[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.]
                           
                           
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