[Senate Hearing 116-604]
[From the U.S. Government Publishing Office]
S. Hrg. 116-604
PERSPECTIVES FROM MAIN STREET: COVID-19's
IMPACT ON SMALL BUSINESS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JUNE 3, 2020
__________
Printed for the Committee on Small Business and Entrepreneurship
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
43-666 WASHINGTON : 2023
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SIXTEENTH CONGRESS
----------
MARCO RUBIO, Florida, Chairman
BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
JAMES M. INHOFE, Oklahoma CHRISTOPHER A. COONS, Delaware
TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii
JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois
MITT ROMNEY, Utah JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
Meredith West, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
----------
Opening Statements
Page
Rubio, Hon. Marco, Chairman, a U.S. Senator from Florida......... 1
Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator from
Maryland....................................................... 4
Witnesses
Shamess, Mr. Joe, Co-Founder, Flags of Valor, Ashburn, VA........ 8
Evans, Ms. Connie, President and CEO, Association for Enterprise
Opportunity, Washington, DC.................................... 18
Strain, Mr. Michael, Director, Economic Policy Studies, American
Enterprise Institute, Washington, DC........................... 27
Rudolph, Mr. Nick, Baltimore Regional Director, Maryland Capital
Enterprises, Inc., Salisbury, MD............................... 44
Alphabetical Listing
Cardin, Hon. Benjamin L.
Opening statement............................................ 4
Evans, Ms. Connie
Testimony.................................................... 18
Prepared statement........................................... 20
Responses to questions submitted by Chairman Rubio and
Senator Hirono............................................. 77
Inhofe, Hon. James M.
Prepared statement........................................... 91
MetLife & U.S. Chamber of Commerce
Small Business Coronavirus Impact Poll....................... 92
Rubio, Hon. Marco
Opening statement............................................ 1
Rudolph, Mr. Nick
Testimony.................................................... 44
Prepared statement........................................... 47
Responses to questions submitted by Chairman Rubio and
Senator Hirono............................................. 82
Shamess, Mr. Joe
Testimony.................................................... 8
Prepared statement........................................... 11
Responses to questions submitted by Chairman Rubio and
Senator Young.............................................. 72
Strain, Mr. Michael
Testimony.................................................... 27
Prepared statement........................................... 30
PERSPECTIVES FROM MAIN STREET: COVID-19's IMPACT ON SMALL BUSINESS
----------
WEDNESDAY, JUNE 3, 2020
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m., in
Room SR-301, Russell Senate Office Building, Hon. Marco Rubio,
Chairman of the Committee, presiding
Present: Senators Rubio, Scott, Ernst, Inhofe, Young,
Romney, Cardin, Cantwell, Shaheen, Booker, Hirono, Duckworth,
and Rosen.
OPENING STATEMENT OF HON. MARCO RUBIO, CHAIRMAN, A U.S. SENATOR
FROM FLORIDA
Chairman Rubio. Today's hearing on the Senate Committee on
Small Business and Entrepreneurship will come to order under
different circumstances. We are really far from one another,
and you guys are here online, and we have never been in this
room before. But I appreciate everyone joining us, those that
are in person, of course, those that are here attending
virtually, which I think is something we are going to get used
to for some period of time. We welcome our witnesses as well.
The title of the hearing is ``Perspectives from Main Street:
COVID-19's Impact on Small Business.''
There is no doubt that this pandemic has impacted our lives
in every day imaginable. For some, the impact has been
tragically on their health or the health of a loved one. I
personally know multiple families, including someone who was my
physician for a period of time who recently passed away as a
result of this.
For others, it has affected their day-to-day way of life.
There is virtually no impact of our day-to-day life that has
not been altered by it, and of course, for some, that means
they have lost their jobs or they have lost their businesses.
The economic fallout from this pandemic has had an
unprecedented historic impact on millions of Americans. By
April of this year, the unemployment rate had increased 14.7
percent. Only 2 months before that in February, the
unemployment rate was only 3.5 percent.
In the first quarter of this year, the United States saw a
5 percent decrease, decrease in the annual real GDP rate,
compared to the fourth quarter of 2019 which reported a 2.1
percent increase. And our Nation's small businesses have,
without a doubt, been among the hardest hit. I would argue the
hardest hit from an economic perspective by this pandemic.
The Small Business Administration estimates that in 2019
nearly 30 million small firms were operating in the United
States, and they employed about 47 percent of all the workers
in our country, which amounts to about 60 million Americans.
Now after this pandemic, it is estimated that 54 percent,
so over half of those small business jobs, are considered what
you would call highly vulnerable, and I think that is
especially true in industries like hotels and accommodation,
the food service industry. As I have said, I believe that those
industries, unfortunately, will be the first ones into the
crisis and the hardest ones to get out of it.
There was a recent SNAP survey by the Census Bureau, and it
reported in data that they collected between April 26th and the
2nd of May that 83.5 percent--83.5 percent of small businesses
that were surveyed within this industry of accommodations and
food service, they reported that they had experienced a very
large negative effect due to the pandemic. Of course, I do not
think any of us from an anecdotal and real-life perspective
needed the Census Bureau to do that in order for us to know
that.
But I think this is true in multiple sectors across our
economy. That same survey suggests that, throughout the month
of May, the number of firms reporting large negative impact had
decreased from more than 51 percent of firms to 45 percent of
firms.
Similarly, the number of small businesses having reported
decreased revenue or decrease in employees has also gone down
in the last 4 weeks, and as these statistics have decreased,
the number of firms having reported that they received
financial assistance in the form of either a Paycheck
Protection loan or an Economic Injury Disaster Loan, a grant,
have begun to increase substantially.
So according to the most recent data provided by the Small
Business Administration, whose Administrator along with the
Secretary, I hope, of the Treasury will be here next week
before this Committee--according to their data, there are more
than 4.4 million PPP loans that have been made for a total of
over $510 billion. The average loan size is now about $114,000.
So I think when we look at those numbers, particularly the
average loan of $114,000, I think that is what those of us who
crafted this program had envisioned what the program would look
like when all was said and done.
There are also more than $700,000 Emergency Injury Disaster
Loans that have been made for $55 billion, although that
program, of course, has had its own set of complications, as
has been well documented.
While the process of establishing and administering the PPP
program was not without faults, as would be expected from a
program that is brand new and of this size and scope, crafted
over 6 days and implemented with the rules and so forth over 6
days, that we have to remember that on April 3rd of this year
was the first time ever that anyone in the world had ever
applied for a PPP loan, processed a PPP loan, or approved one.
So despite all of that, the program has had immense and
positive impact on the small business community.
The program was created to provide these small businesses
and their employees with emergency funding so they could
sustain their business, particularly their payroll, during the
uncertainty of this time. It was designed to allow them to keep
their workers on payroll and to make it possible for firms to
once again be able to operate after the crisis had passed.
So following the passage of the CARES Act, demand for the
program was unbelievably high. I think it exceeded everyone's
expectations. It was so high that the first round of funding,
we reached the guarantee cap in less than 2 weeks, and it
required Congress to come back and appropriate another $310
billion.
Millions of additional small businesses in addition to
independent contractors and sole proprietors were able to
participate due to this additional funding.
There was a recent survey by the National Federation of
Independent Business that had noted that 77 percent of surveyed
small business owners had applied for a PPP loan, of which 93
percent had received their funding.
Just speaking from my home State of Florida, we have
approximately 336,000 PPP loans for more than $30 billion. Each
one of those loans represents a business surviving and a worker
receiving a paycheck during this incredibly trying time. It is
a lifeline to American business who has suffered through no
fault of their own, and these statistics are, of course,
encouraging. But we recognize that small firms and communities
throughout our Nation are still struggling.
Just last week, the Small Business Administration and the
Treasury Department announced that they would be increasing
their efforts to ensure that the PPP program is successful and
reaching small businesses in all of our Nation's communities by
agreeing to set aside an additional $10 billion of PPP funds
for community development financial institutions, or CDFIs for
short. This effort to improve CDFI's ability to administer PPP
loans and to set aside funding for their use is meant to,
hopefully, ensure that underserved communities can better
access the benefits of the program.
This is work of tremendous importance. The Ranking Member
and many others were very involved in making this possible, and
I also thank the SBA and the Treasury for moving on this after
hearing all these requests.
I want to close by saying I think it is impossible to
gather here today on any topic and not acknowledge what we have
seen take place across the country, including in my home town
of Miami and my home State of Florida, but right here where we
work in Washington, D.C., as well as in New York City and
Minneapolis, California, all across the country.
I do not think anyone can dispute that the murder of Mr.
Floyd was an outrage and a crime and that there must be justice
and accountability for it.
I do think, however, that for far too long in this Nation,
we have ignored the fact that a significant percentage of the
American family feels like their lives are not valued to the
same extent and their problems are ignored because of the color
of their skin. No nation can be successful when a substantial
percentage of your population feels that they are treated
unfairly as a matter of course.
The anger and the frustration that we see is, I believe,
not simply isolated to one very tragic instance of a murder,
but it goes beyond it. And it is more than just the other
incidents that we have seen pile up over the years.
I think it also includes issues like the already
disproportionate harm to communities of color, which have come
about as a result of this pandemic and of other economic
situations that have emerged that have led to what when you
look at the numbers are clearly disparities and inequities in
our society that fall along racial and ethnic lines.
So in the context of the jurisdiction of this Committee,
ensuring that the worker focused economic relief of the PPP
makes it to small business in these communities was a priority
before the last few days and I think takes on heightened
importance now.
The work of this Committee has its own part to play in
helping address the economic disparities facing Americans of
color during this crisis and beyond.
So I want to thank the Ranking Member for his longstanding
and continued leadership in advocating for underserved
communities and for his partnership on this front. I look
forward to continuing that partnership. I think it takes on
added urgency because this cannot be another one of those
instances in which we turn the page and move forward without
addressing the lingering cancer that hangs over us of racial
inequality in our country, which includes, obviously, how
minority communities feel they are treated by authorities but
is not just limited to that.
Today's hearing will allow members of the Committee the
opportunity to explore what the small business landscape
currently looks like in various industries and in various
communities, and while this is our first formal Committee
hearing following the passage of the CARES Act, it will
certainly not be our last.
I assure everyone that while I have taken on a second job
for the same base pay that I was getting before, I remain
actively engaged along with the members of this Committee and
the Ranking Member and so many other great partners in
oversight over the implementation of the programs in Title I of
the CARES Act, and we are committed to continuing to conduct
vigorous oversight over these programs to make sure that they
are operating the way Congress intended, including addressing
the issues of fraud and the misuse of funds, which always comes
every time government provides assistance of any kind.
Our oversight efforts, as I said, are going to continue
next week on the 10th of June when this Committee will welcome
the SBA Administrator and the Treasury Secretary for our next
hearing.
And with that, I want to now recognize the Ranking Member,
Senator Cardin.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, RANKING MEMBER, A
U.S. SENATOR FROM MARYLAND
Senator Cardin. Well, Mr. Chairman, first, let me just join
you and thank you for your comments on the tragic death of Mr.
Floyd, the impact it has on the Civil Rights in this country
but also the economic issues, which are also Civil Rights. I
thank you for your comments.
I am going to be speaking on the floor later today in
regards to Mr. Floyd's tragic death.
I also want to, on behalf of the Democratic members but I
think all members of this Committee, thank your caucus for
giving you a waiver so that you could continue as the chair of
this Committee and also take on the added responsibilities on
the Intelligence Committee. You have led this Committee in an
extremely productive, bipartisan manner. So we are glad that
you can continue in that dual role.
We do recognize that although your pay will remain the
same, your per hourly rate will decline significantly, but
thank you for your service.
I think every member of this Committee recognizes the
importance of small businesses. We know that they create more
net private sector jobs. We know that they find innovative ways
to deal with economic challenges, which are going to even be
more important in the post-COVID-19 environment, but we do know
that they are more vulnerable to economic disruptions.
So when the economic cost of COVID-19 became clear, we in
Congress and on this Committee especially recognized that we
had to take special effort to support America's 30 million
small businesses.
I was proud to be part of the bipartisan Small Business
Task Force that negotiated and wrote the small business
provisions of the CARES Act along with you, Mr. Chairman, and
your leadership, Senator Shaheen, and Senator Collins.
Together, we created three economic relief programs for small
businesses: the Paycheck Protection Program; a new grant
program under the Economic Injury Disaster Loan Program; and a
debt relief program which covers the principal and interest
payments on new and existing SBA 7(a), 504, and microloans for
6 months.
The program that has received the most attention in
funding, PPP, was stood up seemingly overnight, and I want to
compliment the employees of the Small Business Administration
and the Treasury Department for rapidly increasing their
capacity to get these critical loans to small businesses.
In the past 2 months, as you have pointed out, over 4.4
million loans worth more than $510 billion have been made.
While this is a laudable accomplishment, there have been many
major challenges.
First, when we initially created PPP, we though that our
economic would be performing at a much higher level than it is
today. So an 8-week period for small businesses to spend their
loans seems reasonable. As communities began the process of
reopening, it is now clear that most small businesses will not
be up and running at the end of the 8-week period.
Mr. Chairman, I am proud that the task force was able to
come together to agree on legislation to extend the 8-week
period and give small businesses more flexibility to use their
loans for business expenses other than payroll. I hope that we
will be able to get that bill to the finish line within the
next few days since we know that the 8-week period for the
original loans that were issued will be coming due very
shortly, and business owners need to know what the rules are in
regards to forgiveness.
Second, there are important questions about the SBA's
mismanagement of the EIDL and emergency grant program. EIDL is
a preexisting disaster loan program intended to deliver low-
interest, long-term loans to small businesses directly from the
Federal Government. Because we knew that small businesses
needed cash fast, we created the emergency grants to provide
rapid capital infusion worth up to $10,000 to EIDL applicants.
As everyone on this Committee knows, PPP, EIDL and
emergency grants, and the debt relief program were all created
to work together. PPP helps keep employees on payroll. EIDL
provides low-interest working capital. Emergency grants provide
quick infusion of cash for businesses that need it urgently,
and debt relief covers the interest and principal payments on
existing and new SBA loans for 6 months.
I am discouraged that EIDL, a tool that has great potential
to help small businesses seeking to adapt the new reality of
the post-COVID economy, has reached fewer small businesses than
we had hoped due to the administration's mismanagement of the
program. Small businesses need these funds. Similarly, the
emergency grant program currently has nearly $10 billion that
should be in the accounts of small businesses around the
country.
EIDL serves a particular role for businesses. It can be
used for working capital needs, and it may be more desirable
for the smallest small businesses that do not have many
employees. Unfortunately, SBA has not administered the EIDL
program in a manner that it makes it a reliable source for
small businesses.
Third, we need to do a better job of targeting funding for
small businesses that are truly in need, including minority,
rural, and women-owned businesses.
On May 8th, at my and Senators Schumer and Brown's request,
the SBA IG issued a flash report, which found that the SBA's
implementation of PPP did not fully align with the
congressional intent of the CARES Act, because the agency
failed to issue guidance to prioritized underserved and rural
markets in the program.
We have specifically put that into the statute. The reduced
average PPP loan amount in the second round of funding
indicates that by securing $60 billion in PPP funding for
smaller lenders, including minority depository institutions and
community development financial institutions, we ensure that
PPP served more underserved and new small businesses, which are
at the most risk of permanently closing during the crisis. We
should not stop there.
Last month, Senator Booker and I released a plan that would
address the historical systematic disparities in access to
startup and operating capital as well as technical training and
mentorship so underserved small businesses have the resources
they need to adapt their businesses to the changes caused by
COVID-19 and so they can thrive after the pandemic.
Failing to help these vulnerable small businesses runs the
risk of extending this economic crisis, while also limiting our
economy's ability to recover after we defeat COVID-19.
Lastly, Mr. Chairman, we need to have transparency and data
related to how these programs are working. Yes, we wanted to
get the money out to small businesses quickly, which we did in
PPP, but expediency cannot come at the expense of transparency
and accountability.
On April the 17th, I joined with Senator Schumer, Senators
Shaheen and Wyden in a letter to Secretary Mnuchin and
Administrator Carranza asking for this information to be made
available on a regular basis. To date, we have still not
received that information. I also introduced legislation that
would require that information to be made available.
We on this Committee have heard promises that information
would be made available, yet we are still not getting the
granular information that is necessary for us to properly
evaluate this program. We need to get that information. We need
to have transparency, and we need to have accountability.
I want to compliment the Chairman for his efforts in making
sure that we could get that information. He has been tenacious
in talking with the administration to make it clear that that
information must be made available, and I will join the
Chairman today in a letter incorporating what we hope will be a
solution to this issue.
But as we look forward to what comes next, we are going to
need a second round. When we did the PPP program, we thought 8
weeks would be enough. We now understand that 8 weeks later,
our economy is not back up to the level of performance that we
had hoped, and as we look at what comes next, we need to have
the information in order to make the proper judgment.
I am working with Senator Shaheen and Senator Coons on
another round that would target money. Originally, we wanted to
give the money out quickly, but as we look to a second round,
we should look to target it to the smaller of the small
businesses that really need help, that have had dramatic
revenue losses, and I look forward to working with all members
of this Committee as we have in the past to determine what
additional legislation is necessary to help our small
businesses.
I want to thank our witnesses for joining us this morning
to help us better understand how these programs are working as
well as how they are not meeting the needs of small businesses.
The testimony you provide this morning is vital for our
understanding of the successes and failures of these programs
as we continue to conduct oversight on these programs.
And then, lastly, Mr. Chairman--and I mean lastly--thank
you for arranging for the hearing next week for Secretary
Mnuchin and Administrator Carranza. We desperately need them
before this Committee for our oversight function. It is
critically important that we continue aggressively on oversight
and continue the great record of this Committee working
together to help the small businesses of America.
Thank you, Mr. Chairman.
Chairman Rubio. Thank you.
Let me introduce our witnesses. Joe Shamess is a veteran,
special operations pilot, and a co-founder of Flags of Valor in
Ashburn, Virginia. Flags of Valor is a veteran-owned, veteran-
operated, veteran-made small business which crafts wooden
products that reflect American values, and it was founded on
the principles that combat veterans deserve an opportunity and
that made in America mattered.
Connie Evans is the president and CEO of the Association
for Enterprise Opportunity, which supports microbusiness
development throughout the United States. Ms. Evans specializes
in international development and social entrepreneurship and
founded the Women's Self-Employment Project, the first urban
microbusiness development organization in the United States.
She also founded WSEP Ventures, a social enterprise hybrid
organization, and CSolutions Consulting.
Dr. Michael Strain is the director of Economic Policy
Studies at the American Enterprise Institute, where he oversees
AEI's work in economic policy, financial markets, welfare
economics, and related areas, and before joining AEI, Dr.
Strain worked at the U.S. Census Bureau and the Federal Reserve
Bank in New York.
Nick Rudolph is the Baltimore regional director of Maryland
Capital Enterprises, a 501(c)(3) nonprofit organization working
to support community development through small business
creation and growth. He also serves as the MCE Women's Business
Center Baltimore coordinator.
I thank you all for being here.
Let me just begin with Mr. Shamess, because he is here in
person, sitting really far away at the other end of the table.
I think the camera will go to him now when his microphone is
activated. Thank you for being here, and then next, after that,
I will turn to Ms. Evans and then the order in which I
introduced you all.
So, Mr. Shamess, we will begin with you. Thank you.
STATEMENT OF JOE SHAMESS, CO-FOUNDER, FLAGS OF VALOR
Mr. Shamess. Thank you, Mr. Chairman. Thank you, Senators.
It is an immense privilege to be here on behalf of the men and
women at Flags of Valor, the U.S. Chamber of Commerce, and to
represent some of the small businesses in the United States.
I can tell you that our business is a little bit different.
You mentioned some of it, Mr. Chairman, in your opening
remarks. We are both a retailer and a manufacturer. So we are
experiencing two different parts of the pandemic, but on top of
that, our entire mission is a little bit different than some
businesses because we are really geared towards empowering
combat veterans postservice. In fact, many of the people that
we seek are the ones that are often the hardest to fit in most
parts of the economy, and so we take a great deal of pride in
that.
So in maintaining our employees when you talk about some of
the programs that we are going to discuss today is of critical
importance to us.
I will say that it is bad out there. In early March, we
woke up one day to having two-thirds of our revenue gone, and
as you can imagine, based on the dialogue that has taken place
within this Committee, that is devastating. Two-thirds when
most businesses are running at 10 to 20 percent bottom-line
profit if they are lucky, it is hard to come back from.
So are things improving? Sure. The things that you have
done, particularly with the Paycheck Protection Program, have
been termed ``lifeline,'' ``lifesaver,'' ``business saver.''
You are saving businesses with that program, no doubt. We are
one of them. The liquidity that provided us to retain our
employees, to repatriate them back to work, to support our
rents and some of the other overhead expenses we have has kept
us afloat. We are fighting today because of it.
Was it perfect? No. But you got pretty darn close with the
way you laid it out, with very little information for that. We
are incredibly grateful.
But I have to say that the Government support is not going
to be enough, not that we need more Government support, per se,
but that we as business owners have to innovate our way through
this. We cannot rely solely on something that comes from the
Federal Government to keep us alive, and so innovation has to
take place, and some businesses are doing that more than
others.
For us, we could not transition to creating masks and face
shields and respirators based on our manufacturing process.
There is a lot of dust in wood manufacturing, as you can
imagine, but we did create something that allowed us to solve
another problem, which was kids being home with their parents,
schools shut down, and you need something meaningful to do.
With that, we created the kids' Build Your Flag kit, which I
have one here today. My son, Gabriel, made this, and he is
really proud of it, and I am proud of him for doing it. But
something as simple as this allowed us to create a solution to
bring families together to talk about something other than
COVID for a minute, to talk about what this means, and it has
been enormously impactful for us, and we have been able to
interact with thousands of families in the country with that.
So that type of innovation is taking place outside of Flags
of Valor. Other companies are doing things, whether it is
creating PPE, whether it is changing their entire business
model so that they can serve customers outside their walls, but
that does not work for everybody. Some companies fundamentally
cannot operate in this environment, and I think it is important
for us to be mindful of that.
The number one thing that we would ask for if we could help
influence this going forward is to help provide certainty and
simplicity in the system. There is a lot of legislation that is
already in the works. Some of it, I know was mentioned being
voted on later this week that will provide additional
simplicity.
The certainty we need is to know that the Paycheck
Protection Program or other lending functions that you have
enacted will actually run the way that we were told, so that
our loans will be forgiven if we follow the rules and do the
right thing. I think that is really important.
The other thing is certainty that if we follow CDC
guidelines and we take care of our employees and we run our
businesses responsibly, at some point, we are not going to be
held accountable that someone contracted COVID-19 on our
premises. That is really important. That liability protection
gives us the confidence that we can continue to operate.
Then the last part with simplicity is understanding that
the way that this was laid out--I will speak specifically about
the Paycheck Protection Program. I cannot believe--we say 8
weeks might not have been enough. We did not think it would be
shut down this long. Okay, true. It is pretty good. It is
pretty good, not that we got it right, but that you thought
that this would be longer term, because I thought it would be 2
or 3 weeks as a business owner. I thought I would be shut down
for a little bit, power down, and we would power right back up.
But if we can elongate that time period, it is already
being discussed, and second, change the ratios from 74/25
because that just simply does not fit many of the small
businesses.
The small business demographic is incredibly diverse. Every
major company in S&P 500 one day started as a small business.
They are here now in the small business arena. That is the
first stop on the way to becoming a big business, and they look
different. They all look different. So helping them make
decisions best allow them to stay alive, and in my case, I
would say save the patient. If the business does not survive,
there is nothing for the employee to come back to. So help them
survive.
With that, thank you.
[The prepared statement of Mr. Shamess follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Rubio. Thank you very much.
Ms. Evans, thank you for joining us.
[No response.]
Chairman Rubio. I do not know if we have her. Is your
volume on? It says that you are muted. Try now.
STATEMENT OF CONNIE EVANS, PRESIDENT AND CEO, ASSOCIATION FOR
ENTERPRISE OPPORTUNITY
Ms. Evans. Can you hear me?
Chairman Rubio. Now we can hear you.
Ms. Evans. Thank you. Thank you, Mr. Chairman, Chairman
Rubio, Ranking Member Cardin, and distinguished members of the
Committee. My name is Connie Evans, and I am president and CEO
of Association for Enterprise Opportunity, AEO, the leading
voice of innovation in microfinance and microbusiness in the
United States.
Today's hearing comes at a time as the Nation struggles to
combat a twofold crisis--the economic downturn sparked by a
global pandemic and the structural inequities and injustices
that disproportionately impact communities of color. This
pandemic has exposed and enlarged the structural disparities in
a new way.
In late March, Congress passed the CARES Act, which has
deployed more than $500 billion to small businesses since early
April. The legislation also called for the prioritization for
underserved businesses. Despite this unprecedented attempt to
safeguard the Nation's 30 million small businesses, lawmakers'
intentions have not fully addressed the most vulnerable in our
country.
In early May, the FDA Inspector General found that
regulations failed to ensure the prioritization of underserved
businesses. While SBA and Treasury worked to correct these
initial flaws, the damage is already beginning to set in for
many overlooked businesses, particularly Black- and Latin-owned
businesses.
Take, for example, the irreparable damage for Kwame
Onwuachi, owner of Kitch and Kin, a Black-owned restaurant that
closed and laid off 70 employees in the process. Historic Ben's
Chili Bowl even struggled to receive a PPP Loan due to an
overwhelmed implementation system.
Before I continue with my prepared remarks, as an advocate
for millions of minority-owned businesses, I must address the
broader environment of race relations in this country. This
past week has shown us that America continues to struggle with
discrimination in every aspect of life. The avoidable and
tragic deaths that continue to befall African Americans only
deepens divides. While Main Street cannot solve these problems,
the outrage that follows these senseless killings very much
plays out on Main Street. Economic opportunity for all
communities, including entrepreneurial opportunity, will help
heal these deep wounds.
This Committee's work to ensure that Black-owned businesses
survive the current economic crisis may very well help that
healing.
AEO stands ready to help Main Street prosper. Through our
Mainstreet RISE program, we are helping thousands of businesses
directly. Today, we are launching two new reports focused on
combating food disparity and addressing high recidivism rates
in underserved communities, and we have launched a new survey
of small businesses to allow policymakers to hone in on what
policy proposals might be most impactful.
But we need policy changes as well. We must modernize many
of the programs at SBA in desperate need of reauthorization.
The outdated statute is limiting the ability of the programs to
successfully respond to this crisis. AEO has testified before
this Committee about the importance of removing the 1/55th rule
in the microloan program, which also needs increased liquidity.
The PRIME program and Resource Partners programs also need
expansion.
We commend this Committee and Senator Duckworth for leading
this effort and hope to see that work progress, despite the
crisis we face.
Congress should also substantially increase FY 2021 funding
for mission and community-based programs like Community
Advantage and the microloan program as well as increase the
CDFI fund to $1 billion.
We have several recommendations to strengthen the PPP
Loans. We recommend making CDFIs automatically eligible lenders
and guarantee all loans made by CDFIs to low, moderate income,
and minority businesses. This can help build on the
congressional intent this Committee included in the CARES Act
on page 30 of the legislation.
AEO along with 50 other leading organizations founded the
Page 30 Coalition in response to your leadership to ensure the
prioritization of underserved community is realized.
The coalition asks Congress to eliminate the PPP first-
come-first-serve rule, extend the PPP, provide additional PPP
funding only for firms with 10 or fewer employees, and improve
data collection.
We also support the Cardin-Booker Equity in COVID-19
Recovery White paper.
And, finally, I must use my time before Congress to insist
that you use congressional review authority to undo the OCC's
proposed CRA reforms that would only further damage the
engagement of lending institutions in underserved areas.
I want to thank you for your efforts on behalf of millions
of minority- and women-owned businesses and for the opportunity
to testify today. I look forward to answering any questions.
Thank you.
[The prepared statement of Ms. Evans follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Rubio. Thank you very much. Thank you. We look
forward to engaging with you here in a moment.
Dr. Strain, are you ready?
STATEMENT OF MICHAEL STRAIN, PhD, DIRECTOR, ECONOMIC POLICY
STUDIES, AMERICAN ENTERPRISE INSTITUTE
Mr. Strain. Yes, Mr. Chairman. Thank you.
Chairman Rubio. Can we zoom in on Dr. Strain just so we can
see what books he has there on his shelf?
Mr. Strain. Let me tell you the best one, right here. You
are quoted, my latest book.
Chairman Rubio. A shameless plug. All right. Go ahead.
[Laughter.]
Mr. Strain. Chairman Rubio, Senator Cardin, and members of
the Committee, thank you for the opportunity to appear before
you today to discuss COVID-19's impact on small business. It is
an honor.
The U.S. economy is in bad shape. My back-of-the-envelope
calculation finds that GDP is being reduced by roughly $80
billion per week because of the pandemic recession.
In just 2 months, the unemployment rate increased by a
factor of 4 to 14.7 percent in April, higher than any month
since the Great Depression.
According to my calculations, 27.5 percent of workers were
unemployed or underemployed in April. That is over one-quarter
of the workforce.
Small businesses have been hit very hard by the shutdown
orders and by decreased demand for their goods and services.
Many small businesses operate with low-profit margins, making
it difficult to absorb a large decline in revenue sustained
over several months. Cash buffers can allow business operations
to continue in the absence of revenue, but half of small
businesses have fewer than 15 days of cash liquidity, and only
40 percent of small businesses have more than 3 weeks of a cash
buffer.
A new Census Bureau survey that the Chairman referred to in
his opening remarks of small businesses shows that the
expectations of small business owners, about the length of time
it will take to fully recover are souring, with the share of
owners who expected to take longer than 6 months to return to
normal increasing significantly between April and May.
The survey asks respondents in the last week if the
business had a change in the number of paid employees. The
results here are actually somewhat encouraging. In late April,
about a quarter of firms decreased employment in the previous
week. By mid-May, that had fallen to 16 percent. This is
trending in the right direction. If businesses are increasing
their payrolls at a greater rate, you would expect their
revenues to be improving as well. The Census survey shows
exactly this. The share of firms reporting revenue declines in
the previous week dropped by 21 percent between late April and
mid-May, falling to 60 percent from 75 percent.
What is the overall takeaway here? I draw two conclusions.
First of all, businesses is both dire and improving. A
situation in which revenue and employment declines are this
widespread represents a national emergency. At the same time,
the small business economy has made considerable strides in the
past few weeks.
Congress enacted the Paycheck Protection Program as part of
the CARES Act to keep workers attached to their employers and
to ensure small business continuity during the shutdown.
As of May 23rd, 5,500 lenders have made nearly 4.4 million
PPP loans for a total of $511 billion lent. The average loan
size was $116,000. Over 99 percent of PPP loans were for less
than $2 million, and 79 percent were for less than $100,000. Of
the total dollars lent in the program, 79 percent were lent as
part of loans of less than $2 million. As of mid-May, nearly 70
percent of small businesses surveyed were receiving financial
assistance from PPP, according to the new Census survey.
The ultimate test of PPP's effectiveness will be if it is
shown to mitigate small business closure and support
employment. It is too early to tell whether PPP is having these
effects. The magnitude of lending and the take-up rate among
small businesses suggests that it is well positioned to do so
and suggest it is succeeding. Indeed, PPP will likely be the
main and the most effective measure that Congress has passed to
address the pandemic. Between the CARES Act and the subsequent
Paycheck Protection Program and Health Care Enhancement Act,
PPP has become the largest component of Congress' response to
the pandemic recession.
Unfortunately, PPP's success has been held back by the
Treasury Department's implementation. For example, the 75
percent rule, which is not in the statute, fully is a mistake.
It lessens the program's effectiveness and allows the program
to benefit some small businesses over others in an arbitrary
fashion. The Treasury Department justifies the rule by arguing
that it keeps the focus of PPP on workers, but a business that
cannot pay its rent also cannot continue paying its workers.
Small businesses could also turn to the Federal Reserve's
Main Street Lending Program, which is open to businesses with
up to 15,000 employees. The Treasury Department is required to
approve the parameters of the program, and Congress
appropriated $454 billion to Treasury as part of the CARES Act
to support Fed lending under this program and under several
other lending programs.
Here again, Treasury's implementation is hurting small
business. The Treasury is not taking enough risk with that
capital.
Under the parameters Treasury set for the Main Street
program, it may discourage borrowers and lenders from
participating in the Main Street program at all.
The economy will need fiscal support for quite some time.
This summer and fall could witness historic annualized rates of
quarterly economic growth and percentage declines in the
unemployment rate, but it will take many more months of strong
economic performance to return to where the economy as in
February of this year.
The Congressional Budget Office, for example, forecasts
very strong economic growth in the second half of 2020,
beginning in July, but CBO also expects the unemployment rate
will be over 10 percent in the fourth quarter of 2020 and 8.6
percent in the fourth quarter of 2021.
Small businesses will need support from Congress, in
particular. The goal of this support should be to preserve the
productive capacity of the small business sector in large part
by ensuring small business continuity and preserving the
ecosystem of knowledge and relationships that drive
productivity. In this way, the needs of small businesses are
similar to what they were in mid-March when Congress enacted
PPP.
At the same time, public policy should avoid impeding the
process of sectoral reallocation in which some industries
shrink and others expand and in which workers move across
industries. Public policy should allow small businesses to
reorganize the way they produce goods and services to take into
account changes in preferences, logistics, and supply chains.
This represents a different challenge than Congress addressed
when creating PPP. With PPP set to expire soon, the need to
address that challenge is urgent.
Thank you.
[The prepared statement of Mr. Strain follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Rubio. Thank you.
Mr. Rudolph, thank you for being with us. I see you are on
the screen. Thank you. You are on.
STATEMENT OF NICK RUDOLPH, BALTIMORE REGIONAL DIRECTOR,
MARYLAND CAPITAL ENTERPRISES, INC.
Mr. Rudolph. Thank you very much. Thank you, Chairman
Rubio, Ranking Member Cardin, and the distinguished members of
the Committee for inviting me to testify.
As said, my name is Nick Rudolph, and I am the Baltimore
Regional Director of Maryland Capital Enterprises, a small CDFI
serving Maryland. We provide technical assistance, trainings,
and access to capital for entrepreneurs in Maryland, and now
thanks in part to Senator Cardin's advocacy for additional
Women's Business Centers, we are also an SBA Women's Business
Center, or WBC.
I am here today to share the experiences of our small
business clients during the COVID-19 pandemic and discuss ways
future aid packages could provide the additional resources
America's smallest businesses need to survive.
Unsurprisingly, we have seen an astounding increase in
requests for services because of the pandemic. Increasingly,
the clients are approaching us with greater despair and fear in
their future stability.
Since WBCs provide services specifically to women and other
underserved entrepreneurs, we have been able to ascertain what
a typical client needs moving forward.
In addition to securing emergency loans and grants, they
are requesting funding to retrofit their stores for virus
mitigation, rental assistance, and guidance or training on
surviving in a post-COVID economy with a focus on opening and
operating safely and resources to provide health care to owners
and employees. Our clients are resilient, and they clearly want
and are willing to adapt, but they need support to do so.
I think the experience of a woman-owned comic book shop in
Baltimore is typical of many of our clients. The current owner
of the store purchased the existing business in 2019 and spent
a year renovating and building a client base. She has launched
a successful popular summer camp gaming program, has nightly
events, and has partnered with other local businesses. But when
it became clear that nonessential businesses would be closed,
she reached out for assistance, first for the PPP program where
she realized she was not eligible because she did not have
payroll. Hers is a true mom-and-pop shop. Her and her husband
were lucky to be able to save, knowing that they would not be
paying themselves in the first year as they expanded.
So, instead, she decided to focus on the EIDL loan and
grant program. She applied in March and received confirmation
that the application was accepted and under review but heard
nothing until mid-May when, thankfully, she received a $40,000
loan, but because she had no payroll, none of it was a grant
portion.
As soon as she heard about the approval, the closing
process was almost immediate. She very much appreciates it.
While awaiting a decision, she was able to negotiate with
her landlord for partially reduced rent for 3 months, but she
will have to pay that difference eventually. She also worked
with local officials to allow for contactless delivery of comic
books so there would be some revenue during this time. However,
she told me that she is working three times as many hours as
usual for about a quarter of the revenue, and it is not
sustainable financially, physically, or mentally.
She was using some of her loan funds to help build out an
online platform and expand her gaming business since that is
what customers are requesting, and she would be able to spend
more, but she feels she needs to horde it because she fears
that there is no more assistance coming. And she will have to
pay back her current and back rent.
When I asked her what microenterprises like hers needs to
survive, she responded that rent relief is key because once she
is able to reopen, she is expecting less revenue because of a
possible slowdown and the fact that people would just feel less
comfortable shopping in person. Her rent is soon returning to
normal, and without additional assistance, her business will
likely fail, leaving her jobless and in debt. I think her story
underscores the need for flexible and easily available
resources for businesses with 10 or fewer employees.
The EIDL program is particularly impactful for these
businesses because it has low interest, long terms, eased
credit requirements, and the fact that collateral is not
required.
In a perfect world, all approved applicants would receive
the full grant portion regardless of number of employees, and
additional products like EIDL will be key in the short-term
success in the coming months as well as the next 3 to 5 years,
as our small businesses continue to work to stabilize
themselves and adapt to a post-COVID environment.
These entrepreneurs are going to be hurt by a likely
downturn. Their credit is going to be impacted, and lowering
housing values may eliminate what collateral they have.
Now, MCE is not a PPP lender, but we have worked with a
number of PPP clients. Again, the PPP program is a great
product, but understandably, there are some things that could
be changed to make it more friendly to microentrepreneurs.
It was very difficult to find banks that would service
loans that the client did not have an existing lending
relationship with the bank. Many of the businesses were afraid
to apply in the first place because they were confused by the
documentation needed for forgiveness, and they were just not in
a position to take on additional debt. There was great
confusion about what was needed to apply and who was eligible,
and they regularly expressed concerns about the time frame for
spending the funds, fearing that they would not be able to open
in time.
In fact, two of our clients who were approved for the loans
decided to return the funds out of this fear. Perhaps out-of-
the-box ideas like making the first $100,000 of any PPP loan or
grant or accepting the signed assurances of compliance as proof
of forgiveness for smaller borrowers might be some of these
concerns.
It is very important that both PPP and EIDL products are
available and continue to be available. Funding the Small
Business Relief Program that funnels funding to states is a key
to ensuring all small businesses have access to the resources
they require to reopen because things are different in
different states, and localized support is the way to get that
to the businesses.
Additionally, funding for technical assistance for CDFIs
and other service providers will be critical to overcoming
challenges because of an increased need for services from
existing businesses and entrepreneurs who see a niche that they
can fill. One thing that is an imperative to allow CDFIs to
focus on our work with our clients is that we assume no
additional servicing the loans from future small business
assistance packages because we expect a number of these will
default due to a slowing economy.
In conclusion, it is our small business entrepreneurs who
will provide innovation, solutions, and what is necessary for
all of us to succeed in a post-COVID economy and reality. We
need you to provide us with the tools and guidance to support
these businesses for this once-in-a-lifetime challenge. The
hard truth is that there is no easy, perfect, or one-size-fits-
all solutions, but one thing is for certain. It is going to be
significantly expensive, but there is no way America can afford
to lose the small business community that is so vital to our
economy, local identities, and American way of life.
The resources provided by the CARES Act and guidance,
communication, and assistance from the SBA have been
instrumental in allowing us to serve our clients at this time,
and while the rollout has not been perfect, it is more than
understandable because we needed to get those monies out on the
street quickly, and full policies and procedures just could not
have been created.
We are grateful for the hard work that this Committee and
the SBA is doing during this scary and confusing time, and we
look forward to working with you to solve these problems.
I would like to thank you for this opportunity to share my
experience, and I will do my best to answer the questions you
have. Thank you.
[The prepared statement of Mr. Rudolph follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Rubio. Thank you, and I am going to defer my
opening questions until the end. And I am going to defer them
to Senator Scott because I know he needs to run.
Senator Scott, are you there?
[No response.]
All right. He does not have his camera on. That probably
means he is still wearing shorts. When my camera is not on,
that is what it means.
All right. Do we know if he is on?
The Clerk. He has not turned on his video yet.
Chairman Rubio. Or his audio. All right. Well, then I will
just turn it over to the Ranking Member, Senator Cardin.
Senator Cardin. Well, thank you, Mr. Chairman, and let me
thank all of our witnesses for their testimony. I found it to
be extremely helpful.
Mr. Shamess, let me just comment about your creativity on
the flag issue. That is exactly what small businesses do. They
figure out a better way to deal with the realities, so
congratulations on that.
I also want to make the observation about why we support
giving additional flexibility in regards to the current
program, that is, 8 weeks to 24 weeks and flexibility on the
use of funds, because you raise a very valid point. And that is
small businesses are very diverse. They have different needs,
and we need to give that type of flexibility.
But I would argue that there are many small businesses that
cannot survive with just 8 weeks of help. You have small
businesses whose revenues have been very much damaged,
restaurants that depend upon in-service serving meals that
cannot do that, catering establishments that have not been able
to be open, entertainment facilities that cannot operate,
museums that cannot operate.
So as we look at what comes next, I am interested on how we
are going to be able to target it. So I want to ask Ms. Evans a
question, if I might. I will start with Ms. Evans, and that is,
first of all, thank you for your testimony. Thank you for the
list of areas that we could help expand in order to provide
meaningful help to underserved communities. There are a lot of
challenges that we have in our society, as we have seen play
out during this past week, but for over a long period of time.
If we are going to deal with the disparities of wealth,
entrepreneurship is one of the key areas that we can really
make advancement. So serving underserved communities is
particularly helpful.
I noticed that you mentioned that the next round, we should
look at smaller small businesses. Can you just tell me why if
we target it to the smaller small businesses, it is a more
effective way to get help to the underserved communities?
Ms. Evans. Thank you, Senator Cardin, for the question.
We are recommending that you target the businesses that are
10 employees or below because these are the businesses that,
number one, were hit the hardest. They were also the businesses
that are referenced in page 30 of the legislation. Most
business owners that are Black, Brown, Native, women, all of
that group of businesses, even rural, that you prioritize tend
to be small business, the smallest of businesses, and so if we
really are intentional about trying to prioritize the benefits
to this segment of business owners, we really need to make sure
that we have channeled the funds directly to businesses with 10
or fewer. They make up 96--over 90 percent of these businesses
really are 10 employees or less, and so we think this is an
important piece in, again, fulfilling what your intentions were
originally in the CARES Act.
Senator Cardin. I thank you for that, which is a segue to
Mr. Rudolph, if I might. When you were referring to the fact
that the dollar amount of the EIDL loans at $1,000 per
employees, which is not in the statute--that is how the SBA
administered the original grants under EIDL--and the fact that
the business that you are referring to did not get their funds
until mid-May, which is a long time to wait for the capital
that you need, and then did not get any grant funds at all, I
assume because of limitations per employee--they did not have
employees--can you just comment as to what impact it has had
that the EIDL program has not been more available and that they
have limited the grant program to $1,000 per worker?
Mr. Rudolph. Absolutely. Thank you for the question.
So to carry on with what Ms. Evans said, a lot of our
smallest businesses and the businesses that need the most are
10 employees and less and often are sort of no employees. It is
just mom and pop, and so that $10,000 of forgivable grant loan
money would have given more businesses the confidence to apply
because they would have this debt going on, and it would also
sort of give them just more confidence moving forward that we
were here to support them. Of course, they need the money to
open and to pay their employees.
As far as the difficulty getting grants and loans, really
what it is is that a lot of people sort of put the applications
out into the ether, did not really understand what was going
on, and had already accepted other grants by the time they
heard about their EIDL. And so they were not able to get those
funds.
Senator Cardin. Thank you.
Thank you, Mr. Chairman.
Chairman Rubio. Senator Young.
Senator Young. Thank you, Chairman.
Clearly, the United States remains the global leader in so
many fronts. We are facing the greatest economic challenge,
however, certainly in my lifetime, arguably in many
generations, and I am proud of how Congress responded in a
bipartisan fashion, putting together this Paycheck Protection
Program in short order.
At the time of passage, we anticipated PPP to be a bridge
to the back end of this current public health situation. We had
all hoped that this would be a short-term economic challenge
for the Nation, but we are discovering that this virus will be
with us. And we are going to need continued attention to our
businesses, our not-for-profits, and it is likely they will
require some form of assistance for assessing exactly how to
scope that assistance right now.
We do know that sales remain low. As I travel around the
State of Indiana, that is clearly the case. Consumer spending
is way down in an economy that is built for better or for worse
on consumer spending, and as our various states continue their
process of reopening, we are going to have to consider some
sorts of programs.
I have put forward a solution that I think is viable, and I
have received very positive feedback from boutiques, hardest-
hit restaurants, gyms, and other such enterprises, many of
which were not even able to open up during the 8-week period in
which they were asked to deploy the Paycheck Protection monies
for forgiveness.
So I am glad we are holding this hearing. I am glad we are
looking at this. The RESTART Act in addition to extending the
Paycheck Protection Program time for deployment of funds, which
I think there is broad bipartisan agreement needs to happen,
would provide flexible loans, up to 6 months in duration, to
pay for payroll expenditures, ongoing fixed operating expenses,
and it would be offered to profitable and not-for-profit
businesses alike that employ 5,000 employees or less.
Loan amounts would be based on gross revenue, and
forgiveness would be based on revenue loss. So we would not
have a situation where companies were taking advantage of these
loans and they really did not need them.
So I feel like what Senator Bennet and I put together is a
responsible and responsive approach to the needs of our current
businesses. We will have to see as we get more clarity in the
coming month or so exactly what is needed, but I really hope my
colleagues on both sides of the aisle will give strong
consideration to this measure.
Dr. Strain, in your testimony, you acknowledge the benefits
of PPP but also the man unintended issues. Can you elaborate on
the importance of expanding the PPP program, like my RESTART
proposal, and its benefit for a recovering economy? And then
maybe speak to the need for flexibility with respect to covered
expenses and how loan forgiveness should be calculated.
Mr. Strain. I think we can clearly see the need to expand
the PPP program. I think that has been clear for some time.
If you look at how small businesses are doing, you still
see a very large share that is still experiencing revenue
decline every week, a large share that is still worse. The
layoffs have not ended yet. That is still an ongoing process,
and the demand is just not back up to where it was in February.
We could come from a situation perhaps where a business was
having 20 percent of normal revenue or having 60 percent of
normal revenue. That is a dramatic improvement, but even 70
percent of normal revenue, most small businesses survive for
any period of time. So the program, I think, clearly needed to
be extended.
There are many good features with what you described.
Focusing on revenue makes a lot of sense, for example, as
opposed to focusing on payroll. It gives firms the flexibility
to use the money as they best need it. That, I think, is
critical at this juncture.
Senator Young. Thank you so much, Dr. Strain.
I sense some choppiness in the presentation. That, of
course, were technical challenges. I think you just affirmed
the strength of the RESTART proposal, and so we will get that
transcribed.
And I will yield back to the Chairman. Thank you so much.
Chairman Rubio. Senator Cantwell.
We were doing seniority today because of the web, but if
you want to defer the time to----
Senator Cantwell. Oh.
Chairman Rubio. If not, you are on.
Senator Cantwell. Thank you, Mr. Chairman, and I thank all
my colleagues here who have worked so hard on the Paycheck
Protection Program.
I just want to join the chorus on the expansion of the
program because I think it is vital that we have a further
expansion. We are hearing from businesses that the forgiveness
period and the extension through December would give us the
best flexibility.
And I also so appreciate the changes to the program. I have
heard a lot. Some of the witnesses were talking about this
already this morning about having an existing banking
relationship was helpful.
I have heard from a lot of small businesses with the CDFI
change that they were helping businesses that even had an
existing banking relationship and still were shut out of the
process.
So I think the fact that we got more capital out in lots of
different ways and that we have the CDFI community being more
aggressive in contacting businesses since we put money through
that channel, I found some very, very interesting results
there, and I think it is something that we should think about.
It is just a lot of capital going out in a system, and I hope
that next week when we have the Treasury Secretary and the SBA
Administrator--is it next week, Mr. Chairman?--that we can ask
them what is their inventory of what the banking system
actually put out because, again, I am just continuing to hear
stories. I am talking well-established businesses that
definitely got left out of financing because their banks just
did not participate, and so I think we have to keep moving on
this.
I wanted to ask Mr. Rudolph or Dr. Strain. The SBA decided
that 75 percent of the loan must go to the expenses, and we are
looking for ways to increase flexibility. The recently House-
passed bill lowered that to 60 percent, allowing 40 percent of
the loan to be used for rent and other nonpayroll cost, giving
people a little flexibility again. Depending on the structure
of your small business and the expense of that, it can vary
greatly. So I wanted to get people's input about that, this
particular reform to the system, either of the witnesses.
Mr. Rudolph. Sure. On the ground for a few talks that we
talked to, I think that moving it to 60 from 40 percent is
great. I would think any business would say in an ideal world
that they could spend it 100 percent one way or the other way,
but I think 60 from 40 is the right direction. This usually
helps businesses like a restaurant that tends to have a large
staff when they can actually be open inside, but now that so
many of them are carry out and delivery and outside tables,
they cannot bring on their whole staff. So having more money to
help with their rent and costs like that is a very good thing.
I am sure that all of them would like to see that continue.
And, again, while I think 60 to 40 is great, you know they
would be asking for more flexibility anytime they can.
Mr. Strain. Senator, I think that certainly is a step in
the right direction. I would prefer to take it even lower than
60 percent.
You know, the challenge that Congress confronted when
creating the PPP program was to try to freeze the economy in
place, create a bridge, as Senator Young said, to the other
side of the economic shutdown, and then kind of turn the
economy back on.
I think that right now we are--and so that in that world
made a lot of sense to require businesses to keep all their
employees on payroll, and I fully supported that goal. At the
time, it was the right goal.
The world that I think we are in now is a different world.
Consumers' preferences will have changed. People are likely not
going to go to movie theaters for a while. They are going to
want to stream movies into their home instead. People may want
to have table service at restaurants less and takeout more. All
sorts of things are going to be different over the next 6
months and over the next year and maybe even longer than that.
Public policy should not serve to impede the process that
businesses have to go through to figure out what does it mean
to be a viable business in this new marketplace. Many
businesses are going to decide that they need to shrink their
payroll as a consequence of the new marketplace. Policies
should not hold them back from doing that.
Of course, other sectors are going to need to expand their
workforces like delivery sectors and transportation and other
sectors of the economy. So that process really needs to take
place. At the same time, Congress needs to continue giving
support to these businesses, and so one way to do that is to
just make the use of being flexible. Then either 75 percent or
60 percent is helpful.
Senator Cantwell. Thank you, Mr. Chairman.
I would just clarify that I am sure Treasury in the
beginning though this would cover the businesses, and the key
thing was to make the pledge to carry the employees. But if you
are borrowing and then looking for loan forgiveness and you are
off 10 percent because rent is more expensive than what you
calculated or utilities cost or what have you, then you are not
going to take the loan. So then you have lost the whole
opportunity.
So I am for more flexibility. I do not know that you would
give--I think we should engage with Treasury on this. I think
more flexibility is good.
Thank you, Mr. Chairman.
Chairman Rubio. Thank you.
Senator Ernst.
Senator Ernst. Thank you, Mr. Chair, and thanks to our
witnesses as well for being here today. We have heard from the
witnesses about the bumps along the way with the Paycheck
Protection Program, but overall, I think it has been a
resounding success, at least for Iowa businesses and their
workers. We have been able to save thousands of jobs through
that program.
According to a Census Bureau survey that was done in mid-
May, 77 percent of Iowa small businesses had applied for PPP,
and 76 of them actually received PPP. So, again, it was a
success, at least in Iowa.
However, with some of those bumps as described, we have
heard from some of those Iowa businesses, including just as
Senator Cardin had pointed out, restaurants, those event
venues, hotels. They will need more than 8 weeks of the PPP
loan to actually make it through this.
For example, my office did hear from an Iowa sportswear
business that creates apparel for pro sports teams to sell at
their various venues at the ball parks, the arenas, but they
have seen a 96 percent decline in their revenue. And they have
been able to keep their 27 employees on payroll because of the
PPP, but the 8-week period expires this week. And they will now
be forced to furlough those 27 folks.
So additional time and flexibility, I think many of us
agree that those businesses who have received the PPP, they may
need additional flexibility. There are many more that still may
need additional assistance in the future. There are gaps that
we have to close up, and I think it is important that we are
talking about it today to make sure these distressed businesses
can survive and retain their employees.
So we understand the issues with PPP. We are glad it is
there. There are some corrections to be made. I think we can do
that.
I would like to discuss EIDL a little bit as well because
we have pointed out there are issues there too. Mr. Strain, I
will direct this to you. In your testimony, you cited research
showing that 50 percent of small businesses have fewer than 15
days of cash liquidity, and only 40 percent have more than 3
weeks of a cash buffer. So this shows how important it is that
we get assistance to small businesses as quickly as possible.
So the PPP has been effective in that regard, but the Main
Street Lending Program and the Emergency Injury Disaster Loan
have not. I have heard from many Iowa small business owners
that submitted EIDL applications over 2 months ago, and they
still have not heard anything back from SBA.
So could you maybe discuss the implications of these delays
for those small businesses, in particular, with EIDL and Main
Street Lending?
Mr. Strain. Thank you, Senator. It is a real concern. I
think delays in processing these applications and getting these
programs online are putting hardships on businesses.
As you said, businesses can cover some period of time
without revenue or without normal revenue, but really that
period of time for most businesses is measured in weeks and not
in months. It has taken 2 months for the Main Street program to
get online. There are serious problems with getting EIDL
applications passed. Businesses do not have zero revenue. They
are receiving some revenue or at least most of them are, and
the amount of revenue they are receiving each week seems to be
going up, at least according to some new Census Bureau survey
results.
They can hold on for a month or two or three or something
like that, but at some point, they are going to need to lay off
all their workers. And at some point, something even more
severe could happen to these businesses. They really could go
out of business if they cannot fill that revenue hole. So it
really is imperative that these programs be administered
correctly and get online as quickly as possible.
With respect to the Main Street program, that is a Fed
lending facility, but under the law, the parameters of that
program have to be approved by the Treasury Department. And I
have serious concerns that the parameters that the Treasury
Department has put in place will lead to no one using the
program. There will not be borrowers or lenders.
Under Treasury's parameters, lenders have to apply normal
credit standards--or they are incentivized to apply normal
credit standards for loans through this facility because they
have to hold between 5 and 15 percent of any loan that they
make. Why would a bank participate in this facility if it has
to apply or it is encouraged to apply normal lending standards?
The same thing goes with borrowers. Which borrower could
get a loan through a program for a commercial loan? I think
this has to be looked at pretty seriously if the program is
going to succeed, and I think it is not off to a good start.
Senator Ernst. Thank you very much. I appreciate the
comment.
And, Mr. Shamess, I wanted to acknowledge something that
you said that really resonated with me, and that is businesses
need to be innovative as they move forward. Innovation will be
the key to our success. We cannot simply exist the way that we
have in the past, but we need to utilize innovation. We are an
innovation nation, and our businesses can also find creative
ways to move through. So thank you for mentioning that. I
really do appreciate it.
And thank you, Mr. Chair. I appreciate your time.
Chairman Rubio. Thank you.
All right. Senator Shaheen.
Senator Shaheen. Well, thank you, Mr. Chairman and Ranking
Member Cardin. Thank you for holding this hearing today and for
all of the work to address helping our small businesses.
I have to say, though, that while I am appreciative that we
are going to hear from Secretary Mnuchin and SBA Administrator
Carranza next week, I am disappointed it has taken them so long
to come before this Committee.
We are looking at a third iteration of these small business
programs, as you point out, over $500 billion that has gone
out, and yet we are still struggling to get data from the Small
Business Administration, from the Treasury Secretary, as we are
thinking about the changes that we need to make.
We have heard from our witnesses today, and I very much
appreciate your being here and your testimony.
We have heard some of the challenges, and we have certainly
heard in our office some of the challenges that our small
businesses in New Hampshire have faced, but we do not have the
data to back up what should really be guiding the policy as we
move forward. That is why we need to hear from the
Administrator and from the Treasury Secretary, and I hope when
they come next week, they will bring with them a lot of the
data that we need as we are looking at what kinds of additional
changes we should make to the program.
I think we all agree that we need to change the 8-week
period, that we need to provide more flexibility in the 75/25
ratio, which was not there to start with. Actually, that was
imposed outside of the legislation, and that we need to look at
the payback period.
In New Hampshire, we have had over 22,000 businesses
receive over $2.5 billion, and for many of them, it has been
critical in staying afloat.
Now, sadly, as in other places, we have a number of
businesses who are about to run out of their PPP money. They
applied early. They were successful. They played by the rules,
and come next week, they are going to run out of those dollars.
So I am really pleased to hear all of the people on the
Committee talking about the need to extend the program or
provide some additional help for those businesses that are
going to run out of funding.
Ms. Evans, I guess my first question is really for you. You
talked about the importance of small businesses, under 10
employees, and obviously, that is a critical issue for us in
New Hampshire where we have so many very small businesses. But
we also have a number of businesses in the tourism and
hospitality industry who were the first to close their doors
and are still, many of them--in fact, most of them still have
their doors closed because we are still under a stay-at-home
order in New Hampshire for most of our businesses.
So the question that I have is as we are thinking about how
we extend funding to help the smallest of businesses who have
been hurt, should we not also look at some of those industries
that have been hardest hit, the hospitality industry,
restaurants, tourism, where they are going to run out of money
next week, they are going to be forced to lay off those
employees that they have kept on the payroll, and they are
going to be out of luck unless we do something in the next
several weeks? So can you speak to the balancing between number
of employees and the industry that people are in?
Ms. Evans. Certainly. Thank you, Senator, for your
question.
I think we can look at policies and regulations that do
both. What we found is that oftentimes, the businesses--for
example, Black-owned businesses represent about 40 percent of
the hardest-hit industries in this pandemic. So I think we are
talking about moving forward with the flexibility and thinking
about industries and still being able to target the individual
business owners that are across the industries that you
mentioned.
Part of what AEO has done, for example, is our research is
a report called ``The Tapestry of Black Business Ownership'' in
this country, and when we look at the industries, the 2.5
million, 2.6 million Black-owned businesses across America, you
will see that there is a tracking in terms of the same
industries that you just mentioned, transportation,
entertainment which includes restaurants and food businesses.
Again, those are the industries, as you have mentioned, that
have been the hardest hit, and again, they represent about 40
percent of Black-owned businesses, and their venue, of course,
is going down drastically.
So I think you will find that we can do both by still
targeting those small businesses that are hardest hit, and they
too will be represented in the businesses that are across
industries that are also being hit the hardest.
Senator Shaheen. Thank you.
In New Hampshire, we have a very small minority community,
however, and so targeting a specific amount of funds at that
minority community misses a lot of other businesses that would
not be able to apply.
Again, I think we have got to look at a balance as we are
thinking about what we are doing, and I appreciate your
comment. Thank you.
Chairman Rubio. Thank you.
Senator Hawley would be next. I am not sure he is on yet,
although he has dialed in. He is still on mute.
All right. So we are going to go to Senator Duckworth.
Again, we are going by seniority. So people are popping in as
their turn comes up. There you go.
Senator Duckworth. Hello, Mr. Chairman, I am here.
Chairman Rubio. You are on.
Senator Duckworth. All right. Wonderful. Thank you so much,
Mr. Chairman. I want to begin by thanking you and Ranking
Member Cardin and Senators Coons and Risch for their support in
passing my Small Business Lending Continuity Act of 2020
through the Senate a couple weeks ago.
I understand that our legislative language was included in
the larger House package that unfortunately failed to garner
the necessary two-thirds support to pass under a suspension. As
the Senate and House work to negotiate a solution to enhance
transparency in the Paycheck Protection Program, my hope is
that we can convince the House to swiftly pass a bipartisan
Senate bill that eliminates any threat of SBA 7(a) loan
guarantee program shutting down. It is vital that we provide
the small business community with confidence and certainty that
SBA's flagship loan program, guarantee program will continue to
operate independent of the PPP funding levels.
My first question is for Ms. Evans. I first want to say
that it is so wonderful to see a fellow Illinoisan at our
Committee hearing today. I hope you and your family have been
staying safe and healthy during this time.
I know that AEO has been a strong supporter of my Microloan
Program Enhancement Act of 2019, and several provisions of that
legislation have now been included in the HEROES Act, which the
House of Representatives passed last month.
Ms. Evans, can you discuss how critical it is for us to
expand SBA's microloan program now more than ever?
Particularly, how would repealing the 1/55th rule, increasing
technical assistance dollars, raising lending authority to
intermediaries, and providing an overall increase in funding
with the program better help small businesses survive the
economic downturn caused by this pandemic?
Ms. Evans. Thank you, Senator Duckworth, and thank you for
asking about my family. As an Illinoisan, I am very proud to be
here, and we are doing fine. Thank you so much for your
question as well and your leadership and introducing the
legislation that would strengthen the microloan program.
Fixing the program and its challenges including liquidity
addressed by the 1/55th rule and under statutes as well as
providing increased technical assistance funding to go along
with the loans will help in this crisis because microloan
intermediaries are trusted sources of information and capital
in communities that are really struggling at this time.
This program far outpaces the others in minority- and
women-owned engagement and participation, and it should be
maximized as a tool to be used now during this crisis that we
find ourselves in to really help these communities. So we
encourage you and really appreciate moving forward with that
legislation.
Senator Duckworth. Thank you.
Last month, Senator Markey and I introduced legislation
that would increase PPP funding by $10 billion and set those
funds aside for community development financial institutions
and minority depository institutions. I was really pleased to
see that a few weeks ago, SBA and Treasury set aside additional
funding solely for CDFIs, a positive step in the right
direction.
However, more must be done to make PPP more accessible,
particularly to businesses seeking small-dollar loans. That is
why I am leading a letter to Administrator Carranza and
Secretary Mnuchin asking them to create a streamlined loan
forgiveness certification for borrowers with loans of $100,000
or less and to create reasonable safe harbors for those
borrowers.
Mr. Rudolph, can you explain how such actions would be
helpful to these borrowers, and what Congress, SBA, and
Treasury could do to make PPP work better for small-dollar
borrowers, especially minority-owned small businesses?
Mr. Rudolph. Absolutely. Thank you for the great question.
Generally speaking, I would say a streamlined or even
forgiveness for our small businesses, which are often women-
and minority-owned businesses, would give them the security and
the help that they need to survive with a PPP loan.
The truth is that since they are so small, their
bookkeeping is often, you know, pencil and paper or maybe just
a spreadsheet, and if they cannot turn in one--that they would
be on the hook for their entire loan. So I think streamlining
it, doing things like that, would be absolutely great.
For other ways I think we can help, I think, as I said, an
expanded EIDL, disaster loan, or similar program for 3 to 5
years after the pandemic subsides is going to be very much
needed.
There is going to be limited credit, limited capital out
there, and our folks are going to be hurt the most by this.
These small businesses already--their owners do not have--so
having a product for them is helping small businesses succeed.
And then one more small thing that I think is going to be
helpful for restaurants and our retail and our sort of movie
theater establishments is--they are already hurting. They
cannot afford to retrofit their business to be safe in a post-
COVID economy, and grants directly to have them retrofit their
businesses would help them open earlier and get that revenue
flowing.
Thank you.
Senator Duckworth. Thank you so much.
I yield back, Mr. Chairman.
Chairman Rubio. Thank you.
Senator Hawley, are you ready?
The Clerk. No, he is not ready.
Chairman Rubio. Still not ready? Okay. Then we will go to
Senator Hirono.
Senator Hirono. Thank you, Mr. Chairman.
I have a number of questions for Ms. Evans. Ms. Evans, in
your testimony, you discuss the challenges faced by businesses
in underserved communities, particularly minority-owned
businesses in these communities. Can you elaborate on the
challenges these businesses face in accessing programs like
PPP? What changes should we consider to address these
challenges, and how can we better support underserved
businesses? A two-part question.
Ms. Evans. Yes. Thank you, Senator, for the question.
I think what we have seen in terms of the challenges, many
of the--using the banking system, the traditional banking
system originally as the distribution channel was a big
challenge because those relationships just did not exist in
many cases and in most cases for these smallest of businesses.
So one of the solutions that you have alluded to--and we
are urging that they be increased--is making sure that all
CDFIs and mission-focused entities are prioritized for lending
through the PPP program.
Another challenge that we also noted was that the first-
come situation, that businesses were locked out of. These
smallest businesses were just locked out of, and so, again, we
need to be able, as AEO is recommending, to target the smallest
of businesses, target and dedicate businesses with 10 or fewer
employees so that they are able not only to eventually get in
line but to be the line and be in front of that line.
And then the third challenge, I think, many of the
businesses faced was just having clear information. Again, they
did not have the information. They did not have a trusted
entity to go to, and so by now working through CDFIs, by now
making sure that the smallest of these businesses get in the
line and are first and only in the line, I think, will go far
in addressing the challenges that we saw many of these small
businesses face.
Senator Hirono. Ms. Evans, have we done enough to ensure
that CDFIs have the money that they can get a loan to the small
businesses? Have we done enough, or is that still something we
need to address in the next COVID bill?
Ms. Evans. Yes. It is definitely something you still need
to address.
We are grateful that there was a priority of CDFIs, but one
of the recommendations from AEO and our Page 30 Coalition is to
deal with the appropriation of $1 billion to CDFIs. They need
this money, and again, many of the CDFIs are also participating
as microloan intermediaries. So increasing technical
assistance, many of the businesses need both. They need the
lending, but they also need technical assistance and trusted
guidance, which also can come from CDFIs and other mission-
focused toward nonprofit organizations.
I think also, lastly, that extension and the flexibility of
guarantees to the CDFIs that actually make loans in low-income
communities, making sure that all of those loans have
guarantees are also necessary.
Senator Hirono. Ms. Evans, I am glad you mentioned the need
for technical assistance for the smaller businesses because
what happens is that without that kind of assistance, they
really do not have as much of a wherewithal to access the loan
programs and the EIDL programs, any of the programs.
So should we have set aside some money for technical
assistance to be provided to the small businesses that you are
referring to?
Ms. Evans. Yes. Definitely, Senator, we need a set-aside
for increased technical assistance.
As you just mentioned, they desperately need this help as
they are trying to pivot and deal with their own business
plans, how they are trying to make all the changes to be able
to open and reopen and stay in business. They really need
mentors and technical assistance, and so the increase in that
in this program even would be greatly appreciated and
necessary.
Senator Hirono. Mr. Chairman, do I have time for another
question?
Chairman Rubio. Yes, go ahead.
Senator Hirono. I cannot tell.
Chairman Rubio. Yes.
Senator Hirono. So in addition to the technical assistance,
which I think is really important, otherwise these businesses
are really behind the line, especially in a first-come-first-
serve situation.
Should there be, Ms. Evans, some sort of ombudsman or
somebody who can help them navigate the kind of complexities
that we understand SBA and Treasury has put out for PPP loans?
Ms. Evans. Yes. We actually support very strongly the setup
that Senator Cardin and others have recommended that we have a
new office for emerging businesses within the program. We think
that will actually be very helpful in ensuring that these
businesses actually have access to the services and resources
they need, since they are truly the hardest hit. So such a
program, we are very much in favor for.
Senator Hirono. Thank you, Ms. Evans.
Thank you, Mr. Chairman.
Ms. Evans. Thank you.
Senator Hirono. You bet.
Chairman Rubio. Thank you.
Senator Booker, are you on?
The Clerk. He left.
Chairman Rubio. He left us. All right. Senator Rosen not on
and----
Senator Rosen. Oh, I am on.
Chairman Rubio. You, you are? There you go. Okay.
Senator Rosen. I am here. Thank you. Thank you, Mr.
Chairman, for holding this, and Ranking Member Cardin, and I
want to thank all of the guests for being here today.
I want to talk a little bit about EIDL reform. Over the
past few months, of course, the coronavirus pandemic has
devastated small businesses like you have heard and you know
across the country, putting millions out of work. In Nevada--I
keep saying this over and over again--on top of a list that we
do not want to be number one of. The unemployment rate is
highest in the Nation at over 28 percent. Las Vegas proper is
even over that, I think, over 30 percent.
Given that more than 99 percent of our businesses in Nevada
are small businesses, it is abundantly clear that the steep
unemployment rate is a reflection of the overall impact the
pandemic has had on small business in our state.
My office has directly helped more than 500 of these small
businesses with their questions about the CARES Act, PPP, and
EIDL, but one common complaint we have repeatedly received from
small business owners has been about the SBA's arbitrary $1,000
per employee have on EIDL advance grants and its $150,000 cap
on EIDL loans.
As I am sure Chairman Rubio can attest, these limits were
not Congress' intent when we passed the CARES Act. They were
not part of any deal for many small business owners when they
applied for EIDL support, and that is why I have been working
with Senator Cornyn and others to try to get SBA to abandon
this misguided policy and why I have raised this issue with
both SBA Administrator Carranza and Secretary Mnuchin in the
past.
Mr. Strain, I was interested in your written testimony when
you acknowledged that reviving our small businesses may not be
as simple as, of course, just turning on a switch.
My home State of Nevada relies heavily on travel and
tourism, and turning on the switch alone does not reopen our
economy. It does not bring visitors back to Nevada, and so, of
course, Mr. Strain, I am going to ask you first but then to
everyone on the panel. For our small businesses, how are these
arbitrary caps, the $1,000 per employee, the maximum of
$150,000--how do we face an economy that is not yet ready for
our small businesses? What can we do to support them?
I will ask Mr. Strain to go first and Mr. Rudolph, Ms.
Evans, and Mr. Shamess, please.
Mr. Strain. Thank you for the question. I agree it is an
important consideration.
I think what is really needed is flexibility on the part of
Congress to adapt public policy to the needs of the moment.
Many of these programs are legacy programs whose parameters as
of February no longer make sense here in June. Some of the
programs like PPP are great programs, but even there, the
economy is changing so rapidly. What made sense in mid-March
needs to be altered in June, even though it has only been a
couple of months.
So I think Congress has shown really remarkable, I think,
flexibility and creativity in dealing with this crisis. I give
Congress very high marks for the CARES Act and for the measures
that Congress has taken to address the pandemic.
What I would urge is Congress to be very cognizant of the
fact that this is not over, even though we are reopening and
even though we are likely to have a very strong summer of
economic growth. Businesses will need support from Congress and
from public policy for months and months and months to come,
and Congress is going to have to be nimble and flexible with
the parameters of those programs.
Senator Rosen. Thank you.
Mr. Rudolph.
Mr. Rudolph. Thank you. I do think it is a great question,
and going back to what was said about technical assistance, how
we do our work and we help businesses survive and thrive is by
not just giving them money and holding them through preloan and
postloan. How we do that is by building trust with our
businesses.
When EIDL came out, everybody was excited about the fact
that they were going to get a $10,000 grant on top of the first
portion of their loan through that project, and then many of
them found that they either got just a thousand dollars per
employee or because the way their business was set up, they did
not get any grant at all.
Ultimately, they were able to still work with us and were
happy to get the loan. The little things like that promote
trust between a business and a service provider, and so if we
had known ahead of time how that was going to work and we were
not telling folks that they were going to get $10,000 as a
grant, I think that might have mitigated that concern.
As far as the $150,000 cap goes, I can see where that will
be a major problem for sort of a little bit larger small
business. Maryland Capital Enterprises works with businesses
that have 10 and less employees, and our maximum loans
generally are about $50,000. So that has impacted our clients,
but just anecdotally across the state, especially with sort of
larger manufacturing or larger farm-type businesses, the
ability to borrow more through this EIDL program would
definitely be a great help.
Senator Rosen. Thank you.
I believe my time is up, but I appreciate you mentioning
trust. And, of course, our businesses need predictability to
thrive. So thank you.
Chairman Rubio. Senator Booker, are you ready?
Senator Booker. I am ready if you can hear me.
Chairman Rubio. We can hear you.
Senator Booker. I really appreciate that. Thanks so much.
I want to first just start off by saying I am excited. We
have done a lot of good work on this Committee, and I am
grateful for the folks that are involved.
We have had 4.5 million PPP loans that have literally put
out over half a trillion dollars, and the New Jersey data is
solid. I mean, we have seen New Jersey, the SBA has processed
131,000 loans that has helped literally so many of our
businesses, so many of our communities that rely on those
businesses, so many jobs that rely on that, to the tune of
$16.8 million in our state. So I am happy about that.
But there is a particular problem that concerns me, which
is Federal assistance has provided relief to a lot of
businesses, but just again, disproportionately, our smallest
businesses are being left out. And they are being left out
because they still do not have relationships to institutions
that can get them that capital, and often that is being left
out from banks and more.
So I am excited about the potential to do another sort of
COVID emergency package that could help level the playing
field, level the access, and help a lot of these critical
businesses that are core pillars of our entire towns and
communities.
I have talked to mayors across the State of New Jersey who
just tell me painful stories about what happened if on their
Main Streets, you had a store close up, board up, and the
challenges that that would have.
So I am excited that there is a bipartisan proposal that I
have been working on with Senator Daines to help fill the gap
by scaling up relief funds that have emerged across this
country that are targeting those very small businesses, and we
are excited because those businesses are located in low-income
areas or rural areas to poor urban areas and really could be
the bridge to help make sure that there is a lot more equity in
these programs.
And the local relief programs that are out there are just
doing great. The data, for example, on the EDA in New Jersey,
the New Jersey ESA, is incredible. In April, they made grants
available to the smallest businesses, 10 employees or less, was
five times oversubscribed for the state-run program within 75
minutes. That is what the demand was.
From Indianapolis to Miami, which I know our Chairman knows
a lot about, Chicago, we are seeing the same thing. These
ground-up solutions are getting it done for small businesses,
but they are way oversubscribed and way overfunded. And that is
why our RELIEF for Main Street Act, which would put $50 billion
to provide direct assistance to these funds, to scale them up
and to seed them, the funding would trust local leaders and
community organizations that are connected to these businesses.
So I just would like to ask for the panel--you know, there
are a lot of fixes to PPP that are being proposed, changing the
75/25 rule, extending the forgiveness period, and my question
for the panel, very simply, is, is the program that I am
describing to you for a lot of the underbanked communities, a
lot of minority businesses that are underbanked, who are just
distrustful even of the main banking systems--is this not a
great way to get the flexible funding more directly to small
businesses that are out there to help ultimately when we look
back on this as a Committee 5 years from now, it will show a
much more equitable distribution, especially to the smallest
businesses in America? Anybody on the panel can pick that up.
Mr. Strain. Senator Booker, I think you are highlighting a
really important issue.
I would just briefly comment that when Congress passed the
Paycheck Protection Program, it explicitly included language to
hold lenders harmless in the event that borrowers
misrepresented themselves on their applications, and it really
viewed banks as a conduit to get money into the hands of small
businesses. That was clearly the intent.
Banks are very skittish after some of the things that
happened with FHA and the financial crisis, and banks needed a
lot of reassurance that they would actually be held harmless,
and that the spirit of the statute would be executed by the
Treasury Department and by the executive branch.
I do not think the Treasury Department did enough when
implementing PPE to make banks feel comfortable that they
would, in fact, be held harmless. There was some sort of
misrepresentation or something like that, and what that did was
it led banks to focus lending on existing customers. And as you
say, that left out many of the most vulnerable small
businesses. I think that is something that Congress should take
very seriously when considering reauthorizing the program or
modifying the program. I think that is one of the most
important parts of this.
And I think PPP got it right. I just think the
administration's implementation of it did not succeed as well
as it should have.
Senator Booker. I appreciate that, and that is, again, what
Senator Daines and I are really trying to get at here in these
sort of local-level platforms which are designed specifically
to help smaller businesses in states and cities across America
and rural areas as something that I am really excited about as
promising.
Being I know that our Chairman runs a tight ship and I have
no clock in front of me, I am going to try to just tread upon
his grace and his goodwill, his kindness, and try to force one
more question in there and hope that that buttering up actually
worked.
I am concerned, as we see right now, about challenges we
have with racial justice in America, and a lot of these
challenges in America are being exposed by the coronavirus,
being exposed by a lot of protestors lay bare as we see the
greater struggle for just equality of opportunity in America.
We know that Black Americans entered this crisis
financially vulnerable prior to the pandemic. We knew that a
White family in America was likely to have $10 for every $1 a
Black family has. A study in Boston found that the average
White family had a net worth of about $250,000 compared to $8
for a Black family.
One of the truths about America is entrepreneurship is a
way to close the racial wealth gap, and we know that,
unfortunately, COVID-19 has savaged communities of color. And
that has been another impact upon minority entrepreneurs and
minority businesses, one of the primary ways, again, that
people of color gain wealth.
So minority businesses are just proportionately in the
industries most affected by COVID-19, accommodation and food
services, personal laundry, retail, and according to a recent
Color of Change and Unidos survey, among the minority-owned
businesses who were still open and operating, nearly half of
them expect to close within the next 6 months if conditions do
not change, another reason why what Senator Daines and I are
working on is so important.
As Congress considers what to do next, it is hard not to
overstate the stakes for these businesses that might close in
the next 6 months if we do not act boldly with a focus
affirmatively in support of very small minority-owned
businesses. We could see Black America, Latino America being
set back decades as well as urban cores and rural Main Streets
really going back to being vacant and blighted, where they are
just hurting already and seeing challenges.
So my question to Dr. Strain or anybody on the entire
panel, frankly, is I joined Senator Cardin to release a
proposal aimed at preventing underserved and underbanked
businesses from falling further behind in the COVID crisis.
I just want to say I believe we must devote the same
attention to investment and to supporting new businesses, new
entrepreneurs as well.
Is that something that you guys agree with that as we
emerge from this economic and public health crisis, we actually
have an opportunity to build a new economy? That means that
this is a critical time to create opportunities for new
business starts, especially for underserved entrepreneurs. Is
that something you would agree with? And anybody can answer
that. I do not want to contain it to just one.
Ms. Evans. This is Connie Evans, Senator Booker.
AEO really does support exactly what you are speaking to.
I think the Daines and Booker proposal is one that is based
on equity as well as the Cardin-Booker Equity in COVID-19
Recovery white paper that called for things like making
permanent the Community Advantage Loan Program and other
features in that white paper that we strongly, strongly
support.
But in my oral comments, remarks earlier, we also pointed
out through the Page 30 Coalition that we are strongly
recommending the focus and intention on programs that reach
rural, women, veterans, and other low-income and minority
communities, where I think you will see these startups coming
from.
As you know, entrepreneurs are amazingly resilient. A
restaurant may close and not be able to keep going, but that
entrepreneur may keep going. They are resilient and may try
something new. So being able to have resources, capital and
other resources, where they can get started and they can move
to their second or their third business is also very important
for them. The capital and the other resources to do that is
something that we definitely will support, particularly again
focus on those businesses that have 10 or--1 or 2 employees, 10
or less employees. This is where we think you are going to find
that innovation and that ability to be a resilient business
owner, even though they might move to a different business and
start up again.
Senator Booker. So let me just say in closing, there is no
doubt the spirit of the statute is right on that we are sort of
advancing around here, but it is the implementation I know that
you are concerned about. And that is why I believe strongly we
need new channels of capital distribution in states and
localities to begin to balance these scales in an important
way.
So I am grateful for your testimony. I am grateful for the
panel as a whole and really grateful, Mr. Chairman, for the
bipartisan work we see in trying to address these issues. All
of America is stronger when we have entrepreneurs from all
backgrounds and all communities, from rural to urban. There is
strength and power in America when we can stimulate
entrepreneurialism, especially in disadvantaged communities
that are often left out of the capital equation of opportunity.
So thank you, everybody.
Chairman Rubio. Thank you, Senator Booker. You have got to
back up off that camera. Your face is this big.
[Laughter.]
Senator Booker. I think you heard this, Mr. Chairman, but I
am what they call a ``40-footer.'' I look at a lot better from
40-feet away.
[Laughter.]
Chairman Rubio. Me too. We are all 40 feet apart these
days. All right. Thank you.
We have one more Senator. Senator Inhofe has joined us.
Senator Inhofe, you are recognized.
Senator Inhofe. Well, thank you very much, Mr. Chairman,
and I will be brief.
I have become a real fan of this PPP program. It has been
very successful.
Mr. Shamess, it is nice that I can talk to someone who is
live and in here. I appreciate that. I want to thank you for
your service to our country and to the economy. Expanding a
two-person operation to a national manufacturing company is no
small feat, and I greatly appreciate your work. Your testimony
highlights the benefits of the PPP loan provided to your
business and employees.
Similarly, in my State of Oklahoma, in the town of Owasso,
located just north of Tulsa, the Owasso Auto Care was able to
receive this SBA loan and keep their four employees on the
payroll. It was already doomed, they thought, at that time, and
while these two operations may vary in size and mission, you
both have one thing in common. And that is the success from
this program.
So I would say that--can you discuss some of the ways your
business was able to utilize this program and the fact that
large and small businesses can use it and what you envision as
the next step for businesses like yours and our Owasso Auto
Care operation?
Mr. Shamess. Thank you, Senator, for the question.
I will make one opening comment. I had the pleasure of
serving in the Air Force in your state at Vance Air Force Base
under the 71st Flying Training Wing. That was a great
privilege. I am a big fan of Oklahoma, an amazing State.
Senator Inhofe. What year were you there?
Mr. Shamess. I was there from 2004 through 2009.
Senator Inhofe. I have every reason to believe that you and
I met around the 2005 time frame.
Mr. Shamess. Yes, sir.
Senator Inhofe. I chair the Armed Services Committee, the
Senate Armed Services Committee, and at that time, I was not
chairman. But I was very, very active in it. We had done a
great job at Vance. I do not know whether you have seen some of
the things recently that they have been doing, but it is a real
success story.
Mr. Shamess. Yes, sir.
So to answer your question, I think there is a hybrid
approach that is necessary here. I feel like we have to be
somewhat careful about the level of funding that is available
now or may be available in the future.
When we entered the COVID pandemic in early March, our
position was there is no help coming. We have to figure this
out, and we are blessed to have an incredible team that is
very, very devoted to that. So everything that came later with
the Paycheck Protection Program and the other assistance that
is being offered was fantastic.
But there is still a burden on small businesses to lead, to
lead the organizations, and to take care of their people. It is
not something that can be solved with a limitless number of
dollars or programs. We have a responsibility. I have a
responsibility to care for my employees and to innovate and to
find ways to be successful in an economy that none of us has
ever experienced before.
There is still economic activity taking place. It is
growing, and I can validate that inside our organization. And I
hope that the business you are referencing is starting to feel
that as well.
So what I would say as a challenge to all of us small
business owners is be as disciplined as we possibly can, take
care of our people, and start finding ways that we can function
as best as possible in this environment. And then anything that
comes from this panel, from this Committee, form the Federal
Government is only going to give us that greater durability,
that bridge that we need to get to the other side.
Senator Inhofe. I will tell you what would be a good idea,
I think, because that actually approaches on the other question
I had to ask you, and that is, what should we--what are some of
the aspects that Congress should keep in mind as we go forward?
And while you have given some ideas there, it might be a good
idea, Mr. Chairman, if he were to give us a white paper on some
specific things to look for and why and judging from your
experiences.
I will go ahead and make that request, but any comments on
that you might have right now?
Mr. Shamess. Specific to steps that could be taken in small
business, sir?
Senator Inhofe. Yes.
Mr. Shamess. Well, I can tell you what happened with us. We
rallied our entire team very early on. We made some really,
really tough decisions, and there is this sense of sacrifice
that especially those in uniform that is a shared sacrifice,
and that everyone has to row together.
I am about to be out of time, but I will share a sentiment.
I was at Dover receiving the remains of one of my friends who
was killed overseas, and his father was there with me, who was
a Vietnam veteran. And he said, ``When joy is shared, it is
multiplied, and when sorrow is shared, it is divided.'' And I
think about that in the context of where we sit today, and I
think companies have to think the same way.
The funding is great, but if I cannot sustain a business
that is relevant today and potentially in 6 months, then I am
not saving anything. So it is a shared sacrifice inside those
organizations, I think. Everyone has to take a hit, and in our
organization, we all did. We had to furlough some of our team.
We are happy to have them back, another part of our team.
Everyone else took a 50 percent decrease in compensation, and
that is on top of losing two-thirds of our revenue. That was
what we had to do just to say, ``I can make it to the end of
March. I can make it to April 15th.''
So what I would say--and I am happy to put much of this in
writing and share it with you, sir--is we have an obligation to
lead inside our organizations and strive to get to the other
side in the best position we can so we can still be relevant.
Senator Inhofe. That would be great. That would be very
helpful. Thank you very much.
Thank you, Mr. Chairman.
Chairman Rubio. Thank you.
And the bad news is we are hitting up on the clock here
because we have a vote at 12:00. We do not have this room all
day because of the way they are juggling the rooms. So I do not
think I will have time for my questions. The good news is
virtually everything I was going to ask was asked by the other
members, which is even better, because that shows you the level
of interest and participation.
I do appreciate the time all of you have given us, almost 2
hours here under these conditions, being online and so forth,
and of course, you, Mr. Shamess, for being here as well. And
your testimony is very important.
Before I adjourn, I do want to ask consent to include a
written statement from the National Federation of Independent
Businesses in today's record hearing, which I think will be
helpful.
[The information follows:]
Chairman Rubio. Again, I want to thank you all and all the
members who have popped in. As we have noticed, when it is
online, the attendance is a lot higher from our members, but it
is good. You can see the level of interest and passion and
bipartisan cooperation and opportunity that exists, not just on
what we have done, but on what we have a chance to do moving
forward. So thank you again.
The record for this hearing will stay open for 2 weeks. Any
statements or questions for the record should be submitted by
the 17th of June at 5:00 p.m., and with that, this hearing is
adjourned. Thank you. Thank you all.
[Whereupon, at 12:00 p.m., the Committee was adjourned.]
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