[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PAYCHECK PROTECTION PROGRAM: LOAN FORGIVENESS AND OTHER CHALLENGES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JUNE 17, 2020
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-082
Available via the GPO Website: www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
41-293 WASHINGTON : 2021
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
KWEISI MFUME, Maryland
JUDY CHU, California
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 and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Steve Chabot................................................ 3
WITNESSES
Ms. Melissa Kelly, Executive Chef and Proprietor, Primo,
Rockland, ME................................................... 7
Mr. Eduardo Sosa, Senior Vice President, SBA Lending, Commerce
National Bank, West Lake Hills, TX............................. 8
Ms. Ashley Harrington, Director of Federal Advocacy and Senior
Counsel, Center for Responsible Lending, Washington, DC........ 10
Dr. Rich Coleman, DVM, Owner, Four Paws Animal Hospital, Lebanon,
OH............................................................. 12
APPENDIX
Prepared Statements:
Ms. Melissa Kelly, Executive Chef and Proprietor, Primo,
Rockland, ME............................................... 34
Mr. Eduardo Sosa, Senior Vice President, SBA Lending,
Commerce National Bank, West Lake Hills, TX................ 43
Ms. Ashley Harrington, Director of Federal Advocacy and
Senior Counsel, Center for Responsible Lending, Washington,
DC......................................................... 53
Dr. Rich Coleman, DVM, Owner, Four Paws Animal Hospital,
Lebanon. OH................................................ 77
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
American Farm Bureau Federation.............................. 79
Independent Community Bankers of America (ICBA).............. 81
National Association of Federally-Insured Credit Unions
(NAFCU).................................................... 84
National Association of Realtors (NAR)....................... 86
NFIB......................................................... 89
Statement of Hon. Steve Chabot............................... 92
Team85 Fitness & Wellness, LLC............................... 94
Engine Advocacy.............................................. 96
PAYCHECK PROTECTION PROGRAM: LOAN FORGIVENESS AND OTHER CHALLENGES
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WEDNESDAY, JUNE 17, 2020
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., via
Webex, Hon. Nydia M. Velazquez [chairwoman of the Committee]
presiding.
Present: Representatives Velazquez, Finkenauer, Golden,
Kim, Crow, Davids, Chu, Evans, Schneider, Delgado, Houlahan,
Craig, Chabot, Radewagen, Balderson, Hern, Burchett, Spano,
Joyce, and Bishop.
Chairwoman VELAZQUEZ. Good afternoon. I call this hearing
to order.
Without objection, the Chair is authorized to declare a
recess at any time.
I want to thank everyone for joining us this afternoon for
our Committee's second official remote hearing. I want to note
some important requirements.
Let me begin by saying that standing House and Committee
rules and practice will continue to apply during remote
hearings. Members will be expected to continue to adhere to the
rules of the Committee and the House.
All Members are reminded that they are expected to observe
standing rules of Committee decorum when they are participating
in any remote event. The technology we are utilizing today
requires us to make some small modifications to ensure that the
Members can fully participate in these proceedings.
During the covered period as designated by the Speaker, the
Committee will operate in accordance with House Resolution 965,
and the subsequent guidance from the Rules Committee in a
manner that respects the rights of all Members to participate.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on.
Also, if you have to participate in another proceeding,
please exit this one and log back in later.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party, and
will recognize that Member at the next appropriate time slot,
provided they have returned to the proceeding.
Should a Member's time be interrupted by technical issues,
I will recognize that Member at the next appropriate spot for
the remainder of their time once their issues have been
resolved.
In the event a witness loses connectivity during testimony
or questioning, I will preserve their time as staff address the
technical issue. I may need to recess the proceedings to
provide time for the witness to reconnect.
Finally, remember to remain muted until you are recognized
to minimize background noise.
In accordance with the rules established under House
Resolution 965, staff have been advised to mute participants
only in the event there is inadvertent background noise. Should
a Member wish to be recognized, they must unmute themselves and
seek recognition at the appropriate time.
Before we get started, I wanted to offer a warm welcome to
our newest Member, Representative Kweisi Mfume from Maryland.
Mr. Mfume represented Maryland's 7th Congressional District for
five terms, beginning in 1987 before leaving office in 1996, to
take on the critical role of heading the Baltimore-based NAACP.
Being a Member of the Small Business Committee is nothing
new, as he previously sat on the Committee and served as the
Chair of the then-Subcommittee on Minority Enterprise, Finance,
and Urban Development.
I look forward to continuing our work to elevate the needs
of small businesses across the country. Welcome, Mr. Mfume, and
we are all pleased to have you join us.
Over the last few months, the outbreak of COVID-19 has led
to an unprecedented public health crisis. Congress took swift
steps to address both, but, today, we will be focusing on the
Paycheck Protection Program, created by the CARES Act.
The Paycheck Protection Program is a subprogram of the 7(a)
loan guarantee program, and began with almost $350 billion for
fully guaranteed forgivable loans designed to meet payroll
costs and other business expenses. The goal of the program is
to save as many small business jobs as possible, as quickly as
possible.
To do so, SBA stood up the program within a week and has
guaranteed over 50 times as many loans than it did in the
entire 2019 fiscal year, all this in just a few short weeks. We
appreciate all of the hard work by everyone at the SBA, and are
equally grateful to the lending partners who participated in
PPP for helping small businesses stay afloat during these
uncertain times.
However, given the size and scope of PPP and the speed with
which it was stood up, implementation was bound to be less than
perfect. As Members of the Small Business Committee, we are
tasked with assessing areas for improvements in all of SBA's
programs, and the first run of Paycheck Protection Program
funding exposed some of those areas.
For example, too many main street mom-and-pop shops were
forced to sit on the sidelines as the program was first rolled
out with larger, better-capitalized businesses receiving those
loans. All they were left with was the hope that Congress will
add more money to the program.
Eventually Congress did, and on April 24th, the Paycheck
Protection Program and Healthcare Enhancement Act was signed
into law, providing an additional $310 billion in Paycheck
Protection Program funding. Importantly, the additional funding
included a set-aside of $60 million for small banks and credit
unions, as well as CDFIs, MDIs, CDCs, and SBA micro loan
intermediaries with the intent of furthering a greater portion
of PPP funds to underserved business communities who struggle
to access affordable capital.
This second round of funding has not drawn down as fast as
the first, in part, I suspect, because of the lack of clear
guidance with the forgiveness rule in the first several weeks
of the program. Agency rules like this rule forced us to act
yet again, and, on June 5th, the Paycheck Protection Program
Flexibility Act was signed into law.
The Flexibility Act extended the covered period to use the
loan from 8 weeks to 24 weeks, and up until December 31st. It
also permitted borrowers to spend a greater portion of their
loans on loan payroll costs and remain eligible for
forgiveness.
That makes today's forum a timely one, as we will be able
to hear from stakeholders about what has worked with the
program, what hasn't worked, and how Congress can keep
optimizing the program as our local economies slowly begin to
reopen.
There were also a number of regulatory decisions made by
SBA and Treasury in the early weeks of the program that may
have limited the appeal of the loans to some prospective
borrowers. For example, the agencies added a resource test to
the program, and established a rule that required borrowers to
spend 75 percent of proceeds on payroll costs in order to be
eligible for full forgiveness.
This rule greatly restricted the ability of many different
kinds of small businesses who spend their loan funds as needed
and made the PPP product much less appealing for borrowers.
As the program enters the forgiveness phase, we must
analyze the issues borrowers and lenders are currently facing.
The primary concern we have heard about is the needlessly long
and complex forgiveness application, which, according to
experts, reads more like a tax form than a loan application. If
loan forgiveness is the key feature of the program, applying
for it should be as easy as possible.
We have also heard that minority-owned small businesses,
micro businesses, and sole proprietors continue to struggle
with accessing PPP loans, despite about $130 billion remaining
in the program amount. Just last week, Secretary Mnuchin
testified before our Senate counterparts that Treasury will not
be publishing detailed loan information for PPP, robbing
Congress and the public of the data we need to evaluate the
program.
I look forward to hearing from our distinguished panelists
today about how Congress can keep improving the Paycheck
Protection Program, and whether Congress should consider
further fixes before the second round of PPP funding expires,
or the program closes on June 30th.
Again, I want to thank the panelists for joining us here
today. I now yield to the Ranking Member, Mr. Chabot, for his
opening statement.
Mr. CHABOT. Thank you, Madam Chair. Thank you for holding
this hearing today, and I also want to extend our welcome to
Mr. Mfume. I was elected in 1994, and he left in 1996, so I had
the honor and pleasure of serving one term with him, and, as
you indicated, he is former Chair, and I believe his portrait
is on our wall in the Committee room. So we want to welcome him
back to the Committee. I am sure he will make a great
contribution to small businesses, again, all over the country.
On a different note, I must, once again, register my
concern on behalf of our side of the aisle about the continuing
conducting of Committee meetings by virtual format. The House
has important work that needs to be completed, yet we are
forced to have these hearings virtually. With States and
localities opening up, it is a concern that the House of
Representatives remains a virtual entity. And I certainly don't
hold the chair responsible for this. It is obviously above her
pay grade, as I have said in the past. I do believe the Speaker
and the Democratic leadership should make sure that Congress is
in session, because we have a lot of work to do.
I am actually in Washington right now in the Capitol, the
Visitors Center, because we are holding a hearing relative to
the George Floyd killing and, you know, Congress' response to
that, and there is obviously a number of legislation. The
Senate has legislation. The administration offered their
suggestions as to how we move forward in an executive order
yesterday; so, we are all discussing this. So I am here in
Washington. But unfortunately, other than that, the other
committees are not in session, and we ought to be.
Now, relative to today's hearing, the Paycheck Protection
Program application portal opened up on April 3rd, so it hasn't
been that long. In just 2 months, the SBA approved and
disbursed more than 4.5 million loans, totaling over half a
trillion dollars. It has been a truly Herculean effort by the
SBA, which is a relatively small government agency, which is
really, you know, working extremely hard, and really it is
incredible how much they have done, and, of course, they have
more to do.
According to the May employment report released by the
Bureau of Labor Statistics, nonfarm payroll employment rose by
2.5 million, so that is good news, and the unemployment rate
declined to 13.3 percent.
Now, it is good news that it went down. It is unfortunate
that it is still that high. So, we obviously have a lot of work
to do to get that unemployment rate down and get the American
economy moving again. There is clearly a long way to go in this
recovery, but it appears that the PPP is having a major impact
in saving many American jobs.
I have seen the enormous impact to these loans in my
district back in southwestern Ohio, where I visited nearly two
dozen businesses now that have utilized the PPP loan, so
including restaurants and learning centers and manufacturers
and medical practices and many others.
For example, on May 8th, I had the honor and pleasure of
visiting Four Paws Animal Hospital in Lebanon, Ohio, and I
asked the owner and head veterinarian, Rich Coleman, if he
would share his experience with the PPP program with us, and he
is going to be one of our witnesses here today, and we
certainly welcome him. We will be introducing him shortly.
We know the program hasn't been perfect, especially early
on. Congress made adjustments, including the Paycheck
Protection Program Enhancement Act, and then the Flexibility
Act, and these adjustments included--expanded the loan
forgiveness from 8 weeks to 24 weeks at the option of the small
business and what they determine is in their best interests.
They now have that option of picking one or the other. That is
going to help a lot of people.
Also, modifying the loan amount that must be spent on
nonpayroll or payroll costs. We went from the 75/25 to 60/40. I
have heard from a lot of folks that is going to help a lot, and
other things that we did.
The PPP program is the result of tireless work between
Congress and the administration. We hope to achieve a delicate
balance between flexibility for lenders and loan recipients,
protecting the integrity of the program's mission, and
conducting needed oversight. Transparency continues to be a
hallmark of all government programs. We must ensure that
transparency, without compromising confidential information and
personal information. I think that is very important.
Additionally, as small businesses move closer to the end of
their forgiveness covered period, it will be instrumental for
Members of Congress to examine how forgiveness is treated.
Today's discussion will add value to this element of PPP.
We are all committed to making sure this program has a
maximum impact for small businesses all across the country, and
I want to thank all the witnesses today and the countless
businesses that have provided feedback to me and to other
Members of Congress, especially those on this Committee, about
how the PPP program has worked with them. Their impact will
have an immediate impact on the program and the Nation's
economic recovery.
And, again, Madam Chair, I want to thank you for holding
the hearing, and I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Chabot.
I would like to take a moment to explain how this hearing
will proceed. Each witness will have 5 minutes to provide a
statement, and each Committee Member will have 5 minutes for
questions. Please ensure that your microphone is on when you
begin speaking, and that you return to mute when finished. With
that, I would like to thank our witnesses for taking time out
of their busy schedule to join us.
Our first witness is Melissa Kelly, Executive Chef and
Proprietor of Primo, a seasonal farm-to-table restaurant in
Rockland, Maine. After an esteemed career in teaching across
the world, she opened this restaurant in 2000 with the help of
an SBA loan. Since then, she has partnered with JW Marriott,
who opened two additional locations and has been recognized for
excellence by numerous industry publications.
However, the outbreak of COVID-19 has put her restaurant in
jeopardy, and she took out a PPP loan with the hopes that it
will save her business.
Chef Kelly, thank you for joining us today.
Our second witness is Mr. Eduardo Sosa. He is the Senior
Vice President of SBA Lending at Commerce National Bank, an
independent community bank in the Austin, Texas area with about
$5 billion in assets. The bank is the 7(a) preferred lender,
owing to the years of experience with the program. His insight
will, therefore, be helpful for the Committee as we evaluate
implementation of the PPP.
Mr. Sosa, thank you for joining us today.
Our third witness is Ms. Ashley Harrington, the director of
Federal Advocacy and Senior Counsel at the Center for
Responsible Lending, a leading research and advocacy
organization dedicated to a fair financial services market that
provides meaningful opportunities for community asset building
and economic security.
Ms. Harrington, thank you for joining us today.
Finally, I would like to turn it over to the Ranking
Member, Mr. Chabot, to introduce our last witness.
Mr. CHABOT. Thank you, Madam Chair.
Our final witness today is Dr. Rich Coleman, owner of Four
Paws Animal Hospital in Lebanon, Ohio. Dr. Rich completed his
undergraduate studies at the University of Cincinnati before
graduating from the Ohio State University, College in
Veterinary Medicine, in 2002.
He took over Plum Veterinary Clinic, changed the name to
Four Paws Animal Hospital in 2007, built a new facility in
2012, and began a remodel in March of 2019--so just last year--
to allow for more growth and opportunities for his clientele,
and obviously, none of us anticipated at that time of what was
coming down the pike. So I am sure it would be interesting to
hear how that has affected it.
Dr. Rich is a dedicated community servant, and sponsor of
many local programs in Warren County. His wife, Jen, is a
teacher at Lebanon City Schools, and when I visited, I had an
opportunity to speak with her about what was going on in the
school system up there at that time.
Also, it was delightful to meet his two delightful
daughters and their two cats and two black labs, although I
don't think I met all of those that day.
My staff and I visited Four Paws Animal Hospital last month
to see how they have benefited from the PPP as they have, as I
mentioned, many other businesses in our community.
So I want to thank you, Doctor, for having us, and your
great animal care facility and for joining us here today. I
look forward to your testimony, as I do all the other witnesses
as well, and I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Chabot, and thank you
all for being here.
I would now like to begin by recognizing Ms. Kelly for 5
minutes. Thank you.
STATEMENTS OF MELISSA KELLY, EXECUTIVE CHEF AND PROPRIETOR,
PRIMO; EDUARDO SOSA, SENIOR VICE PRESIDENT, SBA LENDING,
COMMERCE NATIONAL BANK; ASHLEY HARRINGTON, DIRECTOR OF FEDERAL
ADVOCACY AND SENIOR COUNSEL, CENTER FOR RESPONSIBLE LENDING;
AND DR. RICH COLEMAN, DVM, OWNER, FOUR PAWS ANIMAL HOSPITAL
STATEMENT OF MELISSA KELLY
Ms. KELLY. Good afternoon. I would like to thank Chairwoman
Velazquez, Ranking Member Chabot, as well as the members of the
Committee for this opportunity to represent and address the
concerns of the hospitality industry.
I am Chef Melissa Kelly, owner of Primo Restaurant in
Rockland, Maine. I am here in my kitchen, alone. In normal
times, this kitchen would be filled with my staff, as we would
be preparing for dinner service. Unfortunately the corona
pandemic has changed all of that.
Today, I would like to share my thoughts and concerns in
three areas: the people I work with, the industry at large, and
the effectiveness of the PPP loan system. I am a chef. I
believe that is my calling. The reason I do what I do is to
help people eat healthy, delicious food that gives them
nourishment and joy, and I believe that supporting the health
of this planet is also part of my responsibility.
I own and operate a small farm, and a restaurant in
Midcoast Maine, and this is where I bring my beliefs to life.
We operate on a seasonal calendar, open for 9 months, closed
for 3. This April was the beginning of my 21st season. Through
hard work and dedication, the business has grown steadily over
the years, and now I employ a team of 50 farmers, managers,
cooks, dishwashers, servers, hosts, and office staff.
When the Governor of Maine wisely put our State on
lockdown, we were preparing to open our doors. My first worry
was my people. I had enough money in reserves to see them
through a couple of payroll periods, but I didn't have any idea
how long I would need to take to support--before we get back to
work. I did not want to lay them off.
The team that I have assembled is the reason we are able to
do great things that we do. I have won the James Beard Award
for best chef Northeast twice, and my team is a big part of the
reason why.
My restaurant seats 165 diners inside, and we normally
serve over 32,000 meals a season. My staff of 50 have an
average earning of $26 an hour. Our revenue is earned mostly
between July and October. I am here today not only representing
myself, but also as a spokesperson for the restaurant industry
in general.
I operate in Maine, a State that is especially dependent on
revenue from seasonal tourists. Many of my fellow restaurateurs
are not going to make this. They are not going to survive the
government-mandated restrictions on a restaurant operation due
to COVID-19.
Regardless of State approved openings in industry, patrons
may still have hesitance or face financial stresses of their
own, which will take us time to recover. I worry for us all.
When the PPP was first offered, I thought long and hard
about applying for it. Rules on eligibility periods for
calculating the FTE count and the payroll meant that I was
forced to use a base period when I had a very reduced
operation. For example, my allowed FTE count was 24 when
normally, when I am in season, I have 50 FTE.
I was also concerned with what expenses could be covered by
PPP. There have been many added operating costs directly
attributed to COVID-19, PPEs, staff training. I am building an
outdoor area, and they cannot be reimbursed.
I closed on my PPP for $185,000 on the 17th of April. At
the time of the closing, I was supposed to spend all of the
money in 56 days. Given the 8-week timeframe, I was extremely
concerned about being able to stay current of allowable costs
to make the loan completely forgiven. The last thing I need is
more debt.
For most of the period of the loan, the restaurant has been
closed to dine-in operations by State mandate. We used the PPP
loans funds to bring back staff, and to begin to offer takeout.
Revenue from takeout has been less than 20 percent of what we
would normally gross on normal operations.
On May 13th, the SBA issued a new ruling allowing seasonal
businesses to use an alternative seasonal operation base period
to calculate the maximum loan amount. For this calculation, I
was eligible for up to $513,000, but I would have had only
until June 30th to utilize the funds.
At that time, the restaurant was still closed for dine-in
by our State orders. As such, it would have been a poor
decision to obtain additional funds that almost certainly would
not have been forgiven.
The recent passage of the Paycheck Protection Program
Flexibility Act is a positive step in the right direction to
provide necessary flexibility and assistance to businesses that
are struggling during this pandemic. Upon passage, I applied to
increase my loan to $400,000 to support operations as we
continue to face significantly reduced revenue.
Unfortunately, I was soon notified that, because my local
bank had filed an SBA form 1502 report on May 18th, the loan
could not be increased due to SBA rules.
Given all of this and the ongoing future challenges faced
by the hospitality business, I am recommending changes to the
SBA rules regarding closing of a loan after form 1502
submission to allow for an increase in PPP loans for eligible
businesses after----
Chairwoman VELAZQUEZ. Ms. Kelly, your time has expired. You
could expand during the question and answers period.
I now recognize Mr. Sosa. Thank you.
STATEMENT OF EDUARDO SOSA
Mr. SOSA. Thank you for inviting me.
As a former migrant farm worker who has spent the last 25
years as an SBA lender, I am especially honored to be here. I
am a senior vice president at Commerce National Bank in Austin,
Texas, where I helped to oversee our participation in PPP,
making approximately 3,500 loans totaling over $477 million,
supporting over 57,000 employees.
I am grateful for Congress' quick action to address the
problem of unemployed Americans and understand why Congress and
the agencies felt pressure to produce statute and guidance as
fast as possible, and to have lenders implement the program
immediately.
But lenders and borrowers are now paying the price for the
speed, and we need to look for a middle ground that balances
speed with common sense. Let me explain.
First, PPP guidance. Includes 19 interim final rules, and
48 FAQs which have frequently changed. I am an experienced
lender, but I have never fully understood how to make a PPP
loan from beginning to end. No one does. Forgiveness guidance
was issued 7 weeks into the program after millions of borrowers
signed contracts without lenders or borrowers knowing all the
terms and conditions. We still don't know how eligibility and
forgiveness decisions will be made. We need clear, complete
guidance.
Next, the credit elsewhere confusion. Congress allowed
loans up to $10 million, broadened size standards, relaxed
affiliation rules, and eliminated the traditional 7(a) credit
elsewhere test. We believe Congress intended most small
businesses would be able to certify to the necessity of a loan.
The law never said the business needed to first use other
available capital, and need remains undefined. But, as the
media began highlighting negative stories, attitudes shifted.
FAQs and IFRs now require that borrower's self-assess need
based on the eliminated credit elsewhere test.
I have watched my customers fearfully repay needed loans.
Of my bank's $477 million in loans, $31 million were repaid
because of contradictory guidance and perceived threats.
The saddest part is the majority of the loans repaid were
the smallest, as low as $1,400. Imagine a borrower's fear when
the government says it must return loan funds or face serious
consequences. The Federal Government said, ``We are here to
help,'' and then changed its mind about who the program intends
to help, threatening the very businesses that it invited to
participate. Congress can require the agencies to acknowledge
the credit elsewhere waiver, amend FAQs that directly
contradict the statute, and cease threatening small businesses.
Next, forgiveness issues. Lenders still don't know how or
where to submit their borrowers' forgiveness applications, and
borrowers still don't know how to appeal adverse decisions.
What guidance we do have isn't clear, and places a tremendous
burden on borrowers, especially those whose--especially those
with smaller loans.
We need a simplified forgiveness process. I strongly
recommend that Congress provide statutory direction to create
automatic forgiveness for borrowers with loans of 150,000 or
less.
Next, lender liability. The law said lenders can rely on
borrower documents and certifications, but the agencies
confused this mandate. One FAQ says we can rely on a borrower's
certification, but a recent IFR says lenders must review
borrowers' calculations and documentation. If forgiveness
applications are not appropriately documented, they can be
denied.
Lenders are increasingly worried about participating when
the rules are constantly changing. Should we be surprised that
they are skeptical about any program expansion without complete
guidance being provided first?
Congress required promptly paid lender processing fees, but
only now are we starting to get paid. And we are just learning
that the agencies will refuse to pay fees for loans if there is
an after-the-fact determination of ineligibility based on new
interpretations. That is unfair and unprincipled.
Despite these issues, here is why we chose to participate.
We provided a loan to a husband-and-wife-owned bakery. Not only
were they able to keep their 24 employees----
Chairwoman VELAZQUEZ. Mr. Sosa, your time expired, so you
will be able to expand during the question and answer period.
Thank you.
Mr. SOSA. Thank you.
Chairwoman VELAZQUEZ. Ms. Harrington, you are now
recognized for 5 minutes.
STATEMENT OF ASHLEY HARRINGTON
Ms. HARRINGTON. Thank you.
Good afternoon, Chairwoman Velazquez, Ranking Member
Chabot, and members of the Committee. My name is Ashley
Harrington, and I am a Federal advocacy director and senior
counsel at the Center for Responsible Lending. We are a
nonprofit, nonpartisan research and policy organization working
to advance economic opportunity. CRL is an affiliate of Self-
Help, one of the Nation's largest community development
financial institutions, CDFI.
A long-time Small Business Administration lender, Self-Help
has focused on helping underserved applicants access the
Paycheck Protection Program. The PPP is one of the largest
taxpayer-funded, crisis relief programs in our Nation's
history. The program's intention is good, and was built around
an important premise: Provide a lifeboat for small business
owners so that they and their employees can stay afloat during
this pandemic.
But the execution and rollout of the PPP fell short,
creating a barrier for small business owners of color to access
relief, and that is what I hope to underscore for you today.
Since the start of the crisis, business owners of color had
been especially and unfairly hard hit. Active black- and
Latino-owned businesses have declined by 41 percent and 32
percent respectively. Asian American-owned business owners
dropped by 26 percent. By comparison, active white business
owners declined by 17 percent. These business owners of color
are from the same communities that were the most adversely
affected by the Great Recession, and unfortunately, they are
the ones most likely to have been underserved by the PPP.
This program disadvantages the smallest businesses.
Businesses owned by people of color on average have fewer
employees than white-owned businesses. CRL's analysis of the
latest government study shows that for 95 percent of black-
owned businesses, and 91 percent of Latino-owned businesses,
the owner is the only current employee as compared with 78
percent of white-owned businesses. These businesses are the
least likely to be served by the PPP.
Business owners of color are less likely than white owners
to have a relationship with a commercial lender. This puts them
at a sharp disadvantage, especially during the first-come,
first-served opening round of PPP, which caused serious fair
lending concerns.
Businesses of color have historically lacked access to SBA
loans and credit generally. A recent study found steep
reductions in SBA 7(a) lending to black businesses between 2008
and 2016. In 2018 and 2019, only 5 percent of all SBA 7(a)
loans were made to black-owned businesses, and only 9 percent
were made to Latino-owned businesses.
Business owners of color are more likely than white
business owners to feel discouraged from seeking loans.
Minority depository institutions, MDIs, and CDFIs are helping
to increase PPP access who have been hindered by unnecessary
loan volume thresholds and other difficult requirements.
And, finally, the SBA's 11-page application for loan
forgiveness, which largely tracks the documentation
requirements under CARES, is so complex and cumbersome that
businesses too small to afford an accountant or lawyer will
find it extremely difficult to complete, turning what was
supposed to be a grant into long-term debt.
This burden, too, will disproportionately fall on business
owners of color. And, while the easy form released today is an
improvement, it still requires extensive documentation.
Last month, the SBA inspector general reported that,
despite a requirement in the CARES Act, SBA and the Treasury
Department failed to issue guidance to lenders to ensure that
they prioritized underserved markets, including rural,
minority, and women-owned businesses. As of today, we are yet
to see any guidance.
The IG also noted that the SBA did not collect standard
demographic data on its PPP form. This failure made it unlikely
that the SBA could determine whether funds reached underserved
markets. Despite the SBA's failure to collect and release data,
there is ample evidence that PPP has not equitably served
businesses of color.
My written testimony provides more detail along with
recommendations to address the problem and fully support
business owners of color fully going forward.
As we know, recent people-led protests across our country
decried the pain of communities long denied equal access to the
most basic aspects of America's promise of justice and equal
opportunity. These communities continue to suffer the
consequences of Federal policy decisions that needlessly and
unjustly make economic opportunities harder to access.
Right now, under your watch, the public is looking at you
to address these inequalities, and they deserve a response. I
urge you to seize this moment. CRL and other organizations are
ready to help you. It is already too late for many small
businesses, and those that remain can't wait any longer. The
PPP is set to expire in 2 weeks. If it is not extended and
reformed to serve these businesses, many will never recover.
Thank you. I look forward to your questions.
Chairwoman VELAZQUEZ. Thank you, Ms. Harrington. I now
recognize Mr. Coleman for 5 minutes. Welcome.
STATEMENT OF DR. RICH COLEMAN
Dr. COLEMAN. Thank you very much.
Honorable Congresswomen and Congressmen, I am honored to be
here, and thank you for allowing me to come before you today as
a representative of small businesses across the country.
My wife Jen and I purchased a veterinary practice from
another veterinarian and quickly made it our own in 2007. At
the time of the purchase, the practice was a single doctor
practice. We now have expanded to become a five doctor practice
with 34 employees.
In 2012, we moved from a strip-mall store to our own state-
of-the-art, 5,400-square-foot standalone building in the heart
of the Lebanon business corridor. For the past few years, we
have seen an amazing level of growth from client standpoint, as
well as revenue standpoint. Over the past few years of
prosperity, we have been able to give raises, purchase
equipment, and add additional staff members.
In March, all that changed. COVID-19 hit the United States,
and people were asked to stay home. Ohio was one of the
earliest to shut down. Fortunately for us, we were deemed an
essential business, and we were still able to operate as a
veterinary hospital, but with severe restrictions in place.
Because of these restrictions, we went from monthly
continuous growth numbers to being down 30 percent or more. We
were fearful that, at any time, we would have to shut down the
hospital if one of the staff members fell ill from coronavirus.
We first heard about the PPP loans on the national news. I
immediately reached out to our local bank to start the wheels
in motion. I stayed in contact with them and asked for any
information they were getting as far as the loan application
and what it would look like. I filled out sample applications,
had my numbers confirmed by my accountant, and tried to get any
documentation that was needed for when the loans would be
approved by Congress, the SBA, and the President.
Once the bank let me know that the applications were ready,
I filled them out, submitted them the next day, and the bank
kept me in the loop where we stood with the application
process, and the approval process occurred, and, quickly, we
signed documents, and within a week, our PPP was funded.
I cannot say enough about the way that Congress and the SBA
got such a huge undertaking done so quickly. The funds were
exactly what our business needed to make up the shortfall in
revenue, allow us to keep all of our employees. We did not lay
off any of the staff, and everyone was able to keep their
hours, especially if they were able to come to work.
A few staff members had to stay home for 2-week quarantines
due to unknown nature of things in their early stages. We asked
anyone with a fever or cough to stay at home for those 14 days,
but no one in the hospital tested positive for COVID-19, and
everyone was able to return to work.
The only concern that we had with the loan process was the
loan documents that we signed did not have language in them
that discussed the loan forgiveness. We were signing a loan
with good faith that the government would honor their word and
forgive the PPP loan.
I looked to the loan as a lifeboat that my business needed
and to provide for my staff and my family. If the loan was
forgiven, it would be a Godsend. If the loan was not, then I,
at least, had a government loan with a reasonable term to help
me get through this unusual time.
The loan was funded during the first phase, and we received
$206,000. Now, I saw an interesting statistic that, during that
first phase, the average loan was $206,000, so I joked with my
wife that we owned the most average business in the United
States.
Our 8-week loan period actually ends on June 17th, today.
We have elected to extend to the 24 weeks as allowed by the new
provisions passed 2 weeks ago. We opened an account that was
only to be used for the PPP loan funds. That way, there was
complete transparency with every dollar that was used.
Our business has rebounded, and we are digging out. We are
still not practicing veterinary medicine the way I have the
last 18 years, but we are currently doing car calls with
clients staying in the hospital and only the pets coming in. It
is a new business model, and my staff has been amazing in
completely reinventing ourselves. I cannot thank them enough
for getting our veterinary hospital and all of our patients and
clients through these tough times.
In conclusion, again, I cannot thank Congress enough for
providing the funds that all small businesses in the U.S.
needed to survive this time of uncertainty. I feel that the
loan process could not have gone any smoother than it did.
Congress is known for doing things at glacial speed, and I was
amazed at how quickly this came together. It was amazing that--
what an accomplishment can happen when we all work together.
I would like to thank our local community bank, Lebanon
Citizens National Bank, for making the process as easy as
possible under the circumstances; my accountant, Pelfrey &
Associates, for helping navigate through the application
process.
Thank you again for having me today and allowing me to tell
my story. Because of the bipartisan efforts of Congress, the 34
staff members at Four Paws Animal Hospital were able to go home
every night knowing that they could pay their rent, feed their
family, and, more importantly, feed the massive amounts of pets
that they own.
Thank you.
Chairwoman VELAZQUEZ. Thank you, Mr. Coleman.
I will begin by recognizing myself for 5 minutes.
Ms. Harrington, just last week, Secretary Mnuchin announced
that no PPP loan data will be published. As we both know, this
is in contradiction with conventional 7(a) practices, under
which individual loan data is publicly accessible on the SBA
website.
Can you expound on the issue of the lack of PPP loan data
reporting and how it will impede the ability of Congress and
the public to track the demographic breakdown of PPP access?
Ms. HARRINGTON. Absolutely. Thank you, Congresswoman.
It is definitely a big issue and departs from everything
SBA has done previously, and all of the reporting it does for
the 7(a) program. The demographic information is so important
to know where these funds are going and which communities are
being served.
We have already heard about all of the communities--the
black--the businesses owned by people of color who are
struggling and who have had--not had access to these programs,
who have gone to institutions and been denied, or never heard
anything about their application, and they are struggling. So,
without this information from the SBA itself, we cannot hold
this--hold the SBA accountable for the $660 billion taxpayer
investment.
Chairwoman VELAZQUEZ. Thank you.
Mr. Sosa, does the lending community have similar concerns
with data reporting?
Mr. SOSA. The regular 7(a) program, you are correct. As far
as I know, all of the information there is public information.
There might be some consideration as to some proprietary
information on the PPP loan, but I don't want to get into any
kind of political thing here, because I am not a politician. I
support publicly available information or oversight. If
somebody is not playing by the rules, they need to answer for
that lack of rules.
Chairwoman VELAZQUEZ. Thank you.
Ms. Kelly, how many of your employees have you been able to
retain, and do you think you will be able to keep rehiring as
your local economy slowly begins to reopen?
Ms. KELLY. I have been able to retain 16 employees at this
moment. We have not opened the restaurant for indoor dining as
of yet. Like I stated earlier, I am building an outdoor area
because the State of Maine allows 50 guests inside and 50
outside. I intend to open inside slowly soon with caution, and,
as soon as we get the outside area open, I will bring back my
other employees, absolutely.
Chairwoman VELAZQUEZ. Ms. Harrington, surveys have shown
that the COVID-19 pandemic has disproportionately affected
micro businesses and sole proprietors. In your view, what more
needs to be done to ensure that PPP and other small business
programs are assisting the smallest of small businesses?
Ms. HARRINGTON. We need to ensure that the remaining funds
in the PPP program are getting to these really small
businesses, the businesses who have not yet been served. There
is over $100 billion left that is set to expire. The program
needs to be extended, but also reformed, providing for things
like a minimum origination fee, set-asides for CDFIs and MDIs.
All of these things will help ensure that funding gets to the
really small businesses and the businesses owned by people of
color who have yet to be served by this program.
Chairwoman VELAZQUEZ. So, at minimum, we should expect for
the administration to provide data as to the demographics,
similar to what any 7(a) lender or borrower has to provide when
they apply for those loans. That is the only way that we could
determine whether or not the smallest of the small businesses
have been able to access the system that they need.
Should we consider automatic loan forgiveness for the
minimum loan amounts, Ms. Harrington?
Ms. HARRINGTON. Absolutely. The forgiveness application as
laid out, and the process as laid out, even this EZ form, is
incredibly burdensome for the really small businesses. We
advocate for a streamlined automatic forgiveness for loans
under 100K, and this will disproportionately serve the really
small businesses. On average, these are businesses that will
likely have 13 or fewer employees, the businesses that we
really want to be able to survive and make it through this
crisis.
Chairwoman VELAZQUEZ. Thank you, Ms. Harrington.
My time has now expired. The Ranking Member, Mr. Chabot, is
recognized for 5 minutes.
Mr. CHABOT. Thank you very much, Madam Chair.
Dr. Coleman, I will begin with you. What time and expense
do you estimate that it might take to complete the PPP
forgiveness application process?
Dr. COLEMAN. Well, did you say the time and expense? Well,
you know, the key with small businesses, we are not Fortune 500
companies. We are--we don't have accountants on staff. So, you
know, a caterer is going to make 400 sandwiches and then go do
business. A mechanic may go change out a muffler, and then go
do their business work. With me, I am going to go spay the
family pet, and then come back, and now I have to do all this
business work, and sometimes it is at the detriment of my
family time.
The key here is, we have to outsource all these things, so
streamlining it for these small businesses would be great, and
it sounded like the SBA started that today with the EZ form, I
have this 11-page document right here from what it was before.
And, you know, I showed it to my wife last night, and it was,
it was like a tax form. I--I am not going to lie to you. I
missed a few of the words in there. I didn't know what they
meant.
And so, I was concerned that this was going to be a massive
undertaking and be something that would require me just going
to the accountant and having the accountant do the entire work
for me.
Mr. CHABOT. Let's see. I will go to Mr. Sosa next.
Considering the kind of piecemeal issuing of guidance and FAQs,
frequently asked questions, and the IFRs, interim financial
rules, would some form of comprehensive program guide have been
more, or would it be more helpful to lenders and recipients in
your opinion?
Mr. Sosa, I think you are not muted. I think you are muted.
Chairwoman VELAZQUEZ. You need to unmute.
Mr. SOSA. Thank you. I think that would be incredibly
helpful. Under--we are a PPP lender under Amarillo National
Bank, our ownership group, and, under that program, we have
standard operating procedures that give us the guidelines for
that.
You will--in my opinion, you would find that you would have
lenders participating in greater numbers, and borrowers
particularly less concerned and less scared by having definite
guidelines of what rules they can follow, not only for the
application, but as well, particularly for the forgiveness
process.
That is an onerous process. Forgiveness, even under the
simplified applications that were issued this morning, the--
they are still quite onerous, as far as documentation is
concerned. I think a standard automatic forgiveness at 150,000
would be called for.
Mr. CHABOT. Thank you very much.
Ms. Kelly, I will go to you next. Are there issues that you
think the Congress should address as we consider policies for
the long-term economic recovery that we are going to be working
towards?
Ms. KELLY. I want to stress the need to revise and amend
the PPP, like maybe call it a PPP 2.0 to provide additional
funding to support restaurants and hospitality businesses in
the weeks and months ahead, as we are still dealing with the
impact of the virus.
I tried to give you a brief description today about my
experience as a small business owner in Maine. I am very
grateful to this Committee for all of the bipartisan work that
you have done and continue to do, but I want you all to think
about restaurants in a different way. After 30 years being in
the business, our industry is in a crisis. Without additional
support, we will lose the important sector and the dynamic
contributions that we have in our local communities.
Our fray goes far and wide, all of the local businesses
that we support, and we are in a crisis.
Mr. CHABOT. I think I have about one more question. I have
got a lot of them, but one more.
Ms. Harrington, I will go to you now. As Congress examines
the approximately 130 billion that we still have remaining in
the PPP program, where should we concentrate our efforts, in
your opinion, to produce the most impact for small businesses?
Ms. HARRINGTON. They should concentrate on ensuring that
these funds get to the really small businesses with ten or
fewer employees, that they are getting to businesses located in
LMI Census tracts, that they are working with lenders who
traditional serve underserved businesses, like CDFIs and MDIs,
and also the first step, right, is extending the program to
ensure that that $130 billion can actually get to the
communities who have yet to be served.
It is great to hear that it has worked for some businesses,
but I think the numbers about the nonactive business owners
currently, 41 percent of black-owned businesses and 32 percent
of Latino-owned businesses, speak for themselves that changes
need to be made to this program for it to work for everyone.
Mr. CHABOT. Thank you very much.
My time has expired, Madam Chair, so I yield back.
Chairwoman VELAZQUEZ. Thank you. I now recognize the
gentleman from Maine, Mr. Golden, for 5 minutes.
Mr. GOLDEN. Thank you, Madam Chair. I am just setting my
clock and filling up my--that I need for questions. There we
go.
I want to start with Mr. Sosa. I appreciate your sharing
your experience from the lender perspective, some of the
challenges of the PPP, and I have heard similar concerns from
lenders and borrowers about the lack of clarity surrounding,
loan procedures and how that complicated their decision making
on whether or not to use the PPP. Hopefully those people are
feeling like they have the information they need to come
forward and [Inaudible] that $130 billion that remains.
[Inaudible] it is my view--and I think a lot of people do,
that lenders and borrowers in Maine, in dealing with the
forgiveness process, the streamlined, you know, kind of set up
over the smaller business owners in particular, and you talked
a little bit about the 3508 EZ.
I wanted to ask you if you knew any statistics--and I am
sorry to put you on the spot, but, if the SBA were to follow
your advice and grant automatic forgiveness for loans worth
$150,000 or less, roughly what proportion of your PPP clients
do you think would benefit from that change?
Mr. SOSA. Thank you for the question.
Chairwoman VELAZQUEZ. You need to unmute. Okay.
Mr. SOSA. At Commerce National Bank, currently 83 percent
of our loans were below 150,000, so 83 percent of those
borrowers--that is, 2,868 borrowers--would automatically be
forgiven. On the national basis, which is really an impact, 86
percent of the business loans would be forgiven. That is
somewhat significant, especially when you consider that only
represents--that represents 86 percent of number of loans. That
only represents approximately 27 percent of the dollars.
So there is still robust oversight availability on that--on
the remaining dollars just at the bulk of the small businesses,
those guys that, with the boot on the ground, with that 10
employees or less, would be forgiven.
Mr. GOLDEN. Yes. And I appreciate you pointing out the 10
employees or less.
How might you estimate the number of hours per client that
might be saved in regards to how they spend their time and
their focus?
Mr. SOSA. That is a tough math question. Well, it--jeez. If
you just go back and you use the 3 hours that SBA estimates,
which I sincerely and humbly submit is very, very low, the--and
then multiply that out times how many loans, jeez. I know that
there is 3 million loans just below $50,000. Just in that
category is 3 million loans, so, if you multiply those 3 hours
against that----
Mr. GOLDEN. That is a lot of work around the country.
Mr. SOSA. It is a lot of work saved, yes, sir.
Mr. GOLDEN. Well, thank you so much. I have got about a
minute and a half left.
Ms. Kelly, so glad to have you joining us. People love your
business in Maine. I have talked to a lot of businesses that
share some of the, you know, same challenges that you have
shared. As you think again about like the next 6 to 12 months,
some of the unique challenges that you see lying ahead, talk
more about what you need from Congress and the government to
help you take the next step towards recovery and [inaudible]--
--
Ms. KELLY. Okay. Yeah. For me, a lot of the next 6 months
ahead are very unknown. We--actually, we are approaching July,
which I would have my whole team being trained and ready for
the busiest peak of my season, July through October. I have
lost all of my business that is in my farm. Weddings and
everything has been canceled.
We need support. We need to figure out a way--the whole
unemployment average of $600 has been like a little bit of a
catch-22 for us, because we cannot--a lot of employees don't
necessarily want to come home--back to work when they are
making over $1,000 a week just staying home and golfing and
things like that.
However, I think, if there was--I know the work share
program, and those are really important and ways that we can
have our employees come back, spark the economy, and we share
in that cost to keep them at the level that they are used to,
the money that they are used to making, and I don't understand
how we are going to get past this if we don't work together in
that.
Chairwoman VELAZQUEZ. Thank you. The gentleman's time has
expired.
I now recognize the gentlelady from American Samoa, Ms.
Radewagen.
Ms. Radewagen, you need to unmute.
Mrs. RADEWAGEN. Can you hear me now?
Chairwoman VELAZQUEZ. Yes, we can.
Mrs. RADEWAGEN. Can you hear me now?
Chairwoman VELAZQUEZ. Yes, we can.
Mrs. RADEWAGEN. Talofa lava. Good morning, or good
afternoon, depending on where you may be. I feel sorry for all
of you. You are all stuck on the continent, and I am getting to
enjoy the sun in paradise.
But I want to thank Chairman Velazquez and Ranking Member
Chabot for organizing this hearing, and thank you all for
testifying today.
The PPP has been extremely helpful to the people of
American Samoa, but, like many great things, we can always work
to make it even better.
My question here is for Ms. Harrington: Do you believe
small businesses were aware of the resources available to them
within the SBA prior to COVID-19?
Ms. HARRINGTON. I think part of COVID-19, the SBA lending
has not served businesses of color well. If you look at the
data for 2018 and 2019 for the 7(a) program, which is the
largest SBA lending program, only 5 percent went to business
owners who were black, only 9 percent went to Latino business
owners. I think there is a lot more we can do to support
business owners of color, even beyond the PPP. I think
historically communities, individuals and business owners of
color have lacked access to credit through traditional means,
even through the SBA, which is a government guaranteed program.
And I think recognizing that and looking at the types of
businesses who have not been served even before COVID is very
important. That is why the data and the transparency is also
important.
So I think that there are a number of ways to do this. It
is not just about resources, it is about addressing the root
causes of lack of access to credit in this country that extends
to small business owners.
Mrs. RADEWAGEN. Mr. Sosa, can you provide for the committee
a brief overview of how credit elsewhere has changed from the
beginning of PPP to today? Mr. Sosa?
Mr. SOSA. Yes, I am here. Just had to remember to unmute.
The statute eliminated credit elsewhere for the PPP
program. The agencies, it reinstituted the PPP credit elsewhere
task by requiring small businesses to self-certify that they
needed the money. And then they failed to provide a definition
of what ``need'' is. It is completely undefined. Then they
started criticizing those small businesses for applying and
scared several of my borrowers away.
I had a borrower that paid off $2,200, a little $2,200
loan, just because he heard the threats from the government.
``Or else,'' they said. He came from a country where the
government regularly carried out threats and acted on those
threats. As an immigrant, he ran scared from the program. That
is unfair. That is not our country. That upset me quite a bit
and I think it is wrong.
We all need to remember that words mean something and not
to threaten these poor small business people.
Mrs. RADEWAGEN. Thank you, Madam Chairwoman. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back. Now we
recognize the gentleman from New Jersey, Mr. Kim, for 5
minutes.
Mr. KIM. Thank you, Madam Chair, for pulling together this
very important hearing, which is one of the most issues that I
hear constantly about in my district here in New Jersey. What
we are talking about reforms in the Paycheck Protection Program
and how we are making sure that funds are getting into the
hands of those that need it the most. As I said, that is really
the critical question. And Ms. Harrington, I thought you have
really eloquently spoken to just the challenges that are faced,
certainly by making sure that we are getting these funds to
businesses owned by minority-owned businesses in communities of
color, and other places where people are in dire need.
I have also been hearing from small businesses from various
other industries, like nonprofits, after-school programs, and
medical providers that were excluded from the program and are
in dire need of aid. And a lot of their work very integral to
different aspects to reopening.
So, I guess, Ms. Harrington, I wanted to ask you, as we are
starting to think about upcoming stimulus bills and other
additional efforts that we can do on the PPP, do you think it
would be beneficial to expand the PPP to other types of
businesses, like some of the ones that I mentioned?
Ms. HARRINGTON. I think, first, I want to reiterate it is
very important to reform and extend the current PPP just until
that funds run out. I think moving forward, we do need to think
about programs that are not just loan programs. We need to
think about traditional, straight-up grant programs that would
benefit and be targeted to the small businesses and to the
businesses that are located in low- and middle-income
communities, low- and moderate-income communities. There are
ways to do that. Also, thinking about which agencies we are
working with. If it is a loan program, which lenders we are
working with.
So, I think there are a number of ways to do it that, but I
think you are absolutely right. We need to look at the sectors
that haven't been served, the populations that haven't been
served, and recognize that maybe the Paycheck Protection
Program was helpful for some, but it doesn't work for all
businesses, and, therefore, we have to think about more
creative ways moving forward.
Mr. KIM. [Inaudible] having supportive data, and just
needing to have that data, to, first of all, understand what
sectors are getting hardest hit, and to be able to overlay on
top of that, just when we think some of these different sectors
will be able to get back on their feet, as we know there is
asymmetry to that, and some sectors may be able to get back on
their feet earlier than others.
And I think, Ms. Kelly, I just wanted to just turn to you
here----
Chairwoman VELAZQUEZ. I think we lost----
Ms. KELLY. I am here. Can you hear me?
Mr. KIM. [Inaudible] getting back open, in particular when
it comes to seasonal issues here. My district is--my district
is one where seasonal tourism is a huge part of the economy,
especially out on the Jersey Shore; a lot of restaurants are in
a similar situation to you. If you could elaborate a little bit
more on the unique challenges that you are facing in terms of
seasonality of your business, and the uncertainty of how the
next couple of weeks and months will look when it comes to
opening back up?
Ms. KELLY. Well, we are already in almost the kickoff of
the season here in Maine. So it has been very daunting to have
to be in this position at this point. I mean, we are living in
a historic moment right now, where we need to expand--in my
opinion, we need to expand the PPP, which may be the survival
for small businesses who really depend on a certain window of
time for the amount of revenue that they make. I think grants
would be beneficial for different loans, but somehow, we have
to capture this moment or the whole year for us is a wash.
Mr. KIM. Well, thank you for that. I have certainly been
hearing from a lot of restaurants. I got to go visit a number
of them in my district as they are starting with outdoor
seating today--earlier this week. But we continue to hear the
same thing that you are saying, which is restaurants cannot
operate off of 30 percent capacity or 40 percent capacity, that
the margins are already hard enough at peak levels.
So I certainly want to continue to work with you and others
to see what we can do to try to get you the help that you need.
So with that, Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
I now recognize the gentleman from Ohio, Mr. Balderson.
Mr. BALDERSON. Madam Chair, thank you very much. Thank you
for sitting in today, Ms. Kelly and Dr. Coleman. My first
question is a few weeks ago, I joined many of my colleagues,
including Mr. Burchett and Mr. Hern who also sit alongside me
in this committee and requested a simplified PPP forgiveness
application. In this letter to the SBA and Treasury, as well as
the Senate leadership, we voiced our concerns of the complexity
of the 11-page PPP loan, forgiveness application, and asked a
new, simplified version be created, much like the IRS relies on
the 1040-EZ form for some taxpayers.
Just this morning Treasury and SBA released 3508-EZ loan
forgiveness application, which seeks to ease the forgiveness
process for many small businesses. I think this is a step in
the right direction. I want to thank the administration for
making this update. Ms. Kelly and Dr. Coleman, have either of
you had a chance to take a look at this new 3508-EZ form
application?
Dr. COLEMAN. I apologize, I have not. I was working this
morning, and came straight from appointments to this. I did get
a notice by email from one of my colleagues that it had passed
this morning by the SBA. And so, I have not had a chance to
look at it. I am sure it is less daunting than the 11-page
document that we have seen already. But unfortunately, I have
not seen it yet.
Mr. BALDERSON. Dr. Coleman, I completely understand. I was
on a flight this morning myself.
Ms. Kelly?
Ms. KELLY. Absolutely. Same as Dr. Rich, I was working this
morning. And I did not have an opportunity to see it.
Mr. BALDERSON. Again, I understand completely. I was
wondering if you had a chance to see it.
This is for Dr. Coleman. My next question is for Dr.
Coleman, thank you. Is it vital to be working during this
health crisis, care crisis, but today we are here to understand
the economic impact this had on our Nation's small businesses ?
In your written testimony, you talk about the great faith
agreement between small businesses applying for PPP, and the
Federal Government, because the documents you signed didn't
have forgiveness language included. Over the last few weeks,
SBA and Treasury have worked together to release the language
relevant to PPP forgiveness, as well as the application itself.
Have you had an opportunity to look through this new
information?
Dr. COLEMAN. Yes. Yes, I have.
Mr. BALDERSON. And if so, what are your thoughts?
Dr. COLEMAN. As far as the forgiveness, a couple of the big
keys that I saw, and I actually made a list of them, the
biggest change between the first one and second one, the first
one [Inaudible] PPP weeks with the payroll was huge
[Inaudible]. Our biggest issues that we had was, we were
concerned about once we got funded, are we 8 weeks from that
date? Well, if it occurred in the middle of a payroll cycle and
so we were a little off on schedule, so that was a big one. The
flexibility from the 8 weeks to the 24 weeks, we are going to
extend to the 24 weeks, just because we are actually holding
back 5 percent of our loan just as a precautionary. We don't
know where COVID is going to go from here. So we are going to
hold that back.
The 25 to 40 percent. We have been open the whole time, so
our biggest deduction was from payroll. And, so, where Ms.
Kelly may have had more of an issue with paying rent, paying
everything else, because she didn't have as many employees on
staff. I had 34 employees the entire time. So the 75, 25 was
perfect for us; but for another business that may have been
closed, that is going to be hugely beneficial to them because
they are going to be able to grab that 40 percent and pay more
to keep the actual standing business.
The extension to December 31st to rehire the FTEs is going
to be important, because now you are going to be able keep the
full-time equivalents. The hardest part right now is we have
this extra $600 that people are making on unemployment and
getting people back is the hardest part. People are coming back
to work angry because they are making less money, but they have
to come back to their job or they could lose their job.
So that expiring is going to help, but it gives us until
December--until January to get that. And then, you know, the
other one was the good faith of rehiring. That was going to be
a massive thing. If I am trying to rehire, but I can't rehire,
that is going to--if I can show, look, I have done all these
interviews, I just can't get anybody in, that is going to be
with a Godsend for some of these businesses that can't rehire,
but they have been trying very hard to.
So those were just some examples I thought were fantastic.
Yeah.
Chairwoman VELAZQUEZ. Your time has expired.
Mr. BALDERSON. Thank you very much. I yield back, Madam
Chair.
Chairwoman VELAZQUEZ. The gentleman yields back. Now we
recognize the gentlelady from California, Ms. Chu.
Ms. CHU. Thank you. Mr. Sosa, since the start of the COVID
crisis, it has been a top priority of mine to ensure that SBA
loans and resources are provided in non English languages. And
I am thankful for all the work the committee has done to make
that happen. The CARES Act provided $25 million for the SBA to
develop these resources, and the agency has now posted several
guides and translations in 17 languages, including Asian
languages.
But it is key that the SBA also provides proactive outreach
to small business owners with limited English proficiency, and
supports the lenders that are responsible for processing their
PPP applications.
So, I am interested in your perspective as a lender. Could
you explain what processes you have to serve business owners
who need service in non English languages? And can you discuss
what guidance, if any, that SBA has provided to help you serve
these businesses?
Mr. SOSA. Unfortunately, we have not received much guidance
on the multiple languages available and documentation. In our
footprint, the largest language is Spanish. We are very
fortunate within our organization that we have several people
that are Spanish speakers, and we are able to deploy their
talents to be able to address the needs of the particular
borrowers that needed that assistance.
Ms. CHU. Now, you said in your testimony that the PPP
forgiveness application is so complex that small businesses
would need to hire professionals to help them understand it. Do
you believe the SBA's done enough to help limited English
proficient business owners navigate these forgiveness
applications?
Mr. SOSA. Well, you are exactly correct, my view on the
former 11-page application is that it is extremely daunting.
Now, the forgiveness application that came out this morning is
a step in the right direction. I have had only an opportunity
to review it cursory, so I can't speak to it in detail. But
there are--like anything else, the devil is in the detail, and
there are a couple of items in there that are still requiring
all the documentation as before.
So my recommendation to this committee and to the Congress
is an auto forgiveness legislation is passed to direct the
agencies to set up a $150,000 automatic forgiveness of loans.
Ms. CHU. Yeah. Thank you.
Ms. Harrington, SBA was directed by Congress to prioritize
underserved businesses, including those owned by minorities,
women, and veterans in their administration of the PPP.
However, when I chaired a forum last month with the SBA
inspector general, he told me that SBA had not provided any
formal guidance to lenders, but had merely emailed a few
community banks and encouraged them to serve these businesses.
Can you explain what specific type of guidance SBA must
ensure--provide lenders to ensure that they can adequately
prioritize underserved businesses?
Ms. HARRINGTON. You are absolutely right and, we have yet
to see any of that guidance. They should provide guidance about
who they should be working with, and just guidance about how
important this is. I think the fact that this was included in
the CARES Act and was a stated express intent of Congress that
these businesses and communities be served is important, and
the fact that SBA did not reach out to lenders with specific
information about how to reach these communities, different
partners that they could work with. Also, the technical
assistance that was provided in the Act was provided to
universities, and not necessarily through community-based
organizations. The guidance could have also included
information about working with other community partners beyond
the community-based organizations, like CDFIs and MDIs, who do
a good job of serving these communities.
There is so much that SBA could have done to ensure that
these communities were prioritized that they did not do. And
some of it is, like, very simple things, and they just didn't
take the steps to do so, in addition to not actually collecting
the data to know what was happening with the lending itself.
Ms. CHU. Thank you. I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back. And now
we now recognize the gentleman from Oklahoma, Mr. Hern, for 5
minutes.
Mr. HERN. Thank you, Madam Chairwoman. Thank you, Ranking
Member Chabot. I appreciate you having this hearing today. It
is great to see we have a hearing, and before we can have the
hearing, the simplified form comes out. How about that for
congressional work? You all ought to be happy about that. Don't
we wish everything else could happen in that kind of speed.
I really sympathize with each of you being a small business
owner for 35 years, and the majority of them in the restaurant
industry. And it has been very, very difficult for everyone,
but specifically those in the restaurant and hotel industry.
But I am also very thankful that we are able to find a way
to get money to businesses very quickly by using our financial
institutions out there, and thankful for what has all been done
with the PPP loans and the auto loans to help as many
businesses stay in business as possible. We know that there
will be many that will file for bankruptcy, and it is tragic
that COVID-19 pandemic has caused this to happen. The PPP
loans, in my State, have been--the State of Oklahoma, 61,000
loans, and roughly $5 billion in loans to help small
businesses, and I am greatly appreciative of that money to help
the folks stay in business.
As we all know, and we sometimes forget, that we put about
15 to 20 years' worth of work that SBA normally does and shoved
it into about a 12-week period. That is no easy task for any
industry, for any business, or lending institution, much less
the government institution. So I want to be recognizing of the
hard work of the staff. And I know this is not to be critical
of the staff, more of the institution, but I know the staff has
worked long hours to make sure that businesses were saved.
The first question I have is really, because there has been
minimal actual guidance, and instead the, SBA has had a series
of released frequently asked questions that have been kind of
leaked out, or just trickled out, if you will. The
administrator to guide American business owners and employees
in a hectic and confusing time.
And further adding confusion are the multiple releases of
the interim final rules, that sometimes contradicted
themselves.
Dr. Coleman, Ms. Kelly, each of you talked about this
confusion in your testimony. And I was wondering if you could,
as people that look at small business, I know none of us want
to spend any time in the past, certainly not the last 4 months,
but as we go forward, what are some of the solutions that both
of you think the SBA could implement moving forward to perfect
the PPP program, there is still roughly $90 billion out there,
so that we could help with the money that we currently have
authorized and appropriated that we can currently help the
small businesses that are out there? Ms. Kelly, do you want to
go first?
Ms. KELLY. Absolutely. You know the recent package of the
PPP-FA was great. I applied to increase my loan, and
unfortunately, I was notified by the bank that they basically
changed the field goal. So I couldn't--they had already
submitted their 1502. And I was approved for a certain amount
of money, but then I was denied. I would like that to be
revisited. I mean, many Mainers and small businesses are
[Inaudible] and none of us thought that this was going to last
more than 8 weeks, and here we are.
Mr. HERN. Dr. Coleman, could you give us your thoughts?
Chairwoman VELAZQUEZ. You need to unmute, sir.
Dr. COLEMAN. The 60 percent that is out there right now as
far as what we use for payroll, I think one thing that is
scaring some people is that cliff. Is that a cliff that is if I
don't hit that 60 percent, am I going to still get my
forgiveness?
So, maybe the Small Business Committee can come out and
say, Look, if you use 55 percent, we will forgive 35 percent of
your other one. So there is a little concern as far as that
goes, because everybody is saying the same thing, the website
actually said something a little bit different online. So
making that a concrete. Look, here is where you are at, if you
can't hit one of these markers you change that other marker
now. That would be one of the big ones.
The other big concern I have is the taxation of the loan. I
don't know if this is something to discuss here, but if we have
to save 25 to 35 percent of the loan to repay on the taxes,
because it is not currently deductible on our taxes, now we are
concerned that okay, we get a loan for $200,000, so I need to
keep $60,000 to $65,000 back to be able to pay that tax back.
Thank you very much.
Chairwoman VELAZQUEZ. We recognize the gentlelady from
Kansas--Ms. Davids for 5 minutes.
Ms. DAVIDS. Thank you, Chairwoman Velazquez, and also would
like to thank Ranking Member Chabot for holding this hearing
today. Unfortunately, there have been many challenges for small
businesses who tried to access the Paycheck Protection Program
and the EIDL programs. And in more recent conversations with
small businesses owners, one of their main concerns is
complexity around the loan forgiveness. I, of course, was glad
to see, and others are too, that today, the SBA revised its
forgiveness application and introduced a streamline application
for smaller borrowers.
However, many challenges and questions about the process
remain, and I am glad we have both small business owners and
lenders on the panel today, because I would like to hear from
both perspectives.
Do you believe that the rolling and piecemeal nature of the
PPP guidance from the SBA has discouraged or disincentivized
small businesses from entering the program?
Dr. COLEMAN. I can go first. That was the biggest thing I
heard from my colleagues, the people that didn't get it was,
this is something where I don't know the rules, and therefore,
I don't want to take on that debt. Because it wasn't a slam
dunk, this is what is going to happen, I would prefer not to
take on any additional debt, because debt is scary to small
business. We don't want debt. We have our mortgages, we have
equipment loans already. So taking on additional debt without
that concrete agreement and, hey, you do this, it is forgiven.
That was the biggest concern, I would say.
Ms. HARRINGTON. I think it is definitely a major issue in
terms of the rollout of the program and the confusion,
particularly for the really small businesses and the businesses
owned by people of color. There were so many hurdles throughout
and changes to the process. The time it took to even figure out
what forgiveness would look like, right? And you are right. So
many business owners are afraid that this will not end up being
a grant and be a debt they will have to pay back in just over 2
years.
We don't even know what next year will look like yet,
because we are in the midst of a pandemic. And so the idea that
they are going to have debt that they will have to pay back in
the next 2 years is extremely scary for many of them. And just
other things in the program that don't get talked about as
much. The fact that for the first week, sole proprietors and
self-employed couldn't even apply for the funding.
So all of these things indicate to people, and that is the
vast majority of business owners of color who are self-
employed, that this program is not for them, and that it will
not work for them in the long run.
Ms. KELLY. I would like to say that since the PPP rules
have changed, and the pandemic actually lasted longer than we
expected, and all of this is compacted in a seasonal area where
we depend on 36 million tourists a year, and we only have 1.5
million residents in our State. We need the PPP support, and we
need change. And we also need to know what the rules are,
because you are afraid if you do, you are afraid if you don't.
Ms. DAVIDS. Well, I appreciate that, and I appreciate the
recognition of our small businesses, and sole proprietors, and
particularly the small business owners who are from
marginalized communities needing that certainty around the
rules and the rollout. I know a lot of folks here in Kansas who
are small business owners, who were really concerned about what
felt like a very tumultuous and uncertain time with the rollout
of the programs, even though they recognized that they really
did need the relief. So I appreciate the work you all are
doing.
And with that, I will yield the balance of my time. Thank
you, Chairwoman.
Chairwoman VELAZQUEZ. The gentlelady yields back. We now
recognize the gentleman from Tennessee, Mr. Burchett.
Mr. BURCHETT. [No response.]
Chairwoman VELAZQUEZ. I guess that he just logged off. Now
we recognize the gentleman from North Carolina, Mr. Bishop.
Mr. BISHOP. She just called me. I am ready to go.
I am en route, Madam Chair. If you can't, skip me----
Chairwoman VELAZQUEZ. I see Mr. Burchett, the gentleman
from Tennessee is recognized.
Mr. BURCHETT. Thank you, Chairlady. Sorry about that. I
have been all over the Zoom today trying to figure this out.
Can you hear me? I can't hear you, but I just read your lips, I
think you said yes, we can. So I will go with that.
Well, thank y'all so much. I guess my question was, I want
to tell Ms. Kelly that my nephew is a Culinary Institute of
America graduate. But he was not alumni of the year as you
were. But I assume one day he will aspire to that.
You know, I have heard from our small business lenders and
folks in the district that we need simplification and a loan
forgiveness process for the small lenders. And I was proud to
join with our friend, Representative Andy Barr, in writing a
letter to the Treasury and the SBA advocating a streamline
forgiveness process for borrowers under a $350,000 threshold.
Also on a personal note, I hope everybody remembers Andy
Barr and his two lovely little girls in their prayers. Andy
lost his wife last night, and the little girls lost their mama.
I know that is a tragedy. So if we can remember him in our
prayers.
But, today, according to the SBA, also announced a new easy
forgiveness application that I look forward to reviewing. Mr.
Sosa, in your opinion, are there any roadblocks hindering a
small business from obtaining a full loan forgiveness?
Mr. SOSA. I am sorry, I was having a little bit of
difficulty unmuting there for a minute. Prior to the issuance
of this morning's 3508-EZ form, which I, too, have not had an
opportunity it review in depth, just the mere fact, like the
doctor stated earlier, that it was 11 pages long scared most
people. And now, while the appearance appears that we are in
the step in the right direction, it also appears that what they
have done on the EZ form is simply separated the instructions
from the actual form. So it looks a lot simpler. But it still
has some certifications and all the traditional documentation
that was asked for in the first go-round to be included with
that EZ form. That is highly disenfranchising, or highly
difficult for small businesses to obtain.
I still think the best situation is to address, very much
like what Ms. Kelly has said and very much like what doctor has
said, that we need a sure forgiveness that says, you had a loan
of $150,000 or less, you are forgiven, and the and the Congress
has that ability to do that.
Mr. BURCHETT. Also Mr. Sosa, is there any way you can
provide the committee an overview of how credit elsewhere has
changed beginning of the PPP and today?
Mr. SOSA. Yes, sir. At the beginning, the statute
eliminated credit elsewhere. It just, plain and simple, did
that. Now they need to certify that they need the application,
and no funds and nobody has defined what ``need'' is.
Mr. BURCHETT. Thank you. Chairlady, I yield back the rest
of my time. It is all a pleasure seeing you.
Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
Now we recognize the gentleman from Pennsylvania, Mr. Evans.
Mr. EVANS. Thank you, Madam Chairperson. Ms. Harrington, I
want to follow up on something you said because it sounds like
to me and I am not going to put words in your mouth, it sounds
like we could lose a lot of black businesses specifically--
obviously there is the pandemic, and then there is the unrest,
and then there is the PPP. So tell me in a very specific way,
what percentage of black businesses do you think we have lost?
Ms. HARRINGTON. I think we are definitely at risk of that.
I think it is hard to tell, but the numbers we do know are very
telling, and the stories that we are hearing are very telling.
When we hear numbers like 41 percent of active black business
owners have dropped by 41 percent. When we look at the
unemployment numbers that are still so high and so much higher
even in black communities and communities of color, right?
We know there are businesses that were already struggling
before we even came to the pandemic. There were so many
businesses that entered the pandemic with less than 3 weeks or
so of reserves that could sustain them. And now, we don't know
how long this is going to last. There is so much--there are so
many other issues in this country. And so, we are watching as
so many businesses that are inactive now, many of them probably
won't reopen, and there are some that are still waiting on
answers on PPP who may close and never reopen. And as this
pandemic extends, that number will only increase. And that is
why we have to think about not only how we fix the PPP, but fix
small business credit and support in general, and how to make
sure it works for the businesses in every community, not just
[Inaudible].
Mr. EVANS. So take the next step, and tell me what
specifically you think the kinds of things that should happen.
Ms. HARRINGTON. Absolutely. So with regard to the PPP, we
advocate for creating a minimum origination fee, for creating
that streamline automatic forgiveness for loans under 100k,
which would save countless hours. 71 million hours of labor we
estimate on behalf of business owners who would provide all of
that documentation and go through all of those pieces of labor,
and the lenders as well; data collection and transparency, so
important; a reserve for CDFIs and MDIs who do the best job of
serving businesses in these communities; requiring guidance on
underserved markets, and making sure that you are targeting the
funds to those small businesses, and the businesses in the low-
to moderate-income census tract. And also thinking beyond just
loan programs, grant programs that are provided directly
through the Federal Government, so we can remove the
intermediary and financial institution.
We recognize that there is already issues with accessing a
program through a mainstream lender when we see the lack of
access to credit that has plagued these communities for
decades. So if we know that there is a barrier to accessing a
program through intermediary, let's remove it.
Mr. EVANS. Are you talking about, for example, the EIDL
program?
Ms. HARRINGTON. The EIDL program, absolutely, is one
example. There have been grant programs through FEMA. You can
do grant programs directly through the IRS and Treasury. There
are a number of ways to do that that we should think about
beyond just having the financial institution as intermediary.
That already places a barrier for many of the businesses owned
by people of color.
Mr. EVANS. I thank you, Madam Chair. I appreciate it. Thank
you very much.
Chairwoman VELAZQUEZ. Thank you. The gentleman yields back.
Now we recognize the gentleman from North Carolina, Mr. Bishop.
Mr. BISHOP. Thank you, Madam Chairman. And Ranking Member
Chabot and witnesses, thank you for joining us today for an
important conversation on this Paycheck Protection Program. I
am in the committee room, as I have been in the previous
meeting, and was taken to task by the Chairwoman for having
making people disinfect it, but I do it for a very important
reason, which is to emphasize that we can be in Washington.
There are two other people in this room, three other people.
They are many, many feet away from me, but if we were closer,
we could be wearing masks. We could do our business in
Washington. And I think it would make the meeting more
effective, and your testimony more effective, but thank you
very much for being with us.
Fortunately, the hearing comes at a fitting moment as
Democratic members of the Select Subcommittee on the
Coronavirus Crisis have proceeded with another witch hunt, this
time aimed at Secretary Mnuchin, Administrator Carranza, and
PPP lenders.
When Congress overwhelmingly passed the Paycheck Protection
Program, we did that in a bipartisan fashion. Last week, the
Director of the Congressional Budget Office Phillip Swagel
praised the Treasury Department and Small Business
Administration for moving quickly and efficiently while also
stating the stimulus to COVID-19 went out faster than the
stimulus during the 2008 financial crisis.
Unfortunately my Democratic colleagues who helped design
the Paycheck Protection Program fail to recognize the Trump
administration's swift actions to save our economy. There is
more work to be done, but Democrats would rather investigate,
critique, and undermine the good work performed by the Trump
administration than provide adequate recovery to Americans.
Make no mistake, Democrats' antics and sham investigations
are not limited to the Trump administration. They also want to
investigate PPP lenders who served as the conduit for providing
small business relief. Lenders didn't ask for that role, but
they delivered. Prior to PPP going live in March, I heard from
lenders throughout North Carolina about obstacles it would take
to participate in the program. They were nervous and skeptical,
but they stepped up to the plate to help small businesses in
their communities.
Mr. Sosa, in your testimony, you worried about the way the
Federal Government is treating lenders right now, that it might
lead to less lending partners in the future. In fact, you used
the term ``threat.'' I wonder, would you agree that the same
logic apply to Congress as it begins investigating lenders for
their role in the PPP?
Mr. SOSA. You know, the difficulty that I face is that I am
not a politician, so I don't really have an axe to grind either
way. What I look at is that when we put out a program under the
regular SBA program, we know what the rules are. We know how to
put a loan on the books; we know how to take it through the
process; we knew how to collect that loan. That is the process
that assures that oversight is fair, that it is process that is
trying to assure that lending is fair to our communities, and
so if we could get something like that, I think you would have
much more participation from all the lenders.
Mr. BISHOP. I appreciate that, Mr. Sosa. Let me just ask
you this: If Amarillo National Bank were asked to turn over all
communications with Treasury and the SBA related to
administering PPP, would it serve as a disincentive to your
bank as well as other lenders from doing business with the
Federal Government in this situation?
Mr. SOSA. Let me ask you a question for clarification,
please. You want to know--you are asking if we could give you
all the documentation that SBA and Treasury used, or the
agencies used to direct the program?
Mr. BISHOP. Well, no. Your correspondence, your bank's
correspondence, if you had to--in the face of a retrospective
request, to turn over all correspondence you had, so that
someone's going to go through it with a fine-tooth comb,
wouldn't that deter you from wanting to cooperate in a program
like this?
Mr. SOSA. We have been participating in SBA lending for at
least 15 years.
Mr. BISHOP. Okay.
Mr. SOSA. Our books are open. And it would be a simple task
of printing all the FAQs and all the 2018, 2019 IFRs.
Mr. BISHOP. Very well. Thank you.
Ms. Kelly, you mentioned the Federal supplemental
unemployment that caused you some difficulty getting your
employees back. And I think you mentioned it was ending in
July. If that were extended to December 31st, would that be
harmful to you?
Chairwoman VELAZQUEZ. Excuse me, sorry. Your time has
expired.
Mr. BISHOP. Thank you, Madam Chair.
Chairwoman VELAZQUEZ. We recognize the gentleman from
Illinois, Mr. Schneider.
Mr. SCHNEIDER. Thank you, Madam Chairwoman. I want to thank
you for holding this important hearing today. I also want to
take a moment to thank you, the committee, and in particular,
the committee staff, for really being at the forefront for
standing up the remote capabilities of our committee, allowing
us to numerous briefings in hearings like this to do the
business of the American people, to do what we have it to do to
help America's small businesses in this very difficult time.
The work of you and Ranking Member Chabot has been
extraordinary, as have the members of this committee. So I just
want to thank everyone for that.
PPP, for the country, and my district in particular, has
been a lifeline for workers and businesses, but we have heard
in this committee and we have heard from businesses, I hear
about it almost on a daily basis, that they have had to wrangle
not just the challenges of the COVID pandemic, but the lack of
clarity from the SBA and Treasury on the program, the PPP
program.
My offices work directly with our local SBA
representatives, in my community, small business development
center, to help businesses, providing them with up-to-date
guidance on the SBA programs. I commend the incredible hard
work of the SBA's local staff, who my team has found to be an
incredibly valued resource and a group of dedicated employees.
But the guidance coming from SBA and Treasury has been anything
but clear. The SBA and Treasury have released 17 interim final
rules on these programs and 47 or maybe 48 FAQs. The
application for the loan forgiveness process was 11 pages, and
released only a week before applicants became eligible.
This morning, the SBA did release a revamped, shortened
application for the EZ process, but I am already hearing from
lenders who say that neither of these actually simplify the
process at all. I have already begun to hear from local banks
in my districts, starting to receive loan forgiveness
applications. And my staff has fielded innumerable questions
about the complicated loan forgiveness process.
So, I want to focus on those two issues: simplification and
clarity. First on simplification, as the committee knows,
oftentimes, the accounting department of a small business is
but one individual. When I had my own business with 10
employees, I was doing the accounting myself. There was a whole
list of other tasks that these people have to do. It is
critical that the loan forgiveness process, particularly for
the smallest loans, be simple enough for the business owners to
complete without having to rely on outside assistances, as
witnesses have testified.
Looking to our two businesses owners on the panel, Ms.
Kelly and Dr. Coleman, can you provide some context, not just
how much funding you received, but you laid out, but the amount
of energy and time that was invested to get the loan, and then
as you are looking to go through the forgiveness process? Ms.
Kelly, maybe we will start with you.
Ms. KELLY. Absolutely. I did spend quite a bit of time
getting all of my ducks in a row [Inaudible] submit my
application. I am fortunate I have a very good relationship
with a local bank [Inaudible] was but it was very difficult.
Unfortunately [Inaudible] necessary rule change with the
ability to go back and borrow the original [Inaudible] as the
financial need has changed, as we have progressed with this
COVID-19 and it has made it very difficult. As far as
[Inaudible] has gone, I was unable to have with the current
restrictions on capacity of a restaurant and lost revenue
[Inaudible] season, I did not [Inaudible] it was very
challenging for me to have the FTE count so my forgiveness
seems impossible.
Chairwoman VELAZQUEZ. Mr. Schneider, you need to mute.
Dr. COLEMAN. I thought the loan process went very well. I
pride myself on being somebody that is ahead of the curve. I
said in my testimony, I was really seeking out all the
information I could seek out, and get everything together as
soon as I could. Immediately I knew there was going to be a
frenzy, so I got my loan application in. The first thing--I
found the application, even as a business owner, pretty
straightforward. I did require some help from my accountant to
get the proper 941s and all those documents together. As far as
the forgiveness, I am hoping I am on track for everything we
are actually up in the 80s as far as our payroll percentage
wise. So we have, hopefully, a good chance of getting
forgiveness. We are holding back about 5 percent of our loan
just in calamity down the road, if anything happens, if
somebody gets sick or anything else, my business suffers. We
are saving some back. And I am actually hoping to return that 5
percent, in the best-case scenario.
Mr. SCHNEIDER. Thank you. My time has expired. I want to
thank Ms. Harrington and Mr. Sosa. Mr. Sosa, I appreciate your
testimony, especially the story of the American Dream in 50
years, so I wish you all the best.
Chairwoman VELAZQUEZ. The gentleman's time has expired. Now
we recognize the gentlelady from Pennsylvania, Ms. Houlahan.
Ms. HOULAHAN. Hi, Madam Chair. And I want to echo Mr.
Schneider's appreciation to you and to the staff for allowing
this to be possible and making it look so easy. I also want to
thank the folks who are testifying in front of us. I can
actually palpably feel the tension and the pain, even remotely
in your testimony, because I know how exasperating it is. As a
former business owner and operator myself, and a former
entrepreneur, I can feel the pain. And I hope that we can be at
least helpful or a little bit more in alleviating that.
My questions have to do with the concept of forgiveness,
automatic forgiveness. And I understand from Mr. Sosa, as well
as Ms. Kelly, and as well as from a lot of other folks who
testified, that $150,000, 100 or so thousand seems to be the
line that people are drawing. And I understand that represents
about 80 percent of the total loans, and about 20 or so percent
of the amount. But getting back to some of the testimony about
transparency, and the importance of data that has to do with
where loans are going, I also think it is really, really
important that we have transparency to understand where they
were spent. Because I believe that this won't be the first or
last time that we have to implement something like the Paycheck
Protection Program.
I want it to be more expedient the next time that we do it,
and we are more efficacious the next time we do it. And so if
we just blanket forgive anybody under $150,000, $100,000, then
we will have lost all the granularity of that data of where it
went and how it was spent.
And so, if you guys wouldn't mind, I guess, maybe, if I
could start with Mr. Sosa: What kind of effort could we do,
undertake, that would allow us to be able to capture some of
that important data, but not take the hours and hours of time
away from both the business people as well as the lenders to be
able to allow to us to have that information?
Mr. SOSA. That is a challenge, Congresswoman. When you look
at this, even if we just take the case of $50,000 or less, that
is 3 million loans. That is a significant challenge for anyone
to go through and do a review. $150,000 does, as you mentioned,
does take care of the majority of the applicants out there. But
there is nothing wrong with getting a simple certification from
the folks, that yes, we spent the money, even if you ask for an
estimation, but----
Ms. HOULAHAN. I guess that is what I am asking is couldn't
we simply have, like, literally a chart that says I spent 20
percent on overhead, I spent 80 percent on salary certified by
this organization. Is that not something that is practical?
Mr. SOSA. That would be very simple and very appropriate.
We just need to be sure that the agencies are directed as such,
so as to avoid the fact that they might continue on the road
that they have even on the EZ program, EZ application. It needs
to be simpler than that. Part of the concern is that if a small
business person has this loan outstanding, and a year from now,
2 years from now, 3 years from now, somebody changes their mind
and finds that they weren't eligible at that point----
Ms. HOULAHAN. I understand.
Mr. SOSA.--that is a very scary thought for a lot of small
businesses.
Ms. HOULAHAN. I understand. I understand. I would like to
hear from Ms. Harrington to know how important it is to track
that data. Is there anything that we can implement by
legislation that we can be helpful to make sure that we
actually know where this money was spent, just as it is
important knowing who got it, we are also trying to make sure
we are good stewards to the taxpayers of where it got spent.
Ms. HARRINGTON. Absolutely. I think a simple certification
form going to what Mr. Sosa was describing, we absolutely
support. Certifying that they spent the money on eligible
expenses, and a good faith certification, and a space to
leave--to print their demographic data, a one-page form, very
simple, easy to fill out. Also, making sure that SBA and the
lenders themselves are directed that they can rely on these
good faith certifications for these small dollar loans. I think
it can be as simple as that, but it is something that Congress
will have to do because their documentation requirements under
the CARES Act are so extensive.
So I think there has to be direction from you, to
borrowers, to SBA, to lenders that enables them to really take
part of that. And this will absolutely benefit the smallest
businesses, but, also, give you the transparency that you need
to know where these funds are going.
Ms. HOULAHAN. Thank you. And I know my time has expired.
And I was wondering if the Chair would allow me one more
question, because I think I am the last person asking
questions.
Chairwoman VELAZQUEZ. Yes, ma'am.
Ms. HOULAHAN. That would be terrific.
My question is to Ms. Kelly and to Mr. Coleman, I know
right now, you are working to make sure that you can get your
loans forgiven in an ideal scenario. What kind of--will be the
biggest challenge for you to be able to do that? Do you feel is
it now a matter of data or making sure you can track things?
And how have you been keeping track of all the changes with SBA
and the PPP program?
Ms. KELLY. I would like to say, similar to Dr. Rich, we
initially set up separate bank accounts and really tracked
everything we spent with that loan. So the problem with it was
I couldn't speak up for lack of business because we are on
State mandated shutdown, we couldn't bring back the proper
count of FTE. So I felt like I knew I was not going to be
forgiven for a loan either way I did it. It was helpful for a
time period, but in the long run, it is not really that helpful
if [Inaudible] after we did the recalculations to be able to go
back and take a second bite at the apple was denied because of
the filing of the 1502. So that became a big issue for me here
with my business.
Ms. HOULAHAN. Thank you.
Dr. COLEMAN. As far as my concerns, most of my information
actually came through from my accountant. He will send out a
nice little newsletter once the--it was changed last week, we
got a nice little newsletter saying, Hey, these are the
changes. So that would be one place I would have the small
businesses committee reach out to is the accountants and say,
Hey, please send this information out to your clientele. It was
simple email that they put together, but it gave me a massive
amount of information and definitely put my mind at ease as far
as where to go from here. What concerns----
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
Ms. HOULAHAN. I am sorry, my time has expired. I yield back
and thank you, Madam Chair, for giving me an extra 5.
Chairwoman VELAZQUEZ. Thank you. And thank you again to all
the witnesses today for their testimony and for offering their
views on the PPP. By sharing your experiences, we will be able
to conduct more effective oversight, and continue to optimize
the PPP program.
Though I am pleased the program appears to be saving small
business jobs, as we intended, your testimonies have confirmed
that there are still some issues that need to be addressed. I
assure you we will continue to make the program work and be as
accessible for borrowers and lenders as it can be. I ask
unanimous consent that Members have 5 legislative days to
submit statements and supportive materials for the record.
Without objection, so ordered. And if there is no further
business before the committee, we are adjourned.
[Whereupon, at 2:55 p.m., the committee was adjourned.]
A P P E N D I X
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