[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
HOLDING THE SBA ACCOUNTABLE: TESTIMONY FROM SMALL BUSINESS
ADMINISTRATOR GUZMAN
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 18, 2024
__________
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
Small Business Committee Document Number 118-059
Available via the GPO Website: www.govinfo.gov
_______
U.S. GOVERNMENT PUBLISHING OFFICE
56-669 WASHINGTON : 2025
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
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. Roger Williams.............................................. 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.............. 38
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Associated Builders and Contractors (ABC).................... 44
America's Credit Unions...................................... 45
HOLDING THE SBA ACCOUNTABLE: TESTIMONY FROM SMALL BUSINESS
ADMINISTRATOR GUZMAN
----------
WEDNESDAY, SEPTEMBER 18, 2024
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:04 a.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams
[chairman of the Committee] presiding.
Present: Representatives Williams, Stauber, Meuser, Van
Duyne, Mann, Molinaro, Alford, Crane, Bean, Maloy, Velazquez,
Phillips, McGarvey, Scholten, Thanedar, Chu, and Davids.
Chairman WILLIAMS. Good morning, and welcome to today's
hearing which will focus on the oversight of the Small Business
Administration.
This hearing could not come at a more important time as our
Committee's list of questions for you, Administrator, grows day
and day, and throughout the 118th Congress, our Committee has
taken our oversight duties very seriously. They are the agency
which is charged with distributing over $1.2 trillion in COVID
assistance and is supposed to be looking out for the best
interest of America's job creators. So this is not a
responsibility we can simply ignore.
Unfortunately, over the last 2 years, the SBA has
stonewalled and delayed many of our investigations, slow-
rolling document production, and failed to produce substantial
responses to the Committee's requests. This lack of
transparency has been extremely troubling, and Congress is
charged with the power of the purse, and does not give us
confidence that we can allocate taxpayer dollars to you if we
cannot receive timely answers when we think they are being
misused.
If we have the policy differences, that is fine. We should
be able to look at all the information and come to a different
conclusion. However, when information is being withheld from
us, it gives a little confidence and diminishes the credibility
of your entire agency. But we're going to continue fighting,
and we will get the information we need to one way or the
other.
So one of the Committee's largest concerns is the SBA's
decision to enter a Memorandum of Understanding with the State
of Michigan to help register voters ahead of the election. Not
only is this far outside the scope of what the Small Business
Administration should be engaged in, but federal agencies
shouldn't be using taxpayer resources to insert themselves into
our election process.
So since March, the Committee has been requesting documents
from the SBA relating to the MOUs, and last night at 9 o'clock
p.m.--not a.m. but p.m.--the SBA gave us almost 2,000 documents
relating to this request. My staff is going through them as we
speak.
But this is the type of gamesmanship that is ridiculous.
The last-minute document dump is what we have come to expect
from your agency, and instead of putting forward a good-faith
effort to adhere to congressional oversight, you wait until the
last minute when everybody is in bed so we won't have time to
go through what you produced so we can ask you meaningful
questions.
So aside from playing partisan politics in Michigan, the
SBA has many things to answer for about their decisions to
alter many of their lending programs.
Early last year, your agency reduced the prudent lending
standards within the SBA's flagship 7(a) loan program. While
the SBA has touted that it has made more loans to America's
small businesses, we have learned that data from the SBA lender
portal indicates the early default rate has tripled since the
prudent lending standards were stripped in the 2023 Biden-
Harris SBA policy changes.
Now, while the SBA has been operating on the platform that
more is better, we must ask, is more really better when we are
stripping borrowers with unsustainable amounts of debt--or
strapping them.
Administrator, your agency has proven they are unwilling
and unable to produce documents responsive to the Committee's
requests and has worked to undermine the Committee's
investigations into various areas of the agency.
Now, so today, we look forward to receiving clarity on the
delay and dismissal of your request and our request. And as I
have said many times before, we want to work with you, not
against you. We want to work with the SBA to help Main Street
America.
So our nation's small businesses are facing brutal economic
headwinds, and it is our job to ensure they have a fighting
chance at success. That is the American Dream. Small
businesses' optimism remains at lows not seen since the
pandemic, inflation remains a top concern, and there has been
little improvement as employers are looking to fill job
openings.
Additionally, America's job creators have been straddled
with more regulations than they can handle or ever thought they
would have to handle.
Administrator Guzman, I want to thank you again for being
here with us today, and I am looking forward to today's
conversation. And I hope that today's hearing will provide a
pathway for the SBA to get back on track.
And with that, I yield to our distinguished Ranking Member
from New York, Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
And thank you, Administrator Guzman, for testifying before
the Committee today.
There have been more than 19 million new business
applications filed under the Biden-Harris administration, and
women and minorities are leading the way. But that is not all.
The economy has created nearly 60 million jobs, unemployment
remains at historic lows, and we are making progress on the
fight against inflation.
Despite the good news, we must continue to do our jobs as
legislators, to root out fraud and strengthen the SBA programs
and services. I commend your work to combat fraud created by
the previous administration's lack of control.
Unfortunately, rather than work together on reauthorizing
core entrepreneurial development programs and streamlining the
504 program, we have spent the second session of this Congress
discussing the SBA MOU with the Michigan Department of State.
The majority has fired off oversight letters, issued
subpoenas, conducted transcribed interviews, and held multiple
hearings. But what have we found? Nothing but unfounded
allegations and wasted resources.
To be honest, I have served on this Committee for a long
time, and I am particularly troubled by the partisanship we
have experienced. The Committee has historically been a
bipartisan committee that has worked together on behalf of
small businesses. I am afraid that small businesses are getting
the short end of the stick in this Congress.
Instead of sitting down to negotiate on programmatic
policies that serve entrepreneurs as they start up, create
jobs, and grow the local economies, we waste precious time on
messaging.
My hope today is that we can learn more about the small
business boom and what SBA is doing to help both these new
firms and those already in existence.
As the 118th Congress comes to an end, we must work
together to set our priorities so that we can hit the ground
running to build on the success of SBA programs.
I would like to hear more about the implementation of the
lending rules and steps that you have taken to modernize and
safeguard the integrity of both the 7(a) and the 504 programs.
And I hope to get an update on certifications for the women-
owned small business program, as I continue to hear from women-
owned firms and stakeholders that their resources and staffing
levels remain insufficient to handle the number of applicants
in a timely manner.
With that said, I appreciate that this administration
continues to send a record amount of prime contracting dollars
to small business government contractors. But 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.
I look forward to your testimony.
Thank you. I yield back.
Chairman WILLIAMS. The lady yields back.
Before I start with introducing our witness, I want to take
a quick second to congratulate the Ranking Member for her
achievements on this Committee. We may not always get along--as
you have already heard, we're not getting along this morning--
about policy, but it has been a pleasure getting to know you--
we have even talked baseball and some other stuff--and getting
to know you and more thought throughout the years and working
together to pass some actual meaningful bills in this
Committee, which we do do that.
So yesterday she had a much deserved portrait unveiling
ceremony. Unfortunately, I could not make it for a personal
reason, but I wanted to commend her again for that, and I want
to commend her for the work she has done.
She has been the Chairwoman or Ranking Member since 1998--
that is when I got out of high school--since 1998, and I know
her portrait will add certainly not some class but class to the
hearing room once it gets put on the wall.
So I know when that happens, you are going to continue to
be looking over my shoulder. And so--less than more, I hope.
But with that, I wanted to say thank you and congratulations
for your leadership. And now----
[Applause.]
Ms. VELAZQUEZ. Thank you. Much appreciated.
Chairman WILLIAMS. No speeches. No, you can't----
Ms. VELAZQUEZ. Thank you. Thank you very much for your kind
words, and it is a pleasure working with you. Definitely, you
know, we disagree, but we respect each other, and we are driven
by our desire to provide the tools for small businesses to do
what they do best, and that is creating jobs in our economy.
I started out not too long ago, but I was very young--very
young.
Chairman WILLIAMS. You were.
Ms. VELAZQUEZ. And still. Thank you.
Chairman WILLIAMS. Okay. Very good.
So now, Small Business Administrator Isabella Guzman has
testified before us many times before, so I'll keep this brief.
Administrator Guzman was confirmed in March 2021 as the
27th Administrator of the Small Business Administration. Prior
to becoming SBA's Administrator, Ms. Guzman served in multiple
capacities in the agency for 9 years, including as deputy chief
of staff and senior adviser at the SBA.
Ms. Guzman has also served as the small business advocate
for the State of California.
Administrator Guzman, thank you for appearing before the
Committee today, and I am looking forward to this important
discussion, and of course we always claim you as being a Texan.
So I now recognize Ms. Guzman for her 5-minute opening
remarks.
STATEMENT OF THE HONORABLE ISABELLA CASILLAS GUZMAN,
ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION
Ms. GUZMAN. Thank you so much. Of course, by my father's
mother and father, it is multigeneration Texan, so yes.
Well, Chairman Williams, Ranking Member Velazquez, and all
the Members of the Committee, House Small Business Committee,
thank you for the invitation to appear before the Committee
today. I think there is a lot to talk about, so glad to be
here.
America's small businesses are giants in our economy,
powering our nation's economic growth and creating good paying
jobs in our communities. As SBA Administrator, I have had the
opportunity to meet these businesses in visits across the
country, including to many of your districts, where I have seen
firsthand how Americans are realizing their dream of small
business ownership and entrepreneurship and managing challenges
with their trademark grit.
We continue to see a record-breaking small business boom
across the nation with American entrepreneurs filing more than
19.4 million new business applications over the last 3.5 years.
That annual rate of new business filings is 60 percent higher
than the historical average and represents a resurgence of
business dynamism after years of decline.
As President Biden likes to say, starting a new business is
an act of hope and confidence in the economy, and these filings
speak to the grit and determination of America's entrepreneurs
to take that first step on the path toward business ownership.
This small business boom is powered by women and people of
color who are starting up at the highest rates. And in
Arkansas, I recently visited a pizzeria whose owners received
an SBA 7(a) loan from one of our new small business lending
companies to open their first brick-and-mortar location.
In Dallas, a small business owner told me how an SBA loan
allowed her to open a new 7,000-square-foot women's wellness
center in 2023.
A North Carolina business owner showed me a new childcare
center that started with an SBA Community Advantage loan.
Entrepreneurs are leveraging investments in America and
strong consumer spending, thanks to continued wage growth
outpacing price growth, to expand their businesses and create
jobs. American small businesses now employ nearly 11 million
more workers than when this President took office.
Over the last 3.5 years, we have instituted transformative
regulatory reforms, invested in technology, ensured our
services are available to more people, and cut red tape to
better address persistent market gaps, including reversing a
decade-long decline in small dollar lending. As a result, SBA
has expanded capital access for startups, rural businesses, and
those owned by veterans, women, and minorities.
SBA expanded its lender network to increase competition,
tackle those 1,600 rural banking deserts, and fill gaps for
underserved entrepreneurs. To date, SBA has increased its
nonprofit 7(a) lender network to 142 and opened its SBLC
program to add two new rural-focused institutions to reach
underserved communities.
We can do more to create more competition, fill market
gaps, and incentivize private investment, so SBA has reopened
the application window for any organizations interested in SBA
lending to become national small business lending companies or
nonprofit Community Advantage SBLCs, providing a vital source
of capital in underserved communities.
SBA has also strengthened its government contracting and
business development programs to ensure small businesses can do
business with the largest buyer in the world: the federal
government.
The Biden-Harris whole-of-government approach has helped
lead to a record $178.6 billion in federal contracting awards
to small businesses, as well as 78.2--excuse me--$76.2 billion
in awards to small disadvantaged businesses in fiscal year
2023. And for the first time ever, we--in the first year ever
as well, we hit the 5 percent service-disabled veteran-owned
small business goal which had been raised from 3 percent.
As we near the fiscal year's end and remain on high alert
at the peak of hurricane season, I am proud of the important
work SBA has done across the whole agency to better support
communities impacted by disaster. SBA's modernization efforts
have streamlined average disaster loan processing times from
over 100 days to less than 2 weeks on average from filling out
the application.
This is a marked improvement that is giving disaster
survivors peace of mind earlier in the rebuilding process.
We have modernized the SBA while continuing to manage the
temporary pandemic lending and grant programs that saved
millions of America's businesses. And while those pandemic
programs are no longer disbursing new funding, millions of
small business owners continue to rely upon SBA to service
their loans.
I stand by my commitment not to turn my back on Americans
who turned to SBA for help during the crisis, so SBA continues
to prioritize counseling and servicing actions to support these
hardworking business owners.
Our work at the SBA centers on ensuring we hold accountable
all of those who violated the public trust in these programs as
well. So in partnership with DOJ, our SBA OIG, and other law
enforcement, we continue to work to recoup tax dollars largely
lost in those early days of the pandemic.
I look forward to our discussion today and reviewing the
great work that the SBA mission-focused employees do every
single day.
Thank you so much.
Chairman WILLIAMS. Thank you very much.
And we'll now move to the Member questions under the 5-
minute rule, and I'll now recognize myself for 5 minutes.
When I talk to small business owners, they are extremely
concerned about the direction of the country and what it means
for their operations. Inflation is high, qualified workers are
hard to come by, and there is significant uncertainty
surrounding expiring tax provisions in the coming years.
However, there is one issue that I want to bring up that is
completely in the purview of this administration: regulations.
Both the President and the Vice President have claimed they
want to cut red tape for American industries. However, when you
look at the numbers, the administration has been historically
bad.
The American Action Forum estimates that there has been
around $1.7 trillion in regulations and new regulatory costs
during their time in office, and this is not the only
organization sounding the alarm on these regulations.
The nonpartisan SBA Office of Advocacy has been commenting
on a host of regulations coming out of that, have failed to
adhere to the Regulatory Flexibility Act's requirements to take
small business interest into account.
Our committee conducted a whole investigation on the
matter, and last week we passed seven bills that would amplify
small business voices throughout the rulemaking process.
Fifty-two organizations representing millions of small
businesses endorse the legislation we passed as a result of our
findings.
So question to you, Ms. Guzman, if you could have your
answers short and precise, since you are supposed to be
representing the interest of small businesses, have you warned
the White House about all the damage their regulations are
doing to the struggling small businesses in America?
Ms. GUZMAN. Ensuring regulations are not burdensome is a
priority for the SBA. We continue to work diligently through
our Office of Advocacy, which is independent, of course, but as
well our Office of the National Ombudsman, which I have
relaunched--I reinstated our Regulatory Fairness Board to
ensure that we are collecting those views from small businesses
and making sure they are amplified across all agencies that the
national ombudsman touches.
Chairman WILLIAMS. Reducing regulations is important to
main street.
Now, last month the SBA took offline its contract
certification systems to bring them under one single portal.
When these systems are offline, small businesses are unable to
clarify their business status, such as service-disabled veteran
or women-owned, to compete for valuable government contracts.
So when the SBA gave our Committee a briefing, it left us with
more questions than answers.
Senator Ernst and I were forced to send a letter with our
concerns over the SBA's ability to make such a massive change,
and we are seeing we might have a right to be concerned.
What was sold as a 1-month pause with a promised delivery
of September 9, now has stretched into the second month,
causing confusion, further degrading the trust in the Biden and
Harris SBA.
I have heard from constituents on how their previous
certification applications were removed when the SBA took the
systems offline. When they asked the SBA to help, you told them
they simply had to wait until the next system was launched to
fix the issue.
This is why the American people get so frustrated with
government. You made an unnecessary change, ignored signs of
potential problems, and have no updated information on when the
system will be operational.
So, Administrator Guzman, this update has been an absolute
disaster. Who is going to be held accountable for these
inexcusable delays that are leaving small businesses unable to
compete for valuable government contracts?
Ms. GUZMAN. Thank you so much for that question, because
certifications is a number one challenge for our small
businesses entering government contracts. These businesses are
paying upwards of $10,000-plus for certifications, and that is
what we are trying to stop, by streamlining with our HUBZone
rule, our certification process. This is regulation that is
cutting red tape.
In addition, relaunching--investing in this new technology
system is something the industry wants, and industry stands by
our decision to shut down the system in order to relaunch this
new system which we are currently testing.
Just as we had done with VetCert, which has been wildly
successful, we had to shut it down during transition. VetCert
was shut down for 10 weeks, if you might recall, the veteran
certification, until we launched VetCert.
So the commitment in that briefing was not to reopen and
relaunching it at large within 4 weeks. Our plans to test and
ensure that this system is strong for our certifications was
our priority all along.
And we have been able, during this time, to clear this
enormous backlog. By the end of the month, we will have cleared
the backlog across all of the certifications, which is huge.
That means thousands more small businesses have already been
certified and are able and eligible to do business with the
federal government.
Our systems are still working on the back end. We are
certifying anyone who comes to us with a contract in hand,
prime or subcontract, so they can get certified manually. And
so we are not impeding any of this important work of our
contracting officers across the federal government.
Chairman WILLIAMS. Okay. Well, I have limited amount of
time left, and I will now call on the Ranking Member for her 5
minutes.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
our committee marked up a slate of antiregulatory bills,
part of the Project 2025 agenda, and that seems to be the
playbook for the Republicans moving forward.
How would the Project 2025 initiatives harm the SBA?
Ms. GUZMAN. Admittedly, I have not read Project 2025, so I
am not familiar with it. I only know what I have heard has been
alarming in that----
Ms. VELAZQUEZ. Everybody----
Ms. GUZMAN.--it would cut the disaster program, as an
example. That is the one thing I have heard. And the disaster
program, our governors across the country depend on this
program. SBA steps in and declares disasters without the
Presidential declarations in many occasions. I have more than
30 disaster declarations, half of them governor-declared.
And so to strip the disaster program for communities who
need it just so that more businesses will get insured is not,
in my perspective, a way to get communities recovered.
Ms. VELAZQUEZ. Thank you. Let's sift through the partisan
rhetoric we will hear today. Under the National Voter
Registration Act, state governments may designate federal
governmental offices as voter registration agencies, correct?
Ms. GUZMAN. Under the NVRA, yes, agencies may work with
States.
Ms. VELAZQUEZ. Okay. SBA signed an MOU with the Michigan
Department of State to promote voter registration, and it
complies with the NVRA, and all activities are nonpartisan,
correct?
Ms. GUZMAN. That is correct.
Ms. VELAZQUEZ. What will be the cost of these activities?
Ms. GUZMAN. This is minimal cost. We have not spent a lot
of time on this because it is about posting on our website a
link to the States with which we enter into an MOU. And so the
time for my website designer to put a link is the time that we
invest in this on an ongoing basis.
Ms. VELAZQUEZ. Let's be clear. Despite the rhetoric you are
hearing today, the Biden administration is not violating the
law, and SBA is not misusing taxpayers' dollars, correct?
Ms. GUZMAN. Yes, this has been a minimal-resource
commitment, and we are not registering voters directly. We are
not actively doing anything on the ground. This is a website
link.
Ms. VELAZQUEZ. Have you visited the districts of the
Members on this committee, both Republicans and Democrats?
Ms. GUZMAN. I have visited both Republican and Democrats. I
have offered to visit everyone. I have not been able----
Ms. VELAZQUEZ. Which Republican districts, for example?
Ms. GUZMAN. There has been a few. Of course, the Chairman,
as well as Representative Van Duyne, Representative Bean,
Representative Salazar. And, again, I have offered to the other
Members my time, at any time, to come and visit with their
small businesses and understand the challenges.
Ms. VELAZQUEZ. We have two Members on this Committee from
Michigan. So it is fair to say that you were invited to
Michigan twice to talk about small businesses, similarly to the
two requests from Florida Members.
Ms. GUZMAN. Yes, I have visited Michigan and Florida.
Ms. VELAZQUEZ. Okay. Regarding the new contracting system
the Chairman asked you about, will you commit to providing GAO
the documentation they have requested and ensuring that the
Committee is made aware of any issues in a timely manner as
they arise during or after the rollout?
Ms. GUZMAN. My understanding is that my team has already
been working and collaborating with GAO and sharing
information. So I will follow up and find out what remains, and
definitely commit to continuing to work with you as we roll out
this very important and cost-saving measure.
Ms. VELAZQUEZ. SBA is soliciting comments on potential
changes to the Mentor-Protege program, but the request for
information was included in an unrelated Federal Register
notice, which has led to confusion.
I understand that SBA has agreed to formalize this request
and cast a wider net, set clearer deadlines, and allow for
feedback. Have you done this?
Ms. GUZMAN. That was always the intent in terms of
regulatory process. We are not writing regs on the Mentor-
Protege or joint venture. We were doing pre, pre, pre-
regulatory discussions, talking to people, for example, at our
Office of National Ombudsman annual meeting. We asked--we had a
hearing specifically on joint ventures and MPPs, based on
information I was hearing from the veteran community in
particular, to ensure that as we are seeing this huge increase
in joint ventures, that we are tracking what is happening.
So we are talking to multiple communities, and that is our
commitment. Always has been.
Ms. VELAZQUEZ. Thank you. I yield back.
Chairman WILLIAMS. The lady yields back.
I now recognize Representative Stauber from the great State
of Minnesota for 5 minutes.
Mr. STAUBER. Thank you very much, Mr. Chair and Ranking
Member Velazquez, for holding this hearing today.
And thank you once again to Administrator Guzman for your
attendance.
With my time, I want to briefly walk through a concerning
timeline.
On March 7 of this year, the CEO of Funding Circle said
that they were not going to retain the SBLC license and were
not interested in 7(a) lending. They also revealed that they
had not received a final license from the SBA, only an initial
award.
Less than 3 weeks later, on March 20, you testified before
the Committee and contradicted the statements of Funding
Circle's CEO, announcing that Funding Circle would begin
lending soon.
On April 1, Senate Small Business Chairwoman Shaheen sent
you a letter saying that she was troubled to learn that the SBA
was still considering approval of the SBLC license in light of
the CEO's statements and cautioned the SBA to not issue the
license.
What else happened on April 1? Despite Funding Circle's own
statements that they were never going to keep or use the
license, and despite the concerns of Congress, the SBA
finalized that license.
Lo and behold, the company that said they weren't going to
participate in 7(a) lending was telling the truth about their
intentions, sold their U.S. operations in the summer, and
surrendered the SBLC license back to the SBA in June.
And here is the kicker. They never made one 7(a) loan.
Instead of awarding one of the new SBLC licenses to a
company that was willing and able to make loans, what Funding
Circle did was hold the license captive for 8 months, never
helping one single borrower.
And, Administrator Guzman, you aided that. That is the real
story here, not Funding Circle, but SBA's mismanagement of the
process. The company said they would not retain or invest in
the license, and you gave it to them anyway.
The final piece of this timeline is that on August 9, the
SBA announced that beginning September 2, SBA's Office of
Capital Access will accept more applications for licenses, for
both regular and Community Advantage SBLCs. Despite this most
recent debacle, SBA is doing it again.
You testified about a private company's intent,
contradicting their own public statements. You doubled and even
tripled down to Congress. Either you perjured yourself or you
were really duped.
This is a black eye on the agency and its decisionmaking
ability, which has been scrutinized by Members of this
Committee and the small business community since you became the
administrator.
Administrator Guzman, do you know the last time that the
set-aside for oversight activities at the Office of Credit Risk
Management was increased?
Ms. GUZMAN. That the set-aside? Excuse me. Can you clarify
that question, please.
Mr. STAUBER. Do you know the last time that the set-aside
for oversight activities at the Office of Credit Risk
Management was increased?
Ms. GUZMAN. We have been increasing their resources. SNE,
since the last time we met, has gone up to 45----
Mr. STAUBER. It was the last----
Ms. GUZMAN.--with two vacancies.
Mr. STAUBER. 2014 was the last time it was increased.
Ms. GUZMAN. We have increased their resources and have more
people.
Mr. STAUBER. How understaffed is the Office of Credit Risk
Management since the SBLC expansion started last year?
Ms. GUZMAN. Since we last spoke, we have increased from 35
to 45, so we have shored up because we need to increase
competition to fill those gaps.
Mr. STAUBER. In the last SBA--excuse me--in the last SBA
OIG report, it says the Office of Credit Risk Management is
understaffed by 38 percent.
Ms. GUZMAN. The entirety of SBA----
Mr. STAUBER. For over--excuse me.
Ms. GUZMAN. Oh, sorry, I thought you were asking a
question.
Mr. STAUBER. For over a decade, the SBA has underinvested
and underprioritized human capital at the Office of Credit Risk
Management, all while it has doubled the 7(a) loan program,
putting American taxpayer dollars at risk.
This recent expansion of SBLC licensing represents yet
another example of three-letter agencies in Washington creating
rules made by unelected bureaucrats with significant
consequences for taxpayers and American small businesses.
So instead of--so instead of helping small businesses, your
agency is busy creating opportunities for waste. This isn't
just bad policy. It is irresponsible policy for hardworking
Americans who will be the ones paying for your mismanagement.
Representative [sic] Guzman, I appreciate you coming here,
and I have said this before, I think you are a really nice
person. I don't know how far or how long you would last in the
private sector.
And I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Phillips from the great
State of Minnesota for 5 minutes.
Mr. PHILLIPS. Thank you, Mr. Chairman.
I think you would do just fine in the private sector.
Ms. GUZMAN. I have. Thank you.
Mr. PHILLIPS. I happen to be someone who has served in it.
I am not sure how many of my colleagues on this Committee have.
And I was really heartened by the collegiality with which this
meeting started--a prayer, celebration of Ranking Member
Velazquez, and references to how we have to address regulations
to help small businesses. I think that is actually a bipartisan
agreement.
I just wish we would actually take the damn time and assess
those challenges, work together, and come up with some
solutions. And maybe if this damn institution wasn't spending
10,000 hours per week raising money and wasting its time doing
that, we could actually get to work, because I know we are in
agreement.
You know, I have had you to Minnesota a couple times, Ms.
Guzman, and we visited small businesses. They have expressed
their gratitude. I have seen how this economy has recovered
better than any OECD country in the entire world, and I just
want to celebrate not just you but everybody that works at the
SBA--Democrats, Republicans, and otherwise.
But since one of the topics of today's meeting is actually
investigating a voter registration initiative, you know, I
really feel compelled to share some opinions, because this is a
democracy, and I can't imagine what our adversaries are
thinking right now when we are holding a hearing investigating
the notion of getting people registered to vote.
I mean, come on. Registering to vote. We have a crisis of
participation in this country in no small part because of the
way we act in this institution. And I think it is a
responsibility of administrations--Democratic and Republican--
to encourage people to participate.
And of course it shouldn't be partisan. We should be
registering everybody. And I would opine that we should be
talking about things that would do so.
Why are we the greatest democracy in the world and do not
automatically register people to vote in the United States of
America? Why do we not make it easier? Why are we trying to
make it harder? And why in the world would we be condemning a
democratically elected administration in the United States of
America for trying to encourage people to participate?
Those are my opinions. I had hoped that we could agree on
doing what we can to get people to care, to get out and vote,
and by the way, that means Democrats and Republicans, and I am
just as passionate about the former as I am the latter, and,
gosh, I hope we can get to it. So thank you for listening to my
perspective.
Administrator Guzman, do we have your commitment that any
voter registration activity undertaken by the SBA has and will
continue to be nonpartisan and in compliance with the NVRA, the
Hatch Act, and all other applicable legal and ethical
requirements?
Ms. GUZMAN. Yes, that is what we have aimed to do.
Mr. PHILLIPS. Thank you. I think it is really darned
important, so thank you for agreeing to that.
I was also heartened to see that the White House convened a
recent summit on worker ownership. You know it is very
important to me. I think we need to inspire an ownership
economy, support small businesses which are the lifeblood of
this country.
So how has the SBA transformed its opinion on worker-
ownership structures?
Ms. GUZMAN. Yes. I participated in that conference as it is
very important for me as well. We know there is a silver
tsunami coming, and as it hits, we need to make sure that those
businesses can survive. Not all will be passed down second
generation and beyond, nor sold successfully.
And so we have created, with our regulatory reforms, a
partial buyout solution so that an owner can start to
transition to an employee group. As an example, we have now
offered delegated authority on our ESOP lending within the SBA,
which was a blocker for some time, and we continue to lean in
to working with the key organizations to ensure that our
programs are more utilized, including on the SBIC side as well
where we see strong activity and employee ownership in ESOPs
and leadership from the private markets as well in this area.
Mr. PHILLIPS. Can you be a little more specific about
capital access? Because that is something I hear from small
businesses, even more than regulation----
Ms. GUZMAN. Right.
Mr. PHILLIPS.--just accessing capital to get their
businesses off the ground.
Ms. GUZMAN. There still remain huge gaps, and that is the
agency's mission, is to try to fill those capital gaps,
especially in underserved markets, which include startups as
well. But we have--our regulatory reform hit that problem
directly by trying to increase competition, attract more
lenders who are focused, whether that is on ESOPs or critical
technologies for the Department of Defense or infrastructure.
So we have really, you know, focused on our rule reforms to
simplify these rules for lenders so that we can see more
lending at the SBA. And it has worked. We have doubled the
number of small dollar loans, which had been on the downturn
for over a decade.
Mr. PHILLIPS. Doubled the number----
Ms. GUZMAN. Doubled.
Mr. PHILLIPS.--of small dollar loans. I think that is--I
think that is something we should be celebrating.
My time is expiring, so I just want to remind everybody on
this Committee and maybe the 10 people watching that we have
not been presented with a single shred of evidence to
substantiate the notion that the SBA is engaging in any sort of
nefarious electioneering. And once again, we should be trying
to encourage red and blue voters to vote.
Thank you.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Meuser from Pennsylvania,
the great State of Pennsylvania, for 5 minutes.
Mr. MEUSER. Thank you, Chairman. Thank you, Administrator.
So at your direction, lending standards--prudent lending
standards within the SBA 7(a) loan program were removed. And
since that occurred, the SBA's own data indicates that early
default rate has more than doubled. Early default rate has more
than doubled since the prudent lending standards were stripped
in 2023 Biden-Harris SBA policy changes.
See, I believe joy comes from results, not from, you know--
not from rainbows and unicorns.
So can you explain why, since these were removed, that
early default rate rose by 102 percent in the last 12 months?
$27 billion in loans were made over a 1-year period. The
default rate prior was 0.5 percent, and it has gone to 1.07
percent, costing the American taxpayers about $135 million in
bad loans that were made.
So when my colleague, Mr. Stauber, said something about the
private sector, you know, it is a shame to say, I mean, I don't
think any bank CEO would consider that a good year. So maybe
you can explain to us----
Ms. GUZMAN. Yes.
Mr. MEUSER.--why you think that was a good year.
Ms. GUZMAN. I am happy to. And if you had done a full
chart, you would have seen that this is almost----
Mr. MEUSER. I have the full chart.
Ms. GUZMAN.--like a circle.
Mr. MEUSER. I have 3-year chart.
Ms. GUZMAN. So we had--no, but even before then. So during
the pandemic, obviously we had forgivable loans. We had COVID
EIDL. We were also paying for payments and interest for anyone
who had an SBA loan, at the direction of Congress.
And so you saw a huge dip in the default rate, and now it
has begun to rise again, normalize, a little bit high, but it
is still within normal standards. And as you see in the banking
sector----
Mr. MEUSER. Prove that you removed the standard operating
procedure----
Ms. GUZMAN.--with high interest rates, banks are seeing the
same types of activity.
Mr. MEUSER. Reclaiming my time. Is it true--I am just
looking at results. I am looking at----
Ms. GUZMAN. So am I.
Mr. MEUSER.--what happened. And you are going back to, I
don't know where to. I don't even understand what you were just
saying.
Is it true you removed the startup businesses $5 million--
for $5 million loans without requiring any minimum equity
injection or down payment from the borrower? That is a simple
yes or no. Was that removed?
Ms. GUZMAN. We have simplified our rules, but, no. I mean,
we continue to have performance. This is a zero-subsidy
program.
Mr. MEUSER. So you simplified the rules by removing
collateral requirements, and therefore it cost the American
taxpayer in bad loans, $135 million. How do you get around
that? That happened by--when you--collateral requirements.
So in order to pay for this, right, currently, fees are
zero on loans of $1 million and less, meaning the SBA isn't
earning fee income on over 85 percent of the units, while
losses are doubling--increasing--escalating increases. This is
not sustainable. So you are going to be coming to us either
looking for more money or increasing the fee waivers--or the
fee waivers will not be--will be reduced or eliminated to
generate revenue for rising program costs.
I mean, you think that is a well-managed situation?
Ms. GUZMAN. I will repeat that this--the taxpayers do not
pay for this program. It is a zero-subsidy program. Not since
the last administration, when 2 years, had the agency requested
a subsidy. We have not requested any type of subsidy
supplement.
So, no, this program performs within its entire portfolio
to create, you know, zero cost to the taxpayer in terms of
subsidy.
Mr. MEUSER. You don't think loan requirements have been
minimized and it has cost the--it has cost the federal
government--you don't want to pretend that it is not the
taxpayers' money, but it is, okay? Are you disputing my
numbers? Are you saying these numbers are not right?
Ms. GUZMAN. The subsidy--I know my subsidy, and the subsidy
is a zero impact right now.
Mr. MEUSER. Oh, the subsidy.
Ms. GUZMAN. Uh-huh.
Mr. MEUSER. Oh, okay. So what is in escrow. And where does
that subsidy come from?
Ms. GUZMAN. Fortunately, we have a diversity of loans----
Mr. MEUSER. It comes from----
Ms. GUZMAN.--within our portfolio.
Mr. MEUSER. It comes from small businesses.
Ms. GUZMAN. The full portfolio performs----
Mr. MEUSER. Okay. That is great. That is--that is a lot
of--a lot of dancing taking place, and that is where it comes
from.
You know, I do want to ask a question about this
registration issue because you had all your staff lawyer up.
Your chief of staff, I think he had four or five lawyers when
all we wanted was the information. Okay. You hired a woman by
the name of Jennifer Kim for I believe it was $185,000 a year.
Okay. Her entire background has been to work with Democrat--no
problem, okay, that is her choice--Democratic campaigns, okay,
only, okay, in Michigan. You hire her--she is a community
organizer and such--as--what was her title--okay, as associate
administrator of the Office of Field Operations, okay. No
experience with small businesses whatsoever, just community
involvement.
And you, by the way, visited 48 to 9 Democrat to Republican
districts.
Are you saying for $185,000 a year, plus expenses, she has
not registered anyone? She has not registered a voter?
Chairman WILLIAMS. The gentleman's time is expired.
Ms. GUZMAN. What is--I am not sure what that question is
about.
Mr. MEUSER. Thank you, Mr. Chairman. I yield back.
Chairman WILLIAMS. I now recognize Representative Chu from
the great State of California for 5 minutes.
Ms. CHU. Well, thank you.
First, I want to thank you, Administrator Guzman, for
responding to us so quickly when we had the Monterey Park,
California, shooting where 11 people died and 9 people were
wounded. It was an incredibly traumatizing time for our
community, but you immediately came out. And together, we
visited the small businesses that were nearby. And that is when
you said that it would be good to declare a disaster for the
local area.
That disaster declaration was made, and you even got a
support center to help the community with the loan process. It
was through the--these loans were extremely low-interest loans,
the EIDL loans, and was such a generous payback provision.
And I was just told that there were 75 such loans made,
which is really incredible. So thank you, thank you,
Administrator Guzman, for that incredible, generous act that
you made and such a responsive act.
And also, you know, I thank you for supporting small
businesses nationwide. And right now what I would like to do is
to provide you with the opportunity to respond to any questions
you weren't able to previously from colleagues.
Ms. GUZMAN. Well, just, you know, one thing I would like to
clarify again is that the strength of SBA's loan guarantee
programs across the board are that they are zero subsidy on an
ongoing basis, which means they don't cost the taxpayer. Small
businesses are not taking loans off the backs of Americans.
This is a really strong public-private partnership. And my
team, I have full confidence in them, they are able to manage
this incredible loan portfolio.
We have been able to grow because we have invested heavily
in technology. We are following the rules and best practices
that we saw with great success on the SBA Express Program, and
translated that to larger loans, up to $500,000, so that we
could simplify the process for our lenders.
Cutting red tape for our lenders means ultimately cutting
red tape for our borrowers, and so that is why you have seen
the results that you have had.
In addition, I would say that, you know, 1982 was when we
last had small business lending companies open. We were still
using pen and paper. We are not in the same era. My 14 SBLCs
are strong performing.
Overall, my SBLC program, including both Community
Advantage, over indexes to startups, they fill gaps in
underserved communities. And clearly with so many small
businesses relying on their personal wealth, if they have it,
as well as credit cards, there is still a lot of work to do to
fill market capital gaps.
And so I just dispute the fact that the SBA teams are not
equipped to be able to manage this larger portfolio. They do an
excellent job, and we have instituted strong controls for those
lenders that are new to our program, and in particular but of
course, all of our supervised lenders within the program.
So, you know, I think that if time to have a further
discussion or if any Members in particular would like a further
briefing to understand the dynamics of this SBA portfolio, we
would be happy to engage.
Ms. CHU. In fact, the SBIC program is very successful, and
that is a loan guarantee program.
Ms. GUZMAN. The SBIC program, it is our small business
investment company. We have over 300 licenses. It is a
debenture program in which we are able to provide low cost of
capital to fill gaps in the private markets, and in particular,
we focus on growth industries as well as--growth firms, as well
as where we see gaps in the need for patient capital.
And that is--you know, that is why we have partnered with
the Department of Defense on our small business investment
company, Critical Technologies. It is a vital program. Puts out
$4 billion a year, matched with $4 billion in private capital,
and crowded lending from banks around it is another $10
billion. So this is really the American, you know, programs
powering the private market.
Ms. CHU. From a--changing topics. On the Community
Advantage SBLC programs, each fiscal year SBA has published
data on its lending programs that includes demographics--a
demographic breakdown. However, there is no demographic data by
segment for Community Advantage SBLC loans for this year. So
can you tell me when we might expect to see these metrics for
the Community Advantage SBLC program?
Ms. GUZMAN. We continue to attract the full performance of
our 7(a). We are happy to follow up with you and provide a
briefing to ensure that you continue to track the Community
Advantage performance.
They do over-index to startups. Sixty percent of their
loans are to startups. It is an incredible program, and we have
seen a doubling of the number of loans that our Community
Advantage SBLCs have done as a result of the permanence that we
were able to afford them with the regulatory change.
Ms. CHU. And there will be training, I hope, for all the
new--I mean, you have signed on 140 lenders for that.
Ms. GUZMAN. There is 140 total. Thirty-some are new, but we
have been offering extensive trainings to support them as they
are now operating on this new portfolio.
Ms. CHU. Thank you. I yield back.
Chairman WILLIAMS. The lady yields back.
I now recognize Representative Crane from the great State
of Arizona for 5 minutes.
Mr. CRANE. Thank you, Mr. Chairman.
Thank you, Secretary Guzman, for showing up today.
My colleague, Mr. Phillips, had a tough time with us
holding an investigation about registering people to vote. I
want to confirm to Mr. Phillips and everybody else in
attendance, and to you, Secretary Guzman, that we have no
problem registering people to vote. What we have a problem with
is this administration, and you in particular, ma'am, using the
full weight of your agency, and the federal government, and tax
dollars, to focus these registration efforts to acquire more
Democrat votes.
Mr. Phillips said that we haven't been provided with a
shred of evidence that this administration has engaged in
electioneering operations. I find that interesting since we
have been asking for information and data on these programs
since March and have still not gotten them.
Secretary Guzman, last night, after we had been asking for
information, data, documents since March, your administration
chose to drop documents to this Committee in the evening when
everybody was in bed, right, the night before you were supposed
to testify before this Committee.
What do you think--what kind of optics do you think that
delivers? What do you think the message that that sends to this
Committee and to the American people who are watching this
Committee?
Ms. GUZMAN. You know, the agency has scaled up--I have
actually expanded the staff to comply with all of the requests
for letters and information----
Mr. CRANE. So was that just a coincidence, ma'am, that we
have been asking for 6 months, and all of a sudden last night
before you were supposed to testify here today, you chose to
send us 2,000 pages of documents?
Ms. GUZMAN. On this particular issue, we had already sent
over 1,200 pages of official calendar entries. We had already
sent 3,000 pages in response to eight different production
response. Last night was more calendar items for additional
months.
Mr. CRANE. Secretary Guzman, do you believe it is an
appropriate use of your time and resources to be going out and
trying to register Democrat votes?
Ms. GUZMAN. I do not. I do not go out and register. Again,
it is a link on our website. I go out and meet with small
business owners.
Mr. CRANE. Oh, so you don't go out and hold--you guys don't
go out and hold events----
Ms. GUZMAN. No.
Mr. CRANE.--across the country and then bring in the State
to register voters?
Ms. GUZMAN. No, we do not.
Mr. CRANE. You are not doing that?
Ms. GUZMAN. No, we do not.
Mr. CRANE. So you are defying the executive order that
President Biden laid out to you guys?
Ms. GUZMAN. We are complying as best as we can as a small
agency by putting on a website link for small businesses who
are seeking information to be able to go directly to the
government----
Mr. CRANE. Okay.
Ms. GUZMAN.--nonpartisan government source.
Mr. CRANE. So you are trying to convince us that your
efforts are bipartisan. Is that correct?
Ms. GUZMAN. They are nonpartisan.
Mr. CRANE. So they are bipartisan? You are trying to
register Republicans and Democrats? Is that what you are trying
to do? Is that what you are saying?
Ms. GUZMAN. I am not trying to register anybody. I am
trying to provide information to small businesses who are
interested in registering to vote.
Mr. CRANE. No. That is exactly what you are trying to do
per the executive order.
Ms. Guzman, since that is your position, I am guessing that
you brought data to support that.
How many Democrats has your administration registered with
these events?
Ms. GUZMAN. We launched the link on our website about 6
weeks ago----
Mr. CRANE. That is not what I am asking. I am not asking
about the link.
Ms. GUZMAN. We have registered zero.
Mr. CRANE. I am asking----
Ms. GUZMAN. We have registered zero.
Mr. CRANE.--how many Republicans versus how many Democrats
have you guys registered, to prove that this isn't partisan?
Ms. GUZMAN. There have been zero registrations as a result
of the links that we have put on our website. And we don't
register voters. We don't have registration events at the SBA.
We meet with small businesses about access to capital and
contracting and networks----
Mr. CRANE. So you have no data to take back to your boss?
Ms. GUZMAN. I do have data. It is zero. Unfortunately, this
has----
Mr. CRANE. So zero?
Ms. GUZMAN.--not been effective, and there have been zero
registrations as a result. So this has not been an effective
program. I am also not----
Mr. CRANE. So it has not been an effective program? So you
are going out there----
Ms. GUZMAN. Well, I will say that, yes.
Mr. CRANE.--wasting your time----
Ms. GUZMAN. I am not wasting----
Mr. CRANE.--and resources on an ineffective program. It
sounds like you are being about as effective----
Ms. GUZMAN. I have spent more time----
Mr. CRANE.--for the small business community as you are in
registering voters. Is that what you are saying?
Ms. GUZMAN. I am very effective for the SBA programs which
I am happy to talk about. That is why I am here, to talk about
the SBA's programs. This was a website link. This was not a
priority that I spent my time personally on, as I have shared
with you.
And so in terms of, you know, putting the website link up 6
weeks ago, you are asking how many people have registered as a
result. It is zero.
Mr. CRANE. Okay. So businesses right now, small businesses,
because we hear from them all the time--we have conducted
multiple hearings--are getting crushed right now with
regulation, inflation, and struggling to hire qualified
employees. And this is the type of stuff you are spending your
time on.
Ms. GUZMAN. Well, I will spend more time talking about
voting and our NVRA requirements----
Mr. CRANE. One last question, Mr. Chairman.
Ms. GUZMAN.--in this Committee than in the entire time at
the----
Mr. CRANE. How do you square--how do you square spending
your time with going on 48 trips for Democrats and only 9 for
Republicans?
Chairman WILLIAMS. The gentleman's time has expired.
Mr. CRANE. Can she answer the question, Mr. Chairman?
Chairman WILLIAMS. Quickly.
Mr. CRANE. How do you square that?
Ms. VELAZQUEZ. Time has expired. Time has expired.
Ms. GUZMAN. I go out and meet with small businesses,
because small businesses are not in the Halls of Congress. They
are on main streets. They are in innovations----
Chairman WILLIAMS. Time is up.
Mr. CRANE. 48 to 9.
Chairman WILLIAMS. Time is up.
I now recognize Representative Scholten from Michigan for--
the great State of Michigan for 5 minutes.
Ms. SCHOLTEN. Thank you so much, Mr. Chairman.
Thank you, Administrator Guzman, for being here today,
though I do apologize for the content. We have some very
serious things that we need to be talking about, but we have
been abysmally wasting our taxpayers' time and resources on
this witch hunt which clearly is going nowhere.
I want to address some pretty serious implications that the
Committee has made in the past about you and your agency not
being fully accountable to some of these questions regarding
voter registration in particular.
Do you know how many times you have been asked to testify
before this Committee, ma'am?
Ms. GUZMAN. Oh, I don't have a count. It is multiple times.
But not just me, my senior leaders have testified multiple
times, and we have had multiple briefings. And I have also
invited the Republican Members to my office for an additional
briefing.
Ms. SCHOLTEN. Thank you. Have you or any Member of your
staff ever declined to come here when you have been invited or
refused to appear?
Ms. GUZMAN. For me to testify?
Ms. SCHOLTEN. For you to testify.
Ms. GUZMAN. No, I have not declined. One time it didn't
work with the schedule.
Ms. SCHOLTEN. Have you ever refused to testify or offer an
alternative date? You have always----
Ms. GUZMAN. I have always offered alternative dates.
Ms. SCHOLTEN. An alternative date.
Recalling the first time that we discussed this very topic,
there was no one from either you or your administration that
was invited to come here and provide information. So we are
glad that the Committee finally did have you here.
Has the SBA altered its core mission in recent months to
now be fully committed to registering individuals to vote?
Ms. GUZMAN. No. I mean, we are focused on helping
businesses start grow and be resilient and disaster communities
recover.
Ms. SCHOLTEN. So the core mission of what you do has not
changed in recent months to electioneering?
Ms. GUZMAN. No.
Ms. SCHOLTEN. I didn't think so.
You know, I really have to echo here what my colleague from
Minnesota said in his comments about the critical importance of
helping and encouraging participation across the country.
Like my colleagues across the aisle, I share their concerns
about the increasing role of unelected officials, bureaucrats
they might say, playing an increasing role in deciding
politics. That is why I think it is so important that
individuals have the right--whether they are going to vote red,
they are going to vote blue--they have the right to register to
vote and to cast their vote when they are eligible to do so, so
that they can have a voice in this process.
You know, more than just an opinion, the attorneys among us
especially know, this is actually required by law. And I
thought that Mr. Crane was doing what I was going to do, which
was to question, you know, why, in fact, it had taken so many
months to get just a simple website link up and why individuals
weren't being offered more. They don't really seem to know what
the purpose in their questioning is.
The reality is now the SBA is doing what the VRA requires,
which is offering that opportunity but not altering its core
mission.
I want to thank you for your service to small businesses
across America, to this country. And I would like to offer the
remainder of the time for you to provide any remarks that you
may like about questions you didn't have an opportunity to
answer or what the SBA is actually doing to help small
businesses across this country.
Ms. GUZMAN. Well, I am just incredibly grateful for that,
thank you very much, as there is a lot to talk about about what
the SBA has done. And our employees at the SBA have been
committed, on a whirlwind, since COVID hit, going above and
beyond to try to support small businesses. And they continue to
do so.
We have had key learnings as a result of the COVID pandemic
and the scale that SBA achieved--investments in technology,
investments in the right outreach to reach the small businesses
where they are.
And it is truly--you know, I just want to applaud all of my
SBA employees for the work that they continue to do to get out
there in community. They are out there in the communities
helping small businesses connect to capital, connect to
contracts, and that is why we have seen these historic
increases in our underserved markets.
And, you know, in addition, I would just say that, you
know, my time is really focused on making sure that SBA's
programs can be improved. That is why we are rolling out this--
certifications, MySBA certifications, a MySBA platform, that
can meet small businesses online and have them do multiple
activities with the SBA, whether that is the capital programs
or the certification programs.
And this will just strengthen and build on this 19.4
million new business applications filed and the business
dynamism that we are seeing. As we see businesses cycle through
the economy, we want them to be aware of SBA. We want them to
know that the SBA has modernized and is here to serve them and
meet the market demands.
Ms. SCHOLTEN. I yield back.
Chairman WILLIAMS. The lady yields back.
I now recognize Representative Van Duyne from the great
State of Texas for 5 minutes.
Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
Administrator Guzman, I am the only Member, I believe--
Republican Member--sitting on both the Small Business and the
Ways and Means Committees. And as a Member of those committees,
I serve on the Main Street Tax Team, which is looking at
renewing the 2017 Tax Cuts and Jobs Act.
Most importantly, we are looking at the Small Business Tax
Deduction which provides important clarity against larger
corporations.
Last week, Senator Wyden held a hearing regarding the 2025
tax debate and where he stated, quote, Congress needs to
address the passthrough loophole that Trump created in 2017. He
claimed it was all about small businesses, but it was another
bait-and-switch.
Do you agree with the Senator that this is a loophole?
Ms. GUZMAN. Look, as I have shared with this Committee
before, you know, the--I am not here to talk about tax policy.
That is not in my policy bandwidth----
Ms. VAN DUYNE. But do you think----
Ms. GUZMAN.--for small businesses.
Ms. VAN DUYNE.--that small businesses are getting benefit
from the Tax Cuts and Jobs Act of 2017?
Ms. GUZMAN. What I will say is that the tax cuts----
Ms. VAN DUYNE. It is just--it is a yes or no question. Are
small businesses----
Ms. GUZMAN. That leans towards supporting the large with
permanent tax cuts for large corporations and temporary tax
cuts for small businesses, so that Tax Cuts and Jobs Act is not
good for small businesses.
Ms. VAN DUYNE. So according to the Congressional Research
Service, 80 percent of the individuals who filed for this make
$200,000 or less. So would you then consider those to be high
earners who are abusing this loophole?
Ms. GUZMAN. Again, I think that small businesses overall
will tell you, three-quarters of them, that they want a fair
and balanced tax system.
Ms. VAN DUYNE. So that you have sat down with small
businesses and they have told that you they are not supportive
of the Tax Cuts and Jobs Act?
Ms. GUZMAN. No, not at all, not supportive of the temporary
nature for small and the permanent nature for large.
Ms. VAN DUYNE. So what have small businesses told you about
the Tax Cuts and Jobs Act? Have they told you that they are all
for the research and development and depreciation and expense?
Ms. GUZMAN. Again, those were temporary, and the R&D has
already expired, unfortunately, so it would be nice to have
those--those----
Ms. VAN DUYNE. It would be great.
Ms. GUZMAN.--components----
Ms. VAN DUYNE. Yeah, we actually sent it over----
Ms. GUZMAN.--for small businesses.
Ms. VAN DUYNE.--to the Democrat-run Senate, and they are
sitting on that bill.
Ms. GUZMAN. And the reason why it is----
Ms. VAN DUYNE. But, yes, we did send that over.
Ms. GUZMAN.--the reason why it is difficult for me to come
in and advise about tax policy because there has to be, you
know, a complete set of policies. And so for you to say whether
or not one thing is good or not----
Ms. VAN DUYNE. Well, we did have a complete set.
Ms. GUZMAN.--in an incomplete set----
Ms. VAN DUYNE. But surely you should be able to talk to
these small businesses and they would tell you, because they
have told us, they have told us very clearly this is what is
working for us. This why we were able to bring back jobs that
were overseas, because of the Tax Cuts and Jobs Act. This is
why we are being able to invest more in our businesses, more in
our employees, more in our future, and be able to grow our
business because of these tax cuts, and now they are leaving
us. They are going to be over at the end of next year, and we
need to have them permanent----
Ms. GUZMAN. I hundred percent agree with you that it is
unfortunate that those were temporary tax cuts for small
businesses----
Ms. VAN DUYNE. But these are small businesses who are
benefiting.
Ms. GUZMAN.--and permanent----
Ms. VAN DUYNE. These are small businesses who are
benefiting.
Ms. GUZMAN. Those are benefits to small businesses
completely, yes.
Ms. VAN DUYNE. And it just seems as if this administration
can't reconcile the commitment to raising taxes on families
making less than 400,000 when we look at----
Ms. GUZMAN. This administration----
Ms. VAN DUYNE.--80 percent of those people who are
benefiting made less than 200,000 from that, quote,
``loophole'' from Senator Wyden.
Ms. GUZMAN. This administration has been committed to
making sure that anyone making 400,000 and under is not
experiencing raised taxes.
Ms. VAN DUYNE. So attacking the tax policies that were
benefiting those who are making less than $200,000, you don't
consider that an attack on those folks?
Ms. GUZMAN. The Biden-Harris administration has been clear
that they are not interested in seeing taxes go up for anyone
under $400,000.
Ms. VAN DUYNE. I know that----
Ms. GUZMAN. And those are set to expire.
Ms. VAN DUYNE. There is what they say, but there is what
they say and there is what they do. And if you look at just
alone inflation that they have caused from their policies,
everybody making less than $400,000 is paying almost 20
percent. Everybody making over $400,000 is paying over 20
percent.
Ms. GUZMAN. Inflation----
Ms. VAN DUYNE. So I would argue that, yes, when we say that
we are not going to be taxing, when you look at the actual
expenses, that that is a lie.
But I do want to ask you about providing information to
this Committee because we have gotten, as was mentioned, at the
very last minute we have gotten these.
So we had requested a draft of the strategic plan that is
related to the MOU, the executive order for the MOU. Why hasn't
the SBA produced this document to us when all interim and final
strategic plans were specifically named in our subpoena? And
will you commit to giving us this document by the end of the
week?
Ms. GUZMAN. I will follow up with my team on that specific
document.
Ms. VAN DUYNE. We hear that, but do you have any idea why
we were not provided a copy of the strategic plan?
Ms. GUZMAN. I don't have specifics on the strategic plan. I
know we have been provided--we have provided you with an MOU--
--
Ms. VAN DUYNE. You said you gave us 1,600 pages.
Ms. GUZMAN. We have provided----
Ms. VAN DUYNE. Then you gave us an additional 2,000 pages
last night.
Are we going to get the strategic plan? And if we haven't
gotten it in the 2,000 pages, which it doesn't look like we
have, will we be able to get it by the end of the week?
Ms. GUZMAN. I am not familiar with that specific request.
So I will have to follow up with my team.
Ms. VAN DUYNE. Okay. Can you get us a response by the end
of the week----
Ms. GUZMAN. Oh, yes. We can respond whether or not----
Ms. VAN DUYNE.--of an exact date when we can expect to get
that?
Ms. GUZMAN. Uh-huh.
Ms. VAN DUYNE. We also have yet to receive any of the
requested Microsoft Teams messages or emails for nearly 20
months of the request. Could you explain why we haven't gotten
these documents either?
Ms. GUZMAN. I know that this is a very long process to go
through, to clear documents, to then send them over to you.
Ms. VAN DUYNE. How many months----
Ms. GUZMAN. But we have sent in total tens of thousands of
pages of documents across all the requests.
Ms. VAN DUYNE. And yet they have been nonresponsive is the
problem.
So thank you very much.
I yield back.
Ms. GUZMAN. Well, we can agree to disagree on that.
Chairman WILLIAMS. The gentlelady yields back.
I now recognize Representative Davids from the great State
of Kansas for 5 minutes.
Ms. DAVIDS. Thank you, Chairman, and to our Ranking Member,
for holding this hearing.
And thank you to Administrator Guzman for being here to
testify on items related to the SBA.
I am disappointed that I missed your recent visit to the
Kansas City metro area.
So I will dive right into my questions here.
Earlier this year, I hosted a roundtable for small
businesses in my district, and several folks mentioned that
they received help from SBA's SCORE program.
And I also got the chance recently to sit down with our
SCORE Kansas City chapter and heard about some of the work that
they are doing. Just in fiscal year 2023, they had 85
volunteers mentor nearly 900 clients through almost 2,000
sessions in the Kansas City metro area. And in Kansas alone,
there were more than 200 new businesses that were able to get
assistance from SCORE.
And I wanted to see how you would assess SCORE's program,
what the nationwide impact looks like, and whether your
support--whether the SBA is supportive of Senate proposals to
turn that program into a competitive grant.
Ms. GUZMAN. Well, the SCORE program is great because
mentorship is often one of the most successful tools for
training our small businesses, mentorship and cohort models.
And so SCORE has really been successful in leveraging great
expertise. You have mentors in there who have launched and sold
multiple firms, who were the top level marketing execs at large
Fortune Thousands. And so it is a very successful model.
And what I would say in terms of our support, we continue
to support SCORE in its ability to carry out its mission and
expand its mentorship in underserved communities in particular.
I know that the organization is volunteer based. It is very
efficient and cost-effective from that perspective to the
taxpayer. And I am happy to explore and provide technical
assistance on any specific proposals about the types of grants
in particular.
Ms. DAVIDS. Okay. Thank you.
And then I know the SBA is not necessarily in the grant-
making space. So I definitely would love to keep that
conversation going on any of the proposals that are coming from
our colleagues on the Senate side.
I do want to switch gears and touch base on Native
entrepreneurship. I have appreciated the SBA, and your office
specifically, attentiveness to boosting small business
ownership within Indian Country.
And I know you, your office, recently told my office that
the SBA is working to address some of the concerns from Native-
owned businesses, Native-owned entities about the certified
platform.
And just curious, as you prepare to launch the new
streamlined certified platform, if it will include a
certification pathway specific to these entity-owned small
businesses?
Ms. GUZMAN. Yes. The entity-owned certification process
will be forthcoming as well. And, again, if there are any
entities who have been building awareness about that who have a
contract on the line for a new entity that they need to get
certified, we will work with them manually to do that while the
system is being transitioned to the new MySBA Certifications.
Ms. DAVIDS. Okay.
And then is that--and I am not familiar with how far along
in that process you guys are. Is there a specific portion of
the certified platform that is going to be dedicated to these
entity-owned?
Ms. GUZMAN. There will be additional components to ensure
that entities can be processed in the system.
Ms. DAVIDS. Okay.
Ms. GUZMAN. They have a different certification process,
yes.
Ms. DAVIDS. Okay. Okay.
And then we may or may not get to this, but I will bring it
up.
The SBA has once again extended the moratorium on the 8(a)
program's bona fide place of business requirement, and the
moratorium certainly provided much-needed flexibility for small
businesses during the COVID-19 pandemic and boosts Native
contracting opportunities, allowing entrepreneurs to focus on
their services and not necessarily capital-intensive real
estate.
And I would love to follow up and get some feedback about,
given the multiple extensions of the moratorium, where SBA
would be at on looking at legislation to permanently rescind
this rule and what that might look like. But we will follow up
with your office about that.
Ms. GUZMAN. Thank you.
Ms. DAVIDS. I yield back.
Ms. GUZMAN. Thank you.
Chairman WILLIAMS. The lady yields back.
Now I recognize Representative Alford from the great State
of Missouri for 5 minutes.
Mr. ALFORD. Thank you, Mr. Chair.
Thank you, Ranking Member.
I will remind you, Administrator, that you are under oath.
You signed a paper as to that effect with the Committee.
I do want to take a few seconds and say the only rhetoric
coming from this Committee is the rhetoric on Project 2025.
This Committee and its Republican Members are only concerned
with Project Main Street. But thank you for your testimony
today.
You were recently in Kansas City?
Ms. GUZMAN. That is correct, yes.
Mr. ALFORD. When was that?
Ms. GUZMAN. Last week, I believe.
Mr. ALFORD. Really?
Ms. GUZMAN. Women's business centers.
Mr. ALFORD. Did Representative Sharice Davids get a
personal invite to that?
Ms. GUZMAN. She was not in town. I am sure my team reached
out to all Members.
Mr. ALFORD. I am sure she did.
Did they reach out to--we got no notice. I just checked
with my district director and our scheduler and director of
operations here in D.C. We have no record of any mention that
you were going to be in Kansas City.
I have been a small business owner in Kansas City. I know
small business owners. Our district abuts Kansas City. It would
have been great to have you there to talk about how you are
going to solve problems instead of registering voters.
Ms. GUZMAN. It might have been an oversight since we were
on the Kansas side. I know that we had Senator Marshall's staff
with us as well.
Mr. ALFORD. Well, that would be great.
Ms. GUZMAN. I am happy to go back.
Mr. ALFORD. I mean, our district abuts Kansas. Next time
you are there, please let us know.
Ms. GUZMAN. I know we----
Mr. ALFORD. I will give you my cell phone number if I have
to. Okay?
Ms. GUZMAN. Sure. I will be happy to do that.
Mr. ALFORD. I am deeply concerned with your actions around
registering voters through this SBA. I know you say you are not
doing that. You are providing this link on your website.
Is it your testimony here today that you--that no Member,
staff of the Small Business Administration has been in person
to any district in the United States of America for any reason
and has not helped facilitate the registration of voters?
Ms. GUZMAN. My team is not supposed to be registering
voters.
Mr. ALFORD. Not supposed to. Have they?
Ms. GUZMAN. No. No. We are not aware of anything because
there is no direction for that. There is no time for that. We
work directly in building activities for small business.
Mr. ALFORD. So at these seminars, helping businesses start
or maintain their businesses, providing capital and counseling,
there are no cards given out for voter registration?
Ms. GUZMAN. No, as we would have no means to collect that.
That is on the State agencies for them to be able to facilitate
that.
Mr. ALFORD. And it is your testimony that with this link on
your website--how long has it been on your website?
Ms. GUZMAN. Six weeks.
Mr. ALFORD. Six weeks. And zero persons have registered?
Ms. GUZMAN. As a result of the link, correct. Zero have
registered.
Mr. ALFORD. How do you know that?
Ms. GUZMAN. I received a report from my team.
Mr. ALFORD. And how many States do you have this memorandum
of understanding with to do this?
Ms. GUZMAN. To date, we have only entered into one MOU. We
have current plans to expand to others.
Mr. ALFORD. For how many?
Ms. GUZMAN. We have been reaching out to dozens of States
to try to ensure that they are part of this.
Mr. ALFORD. Well, why would they do it if it is not
registering any voters?
Ms. GUZMAN. Well, I mean, clearly, there is still an
interest in making sure that small businesses--it has only been
up 6 weeks, but I am sure there is still an interest in making
sure small businesses have the information if that is their
preference.
Mr. ALFORD. Why do you need a memorandum of understanding
if it is simply a link on your website? Why go to all that
trouble and expense?
Ms. GUZMAN. With NVRA, it is our effort to work in
collaboration with States. That is the guidance, that we work
in collaboration with States.
Mr. ALFORD. Okay.
Associate Administrator Jennifer Kim was here in July. Were
you aware that she had no prior business experience when you
hired her to conduct outreach for the SBA?
Ms. GUZMAN. She was a community organizer and so----
Mr. ALFORD. Okay, but that is not a business.
What small business qualification does she have to be hired
by the taxpayers of the United States of America to be the
outreach czar?
Ms. GUZMAN. We look for skills at the SBA that fit the
offices, and the field operation is about building awareness
about our programs, going out and doing community outreach.
Mr. ALFORD. Was she hired specifically to complete
negotiations with Michigan and others for the memorandum of
understanding for these?
Ms. GUZMAN. She was--Jennifer Kim was hired to lead the
Office of Field Operations and do outreach and engagement to
communities around the country for SBA's programs.
Mr. ALFORD. Did you know she has an extensive background
working to elect Democrats?
Ms. GUZMAN. I know that she has campaign experience. Beyond
that----
Mr. ALFORD. Ma'am, did you know at the time that you hired
her and possibly--I hope to God you interviewed her--that she
had experience extensively electing Democrats, not Republicans,
but Democrats? She is a Democrat operative burrowed into the
SBA.
Ms. GUZMAN. She is--just to clarify--she is a political
appointee that serves under the Biden-Harris administration.
She is not burrowed in. As a career employee at the agency, she
is hired as part of my political appointee team.
Mr. ALFORD. Do you have any Republicans helping you out?
Ms. GUZMAN. There are plenty of Republicans who work at the
SBA.
Mr. ALFORD. Helping in outreach?
Ms. GUZMAN. In our field offices around the country, yes, I
am sure that there are both parties.
Mr. ALFORD. But anyone at her level on the administration--
--
Ms. GUZMAN. However, that is not discussed.
Mr. ALFORD.--administrative level? Do you have parity?
Ms. GUZMAN. We don't hire based on party affiliation.
Mr. ALFORD. All right.
That is my time. Thank you so much. God bless you.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative McGarvey from the great
State of Kentucky for 15 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman. I will take 5,
though. That is nice of you.
Thank you, Administrator Guzman, for being here today. I
have got several things I want to clear up, so let's jump into
it.
We have heard a lot about default rates today. Can you take
a minute to explain the current pre-pandemic defaults, current
and pre-pandemic defaults with 7(a)?
Ms. GUZMAN. What I was trying to explain with that chart is
that it needed to have some previous years.
We saw a huge dip in our default rates during the pandemic.
Remember that SBA was actually paying for the loan payments,
including interest and principal, on behalf of businesses that
had an SBA loan during the pandemic.
They were also getting forgivable loans. There was cash
flowing out there. And so we saw a huge dip in our default
rates. And then it has climbed back up.
Of course, like all banks right now with high interest
rates, a majority of our 7(a) loans are variable rates. We are
seeing challenges in our portfolio. But they are still within a
reasonable rate.
Again, this is still a zero-subsidy program, and the agency
has not requested subsidy since the previous administration.
Mr. MCGARVEY. So putting this in pretty simple terms, you
were here pre-pandemic. In the pandemic, you go down because of
everything that was happening during the pandemic. Now you are
trying to get back to where you were in pre-pandemic levels.
Ms. GUZMAN. Well, I mean, we would love to see continued
very low, low defaults, but these are within reason. The
current rates that were shown are within reason.
Perhaps--we are, obviously, at a point where we are
monitoring very closely. But hopeful--I don't know what has
happened at this hour--but hopeful to see those interest rates
come down a little bit so that there is relief for all those
variable rate holders in our portfolio.
Mr. MCGARVEY. And I appreciate you being attuned to the
interests of small business and small business owners.
I also appreciate your willingness to go to all these
districts. I know you have offered to every Member, Democrat
and Republican.
I also know that it is been a sincere offer. When we took
you up on it, you came to Louisville, Kentucky, and met with
our small business owners and truly listened to what they had
to say, which I think not only is instructive for you all, but
can't tell you what it meant to our small business owners to
know that you all are listening and pushing to do the right
thing. So thank you for doing that.
A couple other questions. I want to give you a chance to
answer a few of them.
But number one, the federal government is not registering
voters. Is that correct?
Ms. GUZMAN. That is correct.
Mr. MCGARVEY. That is correct.
And so I think all eligible voters, all of our citizens who
are eligible to vote, should be registered and should vote and
should have the resources to know how to do that.
All you all were doing was putting a link on a website that
would allow people to take them to the State where they live
and register to vote if they are not already registered,
correct?
Ms. GUZMAN. That is correct.
Mr. MCGARVEY. And nobody used it?
Ms. GUZMAN. There have been people who have visited but
not--no registrations, is what I was saying, zero registrations
to date.
Mr. MCGARVEY. So even though I think everybody on this
Committee shares the goal of eligible people being registered
to vote, and it is a good idea in theory, it hasn't worked out
all that well.
And, again, we shouldn't--on this Committee and in this
place, we should be figuring out how to register eligible
voters and encourage participation, not discourage
participation, regardless of party affiliation.
I have got a little bit of time left. I want to switch
gears on you a little bit.
We are working on some stuff right now. Things like
drafting a resume, identifying sources of capital, connecting
with local resources are all hurdles that people who were
formerly incarcerated face when trying to start a business.
Are SBA programs like SCORE positioned to provide
entrepreneurship training to these individuals?
Ms. GUZMAN. All of our resource partners can provide
training to that population, and especially as SBA implemented
reforms to ban the box to ensure that the one in three
Americans that have criminal records will have a more
streamlined access to our capital programs.
The SCORE in particular has great mentors, and I don't know
that they have a specific program that is targeted or formed
for formerly incarcerated, but I am sure that they would be
great partners in doing that outreach.
Mr. MCGARVEY. And do you think this is an opportunity to
reduce recidivism, help people who have served their time and
then able to contribute to their communities?
Ms. GUZMAN. Yes. I mean, nearly a third have difficulty
finding jobs, and so oftentimes entrepreneurship is that
pathway.
Mr. MCGARVEY. Awesome. Thank you very much.
Mr. Chairman, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Bean from the great State of
Florida for 5 minutes.
Mr. BEAN. Thank you very much, Mr. Chairman. Good morning
to you. And good morning, Small Business Committee.
And, Administrator Guzman, it is great to see you again.
You did come to my district. We had a great little roundtable
with Members of the Fernandina Beach, Amelia Island, Nassau
Chamber of Commerce. You heard directly from businesses of
their challenges, including hiring regulation.
That is a common theme. Regulation. A lot of regulation. A
lot of people at the same table you are sitting at have told us
they have never seen as much regulation right now as a business
supply chain.
Inflation is something that is hitting everybody hard,
whether you are a business or just trying to survive wherever
you are.
And thank you for doing that.
I recently, over the August break period, had another
roundtable with the Clay County Chamber of Commerce. And if
they are watching, Clay County Chamber, thank you for bringing
Members. And we had another table.
We heard the same common theme, Administrator Guzman:
hiring regulation, inflation, big supply chain. What is growing
right now is the dark clouds that threaten every small business
of this giant tax increase because of the expiration of the
TGJA--TCJA--that is coming next year.
I try to read everything across my desk or try to pay
attention. What is the plan for SBA or the current
administration? What are we doing to make sure that we don't
just stick it to small business? Are you on board on trying to
renew these tax cuts?
Ms. GUZMAN. We are happy to provide consult to Congress as
they determine what the tax policy will be for the United
States. This is not--the U.S. Treasury is the one who would
consult, of course, primarily.
But, of course, we hear from small businesses. Anything
that hits their bottom line is an impact, as we heard during
our roundtable.
Mr. BEAN. Okay. So you are worried about it, too.
Ms. GUZMAN. We are worried because----
Mr. BEAN. You are worried about these tax cuts threatening,
the storm clouds coming in and just battering these small
businesses?
Ms. GUZMAN. What I am worried about is that three-quarters
of small businesses have said that the current system is unfair
to them and preferences large businesses. And so a continuous
shift towards prioritizing small businesses is, obviously,
something that we support.
Mr. BEAN. So welcome to the team of trying to protect these
small businesses, of shielding from these tax increases. And I
will be watching for that link on your website: Join here or
click here to save small businesses from being ravaged by these
big tax increases.
If we don't do anything--this is just a side point, anybody
watching at home--if we don't do anything, our highest marginal
rate will be higher than China. How about that? That is just--
that is wild stuff.
So you don't think it is in the best interest?
Ms. GUZMAN. I look forward to see what Congress is able to
put forward.
Mr. BEAN. 10-4. So we want you on the team.
So here is something. I was a banker, 13 years made loans.
And I discovered it has to be fair to the bank because we don't
want to lose money. We don't want to loan anybody any money
that we are not going to get paid. That is number one for the
bank.
But also, we want to make sure that that borrower has the
ability and means to pay it back. We don't want to saddle them
with anything they can't pay back, so it is fair. We want to
make it right there in the middle.
But I always had a plan B of getting collateral or getting
something that in the event the business went south, we were
going to get paid back so we could continue to make loans.
You have made updated terms to the--based on the SOP 50-10-
7-1 of the lender development program, that you are going to
allow startups, business acquisitions without any equity
injection and without collateral.
What is our plan B? We are not going to be in business if
we are not having a plan B of getting paid back. What is the
plan?
Ms. GUZMAN. Our regulatory reform was geared toward
simplifying loans, especially the 500,000 and under, deferring
to lenders' best practices versus having a complicated SBA
system.
Mr. BEAN. Yeah. We are not going to be in business long,
though, if there is not a way, the plan B, to look at that.
The default rates, I know we talked a little bit, but they
are going up. They are going up. And I know there are a lot of
factors. I was listening when you said that.
But our job is to preserve the capital for the taxpayers to
support the program, and when we get away from that, again,
only in the crazy town can we loan money where we don't expect
or at least don't have that plan B to come back.
Ms. GUZMAN. One thing to assure you is that we require
personal guarantee. We also require collateral over $50,000. It
is an industry best practice and standard.
Mr. BEAN. Secretary Guzman, please take that link off, it
is just--it is a distraction, of registering voters. And I know
you probably didn't even know it was there. I don't know if you
know it was there. But it is a red flag for everybody. We have
got so much work to do protecting main street.
Thank you for coming. It is good to see you.
Ms. GUZMAN. Thank you. You, too.
Mr. BEAN. Have a great day.
I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Molinaro from the great
State of New York for 5 minutes.
Mr. MOLINARO. Administrator Guzman, thanks very much for
being here.
I want to return for a moment to the 7(a) loan default
rate. I, obviously, acknowledge--and, in fact, by the way, as
county executive in Dutchess, New York, we were actually one of
the first counties to qualify in New York State for SBA
assistance during COVID.
But it is convenient to use COVID as sort of the launching
point for your dataset, subsidized, of course, the underlining
economy. We come out of COVID. Yeah, sure, default rates will
increase. That kind of makes sense.
What would you think the default rate was prior to COVID?
Ms. GUZMAN. Single digits.
Mr. MOLINARO. Yeah, 1 percent.
And so we go into COVID having experienced a 1 percent
default rate. Of the current defaults, we are now at about 3
percent, 2.7-plus percent default rate of that, of those. So
the current defaults, what percentage do you think of those
were issued, let's say, in the last 12 months?
Ms. GUZMAN. Of defaults but still----
Mr. MOLINARO. No, I didn't ask you that.
Ms. GUZMAN.--the potential for collection.
Mr. MOLINARO. What percentage----
Ms. GUZMAN. And I am sure that those----
Mr. MOLINARO. I am sorry. I am a cool, calm, quiet kind of
guy, simple, from upstate New York.
What percentage of the defaults currently would have
occurred, let's say, from loans issued within the last 12
months? Could you guess?
Ms. GUZMAN. I am sure a significant amount----
Mr. MOLINARO. A majority.
Ms. GUZMAN.--as the interest rates have gone up.
Mr. MOLINARO. A majority.
And so what percentage then would you think are defaults
related to loans issued in the last 18 months? Would you say it
is minority or majority of those defaults?
Ms. GUZMAN. I would say it is the majority.
Mr. MOLINARO. Overwhelmingly.
Ms. GUZMAN. Uh-huh.
Mr. MOLINARO. So we can easily go back to the April 2023
loosening of loan integrity to point to the reason for default.
It is convenient for some of my colleagues.
And I respect using COVID as the answer to most of our
problems. Having lived through it, I can tell you it was
certainly a real challenge to small businesses.
But that is not a baseline for the current default rate.
That is actually not even fuzzy math. It is actually incorrect
math.
We are seeing a skyrocketing increase in defaults in loans
that have been issued well past COVID but subsequent to the
change in rulemaking--the rulemaking change by your
administration undermining loan integrity. There is no other
way to look at it.
The absence of appropriate oversight and the ability to
loan without standard protections is real. And acknowledging
that and perhaps attempting to fix it would put my small
businesses and, as a Member of Congress, me, in a much better
mindset when it relates to the work you are supposed to be
doing on behalf of protecting both small businesses and
taxpayers.
I came here with a few questions as related to rural small
businesses, and I do appreciate trying to get to some of the
more serious issues.
I also laugh when some of my colleagues say, ``Well, we
shouldn't spend any time talking about voter registration,''
and then, of course, spend all of their question time asking
questions about voter registration.
When I got here, the Ranking Member asked you about Project
2025. I feel like that every time I come to this Committee
meeting, I am in some sort of deranged version of ``The Wizard
of Oz.'' Pay no attention to the skyrocketing inflationary
cost. Pay no attention to default rates. Pay no attention to
the 31st month of small business having a pessimistic outlook
as to the economy. Look over there, Project 2025.
Have you read Project 2025?
Ms. GUZMAN. As I stated, no, I have not read it fully.
Mr. MOLINARO. Okay.
How many Members of Congress do you think you have asked or
talked to who have read Project 2025?
Ms. GUZMAN. I have no idea.
Mr. MOLINARO. Do you think any Member here has read Project
2025?
Ms. GUZMAN. I have no idea.
Mr. MOLINARO. Okay.
So I have not read Project 2025. I don't have time nor do I
care.
Are there left-leaning think tanks in America?
Ms. GUZMAN. There are, yes. On both sides, there are
multiple think tanks.
Mr. MOLINARO. Do you think that they, too, have presented
lunacy in the form of policymaking?
Ms. GUZMAN. I do not--I am not going to comment on those.
Mr. MOLINARO. But it is really possible that they have
project something or other on the left as well, right?
Ms. GUZMAN. I think what was unique about Project 2025 is--
--
Mr. MOLINARO. That you didn't read.
Ms. GUZMAN.--there were a lot of former administration----
Mr. MOLINARO. That you didn't read.
Ms. GUZMAN. There were a lot of former administration
involved.
Mr. MOLINARO. Yet, you had a fulsome answer about one
question as it related to it.
Ms. GUZMAN. I have heard one thing that was alarming, yes.
Of course, someone called to my attention that it was----
Mr. MOLINARO. Is it policy?
Ms. GUZMAN.--a State disaster program.
Mr. MOLINARO. Is it policy?
Ms. GUZMAN. Is what policy?
Mr. MOLINARO. Project 2025. Is it established policy?
Ms. GUZMAN. No, I have not read it.
Mr. MOLINARO. Is it legislation?
Ms. GUZMAN. That is why I have not read it.
Mr. MOLINARO. But you know about it?
Ms. GUZMAN. Correct. It is in the news.
Mr. MOLINARO. And you can speak to its frightening nature?
Ms. GUZMAN. It is in the news.
Mr. MOLINARO. I just think it is a disservice to everyone--
everyone--and a waste of my time to have the Administrator of
the SBA and the Ranking Minority Member start a hearing--that,
by the way, has nothing to do with voter registration; they can
say it is, there is no title about voter registration, it is
about oversight--waste our time trying to distract about a
policy paper that no one has read, no one has any intention of
moving forward on, and, quite frankly, my small businesses
don't care much about.
What they do care about, however, is the massive rate of
inflation and the high cost of doing business in rural
communities more than ever.
Despite the tenor and the tone of my questions, I welcome
you to upstate New York because our communities and our small
businesses know what it is like to be left behind.
Thank you.
Ms. GUZMAN. I look forward to visiting.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Mann from the great State of
Kansas for 5 minutes.
Mr. MANN. Thank you, Mr. Chairman, and thanks for hosting
today's hearing.
Administrator Guzman, thank you for being here.
You mentioned that you have met with businesses across the
country where you have seen, and I quote, ``a record-breaking
small business boom.''
I can tell you I just visited all 60 counties in my
district in Kansas, and between the cost of gas, groceries,
regulation, the struggle to find qualified workers, the small
businesses that I am meeting with and hearing from in Kansas
are not feeling the same boom that you are talking about.
Yes or no, are you familiar with the Biden-Harris
administration's fiscal year 2025 budget and revenue proposals
regarding eliminating the stepped-up basis?
Ms. GUZMAN. I am generally familiar, of course, with tax
policy. But, again, I am the SBA Administrator, and so that is
not my portfolio.
Mr. MANN. Well, I just think, as the Administrator of the
SBA that is overseeing small businesses, eliminating the
stepped-up basis would be devastating to our small businesses
and family farms across the country.
Please describe what the Biden-Harris administration's
proposal would do with respect to the longstanding bipartisan
provision that this is in the Tax Code?
Ms. GUZMAN. Well, I do know that there was a provision to
exempt family-owned businesses. As we know, if a second
generation, third generation inherits a family business, being
able to sustain that cost of the taxes and implications could
potentially put them out of business and force them to sell.
So definitely there was an exception in there for small
businesses to defer that tax realization until the business is
sold.
So I know that, of course, for our small businesses, that
was good news, to be able to see that there was fair treatment
towards them, a balanced approach.
Mr. MANN. But that provision you talked about is the
essence of the stepped-up basis, the notion that small
businesses, farms, are exempt from having to pay taxes and, as
a result, they get a step up in their tax basis.
I don't believe that it is true that they would be exempted
because that was the essence of the proposal, was doing away
with the exemption in the first place.
Ms. GUZMAN. No. There was in the Biden-Harris proposal an
exemption for family-owned businesses--not--a deferment, I
should say, not an exemption, a deferment to be able to defer
that until they realize a gain.
Mr. MANN. But that deferment is the stepped-up basis, and
when the proposal is to do away with the stepped-up basis, you
are doing away with the deferment.
I can tell you, for the fourth year in a row this
administration's budget and revenue proposals have proposed
eliminating the stepped-up basis, which would be disastrous for
our small businesses, our family farms across Kansas, across
the country.
The proposal--and it is very clear language that I read in
the proposed budget--would impose massive farm- and business-
killing, mark to market, capital gains taxes on property like
family-owned businesses and farmland that has been held for 90
years or more.
These are mom-and-pop shops and family farms that have
defined the American Dream for generations, and we should be
promoting and helping them, not changing tax policies to
devastate them when they pass to the next generation.
Do you support this farm- and business-killing tax that the
administration continues to promote, the elimination of the
stepped-up basis?
Ms. GUZMAN. Again, we are not in agreement in terms of what
it did, and so I can't give you any of my recommendations on a
specific. But, again, the----
Mr. MANN. Do you support the stepped-up basis?
Ms. GUZMAN.--it was----
Mr. MANN. Are you for the concept----
Ms. GUZMAN. Small business and family-owned were exempt.
Mr. MANN. Are you for the concept of having a stepped-up
basis to be able to pass farmland or small businesses from one
generation to the next with the step up or an increase in the
tax basis?
Ms. GUZMAN. I am for a balanced Tax Code that benefits our
small businesses more than our large. That is what I am for.
Mr. MANN. Which is codespeak for you are not for preserving
the stepped-up basis, which is why I am having the
conversation, and which is why every year for the last 4 years
we have gone to battle with the administration when the budget
is released to make sure that we keep the stepped-up basis.
It is remarkable to me how out of touch it seems like we
are when we say we are for small businesses yet the number one
State tax provision that helps them this administration
continues to year after year propose doing away with. It is
very duplicitous and makes no sense to me.
Ms. GUZMAN. And the Biden-Harris had protected family-owned
businesses by giving them that deferment until the gain was
realized.
Mr. MANN. It has been protected and they have had a
deferment until the budget came out where they proposed doing
away with the stepped-up basis.
Mr. Chairman, frustratingly, I am going to yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Representative Maloy from Utah for 5
minutes.
Ms. MALOY. Thank you, Mr. Chairman.
Administrator Guzman, thanks for being here.
You have heard from a lot of my colleagues. I am not going
to go over everything they have already brought up. I just want
to say I share the concerns of my colleagues about SBA being
involved in elections and in things that are outside the
mission of the SBA for structural reasons by themselves but
also because I am concerned about the SBA being focused on
helping small businesses.
I represent Utah's Second District. Utah is a really
business friendly State, very entrepreneurial. And our State,
our State legislature, our Governor's office work really hard
to create a business friendly environment that fosters small
businesses in Utah.
And I have never heard them say anything about wanting more
federal involvement in anything, but they are excited about
being able to partner with the SBA to help small businesses.
Nobody ever asked me about Project 2025. I have never read
it. It is not something that I am concerned about. But I am
concerned about making sure that small businesses thrive in
Utah, including family farms.
I do hear a lot from constituents about wanting to be able
to hand down family farms. I hear a lot from Utahans about
wanting to make sure their small business takes off so they can
support their families.
And to that end, our State and our chambers have been
excited to be part of SBDC, Small Business Development Centers.
And what I am hearing is that they like the idea. They are
disappointed with the execution of it. They feel like the SBA
isn't being very responsive.
So the State, understandably, wants to be able to monitor
goals and metrics of success, annual reports, things like that,
but they have found the SBA to be unresponsive and unwilling to
be a true partner. And the end goal should be the same for the
State, for higher ed in Utah, for SBA in Utah: that we want to
create an environment where small businesses can thrive.
So what I want to know today is, are you willing to commit
to investigating and correcting the lack of responsiveness from
SBA to the State entities that they are partners with, that
they have signed agreements with? And what can we do to help
make that happen?
Ms. GUZMAN. I am happy to look into what is happening with
our Utah SBDC. I mean, we award these on a State basis and then
they have subgrants to multiple entities around the State. And
having managed the program in California and working directly
with the SBDCs out there, I am happy to provide support.
And Governor Cox and I have had conversations about the
importance of investing in small business. And I am pleased to
see some of our advancements in Utah. Our very first accrual
SBIC was launched in Utah with Pelion Ventures.
And so I would be happy to follow up on that to understand
what is happening with our SBDCs.
But we grant them funds. They choose their partnerships
locally. They are independent nonprofits. But I am happy to
explore. I am sure they would be as well.
Ms. MALOY. Yeah. I know they are independent nonprofits,
but they have felt like the administration hasn't been really
helpful as a partner. And if we are going to have a federal
agency helping foster small businesses, I want to make sure
that it is actually working for the small businesses in Utah.
So I will have my staff follow up with you, and we will
work together with the State and iron that out and make sure it
is actually working.
Ms. GUZMAN. Great.
Ms. MALOY. Thank you.
With that, Mr. Chairman, I yield back.
Chairman WILLIAMS. The lady yields back.
I would like to thank Administrator Guzman for her
testimony and for appearing before us today.
Without objection, 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.
So I ask the witness to please respond promptly if that
happens.
If there is no further business, without objection, the
Committee is adjourned.
[Whereupon, at 11:40 a.m., the Committee was adjourned.]
[Hon. Guzman did not submit her responses to questions in a
timely manner.]
A P P E N D I X
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