    [Senate Hearing 118-383]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-383

                      OVERSIGHT OF THE U.S. SMALL BUSINESS
                        ADMINISTRATION AND REVIEW OF THE
                          PRESIDENT'S FISCAL YEAR 2025
                                BUDGET PROPOSAL

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                              AND ENTREPRENEURSHIP

                                     OF THE

                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 20, 2024

                                   __________

          Printed for the use of the Committee on Small Business and
                                Entrepreneurship

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    56-456                    WASHINGTON : 2025

    -----------------------------------------------------------------------------------

                COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                        ONE HUNDRED EIGHTEENTH CONGRESS

                                  ----------

                      JEANNE SHAHEEN, New Hampshire, Chair
                        JONI ERNST, Iowa, Ranking Member
    MARIA CANTWELL, Washington           MARCO RUBIO, Florida
    BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
    EDWARD J. MARKEY, Massachusetts      RAND PAUL, Kentucky
    CORY A. BOOKER, New Jersey           TIM SCOTT, South Carolina
    CHRISTOPHER A. COONS, Delaware       TODD YOUNG, Indiana
    MAZIE K. HIRONO, Hawaii              JOHN KENNEDY, Louisiana
    TAMMY DUCKWORTH, Illinois            JOSH HAWLEY, Missouri
    JOHN W. HICKENLOOPER, Colorado       TED BUDD, North Carolina

                     Sean Moore, Democratic Staff Director
                    Meredith West, Republican Staff Director

                                C O N T E N T S

                                  ----------

                                 MARCH 20, 2024
                                    Witness

                                                                       Page
    The Honorable Isabella Casillas Guzman, Administrator, U.S. Small
      Business Administration, Washington, D.C.......................     4
        Prepared Statement...........................................     7

                  Additional Letters/Statements for the Record

    Bowles, Erskine, Former SBA Administrator
        Testimony dated February 22, 1994............................    17
    Funding Circle
        Letter dated March 26, 2024..................................   102
    Funding Circle Shareholder Analysis
        February 28, 2021............................................   109
    Funding Circle Shareholder Analysis
        February 29, 2024............................................   113

                            Questions for the Record

    The Honorable Isabella Casillas Guzman
        Responses to questions submitted by Chair Shaheen, Ranking
          Member Ernst, and Senators Cantwell, Cardin, Hirono,
          Hickenlooper, Risch, Scott and Young.......................   121

        OVERSIGHT OF THE U.S. SMALL BUSINESS ADMINISTRATION AND
    REVIEW OF THE PRESIDENT'S FISCAL YEAR 2025 BUDGET PROPOSAL
                                  ----------

                           WEDNESDAY, MARCH 20, 2024

                          United States Senate,
                            Committee on Small Business
                                          and Entrepreneurship,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 2:33 p.m., in
    Room 428A, Russell Senate Office Building, Hon. Jeanne Shaheen,
    Chair of the committee, presiding.
        Present: Senators Shaheen [presiding], Cardin, Markey,
    Booker, Coons, Rosen, Ernst, Young, Hawley, and Budd.

                  OPENING STATEMENT OF SENATOR SHAHEEN

        The Chair. Good afternoon everyone. The Senate committee on
    Small Business and Entrepreneurship will come to order. We are
    delighted to be joined by Administrator Guzman. Thank you for
    being here today.
        Let me just advise everyone that we are in the middle of
    votes. If it is Wednesday and the committee is meeting,
    obviously we are in the middle of votes. So, I expect Senators
    will come and go, and that is the reason.
        Today, the committee will conduct a hearing to examine the
    Small Business Administration's budget request and to take a
    closer look at how the agency helps America's small businesses
    grow and thrive.
        The Small Business Administration is a vital resource for
    our nation's entrepreneurs, provides access to capital,
    entrepreneurial development services, support for small
    business Government contractors, and assistance for disaster
    victims.
        In New Hampshire, our local economies have benefited from a
    strong support network that helps launch new entrepreneurs and
    assist businesses seeking to grow and expand. This includes our
    SBA district office as well as SBA's resource partners like the
    Small Business Development Center, the Women's Business Center,
    and our two SCORE chapters.
        As chair of this committee and as a member of the Senate
    Appropriations committee, I am firmly committed to making sure
    that entrepreneurs have every opportunity to realize their
    dreams. But for our small businesses to succeed, SBA will
    require real investments from Congress.
        I intend to continue to support robust funding for these
    critical resources. This year, the President's budget requests
    $1.4 billion for the SBA. The Administration proposes many
    sound investments, including healthy levels for SBA's lending
    programs and disaster funding.
        In particular, the budget recognizes the urgent need for
    additional resources to administer the COVID Economic Injury
    Disaster Loan, or EIDL program. Without additional funding, the
    SBA will be unable to provide the level of customer service
    that businesses need, and it will have a difficult time
    identifying and rooting out fraud in the program.
        We need more funding for enforcement as well, which is why
    I was glad to see that the Administration requested a
    substantial increase for SBA's Inspector General, something
    that I had hoped we could do last year.
        However, I was disappointed to see that for the second year
    in a row, the budget cuts funding for SBDCs, Small Business
    Development Centers, for SCORE, and for the State Trade
    Expansion Program, or STEP. As someone who helped create STEP
    in 2010, I am a real believer that this program has a fantastic
    record of helping small businesses reach international markets.
        And when 95 percent of markets are outside of the United
    States, if we expect our small businesses to be able to enter
    those markets, we need to help them do that. Now, while I
    recognize that putting together a budget requires tradeoffs, I
    have to disagree with the Administration's proposal to reduce
    funding for STEP and other entrepreneurial development
    programs.
        As we craft our appropriation bills this spring, I will
    continue to push to protect these programs from cuts. I will
    also work to ensure that SBA uses its resources as effectively
    as possible. In particular, I would urge SBA to place more
    staff and resources on the ground where businesses are rather
    than at its headquarters here in Washington.
        Over the last few years, we have seen SBA's investment in
    its field offices diminish. I, along with other Senators, have
    repeatedly asked the agency to reverse this trend. As business
    owners know, there is no substitute for local knowledge and
    expertise.
        I want to ensure that entrepreneurs will always be able to
    turn to someone at SBA who knows their communities just like
    they do. Administrator Guzman, I look forward to hearing from
    you today and discussing some of these concerns.
        And with that, I will turn it over to Ranking Member Ernst.

                       STATEMENT OF SENATOR ERNST

        Senator Ernst. Thank you, Chair Shaheen. And thank you,
    Administrator Guzman, for your appearance before the committee
    regarding President Biden's budget request of nearly $1.5
    billion for the SBA. Under Bidenomics, Americans feel like no
    matter how hard they work and how hard they try to make the
    right decisions for their families, they just can't win.
        President Biden just called for nearly $5 trillion in tax
    increases in his budget, including on small businesses. The
    burden of these tax hikes will fall squarely on working
    Americans. President Biden would rather bureaucrats in
    Washington spend Americans' money than the folks who earned it.
        The arrogance is astounding. And just when we think it
    can't get any worse, in its new regulation upending the 7(a)
    program, the SBA ignored the lessons we learned from COVID era
    programs on financial technology and unregulated lenders. We
    all just watched these risks play out and cost the taxpayers
    billions.
        You would think the Administration would learn from its
    mistakes, but sadly not. The SBA is giving fintechs unlimited
    access to a key SBA program, along with reducing the
    underwriting requirements that protect American taxpayers.
        One of the first licenses awarded under the new rules was
    to a London based company called Funding Circle, whose current
    U.S. managing director is the former COO of the fintech Blue
    Vine, which aided in issuing fraudulent PPP loans.
        Not only that. Reports indicate Funding Circle has an
    investment from a Beijing based fintech conglomerate, and it is
    not clear whether the SBA knew it was giving access to loans
    guaranteed by American taxpayers to a company partially owned
    by the Chinese.
        Now, we have learned Funding Circle is selling their entire
    U.S., business with reports indicating they may try to sell
    their SBLC license too, and to whom we can only guess.
    Questions also remain if Funding Circle U.S. is financially
    sound. Funding Circle announced yesterday they plan to start
    making SBA loans as early as April.
        Meanwhile, Funding Circle's CEO states they don't have
    sufficient capital to make SBA loans and are looking to sell.
    What the heck folks is going on here? Based on the SBA's recent
    track record, I have zero confidence in the agency to do proper
    due diligence on SBLC risk and protect programs from CCP
    influence.
        The SBA said last year's reckless rule changes would fix
    their so-called ``small dollar loan problem.'' Yet again in the
    vein of Washington knows best, President Biden's budget revives
    another bad idea killed, killed by the Clinton Administration
    decades ago, the bureaucratic and inefficient direct lending
    program.
        Even President Obama said in 2010, that an SBA direct loan
    program would require ``standing up a massive bureaucracy, and
    it would take too long, and you would be frustrated.'' That was
    President Obama. The SBA at the time also acknowledged a direct
    loan program would cost ``billions of dollars in administrative
    funds.''
        Today, my colleagues and I demand the Administration rein
    in its reckless lending rules and stop issuing new SBLC
    licenses like the one they issued to China affiliated Funding
    Circle. And no, this does not mean that the SBA should replace
    one disaster with a bigger one, like a direct lending program.
        That is why I and 12 of my Senate colleagues are proudly
    co-sponsoring Senator Scott and Senator Kennedy's legislation
    that would explicitly remove SBA's ability to make direct loans
    within the 7(a) program.
        Administrator Guzman, you are here today asking for more
    money to fund an agency that is actively failing to respond
    adequately to numerous inquiries from Congress, actively
    failing to track fraud in its programs, and whose offices are
    often deserted, with the GAO reporting that your headquarters
    has only a 9 percent utilization rate. That is GAO. That is not
    me.
        Bottom line, your agency needs to fix its major problems
    before asking for more money. The American people are so sick
    of Washington wasting their hard earned money, and the SBA's
    recklessness is a testament to the larger problems of Biden's
    mismanaged Government.
        I look forward to hearing from you, Administrator Guzman,
    and urge the Administration to reverse course on its
    irresponsible policy and management decisions. Thank you, Madam
    Chair.
        The Chair. Administrator, the floor is yours.

    STATEMENT OF HON. ISABELLA CASILLAS GUZMAN, ADMINISTRATOR, U.S.
             SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC.

        Ms. Guzman. Thank you so much, Chair Shaheen, as well as
    Ranking Member Ernst, and all the distinguished members of the
    committee who are here and who will be coming. I appreciate the
    opportunity to join you today.
        At the SBA, we do work hard to ensure that our 33 million
    small businesses and innovative startups have the tools and the
    resources and the support that they need to start, grow, and
    build resilient businesses as our nation's economy truly
    depends on their success.
        When I was confirmed by the Senate in March 2021, we were
    still facing unprecedented job losses of the COVID pandemic and
    subsequent downturn. SBA was scaling dramatically to save small
    businesses who were facing revenue losses and were unsure if
    they would survive.
        President Biden understood the challenges facing small
    businesses, and that is why his American Rescue Plan provided
    essential support to the very small businesses that are the
    heart of our communities.
        Every member of this committee knows a small business that
    wouldn't be open today if it were not for the support provided
    through the SBA. SBA's COVID-19 support, more than $450 billion
    during the Biden-Harris Administration, was a critical lifeline
    for our small businesses when they needed it the most.
        The Paycheck Protection Program helped small businesses and
    nonprofits retain their employees. The COVID-19 Economic Injury
    Disaster Loan, or COVID EIDL program, and targeted grants
    provided working capital to not only help small businesses
    continue to weather the worst effects of the downturn, but also
    position their businesses for growth to help our economy
    recover.
        The Restaurant Revitalization Fund and Shuttered Venues
    Operator Grants programs saved our mom and pop restaurants, the
    cafes, breweries, stages, the shuttered performing arts centers
    and cultural venues who are all anchors of our main streets,
    driving business across the country.
        Our historic level of investments in small businesses,
    including through the American Rescue Plan, combined with
    opportunities and landmark legislation such as the bipartisan
    infrastructure law, CHIPS and Science Act, and the Inflation
    Reduction Act, set the stage for America to have the strongest
    economic recovery of any developed country in the world.
        Last year, when I appeared before this committee, leading
    economists were predicting an economic downturn. Now, the U.S.
    economy continues to power ahead, inflation has slowed over the
    past 18 months, and interest rates are down from their recent
    highs. And with 14.8 million more jobs than when the President
    took office, labor markets are strong and stable.
        In addition, we have seen the top three years of small
    business application filings, the highest on record. This
    historic small business boom has delivered 16.8 million
    applications filed since the President took office.
        These acts of hope, as President Biden calls them, are
    powered by entrepreneurs in every State and especially by women
    and people of color who are leading with the highest start up
    rates. This is what happens when we have an Administration that
    is committed to building an economy from the middle out and the
    bottom up.
        SBA's capital and resource programs are reaching more
    communities and making an impact. I have visited thousands of
    businesses across the nation, including many in your districts
    and your States, and these entrepreneurs continue to inspire me
    and also inform the work at the SBA.
        Small businesses have shared with me their future plans and
    prospects, as well as the challenges that they face every day.
    And finding affordable capital often tops the list. In 2023,
    SBA supported more than $50 billion across our core lending,
    bonding, investment, and disaster programs.
        Our reforms helped reverse the decline in small dollar
    lending. By simplifying and cutting red tape, we have made it
    even easier to work with the SBA and have given greater
    flexibility to our expanded lending network to make the type of
    small dollar loans that are key to supporting SBA's
    historically underserved communities, which includes rural, low
    income, women, people of color, as well as startups and
    veterans.
        SBA loans to underserved markets have increased as a result
    of reforms at the SBA. For example, both loan dollars and
    numbers to black owned businesses have more than doubled, loan
    numbers to Latino owned businesses have doubled, and increased
    to women owned businesses by 70 percent.
        And for the first time in more than 40 years, SBA awarded
    three new licenses in the small business lending company
    program to companies in Alaska, Colorado, and Arkansas. SBA
    transitioned community based lenders and community advantage
    out of their pilot license into the new, permanent SASBLC
    license.
        SBA now has 142 SASBLC enrolled lenders, which is 39 more
    than the number enrolled under the pilot program just a couple
    of years ago. Critically, SBA has also prioritized preventing
    fraud across our programs. We put in place best practices for
    fraud prevention, detection, and response.
        We have also continued to work in close partnership with
    the Inspector General and law enforcement to recover stolen
    taxpayer funds in the COVID pandemic programs. Because of our
    reforms, all SBA loans in our core programs are screened for
    fraud prior to disbursement as part of our eligibility check.
        Our aggressive actions and investments mean that SBA is
    more strongly positioned to combat fraud, waste, and abuse
    across our programs, which allows our entire mission driven
    team at the SBA to focus on delivering entrepreneurial support
    and resources to help more Americans start and grow their
    businesses and recover after disaster.
        I look forward to working with the committee to ensure that
    the SBA has the resources it needs to continue to help propel
    the economy.
        [The prepared statement of Ms. Guzman follows.]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chair. Thank you very much, Administrator Guzman. I
    think there is no doubt that the SBA has been critical, both
    during the pandemic, the PP program, and the SBA's ability to
    administer that.
        The programs that you have administered since that time
    under ARPA have allowed so many small businesses to survive
    that pandemic and continue to grow. I am sure all of us on the
    committee could point to businesses in our home States that
    have survived because of the work of the SBA.
        And one of the pieces of that, that I think is so critical,
    has been the district offices. And it is something that we have
    talked about on a number of occasions. And that is why it is
    hard for me to understand why the SBA appears to be scaling
    back that investment in district offices in favor of
    centralizing operations in D.C.
        And I would just point to a March 2023 report from SBA that
    called--was called for in the 2023 Financial Services and
    General Government bill, and it showed that field staffing
    levels in Fiscal Year 2022 were down 5 percent from Fiscal Year
    2019, and that budgets from the Office of Field Operations, the
    office that oversees and funds field office activities, are
    down 30 percent.
        The Fiscal Year 2024 Senate FSGG Appropriations Report
    contains language that encourages SBA to set a floor at seven
    full time equivalent staffers per State and district offices
    and requires SBA to fill vacant positions below that level.
        So can you talk about the changes in funding or staffing at
    district offices, and what you can share with us today about
    what SBA is doing to comply with the language in the 2024 FSGG
    bill.
        Ms. Guzman. Yes, thank you for--[technical problems]--that.
    The field offices, as well as our resource partners, are key
    navigators for our small businesses to connect to SBA's core
    programs, the capital programs, the certification programs that
    are running here at the headquarters offices and at the SBA in
    D.C.
        Our, you know, field staff--obviously, we have vacancies
    across the country that we are continuing to focus on filling
    and competing in the marketplace to get those positions filled.
    And we have a remained commitment to ensuring that we can be
    staffed at the levels.
        I will point out that since 2018, SBA has not received its
    full S&E request for funding. We are continuing to manage in a
    resource restricted environment, you know, while also
    balancing, of course, the COVID pandemic.
        And, we have also been able to source additional support in
    the field, obviously, to try to help us address the COVID
    pandemic. We are servicing in responsibilities, but clearly,
    the agency requires resources to continue to grow on the
    ground.
        We will obviously take every effort to make sure that the
    field offices are fully staffed, that they have the expertise
    on the ground around contracting, as well as capital, and the
    core outreach programs that they so desperately need in small
    businesses around the country.
        The Chair. And do you have a list of those offices that
    have openings that have been either approved and can't hire
    people or have not been approved to fill those openings?
        Ms. Guzman. I know--I don't have that, of course, handy,
    but, I mean, my team would be able to give you more insights. I
    know that there happens to be one in New Hampshire that was
    mentioned to me recently.
        Of course, that is a vacancy that is trying to be filled.
    So, you know, we make every effort, of course, to not only
    balance our resources and work within the realm of what we are
    budgeted, but in addition to that, obviously try to
    expeditiously clear these vacancies.
        The Chair. Can I ask that the SBA provide this committee
    with a list of those district offices and what the current
    level of staffing is in those offices?
        Ms. Guzman. I am always happy to cooperate and respond to
    your requests.
        The Chair. Thank you. I appreciate that. Another area that
    I mentioned in my opening statement, where I was surprised to
    see a budget cut, was with the Small Business Development
    Centers.
        They are the SBA's largest resource partner. In Fiscal Year
    2023, SBDCs exceeded their baseline goal for the number of
    unique clients served by over 30 percent. In New Hampshire, our
    SBDC network is vital to the small business community. This
    past year alone, it served over 3,400 entrepreneurs and over
    200 communities.
        It helped businesses raise 37 million in new capital and
    contributed to the creation of retention of almost 630 jobs.
    And yet, I know that there has been a commitment on the part of
    SBA to create a community navigators pilot program. I am
    concerned that the funding that has been cut from the SBDCs is
    being used for that community navigators program.
        And I understand that each Administration has their own
    priorities, but it seems to me that while the community
    navigators have helped about 38,000 clients at a cost of $2,600
    per client assisted, over the same period, the SBDC has helped
    almost 632,000 unique clients at a cost of about $440 per
    client assisted.
        So, it doesn't seem to me that that is a reasonable trade
    off. And so, can you help me understand why the cut in the
    budget for the SBDCs and what that funding is going to address?
        Ms. Guzman. Yes, happy to. And the SBDC--I have slightly
    different numbers, but the community navigator pilot program,
    you know, did directly counsel in the 30,000 range. But they
    also reached 350,000 people. The point of that program was to
    be navigators, to connect them to SBA's existing resources, not
    duplicate.
        The SBDCs, I show, reach 326,000. And my question really
    is, there are 33 million small business and innovative
    startups. You know, we need to do more to reach the 32.7
    million other small businesses every year.
        And our efforts to try to incentivize new networks, new
    entrepreneurial ecosystems, that have trusted local
    relationships that can meet businesses where they are, is
    really our commitment and continuing to request funding for the
    community navigators pilot program.
        We believe all these resource partners do incredible work
    in the community. You know, after 40 years of performance, the
    SBDCs clearly do a wonderful job. I have met with them, with
    you, and your State, and we want them to continue to perform,
    but we do know that they don't serve everybody.
        I was recently in Michigan, met with a small business owner
    who brought the SBDC along to show, you know, what they have
    done to help advance her business. But just a couple hours
    later, I met with another business owner, talked to them about
    the SBDC and that she should try to get help.
        And she just said, no, no, no, that is not for me. Whether
    it is the university setting in that case or what, I am not
    sure, but obviously we are not meeting everybody and we are
    just trying to make sure that we serve all, as many as
    possible, of those small businesses and connect them to SBA's
    resources.
        The Chair. Thank you. Senator Ernst.
        Senator Ernst. Thank you, Madam Chair. And thank you,
    Administrator Guzman. As I mentioned in my opening statement, I
    do have grave concerns about SBA's oversight of the new SBLC
    licenses. And Administrator Guzman, please answer yes or no.
    Was SBA aware that Funding Circle had an investment from the
    China based investor Credit Ease when it approved the license?
        Ms. Guzman. I can't speak to the application review as that
    was done by my team.
        Senator Ernst. Okay. Thank you. What kind of due diligence
    is the agency doing on the potential licenses if it didn't flag
    and evaluate that potential risk?
        Ms. Guzman. We fully evaluate their safety and soundness
    and, you know, make sure that we are evaluating their
    performance in their loan portfolio in particular, you know, in
    terms of defaults and performance. And that is the, you know,
    the focus of our thorough review as we review all of our
    licenses and license applications.
        Senator Ernst. Okay. But I am concerned, and I do want to
    be clear that the SBA shouldn't take lightly any of those
    business relationships that might potentially expose our small
    businesses' proprietary financial information or provide a
    windfall to the CCP or any foreign adversary.
        Especially in today's day and age, we see what is going on
    with TikTok. We see so many other Chinese investments that are
    coming into the United States. I think that would be of grave
    concern to those that are going through the vetting process.
        Ms. Guzman. I know that the Colorado based U.S operations
    of Funding Circle that I know is, you know, obviously in the
    news lately. I know that they in particular, you know, continue
    to work with the SBA through this application process. They are
    not finalized.
        They hope to do SBA license--or excuse me, SBA loans in the
    coming weeks as they--as you read and as you announced. But we
    continue to work with them, and I will be sure to flag these
    concerns to my team as we move forward.
        Senator Ernst. Right. And again, so you are aware that the
    U.S. based part of that in Colorado is up for sale. So are--you
    are going to continue--let's just be very clear because I know
    you spoke to the House this morning.
        And you said that the SBA has not fully approved Funding
    Circle yet, but you believe they will start making loans in the
    next few weeks. And you restated that here. But it does seem,
    if we look at this situation, that they are using their SBLC
    license as a bargaining chip for their sale.
        So, you stated you will continue to allow Funding Circle to
    start making those SBA loans even though you know they are for
    sale.
        Ms. Guzman. Let me explain as well that 14 existing
    licenses in the SBLC program have been in existence for
    multiple decades. Those licenses have sold at least 60 times.
    Every time a license is sold, it is reviewed by the SBA team
    for re-approval.
        So, any sale of a license is reviewed by the SBA--approved.
    The SBA could deny, as it has in the past, denied an
    application for the sale of an SBLC license to a specific
    entity.
        So, that is, you know, something that the SBA is familiar
    with doing and operating over multiple decades, and this case
    would be treated in the same way.
        Senator Ernst. Okay. Well, we do know that Funding Circle
    has been lobbying for this license and has been actively trying
    to loosen the underwriting. They don't have the capital to
    offset the new SBA loan losses, and they have an active foreign
    investor that may pose a national security threat.
        The relationship between SBA and Funding Circle is very
    suspicious, again, with everything else that we see going on
    with the CCP. And I do urge you to go back and scrutinize that,
    and of course, share our opinion or my opinion with those that
    are making those decisions.
        So, Administrator, SBA direct lending has historically seen
    very large losses, sometimes over 40 percent. And Clinton
    Administration officials have stated the subsidy rate is 10 to
    15 times higher than for the guaranteed programs.
        And I ask unanimous consent to enter into the record the
    testimony of the former SBA Administrator Bowles. Unanimous
    consent to enter into the record?
        The Chair. Without objection.
        [The information referred to follows.]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Ernst. Okay. Thank you. And so, Administrator, yes
    or no, are you planning to start a 7(a) direct lending program
    immediately?
        Ms. Guzman. The SBA has authority to do direct lending. We
    currently operate direct lending for disasters, which of
    course, does not perform at zero subsidy.
        The request that you are referencing is for authority for
    the SBA to be able to charge the appropriate fees to have a
    zero subsidy impact program, you know, for direct lending. And
    that is what is in the '25 budget that you are referencing.
        So, SBA doesn't have any current plans to do direct
    lending. Besides, of course, it is disaster lending, which it
    has been doing successfully for decades, you know, to help
    communities impacted by disasters.
        Senator Ernst. Okay. So, you do not plan to use the direct
    lending authority outside of emergencies?
        Ms. Guzman. We do not have some of the specific tools that
    we would like to have, you know, in order to do direct lending
    and not be in direct competition with our lenders who obviously
    distribute our loans effectively.
        Senator Ernst. Okay. So, we will expect that only direct
    lending will be used for emergencies.
        Ms. Guzman. That is what we are currently using it for
    under, you know, my leadership, correct.
        Senator Ernst. Okay. Thank you, Administrator Guzman. Thank
    you, Madam Chair.
        The Chair. Thank you. Can somebody check and see why the
    timing system is not working properly? Okay. We think it is
    working now? Okay. Senator Booker.
        Senator Booker. Thank you, Chair Shaheen. Thank you,
    Administrator Guzman. I am just really excited. Your testimony
    had some really great data points there.
        17 million new business applications being filed is an
    incredible testimony. The strength of the economy and the
    strategies of your office and the Biden Administration. In
    fact, the first, second and third strongest years of new
    business applications on record ever is a pretty great
    testimony to what is happening in our economy and under the
    leadership of our President.
        We have seen historic SBA lending, also, as you pointed
    out, to underserved communities, women entrepreneurs. We are
    just seeing an incredible diversity there. And for me, there is
    no better symbol, especially not only to the power of
    entrepreneurialism in our country, but the redemptive
    possibility for people who have fallen, stumbled, or done wrong
    in the past.
        As somebody who does believe in second chances, who does
    believe in redemption, who does believe that your past does not
    determine your future, the fact that the justice-involved
    people are starting businesses at extraordinary rates is
    encouraging to me. And we know that studies have shown that
    individuals with a criminal record are 50 percent more likely
    to become entrepreneurs compared to those without a criminal
    record.
        But when looking to scale or seed their businesses, people
    who have been formerly justice-involved have bigger obstacles
    to accessing capital and have other barriers to actually
    getting businesses started.
        I was pretty psyched in January when you joined with Vice
    President Harris and announced that the SBA would eliminate the
    burdensome red tape that held entrepreneurs back, an incredible
    step forward that has been championed by Senators on both sides
    of the aisle.
        And so, can you--how will the changes that you all are
    proposing at the SBA be finalized so that these lending
    programs can provide justice-impacted individuals with greater
    opportunities to succeed in their small business endeavors?
        Ms. Guzman. The proposed rule--thank you so much for that
    and thank you for your leadership on this issue as well. And I
    know it is a topic we have discussed multiple times.
        The SBA is looking to streamline across all of its lending
    portfolio those rules to ensure that those who have served
    their time or who are justice-impacted, are not restricted from
    accessing loans to pursue their entrepreneurial dreams.
        Simplifying the process for our lenders, ultimately, and in
    essence, banning the box by no longer restricting access to our
    programs. And these, the final rule, it should hopefully be
    published soon. We are still in the rulemaking process.
        And so, once that is published, we hope to then, you know,
    follow the implementation schedule and move forward.
        Senator Booker. Yes. I mean, when I was Mayor of the city
    of Newark. With just removing bureaucracy, hoops to jump
    through these boxes that you have to check and these other
    things, really helped to streamline opportunities for people.
        And we forget it is not just these entrepreneurs. It is the
    jobs they create, the economy, and resources they bring to
    often underserved communities as well. So, I am really grateful
    to be continued partnership. We are going to continue to be
    watching and hoping to help in any way that we can. Federal
    contracts.
        It is a way that so many big American companies, especially
    defense contractors, again, create so many jobs get so much
    money. But I am really concerned that the people that are small
    businesses, women run businesses, often don't get a chance to
    bid on these Government contracts.
        And so nearly 50 years ago, Congress, in a bipartisan way,
    created a Federal program specifically designed to help
    socially and economically disadvantaged business owners
    compete, fairly compete, for contracts, arguing that
    multinational mega-corporations should not be the only ones
    that are capturing U.S. Government contracts.
        We made a lot of progress. I am proud of that. And made a
    lot of progress making sure that women run businesses,
    economically disadvantaged folks are getting a fair shot. The
    8(a) program, as we call it, has been really a critical pillar
    of the efforts to really make our contractors better reflect
    the Americans that there are.
        But last summer, a Federal judge struck down parts of the
    8(a) program in a move that really, I think, upends the decades
    of progress we have been making, and also the precedent that
    set really flew in the face of the original Congressional
    intent, bipartisan Congressional intent, of the 8(a) program.
        And so, I applaud the SBA's efforts to improve supplier
    diversity and to ensure that small business owners are given
    the tools that they need to compete for Federal contracts. And
    so, can you just talk to me, how does last summer's case, court
    case, impacted the SBA's work to improve outcomes for these
    entrepreneurs?
        Ms. Guzman. Thank you for that. We are pending final ruling
    on the ultimate case, and we are committed to complying with
    the law fully.
        Just speaking back to the program, Eisenhower wanted the
    SBA to exist because of the industrial base and being concerned
    with making sure there could be innovation in small business.
        So, completely agree with you. And these programs, all of
    our programs are really critical to making sure there are
    pathways to Government contracting. So, the status of the 8(a)
    program----
        Senator Booker. And competition, because when you put these
    contracts----
        Ms. Guzman. Competition and innovation----
        Senator Booker [continuing]. You only get one qualifying
    bidder. It is ridiculous.
        Ms. Guzman. So, we continue to support small businesses in
    Government contracting. And the 8(a) program continues, as we
    continue to comply with the law and monitor the pending final
    decision in this court case.
        Senator Booker. Chair, thank you.
        The Chair. Thank you, Senator Booker. Senator Budd.
        Senator Budd. Thank you, Chair. Administrator, thanks for
    being here. I want to follow up with Ranking Member Ernst's
    questions. I didn't--I was listening intently, and the answers
    weren't quite clear to me.
        And here is what I am referring to. In the President's
    Fiscal Year 25 budget, it seems that the SBA is looking to
    revitalize an old authority. Now this is an authority that in
    your answer that you said you had but revitalized that
    authority and that hasn't been used since 1998, and to get back
    into direct lending to businesses to make small loans on a
    broad basis.
        So, does--if you could help me understand this clearly,
    does the SBA intend to stand up this initiative and begin
    issuing direct loans before Fiscal Year 2025?
        Ms. Guzman. I thank you for the clarification because what
    I did reference was that budget request. If given the tools to
    be able to properly implement direct lending, then we would be
    able to do that. Currently as is, as stands, we are not
    pursuing a direct lending program. But however, with the Fiscal
    Year 2025 budget----
        Senator Budd. How would--thank you. How would you get those
    tools?
        Ms. Guzman. The budget allows for SBA to charge the
    appropriate fees to make this a zero subsidy program.
        Senator Budd. Do you intend to get those tools?
        Ms. Guzman. Correct- Well, they are proposed in the
    President's budget.
        Senator Budd. So, it sounds like you are--the budget
    proposes the tools. And if you had those tools, then you would
    begin direct lending.
        Ms. Guzman. That's correct, yes correct Senator Budd. So,
    it sounds like you will begin direct lending.
        Ms. Guzman. If the Congress moves forward with the budget
    in the proposal, yes, correct. In 20--and the Fiscal Year 2025
    budget would create that authority. Thank you.
        Senator Budd. So, I understand that the SBA will use an
    interest rate increase to start, or excuse me, to fund the
    program. An interest rate increase to fund the program. What
    funds will you use to start the program? So, interest rates, an
    increase there will fund it. What would you use to start the
    program?
        Ms. Guzman. The programs, you know, we have a very strong
    unified lending platform. The SBA has invested heavily in
    technology to shore up its programs at the SBA following the
    scale of the COVID pandemic.
        Not only with the technology tools to be able to prescreen
    for fraud and eligibility across our 7(a) and 504 programs
    today. But in addition, we have a strong lending platform that
    is used in our disaster program.
        So, we would be well positioned to be able to administer
    this direct lending program if given the authority and tools to
    be able to charge the appropriate fees for zero subsidy impact
    on the taxpayer.
        Senator Budd. Thank you. You know, it is interesting to me
    that after SBA substantially reorganized the 7(a) program,
    which is still continuing to pose challenges for 7(a) lenders,
    the Administration now wants to get back into direct lending,
    assuming you get these tools, which it sounds like you will.
        So, in this case, it would be the lender, the underwriter,
    and the guarantor, which puts the agency in direct competition
    with the private sector. And you mentioned disaster, right? And
    I am not sure if that is a great example to support your case,
    because we look at EIDL or EIDL program to see how woefully
    incompetent the SBA is at facilitating lending.
        So, Administrator, where did the SBA gain the confidence
    that it can be a good steward of taxpayer dollars and minimize
    losses below or even at par with industry standards?
        Ms. Guzman. I am not sure exactly what you are referring to
    in the COVID EIDL, but presumably, you might be talking about
    the fraud. Note that the protections that are on all of our
    disaster EIDL programs were stripped away.
        Those protections were removed in 2020. That is why you had
    the huge, you know, onset of fraud early on in the nine months
    operating in 2020. Those are, you know, institutional, controls
    that we have always had in place across our disaster program.
        So, I would say that the COVID EIDL program is a very
    unique, you know, portfolio for the agency. Normally we are
    able to collect tax documents and check and clear for fraud and
    eligibility.
        Senator Budd. Thank you. Administrator, you mentioned fraud
    to the tune of $200 billion worth of fraud.
        You know, at the same time that SBA is loosening
    underwriting standards in the 7(a) program and standing up its
    own direct loan program, very concerning, the SBA has also
    announced that ILP loans or intermediary lending pilot
    programs, 7(a) loans and 504 loans, can now all be given to
    businesses associated with people who have been indicted or
    currently on probation or parole for financial crimes, fraud,
    and violent crimes.
        So let me say again, the SBA will now give Government
    backed, taxpayer funded loans to businesses associated with
    fraud and financial crimes, and all this after SBA disbursed an
    estimated, as I mentioned a moment ago, $200 billion in
    fraudulent loans during the COVID-19 pandemic.
        So, Administrator, given the SBA's recent track record in
    its various loan programs, do you believe now is the
    appropriate time to provide Government backed loans to known
    frauds and financial criminals?
        Ms. Guzman. The SBA maintains its programs to control for
    the do not pay list. So, if they have committed fraud against
    the Government taking a PPP or EIDL fraudulently, they are
    banned from Federal programs, VA, SBA, you name it. So those
    individuals would not be allowed into the program.
        So, we feel strongly that, you know, if you have served
    your time, you have a second chance in this country. If you are
    innocent until, you know, convicted and proven guilty. So, we
    want to make sure that we create pathways to entrepreneurship
    and to strengthening communities around this country.
        Senator Budd. Thank you. I yield.
        The Chair. Senator Cardin.
        Senator Cardin. Thank you, Madam Chair. Administrator
    Guzman, it is always good to see you. I am going to give a
    little bit different perspective here because this committee
    played a key role developing the programs during COVID,
    starting with the PPP program and the EIDL program.
        Under the previous Administration, and then continuing with
    the Restaurant Revitalization Fund, the Shuttered Venue
    programs. And I just want to give the bottom line. The bottom
    line is, look where we are today in our economy. We saved small
    businesses from going under during COVID.
        They would not be here today but for these programs. Our
    economy would not be where it is today but for the bipartisan
    efforts made to save small businesses. Now, when we passed
    those programs, we didn't know, in fact we thought that the
    pandemic would be a much shorter duration than it was.
        It was much more severe than we had anticipated when the
    programs were passed. And I say that because we had a grant
    program, basically the Paycheck Protection Program, which was--
    it was forgivable loans. And then we had the EIDL program. And
    I don't condone any fraud. Fraud needs to be dealt with.
        We relaxed the rules intentionally because we had to get
    the money out quickly. That was a decision made by Democrats
    and Republicans. Actually, this committee was--had a Republican
    chair at the time.
        So, it was done by both parties recognizing we couldn't--if
    we waited too long and got all the bureaucracy information, the
    businesses would be under the water and wouldn't- couldn't be
    saved. Again, I don't condone any of the fraud that has taken
    place, but it leads me to my first question, and that is a lot
    of small businesses are struggling, particularly smaller small
    businesses, with repayment of their EIDL loans.
        This is through no fault of their own. They did what they
    had to, to stay afloat and now they are struggling. They
    haven't committed any fraud. They are just having challenges
    because of the circumstances surrounding their particular
    businesses.
        And I recognize we have enforcement issues, and we have
    to--you have to do what you need to do. But is there a way of
    showing, or how are you showing compassion to those small
    business owners that we want to keep afloat through no real
    fault of their own, have been overextended and are now having a
    difficult time paying back these loans?
        Ms. Guzman. Thank you for that question. And I have met
    with some of those businesses around the country as it is a
    still a common issue. This is a nearly $4 million portfolio,
    unprecedented portfolio.
        We have made every effort by investing at the front end in
    technology through my SBA. This unified lending platform that I
    referenced also does servicing on COVID EIDL, as well as, of
    course, our disaster programs.
        This servicing enabled us to do more than, you know, 12
    million calls, 8 million emails, and letters to make sure that
    we are constantly corresponding with these individuals. We have
    made a huge effort in the last few months of really bringing
    people back into repayment, making sure that the portfolio
    continues to perform way above expectations of what Congress
    originally set.
        And in order to do that, we have allowed for hardship
    accommodations to bring people back into current status and
    current repayment. We know that that is the best path forward
    to collect this money on a long term basis.
        If you impose lots of fees and, you know, triple the cost
    of that monthly payment on the loan, you are less likely to
    collect it from someone undergoing hardship. So, we have been
    able to bring back tremendous--tens of thousands of people back
    into current status as a result.
        Senator Cardin. Thank you for that. I am going to give you
    a little different view on direct loans. I think there are many
    small businesses that do not have commercially, desirable loans
    because they are so small in dollar amount they are not really
    the type of loans that commercial lenders want to get involved
    in.
        So, I think a well-tailored direct loan program is
    something that could really help, particularly the smaller
    small businesses. So, I hope you get the authority, but I would
    urge you to work very closely with the committees to make sure
    it is set up in a way that carries out the objective and does
    not create additional burdens with the Small Business
    Administration.
        I want to ask you one additional question on the CASBLCs.
    We had lots of discussions during the rulemaking events. I was
    a big fan of the Community Advantage 7(a) program. To me, it
    had transparency. They were doing--we knew what they were
    doing. They were reaching a market that was very difficult for
    a lot of small businesses and underserved communities to reach.
        During the rulemaking, I was under the impression that you
    were going to continue with transparency on the CASBLCs so that
    we could see whether the metrics are being met by this new
    entity in reaching the underserved communities.
        I haven't seen that information. Are you intending to deal
    with the transparency and data so that we can have a way of
    making it accountable, that the metrics in fact--that this new
    umbrella is reaching the communities we were trying to reach?
        Senator Cardin. Yes. In fact, since Community Advantage is
    trying to fill those gaps in the marketplace, that direct
    lending would hopefully eventually help support as well, it is
    our, you know, priority to continue to track performance, while
    we report fully on the 7(a) portfolio.
        And they are part of it as part of our SBLC program. We are
    happy to continue to provide, you know, targeted performance
    data on the CASBLCs to this committee.
        Senator Cardin. I would hope that you would do that. Quite
    frankly, I would hope that you would do it beyond just our
    committee, that this would be public, transparent information
    that the broader community and stakeholders have confidence
    that how you are administering the CA programs today are
    meeting the expectations. Thank you, Madam Chair.
        The Chair. Thank you, Senator Cardin. I know that I have a
    few more questions. I think Senator Ernst may as well.
        I want to follow up on the COVID EIDL issue because, like
    Senator Cardin, I think people need to take responsibility and
    pay back their loans. But there are also some of those small
    businesses who are in difficult situations who may not have
    gotten clear communication. The servicing that was needed may
    not have taken place.
        We have heard from some of those small businesses in New
    Hampshire that the customer service center allowed borrowers to
    slip through the cracks and land in default, either when they
    were making an effort to catch up on their payments, or they
    were unaware that they were in danger of being referred to
    Treasury.
        So can you talk a little bit more about what we are doing
    to help those small businesses that are not committing fraud.
    They are really trying to make their payments. They don't want
    to be turned over to Treasury. What are we doing, and what more
    can we do to help those folks, working with Treasury?
        Ms. Guzman. We continue to focus and prioritize on
    collections, but obviously with enhanced customer service,
    wanting these small businesses to succeed and not lose jobs
    across the country.
        And so, we have, again, entered into an aggressive stance
    around hardship accommodation. You know, trying to truly
    accommodate, even if they can't bring their account to a
    current status, before entering into that hazard accommodation.
        We know that, while the SBA has, you know, based on more
    recent studies, started referring our entire portfolio over to
    Treasury, we are making sure that we can continue to work with
    these businesses to allow them to come back into servicing with
    the SBA and maintain payments in a way that is responsible to
    the taxpayer, but also allows them to continue to be in
    existence, which is our ultimate goal.
        The Chair. And so, what happens when they are turned over
    to Treasury?
        Ms. Guzman. You know, Treasury offset begins with, you
    know, Treasury's efforts to try to collect as much as they can
    from any Federal payments due.
        So, you know, tax refunds. If they happen to be a
    Government contractor, any Federal payments, multiple other
    programs. There is percentages taken from, you know, other
    payments that are due across the board, Social Security, some
    VA, etcetera. But that is the, you know, first step.
        And then ultimately it goes to cross servicing for
    collection. And those--that third party servicing is where
    there is a much more truncated time that they are allowed to
    repay from 30 years to 10 years, and of course, a much higher,
    you know, penalty with a 30 percent payment on top--30 percent
    of their total loans.
        So, this becomes more difficult for our small businesses to
    manage. And so, we are--, we want them to pay. We don't want
    them to close. And if closure is one option versus paying the
    SBA, obviously, we will pursue that and make sure we work with
    your constituents, and happy to hear from you directly if there
    are any specific cases that we have missed or have fallen
    through the cracks.
        But every borrower has received multiple phone calls. They
    have received multiple emails as well as letter correspondence
    before going to Treasury.
        The Chair. Well, thank you. I think we do have some
    businesses that we would like help on, so we will definitely
    share those with you.
        One of the other areas, issues that I mentioned in my
    opening statement had to do with the State STEP program, the
    State Trade Expansion Program, which I think is very important
    to help our small businesses get into international markets.
        Senator Ernst and I are working on some reform legislation
    to try and address some of the burdensome application and
    compliance requirements. But I think it is one area where we
    could really use help from SBA to improve the program and
    address administrative challenges.
        So, can you talk about what you think SBA could do to help
    work to address some of those burdensome requirements?
        Ms. Guzman. We have begun listening sessions with our STEP
    grantees to try to better understand how we can improve and
    streamline the program, and we want utilization. You know, I
    was just, highlighting in my last testimony one of our
    businesses in Kansas who has been able to use STEP.
        And he has grown his business and has multiple jobs around
    the country--you know, in his hometown of--or home State of
    Kansas. So we really, truly want this to be successful, and we
    commit to continue to work with them to come up with solutions
    and in partnership with you.
        The Chair. Well, thank you. One of the specific areas that
    we have heard about is that lenders have incomplete information
    about export financing options. And yet SBA proposed language
    this year to cut the number of export finance specialists. So,
    does it really make sense to scale back when that is an area
    that small businesses need?
        Ms. Guzman. The--in terms of the export finance
    specialists, we are finding that there are other challenges,
    not necessarily having the export finance specialists in terms
    of the number of loans.
        It is de minimis, a few hundred. So, the current 20 export
    finance specialists can handle that portfolio. We have been,
    you know, partnering obviously across our resource partners,
    our field offices to try to get more awareness of these
    programs.
        And we are looking internally at how we can strengthen our
    working capital loans around export but within the 7(a)
    portfolio that exists, to make these easier to use for our
    bankers.
        The Chair. Well, we look forward in--to working with you as
    we try and improve that program. Senator Ernst.
        Senator Ernst. Thank you, Madam Chair. And I just want to
    reiterate again, as my staff and I were visiting on a sidebar
    here, just Administrator, I know you said that you deal with
    the sale of the SBLC licenses all the time.
        But the SBA, as far as we know, has never granted a license
    to a company that intends to immediately turn around and sell
    the license. Typically, what we have seen in the past is that
    the SBA will grant those license to companies who plan to
    originate and service loans for a long period of time.
        So, I do think the Funding Circle issue is a bit shady.
    That is for all of our C-Span watchers, shady will be the key
    word, and just want Funding Circle to know that we will be
    watching these activities. So, anyway, I am going to move on to
    the telework issue, which has been a really big issue for me
    over the course of about the last four years, maybe since we
    started it during COVID.
        In response to my information request on telework, you
    stated that the telework employees are now required to show up
    to the office only two and a half days a week. And meanwhile,
    the SBA did set a very modest goal of reducing your physical
    footprint by 3 percent. GAO even rated your agency among the
    very worst for agency headquarters utilization, with a rate of
    just 9 percent.
        The only agencies that were lower were Housing and Urban
    Development at 7 percent, physical space utilization, and the
    Social Security Administration at 7 percent utilization. So yes
    or no, do you agree with the GAO that your headquarters
    operated at 9 percent utilization all of last year?
        Ms. Guzman. No, my data does not match that. That is--must
    be old data. Headquarters is currently at 50 percent, in terms
    of occupancy. And note that it is no longer two and a half
    days.
        We are in the office five days per--or you said two days
    per pay period. It is now five days per pay period. And that is
    now nationally as well. And so, you know, we have continued to
    follow the White House's guidance in making sure that our staff
    is in the office and performing, and meeting with small
    businesses around the country.
        Senator Ernst. Okay. I appreciate that. That GAO report
    information was from the end of last year. I think it was based
    on last year's numbers. And now, with the telework, you do not
    have teleworkers any longer or 50 percent?
        Ms. Guzman. Our permanent SBA staff have returned to work
    to this five days a pay period stance. So, yes.
        Okay. Pay period being?
        Ms. Guzman. Every two weeks.
        Senator Ernst. So, two and a half days per week.
        Ms. Guzman. Per week, correct.
        Senator Ernst. Okay. Are you----
        Ms. Guzman. And that is at a minimum requirement. So, you
    have offices--it is really based on mission. Obviously our
    disaster team is in the office much more frequently. Our field
    offices go where they are needed in communities. And so, that
    is the minimum. It really is a mission focused.
        And, leaders are, of course, encouraged to bring people in
    whenever there is collaboration or, you know, special focus
    that they need the folks in the office. But, you know, we have,
    you know, really upped our standard in terms of our meeting the
    requests of the White House to ensure that everyone is coming
    back into the office on a regular basis.
        Senator Ernst. Okay. Do you know that you will have your
    employees return to five days per week?
        Ms. Guzman. We continue to work with OMB and follow the
    guidance, obviously competing for Federal workforce to make
    sure that we can retain our workforce and fill vacancies
    aggressively across the Federal workers.
        Senator Ernst. Okay. Now, I don't want folks to
    misunderstand me. Telework is fine as long as it is meeting
    your goals for those employees and that it is auditable. Do you
    know--are there standards in place to be able to go back and
    monitor the work product that is coming from the employees that
    are teleworking?
        Ms. Guzman. SBA had to quickly shift during the pandemic to
    remote work, working tirelessly to get out the pandemic relief.
    So, we definitely invested in systems and processes to be able
    to maintain performance. And leaders, you know, continue to
    have tools to track performance of their workers, yes.
        Senator Ernst. Okay. And thank you for that. It is a big
    issue with so many of the agencies. We do continue to receive
    information from actual employees within the various agencies.
        So basically, our whistleblowers that are out there, that
    agencies are not responsive to our constituents. So, I do hope
    that the SBA is able to meet the needs of all of our small
    businesses and constituents across our various States.
        This is something that will be very important to me moving
    forward, so I look forward to working with the SBA on these
    issues.
        Ms. Guzman. And if I could add, we definitely hope to do
    so. The budget allows for us to continue to maintain the
    service that we are currently performing on our COVID pandemic
    programs, thus the increase. That funding is really critical.
        Senator Ernst. Okay. Thank you, Administrator. Thank you,
    Madam Chair.
        The Chair. Thank you. Let me just point out that the second
    vote has been called, so if nobody has voted yet, you should go
    vote. Senator Coons.
        Senator Coons. Thank you, Madam Chair. And I will be brief
    since I have not voted. So, if I could, Administrator Guzman,
    it is good to see you again. Thank you for your leadership at
    the agency. We have talked in the past about SCORE.
        I am fond of SCORE not just because it was founded in
    Delaware, but because in 2023, 10,000 volunteer mentors helped
    launch over 30,000 new businesses and create 20,000 non-owner
    jobs. I think that is fairly high performance.
        I think they do a lot with a little. So, I was very
    disappointed to see SCORE cut by 40 percent in the President's
    budget request, and I will continue supporting a robust
    appropriation for SCORE. Help me understand the decision to
    deprioritize SCORE that aggressively.
        Senator Coons. SBA's efforts in the past few years, which
    has as you know, paid off with increased lending in underserved
    communities has been about expanding the distribution networks
    across our lending and as well across our resource partner
    networks.
        We know that our resource partners do an incredible job of
    meeting small businesses, serving them, however, they are not
    reaching enough. We have about 500,000 reached through our
    resource partner partners, about 500,000 through our field
    offices. There are 33 million small businesses.
        And I consistently meet with small business owners who just
    need additional touch points, trusted local partners. Our
    effort is to try to incentivize the local development of
    entrepreneurial ecosystems by funding networks who can, you
    know, go out and seek additional funding as well, like the
    SBDCs do, like the WBCs do, etcetera.
        So, this is really an attempt to manage too-limited
    resources, you know, across the SBA, but to try to continue to
    incentivize new entrepreneurial networks that can truly reach
    out and meet some of these underserved entrepreneurs.
        Senator Coons. I am sorry, I didn't understand what that
    meant at all.
        Well, I mean----
        Senator Coons. You are trying to incentivize new
    entrepreneurial networks, but you didn't----
        Ms. Guzman. Correct, like the Community Navigator pilot
    program, which I need to be more clear about it----
        Senator Coons. Which I don't believe you funded at all?
        Ms. Guzman. We requested for additional funding in this
    budget, which is why you saw some of the programs reduced. And
    we are hoping to incentivize the development of more strong
    entrepreneurial ecosystems, and the navigators can --
        Senator Coons. So, what you are describing is your view of
    the value of community navigators.
        Ms. Guzman. Sorry, yes.
        Senator Coons. Rather than any negativity about SCORE.
        Ms. Guzman. No, no, not at all. I am sorry. We--was sort of
    continuing off of the previous answer but you were not here,
    apologies.
        Senator Coons. My apologies, I was in another hearing. I
    just introduced with Senator Kennedy the Small Business
    Contracting Transparency Act.
        Congress has enacted requirements that a certain percentage
    of Federal contracts go to women-owned businesses, to service
    disabled veteran-owned businesses, to businesses that are small
    but in economically distressed areas.
        And it seems that the Federal Government doesn't meet the
    benchmarks in those statutory commitments.
        And I am hopeful that in working with you, we can get some
    technical assistance to make sure that this bill is actually
    providing constructive transparency on meeting commitments to
    these particular set asides. I know, as you just said, that you
    share my commitment to supporting underrepresented
    entrepreneurs.
        What do you think are the most effective tools for doing
    so? And I think I just invited you to tell me why you are
    supporting Community Navigators. [Laughter.]
        Ms. Guzman. Well, clearly we do. And one of our community
    navigators actually focused on contracting the U.S. Black
    Chamber. But truly, we think that we need to simplify the
    process.
        And that cert was a program that we adopted from the
    Veterans--or took over from the Veterans Administration to make
    sure that our veterans had access to these important set asides
    and these programs.
        We are going to be streamlining all of our certifications
    in line with what we did for the veterans and the service
    disabled veterans. And by doing so, hopefully increase the
    incentives and assure that we can have a more diversified base
    of contractors from which agencies can select.
        Senator Coons. Thank you, Administrator. Thank you, Madam
    Chair.
        The Chair. Thank you, Senator Coons. I am going to turn it
    over to Senator Rosen and ask Senator Markey if he would take
    over briefly as chair while I go vote, and I will be back
    shortly. Senator Rosen.
        Senator Rosen. Well, thank you, Chairwoman Shaheen, for
    holding the hearing. And Administrator Guzman, thank you so
    much for being here today and all of your hard work.
        And so, I am going to talk about small business childcare,
    something near and dear to everyone's heart around the country
    because the rising cost of childcare is financially squeezing
    parents in Nevada.
        And of course, across the country, we all know this. The
    average cost actually for infant childcare in Nevada is over
    $13,000--$13,000 a year. And lack of access to affordable
    childcare, it is a barrier for many parents who want to start
    or grow their business. And so, I feel that this is a crisis
    that demands action.
        It is why Ranking Member Ernst, and I introduced the Small
    Business Childcare Investment Act, and our bill is going to
    increase the availability of affordable, high quality childcare
    for working families by allowing nonprofits, those nonprofit
    providers, to participate in the same SBA loan programs that
    eligible for profit childcare providers have access to.
        The legislation passed out of committee last summer.
    Senator Ernst and I are working very hard to get this done. It
    is long past due, and I just wanted to bring it up quickly. And
    so, Administrator Guzman, can you talk about how the crisis,
    the childcare crisis, how it impacts our small businesses and
    how finally passing this bipartisan bill, which doesn't cost
    anything, just allows our nonprofits access to programs that
    already exist, are going to help.
        Ms. Guzman. We know that childcare and the infrastructure
    of that is really critical, especially for our women
    entrepreneurs who are starting businesses at double the rates
    of men right now.
        We have tried to deploy more programs to help support these
    entrepreneurs, and we believe access to capital is one of the
    top barriers. So being able to buy your building so that you
    can sustain in a community long term, as an example, through
    our 504 program, or being able to get working capital with the
    7(a) program or, you know, to be able to continues to sustain.
        It is really important for our childcare entrepreneurs as
    well. And so, we are, you know, supportive of this bill and
    making the programs eligible for those nonprofit childcare
    centers as they are in our microlending program.
        And we do think that access to capital for these business
    models that are highly challenged, it is difficult to operate
    profitably and in this environment for childcare, but it is so
    critical for entrepreneurship in this country.
        Senator Rosen. Well, thank you. Thank you for outlining the
    steps you are already taking. And I hope that we get this done.
    Another area that I was so pleased to have you come to Nevada
    and work with me on the Veterans Business Outreach Center,
    because Nevada is home to more than 200,000 veterans, over
    23,000 veteran owned small businesses.
        And so, despite all of that, until just this year, Nevada
    was without a dedicated in-state veterans business outreach
    center. Well, actually till last November, and when we opened
    the first VBOC to ensure that tailored support is provided to
    our veterans and the transitioning service members.
        So, I really want to thank you for being there at the grand
    opening, for sharing with all of us in Nevada what you are
    working on and doing, and answering my call to authorize this
    really important, first ever VBOC in Nevada.
        So, given that the SBA requested an increase in veterans
    outreach for the Fiscal Year 2025 budget, can you speak to the
    importance of these veterans business outreach centers and how
    they help ease the transition for servicemen and women? And how
    can we support existing VBOCs going forward in this mission?
        Ms. Guzman. We were thrilled to expand from 22 to 28 and
    include a location in Nevada where there are so many veterans.
        Veterans make incredible entrepreneurs, in terms of that
    grit and determination, and the teamwork, the ethic they bring,
    and so often have some of the traditional barriers that limit
    their access to capital.
        You know, maybe not that personal wealth since they
    sacrificed in serving their country. And so, with unique set of
    challenges, unique set of skills, but also enjoying being
    around fellow veterans for trainings, you know, VBOCs are very
    popular.
        And the more that we can get around the country with this--
    the President's request for additional funding, would really
    help empower more entrepreneurship. And especially as we just
    launched as well a military spouses initiative, Military Spouse
    Pathways, which enables us to do intensive training not only
    for Boots to Business and Reboot for our veterans, as well as
    for our exiting service members, but in addition, for the
    military spouses.
        Senator Rosen. Well, thank you for working on that for the
    military spouses. So, we hear about that all the time. They
    sacrifice as well as they move around the families and the
    children. And so, it is really important we support them too.
    So, thank you for your efforts, and I yield to Senator Markey.
        Senator Markey. Thank you, Senator. So, welcome,
    Administrator Guzman. Thank you for all of your great work
    historically.
        And what I would like to talk about is something that is
    central to Massachusetts, but also to our whole nation. And
    that is the programs administered by the SBA, which is the
    Small Business Innovation Research Program, SBIR, and the Small
    Business Technology Transfer Program.
        And, you know, Massachusetts isn't just the Bay State. We
    are the brain State as well. We are only 2 percent of America,
    but we don't think of ourselves as just an ordinary 2 percent.
    We think of ourselves as the innovation State, which is where
    the Small Business Innovation Research Program and the Small
    Business Technology Transfer Programs come in, because we are a
    State of innovators, of pioneers in science and technology,
    research.
        And we have cultivated a very innovative culture within our
    State. And as a result, Massachusetts has received 26,000 SBIR
    and STTR grants over the years--26,000 grants.
        Now, we are a State of 7 million people, but it is
    estimated that upwards of 200,000 jobs in our economy have been
    created. And by definition, you focus on smaller companies,
    startup companies, innovative companies, cutting edge companies
    that are trying to make a breakthrough. And disproportionately
    they do.
        And then it is reflected in our economy. And then sometimes
    larger companies want to buy these little companies, but you
    find that larger companies don't innovate the way smaller
    companies do.
        And that is really what this whole program is about. It is
    to kind of unearth and incentivize that kind of innovative
    spirit that smaller companies tend to have and over time larger
    companies just lose hope.
        The way they innovate is by finding the most innovative
    companies and then buying them, you know, and incorporating
    them. So that is why it is just so exciting to me to just to
    know that you are--you know that you are continuing to lead on
    that.
        So, if you could, talk a little bit about those programs
    and the benefits of permanently extending them as something
    that American smaller innovative companies can rely upon.
        Ms. Guzman. Thank you for that, Senator. And we are
    completely supportive of reauthorization of SBIR. America's
    Seed Fund has really empowered some of our largest brands,
    Qualcomm, 23 and Me, CRISPR technology.
        We really know that ensuring that those small businesses
    commercialize and create--grow businesses and create jobs is
    really valuable. We are committed to continuing to support the
    11 agencies that participate in this important research program
    and ensure that we strengthen the program, work with obviously
    Congress to ensure reauthorization.
        But in addition to that, we know that there are still big
    funding gaps for these firms. It is amazing, they get this, you
    know, $4 billion every year in non-dilutive funding to support
    their innovations.
        But when we are trying to compete globally in critical
    technologies and advance in industries that are being created,
    we want to make sure that those businesses get funded. So, we
    have also worked in tandem to strengthen our small business
    investment company portfolio.
        You know, also implementing, you know, transformative
    regulatory reform, this past summer, to create an SBIC model
    that is aligned with that long term investment that is
    necessary for some of these innovators and critical
    technologies. So, we are doubling down in this space and know
    it is vitally important.
        Senator Markey. Yes. Now, in the last reauthorization,
    Congress placed caps on the number of awards some companies may
    obtain. And there has been proposals to add new arbitrary caps
    as well. Do you agree SBIR and STTR grants should continue to
    be awarded based on scientific merit?
        Ms. Guzman. We do believe we need to seed innovation based
    on merits, and we will continue to try to support responsibly
    how we incentivize commercialization in the program as well.
        Senator Markey. Yes. Well, obviously, the popularity of the
    SBIR program has led to substantial growth, and the program
    stands at nearly $5 billion annually. You know, and that is the
    place where the innovators look.
        That is the place where they can rely upon to say, I have
    got a great idea. I go to the SBA, you know, and make sure that
    my idea, my new cutting edge scientific or technology idea has
    a shot at ultimately becoming a reality.
        Do you have adequate staff in the Office of Innovation to
    effectively manage the SBIR program?
        Ms. Guzman. Since 2018, SBA has not received its full S&E
    requests, our salary and expenses. But, so obviously we would,
    you know, appreciate fully--being fully resourced across the
    board.
        But in terms of the Office of Investment and Innovation, we
    have strengthened that office across the board, including in
    the SBIR program, creating for the first time as a senior
    executive service member to lead that office.
        Senator Markey. So, access to capital is a big issue too.
    And under the Biden-Harris Administration and under your
    leadership, SBA has been laser focused on closing the capital
    access gap, particularly in underserved communities.
        And the SBA has been successful, increasing the number of
    loans given to women and minority owned businesses, but even
    more can be done. The rate of entrepreneurship among
    communities of color is increasing exponentially.
        In November of last year, however, the Boston Foundation
    found that unmet demand for capital for entrepreneurs of color
    has increased in Massachusetts since 2019, and it is estimated
    now to be $600 million annually. And that is an unmet need in
    terms of, you know, that entrepreneurial spirit.
        How can we continue to make progress closing the capital
    access gap for entrepreneurs of color, and how much can
    expansion of direct loans be a part of that solution?
        Ms. Guzman. The regulatory reform that we implemented
    actually came from, you know, feedback from the lending
    institutions directly back when I served during the Obama,
    Biden Administration. Not as presented earlier.
        And so, what I would say is that the regulatory reform is
    trying to get to the root of the problem of why small dollar
    lending is overly burdensome for our lenders. And that is the
    regulatory reform. But in addition, the expansion of our
    networks through the small business licensing companies, by
    providing additional 3 licenses on top of our 14 licenses to
    the very lenders who are focused on filling gaps in underserved
    markets and who are trying to do small dollar loans where
    people of color are over indexed.
        You know, that is a critical part of our strategy, and it
    has led to success in terms of our increases in lending to
    these communities in particular. So, I am looking forward to
    those changes continuing to take hold. In addition, the
    President's budget includes a request for more authority for
    the SBA around direct lending.
        We know that we don't want to compete with our lenders. We
    want our lenders to be able to do these loans. That is why we
    have tried to simplify as much as we can to transform our
    programs and underwriting processes.
        But we do need to fill these capital gaps for
    entrepreneurship to continue to thrive, and we are looking
    forward to, you know, working with Congress on a positive
    solution for direct lending and continuing to fill gaps.
        Senator Markey. Yes. And as you know, unfortunately, in the
    private capital markets over the years, there hasn't been
    enough competition in providing loans for women and minorities.
    It just hasn't existed.
        You would think that somehow or another some paranoia
    inducing Darwinian environment would unfold, where banks,
    financial institutions say, let's loan to communities of color,
    let's loan to women.
        It just hasn't happened. It is improving, but that is where
    the SBA steps in, you know, and just says--we can see where
    there is a historic problem and where innovation would thrive
    if women and communities of color receive that funding.
        So that is why I just want to thank you for your great
    work, your historic work on it, and thank you for your service.
    And thank you, Madam Chair.
        The Chair. Thank you, Senator Markey, for filling in the
    time so I could get back from voting. And what was your term?
    Darwinian paranoia--I like that. That is an interesting term.
        Well, Administrator Guzman, thank you again for being here.
    Thank you for the work that you and everyone at SBA does every
    day on behalf of small businesses of this country. The record
    will remain open for two weeks for additional questions and
    statements.
        And with that, the committee stands adjourned.
        [Whereupon, at 3:50 p.m., the hearing was adjourned.]
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