[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                REVIEW OF THE SBA'S 504/CDC LOAN PROGRAM

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                                HEARING

                               BEFORE THE

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              
                           DECEMBER 10, 2019

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                               
                               

            Small Business Committee Document Number 116-065
             Available via the GPO Website: www.govinfo.gov
             
                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
38-823                      WASHINGTON : 2020                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania
                       DAN BISHOP, North Carolina

                 Melissa Jung, Majority Staff Director
            Justin Pelletier, Majority Deputy Staff Director
                   Kevin Fitzpatrick, Staff Director
                           
                           
                           C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Judy Chu....................................................     1
Hon. Ross Spano..................................................     2

                               WITNESSES

Ms. Mary Mansfield, President and Chief Executive Officer, Bay 
  Colony Development Corporation, Waltham, MA....................     5
Mr. Wayne Williams, Senior Vice President, Business Finance Group 
  Inc., Fairfax, VA..............................................     6
Ms. Elaine Fairman, Executive Director, Business Expansion 
  Funding Corporation (BEFCor), Charlotte, NC....................     8
Ms. Brooke Mirenda, President and Chief Executive Officer, 
  Sunshine State Economic Development Corporation, Clearwater, FL     9

                                APPENDIX

Prepared Statements:
    Ms. Mary Mansfield, President and Chief Executive Officer, 
      Bay Colony Development Corporation, Waltham, MA............    21
    Mr. Wayne Williams, Senior Vice President, Business Finance 
      Group Inc., Fairfax, VA....................................    29
    Ms. Elaine Fairman, Executive Director, Business Expansion 
      Funding Corporation (BEFCor), Charlotte, NC................    42
    Ms. Brooke Mirenda, President and Chief Executive Officer, 
      Sunshine State Economic Development Corporation, 
      Clearwater, FL.............................................    51
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Self-Help Ventures Funds.....................................    56

 
   REVIEW OF THE SMALL BUSINESS ADMINISTRATION'S 504/CDC LOAN PROGRAM

                              ----------                              


                       TUESDAY, DECEMBER 10, 2019

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Investigations, Oversight,
                                           and Regulations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Judy Chu 
[chairwoman of the Subcommittee] presiding.
    Present: Representatives Chu, Burchett, and Spano.
    Also Present: Representative Chabot.
    Chairwoman CHU. I shall call this Subcommittee to order, 
and I thank everybody for joining us this morning. I especially 
want to thank the witnesses who have traveled from across the 
country to be here with us today.
    On this Committee, we are focused on making sure that small 
businesses, whether in my district of California or in Ranking 
Member Spano's district in Florida and in every district across 
the America, can access the capital that they need to start, 
grow, and create new jobs. And we know that when capital is 
affordable and accessible, small businesses can do what they do 
best: strengthen our communities, create jobs, and fuel our 
economy.
    This is something I have witnessed firsthand in my home 
State of California, where 4 million small businesses make up 
99.8 percent of the businesses in our State and employ almost 
half of our workers. California is the fifth-largest economy in 
the world, and small businesses are the backbone of our 
thriving economy.
    But accessing capital is one of the biggest challenges 
facing these small-business owners, and it can be even more 
difficult if that capital is needed to purchase or improve 
major fixed assets such as real estate, buildings, equipment, 
and heavy machinery.
    Recognizing the additional barriers to capital faced by 
small businesses at this stage of growth, Congress enacted the 
504 loan guarantee program to meet the long-term, fixed-rate 
financing needs of small businesses who need an injection to 
reach the next level.
    The 504 program is a public-private partnership between the 
Small Business Administration; nonprofit certified development 
companies, also known as CDCs; and private-sector lenders, 
typically banks and credit unions that offer a unique financing 
structure for a small business. For most 504 loans, the 
structure works as follows. The private-sector lender provides 
50 percent of the cost of the project, the CDC provides 40 
percent, and the small-business borrower provides 10 percent.
    One of the primary purposes of the 504 loan program is job 
creation, and, to participate in the program, small businesses 
must meet certain job creation or retention requirements. If 
the small business is unable to meet these requirements, it can 
still qualify for the program if it meets one of several 
community development or public policy goals outlined in the 
Small Business Investment Act of 1958, such as expanding 
minority- or woman-owned business development, reducing energy 
consumption, or expanding exports.
    The 504 program can be a powerful tool in helping small 
businesses achieve relief from high-interest commercial loans. 
Eligible businesses can refinance their loans through the 504 
program and take advantage of lower interest rates, allowing 
them to reinvest more capital into keeping their businesses 
afloat.
    I was proud to author the Commercial Real Estate and 
Economic Development, or what we call the CREED Act, which was 
enacted into law in 2015 and revitalized the ability for SBA to 
offer refinancing for those who had loans. And this is after 
this popular program had expired in 2012.
    According to SBA, in 2018, the number of jobs supported by 
504 was down slightly over previous years, which has raised 
questions regarding the program's performance and whether we 
need to modify and make improvements to the program.
    As part of our congressional oversight of the program, 
today we will hear from various CDCs across the country about 
their views on the 504 program. The Committee would like to 
know what is working, what is not, and what we can do to 
improve the program.
    I look forward to hearing from the witnesses today and 
working with my colleagues on both sides of the aisle to 
minimize the barriers facing our small-business owners when it 
comes to securing affordable capital.
    Again, I want to thank the witnesses for being here, and I 
now yield to the Ranking Member, Mr. Spano, for his opening 
statement.
    Mr. SPANO. Thank you, Madam Chairwoman. And thank you for 
holding this very important hearing today.
    The Small Business Administration's 504/CDC loan program is 
one of the most important and unique access-to-capital tools 
available to small businesses. This public-private partnership 
involves a financial institution, a small business, and the 
CDC, also known as a certified development company. The program 
is a key tool for long-term financing of real estate 
transactions and small-business equipment purchases.
    Going beyond just access to capital, economic development 
is one of the real drivers of the program. With job creation 
and job retention requirements, along with community 
development and public policy requirements, this program is 
transforming neighborhoods and communities from my home State 
of Florida, to Tennessee, and to Ohio.
    In fiscal year 2019, the SBA approved 5,933 loans, for a 
total of $4.9 billion. From a job perspective, the program has 
supported approximately 60,000 jobs over the last few years.
    The program has many features, including a fairly new 25-
year debenture. CDCs also have the ability to utilize SBA's 
Community Advantage Loan Program, which this Subcommittee held 
a hearing on this past May.
    From a cost perspective, the 504/CDC loan program runs on 
fees built into the program. And because the fees have been 
sufficient over the last few years, the program enjoys zero 
subsidy from taxpayers, which is something I really like. I 
hope this trend continues.
    Today, we will be examining the program's performance as 
well as its successes. We will also discuss how Congress can 
address challenges and how we can look to improve and 
strengthen the program, as Madam Chairwoman mentioned.
    I am happy to have our witnesses joining us today. Thank 
you for being here and taking the time out of your busy 
schedules. I look forward to hearing your thoughts on many of 
the 504/CDC loan program features.
    As with any government loan program, comprehensive and 
continuous oversight is required to ensure that the program 
runs effectively and efficiently, all while safeguarding 
taxpayer dollars.
    Within my congressional district in Florida, which is just 
outside of Tampa, we have 12,000 small businesses that employ 
over 100,000 Floridians. And programs like the 504/CDC loan 
program are instrumental to growing and expanding operations 
and creating jobs all over the country, in California and in my 
home State of Florida.
    Again, I thank all the witnesses. Thank you for being here, 
taking time away from your businesses and your families.
    Madam Chairwoman, I yield back. Thank you.
    Chairwoman CHU. Thank you, Mr. Spano.
    The gentleman yields back.
    And if Committee members have an opening statement, we 
would ask that they be submitted for the record.
    I would like to take a minute to explain the timing rules. 
Each witness gets 5 minutes to testify, and members get 5 
minutes for questioning.
    There is a lighting system to assist you. The green light 
comes on when you begin, and the yellow light means that there 
is 1 minute remaining. The red light comes on when you are out 
of time, and we ask that you stay within that timeframe to the 
best of your ability.
    I would now like to introduce our witnesses.
    Our first witness is Ms. Mary Mansfield. Ms. Mansfield has 
been with the Bay Colony Development Corporation since 1985 and 
has served as president and CEO since 2016. Mary oversees day-
to-day operations of the 504 and microloan programs for Bay 
Colony. Prior to that, she was closing manager and portfolio 
manager.
    In addition to her responsibilities at Bay Colony, she 
served as Chair of the Board of the National Association of 
Development Companies, or NADCO, where she taught the 
introduction to 504 and the loan closing courses, both of which 
are required for all CDC attorneys closing 504 loans.
    Welcome, Ms. Mansfield.
    Our second witness is Mr. Wayne Williams. Mr. Williams has 
over 32 years of experience in commercial banking and small-
business lending, including extensive expertise in SBA's 
programs.
    His company, Business Finance Group, is a mission-driven 
CDC providing financing solution to small businesses. BFG is 
the number-one SBA 504 lender in the mid-Atlantic and a top CDC 
nationally. As their senior lending officer, Wayne supports a 
team of six business development officers who navigate SBA 
policies and promote the company and its products to clients 
and referral sources across its mid-Atlantic footprint.
    Since 2015, he has served on the board of directors of 
NADCO.
    Welcome, Mr. Williams.
    Our third witness today is Ms. Elaine Fairman. Ms. Fairman 
began her SBA lending career at Catawba Regional Development 
Corporation in 1987. In 2012, Ms. Fairman became the executive 
director of Business Expansion Funding Corporation. With 
offices in Charlotte and Raleigh, BEFCOR was a top producer in 
North Carolina--and, in fact, still is--for 504 loans.
    Her extensive expertise with the 504 program spans 
marketing, underwriting, loan packaging, closing, servicing, 
board relations, governance, compliance advocacy, and now 
executive management. Is there anything she has not done?
    In addition to her management of BEFCOR, Elaine is a board 
member of NADCO. So we thank all the NADCO participation.
    But welcome, Ms. Fairman.
    And now I would like to yield to our Ranking Member, Mr. 
Spano, to introduce our final witness.
    Mr. SPANO. Thank you, Madam Chairwoman.
    Our next witness is Brooke Mirenda. Ms. Mirenda is 
president and chief executive officer of Sunshine State 
Economic Development Corporation, which is also known as SEDCO. 
SEDCO has multiple locations in my home State of Florida.
    Ms. Mirenda has nearly 20 years of financial services 
experience. In 2016, she joined SEDCO as senior vice president 
and was quickly moved into the role of president and CDO.
    You must have done something right there in that short, 
brief period of time. Ms. Mirenda, we appreciate you taking the 
time away from your business and from your community, from your 
CDC, to talk with us today.
    Thank you very much, Madam Chair. I yield back.
    Chairwoman CHU. Thank you very much.
    Ms. Mansfield, you are now recognized for 5 minutes.

  STATEMENTS OF MARY MANSFIELD, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, BAY COLONY DEVELOPMENT CORPORATION, WALTHAM, MA; WAYNE 
WILLIAMS, SENIOR VICE PRESIDENT, BUSINESS FINANCE GROUP, INC., 
   FAIRFAX, VA; ELAINE FAIRMAN, EXECUTIVE DIRECTOR, BUSINESS 
   EXPANSION FUNDING CORPORATION, CHARLOTTE, NC; AND BROOKE 
MIRENDA, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SUNSHINE STATE 
        ECONOMIC DEVELOPMENT CORPORATION, CLEARWATER, FL

                  STATEMENT OF MARY MANSFIELD

    Ms. MANSFIELD. Subcommittee Chairwoman Chu, Ranking Member 
Spano, and other distinguished members of this Committee, thank 
you so much for inviting me to testify here today.
    Again, my name is Mary Mansfield. I am the president and 
CEO of Bay Colony Development. We are a certified development 
company in Waltham, Massachusetts, with offices in New 
Hampshire, Vermont, and Rhode Island. I started with Bay Colony 
back in 1985, and I was the company's third employee. I am 
proud to say that we now employ 15 people at Bay Colony.
    Bay Colony is a nonprofit, mission lender. We do SBA 504 
loans, microloans, and we also provide grants to community 
revolving loan funds. In 504 lending alone, we have helped over 
1,500 borrowers that have created and retained over 13,000 jobs 
in New England.
    As you know, the 504 loan program is an economic 
development tool that provides small businesses with long-term, 
fixed-rate loans to help them acquire major fixed assets for 
their expansion. These loans are most frequently used to 
acquire land, buildings, machinery, and equipment. A 504 loan 
can be either 10, 20, or now 25 years. The 504's long-term 
fixed-rate gives a small business lower loan payment stability 
without the concerns of rising interest rates or balloon 
payments.
    A distinguishing feature of the 504 program is jobs. By 
law, each $75,000 in financing through the 504 loan program 
must create or retain one job or meet one of several public 
policy goals. Job creation and retention is the primary metric 
of the 504 loan program.
    Not only do we create jobs, the 504 loan program operates 
at zero subsidy--no cost to the government. The fact that the 
504 loan program requires no subsidy from the taxpayer is a 
point of pride for our CDC community, and we work very hard to 
ensure that our loan portfolio continues to operate that way 
each year.
    Some very famous, nationally known companies started off 
with 504 loans when their businesses were just getting started: 
Chobani yogurt, OtterBox, and Life is Good, to name a few.
    We have helped many small businesses, but there are many 
more that we could help with modifications to these loan 
programs. I have listed several recommendations in my written 
testimony, including changes to occupancy rules, disaster 
assistance, and other areas. But let me mention one right now.
    Currently, small businesses find the closing process 
inconsistent, uncertain, and lengthy. I know this both from my 
years of working with small businesses in New England and also 
because for many years I was a CDC instructor for an industry-
wide course on 504 loan closings.
    At least two areas in that process can be streamlined to 
help small businesses. First, minor changes to a loan that do 
not increase the risk to the SBA should not have to go through 
a second round of SBA approvals. Rather, CDCs who have 
demonstrated reliability and quality when working with 
borrowers should be able to make these changes with their own 
authority. I do mean minor changes here, such as typos in names 
and addresses.
    I think an example from one of my colleagues in the CDC 
industry may best demonstrate how these minor reviews can delay 
small businesses from receiving their funds. During the last 
government shutdown, when SBA was not open to do these 
approvals, one small business could not close on their loan 
because it needed SBA approval to add periods to the ``LLC'' in 
their company name.
    Delays like this could result in our borrowers paying 
higher interest rates, forfeiting their deposits on properties, 
or completely losing the property if the sellers in these 
transactions are not accommodating. Allowing a CDC to perform a 
correction like this will help entrepreneurs move forward in 
their businesses without any additional risk to the taxpayer.
    Second, provide consistent and clear rules on what 
documents need to be submitted to SBA for a loan closing and 
when those documents need to be submitted. Right now, this can 
vary depending on where the small business is located in the 
country. This leads to unnecessary delays, frustration, and 
this can impact the borrowers' interest rate.
    I am happy to share more of our successes and suggestions 
for further improvement. And, again, thank you for having me 
today, and I look forward to your questions.
    Chairwoman CHU. Thank you.
    Mr. Williams, you are now recognized for 5 minutes.

                  STATEMENT OF WAYNE WILLIAMS

    Mr. WILLIAMS. Thank you.
    Chairwoman Chu, Ranking Member Spano, and other 
distinguished members of the Committee, good morning, and thank 
you for inviting me to testify.
    My name is Wayne Williams, senior lending officer of 
Business Finance Group, a nonprofit, mission-based certified 
development company headquartered in Fairfax, Virginia, with 
additional offices in Maryland, West Virginia, and Washington, 
D.C.
    As the Congresswoman mentioned, we are the number-one 504 
lender in the mid-Atlantic and a top-20 CDC in the Nation out 
of over 200. Since 1982, we have assisted over 3,000 small 
businesses with $1.8 billion in 504 loans, supporting over $4.8 
billion in total capital investment, resulting in over 41,000 
jobs created and retained in the local communities that we 
serve.
    By statute, 504 loans stimulate local economic development 
through job creation and retention. CDCs deliver that required 
measurable economic impact at zero subsidy. That differentiates 
us from other SBA and conventional loan programs. We are proud 
of this accomplishment and determined to preserve it with 
prudent underwriting and responsible portfolio management.
    But CDCs do more than 504 lending. At Business Finance 
Group, we participate in SBA's Community Advantage and ILP loan 
programs. We view these as complementary to 504, allowing us to 
provide clients with access to affordable, responsibly 
underwritten capital along a continuum of credit, from start-up 
to growth and expansion.
    Other CDCs offer SBA microloans, USDA loans, State and 
local loan programs, business incubators, and technical 
counseling services. CDCs must invest excess capital generated 
from 504 lending into other economic development.
    As I stated, since 1982, Business Finance Group has 
assisted many successful small businesses, but I would like to 
highlight one for you today that was in my written testimony as 
well.
    Greater Unity Adult Services is based in Richmond, 
Virginia, and is owned by Eugene Thomas, Jr. The company 
provides training, treatment, and support for adults with 
disabilities, including intellectual disabilities, mental 
illness, and physical challenges. The company runs a day 
support program facility and various assisted-living 
residential care homes.
    When we started working with Greater Unity in 2012, they 
had 2 locations and 10 employees. Today, after 6 504 loans and 
3 ILP loans, the company has 8 locations and 60 employees. They 
have been a true 504 success story for us.
    Many small businesses like Greater Unity have successfully 
used 504 to fund growth and expansion, but even more could 
benefit from the program with modifications and streamlining to 
implement and adjust to changing market conditions, to increase 
program access, and improve speed, transparency, and certainty.
    I listed several recommendations in my written testimony, 
including streamlining the closing process and improvements to 
504 debt refi, but I will elaborate on my recommendation to 
reduce the owner-occupancy requirements.
    Occupancy requirements are a challenge that prevent or 
limit the ability of small businesses to use the 504 loan 
program, particularly in more densely populated urban 
communities with multistory buildings and limited real estate 
inventory.
    Current statute requires a borrower that purchases an 
existing building to occupy 51 percent or more of that 
building. In urban areas of the country, it is common to have 
multistory buildings where the small business may only need the 
first-floor space. Owner-occupancy is 50 percent for an evenly 
split two-story building and progressively drops with more than 
two levels. In these cases, these properties are not eligible 
for SBA assistance.
    Relaxing the occupancy requirement across the board from 51 
percent to 50 percent will increase small-business access to 
504's attractive features.
    Urban core markets, like Washington, D.C., and Baltimore in 
my region, are home to thousands of small businesses that can 
benefit from 504 if occupancy requirements are relaxed even 
further for those specific targeted areas. Indicative of this 
challenge, we have only approved 159 loans in Washington, D.C., 
in our 25 years of serving this particular market despite 
thousands of small businesses that operate here.
    These changes would better position 504 to reflect today's 
business dynamics and real estate market.
    Thank you for inviting me to testify, and I am happy to 
answer any questions.
    Chairwoman CHU. Thank you, Mr. Williams.
    Ms. Fairman, you are now recognized for 5 minutes.

                  STATEMENT OF ELAINE FAIRMAN

    Ms. FAIRMAN. Good morning. I am Elaine Fairman of Business 
Expansion Funding Corporation, known as BEFCOR, in North 
Carolina. BEFCOR is a Certified Development Company that 
provides 504 loans and other small-business support throughout 
North Carolina and portions of South Carolina. In addition to 
the SBA 504 program, BEFCOR operates another program that 
provides much smaller loans in rural and hurricane-impacted 
areas.
    Our 504 loans have created or retained 11,500 jobs through 
the nearly 1,000 loans that have been made, totaling $519 
million. These numbers have had a significant impact in our 
economy.
    One of our successful borrowers is a catering business that 
began in 2010 and had offices and kitchens in multiple 
locations. In 2014, a 504 loan approval enabled this business 
to unite all operations under one roof, improving efficiency 
and quality. As a result of the 504 loan, this business's 
workforce tripled. Now the business is very successful, and its 
owner was named North Carolina's Small-Business Person of the 
Year in 2018. Without a 504 loan, that business would not have 
been able to grow as quickly or as strongly.
    In addition to the program's successes, I would like to 
speak with you about strengthening the 504 program. There are 
many topics that would improve 504 loans and access to capital 
for small businesses. I would like to recommend several key 
areas--EPC/OC rules, occupancy percentages, and refinancing, 
among others in my written testimony. And I want to focus 
especially on the often-avoided EPC/OC rules.
    EPC/OC rules impact regular applicants who seek 504 loans 
and form a separate corporation to own their own building. The 
active business that creates products and services is known as 
the OC. When the OC purchases a building, it forms a separate 
legal entity to own its real estate. That entity is known as 
the EPC. The EPC then leases its building to the OC, the 
operating company.
    While the two companies often appear to operate as one, 
they are legally separate and distinct, and a written, formal 
lease agreement outlines certain legal requirements between the 
two entities. Reasons for having a separate EPC and OC are 
varied, with the three most common being: reducing liability 
risk to the OC, normal tax strategies, and normal business 
strategies. All of these reasons are legal, sensible, and 
responsible.
    The EPC/OC structure is common in today's business 
practices and environment; it was not common, however, when the 
SBA rules were originally written.
    When considering through a modern business lens the 
outdated rules on EPC/OC that were developed decades ago, there 
are many problems created: The rules are intrusive and 
overbearing. The rules do not appear to protect the SBA from 
losses or bad loans. The rules interfere with practical, basic 
business and management financial decisions, and they dictate 
the details of the relationship between the EPC and OC. The 
rules exclude normal expenses from the lease that are generally 
tax-deductible for other non-SBA business owners. The rules 
potentially make the operating company more vulnerable to legal 
action by removing protections desired by the owner when the 
EPC is formed. And, finally, the rules adversely affect 504 
borrowers who lease their unused space to another business.
    CDCs often ask: If these rules do not protect the 
government and do not help small businesses, why are the rules 
still here? The time to repair this is now.
    In addition to the EPC/OC rule issues, please consider 
simplifying occupancy and refinancing rules. Both limit the 
program's effectiveness, especially related to small-business 
expansions.
    I wholeheartedly believe that when we approach a challenge 
with a common mission we have the opportunity to make 
improvements. Some would say we have an obligation. I believe 
we have both at this time.
    Our four-person panel is committed to serving small 
businesses, and, collectively, we represent over 90 years of 
experience lending in the 504 program--90 years. So we 
respectfully seek your guidance in helping resolve some of 
these issues that impair the ability of small businesses to 
grow.
    Thank you for your time.
    Chairwoman CHU. Thank you, Mr. Fairman.
    Ms. Mirenda, you are now recognized for 5 minutes.

                  STATEMENT OF BROOKE MIRENDA

    Ms. MIRENDA. Representative Chu, Ranking Member Spano, and 
other distinguished Committee members, good morning. I am 
Brooke Mirenda, and I am here on behalf of Sunshine State 
Economic Development Corporation in Florida. I am pleased to 
have the opportunity to discuss the economic development work 
our CDC does and the jobs we help create, particularly with the 
504 loan program, as well as discuss areas of opportunity.
    Sunshine State Economic Development Corporation, also known 
as SEDCO, was born from the result of a merger of two 30-year-
old CDCs in 2016. SEDCO is headquartered in beautiful 
Clearwater, Florida, and is one of four CDCs that operate 
within the State. We are considered a midsize CDC, and we have 
seen significant growth over the last several years.
    While the 504 loan program is our primary focus, we also 
offer other loan programs to meet the demands of our small-
business borrowers, which include the SBA ILP and CA loan 
programs. SEDCO also utilizes its own resources to offer 
financing to small-business owners through a women/minority/
veteran loan program and SEDCO loan program. We believe that 
our coordinated lending alternatives are essential in helping 
small businesses grow and create jobs.
    I joined the CDC in 2016 as senior vice president/business 
development officer after 15 years in the financial services 
industry, primarily in mid- and executive-level management. I 
have had the privilege of working with small-business owners 
around the State, helping them access funds they needed to 
continue to grow their business and create more jobs.
    In November of 2017, the board of directors appointed me as 
the president and CEO. As SEDCO president, I continue to be 
intimately involved in helping small businesses reach their 
maximum potential.
    The SBA 504 loan program not only creates jobs in our 
economy, it also offers up competitive rates and terms for our 
small-business owners, which helps preserves capital and grow 
their businesses, while still operating at a zero subsidy.
    I want to turn my attention to the work our CDC does with 
the 504 loan program in particular. We work with lenders 
throughout the State of Florida to offer a solution to small-
business owners that is not only attractive but leverages them 
in a way conventional financing cannot.
    I would like to take a brief moment and share one of our 
many successes of the 504 loan program.
    A couple dreamed of owning their own business and being 
their own boss. They purchased a cafe in September of 2011 in 
Fort Myers. That cafe continued to grow and flourish over the 
years.
    They were leasing their building until the owner of the 
building sold, and they had a very short time period to 
relocate. They did so, and right as they did, Hurricane Irma 
hit. They were faced with trying to relocate and dealing with a 
decline in diners and tourists which negatively impacted their 
business.
    They had an opportunity to purchase a building on Fort 
Myers Beach perfect for their growing business. However, with 
declines in revenues due to the hurricane and the money they 
had to utilize for relocation, being able to purchase a 
building with 20 or 25 percent down just simply was not an 
option.
    Along with a third-party lender, we were able to secure a 
504 loan for these entrepreneurs. They were able to reopen as a 
full-service restaurant, creating seven new jobs.
    I am proud that SEDCO can bring these resources to Florida 
entrepreneurs. However, during my time with the CDC, I have 
seen some policies that are not helpful to my small-business 
borrowers but also do not seem to protect the taxpayers' loan 
guarantee in a meaningful way. I hope Congress and SBA will 
review them and consider improving them to better meet the 
needs of our small-business owners.
    One way to help small-business owners is to allow a more 
robust refinancing option in the 504 loan program. Thanks in 
great part to the leadership of this Committee, small-business 
owners can now refinance existing conventional loans using a 
504 loan. That has been invaluable to many businesses and jobs.
    However, there is an important exclusion from 504 refinance 
eligibility, and that is other small-business loans from 
government-guaranteed programs. A small-business owner that 
purchased their building with a government product is now 
barred from refinancing via the 504. This refinancing barrier 
does not exist for other government-guaranteed lending 
programs. As a result, this subset of small-business owners 
cannot take advantage of the 504 loan program with the low 20- 
and 25-year fixed rates.
    These borrowers would still need to meet all of the 
eligibility requirements that any other small business would. 
Thus, the soundness and quality of the refinancing program 
would not change if they participated. Ensuring that 504 
refinancing is an option available for these small-business 
owners would give them an additional tool when deciding what 
best meets their needs, while not increasing a risk to 
taxpayers.
    Congress, SBA, and CDCs all have a shared goal of 
supporting small businesses while ensuring proper use of 
taxpayer dollars. The 504 loan program is a wonderful example 
of that. It creates jobs while at no cost to the taxpayer. The 
opportunities for change that I have outlined in my written 
testimony as well as illustrated today will help keep that 
proper balance, and I urge Congress to consider them.
    Again, thank you for inviting me to testify today, and I am 
happy to do my very best in answering any questions that you 
have.
    Chairwoman CHU. Thank you.
    And thank you to all of our witnesses. We appreciate all 
that you have shared with us.
    We will now begin the questioning, and I will begin by 
recognizing myself for 5 minutes.
    Mr. Williams, I am the proud author of the CREED Act, which 
was enacted into law in 2015. It reinstated the ability for 
businesses to refinance their loans under the 504 program. So 
it is my priority to ensure that SBA is implementing this 
program effectively.
    Under current regulations, the 504 program cannot be 
accessed to refinance any government-guaranteed loans, 
including other SBA loans. What are some types of government-
backed loans that could be refinanced under the 504 program if 
this restriction were removed? And how would that change impact 
small businesses?
    Mr. WILLIAMS. Thank you for your question. And I think it 
is a very important question, as this is a high priority for 
our industry and our trade association. And we also want to 
thank you for your leadership in getting this passed in the 
first place.
    As my colleague Brooke mentioned, this is very important 
for small businesses, and it would open up all government loan 
programs to be eligible for refinance, just as all other loan 
programs can refinance our debt. So it would balance the 
equation as we look at it.
    And provided it is in the best interest of the borrower and 
also not disadvantageous to the taxpayer, that is what is 
important for us. And, again, as mission-based lenders, it is 
our responsibility to make sure we are doing what is in the 
best interest of both of those parties. So we look at it as, 
you know, all programs will be eligible.
    The other point I would like to make, Chairwoman, is that, 
under the existing 504 debt refi with the expansion that we 
have had longer than the 504 debt refi program, we can already 
refinance existing government-guaranteed debt. And that has 
been allowed for a while, you know, since 2009. It is just in 
this other program, the permanent refi program, that we cannot.
    So, in some respects, the horse has already left the barn, 
you know, so it is time to, you know, kind of catch up, is the 
way I think our industry looks at it, and simplify the 
discrepancies among the programs.
    Thank you.
    Chairwoman CHU. Thank you for that.
    Ms. Mansfield, in places like my home State of California, 
rising real estate prices means that some small businesses 
struggle to secure the capital that they need to grow their 
businesses for their real estate.
    Under current law, certain businesses like small 
manufacturers are eligible for a larger SBA-backed debenture 
than typical 504 applicants, which allows them to redirect more 
of their resources towards growth and employment.
    How would increasing the debenture limit for real estate 
projects to at least match the limit for small manufacturers 
impact business in higher-cost States like California?
    Ms. MANSFIELD. Well, coming from Massachusetts, I know a 
little bit about rising real estate prices, so I would be very 
excited to see this pass as well.
    Any time we can help a small business by putting more funds 
through the 504 program, it is going to give them a longer 
term. It is also going to have the fixed interest rate for 
them. So we would be very excited to see they can utilize that 
program and save their funds for working capital purposes 
within their company.
    Also, job creation. Again, as we mentioned, job creation is 
a big component to the 504 program. If we can get more money 
out there to that small business, it also means they are going 
to create more jobs for our economy.
    Thank you.
    Chairwoman CHU. And, Ms. Mansfield, I have heard from CDCs 
in California that the refinancing process for 504 loans can be 
onerous. For example, SBA requires that refinancing applicants 
provide copies of original purchase agreements, closing 
statements, promissory notes, and grant deeds.
    For small businesses that have refinanced their debt 
previously, it is possible that the bank that originally issued 
the loan may no longer even be in business. So businesses in 
this position are then excluded from the 504 refinancing 
options.
    So, based on your experience, how can SBA improve the 
documentation requirements for small-business owners in the 504 
refinancing process?
    Ms. MANSFIELD. Thank you.
    Again, simplification of the documentation. As you said, it 
is quite possible that some of these banks are no longer in 
business or they have merged and it is actually impossible to 
get some of these original documents. And requiring a borrower 
who has had a loan out there for 10 or 15 years that they want 
to refinance be able to provide original documentation is a bit 
onerous for them. You know, they are not in the business of 
keeping all of that documentation from an original loan.
    So anything we can do to eliminate that requirement would 
go a long way for helping more businesses be able to take 
advantage of the refi program.
    Chairwoman CHU. Yeah, Mr. Williams.
    Mr. WILLIAMS. I just wanted to add, it also kind of removes 
the barrier that small businesses see with SBA financing, the 
stigma associated with paperwork, you know, redundancy. And it 
simplifies that image and that reputational risk that the 
agency has.
    And I know as my colleagues and I have discussed, the 
agency accepts certifications for a large number of things with 
respect to, you know, a loan transaction--certifications from 
borrowers, certifications from lending partners, certifications 
from CDC partners. This would be another way to help 
streamline, simplify, without adding undue burden to the 
taxpayer.
    Chairwoman CHU. Thank you.
    Well, my time has now expired, and the Ranking Member, Mr. 
Spano, is now recognized for 5 minutes.
    Mr. SPANO. Thank you, Madam Chairwoman.
    Interesting stuff. Thanks so much for your testimony.
    I have a number of different things kind of bouncing around 
in my head, but, well, I will start with this. I mean, we have 
talked about, kind of, several areas where we think there might 
be some improvements, right, that could be implemented. What I 
would like to get from each of you, kind of without commentary, 
but just list for me, in each of your specific individual 
opinions, what is the single largest issue facing CDCs today.
    Ms. Mansfield?
    Ms. MANSFIELD. For me, I would think it would be 
streamlining the closing process----
    Mr. SPANO. Okay.
    Ms. MANSFIELD.--would be the largest.
    Mr. SPANO. Mr. Williams?
    Mr. WILLIAMS. Streamlining the closing process and 
improvements to debt refi.
    Mr. SPANO. I only gave you one.
    Mr. WILLIAMS. I am sorry.
    Mr. SPANO. That is okay. I am just kidding. I was just 
kidding. I am just kidding.
    Ms. Fairman?
    Ms. FAIRMAN. Debt refi.
    Mr. SPANO. Okay.
    Ms. FAIRMAN. Barely.
    Mr. SPANO. Ms. Mirenda?
    Ms. MIRENDA. I would say streamlining the closing process, 
because that can affect borrowers and affect closings, and that 
is a pretty big deal for our small-business owners.
    Mr. SPANO. All right. So three of the four of you agree 
that streamlining the closing process is the number-one issue.
    Why is it that we have inconsistencies in the closing 
process, in your opinion? Honestly.
    Ms. Mansfield?
    Ms. MANSFIELD. Sure. I have been involved with 504 loan 
closings for quite some time, and we first talked about 
streamlining, I believe it was, back in 1997.
    Mr. SPANO. Uh-huh.
    Ms. MANSFIELD. And it seems that some streamlining has 
occurred, but it has not been for the benefit of the small 
business.
    Mr. SPANO. Okay.
    Ms. MANSFIELD. So I think we need to change the mindset and 
look at how the small business is impacted with all of this 
documentation and what would really affect them and help them 
out to get these closings done more smoothly.
    Mr. SPANO. When you say ``streamlining,'' are we also 
referring to differences in the process in regions around the 
country? Inconsistencies in the various regions around the 
country? Is that one and the same?
    Ms. MANSFIELD. That has been my experience, that closing 
alone, for instance, in the New England area is different than 
my CDC counterparts in other parts of the country. We have a 
very good process where we are, but I have heard that is not 
the case throughout the country.
    Mr. SPANO. And, Ms. Mirenda, is there anything as it 
relates to the various regions around the country that would 
justify or warrant, potentially, the differences and the 
inconsistencies around the country?
    Ms. MIRENDA. I wouldn't say so. I, you know--only, you 
know--I know, Mary, you are a multi-State. So, you know, for 
us, we are just Florida, so we deal with certain district 
councils, and we deal with the same ones, so our closing 
process is streamlined, as far as that is concerned.
    Where I come into play when I talk about streamlining is we 
are an ALP lender, which is Accredited Lender Program, which 
means we go through a pretty intensive process to be an ALP 
lender with the SBA, I mean, from financials, to governance, to 
looking at loans. And because of that, we would hope that we 
would have some leniencies when we decrease a loan by $4 to not 
have to go to the SBA for approval for those types of things.
    Mr. SPANO. Uh-huh. Uh-huh.
    Ms. MIRENDA. So, you know, just some leniencies there by 
being an ALP lender.
    Mr. SPANO. Can you walk me through, just very quickly, a 
typical closing process and what that looks like and how--I 
mean, you just gave me one instance, you know, but how, if 
there was a streamlined process, how that would positively 
impact----
    Ms. MIRENDA. Sure. So you have, you know, from application, 
you then get an authorization. Any changes made to that 
authorization is called a 327 action. So when you are in that 
process where you are from authorization to 327, any time there 
is an outstanding 327, lenders will not close the loan, because 
they want SBA's blessing to make sure we are all good to close.
    Mr. SPANO. Uh-huh.
    Ms. MIRENDA. Obviously, you know the lenders are holding 
sometimes 90 percent of financing for up to 2 years. So that is 
a risk to the lender. So they want to ensure that SBA says, 
yes, that we are going to get to the finish line. And so, you 
know, those 327s can hold up closing.
    Now, once we get all those approved, we go to closing, we 
fund, and we move on, and, you know, it goes to funding, and 
then we go to debenture or sale. But that can be a pretty long 
process. And, you know, I would say banks, credit unions, and 
third-party lenders want to ensure, you know, they are not in 
any kind of, you know, high-volatility commercial real estate 
by financing up to 90 percent.
    Mr. SPANO. Uh-huh.
    Mr. Williams, you look like you had a----
    Mr. WILLIAMS. Yeah, I will just add that, you know, there 
are various district councils that SBA has around the country 
that are involved in this process that receive closing packages 
from the CDCs around the country. And each of those councils 
has the discretion to have a cut-off date to receive closing 
packages.
    So, you know, there is variance around the country to 
receive those packages, to get them into a funding cycle for 
the next available bond sale for us. So, you know, borrowers 
are treated, you know, disparately around the country because 
of that.
    Mr. SPANO. And, to your opinion, have you been offered any 
explanation as to why there are these variances?
    Mr. WILLIAMS. Not publicly anything from SBA.
    Mr. SPANO. Uh-huh.
    Mr. WILLIAMS. And that is part of the challenge, is that 
borrowers are treated, you know, disparately in that process. 
And each district council can also add, you know, other things 
that they might want to see outside of a standard checklist.
    Mr. SPANO. Thank you.
    Madam Chair, I yield back.
    Chairwoman CHU. Thank you.
    The gentleman's time has expired, and I would now like to 
recognize a member of our Subcommittee, Mr. Tim Burchett.
    Mr. BURCHETT. Thank you, Chairlady. You got my name pretty 
close, so I am just going to----
    Chairwoman CHU. I have learned my lesson.
    Mr. BURCHETT. Thank you. Thank you. My wife has told me to 
quit doing that to you all, so I am not going do it. Just not 
going do it.
    Thank you, Chairlady and Ranking Member Spano.
    I always wondered, though, when you say, ``I am going to 
recognize myself,'' why you don't say, ``Self?'', and then you 
say, ``Well, thank you,'' and then you recognize yourself but 
you really don't. I just--it is one of my pet peeves I just 
want you all to know about, okay?
    But thank you all for being here.
    The 504/CDC loan goes a long way towards helping folks grow 
and economic development, and it creates jobs and helps our 
small businesses across the country, and I realize all that, 
but the folks in my district in east Tennessee use this loan 
program to do just that. And, with that, I have a couple of 
questions.
    Ms. Fairman, can you share with the Committee what a small 
business experiences when they walk through your CDC? And who 
do they meet with? Who is their point of contact?
    Ms. FAIRMAN. We have a staff of 15, and the small-business 
owner is introduced to one of our business development 
officers, who goes through the program with them and explains 
the rules and requirements to them.
    So they work with someone who handholds them through the 
process and puts them at ease and reassures them that they 
don't have to worry about the rules and the regulations, that 
that is what our organization does on their behalf, and we 
advocate for that business.
    Mr. BURCHETT. Yeah. I would say it is kind of a daunting 
task when they walk in, a little overpowering, so I appreciate 
that very much.
    Ms. Mirenda, you mentioned a few different success stories 
of small businesses that you all were able to keep afloat due 
to the loan program in your testimony. Is that a common 
situation for all the borrowers of 504 CDCs, ma'am?
    Ms. MIRENDA. I don't know if it is common. I would 
certainly say that there is definitely a need out there for our 
small-business owners, especially when they are trying to 
expand and grow their business. Commercial real estate is a 
good investment for small-business owners, and they see that 
value as something that they can utilize and be able to 
continue to grow their businesses.
    So I would say it is, you know--it is not common to--you 
know, we sometimes will--we will save a business owner for 
sure, where there is a business owner that--I have one in my 
written testimony, if you will read that. It was a refinance, 
and without that refinance, they would not be in business 
today. So that does happen on occasion for sure, and we 
certainly try to do what we can to help them.
    Mr. BURCHETT. Do you all--and I come from, sort of, the 
Dave Ramsey, sort of----
    Ms. MIRENDA. Oh, yeah.
    Mr. BURCHETT.--you know, paying off. You know, I tried to 
spread those values to my family, which my wife agrees, so we 
get out of debt.
    But do you all, you know--and I hear folks come in and they 
say, ``Oh, it is not bad debt; it is good debt.'' Well, to me, 
it is all bad debt. It is a sucker's bet, is what it is. 
Because, you know, the Bible says, you know, you are a slave to 
the lender.
    And I wonder, do you all push that, the getting out of 
debt? Or do you just refinance?
    You know, because I have talked to folks all the time and 
they say, ``Well, I got a great deal on this car.'' And then I 
say, ``Really? How is that?'' ``Well, I refinanced and I got my 
rates lower than my last car.'' But they are going to be paying 
for it for, you know, 672 more payments and that little beauty 
is going to be all theirs.
    So do you all encourage paying down, or do you go the other 
route?
    Ms. FAIRMAN. We always encourage repayment. But----
    Mr. BURCHETT. Well, I am sure, but, I mean----
    Ms. FAIRMAN. But----
    Mr. BURCHETT. But getting out of debt and getting off the--
--
    Ms. FAIRMAN. We all want the money back. But I think that, 
unfortunately, debt is required in order for businesses to 
grow. And so the mission of the industry is to put responsible, 
reasonably priced debt into the hands of small-business owners 
so that they have that opportunity.
    And by the way the program is structured, whenever we make 
that debt affordable to them, they are able to save other cash 
for growing and helping the economy. So debt is a necessary 
part of business growth.
    Mr. BURCHETT. You don't think it would be saving their own 
money and reinvesting and being intuitive about things in the 
way to go with their money is a better route than debt, though?
    Ms. FAIRMAN. I don't. I think that for businesses that are 
starting out it is so expensive to buy real estate, it is so 
expensive to buy machinery and equipment. It is an expensive 
business climate, and businesses can't save up $5 million to 
buy a new building. If we make this money available to them in 
a responsible manner, then we allow them to grow faster, with 
some assurance that we are going to get our money back.
    The industry monitors portfolios well enough to know that 
we are doing everything we can to help those small businesses 
repay those loans.
    Mr. BURCHETT. All right.
    My time is up. Thank you, Chairlady, Ranking Member.
    Chairwoman CHU. Thank you.
    And we actually have time for a second round of 
questioning, if any of you have more questions. I certainly do, 
so I would like to ask these questions.
    Ms. Fairman, I would like to go to the 50-percent occupancy 
issue. The current law requires 504 borrowers who purchase an 
existing building to occupy at least 51 percent of the 
building. But this requirement prevents small businesses from 
ever buying buildings with two floors that are evenly split.
    Ms. FAIRMAN. Right.
    Chairwoman CHU. So could you expound on the implications of 
this rule and what kind of situations businesses have found 
themselves in and if lowering the occupancy requirements would 
benefit the 504 program?
    Ms. FAIRMAN. So the easy answer is, yes, it would help many 
small businesses be able to occupy buildings that they 
currently are not able to finance under the 504 program.
    Basically, businesses nowadays function differently than 
when some of these rules were written, and while they might 
have been reasonable in that time period, they are not 
reasonable now. Businesses that need to buy multistory 
buildings in order to get into an area where they can better 
perform their services and provide economic benefit are limited 
by these rules that are so old and outdated.
    Chairwoman CHU. Ms. Mansfield, there is even a more 
difficult situation in the urban areas, because the 50-percent 
occupancy rule would prevent business owners from having mixed-
use developments, which is very popular right now, where 
businesses occupy the ground-floor storefront and there are 
apartment units on floors above.
    How would a special rule allowing small businesses to 
purchase mixed-use buildings benefit small businesses in those 
urban areas?
    Ms. MANSFIELD. It would greatly benefit the small 
businesses in the Boston and surrounding areas. Before coming 
here, I took a look at our statistics, and over the history of 
Bay Colony since 1981, we have only done 53 loans in the 
greater Boston area. And I believe, because of that, there are 
small businesses that we just weren't able to help.
    Again, we see a lot of these mixed-use businesses where you 
have a first-floor commercial property and the second floor is 
an apartment, and with the current 51-percent occupancy rule, 
we just can't help them. And it is a shame.
    Chairwoman CHU. This question is for both Mr. Williams and 
Ms. Fairman. 504 regulations limit small businesses to 
refinancing up to 50 percent of a project's cost, but there is 
confusion because the same rules do not apply for banks, which, 
of course, can go above 50 percent.
    So could you describe how this limit impacts the ability of 
small businesses to pursue financing under 504?
    Ms. FAIRMAN. It causes us to get into numbers and 
evaluations that are not helpful whenever we are reviewing 
prospective clients and businesses that need financing. Banks 
have a lot more flexibility and can do things that the program 
will not allow us to do with 504.
    Mr. WILLIAMS. And I think that, again, there is confusion 
because this limitation is in the 504 debt refi with the 
expansion, and the limitation applies that there is a 50-
percent cap of the debt refi, and the 50 percent applies to the 
new project cost. So it is always difficult to explain to a 
borrower and a lending partner, because it is just not a 
calculation that is intuitive or easily available in the 
marketplace.
    So, you know, if you have a project that is $500,000 in new 
project costs, you are restricted to only refinancing $250,000 
in existing debt. If you have a half-a-million dollars in debt 
on that project and $500,000 in new project costs, then you 
have a problem.
    You know, so you want to help the borrower, but you have 
restrictions, and it just complicates things. And it is not 
what the marketplace does.
    Chairwoman CHU. Yeah.
    Mr. WILLIAMS. And it is not what the other debt refi 
program does.
    Ms. FAIRMAN. And if I can add, the irony is that the 
program is based on business expansion and growth, and it is 
the expanding business that faces the restrictions in being 
able to access the program fully by these rules that are in 
place.
    And so it is counterintuitive that we want businesses to 
expand but, when they try to refinance their existing debt, we 
tie their hands and make it more difficult for them.
    Mr. WILLIAMS. And, again, pursuing the mission of assisting 
small businesses, we are nonprofit lenders. Our mission is to 
assist small businesses while preserving the taxpayer. And so 
there are much better ways of going about doing that.
    Chairwoman CHU. Thank you so much.
    My time has expired, and now I would like to recognize the 
Ranking Member, Mr. Spano, for 5 minutes.
    Mr. SPANO. Thank you, Madam Chairwoman.
    Just playing devil's advocate--I am an attorney, and so I 
like to do that--what was, potentially, the rationale in 
preventing borrowers from jumping from 504 program and 
refinancing with one of the other government loan programs? Any 
ideas as to what that rationale may have been?
    I have one in my mind, but I wasn't here during the history 
of the passage of the legislation. Any ideas on why they would 
have prevented that, if any, or do you think it was an 
arbitrary decision?
    Ms. FAIRMAN. I am not aware of any explanation for that.
    Mr. SPANO. Yeah. One thing that occurs to me is that maybe 
they wanted someone else to have an opportunity to have a 
government loan. Right? So someone has already received the 
benefit of a 504 loan, and now we are giving them a second bite 
at the apple, whether they probably need it, and I am sure in 
many cases they do. It is helpful. But that keeps someone else, 
some other small business out there who might benefit from a 
small loan--that is just a thought.
    I don't know if you have any opinions on that. Is that a 
possibility?
    Okay. All right. Good enough. You can only ask, right?
    The other thing, too, is, getting back to the occupancy 
requirement--so we can probably, I think, all agree that 50/50 
certainly should happen. Right?
    I think you, Mr. Williams, said, well, it should probably 
be lower than that. So what should that number be in the best-
case scenario?
    Mr. WILLIAMS. I think we are open--as an industry, I think 
we are open to discussions with the Committee and trying to 
come up with something that might work in urban areas. I don't 
think we have, you know, something hard and fast in mind.
    Just in multistories, that percentage is going to start 
going down pretty dramatically as soon as you add another 
story. But the reality is, small businesses operate in these 
buildings because of scarcity of real estate and the highest 
and best use of property. It is just a fact of the marketplace. 
But these small businesses still, you know, deserve access to 
financing and access to ownership.
    So I think we would like to work with the Committee to come 
up with something that would work and still fulfill the mission 
of the program without jeopardizing the taxpayer. But I don't 
know if we have a hard-and-fast rule right now----
    Mr. SPANO. Yeah.
    Mr. WILLIAMS.--but I think it is certainly something that 
we can have a discussion about.
    Mr. SPANO. Uh-huh.
    Does anybody else have anything to add?
    Ms. MIRENDA. I would like to add something.
    Mr. SPANO. Yes, Ms. Mirenda?
    Ms. MIRENDA. So one of the things that we have to do when 
you underwrite a small-business owner, we have to look at cash 
flow, right? In a 504, we can't take any cash flow generated 
from any business--so if they are at 51 percent and they are 
leasing out 49 percent, it doesn't matter what they are paying 
that business for lease, we have to underwrite it. It is a 
rule. We cannot take that, you know, lease.
    So it protects us. At the end of the day, even if it is 40 
percent, that is what protects and, I would say, makes the 
program great, because we are not lending to investors. That is 
the big concern, I think, for SBA, is we are not lending to 
investors. We don't want to lend to people who are just out 
there buying real estate, commercial real estate, and leasing 
the whole building out. And so our small-business owner, we 
have to--we do site visits. There are things that we have to do 
to be a CDC to ensure that we are maintaining the integrity of 
the program.
    Mr. SPANO. Yeah. Thank you. That is very insightful. I 
wasn't aware of that. So they have to be able to justify their 
ability to repay the loan based on the business that they are 
actually operating----
    Ms. MIRENDA. Correct.
    Mr. SPANO.--not some type of a real estate investment.
    Ms. MIRENDA. Correct.
    Mr. SPANO. Got it. Thank you.
    Madam Chair, I yield back.
    Chairwoman CHU. Well, thank you all so much. I want to 
thank all the witnesses for taking time out of their schedules 
to be with us today.
    And I would like to make my closing statement.
    SBA's loan program, including the 504 program, is designed 
to fill the gaps left by the private markets, providing loans 
to small-business owners who cannot afford or obtain loans from 
conventional lenders. The 504 program takes this one step 
further by targeting small businesses with unique capital 
needs--the purchase of major fixed assets, such as land, 
buildings, and equipment.
    Ensuring that this program is effectively reaching and 
serving small businesses at this critical stage of growth is a 
priority of this Committee, and this hearing has provided 
important information and testimony that will help us do just 
that.
    I look forward to continuing to work in a bipartisan 
fashion to enhance the 504 program and ensure that small 
businesses have access to affordable capital.
    I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Committee, we are adjourned. Thank you.
    [Whereupon, at 10:57 a.m., the Subcommittee was adjourned.]
                            
                            
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