[Senate Hearing 119-170]
[From the U.S. Government Publishing Office]
S. Hrg. 119-170
USING THE 504 PROGRAM TO BUILD
AMERICA'S MANUFACTURING FUTURE
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
OF THE
UNITED STATES SENATE
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 17, 2025
__________
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
61-659 WASHINGTON : 2026
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED NINETEENTH CONGRESS
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JONI ERNST, Iowa, Chair
EDWARD J. MARKEY, Massachusetts, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina CORY A. BOOKER, New Jersey
TODD YOUNG, Indiana CHRISTOPHER A. COONS, Delaware
JOSH HAWLEY, Missouri MAZIE K. HIRONO, Hawaii
TED BUDD, North Carolina JACKY ROSEN, Nevada
JOHN R. CURTIS, Utah JOHN W. HICKENLOOPER, Colorado
JAMES C. JUSTICE, West Virginia ADAM B. SCHIFF, California
JON HUSTED, Ohio
Meredith West, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
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SEPTEMBER 17, 2025
Opening Statements
Page
Joni Ernst, U.S. Senator from Iowa............................... 1
Edward Markey, U.S. Senator from Massachusetts................... 2
Witnesses
Mr. Karl E. Swanson, President, PCT Ebeam and Integration, LLC,
Davenport, IA.................................................. 5
Prepared Statement........................................... 7
Mr. David P. Raccio, Senior Vice President and Director of SBA
Lending, CDC New England, Wakefield, MA........................ 13
Prepared Statement........................................... 15
Ms. Jean Wojtowicz, Executive Director, Indiana Statewide CDC,
Indianapolis, IN............................................... 23
Prepared Statement........................................... 25
Ms. Hilda Kennedy, Founder and President, AmPac Business Capital
Ontario, CA.................................................... 34
Prepared Statement........................................... 36
Additional Letters/Statements for the Record
TMC Financing
Testimony Dated September 17, 2025........................... 60
Questions for the Record
Mr. David P. Raccio
Responses to questions submitted by Senator Hirono........... 64
Ms. Jean Wojtowicz
Responses to questions submitted by Senator Young............ 66
USING THE 504 PROGRAM TO BUILD AMERICA'S MANUFACTURING FUTURE
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WEDNESDAY, SEPTEMBER 17, 2025
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The committee met, pursuant to notice, at 2:31 p.m., in
Room 428A, Russell Senate Office Building, Hon. Joni Ernst,
chair of the committee, presiding.
Present: Senators Ernst [presiding], Hawley, Husted,
Markey, Shaheen, Coons, Rosen, and Hickenlooper.
OPENING STATEMENT OF SENATOR ERNST
Chair. I call the Committee on Small Business and
Entrepreneurship to order. We are here today to discuss the
role that the Small Business Administration's 504 Certified
Development Company, or CDC, loan guarantee program can play in
supporting investment in America's small manufacturers.
Over the course of this year, the committee has examined
the staggering decline of America's manufacturing sector. 40
years ago, factories across the country roared with activity,
towns thrived, and America felt unstoppable. We were truly
unrivaled as a nation. Today many of those same factories stand
idle, communities that once depended on them fade and struggle,
and millions of jobs have vanished.
Today, we're seeing some of the lowest levels of
manufacturing employment that we've seen in nearly a century.
Sadly, we're losing more than just jobs. We're losing America's
knowledge, talent, innovative edge, and tradition of industrial
excellence.
By neglecting our manufacturing sector and infrastructure,
we've crippled our own ability to scale new technologies,
leaving us less competitive on the international stage. Simply
put, we've let our guard down, and it's our adversaries like
China who stand to benefit.
To restore our economic resilience and global dominance, we
must empower our small manufacturers to lead the way. That
starts by providing them with the resources they need to
reverse this decline and rebuild our domestic productive
capacity.
In prior hearings, we have explored how we can channel more
capital into American manufacturing, whether through private
capital committed as part of the Small Business Investment
Company program, or through 7(a) loans guaranteed by the SBA.
Today, we're focused on one program that is uniquely suited
to helping small manufacturers build and expand: the 504 Loan
Program. The 504 Loan Program is the primary way that SBA helps
small business owners buy major fixed assets like real estate
buildings, equipment, and machinery, and even construct
facilities from the ground up. It gives borrowers long-term
fixed rate financing of up to 25 years. That kind of
predictability is exactly what small manufacturers need to
establish or modernize their operations.
Thanks to the work of participating CDCs, the 504 Program
has been able to maintain a low default rate of under one
percent per year. In the last five years, it has been under
half a percent. That is the hallmark of a loan program that is
safe, reliable, and deeply impactful.
But it isn't perfect. Stakeholders have made clear that
improvements can be made to eliminate red tape in the closing
process and provide more flexibility to borrowers, especially
for rural businesses.
This committee has continually looked at ways to build upon
the program's success, including consideration of legislation
introduced by Senator Young aimed at streamlining the Office of
Credit Risk Management's oversight of CDCs.
Another way to strengthen our manufacturing future is by
passing the Made in America Manufacturing Finance Act, which I
introduced in April alongside Senator Coons. The committee
reported out the bill in July. This bipartisan legislation
would double the 504 loan limit from $5 million to $10 million
for small manufacturers who need that capital to modernize,
grow, and train a new generation of American workers.
I know from the countless conversations I've had with small
business owners, that this makes a real difference. Many
companies could have expanded faster, hired more workers, and
invested in new technologies if only the loan limits had
allowed it. CDCs tell us the same thing. Clients are forced to
slow their growth or seek outside funding on less favorable
terms simply because their needs couldn't be met by what is
currently allowed.
I'm grateful that we're joined today by our panel of CDC
lenders and program participants. I look forward to hearing
from them about how Congress can improve the 504 Program and
give American entrepreneurs what they need to build a stronger,
more resilient manufacturing future.
And I now recognize Ranking Member Markey for his opening
statement.
STATEMENT OF SENATOR MARKEY
Senator Markey. Thank you, Madam Chair. [Technical
issue.]--manufacturers faring in the Trump economy. Well, the
Institute for Supply Management reported that the manufacturing
sector shrank for the sixth consecutive month in August as
supply prices continue to rise.
According to a July survey from the National Association of
Manufacturers, small manufacturers' positive outlook for their
companies has dropped to the lowest level since the height of
the COVID-19 pandemic. And since Trump's so-called ``tariff
liberation day'' in the beginning of April, the United States
has lost more than 42,000 manufacturing jobs. They've
disappeared.
And we've seen this before. During President Trump's first
administration, 200,000 manufacturing jobs were lost. And to
hide the failing state of his economy, President Trump is
following the three Ds; divert, distract, and deceive. Instead
of taking responsibility, President Trump has fired the Bureau
of Labor Statistics Commissioner and called to end quarterly
earnings reports.
But no matter how hard President Trump tries to hide the
data, it is crystal clear that it is his policies that are
hurting small manufacturers across our country. President
Trump's tariffs are pushing up prices, making it difficult for
our small U.S. manufacturers to compete. For too many small
U.S. manufacturers, MAGA stands for ``manufacturers are going
abroad''. In May, our committee heard from Julie Robbins, CEO
of EarthQuaker Devices in Ohio. She told us that she had faced
tariffs as high as 185 percent forcing her to consider moving
production overseas.
President Trump's attack on clean energy is also fueling
America's manufacturing decline. Trump's SBA ended their Green
Lender Initiative, and the big ugly bill rolled back many of
the clean energy incentives in the Inflation Reduction Act of
2022. These incentives and programs contributed to the almost
700,000 manufacturing jobs added during the Biden
Administration.
And now, President Trump's sweeping attacks on immigrants
are crushing the manufacturing workforce from the largest
manufacturers to the smallest of the small manufacturers in our
country. And to add to the small business' paying, President
Trump's SBA is adopting draconian requirements. These
requirements bar small businesses with any amount of foreign
investment and small businesses, partially owned by people who
are lawfully here, including DACA recipients, assignee, and
refugees from getting an SBA loan.
This breaks from at least a quarter of a century of SBA
policy that allowed small businesses, including manufacturers,
51 percent owned and controlled by U.S. citizens, nationals,
and green card holders to receive SBA loans. These changes are
creating a chilling effect. In Massachusetts, one small
business owner with a green card who was likely an eligible SBA
borrower decided not to apply for an SBA loan because they
feared their legal immigration status would be used against
them in President Trump's America.
If President Trump were serious about growing American
manufacturing, he would be investing in our future not burning
it down. So, I agree with raising the loan limits on SBA's 504
Loan Program, or as I'd like to have it be called, the Economic
Development Loan Program.
And I appreciate Chair Ernst and Senator Coons' leadership
on this issue, and the intent of the Made in American
Manufacturing Finance Act. However, we should work to ensure
that the larger loans allowed under this legislation lead to
good-paying jobs. We should raise SBA loan limits specifically
for our clean energy manufacturers to supercharge our economy,
make our communities cleaner, and to create jobs.
We must return to the historic SBA lending rules that
supported immigrant entrepreneurs, and we must break down
barriers and create programs that are tailored to help our
minority entrepreneurs access capital. So, today, I look
forward to hearing from our witnesses about how we can
accomplish these goals. I thank you Madam Chair for calling
this hearing and the legislation which you and Senator Coons
have put together.
Chair. Wonderful. Thank you, Ranking Member Markey. And,
again, I want to extend a warm welcome to all of our witnesses.
I will now introduce our witnesses who are testifying today. I
am thankful that you-all took time out of your busy schedules
to join us here in DC and share your expertise on SBA's 504
Loan Program and access to capital through Certified
Development Companies, or CDCs.
First, we have Mr. Karl Swanson. He is the president of PCT
Ebeam and Integration, which is a small manufacturer of
electron beam systems in Davenport, Iowa. Mr. Swanson
previously served as director of sales and marketing at PCT
Engineered Systems and began his career as an automation sales
specialist at Industrial Engineering Equipment Company.
He received his bachelor's degree in electrical engineering
from University of Illinois Urbana-Champaign, and his MBA from
St. Ambrose University. And thanks for making the trip again
from Iowa. Thank you, Karl.
Ms. Jean Wojtowicz is the executive director of the Indiana
Statewide CDC. She is also the founder and president of
Cambridge Capital Management Corporation, an Indianapolis-based
manager of non-traditional sources of capital for businesses.
She previously served as the lead independent director on the
board of directors of Vectren Corporation, a New York Stock
Exchange energy holding company serving Indiana and Ohio.
Ms. Wojtowicz who holds two bachelor's degrees in finance
and real estate from the University of Wisconsin-Madison. I now
recognize Ranking Member Markey to introduce his witnesses.
Senator Markey. Thank you, Madam Chair. Mr. David Raccio
has been with CDC New England located in Wakefield,
Massachusetts since 2017, and is currently the senior vice-
president and director of SBA lending. CDC New England is one
of the most active 504 lenders in Massachusetts. He brings deep
expertise in helping small businesses grow. He's also a proud
U.S. Air Force veteran serving six years on active duty and in
the reserves. And we thank you so much for being with us today.
And Ms. Hilda Kennedy is the founder and president of AmPac
Business Capital based in Ontario, California. AmPac
participates in several SBA lending programs, including the 504
Program. She is a board member of the National Association of
Development Companies, or NADCO, and she previously worked as
the director of economic development for the City of Inglewood.
And we look forward to hearing of all of the testimony that's
going to be presented today. Thank you, Madam Chair.
Chair. Wonderful. Thank you, Ranking Member Markey. And
briefly, I'd like to take a moment just to explain our lighting
system that is there on the boxes in front of you. There are
three lights in front of you. Green means go. Yellow means
you're running out of time. And red means to please wrap it up.
I ask unanimous consent that the witness's full statements
be included in the record. Without objection, so ordered. As
your written testimony has been made part of the record, the
committee asks that you limit your oral remarks to five
minutes. And with that, Mr. Swanson, you are now recognized for
five minutes for your testimony.
STATEMENT OF MR. KARL E. SWANSON, PRESIDENT, PCT EBEAM AND
INTEGRATION, LLC, DAVENPORT, IOWA
Mr. Swanson. Chair Ernst, Ranking Member Markey, and
members of the committee, I'm humbled by the responsibility to
represent the interest of the hundreds of thousands of small
manufacturers that fuel the American economy.
As you said, my name is Karl Swanson, and I grew up on my
family's farm near Rio, Illinois. Today I'm the President of
PCT Ebeam and Integration located in Davenport, Iowa, which was
founded in 1986.
When the original majority owner was looking to retire, the
most attractive option was to be acquired by a Swiss company.
The integration was unsuccessful, and when the business was
getting ready to close, I found eight of my long-term coworkers
willing to join me and buy the company back.
In November of 2018, we reached an agreement to make this a
reality and embarked upon what has been a challenging and
rewarding journey. We have experienced firsthand the advantages
of, once again, being an American owned small business. In
seven years, we have grown from 45 to 65 employees and have
also reacquired many of the critical manufacturing capabilities
that were divested by the previous owner.
PCT is both a systems integrator and a manufacturer of
industrial electron beam systems. Our ebeam machines are used
in a variety of different industries where they enable energy
efficient production of prepainted steel, are used in the
manufacturing of advanced medical materials, and can be used to
achieve more sustainable production of lithium-ion batteries.
Building these specialized machines requires a skilled
workforce and specific manufacturing capabilities. 50 percent
of the ebeam systems we build are exported. Our foreign
customers often require their advanced payments to be secured
by local bank guarantees. The options for a small U.S.
manufacturer to comply with these requirements are limited. For
PCT, it is critical that we have access to funds to support our
material and labor expenses throughout the lengthy production
schedule.
The Small Business Administration has been a major source
of support for our business. From purchasing our commercial
real estate to expanding our export efforts following our
purchase of the business, we have the opportunity to also
purchase our building and thus secure our company's long-term
future.
The SBA 504 Loan Program was recommended by our local bank
and made this purchase possible. Following further success, we
decided to expand our manufacturing shop. Once again, the SBA
504 was critical in helping us finance this expansion and add
more production capabilities, facilitate better material flow,
and increase our capacity to assemble and test more ebeam
systems each time we look to invest in our long-term future.
The SBA 504 gave us a financing solution that was both
accessible and affordable. Our experience shows how central the
SBA 504 is to long-term business growth and competitiveness.
But as that growth leads to bigger opportunities and our
business takes on larger and more complex projects, we have
experienced limitations in SBA's financing programs that impose
undue constraints on the organic and profitable growth of
manufacturing firms like ours.
The biggest limitation we faced was when our financing
needs intersected with SBA aggregate program caps. For example,
we received a multimillion-dollar order from a customer in
Brazil. We needed to provide bank guarantees equal to the value
of advance payments received before shipment.
The SBA 7(a) Export Working Capital Program would've been
the ideal solution, but after securing $2.956 million in SBA
504 financing, only $794,000 remained available under the SBA
7(a) guarantee cap. These limitations create constraints not
only for our business, but also for lenders who want to support
U.S. manufacturers competing in global markets.
The Made in America Manufacturing Finance Act of 2025
introduced by Chair Ernst to increase the maximum total loan
size to $10 million would directly address our situation.
Having access to this additional loan capacity would provide
PCT with a cost-effective means of supporting more export
business, which in turn improves our competitiveness in foreign
markets, enables us to accelerate further investments in
additional staff and production equipment domestically.
Another limitation we experienced was SBA loan approval
times. The pace of business is fast, and America's small
businesses must be able to move quickly to remain competitive.
An agile SBA, equipped to scale staffing in response to loan
volume and deliver timely approvals is essential to supporting
the growth and success of our nation's entrepreneurs.
I respectfully request that you continue your efforts to
strengthen and simplify the SBA 504 Program to ensure that
growing manufacturers can expand capacity, compete
internationally, and create more U.S. jobs.
Thank you for considering these requests to improve the
valuable support the SBA provides to American manufacturers
through the 504 Loan Program.
[The prepared statement of Mr. Swanson follows.]
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Chair. Thank you. And now, Mr. Raccio, you are recognized
for five minutes for your testimony.
STATEMENT OF MR. DAVID P. RACCIO, SENIOR VICE PRESIDENT AND
DIRECTOR OF SBA LENDING, CDC NEW ENGLAND, WAKEFIELD,
MASSACHUSETTS
Mr. Raccio. Chair Ernst, Ranking Member Markey, and
distinguished members of the committee, thank you for the
opportunity to testify today. I am honored to join my
colleagues from the CDC industry to discuss the SBAs 504 Loan
Program.
My name is Dave Raccio and I serve as the Senior Vice
President and director of SBA lending at CDC New England, which
is located in Massachusetts. We provide SBA 504 loans across
five New England states, which include Massachusetts,
Connecticut, Rhode Island, Vermont, and New Hampshire. And we
are consistently ranked in the top 15 CDCs nationwide. Since
our funding in 1982, we have delivered more than 1,600 loans
totaling over $1 billion in SBA financing, helping to create
and retain more than 25,000 jobs.
The SBA program is unique. It provides small businesses
with long-term, fixed rate capital for real estate and major
equipment purchases while requiring measurable economic impact.
In short, the program fuels growth, creates jobs, and
strengthens communities, all while operating at zero subsidies
to taxpayers, and a remarkably low one-year charge off rate of
0.08 percent.
As an industry, CDCs are proud of these accomplishments.
That said, modernization is needed. I'd like to highlight four
key areas where immediate reforms could expand impact. Number
one; clean energy. In June, 2025, the SBA reimplemented an
arbitrary $16.5 million cap on energy projects and provided no
data to support the need for such a cap. I recommend this cap
be lifted to meet growing demand. We often have repeat
customers, and we want to make sure they have continued access
to capital to continue to grow their businesses.
A prime example of a business we assisted with the 504
energy efficiency program was the SBO Sports Center in
Massachusetts. This company has been an outstanding corporate
partner, not only providing free clinics for children of all
ages, but also generating significant economic activity and
local jobs.
To date, they have received three separate 504 loans and
continue to grow their business. Today, in recognition of these
contributions, the company was honored as a 2024 Massachusetts
family-owned business of the year.
Number two; manufacturing and standard 504 limits. As an
industry, we support increasing the SBA 504 loan maximum from
$5 million to $10 million for manufacturers. If we are serious
about revitalizing U.S. manufacturing, we must provide the
capital tools needed for expansion. We also must address
inflation in the loan limits for traditional 504. The current
statutory caps have not been raised in more than 15 years. I
recommend increasing these limits to $7.5 million for standard
504 loans and $10 million for manufacturers and renewable
energy projects. This will account for inflation and continue
to provide businesses with the capital they need to grow and
create jobs.
Number three; citizen verification. New SBA rules require
businesses to be 100 percent owned by U.S. citizens, nationals,
or long-term lawful permanent resident. This change is already
shutting out otherwise strong businesses.
We recently saw a stone importer, which was 85 percent
owned by a female U.S. citizen denied financing because 15
percent of the ownership was held by her father from Brazil who
provided the original startup capital. This policy unfairly
blocks U.S. citizens from accessing growth. Capital SBA should
revert to its longstanding more reasonable guidance.
Number four; down payment assistance. Our CDC provides down
payment assistance designed to reach underserved borrowers and
businesses in low to moderate income areas. For example, we
recently helped an African American women-owned business secure
$100,000 down payment to purchase her building for her school
serving children with autism.
With this support, she was able to move forward, and today
her school is thriving, expanding, and providing stability and
jobs for the families who depend on it. We also worked with a
business owner in East Boston whose project qualified as both
minority-owned and located in a low to moderate income
community. With down payment assistance, he was able to expand
his business and successfully repurpose a mixed-use property.
These stories show just how powerful targeted support can
be with the 504 Program. Small businesses don't just grow, they
build stronger, more resilient communities.
In conclusion, the SBA 504 Program is one of the most
effective federal tools for supporting small business, creating
jobs, and strengthening communities without taxpayer subsidy.
By lifting outdated loan limits, restoring fair citizenship
rules, and expanding down payment support, we can ensure the
program continues to serve America's entrepreneurs for decades
to come.
I thank the committee for your leadership on small business
issues and look forward to your questions.
[The prepared statement of Mr. Raccio follows.]
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Chair. Thank you very much, Mr. Raccio. And now, we will
recognize Ms. Wojtowicz. And you are recognized for five
minutes for your testimony.
STATEMENT OF MS. JEAN WOJTOWICZ, EXECUTIVE DIRECTOR, INDIANA
STATEWIDE CDC, INDIANAPOLIS, INDIANA
Ms. Wojtowicz. Thank you, Chair Ernst, Ranking Member
Markey, and distinguished members of the committee. Thank you
for inviting me to join you today. I'm honored to represent the
Certified Development Company industry to discuss the 504 Loan
Program, which is firmly focused on economic development and
job creation.
My name is Jean Wojtowicz, I am the executive director of
Indiana Statewide CDC. Through this entity, we have funded more
than $750 million in 504 loans, and leveraged more than $2.2
billion to over 1,500 Indiana companies, many of them
manufacturers and companies located in rural areas. I'm also a
past chair of NADCO, the trade association that advocates for
the 504 Loan Program, and serve on the board of Eagle
Compliance, which is the fiscal agent that sells the debentures
that fund these loans.
CDCs are SBA-certified organizations dedicated to creating
jobs and growing local businesses by delivering the 504 Loan
Program. Many CDCs also deliver other federal, state, and local
lending products and must invest in economic development beyond
the 504 Program. This highly successful public-private
partnership is structured with 50 percent provided by a private
lender, 40 percent through the SBA backed CDC debenture, and 10
percent by the borrower.
This structure supports liquidity, retention and working
capital preservation as a result of the low down payment, with
terms conventional lenders rarely provide. The structure and
terms provide certainty and help borrowers manage cash flow
fluctuations that come with expanding a business and employing
more citizens in their communities.
On March 10th of this year, Administrator Loeffler, along
with Senator Young, and others, kicked off the Made in America
tour in Indianapolis at Aerodyne Engineering, who utilized the
504 Loan Program four times to support their growth and
expansion. It is companies like Aerodyne that are the backbone
of growth, innovation, and the creators of jobs for citizens
all over our country.
The CDC lending industry is proud of the work we're doing
to support these companies, and we know the 504 Loan Program
can do more. We have several recommendations that would enhance
the program and allow us to serve more growing businesses.
Number one; pass the Made in America Manufacturing Finance
Act. The CDC industry supports increasing the manufacturing
loan size for borrowers to $10 million. This statutory change
would support the scaling of domestic manufacturing since a $10
million 504 loan could support a total project cost of up to
$25 million.
Number two; reduce the equity contribution from
manufacturers from 10 percent to 5 percent. Manufacturing is
capital intensive, and reduced equity requirements will
encourage investment and job creation while preserving critical
working capital. These companies need to expand.
Number three; modernize the 504 loan size limit for all
borrowers. We would ask you to consider raising the cap for all
borrowers to $7.5 million and index it to inflation reflecting
the growth since the last adjustment was made in 2010.
Number four; eliminate the extra 5 percent borrower equity
injection requirement for special purpose properties. This
requirement negatively impacts borrowers and SBA's charge off
data shows that these properties do not present a higher credit
risk.
And number five; continue separating the 504 and 7(a) loan
programs as they have separate purposes. The 504 Program is
focused on fixed asset financing, supporting job creation, and
economic development. The ``credit elsewhere test'', which is a
7(a) program requirement, should not apply to the 504 Program.
In conclusion, since 1986, the 504 Program has assisted
over 200,000 small businesses with nearly $140 billion in
loans, and a total investment of almost $400 billion and the
creation of 3.3 million jobs. And it has done so with a charge
off rate of only 0.08 percent for the most recent year.
Enacting these recommendations will make the program more
effective and accessible, allowing more small businesses to
grow, create jobs, and strengthen our economy.
Thank you for your leadership on small business issues and
the opportunity to testify today. I look forward to your
questions.
[The prepared statement of Ms. Wojtowicz follows.]
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Chair. Thank you very much. And finally, we will hear from
Ms. Kennedy. You are recognized for five minutes.
STATEMENT OF MS. HILDA KENNEDY, FOUNDER AND PRESIDENT, AMPAC
BUSINESS CAPITAL, ONTARIO, CALIFORNIA
Ms. Kennedy. Thank you, Chair Ernst, Ranking Member Markey,
and distinguished members of the committee. I'm delighted to be
here as well to represent the CDC industry and is to discuss
the 504 Loan Program, the agency's premier economic development
program.
This year, AmPac proudly celebrates 20 years of service
committed to serving small businesses and targeting those who
control, own, and control little productive capital. As stated
in the Small Business Act of 1953, through our partnership with
SBA, AMPAC has leveraged the SBA 504 Program to provide more
than $2 billion in loans and creation of over 7,700 new jobs.
I want to focus my comments on three primary areas; energy
efficiency, down payment assistance, and citizenship. The
Congressionally authorized energy policy goals signed into law
by President Bush in 2007 are delivering significant results.
In California, where we serve Dahdoul Textile, a family-owned
wholesaler and retailer of consumer goods, is a shining
example.
They've used the SBA financing multiple times and have
created new jobs with each expansion. In the last two years,
they acquired two locations using the 504 energy public policy
goal. They installed solar panels, and benefited from greater
cost savings. With these two recent projects, Dahdoul created
33 new jobs, and revitalized two vacant stores.
SBA's current $16.5 million cap on energy-related 504 loans
limit businesses like Dahdoul from additional SBA financing to
expand, reduce energy costs and create jobs. Eliminating the
cap would ensure that small businesses can fully leverage
energy efficiency and long-term growth and sustainability.
As noted, the 504 Program follows a basic structure. 50/40/
10. 10 percent represents borrower equity. However, many small
businesses, especially first-generation entrepreneurs and
first-time commercial real estate buyers, may have 10 percent
down, but the working capital is not there for growth. At
AmPac, we launched our first ``It Is Possible'' down payment
assistance loan program to help small businesses.
And I want to tell you about Jerry. He's the owner of
Riggins Urban Barber College. He's a Navy veteran who's
dedicated his life to giving young men and women a second
chance by training them in barbering. As a first-generation
entrepreneur, when he bought his building, AmPac's down payment
assistance helped him to restore cash to support his expansion
and add for new jobs.
I recommend establishing a pilot program under the 504 loan
program for first-time commercial real estate buyers to qualify
with 5 percent down, which would act as a floor and not a
ceiling, and allow CDCs' flexibility to make credit decisions
that also maintain our 0.21 percent default rate as noted in
Fiscal Year 2024.
I want to also highlight recent changes in the SOP
regarding citizenships. That's limited to 100-owned by U.S.
citizens, U.S. nationals, and lawful permanent residents. I
fully support SBA resources going to U.S. citizens, but this
change has negatively impacted some majority-owned and
controlled U.S. citizen businesses.
One such business is a private school in Orange County,
founded by three partners, two U.S. citizens, and a minority
partner with 6.5 percent stake. The schools were looking for a
504 loan, but we were not able to help them because of this
change.
I recommend restoring the SOP language that allowed SBA
financing for businesses that were majority-owned and
controlled by U.S. citizens by addressing citizenship, clean
energy, and down payment assistance, as well as a thoughtful
adjustment such as increasing 504 size limit and for
manufacturing businesses.
The SBA can fulfill its Congressional mandate to fill
market gaps for America's entrepreneurs and build on the
economic development mission of the 504 loan program.
Thank you so much for the invitation, and we welcome your
questions.
[The prepared statement of Ms. Kennedy follows.]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chair. Wonderful. Thank you very much. And now we will go
into our question and answer portion of today's hearing, and I
will recognize myself for five minutes for questions.
And I'll start with Mr. Swanson. So, Mr. Swanson, thank you
for making the trip to Washington, and for representing Iowa
small businesses. In your testimony, you describe how you
bought your business from an international owner and then used
the SBA's 504 loan program to both purchase your business'
building, and then expand your operation in Iowa.
Can you describe the investments that the 504 Program has
enabled you to make, and how the program helps small
manufacturers secure the capital they need to expand operations
and maintain a steady pace of modernization?
Mr. Swanson. Thank you, Senator Ernst. In our case, the
structure of the 504 Program was essential for us as a
relatively new ownership group to afford even considering the
purchase of the building. And what that enabled us to do is
secure the future of our business in that location within a
purpose-built structure that, that met our needs very well.
The expansion following behind that, again, with the 504
Program was a very attractive way that we could do that while
still maintaining enough working capital continue to hire the
staff that we were building back.
As I indicated in my comments, additionally we were in need
of bringing in more production equipment. And so, again, by
having the capacity to continue to make those in incremental
investments over the growth of our business, that is the end
result of how we use that, the program, and how it benefited
us.
Chair. Wonderful. I appreciate that. And then
modernization, continual modernization. Really appreciate that.
Mr. Swanson. Constantly. And we've made more investments
this year in some new capabilities, a laser welder, plasma
table, all things that we didn't have the internal capacity to
do before. And it just all helps drive more of our capabilities
internally.
Chair. Fantastic. Thank you. And Ms. Wojtowicz, over the
last five years, we have seen demand for larger loans within
this 504 Program. They've steadily increased. In Fiscal Year
2021, only four percent of loans reached the program maximum
compared to over nine percent in Fiscal Year 2025. Over that
same period, the share of these large dollar projects for
manufacturers has grown at an even faster rate, nearly
tripling.
My Made in America Manufacturing Finance Act in conjunction
with Senator Coons--and thank you for partnering; really
appreciate that--would double the loan limits for small
manufacturers. So, if you could explain for us, what are the
benefits of expanding the 504 loan program's limits for small
manufacturers, and how can we do that while also mitigating
taxpayer risk?
Ms. Wojtowicz. Thank you, Senator Ernst, and thank you for
introducing that bill. We think it's going to be extremely
impactful to manufacturers. Indiana is a very high level of
manufacturing state. In fact, 45 percent of our 504 loans that
we've made have been to the manufacturing sector. So, clearly
important to our state and to the employees that work at those
companies.
If you think about the cost of manufacturing, much of this
equipment is multimillion dollar pieces of equipment. And for a
company to expand, like Mr. Swanson's has expanded, and having
to continue to bring current equipment in that will increase
efficiencies and keep those companies competitive, is extremely
important.
And so, not only do we use the higher loan limits so that
they can build larger buildings and employ more people, but
certainly also to purchase and put into production the very
large pieces of equipment that are necessary for those
companies to remain competitive and to continue to grow. So,
it's extremely important to see those loan limits increased.
Chair. Oh, we appreciate the feedback very much. And just
very briefly, Ms. Kennedy, I've always prioritized ensuring
that the SBA programs provide that meaningful support to rural
small business owners who often face substantial challenges in
getting adequate access to capital. We hear about that all the
time. Could you just briefly walk us through any efforts you've
made to support rural small business owners?
Ms. Kennedy. Thank you so much, Chair Ernst. We have
actually made a number of loans to rural businesses. In fact,
about $70 million in 504 lending to rural businesses as well as
loans to businesses for Microloans and Community Advantage
loans. 2.3 million residents in California are rural, or 5.8
percent of the population. So, it's a very important part of
the business that we do in the state. So, thank you for the
question. Really appreciate that.
Chair. Thank you. And now I recognize Ranking Member Markey
for five minutes.
Senator Markey. Thank you, Madam Chair, very much. And as I
said in the opening, Senator Ernst and senator Coons'
Manufacturing Act is one step forward. But as I also pointed
out, President Trump's policies are four steps backwards for
manufacturers at the same time, which is still hurting our
economy.
And as I mentioned in my opening, Trump's SBA new severe
citizenship verification requirements are cutting off small
business access to capital. These requirements specifically bar
small businesses with any amount of foreign investments or
ownership through individuals lawfully in the United States of
America, including DACA recipients and refugees from receiving
a loan.
Now, to qualify for an SBA loan, small businesses must be
100 percent owned by U.S. citizens, nationals, or green card
holders. Not even one percent can be owned by someone with a
different legal immigration status. Let's just say your father
from Brazil, one percent, you're up.
Mr. Raccio and Ms. Kennedy, I'm concerned about the
chilling effects that these requirements will have on
entrepreneurs looking for an SBA loan. Can you expand on how
U.S. small businesses and local communities are hurt by these
new requirements? Mr. Raccio.
Mr. Raccio. Thank you for that question, Senator Markey. It
has been challenging for many small businesses. As I alluded to
in my testimony, we did have the Brazilian family that was
unable to obtain a loan. We also had a more recent example in
your home state of Massachusetts with a 80 percent American
citizen, a 10 percent two-year green card holder, as well as
someone on a work visa owning the other 10 percent. That
project was not able to move forward based on an ownership. So,
that was difficult.
While we won't be able to completely quantify who is not
applying, we are confident that we are seeing businesses not
applying due to the lack of 100 percent ownership of a U.S.
citizen or lawful permanent resident. We would urge the
committee to return to the previous rules that allowed 51
percent ownership.
Senator Markey. Right. And 30 percent of all companies in
Massachusetts are started by immigrants. So, that's a story
across the whole country, too. So, it gets complicated. Ms.
Kennedy.
Ms. Kennedy. Senator Markey, we too. That matter regarding
100 percent citizenship, especially in the state of California,
has been significant. And one of the examples that I included
in my written testimony was a returning SBA 504 customer that
we had served a local winery. Really a beautiful business,
family-owned business in the community.
And they have a partner that is a 30 percent owner that is
a Canadian native, a Canadian citizen. And when that first loan
was done, we were able to serve that business because it's
majority-owned and controlled by a U.S. citizen. When they came
back to us, we were not able to serve that business because of
the new citizenship rule.
And I agree with my colleague that if we rolled back to the
requirements in the SOP that this change, we would be able to
serve locally-owned, majority-owned and controlled U.S.
citizens who are creating jobs here in America.
Senator Markey. Okay, thank you. So, small businesses are
required to use the loans to accomplish certain goals,
including to reduce energy consumption, increase the use of
sustainable designs that reduce greenhouse gas emissions and
use renewable energy.
These energy goals were passed on a bipartisan basis,
signed into law by President Bush in 2007. I know because I
stood over his shoulder when he signed it because I was the
Democratic author of the bill. So, Mr. Raccio, can you explain
how loans used to meet the clean energy goals have helped small
businesses and their communities?
Mr. Raccio. Absolutely. Thank you, Senator, for that
question. We have had a lot of good success stories. One, as I
mentioned earlier in testimony, was SBO Sport that was able to
do multiple projects utilizing renewable energy.
As a matter of fact, they've had such success with the
solar project they've done that they're able to feed
electricity back to the grid. So, it's been a very nice project
where they're able to provide other small businesses energy at
peak times, all while creating jobs and growing their own
business by being able to sell some of this energy back.
We also see many hotels that are doing this as well.
They've got large flat rooftops. They are traditionally capped
at the traditional 504 loan amount. So, by utilizing a
renewable energy project, they're able to put solar panels on
the roof, save themselves energy usage, and also move forward
and obtain the financing that they're looking for.
Senator Markey. Thank you, Mr. Raccio. Thank you, Madam
Chair.
Chair. Thank you, Ranking Member Markey. And now, I
recognize Senator Jon Husted for five minutes.
Senator Husted. Thank you, Chair Ernst. I want to just
reflect a little bit on some of the conversations I've had with
Ohio businesses over the past few months because they were
grateful that they have a more stable environment to operate in
this country since the passage of President Trump's budget
reconciliation bill, which passed here and was signed into law
on July the 4th, which included expanded pass through income
deductions, a hundred percent immediate expensing of business
investments, an R&D expense and deduction for domestic R&D
costs so that we can invest through the private sector in
advancing innovation, employer-provided childcare credits and
other employee benefits.
And I know that in talking with them. Like, what does this
mean to you? What does it mean? It means more cash flow. It
means more liquidity, lower compliance costs, greater
incentives, and incentives to hire people. And because they can
provide additional benefits to their employees and it
encourages them to invest so they can compete with people
around the globe.
And I know that's hard for small businesses, but we've done
a great deal, and we can do more to create a better business
environment in this country. But I was reflecting on Ms.
Wojtowicz's testimony here. You said something that struck me.
Indiana, Ohio, we have a lot of manufacturing in our respective
states, and I know Chair Ernst touched on this as well, that we
want to do Made in America.
We say we want more manufacturing jobs in this country. We
know that all states are not made the same. Some have a high
amount of manufacturing in their respective states as a part of
their economy. And you said one of your recommendations--I want
to give you a chance to just explain why you believe this is so
important.
Because I agree with you that Congress should expand access
to the 504 loan program to enable manufacturers to retain more
capital by reducing the borrowing equity injection from 10
percent to 5 percent. It's almost a penalty to be a
manufacturer even though those sites are coveted in states like
ours where people want to have access to those facilities. And
just talk about how you think that this will help boost
manufacturing in your state and the country.
Ms. Wojtowicz. Certainly, Senator, thank you for the
question. And manufacturing is critically important to our
country in every state. And those states like ours that are
heavy manufacturing-focused states, it's even more important in
the manufacturing sector.
Again, buildings and equipment are extremely expensive, and
often, those companies have working capital needs that are
extreme as well. So, by limiting their down payment from 10
percent to 5 percent, they'll be able certainly to have more
working capital.
But let me take one other step on there, because many of
these manufacturing sites have rail access, which is critical
to them to be able for them to deliver goods. If a rail site is
on that property, it is currently classified as a special
purpose property and they have to put another 5 percent down as
equity.
So, instead of in a typical manufacturing project being 50
percent bank, 40 percent CDC, 10 percent equity, if there's a
railroad spur on that property, the borrower has to put down 15
percent and only get 35 percent of the very attractive SBA 504
financing with a long-term fixed rate.
So, we're looking for all companies that are special
purpose, and there are many, to not have to have that 5 percent
penalty. And specifically, for manufacturers, to be able to
reduce their equity contribution from 10 percent to 5 percent.
Senator Husted. And if you talk to a manufacturer, they
need to compete because we have higher wage rates in our
country. So, to compete, they have to have the capital to buy
the new machinery and equipment that they can to up their
productivity gains so that they can actually compete. This is
an important part of them having the capital to do that in the
big scheme.
Ms. Wojtowicz. Extremely important. So, they not only have
to invest in that capital, and having a 10 percent down payment
pulls some of the working capital out of the business.
Senator Husted. I see Mr. Swanson smiling and shaking his
head. I think he wants to say something here. Would like to
add?
Mr. Swanson. Oh, Senator, I was just nodding in agreement.
There's only one pool of capital we have available as a
company. We have to elect where to deploy that, whether it's on
equipment purchases and modernization, or hiring more staff, et
cetera. So, my colleague's point is exactly on target with
that.
Senator Husted. Great. Thank you.
Chair. Thank you. Senator Coons.
Senator Coons. Thank you, Chair Ernst, Ranking Member
Markey. And thank you to our four great witnesses today.
Not everybody finds manufacturing capital needs riveting,
but I do. I'm excited about this hearing. I think this is
interesting. We all find manufacturing exciting. Some of you
know I spent a decade in manufacturing before I ever ran for
office, and then as county executive, and now as Senator, work
closely with the CDCs in Delaware and with those who help with
capital lending, and who compete globally as small and medium
sized American manufacturers.
So, Mr. Swanson, Mr. Raccio, Ms. Wojtowicz, and Ms.
Kennedy, thank you for what you do as small manufacturers, as
CDC lenders, to help deploy the resources of the 504 Program.
And thanks for helping us understand how the 504 Program helps
bridge the gap, and CDCs help originate and put together and
secure these.
I am proud to work with Chair Ernst on the Made in America
Manufacturing Finance Act, recently approved by this committee
and its corollary in the House by voice vote to increase the
loan size available to small manufacturers.
Mr. Swanson, in your prepared testimony, you discussed the
challenge of competing in foreign markets. I think you spoke
earlier about competing in Brazil. How does the guaranteed
lending offered by the 504 Program allow small manufacturers to
successfully compete globally?
Mr. Swanson. Well, thank you, Senator Coons. The starting
point I would refer to would be as was discussed by allowing us
to continue to invest particularly in the kinds of capital
equipment. That can be extremely useful for us to offset the
challenges of labor supply, and with allowing us to, in our
case, the specific requirements to produce the high-tech
equipment that we're manufacturing. We leverage those
advantages in, in terms of the international markets that we
pursue.
Senator Coons. I remember meeting with Miller Metal in
Bridgeville, Delaware, my first year as a Senator and seeing
how both SCORE, which is an organization founded in Wilmington,
Delaware of business executives who volunteer and consult, and
the Manufacturing Extension Partnership Program helped this
small, family-owned metal pressing and bending company figure
out what capital investments they needed to make to get a
cutting-edge bending, and welding, and punching machine. And
then, they successfully competed against a Chinese manufacturer
for a small part that went into thousands of assembled, what I
would call a Hi-Fi system, but a stereo system. It was amazing
to me a company from Bridgeville could compete directly with a
Chinese manufacturer and win.
I was concerned to hear that their funding had been held up
for months, and they were beginning to lay off people
federally. They have 10,000 volunteer mentors. It's the most
cost-effective federal program known. I was relieved to find
out today that those withheld funds are now being released and
flowing. You mentioned SCORE and other resource partners in
your written testimony. How do they help reinforce your work
delivering capital to manufacturers?
Mr. Raccio. Thank you, Senator Coons, for that question.
They help on almost a weekly basis. SCORE has been a monumental
partner in helping our small businesses, whether it's finding
access to certain SBA programs, helping them with business
plans, is often critical for our small business partners.
Whether they're looking to expand or simply start and they're
not sure how to go about it.
Specifically, in New England, we have a lot of retired
executives that have an extreme amount of industry knowledge,
so it's been a really good partnership with SCORE. They'll also
pair up with SBDC as well and work with them. So, they're out
at events. They are a great product. Great set of people. I'm
glad the funding was released. But they are out there and
working with our businesses every day.
Senator Coons. Last question for anyone on the panel, if I
might. There have been proposals to cut the SBA workforce by as
much as 40 percent. At least in Delaware, I've seen how having
the SBA office and staff with connections, and resources, and
experience helps facilitate access, particularly to
manufacturers who tend to be overextended, and overstretched,
and only know about these programs because there's staff
available to help with the outreach.
What sort of impact do you think we would see if they
actually carry through with dramatic cuts to the total SBA
staff? Anybody jump ball? Ms. Kennedy.
Ms. Kennedy. Senator Coons, thank you very much for the
question. You know the SBA staff is so resilient. We've just
found them to be so committed to getting the work done and
partnering with other economic development organizations like
CDCs that we would all have to jump in because small businesses
are that important to our local economies and to creating jobs.
And so, certainly, cuts always hurt, but the rally for
small businesses is absolutely there in our local communities,
and we want to make sure that those employees are there for
serving our community, but as well as having those partners
like SCORE. So, that was really good news to hear. So, thank
you for delivering that, too.
Senator Coons. Thank you. And thank you, Madam Chair, for
the chance to work with you to help provide more capital to
America's small business manufacturers.
Chair. I'm so glad to partner with you. Thank you. And,
Senator Shaheen.
Senator Shaheen. Well, thank you, Madam Chair, and thank
you to all of our witnesses today. We're really delighted to
have you here and to have your experience to share with us.
Just following-up on Senator Coons' question about staffing
shortages. One of the things that I've heard from some of my
constituents in New Hampshire is that 504 approvals are taking
longer in large part due to staffing cuts, and the loss of some
of the experienced staff that have been working on these kinds
of loans for a long time.
Can any of you speak to what difference it makes when it
takes longer to get a 504 loan approved? What does that mean
for the small businesses who are affected?
Mr. Raccio. Thank you for that question, Senator.
Absolutely, it impacts our businesses and their ability to
close on loans, whether it's real estate that needs to be
purchased. For example, we had a recent deal where there was a
1031 real estate exchange which is a federally-timed product
where we have to close. And we're waiting, and the business is
very nervous if they're going to get the approval.
So, that's just one example of where when there are time
delays it's very sensitive to the businesses, and it often
leaves them feeling anxious, noticeably so. So, anything we can
do to increase turnaround time, and have that accountability
and predictability for the small businesses that they know,
whether it's 5 days or 10 days, that would be immeasurable to
the small business to know when they start their loan
application with us, in this certain amount of time, they're
going to have a decision.
Senator Shaheen. Thank you. Does anybody want to add to
that?
Ms. Kennedy. Senator, it's a great question. And again, I
would say to you that SBA staff is so resilient in terms of
trying to make sure they serve small business. They're
committed to that. But I agree with my colleague, time matters,
and time kills deals. And so, it's really important to have
that level of certainty when they submit a loan that we can get
that approved in a timely manner.
Senator Shaheen. Thank you. I appreciate that. And I would
agree with you, the SBA field staff in New Hampshire is
tremendously resilient and do a great job. And my experience is
that all of the other SBA folks that we've worked with are in
that category.
I know that Senators Young and Klobuchar have worked
together on some improvements to the 504 Program. One change in
particular that they've proposed that I think is really
important is shifting the occupancy rates to make it easier to
use a 504 loan for mixed use building.
New Hampshire, like so many states is really an affordable
housing crisis. There are a lot of New Hampshire towns that
have main street buildings that are no longer occupied that
could really benefit from investment to allow them to be used
as housing, as well as commercial space.
So, I know, Mr. Raccio, or at least I understood, that you
may have looked into this issue and maybe others have as well.
Do you think that changing those occupancy requirements would
be helpful as we're looking at how do we address both small
business issues but also some of the housing challenges that we
have in states?
Mr. Raccio. Thank you, Senator, for that question. Yes, we
would absolutely love to be able to change the occupancy
requirements to a 50 percent owner-occupied versus 51 for
existing and 60 for ground up new construction. What that would
really do is it would allow more SBA borrowers to get access to
these capital funds to purchase real estate.
We're often involved as a panel with customers that are
buying much like you mentioned, Senator, buildings that may
have two floors, you know, might have some investment space to
it, which is great for our borrower to have some of that
accountability.
And believe it or not, sometimes, especially in New England
where I lend, we have a lot of buildings that are identical up
and down. So, you're stuck at 50 percent. Yes, we understand
that can't move forward. So, it would be really nice to be able
to have it be 50/50, and be able to have more access for
capital to borrowers.
Senator Shaheen. So, you said 50/50 on existing buildings,
but what did you say about new buildings?
Mr. Raccio. Same. 50/50.
Senator Shaheen. Do others want to address that? Ms.
Wojtowicz.
Ms. Wojtowicz. Thank you, Senator. I would like to just add
a little bit of clarification, because the current SOP also
requires that even if it's at 51 percent, that over a period of
time, they occupy up to 80 percent. So, that would not allow
those kinds of projects to go forward unless we address both
sides of that issue.
Senator Shaheen. Oh, that's a really good point. Thank you
very much for that. Thank you-all very much for your testimony.
Chair. Thank you. Senator Rosen.
Senator Rosen. Well, thank you. Thank you, Chair Ernst,
Ranking Member Markey, for holding this hearing. I love to see
everyone is smiling and agreeing. And this is a--you know, this
committee, small businesses, the backbone of our country. And
in Nevada, we have 280,000 small businesses. That's 99 percent
of businesses in Nevada are small businesses. And right now, we
have almost 100 approved 504 loans for, I think, over $120
million total. And we want to keep that going. So, thank you
for all being here.
And I know supporting clean energy businesses has been
brought up by Senator Markey. I want to build on that a little
bit because we know a little something about that. Nevada and
some more, supporting small business in the clean energy SEC
sector is beneficial for local national economies. Seeing these
benefits firsthand.
Nevada is a leader in clean energy with the most solar jobs
per capita of any state. We got plenty of Sun. We farm the Sun,
Iowa, you've got the corn. Nevada, we've got the Sun, right? We
farm what we can, and we're still growing. Last year, Nevada
had its greatest expansion of solar capacity in a decade, which
will create even more economic opportunity for clean energy
small businesses.
So, this means a cancellation for funding streams like
solar for all program and cuts to the clean energy tax credits
in the recently enacted reconciliation bill. Well, it's going
to have a devastating impact on the small businesses. We have
tons of small businesses that make all the pieces and parts
that go into building solar panels, a solar field, and all that
support. And it's really important. We have a lot of businesses
for our broader clean energy economy. So, due to these cuts,
businesses in Nevada, they're uncertain. Will they close? Will
they stay? Will they go? And it's a very, very stressful time
for us.
So, Ms. Kennedy, you mentioned in your testimony a
successful clean energy project in Reno. Thank you very much.
It utilizes 504, maybe one of these nearly 100 programs. Can
you speak to the importance of directing investment to emerging
industries like clean energy and the ways we can make it
easier, especially for those? We have wind, water, solar,
geothermal, that's what Nevada has, our geography and geology
and we want to be able to leverage that 504 funding.
Ms. Kennedy. Well, thank you so much, Senator. And we
certainly agree with that. When we think about that Somerset
Reno project where we were able to assist a business that had
gotten multiple SBA loans in California and moved into Reno. To
do another Memory Care facility that included some senior
housing as well, being able to get access to the SBA energy
public policy goal and open up another location, creating over
70 jobs, a very significant project in Reno.
And so, being able to eliminate that cap, which was already
in place in the previous administration, it really will make a
difference for clean energy and energy cost, or increasing in
states like California with all of the fires. And so, being
able to sell back to the grid, as my colleague mentioned, being
able to create that clean energy at solar and reduce energy
costs is such a win-win for small businesses already dealing
with so many additional costs.
Senator Rosen. I agree. Thank you. And I want to move on.
You talked about affordable housing, but I'm going to move on
about expanding SBA loans for affordable housings because our
nation is facing a severe shortage of affordable housing. It's
forcing families into housing insecurity. It's creating
challenges for small businesses. It's dragging down our local
economies.
And in order to address the housing crisis, we must support
small businesses in the housing industry working to tackle this
issue; home builders, contractors, all the support businesses
that do that to ensure they have the capital that they need to
contribute to their communities.
And so, I recently sent a letter to SBA and HUD urging them
to work together to better support small business in the
housing industry, including by opening up SBA capital to home
building those developers. Affordable housing, it really makes
a difference.
So, Mr. Raccio, can you give us any stories here, discuss
how you're working with small businesses in the housing space,
and any stories that you want to share in this time I have
left?
Mr. Raccio. Thank you, Senator, for that question. As I'm
sure you're aware, the SBA 504 isn't able to directly provide
assistance for housing. But we do on a daily basis provide
financing for some of those businesses to purchase their own
real estate and expand.
I recently had a project up in Cape Cod, Massachusetts with
a large contractor where we were able to utilize the SBA 504
refinance program and help that contractor out to refinance 19
pieces of heavy-duty equipment such as excavators and
bulldozers.
So, while we might not be able to directly provide funds to
the end user as of today, we're certainly involved with the
industry helping them out on a daily basis.
Senator Rosen. That's fantastic. Thank you. Well, it's an
all of be above approach. So, thank you all for being here.
Thank you, Madam Chair.
Chair. Absolutely. Thank you. And now I'll recognize
Senator Hickenlooper for five minutes.
Senator Hickenlooper. Thank you, Madam Chair. This is a
treat. We're watching you on TV. You don't see us all here, but
we're watching, and really appreciate. There are not that many
of us left, but I'm one the--I'm an entrepreneur in my own
right. I started out as a geologist, and then in the big long
kind of inflation--what'd you call it? The stagflation epics of
the '80s, our company got sold and we all got laid off. And I
was out of work for a couple years, but ended up opening a
restaurant that brew its own beer.
And our lending parameters where no one--I went to 33
banks, and they turned me down every time. I was only trying to
borrow 50 grand because the city would give us 125 grand,
because we were at an abandoned warehouse district so they
wanted to stimulate the area.
And so, we finally got open after all these banks--
actually, the Women's Bank was the only bank that would give us
a loan. And we had to put up about literally $150,000 worth of
collateral, stock certificates, and house deeds to get a
$50,000 loan.
Got going and things took off, and we needed--we had all of
a sudden everyone copied us, and we had all these competitors.
And we had to expand, and we were going to take this big old
five story warehouse and put affordable housing up on top.
Minor detail was, I didn't have any money still. We had a
business that was doing great and cash flowing like crazy.
Anyway, the 504 program was what we used, and it allowed us
to take the cash flow we have and then the asset. And we were
gambling. If we put these millions of dollars into it, it would
be worth this much more money. And it worked and really was--no
one else would've talked to us, no one else would've given us
that chance.
And I think if you look at so much of the good ideas and
innovations that come out of this country, it's people that are
not that smart. They're just about to lose their business, and
they're fretting every hour, lying awake at night figuring how
you're going to make payroll, how can you get more customers,
how can you get a better margin on those customers?
And that's what creates that devotion to trying to solve
your problems. It's is really what leads to solutions that a
lot of other people benefit from. It turned out we ended up
making a whole bunch of money out of it, but I never intended
that. You know, the only reason I was a small business person
was because I didn't want to have a boss. [Laughter.]
Anyway, I appreciate very much all of you and what you've
done. And let me start off with Ms. Kennedy. You know, as I
said, major investments in things where you've got fixed
assets. It's amazing resource for our businesses. And I think
the renewable energy, obviously, we've seen a bunch of that.
One of our first bills that we introduced was going to allow us
to use 504 programs to invest in energy efficiency or clean
energy projects.
Sometimes it's hard to get that improvement in cash flow to
be monetized. Now more than ever, we're seeing them use these
investments to navigate the increasing costs and the new energy
sources that will lower energy costs.
But in this past June, the SBA put a cap on 504 financing
that a business could receive for energy projects just as it
were at that point where suddenly we had a bunch of projects
lined up and ready to come through that ultimately, I think,
were those small businesses that were so neurotic and driven
that they would've come up with the innovations and the great
ideas.
So, Ms. Kennedy, I'd ask, how have small businesses used
504 to invest in clean energy, and what does the cap do, in
candid terms?
Ms. Kennedy. Thank you so much, Senator. As I mentioned in
my written and oral testimony, this 504 cap will hinder small
businesses from continuing to use the energy efficiency public
policy goal by no longer being able to do multiple projects.
Dahdoul Textile is one of the businesses I mentioned. In
Somerset, Reno, is another business I've mentioned. And we have
a number of businesses in California, in particular, who could
benefit from removal of that cap so that they can continue to
grow using the energy public policy goal. It's really critical.
In California, energy costs continue to go up because of the
fires, and we need to have access to this particular public
policy goal without those limitations.
Senator Hickenlooper. Great. Thank you. And can I steal
another minute?
Chair. I suppose. [Laughter.]
Senator Hickenlooper. I told too long a story, and I
apologize. Mr. Raccio, and I'll get rid of all the flowery
preamble. But how do you describe how lenders can combine
different types of financing to support businesses, and is
there something we should be doing in Congress? Or is there
something that we can kind of put our shoulder to the wheel,
and try and get the SBA to do in terms of being innovative?
I ended up with four different loans to get that project
done. And one of the great things about the 504 was it really,
it would go below like the city loan, which just had a--it made
all the difference.
Mr. Raccio. Thank you, Senator. We have an amazing tool box
set of products, whether it's the 504 for a fixed capital asset
or it's the 7(a) to help out with working capital, a lot of the
tools that the everyday business owner is going to need. We
have, I think, being able to increase some of those limits.
And also, having some accountability with regards to
timeframes will really help to boost where we go with those
products. So, I would think the panel would agree. We've got a
really good tool set. Just listening to your story, listening
to Karl's story, at the end of the day, when we're able to do
these loans, we can see the excitement in your face. We really
do make small business owners dreams come true. And it's not
every day we can say that, but we really have clients like
yourself that really love what they do and are excited about
taking the opportunity to purchase real estate.
Senator Hickenlooper. Yeah. I appreciate that, and thank
you-all. It's funny, I came very close to doing a brew pub in
Indianapolis, and came very close doing one in Davenport. Rock
Island actually is where we were looking, but in that Quad City
stuff. So, anyway, thank you-all. I yield back.
Chair. Okay. If there are no further questions, I want to
thank our witnesses for being here with us today. I ask
unanimous consent that the record of today's hearing remain
open for two weeks for members to submit questions, revise and
extend their remarks, and submit additional information into
the record.
Without objection, so ordered. And with that, the Committee
on Small Business and Entrepreneurship stands adjourned. Thank
you all very much.
[Whereupon, at 3:44 p.m., the hearing was adjourned.]
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