[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
    
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        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:]
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    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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