[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
CONDUCTING OVERSIGHT: TESTIMONY FROM THE
SMALL BUSINESS ADMINISTRATOR
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
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HEARING HELD
MARCH 20, 2024
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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 118-045
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
54-985 WASHINGTON : 2024
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HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
BLAINE LUETKEMEYER, Missouri
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
MARIA SALAZAR, Florida
TRACEY MANN, Kansas
JAKE ELLZEY, Texas
MARC MOLINARO, New York
MARK ALFORD, Missouri
ELI CRANE, Arizona
AARON BEAN, Florida
WESLEY HUNT, Texas
NICK LALOTA, New York
CELESTE MALOY, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
JARED GOLDEN, Maine
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
GREG LANDSMAN, Ohio
MARIE GLUESENKAMP PEREZ, Washington
SHRI THANEDAR, Michigan
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
JUDY CHU, California
SHARICE DAVIDS, Kansas
CHRIS PAPPAS, New Hampshire
Ben Johnson, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Blaine Luetkemeyer.......................................... 1
Hon. Nydia Velazquez............................................. 2
WITNESS
Hon. Isabella Casillas Guzman, Administrator, United States Small
Business Administration, Washington, DC........................ 4
APPENDIX
Prepared Statement:
Hon. Isabella Casillas Guzman, Administrator, United States
Small Business Administration, Washington, DC.............. 39
Questions and Answers for the Record:
Questions from Hon. Williams to Hon. Guzman and Answers from
Hon. Guzman................................................ 45
Questions from Hon. Velazquez to Hon. Guzman and Answers from
Hon. Guzman................................................ 55
Questions from Hon. Luetkemeyer to Hon. Guzman and Answers
from Hon. Guzman........................................... 64
Questions from Hon. Van Duyne to Hon. Guzman and Answers from
Hon. Guzman................................................ 65
Questions from Hon. Davids to Hon. Guzman and Answers from
Hon. Guzman................................................ 66
Questions from Hon. Crane to Hon. Guzman and Answers from
Hon. Guzman................................................ 69
Additional material submitted with Hon. Guzman's QFR's....... 71
Additional Material for the Record:
America's Credit Unions...................................... 89
America's SBDC............................................... 91
Funding Circle............................................... 97
Hearing entitled ``Oversight of the Small Business
Administration'' dated March 23, 2023...................... 129
Hearing entitled ``Small Business Administration's FY 2023
Budget'' dated April 27, 2022.............................. 523
CONDUCTING OVERSIGHT: TESTIMONY FROM THE SMALL BUSINESS ADMINISTRATOR
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WEDNESDAY, MARCH 20, 2024
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:02 a.m., in Room
2360, Rayburn House Office Building, Hon. Blaine Luetkemeyer
[Vice Chairman of the Committee] presiding.
Present: Representatives Luetkemeyer, Stauber, Meuser, Van
Duyne, Salazar, Mann, Molinaro, Alford, Bean, Maloy, Velazquez,
Phillips, Landsman, McGarvey, Gluesenkamp Perez, Scholten,
Thanedar, Chu, Davids, and Pappas.
Mr. LUETKEMEYER. As you know, the Chairman always starts
the meeting with a prayer and the Pledge. This morning we have
Congressman Stauber from Minnesota to do that. Please keep the
Chairman and his wife in your prayers as his wife is very ill
and that is why he is not here this morning.
So, with that, Congressman Stauber, would you please begin
with the prayer and the Pledge.
Mr. STAUBER. Would you please all rise with me? Dear Lord,
thank you for this wonderful day and this opportunity to move
our nation forward. We thank you for the witnesses. We thank
you for all in attendance, both sides of the aisle. And as we
are here trying to better America and our small businesses,
please take care of our families and our spouses and our loved
ones back home and allow them to have a wonderful, safe day.
And thank you for this great nation that we get to call home.
Amen.
Please join me in the Pledge. I pledge allegiance to the
flag of the United States of America. And to the Republic for
which it stands, one nation under God, indivisible, with
liberty and justice for all.
Mr. LUETKEMEYER. Thank you, Congressman Stauber. Good
morning, everyone. I now call the Small Business Committee to
order.
Without objection, the Chair is authorized to declare a
recess of the Committee at any time. And I recognize myself for
an opening statement.
Welcome to today's hearing, which will focus on conducting
oversight of the Small Business Administration. I would like to
start off by thanking Administrator Guzman on for joining us
today.
This hearing could not come at a more important time for
Main Street America. Our nation's small businesses are facing
brutal economic headwinds, and it is our job to ensure that
they have a fighting chance at success. This Committee's job is
to be main street's voice in Washington, and part of that job
is ensuring the SBA is functioning as intended. We must not
forget that the sole purpose of the SBA is to help small
businesses.
During the COVID-19 pandemic, the SBA was asked to step up
in ways that were unprecedented. Unfortunately, we know from
multiple audits that there were serious problems within the
agency that led to unacceptable amounts of fraud. What we know
from countless investigations, without a doubt, is that the SBA
needs to be right-sized. You take one look at the agency, it's
clear they are struggling with their current workload and are
straying from their sole mission of helping main street. The
way I see it, the SBA is absolutely not in a position to take
on more responsibility. I am extremely skeptical that the SBA
is deserving of a 20 percent budget increase as there is no
evidence the agency is operating effectively or efficiently.
Moreover, the SBA has repeatedly demonstrated they are not
responsible stewards of our taxpayer dollars. They have delayed
this Committee's COVID lending investigation at every turn by
waiting months to send over our requested documents.
To make matters worse, the SBA has implemented an extremely
minimal return to work policy. This is a direct slap in the
face to our entrepreneurs who don't have the luxury of a day
off or ability to sit in their pajamas and work from home. The
SBA undoubtedly needs to take a page out of main street's book
on this issue.
Given all the problems the SBA had during the pandemic, the
ridiculous amount of waste that has been found, and the
significant management issues, I do not see how the SBA can
responsibly request more money. If they were a private company,
no investor would put up more funds for them.
The SBA is overwhelmed and cannot adequately achieve its
mission. The answer for improvement is not more money, but the
cutting of wasteful spending and unnecessary action. You must
ensure the agency is capable of handling their current tasks
before they even think about expanding into more areas.
I want to thank you all again for being here today and I
look forward to today's hearing. I hope that today's
conversation will provide a pathway for the SBA to get back on
track.
With that, I yield to our distinguished Ranking Member from
New York, Ms. Velazquez, for opening remarks.
Ms. VELAZQUEZ. Thank you. Administrator Guzman, welcome and
thank you for testifying before the Committee today.
It has been 3 years since you were confirmed as SBA
administrator, when you took the helm of the agency in the
midst of an unprecedented crisis for our nation's small
businesses. Restaurants, theaters, gyms and small firms were
clamoring for aid. Borrowers had to wait on hold on SBA call
lines for hours, only to get wrong information. The Inspector
General and GAO were issuing multiple reports warning the
relief programs were rife with fraud, and women- and minority-
owned small businesses did not have equal access to the
programs. Put simply, you inherited a mess.
Undeterred, you hit the ground running. You put antifraud
controls in place to protect taxpayers' dollars, guardrails
that were taken down by the previous administration that led us
to the mess that we saw, and you worked with our committee to
ensure an equitable distribution of relief.
Today we are seeing the fruits of our labor. There have
been a record number of small business applications, 16.5
million since 2021, with women- and minority-owned small
businesses leading the way. The economy has created 15 million
jobs, unemployment remains at historic lows, and we are making
progress on the fight against inflation.
Looking ahead, I would like to learn more about your plan
for the agency. We will have to go over the steps you have
taken to combat fraud to push back against some of the
erroneous charges we will hear today. I hope we can examine the
steps SBA has taken to service the unprecedented level of
COVID-19 EIDL loans.
It is important to point out that before the pandemic, SBA
was servicing about 263,000 disaster loans, totaling
approximately $9 billion. In fiscal year 2025, more than 2.5
million loans will need to be serviced. That is a tall order
for a small agency. While the launch of My SBA has enhanced the
customer service experience for borrowers, the agency will need
sufficient funds to process the loans as well as to conduct
fraud reviews.
Turning to lending, ensuring businesses owned by women,
people of color, and underserved groups is an important goal
that I share with you. SBA finalized two rules last year that
had substantial implications for both 7(a) and 504 programs. As
you know, I believe these rules were rushed and I want to hear
what you are doing to safeguard the integrity of both programs.
With regard to contracting, the federal government is the
largest producer of goods and services in the world, and we
appreciate that this administration continues to send a record
amount of prime contracting dollars to small businesses and
government contractors. However, more can be done to level the
playing field for small businesses, recruit more small
businesses into the federal marketplace, and put more
opportunities within their reach. We expect that SBA will work
to eliminate the lengthy wait times unique to the Women-Owned
Small Business Certification program.
Finally, I look forward to a discussion about your fiscal
year 2025 budget proposal to better understand the vision for
the next fiscal year.
Thank you, Mr. Chairman. I yield back.
Mr. LUETKEMEYER. The gentlelady yields back.
And with that, as stated earlier, our witness today is
Small Business Administrator Isabella Guzman. In 2021, she was
confirmed as the 27th administrator of the Small Business
Administration. Prior to becoming SBA Administrator, Ms. Guzman
served in multiple capacities in the agency for 9 years,
including as deputy chief of staff and senior advisor at the
SBA. Ms. Guzman also served as a small business advocate for
the state of California.
Over the past year, we have heard from small businesses
across the country about the successes and shortcomings facing
the agency. That is why we brought Administrator Guzman here
today, to ensure the SBA is doing all they can to efficiently
and effectively address issues facing main street today.
Administrator Guzman, thank you for joining the Committee
today and look forward to your testimony and our conversation.
Before I recognize the witness, I would like to remind her that
her oral testimony is restricted to 5 minutes. If you see the
light turn red in front of you, it means your 5 minutes have
concluded and should wrap up your testimony. I see you have got
the microphone pulled pretty closely to you. We are
transcribing it so the closer you can get, the better sound we
get. I certainly appreciate it.
So, with that, Ms. Guzman, you are recognized for 5
minutes.
STATEMENT OF HON. ISABELLA CASILLAS GUZMAN, ADMINISTRATOR,
UNITED STATES SMALL BUSINESS ADMINISTRATION
STATEMENT OF HON. ISABELLA CASILLAS GUZMAN
Ms. GUZMAN. Thank you so much, Vice Chairman Luetkemeyer,
as well as Ranking Member Velazquez and distinguished Members
of the Committee who are here. Thank you so much. I do
appreciate the opportunity to be able to engage and talk about
the successes of SBA and the opportunities going forward to
work with the Committee to help power our small businesses.
At the SBA, we work to ensure that our 33 million small
businesses and innovative startups have the tools, the
resources, the support that they need to start, grow, and build
resilient businesses as our nation's economy depends on their
successes. When I was confirmed by the Senate in March 2021, we
were still facing unprecedented job losses from the COVID-19
pandemic and subsequent downturn. SBA was scaling dramatically
to save small businesses who were facing revenue losses and
were unsure if they would survive. President Biden understood
the challenges facing small businesses and that is why his
American Rescue Plan provided essential support to the very
small businesses that are the heart of our communities.
Every Member of this Committee knows a small business that
wouldn't be open today if not for the support provided through
the SBA. SBA's COVID-19 support, more than $450 billion during
the Biden-Harris administration, was a critical lifeline for
our small businesses when they continued to need it the most.
The Paycheck Protection Program helped small businesses and
nonprofits to retain their employees. The COVID-19 Economic
Injury Disaster Loan, COVID EIDL program and targeted grants
provided working capital to not only help small businesses
continue to weather the worst effects of the downturn, but also
position their businesses for growth to help the economic
recovery. The Restaurant Revitalization Fund and Shuttered
Venue Operators Grant programs saved our mom-and-pop
restaurants, the cafes, the breweries, the stages, the cultural
venues, the performing arts centers, which are all anchors of
our main street businesses across the country.
Our historic level of investments in small businesses,
including through the American Rescue Plan, combined with the
opportunities in landmark legislation, such as the bipartisan
Infrastructure law, the CHIPS and Science Act, and the
Inflation Reduction Act, set the stage for America to have the
strongest economic recovery of any developed country in the
world. Last year, when I appeared before this Committee,
leading economists were predicting an economic downturn. Now
the U.S. economy continues to power ahead. Inflation has slowed
over the past 18 months and interest rates are down from their
recent highs. And with 14.8 million more jobs than when the
President took office, labor markets are stable and strong.
We have seen the top 3 years of small business application
filings on record. This historic small business boom has seen
16.8 million applications filed since the President took
office. These acts of hope, as President Biden refers to them,
are powered by entrepreneurs in every state, and especially by
women and people of color who are leading with the highest
startup rates.
This is what happens when we have an administration that is
committed to building an economy from the middle out and bottom
up. SBA's capital and resource programs are reaching more
communities and making an impact.
I have visited thousands of small business owners across
the nation, including with many in your congressional
districts, and entrepreneurs continue to inspire inform SBA's
important work. Small businesses have shared with me their
future plans and prospects, as well as the challenges that they
face every day, and finding affordable capital often tops the
list. In 2023, SBA supported more than $50 billion across our
lending, bonding, investment, and disaster programs. Our
reforms helped reverse the decline in small-dollar lending that
we had been experiencing for 10 years. By simplifying and
cutting red tape, we have made it even easier to work with the
SBA and have given greater flexibility to our expanded lending
network to make the type of small-dollar loans that are key to
supporting SBA's historically underserved communities, which
includes rural, low-income, veterans, women, people of color,
and startups.
SBA's loans to underserved markets have increased as a
result of reforms at the SBA. For example, loan numbers and
dollars to Black-owned businesses have more than doubled. Loan
dollars--excuse me, loan numbers to Latino-owned businesses
have doubled and increased to women-owned businesses by 70
percent. And for the first time in more than 40 years, SBA
awarded three new licenses in its small business lending
company program to companies in Alaska, Colorado, and Arkansas.
SBA transitioned community-based lenders and community
advantage out of their pilot license into a new permanent CA
SBLC license. SBA now has 142 community advantage SBLCs, 39
more than the number enrolled under the pilot program just 2
years ago.
Critically, SBA has also prioritized preventing fraud
across our programs. We put in place best practices for fraud
prevention, detection, and response. We have also continued to
work in close partnership with the inspector General and the
GAO and law enforcement to recover and law enforcement to
recover stolen taxpayer funds in the COVID pandemic programs.
Because of our reforms, all SBA loans and our core programs are
screened for fraud prior to disbursement as part of our
eligibility check.
Our aggressive actions and investments mean that SBA is
more strongly positioned to combat fraud, waste, and abuse
across our programs, which allows our entire mission-driven
team at the SBA to focus on delivering entrepreneurial support
and resources to help more Americans start and grow their
businesses and recover after disaster. I look forward to
working in partnership with the Committee to ensure SBA has the
resources to help advance our communities and the economy.
Thank you very much.
Mr. LUETKEMEYER. Thank you, Ms. Guzman, for your testimony.
We will now move to Member questions, the 5-minute rule. We
now recognize the gentleman from Minnesota, Mr. Stauber, for 5
minutes.
Mr. STAUBER. Thank you, Mr. Chair and Ranking Member
Velazquez, for holding this hearing today. And thank you to
Administrator Guzman for appearing today.
Over the past year, the Small Business Committee has heard
concerns from real small business owners about the regulatory
burden they feel from this administration. These unelected
bureaucrats and backrooms make these rules without care for the
overwhelming cost to our small businesses. Countless times
across the SBA's website, Administrator Guzman's name is
followed by, quote, `` The voice in President Biden's cabinet
for America's 33 million small businesses.'' Based on the
regulations out of this administration, it is evident to me the
complaints from small business owners across America aren't
being adequately addressed.
Administrator Guzman, on April 27 of 2022, you testified in
front of this Committee during my line of questioning that you
were `` not familiar'' with the Small Business Regulatory
Enforcement Fairness Act, also known as SBREFA. Are you
familiar with it now?
Ms. GUZMAN. Yes, of course I was familiar at the time. I
don't recall saying that, but SBREFA, of course, I am familiar
with it. Our Office of Advocacy, which is independent, deploys
it.
Mr. STAUBER. Yeah, I recall you saying you had no
familiarity with it.
Ms. GUZMAN. Perhaps on the specific issue you were talking
about.
Mr. STAUBER. Do you think that you were the voice for
America's 33 million small businesses when you were completely
uneducated about a law that protects small businesses from
burdensome regulations over a year into your administration?
Ms. GUZMAN. I am prepared and I am very familiar with the
regulatory process that the federal government----
Mr. STAUBER. Thank you. Thank you very much. In your
congressional budget justification, you claimed that in fiscal
year 2023, your agency helped reduce regulatory burdens on
small businesses and removed roadblocks that threatened their
survival. Yet since President Biden's inauguration, the
administration has issued over 800 final rules costing
Americans over $475 billion. That's with a B. And as I
mentioned, however, we have had numerous small business owners
sit right where you are, Administrator, and testify to this
Committee that the crippling impact that this administration's
regulations have had on their businesses. Week after week, we
have small businesses, folks, men and women, come and talk
about the regulatory burden that this administration has placed
on them.
So, we have you saying you are reducing regulations on
small businesses and actual small businesses saying they are
being bombarded with new regulations. Are you suggesting that
these businessmen and women who paid money out of their own
pocket to come and testify are not telling the truth?
Ms. GUZMAN. Of course not, sir. And what I would share with
you is that the SBA has reduced regulation within its programs.
Of course, those are the regulations that I have decision-
making on in terms of being the administrator of the SBA.
You know, we know that----
Mr. STAUBER. One second, just because time is limited, I
appreciate that. The SBA has been told repeatedly by its
Inspector General, the Government Accountability Office,
independent auditors and Congress that is failing its current
responsibilities. It has a massive 30-year loan portfolio to
service. It has unprecedented amounts of fraud to deal with. It
is wasting time, money, and resources on duplicative programs.
o make matters worse, the SBA announced on Tuesday that it
has entered a Memorandum of Understanding with the Michigan
Department of State to collaborate on voter registration. In
its announcement, the SBA grasps at straws to connect the Small
Business Administration's missions to elections. What is the
Small Business Administration's mission statement?
Ms. GUZMAN. We serve small businesses and help impacted
communities post disasters.
Mr. STAUBER. Would it be help Americans start, grow, and
build resilient businesses?
Ms. GUZMAN. That is correct.
Mr. STAUBER. That is a mission statement, right? What does
that have to do with elections?
Ms. GUZMAN. The President's executive order directed
federal agencies to expand----
Mr. STAUBER. These are small business--ma'am.
Ms. GUZMAN.--opportunities to get information.
Mr. STAUBER. With all due respect, you are the voice of our
small businesses. They are saying they are not partaking in the
election. They want to have--grow their business and be
resilient in America. How do you connect elections to servicing
or promoting small businesses?
Ms. GUZMAN. I think we can all agree that we want small
businesses to vote and be active in this democracy. And, of
course, providing information on how they can do that is a
simple process on our website.
Mr. STAUBER. So, I will ask another question. Articulate
for me where in the SBA's congressional mandate or its mission
statement that election work is part of the SBA's
responsibility.
Ms. GUZMAN. This is not election work. This is just
providing information to the public, to the small businesses
who come to visit our website, giving them information on how
they could register in their state. That is the extent of the
SBA's role in this. And, you know, again, you know, the
President's executive order was clear. The federal agencies
should work to ensure that we have a strong electoral base and
people are aware of their options and their ability to vote.
Mr. STAUBER. Mr. Chair, I am out of time. Thank you very
much.
Mr. LUETKEMEYER. The gentleman's time has expired.
With that, we go to the Ranking Member, Ms. Velazquez, from
New York, for 5 minutes.
Ms. VELAZQUEZ. Thank you. Administrator Guzman, in
testimony before our Committee, IG Ware agreed with an SBA
report that 86 percent of the fraud occurred in the first 9
months of the pandemic under the previous administration. What
antifraud controls did your administration put into place?
Ms. GUZMAN. Thank you so much, Ranking Member. And I think
you said it best that we inherited these programs and the
controls that were put in place at the time, which were de
minimis. You know, frankly, at the President's direction, the
first thing he talked to me about was the importance of making
sure that these funds got into the hands of the businesses they
were intended to serve. And that's what we focused on doing at
the SBA, implementing controls on the front end so that we
could strengthen our portfolio, making sure we were fully
underwriting COVID EIDL and checking for fraud across the
portfolio, especially, of course, on all our new programs as
well, where we have incredible performance of less than 1
percent fraud.
We, in addition, created a Fraud Risk Management Board, so
that we could have longevity for some of these fraud controls,
risk frameworks that we have put into place on our core lending
programs, as well as on these disaster loan programs. The GAO
and the IG have both testified before this Committee, asserting
that the SBA is in the best position that it has ever been as a
result of these efforts to address the GAO and IG's concerns
and institute sustainable fraud risk frameworks for the agency.
Ms. VELAZQUEZ. Thank you. In fiscal year 2023, SBA serviced
2.5 million COVID-19 EIDL loans, 10 times the amount of
disaster loans the agency was doing before the pandemic. What
specific steps have you taken to improve customer service and
be responsive to borrowers?
Ms. GUZMAN. Not only did we focus on strengthening the
portfolio, those incoming loans, and making sure that we are
preventing fraud at the front end, but in addition, we wanted
the customer service on the back end. So My SBA, which you
referenced in your testimony, obviously was our investment in
technology to streamline the servicing of these nearly 4
million in total loans that the SBA is now managing for 30
years, as our Vice Chairman mentioned.
So, My SBA provides an enhanced customer service. It has
enabled us to continuously communicate with these borrowers and
ensure that the performance of the portfolio is strong.
Ms. VELAZQUEZ. What type of challenges are you facing, and
what do you need from Congress to ensure this effort is a
success?
Ms. GUZMAN. These COVID pandemic programs are not in our
baseline budget, which is why you see an increase. We are
requesting funding to continue to maintain these nearly 4
million in loans that the SBA is now responsible for servicing
at this point and collecting on for the American people. And so
that additional funds will help us support that, as well as the
continued performance around PPP, the Restaurant Revitalization
Fund, Shuttered Venues, all of our COVID programs to ensure
that we are continuously reporting and servicing these small
businesses.
Ms. VELAZQUEZ. Thank you. The timeframe to obtain
certification for SBA's contracting programs varies. Veterans
can receive certification in a few weeks, while women can wait
for 9 months. Is a budget request of $6.2 million sufficient to
hire the personnel you need to administer the WOSB program and
bring wait times in line with the other programs? It is great
that we go out there and meet with women-owned businesses and
promise that we will do everything we can to help them grow
their business, and move those businesses to the next level,
but it takes money and resources for SBA to pay the attention
that it needs in providing the resources to the WOSB program.
Ms. GUZMAN. And, you know, this transfer of the veteran
certification to the SBA from the VA enabled SBA to, you know,
rethink how it certifies these businesses. VetCert is the gold
standard. We intend on investing in technology across all our
certifications to streamline access. We recognize the backlogs
and lengthy times that women face in order to get certified to
get those set-asides in government contracting.
So, we, this year, are investing in technology to
streamline, aligns with the VetCert program. And we believe
that this funding is sufficient in order for us to perform that
simplification and clear the backlog. And we have doubled down
on our staffing, too, temporarily to clear that backlog.
Ms. VELAZQUEZ. Five years ago, the director of the Office
of Credit Risk Management testified that the office was
increasing its personnel to 42 FTEs to better fulfill its
mission. How many employees does OCRM currently have? Are you
confident the office has the resources it needs to conduct
oversight of the new SBLCs?
Ms. GUZMAN. Within the last several months, we have been
able to increase our staffing. We are now from the now in 35,
and we continue to have open positions that we are filling
aggressively. This is one of the top priorities. We want to
give them their full capacity. We, of course, have invested in
technology. We have partners to ensure that our oversight of
our lenders is strong, and OCRM is currently doing that.
Ms. VELAZQUEZ. Thank you. I yield back.
Mr. LUETKEMEYER. The gentlelady's time has expired.
With that, we will go to the gentleman from Pennsylvania.
Mr. Meuser is recognized for 5 minutes.
Mr. MEUSER. Thank you, Mr. Chairman, very much. Thank you,
Administrator. Good to see you.
One of the concerning topics that I have, and before this
Committee, was the rule change on the SBA regarding small
business lending companies where a lender will receive the
government guarantees when underwriting small businesses. When
you testified here last year, March 23, 2023, you assured us
the SBA had sufficient oversight capabilities. In fact,
responding to a question from Ranking Member Velazquez, who
asked, have you heard concerns with allowing--have you concerns
with allowing unregulated companies associated with significant
fraud into a federally guaranteed program? Your response was,
and I am paraphrasing, I know that the SBA has a rigorous
application process, so I am not concerned and we intend to
hold any business that wants to participate to their
performance, to their underwriting standards for transparency,
et cetera.
So, not soon after that--well, let me ask this. In your
view, are all companies subject to this rigorous application
process in light of the example of Funding Circle, where the
CEO recently, 2 weeks ago, stated how all of their losses,
their mounting losses, which have existed for the last couple
of years? And, Mr. Chairman, I would like to submit their
income statement for the record, Funding Circle.
Mr. LUETKEMEYER. Without objection.
Mr. MEUSER. Thank you. It would require significant
capital. He says, I mean, you saw all of our losses over the
last several years. So, the SBA program, what we don't believe
will be the best use of our capital to invest in those loans in
the U.S. business. So it is a pretty easy question to ask, why
would the SBA approve such an organization that had such
mounting losses and, in the end, an unwillingness even to
serve, when, by the way, it was just one of three that was
approved? It wasn't like there were 400 and this was one. This
was one of three. So, if you would explain.
Ms. GUZMAN. Yes, I would. And Funding Circle, just for the
record as well, is fully capitalized in its U.S. operations
based in Colorado. And so, you know, they are in a strong
position in terms of being able to deliver against their
mission of small-dollar lending.
They continue to work with the SBA in the licensing
process. It is not finalized at this point. Obviously it was
awarded, but they still have to go through our rigorous
application process, and we still are continuing to work with
them. Their intention is to start lending with the SBA program
in the coming weeks.
Mr. MEUSER. Well, do they own it? So, in other words, if
they intend to sell their U.S. business, can they also sell
their SBLC license?
Ms. GUZMAN. We have currently, and for years, for decades
now, 14 SBLCs that have turned hands. They go through the same
rigorous, you know, licensing process when those licenses are
sold. So it would be the same process.
Mr. MEUSER. With all due respect----
Ms. GUZMAN. It would be the same process.
Mr. MEUSER.--you continue to say the due diligence on
choosing them was rigorous.
Ms. GUZMAN. And they have intended to maintain that license
within their U.S. operations.
Mr. MEUSER. You do recall that we had issues, both sides,
everyone here, on the speed that we were moving forward with
such licensing, and then, yet we are pointing out a failure
from one of three. And it just--you can't help but bring back
last year's testimony where everyone in this Committee had real
concerns about the speed and why this was being done as quickly
as it was. In fact, Patrick Kelly sat here telling us how
important it was to move forward with these companies. And
meanwhile, it clearly, in this case, did not work out either.
Ms. GUZMAN. The 14----
Mr. MEUSER. Didn't work out for him either.
Ms. GUZMAN. So, to take us back a little bit to that, too,
note that we have still persistent gaps in the marketplace for
startups, for underserved markets overall, in rural deserts
around the country. Our SBLCs perform, those 14 that have
historically been performing, perform to fill market gaps. Our
goal is to expand that program, adding three licenses for the
first time in 40 years on an existing program. We viewed that
as a responsible expansion, not opening the floodgates, but
obviously a responsible expansion by adding three new lenders
into the program. And we are comfortable to continue to work
with Funding Circle's U.S. operations.
Mr. MEUSER. Well, hopefully, the level of comfort isn't as
high as it was before. Hopefully, there is some healthy
paranoia taking place that we don't want this to happen again.
I want to ask you about something else I find very
concerning, and that is the President's executive order on
demanding and helping people, however you want to put it,
businesses, encouraging them to register and to vote and et
cetera. Can you provide this Committee every email and every
official correspondence to small businesses and interagency on
those discussions related to requesting, enticing companies to
register?
Ms. GUZMAN. I will put in that request to my team and we
will follow up with you directly. Yes.
Mr. MEUSER. Thank you. I yield back, Mr. Chairman.
Mr. LUETKEMEYER. The gentlemen yields back. The time has
expired.
With that, we go to the gentlelady from Washington,
Representative Gluesenkamp Perez, recognized for 5 minutes.
Ms. GLUESENKAMP PEREZ. Thank you, Vice Chairman
Luetkemeyer, a fellow challenging last name. And thank you to
Administration Guzman.
Mr. LUETKEMEYER. Did I get close?
Ms. GLUESENKAMP PEREZ. That was right on the head of the
nail.
Mr. LUETKEMEYER. Thank you.
Ms. GLUESENKAMP PEREZ. Yeah, thank you. And thank you,
Administrator Guzman, for being here with the Committee today
and for your work on behalf of small businesses across the
country.
Last year, at just about this time, you came to testify in
front of this Committee, and I told you about my experience
with our auto shop, spending a year trying to navigate the 504
loan program. And that program was truly a vital source of
capital for our business and in maintaining trades businesses.
Right? All the other businesses were getting bought out and
turned into coffee shops and tattoo parlors. And so being able
to maintain an independent auto shop in so many communities is
critical. So, we are pleased that this avenue of capital is
available to people working in the trades who don't have
another avenue.
What is the administration doing to make the experience
more navigable for first-time entrepreneurs who don't have a
year to follow up to spend on this process?
Ms. GUZMAN. Yes, I completely agree. The 504 program is a
vital asset builder for small businesses around the country and
for sustainability in neighborhoods as costs increase, buying
their building or buying equipment. And it is critical with
these investments, whether it is chips, infrastructure, or the
Inflation Reduction Act, as businesses need heavy investment
capital to move forward.
We have streamlined our regulatory process on both 7(a) and
504. Really trying to work to make sure that the lenders have
easier processes and more certainty around their guarantee as
well by simplifying the affiliation component. That was the
number one reason for denials. It was really a very confusing
process previously, but we have also deferred to their
underwriting standards and best practices as well.
So, these have been very well received by the trade
organization that represents the 504 lenders and ADCO. They are
very excited as well to see the layering of the community
advantage SBLCs that many of them are colicensed as. And so I
believe that this will continue to enhance our 504 programs.
But we do need to do more outreach and awareness and thus
the expansion of our networks, our entrepreneurial ecosystems,
to include navigators to help direct more businesses to the SBA
as an alternative is something we are also focused on.
Ms. GLUESENKAMP PEREZ. That is great. Last year we talked
about the MySBA.gov portal and its goal to give a single point
of entry for businesses to perform the things they need. Can
you give us an update on the improvements made to the system
over the past year and how is it serving businesses?
Ms. GUZMAN. Our goal is to simplify the customer experience
for the small businesses. The President's executive order on
customer experience, you know, direct specifically some of our
programs on this, including the unified lending platform where
servicing happens, where now disaster lending happens.
Recently, with the Western Governors Association in Oregon, the
governor said, you know, after the ice storms, businesses and
individuals got their money within 2 days thanks to this new
system. So that is one of the experiences.
The other is VetCert, and our goal is to add on the other
programs of the SBA into this single door entry for our small
businesses so that it can be enhanced.
Ms. GLUESENKAMP PEREZ. Great. The SBA also recently
launched the Lender Match program, which according to SBA press
release, features nearly 1,000 lenders, 257 community-based
lenders, who can connect to potential customers and earn their
business. But I am concerned because I have also heard from
small business community banks that are in the process of
getting certified for SBA lending that the process is onerous
and time-consuming. I am wondering what considerations are
being made in the program for small community banks who may
have limited staff capacity. Can you share generally and
briefly what the administration is doing to make sure community
banks are able to participate in SBA lending?
Ms. GUZMAN. Yes, 100 percent and this is one of our top
priorities. Eighty-three percent of the PPP lenders hadn't done
an SBA loan in 5 years. Those are the small community banks. We
wanted to simplify our regulations and cut red tape for them.
Lender match is an incredible tool that we wanted to level
the playing field in as well. And so what we have done is added
on our prescreening for fraud and eligibility, which we have
deployed across our 7(a) portfolio into the Lender Match
system, so that we could give these lenders more qualified
leads, and not just cold leads. So that should streamline their
ability to review and vet the 50,000 businesses we get there
every month.
The second thing, though, was to allow for a 48-hour
waiting period, because the larger institutions have staffing
that just are dedicated to Lender Match to be able to get those
leads. And clearly, we want everyone the opportunity to go
after any prospects or their own borrowers in many cases. So
that was the goal in this recent upgrade.
Ms. GLUESENKAMP PEREZ. Thank you very much. I yield back.
Mr. LUETKEMEYER. The gentlelady's time has expired.
With that, go to the gentlelady from Texas. Ms. Van Duyne
is recognized for 5 minutes.
Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
Administrator Guzman, you are aware of the document
requests, that we have sent four letters to you on the decision
surrounding this some $100,000 portfolio, right?
Ms. GUZMAN. Yes.
Ms. VAN DUYNE. So, you are aware?
Ms. GUZMAN. Yes, correct.
Ms. VAN DUYNE. Well, it is interesting, because many of the
documents that you have provided us have been nonresponsive to
our requests. In fact, SBA has continually missed deadlines and
they have produced irrelevant documents in response to
Committee requests. And by the way, I really appreciate the
$4,000 document drop--that 4,000-page document drop that you
gave to us Friday night on--it is incredible that all of a
sudden, it has taken a year, but we got 4,000 pages Friday
night right before this hearing. But only 20 percent of what
you have produced this Committee over the last year was
actually responsive.
And let's talk about this April 2022 memo, which confirms
your decision to end collections on PPP and COVID EIDL loans
less than 100,000. And I am going to use the term `` end
collections'' because that is the phrase that is written on the
document that we are discussing, and that decision is the
subject of this investigation. As you are well aware, both the
OIG and this Committee found that this April 2022 memo provided
insufficient justification for the decision to end collections
on delinquent debt value at 100,000 or less. And that was under
the Debt Collection Improvements Act. The SBA produced three
additional documents analyzing the PPP portfolio, but evidently
did not have additional analysis for the COVID EIDL.
So, let's discuss the substance of this memo. It says, ``
The most cost-effective means to protect the government's
financial interest is to end collections, including Treasury
referrals on the subject loans.'' You have repeatedly said that
this memo simply meant no referrals to Treasury, but that is
clearly not what the memo stated.
You said the cost of the final step in the loan process,
referrals to Treasury, was too high. And later you actually, I
think, detailed that cost as being somewhere between 300- and
$500 million a year.
So, you hired a consultant in 2021 to analyze the whole
COVID EIDL portfolio and to make recommendations. They
recommended that you sell either all or parts of the portfolio,
potentially getting as much as 50 cents on the dollar, but you
didn't sell. Why?
Ms. GUZMAN. That was one of four studies, and we take the
collections very seriously at the SBA. As you alluded to, that
stated to end collections at the ninth step. We had, obviously,
proceeded a step.
Ms. VAN DUYNE. But I am asking, why didn't you take the
advice of someone that you actually paid taxpayer dollar to do
an analysis?
Ms. GUZMAN. There were four analyses. And keep in mind that
this is----
Ms. VAN DUYNE. Did any of them suggest that you not sell?
Ms. GUZMAN. Yes, the first study, which under DCIA, I
engaged in my authority to not refer to Treasury the first
time. However, the subsequent studies did suggest that there
could potentially be upwards of a $100 million collected.
Ms. VAN DUYNE. So, I better reclaim my time. Because just a
few months after you received the recommendation to sell, you
said that the under 100,000 portfolio was not collectible. So
did you reconsider the sell then?
Ms. GUZMAN. As I shared with some of your fellow Committee
Members when they visited the SBA, the cost to see the SBA's
portfolio----
Ms. VAN DUYNE. I don't--I am just asking, yes or no, did
you reconsider the sale then?
Ms. GUZMAN. We have considered all of the studies'
analyses, yes.
Ms. VAN DUYNE. Okay. So every day that passes, the value on
these loans diminish. Selling the portfolio could have gotten
you as much as 50 cents on the dollar, which is a lot better
than the nearly zero that your April 22 memo actually said you
expected to collect.
Back to the decision not to collect these loans. When you
reversed the decision in December '23, you provided an update
for PPP at $23.9 million with an unexpected recovery of $128.5
million. During a briefing with the Committee staff, SBA told
us they didn't have a specific cost for COVID EIDL at this
stage. That was January of this year. Do you have an updated
cost analysis?
Ms. GUZMAN. We have, based on the updated cost analyses, we
have started the process of referring to Treasury and we have
been paying under----
Ms. VAN DUYNE. So, do you have a cost analysis now? Because
this is over a year ago.
Ms. GUZMAN. For selling the portfolio?
Ms. VAN DUYNE. For COVID EIDL versus just the PPP.
Ms. GUZMAN. For COVID EIDL we have the four studies that
are guessing at the analysis.
Ms. VAN DUYNE. Okay. So, but that doesn't----
Ms. GUZMAN. Remember that this is an unprecedented
portfolio----
Ms. VAN DUYNE. But there are two studies----
Ms. GUZMAN.--with very different parameters for under it.
Ms. VAN DUYNE. You paid for immense analysis on the PPP
program, but you haven't done it on the EIDL program. There's
no actual written comparison, was there, between PPP and EIDL?
Ms. GUZMAN. And we have continued collection on these.
Ms. VAN DUYNE. So, was there an actual written comparison
between PPP and EIDL? Because if you had it, we have requested
it and we haven't gotten it.
Ms. GUZMAN. We have done four analyses trying to compare as
best as we can this unprecedented portfolio----
Ms. VAN DUYNE. PPP, but not EIDL.
Ms. GUZMAN.--to performance of other small business
portfolios.
Ms. VAN DUYNE. PPP, but not EIDL.
Ms. GUZMAN. And we have made the decision to----
Ms. VAN DUYNE. So, if the COVID EIDL is indeed more
collectible, because that is what we have been told, even if
PPP was not worth collecting, EIDL may have been. So,
subsequent analysis was done on the collectability. We have
seen that a number of times, but we still haven't seen it on
EIDL. So, the analysis supporting your decision to end
collections has been deemed inefficient under the Debt
Collection Improvement Act by OIG, KPMG, and this Committee.
And yet there was no subsequent analysis done on the COVID
EIDL.
Ms. GUZMAN. And as all of these loans have started their
process----
Ms. VAN DUYNE. So, I am going to reclaim my time----
Ms. GUZMAN.--being referred to Treasury----
Ms. VAN DUYNE.--because I am almost out of it.
Ms. GUZMAN.--that is irrelevant.
Ms. VAN DUYNE. What I am hearing you say is you have
stonewalled congressional oversight. You incurred the cost to
collect these loans by taking all the collection actions, but
you didn't actually collect the money, because, as you just
said, you didn't refer them to Treasury. So, though----
Ms. GUZMAN. We have referred them to Treasury.
Ms. VAN DUYNE.--independent agencies pointed out that you
violated the Debt Collection Improvement Act by not referring
these loans to Treasury, you ignored them. You have wasted
billions upon billions of taxpayer dollars not only by delaying
these decisions over the last 2 years, but with poor decision-
making. Unbelievable.
I yield back.
Ms. GUZMAN. These loans have been referred to Treasury and
we are collecting on them. In fact, we have, you know----
Ms. VAN DUYNE. I yield back.
Ms. GUZMAN.--more than two X'ed our ability to collect on
those small dollar loans.
Mr. LUETKEMEYER. The gentlelady's time has expired.
With that, go to the gentleman, the representative from New
Hampshire, Mr. Pappas, for 5 minutes.
Mr. PAPPAS. Thanks very much, Mr. Chairman. And,
Administrator, great to see you here. Always happy to have you
back in New Hampshire. You have visited many times, and I
appreciate the local focus that you bring to your role. I think
it's important for anyone in Washington to continue to
understand that solutions just don't come from this place. They
come from our main streets. And I think you have demonstrated
that through your work.
As you know, SBA's disaster loan program was created to
help communities recover after a disaster by providing low
interest loans to businesses and homeowners. The seacoast
region of my district has been devastated by extreme weather
events, and they have been able to access economic injury
disaster loans that were made available to small businesses in
that part of the state earlier this year. But more rural
communities that I represent may not know about the disaster
assistance that SBA provides.
I know that SBA has been working on new outreach
programming to rural communities, like portable help centers
that can be set up in more remote areas. But my understanding
is that none of these efforts are specifically designed to meet
the needs of rural communities.
So, I am wondering, in the wake of a GAO report that said
that there is no specific rural outreach, how SBA plans to move
forward with strengthening its disaster planning to ensure that
it is meeting the needs of all of our communities.
Ms. GUZMAN. Thank you for that question, and I am very
proud of our ability to innovate in the disaster space with our
improved lending platform. But we definitely want to get the
awareness out there.
A couple of things. With the Rural Communities Act, we did
enact a new process for which governors can declare rural
disasters when it doesn't rise to the level of a federal
disaster. And that streamlines the process for governors to be
able to declare a disaster, only identifying one, you know,
house or business that has been harmed, and so--versus five.
And in rural communities, sometimes that is very difficult and
requires miles of travel. So that is the first thing. And we
have had 14 declarations and have been reaching out to all the
governors in the Offices of Emergency Management to ensure that
they are aware of this streamlined process. And so far, the
response has been very positive.
We have also entered into an MOU with the USDA to ensure
that we are reaching out to rural communities, not only on
disaster, but as well on our small business programs, on
capital access, on exporting. And this Rural Prosperity tour
that we have launched at the SBA has, you know, begun in three
states, and we are continuing to expand, and I am looking
forward to continued travel on that myself personally, to try
to build awareness around all of our programs. But when a
disaster happens, whether it is rural declared by the governor
or federal, the SBA immediately deploys on the ground. And we
have tried to be as aggressive as possible with portable
operations centers as well as extensive outreach in multiple
languages.
Mr. PAPPAS. Well, thank you for your comments there.
Switching gears, today happens to be National SBDC Day, and
I know I asked you last year about this same issue with a
proposed cut for SBDCs across the country. I know in my state,
our Small Business Development Center helped businesses access
more than $37 million in new capital, increasing their sales by
$26.4 million in 2023 alone. So, despite this performance, the
proposed budget would reduce SBDC funding by $105,000 in my
state alone. That could mean the loss of an entire center and
decreased coverage in underserved and rural areas.
So, we did talk about this in the wake of last year's
proposed cuts. That did not come to fruition, thankfully. But I
am wondering, given the impact of SBDCs across the country,
$6.8 billion of the $7 billion in capital provided by the
resource partners are through our SBDCs. Why does it make sense
to reduce funding for the best performing program in terms of
resource partners?
Ms. GUZMAN. The SBDCs, you know, I always praise. They do
an incredible job serving small businesses. On a recent trip
that I went to Michigan, there was a restauranteur who
literally brought the SBDC alongside because they helped them
at every step of their journey, including accessing capital. On
that same exact trip, I met another business that did not want
to use the SBDC, that didn't feel that it was for her.
Whether it is a university-based system or what have you,
our SBDCs do an incredible job of serving the 326,000
businesses they served last year. But the other 32.7 million
need alternatives and entrepreneurial ecosystems on the ground
that meet them where they are and bring them back into SBA's
ecosystem. And that is why we are trying to incentivize the
development of new ecosystems around the country. Community
navigators is that example where we are trying to ensure that
there are alternatives to bring people back to the SBA, in
fact, most likely back to an SBDC. But we need to reach more
businesses and definitely go beyond the reach of our current
resource partner network that in total reaches about 500,000
every year.
Mr. PAPPAS. Well, I would just say in my neck of the woods,
our SBDC is firing on all cylinders. They are essential. And if
it ain't broke, you know, I don't think we need to fix it or
pull funding away. So I would urge you to reconsider that.
But I yield back my time. Thank you.
Mr. LUETKEMEYER. The gentleman's time has expired.
With that, we go to the gentlelady from Florida,
Representative Salazar, recognized for 5 minutes.
Ms. SALAZAR. Thank you, Mr. Chairman. And thank you to you,
Administrator Guzman, for being here with us. And last time we
spoke was at your office in December, where we went to your
office to review and to visit the headquarters. So thank you
very much for having us there and showing us around.
I just want to concentrate on something major, which is
that most federal government agencies, like the SBA, are
required to have an annual independent audit, just like
publicly traded businesses do so in the private sector. Right?
And this past year, the SBA retained a very major, important
consulting firm by the name of KPMG. Highly respected, widely
trusted, so we are in good hands. Unfortunately, KPMG found not
too many good things when they did the SBA audit. And I am
going to tell you three that were found: inadequate loan
process reviews, poor recordkeeping, and legal compliance
issues.
Did you study thoroughly, are you abreast, are you aware of
everything this very important company said about your agency?
Ms. GUZMAN. Yes, and I have met directly with KPMG, who was
retained by our independent Inspector General, of course, to
perform this audit. Those findings were regarding the COVID
portfolio, which, again, was established in 2020. When I came
in in 2021, my focus, at the President's direction, was to
ensure that we had strong fraud risks and controls.
Unfortunately, those findings stand on the existing 2020
portfolio.
Ms. SALAZAR. So, that means that these findings do not show
your performance as an administrator?
Ms. GUZMAN. No, because----
Ms. SALAZAR. You have no responsibility for what the
findings found?
Ms. GUZMAN. I take responsibility for SBA's programs and
operations----
Ms. SALAZAR. All right, so they are right there.
Ms. GUZMAN.--for 2021 and what----
Ms. SALAZAR. So, which one of the findings--but wait.
Ms. GUZMAN. Mm-hmm.
Ms. SALAZAR. You have been there for 3 years. This review
or this study was conducted in November of '23. So, You were
there, '21, '22, '23. Which one of these findings is the most
damaging to you as an administrator?
Ms. GUZMAN. I view----
Ms. SALAZAR. You got to own something.
Ms. GUZMAN. I view all of the findings--well, they are on
the COVID pandemic programs.
Ms. SALAZAR. Okay.
Ms. GUZMAN. The COVID EIDL, PPP, obviously, that were
established without controls, we instituted guardrails. And
you'll note in the KPMG audit, they recognize our progress
against all of these. My team has been working very diligently
to ensure that we are implementing strong controls and also
situate the SBA, so that----
Ms. SALAZAR. Yeah, but, you know----
Ms. GUZMAN.--we will never----
Ms. SALAZAR.--when you tell me----
Ms. GUZMAN.--have this problem again.
Ms. SALAZAR. When you tell me, yeah, I have done it, I
mean, you know, just give it to me in one sound bite. You were
there for 3 years. They came in in November '23. They are
saying that things are not the way they are supposed to be. So
where does your responsibility fall?
Ms. GUZMAN. And my responsibility lies in fixing the
problems that were established when the COVID pandemic programs
were established in 2020. And that is what we have been doing,
and we have been making incredible progress as KPMG, the IG,
the GAO will all attest to that.
Ms. SALAZAR. Wait, wait, wait. The IG has said that we
missed $20 billion--I am sorry, $200 billion. So, I am just
trying to understand your leadership. How good has it been or
not for the agency based on this report by these independent
people?
Ms. GUZMAN. The 200 billion----
Ms. SALAZAR. I don't hear--I just don't hear where, you
know, where do you own responsibility?
Ms. GUZMAN. I own responsibility in the reforms that we
have implemented that have stopped and thwarted over $500
billion, 21 million attempted frauds, attempts against the
agency and these COVID programs.
Ms. SALAZAR. Did you fire anybody?
Ms. GUZMAN. I own responsibility----
Ms. SALAZAR. Did you fire anybody?
Ms. GUZMAN. The----
Ms. SALAZAR. Inadequate loan process, poor recordkeeping,
legal compliance issues. Is everyone that committed these
crimes to our small business community are still there making a
living or getting a paycheck?
Ms. GUZMAN. The leadership that made the decisions around
the 2020 implementation of the COVID pandemic programs served
in the previous Trump administration and are no longer there.
My responsibility is to figure what's needed----
Ms. SALAZAR. No, no, I am asking you specifically----
Ms. GUZMAN.--and improve those problems.
Ms. SALAZAR.--anyone who was there during the pandemic and
was responsible for these faults, are they still there? Yes or
no.
Ms. GUZMAN. The responsibility is with the leadership and
the leadership----
Ms. SALAZAR. You are leadership----
Ms. GUZMAN. I am.
Ms. SALAZAR.--but you just told me that you came after
pandemic.
Ms. GUZMAN. I am responsible for fixing the programs, not
for creating the control issues that were established in 2020.
However, I took----
Ms. SALAZAR. But you are not answering me.
Ms. GUZMAN.--responsibility for correcting them----
Ms. SALAZAR. Did anyone pay----
Ms. GUZMAN.--which I have done.
Ms. SALAZAR. Is anyone responsible? Has anyone lost their
job because of their lack of good leadership?
Ms. GUZMAN. The 2020 Trump administration people who made
the decisions are no longer there at the agency.
Ms. SALAZAR. I yield back. Thank you.
Mr. LUETKEMEYER. The gentlelady's time has expired.
With that, go to the representative, Mr. McGarvey, from
Kentucky, for 5 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman. Thank you for being
with us today, Administrator Guzman.
We have had a lot of hearings in this Committee on pandemic
relief fraud, and good. None of us likes fraud in this program.
All of us want to see this money recouped. At least I am glad
this time they scheduled a hearing when you could be here to
respond, which is a nice change.
Let's think about where we were 4 years ago today. I think
it is important to remember where we were. People were dying in
hospital hallways. People were hunkered down in their homes,
scared, rationing toilet paper. You had small businesses across
this country who had no idea if or how they could survive. I
was getting calls in the state senate in Kentucky from
restaurant owners, from people in my hometown just scared. And
you know what? Fortunately, Washington acted. And the Congress,
let's give credit where it is due. The Trump administration got
relief out to our small businesses. They saved our main
streets. They saved our businesses. It saved our economy, which
is how we recovered so much faster than everyone else in the
world.
And look, are there going to be problems with something
like this? Yeah, and there were. But we are focusing so much on
the bad news that we fail to recognize that the SBA's relief
programs were an unmitigated success.
So, we need to talk about some of this fraud, right? How
did it happen? Well, let's be honest about it. In standing up
our businesses, the Trump administration rolled back the
internal controls meant to prevent fraud in our loan programs.
Why? Well, our small businesses needed relief and they needed
it quickly. But it shouldn't be a surprise that when you remove
these regulations, it opens the door for bad actors. And that
is why 86 percent of the likely fraud in these programs ended
up occurring in the Trump administration.
Did you serve in the Trump administration?
Ms. GUZMAN. No, I served during the Obama administration
and the Biden administration, so 9 years.
Mr. MCGARVEY. Okay. So, it didn't happen on your watch. And
ironically, here we are right now in a hearing when my
colleagues are complaining about regulatory burdens while
simultaneously questioning you on what happens when you roll
back those burdens and the fraud occurs.
So, since then, we have taken a long number of antifraud
controls, taken the steps to reduce the fraud, and it has
resulted in billions of dollars in relief being seized or
returned to the federal government. And we know now both the
OIG and the GAO have testified in front of us confirming the
SBA's commitment to recovering fraud and improving these
programs, which is good. We all want to recover fraud that was
given out. So, we appreciate your efforts in those regards.
You know, I am from the South, and maybe we need some more
people from across the aisle, from the southern part of this
country, because we still have manners. And you have been asked
a question a number of times and not been given the chance to
actually answer. I would love to hear an answer about, in
November of 2023, when the Funding Circle was awarded one of
the three new SBLC licenses to help support small businesses
and increase access to capital for business owners in
underserved markets. We know the U.K.-based lenders started
making 7(a) a loans this year, but they are now offloading
their U.S. small business lending operations. How does this
impact your vision for SBLC operations?
Ms. GUZMAN. The SBA is proud of the 14 existing SBLCs, as
well as the nearly 140 additional CA SBLCs, those community
advantage lenders. The program is strong and working to fill
gaps in underserved markets.
The Funding Circle is the last of the three newly awarded
SBLCs that has not started doing lending. We are still in the
process. The other two were what we call NFRLs. These were
previous state-chartered entities working with SBA products,
and so they streamlined. And Alaska and Arkansas have already
started to do loans. We are excited to bring on lenders who are
focused on small-dollar loans where our current lenders are
unable to fill the demand.
Funding Circle continues to work with the SBA, my team, to
fulfill the SBLC license and ensure that they can start lending
with SBA products in the community. They were a strong
performing PPP lender, really getting hands into those smallest
of the small businesses, focused on making sure that they could
survive during the pandemic. So, you know, that is still in
process.
We are still going through the steps that are necessary for
them to, you know, meet all of our standards at the SBA, and
when that is complete, we can inform the Committee.
Mr. MCGARVEY. Thank you. And very quickly, the SBA retains
authority to approve or not approve the sale of licenses.
Should the Funding Circle choose to sell the license to the
entity you don't support, would you commit to not approving the
sale?
Ms. GUZMAN. That is correct. We have done it in the past.
We have denied sales in the past.
Mr. MCGARVEY. Thank you. I yield back.
Mr. LUETKEMEYER. The gentleman's time has expired.
With that, go to the gentleman from Florida. Mr. Bean is
recognized for 5 minutes.
Mr. BEAN. Thank you very much, Mr. Chairman. Good morning
to you and good morning, Administrator Guzman. It's good to
have you here.
On December 8, 2022, SBA suspended auto analytics, which
was doing business as Womply, from engaging in any actions
related to the SBA loan programs. That suspension was later
extended through December 3, 2023. Earlier this week, the
director of the Federal Trade Commission's Bureau of Consumer
Protection said Womply deceived small business owners trying to
secure loans at their greatest time of need. They have reached
a settlement with the FTC where Womply and its CEO were ordered
to pay $26 million to small businesses harmed by the company's
actions. In fact, we have heard from lenders who say they were
partnered with Womply at the behest of the SBA. Those lenders
are now on the books--on the hook for the Treasury Department
for the fraudulent loans Womply processed for them, and in
return, Womply is seeking to collect the referral fee from
these lenders.
What is the status of that suspension of Womply? It says
here that they were, at least my report says they were
suspended through December 3. Are they still suspended?
Ms. GUZMAN. We extended the suspension and Womply remains
suspended.
Mr. BEAN. Very good. What do you say to the lenders who
have worked with SBA for years and have been great partners,
but now being forced out of business because of the actions of
Womply and others like them?
Ms. GUZMAN. Womply was a technology provider to banks, to
CDFIs, to these private lenders as well, and it is unfortunate.
I know that is a current case, so my, you know, comments will
be limited. But note that they continue to be, you know,
prohibited from accessing or engaging in SBA lending
whatsoever.
And of course, you know, SBA has worked diligently to try
to deliver on the promise of forgiveness to those lenders who
acted in good faith. And we have 96 percent of the portfolio
forgiven at this point under PPP. And we will continue to try
to work to follow all the laws and follow the guidance.
Mr. BEAN. Will you commit, they have done some bad things,
but will you commit that they should never come back in any
type of space or lending space of the SBA?
Ms. GUZMAN. We will continue to make sure that they are
suspended from ever engaging in SBA's programs.
Mr. BEAN. Something that we all came together as a
Committee here not too long ago was we passed the We Want Our
Money Back Act, which says that we want to keep all of these
fraudulent loans that were made fraudulently, we want them on
the front burner. We want reports from the folks watching it
out for them. We have no plans to forgive any of these types of
loans that were made fraudulently. You wouldn't want to forgive
loans that were made fraudulently. We are going to go back and
get them. Is that right?
Ms. GUZMAN. We are going after all fraud. We have referred
all fraudulent loans to the IG and the Department of Justice
and law enforcement who are pursuing all fraud at the SBA. And
we support, with--it is part of why SBA needs more funding. We
actually support the Inspector General in those investigations
and invest a lot of time to fight fraud.
Mr. BEAN. Thank you. Thank you. Your Office of Credit Risk
Management sent emails to a large number of PPP lenders saying,
hey, did you find any fraud? Are you aware of any fraud? Let us
know. So it is sort of like an investigation that you are
doing. Can you talk about the status of that investigation?
Have you found additional fraud through your inquiring of banks
and other lenders?
Ms. GUZMAN. We have done an exhaustive study of our
portfolios. We identified $400 billion in potential fraud and
have now narrowed it down. My team likens it to walking through
TSA and with your belt buckle, the, you know, alarms go off.
That is the initial, you know, fraud check. But then once you
get down into the portfolio and do further analysis, which we
have done with not only technology, but actual manual reviews,
we have narrowed the fraud down to $36 billion. Now, within
that----
Mr. BEAN. That is a big number difference----
Ms. GUZMAN. It is a huge number.
Mr. BEAN.--because the Inspector General says it is 20
times that.
Ms. GUZMAN. Right. He had $200 billion in potential.
Mr. BEAN. Or more.
Ms. GUZMAN. We had $400 billion in potential.
Mr. BEAN. Yeah.
Ms. GUZMAN. And we have narrowed it down pretty far.
Mr. BEAN. How do you reconcile that? That is just such a
big number that--and, hopefully, you are working on that. I
know you have been before and you have said 36. But he says--in
fact, he was a great witness and was very credible. He says it
is much, much more than just the plain $36 million.
And I know to our friends on the other side of the aisle
that want to blame the previous administration, but you are in
charge now, and so we expect you----
Ms. GUZMAN. I am working.
Mr. BEAN.--to go after bad guys. I think the American
taxpayers and these small business owners are sick of seeing
people cheat the system and break in line and steal our money,
and that is why we want our money back. Were these, the frauds
that you found to the PPP investigation, were they banks or
nonbanks or do you know?
Ms. GUZMAN. It is actually mixed. If you look even just at
the Clyburn report, there was a mix of banks and CDFIs and
private lenders across the board.
Mr. BEAN. Thank you very much. My time has expired. So much
to talk about. Thank you for being here.
I yield back.
Mr. LUETKEMEYER. The gentleman's time has expired.
With that, we go to the gentlelady from Kansas. Ms. Davids
is recognized for 5 minutes.
Ms. DAVIDS. Thank you, Chairman. And thank you to you and
our Ranking Member for holding the hearing today.
Before I begin with my question, I did want to enter into
the record the transcript from the last hearing when
Administrator Guzman was here with us. And it reflects that she
was not familiar with the regulations that were in the works on
WOTUS, the Waters of the United States, specifically, versus
SBREFA.
Mr. LUETKEMEYER. Without objection.
Ms. DAVIDS. So thank you, Administrator Guzman, for joining
us and being here to testify today. I do appreciate the work
that the SBA is doing to help our country's entrepreneurs. And
definitely, I want to thank you for taking some time to come to
my district in the Kansas City metro area a few years ago and
just kind of see the entrepreneurial spirit that we have got
going on out there. And, of course, would love to have you back
if your schedule allows.
And I will jump right into some of the things that I have
been working on since I came to Congress, which is supporting
and expanding the SBA's Women's Business Centers program. And I
have introduced and reintroduced the Women's Business Centers
Improvement Act a number of times. It has passed out of the
Committee and the House with overwhelming support, and would
increase oversight, increase the SBA's investment in women's
business centers, and double the cap on the grants that the
centers are able to receive each year. The administration's
fiscal year 2025 budget notes very clearly just how successful
the WBC program has been.
You know, in fiscal year 2023 WBCs, including the Kansas
City WBC, which is in the Kansas Third, trained 87,900
entrepreneurs and helped establish more than 3,400 new small
businesses. And your budget proposal shows an increase in the
number of clients served and new businesses that are created
through WBCs, but keeps the funding for the program equal to
last year's level.
I would love to hear you kind of expand on that and kind of
how you see the WBC program working and whether or not there
truly is adequate federal resources going into that program,
and also kind of what SBA is doing to capitalize on the
program's success outside of the proposed budget line items
that we see. Because I know that you guys do a lot of things
outside of just the numbers that we are seeing on the paper.
Ms. GUZMAN. Yes, and happy Women's History Month. And, you
know, as I said, women businesses are starting at the highest
rates. They are starting to double the rates of men. It is
really critical that we, you know, address these gaps, capital
as well as resources.
Our Women's Business Centers also do an incredible job. It
is a strong resource partner network. They are oftentimes, you
know, held back by some of their statutory limits in terms of
how much we can fund them by and their ability to match as
well. And so truly, we want to continue to provide them with
stronger technical assistance, make sure that we are
streamlining their knowledge and content of SBA, so that they
can save their time to work directly with the small businesses.
That is first and foremost.
And we actually have, you know, strong funding. We plan on
deploying more WBCs. We have a notice out now that we should be
awarding additional states and additional centers around the
country, and we have an additional one that will be coming out
soon that we hope to deploy across the country. And we are
trying to get as creative as possible with the women who lead
these centers to understand how we could better support them
through this upcoming grant cycle. You know, I know that as we
continue to work and advise, if we can find solutions to
strengthen them individually, then I know the program will
continue to grow.
Ms. DAVIDS. Thank you. And we are working on the statutory
limitations that you all are working with.
Because my time is limited, I will just kind of quickly
note that including Women's Business Centers, I have also been
working on the Native American Entrepreneurial Opportunity Act,
which we also were able to pass recently. I don't think Mr.
Crane is here, but I got a chance to work with him on that
bill, which, again, overwhelmingly passed. We will submit some
questions for you to respond to regarding just kind of the
success and/or challenges around outreach to Native
communities. And, again, appreciate your time here today and
the work that all the folks at SBA are doing.
And I yield back.
Mr. LUETKEMEYER. The gentlelady's time has expired.
With that, go to the gentleman from Kansas. Representative
Mann is recognized for 5 minutes.
Mr. MANN. Thank you, Chairman Luetkemeyer, for hosting the
hearing this morning. And thank you, Administrator Guzman, for
being here.
I am Congressman Tracey Mann and I represent the big First
District of Kansas, which is to the east of Congresswoman
Davids' district. I represent 60 primarily rural counties in
the western and central parts of Kansas. My district is home to
more than 20,000 small businesses, and more than 80 percent of
our employees in the district are employed by small businesses,
which help drive the economy and define and help people to
achieve the American dream.
In the big first, small businesses rely on the federal
government to do more good than harm on trade promotion
programs and on a reasonable regulatory environment to achieve
the American dream. President Eisenhower, a Kansas hero, knew
this full well when he established the Small Business
Administration in the first place in 1953.
Unfortunately, today, small businesses are facing excessive
regulatory burdens, rising inflation, and increasing
uncertainty, which are things that I hear from businesses all
over Kansas practically every day. Ensuring that small business
owners remain competitive in the domestic international
marketplace is a top priority for me.
Administrator Guzman, as the administrator, you are in a
unique position to advocate for these concerns. The Office of
U.S. Trade Representative generally relies on advice from other
agencies, including SBA, through the Trade Policy Staff
Committee and the Trade Policy Review Group, to develop
positions on international trade issues. However, this
Committee has raised concerns that decisions are being made
with little or no input from SBA, and trade is incredibly
important, not for all, but for a lot of our small businesses
in Kansas and around the country. How are you working to ensure
that USTR and your counterparts in the Biden administration
consider small businesses when making decisions regarding
international trade?
Ms. GUZMAN. Thank you for that question. And I know, I
don't know if it is in your district, but ShieldAg was one of
our legacy businesses who, you know, focuses on international
trade, and we have helped them with the STEP grants.
I would say that, you know, we have a close working
relationship within our Office of International Trade, as well
as the Office of Advocacy that both engage on international
trade negotiations to try to give the small business a voice
with USTR, and so those relationships are longstanding and
continue.
Mr. MANN. How often do you meet with Ambassador Tai, and do
you have any concrete plans for continued future engagement
with her?
Ms. GUZMAN. I have regular engagement with all cabinet
members, including Ambassador Tai. And we have had a couple of
opportunities to travel around the country jointly at two
locations where we had joint roundtables with small businesses
to hear some of their concerns.
Mr. MANN. In SBA's budget request of U.S. Congress to
increase funding for SBA's international trade promotion and
state trade promotion expansion programs, I am interested in
improving these programs with an eye towards how do we be as
fiscally responsible as we can. So I would ask a question. Why
should Congress increase funding for these programs when the
Export Working Capital Program, the International Trade Loan
Program, and Export Express Loan Programs have historically
been duplicative and underutilized, with the total of only 245
loans being made in fiscal year 2023? What are some areas for
improving these programs to better serve our small businesses
and small business exports, and should they be expanded? And
what are your thoughts on that?
Ms. GUZMAN. Well, we continue to operate those within our
7(a) platform as a zero subsidy impact program. We, you know,
agree that we would like to see those numbers expanded, and,
you know, part of it is the cap, the limit. But there are other
challenges that could be regulatory. We are currently looking
at that and would look forward to partnering with your office
to make sure that we have some good solutions moving forward to
simplify access to working capital across all of our
businesses. A lot of people use traditional 7(a) as well.
Mr. MANN. That is right. Well, I have no further questions.
And thank you for being here this morning.
Mr. LUETKEMEYER. The gentlemen yields back.
And with that, we go to gentlelady from California,
Representative Chu, recognized for 5 minutes.
Ms. CHU. Well, Administrator Guzman, thank you for coming
to my district, to the city of Monterey Park, after the mass
shooting. Your outreach to us, your presence, and your ability
to extend help to the small businesses that were impacted meant
so much to the people there. So, I truly appreciate it.
And let me say the colleagues on the other side of the
aisle are saying, what are you doing to hold the top SBA
leaders who were there when the fraud happened accountable?
Well, they are gone. The American people fired them when they
fired the Trump administration, who was in charge when the vast
majority of fraud happened.
Turning to other topics, I have great interests in the
SBIC, the Small Business Investment Company program, and, in
fact, Representative Garbarino and I have a bipartisan bill,
the Investing in Main Street Act, which would amend an outdated
law to finally allow financial institutions to invest up to 15
percent, triple the current amount of 5 percent, of their
capital and surplus into SBICs. This is a commonsense change to
increase the amount of investment capital available to small
businesses. But unfortunately, the bill languishes in the
Senate, despite having passed the House overwhelmingly for
several Congresses in a row.
So, for one, can you discuss how changing and growing the
amount of money available to SBICs would help small businesses?
And also, I wanted you to address the fact that you are
finalizing it and implementing a rule titled the SBIC
Investment and Diversification and Growth Rule, which
modernizes the SBIC program with the goal of increasing equity
investments to small businesses and underserved communities,
which is a goal I think is so much needed. So can you discuss
that as well?
Ms. GUZMAN. Yes, on the SBIC program, this is a very
powerful program. Last year, $8 billion was invested through
our SBICs into small businesses, creating over 130,000 jobs.
And so really, it is vital that small businesses have this
growth capital. It has, you know, been a part of some of our
most iconic brands in this state. Federal Express, you know,
founder would say how he couldn't get capital, but through an
SBIC. So, there are multiple examples of successes within our
SBIC program and all of our programs.
On the SBIC program we believe that we can achieve some of
the same goals that you had outlined by trying to, you know,
support simplification of our licensing, as well as adding on
new types of SBICs that allow for and align with the demands of
some of these long-term investment strategies of some of these
critical industries and others. And so we have added an accrual
SBIC with this regulatory reform passed this summer, which
allows for an alignment with more of an equity type investment
or growth investment for long-term build. And that is the
vehicle that we have partnered with the Department of Defense
on to create the SBIC critical technologies.
In addition, we have created a reinvestor SBIC that will
allow for a fund to fund structure, which will create
opportunities in underserved communities to have smaller
emerging fund managers come forth under a fund that would be
able to manage to the SBIC program's, you know, strong
oversight and controls. We do believe that these opportunities
are opening up the licensing process for more. We have also
streamlined the licensing process.
And so as a result, our pipeline is very healthy with a lot
of requests for both the accrual SBIC, the SBIC critical
technologies, and we are seeing a change. And of course, having
some more flexibility around the cap and requirements around
this program is really vital.
Ms. CHU. Thank you. And I wanted to address the Community
Advantage Loan Program. Ranking Member Velazquez and I just
recently introduced our bill to codify it. But I am thrilled
that you have given certainty to the program through the new
California SBLC license. And it is great that you have added 30
new mission lenders into the program for 142 SBLCs.
I wanted to see if you could address the--well, there was
uncertainty for a lot of the mission lenders, and now it seems
to have stabilized. But is there assurance that you can give
that the current guidance and lender requirements won't be
changed or overturned by a future administration?
Ms. GUZMAN. We are committed to the regulatory reform that
made permanence for the community advantages through the
program, through the SBLC, and we are committed to the
established policies that we put in place that really, you
know, give them strong access to the 7(a) portfolio. So, as a
result, you have seen with this permanence, obviously, the
increase in the people who want to participate with that spike
of over 30. But also we are seeing their ability to go out and
recruit funding to be able to do these small business loans as
a result.
So we are committed to maintaining that working
relationships and continuing to work with them to ensure that,
you know, we are taking their feedback and continuing to evolve
to meet the marketplace needs.
Ms. CHU. Thank you. I yield back.
Mr. LUETKEMEYER. The gentlelady's time has expired.
With that, we go to the gentleman from Missouri. My fellow
colleague from Missouri, Mr. Alford, is recognized for 5
minutes.
Mr. ALFORD. Thank you, Mr. Chair. Appreciate that.
Administrator, good to see you. I think we saw you back on
December 3 at your office. I will get into that in just a bit.
You know, I have long been concerned with the SBA's lax
work-from-home policy and what that means for our nation's 33
million small businesses, getting them the help they need, when
they need it. As it turns out, I share this concern with
another former business owner in this town, White House Chief
of Staff Jeff Zients. Mr. Zients directed every agency to
return to their workforce, to the office, at least 50 percent
of the time. In fact, he required that every department submit
an action plan to OMB on January 26.
So, Administrator Guzman, following this hearing, we will
be sending a letter requesting that you share this action plan
with Members of this Committee. Can you please comment on what
work you have done on this plan so far? Is it complete and what
is your plan?
Ms. GUZMAN. Yes, the whole of SBA across the country has
returned to work. We are seeing that these mission-driven
people who work at the SBA, because a lot of them have that
very mission tie, too----
Mr. ALFORD. What do you mean, return to work, ma'am?
Ms. GUZMAN. Meaning that we are, you know----
Mr. ALFORD. To the office?
Ms. GUZMAN.--having to work to the office. Correct, mm-hmm.
Mr. ALFORD. So if we go down there today, the desks will be
filled.
Ms. GUZMAN. We are complying with, of course, the
standards. The SBA is back 5 days a pay period, and across the
country at this point.
Mr. ALFORD. Because, you know, we attempted to visit the
SBA. When I first got on this Committee and on the Ag Committee
and Armed Services, the first thing I want to do is go meet
people, see where they work. And we were told, you can't come
down here. Sitting Members of Congress, we got in the Pentagon,
but we could not get in the USDA, which has 2 million square
feet of office space, or the SBA with roughly 290,000 square
feet of office space. And because of that, we filed the CABO
Act, the Congressional Access to Bureaucratic Offices Act,
which mandates that sitting Members of Congress and their
appropriate staff should be allowed into these agencies, such
as yours, which we have oversight.
I am sorry that we had to file that. We got quite a number
of sponsors. Our attempt is not to come in and stir up trouble,
but we do have oversight of these facilities. And after our
December 3 visit, which was a very nice visit, I think we had a
very good discussion, I was told--I got a few pictures here of
our visit, here is some of the empty office spaces there at the
time. Here is a good shot of you, me, and Jake Ellzey on this
Committee talking. After our December 3 visit, I was told that
SBA employees were directed to consolidate their desk to mask
the fact that only 10 percent of the 295,000 square foot SBA
headquarters was being used
Do you have any knowledge of that being true? You have,
what, seven or eight floors there?
Ms. GUZMAN. We have, but we only occupy two thirds of the
building. There are three other agencies that also occupy this
building
Mr. ALFORD. All right.
Ms. GUZMAN. But the floors that we visited were, upon
request to certain offices, and we have, you know, 50 percent
occupancy on any given day at a minimum. So that is not
accurate.
Mr. ALFORD. Som nothing was staged for our visit there on
our CABO cavil?
Ms. GUZMAN. No, the only thing that was orchestrated is
which offices you wanted to visit, which was capital access
rural, and so we went to certain floors. Actually, we went to
the floors that SBA fully occupies.
Mr. ALFORD. Well, I must say, your staff was wonderful to
talk with. Look, we have got a lot of work to do together, I
think, to help the American people starting businesses and
maintaining the business.
I do think it is very important that, you know, COVID is
over. We have got to get back to work. If we are not going to
use these buildings, let's shut them down. Let's consolidate
and save money for the American taxpayer. Would you agree with
that?
Ms. GUZMAN. We are looking constantly at our space
requirements aligned with our, you know, facilities' needs. So,
yes, I align with that completely.
Mr. ALFORD. Former Speaker Nancy Pelosi once said, show me
your budget and I will show you your values. I have seen your
budget. It raises serious doubts about your values.
The Office of Veterans Business Development exists to
fulfill SBA's mandate to serve our veterans. To fulfill this
important duty, you have requested $335,000. That total is
about the same as the increase in transit subsidies that you
requested. Transit subsidies have risen from $300,000 in '23 to
$600,000 in '24, to $900,000 requested now in fiscal year 2025.
This is despite the SBA's notorious absenteeism. According to a
GAO study, less than 10 percent of your office space is even
being used.
Now, I know you say that people are starting to come back,
but we have to accelerate this. Administrator Guzman, I am
deeply concerned with the values contained within your
budgetary request.
Thank you, Chairman. And I yield back.
Mr. LUETKEMEYER. The gentlemen yields back.
And with that, we go to the gentleman from Minnesota. Mr.
Phillips is recognized for 5 minutes.
Mr. PHILLIPS. Thank you, Mr. Chairman. And greetings, Madam
Administrator.
As you might know, I am retiring at the end of this
Congress at the ripe age of 55. Might have to get a real job,
and it is been a joy to work with you. I want to say thank you
for coming to my district, for supporting small businesses, of
which I have been one most of my life, and grateful for what
you do.
As you know, my highest priority is to expand employee
ownership. I think it is a nonpartisan part of the American
dream. I know that is one of your mandates as well. And we also
are all aware, because we have had this conversation, that one
of the barriers, in many cases, to ESOPs or co-ops is the risk
of losing the status of contracting, preferred contracting
status. And take a woman-owned business, and she wishes to
convert to an ESOP for set-aside contracts. Oftentimes, they
won't do so because they will lose that if they become an ESOP.
So, have you reached any conclusions at the SBA about how
we can remove that barrier so more businesses can convert
without losing that access to the set-aside contracts?
Ms. GUZMAN. I appreciate that question. I know we explored
that topic with some of the ESOP experts in your district. On
the contracting side, we do not have a solution at this point
in terms of how we can allow for that greater affiliation and
control issue when it comes to small businesses that are
structured in that way. But I am happy to explore that further
with you during your time here.
Mr. PHILLIPS. I would welcome that with me in my office. As
you know, I have got the Employee Equity Investment Act that
has a fix for that. As you know, it also asks the SBA to take a
formal step to try to reduce that barrier. So, I would truly--
--
Ms. GUZMAN. I can report to you as well that we have a
couple of SBICs, for example, that are focused on employee
ownership, and ESOPs in particular, that are now licensed, as
well as we have now removed and allowed for delegated authority
for ESOP transactions within our 7(a) portfolio, which was part
of the Main Street Act.
Mr. PHILLIPS. Okay. As much as I can do to encourage it.
You know, the more we have employee owners of small businesses,
the more we have small business owners. So, thank you.
And I also want to ask about AI. I think it is
underappreciated, the forthcoming disruption. Clearly, large
enterprises are well positioned to both take advantage of it,
protect themselves from it. But I am deeply concerned about the
ability of small businesses to compete. So how is the SBA
looking at that, and how much demand for AI tools and technical
assistance are you hearing from small business owners?
Ms. GUZMAN. It is quite extensive. As you know, during the
pandemic, small businesses adopted technology at very high
rates. The SBA has, you know, focused on expanding the free
tools and resources to small businesses around technology, and,
you know, that includes focusing on their adoption of AI. They
are already using it extensively as they develop their
marketing, or perhaps using it as chatbots in their customer
service. And so we know that it is going to help enable them to
make progress in their efficiencies. And obviously following
the, you know, President's executive order on ensuring that the
agency as well, is leveraging technology both an innovative
way, but responsibly. And so we continue to partner with, you
know, organizations out there to try to get those tools and
awareness out there.
Mr. PHILLIPS. Do you believe the SBA has adequate
resources, both human and financial, to ensure a level playing
field?
Ms. GUZMAN. Obviously, we continue to focus on the
innovative startups as well, you know, through the SBIR program
to make sure that innovative startups have pathways to the data
and computational power that they have. And we are happy to see
movement around that across the federal government and the
agencies that deploy SBIR.
Mr. PHILLIPS. With my last minute and a half, I want to
just chat about youth entrepreneurship and my belief that we as
a country are not doing enough, especially in our public
schools, to educate, expose, and promote entrepreneurship
amongst young people. Can you share any thoughts you might have
about how the SBA can make further investments, inspiring young
people to become entrepreneurs, at least to give them the tools
to perhaps start their own business one day?
Ms. GUZMAN. Yeah. I was recently at South by Southwest,
and, of course, saw the lemonade stand winner, and he was just
such an incredibly inspiring young man, 11 years old----
Mr. PHILLIPS. Yeah.
Ms. GUZMAN.--already thinking about distribution of his
lemonade across Texas. But, of course, I mean, this is
oftentimes the important pathway and a choice for people to
jump right into entrepreneurship. And so, you know, obviously,
we are set up to help administer and advance our loan programs,
which, you know, then focuses on the adult population. But you
see a lot of our accelerators in our networks really focusing
on youth entrepreneurship as well, and at least exposing the
youth to entrepreneurial pathways, and we think that is
important.
Mr. PHILLIPS. Yeah. With my closing, I hope that can be one
of our legacies here in this Congress, to inspire young people
to be owners of this economy, and they can't become owners if
they don't have the tools. And I think the SBA can surely play
a role in providing those. So, thank you most of all for your
service, and I am grateful.
I yield back.
Ms. GUZMAN. Thank you.
Mr. LUETKEMEYER. The gentlemen yields back.
We have some more Members on our side coming. They are not
here yet. I want to hold my questions to the end. So with that,
we are going to recognize a gentleman from Ohio, Mr. Landsman,
for 5 minutes.
Mr. LANDSMAN. Thank you, Mr. Chair. And thank you,
Secretary Guzman, for being here and for all that you do.
I really appreciate that you came out to the district,
southwest Ohio and Cincinnati, and we toured a host of small
businesses. They were very appreciative of your time, and we
have had a really great relationship with your team in terms of
helping our small businesses navigate the SBA and all kinds of
challenges that they are facing.
One of the small businesses we visited was the Water Lily
Learning Center. And you and I share a passion for childcare
small businesses, and, you know, Cincinnati, I think, is unique
in that, you know, years ago, I and others led a ballot measure
called the Cincinnati Preschool Promise to provide 2 years of
quality preschool for 3- and 4-year-olds in Cincinnati. And
that funding supports tuition assistance for families who
couldn't otherwise afford quality preschool at centers, both
public and private, and nonprofit and small businesses. It has
made a big difference for Water Lily and others as a source of
revenue so that they can keep their classrooms open, childcare
and the preschool classrooms that they run.
Recognizing the importance of early childhood education and
the critical role it plays in child development, and, of
course, the childcare small businesses, the critical role that
they play in our small business ecosystem and our larger
economy in terms of folks being able to work if they can afford
quality childcare, my team and I introduced the Childcare Small
Business Insight Act, which would study the state of childcare
in the nation and offer recommendations. It passed unanimously
out of the Committee in January, so I am grateful to my
colleagues for that. I wanted to just get your thoughts on this
topic.
So, first, you know, what do you foresee as shortcomings in
the for-profit childcare industry as it relates to the SBA?
This is something that you and I have talked a lot about. You
have a depth of knowledge and real passion for this. So, you
know, what do you think this study, when passed, hopefully the
full House will pass it, what do you believe that this study
will find in terms of where the SBA is doing really important
work for these childcare small businesses, but also where the
gaps may be?
Ms. GUZMAN. Yes. Thank you so much for that question. And I
have visited, you know, beyond Water Lily, several childcare
facilities across the country, and truly, it is part of our
infrastructure. Women entrepreneurs that I meet with
continuously flag childcare as an issue and are looking forward
to the Child Tax Credit and their ability to leverage that to
help make childcare more affordable for them.
On childcare in particular, we see a lot of our small
business owners leveraging a 7(a) program, but also 504 to buy
their building property. Buying property and being able to
maintain sustainability in the community is really important.
You know, I think with these, their models are very challenging
in terms of their ability to raise revenues, you know,
especially in underserved communities.
And so, you know, obviously, there is a financial issue
that goes beyond SBA. But we try to help them with the
technical assistance and know-how to effectively run their
businesses and do childcare boot camps across our resource
partners, and are looking to try to improve those models in
order to strengthen their operational expertise, because they
have to be so efficient as entrepreneurs to be able to survive
in the childcare industry. But we know that affordable capital
is part of that. And so we need to do better outreach to
support these entrepreneurs, who are mostly women, to be able
to access our capital programs as well.
And that is partly what we are doing. We have a childcare
summit coming up at the White House, where we will focus on
childcare business in particular, and ensure that, you know, we
have pathways at the SBA to support them.
Mr. LANDSMAN. That is great. Thank you for that. I really
do appreciate how much you have led on this.
Last question. The micro loan program, which is really
designed to help the nonprofit childcare centers, do you
envision something--you know, because on the capital side,
there is obviously help, as you just mentioned; on the
operations side is where they really struggle in addition to
the capital stuff. And owning the building is really important.
Do you envision something similar? Could that be something
that may come out of the study and the work is a micro loan
program for these childcare providers that are for-profit?
Ms. GUZMAN. Yes. And micro loan--both for-profit and
nonprofit can access the SBA's micro lending program. It is the
only time nonprofits can access our program. And so, you know,
we feel continued support of that. I know there is Senate
action on expanding that access to other programs at the SBA.
Mr. LANDSMAN. Yeah. Great. I think the challenge is, is how
much does it--you know, is it sufficient? And I think that is a
question for us. But hopefully, that is something that comes
out of the work of this bill.
So thank you again, and I yield back.
Ms. GUZMAN. Thank you.
Mr. LUETKEMEYER. The gentleman's time has expired.
We have a lot of Members that are in and out because of
other Committee hearings, and we are going to continue to be
flexible with that. So with that, we are going to go to Mr.
Thanedar from Michigan for 5 minutes.
Mr. THANEDAR. Thank you. Thank you, Mr. Chair. And thank
you, Administrator, for your passion and your access. I thought
I am the only Member where you come and visited my district
twice in the last 6 months, but looks like you have been all
over the country.
You came to our district, you and I walked on the streets
and visited some small businesses that we had planned to visit.
You also took the time to visit some people who approached us
while we were there. And I really appreciate your passion. We
heard firsthand some of the small business owners who benefited
from the PPP and other SBA programs. So thank you again. Thank
you for your help.
I am a small business owner, ran small businesses for 25
years, wrote one of the SBIR grants that I got awarded. I took
advantage of the 504 program, and that helped me tremendously
to grow my small business, create hundreds of jobs in my
business.
Recently, I introduced the LIONS Act, we call it, which is,
you know, being from Detroit and a Lions fans, we are pleased
to call that a LIONS Act. But what it does is raises the 7(a)
loan amounts from the $5 million to $10 million because the
valuations have gone up and it becomes more capital is needed
for business owners to invest and grow their businesses. And my
question to you is, how do you see this increase of $5 million
to $10 million in the loan amounts? How much of a burden that
is to get that accomplished, how much of an administrative cost
that is going to add, too, and just, frankly, I wanted to know
what you think about it.
Ms. GUZMAN. Yeah, we similarly, you know, are interested in
seeing that expanded, especially as we see manufacturing and
other critical industries needing additional capital. We know
that SBA could fill those gaps in the marketplace.
And you are right, you know, it hasn't been changed since
the Obama-Biden administration increased it to $5 million, you
know, for inflationary pressures. It would be up in the sevens
if we just changed it for inflation alone. So we agree that
that money is needed. It would be simple to administer in terms
of expanding the access that would, you know, benefit more of
our banks and lending institutions who access those funds for
some of their small businesses in their portfolio.
Mr. THANEDAR. Thank you, Ms. Guzman. And, you know, going
back to the questions being asked about the fraud, I want to
point out that a lot of that happened during the Trump
administration. The question raised about the people who were
responsible in your, you know, department, and clearly, you
know, many of those people are no longer here because the
American people, you know, fired them.
But my question to you is, I mean, your testimony mentioned
pandemic relief funding and the potential for fraud. To
paraphrase from the briefing, in an effort to disperse Paycheck
Protection Programs and COVID-19 funds swiftly, the SBA
weakened and removed internal controls. In early 2021,
safeguards were reinstated. One of the tactic was to install a
screening process during loan approvals.
So, my question is, can you make a statement on where the
SBA stands regarding protections against fraud? Are these acts
of fraudulent activity a risk for the clientele of the SBA or
to the administration alone? How effective have the protective
measures have been?
Ms. GUZMAN. Thank you. The protections have been strong. As
I said earlier, we have averted 21 million attempted fraudulent
loans from, you know, accessing the COVID pandemic programs,
you know, which was over $500 billion worth. And so clearly,
the controls that we put in place have enabled us to get back
to our normal standing of our decades of experience doing
disaster lending using the right controls in place.
And so I am very confident that with these added measures
that we have now applied across our whole portfolio, despite
the fact that the 7(a) 504 didn't experience the levels of
fraud of the COVID pandemic programs, we are now strengthening
our programs for the future alongside the financial
institutions that are doing the same to ensure that fraud is
not a problem in any of our programs going forward.
Mr. THANEDAR. Thank you for your great work, and I yield it
back.
Mr. LUETKEMEYER. The gentleman's time has expired. With
that, I understand we have got three Members, two Republicans
and one Democrat, who are on their way back from the
transportation markup. So if they get here before I finish up,
we will let them ask questions. If not, we will see once where
we are at that point. But let me begin my 5 minutes.
Ms. Guzman, have you talked to Secretary Yellen lately?
Ms. GUZMAN. Regular engagement with cabinet? Yes, but----
Mr. LUETKEMEYER. So, have you asked her about when she is
going to show up to give us a PPP report? It is several years
past due now.
Ms. GUZMAN. As requested, in our previous hearings, we
informed the Treasury about this request, but----
Mr. LUETKEMEYER. And they are ignoring you. As they are
knowing the law which says she's supposed to be here. That is
not a request by a letter. That is in the law that Congress
passed. She is supposed to show up. So, anyway, thank you for
that.
You know, the discussion this morning is about, or has been
quite a bit about, who is at fault for this? I can tell you I
was part of the group that put the PPP program together. And I
can tell you I was very strenuous in my concerns about allowing
the fintech companies in, who do not have the controls in
place. And that is where about 95 percent, according to the IG,
and they testified in that chair right over there, that is
where most of the fraud occurred in the PPP program.
And I was very strenuous also in my remarks with regard to
EIDL, knowing that there is basically none, zero, anything in
place by the SBA to keep the money in place without having
being able to be fraudulently accessed, especially at the
amounts that the program was allowed to grow to. That aside,
you jumped into this program knowing where it was at. So, now
your responsibility is to clean it up. And that is the concern
we have this morning, and that is where we are coming from with
our questions.
Why have you not gone out and sold part of the portfolio,
and as Ms. Van Dyne talked about, in a way that alleviates the
need for more money for your agency, as well as recover some of
the money?
Ms. GUZMAN. We have evaluated this, and at this point, are
still collecting successfully within SBA's own collection
efforts. And the Congress, as I had----
Mr. LUETKEMEYER. With all due respect, Madam--Madam, Madam,
excuse me.
Ms. GUZMAN. I haven't answered the question.
Mr. LUETKEMEYER. I don't know how you can say you are
adequately doing it. According to the IGA, you told the IGA
that in October 20, $47.7 billion of the EIDL loans were
written off. Is that not correct?
Ms. GUZMAN. The EIDL portfolio is performing better than
what Congress expected.
Mr. LUETKEMEYER. That is not my question. My question is,
the IG didn't say that we could even validate the information.
But you told him that you have got $47.7 billion that you have
charged off of EIDL loans. Is that correct?
Ms. GUZMAN. I would have to double check those numbers
before I testify to that.
Mr. LUETKEMEYER. Is it close?
Ms. GUZMAN. I would have to double check those numbers. I
will get back to you.
Mr. LUETKEMEYER. When did you charge those off?
Ms. GUZMAN. Over the course of our collections as----
Mr. LUETKEMEYER. Oh, prior to September 30?
Ms. GUZMAN. Again, we'll have to get specifics to you on
this topic, but what I will share is that----
Mr. LUETKEMEYER. Did you charge any loans off prior to
September 30 of 2023?
Ms. GUZMAN. I would have to get back to you, sir, and I
will.
Mr. LUETKEMEYER. Okay, let's ask the question this way.
Have you sent any 1099s out to the folks that you cancelled the
debt for?
Ms. GUZMAN. I do not know where we are at in that process.
And so, again, we will get back to you. What I will like to
answer your question about COVID idol in particular. You know,
obviously, we have put in those strong controls into the
program. Yes----
Mr. LUETKEMEYER. Well, again, Madam Chair, with all due
respect--our Madam Guzman, the IG sits in his chair here and
comes in about once every 6 to 8 months and tells us in his
report you are not doing a lot of things that he requests you
to do. You ignore the advice from the report that you actually
requested and paid for from the accountants, although you did
say KPMG said, well, you could do some of it. But the IG says
you only implement about half of what he actually recommends.
So when you say that you implement these things, it's a broad
statement, which is not true. I am sorry.
Ms. GUZMAN. As I have shared with the Chairman, going back
to your original question about selling the portfolio, Congress
could appropriate, enact something and appropriate the dollars
to sell the portfolio, as it would cost the federal government
money to sell.
Mr. LUETKEMEYER. No, it would not, Madam Chair--or Madam
Guzman.
Ms. GUZMAN. It would within the appropriations process.
Yes, it would.
Mr. LUETKEMEYER. There is no way it costs money when you
recover money. When you sell the portfolio, you will recover
some money, and you will cover all the costs for whatever it
is. You have a net gain.
Ms. GUZMAN. We are happy to work with your team to review
how that would work in appropriations, but that is what
Congress and action would take.
Mr. LUETKEMEYER. Well, I know that CBO doesn't score it
that way, but CBO doesn't score it correctly because they don't
score the recovery.
Ms. GUZMAN. And so, as a result----
Mr. LUETKEMEYER. That's the problem.
Ms. GUZMAN.--it would cost taxpayer dollars to do that.
Mr. LUETKEMEYER. But you are going to recover several times
more than that when you do that. I mean, this is not rocket
science. I mean, this is----
Ms. GUZMAN. And we are still collecting and this portfolio
is still performing. As I said, it is performing way better----
Mr. LUETKEMEYER. Well, Madam----
Ms. GUZMAN.--than any of the disaster----
Mr. LUETKEMEYER. Madam----
Ms. GUZMAN.--we have ever----
Mr. LUETKEMEYER. Ms. Guzman, we are going to send you a
request to find out when these 47 points separating----
Ms. GUZMAN. Happy to reply to that. Thank you.
Mr. LUETKEMEYER. And did you send 1099s out?
Ms. GUZMAN. Happy to reply to those requests.
Mr. LUETKEMEYER. If you didn't do that----
Ms. GUZMAN. Thank you.
Mr. LUETKEMEYER.--you are in violation of the law. Again,
whose decision was it to not sell a portfolio?
Ms. GUZMAN. Ultimately, we haven't made any final decision
on this portfolio. As we are still collecting. We are still
going through the 9 steps on PPP and the 14 steps on EIDL that
are required----
Mr. LUETKEMEYER. So, you have a big decision on whether to
act----
Ms. GUZMAN.--which is referring to Treasury.
Mr. LUETKEMEYER.--on reports that you got?
Ms. GUZMAN. We are acting on those reports that said that
we could still potentially profit by trying to collect at the
Treasury stage. And so we have pursued the Treasury option. We
are still in that phase, and we are making collections,
continuing to make sure that this portfolio performs. And
again, this is outperforming any expectations of Congress.
Mr. LUETKEMEYER. Oh, I guarantee it won't outperform my
expectations, I guarantee you.
Ms. GUZMAN. As established.
Mr. LUETKEMEYER. Another quick question for you here. You
made a statement a while ago that you have doubled down on
staffing to do the recovery of these things. Are those people
working from home or they are working from the office?
Ms. GUZMAN. Double down on staffing? I said I doubled down
on--during this testimony, I said I doubled down on staffing to
clear some backlogs and certifications.
Mr. LUETKEMEYER. My question is, are they working from the
office or are they working from home?
Ms. GUZMAN. Our position at the SBA is 5 days of in work--
or, excuse me, 5 days in the office for all of our employees
that are working, you know, not in a remote stance.
Mr. LUETKEMEYER. Let me ask my question again. The question
is very simple. Are they working in the office or are they
working from home? Yes or no.
Ms. GUZMAN. It is a mixture, and some of them are working
in the office and they are----
Mr. LUETKEMEYER. So, you are hiring people to work from
home. Is that what you are telling me?
Ms. GUZMAN. During the pandemic, people were hired----
Mr. LUETKEMEYER. No, that is not my question, ma'am. My
question is----
Ms. GUZMAN.--temporarily on a remote basis.
Mr. LUETKEMEYER.--the new people you are hiring, are they
going to work from home----
Ms. GUZMAN. New permanent----
Mr. LUETKEMEYER.--or are they going to work in the office?
Ms. GUZMAN. Any new permanent people who are hired at the
SBA come into nonremote status, so meaning that they do have to
come into the office.
Ms. LUETKEMEYER. So the new people----
Ms. GUZMAN. Any new person.
Mr. LUETKEMEYER.--are working from the office?
Ms. GUZMAN. Any new person hired on a permanent basis at
the SBA, yes, they definitely----
Mr. LUETKEMEYER. Whew, man, this is----
Ms. GUZMAN.--have to work at the SBA.
Mr. LUETKEMEYER. This is unbelievable. I can't get a
straight answer. It took me 3 minutes to get an answer on that
question.
Ms. GUZMAN. Well, it depends on what you are asking and
letting me----
Mr. LUETKEMEYER. It is a simple question, Madam--Ms.
Guzman.
A while ago, you made also a statement about red tape. You
said you were cutting red tape. Can you give me examples some
red tape you cut?
Ms. GUZMAN. Yes. Affiliation for control caused a lot of
cumbersome processes for our lenders, especially when it came
to the time of, you know, performing against that guarantee.
And so we have simplified the program for our lenders, which
ultimately will benefit the borrowers, and that is across our
regulatory reform. The same with the SBICs, simplifying the
process of licensing to ensure that, you know, we cut red tape
for those participants.
Mr. LUETKEMEYER. Okay. Folks aren't here yet, so with that,
we are going to thank you, Administrator Guzman, for your
testimony and for appearing for us today.
Without objection, the Members have 5 legislative days to
submit additional materials and written questions for the
witness to the Chair, which will be forwarded to the witness.
We ask the witness to please respond promptly.
If there is no--there is no further business, and without
objection, the Committee is adjourned.
Ms. GUZMAN. Thank you.
[Whereupon, at 11:49 a.m., the committee was adjourned.]
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