[Senate Hearing 117-30]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 117-30

 
     THE CORONAVIRUS CRISIS: NEXT STEPS FOR REBUILDING MAIN STREET

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING THE AFFECT OF CORONAVIRUS ON AMERICAN BUSINESS AND NEXT STEPS 
                       FOR REBUILDING MAIN STREET

                               __________

                           FEBRUARY 25, 2021

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
                                
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                        ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
45-014 PDF           WASHINGTON : 2021                 
                


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                         Tanya Otsuka, Counsel

                 Dan Sullivan, Republican Chief Counsel

                 John Crews, Republican Policy Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, FEBRUARY 25, 2021

                                                                   Page

Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    32

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3

                               WITNESSES

Watchen Harris Bruce, President and CEO, Baltimore Community 
  Lending, Inc...................................................     5
    Prepared statement...........................................    33
    Responses to written questions of:
        Senator Warren...........................................    49
Joe DeLoss, Founder and CEO, Hot Chicken Takeover, Columbus, Ohio     7
    Prepared statement...........................................    34
    Responses to written questions of:
        Senator Cortez Masto.....................................    50
Jessica Milano, Board Member, Small Business Majority............     8
    Prepared statement...........................................    35
    Responses to written questions of:
        Senator Brown............................................    51
        Senator Warren...........................................    52
        Senator Sinema...........................................    55
        Senator Warnock..........................................    58
Joel Griffith, Research Fellow, The Heritage Foundation..........    10
    Prepared statement...........................................    39
Dani Ritchie, Owner/Stylist, Studio Alchemy, Harmony, 
  Pennsylvania...................................................    11
    Prepared statement...........................................    47

                                 (iii)


     THE CORONAVIRUS CRISIS: NEXT STEPS FOR REBUILDING MAIN STREET

                              ----------                              


                      THURSDAY, FEBRUARY 25, 2021

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 9:31 a.m., remotely, via WebEx, Hon. 
Sherrod Brown, Chairman of the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. This Committee will come to order. This 
hearing of the Senate Banking, Housing, and Urban Affairs 
Committee is in a virtual format. A few reminders as you begin. 
Once you start speaking there will be a slight delay before you 
are displayed on the screen. To minimize background noise, 
please click the mute button until it is your turn to speak or 
to ask questions.
    You should all have one box on your screens labeled 
``Clock'' that will show how much time is remaining. For 
witnesses, you will have 5 minutes for your opening statements. 
For all Senators, the 5-minute clock still applies to your 
questions. At 30 second remaining, for statements and 
questions, you will hear a bell ring to remind you that time is 
almost expired. It will ring again when your time has expired. 
If there is a technology issue we will move to the next witness 
or Senator until it is resolved.
    To simplify the speaking order, as we do this remote, 
Senator Toomey and I have agreed to go by seniority for this 
hearing.
    One of the most important things we can do in this 
Committee is to give a voice to all people who have not had 
enough of a voice in their Government. Last week, we began by 
hearing from Ohioans and witnesses from around the country who 
do not have corporate lobbyists but they understand their 
communities and who know the challenges regular people are 
facing right now. Today we will continue that work, hearing 
from small business owners and small lenders from Columbus, 
Ohio; Baltimore, Maryland; and from Pennsylvania.
    Just like American workers, these are businesses that are 
often left behind or steamrolled by the largest corporations 
and the biggest banks and their allies in Washington. Wall 
Street too often excludes small and minority-owned businesses 
and only measures success by the stock market. The Dow does not 
tell us much about how a restaurant in Columbus or an early 
learning center in Baltimore is doing, and how their workers 
and their customers are doing.
    These entrepreneurs are an important measure of the real 
state of our economy. Small businesses create jobs and generate 
economic growth in our communities in the heartland and Black 
and Brown communities, places that often do not get a lot of 
outside investment. The stakeholders in these businesses are 
not nameless, faceless shareholders. They are our neighbors. 
They are our family members. They are the people you see at 
school, at the grocery store, at church. We will not have a 
strong recovery unless we reach these businesses and the 
lenders and organizations that support them.
    These businesses know how important it is to have local 
lenders and institutions that understand small business needs 
and serve their communities. It is the Community Development 
Financial Institutions, the CDFIs, and the Minority Depository 
Institutions, the MDIs, that help them fight to save their 
businesses when the big banks turn them away or were never an 
option in the first place.
    People in Ohio and across the country remember how, after 
the last economic crisis in 2008-09, big corporations recovered 
while large swaths of the country, including in my State, were 
left behind. Many of these same communities have watched for 
decades as factories closed and investment dried up and 
storefronts were boarded over. They are often places that have 
never had the investment they should, because of 
discrimination, because of redlining, because of decades of 
policy that funneled resources and jobs away from entire 
neighborhoods and towns and regions of our country.
    In all these places so many Americans know what it is like 
to wake up one day and realize the only jobs to be had were at 
big-box chains, for rock-bottom wages, with no health care, no 
paid sick leave, no power over your schedule. We cannot allow 
that to be our future. We need to invest everywhere in the 
places that have seen investment dry up, in places that were 
overlooked, that were discriminated against, that were outright 
preyed upon to begin with. If we allow another Wall-Street-
first recovery, where the big guys get taken care of while 
small businesses fight over the scraps, we will end up with 
more hollowed-out towns and neighborhoods, more workers trapped 
in a broken corporate business model.
    President Biden understands that. His rescue plan will help 
these businesses and the communities they support around the 
country. The number one thing we must do to support all small 
businesses is to get every American vaccinated as quickly as 
possible. That is how we protect workers. That is how we ensure 
customers feel safe, going shopping, going to restaurants, 
going to the movies or the concerts and the barber shops, and 
other places again. Our rescue plan will fund the massive 
mobilization we need to make that happen. It will give more 
financial support to these small and minority-owned businesses 
and the community lenders that support them.
    In addition to continuing to fund and improve the PPP and 
EIDL programs, we are going to restart a successful Treasury 
program that will give more small businesses access to capital. 
We will make sure mission-based lenders, CDFIs and MDIs, have 
what they need to serve their communities.
    Our work does not end, though, with this emergency bill. We 
need to invest in these entrepreneurs represented today and 
their communities for the long term. We need to rethink our 
economy and how we value the people and the places it is made 
up of. When we put communities, not big corporations, at the 
center of our policy we will get more businesses that actually 
value their workers and measure success the same way families 
do, not in quarterly earnings reports. We will get more 
entrepreneurs building something for the long time, something 
with roots in our communities.
    People are proud of where they come from. They want to see 
the Main Streets they love thriving again. Our witnesses today 
know that. They know the vibrancy, the dynamism, the diversity 
of working-class towns and neighborhoods all over this country. 
We need to get to work to invest in them and ensure that those 
places, America's Main Streets, not Wall Street, are the center 
of our recovery and are the building blocks of a better 
economy.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J.TOOMEY

    Senator Toomey. Thank you, Chairman Brown, and thanks to 
our witnesses for testifying today. You know, COVID has been an 
unprecedented crisis, and Congress' response has been 
unprecedented as well. Congress has passed five bills in 
response to the pandemic. They have provided almost $4 trillion 
in relief. The most recent $900 billion bill was signed into 
law less than 2 months ago. And all five of those bills 
received overwhelming bipartisan support, designed to prevent 
the economy from spiraling into a crisis and to facilitate the 
economic recovery that we have needed.
    And let's be clear--the economy is in recovery mode. The 
unemployment rate that was 15 percent in April is 6.3 percent 
in January. As of December, 18 States had unemployment rates 
below 5 percent, and we have seen strong economic growth these 
last two quarters, and the consensus forecast for the year we 
are in now is likely to exceed 5 percent, real economic growth.
    Unfortunately, despite all this, President Biden and our 
Democratic colleagues are pushing a $1.9 trillion bill that is 
completely detached from any kind of economic reality. The bill 
is not designed to find common ground. In fact, the procedure 
that is being used to pass it virtually precludes common 
ground. And unlike previous bills, it is not an economic relief 
bill, as its size and its content bears no relation to the 
economic circumstances we are in.
    For example, the Democratic plan for small business aid 
would spend billions, tens of billions, when billions have 
already been spent, and are still available. The Democratic 
plan includes spending another $15 billion for Economic Injury 
Disaster Loans, $10 billion to restart the Obama-era State 
Small Business Credit Initiative, known as SSBCI, another $7.5 
billion for the Paycheck Protection Program, known as PPP. But 
Congress has already provided over $1 trillion in relief for 
small business, and just 2 months ago Congress gave $248 
billion for the hardest hit businesses to apply for a second 
round of PPP loans, another $20 billion for EIDL loans, $12 
billion for the Minority Depository Institutions and the 
Community Development Financial Institutions to invest in low- 
and moderate-income communities.
    And the MDIs and the CDFIs will not even be able to push 
this money out the door. The $12 billion that we already gave 
is 50 times the annual amount of the CDFI funds. And billions 
of these dollars are still available. As of earlier this week, 
more than $140 billion in PPP loan money is available, 
untapped. As of yesterday, none of the $20 billion for EIDL has 
been disbursed, and it is doubtful that much, if any, of the 
$12 billion for MDIs and CDFIs has been put to you. And yet, 
they want still more money.
    There is no need for the $10 billion to restart a program, 
the SSBCI, that was tried and failed. That program was 
operational in the early 2010s and the results were very 
disappointing, as is often the case with Government programs. 
It was slow to launch, inefficient at deploying the capital, 
loans and investments often took months or years to reach small 
businesses, and we know that they will not be able to give 
money to small businesses quickly now. The program is also 
riddled with all kinds of problems. The audits by the 
Treasury's inspector general and the GAO point to a program 
that was wasteful, inefficient, poorly managed, and more 
fundamentally, the program is objectionable on its face.
    Unlike PPP, this program is not about providing COVID 
relief, since it makes funding available for years after the 
expected duration of the pandemic. In fact, CBO estimates that 
only 8 percent of the $10 billion meant for the SSBCI will be 
spent in 2021. And unlike PPP, it is not about keeping 
employees on payroll, since it contains no such requirement. 
The program is just a means for the Government to allocated 
credit.
    In addition to misusing taxpayer resources for things like 
SSBCI, the Democratic plan is rife with provisions that will 
actually harm small businesses and workers, their employees, 
and the recovery that is underway. For example, the $15-an-hour 
minimum wage. That is an increase that is going to not only 
harm small businesses but prevent low-skilled workers from 
getting their first job. CBO projects a loss of 1.4 million 
jobs, and maybe as high as 3.7 million.
    Today we have two witnesses who tell us more about the 
damage that they believe will occur if we have a $15-an-hour 
minimum wage. I am looking forward to hearing from Joel 
Griffith from The Heritage Foundation and Dani Ritchie from my 
home State of Pennsylvania on this matter.
    Another important point to make here is that our Democratic 
colleagues, this bill is not targeted to provide the temporary 
aid that has resulted from the pandemic. According to CBO's 
estimates, only a fraction of the $1.9 trillion will be spent 
this year. Among the spending items under the Banking 
Committee's jurisdiction, CBO estimates that in 2021, only 
about half of the $19 billion for rental assistance will be 
spent. Only 8 percent, as I said, of the $10 billion for SSBCI 
will be spent in 2021. Only 5 percent of the $5 billion for 
emergency housing vouchers will be spent in 2021. And this one 
is just incredible--they estimate that 0 percent of the $5 
billion for homeless assistance will be spent in 2021. Do they 
think that this pandemic goes on for decades? I mean, this 
makes no sense.
    And then, of course, there are the provisions that have 
absolutely nothing to do with COVID, under any circumstances, 
like $86 billion to bail out multi-employer pensions, $100 
million earmark for a subway in Silicon Valley, $135 million 
for the National Endowment for the Arts, $50 million for 
environmental justice grants, whatever that is. But small 
businesses and workers do not need a $1.9 trillion bill that is 
wasteful, not at all targeted, and largely unrelated to COVID, 
and they certainly do not need to lose job opportunities by 
virtue of a $15 minimum wage.
    So rather than ramming through a partisan, bloated, and 
unnecessary spending bill, we ought to be focusing on lifting 
Government shutdown orders, reopening our schools, and the one 
thing I think we do agree on, distributing vaccines as quickly 
as we possibly can so that businesses can reopen, workers can 
go back to work, and people can go back to normal lives.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey. I will now 
introduce today's witnesses. I will introduce them in the order 
in which they will testify.
    Mrs. Watchen Harris Bruce is the President and CEO of 
Baltimore Community Lending. She has more than 30 years of 
experience in banking, finance, economic development, and 
affordable housing. Welcome, Mrs. Bruce.
    Joe DeLoss is the Founder and CEO of Hot Chicken Takeover, 
a popular restaurant that started as a popup window in Old Town 
East neighborhood in Columbus. He has expanded to Westerville, 
Westlake, and in northeast Ohio he is going to expand in 
Strongsville, and it is a favorite eating place of both my 
daughter, Elizabeth, and a young man in my office by the name 
of Andy.
    Jessica Milano is a board member of Small Business Majority 
and a senior advisor at Calvert Impact Capital. Though she 
appears today in her personal capacity, she previously served 
as the Deputy Assistant Secretary for Small Business, Community 
Development, and Housing Policy at the Department of the 
Treasury, and is a senior advisor to the Administrator of the 
U.S. Small Business Administration.
    Mr. Joel Griffith is a research fellow in the Roe Institute 
at The Heritage Foundation. He previously worked as the 
Director in the Center for State Fiscal Reform at the American 
Legislative Exchange Center, as the Deputy Research Director at 
the National Association of Counties.
    Ms. Dani Ritchie is the owner and stylist at Studio Alchemy 
in Harmony, Pennsylvania, a part of Pennsylvania not far from 
my State of Ohio, and it does not look that much different from 
that part of my State.
    Welcome to all five of you. Ms. Bruce, if you would begin, 
and you have about 5 minutes. Thank you.

STATEMENT OF WATCHEN HARRIS BRUCE, PRESIDENT AND CEO, BALTIMORE 
                    COMMUNITY LENDING, INC.

    Mrs. Bruce. Chairman Brown, Ranking Member Toomey, and 
distinguished Members of the Committee, thank you for the 
opportunity to appear before you today. My name is Watchen 
Harris Bruce, and I serve as President and CEO of Baltimore 
Community Lending. BCL is a Community Development Financial 
Institution, CDFI, located in the heart of Baltimore, with the 
dedicated mission to support the revitalization and 
strengthening of targeted neighborhoods through innovative and 
flexible financial resources. BCL's services include mini-perm 
mortgages and construction loans, in addition to non-real 
estate small business lending that may not require collateral.
    Prior to COVID-19, many of our businesses faced significant 
challenges accessing needed capital, due to business size, 
race, gender, and the inability to provide adequate collateral. 
As a result, many businesses have turned to more expensive 
capital resources, including, but not limited to high-interest 
credit cards and online lenders, many of whom are predatory. 
These trends were concerning prior to the pandemic, and COVID 
has worsened the already existing lack of affordable capital 
conditions in our community.
    That said, in my testimony today, I would like to address 
the major issues and concerns facing my CDFI in Baltimore, and 
the CDFIs like mine around the country. As an African American 
led CDFI, BCL is a member of the African American Alliance of 
CDFI CEOs. The alliance is a nonprofit coalition comprised of 
over 46 CDFIs covering 50 States, with the purpose of 
strengthening the operational and fiscal capacity of alliance 
members and the mission of closing the Black wealth gap.
    CDFIs can play a significant role in narrowing the racial 
gap and have been an effective tool in generating economic 
development in low-income and African American communities. 
However, African American led CDFIs have been significantly 
underfunded, greatly impacting our ability to stimulate and 
grow local the local Black and Brown economies that have 
consistently experienced disinvestment and underinvestment for 
centuries.
    According to a recent study conducted by the Hope Policy 
Institute, covering the period between 2014 to 2017, the assets 
of White led CDFIs grew by $22 billion, while the assets of 
minority led CDFIs grew by just $683 million. This is an 
unfortunate result and directly impacts capital liquidity and 
our ability to successfully fund businesses and economic 
development projects in the communities we serve.
    In the recent COVID relief packages passed by Congress, 
this body ensured that the CDFI fund received additional 
appropriations, which is a big step in the right direction. 
However, in passing the Emergency Capital Investment Program, 
ECIP, a program which provides $9 billion in investment capital 
targeting minority led CDFIs, low-income communities, and areas 
of persistent poverty, the legislation excluded nonbank CDFIs, 
leaving many of our organizations still void of needed 
investment capital.
    We believe it was the original intent that nonbank CDFIs 
not be excluded, and we ask that you consider opening 
additional authority and appropriations, specifically targeting 
minority led nonbank CDFIs. That said, I would also ask that 
you look to the New Markets Tax Credit Program as another 
mechanism for directly reaching minority led CDFIs. Our concern 
is that many minority led and smaller CDFIs and CDEs may be 
excluded from receiving awards, not due to the lack of 
experience or ability because the program's scoring system 
prefers larger, more tenured applicants. A possible solution 
for the Committee to consider is whether the fund should 
preserve a portion of each allocation cycle for emerging 
qualifying CDFIs and CDEs.
    Thank you for the opportunity to provide testimony and 
share my views on these very important issues. We look forward 
to our continued work together and developing solutions for 
small businesses, affordable housing, and job creation. I thank 
you.
    Chairman Brown. Thank you, Mrs. Bruce. Mr. DeLoss, welcome.

STATEMENT OF JOE DeLOSS, FOUNDER AND CEO, HOT CHICKEN TAKEOVER, 
                         COLUMBUS, OHIO

    Mr. DeLoss. Thank you, Chairman Brown and Ranking Member 
Toomey, for the invitation to testify before this Committee. My 
name is Joe DeLoss. I am the founder and CEO of Hot Chicken 
Takeover. We are a small fast-casual restaurant chain based in 
Columbus, Ohio and intent on growing throughout the Midwest 
right now.
    Though our business has an absolutely ridiculous name, it 
was built with a serious, transformative mission. I started Hot 
Chicken Takeover to provide employment to those who have 
experienced significant adversity in their lives, ranging from 
incarceration, to homelessness, to addiction, and to many 
things in between. Our team is a diverse cast of players, all 
working together to be a best-in-class restaurant chain. We 
currently have five restaurants open and a sixth under 
construction. Our team will approach around 200 people before 
the year end.
    So this introduction, especially including mention of our 
employees' pasts, often garners warm, sympathetic responses. 
With that in mind, it is very important for me to distinguish 
that Hot Chicken Takeover is very far from a charity or some 
late-night TV commercial with sappy music. Our business is 
strong because our people are strong. Though they have been 
overlooked by the greater employment market, our team has led 
Hot Chicken Takeover to countless awards, national media 
exposure, and private investment from some of the greatest 
innovators in our industry. Our business is a very for-profit 
business, demonstrating the positive economics that can happen 
from deeply caring for and investing in your team.
    When COVID-19 hit in the United States, our leaders 
immediately concerned themselves with the stability of our team 
and our community. With fear that restaurant sales may dry up 
completely, we made a choice to temporarily close our 
restaurants and move our team onto the emergency assistance and 
unemployment benefits that many of you engineered. This 
transition was far from smooth. Our remaining team essentially 
became a makeshift case management department, ensuring our 
team members' needs could be met through our own discretionary 
resources while the Government unburied itself from such 
immense service demand.
    The other major consequence for our business from the 
pandemic was that we lost nearly $2 million in committed 
private investment capital that was set to close the last week 
of March 2020.
    So operating at a tremendous deficit, our remaining scrappy 
team jumped into action to pivot our concept and ready 
ourselves for reopening. This effort included everything from 
safety and sanitation initiatives, to reconfiguring our menu, 
to employee benefits, and to new integrating multiple new 
technologies. Along the way, we were able to secure the first 
round of PPP funding, some EIDL dollars, and received several 
sympathetic investments from our existing business partners. 
Without these supports, Hot Chicken Takeover would have been 
another casualty of the crisis. I am sure of it.
    Thankfully, our concept was well positioned to serve post-
COVID consumers. We began reopening locations in May of 2020. 
With dining rooms closed to ensure the safety of our team and 
our guests, we doubled down on carry-out and delivery business. 
We are still doing our best to avoid a lot of the predatory 
fees and poor service models of many other third-party vendors 
in our industry.
    But we successfully recalled 90 percent of our employees 
upon reopening, which was a huge testament to our team and 
their commitment. We actually began hiring others displaced by 
the pandemic to accommodate some increased demand we were 
seeing. And since reopening, we have been able to stabilize 
financially, and we are cautiously approaching growth again, 
intent on creating more transformative and meaningful jobs.
    All this said, the COVID crisis is far from over for our 
company, but we finally see a path forward for Hot Chicken 
Takeover and our team. And though we do see some glimmers of 
hope on the horizon, we represent a very small segment of just 
a completely decimated industry. Further assistance for our 
businesses and employees is critical for our communities to 
move forward.
    Thank for this opportunity to share testimony, and thank 
you all for your leadership. I look forward to your questions 
and our discussion.
    Chairman Brown. Thank you, Mr. DeLoss. Ms. Milano.

   STATEMENT OF JESSICA MILANO, BOARD MEMBER, SMALL BUSINESS 
                            MAJORITY

    Ms. Milano. Thank you, Chairman Brown, Ranking Member 
Toomey, and all of the Members of the Committee for inviting me 
to testify today.
    Today I would like to discuss ways that we can move beyond 
small business to focus on how we can support sustainable, 
longer-term solutions for rebuilding Main Street small 
businesses. Many of the communities hardest hit by the pandemic 
have been communities of color. A study from the New York Fed 
found that Black-owned businesses are more likely to be located 
in counties with higher incidence of COVID-19 and concentrated 
in retail, restaurants, and other service industries most 
impacted by shutdowns. To make matters worse, these businesses 
often had weaker cash positions and weaker bank relationships 
before the pandemic, leaving them particularly vulnerable to 
the economic shocks that followed.
    Research has shown that businesses that were underbanked 
prior to the pandemic had trouble accessing Federal relief like 
PPP. Very small businesses, the self-employed, and small 
business owners of color were much less likely to have a 
business banking relationship prepandemic. While roughly one in 
three applied for a PPP loan, only 23 percent of Black-owned 
businesses, and 27 percent of Latino-owned businesses received 
the full amount requested.
    This data is not a criticism of PPP but highlights the 
challenges policymakers face in helping capital reach 
businesses and communities historically underserved and 
underbanked by traditional lenders.
    The announcement this week of an exclusive 2-week window 
for businesses with fewer than 20 employees to apply for PPP is 
an acknowledgement of this and a positive step to provide 
relief to these businesses. But rebuilding Main Street will 
require support beyond this spring.
    PPP also does not support new businesses. A silver lining 
of the pandemic has been the number of new business starts. 
According to recent census data, in 2020, there were nearly 4.5 
million new business applications, a 24 percent increase from 
2019. It is too soon to tell how many of these businesses will 
survive, but the data is encouraging because it reverses a 
decades-long decline in new business formation and shows how 
entrepreneurship can help lead the way out of the crisis.
    As the Committee hears proposals to rebuild Main Street, I 
would like to recommend reauthorization of the State Small 
Business Credit Initiative as a complement to PPP and more 
durable form of long-term support. SSBCI worked by allowing 
States to set up their own small business support programs 
targeted to local economic needs. In total, it funded 154 
programs nationwide and dedicated $1 billion to lending 
programs and over $400 million to venture capital programs 
targeting investment in early stage businesses.
    The program succeeded in providing capital to very small 
and young businesses. Eighty percent of SSBCI loans or 
investments supported businesses with 10 or fewer employees, 
and nearly half were less than 5 years old, and 42 percent of 
SSBCI loans or investments were made to businesses in low- and 
moderate-income communities. This was achieved because the 
program partnered with often smaller community lenders and 
CDFIs that exist to meet the unique needs of historically 
underbanked communities.
    In the last year, some States have sought to replicate 
these models. In May, New York launched the New York Forward 
Loan Fund with LISC, a CDFI that works with other New York-
based CDFIs to provide low-cost working capital loans to 
businesses with fewer than 50 employees. And in November, 
California launched the California Rebuilding Fund, a public-
private partnership that drives capital to CDFIs so that they 
can extend loans to the small businesses they serve.
    To date, these programs have reached over 1,000 of the 
hardest-to-reach small businesses across their States, with 77 
percent of loans to businesses in LMI areas or owned by an 
historically underbanked population. These businesses are the 
smallest of the small: 76 percent have 5 or fewer full-time 
employees.
    Reauthorizing the SSBCI would help make these programs 
available in more States and help more small businesses access 
affordable loans beyond March 31st, when PPP is set to expire. 
Also, by providing flexible working capital and other forms of 
small business credit and investment products, SSBCI would 
address the gaps left by PPP and help more small businesses 
keep the doors open, so when restrictions are lifted they are 
ready to welcome back customers, stronger and more resilient 
than before.
    Thank you again for inviting me to testify today, and I 
look forward to the discussion to follow.
    Chairman Brown. Thank you, Ms. Milano. Mr. Griffith, 
welcome.

   STATEMENT OF JOEL GRIFFITH, RESEARCH FELLOW, THE HERITAGE 
                           FOUNDATION

    Mr. Griffith. Good morning, Chairman Brown, Ranking Member 
Toomey, and Members of the Committee. I thank you for the 
opportunity to testify today. My name is Joel Griffith. I am a 
research fellow at The Heritage Foundation.
    Beginning in March of last year, our Nation witnessed a 
historic plunge in economic output. This was the first time in 
our Nation's history that the Government intentionally 
suppressed the supply of goods and services and also suppressed 
consumer activity by artificially suppressing demand. It is 
certainly not for want of Government spending that the economy 
still has not recovered. The Federal Government has borrowed, 
printed, and spent trillions of dollars in an effort to cushion 
the economic downturn. And rather, it is Government-mandated 
closures and the public perception of the health crisis that 
continues to deter investment and suppress economic activity.
    Congress has already approved more than $1 trillion of aid 
intended for small businesses, including $800 billion to the 
Paycheck Protection Program. Much of this aid is actually still 
available. In fact, of the additional $284 billion provided for 
PPP in the December stimulus package, only 36 percent had 
actually been obligated through February 7th. Another $15 
billion in this current legislation is proposed for the 
targeted Economic Injury Disaster Loan program, but as of 
February 12th, none of the $20 billion that has already been 
appropriated has been obligated either.
    On top of all of this prior spending and all of the 
spending that has already been approved but not allocated, this 
current legislation provides $10 billion to restart the State 
Small Business Credit Initiative. The SSBCI funds State 
programs that provide Government loan guarantees and Government 
loan purchases to politically favored businesses. Numerous 
problems have plagued this program in the past. It has been 
well documented. In fact, the Office of Inspector General found 
only four States to be in full compliance with the program.
    These funds for SSBCI do not actually fill a need of small 
businesses that have not already been met by the market. 
Instead, this serves to operate as a slush fund for State and 
local government politicians across the Nation, a purpose which 
is most certainly detached for combating the economic fallout 
from the shutdowns.
    It is a misnomer, in general, to believe that credit 
markets are not providing funds to small businesses. Most small 
businesses are now saying they are generally not looking for 
more credit. Only 3 percent of respondents to a recent NFIB 
survey reported that their borrowing needs are not satisfied. 
Small business credit conditions in December, based on the 
percentage of businesses reporting easier lending conditions, 
were actually identical to conditions 1 year prior, and that 
was months before COVID-19 began. Obtaining financing is the 
reported top concern of just 1 percent of small business 
owners.
    Our credit markets serve an important function of 
efficiently allocating resources across the economy. Usually, 
businesses and projects must compete with each other to obtain 
limited amounts of capital in order to secure the resources to 
function. When the Government provides capital at submarket 
interest rates, or in the form of outright grants, businesses 
which otherwise may not secure funding in a competitive 
environment find it possible to continue consuming limited 
resources which would have been more productively deployed 
elsewhere, to other companies, and this crowds out private 
capital. More importantly, this places control over the 
allocation of resources into the hands of Government officials 
rather than the free market.
    Another troubling component of this legislation is the $15 
Federal minimum wage. This would price those who earn less than 
$36,000 per year, which is the payroll cost of employing 
somebody--this would price them out of the marketplace and it 
would destroy jobs and opportunities for those who most need 
it, including the 26 million Americans who have not graduated 
from high school. Young adults seeking first jobs, people with 
living disabilities, people reentering society after 
incarceration will be amongst the first to be priced out of the 
jobs market by $15 national minimum wage.
    And The Heritage Foundation recently released a study that 
showed that this would also result in child care prices 
increasing by 20, even 30 percent across the country, a $5,000 
to $6,000 burden on middle-class families.
    A full economic recovery does not stem from stimulus checks 
or bailouts from Washington, D.C. Rather, it is a result of 
individuals and businesses safely and legally interacting with 
others. The pace of this recovery varies across the Nation, but 
in States that have actually ended their lockdowns you see 
economic growth far exceeding that of the national average. In 
fact, we have eight States now, in this country, that have a 
larger economy now than they did prepandemic, and this 
contrasts sharply with places like New York City, L.A., and 
Chicago, which are mired in the midst of an economic recession 
produced by policies which refuse to allow people to reenter 
society.
    Thank you for the opportunity to testify this morning.
    Chairman Brown. Thank you very much, Mr. Griffith.
    Ms. Ritchie, please proceed. Thank you for joining us.

   STATEMENT OF DANI RITCHIE, OWNER/STYLIST, STUDIO ALCHEMY, 
                     HARMONY, PENNSYLVANIA

    Ms. Ritchie. Thank you. Chairman Brown, Ranking Member 
Toomey, and Members of the Committee, thank you for the 
invitation to testify today and allowing me to share my story.
    My name is Dani Ritchie. I am a hair salon owner and part-
time service worker from New Castle, Pennsylvania, and my hair 
salon is located in Harmony, Pennsylvania. I opened my business 
in 2016, only a year after graduating cosmetology school.
    In addition to working as a hairstylist, I work part-time 
as a server and bartender, and working in the restaurant 
industry while attending college, I could pick up extra shifts 
when I was low on cash, and my flexible schedule allowed me to 
go to school while still making an income. I have worked in the 
restaurant industry for 18 years now, and 10 of them at North 
Country Brew Pub in Slippery Rock, Pennsylvania, where I am 
still currently employed part-time.
    Being a server and bartender is what allowed me to pursue 
my passion of becoming a cosmetologist and open my salon. The 
flexible hours allowed me to attend school, and the generous 
tips are what helped me to save and open my salon without 
having to get a loan.
    When Pennsylvania first imposed business shutdown orders in 
March of 2020, I had to close the doors to my salon for over 3 
months, while still having to pay rent and utilities for an 
unoccupied building. I was also unable to work at the brewery 
at that time because it was temporarily shut down, but luckily, 
when the brewery was permitted to open back up on a limited 
basis to provide take-out and delivery orders, I was able to 
pick up work there.
    The owners of North Country Brewing Company, Bob and Jodi 
McCafferty, are incredible people who have worked so hard to 
provide not only one, but three unique, sustainable businesses 
in Slippery Rock and Harmony. All three locations have provided 
secure employment for 206 people, that is, until the Government 
put in place coronavirus restrictions for restaurants.
    During the first round of shutdowns, they could only keep 
23 active employees on payroll, and during the second round of 
shutdown, there were only 39 active employees on payroll. It is 
heartbreaking to see the astronomical number of restaurants and 
other small businesses that have suffered financially and had 
to close permanently because of the economic hardship caused by 
Government shutdowns and restrictions.
    Given these challenging circumstances, I am deeply 
concerned by the proposal to raise the national minimum wage to 
$15 an hour and eliminating the tip credit. This proposal would 
be financially devastating to restaurants and other small 
businesses and many of their workers. Servers at the brewery 
are paid $3 an hour plus tips, and our tips provide us with an 
income that surpasses $15-an-hour minimum wage. Asking Bob and 
Jodi to increase the majority of their front-of-house staff to 
$15 an hour is asking them to give a 400 percent raise to most 
of their employees. That would be a severe increase in 
expenses, at any time, but will be especially difficult given 
that COVID shutdowns and restrictions have caused an enormous 
hit to sales.
    Jobs will be lost, and menu prices will skyrocket to cover 
the mandated raises, which will undoubtably deter customers 
from wanting to go to any restaurant. The small businesses that 
have been lucky to keep their doors open after COVID 
restrictions are going to have an incredibly hard time 
surviving if they are forced to pay these wages. That is not to 
mention the hit to the service industry, tip-reliant workers 
like myself. We take jobs at restaurants knowing that we are 
signing up to make $3 an hour, and we work hard to provide 
great service to our customers with the hope that they will 
compensate us with tips for the ``above and beyond'' service 
received. We are not asking for a flat rate of $15 an hour, 
which will be a major cut in our income.
    The restaurant industry has been running on this model for 
over 80 years now, and it is not broken. The majority of people 
fighting for this ``one fair wage'' have never worked at a 
restaurant a day in their lives and do not understand that we 
make a good living with our tips. We are not asking for their 
help, and they are actually doing us way more harm than good.
    What restaurants, other small businesses, and their workers 
need is for the economy to fully reopen. Many Government-
imposed business restrictions, such as the 25-50 percent 
capacity, are unnecessarily harmful and need to be lifted as 
soon as possible. These capacity restrictions do not make sense 
for many businesses, including my hair salon. With what we 
know, and are continuing to find out about the virus, I believe 
we can safely accommodate 100 percent capacity with 
modifications that allow for proper social distancing and mask 
wearing. It should be up to the individual to decide if they 
want to go to an establishment or stay home, because, after 
all, we are supposed to have freedom of choice here in America.
    Thank you for your time and for listening to my story as a 
small business owner of 5 years and a tipped service worker for 
18 years. Please hear my words as someone who has been blessed 
to earn a more than fair income in the restaurant industry with 
the wage model set in place, as-is also as a small business 
owner, negatively affected by Government restrictions imposed 
as a response to this pandemic. Piling on more requirements for 
businesses will only hurt business owners and employees who 
have already been through enough, and we need to move forward 
from this before it completely crashes our economy and crumbles 
small, locally owned businesses.
    Chairman Brown. Thank you, Ms. Ritchie.
    I will begin with 5 minutes of questions. Mr. DeLoss, Hot 
Chicken Takeover is known for giving its employees a second 
chance and treating them well. Describe, if you would, how 
investing in your employees has benefited your business.
    Mr. DeLoss. Thank you, Senator Brown. Yeah, Hot Chicken 
Takeover employment model is something I have worked on, at 
this point, for about 15 years, between this business and 
others. We take a strategy of offering our employees kind of 
myriad benefits, and though there are conventional benefits 
like health care, 401(k)s, other things that opportunistically 
move people forward, we also meet our employees where they are 
at, with relevant benefits surrounding matched savings 
accounts, deeper investments in financial literacy and support. 
We do all of this and it pays a return.
    And so what we have seen from our orientation to our team 
is that we are producing two to three times better retention 
than most in our industry. So when you are looking at 
statistics of a turnover of an employee costing you upwards of 
$5,000 in hard costs--I think Cornell just put that out--what 
we are seeing, we are seeing our turnover at sub-40 percent 
versus 150 percent a year. So we can look at kind of the hard 
math of an ROI and what the investments we do in our team make 
for our business, and we are grateful to continue them and 
advocate to other people to do them as well.
    Chairman Brown. Thank you. Ms. Bruce, we heard from Federal 
Reserve Board Chair Jerome Powell this week that when it comes 
to our recovery the job is not done. Wall Street might be doing 
fine but I hear from small businesses in Ohio and across the 
country that they still struggle to stay afloat during the 
pandemic, which, as you have pointed out, hit Black and Brown 
businesses and communities disproportionately hard.
    How do the products and services you offer help your 
clients keep their doors open and help your clients address the 
racial wealth gap?
    Mrs. Bruce. Thank you, Chairman Brown. The products and 
services we offer are very important to creating wealth and 
helping them sustain themselves. Our products are flexible and 
they are definitely below market. Our products are catering to 
people who ordinarily will not qualify for traditional banks. 
Because we are a CDFI we are mission based, but our products 
help businesses have access to capital because of this 
flexibility and also long term.
    For example, a lot of the businesses we are working with 
are microbusinesses, and so most commercial banks do not do 
loans, microloans, even small business loans below $250,000. So 
most of our products are below that. But without our products, 
a lot of them would not have access to the capital needed to 
expand or grow their businesses. And this helps them to create 
wealth for themselves and their employees. So that is why we 
need more flexible, long-term capital to do more to help our 
businesses sustain themselves and generate the type of cash-
flows they need for their businesses.
    Chairman Brown. Thank you, Mrs. Bruce. Ms. Milano, 
President Biden's American Rescue Plan called for an addition 
$50 billion in small businesses assistance. As part of this, 
the House Financial Services Committee, the House counterpart 
of this Committee, approved a measure that would approve $10 
million in the State Small Business Credit Initiative to help 
small businesses recover from the pandemic.
    How would the SSBCI funding help businesses in underserved 
areas like Butler County, Pennsylvania, and Black and Brown 
communities rebuild or expand their operations and recover from 
the pandemic? Ms. Milano.
    Ms. Milano. Yes. Thank you. So SSBCI, I think, helps 
because it is very different from other Federal small business 
support programs because it is not a one-size-fits-all approach 
with top-down sort of uniform loan requirements like PPP or 
other SBA loan programs. It really is a flexible form of 
support that works with States to develop and design their own 
small business support programs to address market gaps like 
funding to CDFIs, to smaller community lenders. And, 
importantly, it is the only program of its kind that support 
venture capital financing to help drive investments to 
communities that are outside sort of the venture capital 
financing hubs in America, in New York, Boston, and San 
Francisco. It really works to attract funding in other areas of 
the country.
    So I think that is a very important difference, and I think 
that is a longer-term form of support that is really focused on 
helping rebuild coming out of the pandemic as opposed to the 
sort of current programs which are focused on relief.
    Chairman Brown. Thank you. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Ms. Ritchie, 
thanks very much for joining us today. You have an 
extraordinary story, and I wanted to ask you about this. I want 
to make sure I understand some of the facts.
    In Pennsylvania, I believe the minimum wage is $7.25 an 
hour.
    Ms. Ritchie. Correct.
    Senator Toomey. And I think the minimum tip wage is $2.83 
an hour.
    Ms. Ritchie. Mm-hmm.
    Senator Toomey. And your story, if I have got it right, is 
that while working in an industry where the minimum wage was 
$2.83 an hour, you managed to support yourself, put yourself 
through cosmetology school, and then launch your own small 
businesses. How is that even possible on $2.83 an hour?
    Ms. Ritchie. What a lot of people do not understand is 
though the minimum wage is set at $2.83 an hour, we are covered 
by the tip credits. And what a lot of people do not understand 
is what the tip credit actually is. So say, like, in my case I 
make $3.00 an hour at the brewery. If I go to the brewery, and 
say it was a fluke day, nobody comes in, I do not make any 
tips, then it is up to Bob, as the restaurant owner, to make 
the difference in my paycheck hourly to ensure that I make at 
least minimum wage.
    Senator Toomey. And, in fact, when business is pretty good, 
you can make much more than minimum wage, right?
    Ms. Ritchie. Much more, yes. Thankfully.
    Senator Toomey. Yeah, and you often did.
    Ms. Ritchie. Mm-hmm.
    Senator Toomey. Right. Let me ask you this. Now you have 
your own small business. What do you think would be more 
valuable for your employees, a $15 minimum wage or to be able 
to fully open and accommodate, safely, the customers you can 
accommodate?
    Ms. Ritchie. We definitely need to reopen. This is not 
doing anything good for the economy. As I said whenever I gave 
my testimony, the 50 percent capacity just does not make sense, 
especially because in a hair salon I have to be so incredibly 
sanitized and sterilized anyway, and the distance between our 
stations is much more than six feet, so I believe we can 
absolutely safely accommodate 100 percent capacity.
    Senator Toomey. And you and your customers have every 
incentive to be careful, to take the proper precautions. Is 
that what you do now, with respect to the customers you are 
able to serve?
    Ms. Ritchie. Yes, absolutely, and we actually, at the 
salon, we do have masks to provide to customers that do not 
show up with their own, and we have hand sanitizer everywhere. 
We sanitize our stations and our tools after every client, 
whenever we are finished with them, before anybody else even 
enters.
    Senator Toomey. Well, congratulations----
    Ms. Ritchie. Thank you.
    Senator Toomey. ----on an amazing and terrific story.
    Mr. Griffith, you know, we see the CBO estimate that if the 
minimum wage goes up to $15 it could destroy 1.4 million jobs, 
maybe considerably more than that. It seems pretty clear that 
what this amounts to is the Government picking winners and 
losers. Some people would get raises, but a lot of people would 
lose their job. You know, Thomas Sowell wisely observed that 
the Government can set any minimum wage it wants, but there is 
always a minimum wage of zero.
    So let me ask you this. If we double the minimum wage, why 
couldn't businesses just raise their prices to cover the added 
costs, so that they would not have to lay anyone off?
    Mr. Griffith. That is a good question, and if you look at 
the sectors in which the minimum wage is most prevalent, a lot 
of those are sectors with very low profit margins. So think of 
a restaurant, for instance, that has a 5 percent profit margin 
and labor costs that eat up half of their expenses. Well, if 
you double or triple--and let's just go with doubling the 
minimum wage to $15--well, suddenly their entire profit margin 
is eaten way. They become either insolvent or they have to 
raise the prices to accommodate that.
    Well, in many of these restaurants they would have to raise 
prices on their standard fast-food package by close to 40 
percent, and in those instances, many individuals would choose 
no longer to frequent the restaurant but go somewhere else, or 
that restaurant will be forced to prematurely automate. 
Automation can be a positive thing, but in this case this would 
be Government nudging these companies to automate early, and 
many of these individuals that work there, they do not work in 
those jobs for long. They get the on-the-job training and they 
move on. I worked at a minimum wage job for several years 
through college, getting that experience. You move on after you 
get it. But when you double this, it just denies people that 
opportunity to get that first shot at getting that on-the-job 
training.
    Senator Toomey. And just very quickly, you indicated in 
your testimony that all of this Government funding and grants 
and loans is having the effect of crowding out private capital 
and misallocating resources. Can you explain to us, what is the 
net effect of that? So what? What is the problem with the 
Government being a substitute for the private allocation of 
capital?
    Mr. Griffith. Sure. Well, when the Government becomes a 
substitute of that private allocation it means that businesses 
that otherwise would have been able to obtain capital and 
produce things more efficiently, it means they will not have 
access to that. Usually you think of businesses bidding with 
each other by paying higher interest rates for a limited amount 
of capital, and those businesses that can produce the most, 
they are able to go ahead and obtain that loan or obtain that 
investment.
    In this instance, you end up having the Government 
allocating capital to a business, based on other factors beyond 
credit-worthiness or beyond whether or not that company is 
likely to be able to produce, and then you are able to curry 
political favor but it does not result in net economic growth. 
And we have seen SSBCI riddled with this over the years, and we 
have many, many studies now that are able to look at how those 
loans have gone to businesses that actually did not produce the 
economic output that we hoped for.
    Senator Toomey. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Senator Menendez of New Jersey.
    Senator Menendez. Thank you, Mr. Chairman, and thank you to 
all our panelists.
    It is clear that our small businesses have been hit hard by 
the pandemic. According to the Federal Reserve, 78 percent of 
small businesses experienced revenue loss in 2020, and overall 
revenue growth and employment decreased substantially for the 
first time in 5 years. As small businesses continue to struggle 
with sharp revenue losses, businesses are desperately seeking 
financial lifelines to make it through these uncertain months 
ahead.
    Stepping up to fill these financing needs are alternative 
financing companies, promising easy approvals with little to no 
documentation requirements and funding in under 24 hours. 
However, some of these financing companies are not transparent 
in their loan terms, and small businesses can end up taking on 
debt they do not understand and cannot afford. Without cost 
transparency, businesses cannot distinguish financial lifelines 
from land mines.
    So let me ask, Ms. Milano, do current small business 
financing disclosures provide small business owners with the 
information they need to understand the costs of the credit 
product and make an informed decision about whether it fits 
their needs or not?
    Ms. Milano. While some States have taken steps to set 
disclosure requirements for small business loans, at the 
Federal level there is no standardized disclosure requirements. 
As you know, Truth in Lending Act disclosures do not apply to 
small business credit products. This makes it very difficult 
for a small business owner to know what they are getting into 
with some of the riskier products online, as you mentioned, and 
second, it makes it impossible to comparison shop for the best 
terms. Some providers disclose rates that are not APRs, but 
business owners assume they are APRs, leading them to take out 
financing that is far costlier than anticipated, and possibly 
unaffordable.
    Senator Menendez. Well, I appreciate that and completely 
agree. I mean, the current lack of any disclosure requirements 
leaves small businesses exposed to deceptive practices. 
According to the Federal Reserve, current small business loan 
disclosures often leave business owners unable to make informed 
comparisons about the price of financing, and additionally, 
according to the Fed's study of online lenders, small business 
owners found the descriptions difficult to understand or 
lacking detail about costs and features.
    So what types of financing terms would small business 
owners find helpful to bring transparency and uniform 
disclosures so as to better understand a credit product?
    Ms. Milano. Sure. So first I think it is important to apply 
disclosures not just to loans but all small business credit 
products. So that includes merchant cash advance and other 
products similar to loans. And then I think APR is essential 
for borrowers to compare products and make informed decisions. 
Borrowers often need to know the financing amount, the payment 
amount, the frequency of payments, if it is more frequent than 
monthly, and the term. They should also know any up-front or 
scheduled changes and prepayment costs.
    Senator Menendez. So APR disclosure in small business 
credit is essential to make comparisons from apple to apple, 
cost comparisons. Would Truth in Lending Act, would TILA to 
small business financing with APR calculation guardrails that 
prevent manipulation by bad actors provide enough transparency 
and uniform term disclosures to allow small business owners to 
make informed financial decisions?
    Ms. Milano. Yes. I think APR is the only established metric 
that we have that enables informed comparisons of the cost of 
capital over time and between products of different dollar 
amounts and term lengths. That is why APR is the long-standing 
price metric that people are familiar with. It has been vetted 
for over 50 years through the Truth in Lending Act, and an 
estimated APR can be used, and has been used by some market 
participants, when providing variable term financing such as 
merchant cash advances, sot that consumers can actually compare 
those products to loans with fixed APR.
    Senator Menendez. Well, thank you. It seems to me that 
transparent price disclosure is the foundation of a free market 
without which price competition effectively fails, and TILA 
requires transparent disclosure for consumer loans but not for 
small businesses. And to ensure truly transparent and 
competitive market, disclosure requirements should apply 
equally, I think, to small business financing products.
    Congresswoman Velazquez and I are working on a bill to 
extend TILA to small business loans, if, as they say, the sun 
is the best disinfectant, it is time to give some sunlight to 
the small business credit.
    Finally, the Administration has taken the important step of 
setting aside a 2-week window where only small businesses with 
fewer than 20 employees can apply for the PPP forgivable loans. 
Ms. Milano and Mrs. Bruce, are there any similar actions along 
those lines that you would recommend to ensure that minority-
owned and other underserved small businesses get equal access 
to COVID relief?
    Mrs. Bruce. Yes, Senator. Thank you, Senator, for the 
question. Yes, I think it is a very important action because, 
for example, our product in Baltimore, and similar CDFIs 
nationally, we target businesses under 50 employees. And I 
think this act is important because we provide a lot of 
technical assistance and capacity-building so countless 
businesses understand what they are applying for. We just 
talked about the truth in lending and disclosure.
    But it is important to provide comprehensive technical 
assistance, meaning helping them to understand the credit, what 
they are applying for before they receive the loans, and after 
they receive the loans. This helps to mitigate the risks for 
default, but also just having resources to provide technical 
assistance like capital grants, because that is not an income-
generating product. We provide that in-house, and it would be 
great if there are products similar to what the housing 
industry is doing for pre- and post-counseling for home 
ownership. We need similar products like that on the small 
business side, because education is important, especially if 
they understand the risks they are taking on, it helps to 
mitigate defaults and helps improve cash-flow.
    So this is a great step, a first step in helping targeting 
small businesses with 20 or less employees. Thank you.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Brown. Senator Rounds from South Dakota, if he is 
here. If not, Senator Hagerty from Tennessee, you are next. 
Please proceed.
    Senator Hagerty. Thank you, Chairman Brown, Ranking Member 
Toomey. I appreciate your holding this hearing today as we look 
to rapidly recover from the effects of this pandemic and get 
the resources that we are providing most directly targeted to 
those in need. I would also like to say that I am very 
optimistic at the fact that Operation Warp Speed has gotten 
vaccines going into arms, that we are seeing our economy 
recover.
    I am very pleased with the projections that Main Street is 
on the road to recovery, and want to acknowledge the important 
role that our community banks have played, that our credit 
unions have played, that our Community Development Financial 
Institutions, Minority Depository Institutions have played, in 
helping bring our economy back. And I want to acknowledge the 
role that the Congress has played, multiple times, addressing 
this pandemic on a very bipartisan basis, and I hope that we 
can continue to do so as we move forward, in a bipartisan way.
    First I would like to start with Mr. DeLoss. I am from 
Tennessee and I am very interested in your Hot Chicken concept. 
I am curious about what inspired that.
    Mr. DeLoss. A trip to your fine State, in fact.
    Senator Hagerty. I was thinking that might be the case.
    Mr. DeLoss. My wife and I took a trip to Nashville on a bit 
of a babymoon before our first kid was born, and were inspired, 
and had nothing like it in our market.
    Senator Hagerty. Well, I will have to say this. Coming from 
Tennessee, from the Nashville area, Nashville is going to 
remain the home of Hot Chicken, the capital of Hot Chicken, but 
I am delighted to see it expand.
    I also want to commend you for your hiring practices. I 
think you are doing a great service. I think it is very 
consistent with the criminal justice reform that we saw under 
the past Administration that was passed on an overwhelmingly 
bipartisan basis. So I want to thank you for what you are doing 
and the leadership that you are bringing to bear there. And my 
very best wishes to you and I am delighted to hear that the PPP 
has been a product that has helped you continue through this 
crisis.
    I would like to turn next to Ms. Milano. Ms. Milano, I want 
to thank you for your dedication to America's small businesses. 
You have deep experience in this area, and, you know, our small 
businesses really have been at the core. They have been the 
engine of our economic growth for so long. They are going to 
continue to be critical to our growth as we come out of this 
pandemic.
    I really want to understand the impact of what we have been 
talking about here on the pandemic, and specifically the timing 
of the programs that are involved. You have had a lot of 
experience running this program, and if you could take a look 
at the other programs that the Biden administration is in the 
process of implementing since December of 2020, that came 
through our bipartisan relief packages, including, for example, 
$12 billion for CDFIs and MDIs, $15 billion to shuttered venue 
operations.
    In your best estimate, how long will it take us to get 
those programs set up and begin to get dollars, incremental 
dollars into the accounts of those small businesses that need 
them?
    Ms. Milano. Sure. Thank you. So I think that those 
programs--and Treasury is in the process of standing those up 
right now, as I understand it, and I think that the $3 billion 
for the CDFI fund, or loan funds, and the $9 billion, or $12 
billion that was put for MDIs and CDFIs and the Emergency 
Capital Investment Program have enormous potential to 
recapitalize these institutions. And I think that Treasury is 
getting ready to release rules and program guidelines for 
those, and get those dollars out the door this year, and I 
think that helps recapitalize those institutions to help serve 
underserved borrowers and their communities.
    And I think that what we are being requested today, like 
SSBCI, sort of comes in after that and complements that by 
working with different types of financing entities in the small 
business ecosystem to support not just the lenders, which those 
two programs support, but also the businesses themselves, and 
provide different types of financing, like venture capital 
financing, which is not part of those programs that were passed 
at the end of the year. So I really do think they are 
complementary.
    Senator Hagerty. Yeah. You know, I am a businessperson for 
a long time, and resource allocation is absolutely critical. 
And if you look at the PPP fund, in which we have been able to 
put billions of dollars into the economy on a very rapid basis, 
the package that was passed in December, of $284 billion, as of 
Sunday only half of that has been put to work. There is $144 
billion that is still there, waiting to be put to work.
    In my sense, and I hope you will agree, is that our 
resources should be most focused on addressing the pandemic, on 
those that have been impacted by the pandemic, and addressing 
that PPP lending program and getting those dollars into the 
economy before we look at other forms of long-term lending that 
could take, you know, months or longer to get in place.
    Ms. Milano. I mean, I think that those programs--PPP 
applications will expire March 31st, and there will be a need, 
we know, beyond the end of next month for funding. And so I 
think it can work together.
    Senator Hagerty. My hope is that we focus very heavily on 
targeting the PPP funds and getting this $144 billion out the 
door.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Hagerty. I would add, 
from Mr. DeLoss's statement, my wife and I, right before the 
shutdown, took a trip to Nashville--we had never been there--
for her birthday. It was decidedly, fortunately not a babymoon 
for us. But nice touch. I appreciate that from both of you.
    Senator Tester from Montana.
    Senator Tester. Yeah, thank you, Mr. Chairman, and thank 
Ranking Member Toomey too for having this hearing, and all the 
witnesses who have testified. And I would just tell you this, 
Mr. DeLoss. Montana is a long way away from Pennsylvania, but I 
tell you, we like good food there too, so come on down any 
time. You can expand this venture that you have got going. But 
congratulations.
    My questions are for Jessica Milano, and they really do 
dovetail into some of what Senator Hagerty was asking you, and 
it deals with the State Small Business Credit Initiative. In 
following the last economic crisis, this was incredibly 
successful in Montana. So successful that Montana is often used 
as an example of how this program can benefit small businesses 
and the communities where they reside.
    I have been pushing, for the last year, to use the program 
again to help address this current health and economic crisis 
that we are in, and I have been hearing consistently from 
Montanans that small businesses are still struggling. There are 
industries where we will continue, even once there is a widely 
available vaccine, to struggle. And for some of those small 
businesses the Federal programs so far have not met their 
needs. And one of the great benefits of the SSBCI program is 
that the economic development organizations are able to address 
the specific needs in their communities in a much more 
effective way.
    So, Jessica, from your perspective, helping run the first 
iteration of the SSBCI program, and you have touched on some of 
this stuff with Senator Hagerty, but could you highlight, for 
the folks on this Committee, and anybody else who is watching, 
what makes this program so useful.
    Ms. Milano. Absolutely. Thank you, Senator Tester. So I 
think, again, it is a complement of what has been done to date, 
and what is different about it is it worked with States like 
Montana to develop and design their own programs that were 
targeted to their unique needs. So if they needed to serve 
microbusinesses, they could establish a credit program to do 
that. If they wanted to commercialize technology around a 
university ecosystem, like Pennsylvania did, they could do 
that.
    And I think that flexibility really helped create vibrant 
small business ecosystems around the country that were best 
tailored to local market needs, and I think that is an 
important continuing need that we will have coming out of this 
pandemic.
    Senator Tester. I could not agree with you more. Tailoring 
it to local market needs is the key here, and then I think it 
is really what makes this program so really effective.
    But let's talk about if there are any areas of improvement 
from the previous SSBCI program that could be make this version 
even more impactful in addressing the challenges caused by this 
pandemic.
    Ms. Milano. Absolutely. There are always ways that we can 
improve things, and that is the purpose of evidence-based 
policy. So having gone through this once I think there are a 
couple of key ways.
    First, we could make it a little bit easier for multi-State 
programs, for States to actually, or lenders that have a 
regional footprint, to work across States. I think, second, you 
know, given how much funding has already been put toward PPP, 
we could try to further support CDFIs and ensure that minority-
owned businesses are receiving the capital, by putting an 
emphasis, or setting aside a portion of the money competitive 
to be awarded in a way that targets programs that meet those 
underserved populations.
    Senator Tester. Very good. Well, thank you. I am going to 
yield back the rest of my time, but I want to thank all the 
witnesses for being here, and I appreciate your commitment to 
the economy of this country, and we will move from there.
    Thank you, Mr. Chairman.
    Chairman Brown. I am not clear who is in line, the names on 
the screen. Senator Warner--is Senator Warner here?
    I think Senator Lummis will be next, if she is here. I know 
Senator Van Hollen wants to ask a question of Mrs. Bruce, but 
he stepped out for a moment.
    Senator Cortez Masto, if you are ready.
    Senator Cortez Masto. Thank you so much. This has been a 
great conversation and I so appreciate the thought process 
going into this, because in Nevada, and I think we all agree, 
small business is the backbone of our economy, and we want to 
make sure not only are they driving, but for our workers that 
they are paid a livable wage. And so I appreciate this 
conversation [inaudible] an individual that we are looking at, 
that should only have to work one job to have a livable wage 
and not have to work 40 hours a week and still not be able to 
survive or thrive. I just thank you for your work ethic and 
your entrepreneurship.
    In Nevada, this is an issue for us, as across the country, 
because this pandemic has just devastated our economy. And we 
all recognize that we need to increase our wages, but at the 
same time we want to make sure our small businesses can thrive 
as well. That is why I so appreciate this conversation, Ms. 
Milano, around the SSBCI. I think our goal here is to balance 
both of those, so our workers thrive, our businesses thrive, 
and I think this is a great program for us to incorporate for 
our small businesses as we come out of this pandemic and help 
them thrive.
    But I guess the first question I have, maybe Ms. Milano, 
during the pandemic, monthly business applications have surged 
well above their historic levels, and according to data from 
the Census Bureau it is clear that many Americans have decided 
to use this time to transition from traditional employment and 
become entrepreneurs. And I have seen that in my State as well.
    My question to you is, what policies should we be thinking 
about to help these new entrepreneurs? Is it just addressing 
the SSBCI? What other things can we be thinking about to make 
sure that these new entrepreneurs thrive?
    Ms. Milano. Well, thank you, and I think it is some of what 
has been done to date. For sure, some of the programs that we 
have done to put capital into CDFIs and Minority Depository 
Institutions I think help reach those businesses. And then I 
think SSBCI also helps reach those businesses. I think those 
businesses will be very varied. Some of them will need 
microfinancing, you know, small-dollar loans to get their 
businesses off the ground. Some of them might actually be those 
rare, high-growth businesses that become the real leading job 
creators in their State, and could benefit from the type of 
early stage financing that SSBCI can provide.
    Senator Cortez Masto. Thank you. I appreciate that. Is 
there anything that we should be also thinking about as we come 
out of this pandemic and we look to our labor workforce, 
particularly, as I said, I come from Nevada, we have one of the 
highest unemployment rates in southern Nevada. We are a service 
industry. What else can we be doing to support our workforce? 
Is there more that we should be doing for workforce training 
and development? And I would open that up to the panel, if 
anybody has any ideas around that.
    Ms. Milano. I mean, I think there is always more that we 
can be doing to support both workforce training and then I 
think technical assistance for folks that are just filing this 
application to become an entrepreneur, to work with them, to 
understand what it means to get credit ready, to have a 
business plan, and to grow their business. And then I think, 
you know, there is more that can be done to provide education 
and training for both businesses and workers of those 
businesses, to ensure that they can be matched with the 
employees they need to help that business grow.
    Senator Cortez Masto. Thank you. I am sorry. Did somebody 
else want to say something?
    Mrs. Bruce. Yeah. Can I just add to that, I just wanted to 
second what Jessica said. In essence, especially for those 
employees that are transferring or lost their job during the 
pandemic, they need technical assistance to transition to 
employment. Like our CDFIs will work with a lot of startups, so 
we have a product to target businesses that have been around 
for less than a year. But they need a lot of technical 
assistance or training to help them.
    So it would be great to have products like equity, like the 
EQ2's or access to flexible investment capital like what was 
just recently passed. The Emergency Capital Investment Program 
is almost like equity loan-like program, but it was not given 
to CDFIs, nonbank CDFIs like our CDFIs. So we hope to receive 
those types of flexible, long-term equity-like investments, 
because we are providing a lot of technical assistance to help 
businesses sustain and stay in business after they receive 
financing. Thank you.
    Senator Cortez Masto. Thank you so much to the panel. I 
know my time is up. I so appreciate the conversation.
    Chairman Brown. Thank you. Senator Lummis from Wyoming, 
welcome.
    Senator Lummis. Thank you, Mr. Chairman, and I want to 
first of all say to Mrs. Bruce, you spoke about a subject 
earlier in your remarks that I find really important to 
Wyoming, in the area of American Indians. You spoke about the 
program that you are working with and made some recommendations 
for how to improve them. Could you just start by explaining a 
little further what your programs provide in the minority 
community you serve?
    Mrs. Bruce. Well, thanks for asking, Senator. Our program 
works with small to medium-sized businesses, and what we 
provide, we give them alternatives to predatory lenders, 
because we, first of all, build trust, because we are local. We 
build a relationship. We hope to analyze their needs in terms 
of credit needs to expand or start a business, and then we 
develop products based on market need. It is not generic, but 
we create those products to make sure we have startup 
businesses, emerging businesses, who, by less than 2 years, we 
give them capital. And what we try to do is to help them with 
fixed-rate loans to make sure they can plan in advance, because 
in terms of budget planning, it is great for a startup to have 
a fixed interest rate, and long term, to help them manage their 
budget.
    But second and most importantly, we have a comprehensive 
technical assistance program, meaning before they access the 
loans we help them understand financial management, work with 
them on developing business plans, with actuals or projections, 
and we help them with financial statements, to understand the 
balance sheet and income statement. Someone could be great at 
doing a business, but if they do not understand the growth plan 
and how they can retain them, their businesses will fail.
    But most importantly, after that we follow them through the 
process, so it reduces the risk of default. We do post-TA, 
meaning the TA is not just during the training. We call them 
and we interview if there are issues to maybe give a default. 
So it is labor intensive but it is needed to help those 
businesses transition from small, nonbank CDFIs like us to 
traditional banks.
    So our products, we do loans to as low as $5,000 up to 
$150,000, but it is to help with growth and also sustain them 
during that period with offering the training and technical 
assistance needed to survive, especially during this period. 
Even with the PPP, we are doing a lot of loan packaging as well 
as documentation gathering, to help them access PPP on a timely 
basis. And I really appreciate your question. Thank you for 
asking.
    Senator Lummis. Thank you, Watchen. My next question is for 
you, Joel, and I am sorry, I am using first names today. I am 
being a little personal here.
    The proposed State Small Business Credit Initiative 
Amendments allow the Secretary of Treasury, for the first time 
in history, to determine if a State's laws allow predatory 
lending. Lending and usury laws have historically been the 
province of State legislature. My State of Wyoming even has a 
usury cap.
    Isn't this another example of Washington taking away 
decisionmaking power that individual States already know how to 
use best?
    Mr. Griffith. Yes. Thank you for the question, Senator, and 
I just had a wonderful visit to Wyoming, by the way. But yes, 
this is troubling. This is another example of the Federal 
Government trying to determine what business practices should 
be in individual States, and, of course, all of us would likely 
agree on this idea of predatory lending. We would not be in 
favor of it, but the details are important. What is the 
definition, and States have gone to great lengths to define, 
for them, what types of lending practices are prohibited. So 
using this as a tool to force whatever definition the current 
Presidential administration might decide, forcing that onto 
States would be problematic, in addition to all the other 
concerns with this program that we saw back about a decade ago.
    Senator Lummis. Well, I want to thank you. I am actually 
out of time. This is such an impressive panel and I would love 
to ask more questions. But thank you so much, Mr. Chairman, and 
thank you, panelists. I yield back.
    Chairman Brown. Senator from Maryland, Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman, Ranking Member 
Toomey, and let me thank all the panelists. Just very quickly 
on that last point, one of the big issues we are seeing, 
actually, is some of these FinTech lenders using the last 
Administration's rent-a-bank rules to actually evade some of 
the State caps that are trying designed to avoid predatory 
lending. So if we believe that States should be able to set 
these usury caps where they want, we should also make sure that 
we do not allow workarounds through the national banks.
    But let me just ask a question of Mrs. Bruce, and, Mrs. 
Bruce, thank you for your leadership as President and CEO of 
the Baltimore Community Lending CDFI. I know you have also 
worked in the commercial banking sector, I believe JPMorgan, 
Bank of America, PNC.
    Earlier, Mr. Griffith indicated that there is only a small 
percentage of small businesses seeking capital and that 
essentially the market can effectively decide who deserves a 
loan. Having worked for some time in the commercial banking 
sector and now at the CDFI in Baltimore, is it your experience 
that you are making many loans that are sound loans that would 
never have been made from the commercial banks?
    Mrs. Bruce. Well, thank you, my Senator. This is my Senator 
from Maryland. Thank you, Senator. I do not know how to even 
answer this question. Our CDFI is making an extreme difference. 
Coming from a commercial bank, I am excited to work at a CDFI, 
because the banks, the loans that we are making are not 
bankable for the commercial banks, or, in essence, the credit 
criteria are very difficult for those small business to meet.
    Our products, we have credit enhancement, we have loan 
officers to mitigate with, and our credit enhancement is our 
TA. If we were not doing that, we would not be able to give out 
loans. So maybe it is definitely other States, but in Maryland, 
and in the city of Baltimore, our CDFI is meeting market needs. 
We are doing exactly what businesses need to access capital. 
These are businesses that would not be able to have the kind of 
excellent credit that a commercial bank is offering. We work 
with businesses that have minimal credit or not sufficient 
collateral as well as providing TA.
    So these are all nontraditional products. It cannot 
compare. In my days in a commercial bank, I could not have made 
these loans, because it is out of the box. But you have to 
design products based on market needs. And we are making a huge 
difference, and not only am I talking about predatory lending. 
We have refinanced a lot of small businesses that accessed 
FinTech loans because the interest rate was so high they did 
not even know what they were getting into. They were getting 
like 16 percent, and we have reduced the interest rate way 
down, less than 6 or 7 percent, because we are disclosing our 
rates and we are hoping they understand the difference between 
a CDFI product or a mission-based lender and a FinTech.
    So definitely we are making a lot of loans and making a 
difference in our community in Baltimore.
    Senator Van Hollen. Well, thank you, and as you mentioned 
in your testimony, you provide that important technical 
assistance, get to know your customer, and you spend that time 
and invest the effort there. Back in your experience at a 
commercial bank, what would be the response from the bank if 
you said you had to spend all that time providing that 
technical assistance?
    Mrs. Bruce. Of course, I mean, it was not allowed because 
of so many reasons. At a commercial bank you are there to make 
credit decisions, not to provide technical assistance. So that 
is another big difference between a CDFI and a commercial bank. 
Size with smaller loans under $250,000, it was all credit score 
and automatic credit, so you would not even talk to these small 
businesses, because it was a 1-800 number. So they would not 
even know the bankers. If they go to a branch it is more of a 
retail.
    And so this is a big difference, because small businesses 
really do not know what they need. You have to help them to 
structure the deals. So with CDFI, our TA helps them to 
structure the deals or the loans based on their needs. So we 
put a whole lot of emphasis on technical assistance before they 
receive the loan, and definitely it is not allowed in a 
commercial bank because of conflict. We are doing it at a CDFI 
as a mitigant for the credit, and enhances the credit because 
they are understanding the type of loans and products that we 
are offering. So it is a big difference, and I am happy now 
with our CDFI, because I have a passion for doing that, and 
working with people and not just numbers or telephone.
    So this is a big difference, and we need capital. We need 
capital to help to provide more TA, but that is the funding 
that is not available, so definitely it is like doing pro bono 
services right now. So not only do we need investment capital 
for loans, lending capital, we need grant capital to cover our 
overhead and operations to provide more TA pre and post. So 
thank you, Senator, for asking.
    Senator Van Hollen. Thank you. And I will be talking to the 
Chairman and Ranking Member about seeing whether we can provide 
some of that capital to the nonbank CDFIs that we are providing 
to the bank CDFIs.
    Mrs. Bruce. That would be great. Thank you very much, 
Senator.
    Senator Van Hollen. Thank you.
    Chairman Brown. Thank you, Senator Van Hollen. I believe 
that Senator Sinema is joining us by phone, from Arizona. 
Please proceed.
    Senator Sinema. That is correct, and thank you to Ranking 
Member Toomey for holding this hearing, and thank you to our 
witnesses for joining us today.
    Arizona small businesses are the backbone of our State's 
economy, and before this pandemic hit, small businesses in 
Arizona employed 1.6 million workers, more than half of the 
State's workforce, and created $71.3 billion in annual wages 
and income for those employees.
    But today is a different story. The pandemic has left 
Arizona's small businesses struggling to keep their doors open. 
Among those hardest hit are Arizona's local and independent 
restaurants. Now Arizonans know it, which is why so many of us 
have stepped up and done our part to support them. Like many 
other Arizonans, I try to get carryout from my favorite 
restaurants a few times a week, and we do this with the hope 
that they will still be there on the other side of the 
pandemic, when we can safely gather, enjoy great food and 
drink, and make memories with those we love.
    But Arizonans expect Congress to do more than cross their 
fingers and hope, which is why last June I teamed up with 
Senator Wicker from Mississippi to introduce the Restaurants 
Act. Our bill, which earned the support of a majority of 
Senators, establishes a Restaurant Rescue Plan to provide local 
restaurants the funding to rehire workers and stay afloat 
during the pandemic. And I am delighted at the grassroots 
momentum and strong bipartisan support we have seen behind this 
important legislation.
    A few weeks ago, the full Senate took a vote on our 
Restaurant Rescue Plan and support it 90-10. So, Senator Wicker 
and I are proud to have earned that support and achieve that 
significant milestone, and we are going to keep working until 
it is signed into law.
    Now, Mr. DeLoss, I want to thank you for being here today. 
In preparing for this hearing, I learned that your restaurants 
are deliberate about providing employment opportunities to 
adults who have experienced homelessness, live in poverty, or 
were recently incarcerated. As a child, I experienced 
homelessness, so I want to thank you for being a leader who 
recognizes everyone's dignity and their ability to contribute 
to society. Arizonans know that a good job is transformative in 
helping people build better lives for themselves and their 
family.
    So, Mr. DeLoss, could you briefly summarize the business 
decisions you made at the start of the pandemic and how it 
affected your company financially.
    Mr. DeLoss. Thank you, Senator. Yeah, you know, as I shared 
in my opening statement, our priority was our team's stability. 
As a business, we ultimately know that if we invest in the 
personal stability of our team it will yield professional 
growth and stability.
    And so when the pandemic hit, although we were getting 
caught and broadsided by kind of countless curve balls, just 
associated with COVID and the loss of private investment 
capital, we wanted to make sure that our team had someplace to 
come back to. So we did choose to close down our restaurants, 
and we used the discretionary resources from the product that 
was still in our walk-in cooler to discretionary spending, to 
ensure that we could cover our team's basic needs in advance of 
assistance kicking in.
    If you will all remember, at that point many people 
displaced by the pandemic were waiting four to 6 weeks to 
receive emergency assistance, because of the barrage of demand 
that hit Federal resources and State resources.
    And so we made that choice to close down and deeply invest 
in our team, and to see a 90 percent recall rate upon 
reopening, that was still alongside of emergency assistance, 
particularly for a group of people that have so many 
stereotypes and judgments about their work ethic against them, 
was a huge testament to our success, and folks believe that our 
team has a competitive advantage and strength.
    Senator Sinema. Well, thank you. You and your team have 
been through some difficult challenges. Now, as you know, our 
Restaurant Rescue Plan would provide grant funding to help you 
recoup some of the losses that you experienced as a result of 
being closed. It would use your 2019 revenues as a benchmark.
    So what possibilities would this plan enable for you, and 
how would the grant empower you to advance the values of your 
business?
    Mr. DeLoss. For us, additional grant funding and support 
allows us to get back onto the growth trajectory we were on 
before. And so, you know, I spent years in my early 
professional life as an investment bank analyst, studying 
markets and understanding what this looked like, and the 
reality of COVID is the predators were abundant. We had 
multiple offers to purchase our company at about 20 percent of 
the value we had pre-COVID, because there was blood on the 
water.
    And so for us, we lost a complete growth trajectory for 
building more transformative jobs. And so additional funding 
yields the opportunity for us to get back on track and make 
more transformative change in the community that sustainably 
moves people into livable wage rolls versus welfare rolls, 
which is good for everybody.
    Senator Sinema. Thank you. Mr. Chairman, I see that my time 
has expired. I do have a question for Ms. Milano, but I will 
just submit it. And with that I yield back. Thank you.
    Chairman Brown. Thank you, Senator Sinema. Senator Ossoff 
from Georgia.
    Senator Ossoff. Thank you, Mr. Chairman. I appreciate it. 
Thanks to our panel. Just to open, I want to express the 
eagerness with which I believe many of us approach the Senate's 
consideration of this COVID-19 relief package, which has 
overwhelming bipartisan support among the public, the normal 
partisan tone of deliberations in Congress notwithstanding. 
This legislation is supported by approximately three-quarters 
of the American public, as those living in the real world 
recognize the vital need for direct economic relief for 
households, significant investments in the public health 
effort, vaccine supply and distribution. And this hearing is a 
vital opportunity for this panel to hear from leaders in the 
small business community and eminent scholars, thinkers, and 
analysts about how we can shape policy to help small businesses 
in a way that is effective, fast, and equitable.
    I would like to ask you a question, please, Mrs. Bruce, 
about equitable access to capital and to financial relief. Can 
you please explain for the panel what are the factors that, 
even in normal times, impair access to capital for Black and 
minority-owned businesses, and that through this crisis have 
also made it more difficult for Black and minority-owned 
businesses to access emergency relief and credit. Thank you.
    Mrs. Bruce. Yes. Thank you, Senator, for asking that 
question. Based on my 30 years' experience in the industry of 
working in banking and finance for many years, some of the 
issues that the Black and Brown communities experience, 
especially from the traditional investment opportunities, it is 
because there is just a lot of redlining. Let's be real about 
this. In terms of the Black and Brown community redline, the 
perceived risk is already determined before the actual 
investment. And that is one.
    But other issues are with small businesses you need to 
create products that will cater to the needs of the market. It 
is not a one size fits all. So in terms of the minority 
communities, there are a lot of traditional disinvestments as 
well as prejudgment on what people are capable of doing. But 
also there needs to be a lot of trust. People do business with 
people they trust and know, and that is what banking is. It is 
more for personal relationships.
    So most of the large banks do not have the relationships 
with borrowers, so borrowers get turned down very fast because 
the products do not really cater to their needs, which is fine. 
It is a different type of institution. But in terms of us, with 
CDFIs, we need to have access to those flexible, long-term 
capital to lend to small businesses in the Black and Brown 
communities, because we know the market and they know us. But 
it is difficult for a national bank to do that, because it is a 
different type of lending, which I do understand too.
    But in terms of you cannot put all of the small businesses 
in one box, and they have special needs because they may have 
limited credit or issues because of disinvestment, and also 
they need long-term products, and second, they need a lot of 
equity-like investments, like the EQ2's. So this recent 
project, the Emergency Capital Investment Program, that 
Congress just passed, was not given to nonbank CDFIs, so we 
hope that this Committee will consider reallocating resources, 
but we need more flexible, long-term capital, because we are 
not a bank. We need to create products to meet the needs of 
small businesses.
    Thank you for asking, Senator.
    Senator Ossoff. Thank you, Mrs. Bruce. I appreciate it.
    With my remaining time, could you elaborate a bit on what 
policy measures this panel and the Congress might consider in 
order to ensure that monetary expansion and fiscal stimulus 
might not flow so predominantly through the largest investment 
banks in the country, but the regional banks, credit unions, 
and CDFIs who have those personal relations with small 
businesses in the community?
    Mrs. Bruce. Well, I mean, part of the policy that could be 
set is making sure that you have a reporting mechanism to 
report directly to the Committee or to Congress, because you 
need a system in place to mitigate whatever the risks it may 
take to make sure it goes on to the people that need the money.
    So, of course, reporting would be important, but also if we 
educate our customers ahead of time, like providing 
comprehensive TA, it will help them report on the usage of the 
funds. So policies are made, but it can be implemented if you 
have people who are on the ground and have relationships with 
the borrowers, because it is necessary in order to have the 
type of trust and to make sure that we have compliance with the 
reason for which the funds were given. And sometimes it is not 
intentional, but things happen, but it is because of lack of 
education or knowledge, and misunderstanding. So you need 
systems in place to mitigate that risk.
    Senator Ossoff. Thank you, Mrs. Bruce, thank you to our 
panel, and thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Ossoff. Before closing I 
have one more question for Mr. DeLoss. We have heard a lot of 
concerns about raising the minimum wage to a living wage over a 
number of years. As you know, the $15 takes effect over 3 or 4 
years.
    Do you agree? How would this affect your restaurant 
business?
    Mr. DeLoss. Yeah, of course minimum wage is a complicated 
issue, as a business owner. I appreciate the sentiment of 
expanding this over a multiyear period. What I can share is 
what I know from my experience. We push to get people up and 
over that $15-an-hour wage as quickly as we can, and in a $15 
wage we are talking about, you know, $30,000 worth of gross 
income a year, so it is not a tremendous rate. But the reality 
is all of a sudden when you start getting people up there, 
their transportation, their housing stability, their food 
stability, their child care stability, all [inaudible] and our 
folks can show up to work with their head in the game and do an 
excellent job for us.
    And so regardless of how we come to the solution, and what 
a compromise looks like legislatively, I know it is in our best 
interest to just keep moving people's wages up. And we have 
shown it time and time again that it works at our business. And 
so while I appreciate minimum wage is a very partisan issue, 
poverty is far from a partisan issue, and the reality of the 
cycle of poverty is that is more disruptive to a business than 
really anything else we are discussing.
    And whether it is in employee retention, employee 
productivity, satisfaction, it is incredibly disruptive to have 
a team that is turning over 100, 150 percent a year, which is 
the average going rate in our industry. And so to operate as a 
business that has less than 40 percent turnover on an annual 
basis, we are sustaining jobs and productivity that ultimately 
passes through to our customers in a meaningful way.
    So I appreciate the intention and the effort around the 
legislation. I know it is a complicated issue. But I ultimately 
know that it is in the best interest of people to increase 
their wages.
    Chairman Brown. Thank you for the thoughtful answer. I know 
there are success stories out there like Ms. Ritchie's, and 
your success story is inspiring, and I know that the Ranking 
Member thought so too. But for most Americans, the current 
minimum wage is not enough to pay their rent, pay their bills, 
support their families. We need to make sure every worker in 
America has a living wage. If you believe in the dignity of 
work, whether you punch a clock or swipe a badge or work for 
tips, every worker should have a minimum wage. It is a living 
wage. It is a floor, not a ceiling, so that workers can 
continue to earn higher wages.
    Thank you to the whole panel. For Senators who want to 
submit questions for the record, these questions are due 1 week 
from today, on Thursday, March 4th. For our witnesses, please 
get answers to us within 45 days, to any questions you submit.
    And I will just close with this. Thank you all for 
testifying. Entrepreneurs like you are proving when we invest 
in workers, businesses are profitable, they grow, growth 
benefits the whole community. We need to get workers in 
Columbus and in Butler County, Pennsylvania, Ms. Ritchie, and 
all over the country back on the job safely. That we can agree 
on.
    We need to use every tool we have to do that, including 
restarting the successful State Small Business Credit 
Initiative. Thank you for your comments on that, Ms. Milano. 
The money goes to States to create their support programs. It 
is targeted. It goes to the hardest-hit States, based on 
employment data, and gives them the flexibility to fund a range 
of support programs, including venture capital. We heard from 
Mr. DeLoss how important venture capital can be to small 
businesses, like his in the middle of the country, often get 
overlooked in places like New York and San Francisco. And we 
know it has been a success. It has generated more than $8 in 
private capital for every $1 in the program. Mrs. Bruce has 
illustrated that with her answer to Senator Van Hollen, his 
question.
    We heard the same out-of-touch talking points today that we 
have heard for a year. Politicians in Washington saying 
everything is fine, the recovery is great, the economy is 
growing, and somehow we do not need a massive response to a 
massive crisis. Of course this is a big rescue plan. It is $1.9 
trillion. But it is a big crisis. It is an economic crisis. It 
is a public health crisis. It has effected pretty much all 
aspects of everyone's lives. We are rising to meet this moment. 
This panel helps us do that. We need to deliver for the people 
whom we serve.
    Thank you all, and the Committee is adjourned.
    [Whereupon, at 11:14 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    One of the most important things we can do on this Committee is 
give a voice to all the people who haven't had enough of one in their 
Government.
    Last week we began by hearing from Ohioans and witnesses from 
around the country who don't have corporate lobbyists, but who 
understand their communities, and who know the challenges regular 
people are facing right now.
    Today we will continue that work, hearing from small business 
owners and small lenders from Columbus and Baltimore and Pennsylvania. 
Just like American workers, these are businesses that are often left 
behind or steamrolled over by the largest corporations and the biggest 
banks, and their allies in Washington.
    That Wall Street system too often excludes small and minority-owned 
businesses, and only measures success by the stock market.
    But the Dow doesn't tell us much about how a restaurant in Columbus 
or an early learning center in Baltimore and their workers and their 
customers are doing.
    These entrepreneurs are an important measure of the real state of 
our economy.
    Small businesses create jobs and economic growth in our 
communities--in the heartland, in Black and Brown communities, places 
that often don't get a lot of outside investment.
    The stakeholders in these businesses aren't nameless, faceless 
shareholders--they're our neighbors, family members, the people you see 
at school and at the grocery store and at church.
    And we will not have a strong recovery unless we reach these 
businesses, and the lenders and organizations that support them.
    These businesses know how important it is to have local lenders and 
institutions that understand small business needs and serve their 
communities. It's the community development financial institutions 
(CDFIs) and minority depository institutions (MDIs) that help them 
fight to save their businesses when the big banks turn them away, or 
were never an option in the first place.
    People in Ohio and across the country remember how after the last 
economic crisis in 2008 and 2009, the biggest corporations recovered, 
while large swaths of the country were left behind.
    Many of these same communities have watched for decades as 
factories closed, investment dried up, and storefronts were boarded 
over.
    They're also often places that have never had the investment they 
should--because of discrimination, because of redlining, because of 
decades of policy that funneled resources and jobs away from entire 
neighborhoods and towns.
    In all these places, so many Americans know what it's like to wake 
up one day, and realize the only jobs to be had are at a big-box chain 
for rock-bottom wages, with no health care, no paid sick days, and no 
power over your schedule.
    We cannot allow that to be our future.
    We need to invest everywhere: in the places that have seen 
investment dry up, and in places that were overlooked, discriminated 
against, or outright preyed upon to begin with.
    If we allow another Wall Street-first recovery--where the big guys 
get taken care of, while small businesses fight over the scraps--we 
will end up with more hollowed-out towns and neighborhoods, and more 
workers trapped in a broken corporate business model.
    President Biden understands that. And his rescue plan will get help 
to these businesses and the communities they support around the 
country.
    The number one thing we must do to support all small businesses is 
to get every American vaccinated, as quickly as possible.
    That's how we protect workers, and it's how we ensure customers 
feel safe going shopping and going to restaurants and going to the 
movies and concerts and barber shops again.
    Our rescue plan will fund the massive mobilization we need to make 
that happen. And it will get more financial support to these small and 
minority-owned businesses, and the community lenders that support them.
    In addition to continuing to fund and improve the PPP and EIDL 
programs, we're going to restart a successful Treasury program that 
will get more small businesses access to capital. And we will make sure 
mission-based lenders like CDFIs and MDIs have what they need to serve 
their communities.
    Our work, though, cannot end with this emergency bill.
    We need to invest in these entrepreneurs and their communities for 
the long term. We need to rethink our economy, and how we value the 
people and places it's made up of.
    When we put communities, not corporations, at the center of our 
policy, we'll get more businesses that actually value their workers, 
and measure success the same way families do--not in quarterly earnings 
reports. We'll get more entrepreneurs building something for the long-
term, something with roots.
    People are proud of where they come from. And they want to see the 
Main Streets they love thriving again.
    Our witnesses today know that. They know the vibrancy and the 
dynamism and the diversity of working-class towns and neighborhoods all 
over this country.
    We need get to work to invest in them, and ensure that those 
places, America's Main Streets--not Wall Street--are at the center of 
our recovery, and are the building blocks of a better economy.
                                 ______
                                 
               PREPARED STATEMENT OF WATCHEN HARRIS BRUCE
          President and CEO, Baltimore Community Lending, Inc.
                           February 25, 2021
    Chairman Brown, Ranking Member Toomey, and distinguished Members of 
the Committee, thank you for the opportunity to appear before you 
today. My name is Watchen Harris Bruce, and I serve as President and 
CEO of Baltimore Community Lending (BCL). BCL is a Community 
Development Financial Institution (CDFI) located in the heart of 
Baltimore with the dedicated mission to support the revitalization and 
strengthening of targeted neighborhoods through innovative and flexible 
financial resources. BCL's services include mini-perm mortgages and 
construction loans, in addition to non-real estate small business 
lending that may not require collateral.
    Baltimore is home to approximately 12,500 businesses, of which 
11,700 or 93 percent are small business firms with fewer than 50 
employees, with 6,500 of these businesses having fewer than five 
employees. Approximately 53 percent of these businesses are minority-
owned, and women own 47 percent. Prior to COVID-19, many of these 
businesses faced significant challenges accessing needed capital--due 
to business size, race, gender, and the inability to provide adequate 
collateral. As a result, many businesses have turned to more expensive 
capital resources, including but not limited to high-interest credit 
cards and online lenders, many of whom are predatory and finding a 
larger foothold in our city. These trends were concerning prior to the 
pandemic, and COVID has exacerbated the already existing lack of 
affordable capital conditions in our community.
    That said, in my testimony today, I would like to address the 
substantive issues and concerns facing my CDFI in Baltimore and CDFIs 
like mine around the country. As an African American led CDFI, BCL is a 
member of the African American Alliance of CDFI CEOs (Alliance). The 
Alliance is a nonprofit coalition comprised of over 46 CDFIs covering 
50 States, with the purpose of strengthening the operational and fiscal 
capacity of Alliance members and empowering their organizations to 
deploy solutions at scale to build sustainable wealth, equality, and 
just quality of life for low- and moderate-income Black populations and 
communities across the U.S. Central to the Alliance's mission is the 
objective of closing the Black wealth gap--through CDFI practice and 
advocacy, ensuring access to capital and continued growth of African 
American businesses and the Black economy.
    CDFIs can play a significant role in narrowing the racial wealth 
gap and have been an effective tool in generating economic development 
in low-income and African American communities. However, African 
American led CDFIs have been significantly underfunded, greatly 
impacting our ability to stimulate and grow local Black economies that 
have consistently experienced disinvestment and underinvestment for 
centuries.
    According to a recent study conducted by the Hope Policy Institute, 
covering the period between 2014 to 2017, the assets of White led CDFIs 
grew by $21.8 billion, while the assets of minority led CDFIs grew by 
just $682.5 million. \1\ Another study found that when nonprofits 
provide support within Black communities, agencies headed by Black 
executives experience a 24 percent smaller organizational budget than 
nonprofits led by White executives. \2\
---------------------------------------------------------------------------
     \1\ Closing the CDFI Asset Gap, Hope Policy Institute (2020).
     \2\ ``Nonprofits Led by People of Color Win Less Grant Money With 
More Strings (Study)'', Chronicle of Philanthropy (2020).
---------------------------------------------------------------------------
    This is an unfortunate result and directly impacts capital 
liquidity and our ability to successfully fund businesses and economic 
development in the communities we serve. Data show that when lenders, 
technical assistants, business coaches, housing and credit counselors, 
loan officers, and community lenders reflect the identities and 
experiences of their non-White potential clients, the rate of funding, 
professional support, loan flexibility, and positive economic outcomes 
increase dramatically. \3\
---------------------------------------------------------------------------
     \3\ Lyons-Padilla Sarah, Markus Hazel Rose, Monk Ashby, 
Radhakrishna, Shah Radhika, Dodson IV Norris A., Eberhardt Jennifer, 
Race Influences Professional Investors' Financial Judgments (2019).
---------------------------------------------------------------------------
    In the recent COVID relief packages passed by Congress, this body 
ensured that the CDFI Fund (Fund) received additional appropriations, 
which is a big step in the right direction. However, in passing the 
Emergency Capital Investment Program (ECIP), a program which provides 
$9 billion in investment capital targeting minority led CDFIs, low-
income communities, and areas of persistent poverty, the legislation 
excluded nonbank CDFIs, leaving many of our organizations still void of 
needed investment capital. We believe it was the original intent that 
nonbank CDFIs not be excluded, and we ask that you consider opening 
additional authority and appropriations, specifically targeting 
minority led nonbank CDFIs, low-income communities, and areas of 
persistent poverty. Inclusion of nonbank CDFIs such as members of the 
Alliance and other CDFIs of color is needed and essential to 
implementing ECIP and will lead to greater program success. While 
minority-owned and other depository institutions and credit unions are 
a conventional start in reaching African American, low-income and 
underserved communities, nonbank CDFIs, particularly those led by 
communities of color, have consistently proven our ability to reach and 
successfully deploy capital with those communities that need it most.
    That said, I would also ask that you look to the New Markets Tax 
Credit Program as another mechanism for directly reaching minority led 
CDFIs. As a former reviewer of the Program, I am concerned that many 
minority led and smaller CDFIs/CDEs may be excluded from receiving 
awards, not due to their lack of experience or ability, but because the 
Program scoring system prefers larger more tenured applicants. In 
theory, all other factors being equal, an applicant with 8 years of 
experience will score higher than one with 5 years of experience, and 
therefore receive the award. Many minority led and smaller CDFIs/CDEs, 
while having significant experience and capacity, may have less time in 
practice and will always lag in time when compared to older applicants. 
A possible solution for the Committee to consider is whether the Fund 
should preserve a portion of each allocation cycle for emerging 
qualifying CDFIs/CDEs. Greater participation of emerging CDFIs/CDEs and 
allocatees would directly impact underserved and low-income communities 
in rural and metropolitan areas when considering that CDFIs/CDEs 
embedded in targeted communities are often best positioned to 
understand the needs and priorities on the ground.
    Thank you for the opportunity to provide testimony and share my 
views on these important issues. This Committee has consistently 
supported CDFIs and community and economic development in our Nation's 
rural and urban regions. We look forward to our continued work together 
and developing solutions for small businesses, affordable housing, and 
job creation. Thank you.
                                 ______
                                 
                    PREPARED STATEMENT OF JOE DELOSS
         Founder and CEO, Hot Chicken Takeover, Columbus, Ohio
                           February 25, 2021
    Thank you Chairman Brown and Ranking Member Toomey for inviting me 
to testify before the Senate Committee on Banking, Housing, and Urban 
Affairs. My name is Joe DeLoss, I am the founder and CEO of Hot Chicken 
Takeover; a small fast-casual restaurant chain based in Columbus, Ohio, 
and growing throughout the Midwest.
    Though our business has an absolutely ridiculous name, it was built 
with a serious, transformative mission. I founded Hot Chicken Takeover 
to provide employment to those who've experienced significant adversity 
in their lives. Ranging from incarceration, to homelessness, to 
addiction, and to many things in between, our team is a diverse cast of 
players, all working collaboratively to be a best-in-class restaurant 
chain. We currently have 5 restaurants open and a sixth under 
construction. Our team will be approaching 200 people by year end.
    This introduction, especially including mention of our employees' 
pasts, often garners warm, sympathetic responses from listeners. With 
that in mind, it's very important for me to distinguish that Hot 
Chicken Takeover is very far from a charity or cause--our business is 
strong because our people are strong. Though they have been overlooked 
by the greater employment market, our team has led Hot Chicken Takeover 
to countless awards, national exposure, and private investment by some 
of the greatest innovators in our industry. Hot Chicken Takeover is a 
for-profit business demonstrating the positive economics that can be 
generated from deeply caring for and investing in your team.
    When COVID-19 struck in the United States, our leaders immediately 
concerned themselves with the stability of our team and community. With 
fear that restaurant sales would dry up completely, we made a choice to 
temporarily close our restaurants and move our team onto emergency 
assistance and unemployment benefits. This transition was far from 
smooth, leading our remaining team to build a makeshift case management 
practice to ensure our team members' needs could be met through our own 
discretionary resources while the Government unburied itself from such 
immense service demand. The other large consequence of the pandemic was 
the loss of $2M of committed private investment capital, set to close 
the last week of March 2020.
    Our remaining small team of leaders jumped into action to pivot our 
concept and ready ourselves for reopening. This effort included 
everything from safety and sanitation initiatives, to menu 
reconfigurations, to employee benefits, and to new technology 
integrations. Along the way, we were able to secure the first round of 
PPP funding, EIDL dollars, and several sympathetic investments from 
existing business partners. Without these supports, Hot Chicken 
Takeover would be a likely casualty of the crisis.
    Thankfully, our restaurant concept was well positioned to serve a 
post-COVID customer and we began reopening locations in May 2020. With 
dining rooms closed to ensure the safety of our team and guests, we 
doubled down on carry-out and delivery business, doing our best to 
avoid the predatory fees and poor service models of many third-party 
vendors in our industry. We successfully recalled 90 percent of our 
team upon reopening and began hiring others displaced by the pandemic 
to accommodate our increased demand. Hot Chicken Takeover has since 
been able to stabilize financially with additional private industry 
investment and is cautiously approaching growth, intent on creating 
more transformative and meaningful jobs.
    The COVID crisis is far from over for our company but we finally 
see a path forward for the concept and our team. And though Hot Chicken 
Takeover and it's team have glimmers of growth on the horizon, we 
represent a small segment of an utterly decimated industry.
    Assistance for our small businesses and employees remain critical 
for our communities to move forward.
    Thank for this opportunity to share testimony. Thank you all for 
your service and leadership.
                                 ______
                                 
                  PREPARED STATEMENT OF JESSICA MILANO
                 Board Member, Small Business Majority
                           February 25, 2021
    I would like to thank Chairman Brown, Ranking Member Toomey, and 
all of the distinguished Members of the Committee for inviting me to 
testify today.
    I am currently a member of the Board of Directors of Small Business 
Majority, a national small business advocacy organization that empowers 
America's entrepreneurs to build a thriving and equitable economy, and 
a Senior Advisor to Calvert Impact Capital, a mission-driven financial 
services firm that has played a key role in helping structure several 
small business recovery funds since the pandemic began. I previously 
served as Deputy Assistant Secretary for Small Business, Community 
Development, and Housing Policy at the U.S. Treasury during the Obama 
administration where I oversaw the Small Business Lending Fund (SBLF) 
and the State Small Business Credit Initiative (SSBCI) programs 
responsible for providing credit to Main Street businesses after the 
financial crisis. I am appearing today as a private citizen and the 
views expressed here are my own and should not be attributed to any of 
the organizations I just mentioned.
    Given my background, my testimony today focuses on the critical 
role small businesses play in our economic recovery. Small businesses 
are the foundation of our communities and the largest single source of 
new job growth in our economy. Over the last two decades, small and new 
businesses have been responsible for creating 2 out of every 3 net new 
jobs. \1\ Importantly, these jobs are often the high-quality, higher-
paying jobs that provide pathways to the middle class. Fully half our 
country's private sector workforce works for a small business. The 
pandemic has had a profound impact on communities across America but 
has been especially challenging for small businesses, particularly 
those owned by people of color, women, and immigrants. Pandemic 
restrictions and the decline in consumer demand has pushed many small 
businesses to the brink of failure and beyond. Rebuilding an inclusive 
economic recovery means ensuring small businesses have the tools and 
resources they need to come back stronger than before.
---------------------------------------------------------------------------
     \1\ Small Business Administration, ``Frequently Asked Questions'', 
June 2016.
---------------------------------------------------------------------------
    In my testimony today, I wish to discuss three important points:

    Many of the communities hardest hit by the pandemic have 
        been communities of color;

    Despite significant Federal support, minority-owned 
        businesses continue to experience challenges accessing capital; 
        and

    Congress should reauthorize the State Small Business Credit 
        Initiative to address these market gaps.

    Let me discuss these in turn.
Many of the communities hardest hit by the pandemic have been 
        communities of color.
    Small businesses are the foundation of healthy, vibrant 
communities. They are the places we gather to share a meal and they 
provide the critical services we could not live without like the small 
local grocer, dry cleaner or neighborhood coffee shop. Whether in rural 
towns, urban neighborhoods, or middle class suburbs, thriving 
successful small business owners serve as role models in their 
communities and mentors to the next generation. They are an important 
source of jobs and provide tangible examples of the diverse pathways 
that can be taken to achieving the American dream. It is impossible to 
discuss economic opportunity in America without addressing how to 
support small businesses.
    The effects of the pandemic on small businesses amid forced 
closings, modified reopenings, and weakened demand, are well documented 
and well understood by this Committee. I would however like to draw 
attention to the disproportionate impact the pandemic has had on 
communities of color. Many of the communities hardest hit by the 
pandemic have been communities of color. Research from the NY Fed 
released in August found Black-owned businesses are more likely to be 
located in counties with higher incidence of COVID-19 and also are 
highly concentrated in retail, restaurants, and other service 
industries most affected by shutdowns and social distancing. \2\ To 
make matters worse, these businesses often had weaker cash positions 
and weaker bank relationships before the pandemic leaving them 
particularly vulnerable to the economic shock that followed. \3\
---------------------------------------------------------------------------
     \2\ Mills, Claire Kramer and Jessica Battisto, ``Double Jeopardy: 
COVID-19's Concentrated Health and Wealth Effects in Black 
Communities'', Federal Reserve Bank of New York, August 2020.
     \3\ Ibid.
---------------------------------------------------------------------------
    While the first round of the Paycheck Protection Program (PPP) is 
estimated to have reached up to 74 percent of small businesses 
nationally, \4\ ``these loans reached only 20 percent of eligible firms 
in States with the highest densities of Black-owned firms, and in 
counties with the densest Black-owned business activity, coverage rates 
were typically lower than 20 percent.'' \5\
---------------------------------------------------------------------------
     \4\ U.S. Census Bureau, ``Small Business Pulse Survey: Tracking 
Changes During The Coronavirus Pandemic'', Data as of January 10, 2021, 
available at: https://www.census.gov/data/experimental-dataproducts/
small-business-pulse-survey.html.
     \5\ Mills, Claire Kramer and Jessica Battisto, ``Double Jeopardy: 
COVID-19's Concentrated Health and Wealth Effects in Black 
Communities'', Federal Reserve Bank of New York, August 2020.
---------------------------------------------------------------------------
    Given this data, it is unfortunately not surprising that more 
entrepreneurs of color report they may close their business in the next 
3 months. According to recent polling from Small Business Majority, 
nearly 1 in 3 Black and Latino business owners report they may be 
forced to temporarily close compared to 21 percent of White business 
owners.
    An additional 18 percent of Black and Latino entrepreneurs report 
they are likely to permanently close their business in the next 3 
months, compared to 14 percent of White small business owners. \6\
---------------------------------------------------------------------------
     \6\ Small Business Majority, ``Scientific Opinion Poll: Small 
Businesses Continue To Face Closures in 2021'', January 27, 2021.
---------------------------------------------------------------------------
    The impact of losing these businesses is two-fold: first on the 
business owner themselves, and second on the communities they serve. 
While vaccines have brought hope social distancing restrictions may 
ease this year, it is hard for Main Streets to come back to the 
bustling centers they were before the pandemic when so many businesses 
have shuttered permanently. Preventing this means addressing the market 
gaps that exist in accessing capital.
Despite significant Federal support, minority-owned businesses continue 
        to experience challenges accessing capital.
    The Federal Government's most significant source of relief to small 
businesses during the crisis has been the Paycheck Protection Program 
(PPP), which provides low cost, forgivable loans to support payroll 
initially but today can be applied to other qualified business expenses 
as well. This relief surely helped prevent higher unemployment and 
helped many larger, employer small businesses survive the last year.
    What we learned from PPP is that businesses that were underbanked 
prior to the pandemic had trouble accessing these loans. Non-employer 
firms, like the self employed, and small business owners of color were 
much less likely to have a business banking relationship prepandemic--
31 percent of Black-owned businesses, 28 percent of AAPI-owned 
businesses, and 26 percent of Latino-owned business owners lacked 
business banking. When the pandemic hit, emergency programs \7\ 
implemented by the SBA favored national 7(a) lenders and their clients. 
While well intentioned, smaller community lenders that had not 
previously done a high volume of SBA loans found it confusing or 
difficult to utilize the program, leaving their clients shut out. And 
businesses without strong banking relationships precrisis were even 
further at the back of the queue. \8\
---------------------------------------------------------------------------
     \7\ Small Business Majority, ``Scientific Opinion Poll: Small 
Businesses Struggling To Access Capital, Harming Their Financial 
Recovery,'' February 17, 2021.
     \8\ Wall Street Journal, ``PPP Small Business Loans Left Behind 
Many of America's Neediest Firms'', June 17, 2020.
---------------------------------------------------------------------------
    According to Small Business Majority's polling, roughly 4 in 10 
small business owners had not obtained any capital prepandemic like 
loans or lines of credit from any lending institution including 31 
percent of Black-owned businesses and 38 percent of Latino owned 
businesses. These loose ties to the banking sector meant relatively few 
small business owners surveyed by Small Business Majority were able to 
secure funding through Federal small business relief programs. While 
roughly 1 in 3 applied for a PPP loan, only a third received the full 
amount requested, and the number was even lower for minority-owned 
businesses--23 percent of Black-owned businesses, 23 percent of AAPI-
owned businesses and 27 percent Latino-owned businesses received the 
full amount. \9\
---------------------------------------------------------------------------
     \9\ Small Business Majority, ``Scientific Opinion Poll: Small 
Businesses Struggling To Access Capital, Harming Their Financial 
Recovery'', February 17, 2021.
---------------------------------------------------------------------------
    This data is not a criticism of PPP but highlights the challenges 
policymakers face in helping capital reach businesses and communities 
historically underserved and underbanked by traditional lenders. PPP 
also does not support new businesses. Because of the program's initial 
focus on reducing unemployment and supporting businesses impacted by 
the pandemic, new businesses formed in the last year are not eligible. 
However, a silver lining of the pandemic has been the number of new 
business starts.
    According to data from the U.S. Census Bureau, compiled by Economic 
Innovation Group, ``In 2020, there was an explosion in new business 
applications, reaching nearly 4.5 million by year's end--a 24 percent 
increase from 2019 and 51 percent higher than the 2010-19 average.'' 
\10\ It is too soon to tell how many of these 10 small businesses will 
survive but the data is encouraging because it reverses a decades long 
decline in new business formation and shows how entrepreneurship can 
help lead the way out of the crisis.
---------------------------------------------------------------------------
     \10\ Economic Innovation Group, ``The Start Surge? Unpacking 2020 
Trends in Business Formation'', February 8, 2021.
---------------------------------------------------------------------------
    The next phase of the recovery will be to move beyond the short-
term relief PPP provided to focus on small business support that 
complements PPP by helping to address these credit gaps and provides 
incentives for innovative private financing and flexible local support 
to help build vibrant small business ecosystems that are stronger than 
before.
Congress should reauthorize the State Small Business Credit Initiative 
        to address these market gaps.
    As the Committee hears proposals to help rebuild Main Street small 
businesses, I'd like to recommend reauthorization of the State Small 
Business Credit Initiative (SSBCI) and share my experience working on 
the program. SSBCI complements other Federal programs by filling market 
gaps these programs do not cover, such as guaranteeing loans from 
CDFIs, financing nonprofits, and supporting equity financing for high-
growth potential businesses. It also helps build local lending and 
investment capacity to help support historically underserved 
businesses.
    SSBCI was funded with a one-time authorization of $1.5 billion 
through the Small Business Jobs Act of 2010. It was a new program and a 
true experiment borne of the need to jump start small business lending 
and investment during the financial crisis. The program worked by 
allowing States to set-up their own small business support programs 
targeted to local economic needs. It was so flexible there were just 
two primary requirements: (1) States had to establish at least one from 
a list of 5 possible credit or equity programs; and (2) States had to 
provide a plan for leveraging $10 of new private sector small business 
financing for every $1 of SSBCI funds expended.
    Unlike other Federal programs, like those administered by the Small 
Business Administration for example, it was not a one-size-fits-all 
approach with uniform national requirements. Some communities chose to 
target microbusinesses while others targeted manufacturers or high-tech 
companies. Each State has its own needs and, with them, developed a 
unique set of partners to administer the programs. In total SSBCI 
funded 154 programs nationwide, over 80 of them new, and dedicated $1 
billion to lending programs and over $400 million to venture capital 
programs targeting investment in early stage businesses. \11\
---------------------------------------------------------------------------
     \11\ U.S. Department of the Treasury, ``State Small Business 
Credit Initiative: A Summary of States' 2016 Annual Reports'', July 24, 
2017.
---------------------------------------------------------------------------
    The program succeeded in providing capital to very small and young 
businesses. Eighty percent of SSBCI loans or investments supported 
businesses with 10 or fewer full-time employees and nearly half the 
supported businesses were less than five years old. It also addressed 
capital needs in low- and moderate-income (LMI) areas, 42 percent of 
SSBCI loans or investments were were made to businesses in LMI 
communities. \12\
---------------------------------------------------------------------------
     \12\ Ibid.
---------------------------------------------------------------------------
    This was achieved because the program partnered with often smaller 
community lenders and community development financial institutions 
(CDFIs) that exist to meet the unique needs of historically underbanked 
communities. The CDFI industry has operated for more than 40 years to 
serve these businesses with capital and advisory services. Today, CDFIs 
are on the front lines of the current health and economic crisis and 
are often the first touchpoint for a struggling local business owner 
seeking help.
    During the last year, some States have sought to leverage CDFIs 
ability to reach historically underbanked and minority-owned small 
businesses by capitalizing their own small business support programs. 
In May New York launched the New York Forward Loan Fund, a $100 million 
fund managed by Local Initiatives Support Network (LISC), a CDFI that 
works with other New York-based CDFIs to provide low cost working 
capital loans to small businesses and nonprofits with fewer than 50 
employees and that have been negatively impacted by the pandemic. And 
in November California followed with the California Rebuilding Fund, a 
public-private partnership that drives capital from private, 
philanthropic and public sector resources to CDFIs so that they can 
extend affordable, flexible capital to small businesses they serve. 
Both programs are leveraging CDFIs target market and mission to reach 
small businesses that were unable to access other Federal assistance 
programs.
    To date, the programs have reached over 1,000 of the hardest to 
reach small businesses across their States, with 77 percent loans to 
businesses either located in a LMI census tract or owned by a 
historically underbanked population including businesses owned by women 
and people of color. These businesses are the smallest of the small; 76 
percent of businesses that have received loans have 5 or fewer full-
time employees and 21 percent of businesses are sole proprietorships. 
The current proposal to reauthorize SSBCI at $10 billion in funding 
would help make these programs available in more States and help more 
small businesses access affordable loans beyond March 31, 2021, when 
PPP is set to end. Also, by providing flexible working capital and 
other forms of small business credit and investment products SSBCI 
would address the gaps left by PPP and help more small businesses keep 
the doors open so when restrictions are lifted they are ready to 
welcome back customers and are stronger and more resilient than before.
Conclusion
    The pandemic has touched all of our lives and many of us look 
forward to the day we can gather together and enjoy the interaction of 
a crowded Main Street again. In order to build the communities we want 
to live in and support economic opportunity and inclusivity for 
ourselves and our neighbors, we need to support our small businesses 
and ensure they have the resources to retool, reopen, and thrive.
                                 ______
                                 
                  PREPARED STATEMENT OF JOEL GRIFFITH
                Research Fellow, The Heritage Foundation
                           February 25, 2021
    Thank you Chairman Brown, Ranking Member Toomey, and other Members 
of the Committee for the opportunity to testify today. My name is Joel 
Griffith. I am a Research Fellow in Financial Regulations at The 
Heritage Foundation. The views I express in this testimony are my own 
and should not be construed as representing any official position of 
The Heritage Foundation.
    This testimony will briefly examine economic conditions stemming 
from the COVID-19 pandemic and the economic shutdowns before examining 
the proposed latest round of COVID relief. This legislation provides 
for billions more of Federal loans and grants despite the fact that 
billions of previously approved aid remains available. Some of these 
funds will flow to a program--the State Small Business Credit 
Initiative--with a history of problems. This Federal aid crowds out 
private sector investment and ignores the fact that small businesses by 
and large do not report a drying up of credit. The legislation also 
provides for a doubling of the minimum wage which would harm small 
businesses and slow economic recovery. Reopening the economy is the 
best relief for small businesses, as evidenced by the divergent 
economic results from State to State.
    The data certainly bear out the economic decline stemmed from 
Government-mandated closures and people responding to what they heard 
from some public health officials.
    For the first time in our Nation's history, Governments 
intentionally suppressed the supply of goods and services. Likewise, 
restrictions on consumer activity artificially suppressed demand. An 
historic plunge in the production of goods, provision of services, and 
private investment resulted in the second quarter of 2020. \1\
---------------------------------------------------------------------------
     \1\ The Nation's economy in the second quarter of 2020 shrank at a 
31.4 percent annualized rate. Personal consumption dropped at a 33.2 
percent annualized rate. Consumption of personal services dropped 41.8 
percent annualized. Table 1.1.1, Bureau of Economic Analysis, https://
apps.bea.gov/iTable/
iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey 
(accessed February 24, 2021). By the middle of 2020, the economy had 
contracted by 10.2 percent from its peak. Federal Reserve Bank of St. 
Louis, Series GDP, https://fred.stlouisfed.org/series/GDP (accessed 
February 24, 2021).
---------------------------------------------------------------------------
    The robust recovery of the third quarter and the much slower growth 
in the fourth quarter closed more than two-thirds of the sharp economic 
contraction. But much damage remains, with 9.9 million fewer 
individuals employed \2\ and hundreds of thousands of businesses closed 
forever, including more than 100,000 restaurants. \3\
---------------------------------------------------------------------------
     \2\ Federal Reserve Bank of St. Louis, Series PAYEMS, https://
fred.stlouisfed.org/series/PAYEMS (accessed February 24, 2021).
     \3\ ``Restaurant Industry in Free Fall; 10,000 Close in Three 
Months'', National Restaurant Association, December 7, 2020, https://
restaurant.org/news/pressroom/pressreleases/restaurant-industry-in-
free-fall-10000-close-in (accessed February 24, 2021).
---------------------------------------------------------------------------
    It's not for want of Government spending that the economy still has 
not fully recovered. The Federal Government borrowed, printed, and 
spent trillions of dollars in an effort to cushion the economic 
downturn. Total Federal spending of $6.551 trillion in fiscal year 2020 
exceeded the prior year by $2.1 trillion \4\--an enormous increase of 
more than $24,000 per family of four. \5\
---------------------------------------------------------------------------
     \4\ Congressional Budget Office, ``Historical Budget Data'', 
February 11, 2021, https://www.cbo.gov/system/files/2021-02/51134-2021-
02-11-historicalbudgetdata.xlsx (accessed February 24, 2021).
     \5\ State and local governments increased spending by 15.4 percent 
from 2015-2020 and in the depths of the recession in Q2 of 2020 
actually spent 1.2 percent more than the prior year. Federal Reserve 
Bank of St. Louis, Series SLEXPND, https://fred.stlouisfed.org/series/
SLEXPND (accessed February 23, 2021).
---------------------------------------------------------------------------
    Rather, Government-mandated closures and public perception of the 
crisis continue to deter investment and suppress economic activity. The 
skyrocketing Federal debt and rapidly expanding central bank balance 
sheet creates the additional risk of a monetary crisis.
Congressionally Approved Aid Remains Unused
    Congress has already approved more than $1 trillion in aid intended 
for smaller businesses, including more than $800 billion through the 
Paycheck Protection Program (PPP).
    Much of this aid is still available. Of the additional $284 billion 
provided for PPP in the December stimulus package to be disbursed 
through March, only 36 percent had been obligated as of February 7. \6\ 
Likewise, the December package provided $12 billion to Community 
Development Financial Institutions (CDFIs) and Minority Depository 
Institutions (MDIs) to lend.
---------------------------------------------------------------------------
     \6\ U.S. Small Business Administration, ``Paycheck Protection 
Program (PPP) Report: Approvals through 2/15/2021'', https://
www.sba.gov/sites/default/files/2021-02/PPP-Report-Public-210215-
508.pdf (accessed February 24, 2021).
---------------------------------------------------------------------------
    This legislation provides $15 billion more for the Targeted 
Economic Injury Disaster Loan Program. But as of February 12, none of 
the $20 billion appropriated for Economic Injury Disaster Loans had 
been obligated. \7\
---------------------------------------------------------------------------
     \7\ U.S. Small Business Administration, ``COVID-19 EIDL Loans 
Report 2021'', February 16, 2021, https://www.sba.gov/document/report-
COVID-0919-eidlloans-report-2021 (accessed February 24, 2021).
---------------------------------------------------------------------------
The State Small Business Credit Initiative (SSBCI): A Troubled Program 
        From the Past
    On top of all the prior spending--including the hundreds of 
billions of approved aid which remains to be spent--this legislation 
proposes $10 billion to restart the State Small Business Credit 
Initiative (SSBCI). This State Small Business Credit Initiative (SSBCI) 
funds State programs that provide Government loan guarantees and 
Government loan purchases to businesses defined as ``small.'' \8\ Like 
the PPP program, a small business can include those with 500 full-time 
employees. This Government favoritism based on company size and 
business sector partially replaces decisions over allocation of capital 
made by individuals and investors with the preferences and dictates of 
bureaucrats often for the benefit of the politically favored.
---------------------------------------------------------------------------
     \8\ U.S. Department of the Treasury, State Small Business Credit 
Initiative, https://www.treasury.gov/resource-center/sbprograms/Pages/
ssbci.aspx (accessed February 24, 2021).
---------------------------------------------------------------------------
    Numerous problems plagued this program in the past. \9\ For 
instance, the Treasury's Office of Inspector General (OIG) identified 
noncompliant expenditures related to California's SSBCI loans which 
``constitute a `reckless' misuse of funds.'' \10\ The OIG also 
identified ``reckless misuse'' of funds and ``conflicts of interest'' 
within the New York program related to one of the venture capital firms 
participating in the State's SSBCI program. \11\ These States were not 
alone. The OIG found only four States to be in full compliance with the 
program.
---------------------------------------------------------------------------
     \9\ Congressional Research Service, ``State Small Business Credit 
Initiative: Implementation and Funding Issues'', April 23, 2018, 
https://www.everycrsreport.com/reports/R42581.html (accessed February 
24, 2021).
     \10\ U.S. Department of the Treasury, OIG, ``Small Business 
Lending Fund: California Needs To Improve Its Oversight of Programs 
Participating in the State Small Business Credit Initiative'', May 24, 
2012, p. 3, https://oig.treasury.gov/sites/oig/files/Audit-Reports-and-
Testimonies/OIG-SBLF-12-003.pdf (accessed February 24, 2021).
     \11\ Congressional Research Service, ``State Small Business Credit 
Initiative: Implementation and Funding Issues'', April 23, 2018, p. 41, 
https://www.everycrsreport.com/reports/R42581.html (accessed February 
24, 2021).
---------------------------------------------------------------------------
    Is this Government-provided capital actually filling a funding need 
of small businesses not already met by the market? The data strongly 
suggest no. The $1.5 billion in SSCBI funds in the Small Business Jobs 
Act of 2010 was expected to generate $10.5 billion in new small 
business financing by State Government lending programs. This is just a 
small fraction of the total value of the $644.5 billion small business 
loans outstanding in 2019 (the most recent year available). \12\
---------------------------------------------------------------------------
     \12\ U.S. Small Business Administration, Office of Advocacy, 
``Small Business Lending in the United States'', September 2020, 
https://cdn.advocacy.sba.gov/wpcontent/uploads/2020/09/10092858/Report-
2019-Small-Business-Lending-Report.pdf (accessed February 24, 2021).
---------------------------------------------------------------------------
    By the time SSBCI delivers these resources, the economy will be 
even further rebounded. Indeed, that seems to be the entire point. 
Under this legislation, SSBCI would not be limited to the duration of 
the pandemic. Instead, SSBCI funding would be available for years after 
the expected duration of the pandemic. This operates as a slush fund 
for politicians across the Nation--a purpose detached from combatting 
the economic fallout from the shutdowns.
Small Businesses Are Being Serviced by the Credit Markets
    It's a misnomer that credit markets are not providing funds to 
small businesses. Most small businesses are saying they are generally 
not looking for more credit. \13\ Only 3 percent of respondents in a 
recent National Federation of Independent Business (NFIB) survey 
reported their borrowing needs were not satisfied. The survey also 
reported the following; ``Twenty-six percent reported all credit needs 
met (up 1 point) and 60 percent said they were not interested in a loan 
(up 2 points). A net 3 percent reported their last loan was harder to 
get than in previous attempts (up 1 point).'' \14\ Small business 
credit conditions in December--based on the percentage of businesses 
reporting ``easier'' lending conditions vs. ``harder'' lending 
conditions--were identical to conditions one year prior, months before 
any COVID-19 impact began. \15\ This stands in stark contrast to the 
Great Recession more than a decade ago where credit conditions 
according to the same index plunged, taking years to recover to their 
prerecession levels. \16\ In fact, obtaining financing is the reported 
top concern of just 1 percent of small business owners. \17\ In past 
economic crises, 37 percent have reported financing and interest rates 
as a top concern.
---------------------------------------------------------------------------
     \13\ William C. Dunkelberg and Holly Wade, NFIB Small Business 
Economic Trends, NFIB Research Center, December 2020, https://
assets.nfib.com/nfibcom/SBETDec-2020.pdf (accessed February 23, 2021).
     \14\ Ibid.
     \15\ Ibid.
     \16\ Ibid.
     \17\ Ibid.
---------------------------------------------------------------------------
More Federal Government Lending to Businesses Crowds out the Private 
        Sector
    More Federal funding of private enterprise crowds out private 
capital from the credit market. Our credit markets serve an important 
function of efficiently allocating resources across the economy. 
Usually, businesses and projects must compete with each other to obtain 
limited amounts of capital in order to secure the resources needed to 
function. Interest rates or return on equity serve as important price 
signals--and also determine which businesses ultimately will obtain the 
capital. The flow of capital from the Federal Government to private 
businesses alters this equation. By delivering capital at submarket 
interest rates or sometimes in the form of outright grants, businesses 
which otherwise may not secure funding in a competitive environment 
from an investor find it possible to obtain capital--and to continue 
consuming limited resources.
    The Small Business Administration (SBA) loan guarantees now secure 
more than 50 percent of all outstanding loan balances as of Q3 2020--up 
from less than 10 percent at the beginning of 2020. \18\
---------------------------------------------------------------------------
     \18\ Federal Reserve Bank of Kansas City, ``kcFed Small Business 
Lending Survey'', Chart 2, December 21, 2020, https://
www.kansascityfed.org//media/files/publicat/research/indicatorsdata/
smallbusiness/2020/small%20business%20lending%20survey%
20template%203rd%20quarter%20-%2012212020v2.pdf?la=en (accessed 
February 24, 2021).
---------------------------------------------------------------------------
A $15 National Minimum Wage Disproportionately Harms Particular 
        Individuals, Businesses, and Locales
    A one-size-fits-all $15 Federal minimum wage fails to take into 
account that the cost of living in Iowa is less than half that of 
Hawaii. \19\ In these more affordable locales, these mandates can be 
expected to far more negatively impact businesses and jobs 
opportunities. It's effectively a Red State tax. The unintended 
consequences loom large.
---------------------------------------------------------------------------
     \19\ Missouri Economic Research and Information Center, 
``Composite Cost of Living Index 2020 Quarter 4'', https://
meric.mo.gov/data/cost-living-data-series (accessed February 24, 2021).
---------------------------------------------------------------------------
    A $15 Federal minimum effectively excludes those who produce less 
than $36,000 per year (the payroll cost of employing one full-time 
worker) from participating in the U.S. labor market. This would destroy 
jobs and opportunities for those who most need it, such as the 26 
million Americans who did not graduate from high school. Young adults 
seeking their first jobs, people living with disabilities, and those 
reentering society after incarceration will be amongst the first to be 
priced out of the jobs market. This can alter the life trajectory for 
these individuals.
    Expect larger businesses to stave off insolvency by outsourcing and 
automation. Many others, particularly in low-margin sectors such as 
fast food, will simply close their doors. The Congressional Budget 
Office now estimates that a $15 minimum wage would destroy 1.4 million 
jobs. For every 2 people estimated to be lifted out of poverty, the CBO 
estimates 3 will lose their jobs. \20\
---------------------------------------------------------------------------
     \20\ ``The Effects on Employment and Family Income of Increasing 
the Federal Minimum Wage'', Congressional Budget Office July 2019, 
https://www.cbo.gov/system/files/2019-07/CBO-55410-MinimumWage2019.pdf 
and ``The Budgetary Effects of the Raise the Wage Act of 2021'', 
Congressional Budget Office, February 2021, https://www.cbo.gov/system/
files/2021-02/56975-Minimum-Wage.pdf.
---------------------------------------------------------------------------
    A Heritage Foundation report estimates the $15 Federal minimum wage 
will cause childcare costs to soar by 21 percent. In many States--
including Georgia, South Carolina, Iowa, and Louisiana--costs could 
rise well in excess of 30 percent. This is untenable for many low- and 
middle-class families. Families with two children could see costs rise 
by more than $5,000 in Nevada, Kansas, Oklahoma, Wisconsin, Louisiana, 
and Georgia and by more than $6,000 in Iowa and Indiana. \21\
---------------------------------------------------------------------------
     \21\ Rachel Greszler, ``The Impact of a $15 Federal Minimum Wage 
on the Cost of Childcare'', Heritage Foundation Backgrounder No. 3584, 
February 11, 2021, http://report.heritage.org/bg3584.
---------------------------------------------------------------------------
    The bottom line: a one-size-fits-all $15 minimum wage will destroy 
jobs, hamper economic growth, close businesses, and increase costs for 
everyday families. Instead of mandates that reduce productivity, 
policymakers should seek real and lasting wage gains that come from 
workers' creating more value, such as the reduced regulations and taxes 
that freed up resources for businesses to invest in workers and 
contributed to a 14.6 percent increase in the incomes of the lowest 
10th percentile of workers from 2016 to 2019. \22\
---------------------------------------------------------------------------
     \22\ The median usual weekly earnings of workers at the 10th 
percentile of the wage distribution--those making about $10 to $11 per 
hour--increased by 14.6 percent (from $397/week to $455/week) between 
2016 and 2019. Data available for download from U.S. Bureau of Labor 
Statistics, ``Data Retrieval: Labor Force Statistics--Table 5. 
Quartiles and Selected Deciles of Usual Weekly Earnings of Full-Time 
Wage and Salary Workers by Selected Characteristics, Not Seasonally 
Adjusted'', https://www.bls.gov/webapps/legacy/cpswktab5.htm (accessed 
February 1, 2021).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



Reopening the Economy Is Saving Small Businesses
    Full economic recovery does not stem from stimulus checks or 
bailouts from Washington. Rather, it's largely a result of individuals 
and businesses safely and legally interacting with others. The historic 
economic rebound this summer proves that those properly informed of the 
actual risks of the virus and the appropriate mitigation measures are 
enthusiastically participating in this reopening.
    Nationally, economic growth in last year's third quarter smashed 
all prior records--growing at a stunning 33.4 percent annual pace. \23\ 
Record growth occurred even as Government transfer payments and 
Paycheck Protection Program expenditures dropped by 20 percent in the 
quarter. \24\
---------------------------------------------------------------------------
     \23\ U.S. Bureau of Economic Analysis, ``National Economic 
Accounts, Table 1'', January 28, 2021, https://www.bea.gov/sites/
default/files/2021-01/gdp4q20-adv.xlsx (accessed February 16, 2021).
     \24\ U.S. Bureau of Economic Analysis, ``Effects of Selected 
Federal Pandemic Response Programs on Personal Income'', https://
www.bea.gov/sites/default/files/2020-10/effectsof-selected-federal-
pandemic-response-programs-onpersonal-income-2020q3-adv.xlsx (accessed 
February 16, 2021).
---------------------------------------------------------------------------
    The pace of the recovery varies widely across the Nation due to 
lockdown restrictions--ostensibly implemented to contain the spread of 
the virus.
    The Federal Reserve State Coincident Indexes--an approximation of 
State GDP--vividly illustrates how variant the economic recovery is 
based on States. \25\ This index suggests economic output at the end of 
2020 was actually greater than prepandemic in Utah, Missouri, Idaho, 
Nebraska, Alaska, South Dakota, Mississippi, and Georgia--notably 
States without crushing, longlasting shutdowns. The economies in 
Hawaii, Michigan, Rhode Island, Massachusetts all remain more than 10 
percent smaller. Meanwhile, States like New York, Hawaii, and Illinois 
remain mired in severe recessions. Only this month did Gov. Andrew 
Cuomo (D-NY) and Chicago Mayor Lori Lightfoot (D-IL) admit that their 
shutdowns of the service sectors may need to be relaxed.
---------------------------------------------------------------------------
     \25\ Federal Reserve Bank of Philadelphia, ``State Coincident 
Indexes'', https://www.philadelphiafed.org/-/media/frbp/assets/surveys-
anddata/coincident/coincident-revised.xls (accessed February 16, 2021).
---------------------------------------------------------------------------
    In El Centro, California, 17.7 percent are unemployed, Los Angeles 
suffers from 9.9 percent unemployment. Across New York City, draconian 
restrictions and an army of compliance officers continue to push tens 
of thousands of businesses out of business, resulting in 8.4 percent 
unemployment. \26\
---------------------------------------------------------------------------
     \26\ U.S. Bureau of Labor Statistics, ``Unemployment Rates for 
Metropolitan Areas'', preliminary for December 2020, https://
www.bls.gov/web/metro/laummtrk.htm (accessed February 23, 2021).
---------------------------------------------------------------------------
    Meanwhile, unemployment in numerous communities in Alabama, Idaho, 
Iowa, Nebraska, South Dakota, and Utah is at 3 percent or less. The 
statewide unemployment rate of under 4 percent in Alabama, Iowa, 
Kansas, Nebraska, South Dakota, Utah, and Vermont contrasts sharply 
with rates at least twice as high in California, Colorado, Connecticut, 
Hawaii, Illinois, Nevada, New York, and Rhode Island. \27\ Overall, in 
December, the 10 States with the fewest restrictions in place \28\ 
averaged 4.7 percent unemployment--while the 10 States with the most 
restrictions averaged 7.1 percent unemployment. \29\
---------------------------------------------------------------------------
     \27\ U.S. Bureau of Labor Statistics, ``Unemployment Rates for 
Metropolitan Areas'', preliminary for December 2020, https://
www.bls.gov/web/metro/laummtrk.htm (accessed February 23, 2021).
     \28\ Adam McCann, ``States With the Fewest Coronavirus 
Restrictions'', WalletHub, January 26, 2021, https://wallethub.com/edu/
states-coronavirusrestrictions/73818 (accessed February 4, 2021).
     \29\ U.S. Department of Labor, ``Bureau of Labor Statistics'', 
Local Area Unemployment Statistics Data Series, December 2020, https://
www.bls.gov/web/laus/laumstrk.htm (accessed February 4, 2021).
---------------------------------------------------------------------------
    A full recovery requires a safe reopening rather than more fiat 
currency, borrowing, and Government spending. Only then will we see 
both investment and consumption return in full force.
    In December, 13 percent of small business owners reported poor 
sales as the single most important problem--this was more than twice 
the number of a year ago. \30\ Businesses don't need Government 
largesse. And workers do not need more Government mandates. What our 
Nation needs is a continued reopening.
---------------------------------------------------------------------------
     \30\ Ibid.
---------------------------------------------------------------------------
Continued Fiscal Imprudence Threatens Our Economic Security
    The Federal Reserve currently enables this explosion of spending by 
digitally creating dollars and using those to purchase Government bonds 
from the Treasury, which prevents the debt market from being 
overloaded.
    In under a year, Federal Reserve banks have more than doubled the 
amount of U.S. Government debt it owns (printing money to buy debt), 
leaping from $2.4 trillion to $4.9 trillion, nearly all of this coming 
during the COVID-19 crisis. \31\
---------------------------------------------------------------------------
     \31\ Federal Reserve Bank of St. Louis, Series FDHBFRBN, https://
fred.stlouisfed.org/series/FDHBFRBN (accessed February 24, 2021).
---------------------------------------------------------------------------
    This allows politicians to distribute large sums of money without 
immediately raising taxes or overloading credit markets, a process that 
simply cannot go on forever.
    Future generations will bear the brunt of the consequences.
    Inflation is a growing concern. Eventually the Federal Reserve will 
have to reverse its actions and sell the bonds back to the public, or 
else risk stoking even higher inflation.
    What would happen at that point? Nobody really knows, but it could 
be a disaster. \32\ Since mid-March, the dollar has lost approximately 
10 percent of its value relative to other currencies. \33\
---------------------------------------------------------------------------
     \32\ Norbert Michel, Paul Winfree, and Doug Badger, ``Potential 
Long-Term Economic Consequences of the Federal Response to the COVID-19 
Lockdowns'', Heritage Foundation Backgrounder 3498, June 4, 2020, 
https://www.heritage.org/sites/default/files/2020-06/BG3498.pdf 
(accessed February 24, 2021).
     \33\ Daily FX, ``U.S. Dollar Index (DXY)'', https://
www.dailyfx.com/us-dollar-index (accessed February 24, 2021).
---------------------------------------------------------------------------
    Masking this economic misery by racking up trillions more in debt 
and instructing the central bank to distribute trillions more to 
favored interests might be politically expedient. However, it's 
irresponsible. Economist Larry Summers, former director of the National 
Economic Council for President Obama, recently warned that the current 
plan under consideration could generate ``inflationary pressures of a 
kind we have not seen in a generation, with consequences for the value 
of the dollar and financial stability.'' \34\
---------------------------------------------------------------------------
     \34\ Larry Summers, ``The Biden Stimulus Is Admirably Ambitious. 
But It Brings Some Big Risks, Too'', The Washington Post, February 4, 
2021, https://www.washingtonpost.com/opinions/2021/02/04/Larry-summers-
biden-covid-stimulus/ (accessed February 24, 2021).
---------------------------------------------------------------------------
    The bottom line: We will pay for this through the visible burden of 
direct taxation, the hidden tax of inflation, higher borrowing costs, 
or some combination of the three. This will be a long-term drag on 
economic growth. The notion that Congress--or the Fed--simply will be 
able to fine-tune taxes and inflation without any consequences is a 
fantasy. It is time for our leaders to take the national debt 
seriously. With this in mind, any additional Federal relief measures 
should focus on providing legal protections for businesses to reopen 
and tailoring aid to meet the health crisis. \35\
---------------------------------------------------------------------------
     \35\ Public health represents less than 10 percent of the spending 
in this package.
---------------------------------------------------------------------------
                                 ______
                                 
                   PREPARED STATEMENT OF DANI RITCHIE
          Owner/Stylist, Studio Alchemy, Harmony, Pennsylvania
                           February 25, 2021
    Chairman Brown, Ranking Member Toomey, and Members of the 
Committee, thank you for the invitation to testify today and allowing 
me to share my story.
    My name is Dani Ritchie. I am a hair salon owner and part-time 
service worker from New Castle, Pennsylvania. My hair salon is located 
in Harmony, Pennsylvania. I opened the door to my business in 2016, 
only a year after graduating cosmetology school.
    Harmony, is a quaint, little historic town in Butler County, with a 
declining population of 2,500.
    In addition to working as a hairstylist in my salon, I work part-
time as a server and bartender. Working in the restaurant industry 
while attending college, I could pick up extra shifts when I was low on 
cash, and my flexible schedule allowed me to go to school while still 
making an income. I've worked in the restaurant industry for 18 years 
now, 10 of them at North Country Brew Pub, in Slippery Rock, 
Pennsylvania, where I am still currently employed part-time.
    Being a server and bartender at the brewery is what allowed me to 
pursue my passion of becoming a cosmetologist and open my very own 
salon. The flexible hours allowed me to attend school, and the generous 
tips are what helped me to save and open my salon without having to get 
a loan.
    When Pennsylvania first imposed business shutdown orders in March 
of 2020, I had to close the doors to my salon for over 3 months, while 
still having to pay rent and utilities for an unoccupied building. I 
was also unable to work at the brewery at that time because it was 
temporarily shut down. Luckily, when the brewery was finally permitted 
to open back up on a limited basis to provide take-out and delivery 
orders, I was able to pick up work there.
    The owners of North Country Brewing Company, Bob and Jodi 
McCafferty, are incredible people who have worked so hard to provide 
not only one, but three unique, sustainable businesses in Slippery Rock 
and Harmony. All three locations have provided secure employment for 
206 people, that is until the Government put in place coronavirus 
restrictions for restaurants.
    During the first round of shutdowns, they could only keep 23 active 
employees on payroll (which means 183 were laid off). And during the 
second round of shutdowns, there were only 39 active employees on 
payroll (leaving 106 laid off). It's heartbreaking to see the 
astronomical number of restaurants and other small businesses that have 
suffered financially and, in some cases, had to close permanently 
because of the economic hardship caused by Government shutdowns and 
restrictions.
    Given these challenging circumstances, I am deeply concerned by the 
proposal to raise the national minimum wage to $15 an hour and 
eliminating the tip credit. This proposal would be financially 
devastating to restaurants and other small businesses and many of their 
workers.
    Servers at the brewery where I work are paid $3 an hour plus tips. 
Our tips provide us with an income that surpasses a $15 an hour minimum 
wage. Asking Bob and Jodi to increase the majority of their front of 
house staff to $15 an hour is asking them to give a 400 percent raise 
to most of their employees. That would be a severe increase in 
expenses, at any time, but will be especially difficult given that 
COVID shutdowns and restrictions have caused an enormous hit to sales.
    Jobs will be lost, and menu prices will sky-rocket to cover the 
mandated raises, which will undoubtably deter customers from wanting to 
go to any restaurant. The restaurants and small businesses that have 
been lucky to keep their doors open after being ravaged by COVID 
restrictions are going to have an incredibly hard time surviving if 
they're forced to pay these wages. That's not to mention the hit to 
service industry, tip reliant, workers like me. We take jobs at 
restaurants knowing that we're signing up to make $3 an hour, and we 
work hard to provide great service to our customers with the hope that 
they will compensate us with tips for the ``above and beyond'' serviced 
received. We're not asking for a flat rate of $15 an hour, which will 
be a major cut in our income.
    The restaurant industry has been running on this model for over 80 
years now, and it isn't broken. The majority of people fighting for 
this so-called ``one fair wage'' have never worked at a restaurant at 
day in their lives and don't understand that we make a good living with 
our tips. We aren't asking for their help, and they're actually doing 
us way more harm than good.
    What restaurants, other small businesses, and their workers need is 
for the economy to fully reopen. Many Government-imposed business 
restrictions, such as the 25-50 percent capacity, are unnecessarily 
harmful and need to be lifted as soon as possible. These capacity 
restrictions do not make sense for many, if any, businesses, including 
my hair salon. With what we know, and are continuing to find out about 
the virus, I believe we can safely accommodate 100 percent capacity 
with modifications that allow for proper social distancing and mask 
wearing. Businesses should be given the flexibility to accommodate 
customer attendance and safety, and it should be up to the individual 
to decide if they want to go to an establishment or stay home. 
Afterall, we are supposed to have freedom of choice here, in America.
    Thank you for your time and for listening to my story as a small 
business owner of 5 years and a tipped service worker for 18 years. 
Please hear my words as someone who has been blessed to earn a more 
than fair income in the restaurant industry with the wage model set in 
place, as is. And, also as a small business owner, negatively affected 
by Government restrictions imposed as a response to this pandemic. 
Piling on more requirements for businesses will only hurt business 
owners and employees who have already been through enough. We need to 
move forward from this before it completely crashes our economy and 
crumbles small, locally owned businesses.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                   FROM WATCHEN HARRIS BRUCE

Q.1. According to the Census Bureau, 46 percent of small 
businesses surveyed in late February 2021 expect it will take 
more than 6 months for their operations to return to normal 
levels, and 8 percent do not believe their business will ever 
return to normal levels of operations--an increase from the 
start of the year. \1\ What supports do you believe small 
businesses in your community will be most in need of in the 
coming months, and what supports do you believe the workers 
employed by small businesses in your community will most need?
---------------------------------------------------------------------------
     \1\ Census Bureau, Small Business Pulse Survey, accessed March 3, 
2021, https://portal.census.gov/pulse/data/.
---------------------------------------------------------------------------
    What supports do you believe small businesses in your 
community will be most in need of in the coming months?

A.1. Grant funds separate from the PPP to cover 6 months of 
fixed overhead cost, such as facility/office and equipment 
rental, telephones, website hosting for online sales and 
promotions, equipment, insurances, vehicle leasing, and 
gasoline, etc., to offset the loss in business revenue due to 
economic uncertainty in the marketplace and the rise in COVID-
19 variance impacting the younger workforce.
    Extension on loan repayment requirements for the SBA EIDL 
loan until the market fully recovers from the COVID-19 
Pandemic.
    Assistance from banks with line-of-credit products that 
address the needs of Small Black and Latino businesses--
relaxing requirements such as collateral, debt/revenue ratios, 
negative net-income on balance sheets, and recent declines in 
credit scores resulting from the COVID-19 Pandemic and 
subsequent market volatility.
    Small business developers will need help securing materials 
and skilled labor for projects' flow to completion. Problems 
with the supply chain and materials manufacturing, and the 
housing boom, have placed significant impacts on material cost 
and availability.
    Landlords will need cash flow assistance with tenants 
unable to make rent payments.
    Most small businesses that survived 2020 will need 
additional free or low-cost patient capital to cover expenses 
while they return to normal levels of operation.
    Rent is one of the biggest concerns we hear about. (PPP 
helped with employee wages, but many small businesses are sole 
proprietorships that are ``mom & pop'' shops with no 
employees.)
    Most small business stories are influenced by the industry 
in which they work. Wholesalers and retailers who currently 
have products manufactured overseas are having difficulty and 
delays importing their products. They will need help moving 
this process along or be given incentives and support for using 
American manufacturing if possible.
    In addition to financial support, these small businesses 
could use free, targeted counseling and coaching on critical 
small business subjects, such as pivoting to online sales, 
modifying business models, business financial projections and 
planning, new space designs for businesses, working at home, 
cost-benefit analysis, finding new manufacturers, etc.
    For those small businesses that deal with the public, 
consistent guidelines--based on sound medical and scientific 
advice--for the safest way to conduct business and strong PR 
encouraging public cooperation to keep small business owners 
safe.
    The current health and economic crisis brought attention 
and focus to the plight of small businesses in this country, 
from the Government, from big banks and foundations, and from 
consumers who see the importance of a strong small business 
ecosystem. But small businesses, especially those minority and 
women-owned, have been struggling for years and without 
fundamental change, the struggle will continue.
    Without diligence, this investment in small business now 
will soon work its way back up to large corporations dominated 
by White male owners. Rights for small businesses in Government 
tax and regulatory programs must be continuously championed. 
And most of all, we must make systematic changes to the small 
business financial ecosystem that will lay the foundation for 
an equitable future.

Q.2. What supports do you believe the workers employed by small 
businesses in your community will most need?

A.2.

    Living Wage--comparable to unemployment

    Guaranteed number of work hours per week

    Employer-sponsored affordable health care

    Financial assistance for educational pursuits

    Proper equipment to work from home, when necessary

    High-risk pay incentives for on-site employment

    As the economy rebounds, I think small business 
        employees will need time to restabilize their financial 
        conditions--cash flow and savings. Those impacted by 
        the pandemic economy may need further foreclosure and 
        eviction moratoriums for an additional period to catch 
        up.

    Opportunities for skills training and job placement 
        in IT, electrical and plumbing skills, medical 
        technology, even small business training, may help some 
        employees find new career paths.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR CORTEZ MASTO FROM JOE DELOSS

Q.1. Have you ever considered franchising your brand?

A.1. We have considered franchising on several occasions 
throughout our 7 years of operations. These considerations, 
however, have always been brief, as we do not believe our 
prototype is prepared sufficiently to be handed off to a 
franchisee. As we continue to sophisticate our model, we 
anticipate franchising to be a more viable consideration as a 
growth vehicle. That said, our current ambitions are defined 
with more exclusive corporate-owned growth.

Q.2. Do you have concerns about how some businesses sell their 
brands as franchises?

A.2. I do have concerns with how many business operators 
franchise their brands. Often, I believe franchising is done 
prematurely with inadequate business processes to support a 
franchisee's success. In these instances, the sales almost 
exclusively benefit a franchisor while a franchisee is left 
with a business that fails to meet the sales claims previously 
made.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                      FROM JESSICA MILANO

Q.1. The CFPB is finally making progress towards collecting 
demographic data for small business lending, as required under 
the Dodd-Frank Act. Why it is important for this data to be 
collected? What do we gain from having this information?

A.1. The implementation of Section 1071 of the Dodd-Frank Act 
has the potential to transform the small business credit market 
in the same manner that Home Mortgage Disclosure Act (HMDA) 
data collection impacted the housing market. HMDA data has 
allowed researchers and policymakers to study the demand for 
mortgages and lending practices to better understand market 
gaps. This transparency supports fair lending and more nuanced 
analysis of market gaps so that policymakers can effectively 
address structural challenges that impact home ownership in 
minority communities.
    Similarly, Congress enacted Section 1071 to facilitate 
enforcement of fair lending laws and enable communities, 
governmental entities, and creditors to identify business and 
community development needs and opportunities for women- and 
minority-owned small businesses. Researchers currently have a 
patchy and incomplete picture of the small business credit 
market. On the supply side, the primary data source is loan 
originations on FFIEC call reports. Banks report small business 
lending based on the size of the loan, not the size of the 
business. Any loan amounts less than $1 million that were 
secured by nonfarm or nonresidential real estate or as 
commercial and industrial loans, and ``loans to small farms'' 
as originated loans with loan amounts less than $500,000 are 
considered small business lending even if these loans are not 
made to a small business. On the demand side, we do not have a 
complete data set on who is applying for credit and who is 
receiving loans until Section 1071 is implemented. The best 
proxy we have is survey data of small business owners such as 
the Federal Reserve Bank of New York's annual Small Business 
Credit Survey which surveyed 15,000 small employer firms in 
2020, a fraction of the Nation's nearly 30 million small 
businesses, on their experiences applying for credit. According 
to the NY Fed 2020 survey, only 37 percent of small businesses 
that applied for credit received the full amount sought 
suggesting there is a considerable gap between demand and 
supply. \1\
---------------------------------------------------------------------------
     \1\ Federal Reserve Bank of New York, ``Small Business Credit 
Survey, 2021 Report on Employer Firms''.
---------------------------------------------------------------------------
    The data collection required under Section 1071 will enable 
researchers to connect the demand for small business credit 
with the supply of credit to create a fuller picture and 
understanding of who is applying for credit, in what amounts, 
and where they are located with who is receiving credit. We 
cannot know what this data will say until it is released but 
this level of transparency is the first step to facilitating 
fair lending and supporting opportunities for all small 
business owners.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                      FROM JESSICA MILANO

Q.1. In your written testimony, you noted that businesses that 
were underbanked prior to the pandemic had trouble accessing 
Paycheck Protection Program (PPP) loans.
    Describe the consequences of a business not having access 
to the financial system.

A.1. Business ownership is often a critical pathway to the 
middle class for minority and low income families. Research 
finds that business ownership is a critical component of wealth 
building for low income families. African American business 
owners have more than $52,000 in total wealth compared to just 
over $7,000 for non-business owners. \1\ The same holds true 
for Hispanic business owning households, which have more than 
$41,000 in total wealth on average compared to $16,000 for non-
business owners. \2\ Wealth building benefits both business 
owners and their communities. Greater savings helps families 
weather financial setbacks like the pandemic and provides 
opportunity to move up the economic ladder.
---------------------------------------------------------------------------
     \1\ Center for American Progress, ``A Progressive Agenda for 
Inclusive and Diverse Entrepreneurship'', October 2016.
     \2\ Ibid.
---------------------------------------------------------------------------
    Challenges accessing capital can mean less resiliency to 
weather financial setbacks. Businesses owned by entrepreneurs 
of color were less likely to secure low-interest Government 
loans in 2020 and more likely to shut down permanently. From 
February 2020 to April 2020, the number of active business 
owners in the United States declined 22 percent--the largest 
drop on record. \3\ Black, Latino, Asian, and female business 
owners were all more likely to close their doors for good.
---------------------------------------------------------------------------
     \3\ Fairlie, Robert W. (2020), ``The Impact of COVID-19 on Small 
Business Owners: Evidence of Early Stage Losses From the April 2020 
Current Population Survey'', SIEPR Stanford Institute for Economic 
Policy Research.

Q.2. Community Development Financial Institutions (CDFIs) are 
able to leverage their connections in minority and underserved 
communities to provide capital to small businesses within these 
communities. What are some ways Congress can continue to 
support CDFIs and ensure they continue to provide funding to 
---------------------------------------------------------------------------
minority-owned businesses?

A.2. CDFIs are a diverse set of mission-driven organizations 
that provide financial services in communities historically 
underserved by traditional lenders. CDFIs can be banks, credit 
unions, loan funds, venture capital firms, and both for-profit 
or nonprofit entities. Support for CDFIs can take different 
forms based on the characteristics of the CDFI.
    Congress can support CDFI depositories and MDIs with 
programs like the Emergency Capital Investment Program. These 
capital investments work to strengthen the balance sheets of 
these institutions and are modeled on successful programs that 
worked during the financial crisis to help these institutions 
continue to lend and grow to support economic recovery. Through 
the power of leverage every dollar of Tier 1 capital investment 
can support up to $10 in loans to underserved borrowers and 
low-income communities.
    Nonprofit CDFI loan funds cannot have equity investors but 
can use CDFI financial assistance awards in much the same way 
as patient, equity like capital on the balance sheet of the 
organization enabling the CDFI to scale lending to underserved 
communities. An important source of capital for these 
organizations is the CDFI Fund awards. In order to support the 
continued growth of the CDFI sector between crises so they are 
there for our communities when we need them most we should 
continue to maintain the recent expansion of funding for the 
CDFI Fund at $3 billion.

Q.3. Aside from supporting CDFIs and the CDFI Fund, what are 
some other steps the Federal Government can take to connect 
minority-owned businesses to the banking system?

A.3.

  1.  Remove Barriers to Credit--For many self-employed, sole 
        proprietorships, and would be entrepreneurs applying 
        for a business loan is closely tied to personal credit. 
        For many low income and minority borrowers, weak credit 
        histories and debt can create a significant barrier to 
        starting and growing a business. In some States and 
        cities, business owners are even required to prove they 
        do not owe debts to the Government prior to obtaining 
        or renewing a business license even if the debts are 
        unrelated to the business. This can make fines and fees 
        like parking tickets and other civic fines a barrier to 
        credit. A 2017 study by the U.S. Commission on Civil 
        Rights found these practices disproportionately impact 
        low income and communities of color. \4\
---------------------------------------------------------------------------
     \4\ ``America's New Business Plan'', Start Us Up Coalition, 
Available at: https://www.startusupnow.org/anbp.

  2.  Improve Digital Connection--The pandemic has shown that 
        without access to fast, reliable broadband it can be 
        difficult for businesses to continue to operate, 
        connect with customers, and apply for credit online. 
        However, disparities accessing broadband continue to 
        persist. In 2020, only 77 percent of Americans living 
        in rural areas and 72 percent living on tribal lands 
        had access to broadband compared to 98 percent living 
        in urban areas and approximately 18 percent of Black 
        American households lack access to home broadband 
        subscriptions. \5\ Congress should create and deploy a 
        national broadband plan that includes geographic access 
        where coverage is lacking and subsidy for low income 
        households to level the playing field for small 
        businesses in these communities.
---------------------------------------------------------------------------
     \5\ Ibid.

  3.  Make Credit Safe--Congress should pass legislation 
        extending the Truth in Lending Act's disclosure 
        requirements to small business loans or credit 
        products, understanding that communities of color are 
        often targeted by predatory lenders. Similarly, Small 
        Business Majority recommends promoting responsible 
        lending practices by lenders and brokers as set forth 
---------------------------------------------------------------------------
        in the Small Business Borrowers' Bill of Rights.

  4.  Support technical assistance to borrowers to understand 
        how to get credit ready, financing options, and 
        appropriate amount of debt for business

    Even with the above changes, some borrowers will need 
assistance building a business plan, applying for credit, and 
understanding financing options for their business. This is 
where business advisory services can play an important role in 
getting a business credit ready and on a path to success. The 
American Rescue Plan Act includes funding for technical 
assistance providers as part of a reauthorized State Small 
Business Credit Initiative.

Q.4. Do you have recommendations for how the PPP or future 
small business relief programs could be restructured to ensure 
that funds are accessible to underbanked businesses? If so, 
please provide them.

A.4. Yes, target Federal relief programs to the lenders that 
serve historically underbanked businesses. Programs like the 
CDFI Fund and State Small Business Credit Initiative (SSBCI) 
are proven to reach more minority and underbanked businesses by 
supporting the lender ecosystem of CDFIs, MDIs, and smaller 
community banks that serve these borrowers best.
    Prior to the pandemic, roughly 30 percent of SBA 7(a) loans 
went to women-owned and minority-owned businesses. \6\ By 
contrast, CDFI's must serve a target market of 60 percent or 
greater low-to-moderate income communities or minority 
population. In order for non-depository CDFI's to be able to 
scale small business lending in a crisis, they need three main 
things: (1) operational support to increase lending volume, (2) 
capital to support their ability to take new risk, and (3) 
affordable liquidity to make affordable loans. In the next 
crisis, a portion of relief funds could be set aside for SBA to 
provide capital to CDFI loan originators and purchase the 
guarantee portion of the loans back from the CDFIs so that 
CDFIs can focus on what they do best--leveraging their unique 
experience to underwrite and work with underserved borrowers--
and by retaining the unguaranteed portion of the loans on 
balance sheet helps ensure market driven underwriting.
---------------------------------------------------------------------------
     \6\ https://www.sba.gov/sites/default/files/2019-12/WebsiteReport-
asof-20191227.pdf

Q.5. Recent reports suggest that efforts to study and evaluate 
the efficacy of the PPP have been frustrated by a lack of 
demographic data about borrowers. \7\ According to SBA, 75 
percent of PPP loan recipients did not report their ethnicity 
on their applications and 58 percent did not report their 
gender. \8\
---------------------------------------------------------------------------
     \7\ Politico, ``Tracking the Money: Bid To Make Business Rescue 
More Inclusive Undercut by Lack of Data'', Zachary Warmbrodt, March 2, 
2021, https://www.politico.com/news/2021/03/02/businesses-inclusive-
coronavirus-relief-money-data-472539.
     \8\ Id.
---------------------------------------------------------------------------
    In what ways has a lack of detailed demographic data about 
PPP loan recipients inhibited the Government's ability to 
improve the program and address inequities?

A.5. Without demographic data about credit applications and 
originations it is difficult for policymakers to determine if 
there is systemic lending discrimination and how to address it. 
The National Community Reinvestment Coalition conducted studies 
in April and July of 2020 which found disparities in how Black- 
and White-owned businesses were treated when applying for PPP 
funding, with White-owned businesses being preferred. \9\ This 
suggests that more robust data collection could be useful to 
SBA and to policymakers to help identify if there are disparate 
outcomes in applying for Federal relief programs and if there 
are, if those outcomes are based on programmatic issues that 
could be changed (such as the calculation for self-employed 
discussed in a previous question) or if related to lender 
practices and enforcement of fair lending laws.
---------------------------------------------------------------------------
     \9\ ``Lending Discrimination Within the Paycheck Protection 
Program'', The National Community Reinvestment Coalition.

Q.6. Do you believe systemic data reporting on borrower race 
and gender would have resulted in more minority-owned small 
businesses receiving PPP assistance, particularly in later 
---------------------------------------------------------------------------
rounds of the program?

A.6. Yes, I believe had this information been available in real 
time during the early rounds of PPP it would have been much 
easier to adjust program guidelines to ensure fairer access to 
the program. Systemic reporting of demographic data has led to 
better enforcement of fair lending and greater opportunities 
for home ownership among minority borrowers. The implementation 
of Section 1071 of the Dodd-Frank Act has the potential to 
transform the small business credit market in the same manner 
that Home Mortgage Disclosure Act (HMDA) data collection 
impacted the housing market. The Dodd-Frank Act passed in 2010, 
it is time for the Consumer Financial Protection Bureau (CFPB) 
to finalize rules for Section 1071 so that it can be enforced.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                      FROM JESSICA MILANO

Q.1. Since the beginning of the coronavirus pandemic, small 
business owners of color have experienced additional barriers 
to participating in Federal rescue programs. The Small Business 
Majority's own research shows that nationally only one in three 
Black and Latino small business owners applied for a Paycheck 
Protection Program (PPP) loan, and only 23 percent of Black and 
27 percent of Latino small business owners received the full 
amount requested. Arizona is home to over 120,000 minority 
owned small businesses. How can Congress improve participation 
rates, and ensure Black and Latino business owners have equal 
access, to Federal relief programs?

A.1. Improving participation in Federal relief programs 
requires expanding access to programs like PPP through greater 
access to financial services for underbanked businesses--
``opening more doors''--and removing barriers to credit that 
can disproportionately impact minority-owned businesses.
    In February 2021, the Biden administration took steps to 
expand access to the program by establishing an exclusive 2-
week window for business with fewer than 20 employees to apply 
for PPP loans in addition to steps the SBA has taken to 
increase the share of funding distributed through Minority 
Depository Institutions (MDIs) and Community Development 
Financial Institutions (CDFIs) which have deep experience 
working with traditionally underbanked borrowers.
    In terms of removing barriers, Small Business Majority 
recommends extending PPP applications for self-employed 
businesses and clarifying that program guidelines do not 
require a credit check for PPP loans. Both of these hurdles 
disproportionately impacted minority-owned businesses in 
earlier rounds of PPP applications.
    According to SBA data, minority-owned and women-owned 
businesses are more likely to be nonemployer firms \1\ but the 
original PPP loan calculation did not offer much assistance to 
self-employed and sole proprietorships. PPP loans were 
originally calculated using net profits, which deducts business 
expenses. As a result, the net profit for a self-employed 
individual or sole proprietor was often very low after 
accounting for these deductions. A survey of Small Business 
Majority's network found that while 60 percent of self-employed 
respondents did receive a PPP loan, nearly one in three did not 
receive the full loan amount they requested, including 
virtually all of the Black self-employed entrepreneurs 
surveyed. Under the Biden administration, SBA has made changes 
to these calculations to address this issue. To encourage 
program participation and ensure adequate time for these 
business owners to apply, PPP could be extended for this group.
---------------------------------------------------------------------------
     \1\ U.S. Small Business Administration, ``Nonemployer Fact 
Sheet'', Available at: https://www.sba.gov/sites/default/files/
advocacy/Nonemployer-Fact-Sheet.pdf.
---------------------------------------------------------------------------
    Second, although the CARES Act does not require a minimum 
credit score to apply for a PPP loan, small businesses surveyed 
by Small Business Majority have indicated that they were 
declined for PPP funding because of their credit history. 
According to the survey, 9 percent of respondents were told by 
their lender there were issues with their credit when they 
applied for PPP. This could have discouraged participation by 
minority-owned businesses in the program. According to a 
separate study by Experian, a credit reporting company, 
minority-owned small businesses have lower average credit 
scores than the general U.S. small business credit population. 
\2\ SBA should do more public outreach direct to borrowers 
letting them know there is no minimum credit score to qualify 
for PPP loans in order to encourage broader participation in 
the program.
---------------------------------------------------------------------------
     \2\ ``Minority Business Owners: An Experian Data Study'', 
Available at: https://www.experian.com/business-information/landing/
minorities-data-study.

Q.2. Lower PPP participation rates for Black and Latino 
business owners may be partially attributed to the fact that 
many small business owners of color lacked a business banking 
relationship prior to the pandemic. How can Congress improve 
access to business banking for Black and Latino business owners 
---------------------------------------------------------------------------
across the country and in Arizona?

A.2. Access to financing is often one of the biggest hurdles 
small business owners face, particularly for the smaller loan 
amounts many new or very small businesses seek. Seventy-six 
percent of all businesses in the United States have average 
annual receipts less than $100,000. \3\ For minority-owned and 
woman-owned businesses, that figure is even higher: 86 percent 
of minority-owned businesses and 88 percent of woman-owned 
business bring in less than $100,000 per year. \4\
---------------------------------------------------------------------------
     \3\ Consumer Financial Protection Bureau, ``Key Dimensions of the 
Small Business Lending Landscape'', May 2017.
     \4\ Ibid.
---------------------------------------------------------------------------
    Historically, community banks were the foundational source 
of relationship lending to small businesses but that is not 
always the case today. From 1997 to 2015, community banks' 
share of originations less than $100,000 declined from 82 
percent to 29 percent in less than 20 years. \5\ As a result, 
access to credit for new businesses, very small businesses, 
minority- and women-owned businesses was a challenge even 
before the pandemic. According to the Federal Reserve Bank's 
2016 report on minority firms, only 40 percent of firms owned 
by people of color received the full amount of capital sought, 
compared to 68 percent of nonminority firms. \6\ Ultimately, 
these disparities in accessing capital undermines the 
trajectory of our small business ecosystem and their 
contributions to our overall economy.
---------------------------------------------------------------------------
     \5\ Federal Reserve Bank of Chicago, ``Small Business Lending 
After the Financial Crisis: A New Competitive Landscape for Community 
Banks'', March 2016.
     \6\ Federal Reserve Bank of Cleveland, ``Small Business Credit 
Survey, Report on Minority-Owned Firms'', November 2017.
---------------------------------------------------------------------------
    The pandemic has highlighted these opportunity gaps in our 
country and the challenges accessing PPP have helped 
policymakers learn about the experiences of underbanked 
businesses trying to access Federal relief programs. The silver 
lining in this experience is the spotlight it has shown on the 
extraordinary work of CDFIs and MDIs to reach underbanked 
businesses.
    CDFIs are a diverse set of mission-driven organizations 
that provide financial services in communities historically 
underserved by traditional lenders. CDFIs can be banks, credit 
unions, loan funds, venture capital firms, and both for-profit 
or nonprofit entities. Support for CDFIs can take different 
forms based on the characteristics of the CDFI.
    Congress can support CDFI depositories and MDIs with 
programs like the Emergency Capital Investment Program. These 
capital investments work to strengthen the balance sheets of 
these institutions and are modeled on successful programs that 
worked during the financial crisis to help these institutions 
continue to lend and grow to support economic recovery. Through 
the power of leverage every dollar of Tier 1 capital investment 
can support up to $10 in loans to underserved borrowers and 
low-income communities.
    Nonprofit CDFI loan funds cannot have equity investors but 
can use CDFI financial assistance awards in much the same way 
as patient, equity like capital on the balance sheet of the 
organization enabling the CDFI to scale lending to underserved 
communities. An important source of capital for these 
organizations is the CDFI Fund awards. In order to support the 
continued growth of the CDFI sector between crises so they are 
there for our communities when we need them most we should 
continue to maintain the recent expansion of funding for the 
CDFI Fund at $3 billion.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOK
                      FROM JESSICA MILANO

Q.1. Ms. Milano, can you elaborate on the additional challenges 
minority-owned small businesses have faced in getting the 
capital they need during the pandemic?

A.1. While the first round of the Paycheck Protection Program 
(PPP) is estimated to have reached up to 74 percent of small 
businesses nationally, \1\ ``these loans reached only 20 
percent of eligible firms in States with the highest densities 
of Black-owned firms, and in counties with the densest Black-
owned business activity, coverage rates were typically lower 
than 20 percent.'' \2\
---------------------------------------------------------------------------
     \1\ U.S. Census Bureau, ``Small Business Pulse Survey: Tracking 
Changes During The Coronavirus Pandemic'', Data as of January 10, 2021, 
Available at: https://www.census.gov/data/experimental-data-products/
small-business-pulse-survey.html.
     \2\ Mills, Claire Kramer and Jessica Battisto, ``Double Jeopardy: 
COVID-19's Concentrated Health and Wealth Effects in Black 
Communities'', Federal Reserve Bank of New York, August 2020.
---------------------------------------------------------------------------
    What we learned from PPP is that businesses that were 
underbanked prior to the pandemic had trouble accessing these 
loans. Non-employer firms, like the self-employed, and small 
business owners of color were much less likely to have a 
business banking relationship prepandemic--31 percent of Black-
owned businesses, 28 percent of AAPI-owned businesses, and 26 
percent of Latino-owned business owners lacked business 
banking. \3\ When the pandemic hit, emergency programs 
implemented by the SBA favored national 7(a) lenders and their 
clients. While well intentioned, smaller community lenders that 
had not previously done a high volume of SBA loans found it 
confusing or difficult to utilize the program, leaving their 
clients shut out. And businesses without strong banking 
relationships precrisis were even further at the back of the 
queue. \4\
---------------------------------------------------------------------------
     \3\ Small Business Majority, ``Scientific Opinion Poll: Small 
Businesses Struggling To Access Capital, Harming Their Financial 
Recovery'', February 17, 2021.
     \4\ Wall Street Journal, ``PPP Small Business Loans Left Behind 
Many of America's Neediest Firms'', June 17, 2020.
---------------------------------------------------------------------------
    According to Small Business Majority's polling, roughly 4 
in 10 small business owners had not obtained any capital 
prepandemic like loans or lines of credit from any lending 
institution including 31 percent of Black-owned businesses and 
38 percent of Latino-owned businesses. These loose ties to the 
banking sector meant relatively few small business owners 
surveyed by Small Business Majority were able to secure funding 
through Federal small business relief programs. While roughly 1 
in 3 applied for a PPP loan, only a third received the full 
amount requested, and the number was even lower for minority-
owned businesses--23 percent of Black-owned businesses, 23 
percent of AAPI-owned businesses and 27 percent Latino-owned 
businesses received the full amount. \5\
---------------------------------------------------------------------------
     \5\ Small Business Majority, ``Scientific Opinion Poll: Small 
Businesses Struggling To Access Capital, Harming Their Financial 
Recovery'', February 17, 2021.
---------------------------------------------------------------------------
    The consequence of this is that minority-owned businesses 
were more likely to fail. From February 2020 to April 2020, the 
number of active business owners in the United States declined 
22 percent--the largest drop on record. \6\ Black, Latino, 
Asian, and female business owners were all more likely to close 
their doors for good.
---------------------------------------------------------------------------
     \6\ Fairlie, Robert W. (2020), ``The Impact of COVID-19 on Small 
Business Owners: Evidence of Early Stage Losses From the April 2020 
Current Population Survey'', SIEPR Stanford Institute for Economic 
Policy Research.

Q.2. Ms. Milano, when the pandemic response bill has passed 
later this month, many will try to turn the page and view 
Congress' work in this space as done. I understand that this 
needs to be a continuing effort to assist our small businesses 
as they weather a once in a lifetime crisis. Can you talk about 
the need for Congress and the Administration to keep working 
with our businesses, including those in Georgia, after the 
---------------------------------------------------------------------------
pandemic response bill is signed into law?

A.2. In Georgia, many small businesses continue to struggle. A 
recent survey by Small Business Majority highlights the extent 
to which the COVID-19 crisis has pushed Georgia small 
businesses to the brink: 6 in 10 have been negatively affected, 
and the same number say their revenues declined last year 
compared to the previous year. More than half of those whose 
revenue declined report it will take more than 6 months for 
their business revenues to return to prepandemic levels, and 7 
percent say they will never fully recover. As these findings 
reveal, many Georgia small businesses are still struggling to 
keep the lights on and their employees on payroll as a result 
of the economic downturn.
    Although the American Rescue Plan will allocate more 
capital for small businesses, there will be continued need for 
the Federal Government to support stronger small business 
ecosystems to expand access to capital, ensure financing is 
safe and affordable, and level the playing field for all 
entrepreneurs:

  1.  Remove Barriers to Credit--For many self-employed, sole 
        proprietorships, and would be entrepreneurs applying 
        for a business loan is closely tied to personal credit. 
        For many low income and minority borrowers, weak credit 
        histories and debt can create a significant barrier to 
        starting and growing a business. In some States and 
        cities, business owners are even required to prove they 
        do not owe debts to the Government prior to obtaining 
        or renewing a business license even if the debts are 
        unrelated to the business. This can make fines and fees 
        like parking tickets and other civic fines a barrier to 
        credit. A 2017 study by the U.S. Commission on Civil 
        Rights found these practices disproportionately impact 
        low income and communities of color. \7\
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     \7\ ``America's New Business Plan'', Start Us Up Coalition, 
Available at: https://www.startusupnow.org/anbp.

  2.  Improve Digital Connection--The pandemic has shown that 
        without access to fast, reliable broadband it can be 
        difficult for businesses to continue to operate, 
        connect with customers, and apply for credit online. 
        However, disparities accessing broadband continue to 
        persist. In 2020, only 77 percent of Americans living 
        in rural areas and 72 percent living on tribal lands 
        had access to broadband compared to 98 percent living 
        in urban areas and approximately 18 percent of Black 
        American households lack access to home broadband 
        subscriptions. \8\ Congress should create and deploy a 
        national broadband plan that includes geographic access 
        where coverage is lacking and subsidy for low-income 
        households to level the playing field for small 
        businesses in these communities.
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     \8\ Ibid.

  3.  Make Credit Safe--Congress should pass legislation 
        extending the Truth in Lending Act's disclosure 
        requirements to small business loans or credit 
        products, understanding that communities of color are 
        often targeted by predatory lenders. Similarly, Small 
        Business Majority recommends promoting responsible 
        lending practices by lenders and brokers as set forth 
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        in the Small Business Borrowers' Bill of Rights.

  4.  Support technical assistance to borrowers to understand 
        how to get credit ready, financing options, and 
        appropriate amount of debt for business--Even with the 
        above changes, some borrowers will need assistance 
        building a business plan, applying for credit, and 
        understanding financing options for their business. 
        This is where business advisory services can play an 
        important role in getting a business credit ready and 
        on a path to success. The American Rescue Plan Act 
        includes funding for technical assistance providers as 
        part of a reauthorized State Small Business Credit 
        Initiative.