    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                       EXAMINING THE ROLE OF COMMUNITY
                     DEVELOPMENT FINANCIAL INSTITUTIONS AND
                     MINORITY DEPOSITORY INSTITUTIONS IN
                     SMALL BUSINESS LENDING

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

                                    HEARING

                                   BEFORE THE

            SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS

                                     OF THE

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD
                                  MAY 18, 2021

                                   __________

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                Small Business Committee Document Number 117-013
                 Available via the GPO Website: www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    44-565                      WASHINGTON : 2021

    -----------------------------------------------------------------------------------

                       HOUSE COMMITTEE ON SMALL BUSINESS

                     NYDIA VELAZQUEZ, New York, Chairwoman
                              JARED GOLDEN, Maine
                              JASON CROW, Colorado
                             SHARICE DAVIDS, Kansas
                             KWEISI MFUME, Maryland
                            DEAN PHILLIPS, Minnesota
                             MARIE NEWMAN, Illinois
                           CAROLYN BOURDEAUX, Georgia
                             TROY CARTER, Louisiana
                              JUDY CHU, California
                           DWIGHT EVANS, Pennsylvania
                           ANTONIO DELGADO, New York
                         CHRISSY HOULAHAN, Pennsylvania
                              ANDY KIM, New Jersey
                             ANGIE CRAIG, Minnesota
                  BLAINE LUETKEMEYER, Missouri, Ranking Member
                             ROGER WILLIAMS, Texas
                            JIM HAGEDORN, Minnesota
                            PETE STAUBER, Minnesota
                            DAN MEUSER, Pennsylvania
                            CLAUDIA TENNEY, New York
                           ANDREW GARBARINO, New York
                             YOUNG KIM, California
                             BETH VAN DUYNE, Texas
                             BYRON DONALDS, Florida
                             MARIA SALAZAR, Florida
                          SCOTT FITZGERALD, Wisconsin

                     Melissa Jung, Majority Staff Director
                Ellen Harrington, Majority Deputy Staff Director
                         David Planning, Staff Director

                                C O N T E N T S

                               OPENING STATEMENTS

                                                                       Page
    Hon. Sharice Davids..............................................     1
    Hon. Dan Meuser..................................................     3

                                   WITNESSES

    Ms. Aissatou Barry-Fall, President & CEO, Lower East Side
      People's Federal Credit Union, New York, NY....................     5
    Mr. Everett Sands, Founder & CEO, Lendistry, Brea, CA............     7
    Mr. Robert James II, President, Carver Development CDE, Chairman,
      National Bankers Association, Savannah, GA.....................     9
    Mr. Walter L. Davis, Founder, Peachtree Providence Partners
      Holding Company, Charlotte, NC.................................    10

                                    APPENDIX

    Prepared Statements:
        Ms. Aissatou Barry-Fall, President & CEO, Lower East Side
          People's Federal Credit Union, New York, NY................    26
        Mr. Everett Sands, Founder & CEO, Lendistry, Brea, CA........    32
        Mr. Robert James II, President, Carver Development CDE,
          Chairman, National Bankers Association, Savannah, GA.......    41
        Mr. Walter L. Davis, Founder, Peachtree Providence Partners
          Holding Company, Charlotte, NC.............................    49
    Question and Answer for the Record:
        Question from Hon. Luetkemeyer to Mr. Robert James II and
          Answer from Mr. Robert James II............................    53
    Additional Material for the Record:
        Credit Union National Association - CUNA.....................    54
        National Association of Federally-Insured Credit Unions -
          NAFCU......................................................    56

                        EXAMINING THE ROLE OF COMMUNITY
    DEVELOPMENT FINANCIAL INSTITUTIONS AND MINORITY DEPOSITORY INSTITUTIONS
                           IN SMALL BUSINESS LENDING

                                  ----------

                             TUESDAY, MAY 18, 2021

                  House of Representatives,
                   Committee on Small Business,
                       Subcommittee on Economic Growth,
                                       Tax, and Capital Access,
                                                        Washington, DC.
        The Subcommittee met, pursuant to call, at 10:00 a.m., in
    Room 2360, Rayburn House Office Building and via Zoom, Hon.
    Sharice Davids [chairwoman of the Subcommittee] presiding.
        Present: Representatives Davids, Newman, Chu, Evans, Mr.
    Kim, Bourdeaux, Meuser, Van Duyne, and Donalds.
        Also Present: Representative Luetkemeyer.
        Chairwoman DAVIDS. Good morning, everyone. I call this
    hearing to order.
        Without objection, the Chair is authorized to declare a
    recess at any time.
        Let me begin by saying that standing House and Committee
    rules and practice will continue to apply during hybrid
    proceedings. All Members are reminded that they are expected to
    adhere to these standing rules including decorum.
        House regulations require Members to be visible through a
    video connection throughout the proceeding, so please keep your
    cameras on. Also, please remember to remain muted until you are
    recognized to minimize the background noise. If you participate
    in another proceeding, please exit this one and log back in
    later.
        In the event a Member encounters technical issues that
    prevent them from being recognized for their questioning, I
    will move to the next available Member of the same party and I
    will recognize that Member at the next appropriate time slot
    provided they have returned to the proceeding.
        For those Members physically present in the Committee room
    today, we will continue to wear masks and socially distance
    while the Chairwoman and Ranking Member work with the office of
    the attending physician on updated guidelines and procedures.
    Members and staff are expected to wear masks while in the
    hearing. With that said, Members will be allowed to briefly
    remove their masks when recognized by the Chair for statement
    and questions. I know we all look forward to returning to
    normal but appreciate everyone's patience while we prioritize
    the health and safety of our staff and each other.
        Access to capital is the lifeblood of American small
    business. When small firms obtain adequate funding, they can
    grow their business, create jobs, and bolster the overall
    economy. Unfortunately, accessing capital is the single
    greatest challenge facing most entrepreneurs. This is
    especially true for the underserved groups like women,
    minorities, and folk who do not have the same opportunities to
    access funding as their peers.
        Businesses owned by women and people of color who obtain
    loans often receive less money and pay higher interest rates.
    Fortunately, there are institutions working to close this
    lending gap. Community development financial institutions
    (CDFI) and minority depository institutions (MDI) operate to
    get money to entrepreneurs traditionally ignored by big banks.
    CDFIs provide a range of financial products and services on a
    fair and transparent basis in economically distressed markets
    such as mortgage financing, flexible underwriting, and loans
    and investments to small businesses in low-income areas.
        MDIs are depository institutions where 51 percent or more
    of the stock is owned by minority individuals, including Black
    Americans, Asian Americans, Hispanic Americans, and Native
    Americans. As of December 31, 2020, there are 142 MDIs ensured
    by the FDIC. MDIs better serve borrowers who live in low and
    moderate income or LMI census tracts.
        Over the past year, we have seen a wealth of evidence
    showcasing the power of these institutions in reaching
    undeserved groups. The pandemic highlighted and exacerbated the
    deep inequalities present in the small business sector. In
    2020, Black, Latino, and Asian Americans experienced drops in
    business ownership rates much higher than their White peers.
    These same groups also had less access to federal relief
    programs, like the Paycheck Protection Program (PPP) due to
    their lack of an account with a big bank.
        Recognizing this inequality in capital access, I and other
    Members of this Committee worked to empower CDFIs and MDIs to
    get emergency relief to these communities. We passed set-asides
    and multiple bills to appropriate funds so that community
    lending institutions, including CDFIs, could participate in the
    PPP on an equal footing with other lenders. We crafted these
    set-asides to maximize PPP lending in traditionally underserved
    business communities and we found that they were effective.
        During the COVID-19 pandemic, small businesses reported the
    greatest levels of satisfaction with CDFIs and small banks.
    SBA's data also shows that CDFIs were best able to reach
    underserved small businesses. CDFIs were the only type of
    lender that performed above program average when it came to the
    percentage of loans less than $150,000. The percentage of loans
    made in low or moderate income areas and the percent of loans
    made in rural areas. The pandemic taught us a critical lesson
    in the power of community financial institutions, to reach
    communities that other lenders neglect.
        Moving forward, we must examine the SBA's programs that
    empower CDFIs and MDIs to find ways to improve them. For
    example, efforts like the Community Advantage Loan Program, the
    504 or CDC Loan Guaranty Program, the Microloan Program has
    also proven effective in helping CDFIs and MDIs get capital to
    underserved communities.
        Today, I would like us to look at what programmatic changes
    can be made and what legislation we can pass to help improve
    the ability of these mission-based lenders to reach their
    target markets. As this Congress and the administration work
    toward achieving an equitable recovery for everyone, we must
    fully harness CDFIs and MDIs to reach this goal.
        I will now yield to the Ranking Member for his opening
    statement.
        Mr. MEUSER. Well, I thank you, Madam Chair. Good morning to
    all. And I thank you for holding this important hearing to
    explore the topic of access to capital for small businesses and
    how community financial development institutions and minority
    depository institutions assist the nation's underserved small
    businesses. Access to capital is a true driver of whether a
    small business startup or entrepreneur can sustain business
    operations. The ability to obtain capital can be the difference
    between expanding and ceasing operations.
        Unfortunately, when restrictions and shutdown measures were
    mandated on small businesses by state and local governments to
    prevent the COVID-19 from spreading, traditional financing
    options quickly became even more limited. Instantly, small
    businesses were faced with very devastating challenges. As a
    response, Congress created numerous relief programs focused on
    providing capital to small businesses and their employees.
        To create efficiencies and develop capital in a swift
    manner, the Paycheck Protection Program replicated the strong
    private lender model used within the SBA's 7(a) Loan Program.
    Private sector lenders responded quickly and assisted small
    businesses through the emergency period and a total of over
    5,000 private sector lenders participated in the PPP.
        To reach underserved businesses in urban and rural areas,
    including minority-owned businesses, CDFIs and MDIs were
    welcomed into the program as well. Beyond acting as important
    lenders and intermediaries, CDFIs and MDIs were categorized as
    community financial lenders and were on the frontlines
    assisting small businesses throughout the pandemic. From when
    the program opened in April 2020 through the conclusion of the
    first round in August 2020, over 114,000 PPP loans were made by
    308 CDFIs for a total of $7.5 billion. Quite a bit. Likewise,
    approximately 175 MDIs played an important role in PPP during
    the same time period by making 123,000 PPP loans for $10
    billion.
        Fast-forward to today, and CDFIs and MDIs are still
    actively participating in the PPP program. Aside from providing
    critical access to capital, CDFIs and MDIs were answering
    questions, providing technical assistance, and responding to
    the needs of the nation's smallest firms and organizations and
    they were quite active in Pennsylvania, which was very
    appreciated. I would also like to thank all the lenders that
    participated in PPP, including the nation's CDFIs and MDIs for
    assisting small businesses through these somewhat dark days.
        But more work needs to be done. It is important for
    Congress to examine the role these lenders had over the last
    year. Moreover, Members of Congress must also examine the
    relief options used during COVID-19 to measure programs'
    efficiencies and overall effectiveness. Hearings like this one
    will help guide us as we explore numerous capital access
    issues, including the most efficient ways to deliver credit to
    small businesses. We learned a lot during this emergency
    period. We should use this information to continue to refine
    and sharpen all of the existing traditional tools available
    within the federal government.
        I would like to thank all the witnesses for joining us
    today. I look forward to the conversation.
        Madam Chair, thank you for calling his hearing and I yield
    back.
        Chairwoman DAVIDS. Thank you. The gentleman yields back.
        I would like to take a moment to explain how the hearing
    will proceed. Each witness will have 5 minutes to provide a
    statement and each Committee Member will have 5 minutes for
    questions. Please ensure that your microphone is on when you
    begin speaking and that you return to mute when you are
    finished.
        With that, I would like to introduce all of our witnesses.
        Our first witness is Ms. Aissatou Barry-Fall, the President
    and CEO of the Lower East Side People's Federal Credit Union. A
    leader in the community development credit union movement and
    one of the earliest institutions to obtain CDFI certification
    from the Treasury. Since its founding, they have provided vital
    financial services and community development investments in
    low-income, immigrant, and underserved communities in New York
    City. Ms. Barry-Fall began her career as a teller almost 30
    years ago. Welcome, Ms. Barry-Fall.
        Our second witness is Mr. Everett Sands. Mr. Sands is the
    Founder and CEO of Lendistry, a minority-led and technology-
    enabled small business lender with CDFI certification and one
    of the largest lenders in SBA's Community Advantage Program.
    Lendistry is also a Member of the Responsible Business Lending
    Coalition, a leading advocacy group for transparency and
    fairness in the lending process. He has over 20 years in
    national community banking and began his career working at two
    MDIs. Welcome, Mr. Sands.
        Our third witness is Mr. Robert James II. Mr. James is the
    President of Carver Development CDE, an affiliate of Carver
    State Bank in Savannah, Georgia, one of the oldest Black-owned
    banks in the United States. He is also the Chairman of the
    National Bankers Association, the leading trade organization
    for the country's minority depository institutions. An attorney
    by trade, he has spearheaded numerous initiatives to bring
    private and public investments to underserved communities.
    Welcome, Mr. James.
        I would now like to yield to our Ranking Member, Mr.
    Meuser, to introduce our final witness.
        Mr. MEUSER. Thank you, Madam Chair.
        Our next witness, Walter Davis. Mr. Davis is the Founding
    Member of Peachtree Providence Partners Holding Company with
    locations in Charlotte, North Carolina and Atlanta, Georgia.
    Peachtree Providence Partners was formed in 2014 and
    specializes in advisory and consulting services, as well as
    financial solutions. Prior to forming Peachtree Providence
    Partners, Mr. Davis was Vice Chairman, Chief Executive Officer,
    and Founder of CertusBank, and before that he was managing
    partner of Integrated Capital Strategies. Mr. Davis has also
    held executive level roles with Wachovia Corporation which is
    now Wells Fargo and Bank of America. Along with numerous board,
    trustee, and academic positions, Mr. Davis is an advisor on
    opportunity zones and was Chair of Vice President Pence's
    Economic Inclusion Task Force. Mr. Davis has a degree from the
    University of South Carolina and the University of North
    Carolina Chapel Hill. Mr. Davis, I would like to welcome you to
    the Subcommittee today and I am looking forward, we all are, to
    your thoughts and ideas.
        Thank you to all of the witnesses for joining us, and I
    yield back.
        Chairwoman DAVIDS. Thank you for doing that introduction.
        Ms. Barry-Fall, you are now recognized for 5 minutes.
        I believe you might be muted still.

    STATEMENTS OF AISSATOU BARRY-FALL, PRESIDENT & CEO, LOWER EAST
     SIDE PEOPLE'S FEDERAL CREDIT UNION; EVERETT SANDS, FOUNDER &
    CEO, LENDISTRY; ROBERT JAMES II, PRESIDENT, CARVER DEVELOPMENT
     CDE, CHAIRMAN, NATIONAL BANKERS ASSOCIATION; WALTER L. DAVIS,
         FOUNDER, PEACHTREE PROVIDENCE PARTNERS HOLDING COMPANY

                    STATEMENT OF AISSATOU BARRY-FALL

        Ms. BARRY-FALL. Can you hear me now?
        Chairwoman DAVIDS. There we go.
        Ms. BARRY-FALL. Thank you.
        Chairwoman Davids, Ranking Member Meuser, and Members of
    the Subcommittee, thank you for inviting me to testify at
    today's hearing.
        I am the CEO of the Lower East Side People's Federal Credit
    Union, a not-for-profit community development financial
    institution and minority designated credit union located in New
    York City. We are also a proud Member of Inclusiv, a national
    network of nearly 400 community development financial
    institution and minority-designated credit union located in New
    York City. We are also a proud Member of Inclusiv, a national
    network of nearly 400 community development credit unions.
    Together they serve 14 million predominantly low-income and
    minority communities and manage $190 billion in community-
    controlled assets.
        During the pandemic, while working to help our Members
    access stimulus payments, deal with financial insecurity and
    access emergency loans, community development credit unions
    also mobilized to become a critical conduit to getting the
    Paycheck Protection Program out to minority small and micro
    businesses.
        Our credit union was established in 1986 as a response to
    the closure of the last bank branch serving the Lower East Side
    of Manhattan. Thirty-five years later, we continue to play the
    same critical role as the only regulated CDFI in our community.
    We now manage around $90 million in assets and 9,000 people
    through three community institutions.
        Our loan portfolio has more than $22 million in mortgages,
    over $20 million in loans to low-income housing cooperatives,
    and $16 million in Paycheck Protection Program loans.
        Like other community development credit unions, we are the
    financial first responders. We are there when disasters strike.
    We were first to open in the aftermath of 9/11. Last year, we
    did it again. In a time of crisis, we inevitably see increased
    demand on our services.
        Our experience with PPP was in itself a journey. We could
    not participate in the first round as the money ran out even
    before we could get on the SBA platform. In the second round,
    we faced some significant logistic challenges but our team
    quickly gained the expertise needed to ramp up our lending. We
    now have a strong pipeline that we hope to continue processing
    as long as the $9 billion set-aside is still available.
        Most of our business borrowers are micro and very small
    entrepreneurs. They come to us frustrated by their negative
    experiences with other financial institutions.
        Our average PPP loan is around $30,000. Our median loan is
    $21,000. The largest loan we made was $750,000 and the smallest
    was for only $220. Yes, $220.
        Our role is to serve those that other lenders do not. They
    are the minority businesses that would have been left behind
    were it not for the work of the CDFIs and MDIs.
        Our numbers are consistent with what Inclusiv has been
    tracking from its network. In 2020, community development
    credit unions originated $1.8 billion in PPP loans. This number
    is likely to be bigger this year. In fact, community based
    lenders collectively have deployed more than $22 billion in PPP
    loans so far. To finish strong, we ask SBA to share daily
    updates with community lenders on how much funding is
    available.
        Moving forward, I would ask you to take advantage of this
    moment to create a strong framework to serve minority
    businesses. CDFI credit unions are a key to help these
    businesses, not just survive but to grow and thrive.
        I propose the following:
        Open the SBA Community Advantage Program to CDFI credit
    unions.
        Improve the traditional 7(a) SBA program. The loan
    guarantee process is cumbersome to borrowers and challenging
    for community lenders.
        SBA should streamline approval for loans under $150,000.
        Provide resources to support technical assistance and
    training to ensure entrepreneurs can really succeed. We spend a
    significant portion of our time helping borrowers navigate the
    lending process.
        Keep capital flowing. We are encouraged by the inclusion of
    $12 billion for the CDFIs and MDIs in the COVID relief bill and
    we plan to access all those opportunities. We applied for a $3
    million grant under the CDFI Fund Rapid Response Program. This
    capital infusion will enable us to continue mobilizing funds to
    fill our lending.
        We urge the CDFI Fund to move forward with that review
    process quickly and to prioritize on-the-ground CDFIs that are
    working directly with consumers, homeowners, and businesses.
        We intend to apply for secondary capital through the U.S.
    Treasury's Emergency Capital Investment Program (ECIP). We
    encourage Treasury to make this program as flexible as possible
    and to ensure that the information requested in those
    applications is in line with the NCUA review. We also urge NCUA
    to make their reviews consistent and expeditious.
        I thank you again for this opportunity and look forward to
    answering your questions.
        Chairwoman DAVIDS. Thank you, Ms. Barry-Fall.
        Mr. Sands, you are now recognized for 5 minutes.

                       STATEMENT OF EVERETT SANDS

        Mr. SANDS. Thank you. Good morning, Chair Davids, Ranking
    Member Meuser, Ranking Member Williams. Thank you calling a
    hearing on The Role of CDFIs and MDIs in Small Business Lending
    and for inviting me to testify.
        My name is Everett K. Sands, and I have more than 20 years
    of experience in lending at MDIs, national banks, and at the
    only fintech CDFI, Lendistry.
        For the past 5 years, as founder and CEO of Lendistry, my
    focus has been on responsible lending to underserved small
    businesses, and particularly those owned by minorities, women,
    veterans, and people in rural areas.
        Lendistry is also a Community Development Entity (CDE), and
    a Member of the Federal Home Loan Bank of San Francisco, and a
    SBA lender.
        Lendistry ranks second nationwide in SBA Community
    Advantage lending, which ranges from $50,000 and $250,000, and
    more than 60 percent of Lendistry's total outstanding principal
    loan balance is with minority and women-owned borrowers, and 70
    percent to underserved small businesses.
        Lendistry's intentional focus on these businesses and our
    ability to efficiently process high volumes of applications,
    have enabled us to make an impact during this period of urgent
    need. Over the past 13 months, Lendistry has been the primary
    point of contact in connecting more than a quarter of a million
    affected small businesses with $3.2 billion in loans and grants
    and we aspire to grow to at least $5 billion by year end.
        In addition to providing PPP loans nationwide, including at
    least one county represented by every Member of this
    Subcommittee, Lendistry has served as the administrator for
    COVID relief grant programs offered by the states of California
    and Pennsylvania, and we have provided businesses in every
    county of those states with critically needed equity capital.
        My message today is that the single most effective way for
    Congress and the Federal Reserve to substantially expand
    capital access to small and underserved businesses is to focus
    on making significantly more capital available to CDFIs and
    MDIs.
        One unmistakable lesson of the determined economic relief
    efforts led by Congress over the past year in response to COVID
    is that small and underserved businesses are far and away more
    successful in accessing capital from CDFIs and MDIs than from
    other sources.
        Furthermore, as a signatory to the Small Business
    Borrower's Bill of Rights, we at Lendistry see that the lesson
    also contain a market-oriented solution to the predatory
    lending problem, with the potential for greater supply of
    responsibly-priced capital channeled through CDFIs and MDIs.
    Yet, paradoxically, CDFIs and MDIs face more barriers to
    gaining an adequate supply of capital to deploy than other
    federally-regulated and federally-certified financial
    institutions.
        In short, CDFIs and MDIs are essential, yet underutilized,
    pieces of the small business funding infrastructure.
        The stakes in addressing this paradox are enormous.
    Disparity in access to capital on responsible terms is a
    critical hurdle for small businesses, both in powering the
    nation's economic and jobs recovery and in narrowing the racial
    wealth gap.
        The capital access landscape many small businesses must
    traverse as they grow resembles the desert where the lifeblood
    of responsibly-priced capital is scarce. Worse, it is a desert
    that is made almost impossibly steep by the prevalence of
    predatory lenders that have filled a void left by two decades
    of bank consolidation. After a year of COVID relief, there is
    clear and compelling evidence that measures making capital
    available to CDFIs and MDIs will transform this steep desert
    that small businesses must cross on their path to growth and
    into a more fertile and flatter playing field.
        Congress and the Federal Reserve already have put in place
    key building blocks for addressing the problem of CDFIs and
    MDIs lacking the capital necessary to be significantly more
    impactful for small businesses. The work to do is relatively
    straightforward.
        Let me summarize three categories of recommendations which
    I have described in greater detail in my written testimony.
        First, leverage several key building blocks that already
    have been established by Congress and the Federal Reserve by
    establishing mechanisms that are exactly analogous to ones that
    have already proven to be effective in opening the flow of
    capital to CDFIs and MDIs. My recommendations in this regard
    are making greater use of the Paycheck Protection Program
    liquidity facilities in all SBA programs; expanding SBA
    community advantage in three dimensions--length, loan amount
    and geographic reach; and making greater use of the Federal
    Home Loan Bank and programs that guarantee loans, such as the
    recently renewed State Small Business Credit Initiative.
        The second category of recommended actions is optimizing
    the complementary nature of traditional banks, on one hand, and
    CDFIs and MDIs, on the other, for the benefit of small
    businesses. My recommendations in this regard focus on
    enhancing the incentives for traditional banks to partner with
    CDFIs and MDIs.
        And the third area of recommendation is to create an office
    within SBA dedicated to supporting the efforts of CDFIs and
    MDIs as small business lenders.
        Thank you again to the Subcommittee and the staff for the
    opportunity to provide my perspectives and recommendations. I
    look forward to engaging you further in response to your
    questions.
        Chairwoman DAVIDS. Thank you, Mr. Sands.
        Mr. James, you are now recognized for 5 minutes.

                      STATEMENT OF ROBERT JAMES II

        Mr. JAMES. Thank you, Chairwoman Davids, Ranking Member
    Meuser, Chairwoman Velazquez and Members of the Subcommittee.
    Good morning and thank you for this opportunity to testify on
    the role of CDFIs and MDIs in small business lending. It gives
    me great hope that one of this Subcommittee's first hearings of
    the 117th Congress is aimed at shining a light on this critical
    issue.
        My name is Robert James II, and I am president of Carver
    Development CDE, an affiliate of Carter State Bank in Savannah,
    Georgia. I am also Chairman of the National Bankers Association
    (NBA). The NBA is the leading trade association for the
    country's Minority Depository Institutions. Our mission is to
    advocate for the nation's MDIs on all legislative and
    regulatory matters concerning and affecting our Members, as
    well as the communities we serve.
        Many of our Member institutions are also CDFIs, and many
    are banks of choice for consumers and businesses who are
    underserved by traditional banks. NBA Members are on the
    frontlines, reducing the economic hardship in minority
    communities, which historically are the most vulnerable during
    any slowdown and have been hit hardest by this pandemic.
        The House Small Business Committee and Chairwoman Velazquez
    have been instrumental in the inclusion of several provisions
    in multiple relief packages adopted during the course of the
    pandemic that ensure that MDIs and the small businesses and
    individuals that we serve are not forgotten during this
    national emergency.
        The creation of the Emergency Capital Investment Program
    and the $3 billion plus up of the CDFI Fund will allow
    institutions like those within the NBA to make more credit
    available to individuals and small businesses in LMI
    communities. The NBA applauds the Congress for the adopting
    these two important capital measures and we look forward to
    working with you on other measures that will help the
    communities we serve.
        It is important to note that 70 percent of minorities do
    not have a bank branch in their neighborhood and 94 percent of
    Black small businesses are the sole proprietors that are
    typically underbanked or unbanked.
        Given the challenges faced by these small businesses,
    especially minority-owned small businesses, it is imperative to
    assess which type of banks are best positioned to provide
    access to capital for these communities. National banks may not
    be fastest in reaching this constituency but were principally
    minority communities that have accounted for 50 percent or more
    of the debts from this pandemic.
        Traditionally, CDFIs and MDIs are critical economic
    development engines in minority and low-income communities,
    particularly due to our trusted relationships. Unfortunately,
    our relatively small scale and underrepresentation in the
    implementation of many of the relief efforts show that more
    intentional inclusion is required in program design. We saw
    this play out during each round of the PPP. Congress devised
    the program as a mechanism to aid small businesses suddenly
    found themselves forced to close during stay-at-home orders, a
    set of conditions that have favored larger businesses,
    including delaying the application of sole proprietorships, and
    program rules not allowing enough time for our MDIs and CDFIs
    to work with very small, under-resourced, minority-owned
    businesses has limited their access.
        In light of the nature of this hearing, the NBA is pleased
    to recommend several potential policy options for
    consideration, including the establishment of an MDI office at
    the SBA which will focus on integrating our institutions as the
    outreach servicing minority small businesses across the
    country.
        A critical component for this office would be a mandate for
    the SBA to preserve and promote minority depository
    institutions by: (1) preserving the number of MDIs; (2)
    providing technical assistance to ensure maximum efficiency in
    program implementation; and (3) promoting and encouraging the
    creation of new MDI partnerships.
        It is very similar to requirements that make regulatory
    agencies currently comply and we believe that these
    requirements of the office ensure that MDI partners are able to
    effectively engage with the SBA.
        Several other options are outlined in my written testimony
    including passage of the Ensuring Diversity Community Banking
    Act, Consumer Credit Enhancements, and Small Business Faith-
    Based and Nonprofit Institution Credit Enhancement.
        In conclusion, the MDA applauds the Subcommittee for
    holding this important hearing and supports the Full
    Committee's ongoing efforts to ensure equity for all American
    small businesses. While we commend Congress on its leadership
    to date, much work needs to be done. We continue to support the
    MDI sector as we respond to the credit needs of small
    businesses that our Members [inaudible]. In this regard, the
    NBA and its Member institutions look forward to working closely
    with the Committee and the Subcommittee to find workable
    solutions that ensure minority small businesses ultimately have
    every opportunity to thrive.
        Thank you again for the opportunity to testify. I will be
    pleased to answer any questions.
        Chairwoman DAVIDS. Thank you, Mr. James.
        Mr. Davis, you are now recognized for 5 minutes.

                      STATEMENT OF WALTER L. DAVIS

        Mr. DAVIS. Thank you, Chairwoman Davids, Ranking Member
    Meuser, and Members of the Economic Growth, Tax, and Capital
    Access Subcommittee. It is a pleasure to be with you today.
        I come before you today with extensive senior executive
    leadership experience with some of the nation's largest
    financial institutions, as well as an entrepreneur.
        Specifically, I previously co-founded and served as the
    chief executive officer of the African American founded and
    managed, CertusBank. Having reached the level of more than $2
    billion in assets, CertusBank operated as the largest bank in
    the U.S. founded and managed by African Americans.
        Prior to my work at CertusBank, I served as an executive
    vice president at Wachovia Corporation, which is now Wells
    Fargo Bank. While there, I managed a $70 billion retail credit
    and small business portfolio.
        It is in this context that I would like to share some
    thoughts on the state of CDFIs and MDIs, as well as suggest
    some policies to improve the flow of capital into small
    businesses.
        It is important to note that when we are speaking of CDFIs
    and MDIs, which include Black banks, in the broader context,
    what we are speaking of is our national access to capital and
    financing infrastructure for minority businesses and
    entrepreneurs. Quite often, these enterprises are doing and
    seeking to do business in the places that pose the greatest
    challenges and risks in the marketplace. These markets are
    often at the bottom of the economic ladder and separated
    significantly from the mainstream economy. These are the areas
    that are generally referred to as distressed or underserved
    markets and communities. These areas are reflected in what we
    now designate as opportunity zones, which by the way I had the
    privilege to work closely with Senator Scott and his staff on
    the opportunity zone legislation.
        These communities do not have the same support or capital
    access system as mainstream communities. We admonish them to
    take advantage of what is the core of America, our unparalleled
    capitalist free enterprise system. But what happens when the
    federal government does not ensure that the free enterprise
    system is there for them like it is the mainstream marketplace?
    What happens is this: The disproportionate economic devastation
    that we see in communities persists. And these conditions are
    the bedrock of much of the social dysfunction and yes, racial
    unrest that we are experiencing today.
        No business can grow without access to capital. The role of
    the government in my view is to make certain that the proper
    infrastructure is there to ensure equitable access to capital.
    During the pandemic, The Federal Reserve and Treasury did a
    laudable job working in tandem to make certain large financial
    institutions were able to meet the needs of their large and
    mid-sized clients through mechanisms such as the Commercial
    Paper Funding Facility, the main street Lending Program, and
    the Primary Dealer Credit Facility, among others. In this same
    period, we saw the SBA administer the Payment Protection
    Program and Economic Injury Disaster Relief Loan facilities but
    without the same efficiency. We witnessed once again that Black
    and Brown businesses were shut out of the all-important flow of
    capital during these programs' initial stages.
        Adjustments were made and the calvary was called in to help
    get PPP loans to those most in need. In this instance, the
    calvary consisted of CDFIs and MDIs. CDFIs and MDIs handled the
    bulk of Black and Brown small business relief efforts.
        I would like to say that I am not against the market and
    policy support for our large American businesses. We truly need
    that. I am saying that as a federal government, we must be as
    dedicated to providing for the needs of minority businesses in
    distressed communities.
        Now, for a moment, let's talk about Black banks and their
    role in supporting underserved communities. One hundred years
    ago in 1921, 120 Black-owned banks were in existence across the
    U.S. Twenty years ago, that number had been reduced to 40, and
    today only 19 Black-owned banks remain in operation. One might
    think consolidation and moves to achieve economies of scale
    drove this shrinkage. However, there is only one of these
    institutions that has $1 billion in assets.
        In an economy where there are multiple trillion-dollar
    banks, this is inexcusable. We expect Black-owned Banks to
    serve the ``least of these.'' We need these institutions to be
    strong; however, we need to take a close look at some type of
    infrastructure, investment, and regulatory relief.
        As it relates to solutions, we have talked about the
    Emergency Capital Investment Program. I believe this is a great
    program. However, right now currently the SBA will not allow
    banks to invest capital received from ECIP into SBICs (Small
    Business Investment Corporations). According to the SBA there
    are over 300 SBIC licenses and less than five in the hands of
    Black-owned fund managers.
        Given the dire need of capital in the underserved market
    and particularly, Black communities, a provision should be made
    to allow CDFIs and MDIs to invest in ECIPs without restriction.
    Also, Congress should consider allowing CDFIs and MDIs to take
    in equity capital from opportunity zone investors and in turn
    lend it out to entrepreneurs will allow for more capital flow
    into minority and business communities.
        I can speak more during Q&A about other thoughts but I
    thank you for your time and appreciate you allowing me to
    address you this morning.
        Chairwoman DAVIDS. Thank you, Mr. Davis.
        And thank you to everybody who has testified so far this
    morning. We appreciate everything you have shared with us.
        I am going to start by recognizing myself for 5 minutes.
        Mr. James, in the last few months, we have seen a concerted
    effort from the White House and the SBA to reach the smallest
    of small businesses through the Paycheck Protection Program. As
    they were largely shut out of the program early on, how would
    you evaluate SBA's outreach to the lending community and the
    emphasis on targeting the hardest to reach at this point?
        Mr. JAMES. Thank you for the question, Chairwoman.
        As you know, the role out of the program was a bit rocky.
    In the first round of the program, the SBA was very much
    focused on speed to market and getting capital in the hands of
    small businesses. Unfortunately, there was not really a lot of
    intentionality in the design of the program and so it was very
    difficult for particularly small institutions to access and
    deliver resources to the communities that we serve.
        In addition, in the second round of the PPP program, the
    issues were a little bit better. It was a little smoother. We
    were able to access certain set-aside funding for small
    businesses in the communities we served. But there were issues
    in terms of the rules of the program, in terms of calculations,
    particularly for small sole proprietors and the way that they
    were required to calculate their eligibility. Then, in the
    third round of the program when it rolled out, we received very
    little notice. The program rolled out in early January. We
    received very little notice at our institutions about the
    change of technology platforms and the way that the program
    would be administered. And so that presented some challenges
    because many of our institutions had worked out their own
    process during the first two rounds and then they had to change
    processes with very, very little notice. Then, we had another
    situation where the new administration came in and made a very
    welcomed change to the calculation rules to allow more sole
    proprietors to access capital based on their gross income and
    not their net but that then caused it to slow down again due to
    the rule changes, changes in application forms which again
    impacted the ability to serve those small business customers
    effectively and efficiently.
        So in future programs like this, Chairwoman Davids, I would
    just recommend that we design them on the frontend with a
    little bit more intentionality about how to make the capital
    available to the smallest and hardest to serve businesses and
    our institutions, as well as I am sure the other Members of the
    panel today would be happy to provide this Committee and the
    Congress in the future with very specific suggestions like the
    creation of an MDI office at the SBA which would really improve
    our ability to again make program designs very efficient going
    forward.
        Chairwoman DAVIDS. Thank you.
        Mr. Davis, and this question can be for anyone else on the
    panel who also wants to share. I am curious after your
    testimony, we know that access to capital is a challenge for
    clients of CDFIs and MDIs, but also for the institutions
    themselves. And earlier this year, Treasury announced the
    launch of the Emergency Capital Investment Program (ECIP) to
    provide emergency capital to CDFIs and MDIs.
        I guess I am curious about your ideas about how we ensure
    that Treasury maximizes those benefits of this particular
    program and then also, if you have anything additional about
    the infrastructure needed to support MDIs and that sort of
    thing.
        Mr. DAVIS. Certainly. Thank you for the question,
    Chairwoman.
        The ECIP program I think is a really good idea. It is a
    novel idea. Two percent cost of capital being driven down to 50
    basis points. And sometimes starting at 2-1/2 percent for
    subordinated debt I think is great. The issues that you have to
    think about is that this is for the best of institutions, the
    most well run. There are a lot of weaker institutions that
    serve these communities that need help as well. Tier one
    capital, as we know, is the lifeblood of any financial
    institution, especially a depository institution. And so if we
    think about a business model where these folks are set up to
    serve the poorest of communities, the profitability model is
    going to be a little bit different. And so I think that we can
    enhance this program by taking a look at what are those efforts
    that we can make for those weaker MDIs that are out there? How
    can we support them in a different way? I think that is going
    to be critical from my perspective.
        Chairwoman DAVIDS. Thank you. And I realize that my time
    has now expired.
        I am going to now recognize the Ranking Member, Mr. Meuser
    from Pennsylvania.
        Mr. MEUSER. Thank you, Chairwoman.
        Chairwoman DAVIDS. For 5 minutes.
        Mr. MEUSER. So this is a very important subject and really
    quite intriguing.
        Mr. Davis, I would just like to start with you. How do you
    feel the undeserved small businesses were served by the PPP and
    the EIDL programs via the CDFIs and the MDIs? I mean, in
    general or specifically, how do you feel the programs went?
        Mr. DAVIS. Thank you, Ranking Member Meuser.
        So, in general, I think the program went fine. As it
    relates to the EIDL program, the SBA administered those loans
    directly, and as we know, the SBA is not set up generally to
    make loans directly. So I would sort of think about something a
    little bit different in working through the intermediaries such
    as the MDIs and CDFIs as it relates to that.
        Paycheck Protection Program, I think that worked generally
    well. A lot of feedback that I received from MDIs was two
    things. One was their lack of infrastructure to be able to
    handle the number of requests they had because they were the
    ones really serving those that had been left out and those most
    in need.
        Number two, they talked about the amount that they were
    paid for these loans, and so I think that is something that we
    should look at. But in general, it was fine. As I stated in my
    comments, the SBA had to readjust, as did everyone else because
    the businesses that were most vulnerable were the ones that
    were being left out initially.
        Mr. MEUSER. All right. Thanks.
        So as the country opens up and the stores open up, how do
    you view the state of solvency of underserved small businesses
    and their continued access to capital?
        Mr. DAVIS. So I think that one of the things I would look
    at is the main street Lending Program that the Federal Reserve
    implemented. I actually like the structure of that program. You
    know, 5-year loan, 5 percent is held by the institution and
    there are no payments the first year. Interest only the second
    year. And then amortized. And so something more downstream for
    smaller business in order to have the same effect so that it is
    sustainable over time. I know we talk about the PPP program but
    generally, that is a one time injection into these businesses.
    What we need is a sustainable capital infrastructure. The
    private markets are the most efficient markets. And so
    government's role in making sure that we establish those
    markets as a backstop so that these institutions can make more
    loans and have more flexibility in my opinion is what we need
    to take a look at.
        Mr. MEUSER. Okay. I am very interested in revitalization in
    suburban, rural, as well as urban areas. So you brought up the
    idea of equity capital investments and the CDFIs within
    opportunity zones and creating opportunity funds. I do not know
    how much we can cover that right now but would you like to
    elaborate for 30 seconds on your point there?
        Mr. DAVIS. Sure. As it stands today, MDIs and CDFIs are not
    considered qualified opportunity businesses. The opportunity to
    have investors invest in a fund and that fund in turn invest in
    these MDIs, especially, is a good opportunity to inject capital
    into these institutions so that they can further lend out in
    these communities. Right now, that does not exist as a
    provision. And so in my opinion, that is something that you
    should take a closer look at.
        Mr. MEUSER. Okay, great.
        And I want to ask your thoughts on this. The Restaurant
    Revitalization Fund is depleted. It was $30 billion, I believe,
    and they have got nearly $70 billion. How is that affecting
    your communities, and do you have restaurants coming to you
    through the CDFIs and the MDIs in a panic? How are the
    restaurants faring and how are the CDFIs serving them?
        Mr. DAVIS. The restaurants have been in a tough situation.
    Obviously, when we shut the country down to some extent, these
    businesses where we have a lot of service individuals were some
    of the most vulnerable. And so when you think about those
    businesses, a lot of them went away and will not come back. One
    of the things that we really need to contemplate is being able
    to take a little more risk in the startups that we are going to
    see. We have to have more businesses willing to start up as we
    come out of this economic morass that we have been in. And so
    the restaurant business is one that I think is important and we
    are going to have to take a closer look at so I like the idea
    of the fund. Let's take care of those businesses from a smart
    perspective.
        Mr. MEUSER. Sure. Thank you.
        And Madam Chair, I know I am past my time. I would like to
    follow up with our witnesses on these very important issues so
    I would just like to perhaps do that with you, Madam Chair. But
    I yield back. Thank you.
        Chairwoman DAVIDS. Thank you. The gentleman yields back.
        The Chair would now recognize Rep. Evans for 5 minutes.
        Mr. EVANS. Thank you, Madam Chair.
        Madam Chair, I would like to question Mr. Sands. Mr. Sands,
    tell me about your partnership with the PACBFI Network and your
    work with California. Do you think the PACBFI network is a
    structure that be beneficial to other states? Mr. Sands?
        Mr. SANDS. Thank you, Representative Evans.
        I do. And just for background, Lendistry partnered with 17
    CDFIs, bringing 18 CDFIs together, including MDIs. We took
    roughly about 64,000 applications in a period of 20 days for
    $1.1 billion in requests to service the state. As I believe you
    know, but just in case, we were able to reach underserved small
    businesses in rural areas, revitalization areas. We had a
    significant amount of women-owned businesses and minority-owned
    businesses. Lendistry was then able to repeat that same process
    of roughly 60 institutions in California and take 334,000
    applications in roughly 15 days. The collaborations that we are
    now building with CDFIs, MDIs, and other mission-based
    organizations shows that there is a huge opportunity to deploy
    a significant amount of capital if given the opportunities with
    CDFIs and MDIs. Thank you.
        Mr. EVANS. Thank you.
        Mr. Davis, do you foresee CDFI continuing to use fintechs
    to assist them with their services? What are the benefits and
    challenges? And how can you provide better support to CDFIs
    that wish to use fintechs?
        Mr. DAVIS. Thank you, Representative Evans for that
    question.
        I am a big believer in financial institutions having robust
    digital capabilities as it relates to the future. And so when
    we think of a combination of CDFIs and fintechs, I think that
    could be a fairly novel idea. I think that a lot of people are
    going online now. Digital wallets. Digital is big. But I
    believe we will not see people in our lifetime get away from
    walking into bricks and mortar. That is just something that is
    going to be there. And especially in the communities that are
    the most vulnerable. If you pass by any bank branch in a
    distressed community on Friday afternoon, or you pass by any
    check cashing institution, you see lines. And so I think that
    as we can make a combination with digital robust capabilities
    of fintechs, along with CDFIs and MDIs, we can broader serve
    the communities that we are after.
        Mr. EVANS. Mr. Sands, do you think fintechs should have a
    permanent place in SBA programs, especially to help targeted,
    underserved small businesses? And if so, why?
        Mr. SANDS. Representative Evans, they do have a permanent
    place. That would be Lendistry. We are a fintech CDFI. We have
    proven that scale is something that can be done, that we can
    reach underserved small businesses. And I think that what
    fintech has allowed is a couple of things. The first thing I
    would mention is an unbiased approach to how we look at
    lending. Technology does not look at who the applicant is. It
    just takes them in and looks at their qualifications.
        The second thing is it allows us to collaborate with those
    who might not otherwise have the ability to provide technology.
    I do agree with Mr. Davis, there will be people who will come
    into a physical location but I believe it is also not a silver
    bullet. We have to recognize that most people, even
    underserved, even when they do not have broadband, do have a
    cellphone.
        The third thing I would mention is scalability, and the
    ability to scale is really, really important. And that goes not
    only just in volume, that goes in being accessible to small
    businesses when small businesses are doing their personal
    items. Banks are traditionally open from 9:00 to 5:00. Small
    businesses are open from 5:00 to 9:00. And so we have to think
    about these things, and we have to think about how to be more
    accessible to these small businesses when they are available
    and when they are doing their loan activities. Thank you.
        Mr. EVANS. Thank you.
        Mr. Davis, would you like to add any comment relating to
    the question I just asked?
        Mr. DAVIS. No, sir. Thank you, though.
        Mr. EVANS. Thank you. And I yield back the balance of my
    time, Madam Chair.
        Chairwoman DAVIDS. Thank you. The gentleman yields back.
        The Chair will now recognize Mr. Luetkemeyer, the Ranking
    Member of the Full Committee. You are now recognized for 5
    minutes.
        Mr. LUETKEMEYER. Thank you, Madam Chair.
        Great panel today. We have got a lot of great folks here
    who have got a lot of personal knowledge of the industry and
    how these programs all work.
        Let me start with Mr. Davis. You made the comment a few
    minutes ago and you have managed a small business portfolio at
    Wells Fargo, that we need to do something different with
    regards to delivery of these programs. And it would seem to me
    that as successful as the PPP program was and as disastrous as
    the EIDL program has been from the standpoint of fraud and
    abuse and mismanagement, the template is there for us to look
    at perhaps going to more direct lending from--take away the
    authority of SBA and use this third party, whether it is the
    banks, credit unions, or CDFIs, to be able to be the
    intermediary, the place where these loans originate, where the
    grants originate and have SBA become a grantor or a guarantor,
    I should say on these programs.
        Do you think that is a viable option all things considered
    by the way that the lack of fraud and abuse in the PPP program
    where the third-party bank was involved in making these loans
    versus the EIDL program which it looks like here I have got a
    number of $62.7 billion potentially in fraud and I know that
    there was another $6.7 billion identity theft alone. Those are
    unacceptable figures. We have to do something different. So is
    this something you think would be workable?
        Mr. DAVIS. As it relates to taking direct authority from
    the SBA, I do think it is something that is workable. Again, I
    go back to my thought that the markets are much more efficient
    and the thought process around using intermediaries, trusted
    intermediaries, when we give them the back-office support. A
    lot of MDIs and CDFIs complained during this last crisis that
    their technological backbone was not adequate to handle the
    volume that they received. And I think there is something that
    we can do to take a look at that. But I am a big believer in
    the intermediary system. And so I would not argue with looking
    at taking away the SBA's direct lending authority.
        Mr. LUETKEMEYER. Mr. James, I serve on the Financial
    Services Committee as well and the Ranking Member on the
    Financial Institutions Subcommittee. I have seen you appear
    before us a number of times. You are a very impressive
    individual with your background and your knowledge. And I am
    thankful you are on the Committee today because I think you
    bring a lot of expertise to it.
        So you heard my question to Mr. Davis. What would your
    opinion be of that situation, trying to find a better way to
    deliver the dollars to those folks who need it most, and it
    seems to be you are taking it right to the community versus
    having to go through some other government entity here to make
    that happen. What would your opinion be to that?
        Mr. JAMES. Thank you for the question, Ranking Member
    Luetkemeyer. It is great to see you again. And thank you for
    your work on Financial Services, which has been very beneficial
    to our institutions.
        Yes, sir. I believe that there is a real opportunity to
    look at the infrastructure that we built here in the past year
    and a half or so within CDFIs and MDIs. Leveraging additional
    technology, creating processes within our institutions. Many
    CDFIs did not have existing relationships with the SBA and now
    they do. Many of our MDIs had allowed their relationships to go
    dormant due to issues that they had had previously in many
    previous years with having the SBA honor guarantees and some
    other problems that occurred in previous generations. And so
    now that those relationships have been renewed and reactivated
    and we have created systems, I really do think that there is an
    opportunity for Congress to look at providing additional back
    office support to our institutions and really leveraging this
    capability that we built again to respond to the pandemic and
    potentially allow us to be the ones that are driving the
    resources into the communities. The issue of avoiding fraud and
    abuse is one that regulated institutions in particular have to
    take very, very seriously. So we have to comply with the Bank
    Secrecy Act and anti-money laundering requirements. We have to
    know our customers. And so the regulated financial institutions
    in particular are excellent at making sure that we identify who
    we are dealing with, whether we are doing it in a digital
    format or an in-person format. And so I do think that there is
    a great deal of opportunity to be explored in increasing our
    authority to deal with those customers that are closest to us,
    where we have the relationships, and where we also have the
    compliance infrastructure to make sure that the funds are going
    to the places that we intend for them to go.
        Mr. LUETKEMEYER. Thank you for that answer. That is exactly
    what I was hoping you would say and I think you have
    articulated it better than I can. And I probably will submit
    for the record another question here with regards to the
    troubled debt restructuring and forbearance I think has been
    very, very helpful to all of the institutions--banks, credit
    unions, CDFIs, all of those folks who are working with these
    entities and hold loans that have been able to give the kind of
    forbearance it takes to be able to ride out this situation we
    are in. So I appreciate your being here today and I look
    forward to sending that question and your response to it. thank
    you, sir.
        I yield back.
        Mr. JAMES. Thank you.
        Chairwoman DAVIDS. Thank you. The gentleman yields back.
        The Chair will now recognize Rep. Bourdeaux for 5 minutes.
        Ms. BOURDEAUX. Thanks so much. Thank you, Chairwoman Davids
    and Ranking Member Meuser.
        It is great to see Georgia so well represented on today's
    panel with Mr. James from Savannah, as well as Mr. Davis, whose
    work goes to support Georgia small businesses. As the only
    Georgia Member on the Committee, thank you for your work to
    support the small businesses in our state.
        My first question is for my fellow Georgian, Mr. James, but
    I welcome any input from some of the other witnesses if you
    have thoughts or experiences to share.
        Mr. James, as you know, the initial rounds of the Paycheck
    Protection Program did not really reach many of the underserved
    businesses who needed help the most. And thanks to the work of
    Chairwoman Velazquez, many Members on this Committee, as well
    as your organization, subsequent rounds have shown improvement.
    But of course, now we have the next phase, which is PPP loan
    forgiveness. And I am curious how you and your Members have
    found access to PPP loan forgiveness and how is that process
    working with minority-owned businesses? And is there more than
    can be done to reengage minority-owned small businesses and
    ensure they have the information necessary to apply for loan
    forgiveness?
        Mr. JAMES. Representative Bourdeaux, thank you so much for
    the question. It is great to represent the State of Georgia
    here today.
        Yes. The forgiveness process is actually extremely
    important to our institutions. Obviously, all of our
    institutions, whether they be regulated or unregulated CDFIs
    and MDIs, as well as the large institutions, we entered into
    the PPP program as a bargain counting on 100 percent guarantee
    from the SBA and easy to navigate forgiveness process. We are
    grateful to the Committee for streamlining the forgiveness
    process, particularly for those borrowers under $150,000. The
    original application that came out before the Committee and
    Congress took that action was going to be too onerous. It was
    frankly more onerous than the original application itself and
    it was going to be very discouraging to us helping our
    customers receive that forgiveness.
        One of the things that many of our institutions are doing
    is actually engaging even additional support. I know that my
    institution in Savannah, we have engaged a consultant
    specifically to assist our customers with that forgiveness
    process at no cost to them. Our median PPP borrower was about
    $26,000. We extended over 200 percent of our bank's capital to
    PPP because we saw the demand was really off the charts. And so
    we also decided early on this year that we needed to engage
    some additional assistance to make sure that our borrowers were
    able to complete even the streamline process. And so we just
    recently began a process of specific one-on-one outreach to our
    customers to make sure that they know what they need and they
    complete the process and get those loans forgiven so that they
    are not dragging debt into their additional efforts to
    recovery.
        Ms. BOURDEAUX. Just to follow up on that. We did a quick
    survey--this was earlier in the year--of some small businesses
    in the district and just sort of found that minority-owned
    businesses seemed less likely to be getting the loan
    forgiveness and getting that process in place. Do you see any
    disparity in that and do you have any insight on what might be
    the causes of it?
        Mr. JAMES. Well, you know, I think a lot of the disparity
    is the same sort of kind of structural disparity that you may
    have seen in the initial onset of the program. And so it is
    really important for financial institutions, whether they be
    MDIs, CDFIs, or large, traditional financial institutions to
    again do that one-on-one work. Our smaller institutions, the
    MDIs and the CDFIs, are the ones that are the closest to those
    individuals, the closest to those customers. We have those
    relationships and are taking the extra steps of providing
    support to our customers. I can certainly see how disparities
    are starting to pop up, and so I do believe that there is a
    real need for SBA, as well as the originating lenders to roll
    up their sleeves, particularly for smaller borrowers to ensure
    that they are making the kind of outreach to ensure that those
    folks do not have an obligation that they did not otherwise
    intend.
        Ms. BOURDEAUX. Okay. Thank you so much.
        Do any of the other panelists have any comments on that
    particular aspect of the PPP program?
        Okay. If not, I think I am out of time. I yield back. Thank
    you.
        Chairwoman DAVIDS. Thank you. The gentlelady yields back.
        And the Chair will now recognize Mr. Donalds of Florida for
    5 minutes.
        Mr. DONALDS. Thank you, Madam Chair.
        To the panelists, thank you so much for your time and your
    testimony. It has been very, very good, actually, so I really
    appreciate your time and you being here.
        Mr. Davis, you mentioned opportunity zones in your
    testimony, a program in the Tax Cuts and Jobs Act of 2017 that
    has faced a lot of scrutiny despite obvious gains, America's
    most distressed communities have experienced. MDIs and CDFIs
    are left out of this provision.
        Mr. Davis, can you speak to how CDFIs and MDIs could
    benefit small businesses if they were to be designed as
    opportunity zones?
        Mr. DAVIS. Thank you, Representative Donalds for that
    question.
        These institutions, as I said before, are a critical part
    of the community. And as it relates to investment of equity
    capital especially, they are highly important. If you think
    about the designation of opportunity zones, (it was highly
    politicized, so that aside) I think that it is a good program
    that can continue to be tweaked around the edges because we now
    do have those designations. And the idea in the spirit of the
    legislation was to unleash as much capital as possible into
    these communities without damaging the fabric or the
    individuals in those communities. And so because these MDIs and
    CDFIs have a real community component to them, they are much
    more capable of investing it and loaning to the folks and the
    businesses in these communities and others. And I think because
    they are so close to the ground, it would be a great
    opportunity to have them engaged and have the ability to be
    able to accept qualified opportunity fund investments.
        Mr. DONALDS. Thank you for that response. That is actually
    quite helpful.
        We often hear about how minority and rural microenterprise
    owners were late to access PPP and EIDL at the beginning of the
    pandemic. While I believe many other factors played into this,
    I think the root of the problem is largely due to the lack of
    financial institutions in these areas as a result of Dodd-
    Frank. Regulations meant to punish big banks actually hurt
    smaller institutions the most. From the second quarter of 2008
    to the third quarter of 2020, CDFIs had a decline of over 47
    percent and over a third of MDIs went under during that same
    timespan. The widespread loss of these businesses present a
    serious threat to the financial stability of consumers and
    businesses located in areas almost exclusively served by
    community banks and other minority depository institutions.
        Mr. Davis, what steps do you think Congress could take to
    kind of spur development in these institutions?
        Mr. DAVIS. So Representative Donalds, you bring up an
    interesting point. The cost of compliance, regulatory
    compliance is very burdensome on financial institutions. And if
    you think of these institutions that are the smallest and those
    that are lending to the least of these, that regulatory burden
    is something to consider. Scale is important in the financial
    services business. When I mentioned that we went from 120 to 40
    to today 19 Black-owned banks and only one of them has a
    billion dollars in assets, that is inexcusable. So an
    investment in those banks from an infrastructure standpoint.
    But the regulatory piece has to be addressed as well. I have
    got experience with a regulator who said if you are going to
    build a $5 billion bank, you build a $5 billion infrastructure
    even before you get there. And so I have seen how these
    regulatory burdens can actually hurt institutions.
        Do not get me wrong. We need strong institutions there and
    we need regulations. But I think that there is some type of
    opportunity for Congress to look at how these banks are
    regulated as well as some type of backstop. And I am sure Mr.
    James can probably speak to that more articulately than I can.
    But that is my opinion, sir.
        Mr. DONALDS. That is actually a great segue because I was
    going to ask Mr. James for his opinion as well.
        So Mr. James, if you could comment I would appreciate it.
        Mr. JAMES. Thank you, Congressman.
        Mr. Davis is correct. I think that we need to find the
    right type and amount of regulation. None of our institutions
    want there to be unsafe or unsound lending practices. We
    certainly want to be very, very compliant with Know Your
    Customer and the Bank Secrecy Act and AML, but there is
    certainly an enormous burden. And that burden does not change
    regardless of the size of your institutions. You still have to
    comply with the same laws and regulations no matter the size of
    your institution. Of course, small scale and minimal capital
    will impact our ability to efficiently provide that type of
    compliance which impacts our ability to provide service back to
    the community. And so just having a right size type of
    regulation based on our institution size and our reach into the
    community would be welcomed. And so we welcome Congress and to
    have the opportunity to work with you to try to find the right
    size regulations for institutions that are serving the smallest
    and most hard hit and vulnerable communities.
        Mr. DONALDS. Thank you.
        Madam Chair, I apologize for being slightly over my time
    but I yield back.
        Chairwoman DAVIDS. Thank you. The gentleman yields back.
        The Chair will now recognize Ms. Chu for 5 minutes.
        Ms. CHU. Thank you.
        Mr. Sands, community financial institutions like CDFIs and
    MDIs have been instrumental in delivering PPP assistance to
    underserved communities throughout this pandemic and I am
    particularly interested in your perspective as a CDFI and one
    of the country's largest community advantage lenders. PPP
    showed that the community advantage model can work at scale by
    leveraging mission-based lenders to connect small businesses in
    underserved markets to capital. One reason this model works is
    because community advantage lenders, unlike traditional banks
    and 7(a) lenders provide technical assistance to their clients.
    This assistance not only helps them to secure that initial
    community advantage loan but also prepares them for future
    growth.
        So could you discuss the role of technical assistance and
    mission-oriented lending and how this strengthens the Community
    Advantage Program?
        Mr. SANDS. Absolutely. Thank you, Representative Chu. And I
    am glad to see you representing California.
        I would like to say that I think technical assistance, we
    all know--all the lenders who are on the panel and in the room
    and who have done the studies--we know that providing technical
    assistance services has a direct correlation to having lower
    default and loss rates inside of our institutions. Community
    development financial institutions have been focused on
    providing assistance and that assistance is helping these
    borrowers to not only have access to community advantage and
    PPP loans, but other loans historically, and they do much
    better in terms of paperwork compliance and different things
    like that as they are scaling their businesses. Thank you.
        Ms. CHU. Thank you for that.
        Ms. Barry-Fall, PPP funding is exhausted for traditional
    lenders and is nearly exhausted for community financial
    institutions like CDFIs and that means time is almost out for
    us to address racial disparities in the program. Earlier this
    month the L.A. Times published an investigation finding that in
    Los Angeles, businesses in majority White communities received
    PPP loans at twice the rate of those in Latino neighborhoods,
    1.5 times the rate of Black neighborhoods, and 1.2 times the
    rate of Asian neighborhoods.
        I sent a letter to SBA and Treasury asking for an official
    analysis of racial disparities and a plan to address this
    issue. Can you expand on any racial disparities and PPP uptick
    that you have seen in your community and talk about ways that
    SBA and Congress can leverage community financial institutions
    moving forward to address these disparities?
        Ms. BARRY-FALL. Can you hear me?
        Ms. CHU. Yes.
        Ms. BARRY-FALL. Yes. Thank you for your question,
    Congresswoman.
        One of the things that we have considered is who is getting
    the PPP. As of now, we are just kind of processing all the PPP
    applications that we are receiving. And we serve our majority
    is like low-income communities. We are not like really kind of
    going through the whole detail of the application and find out
    like what is the percentage of it. But I am sure like because
    we have been like serving mostly our Members, I am sure like we
    have been targeting like our target market rate.
        Ms. CHU. Thank you for that.
        Mr. Sands, thank you for your recommendations for the
    Community Advantage Program. It aligns with my legislation that
    passed the House, unanimously passed this last December which
    proposed to authorize the program for 5 years, increase the
    maximum loan amount to $350,000, and expand targeting of
    underserved businesses. And we have to make sure that as we
    recover from COVID that there is long-term small business
    recovery. As a major lender, can you discuss how giving the
    program long-term statutory authorization will lift it out of
    the short-term status and impact the program's effectiveness?
        Mr. SANDS. Thank you again for the question.
        I actually think it is quite surprising that anyone would
    not have voted for the bill. Number one, it is the only program
    in SBA's history, and possibly in any of administration's
    history, that has double digit numbers in terms of lending to
    Asians, African Americans, and Hispanic Latinos. That alone
    shows that the program works and that alone shows that the
    program should have possibly its own appropriation, possibly
    higher loan guarantees, and other things to supercharge it. I
    would also like to make a recommendation that we look at the
    PPLF facility as possibly a funding source for Community
    Advantage going forward. If the CDFIs and MDIs had that ability
    and had that access to capital, I think you would see those
    numbers be even more expanded and even more tremendous than
    what they are today compared to the other programs. Thank you.
        Ms. CHU. Thank you. I yield back.
        Chairwoman DAVIDS. Thank you. The gentlelady yields back.
        The Chair will now recognize Ms. Van Duyne for 5 minutes.
        Ms. VAN DUYNE. Thank you very much, Chairwoman Davis and
    Ranking Member Meuser for holding this hearing today.
        During my tenure as mayor, the City of Irving witnessed
    unprecedented economic growth and development. We added
    thousands of new jobs and billions of dollars to our local
    economy. With these improvements, we were able to bring in
    jobs, build new places to live, and create more opportunities
    for people to learn, thrive, and grow. I appreciate the
    opportunity to hear from today's panel on how we can better
    foster capital for our small businesses.
        But I am also very deeply concerned about the current
    economic environment that they face. They are falling by the
    wayside as the Biden administration touts unemployment benefits
    that contributed to one of the most disappointing jobs reports
    that we have seen in history and continue to provide the
    necessary and unnecessary stimulus that is leading to
    skyrocketing inflation, protections, and all Americans.
        We cannot talk honestly about wanting to provide
    opportunities for small businesses in underserved communities
    while Congress stands by and actively competes against them for
    employees. The number of employees I have spoken with in my
    district desperately seeking employees is staggering. Make no
    mistake; the federal government is actually hurting the very
    businesses in need of help.
        I am looking forward to the work ahead on this Committee as
    the economy reopens and we need to transition out of the
    pandemic response. But this Committee also needs to hear
    directly from administration officials who are in charge of
    these programs. And I would like to reiterate my request to
    bring Small Business Administration officials in front of this
    Committee as soon as possible. Until that time, I look forward
    to hearing our witnesses' thoughts on improving the flow of
    capital to small businesses.
        With that, I would like to ask Mr. Davis, while I was
    working at HUD, I worked a lot with opportunity zones and I
    think they are strong drivers of economic activity in
    communities due to the incentives for private investment and
    minimal red tape. In your testimony you mentioned allowing
    CDFIs to receive equity investments as opportunity zone
    businesses. Can you talk more about how this would work? And
    are there any other improvements to opportunity zones that you
    think should be made to help small businesses even further?
        Mr. DAVIS. Thank you, Representative Van Duyne, for that
    question.
        Starting with the last first, I think that one of the
    things we talk about in the bill of opportunity zones and
    tweaking it is transparency. What we do not have today is a
    measuring or reporting mechanism to know exactly who we are
    helping and how we are helping them. And so I think that is
    going to be an important issue going forward as we think about
    tweaking this.
        The other thing as this relates to getting capital flow
    into these businesses, during my testimony I also talked about
    the ECIP program at SBIC. A lot of people forget about SBICs as
    part of the SBA. And these licenses are very valuable. Two to
    one, three to one matches. And so again in my testimony I
    stated out of over 300, only 5 are in the hands of Black-owned
    founders. That means 1 percent of those dollars go to Black-
    owned businesses; 1 percent go to Hispanic businesses as I am
    told by the SBA.
        We need every bit of capital flowing to these communities
    that we can get because when they thrive, we thrive broadly.
    And so as we think about improving the flow of capital, I think
    that is one opportunity to really do it along with opportunity
    zones as well.
        I want to reiterate something Mr. Sands said though as it
    relates to technical assistance. Whatever we do, Representative
    Van Duyne, as we think about how we get more capital flowing,
    and I have talked about startups before, this technical
    assistance piece is going to be critical. And I think that, for
    example, you can be the best chef in the world but meeting
    payroll, growing a business, understanding staff are different
    things. And so I think those are all elements that go into
    this.
        Ms. VAN DUYNE. Excellent.
        Can you also identify any burdensome, like be specific
    about burdensome regulations on lenders that make it difficult
    for them to make loans in these underserved communities?
        Mr. DAVIS. I would first off start with the overall cost of
    compliance and regulation. The cost is the same, as Mr. James
    said, it does not matter what size you are. You still have the
    same costs. In these institutions, we need scale. And in order
    to scale, there has to be invested equity capital. And so until
    we look at a different way to reform the regulatory aspects of
    how these institutions are regulated specifically, I think that
    it is going to be interesting overall. So I would not look at
    any one specific regulation. I would look at the cost and
    burden of overall regulation because that is where it really
    hurts these small institutions.
        Ms. VAN DUYNE. Okay. Thank you.
        I think I am over my time.
        Chairwoman DAVIDS. The gentlelady yields back.
        It looks like, okay, I thought maybe one more Member would
    be joining us.
        Well, first of all I would like to say thank you again to
    all of our witnesses for joining us today. I also want to thank
    you for your work on behalf of America's underserved small
    businesses, particularly over this last year that we know has
    been so difficult during the pandemic. I know I heard stories
    from lots of employees at organizations like yours that went to
    great lengths to help their clients access the relief that they
    needed to stay in business and keep their doors open. So your
    tireless efforts have made a difference in the lives of so many
    entrepreneurs. And I know I, and so many others, appreciate you
    all for that.
        And then moving forward, we have to utilize and maximize
    your work ethic and also the connection to underserved
    communities to help ensure that we do not leave people behind
    as our economy recovers.
        To that end, I am committed to working with the SBA to help
    its capital access program serve the underbanked and also to
    monitor the engagement of the federal banking regulators with
    CDFIs and MDIs as it relates to small business lending.
        So today's hearing has given us a lot of ideas about ways
    to empower CDFIs and MDIs, and I am looking forward to working
    with the Members of this Committee to act on those
    recommendations.
        I would ask unanimous consent that Members have 5
    legislative days to submit statements and supporting materials
    for the record.
        Without objection, so ordered.
        And if there is no further business to come before the
    Committee, we are adjourned. Thank you.
        [Mr. Walter L. Davis did not submit his QFR's in a timely
    manner.]
        [Whereupon, at 11:21 a.m., the subcommittee was adjourned.]

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