[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION'S FINANCING PROGRAMS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 26, 2011
__________
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
JANICE HAHN, California
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Opening Statements:
Graves, Hon. Sam............................................. 1
Velazquez, Hon. Nydia........................................ 2
WITNESSES
The Honorable Karen Mills, Administrator, United States Small
Business Administration, Washington, DC........................ 3
Sally B. Robertson, President, Business Finance Group, Fairfax,
VA............................................................. 27
K. Rodger Davis, Managing Partner, NorthCreek Mezzanine,
Cincinnati, OH................................................. 29
Gary Grinnell, President & CEO, Corning Federal Credit Union,
Corning, NY.................................................... 31
Ms. Lynetta Tipton Steed, Executive Vice President Business &
Community Banking Division, Regions Financial Corporation,
Birmingham, AL................................................. 25
APPENDIX
Prepared Statements:
The Honorable Karen Mills, Administrator, United States Small
Business Administration, Washington, DC.................... 41
Sally B. Robertson, President, Business Finance Group,
Fairfax, VA................................................ 45
K. Rodger Davis, Managing Partner, NorthCreek Mezzanine,
Cincinnati, OH............................................. 52
Gary Grinnell, President & CEO, Corning Federal Credit Union,
Corning, NY................................................ 57
Ms. Lynetta Tipton Steed, Executive Vice President Business &
Community Banking Division, Regions Financial Corporation,
Birmingham, AL............................................. 71
Questions for the Record:
Chairman Graves Questions for the Record..................... 83
Rep. Keating Questions for the Record........................ 86
Answers for the Record:
Administrator Mills Response to Chairman Graves Questions for
the Record................................................. 88
Administrator Mills Response to Rep. Keating Questions for
the Record................................................. 93
OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION'S FINANCING PROGRAMS
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WEDNESDAY, OCTOBER 26, 2011
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves [chairman
of the Committee] presiding.
Present: Representatives Graves, Chabot, Coffman, Mulvaney,
Tipton, West, Walsh, Barletta, Velazquez, Schrader, Critz, Chu,
Cicilline, Richmond, Peters, Owens, and Hahn.
Chairman Graves. Good afternoon. We will call the hearing
to order today.
The most important thing this Committee can do is create an
environment in which entrepreneurship is fostered, thereby
producing jobs vital to the economic recovery. There are many
aspects in creating this environment and in today's hearing we
are going to focus on one of those, and that is access to
capital.
The Committee has heard on multiple occasions from small
businesses that they cannot get funds needed to operate and
expand their businesses. At the same time, banks have testified
before the Committee saying that they have the funds available
to lend. The Small Business Administration oversees a number of
programs working in conjunction with the private sector
partners to bridge this apparent gap between the need and
availability of capital. SBA statistics show that volume in its
financing programs has increased. These efforts have been
supplemented by promises from banks to raise lending to small
businesses. It remains an open question whether these efforts
are sufficient to provide the necessary funds for small
businesses to expand and create jobs. The SBA programs operate
with loan guaranties issued by the federal government.
Congress has determined that the risk to the taxpayers are
outweighed by the benefits providing the needed capital to
small businesses. Irrespective of that determination, this
Committee has a responsibility to ensure that the desire to get
money into the hands of small businesses does not come at the
expense of exercising due diligence when making a loan,
especially when taxpayers are on the hook for the government's
bad decisions. Therefore, the Committee needs to know that the
SBA and its partners are complying with the requirements of the
Small Business Act and not issuing loans with document
deficiencies as the inspector general has recently found.
Ultimately, the Committee needs to understand whether the
programs currently constituted are enabling small businesses to
create jobs; if not, the Committee will need to examine
legislative changes to promote access to capital without unduly
placing the taxpayer at risk.
And with that I yield to Ranking Member Velazquez for her
opening statement.
Ms. Velazquez. Thank you, Mr. Chairman.
In the last year, our nation's economy has experienced
steady private sector job creation. However, it has not been
enough to have a sizeable impact on the unemployment rate which
remains stubbornly high at 9.1 percent. The reality is that we
will still have a long road ahead of us with millions of
Americans who are seeking work that cannot find it. Front and
center to any solution to this dilemma are small businesses. In
every previous downturn it has been small, innovative firms
that have created the cutting-edge products and services to
lead us forward. In fact, more than half of the companies on
the 2009 Fortune 500 List were launched during a recession or
bear market, along with nearly 50 percent of the firms on the
2008 Inc. List of America's Fastest Growing Companies.
Whether it is a Silicon Valley startup or a Main Street
mom-and-pop, it is clear that small businesses are our nation's
job creators. In order for entrepreneurs to continue to play
this traditional job creating role, it is essential that they
are able to access capital. Doing so provides the fuel for
innovation and economic expansion across the spectrum of
entrepreneurship. It enables unemployed individuals to start
their own businesses, help domestically-oriented companies to
sell their goods in foreign markets, and allows high tech firms
to reinvest in R&D.
But small businesses face real challenges in the capital
markets. While lending conditions and credit standards are
easing, companies have still not recovered from the financial
crisis and recent recession. This has left many without the
assets to borrow against and with lower revenues than in years
past. As a result, business owners now have fewer options to
secure affordable financing. Lending through the SBA is always
critical to fill in this void. Several provisions this
Committee crafted in the Recovery Act temporarily boosted SBA-
backed lending. Recent guaranties and cutting fees on SBA loans
spurred demand and was key for the record-setting year the
agency experienced with record 7(a) loan volume of nearly $20
billion, an increase of more than 50 percent. It is clear these
policies work. Impressive growth in the SBA state program, as
well as more moderate growth in the 504 program, confirmed
important roles that these initiatives play in the capital
markets.
With this growth came other challenges in the portfolio.
The average 7(a) loan grew by nearly 40 percent, while there
were percentage declines in smaller loans and those to
startups. During economic downturns, smaller loans are
especially important. As an average it costs nearly 75,000 to
launch a new enterprise. With an average 7(a) loan size of now
$365,000, five times the cost of a startup, we must make sure
that the agency is not forsaking its roots solely to set
records.
During today's hearing I am hopeful that we will not just
tout past performances but instead focus on how we can expand
access to capital for all businesses, especially those at the
earliest stage of the business cycle. Startups, particularly
those in the high-growth sectors, remain central to our
economic recovery, and it is critical that we expand their
ability to secure financing. Now is not the time to constrain
free access to capital and problems like those at SBA are
critical to creating jobs. Getting financing in the hands of
would-be entrepreneurs has never been so important and doing so
is not just critical to reducing unemployment but also to
increasing tax revenue and decreasing our nation's debt. I know
the next few months are critical in this regard, and I will be
focusing on making sure small businesses are not dealt a bad
hand when the Super Committee makes its final recommendation.
On that note, I would like to thank the witnesses for
taking their time to be here. I am interested in hearing their
thoughts on how best to meet the entrepreneurs' capital needs
so they can create the jobs that we badly need.
Thank you, Mr. Chairman.
Chairman Graves. Thank you.
Our first witness today is The Honorable Karen Mills, who
is the administrator of the Small Business Administration.
Ms. Mills has been the SBA administrator since 2009 and is
obviously no stranger to this Committee. Prior to joining the
Small Business Administration, Ms. Mills was an investor in
small businesses, so the struggles that businesses have in
obtaining capital are obviously very familiar to her. Thank you
very much for being here. We appreciate you coming in.
STATEMENT OF THE HONORABLE KAREN MILLS, ADMINISTRATOR, UNITED
STATES SMALL BUSINESS ADMINISTRATION
Ms. Mills. Well, thank you very much, Chairman Graves and
Ranking Member Velazquez and members of the Committee. Thank
you for asking me to testify on Access to Capital for Small
Business.
For the fiscal year that just closed, the SBA hit an all-
time record in its 60-year history. We supported over $30
million in lending to 60,000 small businesses. We brought back
1,200 lenders, mostly community banks and credit unions who had
not made an SBA loan since 2007. We also had a record year in
our Small Business Investment Company program with nearly 2.6
billion in overall financings. This is a zero subsidy program
that targets high-growth small businesses, the main driver of
new jobs.
Today, SBA's lending volume is back at pre-recession
levels. However, it is our agency's continued obligation to
identify and fill gaps where the market is not working. This is
particularly true for low dollar loans and loans to businesses
in underserved communities. And as I describe this effort I
want to be sure that the Committee understands that all of the
SBA's programs and initiatives have been implemented in
accordance with our authority as provided by this Congress.
So first, low dollar loans, under $150,000 have not come
back. We found three root causes. They have a high cost of
processing relative to their size so banks often do not want to
make them. To answer that, we streamlined and simplified
paperwork on these loans to incentivize lenders to step up.
Second, we need more points of access to get small loans to
entrepreneurs in underserved markets. That is why we developed
Community Advantage to let community-based lenders with proven
track records and historically low default rates make 7(a)
loans for the first time.
Third, when many of the large banks withdrew from lending
during the recession and the credit crunch in October 2008,
small businesses were very hard hit. That is why we have
secured $20 billion in additional commitments over the next
three years from 13 of our largest banks; many of them will
focus on underserved markets.
I also want to be sure the Committee fully understands the
facts about loan performance and our subsidy costs. Loan
default rates now have begun to fall; they are not rising. And
loans made in the past three years are actually performing
significantly better than in the cohorts of 2005, 2006, and
2007. As I have testified before, we are also focused on lender
oversight and the elimination of fraud, waste, and abuse
through a three-pronged approach. We look at upfront
eligibility to make sure the loans are flowing to the intended
recipients. We continue monitoring and oversight of our lending
partners. And finally, we focus on enforcement efforts to
pursue fraud and bad actors.
My commitment is that we will continue to expand access to
capital while protecting taxpayers' dollars as we embark on
another critical year in SBA lending.
Thank you very much.
[The statement of Ms. Mills follows on page 41.]
Chairman Graves. Thank you, Administrator Mills.
We will turn to Mr. Coffman for opening questions.
Mr. Coffman. Thank you, Mr. Chairman.
Administrator Mills, since the SBA-backed loans are only a
small percentage of overall small business lending, what steps
are you taking to encourage private small business lending?
Ms. Mills. As you heard me say earlier, we have, as you
describe, on a good day, a small portion of the market, maybe
10 percent of the market. So the entire market, the
conventional market for small business lending needs to also
come back. We went out to our 13 largest lending partners, all
the large banks which had not come back in force to SBA lending
and other lending, and asked for increased commitments and
promised to work with them to make sure they had access to the
demand that we see out there. They have committed $20 billion
of additional capital, incremental to what they have done.
Mr. Coffman. Who is ``they'' again?
Ms. Mills. There are 13 banks.
Mr. Coffman. Thirteen banks.
Ms. Mills. So we can give you the list. It was public. You
know, our primary partners, J.P. Morgan Chase, Wells Fargo,
U.S. Bancorp, PNC, Huntington Bank. And the aggregate amount is
$20 billion incremental in small business lending over the next
three years.
Mr. Coffman. Thank you. Administrator Mills, do you have
any analysis to determine what SBA-backed lending would be
without the reduced fees and higher guaranty--75 to 85 percent
guaranty still provides banks a way to mitigate risk.
Ms. Mills. Yes, we do have evidence. In a chart which was
attached to my testimony you can see what happened. The actual
90 percent guaranties ended on December 31st last year. We had
a big spike right before that happened so we had a recovery dip
and then we came back to a level that was significantly above
2010 as well as 2008 levels. So it seems to be working.
Mr. Coffman. Thank you. Thank you, Mr. Chairman. I yield
back.
Chairman Graves. Ranking Member Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Madam Administrator, since startup rates typically rise
during economic downturn, you might expect to see a rise in
lending for such entrepreneurs. However, small dollar loans and
loans to startups declined as a percentage of SBA lending last
fiscal year. Does this mean that the agency is shifting away
from making these type of loans and focusing on larger loans to
more established, mature companies?
Ms. Mills. No. The agency believes, as you do, that there
is a gap in small dollar loans. And in fact, one of the real
reasons for the high unemployment right now is that we are down
about 100,000 new business starts. So we have been extremely
concerned, as I know you have been, about the fact that the
market did not come back. And that is why we came out with this
three-pronged approach to promote small loans.
Ms. Velazquez. Okay. So why is it that last year SBA spent
nearly $70 million, 84 percent of your 7(a) loan subsidies on
7(a) loans of $1 million or more? By contrast, subsidy for
loans of 250,000 or less, for which there is the greater need
right now, were just 1.9 million? Does it seem fair that so
much money goes to benefit fewer than 1 in 10 of all borrowers?
Ms. Mills. As I said, we are in complete agreement with
your analysis of this problem in that there is a gap in small
business lending. We have continued to focus on that. But the
job is not nearly done. We have made slight progress over the
last year in the smaller loan sizes but there is still a very,
very large gap. To that end----
Ms. Velazquez. What do you think it will take so that we
can see more loans going to smaller or startup businesses?
Because that is where the need is.
Ms. Mills. It will take the banks coming back to that area.
What we have done is try to make it more cost-effective for
them to use an SBA guarantee for a small loan. We have tried to
bring together our large lending partners and get them to focus
on it. We have tried to bring more points of access to all who
make small loans, like Community Development Financial
Institutions, and give them access to SBA lending. We will look
at every possible program within our authority to do that.
Ms. Velazquez. Okay. Okay. Thank you.
Last week your agency issued final rules to permit the
wholesale of refinancing of commercial real estate in the 504
Loan program. With foreclosures expected to climb this year,
how much will this new refinancing program contribute to the
subsidy rate?
Ms. Mills. Well, this new refinancing program has the
authority to pay for itself, so it lives separate from the
subsidy rate.
Ms. Velazquez. So you do not expect the refinancing
initiative to contribute to this subsidy rate?
Ms. Mills. No.
Ms. Velazquez. No? That is what we heard before regarding
the regular financing 504 program and you came back and for
next year you will require nearly $90 million in subsidies. So
what would you or your agency do if defaults on refinanced 504
loans begin to exceed the fees charged to cover those losses?
Ms. Mills. This program is authorized to charge additional
fees, and we will charge the fees necessary to make a zero
subsidy.
Ms. Velazquez. I understand but it is the same situation
that we have with the 504 regular program. And when you
continue to charge those fees and increase those fees to cover
for those losses, you could reach a point where you reach the
maximum cap allowed by the law. So what will you do then? You
will have to come back here and ask for subsidies to cover for
those losses.
Ms. Mills. The refinancing program ends a year from now.
Ms. Velazquez. Okay. As you say that a year from now that
will end, the same situation we find with the stimulus funding
for the 7(a) and 504. It will expire in December. SBA's loan
approvals have fallen back to levels not seen since the worst
of the credit crunch. Why is it that two years after the credit
crisis began, SBA cannot find a long-term solution to providing
meaningful levels of credit to small firms?
Ms. Mills. Well, the facts, as you have just stated them, I
think, are not correct. If you look at the chart next to my
testimony you will see that even in the last three quarters we
have rebounded to levels that are at 2008 levels.
Ms. Velazquez. Half of all your lending last year occurred
in the first quarter when the incentives from the stimulus
package were in place. And that is the only reason lending was
up as high as it was. So every month since those provisions
will expire we have seen the lowest number of loans that have
been issued or backed by the federal government.
Ms. Mills. With respect, I believe that those facts are not
correct.
Ms. Velazquez. It is not the amount. It is not the amount
of money lent; it is the amount of loans that have been made.
Ms. Mills. The number of loans that we have right now is
impacted, as you mentioned before, by the fact that the
decline--most of the loans are in the small level. In the
previous years those have not come back.
Chairman Graves. Mr. Tipton.
Mr. Tipton. Thank you, Mr. Chairman. Thank you, Ms. Mills,
for being here. I appreciate your efforts and everything that
you try and do to help small businesses in the country.
Just listening to some of your testimony, I would like to
get a little bit of clarification. You had mentioned that in
order to be able to get the banks to start making loans again
you had streamlined some paperwork. Can you describe a little
bit what were the actual cost savings to the bank as an
incentive in the streamlining of that paperwork?
Ms. Mills. I know we have that but I do not have it here.
So I am happy to get back to you.
Mr. Tipton. You know, I think we would like to hear that
because we often hear government is simplifying things and that
rarely is actually the case. And in terms of trying to be able
to create some cost savings because that is a real issue. You
had also mentioned that non-performing loans are dropping.
Ms. Mills. Correct.
Mr. Tipton. Right now. Is that the result of an improving
economy or is that a result that people have simply gone
bankrupt and they are no longer on the board?
Ms. Mills. Our loan portfolio is made up of cohorts that
were made in 2005, 2006, 2007.
Mr. Tipton. Right.
Ms. Mills. Many of those, when you look at our delinquency
rate, failed in the recession and therefore, caused a peak in
our default rate about 14 months ago, in August 2008. Now it is
improving slowly as those loans have passed through the
portfolio.
Mr. Tipton. So the stabilization is the businesses
basically went belly up?
Ms. Mills. Well, actually, the new loans are defaulting.
They are early. But they are defaulting at a much, much lower
rate, measured from their month of inception, than the loans
from those previous cohorts. So we anticipate that this
improvement will continue. We also know that credit scores on
our current portfolio of loans made in recent years are much
stronger.
Mr. Tipton. Okay. You had mentioned that there is a
commitment of $20 billion in commitments from the larger banks.
How much of that has been loaned out?
Ms. Mills. We made the announcement on this three or four
weeks ago, so probably not very much yet, but it is coming.
Mr. Tipton. Okay. Great. You know, looking through your
written testimony you seem to give a tip of the hat to the
president in regards to the $467 billion stimulus and indicated
that it was paid for. My concern and a lot of our constituents'
concerns that are small businesses is it is being paid for on
the backs of businesses that are currently struggling in terms
of increased tax rates. Could you speak to that?
Ms. Mills. We are talking about the American Jobs Act.
Mr. Tipton. Right.
Ms. Mills. The American Jobs Act has received very strong
support from the small business community because it includes a
payroll tax cut which they are very eager to get because it
means cash in their pocket right away. As I understand it, no
specific pay-for yet has been decided because the bill is still
in the hands of Congress. But definitely small businesses are
looking for that cash from the payroll tax cut in their pocket.
Mr. Tipton. Do you think small businesses are going to be
concerned about increased tax rates? I have a letter here from
a gentleman named Jim Bartimus, a small construction company in
Pueblo, Colorado. Been a successful business, small business,
and because of a lack of access to capital he paid down his
line of credit to zero. Went back to the banks trying to get
that line of credit reupped. He had actually purchased a
crusher--if you are familiar with construction to be able to
grind up rocks to put on the roads--trying to grow his business
and to be able to create jobs. But because of regulatory
compliance the banks, they wanted to loan the money but could
not loan the money. He had to line up his equipment, sell it
off, call in 24 core employees, tell them that they no longer
had a job.
But under the president's calculations right now, and there
is some debate and we both need to probably pass on the message
that the plan is not paid for, he would have been labeled rich
a couple of years ago. Do you think it is counterintuitive and,
in fact, counterproductive to be raising taxes on small
businesses at this time?
Ms. Mills. Well, first of all, if you have another small
business like this or if he is still available, please tell
your small business owner in that situation to get on SBA.gov
and come into our district office because that is exactly the
situation where we can help. And one of the tasks before me is
to make sure that small businesses are aware that when the bank
cannot lend because of regulatory issues, our guaranty can
often, very often, make the difference.
Mr. Tipton. So that is a lot of clean up that we could do
in addition to streamlining paperwork, eliminating those
regulatory requirements on banks so that they can loan. Would
you not?
Ms. Mills. We have sat with banks and I sit on a continuous
basis with the regulators to make sure that the guidance they
have given on small business lending at the top is making its
way all the way down to their regional regulators so that we
have a consistent set of regulations at the banks so that they
can open their doors to small businesses and get some of this
money out into their hands.
Mr. Tipton. Well, I hope that will happen. I see my time is
expired. Thank you, Mr. Chairman. Thank you.
Chairman Graves. Mrs. Chu.
Ms. Chu. Ms. Mills, I am the ranking chair of the
Contracting Subcommittee and last week Congress Member Mulvaney
and I were able to have a hearing in Los Angeles, my area, and
it was about SBA and how it does or does not serve the
businesses of our area. And at that hearing Jesse Torres, the
CEO of Pan American Bank, testified about his small business
lending program. He is doing the job we want. He is providing
underserved communities with small business lending options. It
is not easy but they are successful. But they do not operate a
7(a) loan program and he said that the reason they do not is
because you need a team of experts to ensure that they meet all
of the requirements to ensure that they get the SBA guaranty.
The teams are expensive and not cost-effective for the bank and
that if SBA finds out that some requirement is not met then
they will withdraw the guaranty and the bank is liable for the
entire loan.
Why would teams of experts be necessary to operate an SBA
7(a) loan? And what can we do to ease the process for smaller
banks like Pan American Bank?
Ms. Mills. Well, first, Mr. Torres and Pan American Bank
are now on our list to come and do some training and some
outreach so that we can get him into the program.
The problem that you describe, we have put forward what we
call a 10-tab program. When a bank makes a loan we have a 10-
tab system so that if they put the right paperwork in every
single tab, when they come forward at some point to have us
honor the guaranty if there is an issue, we will know that
every piece of that paperwork is in place. So when we come out
and we speak to Mr. Torres, we are going to teach him the 10-
tab business and hopefully alleviate the need for the extra
cost that he is concerned about and assure him that we will be
able to make a proper payment on that guaranty because all of
his paperwork will be in place. We do have paperwork. We do
have rules. We cannot make payments on guaranties if those
things are not in place.
Ms. Chu. So is this a program that you have in place, a
technical assistance for the smaller banks that need this kind
of training?
Ms. Mills. Yes, it is. It is run through our district
offices. That is one of their primary focuses.
Ms. Chu. How often do you withdraw the guaranty so that a
bank might be held liable?
Ms. Mills. We honor the guaranty in 95 percent of cases.
Ms. Chu. Hmm. Okay. On another topic, something else that
we learned from our field hearing in Los Angeles is that
microloans are incredibly important. In particular, the PRIME
Program seems to really work, especially now that big banks are
now likely to deal in millions of dollars. These micro
entrepreneurs create jobs for themselves and contribute to our
economy and they might start with one or two persons but before
you know it they could be a major company. Many of these
entrepreneurs only need 50,000 or a couple of hundred thousand
to get started but I understand in SBA's 2012 budget you say
that the PRIME Program is duplicative of the Small Business
Microloan Program. But I believe the PRIME Program is different
in that the PRIME Program gets entrepreneurs ready for a loan,
whereas the Microloan Technical Assistance Program trains
already existing programs for growth.
And just to give an example of a PRIME Program success
story, two sisters, one a recent college graduate, invested in
a business with fashion design and manufacturing. They had
135,000 but they needed to borrow 35,000 to help cover their
working capital. But they came to PRIME because the regular
banks would not help them. And where would businesses like this
turn to if PRIME is eliminated?
Ms. Mills. Well, first, you are correct. There are
thousands of stories out there where PRIME has helped many,
many small businesses with technical assistance. The issue we
face is that everybody has to tighten their belt in these
difficult budget times. So we looked for programs where we
could execute those activities through other programs we had or
through partners. And it turns out that our microloan
intermediaries and our Community Development Financial
Institutions provide terrific technical assistance. We felt
that our value-added was to provide them with the ability to
use our 7(a) program, get access to capital, and that we would
use public-private partnerships to work together with them to
make sure that the technical assistance through our entire
network of Small Business Development Centers, microlenders,
Women's Business Centers, was still robust and growing.
Ms. Chu. Well, thank you. I would like to get that list of
these partners that you think would help get these micro
entrepreneurs ready.
Ms. Mills. Yes, we can do that.
Ms. Chu. And I yield back.
Chairman Graves. Mr. Barletta.
Mr. Barletta. Thank you, Mr. Chairman.
Ms. Mills, I represent Pennsylvania's 11th Congressional
District and Northeastern Pennsylvania. My district has one of
the highest unemployment rates in the state of Pennsylvania.
On September 8th, after Hurricane Irene and Tropical Storm
Lee, we have experienced the worst flooding in the history of
our area. Many people, many businesses, as you can see, have
lost everything. Many people did not have flood insurance as
they were told they were not in a flood plain. As I traveled
around talking to the residents there, many businesses were
saying they are not going to open again. They just do not know
what they are going to do. Many of the folks there, a lot of
them senior citizens, again, asking what will the federal
government do to help us? And what I had to tell them was that
they could qualify for a SBA loan. If you are an individual we
will give a loan at 2.7 percent interest. If you are a business
and you cannot get credit anywhere else, we will give you a
loan at 4 percent. But if you could get credit somewhere else
we will give you a loan at 6 percent interest.
I have got to tell you I was almost embarrassed to tell the
people back home that, especially after, you know, whenever a
disaster strikes somewhere else in the world, America, being
the most generous country that we are, are always the first to
help people. In fact, in the last two years we gave Pakistan
$215 million for flood disaster relief. No interest. No
payback. I do not know about you, but I think we should help
America and Americans first. What do you say that I tell the
people back home in Northeastern Pennsylvania why the interest
rate would be 6 percent?
Ms. Mills. Well, I am familiar with your district, and it
was extraordinarily hard hit by both Irene and Tropical Storm
Lee. For the benefit of those who are new on the Committee, we
run a ready reserve of 2,000 disaster operators who actually
within 24-36 hours are on the ground in these areas, assessing
damage, speaking with people, co-locating with FEMA. We have a
two-page application. We do homeowners. We do businesses that
are damaged. And we do economic injury. So make sure that they
know even if they did not have physical damage but because the
area was cut off, businesses suffered some damage or because it
is still distressed, they can get 30-year long, 4 percent
economic injury loans.
Mr. Barletta. But----
Ms. Mills. The issue about credit elsewhere----
Mr. Barletta [continuing]. But they could get credit
elsewhere.
Ms. Mills. The reason for the credit elsewhere test is that
we are responsible for the good use of taxpayer money, and the
reason for an uptick is that if there is a private sector
mechanism, a bank, where they can get credit elsewhere, then
the market should provide it. If they cannot, then that is our
job. And that is where we step in and try to give the most
benefit----
Mr. Barletta. Well, I guess the problem I am having is we
gave Pakistan $215 million for flood disaster relief. So should
I tell the people in Northeastern Pennsylvania they would have
been better off if they were in Pakistan than if they were
right here at home? I do not know. I think at some point we
should take care of America and Americans first and American
businesses. We cannot afford to lose any more jobs.
I introduced a bill. This has changed my life, this flood.
I mean, I walked with these people. I cried with them and
watched them as they put their life's possessions out on a curb
to be taken away. I introduced a bill that would change the way
America handles disasters by introducing a bill that would give
a 1 percent loan for 30 years, enough to cover our
administrative costs. If we could help other people I think we
could help Americans at a time of disaster first.
Thank you. I yield back.
Ms. Velazquez. Mr. Barletta, will you yield?
Mr. Barletta. Sure. I will.
Ms. Velazquez. I really welcome your position. In fact,
after Katrina I tried to reduce the interest rate and even
provide a bridge loan, zero interest rate. And it did not
happen. I did not have the support from your side so maybe this
time around we could work together.
Mr. Barletta. Do you want to get on the bill with me?
Ms. Velazquez. Okay.
Mr. Barletta. I think we could change the way we handle
disasters. Thank you.
Chairman Graves. Mr. Schrader.
Mr. Schrader. Thank you, Mr. Chairman.
I am pleased to hear that some people in the majority party
are beginning to rethink having to require to pay for our FEMA
reimbursements upfront when there is a disaster and real people
are hurting. And I assume Mr. Barletta was obviously one of
those that was not willing to hold up the FEMA bill and have it
paid for at the time. So I appreciate his help there.
Mr. Barletta. Will you yield just for a moment?
Mr. Schrader. No. I have got a limited amount of time.
I want to talk about I think the successes that this small
business administrator has had over the last few years. I mean,
I have--when I came here actually Administrator Mills came in
at the same time and I was a little bit aghast at the status of
the Small Business Administration. It had been hacked at and
cut back dramatically by the previous administrations, not just
the one before but over the years and it was in total disarray.
We had a lot of testimony about waste, fraud, and abuse that we
have had several subsequent sessions with the administrator and
it looks like things have gotten, frankly, a lot better. I
mean, there is a new sheriff in town, and I appreciate that,
Madam Administrator.
And I think there is some misinformation here. I mean,
people are talking about going, you know, they have not been
here, I guess, but there is talk about what the role of the SBA
is. And I assume that you are not trying to supplant private
enterprise; you are trying to work with private enterprise. If
for some reasons banks, credit unions, mortgage lenders cannot
step in, that is where you step in. And so there is going to be
some defaults. There are going to be some defaults.
But I think I need to hear clarity. You mentioned it but it
seems to me that a lot of the subsidy rates that we have
endured, you know, where we are paying back the Treasury for
``bad loans,'' where under the previous administration's watch,
and actually our rate of default since you have taken over, is
down. Am I incorrect there?
Ms. Mills. Well, thank you.
On your point about the current rates, have turned the
corner on our default rates. They peaked in August 2010 and now
have been reducing each month. Our current default rates
overall are actually quite low. Our default rates tend to be
under 5 percent. Our loss rates actually tend to be much lower.
They are about two points higher than the normal Federal
Reserve credit because we are giving credit where you cannot
get credit elsewhere.
Mr. Schrader. I appreciate that, too. I mean, that is
really the bottom line. You hit the nail on the head. We have
got to get small businesses back in the business of hiring and
growing the economy and growing America. And so you take a
teeny bit of a risk and I am amazed that the default rates are
where they are.
I also remember, and some members on the Committee are new,
that one of our big angst when you took over was, well, the
process is too bureaucratic. Trying to get a loan is
impossible. The applications--we asked again and again and
again, can you not streamline this application process? Can you
make it simpler so that people can actually get in there and
get the loans they need? We also were worried about the valley
of death, you know, where a lot of small businesses, you get a
little start up and then you try and get to the next level and
all of a sudden you cannot get that credit. And you have
developed some pilot programs. There is some controversy about
that. I appreciate that. But I assume they are in response to
our direct requests. Am I not correct on that?
Ms. Mills. That is correct. So if we look at the Small
Business Investment Company Program, I do want to thank our
team and note that not only did they have a record year, they
took the processing turnaround time for licensing new funds
down from over 15 months to 5\1/2\ months.
Mr. Schrader. That was a big deal.
Ms. Mills. And they are bringing in new funds. They are
bringing some of the best funds, and they are putting more
money into those funds and those funds are putting more money
into small businesses. We do have some gaps, so we have
orchestrated two other sets of funds under the SBIC authority.
SBIC authority was not being fully utilized. It is a zero
subsidy program. It pays for itself and therefore, we want to
make sure we put as much money through it as the authorization
has. So we have a new Impact Fund, which is designated to go to
areas hard hit. The first one was in Michigan. Then we have a
new Early Stage Equity Fund, which will be launched this year.
Mr. Schrader. Well, I appreciate your efforts there.
Just a last comment in the remaining seconds. It does not
have a lot to do with you but I cannot tell everyone out there
how disappointed I am in the Treasury Department and the way
they are not run as efficiently as you and that Small Business
Lending Fund having cratered horribly. When small businesses
needed access to capital at the critical time and the
regulators were beating up on the banks for, you know, having
too much of this type of loan, this was a great opportunity to
free up capital. In my state, you know, not a single bank got a
loan. And a ton of them applied. And while I am sure some were
probably in tougher shape than they let on, not all of them. So
I am very, very disappointed in the Treasury. I would like to
have a hearing with a Treasury official sitting right where
Administrator Mills is, Mr. Chairman, at some point in time if
that is not out of order.
And I yield back.
Chairman Graves. Mr. Walsh.
Mr. Walsh. Thank you, Mr. Chairman. Welcome. And Ms. Mills,
thanks for coming in today.
My colleague, Mr. Schrader, mentioned that it is the
purpose of SBA to help small businesses access capital when
they cannot do that in the private marketplace. What is SBA's
mission, in 20 seconds? Twenty-four seconds?
Ms. Mills. There's the access to capital area. We also have
disaster operations. We help small businesses--win $100 billion
in federal contracts. That is a win-win situation. And we have
a network of counselors, mentors, advisors, that are as equally
as important as the capital.
Under access to capital, where the market is functioning,
where a small business can get a loan from the market, why
should taxpayers subsidize that activity because the market is
handling it? But there are many, many small businesses out
there that do not have access and opportunity. That is where we
have been able to step into the market as you just saw in this
credit crisis and provide that access and opportunity.
Mr. Walsh. I actually chair the Access to Capital
Subcommittee, and we held a hearing a couple months ago and
brought in heads of community and small banks and asked them
pretty directly why they were not lending to small businesses,
knowing full well this is where the bulk of small business gets
their capital. And their answer was fairly clear and equally
direct--our hands are tied. Government regulations have made it
darn near impossible for us to lend to small business. I am
curious, have you heard the same sort of thing?
Ms. Mills. Well, as I said earlier, we work very closely
with the regulators on guidance to small business. Out in the
field we hear the same thing you have, which is that the
guidance that has come down from Washington has been
interpreted more tightly at the regional levels. When we have
had these conversations we have gotten very strong assurance
that the regulators will work with us to make sure that the
guidance that they think is proper is the guidance that is
being affected at the community bank level and in the regional
level. We want to make sure the pendulum is in the right place
and it has not swung back.
Mr. Walsh. And take that pendulum, do you feel that it has
swung too far? I can tell you that I have probably spoken to
the heads of 20 or 30 community banks in my district in the
last six months and to a man and a woman they all say it has
the last couple of years. They have seen a noticeable uptick.
Are you sensing any of that?
Ms. Mills. Well, that is a matter for the regulators, but
our role was to bring to their attention that we were hearing
concerns, and to make sure that they took their guidance all
the way down. Our job is actually to make sure that we provide
the product that can take some of that risk out of the system
and allow banks the opportunity to make some loans they want to
make but for various reasons cannot fulfill the total risk
profile on their books right now.
Mr. Walsh. But you have heard that concern at that level?
Ms. Mills. We have communicated. Every week I am somewhere
different in this country and every week I have a roundtable
with bankers and small businesses owners. So I have a pretty
good sense that in the middle of the summer everybody--small
business owners, bankers, everybody--had a moment of pause and
we did go to the regulators and have conversations to make sure
that everybody stays on the same page, and that access to
capital is, within the proper constraints, available to small
businesses as much as possible.
Mr. Walsh. Well, if you are out there as you say, and I
believe that you are, I am convinced then that you have heard
the same thing most of us have heard when you speak to small
and community banks, that they are suffocating right now. Their
hands are tied.
Ms. Velazquez. Will the gentleman yield?
Mr. Walsh. Yes. Many of them allude specifically to Dodd-
Frank.
Yes, I would be happy to yield.
Ms. Velazquez. Dodd-Frank will not apply to those community
banks whose holdings, whose assets are less than $10 billion.
And those are the community banks that are in our districts. I
am a member of Financial Services and I work on Dodd-Frank.
Mr. Walsh. And I will close with this, and thank you, I
guess they are not convinced of that. Thank you. Thank you, Mr.
Chairman.
Chairman Graves. Mr. Critz.
Mr. Critz. Thank you, Mr. Chairman. Thank you,
Administrator Mills for being here.
Going back to what Ranking Member Velazquez was talking
about, the spike in lending that you had at the end of the
first quarter of FY11 and then as December 31, 2010 hit, the
precipitous drop in lending--I think the figure she used was
half of your lending took place in that first three months for
the entire fiscal year and some of the information I have been
given is that SBA used to come to the Congress so that you get
an appropriation to cover--to waive the upfront borrower fees
on the 7(a) program. But you did not do it this time. And I
have been told that you had $500 million of Jobs Act money that
you might have been able to use to alleviate some of that. And
I am just curious, as our economy was going the way it was, why
you chose not to ask for that appropriation at that point or
why you did not use the $500 million in Jobs Act money.
Ms. Mills. I assure you we have used every penny of Jobs
Act money for fee reduction that we possibly had.
Mr. Critz. Okay. Is there a reason you did not ask for a
waiver or did not ask us for an appropriation to waive so you
could waive the upfront borrower fee?
Ms. Mills. We did waive all the upfront borrowing fees
through the end of the Jobs Act period. We used every single
penny and we are very grateful for it. Thank you.
Mr. Critz. Okay. One quick thing, and this builds on what
Mr. Walsh was just saying, is I noticed in your statement that
you say that you brought 1,200 lenders back to SBA lending. And
obviously some of my community banks must be over that 10
billion in assets because they are asking and talking about how
some of the regulations that they are having to meet are
hindering them lending money, or some of the capital
requirements that they have to keep are hurting in the way they
lend money.
I was listening to you as you were saying you convene
roundtables and you talk to banks all the time. I would be
curious to hear what your suggestions are on the way we can be
more effective or help you be more effective in getting money
out and getting these small businesses energized.
Ms. Mills. Well, thank you. I want to make sure that you
are properly connected to all of our resources on the ground.
So we have district offices, we have Small Business Development
Centers, and we have a flow of small businesses that we match
with banks. To the extent that you come in contact with banks
and with small business owners who have concerns, who are
struggling, who want to make more small business loans, we can
help them with our programs. We are in high outreach mode and
the best thing to do would be to send them to us.
Mr. Critz. I know your administrator in Pittsburgh is Carl
Knoblock. He is a friend of mine and I can tell you where all
the SBDCs are in my district as well. So we are pretty well
plugged in. I was just, you know, my banks are talking about
having troubles with lending money. And it is not just SBA
money. Actually, I have a letter in front of me from one of my
banks but it is the Treasury Program that Mr. Schrader was
mentioning that one of the rules to get a Treasury loan is that
the company has to certify that they are not child sex
offenders. And there was a parliamentary trick played last year
to defeat this bill and it actually got included, so now they
are having trouble lending the money because of this provision
because the small business owners are a little bit insulted
that they have to certify--not that they are not rapists, not
that they are not murders, but that they are not child sex
offenders.
So, I appreciate your efforts. I am not going to belabor
the point. My office is always available if we can be of any
help, and I appreciate the work you are doing.
Chairman Graves. Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman. Administrator Mills,
thank you very much for doing this.
At the risk of repeating what may have been said, I
apologize for being a few minutes late. But I want to thank the
chairman and the ranking member for giving me and Mrs.--
Congresswoman Chu the opportunity to have a field hearing last
week in the San Gabriel Valley where Mrs. Chu is the
representative.
And instead of asking questions I would like to report back
briefly to you on what we heard because it was very educational
for me. This was an area that is literally driven by small
business. It takes up an inordinate size of the economy in that
part of Southern California. There are very few large, national
Fortune 500 companies, but a very, very active small business
community, entrepreneurs, in large part from the immigrant
community.
And here is what we heard. We had small business lenders
there, small banks, and one of the things they told us was that
they were doing lots of lending to small business but no small
business lending. They were not using any of the programs that
were available to them. And when we asked them why they said it
was too hard. And they said that the large banks were doing it.
And really what the large banks had done is put together teams
of professionals who did nothing but small business lending. So
the Wells Fargo, the Bank of Americas of the world, they would
have small business units because it was a specialty, and it
had to be a specialty because it was so complex. And they did
not have the human capital or the money available to develop
that area of expertise. So they asked us to please do whatever
we could to simplify the process.
We also heard that one of the things they focus on is micro
lending. They do a lot of micro lending. We heard some great
stories about loans under $100,000, how successfully they had
been used. And when I asked them if they knew about the small
business micro lending program, one of the things they said is
they had looked at it but that the paperwork for a $50,000 loan
was almost the same as the paperwork for a million dollar loan.
And in terms of a return on the time and the investment that
they had to make into setting up that loan it simply was not
worthwhile. So they asked us to please take a look at anything,
if anything, looking at making micro lending somehow
streamlined so that they could do more of these things. And
again, this was--a large majority of the loans they were
issuing to the businesses in that area were under $100 to
$150,000.
We also learned about the difficulties of opening a small
business development center. That area had lost its SBDC in the
recent past and there were a couple of organizations that were
interested in reopening it only to find it was going to take at
least three years to go through the paperwork necessary to open
a new SBDC. And one of the things that we suggested or that
Mrs. Chu and I talked about is maybe suggesting to you a
grandfather process. So if there was an organization that was
an SBDC that closed, that maybe they could be put on a fast
track to reopen since they have already gone through the
process at one point in the past.
I guess the last thing that we heard was that many of them
had not heard of many of the programs that you offer. They were
not aware of the Mentor Protege Program. Only one of them even
had ever been to the SBA website. So I do not know what you all
are doing in terms of outreach to these small community banks.
And maybe they dismiss it because of their impression that it
is too difficult to work with the SBA because of past history.
Again, I am not laying any blame here; that is not the point of
the presentation. But that if the opportunity exists to reach
out to educate these lenders, because again, the basic message
I took away was that they are lending to small business and
they want to do more but they are not using any of the tools
that are made available to them through the Small Business
Administration.
So again, not a question. A comment back from the field,
and I appreciate your attention.
Thank you, Mr. Chairman. I yield back.
Chairman Graves. Absolutely. Mr. Peters.
Mr. Peters. Thank you, Mr. Chairman. And Administrator
Mills, it is great to have you here with us today, and I
appreciate all the SBA has been doing, particularly in the
state of Michigan. You mentioned some innovative programs that
you have engaged in the state, and I thank you. We have been
particularly hard hit as a result of what has been happening in
the economy, and thankfully the auto industry is responding,
been adding jobs in our area, but we all know that it is not
just the auto industry or large industry in any particular
region that is important, but the small businesses that are in
the region that need to grow and prosper. And you have been a
key player in helping us do that in Michigan. So I wanted to
thank you for that first off.
And before asking some, a couple specific questions, I also
just kind of want to get your sense on a statistic that you
mentioned in your opening comments that ``job creation is down
starts by over 100,000,'' I believe was the quote that you had.
And we, obviously on this Committee, are all big believers in
small business and understand that small business is the engine
of growth for an economy. But we also know that job creation is
heavily skewed towards startups in order to get that kind of
job creation.
And I just want to kind of get your assessment. You have
been a very successful businessperson prior to your current
position. As to what do you think accounts for that? Is it just
as a result of lack of demand in the economy, a very weak
economy we are in? Or are there some structural impediments,
like financing that we are discussing here today? I mean, how
would you weigh those and what sort of things should we be
thinking of as members of the Small Business Committee to
address the startup issue in particular?
Ms. Mills. Thank you. I have enjoyed working in Michigan
with all the great small businesses there. We focus on both
Main Street small business and the kind of high-growth small
businesses that could be part of the next large public company
and employer. We are down 100,000 starts, and that is
contributing to part of the employment problem. We do know that
access to capital for startup businesses and for small growth
amounts for those businesses is constrained. That, as they say,
the valley of death has widened. We do have some programs,
particularly the new one we are going to launch, but there is
still a need for continued focus on getting more access to
capital, particularly in underserved communities, particularly
in distressed areas, particularly in places which have not
traditionally had venture capital, because we know there are
small, innovative businesses and entrepreneurs waiting to start
up in all of those areas.
Mr. Peters. Now, along those lines, and you mentioned the
success that you had in the Recovery Act and as a result of
that you were able to increase lending considerably which had
higher guaranty rates as well as the waiver of fees. And I know
your activity was up dramatically. Have you done any analysis
as to what is more important--waiver of fees or the guaranties?
And if given a choice as we go forward, how should we weigh
that as perhaps a program going forward? Because we know the
track record of success?
Ms. Mills. Well, that is a very good question. We have done
some analysis. I asked at every focus group for a long period
of time and usually I would get half of them saying it is the
fees and the other half saying it was the guaranty. So I think
the jury is out.
Mr. Peters. So we still have to find that out. But
certainly, the----
Ms. Mills. We think the combination clearly worked.
Mr. Peters. Certainly, the combination worked. And I guess
in thinking of how the jury is out, I do not know who were your
focus groups. Probably smaller companies in particular get
impacted by fees perhaps more than anything else. And I am very
concerned about access for underserved communities. I represent
a community that has an unemployment rate well in excess of 20
percent and we have a large urban area in the Detroit area, as
you know, which also suffers. You talked about the program we
are bringing large banks, and I believe it says it is going to
target underserved markets in particular. And I would like you
just to tell us more what does it mean by ``in particular'' and
how do you define ``underserved''? And how are we going to
really monitor what is going on with these banks and have some
sort of report as to the success they are having and hopefully
focusing completely in underserved areas. But I want to know
what it means by ``in particular.'' What is your hope for that
program and how will you assess it?
Ms. Mills. Well, once again, this is a voluntary program
that private sector banks came in because we asked them to step
up. Each bank has a different set of activities and commitments
that they are interested in pursuing. Many of those banks
demonstrated that part of that commitment will be around
underserved markets. We are going to partner with them,
connecting them to Community Development Financial
Institutions, and making sure their CRA contributions go as
much as possible to help proven programs that will get money in
the hands of small business. So it will be a wide array of
programs.
Mr. Peters. Great. Well, thank you very much. Thank you for
your time. I think my time is up.
Mr. Coffman. Mr. Chabot from Ohio.
Mr. Chabot. I am going to pass, Mr. Chairman.
Mr. Coffman. Mr. West. Mr. Cicilline, Rhode Island.
Mr. Cicilline. Thank you, Mr. Chairman and Ranking Member
Velazquez. Welcome, Administrator Mills. It is good to have you
here.
I always want to begin my comments about the SBA with
recognizing the great director in Rhode Island, Mark Hayward
and his staff who are doing really excellent work and I want
you to be aware of that.
As you know, the SBA has $3 billion in authorized leverage
annually through the SBIC program. And each year anywhere
between $1 and $2 billion in leverage authority remains
untapped. And I understand that the Early Stage Innovation Fund
and the Impact Investment Fund are intended to leverage a
portion of that existing and yet untapped authority with the
hope of really propelling into the hands of startups and
entrepreneurs the capital that they need to be successful. And
I know there are some studies that indicate that the unmet need
for early stage capital equity financing for small businesses
is somewhere in the neighborhood of $60 billion annually. This
is a really important issue in my state, and I think all of us
are trying to encourage new startups. And those typically are
small businesses.
And so there is a particular, you know, just to use as an
example, a constituent of mine, along with his partners, is
forming a company called Axena Technologies, which has
developed an antimicrobial material that can be used on medical
devices to combat healthcare associated infections with huge
potential for savings in healthcare and improved outcomes in
health. And they have been working with SBA programs, including
SBIC. And I am just wondering if you could explain how the
Early Stage Innovation Fund and the Impact Investment Fund
would help a company like that access startups to really get
through, as was just described, this valley of death, which is
really the most challenging time and get to that place where
they can actually create jobs and grow our economy.
Ms. Mills. Well, thank you. As you know, I am a person who
spends quite a bit of time in Rhode Island. My husband's family
is all there, so I know that you have fabulous entrepreneurs.
The SBIC fund had a record year, and it had a record year
in a number of ways. Number one, it had a record year in the
financings that went out the door to small businesses. Number
two, it had a record year, as you see in the charts in the back
of my testimony, in SBA commitments to the funds. We would like
to fully utilize that authorization because, as I said earlier,
this is a zero subsidy program and it directly impacts jobs.
We have built a great pipeline of credible funds who are
applying, and they can come into the regular program or they
can apply to an Impact Fund, which is really very much similar
to the regular program but it is our way of directing potential
investors to areas that are distressed and are trying to turn
around and have had a difficult time in this recession. The
Early Stage Fund will be run slightly differently. It will be a
one deadline fiscal 2012 activity. For each of those two
programs we have committed a billion dollars, $200 million per
program, per year, for five years.
So those will ramp up. We are doing it as expeditiously as
possible. Our licensing time has gone down from 15 months to
5\1/2\ months, so we are taking our pipeline through faster.
But that said, we need to get capital into the hands of these
terrific private partners. They need to then deploy it out to
their small companies. They have been doing it remarkably
quickly. I think you are going to hear that in the next
testimony, but we are also doing it thoughtfully because we
want to maintain this program at its positive levels.
Mr. Cicilline. Will that be acting as early stage equity
funding for those two funds?
Ms. Mills. Correct. Our current funds are actually
mezzanine funds. But within the early stage there will be a
deferral mechanism where they can essentially be an earlier
stage equity contribution.
Mr. Cicilline. Well, I thank you. And I hope that the SBA
will really focus on both innovative and creative ways to do
this kind of financing because I think we have a lot of
financing tools that were designed during a different age of
industrial and manufacturing, and we really need to have this
nimbleness in government to be able to respond to this new
economy and have financing mechanisms that provide the kind of
support that our small businesses, our entrepreneurs. And our
early stage capital is one of those examples. So I applaud you
for that and look forward to its results.
Thank you. I yield back the second that I had.
Chairman Graves. Ms. Hahn.
Ms. Hahn. Thank you, Mr. Chairman, Ranking Member
Velazquez.
Ms. Mills, it is wonderful to listen to you today and I
know while we are bringing forward problems and issues that we
have heard in our districts, it is clear that you and the
entire Small Business Administration is working, I think, you
know, daily to try to do what you are intended to do, which is
really to support our small businesses and try to get the
capital into the hands of startups, current businesses, and I
think you are doing a great job.
Since I have been on the Small Business Committee, I have
done what many of the members have been doing longer than me,
and that is actually going and meeting with small businesses in
my district. I think I am up to 80 just in the last month that
I have met with personally. And I have held roundtables, I have
walked into their businesses unannounced, and I am beginning to
hear sort of a common theme, which I think you have heard
today, which is the paperwork that is needed to apply for these
small business loans is many times daunting, and as we have
heard some of them feel like it is not really even worth their
time.
You know, as of February of this year, the SBA preferred
lenders can approve loans using the new Small Loan Advantage
Process. And the goal of this program is to expand the
availability of small dollar loans by allowing existing SBA
lenders to make loans under 250,000 using a two-page
application. SBA has shortened the approval time to minutes if
the application is submitted online, and from 5 to 10 days for
non-delegated lenders. It seems to me that this Small Loan
Advantage Program is exactly the type of solution that I think
small businesses are looking for.
What do you think we could do to expand this program and
make it accessible to everyone? How can we ensure that
preferred lenders are using the small loan advantage process
for all of their small loans?
Ms. Mills. Well, thank you, Congresswoman, and thank you
for your letter. I know that you have met with over 50 small
businesses.
Ms. Hahn. It is up to 80 now.
Ms. Mills. And clearly you just said it better than I
could. We have a product that we have designed. We are reducing
our paperwork, increasing our turnaround times, keeping a level
of underwriting to make sure we have risk oversight. We are
taking those principles of that product and now broadening them
exactly as you had asked.
Ms. Hahn. You know, one of the other things I heard from my
small businesses was under the Loan Guaranty Program. The
criteria that SBA has to qualify for the loans is sometimes
broadened when they actually go to the banks to, you know,
access the loan. The banks put on more criteria than SBA
requires. One of the issues they brought forward to me was
while SBA, the Loan Guaranty Program does not require
collateral--real estate as collateral. When they go to the
bank, the banks say, by the way, we are going to require that
you put up real estate as collateral. What can we do in working
with the banks that are lenders, you know, to not add criteria
or add restrictions to these loans when SBA is clearly not
setting these criteria forward to small businesses as a means
to qualify?
Ms. Mills. We work with about 5,000 of the 8,000 banks.
They are our partners. The first line in the credit process is
generally the bank. The bank will make a credit decision
because they are on the hook for somewhere between 50 and 25
percent of the loan as well. They have to have an independent
credit decision. We have tried to coordinate, to work on
paperwork reduction, but we have to make sure that both of us
are satisfied in risk oversight.
Ms. Hahn. Well, again, I would urge you to maybe work with
some of our partners out there because, again, that clearly
stops many of these small businesses, these startup companies
from accessing this capital. So if you could work with them on
maybe trying to keep their criteria at least the same as yours.
And the last thing I will just say, and I wrote you in my
letter, I would love to invite you to sunny Southern California
and come to my district. I know that would be a great honor to
have you there and I think there would be a lot of folks out
there that would really enjoy listening to you and really
hearing more about the programs that are available to small
businesses. Come during the winter.
Chairman Graves. Mr. Richmond.
Mr. Richmond. Thank you, Mr. Chairman. Thank you,
Administrator Mills.
One thing, and I will ask out of order, but we are talking
about making sure that small businesses have the capital and
access to capital so that they can flourish and they can
fulfill their mission and they can continue to employ people,
which is an important aspect of it, but the other aspect of it
which drives all business is demand. How do we increase demand
so that those businesses can continue to sell their products or
widgets or gadgets or whatever it is that they are doing?
Ms. Mills. With the American Jobs Act, we want to put more
cash in the hands of small business right now because we have
seen that when they have more cash available, such as in the
payroll tax cut, they can take that money and they can put it
into advertising. They can put it into inventory. That creates
more demand for their products. That creates more jobs. Then
they can come for financing expansion.
That is one of the first things, to prime the pump.
Mr. Richmond. Also, let me thank you for your
administration coming down and participating in my small
business fair that we had. We had over 347 small businesses
sign up. I had a chance to talk to almost 120 of them on the
opening night. And many of them sang the praises of our local
SBA office in terms of the outreach and assistance that it
gives. And now the new push, which I think is very important,
is helping them understand that 95 percent of the consumers in
the world are outside the United States and China, we must help
them get to a point where we can sell our goods over there. And
a few of them are taking us up on the offer of attempting to do
that. And many of them left the small business fair with
contracts with new vendors. So that was a very good thing.
There are two issues and two suggestions they gave to me,
and I think we submitted them to you. And I will give them to
you.
When the president announced expedited pay for contractors
working with the government, they wanted to make sure that that
trickled down to the subcontractors, to make sure that when the
PRIME contractor was paid, that they do not unnecessarily hold
up the subcontractors' money. And I think there was a program,
maybe 10 years ago, where the PRIME contractor had to indicate
that the subs were paid or would be paid in a short period of
time. So they expressed that that would help. Because if they
do not have access to capital, they do not have the time. Well,
they do not have the resources to float payroll and all of
those things, waiting on that payment.
The other suggestion that was made was--and I am sure it
would ease a lot of members of Congress' workload--was if we
could put the status of 8-A and other programs, the application
process, on line, almost like colleges can do now where they
can log into a secure account and see if all of their documents
are turned in. See if they need anything else. See if they are
on a background check phase or whatever, because a lot of times
if they know, then they can make better decisions. And I think
that now with technology we can offer that so that they can
keep up with that.
Other than that, I do not have much else to offer. I would
just again thank you for what you are doing and give you an
opportunity to offer anything that you think you can need or
what we need to do to help.
And I will say that we are looking forward, at least in
Louisiana, to working more and maybe another round of teaming
grant opportunities which we were not successful in the first
round, so maybe we can look at second and additional rounds to
see if we cannot participate.
Thank you, Mr. Chairman.
Chairman Graves. Mr. Coffman has one more.
Mr. Coffman. Thank you, Mr. Chairman.
Ms. Mills, I think you had mentioned the issue about
banking regulations and its impact on small business and your
view was, as it filters down, that at the top that there is
certainly clarity and there is balance but that as it filters
down perhaps there is not balance. And I just want to say that
there is not balance, and I think it has hurt small business
lending, particularly the community bank level, where you do
have a wide latitude for which the regulators can go, but yet
they obviously take the most conservative approach just in case
anything ever happens, that their fingerprints are not on it.
And you have performing loans out there that are being
downgraded, causing these institutions to increase their
capital requirement and pull in their ability to lend. And I
just think that is a huge issue impacting small business at the
community bank level.
One thing, I was visiting businesses last week in the
district and, you know, you always wonder did you get the right
cross section. But it seems like there were some signs of life.
It seemed like although we felt like we were still skipping
along the bottom, that the firms that survived this seem to
have adapted. And, you know, they adjusted their business
model, they made changes, and adding some employees.
I visited a manufacturer and probably three services
companies last week. Very different picture from 2009 when the
economy was in freefall and these poor--these small businesses
were getting their credit lines just cut off. I mean, and
everybody was just going down. And so that was tough.
I will get the other--get to probably a better picture next
week when I am doing a job fair back in the district because I
know there are a lot of unemployed folks that have been out of
work for a very long time. And just last point, and if you
could just respond to these, and that is I have had small
businesses that are service-related companies come to me and
they are very concerned about the impact--and these are kind of
relatively low wage employees, one was a dry-cleaners who had a
chain of dry cleaning stores but incorporated under the same
entity had about--you know, had well over 50 employees. The
other new as a janitorial firm with well over 50 employees.
What is the impact on the health care bill going to be on their
firm and their ability to keep these employees. And I will turn
it over to you then.
Ms. Mills. Well, number one, I think you characterized it
exactly right. We are seeing some signs of life among small
business. We have some demand now and we have to make sure that
they get access and opportunity.
In October 2008, I was hearing ``I need a loan to save my
business.'' Now I hear ``I need a loan to buy that next piece
of equipment, hire that next worker, make that next
expansion.'' That is good news, but that also means we have to
be there with access and opportunity.
Mr. Coffman. And let me just say real quick, I was able to
visit--one of them, in fact, that I did mention was a
restaurant that is being built and, in fact, that is with an
SBA loan. So, thank your department for that.
Go ahead, please.
Ms. Mills. Thank you.
I would also ask small businesses to come to our website,
where we can walk them through everything. With the Affordable
Care Act, we know that small businesses now pay 18 percent more
than large businesses, and when the exchange is open that
premium will go down or disappear. So there are many good
prospects. There is also the health care tax credit. We have a
tool on the website to see if they qualify. Those would be
opportunities I would suggest.
Mr. Coffman. Thank you, Mr. Chairman. I yield back.
Ms. Velazquez. Ms. Mills, you recognized the need to
increase lenders in your loan programs. Last year you had 2,727
total lenders; 1,349 made three loans of less. And my guess is
that some of the lenders who came into the program were
attracted by the provisions of the Recovery Act. So once those
provisions expire I just wondered how many of those lenders are
still active and making those loans. In the second panel we are
going to have a credit union testifying.
And my question to you is what will you do to retain the
lenders that are participating as SBA's loan programs, but
also, what are you doing to increase direct union participation
in your loan programs.
Ms. Mills. Thank you. Credit unions are about 10 percent of
the current activity. We love credit unions and we think they
can do a very good job with SBA. We are bringing them in
through training, through education, through participation.
Active participation with their association. On the ground, you
are exactly right. We have to work very, very hard now to make
sure that we continue to meet one of our base goals, which is
active lenders. About 5,000 of the 8,000 banks actually hold an
SBA loan. But we track how many have made a loan within that
year, and that number is around 3,000, in the high 2,000.
So we need to keep that number up. And we are going to be
working. We hold lender roundtables. We simplify our program.
We walk them through applying. We do everything we can. So if
you have lenders in your communities, particularly those who
are on the ground and know these good small businesses, we will
bring them in. That is why we are opening our doors to
community development financial institution, who have good
lending track records and we want to be there with as many
doors, points of access, as possible.
Ms. Velazquez. The challenge that I see when it comes to
either community banks or credit unions is that you need the
personnel. And they do not have that type of capital and
expertise. So what will you do to help them? It is just not
walking through. Just because of the pressure coming from
regulators to make sure that they are complying with credit
standards. How do you balance that?
Ms. Mills. Well, as you know we have a product for a lender
that is only going to make one or two or three or four loans
that allows them to use much more of their own documentation.
We continue to streamline that so they are able to come into
our program without undue burden.
Ms. Velazquez. Okay. Thank you, Mr. Chair.
Chairman Graves. Thank you, Administrator Mills for being
here today. We appreciate it. I think that is the end of the
questions. We will go ahead and seat the second panel, if we
could.
STATEMENTS OF LYNETTA TIPTON STEED, EXECUTIVE VICE PRESIDENT,
REGIONS FINANCIAL CORPORATION, TESTIFYING ON BEHALF OF THE
CONSUMER BANKERS ASSOCIATION; SALLY ROBERTSON, PRESIDENT,
BUSINESS FINANCE GROUP, TESTIFYING ON BEHALF OF THE NATIONAL
ASSOCIATION OF DEVELOPMENT COMPANIES; K. RODGER DAVIS, MANAGING
PARTNER, NORTH CREEK MEZZANINE, TESTIFYING ON BEHALF OF THE
SMALL BUSINESS INVESTOR ALLIANCE; GARY GRINNELL, PRESIDENT AND
CEO, CORNING FEDERAL CREDIT UNION, TESTIFYING ON BEHALF OF THE
NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS
Chairman Graves. Let me take a moment to explain the lights
to you. Each of you have five minutes to testify and the lights
will be green during that time. When you get down to one minute
they will change to yellow and then when your five minutes is
up it will go to red.
And with that I will introduce our first witness today,
which is Lynetta Tipton Steed, the executive vice president of
Business and Community Banking at Regions Bank. Regions Bank is
headquartered in Birmingham, Alabama. It is one of the largest
full-service providers of financial services with 1,800 bank
offices in 16 states across the Midwest and the South. Ms.
Steed joined Regions in 1992 and is now responsible for
managing Regions' Credit Underwriting, Documentation, and
Administration for Small Businesses. She is testifying today on
behalf of the Community Bankers Association. Thank you for
coming all this way. I look forward to hearing your testimony.
You might turn on your mike, too. There we go.
Ms. Steed. Thank you.
Chairman Graves. Go ahead and give your testimony, and then
we will go through each one and then open it up for questions.
STATEMENT OF LYNETTA TIPTON STEED
Ms. Steed. Yes, sir. Chairman Graves, Ranking Member
Velazquez, and members of the Committee. My name is Lynetta
Tipton Steed and I am an executive vice president and division
head for Business and Community Banking for Regions Financial.
Regions is a full service financial company headquartered
in Birmingham, Alabama, with over 1,800 branches and 2,200 ATMs
in our 16 state footprint. I am also a member of the Consumer
Banking Association Small Business Committee, which includes
top small business bankers who share the goal of improving the
state of small business banking, including SBA programs.
Small businesses are facing a number of challenges--weak
economic conditions, high levels of unemployment, and low
consumer confidence have led to low sales volumes, which have
resulted in a lack of demand for small business loans. Despite
the decline in overall loan demand, we continue to see healthy
SBA lending. The SBA 7(a) and 504 programs have been effective
during these economic times. Earlier this month, the SBA
announced it supported $30 billion in fiscal year 2011,
bringing the three-year total to over $70 billion in support of
small businesses lending.
Regions recognizes the value of SBA partnership and has a
proven track record with its programs, having been a preferred
lender since 1996. In 2010, Regions identified increased SBA
lending as a strategic initiative. Significant resources have
been devoted to this initiative to improve the delivery and our
special lending efforts. As a result, we have more than doubled
our SBA lending staff.
Regions has ranked in the nation's top five for overall 504
loan approvals for the past two years. We have also
dramatically increased our 7(a) lending over the past year by
82 percent. In addition to the SBA 504 and 7(a) programs,
Regions participated in the Americas Recovery Capital Loan
Program when it was in place, and recently added the export
working capital and export programs as well.
We intend to implement the newly named working capital
CAPline program in the first quarter of 2012, and we were
strongly considering the contract CAPline program as well.
So what can be done to make things better? The loan
enhancements provided under last year's Small Business Jobs
Act, allowed the SBA to raise the guarantee on its 7(a) and
waive certain fees on both (7a) and 504 loans. While in effect,
these provisions had a tremendous effect on the ability of
banks and small businesses to utilize these important programs.
As an example of this effectiveness, in the fourth quarter
of 2010, Regions' application trends and approval trends
increased by more than 25 percent over the prior quarter. Also,
the Small Business Jobs Act's permanent increase in 7(a) and
504 limits from $2 million to $5 million and its permanent
increase in microloan limits from $35 to $50,000 have been
helpful. However, the act only temporarily increased the cap on
SBA express loans, a subprogram of 7(a) from $350,000 to $1
million. In order to expand access to much needed working
capital.
A further streamline 7(a) loan process would help borrowers
attain loans more easily. The SBA has done a good job at
enhancing but there are relatively easy to implement
adjustments that could be made to the 7(a) loan process that
would expedite originations of small business loans.
For example, allowing financial institutions to use their
own application and notes for all SBA loans would be helpful.
The SBA currently allows lenders and credit policies on
express loans, which has greatly improved that process.
Effective aside from the SBA Lender Oversight is another
crucial area of concern. While there needs to be strong and
consistent lender scrutiny, fluctuating economic conditions
often call for flexibility. Overall, CBA's members have all
reported increased efforts to help small business access
capital. Many CBA members have hired new small business
bankers, initiated second look programs to ensure that every
possible loan is being made, and incorporated other initiatives
to improve delivery of SBA programs.
I could cite many good outcomes for SBA programs, but as we
look forward, CBA encourages Congress to monitor the SBA
guaranty levels. It is also important that they have the
funding and authorization necessary to continue to work with
the private sector in financing American small businesses.
In conclusion, we support improvements in the SBA loan
structure, but there is also a need for greater certainty in
SBA programs, especially during these difficult economic times.
CBA looks forward to working with this committee and the
SBA to improve lending disputes and the SBA to improve lending
to small businesses. Thank you for the opportunity to appear
before the Committee to discuss the SBA and the current status
of small business loans lending. I would be happy to address
any questions you may have.
[The statement of Ms. Steed follows on page 71.]
Chairman Graves. Thank you, Ms. Steed.
Our next witness here today is Sally Robertson, president
and chief executive officer of Business Finance Group, a
community development company located in Fairfax, Virginia. Ms.
Robertson is testifying today on behalf of the National
Association of Development Companies. She has served Business
Finance Group as president and CEO for 15 years and she has
also been involved in several CDC industry organizations.
Serves as vice chair of the board of directors of the National
Association of Development Companies. Thank you for being here.
STATEMENT OF SALLY ROBERTSON
Ms. Robertson. Thank you very much. Again, my name is Sally
Robertson, president of Business Finance Group in Fairfax,
Virginia. We are a non-profit certified development company and
I also serve as vice chair of the National Association of
Development Companies. I am very pleased to provide comments
regarding the niche filled by the 504 Program for small
businesses seeking long-term capital to grow and create jobs.
Successful small businesses are innovators who often buck
the trend in order to realize a market advantage. Many small
businesses are now ready to take that next growth step, but
banks are constrained by the impact of losses on their capital
and they face regulatory criticism for their real estate and
small business lending. As the need for new long-term capital
increases, conventional sources and financing are less
available. What is the real impact? Without capital even
successful businesses cannot grow. Capital is the grease that
enables businesses to grow and add new jobs. Without new jobs,
America cannot pull itself out of this jobless recovery.
As you all know, 504 is a leverage program that
incentivizes banks to lend to small businesses by sharing the
risk of a long-term loan. Small business owners benefit from a
20-year loan, and an attractive 20-year fixed rate, along with
terms that allow them to preserve cash flow for growth. With
short-term deposits as their source of funds, banks cannot
offer the same terms to small businesses, but as a participant
in the 504 project, banks are able to offer a low-risk,
conventional loan that provides a return to their stockholders.
The 504 program is an excellent match of the private sector and
public sector working together to provide capital for growing
small businesses.
Best of all, 504 projects create new jobs and save jobs in
communities across the country. The 504 program is the most
successful economic development financing program provided by
the federal government. A study completed by California State
University three years ago demonstrated that in just a two-year
period, 504 loans directly created 54,000 new jobs and
indirectly led to another 66,000 jobs. Further, for every
dollar SBA spent to operate the 504 program, federal, state,
and local governments realize $94 in new tax revenues.
We would like to note that NADCO supports effective SBA
oversight and we applaud SBA's steps to improve those
functions. SBA is currently staffing senior managers for the
Office of Credit Risk Management, and we encourage SBA to
rethink its oversight systems. Today, SBA has two different 504
portfolio oversight systems operated by two different
departments. Not surprisingly, they sometimes come up with
different reviews of CDC loan performance. We encourage SBA to
move towards a single portfolio monitoring system, establishing
firm boundaries, making the rules clear, and providing
consistent oversight will lead to a stronger lending process
that reaches program needs yet curbs abuses.
During the recent recession, the 504 program saw dramatic
increases in defaults over historical levels. What the
statistics, however, do not show are the small businesses that
were saved. With troubled debt restructuring rules, banks are
very inflexible in workout situations. However, the CDCs and
SBA have some flexibility with the second trust. These
successful workout situations have resulted in a business
surviving that might otherwise have failed, resulting in more
lost jobs in a fragile economy.
The 504 program has become one of the most successful and
largest economic development programs in the federal
government. By leveraging its guaranty authority and private
sector capital, SBA has directly assisted in the creation of
millions of jobs through more than 150 billion in 504 first
mortgages by banks and 504 second mortgages by CDCs.
The public-private partnership is a unique program feature
that encourages the investment of private capital in growing
small businesses. The value of the 504 program can also be seen
in successful small businesses who have used the 504 program to
finance their next level of growth. Every CDC in every state
can provide stories of small businesses who would not have
achieved their current success without the ability to use the
504 program. And as we begin to climb out of this terrible
recession, there are many small businesses whose continued
existence is a result of successful workouts hammered out by
CDCs and SBA on their behalf.
We are excited to be working closely with the skilled and
innovative SBA management team to look carefully at how the 504
program can continue to be relevant and beneficial to future
small businesses. We hope that this effort will lead to
improved oversight, improved processing, and more flexibility
to encourage more banks and borrowers to participate in the 504
loan program. Small businesses that are nimble and forward
thinking will lead us out of this recession by creating the new
jobs we need. Let us help them do it sooner. Working together
we can get America working.
Our thanks to Chairman Graves, Ranking Member Nydia
Velazquez, and the Committee for your leadership and support
for America's Small Businesses. Thank you.
[The statement of Ms. Robertson follows on page 45.]
Chairman Graves. Mr. Chabot.
Mr. Chabot. Thank you very much, Mr. Chairman.
I am pleased to welcome to the Committee this afternoon a
constituent of mine from Cincinnati, Ohio, Rodger Davis. Mr.
Davis is co-founder and managing director of North Creek
Mezzanine, a small business investment company located in our
community. Mr. Davis is testifying on behalf of the Small
Business Investor Alliance, the industry association for small
business investment companies. Mr. Davis has 25 years of
experience in the banking sector, including commercial banking,
real estate, leveraged finance, direct equity, and fund
investing to name but a few areas of his expertise. We welcome
you here this afternoon, Mr. Davis, and look forward to your
testimony.
STATEMENT OF K. RODGER DAVIS
Mr. Davis. Thank you, Congressman Chabot, and thank you to
the rest of you for giving me the chance to talk today.
I am proud to represent the Small Business Investor
Alliance. As Congressman Chabot pointed out, that is the old
NASBC for those of you who do not recognize the name.
My name is Rodger Davis, and I am co-founder and managing
partner of North Creek. We are a $70 million SBIC fund located
in Cincinnati. And to put that in perspective, that puts us at
the smaller end of the range for SBIC funds. And frankly, we
think that is a good thing. We can focus on smaller companies.
My partner, Barry Peterson, and I are lifelong bankers to
small businesses. And when Provident was sold in 2004, we set
off to create a fund dedicated to lending and investing in
small businesses, really continuing what we love to do at the
bank.
The credit crunch in '08 and '09 really served as the
catalyst for the creation of our fund. Our research quickly led
us to the SBIC program for several reasons. We were comfortable
with the regulatory oversight and licensing process, the
program is targeted exclusively towards small business where we
felt there was really the greatest need, and it could amplify
our private capital through the use of low cost leverage from
the SBA debenture program.
To me, the SBIC program is a perfect example of a public-
private partnership that works. So in the spring of 2010, we
opened our doors for business. The biggest surprise I think
that Barry and I have experienced so far has been the
overwhelming response to the nation's small business need for
capital. We reviewed over 350 business plans from company
owners nationwide seeking capital. We originally thought that
we would see a lot of companies losing money that frankly did
not deserve the capital, but it has been quite the opposite.
There are many companies that we have been unable to help that
we would have liked to.
Unfortunately, for most small businesses the traditional
markets remain constrained or closed altogether. I have a few
thoughts on why that is still the case. Many companies reside
in the workout area of the banks because their revenues and
profits declined in the recession. And until that backlog
clears these companies will have a very difficult time growing
as all cash flow will be dedicated to paying down the bank
debt. I kind of call this the hangover from the credit crunch.
Bank consolidation, although there has not been as much in
recent years, continues to have a negative impact on lending to
small business. As a former banker, I understand the need for
process ratios, systems, credit scoring, but for us it is about
meeting management teams, listening to the story, and
determining if they deserve the capital. Regional and small
community banks are helping but it is not enough.
So herein lies the value of the SBIC program in a firm like
North Creek. In a year and a half we made seven loans to five
companies. These companies are located in Cincinnati, Ohio;
Austin, Texas; Elkhart, Indiana; Boulder, Colorado; and
Sanford, Florida. I find this statistic remarkable myself when
we put this data together, but these five companies have added
over 200 new jobs in really less than a year. That is a 20
percent increase over their base employment.
You can see the impact on a management team that now has
the capital to grow. If Todd Cleveland and Any Nemeth of
Patrick Industries and Elkhart were here they would tell you
that bank lending is still very tight. But they would thank you
for the SBIC program because of the capital they received from
us they are now in position to grow and prosper.
Randy and Rick Girard of Girard Environmental Services in
Florida will tell you that the capital that they received from
North Creek now puts them back on offense and they can now take
advantage of growth opportunities in the market.
Troy Augustine of iNET Interactive and Cincinnati would
tell you that the acquisitions he has made to more than double
the size of his company would not have been possible without
the SBIC program and North Creek.
Just a few thoughts on the future of the program. We need
to make sure we keep successful fund managers in the program
and Congressman Chabot's bill 3219 will help by raising single
and family fund limits. What happens is as funds grow they bump
up against single and fund limits and those need to be kept
modernized to keep up with funds as they grow so we keep them
in the program.
Secondly, we need to make sure banks continue to be active
investors in the program. Banks have been long-term supporters
of SBICs. It is a great partnership where we can work with
their lending staff and they can work with us. Let us make sure
they stay in the program in a big way.
And lastly, I just want to make sure you understand that by
raising taxes on carried interest, for small fund managers like
me, the only impact will be that I have less capital to put
into small businesses. The management fee that we earn pays for
the overhead of the business and we only make money on the
carried interest if our companies prosper and grow. So thank
you.
[The statement of Mr. Davis follows on page 52.]
Ms. Velazquez. Mr. Chairman, it is my pleasure to introduce
to the Committee Mr. Gary Grinnell. He is the president and CEO
of Corning Federal Credit Union located in Corning, New York.
He is testifying today on behalf of the National Association of
Federal Credit Unions, a leading advocate for America's Credit
Unions and all of their members. Welcome.
STATEMENT OF GARY GRINNELL
Mr. Grinnell. Good afternoon, Chairman Graves, Ranking
Member Velazquez, and members of the Committee. My name is Gary
Grinnell and I am testifying today on behalf of NAFCU. We
appreciate the opportunity to participate in this discussion
regarding financing programs under the Small Business
Administration.
At Corning Credit Union we have a well diversified business
lending portfolio with minimal delinquencies. For the last two
years we have been recognized as the top small community lender
by the Small Business Administration in the 34 countries that
make up the SBA district in which we are located. We started
our business services program in 2006 and have been an
important source of funding for small businesses in our areas
ever since.
During the recent economic downturn, many banks in our
market stopped lending to their clients. Corning Credit Union
has been able to fill the void and provide these businesses
with the funding they need to continue to grow and create jobs.
Since our SBA programs' inception, we have made several SBA
loans totaling over $8.2 million. Our average SBA loan is about
$116,000. We participate in the SBA 7(a), SBA Express, and
Patriot express loan programs.
Many of our SBA loans are for entrepreneurs wanting to
start a new business and create new jobs. A 2011 study
commissioned by the SBA indicated that credit union small
business lending has increased in terms of the percentage, both
before and during the recent financial crisis. Well, bank small
business lending has decreased. This demonstrates that credit
unions continue to meet our capital needs of our business
members, even during the most difficult times.
Unfortunately, when Congress passed the Credit Union Member
Access Act in 1998, it put in place an artificial cap on the
ability of credit unions to offer member business loans. It
should be noted that the non-guaranteed portions of SBA loans
count toward this arbitrary cap. At Corning Credit Union we are
approaching the cap and expect to reach it next year. This
would ultimately impact our ability to make member-business
loans, including SBA loans to the small businesses we serve.
Fortunately, there is bipartisan legislation in the form of
H.R. 1418, the Small Business Lending Enhancement Act pending
before the Financial Services Committee that would address this
issue. We urge the Committee members to support this important
bill.
Some NAFCU members tell us that they have scaled back on
the number of small SBA loans, as a response to comments
arising from SBA examinations. These credit unions feel that
the SBA's lender evaluation and scoring process disadvantages
those that make a number of small, lesser collateralized loans
as it compares them with those institutions making large, fully
collateralized loans in their evaluations and scoring. If this
evaluation process is not changed, it may eventually drive a
number of small loans from lenders' portfolios. NAFCU members
have requested that the SBA address this deficiency, and we
hope that the small businesses committee will be able to help
as well.
At Corning Credit we are an approved SBA lender. We are
fortunate that we have hired an experienced SBA lending officer
with knowledge of the system to help run our program. Still one
of the hurdles that we see is that our local SBA 7(a)
applications are sent off to national offices for review by
underwriters who do not understand our local economy. This
impersonal step adds time to the approval process for the small
business owner.
Furthermore, the lack of having local SBA underwriters to
interact with, they discouraged those lenders who do not have
the expertise that we do on their staff. This makes it harder
for those institutions that may want to do SBA loans but would
only have limited volume that does not justify hiring an in-
house SBA expert. As a result, some credit unions in this
situation may opt not to get involved in SBA lending at all.
There is a way that this concern can be addressed. NAFCU
supports the reintroduction of the Credit Union's Small
Business Lending Act. This bill would make it easier for credit
unions to become more involved in SBA lending and open the door
to more access to credit for those small businesses and
communities served by credit unions.
In conclusion, small businesses are the driving force of
our economy and the key to its success. The ability for them to
borrow and have improved access to capital is vital for job
creation. While the SBA's financing programs are providing much
needed opportunities to businesses, there are still obstacles
withholding the programs from their full potential. We are
confident this committee will do what is necessary to ensure
that these programs are successful.
Thank you for the opportunity to testify before you here
today. I would welcome any questions that you may have.
[The statement of Mr. Grinnell follows on page 57.]
Chairman Graves. Thank you to all our witnesses. And I have
one question for each of you actually. Out of curiosity, how
responsive is the SBA when--you come to them with problems
within the programs. How responsible are they to trying to
rectify those? And are they very open for, for suggestion, for
criticism?
Ms. Steed.
Ms. Steed. Yeah, I will start.
I would say that the SBA is more receptive today more than
ever. And undressing issues the community faces for lending. An
example would be the rewriting of the 504 refinance provision
we talked about earlier. That will have a dramatic effect on a
lot of these small businesses who have conventional loans that
are ballooning and it allows them to access their capital--
access their equity to use for capital. So anytime we have
given feedback to them they have been very responsive and very
helpful.
Chairman Graves. Ms. Robertson.
Ms. Robertson. I would certainly have to concur. The SBA
has been extraordinarily responsive anytime we have gone to
them with issues and concerns. It is a large agency. It may not
happen as quickly as we would like but I think they have tried
their best to listen and to actually come up with workable
solutions.
Mr. Davis. I found them to be very responsive. I think if
you talk to some people in our industry that find them to not
be responsive it is because of probably something on their end.
Mr. Grinnell. We have found them to be responsive, as well.
The main change that we have seen from a negative perspective
is the consolidation to the national offices, as I mentioned in
my report, as opposed to the local focus of where it used to
be.
Chairman Graves. How about when it comes to loans getting
approved. I have had people come to me and talk to me about the
fact that particularly if it is a new startup and they have got
construction issues in there and it is delayed in getting that
loan approved. As that delay spreads out then their costs go
up, contractor costs go up. Where is that breakdown? Is it SBA
approval? Is it just requirements that you have in the process?
In some cases it seems to just drag on and drag on and drag on
and then you have to, apply for more money on that loan, which
creates more problems because the costs are going up?
Mr. Grinnell. I can speak to that. We would certainly like
to see the process quicker. Again, I think it goes back to
trying to work with somebody out of one of the national offices
who does not understand the local economy. We've seen them be
less experienced people over the last couple of years and we
think that slows down the process. Sometimes it can take up to
three to four weeks to get a loan approved, and if we were
doing that loan in-house it would take a couple of days. So we
definitely see that as an area for improvement.
Chairman Graves. Ms. Robertson.
Ms. Robertson. From a 504 standpoint, we are now required
to provide construction bids at the time a 504 application is
submitted on a construction project for approval. A commercial
reasonable standard would be that construction documents are
provided at the time of a construction loan closing with the
bank rather than at the time of SBA approval. So that is
certainly delaying the approval process and likely causing
borrowers funds not only delaying their settlement on a
property but also if contractors are charging them fees for
those kinds of things they are having to pay those in advance
of having a loan approval.
Chairman Graves. Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Ms. Steed, you heard a lot of the members here asking
questions to the administrator regarding the need to have more
smaller loans, those defined at $150,000 or less. And since the
Jobs Act increased the maximum SBA loan size to 5 million, the
percentage of smaller loans has declined from 17 percent of
total lending dollars in 2009 to just 8 percent in 2011. And
the administrator, when I asked why this is happening, she said
that banks are not making those smaller loans. My question to
you is why.
Ms. Steed. Well, I cannot speak for all banks. I can only
speak for my bank and the members that I sit on with the Small
Business Committee with the CBA. And we are not finding it
difficult to fund those customers. It is an opportunity that we
have through our 7(a) and our express programs. It is a core
program we already have in play today. We also have a small
loan advantage. We do not participate in that one separately at
Regions because we have the core programs that accomplish the
same thing. And so we are not finding that to be a challenge.
It is just a matter of incenting them to kind of get in the
game, make sure they have the business plan to support the
credit.
Ms. Velazquez. The SBA loans that your bank makes, what is
the percentage of smaller loans, under 50,000 or less?
Ms. Steed. I do not have it off the top of my head.
Ms. Velazquez. Would you be able to find it?
Ms. Steed. I could. I absolutely could do that for you.
Yes, ma'am.
Ms. Velazquez. Thank you.
Ms. Robertson, last week the SBA released final rules for
the 504 Refinancing program. We do not allow CDC lenders to
make loans in excess of $12.5 million with no requirement that
they create a single job. And as we all know, with this job
loss economy, the challenge that we have is job creation. So
given that fact, was it a good idea for the agency to abandon
this critical element of the 504 program?
Ms. Robertson. I think the intention here is to save
businesses that might not be able to find financing or
alternatively provide a financing structure that is more
appropriate to the business, improving their cash flow so that
hopefully they can then add jobs.
Ms. Velazquez. The intent of the program, 504, has always
been economic development and job creation. And to me this
flies in the face of the original purpose of 504. The fact that
it requires to create jobs does not take away the debt
refinancing, even if you tell me, well, it did not create new
jobs but at least we are preserving.
Mr. Davis, the SBIC program has had proven success at
helping later stage businesses but has struggled to raise early
stage and startup firms since the participating securities
program was eliminated. Are there ways that the debenture
program could be adapted to help meet the needs of earlier
stage businesses?
Mr. Davis. Well, I think the first comment, the debenture
program, because it has a current pay interest feature we need
to be sure that we have portfolio companies that are paying our
investments current.
Now, some SBIC firms could take lower leverage and so they
could sprinkle in some additional equity investments that could
go towards more early stage. But the classic 2:1 leverage,
which we are, it is really incumbent upon us to stay away from
those. We need to be financing companies that are just going to
the next level. So I think lower leverage could be an avenue.
And maybe, you know, just relook at what was wrong with the
participating securities program and, you know, look at it
retrospectively and say what could we have done differently?
So.
Ms. Velazquez. Mr. Grinnell, in your testimony you
emphasized the continued need for credit, especially among
businesses who are seeking smaller loans. Do you believe that
the SBA large bank lenders overemphasize more profitable loans,
like loans to established businesses with larger credit--
greater credit needs to the detriment of smaller firms?
Mr. Grinnell. Well, in terms of our credit union, we like
to make small loans to help your members. And I think credit
unions in general like to make small loans. We have seen very
strong demand throughout the entire financial crisis. As I
mentioned before, we are almost at our member business loan cap
and we are going to have to stop lending. From what we heard
from our members the banks have turned them away. We have
helped entrepreneurs star started with very small loans that
the banks were not interested in. And those members are now
hiring additional individuals, additional employees in our
communities and making a real positive impact in our
communities.
Ms. Velazquez. Ms. Steed, I do have some numbers here about
how your bank increased by 58 percent in terms of the average
of your loan by 146. It seems to me that you are making much
larger loans at the expense of smaller loans. And I will
encourage the bank at least when you are doing 7(a) loans that
you tackle the gap that exists because you have a
responsibility. You are participating in a program that is a
guaranty by the federal government. And the same is true with a
lot of the other banks.
Ms. Robertson, beginning this year, taxpayers will be
paying $90 million to subsidize 504 loans. In the past, some
CDCs have provided their executive staff with salaries and
benefits that defy their supposed status as a non-profit
company. And I just would like to hear--we know that IG did an
investigation. What is it that your members are doing--your
company is doing to ensure that this type of practice does not
take place any more. You have executives making or at least
they were making $800,000 in salaries.
So I would like to hear what you are saying because we have
to protect the taxpayers' dollars.
Ms. Steed. Absolutely. I think our trade association is
extraordinarily concerned about those practices. We have
provided guidance to our members on IRS requirements for non-
profits, on board governance. We have talked to SBA about
oversight and enforcement. Unfortunately, the trade association
is not really an enforcement or police vehicle but is doing its
best to provide training to members on those topics.
Ms. Velazquez. Well, training them to have the discussion
because I know that you cannot enforce how much salary you are
going to provide any of the executives but it is a good PR that
it might benefit the entire association.
Ms. Steed. Absolutely.
Chairman Graves. Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman.
A few quick questions just to clarify and make sure I heard
correctly the first time through. Ms. Steed, did you say that
your organization had doubled SBA lending staff over the course
of the last period of time?
Ms. Steed. Yes, sir.
Mr. Mulvaney. Are they--do they specialize in SBA lending
or are they doing SBA lending part of the time and then regular
commercial lending the rest of the time?
Ms. Steed. No, they specialize in SBA lending. It is a
build out for underwriting, paralending, packaging, everything,
so that the process is streamlined. We are reeducating our
relationship managers out in the field with this new--we have
this streamline process because that is a negative connotation.
We heard it earlier today when Administrator Mills was
speaking. It is cumbersome. So what we are trying to do as an
industry and as a bank is streamline it so when you have
opportunities you do not have to reinvent the wheel every time.
So that is dedicated SBA.
Mr. Mulvaney. And I guess one of the things, Regions is a
large bank. They have a presence in my district.
Ms. Steed. They are a regional bank.
Mr. Mulvaney. They are good folks, right? I mean, I am from
South Carolina. You all have a presence there.
Ms. Steed. Yes.
Mr. Mulvaney. And I guess what I am struggling with is--
here is my question. In your opinion, has SBA lending gotten to
the point where it is so complex that you have to do that in
order to do it in a cost-effective manner?
Ms. Steed. I think the impression is that is the impression
for your borrowers out there and the bankers. So reeducating
them is important. You can streamline it. You just have to get
back out and reeducate because that perception is out there.
Mr. Mulvaney. Gotcha. Thank you very much.
You also mentioned I think that the SBA now allows you to
use your own notes. Is that right?
Ms. Steed. For the 7(a) express program. We are suggesting
that could be something we could look at for all of the core
programs, to streamline it.
Mr. Mulvaney. And I used to do some corporate work. Tell
folks why that is important.
Ms. Steed. You do not have to duplicate your efforts. It is
one application one time. It goes through the process easier.
When you have extra documentation from the SBA side you seem to
be duplicating your efforts. And this just makes it very, very
convenient, very fast, and you will get onto getting that loan
funded.
Mr. Mulvaney. And the standardization, them allowing you to
use your own documentation, which is absolutely critical, is it
just in 7(a) or are you seeing it in other programs as well?
Ms. Steed. Right now I believe it is just 7(a) Express and
we are trying to get that broadened. We are making that
suggestion.
Mr. Mulvaney. Gotcha. Thank you very much.
Mr. Grinnell, you said some of your members, and again, I
come from an area, textile communities, very strong credit
union presence where I am from. And you said that some of your
members have scaled back on some of their smaller loans. Is
that correct? Did I hear that right? The number of loans and so
forth?
Mr. Grinnell. I said that--well, we have very strong
demand. We are continuing to make a very large number of small
loans as a credit union. What I have heard from other credit
unions is based on the way that the SBA does their risk ratings
and it does not really compare apples to apples; it compares
institutions that do a lot of small loans with institutions
that do a very few large loans. And based on that, so if you
have a lot--if you have more small loans that go past due, that
can basically hurt your rating. So it could potentially
discourage institutions from making the smaller loans.
Mr. Mulvaney. Is there a fix to that?
Mr. Grinnell. I believe they should change the risk rating
system.
Mr. Mulvaney. Give me an example. I am not familiar with
the risk rating system that they use.
Mr. Grinnell. Well, first of all, I should say that that is
also what we have heard in talking with other credit unions,
other NAFCU members, as a credit union, Corning Credit Union,
we have not had a particular challenge with this issue, so I am
not an expert on exactly, you know, what needs to change but,
you know, we have definitely heard that--and it just does not
make--I mean, just common sense approach. You know, you are
comparing apples--you are not comparing apples to apples.
Mr. Mulvaney. I gotcha. Mr. Davis, I think I heard you say
that there was some level of consolidation going on within your
industry and that I think you said that that led to less small
business lending. Is that accurate?
Mr. Davis. You know, the statistics probably may or may not
support that. What it does though is it significantly changes
it.
Mr. Mulvaney. In what fashion?
Mr. Davis. Well, for example, if you have fewer assets, a
service company, for example, a lot of the larger banks now,
they will be happy to give you an asset-based loan. Very
simple, very easy to standardize. So it is different. I am sure
the large bank would say we are making small business loans,
but they are not making small business loans to companies that
have a wrinkle in their past and, boy, a lot did. I call Asset
Light companies service companies. Specialty manufacturing
companies. Those are very difficult for the large banks to
make.
So, you know, again, we are in the market day in and day
out. We are finding--I will give you an example. We had a
portfolio company of ours that went out to the market. Great
company. Very light in terms of assets. They went out to 10
banks, got 1 proposal. Great company but it just did not have--
it did not fit the box. So if you do not fix the box, you are
in trouble. And so you are going to need a firm like us to step
in and work with a bank that can do a small piece that is
simple straightforward and does not have a wrinkle to it.
Mr. Mulvaney. Thanks very much. Thank you, Mr. Chairman.
Mr. Chabot. Thank you very much, Mr. Chairman.
Mr. Davis, I just have a couple questions. First, how will
an increase in the SBA leverage limits for SBICs as proposed in
the legislation that we have introduced, the H.R. 3219 as you
had mentioned, how will that affect the ability to provide
capital to more small businesses?
Mr. Davis. Well, what happens, so you get fund managers
like ourselves. This is our first fund. It is a $70 million
fund. If we are successful, and I hope we are and I am
confident we will be, we will go out for a second fund. We will
probably be able to raise more capital in the second fund. So
our family of funds can start bumping up into an aggregate
limit that the SBIC program currently has. In addition, there
are single aggregate limits and so there are a lot of
successful fund managers that start in the SBIC program and
then they graduate out of it and move on to a non-SBIC program.
And as they move out they may or may not stick with small
business. They may move on. So by expanding that family of
funds' limit you will keep more managers dedicated to small
business.
Mr. Chabot. Thank you. And you had mentioned, I think you
have 70 million available funds and I think you had seven loans
out to five companies. How much of the 70, for example, would
you have used up in those loans, approximately?
Mr. Davis. 12.3 million. So we are making--again, we are on
the small end of the range for SBICs, and I think that is a
really good thing, especially for our market. There is a lot of
small business owners that do not need $10 million or $20
million. We are making--our average loan size is about $1.8
million. And we have got a half million dollar loan. It was our
first loan. It turned out to be a great loan. The company now
has made two subsequent acquisitions and they have doubled the
number of employees they have.
Mr. Chabot. That is great. Now, as far as the--I think you
said you had about 350 companies that you had looked at.
Mr. Davis. Correct.
Mr. Chabot. Those are actually applications that they had
gone through the process or is that what it was basically?
Mr. Davis. Yeah. We manage a pipeline database so every
transaction that we evaluate is logged and entered. So we will
have received information on the company. If we just get a
phone call and it is not a fit, we do not enter it into the
pipeline. So I think we put in our business plan to the SBA
that we would review 200-250 business plans in a year and it is
almost doubled that.
Mr. Chabot. Okay.
Mr. Davis. And the other interesting part is we thought we
would get a lot of just no right out of the gate but we are not
seeing that. We are seeing a lot of companies that are making
money, that have a business, that deserve capital. Now, you
know, we pick and choose the ones we think are best for our
fund but we are seeing a high percentage of very viable
candidates.
Mr. Chabot. What were the other ones missing or wanting?
You know, if there were only seven loans and you had, you know,
350 applications and they were good, you know, what----
Mr. Davis. It just may be the structure. It may be the
business. Again, you know, we have got private investors so our
job is to take the best of what we see and we do that. It could
be we lost it to a competitor. Somebody else saw it differently
than we did and were willing to price it differently. There is
a whole host of--we have some bias. You know, we have been in
this industry a long time so I have seen certain industries be
good candidates for loans and some be not quite so good
candidates for loans. And so we make that distinction as well.
Mr. Chabot. Okay. Thank you.
This is a little broader question and I would be happy--
anybody who might want to take this one on. You know, there has
been a lot of talk lately, whether it is the president's Jobs
Bill or talk that was related to the debt ceiling debate that
occurred last summer and various things about increasing taxes
in one capacity or another on investors. Or, you know, the top
1 percent are not paying their fair share but I do not think it
is really the top 1 percent they are talking about. They are
talking about a lot bigger percent of the people than that that
allegedly is not paying their fair share. What affect would
actually increasing taxes, especially in these economic times?
What sort of affect would that do you believe have on the
economy overall and small business investing in particular?
Ms. Steed. That is actually a topic that, you know, we
watch in the banking industry quite closely. You know, we were
starting to see an increase in our application volume this
summer and then when the media started paying a lot of
attention to the debt ceiling discussions that were happening
you could literally just watch the application volume just
drop. And so what is happening is small business owners are
tuning in to anything that creates a level of uncertainty and
they are responding to it by holding back, maybe sitting on the
sidelines, not expanding, not hiring new people. They have
learned to do, you know, more with less because they are just
not sure what is happening. So anything we could do to keep
certainty around it. That is taxes, that is any regulation.
That is anything that is coming out that creates a level of
unknown, they are doing a wait and see and that is not helping
us to get them motivated to get back in the game.
Mr. Chabot. Okay. Thank you. Anybody else, Mr. Chairman, if
they have time to answer it if anyone wants to or are we----
Mr. Davis. I would just chime in we heard the same thing
from our business members. It is just the uncertainty, whether
it is taxation or regulation, and it just, you know, it puts
them more on the sidelines from a borrowing expanding
perspective. So, you know, we definitely hear evidence of that.
Mr. Chabot. Thank you very much. I yield back, Mr.
Chairman.
Ms. Velazquez. Yes. I have a question for Mr. Grinnell.
You told us that your credit union hired an expert, right,
on 7(a)?
Mr. Grinnell. Correct.
Ms. Velazquez. So how could we encourage other credit
unions who might not have maybe the resources to hire someone
to be able to participate in the SBA loan programs?
Mr. Grinnell. Well, I think there are a couple different
ways. One of them I mentioned is the increasing of the MBL cap
because credit unions can only lend up to 12.25 percent of
their assets in business loans. So that in itself does not
incent credit unions to get into the business lending game.
Only about 2,200 credit unions out of 7,300 offer business
loans. So that in itself would help credit unions do more SBA
lending. The other would be the reintroduction and passage of
the Credit Union Small Business Lending Act. There are
provisions in there that are designed to encourage more SBA
lending.
Back to your comment about our expertise. If we did not
have the expertise on staff we would not be doing the number of
SBA loans that we are doing today. We would not be willing SBA
awards if we did not have that expertise on staff. It is
critical because of the paperwork-intensive process.
Ms. Velazquez. Let me ask you a question or for you to
clarify to me. The guaranty portion of SBA loans do not count
against the membership cap, right?
Mr. Grinnell. That is correct.
Ms. Velazquez. Okay. Thank you.
Chairman Graves. With that I want to thank all of you for
participating today. This has obviously been a very
enlightening and timely hearing as a matter of fact.
But with that I would ask unanimous consent that all
members have five legislative days to submit statements and
supporting materials for the record. And without any objection
it is so ordered. And with that the hearing is adjourned. Thank
you.
[Whereupon, at 2:26 p.m., the Committee hearing was
adjourned.]
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