[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
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
MARCH 20, 2024
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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
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED EIGHTEENTH CONGRESS
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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
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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.]
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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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