[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
CATALYZING ECONOMIC GROWTH THROUGH SBA
COMMUNITY-BASED 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
SECOND SESSION
__________
HEARING HELD
MARCH 29, 2022
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-051
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-180 PDF WASHINGTON : 2022
-----------------------------------------------------------------------------------
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
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.................................................. 2
WITNESSES
Mr. Manny Flores, President and Chief Executive Officer,
SomerCor, Chicago, IL.......................................... 4
Mr. Kerry Doi, President and Chief Executive Officer, Pacific
Asian Consortium in Employment (PACE), Los Angeles, CA......... 6
Ms. Brooke Mirenda, President and Chief Executive Officer,
Sunshine State Economic Development Corporation (SEDCO),
Clearwater, FL................................................. 7
APPENDIX
Prepared Statements:
Mr. Manny Flores, President and Chief Executive Officer,
SomerCor, Chicago, IL...................................... 19
Mr. Kerry Doi, President and Chief Executive Officer, Pacific
Asian Consortium in Employment (PACE), Los Angeles, CA..... 28
Ms. Brooke Mirenda, President and Chief Executive Officer,
Sunshine State Economic Development Corporation (SEDCO),
Clearwater, FL............................................. 39
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
CUNA - Credit Union National Association..................... 47
NADCO - National Association of Development Companies........ 49
CATALYZING ECONOMIC GROWTH THROUGH SBA COMMUNITY-BASED LENDING
----------
TUESDAY, MARCH 29, 2022
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, Bourdeaux, Chu, Meuser,
Donalds, Young Kim, and Van Duyne.
Chairwoman DAVIDS. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
I would like to begin by noting some important
requirements. 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 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 background noise.
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.
The COVID-19 pandemic highlighted long-standing inequities
in the small business lending market. In March of 2020,
Congress stepped in to support small businesses through the
Paycheck Protection Program. Under PPP, banks and other private
lenders made fully guaranteed SBA loans to small businesses
hurt by the virus.
Over the life of the program, PPP delivered over $800
billion in emergency loans. This aid helped small businesses
keep employees on payroll and pay necessary expenses like rent
and utilities. But as we heard last week in our Oversight
Committee, it became clear that access to the program was not
equal for everyone.
Prior relationships with big banks led to the exclusion of
the smallest of small businesses, putting them at risk of
closing permanently.
One of our top priorities for this Committee was empowering
community lenders to originate more PPP loans to maximize
lending in underserved communities. These institutions
typically have deep ties to the smallest businesses.
We incorporated set-asides in multiple pieces of
legislation to allocate funds so that community lenders could
participate in PPP on equal footing with bigger banks.
Both the GAO and outside experts found these changes proved
to be effective in making the program more accessible.
In later rounds of PPP, the average loan size decreased
substantially, and more funding reached businesses in
underserved markets.
Moreover, small firms reported the highest level of
satisfaction with community-based lenders and small banks.
The ability of community lenders to reach underserved
businesses should serve as an important lesson moving forward.
Though the PPP portal closed last May, these community
lenders can be a vital tool as we work to drive an equitable
recovery. In fact, many of the community lenders that helped
deliver PPP to underserved businesses are already active in SBA
lending programs. Programs like the 504/CDC Loan Program, SBA
Microloan Program, and Community Advantage pilot loan program
are all delivered by community lenders. Each program has proven
effective in helping deliver capital to underserved
communities.
By strengthening existing SBA programs that utilize
community lenders, we can help ensure that all small firms have
access to the capital they need to grow and thrive.
Members of this Committee have introduced and advanced
numerous pieces of legislation to bolster these programs to
better serve entrepreneurs.
Today, I look forward to taking a close look at these
proposals and hearing directly from community lenders about the
issues that they face and what we can do to help.
I would now like to yield to the Ranking Member Mr. Meuser
for his opening statement.
Mr. MEUSER. Thank you very much, Madam Chair. And thank you
for holding this hearing on small business access to capital.
It is and will remain one of the top issues for this Committee.
Over the last few years, main street businesses across our
vast nation have experienced one hurdle after another. COVID-19
shutdowns devastated our country's small businesses,
entrepreneurs, and startups. From forced closures to capacity
restrictions, business owners were confronted with a
challenging path forward. In response to the emergency period,
former President Trump and Congress enacted numerous small
business relief measures, including the popular Paycheck
Protection Program that was delivered to small businesses
through a joint effort with private sector lenders.
Today, small businesses are facing economic headwinds that
are preventing their recovery and growth. If it is not
scorching inflation price increases, small businesses are
facing supply chain disruptions that are preventing goods from
reaching their shelves.
On top of ever-increasing costs, small businesses continue
to have trouble finding employees. All you have to do is enter
a small business and they will be sure to inform you of that.
These are not the economic conditions that instill confidence
into a sector of our economy that produces nearly half of the
country's gross domestic product and comprises over 99 percent
of all businesses in the nation.
Despite these obstacles, small businesses can lead our
nation back to economic growth. In order to do this, however,
we must ensure the lending environment is healthy, robust, and
responsible. That is why a public-private partnership lending
model must continue to be the model of choice for our country
when it comes to federal access to capital programs. Involving
the private sector is the best way to produce efficiencies that
cannot be matched or equaled by strictly the federal
government.
Furthermore, private sector lenders act as centennials
against fraud. Anything less has proven to be very problematic
and frankly, is unacceptable.
One example of this public-private partnership is through
the SBA's 504 CDC loan program. This program, which focuses on
economic development, reached record highs last fiscal year
while serving small businesses and communities across the
nation.
In my state, Pennsylvania, the program issued 185 loans
last fiscal year for over $153 million. It does not seem all
that significant but extremely significant to the 185
recipients of those loans. Again, this is an economic
development-driven program; therefore, each loan requires a job
creation goal or community development goal to be met. While
the program continues to be successful, there is more work that
needs to be done, especially when it comes to the management of
the program by the SBA.
The turn time on delivering loans to small business owners
continues to grow, which is concerning, and the SBA has
somewhat slow-walked the implementation of the 504 Express
Program which it was enacted in a bipartisan manner over a year
ago.
Madam Chair, I would like to note that when Republicans
asked about the delays in launching this new tool, all we
received back from the SBA is that it would be implemented
soon. This is really not acceptable. Small businesses are
working tirelessly to serve their communities. Unfortunately,
the actions of this administration did not always suggest that
they are putting the nation's job creators at the forefront.
From the SBA inadequately answering our questions to the
Treasury Secretary ignoring this Committee, which I think
upsets both sides of the aisle and small businesses, by
refusing to testify, again, despite what the law requires. This
administration must do better.
With that, Madam Chair, I would like to thank you for
holding this hearing, and I am looking forward to the
conversation on how a public-private partnership lending models
can successfully deliver capital to the nation's job creators
and the communities that they serve.
And I yield back.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
And with that, I would like to introduce one of our
witnesses. Our first witness is Mr. Manny Flores, president and
chief executive officer of SomerCor, an SBA-certified
development company located in Chicago, Illinois. In addition
to making 504 loans, SomerCor is an active lender in the SBA
Community Advantage pilot loan program. SomerCor also
participates in the City of Chicago's Small Business
Improvement Fund which promotes economic development by
providing small firms in Chicago with reimbursable grants for
permanent building improvement costs. SomerCor is a Member of
the National Association of Development Companies (NADCO) and
we are glad to have you with us today. Welcome, Mr. Flores.
And I will now yield to the Ranking Member.
Sorry about that.
Our second witness is Mr. Kerry Doi, the president and
chief executive officer of the Pacific Asian Consortium in
Employment (PACE), located in Los Angeles, California. PACE is
a Treasury certified community development financial
institution (CDFI) and an SBA microloan intermediary and
Community Advantage lender focusing on supporting primarily
Asian American entrepreneurs and those from underserved
communities. PACE is also a Member of the Friends of the SBA
Microloan Program, a nationwide network of nonprofit
microlending intermediaries focused on economic development.
Welcome, Mr. Doi, and we look forward to your testimony.
I would now like to yield to the Ranking Member, Mr.
Meuser, to introduce our third and final witness.
Mr. MEUSER. Thank you again, Madam Chairwoman.
Our next witness is Brooke Mirenda. Ms. Mirenda is the
president and chief executive officer of Sunshine State
Economic Development Corporation, also known as SEDCO, based in
Clearwater, Florida. SEDCO is a nonprofit CDC that participates
in the SBA's 504 Loan Program. With over 15 years of financial
services and banking experience, Ms. Mirenda also serves on the
Legislative Committee with the National Association of
Development Companies, the main trade association for the 504
Loan Program. Additionally, Ms. Mirenda serves on numerous
community boards throughout the State of Florida.
Ms. Mirenda, we are glad to have you back before the
Committee. Your extensive experience in the area of economic
development lending will benefit this conversation immensely.
And Madam Chairwoman, I yield back.
Chairwoman DAVIDS. Thank you. The gentleman yields back.
And thank you to all our witnesses for being here today.
Mr. Flores, you are now recognized for 5 minutes.
STATEMENTS OF MANNY FLORES, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, SOMERCOR; KERRY DOI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PACIFIC ASIAN CONSORTIUM IN EMPLOYMENT (PACE); BROOKE
MIRENDA, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SUNSHINE STATE
ECONOMIC DEVELOPMENT CORPORATION (SEDCO)
STATEMENT OF MANNY FLORES
Mr. FLORES. Good morning, Chairwoman Davids, Ranking Member
Meuser, and Members of the Subcommittee. Thank you for the
privilege of testifying before you today to discuss the Small
Business Administration community-based lending programs.
My name is Manuel Flores, and I am here on behalf of
SomerCor, a Certified Development Company based in Chicago,
Illinois. There are more than 200 nonprofit CDCs nationwide
working in their communities to deliver the SBA's 504 loan
program, as well as other SBA resources like the 7(a) Community
Advantage and Microloan programs.
CDCs are required to invest in economic development
initiatives in their areas of operation beyond their
participation in the SBA 504 program. To use SomerCor as an
example, not only are we one of the nation's larger CDCs by
annual loan volume, we also participate in the SBA's Community
Advantage loan program and administer small business grants on
behalf of the City of Chicago for new investments in under-
resourced communities.
We are part of a national CDC network that plays an
integral role through a mission-based lens in growing economic
development in communities across our nation. The SBA 504 loan
program is a public-private partnership that brings together
traditional lenders and CDCs to help small businesses finance
the acquisition of commercial real estate, make building
improvements, and purchase equipment with terms typically not
available conventionally. The program provides loans of up to
$5 million and $5.5 million for certain industries. The
hallmarks of the program include terms of 10 years for
equipment and 25 years for real estate with a fixed, below
market interest rate.
In the wake of the COVID-19 pandemic and our ongoing
economic recovery, I want to take this opportunity to highlight
three policy considerations. First and foremost, it is critical
for the 504 program to remain open and viable. Increased loan
demand under the 504 program exceeded its then-congressionally
authorized cap of $7.5 billion in fiscal year 2021, effectively
shutting the program down for 3 weeks, causing a myriad of
negative issues for small businesses. In fiscal year 2022,
program demand continues at an unprecedented rate. We are
extremely thankful Congress increased the 504 program
authorization level to $11 billion for the remainder of fiscal
year 2022, averting a significant disruption in the market.
It is important, however, for Congress to take new steps
now to avoid a program shutdown in the future as we anticipate
continued growth and demand. As a zero subsidy program that
encourages small business expansion, our ask is for certainty
and the ability to meet rising demand long term. A step in the
right direction is to combine the authorization levels of the
regular 504 program and the refi without expansion programs so
all 504 programs are under the same authorization level of $15
billion.
My second recommendation is for passage of the 504
Modernization and Small Manufacturer's Act of 2021, H.R. 1490,
which increases the 504 loan for manufacturers to $6.5 million,
decreases the borrower equity injection from 10 to five
percent, and includes other provisions that support small
businesses in the manufacturing sector.
I want to be clear that we have an opportunity to do more
to catalyze increased investment in new manufacturing here in
the United States. The pandemic and global supply chain
disruptions laid bare the need for a stronger and more
resilient domestic manufacturing sector. H.R. 1490 may provide
more capital to help strengthen our manufacturing industry.
Finally, we recommend adoption of NADCO's request to make
the Community Advantage program permanent with provisions to
set it for long-term success. This includes training for new
Community Advantage lenders and viable solutions to alleviate
liquidity issues that constrain the lending capacity of
nonprofit CDCs. The Community Advantage program has been a
pilot since 2011, but for the program to be successful, lenders
and borrowers need certainty on the continuity of the program.
Sitting here before you is an honor, and I do so in the
spirit of advocating for small businesses who help build our
communities. One such example is SomerCor client Osorio Metals
Supply, a family-owned business in Chicago started by Rubin
Osorio in 1992 as a one-man operation working out of his
garage. This past year, Rubin and his daughter Adriana, who is
now the company's chief operating officer, turned to SomerCor
for an SBA 504 loan to make needed renovations to their 30,000
square foot facility. Now, Osorio Metals has a state-of-the-art
facility to better serve its clients. And as Adriana said, and
I quote, ``Acquiring a new facility and transforming the space
to fit our needs has been a dream come true for our family
business and it would not have been possible without this
program.''
It is these businesses and projects that inspire our work.
Again, thank you for the opportunity to testify here today, and
I look forward to answering your questions.
Chairwoman DAVIDS. Thank you, Mr. Flores.
And Mr. Doi, you are now recognized for 5 minutes.
STATEMENT OF KERRY DOI
Mr. DOI. Thank you, Madam Chair, Representative Meuser, my
Congresswoman Judy Chu, honorable Members of the Committee. I
am Kerry Doi, CEO of PACE. Thank you for this opportunity to
testify before the House Small Business Committee on the all-
important catalyzing economic growth through SBA community-
based lending.
PACE was incorporated in 1976, and in 1993, began providing
business development services to pre-startups,
microenterprises, and small businesses. Since inception, PACE
Business has trained or counseled more than 68,000 pre-
startups, startups, operating micro and small businesses who
have established or expanded over 17,000 small businesses that
have created or retained over 22,000 jobs.
For over 28 years, PACE has provide comprehensive
wraparound services to more than 68,000 businesses across L.A.
County.
The SBA microloan program, which was authorized in 1991 to
businesses that conventional lenders were and remain unable to
finance for a variety of reasons, including lack of sufficient
collateral or business experience. Nonprofit community-based
intermediary lenders use the SBA microloan program to finance
new and emerging businesses in urban and rural communities and
eventually moved these businesses into the economic mainstream
as bankable ventures.
The average SBA microloan was $14,435 in FY2020. There are
144 active microloan intermediaries serving 49 states, the
District of Columbia, and Puerto Rico. In FY21 alone,
microlenders made an additional 4,510 loans totaling over $74
million. Of this amount, 63 percent went to existing
businesses, 36.9 percent to startups, 48 percent to woman-owned
businesses, 66.9 percent to minority-owned enterprises.
This financing led to the creation of 7,500 jobs and the
retention of over 10,000 jobs.
Despite intermediaries serving at-risk small businesses,
the SBA microloan program has a cumulative default rate of less
than 2 percent. PAC's SBA microloan program started in 2010.
Since the program launched, our loan team has deployed 323
loans for $3.3 million, with an average loan size of $10,156.
As of March 15, 2022, we have 32 SBA microloans in our
portfolio totaling $548,472, or an average loan size of
$17,139.
We reviewed H.R. 1487 and H.R. 1502. H.R. 1487 establishes
a series of reporting requirements for SBA and requires an
annual report on the effectiveness of the microloan program.
H.R. 1502 makes a number of improvements and updates the
microloan program, which we support. Of particular note, it
raises the definition of small loans from $7,500 to $10,000.
In addition, it establishes loans of 7 years for loans of
$10,000 or less, and up to 10 years for loans that are greater
than $10,000. Reviewing the allocation for SBA funds is
important by reserving the first 2 quarters of the fiscal year,
15 percent of the annual microloan appropriation for unutilized
states.
One issue that the bill does not address is the Executive
Order mandating language access that we would urge the
Committee to consider. Otherwise, we fully support the bill and
the microloan program which has proven itself to be an
important tool for economic development. Thank you.
Chairwoman DAVIDS. Thank you, Mr. Doi.
Ms. Mirenda, you are recognized for 5 minutes.
STATEMENT OF BROOKE MIRENDA
Ms. MIRENDA. Chairwoman Davids, Ranking Member Meuser, and
Members of the Subcommittee, thank you for inviting me to join
in the conversation on community-based lending and the work
CDCs are doing to build communities across the U.S.
My name is Brooke Mirenda, and I am here on behalf of
Sunshine State Economic Development Corporation (SECD), located
in Clearwater, Florida, and I serve as the president and CEO. I
remain intimately involved in ensuring the capital access needs
of borrowers are being met, primarily via the SBA 504 loan
program.
I am also a Member of the National Association of
Development Companies (NADC)), a trade organization dedicated
to supporting the CDC industry and our collective work in the
economic development arena. The SBA 504 loan program not only
creates jobs in our economy, it also offers beneficial rates
and terms for our small business owners, helping them to
preserve capital and grow their businesses while operating at a
zero subsidy. Because the core purpose of the program is
economic development, all 504 borrowers must meet at least one
of two specified economic development objectives which are
outlined in my written testimony.
In fiscal year 2021, the 504 program delivered more than
$8.2 billion in financing to 9,700 businesses. The creation of
retention of 85,000 jobs and a total capital investment of over
$20 billion. In fact, we served so many small businesses that
we reached our then-Congressional authorized cap of $7.5
billion on September 7th, and SBA was unable to approve any 504
loans until the fiscal year authorization levels reset October
1st.
Volume did not dissipate in fiscal year 2022, and we began
raising with NADCO to raise our concerns about another much
longer much longer shutdown of the program. Thankfully, Members
of this Committee, as well as our counterparts in the Senate,
came together to work with appropriators to ensure businesses
have access to the job creating financing they need by
increasing the authorization level for the regular 504 program
to $11 billion for the remainder of the fiscal year.
I want to take a moment to share my sincere thanks for all
the effort put into making this increase a reality. Our
borrowers, our lenders, and our CDCs thank you.
I believe a major reason the 504 program continues to grow
is the program is a prime example of how public-private
partnerships should work. The SBA administers the program and
we, the private sector nonprofits focused on economic
development, partner with private sector lenders to deliver the
program. The CDC and lending partner each complete full loan
underwriting which is then reviewed by the SBA. As a result,
small business owners are not repaying their debts. The 504 has
a charge off rate of $.6 percent over the last 10 years.
Because of the soundness of the program, the costs associated
with it are paid for by fees so it does not cost taxpayers any
money.
The program is performing extremely well and providing much
needed capital to our nation's job creators, small businesses.
However, there are considerations Congress should keep in mind
to make sure it stays successful. First and foremost, the
program needs to stay open. I, along with NADCO, urge Congress
to work together to come to a long-term solution to the 504
authorization level including combining the regular 504 and
debt refinance without expansion caps. It would be devastating
to small businesses and to the reputation of the program if the
program would have shut down for any period of time.
Secondly, as a result of the increased profile at the SBA
and the economic impacts of the pandemic on small businesses,
its lending programs are experiencing increased demand.
However, SBA is largely operating with the same staffing levels
as they were pre-pandemic, and although they are working hard
to keep up with the demand of the program, over time and
overworked staff is not a permanent solution.
A solution is one passed by Congress in the Economic Aid
Act which is a pilot within the 504 program that would allow
vetted, proven CDCs with ALP status to more efficiently process
loans up to $500,000. SEDCO alone would have been able to
process 51 percent of our loans under this program. The CDC
industry is still awaiting the rule implementation which is to
sunset in fiscal year 2023. NADCO and I recommend Congress
extending the sunset to fiscal year 2027 to allow it sufficient
time to operate in order for SBA and Congress to be able to
make an informed determination on its efficacy.
My final recommendation is for the implementation process
of laws that impact the SBA's lending programs to include a
dialogue about congress intent. For example, Congress
authorized changes to the debt refinance without expansion
program in the Economic Aid Act. Those changes we believe were
intended to bring parity to the refinancing of government debt
among SBA lending programs. However, the implementation of the
debt refinance provisions included parameters that limit the
ability of CDCs to reach as many small business owners as the
changes should allow.
I sincerely appreciate the opportunity to bring these
issues to your attention and talk about a program that is doing
phenomenally well with $4.48 billion in approved 504 loans as
of March 18th.
I look forward to working with you to ensure the future
success of this public-private partnership and I am happy to
answer any questions.
Chairwoman DAVIDS. Thank you, Ms. Mirenda. And thank you to
all of our witnesses for joining us today. We appreciate your
expertise and the recommendations and considerations that
you've shared with us.
So, I will begin by recognizing myself for 5 minutes.
So, even as we have seen a booming economy in this last
year, the reality is that a lot of small business owners are
still facing some pretty enormous challenges. Whether that is
from inflation or supply chain shortages, a lot of small
businesses are still working with very slim margins and pretty
uncertain nods.
Mr. Flores, as a 504 and Community Advantage lender, you
are able to offer small businesses the full range of eligible
loan uses from long-term fixed asset and real estate financing
to the 504 program working capital in the Community Advantage
Program. With the broad range of eligible uses, how do the SBA
community lending programs help small businesses compete amid
growing uncertainty around things like energy prices and other
costs?
And Ms. Mirenda, if you want to chime in after.
Mr. FLORES. Thank you, Madam Chair, for that question.
In my opinion and my view and in my experience in seeing
firsthand how these programs work, it is about providing
stability. In particular, the 504 program, because you have
these long terms associated with it, it allows businesses for
better planning, for preserving capital, and it is also
affordable financing. With regards to the Community Advantage
Loan program, it is a $50,000 to $250,000 loan program as you
know, and that is, frankly, it is a challenging type of loan to
find conventionally. So, we can fill a gap in the market to be
able to assist these small businesses. And in particular, we
are looking to support businesses in low- and moderate-income
communities as part of that initiative.
So, it really provides additional support for these
businesses that frankly without these programs, they would not
have those capital options.
Chairwoman DAVIDS. And so, I am curious with the mixture
and breadth that you both see in the work you are doing. Can
you talk a little bit about the ability to both plan long term,
or longer term, while also being kind of flexible and adaptable
to the economic environment that we have seen and the ways that
you all engage with your clientele?
Mr. FLORES. So, Madam Chair, the Certified Development
Company Network is made up of companies that are working
directly in their neighborhoods and communities. And while we
take a lot of pride in providing very high quality expertise in
the lending process, we also, oftentimes, provide technical
assistance. Working hand-in-hand with chambers of commerce and
other important community stakeholders in making sure that
people are made aware of the resources that the Small Business
Administration offers, but then also providing some very direct
support in how to access these loans. How to become loan ready
if you are not at a point in your business to be able to access
a 504 loan. Or with these businesses on how to engage in better
planning. We view ourselves as strategic partners in all areas
related to economic development and support of strengthening a
small business ecosystem. And we do so, again, in reinforcing
not only the partnership with organizations such as chambers of
commerce, but also with other lending partners * banks, credit
unions * that also play an integral role in the deployment of
these programs along with CDCs.
Ms. MIRENDA. So thank you for the question. And we are a
Community Advantage lender as well. We have funded a little
over $2 million just this year in Community Advantage loans.
The other thing is he mentioned management technical
assistance. Just so you guys know, that is a requirement on the
Community Advantage Loan program. So, we have to, every
quarter, we talk with our borrowers and discuss how their
financials are going. What does their P&L look like? What does
their balance sheet look like? Do they have any questions? Have
they been able to hire any folks? Things like that. So, I just
wanted to bring that to your attention.
The other thing, too, as far as lenders go, a lot of our
deals do come from our bankers. They know about the CA loan
program. There are deals that they cannot do conventionally so
they will refer deals out to us, you know, for a startup and
things like that.
Chairwoman DAVIDS. It takes an ecosystem. And I will yield
back and recognize our Ranking Member, Mr. Meuser, for 5
minutes.
Mr. MEUSER. Thank you, Madam Chairwoman, very much. Mr.
Flores, Ms. Mirenda, thanks for being with us, as well to other
testifier. I appreciate it.
So, I have to say, I like what I am hearing from my years
in business and working with small businesses and growing a
small business into a large business. You know, when you read
things such as I think it is barely 18 percent of small
businesses seeking loans or lines of credits, line of credit,
actually get what they want and what is sufficient. Having this
SBA service and public-private partnership that has worked with
you folks is very important, so I want to try to move through
some questions relatively quickly if we can.
So, Ms. Mirenda, how many businesses do you work with?
Ms. MIRENDA. How many businesses do we work with?
Mr. MEUSER. Yes. How many loans do you extend? How many
businesses do you----
Ms. MIRENDA. Last year we approved 61 loans.
Mr. MEUSER. Sixty-one.
Ms. MIRENDA. Over the State of Florida.
Mr. MEUSER. How about you, Mr. Flores?
Mr. FLORES. Our current portfolio is more than $430
million. We right now are on pace to reach $150 million. So,
$130, $150 million in loan originations in the 504 program.
Mr. MEUSER. What is the average amounts? Ninety thousand?
One hundred thousand?
Mr. FLORES. For us in the 504 program, it is a loan amount
of about $800,000.
Mr. MEUSER. Eight hundred thousand.
Ms. MIRENDA. That is about right. Eight hundred thousand.
Mr. MEUSER. Okay. My mistake. Okay. And how many do you
deny? How many come in that you deny?
Ms. MIRENDA. A small amount. And the reason is because we
are usually getting referrals from our lending partners.
Mr. MEUSER. Okay.
Ms. MIRENDA. They are well-trained on what works and what
does not.
Mr. MEUSER. That is where most of them come----
Ms. MIRENDA. So that is where a lot of our deals come from,
exactly, from banks and credit unions.
Mr. MEUSER. So they clearly have other banking
relationships?
Ms. MIRENDA. Absolutely. Yes.
Mr. MEUSER. For the most part?
Ms. MIRENDA. Yes.
Mr. MEUSER. Okay. So, we talked about some struggles, of
course, that small businesses have--workforce, inflation,
energy costs, taxes. I just want to ask you, the idea that the
100 percent depreciation may end at the end of this year which
certainly needs to be extended and the idea that a C
corporation may go from 21 percent federal income tax to 28
percent is certainly not in the interest of small business
because, as you well know, there's well over a million small
businesses that are C corporations. Many companies that were
family businesses way back and others for various reasons are C
corporations. C corporation does not mean that they are a
multi-billion dollar business.
So just relatively quickly, tell me what struggles you are
seeing, because you deal with small businesses every day, what
are you hearing from your clients?
Ms. MIRENDA. So a few things come to mind. The first one is
interest rates are starting to rise. Our 504 loan program in
the last 6 to 8 months has risen 1 percent. Now, we are still
under 4 percent so it is still a very low rate. However, I
think we got a little spoiled with 3 percent interest rates.
So, our rate is still a little under 4 percent for 25 years.
So, they are getting squeezed there. I would also say employees
are costing more money. Obviously, the rate has gone up for
hourly employees. I was just talking to a franchise owner about
2 weeks ago regarding this and their cost of goods is going up.
So, what happens is price then go up. So, what we are seeing is
they are having trouble finding people and they are seeing
interest rates going up, so they are really trying to lock in
interest rates which is why the 504 program is so advantageous
for small business owners because the commercial loan that they
partner with, we partner with on the first, they price that
however they would price a typical commercial loan. But the SBA
thought the portion that we finance, because it is a split
loan, basically, is fixed for 20 or 25 years. So that is why
they are seeking out this program.
Mr. MEUSER. Okay. Mr. Flores, you mentioned a word before
``stability.'' I think any business would appreciate that
thought and that level of consistency. So why do you not
expand? What are you hearing from your clients?
Mr. FLORES. So, inflation, labor shortages, and supply
chain constraints are big problems. And we need to understand
there are still a lot of business out there suffering,
particularly in the hospitality industry. So, when we think
about opportunities to strengthen programs that we know have a
positive track record, at the minimum, we should work
strengthening these programs.
Mr. MEUSER. True.
Mr. FLORES. And that stability and being able to count on
some support is critical. So, I am just going to use this
opportunity to say, looking at ways to making sure that 504
program is adequately funded is critical.
Mr. MEUSER. Okay. And that is very important. My time has
run out but I do want to hear from you if we have a second
round, or later, even in writing. You deal in the real world so
any improvements--you started expanding on this, Ms. Mirenda, I
would love to hear more from you on that.
So, I yield back. Thank you.
Chairwoman DAVIDS. Thank you. The Ranking Member yields
back.
And the Chair now recognizes Congresswoman Chu for 5
minutes.
Ms. CHU. Mr. Doi, thank you for joining the Committee today
to share the incredible story of PACE for the congressional
record. Since you are an agency in Los Angeles, which is my
area, I have known of the incredible success of PACE for many,
many years, and I know how much you have done to help the most
vulnerable communities be able to become successful in small
business.
So, as we examine the work SBA did with the Paycheck
Protection Program, I appreciate that this Committee is taking
note of PPP's initial challenges in reaching the smallest
businesses and how the reliance on community lenders such as
yourselves and community development corporations helped bridge
that gap. I have long been a proponent of the Community
Advantage program which aims to serve many of the same
underserved and micro businesses. One proposal I have long been
working towards would be to lift the loan cap that Community
Advantage lenders could issue from $250,000 to $350,000. Can
you discuss the benefits of lifting the cap on the types of
businesses that you serve?
Mr. DOI. Thank you for the question, Congresswoman.
It would be of tremendous benefit. Hundreds of businesses
come to us every year. Many of them new entrepreneurs. We
provide a whole lot of business counseling to these small
businesses prior to offering them microloans, anything under
$50,000. And as my testimony indicated, it is averaging $10,000
loans. But as we continue to work with them and help them grow
where they learn business basics, a business bootcamp, if you
will, and they grow. Also, in my written testimony I talked
about one business that we provided a $500,000 loan to that
ended up hiring 20 employees. And so, lifting the cap on the
Community Advantage Program would help tremendously as these
types of businesses grow from being micro to regular bankable
small businesses.
Ms. CHU. Thank you for that.
Mr. Doi, in your written testimony you alluded to work PACE
does in assisting refugees and those who sought asylum in the
U.S. I have heard so many inspirational stories of those that
you have helped who maybe did not have the credit history and
all kinds of circumstances that they face. In particular, your
testimony tells the story of my constituent, Don Wong. Because
he was an asylee, Don had limited business credit history so he
was not able to get that traditional loan, but PACE helped him
secure the loan he needed to purchase a new truck to begin his
own trucking business from the Ports of Los Angeles and Long
Beach, helping to relieve the supply chain backlog that we are
all experiencing in this country today.
With the nation's attention on the needs of refugees, such
as those coming here from Afghanistan or Ukraine, Mr. Doi, can
you discuss the type of work PACE does in particular to assist
refugees starting their own businesses? What kind of impact
does this work have on the economy of the Los Angeles area?
Mr. DOI. Thank you again for that question, Congresswoman.
Yes. In working with asylees, as well as refugees, most of
them do not understand all of the culture, the nuances of
America. And so, we provide not only small business counseling,
but social services counseling also so that they understand the
rules, the regulations, business licensing, permits, reporting
to IRS and accounting. All of those kinds of things. And so, I
want to reemphasize the need for technical assistance. It is,
indeed, important as we take these people that for many reasons
do not have the local work experience, do not have the local
education, et cetera, but they do have the entrepreneurial
drive. And therefore, can put food on the table and a roof over
their heads. And so that is why this program is so critical.
Ms. CHU. Thank you. And I yield back.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair now recognizes, Rep. Kim, Ranking Member of the
Subcommittee on Innovation, Entrepreneurship, and Workforce
Development.
Ms. YOUNG KIM. Thank you, Chairwoman Davis, and Ranking
Member Meuser, for hosting this hearing. And I want to thank
all of our witnesses for joining us today.
Over the last 5 years, one of the local CDCs serving my
district, the California 39th District, is CDC Small Business
Finance. And this has provided over 24 small businesses with
financing over $34 million and supporting 667 jobs. For this
CDC, it is just a snapshot of what successful private-public
partnerships can do to deliver much-needed capital to allow
small businesses to expand and generate jobs in our
communities.
I have helped introduce a number of 504 bills, including
the 504 Modernization and Manufacturing bill that Mr. Manny
Flores mentioned today. This bill also includes several new
policy goals for the program, including workforce development,
which we now know is an ongoing issue for employers across the
country.
So, I want to ask you, Mr. Flores, what do you think, or
can you anticipate the type of benefit that would come from
including workforce development in the policy goals of the
program?
Mr. FLORES. Thank you, Madam Congresswoman.
It sends a powerful message. It tells everybody who is
applying for a 504 loan who is working in the manufacturing
sector that we need to continue to focus on preparing a ready
workforce that is going to meet the demands of our dynamic
marketplace today. Not tomorrow, today. I often speak to a lot
of businesses who are having labor shortage issues. Oftentimes
we hear that small businesses cannot find people to employ with
the skills needed to meet their needs. So, anything that we can
do to promote workforce development and training is a very
positive thing to do and tying it directly to a 504 program
that is all about job creation makes a lot of sense. So, we
strongly support those efforts and I think it would be very
well received in the marketplace.
Ms. YOUNG KIM. Right. We are working hard to pass that
bill, H.R. 1490, so thank you. I hope to see this stand into
law quickly.
And Ms. Mirenda, as you mentioned in your testimony, the
CDC industry is still awaiting the implementing the ALP Express
Pilot program. How has this delay implementing the pilot
program impacted the CDC industry and small businesses, and do
you think the SBA would benefit from the pilot program by
getting loan processes off their plate?
Ms. MIRENDA. Thank you for the question.
Yes. It was passed in the Economic Aid Act in December of
2020, and so we are still waiting on the implementation of the
ruling. And ALP Express, what that would do is that would allow
us as ALP lenders, which is Accredited Lender Program to
unilaterally approve SBA loans. And right now, SBA's turnaround
times are very long. Just as far as 327 actions are concerned,
327 actions are any changes made after an authorization is
granted to us. And so, any of those changes, they are taking up
to 18 business days, which is over 3 weeks. And so that is
really affecting our small business owners. That is where I
think ALP Express would come into play where we can
unilaterally make decisions. And I am sure we would be vetted
by OCRAM, which they would come in and audit us and audit our
financials and the things that they do, but that would be okay
because we are proven CDCs.
Ms. YOUNG KIM. And so let's look at the 504 program with
tasking the premier economic development program at the SBA for
decades. And it really has made things strong bipartisanly
throughout the years. So, in your estimation, Ms. Mirenda, what
are the main drivers or hallmarks behind this continued
bipartisan effort?
Ms. MIRENDA. I would say the first thing is it operates on
a zero subsidy. I think that is important to both parties.
Second is we have a job creation goal. There is an economic job
creation goal or an economic impact that for every single 504
loan we do and the default rate, I mean, default rate for 10
years is .6 percent. So, it would be hard to argue on either
side why the 504 loan program is not advantageous for small
business owners.
Ms. YOUNG KIM. Well, thank you so much. Thank you for being
here, again, and I yield back.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair now recognizes Rep. Bourdeaux for 5 minutes.
Ms. BOURDEAUX. Thank you, Chairwoman Davids, and Ranking
Member Meuser for holding today's hearing.
Community lenders are critical to expanding access to
capital for small businesses, in particularly those in
undeserved markets, including many in my congressional
district. One of the clearest examples of this is the PPP
program which showed how important it is to support community-
based lenders and the work that they are doing every day.
This is a question for Mr. Doi. I really appreciate the
technical assistance and outreach that you do to small
businesses. And one of the things that we found around the PPP
loan program was that a lot of our really, really small
businesses did not know about the loan and really needed a lot
of proactive technical assistance. I went and talked to them
and it seemed like we almost needed to go into their barber
shop, into their restaurant, set up a laptop, and walk them
through the program because they just did not have the lawyers
and the accountants and all of that backing support. All of
their energy was being thrown into just trying to keep their
business up and running.
And so, I was wondering if you could talk a little bit more
about technical assistance and what is needed in terms of a
more proactive effort to go out there and really support some
of our smallest of small businesses and make sure they can
access things like the PPP Loan Program or the Microloan
program through the SBA?
Mr. DOI. Thank you for that question, Congresswoman. You
have pointed out a really big issue in the small business
community. And it is not only in LA.; it is throughout the
country. In talking to our colleagues throughout the country
that are involved in entrepreneurial development and growing
new start businesses especially, they do not know. And even the
ones that have been in existence for 5 years do not know about
all the various products and services that are available to
them. What is important is that as a community-based lender
that we participate in the economic ecosystem. That would
include the chamber of commerces, the banking associations,
other economic development organizations. And that helps to
spread the word. And even doing so is not enough. I mentioned
the need for language access. We are proud to be able to say
that our organization speaks over 40 different languages and
dialects which is highly unusual for any organization
throughout the country. Because so many of these people where
English is not their first language do not know anything about
the services that are available. And I also mentioned the
president's Executive Order mandating language access. And it
is so critically important but it is an unfunded mandate. And
so, adjusting the formula for technical assistance would really
help, especially in outreaching to those that have never heard
of these kinds of services before.
Ms. BOURDEAUX. Thank you for that. And one of the community
projects I was very pleased to be able to get into the budget
was $100,000 for my Small Business Development Center to
provide more in-language access. I have a very diverse
community but we have to kind of build our institutions to meet
those needs. We still are not in a place where an organization
like yours is. It is just taking us some time. We are much
newer to that kind of diversity so we are working on that.
One other quick question. One of the programs we talk about
an awful lot is the microloan program and that seemed to be a
really good fit for some of these really first-time
entrepreneurs. Do you have any recommendations of how Congress
could continue to improve this program and expand access for
these small, often immigrant-owned businesses?
Mr. DOI. I do not like to be redundant but I do not think
that it hurts to continue to repeat that technical assistance
is so important, not only on the front end but on the back end.
It is really an important thing to have in-language business
counseling, and so that is why in our small business 101
workshops we do it in language, in as many as eight different
languages if necessary.
Ms. BOURDEAUX. Thank you so much. And I really appreciate
the good work you do. I yield back.
Mr. DOI. Thank you very much. Thank you.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair now recognizes Rep. Van Duyne, the Ranking Member
on the Subcommittee of Oversight, Investigations, and
Regulations.
Ms. VAN DUYNE. Thank you very much, Chairwoman Davids and
Ranking Member Meuser for holding this hearing.
Over the past 2 years, small businesses have faced
seemingly endless challenges to their overall survival. For
months, we talked about how ending the pandemic would return us
to business as usual but that is no longer the case. Months of
stimulus and overly generous unemployment benefits have
resulted in excessive demands, hobbled supply chains, and
extremely tight labor markets. And now small business owners
are being forced to react to these economic realities.
The NFIB February Small Business Report found that 68
percent of small businesses have raised prices and almost half
cannot fill staff positions as nominal wages rise at the
fastest pace in decades. The administration's unsustainable
relationship with spending money we do not have has led us to
the next new business crisis, record high inflation, numbers we
have not seen since the early 1980s. And in response, the FED
and lenders have begun to raise rates adding yet another cost
increase to their thin margins.
We would make one thing very clear today. Regardless of how
good SBA is at facilitating lending, that cannot make up for
the anti-growth environment created by this administration. The
NFIB report emphasizes this with zero percent of small business
owners reporting financing as their top issue while inflation,
labor, and taxes top their concerns. Unfortunately, this
administration appears not to have learned its lesson. Amidst
our runaway inflation, the president's budget released
yesterday included a more than $1.1 trillion deficit next year
and a $6.5 trillion deficit over the next 5 years. It is time
to reverse course and for this Congress to emphasize fiscal
responsibility by ending unnecessary spending, clawing back
fraud, and addressing actual pressing issues like the Medicare
Trust Fund that goes insolvent in 2026.
I want to thank our witnesses for their testimony today and
for Ms. Mirenda, I appreciate your testimony. We have all seen
and read articles about the massive amount of fraud in SBA
programs over the last 2 years. NBC News just released a piece
yesterday claiming that the SBA's PPP program is the ``biggest
fraud in a generation.'' And they said the SBA basically said
to people apply and sign. What did not happen was even minimal
checks to make sure that that money was getting to the right
people. And now the SBA wants to get into the direct lending
business. Do you believe the SBA can underwrite and service
small business loans as efficiently and as prudently as you do?
Ms. MIRENDA. Thank you for your question. I do not think it
is a good idea for SBA to do direct lending. The reason for
that is, the reason our 504 program works so well is because we
have a dual underwriting process with a lender and there is a
fiscal responsibility with the lender. And an example would be
EIDL. I mean, we were at dinner last night and a woman came up
to us about their EIDL loan and that is direct lending right
now with SBA. So, it is my professional opinion that, no, I do
not think that would be a wise decision. I think maintaining
the 504 as my colleague has pointed out, making sure this
program stays open and stays viable, the programs that are
clearly working, that are partnership programs. Even the CA
loan program that we facilitate is working very, very well. So
that would be my response.
Ms. VAN DUYNE. Do you think that the relationship that you
have with your banking clients actually has led you to have
less fraud because you know actually who you are loaning money
to and you are able to actually put that due diligence in that
the SBA has not been able to do?
Ms. MIRENDA. Yes. I think that partnership is imperative. I
mean, they are regulated as well, and so are we by the SBA.
But, yes. I mean, you mentioned PPP. The lenders did it really
well and I am not sure what group made CFIs but that worked
really well, too, community financial institutions that were
doing the smaller PPP loans as well. That was something that
changed and I think that the advantages as lenders are doing
all their due diligence because they have to. They have to know
their customer. They are required to. So that is why this
partnership works very, very well in the 504.
Ms. VAN DUYNE. I really appreciate your responses here
today and I yield back.
Chairwoman DAVIDS. Thank you. The gentlewoman yields back.
The Chair now recognizes Rep. Donalds for 5 minutes.
Mr. DONALDS. Thank you, Madam Chair. I am going to do
something we typically do not do. I am not going to use my full
5 minutes. I just wanted to actually recognize Ms. Mirenda from
the great state of Florida. Thank you for all the hard work
that you are doing on behalf of small business owners.
And with that, Madam Chair, I yield back.
Chairwoman DAVIDS. All right. Well, thank you. Thank you
again to our witnesses for testifying today. I also want to
thank you for all of the work that you have done for American
small businesses since the pandemic began. This has certainly
been a really rough few years. As we know, small businesses are
the foundation of the American economy. Getting our economy
back to full strength depends on the well-being of our small
businesses. The pandemic recovery is certainly going to take
time but we know that the recovery is going to be jeopardized
if the smallest of our small businesses are not being thought
of.
Accessing capital is a primary concern of a lot of small
businesses, and we have to strive to ensure that certainly
underbanked and underserved businesses have access to the
funding that they need to be able to succeed. And as the
Paycheck Protection Program demonstrated [audio malfunction].
[Whereupon, at 10:59 a.m., the subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]