[Senate Hearing 118-527]
[From the U.S. Government Publishing Office]
S. Hrg. 118-527
STREAMLINING AND COORDINATING SUPPORT
FOR RURAL SMALL BUSINESSES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 18, 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
57-904 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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Opening Statements
Page
Senator Jeanne Shaheen, Chairman................................. 1
Prepared Statement........................................... 3
Senator Joni Ernst............................................... 9
Witnesses
Ms. Cara Lank, Senior Vice President, Stone Bank, Little Rock, AR 11
Prepared Statement........................................... 14
Mr. Grant Menke, Deputy Secretary of Agriculture, Iowa Department
of Agriculture and Land Stewardship, Des Moines, IA............ 19
Prepared Statement........................................... 21
Mr. Zachary Luse, CEO and Founder, Paragon Digital Marketing,
Keene, NH...................................................... 25
Prepared Statement........................................... 28
Mr. Verlin ``Gus'' Barker, President and CEO, First Community
Bank, Newell, IA............................................... 32
Prepared Statement........................................... 34
Additional Letters/Statements for the Record
Defense Credit Union Council
Letter dated September 17, 2024.............................. 55
Ravenox
Letter Dated September 18, 2024.............................. 57
Western Governors' Association
Letter dated September 17, 2024.............................. 58
Kim Reynolds, Governor of Iowa
Letter dated July 23, 2024................................... 63
STREAMLINING AND COORDINATING SUPPORT FOR RURAL SMALL BUSINESSES
----------
WEDNESDAY, SEPTEMBER 18, 2024
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The committee met, pursuant to notice, at 2:47 p.m., in
Room 428A, Russell Senate Office Building, Hon. Jeanne Shaheen,
chairman of the committee, presiding.
Present: Senators Shaheen [presiding], Cantwell, Cardin,
Booker, Hirono, Rosen, Hickenlooper, Ernst, Young, Kennedy,
Hawley, and Budd.
OPENING STATEMENT OF SENATOR SHAHEEN
The Chairman. Good afternoon, everyone. I'll call the
hearing to order in just a minute. I apologize for being late.
We have two votes, one of which just was called and I was
waiting to try and vote, which I did. So, for those of you who
haven't voted yet, know that the first vote is underway. And we
will interrupt at some point and take turns, Senator Ernst and
I, to go do the second vote.
So, at this point, the Senate Committee on Small Business
and Entrepreneurship will come to order. It's an honor to
welcome you all here today to this hearing on the unique
challenges that rural small business owners face and those
federal efforts to help them succeed. I want to thank all of
our witnesses who are here today. We will introduce you more
formally in a few minutes.
But rural small businesses are the backbone of their
communities. They provide jobs and essential services. There
are over 4 million rural small businesses employing seven and a
half million people in the U.S. according to a 2024 report from
the SBAs Office of Advocacy. That's more than 56 percent of all
employees in rural areas. Rural entrepreneurs start businesses
at higher rates than their urban counterparts. Their firms are
highly resilient and their five-year survival rates outpace
that of small businesses in urban areas.
However, rural small business owners do face unique
challenges. In a survey by the Small Business Majority, rural
small business owners identified several key challenges
hindering their growth. The challenges include limited access
to capital and technical assistance, difficulty maintaining a
qualified workforce, poor proximity to broadband services, and
a shortage of healthcare providers in their communities.
I also frequently hear in New Hampshire about issues
related to the availability of housing and childcare. Very big
issues in our state. These challenges are compounded by a lack
of coordination between local, state, and federal governments
and relevant stakeholders.
In order to break down these barriers for rural small
business owners, it will take a coordinated effort. That's why
the United States Department of Agriculture, USDA, and the SBA,
took a step in the right direction through the extension of a
memorandum of understanding, an MOU between the agencies in
2023. The MOU increases collaboration between the two agencies
to collectively address gaps in capital access, contracting
opportunities, and entrepreneurial development resources for
rural small business.
The MOU and Rural Partners Network demonstrate that
collaboration between the federal government and local
communities can better tailor solutions to the specific needs
of rural areas. Through continued congressional support, we can
enhance the effectiveness of these programs. By working
together, we can empower rural small business owners to
contribute significantly to their communities and strengthen
our economy.
Again, thank you all for joining us today. I want to yield
to the ranking member for her opening statement. I will submit
my full statement for the record, and I will come back to
introduce the witnesses in a few minutes. Senator Ernst.
[The prepared statement of Senator Shaheen follows.]
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STATEMENT OF SENATOR ERNST
Senator Ernst. Thank you very much to our chairwoman, and
thanks to each of you for being with us today. We really look
forward to your testimony.
Small businesses are the lifeblood of rural America, where
they account for nearly 85 percent of all companies and over 50
percent of all jobs. I know rural America firsthand. I grew up
on a farm in Montgomery County, Iowa, where I still live today.
My parents and my neighbors ran small businesses, and I learned
just how essential they were to local communities and our
state's economy.
Today, we are here to discuss how the federal government
can put rural small businesses on the same footing as those in
our cities and urban centers. The Biden/Harris Administration
has left rural small businesses on life support. Prices are up
over 20 percent since President Biden and Vice-President Harris
took office.
Inflation caused by the Democrats, Inflation Reduction Act,
and America Rescue Plan is out of control. As if that wasn't
enough, the Biden/Harris Administration has hit small
businesses with more than $1.6 trillion in regulatory costs. As
I travel from river to river across Iowa, rural folks continue
to tell me they think the Biden and Harris Administration just
doesn't understand or doesn't care about their needs.
When my state was hit with natural disasters earlier this
year, it became evident to me why they thought so. I was on the
ground after each of these disasters and heard firsthand from
Iowans about the difficulties they had in navigating recovery
efforts. I heard from folks whose insurance couldn't cover the
full repair or replacement of homes, businesses, or equipment
because reckless Washington spending has made everything more
expensive, even though they did the right thing and put money
away in case of emergency. Hyperinflation meant it just wasn't
enough.
FEMA and SBA did quickly set up recovery centers, and I
want to thank them for that. But business owners were left
frustrated by the two agencies' lack of coordination and
competence. For example, Iowans received conflicting
information about eligibility and application process in Shelby
County, which was hit by tornadoes in the spring. SBA provided
outdated and completely wrong information, including sending
their disaster victims to a dead website. They didn't even
realize they were doing so until my staff brought this to their
attention. And this is absolutely unacceptable.
But even in the face of such gross incompetence, Iowans
weren't deterred. The private sector and Governor Reynolds have
stepped up to help rural small businesses where the federal
government has failed. State programs like IowaWORKS are
helping folks who have lost their job or businesses due to the
disasters. Our community banks are also playing a crucial role.
Many are offering loans to rural small business owners with
better rates and faster approval times than their federal
counterparts. I'm proud of Iowans for coming together and doing
what the Biden/Harris Administration seemingly can't.
Small business owners who lose their livelihoods in a
natural disaster have no time to spare. It's incredibly
frustrating to repeatedly hear from those seeking SBA
assistance that they thought it was a waste of their time. So
much so that many walked away and didn't complete applications.
For those who stuck it out, SBA loan processing times were
incredibly slow. It becomes even more challenging when you
consider the fragmentation among federal agencies. A variety of
resources are available after a disaster, including loans from
SBA and USDA, but there is no parity between the two agencies
when issuing SBA loans to underserved and minority borrowers
and urban areas.
In 2021, the Biden/Harris Administration insisted their
policy to waive payments and interest accrual wouldn't cost
anything. But today, when it comes to farmers in rural America,
the Biden/Harris Administration insists it needs an Act of
Congress and more money to extend the same terms. How does that
make sense? Either the administration has been dishonest about
the cost of its SBA policies, or it doesn't think rural
business owners are worthy of the same benefits as their urban
counterparts. Simply put, the Biden/Harris Administration, in
particular the SBA, is leaving these communities behind.
SBA's lending in rural areas is abysmal at just around 15
percent in the agency's two main programs. If SBA lending to
rural communities had been in line with population, there would
be an extra $1.3 billion a year available to rural
entrepreneurs. But instead of channeling this much needed
capital to American entrepreneurs, the Biden/Harris
Administration has chosen to focus on enhancing its loan
programs for favored priorities like green lending, which
overwhelmingly benefits Chinese manufacturers.
That's a slap in the face to hardworking Americans who are
the ones paying for these programs. The Biden/Harris team must
stop picking winners and losers, and make this assistance
accessible to all Americans. I look forward to hearing from our
witnesses today to see how they have worked to help rural small
businesses, and to understand what improvements our federal
programs need.
Finally, I ask unanimous consent to enter into the record a
letter Governor Reynolds and the entire Iowa Congressional
delegation sent to Secretary Vilsack in July, 2024, urging
parity amongst SBA and USDA's Direct Disaster Loan programs.
The Chairman. Without objection.
Senator Ernst. Thank you. And with that, I'll conclude.
The Chairman. Thank you, Senator Ernst. And again, thank
you to our witnesses for being here today. Let me begin by
introducing Ms. Cara Lank, who is the Senior Vice President of
Stone Bank, which operates as both a USDA and SBA lender. She's
also the Chair of the Government Relations Committee for the
National Rural Lenders Association. Ms. Lank helps countless
rural entrepreneurs start and grow their business. I'm looking
forward to hearing your testimony and learning from your
perspective as a lender.
Mr. Zachary Luse is the founder and CEO of Paragon Digital
Marketing based in Keene, New Hampshire. He founded the
business in 2012, and has more than two decades of experience
in his field. Mr. Luse has firsthand experience navigating the
complex landscape of federal programs, including those
administered by SBA and the USDA.
So, I will now turn it over to Senator Ernst to introduce
our other two witnesses.
Senator Ernst. Great. Thank you, and welcome Ms. Lank and
Mr. Luse, and thank you for joining us again. And I want to
introduce the rest of our witnesses who are testifying today.
And I'm proud that two fellow Iowans have joined us here in
Washington, DC, to share with the committee how we can empower
our rural communities.
So, first is Mr. Grant Menke. Grant, it is wonderful to
have you here. Grant serves as the Deputy Secretary of
Agriculture for the Iowa Department of Agriculture and Land
Stewardship. Previously, Mr. Menke served as vice-president of
Market Development for Iowa Corn. Prior to that, Mr. Menke
served as the State Director of Rural Development for the
United States Department of Agriculture in Iowa. He earned a
bachelor's degree from the University of Northern Iowa.
Next is Mr. Verlin, and as we know him, Gus Barker. And Gus
is President and CEO of First Community Bank in Rockwell City
Pomeroy, Fonda, and Newell, Iowa. He is testifying today on
behalf of the Independent Community Bankers of America, where
he also serves as the chairman of their agriculture and rural
committee.
Mr. Barker earned a bachelor's degree from Vista
University, and graduated from the Graduate School of Banking
in Madison, Wisconsin. Gus, thank you so much for being here
today. Thank you.
The Chairman. Thank you, Senator Ernst. Ms. Lank, would you
like to begin, and we will go right down the line?
STATEMENT CARA LANK, SENIOR VICE PRESIDENT, STONE BANK, LITTLE
ROCK, ARKANSAS
Ms. Lank. Chairman Shaheen, Ranking Member Ernst, and
members of the committee, thank you for allowing me to
participate----
The Chairman. Can you make sure that your mic is open and
then it's close so that we can hear you?
Ms. Lank. That better?
The Chairman. Much better.
Ms. Lank. Thank you for allowing me to participate today.
My name is Cara Lank, and I'm the Chief Credit Officer for
Stone Bank, which is an $815 million community bank based in
Arkansas. We currently make SBA 7(a) loans, FSA loans, USDA
loans under Business and Industry and Rural Energy for America
Programs. I have unique insight to work with real businesses
because I grew up in rural America.
My grandparents were farmers. My grandmother started her
own small business by converting an old house into a grocery
store that was in the middle of nowhere. She was very
successful, and she built a larger store later. The store was
surrounded by soybean and rice fields.
In addition to my role at Stone Bank, I'm the Chairman of
the Government Relations Committee--sorry, for the National
Rural Lenders Association. You can find more information on
NRLA in my written statement.
Stone Bank has experience enclosing USDA/SBA combo loans.
However, there are key differences between the two most popular
programs, which are SBA 7(a) and USDA's B&I. Both programs can
assist in providing capital for the same project with B&I loan
guarantees of up to $25 million and SBA loan guarantees of up
to $5 million.
While there are some synergies between the programs,
challenges exist as the underwriting standards and
organizational structure of the two agencies vary
significantly. I could provide more lengthy details, but to
keep it brief, I will note that SBA has a PLP, preferred lender
program. PLP lenders are awarded the authority from their
proven track record to complete the processing and ultimate
final approval. And as a result, loans can move through the
process very fast. SBA is also most more streamlined because
they use technology in the form of their Tran system, which
allows the lender to enter pertinent loan information, which
checks eligibility requirements.
USDA has no PLP program and no such technology regardless
of lender history and performance. USDA requires all lenders to
submit an entire underwriting packet, which is individually
reviewed by staff specialist and what is commonly viewed as re-
underwriting the loan since the specialist is required to
create their own project evaluation.
Every USDA loan requires a credit decision that goes
through several levels of review and is a very manual process.
This causes significant time delays and is not responsive to
the speed of business. USDA projects require very patient
borrowers and lenders, as most loans take from nine months to
one year for processing and approval, as opposed to a 90-day
turnaround for an SBA loan. USDA construction loans require
extensive environmental studies, which can take months to
complete, and are often very costly. SBA has very few
environmental requirements.
There is also a mismatch in funding in that SBA has a $30
billion budget, while B&I budget authority is significantly
less at a current level of $1.6 billion. NRLA has been
attempting to cure this mismatch and forecasted demand for the
B&I program to be 2.7 billion for Fiscal Year 2024. As of
September, 2024, USDA had obligated $1.62 billion in loans with
approximately $1.16 billion in pending requests for a total of
2.78. Currently, we are seeing similar demand for Fiscal Year
2025.
Turning to the SBA/USDA memorandum of understanding, it
aims to coordinate activities among the two agencies to expand
credit opportunities for rural small business. To meet this
goal, the two agencies should use similar systems for loan
application submission. While the criteria for loans for each
program is different, the basic underwriting process for the
lenders is the same. We believe this action would decrease USDA
staff time, eliminate layers of approval, and significantly
reduce operating costs. Separately, USDA should consider a PLP-
type program.
SBA's process allows for loans to be issued throughout the
U.S. and reduces individual inspection of loan applicant in
eligibility. Additionally, activities that need to be expanded
are sponsored webinars with SBA and USDA staff. Many USDA
offices have held webinars with SBA state offices to educate
lenders about the two programs and give examples of how they
can work together. This activity should be encouraged with
consistent educational sessions across the country.
There is much more in my written statement, but NRLA, Stone
Bank, and I thank you for the opportunity to participate today.
And I'm happy to respond to any questions.
[The prepared statement of Ms. Lank follows.]
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The Chairman. Thank you very much.
Mr. Menke.
STATEMENT OF STATEMENT OF GRANT MENKE, DEPUTY SECRETARY OF
AGRICULTURE, IOWA DEPARTMENT OF AGRICULTURE AND LAND
STEWARDSHIP, DES MOINES, IOWA
Mr. Menke. Well, good afternoon, Chair Shaheen, Ranking
Member Ernst, and members of the committee, and thank you very
much for the opportunity to testify today.
My name is Grant Menke, and I serve as the Deputy Secretary
of Agriculture for the State of Iowa. I'm here today on behalf
of Iowa Secretary of Agriculture, Mike Naig, who is currently
on a trade mission to India with Iowa Governor, Kim Reynolds.
He wishes he could be here, but I am pleased to share his
perspective and that of numerous Iowans in the Ag community who
have spent the last few months recovering from devastating and
costly natural disasters.
Agriculture drives the economy of Iowa. It is our number
one industry. Consumers near and far depend on the productivity
of Iowa agriculture and our multi-generational family farms and
Ag business. Businesses are proud of this fact.
Unfortunately, many family farms were devastated by a
series of weather disasters earlier this year. While our
historic drought of 204 consecutive weeks was busted, this
growing season, unfortunately produced historic flooding and a
record number of tornadoes in Iowa.
Secretary Naig spent many days on the road this spring and
summer visiting farms, businesses, and communities that were
hit hard. In many cases, these folks lost nearly everything.
Not just farm buildings and equipment, but also their homes.
Secretary Naig relayed the story of a man from a century farm
in Southwest Iowa. This farm had been in his family for more
than 100 years, and they lost everything in a tornado.
This farmer was clearly feeling the pressure and
responsibility for his farm and the legacy it represents. He
was thinking of generations past, but also of generations to
come. Despite his world being turned upside down, he relayed to
Secretary Naig his determination to turn the page, rebuild, and
start the next chapter of his family farm story.
But as these farms have moved forward, they've encountered
challenges like any small businesses with significant
equipment, infrastructure, and operating costs. These farms
carry property and casualty insurance. They also rely on risk
management programs authorized through the Farm bill, including
crop insurance. Yet, there are still significant gaps,
especially during this time of persistent inflation.
That's why farmers and farm businesses have needed to turn
to disaster programs offered by USDA and SBA to access the
capital needed to continue operations through this disaster
recovery process. Iowans have discovered several frustrating
and confusing disparities between these programs, and it is our
hope that this committee can begin the process of addressing
these inequities.
In addition to the overall complexity of these programs,
one of the most significant issues Iowans have faced is the
disparity in accessibility and eligibility between USDA and SBA
disaster programs. Since farmers are not eligible for SBA
disaster programs, these differences have hit farm families,
especially hard. For instance, SBA disaster loans typically
offer more favorable terms, including higher loan limits, lower
interest rates, and longer repayment terms than USDA disaster
loans.
SBA disaster loans also offer deferral of the first payment
and no interest accrual for the first 12 months, features that
are not available with USDA disaster loans. These discrepancies
place an undue burden on farmers and farm businesses who
already operate on thin margins, especially during the
softening Ag economy.
To address these inequities going forward, we encourage you
to align the eligibility criteria, loan limits terms, and
conditions for SBA and USDA disaster programs to ensure that
all affected farmers and farm businesses can access the support
they need. Due to gaps in the current USDA disaster programs,
the State of Iowa has already taken action to give agriculture
some immediate relief. The new Disaster Recovery Farm Interest
Program announced by Governor Reynolds on July 11th offers farm
businesses up to $50,000 of reimbursement for one year of
scheduled interest payments owed on eligible loans used to
repair or replace damage on insured property.
This program essentially aims to align emergency loans with
the same one-year deferred interest financing offered by SDA.
Similar solution is needed at USDA to ensure that assistance is
available for farmers in Iowa and other states facing similar
hardships. We should all be inspired by the optimism,
determination, and fortitude of the farmers and farm businesses
in Iowa and around the country who have weathered these storms
in natural disasters.
Family farms are key to the vitality of our rural
communities and essential to making the U.S. a global Ag
production powerhouse through common-sense reforms to USDA and
SBA disaster programs. We can assure that impacted farms
receive the help they need to recover, rebuild, and write the
next chapter of their family farm's legacy, which will
ultimately contribute to the greater story of U.S. agriculture.
Thank you for your time, and I look forward to your questions.
[The prepared statement of Mr. Menke follows.]
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The Chairman. Thank you very much.
Mr. Luse.
STATEMENT OF ZACHARY LUSE, CEO AND FOUNDER, PARAGON DIGITAL
MARKETING, KEENE, NEW HAMPSHIRE
Mr. Luse. Thank you, Chairwoman Shaheen, Ranking Member
Ernst, and the rest of the committee. It's an honor to share my
story of entrepreneurship in rural America and my experience
working with government agencies to grow my business.
I grew up in a small town of DeWitt, Iowa, where
entrepreneurship was part of my life from an early age. I
started my first business in the third-grade selling, building,
and selling wood benches out of my dad's photography studio. In
2010, I ended up in Keene, New Hampshire, and turned my side
hustle into Paragon Digital Marketing, a company that was
focused on helping mid to small size businesses grow.
Starting a company that provides services over the internet
came with challenges in a rural area where access to the
broadband is limited. Chairwoman Shaheen, I greatly appreciate
your work on this issue. Thank you. As Paragon grew, the need
for a larger office space with broadband was a major challenge.
In 2018, I bought a vacant church listed on the National
Historic Register. I had no idea how much work was ahead of me,
but after a lot of Googling and calls and emails, I found
technical assistance through my state's Community Development
Finance Authority, a CDFA, to secure a low interest loan using
federal dollars to finance a solar array on the roof of the
building.
Additional funding for my project came from my local bank
and the New Hampshire Business Finance Authority. The process
of working with the various organizations and navigating their
different requirements was challenging, and I doubt I would've
completed this project without the assistance of the CDFA.
In 2020, we moved into our new space amid the uncertainty
of a pandemic, a PPP and EIDL loans from the SBA were crucial
to continued success of Paragon. The solar array now produces
all the energy we need for heating and cooling our business,
and it makes our business stronger and more resilient. When
energy costs spike like they did a couple years ago, it didn't
impact our business at all.
My entrepreneurial journey continues with a new venture.
I'm opening a beer garden in the sanctuary of the old church,
upstairs. For this project, I'm applying for a USDA REAP Grant
that's due at the end of the month to install a geothermal
heating system to replace the large oil boiler that currently
heats the space.
Clean Energy New Hampshire is providing technical
assistance for this USDA grant which is extremely helpful. I'm
also considering a New Hampshire Department of Energy grant,
but the grant is on a completely different timeline and
completely different process, along with long approval times
for both of the USDA and the NH Department of Energy grants.
Opening this business will definitely be delayed. Recently,
I completed the New Hampshire Export Accelerator, where the New
Hampshire Small Business Development Center or the SBDC brought
together the U.S. Commercial Service, SBA, and New Hampshire's
Office of International Commerce. With advisors from the SBDC,
I developed a plan to export Paragon Services. I've been an
awarded a STEP Grant and embark on my trade mission to Brazil
next week.
This is a great example of bringing together resources from
different agencies and helping businesses navigate them. It
would've taken me a lot of time and research to connect with
the people at each of these agencies and try to figure out how
to utilize these services. This type of multi-agency
coordination and assistance is critical for small businesses
like mine. Enhanced coordination among federal programs that
support small business is critical.
Additional resources for rural businesses and organizations
that support us, like the SBDC's Clean Energy New Hampshire,
the CDFAs would be immensely helpful. We could spend less time
navigating the landscape of federal resources and more time
doing what we do best, running our businesses, creating jobs,
building wealth for families in our communities, and growing
the American economy. The New Hampshire SBDC has been a
tremendous resource to me assisting with PPP and EIDL loans,
and advising on various aspects of my business. The guidance
has been extremely invaluable.
In my role as the trustee of the Savings Bank of Walpole,
our community bank, I've seen firsthand the impact of SBA and
USDA lending programs. One that stuck with me, including two
farm hands who with USDA support purchased the dairy farm that
they worked on from the retiring owners. This would not have
been possible without the backing of the USDA and their
programs, and has changed the trajectory of their lives while
keeping this dairy farm in production for years to come.
I'm curious to learn more about potential synergies between
USDA and SBA. In summary, my rural business would not be where
it is today without the support of federal, state, and local
programs that support us. As a rural business owner, I faced
unique challenges like limited access to broadband, lack of
educational institutions with relevant programs in my area,
fewer service providers to support my business, and more severe
workforce shortages than you see in more urban areas. These
programs make my business stronger and more resilient, but they
often exist in silos that make it difficult to access and
navigate them without help.
So, my ideas for improving coordination between federal
agencies and making resources more accessible to small
businesses would be more staff on the ground that serve as
generalists, that connect and advise on the different programs
that are available to small businesses. More programs like the
New Hampshire's SBDC's Export Accelerator that bring together
resources focused on solving specific problems for businesses,
quicker approvals.
USDA REAP grants can take several months to get approved,
and the timing and cycles of these programs don't always line
up with real world business needs. Both my projects involved
spaces that had sat vacant, so I didn't have any heating
history. So, this disqualified me from many of the energy
efficiency programs that are available. Exceptions for vacant
spaces or adaptive reuses of spaces to use energy modeling or
other methods to show energy savings would be very helpful as
well.
I appreciate all you do to support small businesses like
mine, and thank you for the opportunity and privilege to share
my story and insights today.
[The prepared statement of Mr. Luse follows.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you very much, Mr. Luse.
Mr. Barker.
STATEMENT OF VERLIN ``GUS'' BARKER, PRESIDENT AND CEO, FIRST
COMMUNITY BANK, NEWELL, IOWA
Mr. Barker. Chair Shaheen, Ranking Member Ernst, and
members of the committee. I'm Gus Barker, President and CEO of
First Community Bank, headquartered in Newell, Iowa. I testify
today on behalf of the Independent Community Bankers of
America, where I'm Chair of the Rural America and Agriculture
Committee, and a member of the board. I thank you for convening
today's hearing on the critical issue of support for rural
small businesses.
First Community Bank is a $115 million asset bank, serving
four rural communities in Northwest Iowa. We specialize in
agriculture lending of all types, rural small businesses, and
one-to-four family homes. And now in view of the recent
flooding in Northwest Iowa, I want to put a special focus on
community bank support for rural small businesses in the wake
of natural disasters.
In times of crisis, community banks demonstrate their true
value by providing critical resources, counsel, and comfort in
their communities. I'm grateful for the opportunity to share
the community bank perspective on this important topic. Iowans
have repeatedly proven their strength and resilience in the
wake of natural disasters.
As a 47-year Iowa community banker, I've lived through the
great flood of 1993, one of the most destructive floods in
recent memory. Like other Midwestern states, Iowa has
experienced tornadoes and droughts, which have laid waste to
our most precious economic resource; crops and livestock. In
June of this year, severe flooding in Rock Valley caused
significant damage from which that local region is still
recovering.
Experience has convinced me that the best solutions are
local. Community banks have always been on the front lines of
disaster recovery efforts in Iowa, and I'm proud that local
families, farms, and small businesses have turned to me in
their time of need. Now, federal programs will never displace
local community banks, which are always ready to provide vital
resources promptly and without bureaucratic obstacles.
SBA direct lending and other federal disaster recovery
programs have always played a critical role in the survival of
disaster-stricken businesses. Unfortunately, these programs are
mired in bureaucratic red tape. Disaster victims are in no
position to complete that excessive paperwork.
My written statement contains an example from the historic
flooding of '93, in which I helped a customer with the daunting
paperwork of an SBA application. We could not have completed
that application without the support of the local SBA office.
Regrettably, since that time, SBA scaled back its presence in
Iowa, and applications are now approved in San Francisco, a
distance that makes coordination much more challenging.
Given the significant hurdles of obtaining agency relief,
Iowa disaster victims often turned to their local community
bank. Following the catastrophic flooding of 2008, it was clear
that support from SBA and FEMA would not be enough to support
the recovery, and that it would come too slowly.
My bank joined efforts with two other local banks to
promptly extend some 50 loans to impacted businesses and
families, which I'm happy to report were repaid with no
delinquencies. In fact, I've extended loans at a discounted
rate in a number of natural disasters. Disaster lending of this
type takes patience and understanding from bankers and
regulators to allow for this recovery. But this is very much a
core part of our mission of community service.
My written statement contains several suggestions for
improved coordination among the agencies and with private
lenders in disaster recovery, which I'll briefly describe for
you. First, SBA is known to file liens far in excess of the
loan amount to secure their mortgages. These liens tie up their
collateral and prevent a community bank from helping the
borrower in any way. In the future, SBA should be willing to
subordinate their loans in the way that USDA has, for example.
Second, a disaster victim should have the option of
packaging benefits offered by different agencies, such as a
FEMA grant and an SBA loan, neither of which is adequate in
itself for the rebuilding today. A victim must choose one or
the other. It's too much to ask of disaster victims to learn
the details of those competing programs and make an informed
judgment of what to do.
Thank you again for raising the profile of a critical issue
for Iowa and the nation. Community banks have a vested interest
in the prosperity of their communities and are always ready to
help in disaster recovery.
I'm happy to take any questions you may have.
[The prepared statement of Mr. Barker follows.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you very much, Mr. Barker, and to each
of you for your testimony, normally what we would do is I would
ask questions, then I would turn to Ranking Member Ernst to ask
questions. And we would go back and forth between both sides of
the dais here for questions. But Senator Ernst is going to
vote, so she's going to turn over her time to Mr. Budd, and I'm
going to turn over my time to Ms. Rosen because she has to
leave. So, Ms. Rosen, Senator Rosen.
Senator Rosen. Thank you, Chairman Shaheen, Ranking Member
Ernst, we really appreciate it. And thank you to the witnesses
for being here today and for your care and for your really
smart, creative, and thoughtful testimony, and really, ideas of
how we can how we can make a difference.
So, I want to talk--I'm just going to ask one question
because I'm going to--I know we all are in votes. We've got a
lot going on, so I'll take good use of my time. I want to talk
about bridging. Bridging the digital divide. You know, Nevada,
we have a deep rural frontier mountainous state. It's very hard
to get there and it's really an issue for us.
So, in 2023, online sales in the U.S. reached over $1.1
trillion, representing nearly a quarter of total retail sales.
And one of the key drivers that supports this expanding all of
this in the marketplace is the emergence of digital trade and
e-commerce platforms that enable entrepreneurs to reach
markets, right? Maybe employees, whatever, those are to work
for you, even remotely. And a lot of these have been previously
beyond your reach.
So, however, lack of reliable internet connectivity in
rural areas can really hinder and hurt our rural business'
ability to utilize any of these tools, any of the resources.
Your programs now are approved in San Francisco. You need to be
able to get online to do all of that. Makes it much more
difficult.
A 2022 study found that nearly a fifth of rural
entrepreneurs lacked broadband access, which is one of the
reasons I've been working so hard to increase high speed
internet access throughout rural Nevada, and I know everybody's
working on it in their state.
So, Mr. Lewis, I'm going to take my one question and ask
you, talk to me about the challenges of access to reliable
internet connectivity. How it might be affecting you, or
others, you know, rural small businesses, and how will it
improve if we really give everybody, let's say, all the juice
they need to be on the internet and do their jobs?
Mr. Luse. Yes, great question. That is something I
definitely struggled with my business, and as I grew and trying
to find an office space that was big enough for us to grow into
in our small city. I looked at all kinds of office spaces, and
they either couldn't get fiber to them at the time or the cost
was just astronomical. I looked at one office space in a newer
industrial park, and it was $28,000 to get fiber to that
location----
Senator Rosen. Oh my.
Mr. Luse [continuing]. Which is just something small
businesses can't afford. So that, I think it takes the
government and the utilities, the communications companies,
building out that infrastructure for small businesses to level
that playing field curve.
Senator Rosen. Broadband as a utility, just like
electricity and water.
Mr. Luse. Yeah. I mean, it's become that. Children need it
for learning. Businesses need it for doing business. And I feel
it should be treated as more of a utility these days because
everyone should have equal access to broadband.
Senator Rosen. Well, thank you. I appreciate that. I'm
going to yield my remaining time because we have votes and lots
going on. Thank you.
The Chairman. Thank you, Senator Rosen. Senator Budd.
Senator Budd. I thank the chair. And what fortuitous
seating. I could ask my neighbor right here. [Laughter.]
Senator Budd. So, low seniority has its benefits,
sometimes. Ms. Lank, and all of you, thank you for being here
today. Could you elaborate, I picked up a few ideas from your
testimony, and again, thank you for all of your testimony. But
could you elaborate on the obstacles rural businesses face when
seeking financing from community banks and share how banks like
yours in Arkansas have helped these businesses navigate hurdles
to access capital?
Ms. Lank. Many businesses struggle to get the capital that
they need, especially with USDA lending, because they have--
there's requirements, right? Are you buying a business? Are you
expanding a business? Are you constructing a new building? So,
there's limits on each one of those. So, that is a struggle
that they have.
Also, if it's a startup business, it's really hard to get a
community bank to take a risk on a startup business. It's just
the facts. So, there's definitely some area for improvement on
helping them get what they need to get things started. A lot of
them will lack business plans, and a plan from A to B, and what
they want to do. And as Mr. Luse referred to the SBDC, SBDC is
very good at assisting people in creating their business plans
and moving on from there.
Senator Budd. Very good. Mr. Barker, anything that your
bank has done that's unique to help these folks overcome access
to capital problems?
Mr. Barker. We're a similar position. It is tough to get
capital for those new businesses, and we rely on that SBDC to
help with those business plans. They rely on us on counsel and
giving them advice. But it would sure be helpful if there were
some programs available to help us with some of those inputs to
get those loans approved and guaranteed
Senator Budd. Continue with you, Mr. Barker. Given that
rural businesses sometimes face a lot of cash flow problems,
whether that's a seasonal fluctuation particularly agriculture,
how have your financial institutions created new products or
services to help meet those needs, especially where there's
fluctuations?
Mr. Barker. I don't know if we've created new products, but
if something isn't broke, you don't have to fix it. So, you
know, I go back 47 years. I've been doing a lot of the same
things during disasters or during cash flow crisis.
And it's patience. You have to stay with these folks, work
out a plan, how are they going to fix what was broken, figure
out what that was. Maybe they make changes to their plan. Maybe
they go into digital marketing. We have a lot of boutique dress
shops now that are selling more online than they are in the
storefronts right now. And so, I think things change. We have
to adapt and we have to be ready to make any changes that we
need to do for that.
Senator Budd. Very good. Thank you. Ms. Lank, anything you
want to add dealing with clients that have fluctuating
businesses and how you would approach them? I guess you would
put that in your modeling in your underwriting?
Ms. Lank. Correct. We do have some businesses that have
seasonality to them, and that's just something that we look at
when we're underwriting the loan. And we try to sit down and
work with them the best we can. We'll help them problem solve
whatever, you know, they're struggling with. If they're
struggling with capital, there's a couple of third-party--third
party's not the right word. There's some options that we have
specifically with USDA, but----
Senator Budd. Understood. Thank you. So, one of the things
that has been a concern of mine and many of my colleagues for
quite a while is overregulation. That's been a significant
driver behind banking consolidation which has reduced the
number of local community banks and limited options for small
business owners, particularly in rural areas.
Over the past decade, the U.S. has seen more than a 30
percent decline in community banks driven by factors, including
regulatory pressures and increased compliance costs. Policies
like the Dodd-Frank Act, and to some extent, anticipation of
Basel III have led to heightened capital reserve, risk
management, reporting requirements, which disproportionately
impact smaller banks. Many have been enforced to merge or close
due to the inability to bear these costs.
So, the trend's particularly concerning in rural areas
where community banks are often the lifeblood of the local
economies, offering tailored loans for small businesses and
agricultural ventures. With fewer small banks, rural
entrepreneurs face greater challenges in accessing the capital
they need.
So, how has consolidation driven by overregulation and
other market forces? How has it affected the ability of rural
businesses to secure loans, and what policies could help with
this? Mr. Barker.
Mr. Barker. That's a big issue right now. All these new
regulations that are hitting us, hit the small banks harder
than they do the big folks. I have 25 employees in four
locations. I have to adhere to the same regulations that the
big folks do in the metro areas of Iowa and on the East and
West Coast.
It comes down to the core processor charging for more data
and things like that. The things that are coming, the rules
we're supposed to be gathering, 80-some points of information
for our loans. And in a large metro area, you can identify all
those points of interest, and nobody will know who that
business is. In a town of 500 or 1,000 in Iowa, you list those
points of that business, they're going to know exactly who it
was and what was going on with that business. It's an invasion
of privacy in our world. And we think it's way off base. And if
there's any way to stop that, we would really appreciate it.
The other thing we're finding all across the United States,
obviously, of course, there's a history of too big to fail. In
the small bank, we tread lightly on everything to make sure we
follow those rules. An example of the blatant disregard is
happening right now in the case of check fraud. It's rampant
out there. The big banks are ignoring the rules and will not
respond to the small banks in Iowa, Alabama.
If there's a return check that is supposed to be returned
for processing, they just don't respond. They ignore it. And
I've had my peers in Iowa have to hire an attorney to threaten
legal action just to get them to respond for a simple
transaction that should go through bookkeeping, but they don't
care. It doesn't matter to them. But if we were to do that, we
would have an exam that would be very criticized. That's just
an example of what we find.
Senator Budd. That's very helpful. Chair, do I have time to
allow Ms. Lank to elaborate on that same question? Yeah, thank
you. Any thoughts on overregulation and how it
disproportionately impacts a bank like yours?
Ms. Lank. What you don't know is I used to be a bank
examiner. [Laughter.]
Senator Budd. Talk about it from both sides.
Ms. Lank. Yeah. It is tough, especially as Mr. Barker
mentioned, especially when you've got a small bank, or you're
in a really small town. It's hard to find talent and people
that are educated in all of these regulations to be able to
handle them all.
You know, from what I know, everyone does the best they
can. You know, I used to go in some banks and you could tell
that they did not have any idea what you were talking about,
but most of them did. Most of them did. So, it's just, there's
not a lot you can do. You've got to follow the rules so you
muddle through the best you can.
Senator Budd. Yeah. Understand. Thank you all for your time
today and your testimony.
The Chairman. Mr. Barker. I bet if you called your senator,
she could get somebody to respond to you. [Laughter.]
Senator Ernst. Happy to help.
The Chairman. So, in my introductory remarks, I referenced
the MOU that SBA and USDA signed in 2023. It identified areas
for potential collaboration. And as part of the MOU, the SBA,
USDA, and FDIC, the alphabet soup of acronyms that we talk
about here, host a joint regional economic development workshop
series called Path to Prosperity.
These workshops connect rural small businesses with
government officials, lenders, service providers, and other
stakeholders. We did a small business committee hearing in New
Hampshire last week, and it was on a different issue, but one
of the things we did at the end of the hearing was to include a
bunch of resource partners like those I just mentioned, the
IRS, SBDCs, USDA a number of state agencies to be there to
answer questions for small businesses who might have questions
and not be sure how to navigate the federal apparatus.
So, I wonder if you could talk a little bit about how those
kinds of workshops might help your business, Mr. Luse. And also
Mr. Menke, you served as state director for USDA rural
development about the time that that MOU was signed. Can you
speak to some of your experience on the ground coordinating the
SBA and other agencies? And I'll ask you to go first, Mr. Luse,
and then Mr. Menke.
Mr. Luse. Yeah. I think those programs are great for
raising awareness and even knowing the programs exist. Like the
example of the New Hampshire Export Accelerator that the SBDC
put together, I had no idea that the U.S. Commercial Service
would set up meetings for you with foreign companies and vet
them. I had no idea. There were STEP grants to help pay for
trade missions or developing marketing materials and
translations for going into foreign markets.
So, I think in that way, it really helps raise awareness
for the programs and connect businesses to the people that
they--actual humans instead of, like, scouring websites trying
to find information about these programs.
The other thing I noticed in the Export Accelerator that
was really great was there were, during some of the sessions,
the commercial service, the SBA, the SBDC, and the State Trade
Office, were all on those webinars. And there were times when
they were, those agencies, asking each other more questions
than the participants were about each other's programs. So,
they were learning from each other and figuring out ways that
they could work together, and how their programs could
complement each other.
The Chairman. Yeah, no, I think that's a really important
observation. One of the things that I enjoyed about the
resource sphere was that they were not just answering and
talking to the small business owners who were there, but they
were talking to each other, which sometimes we don't do as well
as we should across all federal, state, and local agencies. Mr.
Menke.
Mr. Menke. Well, in my time at Rural Development, we
coordinated regularly with SBA, and it was a KPI. It was a
directive for us to do so. We did a lot of rural small business
road shows where we would meet with lenders and economic
development representatives in communities all across rural
Iowa to share information on those loan programs and services
available from USDA, and SBA, and to help rural businesses
start, grow, and expand.
And just to continue to discuss economic development ideas
to grow small businesses and coordinating helped to cross-
promote programs. We were required to refer a project to SBA at
USDA. They were required to do the same thing. We were required
to leverage a project together to have an SBA and USDA joint-
funded project. So, those were things that we definitely did.
The SBDCs were great to work with as well. And I think we
need to continue expanding that coordination and collaboration
to the state level as well. The more fluent we are in how these
programs work, the more we can be ready to give assistance to
rural small businesses every day. And especially when disasters
occur, we've got to be ready to do better.
The Chairman. I agree with that completely. Ms. Lank, can
you talk about things that you think some of our federal
agencies ought to be thinking about as we try and get out the
word to those companies that you see who come into your bank to
look at how they can get help?
Ms. Lank. We were talking about this earlier, and that's a
struggle. How do you market that? How do people in rural
America find out what the offerings are? You know, we've had
people that called us and we were talking to them about a USDA
loan. They're like, ``We've never heard of this before.'' They
had no idea. So, obviously, when they get to us, we educate
them the best we can. But as far as a small business owner, I
mean, who are they going? Are they going to SBDCs? It's a
challenge for sure. Though that I have a great answer for that,
so.
The Chairman. And of course, those outreach budgets are
some of the first things that get cut on federal agencies.
Senator Ernst.
Senator Ernst. Yes. Thank you, Chairwoman. And we'll start
with Mr. Menke, and thanks again for being here today. In your
testimony, you've touched on how inflation has created that gap
for those in insurance coverage leading to the reliance on USDA
and the SBA programs, those that were impacted by those storms
earlier this year.
The State of Iowa even had to create bridge funding for
farmers to cover loan interest payments. You talked about how
Governor Reynolds started this program. How has that program
been received by Iowans, especially in our rural areas, and are
there any other areas that the state has been able to fill in
those gaps left behind by our federal programs?
Mr. Menke. Well, the Iowa Department of Agriculture and
Land Stewardship does not run that new program. But I can tell
you in our conversations with Governor Reynolds, that the
programs have been very well received, especially by the
farming community. And again, that program offers up to $50,000
to reimburse one year of scheduled interest owed on a disaster
loan.
And this is important because what we've heard from farmers
after the tornadoes and floods was frustration that that
deferred interest option was not available for disaster loan
assistance. We know that the applicants for this program are
dispersed well among the 29 disaster counties in the State of
Iowa. And we expect an uptick in the usage of those programs
once more insurance claims are settled. So, I mean, there are
so many farms that have been affected by this.
And I know you've been spent a lot of time in Shelby
County. We had 74 properties that were severely damaged or
destroyed just in that county, including 48 homes, 75 grain
bins, 16 livestock confinements, and 170 barns. So, this type
of assistance is very, very key. And that's why the having
parity between those loans would be very important.
Two other programs that the state stood up were related to
housing. One was to provide temporary housing for up to six
months at no cost for eligible disaster survivors as they
pursue long-term housing solutions. And the other was a
disaster repair program to provide up to $50,000 for the repair
of disaster impacted homes that aren't covered out, they're
outside the scope of insurance or FEMA individual assistance.
So, the State of Iowa's definitely stepped up to fill some of
those gaps.
Senator Ernst. Yeah. Thank you so much for that. And I
spoke to a gentleman from the Iowa State Extension Service as
well today, and they were talking extensively about how they
can stand up just temporary housing in the meantime until they
can mobilize contractors to even get into those areas to build.
That's such a struggle right now.
Mr. Barker, again, thanks for joining us. It's good to have
you here. And in your testimony, you discussed how paperwork
burdens and SBAs decision to move their loan approval authority
to San Francisco, and California. And the coasts presents
challenges for our rural areas. Can you discuss problems you
faced when interacting with SBA loan offices that don't truly
understand who they are serving?
Mr. Barker. You know, this dates back a lot of years when
they moved that office. I had great success with SBA as a young
banker, and they were wonderful to work with. I knew the loan
officers that SBA had locally and could deal with that. The
minute that switched and went out West, any application that I
sent out there was delayed. I didn't have the same person to
talk to. I had conflicting requests of what I needed to do. And
I guess it was basically a major communication snafu.
And from talking to my friends in Rock Valley, that's
exactly what they're running up against in the disaster
programs as well. I saw it in 2008 and the floods there. Total
disconnect. There were multiple people giving multiple answers.
They didn't match. And when we're out there, the bankers didn't
know the disaster programs any better than the public. And
we're trying to help, and we're just as lost as they are. And
it did create much frustration that way.
Senator Ernst. Right. And I do know because we spoke to a
number of constituents that had the SBA reps that came in, they
had to come into the State of Iowa. They weren't local. They
were providing bad and outdated information, which is
absolutely unacceptable.
You also mentioned that community banks can oftentimes
provide better loan terms and less confusion than SBA. How do
you manage that?
Mr. Barker. Well, they talk to us directly. We give them
the same answer every time they come in. Our paperwork is
standardized. We know exactly what they have to sign. The folks
up in Rock Valley with the different people they're talking to
get different requests for different forms from different
people, and they don't match, and there's no rhyme or reason
why they are. And then, they're doing duplications of it, and
it is just a confusing mess. Again, the communication issue is
a mess. We can talk one-on-one. We give them guidance and help
them through the process.
Senator Ernst. Yeah. Thank you. Personal ownership and a
sense of community, very important. And do we have time to----
The Chairman. Sure.
Senator Ernst. Yes. Ms. Lank, thank you for being here. And
I am concerned that federal agencies are removing field staff
and replacing them with more bureaucrats in Washington. It goes
back to some of the issues we've heard today. And that of
course is wrapped up into some of the telework policies that
exist here in DC.
In your testimony, you mentioned as part of SBA and USDA's
MOU, more can be done to coordinate field staff. Can you
discuss your experiences with the gaps in coordination and what
can be done to better utilize federal field staff?
Ms. Lank. I believe that's one of the challenges that
everyone has faced is having proper staff, having enough staff.
Through Covid, it all just went crazy. One of the biggest
differences, back to what Mr. Barker said, is if you're trying
to find a person at SBA. You email 7(a) questions. You don't
call.
USDA, you've got people you can pick up the phone. They
have state offices that are staffed. You call them, you tell,
like, every time we have a new loan in a state we haven't
worked in, that's the first thing we do. We pick up the phone,
we call them, we introduce ourselves. ``Hey, this is our
project. We would like to work with you all the things.'' And a
lot of times they'll give us really good advice. Also, if we
need to, we can go to national office, depending on the size of
the loan with USDA.
So, the telework is a challenge. There's some people that
are really good at it and some people that are really not, as
you've probably seen yourself. So, I mean, it's just so
interesting to me how different they're set up.
But finding a person and getting advice is kind of
priceless.
Senator Ernst. Right. Absolutely, it is. And final question
for Mr. Luse. Thanks again for making the trip to DC. And in
your testimony, you discussed the challenges rural businesses
face accessing broadband. That is a big topic here in this
committee and many others. Can you elaborate on the challenges
and how you've seemed to overcome those?
Mr. Luse. Yeah, definitely. Great question. I shared a
little bit more earlier about my story with just trying to find
an office space for my business. It was a challenge, and we're
in a small city. The office spaces I looked at either we
couldn't get fiber to them or some of them, one was in a newer
industrial park, was $28,000 to get fiber to it. So, it's just
not feasible for a small business to be expected to outlay that
kind of capital, just to get good broadband.
So, it's crucial, and we really need it in rural areas to
level the playing field with businesses in urban areas who have
cheaper, easier access to those things.
Senator Ernst. But you were able to overcome that then?
There are some programs that have connected your area?
Mr. Luse. Yeah. So, the old church building I found that
was sitting vacant for 10 years had fiber on the poles across
the street. So, that was part of the reason that motivated me
to undertake this somewhat insane project of taking a 150-year-
old church and turning it into an office and a beer garden.
Senator Ernst. Well, good on you. Thanks so much. I
appreciate that. Thank you, Madam Chair.
The Chairman. I'm sure we'd all enjoy coming to visit the
beer garden. [Laughter.]
The Chairman. Senator Hickenlooper.
Senator Hickenlooper. Mr. Luse, I actually built a bunch of
beer gardens just for the record. I had the first brew pub in
Colorado, and then we did one in Omaha, in Des Moines and Green
Bay, and all around. Some of them pretty small, maybe not
exactly rural communities. You know, the challenges that small
businesses face in rural areas are different than they are
anywhere else. And I think you've already, in your testimonies,
you guys all turned and covered a lot of that.
But I wanted to cover a couple more things, a little more
detail. CDFI is, obviously, a very valuable tool. Flexible.
They provide technical assistance for people that are--you
know, when I was a geologist, so when I first started wanting
to start the root hub, I honestly didn't know what the word
proforma meant, as how clueless I was. I had a masters in
geology, but no background.
And in 2020, CDFIs originated almost $6 billion in
financing in rural areas. And I think it's a win-win. It allows
the banks to meet their Community Reinvestment Act obligations,
but it also is very powerful for those communities where these
businesses can expand, where they get the investment and can
expand.
So, Ms. Lank and Mr. Barker, are your banks partnering with
CDFIs? Is that partnership as an effective and efficient way to
meet the investment needs of small business in rural America? I
mean, do you think that is worth all that effort we put into
it, and what benefits from these partnerships do you see?
Ms. Lank. We currently do not partner with them, but that
is something that is being discussed and worked through right
now at our bank.
Mr. Barker. Same with us. We don't locally have access to
something like that right now, but on my Ag committee with the
Independent Community Bankers, we have been discussing those
topics to see how they could fit in with all the community
banks in the nation.
Senator Hickenlooper. Right. Well, I think that they're--
part of the reason I ask the question is you're the majority.
You're not the minority in rural areas. And yet, I think they
bring so much value, especially to the communities, and you
guys are community banks, in essence. That rising tide, I
think, affects everybody.
And I want to talk a little bit about AI and marketing. Mr.
Luse, you could take this. The rural businesses are always
looking for a way to innovate. They want to incorporate new
technology, AI, you know, new-fangled software, whatever they
can do to help in their efficiency of outreach to help in
innovation of how to serve their customers better.
As small businesses consider adopting new technology and
getting involved with AI and other tools, how should they
decide when to partner with other businesses to address their
challenges or when to build their own expertise in-house?
Mr. Luse. That's a great question. I think it comes down to
capacity of the business and whether you're able to build that
expertise in the business. And as a digital marketing agency,
clients come to us because they don't have the expertise in-
house to build a high-quality website or go through all the
complexity of Meta ads and Google ads without wasting their
money.
So, I think it's a decision each business probably needs to
make based on how comfortable they are developing those skills.
It's pretty easy for a lot of AI to just try it, and not rely
on it too much, and make sure there's a human checking it. But
we use it in our daily work all the time. It's been built into
a lot of the advertising platforms for a long time. But we use
it to speed up some of the slower processes of research and
things like that, doing some of the legwork that you would
spend a lot of time researching online. But we don't--I
wouldn't say we rely on it. We just use it to kind of enhance
what we're doing.
Senator Hickenlooper. Right. So, and I understand
marketing, also putting the metrics on how successful your
marketing is, always. There's so many variables. Very hard to
do. You know, the entire time I was in business, I knew for a
fact that I was wasting half the dollars I was spending on
marketing. I just couldn't tell which half.
As the cliche goes, Ms. Lank, when you look at the variety
of businesses, all sizes, that rely on technology that exposes
their customers to some level of cyber risk. And in so many
rural businesses, you know, they lack the expertise and the
experience to ensure that they're protected against cyber
threats.
When supporting rural small businesses, how can local
banks, like your bank. Mr. Barker, you could answer this as
well. How can they help businesses secure and protect their
data, the data of their customers, their financial information?
Ms. Lank. If they don't have any expertise on staff,
definitely hire a third party. But from our perspective, the
best we can do is ask that question. Make sure they've thought
through it, make sure they have a plan. You don't have a plan;
you can't really do anything. So, that would be the only advice
I could come up with.
Senator Hickenlooper. That's good advice.
Mr. Barker. And then that's where we're at too. The
education we have to keep informing them what we find and our
side of the business and asking them the questions, what are
they doing to protect themselves and give them examples of what
we discover in our daily lives.
Mr. Luse. I would just love to add that the--I don't know
if this is at every state, but the New Hampshire's SBDC has a
cybersecurity preparedness program for small businesses, and
they do free assessments for small businesses and training.
Senator Hickenlooper. Interesting. Mr. Menke, you're the
only one who hasn't answered that question. Do you want to
chime in at all, as an opinion?
Mr. Menke. Well, I really don't have anything additional to
add, so thank you.
Senator Hickenlooper. That's okay. Great. I yield back to
the chair.
The Chairman. Thank you, Senator Hickenlooper. So, in my
opening remarks, I talked about the field hearing that we did
last Friday in New Hampshire. It was focused on how we can help
small businesses lower their energy costs. But one of the
things that one of the witnesses said really struck me because
he said--was talking about USDA's grant programs that are
targeted to small business. And I think it's true of many other
grant programs we have. He said, these are reimbursement-based
grants. The work needs to be done upfront, and the federal cash
comes in later. It's often difficult for our small businesses
to front the cash. And that's a challenge.
So, I know, Mr. Luse, you received a REAP Grant, which
operates exactly that way for your solar panels. So, can you
talk about how you dealt with that piece of it? And then I'd
like to ask each of the rest of you, if you have, and you may
have thoughts about this, too, but if you have any ideas for
how we should be thinking about that problem that small
businesses have?
Mr. Luse. Yeah. So, for the solar panels, I received
federal loan, federal low interest loan through our CDFA.
The Chairman. So, it wasn't a REAP Grant?
Mr. Luse. No. I'm applying for a REAP Grant for the
geothermal, but I have to show proof of funds for the REAP
Grant. And geothermal's expensive. Like this project might be
$300,000 or $400,000, and I'm a small business. So, showing
proof of those funds and then actually spending those funds is
pretty difficult to do for a small business. I think the
federal loan that I used for the solar panels had milestones
where they reimbursed based on milestones of the project. Even
that case, I had to go to my bank and get a line of credit to
cover some of those gaps. And that was a smaller project than
what I'm looking at with the REAP Grant.
So, I think it would be much easier for small businesses if
they had some sort of milestones like that where they paid out
a certain amount at the beginning of the project, and then when
you met a certain point of the project and showed that you'd
completed 50 percent of the project or something, you get a
little bit more, and then you don't get it all until the
project is complete.
I think some arrangement like that might still create cash
flow challenges and capital challenges for the smallest
businesses, but it would be easier to deal with. Like, I don't
know if I went to my bank and said I need $400,000 to cover
this and to this newer technology that isn't utilized very much
with geothermal heating, I'm not sure how they would
collateralize that. I'm not sure that it would be something
they'd be willing to take the risk on and go through all the
trouble of underwriting a loan like that for a short period of
time to bridge that gap.
The Chairman. So, potentially, it has the potential to be
an issue for you as well?
Mr. Luse. Yes.
The Chairman. Ms. Lank, then I'm going to ask if each of
the other panelists would have any ideas for how we should
think about addressing that.
Ms. Lank. Sure. Thank you very much. It's definitely a
problem that needs to be fixed. We've had several projects that
we've looked at who have struggled with this. Because the
problem is--I mean, you know what the problem is, but for USDA
loan, you've got the equity has to come in first. So, if you're
not getting it until months after the deals closed--I mean,
yes, it is free money, but you know, if you can't front that
money, it doesn't help you be able to close your loan at all.
You know, there's a lot of people that use bridge lenders,
but they can be very expensive. Someone has suggested an SBA
loan, but that's not what SBA's designed to do. It's not for
short-term financing. It's for long-term financing. So, I don't
have a great suggestion, but it's definitely something that
needs to be worked on. Thank you.
The Chairman. Thank you. Mr. Barker, do you have any
thoughts about that?
Mr. Barker. Well, that's been one of the frustrations in
being small town Iowa. It just doesn't make sense for any
project that we have. And so, the minute some of these
requirements are known, it just stops the discussion right
there. And we have to go a different direction and get it done
another way.
The Chairman. And Mr. Menke?
Mr. Menke. Just going back to Mr. Barker's principle of the
best solutions are local. Sometimes utilizing our revolving
loan funds within the state can be potentially options in these
situations.
The Chairman. Well, thank you all. I agree. It's clearly a
challenge that we've got to think about how to address if we're
going to help our smallest businesses. Senator Kennedy.
Senator Kennedy [Off mic.] [continuing]. Small businesses,
rural and otherwise. Being against rural small businesses is
like being against Golden Retrievers, I mean so. [Laughter.]
Senator Kennedy. I thank you for being here. I have a
couple of questions related to that in terms of how are small
businesses, rural and otherwise, might be struggling? Secretary
Menke, you're an expert in agriculture, obviously. Some people
in Washington have argued, not particularly persuasively in my
opinion, but this is America. They have the right, to their
opinion. Some people in Washington have argued that food
inflation has been caused by price gouging by our grocery
stores. Do you believe that?
Mr. Menke. That would not be my argument. No. Inflation has
impacted everything. And we started talking about disasters. I
mean, when we found farms who had their properties wiped off
the face of the Earth by a tornado, and they had just maybe
spent a couple of years, only in the last couple of years
looked at their different insurance coverage, we found that the
price of everything has gone up dramatically. So, I would not
assign blame to the grocery stores.
Senator Kennedy. Okay. Well, let me ask you a question. I
don't know if you will know the answer or not, but when you go
to your local grocery store and go buy a banquet, frozen fried
chicken, TV dinner, what are the margins like for the grocery
store? Are they making like a 100 percent profit or is it more
like 2 or 3 percent because the competition is so great among
grocery stores?
Mr. Menke. I don't know exactly, but I'm guessing it's
closer to the latter.
Senator Kennedy. Okay. All right. I'll give you one
person's opinion. This inflation that we have experienced was
made in Washington. And I don't hate anybody. I look for grace
wherever I can find it. But part of our job is to call it like
we see it. And I think the Biden/Harris Administration has been
an inflation machine. I've never seen anything like it. Worst
bout of inflation we've had in 40 years.
Now, we're doing better, the inflation's down. But all that
means is that the rates are not rising as quickly as they were.
The prices are not rising as quickly as we were. So, we're
having disinflation, but that doesn't help with the real
problem. The real problem is these high prices are permanent
just because they're not going up as quickly as they were.
People are still paying the high prices. That's the difference
between disinflation and deflation as you know. How has this
job-killing inflation impacted rural, small businesses? Well,
maybe we start down here.
Mr. Barker. Senator, it's a mess in Iowa what I'm familiar
with. We don't have any workers that are working anymore. I
used to have a job opening and get 50 applications for a
position in a bank. I advertised for two months, and I got
three applications. One did not respond when I requested an
interview. The other two ladies are over 60 years old, and
willing to work.
Senator Kennedy. I'm stop you because I want to hear from--
yeah, go ahead. But it's a problem with workers. We don't find
the workers and the cost of living is extremely----
Senator Kennedy. Mr. Luse? I wanted to give everybody a
chance here. Thank you for that, sir.
Mr. Luse. I think in my world remote work and shortage of
labor really kind of blew up our labor costs. All of a sudden
somebody working, doing web development in New Hampshire could
work for a San Francisco wage from home and pay for cost of
living in New Hampshire. So, that was a big adjustment for us
during Covid and after. I think we've compensated with just
having a great place to work that people want to work at. And
it seems like some of that's leveled off, but it was pretty
difficult to find people. And that's our biggest expense; is
our people.
Senator Kennedy. Okay. Ms. Lank.
Ms. Lank. From what I've talked to the people, I have
talked to that have small businesses, everything costs so much.
Like, every single thing you buy, you know, a ream of paper,
pens, you know, it's just--it's also sometimes impossible. And
a lot of people have--a lot of small businesses have closed.
I've talked to a lot of people that own restaurants and the
food costs are so high that they can barely make it. So, I'm
not the inflation expert, but that's what I've seen.
Senator Kennedy. Okay. Thank you all for being here. Thank
you, Madam Chair, and Madam Vice-Chair.
The Chairman. Thank you, Senator Kennedy. Senator Ernst.
Senator Ernst. Yes. Thank you, Madam Chair. And again,
thanks so much. I'm going to talk a little bit more about rules
and regulations.
Mr. Menke, I'll turn to you. Recently, the Occupational
Safety and Health Administration, OSHA, published a proposed
heat rule, and OSHA estimates the proposed rule would affect
millions of small businesses and employees. And so, I'm just
concerned that's just one example of many, many rules that have
been pushed out by this administration. And I don't know that
the administration is properly considering small businesses
when they are publishing these rules. They're not taking a look
at the unique needs of small businesses.
So, I've heard about this particular rule. It's just one
example. I've heard of many other examples coming from Iowans.
In your current role, how has increased regulation and red tape
affected the agriculture industry in Iowa?
Mr. Menke. Well, we see it every day, and the Ag industry
is already subject to plenty of regulation, and the list keeps
getting longer. We've got EPAs rolling out its herbicides
strategy and pesticide strategy under the Endangered Species
Act. New regulations that are going to be very costly, complex,
and with very few compliance options.
We're also concerned that some of the tools that we have to
be able to use are being taken off the table with the label
registration for over-the-top Dicamba use unlikely to be
completed for this 2025 growing season. So, new regulations and
red tape need to be considered very thoughtfully and seriously
as adding new layers of compliance and taking important tools
off the table can become a direct time and cost burden for our
producers.
One of Secretary Naig's biggest priorities is the future of
agriculture and promoting careers in agriculture. And if
farming becomes too costly, cumbersome, and limited due to
government regulations, we run the risk of driving future
farmers away from the field.
And make no mistake, that overregulation impacts the small
farmers the most and the new and beginning farmers the most.
So, and important to note that the cost of production continues
to go up, and regulation and red tape is a part of that that
will eventually make its way to the cost to the consumer. And
we're seeing that now in California with Proposition 12 as cost
of pork has skyrocketed due to that regulation.
So, we are blessed with the safest, most abundant food
supply in the world. That's something we should never take for
granted. And we don't want to put that at risk.
Senator Ernst. Yeah, certainly. Thank you for that. Iowa's
home to over 89,000 small family farms, and I was blessed to
grow up on one of those small family farms. And my fear is with
the overregulation coming from the federal government. And I
think we can all agree, we all want to be safe with our
activities on the farm, but overregulation it is going to drive
these smaller farms out of business. They're just not going to
be able to comply with all of the standards that the federal
government is laying down on them. Forces them to sell.
And I hear from federal government all the time about big
Ag, and big Ag industry, and how awful it is, but that
unfortunately is what this federal government is driving us to.
So, I think we need to consider our small family farms as small
businesses, and we need to consider the level of regulation
that is heaped upon our small farms and our small businesses.
So, thank you for that.
And let's see if we've got maybe some other questions. Oh,
yes. Mr. Barker, I'm going to go back to you just for a final
question, just very briefly. In your testimony, you stated your
bank represents millions of assets and often has to navigate
the same rules as larger banks. We've kind of touched on this,
but again, keeping in that regulatory theme, how do those
regulatory requirements disproportionately burden community
banks in comparison to the larger banks? And how do you see
that get passed on to consumers?
Mr. Barker. Well, it affects us in our costs. We have
similar costs to the larger banks, and so it affects our
operating budget. And when it affects operating budget, it has
to be passed on with higher interest rates on loans, lower
interest rates on deposits, maybe fees on deposits that we
don't normally want to do and can't. So, it stretches us very
thin, but eventually it could filter down to the customer.
Senator Ernst. Yeah. Oftentimes, again, just sticking with
that theme, the regulation that's pushed out from the federal
government, when we don't consider the size of the business or
industry, right, it's very harmful and we lose more of our
smaller banks, our smaller businesses, and our smaller farms.
And again, just want to thank you all so much. This has
been really helpful for me, understanding the different
dimensions from USDA and SBA. And thank you very much Madam
Chair for convening this great panel today.
The Chairman. Well, thank you, Senator Ernst. And to all of
our witnesses, thank you so much for joining with us and
sharing your expertise and your experiences. I hope that you
will stay in touch with either members of the committee or our
staffs. If you have thoughts about your efforts as you're
looking at, Mr. Luse growing your businesses, the rest of you
as you're working with small businesses and thinking about what
we might do that would be more effective and efficient.
Let me point out that the record will remain open for two
weeks for additional questions and statements. And with that,
the committee stands adjourned. Thank you all again.
[Whereupon, at 4:13 p.m., the hearing was adjourned.]
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