a 23-year track 
record of excellence in managing funds in this arena. Over the 
years, we have financed $275 million in financing to more than 
1,100 companies.
    Specifically, we manage the Maryland Small Business 
Development Financing Authority and one of the VLT funds. Ours 
is called MCBIF.
    Having said that, access to capital has always been a 
number one obstacle for expansion of minority businesses.
    My partners and I have been in the commercial lending 
business for 35 years or more. I recall disparity study after 
disparity study concluding that relatively then same 
predicament. Minorities are being much more likely to be 
declined for financing than their white counterparts by 
significant numbers, being approved for loans on a much smaller 
level, and being forced to use expensive forms of financing 
from many others.
    Most studies found that the majority of the minority 
businesses have become more successful in obtaining credit card 
and microloan funding, which is helpful. However, they also 
concluded that, as stated in a study, those loans cannot 
replace the importance of larger working capital loans needed 
to actually grow businesses in a significant way.
    They also appear to be gaining more access to higher 
interest rate funding, including online financing, but it is 
very difficult to try to grow a business when the cost to 
capital is 15 to 30 percent.
    One of our relatively frequent requests for funding 
involves the refinancing of existing debt, the majority of 
which is expensive and has very short repayment terms, 
crippling a business' efforts to generate cash flow and sustain 
operations. The refinancing is designed to offer conventional 
bank lending rates and more traditional terms and in some cases 
deferments of principal and interest.
    The overall objective of this particular element of the 
program is to offer more ``patient capital'' to allow the 
businesses to grow and create jobs in minority communities, 
which is the very reason we are here today.
    It is pretty obvious that minority businesses tend to hire 
minorities, as you mentioned earlier, and much more willing to 
hire individuals in low-income communities and those who are 
not as well educated and those who are returning citizens from 
our penal institutions.
    Maryland is rather fortunate in that over the years, over 
the decades actually, MMG, its governors, and its Maryland 
lawmakers, including you, Mr. Senator--you would be interested 
in knowing I have a picture in our office of you and Mickey 
Steinberg and I think Governor Hughes signing some legislation 
for our Equity Franchising Program.
    Senator Cardin. Oh, wow.
    Mr. Smoot. It goes back a while, right? When we both had 
hair, right?
    [Laughter.]
    Particularly, the legislative Black Caucus has been 
extremely helpful, having strategically established programs to 
cover the majority of the most common needed resources for 
small businesses, which are term loans, lines of credit, 
letters of credit, loan guarantees, subordinated debt, equity 
financing, and surety bonding, again, at affordable rates. In 
fact, Maryland's Small Business Development Financing Authority 
has been recognized as a national model by the Wall Street 
Journal and several other publications for having the most 
comprehensive group of financing programs to assist minority 
businesses.
    The State's Video Lottery Terminal Fun is also the first of 
its kind in this country that is funded by revenue from the 
gambling casinos. MCBIF is one of the eight fund managers in 
Maryland managing up to $11 million in capital.
    Over the course of the last 5 years, these funds managed by 
MCBIF have provided 227 financings totaling $42 million to 175 
companies, with an average loan size of $245,000. On average, 
61 percent of the funds provided were provided to minority 
businesses, ethnic minorities, and 27 to women-owned 
businesses.
    One might ask, What is the risk/reward profile for these 
businesses? Well, in the case of MSBDFA, the loan loss rate 
grew from less than 5 percent prior to the recession and nearly 
11 percent during the recovery. This is the obvious result of 
businesses being undercapitalized from the start, not having 
sufficient reserves to survive the decline in business 
activity.
    On the other hand, the overall impact of helping such 
businesses grow is substantial. For example, during the 20-year 
period in 1995 to 2014, the State invested $32 million of 
general funds in the MSBDFA programs. This lending activity 
generated $343 million in local and State tax revenue, $7.7 
bill in commercial sales, $2.3 billion in personal income, and 
3,820 jobs on average annually. This resulted in a return on 
investment to the State of 9.3 times. This is good economic 
policy for both the private sector and the public sector, Mr. 
Senator.
    [The prepared statement of Mr. Smoot follows:]
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    Senator Cardin. Thank you very much.
    I would like to see a picture, a copy of that picture. I 
will go over later.
    [Laughter.]
    Ms. Miller.

 STATEMENT OF MARY MILLER, SENIOR FELLOW, 21ST CENTURY CITIES 
      INITIATIVE, JOHNS HOPKINS UNIVERSITY, BALTIMORE, MD

    Ms. Miller. Good morning, Senator Cardin, and thank you for 
the opportunity to make some remarks at this field hearing.
    I would also like to thank your staff and Morgan State 
University for hosting us in this beautiful building.
    I am a 30-plus-year resident of the City of Baltimore. I 
came here in 1983 to work for a small private company called T. 
Rowe Price that today is one of the city's largest employers, 
and I saw firsthand how a growing company can create jobs and 
economic benefits.
    I left T. Rowe Price in 2009 to work at the U.S. Treasury 
in a time of incredible turmoil following the financial crisis. 
My office at the Treasury oversaw both community development 
financial institutions as well as the country's largest and 
most complex banks.
    Nearly 5 years of public service gave me a great 
opportunity to work on the regulation of our financial 
institutions and public policy goals in this sector.
    You have probably forgotten this, but in 2011, you 
introduced me to the Senate Finance Committee for my 
confirmation hearing as the Under Secretary for Domestic 
Finance. Thank you.
    Senator Cardin. I did not forget that.
    Ms. Miller. Okay.
    Senator Cardin. I should have mentioned that in your 
introduction.
    Ms. Miller. That is okay.
    I resigned from Treasury 4 years ago and returned to 
Baltimore as a full-time resident. I have become intensely 
interested in the question of how much financial capacity we 
have to support economic growth in this city.
    The Johns Hopkins University 21st Century Cities Initiative 
was the perfect platform to research and write about this 
question. I would like to submit for the record my written 
statement about our most recent work on small business lending 
activity in Baltimore over the past 10 years.
    Senator Cardin. Without objection, it will be included.
    [The information can be found in the footnotes in Ms. 
Miller's prepared statement.]
    Ms. Miller. Our research is focused on every loan made to a 
small business located in this city, including minority-owned 
businesses, and I think our findings are relevant to all.
    Rather than restate all the findings in this report, I 
would like to focus on a few important themes in my time here.
    First, loans to small businesses have dropped by more than 
30 percent over the decade ending in 2016, while bank deposits 
in the city have doubled to $26 billion. This is a serious 
impediment to growth, and we need to change that.
    If banks that take deposits in Baltimore had maintained the 
same loan-to-deposit ratio in 2016 as in 2007, we would have 
seen $600 million in small business loans made in 2016, 
compared to the actual level of $200 million.
    Baltimore takes less advantage of the federally guaranteed 
loans offered by the Small Business Administration than 
comparable cities, as few of our banks have built the internal 
resources to originate these loans. I was very pleased this 
morning to hear about Harbor Bank's entry into the market in 
2018 because I think that is critical.
    Baltimore lenders also predominantly focus on real estate 
lending with hard assets as collateral versus small business 
loans backed by operating revenues. Our banks largely rely on 
offering small credit card loans to small businesses, which 
require fewer resources. The average credit card loan is about 
$10,000.
    The decline in overall small business lending here mirrors 
changes in the marketplace generally, although Baltimore has 
been particularly hard hit by bank consolidations and the loss 
of locally headquarters banks. Our leading banks today lend 
more into their home communities than they do in Baltimore.
    Our recommendations tie directly into the facts that we 
collected. We need to ask our largest depository banks to do 
more, whether as direct lenders to small businesses, as SBA 
loan originators, or through providing capital to CDFIs to help 
them lend.
    The city and the State have small public loan programs to 
reach higher-risk borrowers, but we believe those dollars could 
be more useful if used to leverage loans from the private 
sector by providing a backstop against losses.
    While not a focus of this report, which focused on banks, 
we also need to understand the value that nonbank lenders can 
bring to this marketplace to see whether technological 
solutions can reduce barriers to finding credit, lower 
borrowing costs, and bring more capital to Baltimore.
    Finally, our work showed how Community Reinvestment Act 
reports shed little light on small business lending shortfalls 
in Baltimore. This is a real opportunity to modernize this 40-
year-old law to better measure the banking sector's 
contribution to the real economy in cities like Baltimore.
    As our work has shown, we need to build a continuum of 
capital to allow small businesses to thrive.
    Senator Cardin, I appreciate your focus on these important 
issues. Thank you for all of your work on behalf of the 
citizens of Maryland.
    [The prepared statement of Ms. Miller follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Senator Cardin. Well, thank you very much.
    Mr. Holmes.

 STATEMENT OF WILL HOLMES, DIRECTOR OF OUTREACH, GOLDMAN SACHS 
10,000 SMALL BUSINESSES, MORGAN STATE UNIVERSITY, BALTIMORE, MD

    Mr. Holmes. I would like to thank Senator Cardin and the 
Committee for the opportunity to speak to you today. Good 
morning, Senator Cardin.
    My name is Will Holmes, and I am director of Outreach for 
the Goldman Sachs 10,000 Small Businesses Program in Maryland, 
and I am the founder of WHC, a business management and 
technology consulting firm based in Baltimore. We work with 
government agencies, financial institutions, universities, and 
growing companies in North America, Africa, and Asia.
    My testimony today will outline the fundamentals of the 
Goldman Sachs 10,000 Small Businesses Program and detail my 
observations on the challenges small minority- and women-owned 
businesses face when attempting to access capital.
    First, the Goldman Sachs 10,000 Small Businesses Program. 
Here in Maryland, the Goldman Sachs program is funded by 
Goldman Sachs and Bloomberg Philanthropies, and it is 
facilitated by Morgan State University, Johns Hopkins 
University, and the Community College of Baltimore County. I am 
based at Morgan State, and I am contracted to promote the 
benefits of this highly effective program to business owners in 
Maryland who meet the following criteria: at least 2 years in 
business, at least two employees; at least $100,000 in revenue.
    There is no cost to be in this 11-week program. It is free, 
but there is a tremendous time commitment. Scholars are in 
class one full day per week and often meet outside of class to 
work on their growth plans and share ideas with the other 
scholars and their assigned business advisor.
    The program is intense, and it is working. Across the U.S., 
graduates are increasing their revenues and creating new jobs 
in their communities. Here are some statistics from Goldman 
Sachs: 99 percent of business owners who start the program 
complete the program, 67 percent of graduates report an 
increase in revenue after finishing the program, 47 percent of 
graduates report creating new jobs in their communities, 88 
percent of graduates report they do business with other Goldman 
Sachs graduates.
    The scholars' investment is their time, but the returns are 
a more sustainable business, higher revenue, the opportunity to 
employ more people in their communities, and a new network of 
thousands of graduates across the country. The Goldman Sachs 
Program teaches business owners how to work on their businesses 
instead of working in their businesses. Plus, upon graduation, 
business owners have a better understanding of what is needed 
to attract investors and lenders while pursuing capital to grow 
their businesses.
    Now, in regard to accessing capital, in my experience, the 
two greatest barriers for small businesses are lack of 
information and low credit scores.
    As for lack of information, Baltimore is rich in resources. 
So acquiring knowledge is possible if business owners took full 
advantage of consultants like me or they utilized the Small 
Business Development Center, the Small Business Administration, 
Minority Business Development Agency, Small Business Resource 
Center under Paul Taylor and Jim Peterson, or the many 
incubators in the city. But I believe all business owners would 
benefit from more coordination between these State, Federal, 
and local resources. Also, better marketing of programs and 
some integrated case management would surely help push new 
entrepreneurs to fully utilize these services.
    I believe that for first generation or minority or women 
entrepreneurs, the information they need to grow, it exists 
here in the city. We just need to develop a better system for 
connecting entrepreneurs with the knowledge they need to 
develop sustainable business models, access capital, and pursue 
RFPs and contract opportunities.
    But low credit scores, that is a different problem. When it 
comes to low credit scores, my experience is that minority and 
women entrepreneurs usually do not lack moral character or have 
some insidious desire to be delinquent on payments. That is not 
it at all. Instead, entrepreneurs often have low credit scores 
because of three simple reasons.
    First, their biggest customers are late paying them. Often 
business owners wait for months for payments from large 
agencies or organizations, well past the agreed-upon 30- or 45-
day net payment terms.
    Second, they have little to no accumulated assets or 
wealth. Minority- and women-owned businesses often do not have 
adequate savings, investment accounts, or wealthy family and 
friends to provide startup cash or short-term personal loans.
    Third, overwhelming debt. Ideal debt-to-income ratios set 
by banks are hard to meet when business owners have high 
student loans and maxed-out credit cards. Minority and women 
business owners often use their personal credit cards to start 
their businesses, but if they run into slow periods or 
emergencies and they cannot get additional funding, they often 
shut down. And their employees, suppliers, and community 
suffer, all due to lack of funding and no access to capital.
    In conclusion, the Goldman Sachs 10,000 Small Businesses 
Program offers an amazing opportunity to businesses who make 
over $100,000 in annual revenue. Graduates are adding jobs and 
positively changing communities, but Baltimore entrepreneurs 
who have not made $100,000 yet need help also. They need to be 
better connected to existing free and low-cost resources. They 
also need to be better supported by programs created by 
legislators, lendings, and investors to help them better 
prepare to access capital.
    Access to capital is the key to stronger small businesses, 
and I firmly believe that stronger small businesses who employ 
local residents are a cornerstone in the foundation of 
healthier, wealthier, and safer communities in Baltimore.
    I want to thank you and the Committee for allowing me to 
speak to you today on behalf of Morgan State University and the 
Goldman Sachs 10,000 Small Businesses Program.
    I am happy to answer any questions you may have. Thank you.
    [The prepared statement of Mr. Holmes follows:]

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    Senator Cardin. Well, let me thank all four of you for your 
contributions to this hearing, and I am going to have some 
specific questions.
    But I am going to ask the general question first, and I 
welcome you supplementing this. And it does not have to be in a 
formal sense, but just giving your thoughts.
    We had these tools available through the Federal Government 
to help access to capital for minority businesses, women-owned 
businesses. We talked about the 7(a) program. We have talked 
about the Community Advantage, the Community Advantage's 
attempt to get the 7(a) program more effective in the targeted 
areas that we are talking about.
    We can argue whether it can be made more effective or less. 
We have some modifications that are being suggested. We need to 
respond to that.
    We have the 504 program, which provides a longer-term 
capital for expanding businesses. The record in minority 
community, women-owned community in the 504 program is not 
impressive at all.
    What changes can we make in the 504 program to have it 
better targeted for the communities that are not getting their 
fair share of these 504 loans? What concrete suggestions do you 
have to modify that program?
    Then in regards to an area we have not really talked much 
today, which is one of the key resources the Federal Government 
makes available to small businesses, and that is the 
contracting, the Federal contracting 23 percent set-aside.
    The Federal Government is the largest purchaser of services 
and goods in the world. So it is the largest source of business 
for small business in the world. How can we better--and by the 
way, we are doing a better job of meeting our 23 percent. I 
thank the SBA for its leadership and being an advocate for it.
    I was responsible for getting an amendment in the National 
Defense Authorization Act, and I thanked Senator Risch and our 
Committee for the Offices of Small and Disadvantaged Business 
Utilization, which are included in all of the departments on 
their procurement side to make sure that they are doing their 
23 percent. The amendment requires the SBA to see whether in 
fact they are carrying that out and report back to Congress on 
that.
    We also passed in the National Defense Authorization Act a 
prompt payment provision, 15 days for small businesses, so that 
we could also deal with one of the issues you were talking 
about on slow pay.
    My question generally is, What can we do to target that 
program more toward minority businesses, women-owned 
businesses? The record there is not as promising as the 23 
percent, which we are doing a better job in reaching, and by 
the way, what can we do better for prime contracts rather than 
subcontracts? Because we know the power is in the prime, and 
how many more prime when they bundle--we passed anti-bundling 
legislation, but we need to have I think your input how we can 
make these programs more effective because having business 
gives you access to capital.
    So if you want to respond now, fine. If not, I would just 
challenge you to give us information in that regard. I am more 
than happy to
    Mr. Clark. Senator, I would like to comment about the 
contracting piece.
    The Federal Government has goals, 22 percent for small 
businesses.
    Senator Cardin. Right.
    Mr. Clark. Our issues in the country much more are directed 
toward minority business and for which we do not generally 
create goals because we have the whole issue of Croson and many 
other court cases, which limit the issue of race-based 
requirements and goals.
    Only in the Federal 8(a) program--and you talked primarily 
about disability--do you have the disability--disadvantage--not 
disability--disadvantage do you have that item where you can 
look at if you are disabled or disadvantaged--disadvantaged.
    And the problem there is that minority businesses are 
generally capped with size standards and with net worth 
requirements, which limit our ability to grow, and so I think 
it would be much more effective if we were to eliminate some of 
those standards for minority businesses to allow them to grow. 
We cannot become--many businesses can go up and get $6 million 
of revenue or a few million dollars in net worth, and all of a 
sudden, they are capped. And no longer can they get any of the 
set-asides or any other programs. So we need to open up these 
programs.
    The most radical change would be if we were to open up our 
contracting for minorities to be the same for--as we have for 
American Indians, Alaska Natives, and Hawaiian, where there are 
no caps on wealth and which allow those companies to grow as 
much as they can. MSDC has that as their objective. They do not 
have any cap for the certification programs for corporate 
America. They want you to grow as large as you can so that you 
can provide their services to not only locally but regionally, 
nationally, and internationally where they do business. So why 
are we continuing to limit our minority businesses to being 
subcontractor programs with very small areas where we are 
allowed to grow?
    Mr. Smoot. I just have a couple of comments, and this is on 
the contracting side as well, Mr. Senator.
    As you know, a lot of the minority businesses, to become 
primes, they need capital, and a lot of times, one of the 
things that we have done with the Maryland programs is to 
provide what we call ``mobilization funding'' because there are 
contract opportunities, but unless they have the capital up 
front to even get the contract started, they cannot compete. In 
a lot of cases, they just forego the contract because they just 
do not have the capital.
    In terms of the banks, I have heard a lot of stories 
through the disparity studies that when they become sizeable 
and competitive, the banks have the larger contractors in their 
portfolios, and they are discouraged from lending to the 
minority businesses in order to--because it would create 
competition for them.
    So we think that more access to substantial capital to 
graduate these companies from becoming continuous 
subcontractors to becoming prime contractors--the talent and 
the ability is there, but you just have to have that capital.
    And one other comment, even on the State side, I think the 
State's minority participation program is not sufficient 
enough. In a lot of cases, what happens, the prime contractors 
are required for a year to meet those requirements, but after a 
year, they are no longer required. I think the participation 
efforts ought to be longer than a year because you want the 
continuous work for minority businesses.
    Senator Cardin. Ms. Miller, you mention in your article 
about modernizing the CRAs in regards to small business 
lending. Can you just elaborate a little bit more?
    You point out the problems of bank consolidations and not 
having the headquarters. The CRA is not without controversy. We 
have had significant discussions about that in the United 
States Senate. It might be useful for the Small Business 
Committee to get input into the Banking Committee as we deal 
with this issue, and I would welcome your thoughts as to how 
that could be used to help achieve this objective of this 
hearing.
    Ms. Miller. So you may be aware that one of the banking 
regulators, the OCC, has just asked for a comment on a proposal 
to modernize the execution of the Community Reinvestment Act, 
and just for the benefit of our audience, this is a law that 
says if you are taking deposits in a particular area, you need 
to have an effort--or you need to have evidence that you are 
making loans back into particularly low- and moderate-income 
communities.
    What we found in our work is that banks get to choose their 
assessment areas for where they are measured for their 
Community Reinvestment Act lending, and Baltimore, because it 
is not a headquarter bank location, is typically not the 
assessment area for the leading banks in the city today. So 
that is one problem because we are not getting attention on the 
activity in a particular market if the leading bank's 
headquarters are elsewhere. They might choose Charlotte, or 
they might choose Pittsburgh or Buffalo to get their Community 
Reinvestment Act ratings.
    The banks that we do have in Baltimore, the largest banks 
are choosing as an assessment area the entire State of Maryland 
for looking at their lending activity.
    So we lose the perspective and the focus on a small area 
when we can draw very large assessment areas. That is one 
problem.
    I think that also small business lending is not 
particularly culled out of the data that banks provided on this 
measure, and I think it would be good to get more focus on 
particular kinds of lending that the banks are making.
    The last thing I would say is that the ratings are very out 
of date in some cases. They are conducted irregularly. We do 
not conduct ratings for a long period of time, and we did not 
see any connection between small business lending that is 
taking place in Baltimore and the Community Reinvestment Act 
ratings for the banks that are active in this area, like Howard 
Bank or Harbor Bank.
    So our suggestion would be in this age of big data, where 
it is much easier to get the information, that we try to 
modernize this to look at how banking is conducted in a world 
where there are fewer branches and to really connected place-
based data and activity.
    That is a long complicated answer, but I would be glad to--
--
    Senator Cardin. What really got me, the information that 
was presented to me by staff. It is so shocking I did not think 
it was accurate, so I am going to say it anyway. The leading 
bank gave out 58 SBA 7(a) loans, and one of our largest banks 
gave out zero. That is kind of shocking.
    Ms. Miller. Yeah.
    Senator Cardin. And if CRA means anything in regards to 
community activities, how can you have zero for a big bank?
    Ms. Miller. To be fair, I think one of the bank's responses 
would be, ``Well, we are doing some home mortgage lending. We 
are making larger loans.''
    Our focus was really zeroing in on small business lending, 
and you are correct. The numbers are pretty shocking. It does 
not mean that banks are not doing other things.
    Senator Cardin. If you are going to deal with the 
disparities that we heard about, the wealth disparity in this 
country, you have got to deal with entrepreneurship, and what 
do banks do? And they are not responding to the small business 
community? You are absolutely right. We have got to tailor it 
to minority businesses, but they are not even dealing with 
small businesses.
    Ms. Miller. I cannot disagree with you, Senator.
    I would say that we need to think about it very 
holistically in terms of finding equity, capital for small 
companies that are not yet ready to borrow, but we also need to 
be right there next to them to provide loans when they are 
ready to grow.
    It is going to take a lot of cultural change, I think, to 
improve the environment.
    And, again, our focus is on a city, and a lot of the data 
that we see are based on much broader metropolitan areas or 
States or regions, and we lose that particular focus.
    Senator Cardin. Mr. Holmes, thank you for your 
presentation, and it is wonderful to see Goldman Sachs private 
entities get involved and trying to deal with this issue.
    What have you learned from the Goldman Sachs participation 
that we could get more private interest in leveraging access to 
capital for minority businesses?
    Mr. Holmes. Well, I think that the Goldman Sachs program 
does a fantastic job of combining information with essentially 
a push-pull hand holding along the way. What I mean in 
particular is every single person who comes through the program 
is assigned a business advisor, and that business advisor, very 
knowledgeable, experienced, not only are they helping them to 
understand what they are learning each day in the program, but 
also to put together a growth plan that they can use after they 
graduate.
    And so the reason why I think that is so important and I 
think that other entities should consider the importance of 
more coaching and more hand holding or case management, per se, 
is because it works.
    Another example besides the Goldman Sachs program, I was a 
subcontractor on a program through the Department of Defense 
called the DoD Velociter Program for a few years, and that was 
very effective, the same amount of great information. What 
really made those companies that have received a SBIR grant and 
they were going for Phase I, Phase II, Phase III, helping them 
to really move along, it was the coaching that allowed them to 
do it, teaching them how to create a bid/no-bid process, 
teaching them how to identify which parts of the budget were 
actually funded by Congress, and so which agencies to target. 
But it was that coaching that really taught them how to do it. 
A lot of them were first generation business owners, or they 
really were just focused on technology. So they did not really 
understand the business side of marketing and sales and how to 
really grow a sustainable company.
    So I think--and let me also mention that Bloomberg--I want 
to thank them for--Bloomberg Philanthropies for also partnering 
with Goldman Sachs here in Maryland to be a part of this 
initiative, and I think more of that will only really help the 
economy.
    I think the Goldman Sachs does a great job of focusing on 
affecting small businesses because if you can affect a small 
business, help them to be more sustainable, they are going to 
hire more people. If they hire more people in that community, 
that means the community will probably become more stable. That 
means there will be a greater tax base. There will be better 
roads, better schools, more firefighters, more police officers. 
That is really the avenue or the approach we take.
    I think if more organizations did that here in the city but 
then also across the United States, we would have a stronger 
local economy, so I think it would turn into a greater national 
economy.
    Senator Cardin. Thank you. That was very helpful.
    Mr. Clark, I appreciate you mentioning the Minority 
Business Development agencies. The Trump administration zeroed 
out the budget. Congress restored it. So the Senate in this 
year's budget has restored the funds. We recognize the value of 
the program. It has been a 50-year program.
    You mentioned it. You talked about it. Are there ways that 
we can strengthen that agency to be more effective in carrying 
out the mission?
    Mr. Clark. Yes, Senator. I appreciate Congress re-
appropriating more money to the agency.
    The significant thing that I am not sure everyone is aware, 
though, that while it was refunded more for FY 2018, for FY 
2019, many of the centers are--their contracts, even though 
they may last for a year from September to September, they are 
being terminated March 21st of 2019. So there is a move under 
foot in the Administration.
    Senator Cardin. Determined by the Administration?
    Mr. Clark. Yes.
    Senator Cardin. Administrative action.
    Mr. Clark. They have been cut by administrative action.
    And the problem is that MBDA was created on the executive 
order. So, therefore, it is not a regulation that was passed by 
Congress, so the President and the Administration can make some 
changes in it.
    Senator Cardin. So one way to improve it would be to give 
it a statutory basis.
    Mr. Clark. That would be the first thing, give statutory 
approval, and--well, that is probably the only way that you can 
do it.
    And it is very important that we do be maintained. As I 
mentioned in the testimony, we are the hands-on people. We get 
calls every day. Some, we have to defer off. Our goal is to 
work with companies that are million dollars in revenue. That 
is the general objective.
    We get a lot of calls from people less than that, and we 
refer them off to the SBDCs or other PTACs and other places to 
try to get startup help, but we have to continue to work with 
them. And we try to direct people who are looking for capital, 
for example, to minority-friendly institutions.
    The issue about capital and minorities is that, as Ms. 
Miller said, there is a cultural change necessary, tactfully 
stated. What she means is that we have to end the problem with 
a minority walking into the door and you already lose a few 
points on your credit rating just because--the rules are 
objective rules, but they are subjectively applied. And so we 
need to figure out how to take away the subjectivity.
    One of the ways of doing that is to make a requirement that 
if you do not--big banks, if you are not giving out a certain 
number of loans, you will not have access to something else, 
like Federal deposits that are coming in from which they make 
all the money. So there are ways of trying to improve those 
processes.
    But back to MBDA, it is imperative that we try to do 
everything we can to maintain them. A statutory situation is 
the best--and also to figure out if there are ways to incent 
other organizations to pick up the ball that should the 
Administration drop it, that we provide all the monies for 
organizations like the Minority Supplier Development Council to 
still be able to do that developmental-type services.
    Senator Cardin. Mr. Smoot, you mentioned returning 
citizens, and I appreciate you doing that. It is of particular 
interest to me. It should be an interest to everyone. We have 
too many people who we lose in our economy that need an 
opportunity.
    Can you just elaborate suggestions you might have on how we 
can better target these programs to a very vulnerable group of 
people returning from our prison systems?
    Mr. Smoot. I think in general, they may benefit from the 
Goldman Sachs program model where--because many of them have 
not gone to college, have not gotten business degrees and what 
have you. And the training, I think is critical, and I think 
the business community, including folks like myself and Stanley 
Tucker, would participate in a real hands-on training. I think 
mentorship programs would be very valuable and internship 
programs. There is a plumbing company that was one of our 
former portfolio companies that actually has internships. 
Probably 40 percent of his workforce are returning citizens, 
and I think that is a tremendous model to follow.
    Senator Cardin. And you can imagine how challenging it is 
for minority business owners to get access to capital. We have 
already talked about that. If you are coming out of prison, I 
am sure your credit score is not exactly that high. To be able 
to participate in any of these programs is going to be 
extremely challenging.
    So I would just urge us to think of ways that we can offer 
opportunities for people that have really been disadvantaged in 
our community, and there is a lot of creativity that is out 
there that is untapped that can help the individual in our 
community. We need to think somewhat out of the box.
    I was impressed by the response that our regulations may 
try to fit into a cookie-cutter type of setup. Individuals do 
not fit into that, so we have to be flexible enough, and that 
is why--I think it was Harbor Bank. They know their customers, 
and they get that sense.
    Sometimes the banking regulations and the rules and 
regulations make it difficult to do what you think is right, 
and we got to make sure that you can do what is right.
    In most cases, it will pay off big dividends. There will be 
failures, but failures are part of life, and that is part of 
what we are dealing with.
    Mr. Smoot. I thought John made a great point because many 
of us come from the communities that those guys and ladies came 
from. So we can relate to some of the things and issues that 
they have, and that goes a long way, particularly in terms of--
Ken was speaking about in terms of the cultural awareness, so 
being able--having the right people to do that is a great 
asset.
    Mr. Clark. An example of that, I had a client come into our 
center a few days ago. I filled out a contract for her to do 
LED lighting, and she said, ``I am sorry. I cannot take the 
contract because I cannot get a lot of credit in order to buy 
the product in order to sell it.'' And so I was able to find 
what I call--well, I am not calling it--minority-friendly 
lender within a big bank who knows the people and knows how to 
apply the rules. He was able to get her only $25,000, not very 
much, line of credit, but that was enough for her to get 
started.
    Now, next time, she will be successful. She now has past 
performance. She will be able to take a larger contract the 
next time and to also extend her line of credit.
    But it is a matter of having what we refer to as minority-
friendly lenders even within the big banks, someone who is 
culturally sensitive.
    Senator Cardin. Well, I want to thank this panel. Both 
panels have been extremely helpful.
    We clearly--as I mentioned in the beginning of this 
hearing, this is an oversight hearing for us to get input as to 
how our Committee can work with the SBA to improve the 
opportunities for access of capital in the targeted areas that 
we have talked about.
    This is an issue that Democrats and Republicans can come 
together with. We can get something done, and I think this 
hearing has been very helpful.
    You will notice that there are a lot of people around us 
that are taking in this information. It is shared with all 
members of our Committee and all members of the United States 
Senate, and I know that this will be very helpful in carrying 
out our function.
    I do urge you to let us have additional thoughts on how we 
can refine the specific programs for access to capital or 
whether there are additional suggestions you have on new 
opportunities for access to capital, and it can be outside of 
the traditional norms. Please let us know, and we will try to 
partner and make that a reality.
    As is the tradition of our Committee, the record will 
remain open for 2 weeks for additional statements or questions 
that may be asked, and again, I thank all the witnesses for 
their participation.
    And with that, this hearing is adjourned. Thank you all.
    [Applause.]
    [Whereupon, at 12:05 p.m., the Committee was adjourned.]

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